-----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, VjLqvB6H7YdKgxsvPpaBY3HZwMpZJO6T2aGKJNyQy9EmRWhs91xkJ5lK/mBQpDvU IC+/rloF10dueWKxlpyOig== 0000950144-01-004438.txt : 20010402 0000950144-01-004438.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950144-01-004438 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AARON RENTS INC CENTRAL INDEX KEY: 0000706688 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 580687630 STATE OF INCORPORATION: GA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13941 FILM NUMBER: 1588145 BUSINESS ADDRESS: STREET 1: 3001 N FULTON DR NE STREET 2: 1100 AARON BLDG CITY: ATLANTA STATE: GA ZIP: 30363 BUSINESS PHONE: 4042310011 MAIL ADDRESS: STREET 1: 309 E. PACES FERRY ROAD., N.E. STREET 2: 3001 N FULTON DRIVE NE CITY: ATLANTA STATE: GA ZIP: 30305-2377 10-K 1 g67848e10-k.txt AARON RENTS, INC. 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED COMMISSION FILE NO. December 31, 2000 0-12385 AARON RENTS, INC. (Exact name of registrant as specified in its charter) GEORGIA 58-0687630 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 309 E. PACES FERRY ROAD, N.E. ATLANTA, GEORGIA 30305-2377 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 231-0011 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS Common Stock, $.50 Par Value Class A Common Stock, $.50 Par Value Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of March 22, 2001: $231,355,099 See Item 12. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
SHARES OUTSTANDING AS OF TITLE OF EACH CLASS MARCH 22, 2001 ------------------- ------------------------ Common Stock, $.50 Par Value 16,041,161 Class A Common Stock, $.50 Par Value 3,829,506
DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2000 Annual Report to Shareholders for the year ended December 31, 2000 are incorporated by reference into Part II of this Form 10-K. Portions of the registrant's definitive proxy statement for the 2001 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K. =============================================================================== 2 PART I. ITEM 1. BUSINESS GENERAL Aaron Rents, Inc. is a U.S. leader in the sales & lease ownership and rent-to-rent industries with 554 stores in 42 states and Puerto Rico. The Company offers both individual and business customers a wide range of residential and office furniture, accessories, consumer electronics, and household appliances for lease, rental, and sale. The Company's major operating divisions are the Aaron's Sales & Lease Ownership division, (formerly Aaron's Rental Purchase division) the Aaron Rents' Rent-to-Rent division, and the MacTavish Furniture Industries division, which manufactures much of the furniture rented and/or sold in the Company's stores. Aaron Rents' strategic focus is on expanding its higher growth sales & lease ownership business while also growing its rent-to-rent business in selected markets. At December 31, 2000, Aaron Rents had 361 Company-operated stores and 193 franchised stores in 42 states and Puerto Rico. There were 263 Company-operated sales & lease ownership stores in its Aaron's Sales & Lease Ownership division, 193 Aaron's Sales & Lease Ownership franchised stores and 98 rent-to-rent stores in its Aaron Rents' Rent-to-Rent division. The Aaron's Sales & Lease Ownership division focuses on providing durable household goods to lower to middle income consumers with limited or no access to traditional credit sources such as bank financing, installment credit or credit cards. The Company's sales & lease ownership program allows customers to obtain merchandise without incurring additional debt or long-term obligations. Management believes that the segment of the U.S. population which its sales & lease ownership division targets is large and that the needs of these customers generally are underserved. In 1992 the Company began franchising Aaron's Sales & Lease Ownership stores in selected markets where the Company has no immediate plans to enter. The Company believes that its franchise program allows the Company to grow more quickly, increase its name exposure in new markets and achieve economies of scale in purchasing, manufacturing and advertising for its sales & lease ownership stores. The Company opened 40, 41 and 47 franchised sales & lease ownership stores in 1998, 1999 and 2000, respectively. The Aaron Rents' Rent-to-Rent division is well-positioned to take advantage of the growing demand for furniture rental services. Management believes this demand to be driven by continued growth in employment, the increasing importance of flexibility and outsourcing to American businesses and the impact of a more mobile and transitory population. Business customers, which represent an increasing portion of rental customers, enter into leases for office furniture to meet seasonal, temporary or start-up needs. Business customers also lease residential furniture in order to provide furnishings for relocated employees or those on temporary assignment. The Company is the only major rental furniture company in the United States that manufactures its own furniture. By manufacturing its own specially designed residential and office furniture through its MacTavish Furniture Industries division, the Company enjoys an advantage over many of its competitors. Manufacturing enables the Company to control the quality, cost, timing, styling and quantity of its furniture rental products. The Company operates six furniture plants, four bedding facilities and one lamp manufacturing facility, which supply approximately one half of the furniture and related accessories rented or sold by the Company. The Company has grown significantly in recent years. Its growth is attributed to the opening of Company-operated and franchised sales & lease ownership stores, as well as to the expansion of its rent-to-rent business and selected acquisitions. Total revenues have increased from $237.8 million for calendar year 1995 to $502.9 million for calendar year 2000, and earnings before income taxes increased from $21.3 million in calendar year 1995 to $43.9 million in 2000, representing a 16.2% and 15.6% compound annual growth rate in the Company's revenues and earnings before income taxes, respectively. The increase in revenues was driven by a significant increase in sales & lease ownership revenues, which increased from $90.1 million for 1995 to $325.8 million for 2000, representing a 29.3% compound annual growth rate. The Company believes it possesses a valuable brand name in the rental business, as well as operating characteristics which differentiate it from its competitors. For instance, the Company's sales & lease ownership concept is unique in offering 12-month lease ownership agreements, larger and more attractive store showrooms and a wider selection of merchandise. In the rent-to-rent business, the Company believes that its ability to deliver residential and office furniture and equipment to its customers quickly and efficiently gives the Company an advantage over furniture retailers who often require several weeks to effect delivery. By having its own 1 3 manufacturing capabilities, an extensive distribution network and sophisticated management information systems, the Company is well-positioned to meet the distinct needs of its sales & lease ownership and rent-to-rent customers. INDUSTRY OVERVIEW The Rent-to-Own Industry According to the Association of Progressive Rental Organizations ("APRO"), the national trade association representing the rent-to-own industry, there are approximately 8,000 rent-to-own stores in the United States. Industry-wide revenues are believed to be approximately $5.0 billion. In a typical rent-to-own transaction, the customer has the option to acquire merchandise over a fixed term, usually 18 to 24 months, by making weekly rental payments. The customer may cancel the agreement at any time by returning the merchandise to the store, with no further rental obligation. The average rental period in the industry is about four months, because the majority of customers do not rent the item to the full term of the agreement. If the customer rents the item to the full term, he obtains ownership of the item, though he has the option to purchase it at any time. The rent-to-own industry is a growing segment of the retail industry that offers an alternative to traditional methods of acquiring furniture, electronics and appliances. The rent-to-own concept is particularly popular with consumers who are unable to pay for merchandise in cash or who lack the credit to qualify under conventional financing programs. It is also popular with consumers who, despite good credit, do not wish to incur additional debt, have only a temporary need for the merchandise, or desire to try out a particular brand or model before purchasing it. Historically, electronic goods have been the dominant product category rented and sold in the industry although furniture items are growing in popularity. The Company believes its sales & lease ownership concept differs significantly from the typical rent-to-own program. Compared to typical rent-to-own stores, Aaron's Sales & Lease Ownership stores offer shorter agreement terms which are payable on a monthly basis and have generally lower total payments to acquire merchandise. Aaron's Sales & Lease Ownership stores offer a larger selection of merchandise in general and of furniture merchandise in particular, and have a larger and more visually appealing store layout. The Company believes that its sales & lease ownership customers demand both higher quality merchandise and more competitive pricing on total agreement terms compared to the typical rent-to-own customer. The Company's sales & lease ownership transactions differ from sales by home furnishings retailers in that sales & lease ownership allows the option, but not the obligation, to purchase merchandise while paying a similar "all-in" agreement price. Sales & lease ownership allows the customer to have the item serviced free of charge or replaced at any time during the rental agreement, and allows the Company to re-rent an item to another customer if the agreement does not go to term. The Company's sales & lease ownership operations differ from the rent-to-rent business. A typical sales & lease ownership customer, while usually lacking the cash or credit resources to acquire merchandise, desires the option of ownership and may have the intention to utilize sales & lease ownership to achieve ownership. Accordingly, in sales & lease ownership transactions, the customer is willing to pay a higher monthly payment for the ownership option, as compared to the rent-to-rent customer. Typically, the Company's sales & lease ownership customers are more style and brand name conscious than rent-to-rent customers who regard the merchandise as temporary. Aaron's Sales & Lease Ownership stores are attractively appointed and are typically in or near a shopping center strategically located near the residences of its target customers, as opposed to the rent-to-rent store whose typical location is in an office park that services destination customers from a broad geographical area. The Rent-to-Rent Industry The furniture component of the rent-to-rent industry is estimated to be greater than $600 million in annual rental revenues. The demand for rental products is believed to be related to the mobility of the population, which relies upon rented merchandise to fulfill temporary needs. The industry is highly competitive and consolidating, with only a handful of companies accounting for a substantial share of the market. The rent-to-rent industry serves both individual and business customers who generally have immediate, temporary needs for office or residential merchandise but who generally do not seek to own the merchandise. Residential merchandise is rented to individuals seeking to rent merchandise for their own homes and apartments, apartment complex managers seeking to provide furnished apartments, and third party companies that provide interim housing for their corporate clients. Office merchandise is rented by 2 4 customers ranging from small businesses and professionals who are in need of office furnishings but need to conserve capital, to large corporations with temporary or seasonal needs. In the typical rent-to-rent transaction, the customer agrees to rent one or more items for a minimum of three months, which may be extended by the customer on a month-to-month basis. Although many rental agreements give the customer the option of purchasing the rented item, most customers do not enter into the transaction with the desire to own the rented merchandise. GROWTH AND OPERATING STRATEGIES Aaron Rents is expanding its business through growth strategies that focus on the opening of additional Company-operated rent-to-rent and sales & lease ownership stores, and franchised sales & lease ownership stores. In addition, the Company seeks to enhance profitability through operating strategies which differentiate the Company from its competitors and improve operating efficiencies. The key elements of the Company's growth and operating strategies are summarized below. Growth Strategies - - EXPAND COMPANY-OPERATED SALES & LEASE OWNERSHIP OPERATIONS IN SELECTED GEOGRAPHIC MARKETS. The Company's strategy is to open sales & lease ownership stores in the Company's existing and selected new geographic markets where it can cluster stores to realize the benefits of economies of scale in marketing and distribution and other operating efficiencies. In accordance with this strategy the Company acquired at the end of 2000 a total of 26 store locations formerly operated by one of the nation's largest furniture retailers, providing the opportunity to accelerate store-opening plans in the first two quarters of 2001 by serving a customer base already familiar with those locations. - - EXPAND AARON'S SALES & LEASE OWNERSHIP FRANCHISE PROGRAM. The Company uses its franchise program to place Aaron's Sales & Lease Ownership stores primarily in selected markets where the Company has no immediate plans to enter. The Company believes that its franchise program allows the Company to grow more quickly and increase its name exposure in new markets. In addition, the larger number of systemwide sales & lease ownership stores enables the Company and its franchisees to realize economies of scale in purchasing, manufacturing and advertising for its sales & lease ownership stores. Franchise fees and royalties also represent a growing source of revenues for the Company. - - EXPAND RENT-TO-RENT OPERATIONS. The Company believes that there are growth opportunities in the rent-to-rent market, particularly in the business sector. In 2000, Rent-To-Rent's office division had a large increase of customers that leased and purchased office systems. The division has adapted its sales and marketing efforts to gain additional share of the office division market. The Company believes that its rent-to-rent business will continue to provide the Company with cash flow to finance a significant amount of the planned expansion of the Aaron's Sales & Lease Ownership division. Operating Strategies - - PROVIDE HIGH LEVELS OF CUSTOMER SERVICE AND SATISFACTION. The Company demonstrates its commitment to superior customer service by providing large, attractive and conveniently located showrooms, offering a wide selection of quality merchandise at competitive prices and flexible acquisition options, and providing customers quick delivery of rented merchandise, in many cases by same or next day delivery. The Company has established an employee training program designed to enhance the customer relations skills of its employees. - - DIFFERENTIATE AARON'S SALES & LEASE OWNERSHIP CONCEPT. The Company believes that the success of its sales & lease ownership operations is attributable to its distinctive approach to the business that sets it apart from its rent-to-own and credit retail competitors. The Company has pioneered innovative approaches to meeting changing customer needs that differ from those of its competitors - such as offering 12-month lease ownership agreements which result in a lower "all-in" price, larger and more attractive store showrooms, and a wider selection of merchandise. Most sales & lease ownership customers make their payments in person, and the Company uses these frequent visits to strengthen customer relationships and make sales & lease ownership customers feel welcome in the Company's stores. - - TARGET RENT-TO-RENT BUSINESS CUSTOMERS. The Company has successfully operated rent-to-rent stores for over 40 years, using its superior customer service, prompt delivery and wide selection of rental furniture to attract a growing number of business customers. The Company believes that its ability to deliver furniture and equipment to its business customers quickly and efficiently gives the Company an advantage over general furniture retailers who often require several weeks to effect delivery. In addition, the location of a warehouse next to each showroom permits the store manager to exercise greater control over inventory, merchandise condition and pickup and deliveries, resulting in more efficient and consistent service for the customer. 3 5 - - MANAGE FURNITURE REQUIREMENTS THROUGH MANUFACTURING AND DISTRIBUTION. The Company believes that its furniture manufacturing capability and distribution center network give it a strategic advantage over its competitors by enabling the Company to control the quality, cost, timing, styling, durability and quantity of a substantial portion of its rental furniture merchandise. This control allows the Company to offer prompt delivery of rented furniture and provides the Company a reliable source of rental furniture. - - UTILIZE PROPRIETARY MANAGEMENT INFORMATION SYSTEMS. The Company has developed proprietary computerized information systems to systematically pursue cash collections and merchandise returns and to match inventory with demand. Each of the Company's stores, including franchised sales & lease ownership stores, is linked by computer directly to corporate headquarters, which enables headquarters to monitor the performance of each store on a daily basis. Its separate systems are tailored to meet the distinct needs of the Company's sales & lease ownership and rent-to-rent operations. OPERATING DIVISIONS Sales & Lease Ownership - Aaron's Sales & Lease Ownership The Company established its Aaron's Sales & Lease Ownership division in 1987. At December 31, 2000, there were 263 Company-operated Aaron's Sales & Lease Ownership stores in 24 states and 193 franchised Aaron's Sales & Lease Ownership stores in 37 states. The Company has developed a distinctive concept for its Aaron's Sales & Lease Ownership stores with specific merchandising selection and store layout, pricing and agreement terms for the customers it seeks to attract. The Company believes that these features create a store and sales & lease ownership concept that is significantly different from the operations of most other rent-to-own stores, the Company's traditional rent-to-rent business, and the operations of home furnishings retailers who finance merchandise. The typical Aaron's Sales & Lease Ownership store layout consists of a combination showroom and warehouse of 8,000 to 10,000 square feet, with an average of approximately 9,000 total square feet. In selecting new locations for Aaron's Sales & Lease Ownership stores, the Company generally looks for sites in well-maintained strip shopping centers strategically located within ten miles of established working class neighborhoods and communities with good access. Many of the Company's stores are placed near existing stores of competitors. Each sales & lease ownership store maintains at least two trucks and crews for pickups and deliveries, and generally offers same or next day delivery for addresses located within 15 miles of the store. The Company emphasizes a broad selection of brand name products for its electronics and appliance items, and offers customers a wide selection of furniture, including furniture manufactured by the Company's MacTavish Furniture Industries division. Aaron's Sales & Lease Ownership stores also offer computers and jewelry. Aaron's Sales & Lease Ownership stores structure the pricing of merchandise to be less expensive than similar items offered by other rent-to-own operators, and substantially equivalent to the "all-in" contract price of similar items offered by home furnishings retailers who finance merchandise. Approximately 79% of the Company's sales & lease ownership agreements have monthly payments as compared to the industry standard weekly payments, and most monthly agreements are for 12 months compared to the industry standard of 18 to 24 months of weekly payments. Approximately 40% of Aaron's Sales & Lease Ownership agreements go to term in which the customer obtains ownership of the merchandise in contrast to an industry average of less than 25%. The merchandise from the agreements that do not go to term is either re-rented or sold. Aaron's Sales & Lease Ownership Franchise Program The Company began franchising Aaron's Sales & Lease Ownership stores in selected markets in 1992, and has continued to attract many franchisees. It is not anticipated that franchised stores will compete with Company-operated stores, as franchises are primarily awarded in markets into which the Company has no presence and no current plans to expand. As of December 31, 2000, 339 franchises had been sold to 68 franchisees, and 193 franchise stores were open. The Company believes that its relations with its franchisees are good. Franchisees are approved on the basis of the applicant's business background and financial resources. The Company generally seeks franchisees who will enter into development agreements for several stores, although many franchisees currently operate a single store. Most franchisees are involved in the day-to-day operations of the stores. 4 6 The Company enters into franchise agreements with its franchisees to govern the opening and operation of franchised stores. Under the Company's current agreement, the franchisee is required to pay a franchise fee of $35,000 per store. Agreements are for a term of 10 years (with one 10-year renewal option) and require payment to the Company of a royalty of 5% of weekly cash collections. The Company assists each franchisee in selecting the proper site for each store. Because of the importance of location to the Aaron's Sales & Lease Ownership concept, one of the Company's Pre-Opening Directors visits the intended market and helps guide the franchisee through the selection process. Once a site is selected, the Company helps in designing the floor plan, including the proper layout of the showroom and warehouse. In addition, the Company provides assistance in assuring that the design and decor of the showroom is consistent with the Company's requirements. The Company also leases the exterior signage to the franchisee, and assists with placing pre-opening advertising, ordering initial inventory and obtaining delivery vehicles. The Company has an arrangement with a syndicate of banks to provide financing to qualifying franchisees to assist with the establishment and operation of their stores. A primary component of the financing program is an inventory financing plan which provides franchisees with the capital to purchase inventory. For qualified established franchisees, the Company has arranged for these institutions to provide a revolving credit line to allow franchisees the flexibility to expand. The Company guarantees a portion of amounts outstanding under the franchisee financing programs. All franchisees are required to complete a comprehensive training program and to operate their franchised Aaron's Sales & Lease Ownership stores in compliance with the Company's policies, standards and specifications, including such matters as decor, rental agreement terms, hours of operation, pricing and merchandise. Franchisees are not required to purchase their rental merchandise from the Company, although many do so in order to take advantage of bulk purchasing discounts and favorable delivery terms. Many also purchase their rental furniture from the Company's MacTavish Furniture Industries facilities. The Company conducts a financial audit of its franchise stores every six to 12 months and also conducts regular operational audits, generally visiting each franchise store almost as often as it visits its Company-owned stores. In addition, the Company's proprietary management information system links each store to corporate headquarters. Rent-to-Rent - Aaron Rents and Sells Furniture The Company has been in the rent-to-rent business for over 40 years and is the second largest furniture rent-to-rent company in the United States. The core rent-to-rent business accounted for approximately 35% of the Company's total revenues for the year ended December 31, 2000. The Company rents new and rental return merchandise to both the individual and the business segments of the rent-to-rent industry, with a growing focus on rentals of residential and office furniture to business customers. As of December 31, 2000, the Company operated 98 rent-to-rent stores in 21 states. The Company's typical rent-to-rent store layout consists of a combination showroom and warehouse comprising about 19,000 square feet. Each residential showroom features attractive displays of dining-room, living-room and bedroom furniture in a number of styles, fabrics, materials and colors. Office rental showrooms feature lines of desks, chairs, conference tables, credenzas, sofas and accessories. The Company believes that having a warehouse next to each showroom permits the store manager to exercise greater control over inventory, merchandise condition and pickup and deliveries, resulting in more efficient and consistent service for the customer. Items held for rent, whether new or rental return, are available for purchase and lease purchase at all rent-to-rent stores. Each rent-to-rent store generally offers next day delivery for addresses located within 50 miles of the store, and maintains at least one truck and a crew for pickups and deliveries. The Company believes that its ability to obtain and deliver office furniture and equipment to its customers quickly and efficiently gives the Company an advantage over general office furniture retailers who often require several weeks to effect delivery. The Company generally sells rental return merchandise at its stores at or above its book value (cost less depreciation) plus selling expenses, a price which is usually considerably lower than the price for comparable new merchandise. Most merchandise held for sale in stores may also be acquired through a lease purchase option. Because new merchandise is sold at the same location as rental return merchandise, the Company has the opportunity to sell both new and rental return merchandise to customers who may have been attracted to the store by the advertising and price appeal of rental return merchandise. The ability to sell new and rental return merchandise at the same location allows for more efficient use of facilities and personnel and minimizes overhead. 5 7 FURNITURE MANUFACTURING The Company believes that its manufacturing capability gives it a strategic advantage over its competitors by enabling the Company to control the quality, cost, timing, styling, durability and quantity of its furniture rental products. As the only major furniture rental company that manufactures its own furniture, the Company believes its 707,000 square feet of manufacturing facilities provide it more flexibility in scheduling production runs and in meeting inventory needs than rental companies that do not manufacture their own furniture and are dependent upon third party suppliers. The Company's MacTavish Furniture Industries division has manufactured furniture for the Company's stores since 1971. The division has six furniture manufacturing plants, four bedding manufacturing facilities and one lamp manufacturing facility which supply approximately one half of the furniture and accessories rented or sold by the Company. The Company's manufacturing plants have the capacity to meet the Company's needs for the foreseeable future. The Company also manufactures lamps for selected national retailers. MacTavish Furniture Industries manufactures upholstered living-room furniture (including contemporary sofas, sofabeds, chairs and modular sofa and ottoman collections in a variety of natural and synthetic fabrics and leathers), bedding (including standard sizes of mattresses and box springs), and office furniture (including desks, credenzas, conference tables, bookcases and chairs). MacTavish has designed special features for the furniture it manufactures which make its furniture less expensive to produce, more durable and better equipped for frequent transportation than furniture purchased from third parties. These features include standardization of components; reduction of parts and features susceptible to wear or damage; more resilient foam; durable, soil-resistant fabrics and sturdy frames for longer life and higher residual value; and devices which allow sofas to stand on end for easier and more efficient transport. MacTavish also manufactures replacement covers of all styles and fabrics of its upholstered furniture for use in reconditioning rental return furniture. The principal raw materials used by MacTavish in furniture manufacturing are fabric, foam, fiber, wire-innerspring assemblies, plywoods and hardwoods. All of these materials are purchased in the open market from sources not affiliated with the Company. The Company is not dependent on any single supplier, and none of the raw materials are in short supply. STORE OPERATIONS Management The Aaron's Sales & Lease Ownership division has nine regional managers supervised by two vice presidents who are primarily responsible for monitoring individual store performance and inventory levels within the respective regions. The Company's rent-to-rent stores are organized geographically into three residential and three office regions, each supervised by a vice president. Presidents manage the sales & lease ownership, residential rent-to-rent, and office rent-to-rent divisions. Stores are directly supervised by 48 sales & lease ownership district/city managers and 18 rent-to-rent regional managers. At the individual store level, the store manager is responsible for customer and credit relations, deliveries and pickups, warehouse and inventory management, and certain marketing efforts. Store managers are also responsible for inspecting rental return furniture to determine whether it should be sold as is, rented again as is, repaired and sold, or reconditioned for additional rental. A significant portion of the store manager's compensation is dependent upon store revenues and profits. Executive management at the Company's headquarters directs and coordinates purchasing, financial planning and control, manufacturing, employee training, and new store site selection for the Company-operated stores. The Company's internal audit department conducts periodic audits of every store, including audits of Company-operated sales & lease ownership stores several times each year, and semi-annual audits of rent-to-rent stores and franchised sales & lease ownership stores. The Company's business philosophy has always emphasized strict cost containment and fiscal controls. Executive and store level management monitor expenses vigilantly to contain costs. All invoices are paid out of the Company's headquarters in order to enhance fiscal accountability. The Company believes that its careful attention to the expense side of its operations has enabled it to maintain financial stability and profitability. Management Information Systems The Company utilizes computer-based management information systems to facilitate cash collections, merchandise returns and inventory monitoring. Through the use of proprietary software developed by the Company, each of the Company's stores is linked by computer directly to corporate headquarters, which enables headquarters to monitor the performance of each store on a daily basis. A different system is used to run the sales & lease ownership and rent-to-rent operations due to the significant differences in the 6 8 businesses. At the store level, the store manager is better able to track inventory on the showroom floor and in the warehouse to minimize delivery times, assist with product purchasing and match customer needs with available inventory. Rental Agreement Approval, Renewal and Collection One of the keys to the success of the Company's Aaron's Sales & Lease Ownership operations is its ability to achieve timely cash collections. Individual store managers utilize the Company's computerized information system on a daily basis to track cash collections. They contact customers within a few days of when their lease payments are due in order to encourage customers to keep their agreement current and in force (rather than having to return the merchandise for non-payment) and to renew their agreements for an additional period. Careful attention to cash collections is particularly important in the sales & lease ownership operations, where the customer typically has the option to cancel the agreement at any time and each payment is considered a renewal of the agreement rather than a collection of a receivable. Each rent-to-rent store performs a credit check on most of its residential and business customers. The Company generally performs no formal credit check with respect to sales & lease ownership customers other than to verify employment or other reliable sources of income and personal references supplied by the customer. All of the Company's agreements for residential and office merchandise require payments in advance, and the merchandise normally is picked up if a payment is significantly in arrears. Net bad debt losses from rent-to-rent rentals as a percentage of rent-to-rent rental revenues were approximately 2.1%, 1.9%, and 2.0% for the years ended December 31, 2000, 1999 and 1998. The Company does not extend credit to sales & lease ownership customers. For the same periods, net merchandise shrinkage for the Company as a percentage of combined rental revenues was 2.5%, 2.2% and 2.4%, respectively. The Company believes that its collection and repossession policies comply with applicable legal requirements, and the Company disciplines any employee that it discovers deviating from such policies. Customer Service The Company believes that customer service is one of the most important elements in the success of its sales & lease ownership and rent-to-rent businesses. Customer satisfaction is critical because the customer usually has the option of returning the rented merchandise at any time. The Company's goal is to make its customers feel positive about the Company and its products from the moment they enter the Company's showrooms. Items are serviced at no charge to the customer, and quick, free delivery is available in many cases. In order to increase rentals at existing stores, the Company fosters relationships with existing customers to attract recurring business, and many new rental and lease ownership agreements are attributable to repeat customers. Because of the importance of customer service, the Company believes that a prerequisite for successful operations and growth is skilled, effective employees who value the Company's customers and project a genuine desire to serve the customers' needs. The Aaron Sales & Lease Ownership division has nine training facilities where store managers and employees cover all areas of the Company's operations, with a heavy emphasis on customer service. The rent-to-rent division's sales and management training programs have similar training conducted at the Company's Atlanta headquarters. The Company's policy of promoting from within aids in employee retention and commitment to the Company's customer service and other business philosophies, which also allows the Company to realize greater benefits from its employee training programs. PURCHASING AND DISTRIBUTION The Company's product mix is determined by store managers in consultation with the regional managers and regional vice presidents, based on an analysis of customer demands. In the Company's rent-to-rent division, furniture is the primary merchandise category, accounting for approximately 93% of rent-to-rent rental revenues for the year ended December 31, 2000. In the Aaron's Sales & Lease Ownership division, electronics and appliances, furniture, computers and other accounted for approximately 57%, 35%, 6%, and 2%, respectively, of sales & lease ownership revenues for the year ended December 31, 2000. With approval from the applicable operating management, store managers send their orders to the sales & lease ownership or rent-to-rent purchasing department at headquarters. The applicable purchasing department reviews all purchase orders to determine whether merchandise needs may be satisfied out of existing inventory at other stores before contacting vendors. If inventory is available at other stores, the purchasing department arranges for inventory shipments between stores. Virtually all merchandise for the Company's stores is purchased by the Company's seven buyers, five of whom are solely responsible for sales & lease ownership merchandise. The Company purchases the majority of its merchandise directly from manufacturers, with the balance from local distributors. The Company's largest supplier is its MacTavish Furniture Industries manufacturing division, which supplies approximately one half of the 7 9 furniture rented or sold by the Company. The Company has no long-term agreements for the purchase of merchandise and believes that its relationships with suppliers are excellent. Rent-to-rent stores receive merchandise directly from vendors who ship to the stores' attached warehouses. Sales & lease ownership operations utilize distribution centers to control inventory. All sales & lease ownership stores order directly from the Company's six distribution centers located in Auburndale, Florida; Dallas and Houston, Texas; Duluth, Georgia; Columbus, Ohio; and Baltimore, Maryland with several other distribution centers to be opened in other regions of the United States in 2001. Sales & lease ownership stores typically have smaller warehouses with less inventory storage space than the Company's rent-to-rent stores. Vendors ship directly to the distribution centers. Distribution centers result in freight savings from truckload discounts and a more efficient distribution of merchandise. The Company utilizes its tractor-trailers, local delivery trucks, and various contract carriers to make weekly deliveries to individual stores. MARKETING AND ADVERTISING In its sales & leasing operations, the Company relies heavily on national and local television advertising, direct mail and direct delivery of promotional materials. The Company focuses its television advertising on its highly successful "Dream Products" program. This program targets "dream" products such as large-screen televisions, home theater systems, leather upholstery, stainless steel refrigerators and top brand name washers and dryers. To help promote the Dream Products program the Company established a relationship with NASCAR, which reaches a prime audience in its demographic. The initial relationship was the title sponsorship of the NASCAR Busch Grand National Car Race at the Atlanta Motor Speedway- the nationally televised "Aaron's 312", named for Aaron's three ways to obtain merchandise and its unique 12-month plan. The second relationship established was a limited sponsorship of driver Michael Waltrip's #99 Aaron's Dream Machine in the Busch Grand National Series. The final relationship was a sponsorship of driver Johnny Benson's #10 Aaron's Dream Machine for the last half of the 2000 NASCAR Winston Cup Series. Sponsorship of Atlanta Braves games and other sports events also reach this market. Sales & lease ownership stores are located within neighborhood communities, and will typically distribute mass mailings of promotional material every two weeks, with the goal of reaching households within a specified radius of each store at least 12 times per year. In addition, delivery personnel are trained to leave promotional material at the door of each residence within five doors of the delivery destination. In concentrated geographic markets, and for special promotions, the Company also utilizes local television and radio advertising for special promotions. The Company markets its rent-to-rent operations through its outside sales staff to the local apartment communities, calling on their leasing agents, resident managers, and property managers. This group heavily influences the individual referral business as well as the corporate relocation professionals. The Company also markets to interim housing providers (that offer temporary housing) to corporations that relocate personnel around the country. The Company has a regional and national marketing staff that focuses on this growing segment of the rent-to-rent industry. The Company also relies on the use of brochures, newspapers, radio, television, direct mail, trade publications, yellow pages, and the internet (http://www.aaronrentsfurniture.com; www.aaronrents.com; www.shopaarons.com) to reach its customers and believes such advertising increases the Company's name recognition. COMPETITION The Company's businesses are highly competitive. The Company competes in the rent-to-rent market with national and local companies and, to a lesser extent, with apartment owners who purchase furniture for rental to tenants. The Company believes that CORT Business Services Corporation and Globe Business Resources, Inc. are its most significant rent-to-rent competitors. The Company also competes in the rent-to-own and credit retail markets. The Company's two largest competitors in the rent-to-own market are Rent-A-Center, Inc. and Rent-Way, Inc. Heilig-Meyers Furniture is the Company's main competitor in the credit retail market. Although definitive industry statistics are not available, management believes that the Company is one of the largest furniture rental companies in the United States. Management also believes that it generally has a favorable competitive position in that industry because of its manufacturing capabilities, prompt delivery, competitive pricing, name recognition and commitment to customer service. 8 10 GOVERNMENT REGULATION The Company believes that 46 states specifically regulate rent-to-own or sales & lease ownership transactions, including states in which the Company currently operates Aaron's Sales & Lease Ownership stores. Most of these states have enacted disclosure laws which require rent-to-own companies to disclose to its customers the total number of payments, total amount and timing of all payments to acquire ownership of any item, any other charges that may be imposed by the Company and miscellaneous other items. The most restrictive states limit the total amount that a customer may be charged for an item to twice the "retail" price for the item, or regulate the amount of "interest" that rent-to-own companies may charge on rent-to-own transactions, generally defining "interest" as rental fees paid in excess of the "retail" price of the goods. The Company's long-established policy in all states is to disclose the terms of its sales & lease ownership transactions as a matter of good business ethics and customer service. At the present time, no federal law specifically regulates the rent-to-own industry. Federal legislation has been proposed from time to time to regulate the industry. Management cannot predict whether any such legislation will be enacted and what the impact of such legislation would be. Although the Company is unable to predict the results of these or any additional regulatory initiatives, the Company does not believe that the existing and proposed regulations will have a material adverse impact on the Company's sales & lease ownership or other operations. The Company's Aaron's Sales & Lease Ownership franchise program is subject to Federal Trade Commission ("FTC") regulation and various state laws regulating the offer and sale of franchises. Several state laws also regulate substantive aspects of the franchisor-franchisee relationship. The FTC requires the Company to furnish to prospective franchisees a franchise offering circular containing prescribed information. A number of states in which the Company might consider franchising also regulate the sale of franchises and require registration of the franchise offering circular with state authorities. The Company believes it is in material compliance with all applicable franchise laws. EMPLOYEES At December 31, 2000, the Company had approximately 3,900 employees. None of the Company's employees are covered by a collective bargaining agreement, and the Company believes that its relations with its employees are good. CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K contains certain forward-looking statements (as such term is defined in the Securities Act of 1933 as amended), which represent expectations or beliefs, including but not limited to, statements concerning industry performance, and the Company's operations, performance and financial condition, including, in particular, the likelihood of the Company's success in developing and expanding its business. These statements are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties, many of which are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those set forth below. Risks Associated with Expansion Strategy An important part of the Company's growth strategy is the opening of new stores. The Company's ability to continue opening new stores will depend, among other things, upon its ability to hire management and personnel to staff the new stores, and to find suitable sites at reasonable rental rates to locate new stores. From time to time the Company also expects to pursue opportunistic acquisitions of sales & lease ownership and rent-to-rent operations. There can be no assurance that future acquisitions will be consummated on acceptable terms or that any acquired companies will be successfully integrated. While the Company believes that the market for its stores is underserved and offers attractive expansion opportunities, it does not know if consumer preferences will remain unchanged, or the extent to which its competitors may seek to serve the market. Significant Competition The Company's businesses are highly competitive. The Company competes in the rent-to-rent market with national and local companies and, to a lesser extent, with apartment owners who purchase furniture for rental to tenants. In the sales & lease ownership market, the Company's competitors include national, regional and local operators of rent-to-own stores and credit retailers. Some of 9 11 these competitors may have significantly greater financial and operating resources, and in certain markets, greater name recognition, than the Company. Risks Associated with Significant Government Regulation The Company believes that 46 states specifically regulate rent-to-own and sales & lease ownership transactions, including states in which the Company currently operates Aaron's Sales & Lease Ownership stores. Most of these states have enacted disclosure laws which require rent-to-own companies to disclose to their customers the total number of payments, total amount and timing of all payments to acquire ownership of any item, any other charges that may be imposed by the Company and miscellaneous other items. The most restrictive states limit the total amount that a customer may be charged for an item to twice the "retail" price for the item, or regulate the amount of "interest" that rent-to-own companies may charge on rent-to-own transactions, generally defining "interest" as rental fees paid in excess of the "retail" price of the goods. The Company's long-established policy in all states is to fully disclose the terms of its sales & lease ownership transactions as a matter of good business ethics and customer service. At the present time, no federal law specifically regulates the rent-to-own industry. Federal legislation has been proposed from time to time to regulate the industry. Management cannot predict whether any such legislation will be enacted and what the impact of such legislation would be. Although the Company is unable to predict the results of these or any additional regulatory initiatives, the Company does not believe that the existing and previously proposed regulations would have a material adverse impact on the Company's sales & lease ownership or other operations. The Company's Aaron's Sales & Lease Ownership franchise program is subject to Federal Trade Commission ("FTC") regulation and various state laws regulating the offer and sale of franchises. Several state laws also regulate substantive aspects of the franchisor-franchisee relationship. The FTC requires the Company to furnish to prospective franchisees a franchise offering circular containing prescribed information. A number of states in which the Company might consider franchising also regulate the sale of franchises and require registration of the franchise offering circular with state authorities. The Company believes it is in material compliance with all applicable franchise laws. Control by and Dependence Upon Principal Shareholder R. Charles Loudermilk, Sr., the Company's Chief Executive Officer and Chairman of the Board, owns or controls over 60% of the Company's voting Class A Common Stock and approximately 14% of the non-voting Common Stock outstanding. As a result, Mr. Loudermilk will continue to be able to elect all the directors of, and otherwise effectively control, the Company. The Company believes that it has benefited substantially from Mr. Loudermilk's leadership and that if it were to lose his services at anytime in the near future such loss could have an adverse effect on the Company's business and operations. ITEM 2. PROPERTIES The Company leases space for substantially all of its store and warehouse operations under operating leases expiring at various times through September 30, 2013. Most of the leases contain renewal options for additional periods ranging from one to fifteen years at rental rates generally adjusted on the basis of the consumer price index or other factors. The following table sets forth certain information regarding the Company's furniture manufacturing plants, bedding facilities, lamp manufacturing facility and distribution centers:
LOCATION PRIMARY USE SQUARE FT. - -------- ----------- ---------- Cairo, Georgia ................................ Furniture Manufacturing 192,000 Coolidge, Georgia ............................. Furniture Manufacturing 77,000 Coolidge, Georgia ............................. Furniture Manufacturing 43,000 Coolidge, Georgia ............................. Furniture Manufacturing 41,000 Quincy, Florida ............................... Furniture Manufacturing 80,000 Sugarland, Texas .............................. Furniture Manufacturing 153,000 Sun Valley, California ........................ Lamp and Accessory Manufacturing 52,000 Cairo, Georgia ................................ Bedding Facility 8,000 Buford, Georgia ............................... Bedding Facility 32,000 Houston, Texas ................................ Bedding Facility 13,000 Orlando, Florida .............................. Bedding Facility 16,000 Auburndale, Florida ........................... Sales & Lease Ownership Distribution Center 85,000
10 12 Baltimore, Maryland............................ Sales & Lease Ownership Distribution Center 99,000 Columbus, Ohio................................. Sales & Lease Ownership Distribution Center 99,000 Dallas, Texas.................................. Sales & Lease Ownership Distribution Center 92,000 Duluth, Georgia................................ Sales & Lease Ownership Distribution Center 67,000 Houston, Texas................................. Sales & Lease Ownership Distribution Center 70,000
The Company's executive and administrative offices occupy approximately 62,000 square feet in an 11-story, 87,000 square-foot office building that the Company owns in Atlanta. The Company leases most of the remaining space to third parties under leases with remaining terms averaging three years. All of the Company's facilities are well maintained and adequate for their current and reasonably foreseeable uses. ITEM 3. LEGAL PROCEEDINGS The Company is not currently a party to any legal proceedings the result of which it believes could have a material adverse impact upon its business, financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) The information presented under the caption "Common Stock Market Prices & Dividends" on page 27 of the Company's Annual Report to Shareholders for the year ended December 31, 2000 is incorporated herein by reference. The market quotations stated herein reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. (b) As of March 22, 2001, there were 291 holders of record of the Common Stock and 139 holders of record of the Class A Common Stock. (c) The information presented under "Note D - Debt" on pages 20 and 21 of the Company's Annual Report to Shareholders for the year ended December 31, 2000 is incorporated herein by reference. During the year ended December 31, 2000, the Company paid two semi-annual cash dividends. No assurance can be provided that such dividends will continue. ITEM 6. SELECTED FINANCIAL DATA The information presented under the caption "Selected Financial Information" on page 13 of the Company's Annual Report to Shareholders for the year ended December 31, 2000 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14 and 15 of the Company's Annual Report to Shareholders for the year ended December 31, 2000 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information presented under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 14 and 15 and presented under "Note D - Debt" on pages 20 and 21 of the Company's Annual Report to Shareholders for the year ended December 31, 2000 is incorporated herein by reference. 11 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information presented under the captions "Consolidated Balance Sheets," "Consolidated Statements of Earnings," "Consolidated Statements of Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements," and "Report of Independent Auditors" on pages 16 through 26 of the Company's Annual Report to Shareholders for the year ended December 31, 2000 is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the Company's definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2000, with respect to the identity, background and Section 16 filings of directors and executive officers of the Company, is incorporated herein by reference to this item. ITEM 11. EXECUTIVE COMPENSATION The information contained in the Company's definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2000, with respect to executive compensation, is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the Company's definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2000, with respect to the ownership of common stock by certain beneficial owners and management, is incorporated herein by reference to this item. For purposes of determining the aggregate market value of the Company's voting and non-voting common stock held by non-affiliates, shares held by all directors and officers of the Company have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which person or entities may be "affiliates" of the Company as defined by the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the Company's definitive Proxy Statement, which the Company will file with the Securities and Exchange Commission no later than 120 days after December 31, 2000, with respect to certain relationships and related transactions, is incorporated herein by reference in response to this item. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) 1. CONSOLIDATED FINANCIAL STATEMENTS The following financial statements and notes thereto of Aaron Rents, Inc. and Subsidiaries, and the related Report of Independent Auditors are incorporated in Item 8 by reference from the Company's Annual Report to Shareholders for the year ended December 31, 2000. 12 14
REFERENCE PAGE ANNUAL REPORT TO SHAREHOLDERS Consolidated Balance Sheets - December 31, 2000 and 1999 .......................................... 16 Consolidated Statements of Earnings - Years ended December 31, 2000, 1999 and 1998 ................ 17 Consolidated Statements of Shareholders' Equity - Years ended December 31, 2000, 1999 and 1998..... 17 Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 .............. 18 Notes to Consolidated Financial Statements ........................................................ 19-26 Report of Independent Auditors .................................................................... 26
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES All schedules have been omitted because they are inapplicable or the required information is included in the financial statements or notes thereto. 3. EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT 3(a) Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (the "March 31, 1996 10-Q"), which exhibit is by this reference incorporated herein. 3(b) Amended and Restated By-laws of the Company, filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, which exhibit is by this reference incorporated herein. 4 See Exhibits 3 (a) through 3 (b). 10(a) Aaron Rents, Inc. 1996 Stock Option and Incentive Award Plan, filed as Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (the "March 31, 1998 10-Q"), which exhibit is incorporated by this reference.* 10(b) Aaron Rents, Inc. Employees Retirement Plan and Trust, filed as Exhibit 4(a) to the Company's Registration Statement on Form S-8, file number 33-62538, filed with the Commission on May 12, 1993, which exhibit is by this reference incorporated herein.* 10(c) Aaron Rents, Inc. 1990 Stock Option Plan, filed as Exhibit 4(a) to the Company's Registration Statement on Form S-8, file number 33-62536, filed with the Commission on May 12, 1993, which exhibit is by this reference incorporated herein.* 10(d) Second Amended and Restated Revolving Credit and Term Loan Agreement, dated January 6, 1995, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994 (the "December 31, 1994 10-Q"), which exhibit is by this reference incorporated herein. 10(e) Third Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement, dated September 30, 1996, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, which exhibit is by reference incorporated herein. 10(f) Fifth Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement, dated December 17, 1997, filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 10-K"), which exhibit is incorporated by this reference. 10(g) Letter Agreements dated December 30, 1997 between SunTrust Bank, Atlanta and the Company, and letter agreements dated December 30, 1997 between First Chicago NBD and the Company regarding Interest Rate Swap
13 15 Transactions, filed as Exhibit 10(b) to the Company's 1997 10-K, which exhibit is incorporated by this reference. 10(h) Loan Facility Agreement and Guaranty by and among Aaron Rents, Inc., SunTrust Bank, Atlanta, as Servicer and each of the Participants Party Hereto, Dated January 20, 1998, filed as Exhibit 10(a) to the Company's March 31, 1998 10-Q, which exhibit is incorporated by this reference. 10(i) Amendment No. 1 to Loan Facility Agreement and Guaranty dated as of March 13, 1998, filed as Exhibit 10(b) to the Company's March 31, 1998 10-Q, which exhibit is incorporated by this reference. 10(j) Amended and Restated Loan Facility Agreement and Guaranty and related Servicing Agreement dated as of November 3, 1999, filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999" 10-K"), which exhibit is incorporated by this reference. 10(k) Amended and Restated Loan Facility Agreement and Guaranty dated as of June 20, 2000, filed as part of this Annual Report on Form 10-K. 10(l) Loan Facility Agreement and Guaranty by and among Aaron Rents, Inc. and Southtrust Bank dated August 31, 2000, filed as part of this Annual Report on Form 10-K. 10(m) Loan Agreement between Fort Ben County Industrial Development Corporation and Aaron Rents, Inc. relating to the Industrial Development Revenue Bonds (Aaron Rents, Inc. Project), Series 2000 dated October 1, 2000, filed as part of this Annual Report on Form 10-K. 10(n) Letter of Credit and Reimbursement Agreement between Aaron Rents, Inc. and First Union National Bank dated as of October 1, 2000, filed as part of this Annual Report on Form 10-K. 10(o) Term Loan Agreement among Aaron Rents, Inc. Puerto Rico as borrower, Aaron Rents, Inc. as Guarantor and SunTrust Bank as Administrative Agent dated November 21, 2000, filed as part of this Annual Report on Form 10-K. 13 Portions of the Aaron Rents, Inc. Annual Report to Shareholders for the year ended December 31, 2000. With the exception of information expressly incorporated herein by direct reference thereto, the Annual Report to Shareholders for the year ended December 31, 2000 is not deemed to be filed as part of this Annual Report on Form 10-K. 21 Subsidiaries of the Registrant, filed as part of this Annual Report on Form 10-K. 23 Consent of Ernst & Young LLP
- ------------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to item 14 (c) of this report. (b) Reports on Form 8-K - none (c) Exhibits listed in item 14 (a) (3) are included elsewhere in this Report. 14 16 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30th day of March, 2001. AARON RENTS, INC. By: /s/ GILBERT L. DANIELSON -------------------------- Gilbert L. Danielson Executive Vice President Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 30th day of March, 2001.
SIGNATURE TITLE --------- ----- /s/ R. CHARLES LOUDERMILK, SR. Chief Executive Officer (Principal Executive - ----------------------------------------- Officer) and Chairman of the Board of R. Charles Loudermilk, Sr. Directors) /s/ ROBERT C. LOUDERMILK, JR. President, Chief Operating Officer and - ----------------------------------------- Director Robert C. Loudermilk, Jr. /s/ GILBERT L. DANIELSON Executive Vice President, Chief Financial - ----------------------------------------- Officer and Director, (Principal Gilbert L. Danielson Financial Officer) /s/ ROBERT P. SINCLAIR, JR. Vice President, Corporate Controller, - ----------------------------------------- (Principal Accounting Officer) Robert P. Sinclair, Jr. /s/ WILLIAM K. BUTLER President, Aaron Sales & Lease Ownership - ----------------------------------------- Division, and Director William K. Butler /s/ RONALD W. ALLEN Director - ----------------------------------------- Ronald W. Allen /s/ LEO BENATAR Director - ----------------------------------------- Leo Benatar /s/ EARL DOLIVE Director - ----------------------------------------- Earl Dolive /s/ J.REX FUQUA Director - ----------------------------------------- J. Rex Fuqua /s/ INGRID SAUNDERS JONES Director - ----------------------------------------- Ingrid Saunders Jones /s/ LTG. M. COLLIER ROSS USA (RET.) Director - ----------------------------------------- LTG M. Collier Ross USA (Ret.)
15 EX-10.(K) 2 g67848ex10-k.txt AMENDED AND RESTATED LOAN FACILITY AGREEMENT 1 EXHIBIT 10.(K) AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN FACILITY AGREEMENT AND GUARANTY THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN FACILITY AGREEMENT AND GUARANTY (this "Amendment") dated as of June 20, 2000, by and among AARON RENTS, INC., a Georgia corporation ("Sponsor"), each of the financial institutions listed on the signature pages hereof (the "Participants") and SUNTRUST BANK, a Georgia banking corporation, formerly known as SunTrust Bank, Atlanta, as servicer (in such capacity, the "Servicer"). WITNESSETH: ---------- WHEREAS, the Sponsor, Participants and Servicer, in order to make available a loan facility to certain franchisees of Sponsor, entered into that certain Amended and Restated Loan Facility Agreement and Guaranty dated as of November 3, 1999 (as hereafter amended or modified, the "Loan Facility Agreement") by and among Sponsor, Servicer and the Participants; WHEREAS, in order to expedite the ongoing operations of the loan facility, Sponsor and Servicer entered into that certain Servicing Agreement, dated as of November 3, 1999 (as amended or modified from time to time, the "Servicing Agreement") to set forth certain agreements regarding fees and operations; WHEREAS, the Sponsor has requested among other things that the Maximum Commitment Amount be increased to $70,000,000.00 (by increase of the Participating Commitments of the existing Participants); WHEREAS, the Sponsor, the Participants and the Servicer wish to enter into this Amendment to set forth their understandings regarding the amendments; NOW, THEREFORE, for and in consideration of the mutual premises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Definitions. All terms used herein without definition shall have the meanings set forth for such terms in the Loan Facility Agreement. 2. Amendment to Section 1.1 of the Loan Facility Agreement. Section 1.1 of the Loan Facility Agreement is hereby amended by deleting the definitions of "Maximum Committed Amount", "Maximum Established Franchisee Recourse Amount", "Payment Date" and "Wind-Down Event" and replacing them with the following definitions: "Maximum Commitment Amount" shall mean $70,000,000, as such amount may be reduced pursuant to Section 2.7, Section 2.8 or Section 15.2. 2 "Maximum Established Franchisee Recourse Amount" shall mean the greater of (x) $20,000,000 and (y) two (2) times the largest aggregate amount committed or loaned to any Borrower Group under the Franchisee Loan Program, in each case as reduced by any amounts paid by Sponsor pursuant to Section 10.3(c). "Payment Date" shall mean the last day of each calendar month; provided, however, if such day is not a Business Day, the next succeeding Business Day "Wind-Down Event" shall mean either (i) the event that the Commitments are not extended for any reason and the Commitment Termination Date occurs or (ii) the event that the Maximum Established Franchisee Recourse Amount is, at any date of determination, less than $20,000,000. 3. Amendment to Section 2.1 of the Loan Facility Agreement. Section 2.1 of the Loan Facility Agreement is hereby amended by replacing subsection 2.1(a) and subsection 2.1(b) with the following subsection 2.1(a) and subsection 2.1(b): (a) Startup Franchisee Commitment. Subject to and upon the terms and conditions set forth in this Agreement and the other Operative Documents, and in reliance upon the guaranty and other obligations of the Sponsor set forth herein, the Servicer hereby establishes a commitment to the Sponsor to establish Startup Franchisee Loan Commitments and to make Advances thereunder to such Startup Franchisees as may be designated by the Sponsor in its Funding Approval Notices during a period commencing on the date hereof and ending on November 1, 2000 (as such period may be extended for one or more subsequent 364-day periods pursuant to Section 2.8, the "Commitment Termination Date") in an aggregate committed amount at any one time outstanding not to exceed SEVENTY MILLION AND NO/100 DOLLARS ($70,000,000) (the "Startup Franchisee Commitment"); provided that, notwithstanding any provision of this Agreement to the contrary, at no time shall the sum of aggregate committed amounts of all Loan Commitments outstanding pursuant to the Commitments, or, following the termination of any such Loan Commitment, Advances outstanding thereunder, exceed the Maximum Commitment Amount. (b) Established Franchisee Commitment. Subject to and upon the terms and conditions set forth in this Agreement and the other Operative Documents, and in reliance upon the guaranty and other obligations of the Sponsor set forth herein, the Servicer hereby establishes a commitment to the Sponsor to establish Established Franchisee Loan Commitments and to make Advances thereunder to such Established Franchisees as may be designated by the Sponsor in its Funding Approval Notices during a period commencing on the date hereof and ending on the Commitment Termination Date in an aggregate committed amount at any one time outstanding not to exceed SEVENTY MILLION AND NO/100 DOLLARS ($70,000,000) (the "Established Franchisee Commitment"); provided that, 3 notwithstanding any provision of this Agreement to the contrary, at no time shall the sum of aggregate committed amounts of all Loan Commitments outstanding pursuant to the Commitments, or, following the termination of any such Loan Commitment, Advances outstanding thereunder, exceed the Maximum Commitment Amount. 4. Amendment to Section 2.9 to the Loan Facility Agreement. Section 2.9 of the Loan Facility is hereby amended by replacing subsection 2.9(b) with the following: (b) In the event that the Maximum Established Franchisee Recourse Amount is, at any date of determination, less than $20,000,000, then the Sponsor shall not have the right to request that any further Established Franchisee Loan Commitments be established; provided, however, that the occurrence of such Wind-Down Event shall not affect the obligation of (x) the Servicer to make Advances pursuant to existing Established Franchisee Loan Commitments, (y) the Participants to fund their Participant's Interest as provided herein, or (z) the Credit Parties under the Operative Documents. 5. Amendment to Section 10.2 of the Loan Facility Agreement. Section 10.2 of the Loan Facility Agreement is hereby amended by replacing the first paragraph of Section 10.2 with the following: 10.2 Limitation on Guaranty of Startup Franchisee Loans. The obligation of the Sponsor pursuant to this Article 10 with respect to the Startup Franchisee Loans shall be limited, as of any date of determination, to an amount (the "Maximum Amount") equal to the greater of (a) fifty percent (50%) of the aggregate outstanding principal amount of the Startup Franchisee Loans on such date (after giving effect to any payments, recoveries on Collateral or other recoveries made by the Servicer or any Participant on such date with respect to the Startup Franchisee Loans), (b) three (3) times the largest aggregate amount of all Loan Commitments (or if the Loan Commitments have been terminated, all outstanding Loans) made to any Startup Franchisee Borrower and its Borrower Group and (c) $10,000,000; provided that, the Maximum Amount shall not on any date of determination exceed the aggregate outstanding Loan Indebtedness of the Startup Franchisee Loans. As a material inducement to the Servicer's and each Participant's entering into this Agreement, the parties hereto expressly agree that the Maximum Amount shall be redetermined (and the obligation of the Sponsor to pay such replenished Maximum Amount shall be enforceable by the Servicer and the Participants hereunder) on each day that any Loan Indebtedness remains outstanding pursuant to any Startup Franchisee Loan regardless of (i) any previous payments made by the Sponsor hereunder on any prior date, whether or not constituting the Maximum Amount payable on such prior date, or (ii) the number of prior demands made by the Servicer or the Participants hereunder; 4 provided that, for purposes of calculating the Maximum Amount, (x) any Defaulted Loan for which a demand has previously been made, or deemed to have been made, pursuant to this Section 10.2 shall not be deemed to be outstanding and (y) demand shall be deemed to have been made with respect to each Defaulted Loan on the date on which the Servicer is authorized to make a demand on the Sponsor with respect to such Defaulted Loan pursuant to Section 4.3 or Section 4.4 of this Agreement unless such Loan Default arises solely from the occurrence of a Credit Event in which case demand shall be deemed to be made only upon receipt of written request from the Servicer. 6. Amendment to Exhibit E to Loan Facility Agreement. Section 6(i) of the form of Startup Franchisee Loan Agreement attached as Exhibit E to the Loan Facility Agreement is hereby deleted in its entirety and replaced by the following Section 6(i): (i) Rental Revenue to Debt Service. Commencing on the first day of the calendar quarter in which the 25th month following the Opening Date of the first store location of the Borrower occurs, and measured as of the last day of the calendar quarter in which such 25th month occurs and on the last day of each calendar quarter thereafter, the ratio of the Borrower's Rental Revenue to Debt Service for such quarter shall not be less than 2.2:1.00; 7. Conditions of Effectiveness. The effectiveness of this Amendment (the date on which this amendment becomes effective is referred to herein as, the "Effective Date") and the obligation of Servicer to make lines of credit available to franchisees of Sponsor under the Loan Facility Agreement, as amended hereby, and the obligation of each Participant to purchase its participation therein, is subject to receipt by Servicer of each of the following in form and substance satisfactory to Servicer and each of the Participants: (a) a fee in the amount of $45,000 in immediately available funds, which the Sponsor agrees to pay on the date hereof; (b) from each of the parties hereto a duly executed counterpart of this Amendment; (c) a certificate of Sponsor, dated as of the date hereof, signed by the Secretary or Assistant Secretary of Sponsor, (i) certifying as to names and true signatures of the officers of Sponsor authorized to execute and deliver this Amendment, (ii) certifying that Sponsor's articles of incorporation and bylaws delivered to Servicer on November 3, 1999 have not been amended or modified and are in full force and effect as of the date hereof, and (iii) certifying a true and correct copy of the action taken by the Board of Directors or the Sponsor authorizing the Sponsor's execution, delivery and performance of this Amendment and the certificates referred to herein; 5 (d) a certificate of the Secretary of State of the State of Georgia as to the existence of the Sponsor as a Georgia corporation; (e) a favorable written opinion of Kilpatrick Stockton, LLP, counsel for Sponsor and Guarantors, in form satisfactory to Servicer and each Participant and covering such matters relating to the transactions contemplated by this Amendment as Servicer may reasonably request; (f) a duly executed amendment to the Servicing Agreement; and (g) in addition, each of the Participants shall have received a duly executed Participation Certificate from the Servicer. 8. Representations and Warranties of Sponsor. Sponsor, without limiting the representations and warranties provided in the Loan Facility Agreement, represents and warrants to the Participants and the Servicer as follows: (a) The execution, delivery and performance by Sponsor of this Amendment are within Sponsor's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (a) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the articles of incorporation or by-laws of Sponsor or any indenture, agreement or other instrument to which Sponsor is a party or by which Sponsor or any of its properties is bound or (b) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. (b) This Amendment constitutes the legal, valid and binding obligations of Sponsor, enforceable against Sponsor in accordance with their respective terms. (c) No Unmatured Credit Event or Credit Event has occurred and is continuing as of the Effective Date. 9. Survival. Each of the foregoing representations and warranties and each of the representations and warranties made in the Loan Facility Agreement shall be made at and as of the Effective Date. Each of the foregoing representations and warranties shall constitute a representation and warranty of Sponsor under the Loan Facility Agreement, and it shall be a Credit Event if any such representation and warranty shall prove to have been incorrect or false in any material respect at the time when made. Each of the representations and warranties made under the Loan Facility Agreement (including those made herein) shall survive and not be waived by the execution and delivery of this Amendment or any investigation by the Participants or the Servicer. 10. No Waiver, Etc. Sponsor hereby agrees that nothing herein shall constitute a waiver by the Participants of any Unmatured Credit Event or Credit Event, whether known or 6 unknown, which may exist under the Loan Facility Agreement. Sponsor hereby further agrees that no action, inaction or agreement by the Participants, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Loan Facility Agreement which may have occurred with respect to the non-payment of any obligation during the terms of the Loan Facility Agreement or any portion thereof, or any other matter relating to the Loan Facility Agreement, shall require or imply any future indulgence, waiver, or agreement by the Participants. In addition, Sponsor acknowledges and agrees that it has no knowledge of any defenses, counterclaims, offsets or objections in its favor against any Participant with regard to any of the obligations due under the terms of the Loan Facility Agreement as of the date of this Amendment. 11. Ratification of Loan Facility Agreement. Except as expressly amended herein, all terms, covenants and conditions of the Loan Facility Agreement and the other Operative Documents shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Loan Facility Agreement as amended herein. All future references to the Loan Facility Agreement shall be deemed to refer to the Loan Facility Agreement as amended hereby. 12. Ratification of Guaranty Agreement. The Guarantor hereby ratifies and confirms that the Guaranty Agreement remains in full force and effect and is hereby affirmed by the Guarantor. 13. Binding Nature. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, successors, successors-in-titles, and assigns. 14. Costs, Expenses and Taxes. Sponsor agrees to pay on demand all reasonable costs and expenses of the Servicer in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Servicer with respect thereto and with respect to advising the Servicer as to its rights and responsibilities hereunder and thereunder. In addition, Sponsor shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Servicer and each Participant harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. 15. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. 16. Entire Understanding. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 17. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts and may be delivered by telecopier. Each 7 counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. [Remainder of page intentionally left blank.] 8 IN WITNESS WHEREOF, the parties hereto have executed this Amendment through their authorized officers as of the date first above written. AARON RENTS, INC. By: ---------------------------------------- Name: Title: SUNTRUST BANK, FORMERLY KNOWN AS SUNTRUST BANK, ATLANTA, as Servicer By: ---------------------------------------- Name: Title: 9 SUNTRUST BANK, FORMERLY KNOWN AS SUNTRUST BANK, ATLANTA By: ----------------------------------------- Name: Title: Participating Commitment Amount: $20,000,000 Pro Rata Share: 28.57% 10 BANK ONE, NA By: ---------------------------------------- Name: Title: Participating Commitment Amount: $12,666,667.00 Pro Rata Share: 18.10% 11 FIRST UNION NATIONAL BANK By: ---------------------------------------- Name: Title: Participating Commitment Amount: $18,666,667.00 Pro Rata Share: 26.67% 12 SOUTHTRUST BANK, N.A. By: ---------------------------------------- Name: Title: Participating Commitment Amount: $18,666,667.00 Pro Rata Share: 26.67% 13 ACKNOWLEDGMENT OF GUARANTOR The Guarantor acknowledges and agrees to the terms of the foregoing Amendment, and further acknowledges and agrees that (i) all of the obligations of the Sponsor shall continue to constitute "Guaranteed Obligations" covered by Guaranty Agreement executed by the undersigned, and (ii) the Guaranty Agreement is and shall remain in full force and effect on and after the date hereof, and (iii) the foregoing agreement shall in no way release, discharge, or otherwise limit the obligations of the undersigned Guarantor under the Guaranty Agreement. This Acknowledgment of Guarantor made and delivered as of June __, 2000. AARON INVESTMENT COMPANY By: -------------------------------- Name: Title: EX-10.(L) 3 g67848ex10-l.txt LOAN FACILITY AGREEMENT AND GAURANTY 1 EXHIBIT 10.(L) LOAN FACILITY AGREEMENT AND GUARANTY by and among AARON RENTS, INC. and SOUTHTRUST BANK Dated as of August ____, 2000 2 LOAN FACILITY AGREEMENT AND GUARANTY THIS LOAN FACILITY AGREEMENT AND GUARANTY (the "Agreement") made as of August ____, 2000, by and between AARON RENTS, INC., a Georgia corporation having its principal place of business and chief executive office at 1100 Aaron Building, 309 East Paces Ferry Road, N.E., Atlanta, Georgia 30305 ("Sponsor") and SOUTHTRUST BANK, an Alabama banking corporation having its principal Georgia office in Atlanta, Georgia (the "Bank"). W I T N E S S E T H: WHEREAS, Sponsor has established relationships with certain individual owners (the "Franchisee Owners") of certain rental store operators (the "Franchisees") across the United States who own and operate rental stores under the "Aaron's Rental Purchase" franchise; WHEREAS, in connection therewith, Sponsor wishes to establish a loan program with the Bank to provide term loans to the Franchisee Owners for equity contributions towards capitalization of such Franchisee Owner's "Aaron's Rental Purchase" franchise; WHEREAS, the Bank is willing to establish such a loan program based upon the obligation of the Sponsor to unconditionally guarantee such loans, all as more particularly set out below; THEREFORE, upon the terms and conditions hereinafter stated, and in consideration of the mutual premises set forth above and other adequate consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS 1.1 Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adjusted LIBO Rate" shall mean, with respect to each Payment Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: "Adjusted LIBO Rate" = LIBOR ------------------------------- 1.00 - LIBOR Reserve Percentage "Adjusted LIBO Plus Rate" shall mean the Adjusted LIBO Rate plus one and one-half percent (1 1/2%). As used herein, LIBOR Reserve Percentage shall mean, for any Payment Period, the reserve percentage (expressed as a decimal) equal to the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of 3 Eurocurrency liabilities as defined in Regulation D (or against any successor category of liabilities as defined in Regulation D). "Affiliate" of any Person shall mean any other Person directly or indirectly controlling, controlled by, or under common control with, such Person, whether through the ownership of voting securities, by contract or otherwise. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by", and "under common control with") as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person. "Agreement" shall mean this Loan Facility Agreement and Guaranty, as amended, restated, supplemented or modified from time to time. "Authorized Signatory" shall mean each officer of Sponsor specified from time to time in an appropriate certificate to the Bank as authorized to execute Funding Approval Notices and other such documents relating to the Loan Documents. "Bankruptcy Code" shall mean The Bankruptcy Code of 1978, as amended and in effect from time to time (11 U.S.C. ss.101 et seq.). "Bankruptcy Law" shall mean any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law. "Base Rate" shall mean the per annum rate of interest designated from time to time by the Bank to be its base rate. The Base Rate is a reference rate and does not necessarily represent the lowest or best rate of interest that is being offered by the Bank to its borrowers. "Borrower" shall mean a Franchisee Owner who is primarily liable for repayment of a Loan as a result of having executed Loan Documents as maker, or its permitted assignee. "Borrower Rate" shall mean, with respect to each Loan, the Base Rate per annum plus any additional margin per annum specified for such Loan by Sponsor in the applicable Funding Approval Notice, such margin not to exceed ten percent (10.0%) per annum. "Business Day" shall mean any day excluding Saturday, Sunday and any other day on which banks are required or authorized to close in Atlanta, Georgia or New York, New York and, if the applicable Business Day relates to Adjusted LIBO Rate, on which trading is not carried on by and between banks in the London interbank market. "Capital Stock" means any capital stock (or other equivalent equity interest issued in other than stock, including, in the case of a partnership or limited liability company, partnership interests or member interests) of a Franchisee, whether common, preferred or otherwise. "Closing Date" shall mean, for any Loan Commitment, the date upon which the Loan Documents with respect to such Loan Commitment are executed and delivered and the Loan Commitment is established thereunder. "Closing Fee" shall have the meaning set forth in Section 2.1(d). 2 4 "Collateral" shall mean, with respect to any Loan, all property of the Borrower of such Loan and of the Franchisee owned by such Borrower as designated by the Sponsor, which may include the Capital Stock of the Franchisee owned by such Borrower. "Collateral Agreement" shall mean an agreement executed by a Borrower and any other Persons primarily or secondarily liable for all or part of the Loan or granting a security interest to the Bank in specified Collateral as security for such Loan, including without limitation, a Pledge Agreement, any other Loan Documents and any Existing Loan Documents between the Franchisee owned by such Borrower or such other Person and the Bank. "Commitment" shall mean have the meaning set forth in Section 2.1(a). "Commitment Letter" means a letter from Bank to a Franchisee Owner named in a Funding Approval Notice, substantially in the form of Exhibit A, whereby Bank agrees to establish a Loan Commitment in favor of such Franchisee Owner upon the terms and conditions set forth therein and in the Operative Documents. "Commitment Termination Date" shall have the meaning set forth in Section 2.1(a). "Consolidated Companies" shall mean, collectively, Sponsor and all of its Subsidiaries. "Conversion Date" shall mean the last day of the Interest Only Period. "Corporate Authorization" means, with respect to any Franchisee Guarantor which is a corporation, certifications as to authorized signatories and corporate action with respect to the Guaranty Agreement in the form attached hereto as Exhibit B. "Credit Event" shall have the meaning set forth in Article 8 of this Agreement. "Credit Parties" shall mean, collectively, each of the Sponsor and the Guarantors. "Debit Authorization" means an authorization from a Borrower to automatically debit Loan payments from a deposit account of such Borrower, in the form prescribed by Bank from time to time. "Defaulted Borrower" shall mean a Borrower under a Defaulted Loan. "Defaulted Loan" shall mean a Loan Commitment evidenced by Loan Documents under the terms of which exist one or more Loan Defaults which have not been cured or waived as permitted herein. "Effective Date" shall mean the date upon which all conditions precedent to the effectiveness of this Agreement have been satisfied. "Environmental Laws" shall mean all federal, state, local and applicable foreign statutes and codes or regulations, rules or ordinances issued, promulgated, or approved thereunder, now or hereafter in effect (including, without limitation, those with respect to asbestos or asbestos 3 5 containing material or exposure to asbestos or asbestos containing material), relating to pollution or protection of the environment and relating to public health and safety, relating to (i) emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial toxic or hazardous constituents, substances or wastes, including without limitation, any Hazardous Substance, petroleum including crude oil or any fraction thereof, any petroleum product or other waste, chemicals or substances regulated by any Environmental Law into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), or (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of any Hazardous Substance, petroleum including crude oil or any fraction thereof, any petroleum product or other waste, chemicals or substances regulated by any Environmental Law, and (iii) underground storage tanks and related piping, and emissions, discharges and releases or threatened releases therefrom, such Environmental Laws to include, without limitation (a) the Clean Air Act (42 U.S.C.ss.7401 et seq.), (b) the Clean Water Act (33 U.S.C.ss. 1251 et seq.), (c) the Resource Conservation and Recovery Act (42 U.S.C.ss. 6901 et seq.), (d) the Toxic Substances Control Act (15 U.S.C.ss. 2601 et seq.), (e) the Comprehensive Environmental Response Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act (42 U.S.C.ss. 9601 et seq.), and (f) all applicable national and local laws or regulations with respect to environmental control. "Existing Facility Agreement" shall mean that certain Amended and Restated Loan Facility and Guaranty Agreement dated as of November 3, 1999, by and among the Sponsor, SunTrust Bank, formerly SunTrust Bank, Atlanta, as Bank and each of the Participants a party thereto. "Final Termination Date" shall mean the date which is ninety (90) days after the last Maturity Date of any Loan. "Financing Statement" shall mean, with respect to a Loan, a document which among other things, describes the Borrower and the Collateral, the proper filing of which perfects a security interest in the Collateral described therein under the laws of the state in which such document is filed. "Franchisee" shall have the meaning set forth in the recitals hereof. "Franchise Agreement" shall mean the written agreement between Sponsor and a Franchisee whereby the Franchisee is authorized to establish an "Aaron's Rental Purchase" franchise. "Franchisee Guarantor" shall mean, with respect to any Borrower's Loan Commitment, the Franchisee owned by such Borrower that becomes a party to a Franchisee Guaranty. "Franchisee Guaranty" shall mean the Guaranty Agreement substantially in the form of Exhibit D, as the same may be amended, restated, supplemented or otherwise modified from time to time. 4 6 "Franchisee Loan Agreement" shall mean, with respect to any Borrower, a "Loan Agreement", as such term is defined in the Existing Facility Agreement, between the Franchisee owned by such Borrower and the Bank. "Franchisee Loan Document" shall mean, with respect to any Borrower, a "Loan Document", as such term is defined in the Existing Facility Agreement, between the Franchisee owned by such Borrower and the Bank. "Franchisee Owner" shall have the meaning set forth in the recitals hereof. "Funding Approval Notice" shall mean a written notice to the Bank from Sponsor setting forth the conditions of a proposed Loan Commitment, consistent with the requirements therefor as set forth in this Agreement, and containing such information and in substantially in the form of Exhibit E attached hereto. "Guaranteed Obligations" shall mean the aggregate amount of all Loan Indebtedness of all Borrowers outstanding under all Loan Documents to include, without limitation (i) all principal, interest and commitment fees due with respect to all Loans, including post-petition interest in any proceeding under federal bankruptcy laws, (ii) all fees, expenses, and amounts payable by all Borrowers for reimbursement or indemnification under the terms of all Loan Agreements and all other Loan Documents executed in connection with the Loan to such Borrower, (iii) all amounts advanced by Bank to protect or preserve the value of any security for the Loans, (iv) all other obligations and liabilities of Borrowers under the Loan Documents, and (v) all renewals, extensions, modifications, and refinancings (in whole or in part) of any of the amounts referred to in clauses (i) and (ii) above). "Guarantor" shall mean Aaron Rents, Inc. and all other subsidiaries of the Sponsor that from time to time become parties to the Guaranty Agreement, and their respective successors and permitted assigns. "Interest Only Period" shall mean, as to each Loan, the period of time from the Loan Funding Date applicable thereto, through such later date requested by Sponsor in the Loan Request for such Loan, but in no event more than ninety (90) days after such Loan Funding Date. "LIBOR" shall mean, for each Payment Period, the offered rate for deposits in U.S. Dollars, for a period of one month and in an amount comparable to the aggregate outstanding principal of the Loans as of the first day of such Payment Period, appearing on Telerate Page 3750 as of 11:00 A.M. (Atlanta, Georgia time) on the Business Day next preceding such date. If two or more of such rates appear on Telerate Page 3750, the rate for that Payment Period shall be the arithmetic mean of such rates. If the foregoing rate is unavailable from Telerate Page 3750 for any reason, then such rate shall be determined by the Bank from the Reuters Screen LIBO Page or, if such rate is also unavailable on such service, then on any other interest rate reporting service of recognized standing designated in writing by the Bank to Sponsor; in any such case rounded, if necessary, to the next higher 1/100 of 1.0%, if the rate is not such a multiple. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien, charge, hypothecation, assignment, deposit arrangement, title retention, preferential property right, trust 5 7 or other arrangement having the practical effect of the foregoing (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, including any lease or similar arrangement with a public authority executed in connection with the issuance of industrial revenue bonds or pollution control revenue bonds, and the filing of or agreements to give any financing statement under the Uniform Commercial Code of any jurisdiction). "Loan" shall mean the transaction whereby a term loan is made by the Bank to a Borrower in the amount upon the terms and pursuant to the Loan Commitment described in the Loan Agreement of such Borrower, and shall include the Prior Loans. "Loan Account" means the internal bank loan account established by Bank for each Borrower. "Loan Agreement" shall mean a Term Loan and Security Agreement setting forth the terms and conditions, as between a Borrower and the Bank, under which the Bank has established Loan Commitments to make Loans to such Borrower, with such changes as the Sponsor and the Bank shall agree to, subject to Section 3.1(b); provided, however, that any Loan Agreement executed prior to the Effective Date shall be substantially in the form previously approved by the Bank. "Loan Commitment" shall mean, for any Borrower, the commitment to make Loans established by the Bank in favor of any Borrower in the form of Exhibit F, in an amount not less than $100,000, and upon the terms described in, the applicable Funding Approval Notice and the applicable Loan Documents, and shall include the Prior Loan Commitments. "Loan Default" shall mean an occurrence with respect to a Loan which is defined by the applicable Loan Documents to be an event of default (including but not limited to a Loan Payment Default). "Loan Documents" shall mean, with respect to any Loan, the Loan Agreement, the Master Note, each Loan Request, any Spousal Consent, each Collateral Agreement, in each case relating to such Loan, any other documents relating to such Loan delivered by any Borrower or any guarantor or surety thereof to the Bank and any amendments thereto (provided that such amendments are made with the consent of Sponsor, where such consent is required under this Agreement). "Loan Funding Date" shall mean, with respect to any Loan, the date on which the Bank advances such Loan to the applicable Borrower. "Loan Indebtedness" shall mean all amounts due and payable by a Borrower under the terms of the Loan Documents governing the Loan Commitment of such Borrower, including, without limitation, outstanding principal, accrued interest, any commitment fees, and all reasonable costs and expenses of any legal proceeding brought by the Bank to collect any of the foregoing (including without limitation, reasonable attorneys' fees actually incurred). 6 8 "Loan Payment Default" shall mean the failure of a Borrower to make a payment of principal, accrued interest thereon or any other amounts, within the cure period following the due date therefor, as provided under the applicable Loan Documents. "Loan Request" shall mean the funding request from the Sponsor, on behalf of a Borrower, which shall be substantially in the form of Exhibit C. "Master Note" shall mean that certain Master Note, executed by a Borrower in favor of the Bank, evidencing such Borrower's obligation to repay all Loans made to it pursuant to a Loan Commitment, substantially in the form of Exhibit G to the Loan Agreement, with such changes as the Sponsor and the Bank shall agree to, subject to Section 3.1(b); provided, however, that any Master Note executed prior to the Effective Date shall be substantially in the form previously agreed upon by the Bank. "Materially Adverse Effect" shall mean any materially adverse change in (i) the business, results of operations, financial condition, assets or prospects of the Sponsor and its Subsidiaries, taken as a whole, (ii) the ability of the Sponsor to perform its obligations under this Agreement, or (iii) the ability of the Guarantors (taken as a whole) to perform their respective obligations under the Guaranty Agreement. "Maturity Date" shall mean, with respect to any Loan, if not earlier accelerated, the Payment Date occurring during the month in which occurs the fifth (5th) anniversary of the Conversion Date of such Loan; provided that, each Maturity Date shall be a Payment Date. "Monthly Servicing Report" shall have the meaning set forth in Section 3.3(a). "Operative Documents" shall mean this Agreement, and any other documents delivered by Sponsor or any Guarantor to the Bank in connection herewith or therewith. "Payment Date" shall mean the fifteenth (15th) day of each calendar month; provided, however, if such day is not a Business Day, the next succeeding Business Day. "Payment Period" shall mean a period of one (1) month; provided that (i) the first day of a Payment Period must be a Business Day, (ii) any Payment Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day, (iii) the first Payment Period hereunder shall commence on the date hereof and shall end on the last day of the next succeeding calendar month and (iv) the first day of any succeeding Payment Period shall be the last day of the preceding Payment Period and shall end on the last day of the next succeeding calendar month. "Person" shall mean any individual, partnership, firm, corporation, association, joint venture, trust or other entity, or any government or political subdivision or agency, department or instrumentality thereof. "Pledge Agreement" shall mean a Pledge Agreement in substantially the form of Exhibit H, pursuant to which a Borrower pledges certain of the Capital Stock of the Franchisee owned by such Borrower to secure such Borrower's Loans. 7 9 "Prior Loan" shall have the meaning set forth in Section 13.13. "Prior Loan Commitment" shall have the meaning set forth in Section 13.13. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time. "Response Period" shall mean, for any Loan, a period of seventy (70) days commencing on the day next succeeding the day on which the Sponsor receives a notice from the Bank of such Loan Default, provided, however, that no Response Period shall extend beyond the Final Termination Date. "Reuters Screen" shall mean, when used in connection with any designated page and LIBOR, the display page so designated on the Reuters Monitor Money Rates Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to LIBOR). "Servicing Fee" shall mean, for any calendar month, a fee equaling one-half (1/2) of one percent (.50%) of the average daily aggregate outstanding balance of all Loans during such month, payable monthly as hereinafter provided. "Spousal Consent" shall mean any agreement provided by the spouse of any Borrower, to be substantially in the form provided by the Bank. "Subordinated Debt" shall have the meaning set forth in Section 9.6. "Subsidiary" shall mean, with respect to any Person, any corporation or other entity (including, without limitation, partnerships, joint ventures, and associations) regardless of its jurisdiction of organization or formation, at least a majority of the total combined voting power of all classes of voting stock or other ownership interests of which shall, at the time as of which any determination is being made, be owned by such Person, either directly or indirectly through one or more other Subsidiaries. "Synthetic Lease Documents" shall mean, collectively, the Master Agreement, dated as of September 30, 1996, among the Sponsor, SunTrust Banks, Inc., as lessor (the "Lessor"), SunTrust Bank, Atlanta and SouthTrust Bank of Georgia, N.A., as lenders, and SunTrust Bank, Atlanta, as agent, the Lease Agreement, dated as of September 30, 1996, between the Lessor and the Sponsor and any supplements thereto, the Construction Agency Agreement, dated as of September 30, 1996, among the Lessor and the Sponsor, the Guaranty, dated as of September 30, 1996, executed by the Sponsor in favor of the Funding Parties (as defined therein), and any and all Security Agreements and Assignments (Construction Contract, Architect's Agreement, Permits, Licenses and Governmental Approvals, and Plans and Specifications and Drawings) executed from time to time by the Sponsor in favor of the Lessor, and any modifications of or replacements for any or all of the foregoing. "Taxes" shall mean any present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other charges of whatever nature, including without limitation, income, receipts, excise, property, sales, transfer, license, payroll, withholding, social security 8 10 and franchise taxes now or hereafter imposed or levied by the United States, or any state, local or foreign government or by any department, agency or other political subdivision or taxing authority thereof or therein and all interest, penalties, additions to tax and similar liabilities with respect thereto. "Telerate" shall mean, when used in connection with any designated page and LIBOR, the display page so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to LIBOR). "Unmatured Credit Event" shall mean any condition or event which, with notice or the passage of time or both, would constitute a Credit Event. "Voting Stock" shall mean securities of any class or classes, the holders of which are entitled to elect all of the corporate directors (or Persons performing similar functions). "Wind-Down Event" shall mean that the Commitment Termination Date occurs. 1.2 Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms shall be construed herein, all accounting determinations hereunder shall be made, all financial statements required to be delivered hereunder shall be prepared, and all financial records shall be maintained in accordance with, GAAP. 1.3 Other Definitional Terms. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule, Exhibit and like references are to this Agreement unless otherwise specified. 1.4 Exhibits and Schedules. All Exhibits and Schedules attached hereto are by reference made a part hereof. 2. LOAN FACILITY 2.1 Establishment of the Commitment; Loans; Closing Fee. (a) Commitment. Subject to and upon the terms and conditions set forth in this Agreement and the other Operative Documents, and in reliance upon the guaranty and other obligations of the Sponsor set forth herein, the Bank hereby commits to Sponsor to establish Loan Commitments and to make Loans thereunder to such Borrowers as may be designated by the Sponsor in its Funding Approval Notices during a period commencing on the date hereof and ending on August 31, 2001 (the "Commitment Termination Date") in an aggregate committed amount at any one time outstanding not to exceed FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (the "Commitment"); provided, that, notwithstanding any provision of this Agreement to the contrary, at no time shall the 9 11 sum of aggregate committed amounts of all Loan Commitments outstanding pursuant to the Commitment, or, following the termination of any such Loan Commitment, Loans outstanding thereunder, exceed the Commitment. (b) Within the limits of the Commitment and in accordance with the procedures set forth in this Agreement, the Sponsor may authorize the Bank to establish a Loan Commitment in favor of a Franchisee Owner who meets the credit criteria established by the Sponsor. The amount of each Loan Commitment shall be determined by the Sponsor but shall not be less than $100,000 for any Borrower and, in any event, shall be subject to the aggregate Commitment herein before stipulated. Pursuant to a Loan Commitment, the Bank shall agree to make Loans to the Borrower thereunder. The Loans made to a particular Borrower shall be evidenced by and secured under Loan Documents which shall be in form and substance mutually satisfactory to Bank and Sponsor, and the Bank shall prepare and distribute such Loan Documents to such Borrower and shall arrange for such Borrower to execute and deliver the same, and Bank shall provide Sponsor with copies of such Loan Documents if and to the extent requested by Sponsor. All Loans made pursuant to a particular Loan Commitment shall bear interest at the Borrower Rate designated by Sponsor in the applicable Funding Approval Notice. Each Loan may be prepaid in full or in part on any Business Day, without premium or penalty. Each Loan Commitment shall be, initially, one year, but shall automatically renew unless terminated by ninety (90) days' prior written notice by Bank or the Sponsor to the Borrower prior to the first anniversary date and may thereafter be terminated at any time by Bank or the Sponsor upon ninety (90) days' prior written notice to the Borrower or the Bank, as the case may be. Upon the termination of any Loan Commitment, the Bank shall have no further obligation to make Loans and any portion of a Loan Commitment not advanced prior to the termination of the Loan Commitment will be forfeited by the Borrower. The proceeds of each Loan made pursuant to the Loan Commitments shall be used solely to make equity contributions towards capitalization of the Franchisee owned by such Borrower. (c) The Bank's obligation to establish each Loan Commitment under the Operative Documents is subject to the fulfillment of the following conditions as of the Closing Date of such Loan Commitment: (i) this Agreement and each of the other Operative Documents shall be in full force and effect; (ii) the representations and warranties of the Sponsor contained in Article 5 shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the Closing Date of such Loan Commitment; (iii) the Bank shall have received from the Sponsor a Funding Approval Notice authorizing such Loan Commitment; (iv) all precedents and conditions to the Loan Commitment together with such additional precedents and conditions as may, at Sponsor's election, be 10 12 included in the applicable Funding Approval Notice, shall have been completed to the Bank's reasonable satisfaction; and (v) no Credit Event, Unmatured Credit Event, or Wind-Down Event shall have occurred and be continuing. (d) On the date of the execution and delivery of this Agreement, Sponsor shall pay to the Bank a one-time closing fee in the amount of $6,250.00 (the "Closing Fee") which amount shall be fully paid and non refundable as of such date. 2.2 Funding of Loans; Loan Payment Dates. (a) The initial Loan made pursuant to each Loan Commitment shall be made by the Bank to Sponsor on behalf of the Borrower on the Closing Date thereof in accordance with the instructions set forth in the initial Loan Request. Thereafter, the Sponsor, on behalf of a Borrower, may request no more than one (1) additional Loan per month until the termination of the Loan Commitment; provided that, the Sponsor shall not have the right to request -------- an additional Loan if the making of such Loan to the Bank would cause such Borrower's Loan Indebtedness to exceed such Borrower's Loan Commitment. Any amount of the Loan Commitment not advanced prior to the termination of the Loan Commitment shall be forfeited by the applicable Borrower on the last day thereof. If the Borrower desires a Loan pursuant to its Loan Commitment, the Borrower shall submit a duly executed Loan Request to the Sponsor in writing (including by telecopy with original to follow by U.S. Mail) at least five (5) Business Days prior to the requested Loan, which Loan Request shall include the following information: (i) the Borrower's legal name; (ii) the amount of the Loan; (iii) the proposed Loan Funding Date of, and the length of the Interest Only Period applicable to, the Loan; (iv) the instructions for funding such Loan. The Bank shall have no obligation to make a Loan unless the Sponsor gives its prior written consent thereto by executing such Loan Request and forwarding such Loan Request to the Bank at least three (3) Business Days prior to the date such disbursement is to be made. All proceeds of Loans shall be funded to Sponsor on behalf of the Borrower, or at the request of Sponsor, directly to the Borrower. If Sponsor rejects the Loan Request, Sponsor shall notify the Borrower in writing within two (2) Business Days of such rejection. (b) The Bank shall fund the Loans and each applicable Borrower shall repay the Loans made to it. Each Loan shall be repaid as follows: 11 13 (i) Interest on principal shall be payable monthly, commencing on the first Payment Date occurring after the Loan Funding Date, and throughout the term of the Loan; (ii) Commencing on the Payment Date of the first month following the Conversion Date applicable to a Loan, installments of principal shall be payable in amounts equal to 1/60th of the principal amount of the Loan funding on the Loan Closing Date. On or before the fifteen (15th) day of each calendar month, Bank shall mail to each Borrower a statement of the principal and interest then due on such Borrower's Loans. Payments of such principal and interest amount shall be due and payable on the Payment Dates and all accrued and unpaid interest and all outstanding principal on any Loan shall be due and payable in full on the Maturity Date for such Loan. (c) The Bank shall have the exclusive right to collect and receive all such payments on the Loans from the Borrowers which are due and owing to Bank. In the event that Sponsor receives any such payment with respect to the Loans (other than with respect to Loans purchased by Sponsor or where Sponsor has been subrogated to the rights of the Bank pursuant to Section 9.13), such payments shall be accepted by Sponsor as agent for the Bank and the Sponsor shall immediately endorse and forward the same to the Bank. (d) Payments on Loans received by Borrowers shall be allocated as provided in Section 3.1 hereof. 2.3 Prepayment. The Borrowers shall have the right to prepay their respective Loans in whole or in part upon at least two (2) Business Days prior notice to the Bank; provided that each full prepayment must be accompanied by all accrued and unpaid interest which has become due and payable. Partial prepayments of any Loan shall be applied to unpaid principal payments in inverse order of maturity. 2.4 Default Interest. If any amount payable to the Bank by the Borrower under the Operative Documents is not paid on the date due hereunder, such amount shall bear interest (to the extent permitted by law) for each day from such date up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to a rate per annum of the Borrower Rate plus 4%. 12 14 2.5 Voluntary Reduction of the Unutilized Commitment. Upon at least three (3) Business Days' prior telephonic notice (promptly confirmed in writing) to the Bank, Sponsor shall have the right, without premium or penalty, to terminate the Commitment, in part or in whole, provided that (i) any such termination shall apply to permanently reduce the Commitment, (ii) any partial termination pursuant to this Section 2.5 shall be in an amount of at least $1,000,000 and integral multiples of $1,000,000, and (iii) the Commitment may not be reduced if, as a result thereof, the amount of the Commitment is less than the aggregate sum of all outstanding Loan Commitments. 2.6 Late Payment Fees; Servicing Fee; Minimum Bank Interest; Calculation of Interest and Fees. (a) The Bank shall pay the Sponsor any and all late payment fees collected by Bank from Borrowers, which payments shall be made promptly after Bank's collection of such fees. (b) All computations of interest and fees required in this Agreement shall be performed by the Bank and shall be conclusive in the absence of manifest error. If and to extent reasonably requested by the Sponsor from time to time, the Bank shall provide the Sponsor with supporting information for such calculations. (c) On or before the fifteenth (15th) day of each calendar month, the Bank shall be entitled to receive the Servicing Fee for the immediately preceding month, which fee shall be payable in accordance with paragraph (d) below. (d) At the end of each calendar month, Bank shall calculate the aggregate amount of interest actually received by it on all outstanding Loans during such month (such amount being herein called the "Borrower Interest") and shall also determine the amount of interest that would have been received on the Loans during such month had such interest been computed at the Adjusted LIBO Plus Rate rather than the applicable Borrower Rate (such amount being herein called the "Bank Interest"). Bank shall report to Sponsor in each Monthly Servicing Report the difference between the Borrower Interest, on the one hand, and the sum of the Bank Interest and the Servicing Fee for such month, on the other hand. If the Borrower Interest for any month shall be less than the sum of the Bank Interest and the Servicing Fee for such month, Sponsor shall pay the Bank an amount equal to such difference within ten (10) Business Days following the delivery date of the Monthly Servicing Report for such month. In the event that the Borrower Interest for any month exceeds the sum of the Bank Interest plus the Servicing Fee for such month, Bank shall pay the Sponsor an amount equal to such difference by no later than the tenth (10th) Business Day following the delivery date of the Monthly Servicing Report for such month. 13 15 2.7 Wind-Down Events. In the event that the Commitment is not extended for any reason and the Commitment Termination Date occurs, then (x) the Sponsor shall not have the right to request that any further Loan Commitments be established, and (y) the Bank shall, within a reasonable period of time and in any event no later than thirty (30) days after the Commitment Termination Date, give notice to each of the Borrowers terminating the Loan Commitments as of the date which is ninety (90) days after delivery of such notice; provided, however, that the occurrence of such Wind-Down Event shall not affect the obligation of (i) the Bank to make Loans pursuant to existing Loan Commitments, except to the extent that the Loan Commitments are terminated pursuant to clause (y) above or (ii) the Credit Parties under the Operative Documents. 2.8 Reserve Requirements; Change in Circumstances; Change in Lending Offices. (a) Notwithstanding any other provision herein, if, by reason of (i) after the date hereof, the introduction of or any change (including any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (ii) the compliance with any guideline or request from any central bank or other governmental authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law), any reserve (including any imposed by the Federal Reserve Board), special deposit or similar requirement (including a reserve, special deposit or similar requirement that takes the form of a tax) against assets of, deposits with or for the account of, or credit extended by, the Bank's office through which it funds its obligations hereunder shall be imposed or deemed applicable or any other condition affecting its obligation to make or maintain the Loans at a rate based upon the Adjusted LIBO Rate shall be imposed on the Bank or its office through which it funds its obligations hereunder or the interbank eurodollar market; and as a result thereof there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining funds its obligations hereunder (except to the extent already included in the determination of the applicable Adjusted LIBO Rate), or there shall be a reduction in the amount received or receivable by the Bank or its office through which it funds its obligations hereunder, then the Sponsor shall from time to time, upon written notice from and demand by the Bank (with a copy of such notice and demand to the Bank), pay to the Bank within five Business Days after the date specified in such notice and demand, additional amounts sufficient to indemnify the Bank against such increased cost. A certificate as to the amount of such increased cost submitted to the Sponsor by the Bank, shall, except for manifest error, be final, conclusive and binding for all purposes. (b) If while the Commitment or any Loan Commitments are outstanding, the Bank determines that the adoption of any law, rule or regulation regarding capital adequacy or capital maintenance, or any change in any of the foregoing or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank (or any lending office of the Bank) or the Bank's holding company with any request or directive regarding capital adequacy or capital maintenance (whether or not having the force of law) of any such authority, central bank or 14 16 comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital or on the capital of the Bank's holding company, if any, as a consequence of this Agreement or the Loan Documents to a level below that which the Bank or the Bank's holding company could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies and the policies of the Bank's holding company with respect to capital adequacy) by an amount reasonably deemed by the Bank to be material, then from time to time, within 15 days after written demand by the Bank, the Sponsor shall pay to the Bank such additional amount or amounts as will compensate the Bank or the Bank's holding company for such reduction. A certificate as to the amount of any such additional amount or amounts, submitted to the Sponsor by the Bank, shall, except for manifest error, be final, conclusive and binding for all purposes. (c) The Bank agrees that, if requested by the Sponsor, it will use reasonable efforts (subject to overall policy considerations of the Bank) to designate an alternate lending office with respect to any of the Loans affected by the matters or circumstances described above to reduce the liability of the Sponsor or avoid the results provided thereunder, so long as such designation is not disadvantageous to the Bank as determined by the Bank, which determination if made in good faith, shall be conclusive and binding on all parties hereto. Nothing in this Section 2.8(c) shall affect or postpone any of the obligations of the Sponsor or any right of provided hereunder. 2.9 Payments. (a) Each Borrower shall make each payment required to be made by it hereunder and under any other Operative Document to the Bank not later than 1:00 p.m. (Atlanta, Georgia time), on the date when due in dollars to the Bank at its offices in Atlanta, Georgia in immediately available funds. (b) Whenever any payment hereunder or under any other Operative Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Commitment Fees, if applicable. 3. BANK'S SERVICING OBLIGATIONS; DISTRIBUTION OF PAYMENTS 3.1 Servicing of Loans. (a) The Loan Documents for any Borrower's Loan shall not be modified or waived without the consent of Bank and Sponsor. (b) Bank shall service the Loan Commitments and the Loans in the same manner in which it services loans of a similar type and size which Bank makes for its own account. (c) If and for so long as no Credit Event shall have occurred and be continuing, Bank shall: 15 17 (i) open and maintain files for the Loan Documents for each Loan Commitment and receive and keep records of all payments with respect to the Loans; (ii) provide each Borrower with a monthly notice of the principal and interest due on such Borrower's Loan; (iii) provide each Borrower with a reminder notice of any monthly payment on its Loans which is past due; (iv) within five (5) days after any payment on any Loan becomes more than 30 days past due, use good faith efforts to provide the applicable Borrower with written notice of such delinquency, which notice shall be sent by registered mail with a copy to Sponsor; (v) use good faith efforts to provide Sponsor on each Business Day with a report by telecopy summarizing all Loans made on such day, all payments received on the Loans on such day, and the remaining available balance under each Loan Commitment; (vi) use good faith efforts to provide Sponsor with a weekly report of all Defaulted Loans, which report shall identify all Loans which are fifteen (15) days or more past due; (vii) provide the Sponsor with notice of any Loan Default (other than a Loan Payment Default) of which the Bank acquires actual knowledge (it being agreed that the Bank shall acquire such knowledge only if and to the extent such Loan Default becomes known to the person or persons within the Bank who are primarily responsible for administering the Loan Commitments and the Loans); and (viii) provide to the Sponsor the Monthly Servicing Reports required pursuant to Section 3.3 below. 3.2 Application of Payments. (a) The Bank and the Sponsor shall instruct each Borrower to make payments with respect to the Loans and the Loan Commitments directly to the Bank, either by wire transfer or debit pursuant to a Debit Authorization. (b) If during any period when no Credit Event has occurred and is continuing, amounts received by Bank are not capable of being allocated to any specific Loan or, in the case of amounts allocable to a specific Loan, are not sufficient to repay all obligations then due and owing with respect thereto, such amount shall be applied by the Bank as follows: (i) first, to the payment of accrued interest on the outstanding Loans, (ii) second, to the payment of any Servicing Fees owing hereunder, (iii) third, to the repayment of the Loans outstanding under the Loan Commitments, (iv) fourth, to the payment of all other 16 18 amounts owing to the Bank hereunder, and (v) fifth, if all obligations of the Sponsor pursuant to the Operative Documents have been satisfied in full, to the Sponsor. (c) During any period when a Credit Event has occurred and is continuing, any amounts received by Bank with respect to the Loan shall be applied, after deduction of any expenses incurred and the collection of any such amounts, as follows: (i) first, to the payment of any accrued and unpaid Servicing Fees, (ii) second, to the payment of all other amounts owing to the Bank hereunder, and (iii) thereafter, to such Persons as may be legally entitled thereto. (d) If no sooner repaid, all amounts due and payable to the Bank under the Operative Documents shall be due and payable in full on the Final Termination Date. 3.3 Servicing Reports. (a) On each Payment Date, Bank shall provide to Sponsor by telecopy a report in the form of Exhibit P attached hereto (a "Monthly Servicing Report") setting forth the information required therein. (b) Bank shall generate at the end of each calendar month, a monthly loan account statement which shall be sent to each Borrower. 3.4 Sponsor Instructions. If and for so long as no Credit Event shall have occurred and be continuing, Bank shall comply with the instructions of Sponsor with respect to modifications or waivers of the provisions of any of the Loan Documents or with respect to the administration of the Loan Commitments and the Loans; provided, however, that Bank shall not be required to comply with any such instructions if and to the extent that Bank reasonably determines that such compliance is contrary to the terms of any of the Loan Documents or the Operative Documents, is contrary to applicable law, or otherwise would expose Bank to possible liability. 3.5 Amendments and Additional Loan Documents. Bank shall not agree to any amendment of any Loan Documents without the prior written approval of Sponsor unless (i) such amendment is necessary to correct a typographical or other manifest error in such Loan Document or to correct an immaterial ambiguity in such Loan Document or (ii) a Credit Event shall have occurred and be then continuing. Bank shall provide Sponsor with copies of any and all amendments of the Loan Documents if and to the extent requested by Sponsor. 3.6 Assignment of Loans. If a Sponsor purchases a Loan from Bank pursuant to this Agreement, or in the event that Sponsor reimburses Bank for expenses incurred by it in connection with a proposed loan which was not closed and for which Bank has not received such reimbursement from the applicable Borrower, Bank shall be deemed to have assigned to Sponsor all of the Bank's 17 19 rights and remedies against such Borrower, provided that such Assignment shall be subject to the terms and conditions of Section 9.13 hereof. 4. LOAN DEFAULT; RIGHT TO MAKE GUARANTY DEMAND 4.1 Notice of Loan Defaults. (a) Within fifteen (15) days after the occurrence of a Loan Payment Default or after Bank obtains actual knowledge of any other Loan Default, Bank shall use good faith efforts to send a notice of Loan Default to the applicable Borrower and notice to Sponsor. (b) Following the sending of such notice of Loan Default, Bank shall as soon as is practicable, provide Sponsor with such other information relating to the Defaulted Borrower and the Defaulted Loan as Sponsor requests. (c) Bank shall not be required to take any remedial action against any Defaulted Borrower under a Defaulted Loan and shall not be entitled to take any remedial action during any applicable Response Period except as expressly provided herein. 4.2 Waiver or Cure By The Sponsor. Unless a Credit Event or an Unmatured Credit Event has occurred and is continuing, within the Response Period, the Sponsor shall be entitled (but not obligated) to: (a) in the case of a Loan Default, other than a Loan Payment Default, waive such Loan Default by sending to the Bank a Default Waiver Request, except as set forth in Section 4.4; provided however, that the Sponsor shall not request a waiver of more than three (3) such Loan Defaults in any one year period with respect to any Loan Commitment; or (b) in the case of a Loan Payment Default, to waive and cure such Loan Payment Default; provided, however, that Sponsor shall not waive and cure more than two (2) consecutive Loan Payment Defaults nor waive and cure more than a total of four (4) Loan Payment Defaults in any four year period, with respect to any Loan Commitment. During a Response Period, the Bank shall refrain from taking any legal action against the Defaulted Borrower under the Defaulted Loan which is the subject of such Response Period, and from accelerating payment of the Loan Indebtedness under such Defaulted Loan, but the Bank shall cease funding any further Loans pursuant to the Loan Commitment. If the Sponsor waives any Loan Default (other than a Loan Payment Default) or waives and cures any Loan Payment Default (subject to Section 4.4) prior to the expiration of a Response Period, then as to each Loan Default so waived or waived and cured, the Defaulted Borrower's and the Bank's respective rights and obligations under the Loan Documents shall be restored to the same status as if such waived Loan Default never occurred. In addition, if the Sponsor takes over the operation of the business of a certain Franchisee that is an "Established Franchisee Borrower" (as such term is defined in the Existing Facility Agreement) as provided in Article 10 of the 18 20 Existing Facility Agreement, the Bank shall refrain from exercising remedies against the Borrower that owns such Franchisee for as long as the "Bank" under the Existing Facility Agreement refrains from exercising remedies against such Franchisee. 4.3 Defaulted Loan Guaranty Demand. (a) In the event that following the end of a Response Period, a Loan Payment Default is not cured or in the event that any other Loan Default is not then waived, the Bank shall have the right at any time thereafter to demand that Sponsor comply with its obligations with respect to such Defaulted Loan set forth in Article 9. (b) In the event that a Credit Event has occurred and is continuing and Sponsor has not purchased all outstanding Loans hereunder and fully cash-collateralized the amount of the aggregate Loan Commitments, the Sponsor agrees that the Bank shall be released from its obligations to the Sponsor hereunder with respect to administering and enforcing all Loans and Loan Commitments and may administer and enforce such Loans and Loan Commitments as it deems appropriate, without regard to any limitations or restrictions set forth herein (but subject to Article 3 in all events) or in any other Operative Document. 4.4 No Waiver or Cure Available. Notwithstanding anything contained in this Article to the contrary, the Sponsor shall, within five (5) Business Days of its receipt of a written demand from the Bank instructing it to do so, purchase the Loan Indebtedness of any Loan and assume the Loan Commitment with respect to a Defaulted Borrower whose Loan Default either arises from the bankruptcy or insolvency of such Borrower or such Borrower's Franchisee or the termination of the Franchise Agreement to which such Borrower's Franchisee is a party. 5. REPRESENTATIONS AND WARRANTIES The Sponsor (as to itself and each of the Consolidated Companies) hereby represents and warrants to the Bank that: 5.1 Organization and Qualification. The Sponsor and its Subsidiaries are corporations duly organized, validly existing and in good standing under the laws of the State of Georgia and the State of Delaware, as applicable; the Sponsor and its Subsidiaries have the corporate power to own their property and to carry on their business as now being conducted; and the Sponsor and its Subsidiaries are duly qualified as foreign corporations to do business and are in good standing in every jurisdiction in which the nature of the business conducted by them makes such qualification necessary and where failure to qualify would have a Materially Adverse Effect. 5.2 Sponsor's Powers. 19 21 The execution, delivery and performance of this Agreement, the Guaranty Agreement, the Amendment to Loan Agreement and each other Operative Document required hereunder are within the Sponsor's or the Guarantors' corporate powers, as the case may be, have been duly authorized by all necessary shareholder or corporate action, and do not and will not contravene or conflict with the terms of any charter, by-law or other organizational papers of the Sponsor or any of its Subsidiaries, or any indenture, agreement or undertaking to which the Sponsor or any of its Subsidiaries is a party or by which the Sponsor or any of its Subsidiaries is bound or affected. 5.3 Enforceability of Agreement and Other Operative Documents. This Agreement is a legal, valid and binding agreement of the Sponsor, enforceable against the Sponsor in accordance with its terms, and each other Operative Document and any other instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable against the Sponsor and its Subsidiaries, as applicable, in accordance with their respective terms. 5.4 Statutes, Judgments. There is no law, statute, rule or regulation, nor is there any judgment, decree or order of any court or agency binding on the Sponsor or any of its Subsidiaries, which would be contravened by the execution, delivery or performance of this Agreement (including, without limitation, the interest payment and allocation provisions hereof). 5.5 No Credit Event; Unmatured Credit Event or Change of Control. No Credit Event or Unmatured Credit Event has occurred and is continuing or will occur as a result of the incurring of any obligation under this Agreement. 5.6 Possession of Franchises, Licenses, Etc.; Laws. The Sponsor and its Subsidiaries possess all franchises, certificates, licenses, permits and other authorizations from governmental political subdivisions or regulatory authorities, and all patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from burdensome restrictions, that are necessary for the ownership, maintenance and operation of any of their respective properties and assets, and neither the Sponsor nor any of its Subsidiaries is in violation in any material respect of any thereof. 5.7 Contingent Liabilities. After due inquiry, there exists no material contingent liability or obligation assertable against the Sponsor or its Subsidiaries that is not identified and disclosed to the Bank in the consolidated financial statements hereto delivered to Bank. 5.8 Compliance with Laws. Each of the Sponsor and its Subsidiaries is in compliance in all material respects with all applicable federal, state and local laws, rules, regulations and orders, including, without 20 22 limitation, all federal, state and local laws, rules, regulations and orders relating to pollution, reclamation or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes, and all federal, state and local laws, rules, regulations and orders relating to franchising activities. 5.9 Representations and Warranties with Respect to Specific Loans. The Sponsor represents and warrants to the Bank with respect to each Loan Commitment established and each Loan made pursuant to the Operative Documents that: (a) The Franchise Agreement, the Master Note, the Loan Agreement and each other Loan Document executed in connection with such Loan Commitment each constitutes a valid and binding agreement of each Borrower or guarantor party thereto and is enforceable against each such party in accordance with its terms. (b) The Master Note and accompanying Loan Documents executed in connection with such Loan and delivered to the Bank are the only contracts evidencing the transaction described therein and constitute the entire agreement of the parties thereto with respect to such transaction and Sponsor has not made any other promises, agreements or representations and warranties with respect to the transactions evidenced by such Master Note. (c) The Master Note and each accompanying Loan Documents executed in connection with such Loan is genuine and all signatures, names, amounts and other facts and statements therein and thereon are true and correct. (d) All disclosures required to be made under applicable federal and state law in connection with such Loan have been properly and completely made with respect to each Master Note, the other Loan Documents and the Loan and each such Master Note, other Loan Documents and Loan is in full compliance with all applicable federal and state laws, including without limitation, applicable state and federal usury laws and regulations. (e) The proceeds of each Master Note will be solely for the purpose of financing the Franchisee Owner's equity contributions to the Franchisee that such Franchisee Owner owns and is required to make contributions to pursuant to the Franchise Agreement. 6. AFFIRMATIVE COVENANTS The Sponsor covenants and agrees that it will, as long as the Commitment is in effect or the Bank is committed to make Loans under any Loan Documents and thereafter so long as any 21 23 Loan remains outstanding or any Loan Commitment remains in effect under this Agreement or Sponsor has any other unsatisfied obligations under the Operative Documents: 6.1 Financial Statements, Reports and Other Financial Data. The Sponsor will deliver to the Bank: (a) as soon as practicable and in any event within forty-five (45) days after the end of each calendar quarter (other than the last calendar quarter) in each fiscal year, consolidated statements of income, cash flow and retained earnings of the Sponsor and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such calendar quarter, and consolidated balance sheets of the Sponsor and its Subsidiaries as at the end of such calendar quarter, 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 the Chief Financial Officer of the Sponsor, subject to changes resulting from year-end adjustments; (b) as soon as practicable and in any event within 90 days after the end of each fiscal year (or as soon as made available by the Sponsor's independent public accountants if availability is delayed beyond such 90-day period for reasons beyond the Sponsor's control) audited consolidated statements of income, cash flow and retained earnings of the Sponsor and its Subsidiaries for such year, and an audited consolidated balance sheet of the Sponsor and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual statements, all in reasonable detail and reasonably satisfactory in scope to the Bank, and the consolidated financial statements shall be certified by independent public accountants of recognized standing, selected by the Sponsor, whose report shall be in scope and substance reasonably satisfactory to Bank, and shall be certified by the Chief Financial Officer of the Sponsor; (c) along with the quarterly and annual reports required by clauses (a) and (b) above, a certificate of the Chief Financial Officer of the Sponsor certifying that no Event of Default exists and that no event exists which with notice or the lapse of time or both would become such an Event of Default; (d) promptly upon receipt thereof, copies of any detailed reports submitted to the Sponsor by its independent public accountants in connection with each annual audit or interim review of the books of the Sponsor or its Subsidiaries made by such accountants; (e) promptly upon transmission thereof, copies of all financial statements, proxy statements, notices and reports as the Sponsor shall send to its shareholders and of all regular or periodic reports which it is or may be required to file with the Securities and Exchange Commission or any governmental department, bureau, commission or agency succeeding to the functions of the Securities and Exchange Commission; and (f) with reasonable promptness, such other financial data as the Bank may reasonably request. 22 24 6.2 Payment. The Sponsor will pay all sums due under this Agreement and the other Operative Documents according to the terms hereof. 6.3 Notice of Credit Event, Unmatured Credit Event. The Sponsor will immediately give notice to the Bank of any Credit Event or Unmatured Credit Event. 6.4 Corporate Existence. The Sponsor will maintain its corporate existence and good standing in the jurisdiction of its incorporation, and the Sponsor will qualify and remain qualified to do business as a foreign corporation in each jurisdiction in which the nature of the business conducted by it or its ownership of property makes such qualification necessary and where failure to qualify would have a Materially Adverse Effect. 6.5 Compliance with Laws, Etc. The Sponsor will comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable federal, state, and local laws, rules, regulations and orders, including, without limitation, all federal, state and local laws, rules, regulations and orders relating to pollution, reclamation, or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes, and all federal, state and local law, rules, regulations and orders relating to franchising activities. 23 25 7. NEGATIVE COVENANTS NOT APPLICABLE. 8. CREDIT EVENTS AND REMEDIES In the event that: (a) The Sponsor defaults in the payment of any amount due hereunder; or (b) The Sponsor or any of its Subsidiaries defaults in any payment of principal of or interest on any other obligation for a material amount of money borrowed (or any material obligation under conditional sale or other title retention agreement or any material obligation secured by a purchase money mortgage or any material obligation under notes payable or drafts accepted representing extensions of credit) or defaults in the performance of any other agreement, term or condition contained in any agreement under which any such material obligation is created (or if any other default under any such agreement shall occur and be continuing) if the effect of such default is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to its stated maturity (for purposes of this subsection (b), an obligation shall be material if the amount owed thereunder exceeds $500,000); or (c) Any representation or warranty made by the Sponsor or any of its Subsidiaries herein or in any writing furnished in connection with or pursuant to this Agreement or other Operative Document shall be false or misleading in any material respect on the date as of which made; or (d) The Sponsor defaults in the performance or observance of any other agreement, term, condition or covenant contained herein and such default shall continue for 30 days after the Sponsor knows or has reason to know of any such default; or (e) The Sponsor or any of its Subsidiaries makes an assignment for the benefit of creditors or fails to pay its debts generally as they become due; or (f) Any order, judgment or decree is entered under any Bankruptcy Law of any jurisdiction adjudicating the Sponsor or any of its Subsidiaries bankrupt or insolvent; or (g) The Sponsor or any of its Subsidiaries petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian or liquidator or similar official of the Sponsor or any of its Subsidiaries, or of any substantial part of the assets of the Sponsor or any of its Subsidiaries, or commences any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Sponsor or any of its Subsidiaries under the Bankruptcy Law of any jurisdiction, whether now or hereafter in effect, or any such petition or application is filed, or any such proceedings are commenced, against the Sponsor or any of its Subsidiaries and the Sponsor or such Subsidiary by any act indicates its approval thereof, 24 26 consent thereto or acquiescence therein, or an order for relief is entered in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order judgment, or decree remains unstayed and in effect for more than 60 days; or (h) Any order, judgment or decree is entered in any proceedings against the Sponsor decreeing the dissolution of the Sponsor and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (i) Any order, judgment or decree is entered in any proceedings against the Sponsor or any of its Subsidiaries decreeing a split-up of the Sponsor or such Subsidiary which requires the divestiture of a substantial part, or the divestiture of assets, or stock of a Subsidiary, which shall have contributed a substantial part of consolidated net earnings for any of the three fiscal years most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (j) Any "Reportable Event" shall have occurred, or any finding or determination shall be made with respect to a Plan under Section 4041(c) or (e) of ERISA, or any fact or circumstance shall occur with respect to a Plan which, in the opinion of the Bank, provides grounds for the commencement of any proceeding under Section 4042 of ERISA, or any proceeding shall be commenced with respect to a Plan under Section 4042 of ERISA; or (k) There shall exist or occur any default as provided under the terms of any other Operative Document, or any Operative Document ceases to be in full force and effect or the validity or enforceability thereof is disaffirmed by or on behalf of Sponsor or any other Credit Party, or at any time it is or becomes unlawful for Sponsor or any other Credit Party to perform or comply with its obligations under any Operative Document, or the obligations of Sponsor or any other Credit Party under any Operative Document are not or cease to be legal, valid and binding on Sponsor or any such Credit Party; (l) The Sponsor or any of its Subsidiaries shall fail to make any payment as and when such payment is due under the Synthetic Lease Documents, or any other default, event or condition shall have occurred or exist under the Synthetic Lease Documents, the effect of which is to cause, or to permit the holder of the obligations of the Sponsor or any such Subsidiary under the Synthetic Lease Documents to cause, the obligations of the Sponsor or any of its Subsidiaries, or any portion thereof, to become due prior to its stated maturity date or prior to its regularly scheduled date of payment; (m) There shall occur a Credit Event under the Existing Facility Agreement; or (n) There occurs a default under any other agreement, note or loan agreement to which Sponsor (or any of its Subsidiaries) and Bank (whether directly or as participant or assignee) are parties. then upon the occurrence and during the continuation of any such event (each, a "Credit Event"): 25 27 the Bank may, take any or all of the following actions, without prejudice to the rights of the Bank to enforce its claims against Sponsor, any other Credit Party, any Borrower or other obligor with respect to any Loan: (i) declare the Commitment terminated, whereupon the Commitment shall terminate immediately and any unpaid Commitment Fee shall forthwith become due and payable without any other notice of any kind (with the express understanding that such termination of the Commitment shall not result in a termination of the obligation of the Bank to fund any Loan Commitment); (ii) demand that the Sponsor purchase specified or all outstanding Loans and assume all Loan Commitments by paying to the Bank the Loan Indebtedness of each Loan and assuming the Bank's obligations under each Loan Commitment, whereupon such amount shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Sponsor; and (iii) take any other action and exercise any other remedy available by contract or at law; provided, that, if a Credit Event specified in Sections 8(f) or (g) shall occur, the result which would occur upon the giving of notice by the Bank to any Credit Party, shall occur automatically without the giving of any such notice. In addition, the Bank may, to the extent authorized to do so pursuant to the Loan Agreements (which authorization is limited to certain specified Credit Events), (x) cease funding further Loans pursuant to the Loan Commitments and (y) declare all Loan Indebtedness outstanding pursuant to the Loan Commitments to be immediately due and payable in accordance with the terms of the applicable Loan Documents and exercise all rights and remedies provided under the Loan Documents. 9. GUARANTY In addition to its obligations upon the occurrence of a Credit Event and its other obligations pursuant to the Operative Documents, the Sponsor hereby agrees as follows: 9.1 Unconditional Guaranty. The Sponsor hereby unconditionally and irrevocably guarantees to the Bank, and any transferee of the Bank, the full and prompt payment of all of the Guaranteed Obligations relating to the Loans and all costs, charges and expenses (including reasonable attorneys' fees) actually incurred or sustained by the Bank in enforcing the obligations of the Sponsor hereunder or the obligations of the Borrowers under the applicable Loan Documents. If any portion of the Loan Indebtedness with respect to any Defaulted Loan is not paid by the date specified herein, Sponsor hereby agrees to and will immediately pay the same, without resort by Bank to any other person or party. The obligation of Sponsor to Bank hereunder is primary, absolute and unconditional, except as may be specifically set forth herein. This is a guaranty of payment and not of collection. The obligations of the Sponsor pursuant to this Article 9 shall be direct and immediate and constitute a guarantee which is continuing in nature; and such obligations are not contingent on the pursuit of any remedies against Borrower or other persons, OR on the satisfaction or compliance by Bank with any of the obligations covenants or agreements of Bank under this Agreement and such obligations. Guarantor does hereby agree that if any Guaranteed Obligation is not paid timely by a Borrower, or if any and all sums which 26 28 are now or may hereafter become due from a Borrower to Bank under the Loan Documents are not paid or performed in accordance with their terms, Guarantor will immediately make such payments, subject to any limitations expressly set forth in this Agreement. The Bank may, in the event that the obligations of the Sponsor with respect to a Defaulted Loan have arisen hereunder, request that the Sponsor purchase the Defaulted Loan from the Bank prior to the acceleration of the Defaulted Loan and assume the Loan Commitment pursuant to which such Defaulted Loan was made, pursuant to the terms of the applicable Loan Documents for an amount equal to the Loan Indebtedness with respect to such Defaulted Loan and such purchase by the Sponsor, together with the assumption of the related Loan Commitment, shall be deemed to be a payment hereunder in such amount. 9.2 Continuing Guaranty. The obligations of the Sponsor pursuant to this Article 9 constitute a guarantee which is continuing in nature and shall be effective with respect to the full amount outstanding under all Guaranteed Obligations, now existing or hereafter made or extended, regardless of the amount. 9.3 Waivers. The Sponsor hereby waives notice of Bank's acceptance of this Agreement and the creation, extension or renewal of any Loans or other Guaranteed Obligations. Sponsor hereby consents and agrees that, at any time or times, without notice to or further approval from Sponsor, and without in any way affecting the obligations of Sponsor hereunder, Bank may, with or without consideration (i) release, compromise with, or agree not to sue, in whole or in part, any Borrower or any other obligor, guarantor, endorser or surety on any Loans or any other Guaranteed Obligations, (ii) renew, extend, accelerate, or increase or decrease the principal amount of any Loans or other Guaranteed Obligations, either in whole or in part, (iii) amend, waive, or otherwise modify any of the terms of any Loans or other Guaranteed Obligations or of any mortgage, deed of trust, security agreement, or other undertaking of any of the Borrowers or any other obligor, endorser, guarantor or surety in connection with any Loans or other Guaranteed Obligations, and (iv) apply any payment received from Borrowers or from any other obligor, guarantor, endorser or surety on the Loans or other Guaranteed Obligations to any of the liabilities of Borrowers or of such other obligor, guarantor, endorser, or surety which Bank may choose, subject, however, to the rights of Sponsor to bring a separate action for any breach of the Operative Documents pursuant to Section 9.10. 9.4 Additional Actions. Subject to Section 9.10, Sponsor hereby consents and agrees that the Bank may at any time or times, either with or without consideration, surrender, release or receive any property or other Collateral of any kind or nature whatsoever held by it or for its account securing any Loans or other Guaranteed Obligations, or substitute any Collateral so held by Bank for other Collateral of like or different kind, without notice to or further consent 27 29 from Sponsor, and such surrender, receipt, release or substitution shall not in any way affect the obligations of Sponsor hereunder. Subject to Section 9.10, Bank shall have full authority to adjust, compromise, and receive less than the amount due upon any such Collateral, and may enter into any accord and satisfaction agreement with respect to the same as Bank may deem advisable without affecting the obligations of Sponsor hereunder. Bank shall be under no duty to undertake to collect upon such Collateral or any part thereof, and Sponsor's obligations hereunder shall not be affected by Bank's alleged negligence or mistake in judgment in handling, disposing of, obtaining, or failing to collect upon or perfect a security interest in, any such Collateral. 9.5 Additional Waivers. Sponsor hereby waives presentment, demand, protest, and notice of dishonor of any of the liabilities guaranteed hereby. Guarantor hereby further waives and agrees not to assert or take advantage of (a) the defense of the statute of limitations in any action hereunder or for the collection of the indebtedness or the performance of any obligation hereby guaranteed; (b) any defense that may arise by reason of the incapacity, lack of authority, death or disability of Guarantor or any other person or entity, or the failure of Bank to file or enforce a claim against the estate (either in administration, bankruptcy, or any other proceeding) of Borrower or any other person or entity; (c) any defense based on the failure of Bank to give notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of any other person whomsoever, in connection with any obligation hereby guaranteed; (d) any defense based upon an election of remedies by Bank which destroys or otherwise impairs any subrogation rights of Guarantor or the right of Guarantor to proceed against Borrower for reimbursement, or both; (e) notwithstanding the application of Official Code of Georgia Annotated ss. 10-7-24, any defense based upon failure of Bank to commence an action against Borrower; (f) any duty on the part of Bank to disclose to Guarantor any facts it may now or hereafter know regarding Borrower; (g) any and all other notices whatsoever to which Guarantor might otherwise be entitled except as otherwise expressly required under this Agreement; (k) any defense based on lack of due diligence by Bank in collection, protection or realization upon any collateral securing the indebtedness evidenced by the Note; (l) any defense based on the failure of Bank to comply with or satisfy any obligations, agreements or covenants of Bank under this Agreement; and (m) any other legal or equitable defenses whatsoever to which Guarantor might otherwise be entitled. Bank shall not have any duty or obligation (i) to proceed or exhaust any remedy against any Borrower, any other obligor, guarantor, endorser, or surety on any Loans or other Guaranteed Obligations, or any other security held by Bank for any Loans or other Guaranteed Obligations, or (ii) to give any notice whatsoever to Borrowers, Sponsor, or any other obligor, guarantor, endorser, or surety on any Loans or other Guaranteed Obligations, before bringing suit, exercising rights to any such security or instituting proceedings of any kind against Sponsor, any Borrower, or any of them, and Sponsor hereby waives any requirement for such actions by Bank. Upon default by any Borrower and Bank's demand to Sponsor hereunder, Sponsor shall be held and bound to Bank directly as principal debtor in respect of the payment of the amounts hereby guaranteed, such liability of Sponsor being joint and several with each Borrower and all other obligors, guarantors, endorsers and sureties on the Loans or other Guaranteed Obligations, subject, however, to the rights of Sponsor to bring a separate action for any 28 30 breach of the Operative Documents pursuant to Section 9.10. 9.6 Postponement of Obligations. Until the Loan and other Guaranteed Obligations of any Borrower to the Bank have been paid in full (i) all present and future indebtedness of such Borrower to Sponsor (the "Subordinated Debt") is hereby postponed to the present and future indebtedness of such Borrower to Bank, and all monies received from such Borrower or for its account by Sponsor with respect to such Subordinated Debt shall be received in trust for Bank, and promptly upon receipt, shall be paid over to Bank in accordance herewith until such Borrower's indebtedness to Bank is fully paid and satisfied, all without prejudice to and without in any way affecting the obligations of Sponsor hereunder; provided that unless a Loan Default or Loan Payment Default has occurred and is continuing, the Sponsor may accept and retain any payments made by any Borrower to the Sponsor in the ordinary course of business, and (ii) Sponsor shall not have any rights of subrogation or otherwise to participate in any security held by the Bank for any Loan to such Borrower or any other Guaranteed Obligations arising therefrom, and Sponsor hereby waives such rights until such time as such Loan and other Guaranteed Obligations have been paid in full to the Bank (whether by repurchase by the Sponsor, pursuant to this Article 10 or otherwise). 9.7 Effect on Additional Guaranties. The obligations of the Sponsor pursuant to this Article 10 are in addition to, and are not intended to supersede or be a substitute for any other guarantee, suretyship agreement, or instrument which Bank may hold in connection with any Loans or other Guaranteed Obligations. 9.8 Reliance on Guaranty and Purchase Obligation; Disclaimer of Liability. Sponsor expressly acknowledges and agrees that the Bank, in making its credit decision with regard to the funding of the Loans, will rely solely upon the guaranty and purchase obligation of Sponsor set forth above and in Article 10 and that the Bank is not under any obligation or duty to perform any credit analysis or investigation with regard to the creditworthiness of any Borrower. In addition, the Bank expressly disclaims any responsibility or liability for the authenticity of signatures on any of the Loan Documents (other than the Bank's), the authority of the Persons executing the Loan Documents (other than the Bank) or the enforceability or compliance with laws of any of the Loan Documents. SPONSOR EXPRESSLY ACKNOWLEDGES AND AGREES THAT SPONSOR'S GUARANTY OBLIGATIONS TO PURCHASE LOANS UNDER THIS AGREEMENT ARE ABSOLUTE AND UNCONDITIONAL. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SPONSOR'S OBLIGATION SHALL NOT BE AFFECTED BY THE EXISTENCE OF ANY DEFAULT BY ANY BORROWER UNDER THE APPLICABLE LOAN DOCUMENTS, ANY EXCHANGE, RELEASE OR NONPERFECTION OF ANY LIEN WITH RESPECT TO ANY COLLATERAL SECURING PAYMENT OF ANY LOAN, THE SUBSTITUTION OR RELEASE OF 29 31 ANY ENTITY PRIMARILY OR SECONDARILY LIABLE FOR ANY LOAN, ANY LACK OF ENFORCEABILITY OF ANY LOAN DOCUMENT, ANY LAW, REGULATION, OR ORDER OF ANY JURISDICTION AFFECTING ANY LOAN OR LOAN DOCUMENT OR THE RIGHTS OF THE HOLDER THEREOF, ANY CHANGE IN THE CONDITION OR PROSPECTS OF ANY BORROWER, INCLUDING WITHOUT LIMITATION, INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING, OR ANY OTHER CIRCUMSTANCE WHICH MIGHT, BUT FOR THE PROVISIONS OF THIS PARAGRAPH, CONSTITUTE A LEGAL OR EQUITABLE DISCHARGE OF SPONSOR'S OBLIGATIONS HEREUNDER. SPONSOR'S OBLIGATIONS HEREUNDER SHALL NOT BE AFFECTED BY ANY SET-OFF OR CLAIM WHICH IT MIGHT HAVE AGAINST THE BANK, WHETHER ARISING OUT OF THIS AGREEMENT OR OTHERWISE, BUT SUBJECT TO SECTION 9.10 BELOW. 9.9 Reinstatement of Obligations. The obligations of the Sponsor pursuant to the Operative Documents shall continue to be effective or be reinstated, as the case may be, if at any time payment or any part thereof, of principal of, interest on or any other amount with respect to any Loan or any obligation of Sponsor pursuant to the Operative Documents is rescinded or must otherwise be restored by the Bank upon the bankruptcy or reorganization of Sponsor, any Borrower or any guarantor or otherwise. 9.10 Right to Bring Separate Action. Nothing contained in this Article 9 shall be construed to affect any other right that Sponsor may otherwise have under this Agreement, or any Operative Document or Loan Documents, at law or in equity to institute an action or assert a claim against the Bank based upon a breach of Bank's obligations set forth in the Operative Documents or Loan Documents or to assert a compulsory counterclaim with respect thereto and any waiver of notice or other matter set forth in this Article 9 shall not affect Sponsor's right to seek damages arising from the failure of the Bank to give such notice otherwise required by the terms of the Operative Documents or Loan Documents. 9.11 Subordination of Liens. The Sponsor hereby subordinates the lien and priority of the Sponsor's existing and future liens and other interests, if any, in and to the Collateral to the Bank's existing and future interest in the Collateral under the Loan Documents notwithstanding the time of attachment of the interests of the Sponsor or the Bank or the time the Loan Indebtedness or the Subordinated Debt is incurred. Notwithstanding anything to the contrary contained in this Agreement, under applicable law or otherwise, in the event that the liens of the Bank are at any time unperfected with respect to any or all of the Collateral, the lack of perfection by the Bank as to any such Collateral shall not affect the validity, enforceability or priority of any lien on the Collateral in favor of the Sponsor. In any such event, the liens of the Sponsor shall have priority over any and all other Liens in favor of any third party with respect to the Collateral (including, but not limited to any trustee under the Bankruptcy Code) and the Sponsor shall be, and is hereby constituted, 30 32 as the Bank's agent and bailee for purposes of perfection of the Liens of the Bank in the Collateral such that the Lien in favor of the Sponsor shall be held by the Sponsor for the benefit of the Bank and the proceeds of any disposition of the Collateral of any Borrower shall be and are in all respects subject to the priority of right to payment and satisfaction of first, the Loan Indebtedness of such Borrower and then, the Subordinated Debt with respect to such Borrower. The lien priorities provided in this Section shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of either the applicable Loan Indebtedness or the Subordinated Debt, nor by any action or inaction which either the Bank or the Sponsors may take or fail to take in respect of the Collateral, except as otherwise provided above in this subsection. 9.12 Exercise of Remedies With Respect to Collateral. (a) Until the Loan Indebtedness of any Borrower has been fully and indefeasibly paid in cash, the Sponsor shall not, without the prior written consent of the Bank, ask, demand, assign, declare a default under, sue for, liquidate, sell, foreclose, set off, collect, accept a surrender, petition, commence or otherwise initiate any bankruptcy action (or join any other Person in so doing) against the Borrower or its assets or otherwise realize or seek to realize upon all or any part of the Collateral without the prior written consent of the Bank or as expressly authorized hereunder. In the event that following the occurrence of a Loan Default, the Bank may from time to time execute releases, partial releases, terminations, reconveyances, subordinations or other documents releasing or otherwise limiting the Bank's interests in the Collateral in connection with the exercise of the Bank's remedies or the refinancing of the Defaulted Loan, the Sponsor agrees to execute and deliver at such time such further documents as the Bank may require to effect a corresponding change to the Sponsor's position in the same Collateral. (b) In the event that the Loan Indebtedness of any Defaulted Loan is not repaid or repurchased by the Sponsor as set forth herein, the Bank, shall have the exclusive right to exercise and enforce all privileges and rights with respect to the Collateral according to the Bank's discretion and the exercise of its business judgment, including, without limitation, the exclusive right to take or retake control or possession of such Collateral and to hold, prepare for sale, process, sell, lease, dispose of, or liquidate such Collateral. (c) Only the Bank shall have the right to restrict or permit, or approve or disapprove, the sale, transfer or other disposition of Collateral following the occurrence of a Loan Default where the Loan Indebtedness is not repaid or repurchased by the Sponsor in accordance with the terms hereof. In the event the Bank releases its Liens on all or any part of the Collateral, the Sponsor will, immediately upon the request of the Bank, release its Liens upon the same Collateral, but only to the extent such Collateral is sold or otherwise disposed of by the Borrower with the consent of the Bank or in a commercially reasonable manner by the Bank or its agents. The Sponsor will immediately deliver such releases, acknowledgments and other documents as the Bank may require in connection therewith. 9.13 Rights of Sponsor Upon Payment; Cooperation By Bank. 31 33 Upon receipt by the Bank of payment in full of the Loan Indebtedness of a Defaulted Loan by Sponsor, Sponsor shall be subrogated to the rights of the Bank with respect to the Loan and the Bank shall be deemed to have assigned to Sponsor, and Sponsor shall, to the extent permitted by applicable law, automatically, immediately and without further action by any Person, be entitled to, all rights and remedies that the Bank may have had against the Defaulted Borrower and any other Persons primarily or secondarily liable on such Defaulted Loan, including without limitation the right to resort to any and all Collateral which secures the Defaulted Loan. The Bank agrees that, upon receipt of payment in full of the Loan Indebtedness, the Bank shall: (a) execute on a timely basis, without recourse, representation or warranty of any kind (except as to its own title), all such instruments and documents as are reasonably requested in order to evidence Sponsor's rights hereunder or permit Sponsor to exercise such rights; (b) permit Sponsor at reasonable times and as often as may be reasonably requested to discuss with appropriate Bank employees and officers the Bank's experience, relationships, books, accounts and files and to review the Bank's loan files relating to the purchased Defaulted Loan (and Sponsor hereby agrees to keep all such information confidential); and (c) otherwise reasonably cooperate with Sponsor in the exercise of Sponsor's rights. Sponsor shall reimburse the Bank for its expenses reasonably and actually incurred in complying with this Section. 10. INDEMNIFICATION 10.1 Indemnification. (a) In addition to the other rights of the Bank hereunder, Sponsor hereby agrees to protect, indemnify and save harmless the Bank and the officers, directors, shareholders, employees, agents and representatives of the Bank (each an "Indemnified Party") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs (including, without limitation, reasonable attorney's fees and costs actually incurred), expenses or disbursements of any kind or nature whatsoever, whether direct, indirect, consequential or incidental, with respect to or in connection with or arising out of (i) the execution and delivery of this Agreement, any other Operative Document or any agreement or instrument contemplated hereby or thereby, including without limitation, the Loan Documents, the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby, (ii) the making or administration of the Loan Commitments, the Loans or any of them, including any violation of federal or state usury or other laws, provided that with respect to clauses (i) and (ii), Sponsor shall have no obligation to indemnify the Bank for more than one (1) counsel's reasonable fees and expenses, (iii) the enforcement, performance and administration of this Agreement or the Loan Documents or any powers granted to the Bank hereunder or under any Loan 32 34 Documents, (iv) any misrepresentation of the Sponsor hereunder, (v) any matter arising pursuant to any Environmental Laws as a result of the Collateral or (vi) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether or not the Indemnified Party is a named party thereto, except to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnified Party or arise solely from the nonpayment of any Loan Indebtedness notwithstanding the performance by Sponsor of all of its obligations under the Operative Documents relating to such Loan Indebtedness. (b) Without limiting the generality of the foregoing, and separate and apart from any obligation of Sponsor pursuant to Article 9, Sponsor agrees to indemnify and hold harmless each Indemnified Party from and against, and on demand will pay or reimburse any Indemnified Party for, any and all (i) liabilities arising from a breach of any representation or warranty made by Sponsor hereunder (whether or not Sponsor's obligations under Article 9 have been satisfied), (ii) any breach by Sponsor of its agreements with the Borrowers, (iii) any overadvance to any Borrower caused by the transfer of ACH transfer instructions from the ATAC System to the Bank by Sponsor resulting in aggregate advances to such Borrower in excess of the Loan Commitment to such Borrower. (c) This indemnity shall survive the termination of this Agreement. 10.2 Notice Of Proceedings; Right To Defend. (a) Any Person with an indemnification claim (or potential claim) pursuant to Section 10.1 ("Potential Indemnitee") agrees to notify Sponsor (the "Potential Indemnitor") in writing within a reasonable time after receipt by it of written notice of the commencement of any administrative, legal or other proceeding, suit or action by a Person (other than Indemnitee or an affiliate thereof), if a claim for indemnification may be made by the Potential Indemnitee against the Potential Indemnitor under this Article 11. (b) Following receipt by the Potential Indemnitor of any such notice from a Potential Indemnitee, (an "Indemnity Notice"), the Potential Indemnitor shall be entitled at its own cost and expense to investigate and participate in the proceeding, suit or action referred to in the Indemnity Notice. At such time as the Potential Indemnitor shall have acknowledged in writing to the Potential Indemnitee that it will pay any judgment, damages, or losses incurred by the Potential Indemnitee in the proceeding, suit or action referred to in the Indemnity Notice other than those for gross negligence or willful misconduct on the part of the Potential Indemnitee (at which time the "Potential Indemnitor" shall be deemed to be the "Indemnitor" and the "Potential Indemnitee" shall be deemed to be the "Indemnitee"), the Indemnitor shall be entitled, to the extent that it shall desire, to assume the defense of such proceeding, suit or action, with counsel reasonably satisfactory to the Indemnitee. If the Indemnitor shall so assume the defense of such proceeding, suit or action, the Indemnitor shall conduct such defense with due diligence and at its own cost and expense. 33 35 (c) In the event that the Indemnitor so assumes the defense of such proceeding, suit or action, the Indemnitor shall not be entitled to settle such proceeding, suit or action without the written consent of the Indemnitee, provided that in the event that the Indemnitee does not consent to such settlement not to be unreasonably withheld or delayed (i) the Indemnitor's indemnification liability in connection with such proceeding, suit or action shall not exceed the amount of such proposed settlement and (ii) Indemnitee shall assume and pay all costs and expenses, including reasonable attorneys' fees, incurred by Indemnitor from the date that the Indemnitor presented the Indemnitee the terms of the proposed settlement. An Indemnitor shall not be liable to an Indemnitee for any settlement of a claim in any proceeding, suit or other action referred to in an Indemnity Notice, consented to by the Indemnitee without the consent of the Indemnitor. (d) A Potential Indemnitor shall be liable to a Potential Indemnitee for a settlement of a claim in any proceeding, suit or other action referred to in an Indemnity Notice consented to by such Potential Indemnitee only if (i) such Potential Indemnitor first had a reasonable opportunity to investigate such claim and participate in such proceeding, suit or action, (ii) the Potential Indemnitee gave the Potential Indemnitor at least ten (10) Business Days notice of the proposed terms of such settlement prior to entering into such settlement and (iii) the Potential Indemnitor did not acknowledge in writing to the Potential Indemnitee, by the expiration of such ten (10) Business Days period, or such longer period as may be agreed to by the Potential Indemnitee and Potential Indemnitor that it would pay any judgment, damages or losses incurred by the Potential Indemnitee in such proceeding suit or action. 10.3 Third Party Beneficiaries. No Persons shall be deemed to be third party beneficiaries of this Agreement. Except as expressly otherwise provided in this Agreement, this Agreement is solely for the benefit of Sponsor and the Bank and their respective successors and permitted assigns, and no other Person shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement. 11. SURVIVAL OF LOAN FACILITY The terms of this Loan Facility Agreement shall survive the termination of the Commitment hereunder and the termination of any Loan Commitment established pursuant the terms hereof until the indefeasible payment in full of each of the Loans outstanding hereunder and Article 10 shall survive the termination of this Agreement upon such repayment. 12. CONDITIONS PRECEDENT The effectiveness of this Agreement and the amendment and restatement of the Existing Facility Agreement, as well as the obligation of the Bank to establish the initial Loan Commitment pursuant to this Agreement, is subject to satisfaction of the following conditions: 12.1 Receipt of Documents. 34 36 The Bank shall have received the following, each dated as of the Effective Date, in form and substance satisfactory to the Bank: (a) Duly executed counterparts of this Agreement. (b) Duly executed counterparts of the Guaranty Agreement. (c) A duly executed closing certificate of Sponsor, in form and substance satisfactory to the Bank. (d) A duly executed certificate of Sponsor identifying the Authorized Signatories; (e) Copies of the organizational papers of Guarantor, certified as true and correct by the Secretary of State of its respective State of incorporation, and certificates from the Secretary of State of such State of incorporation certifying Sponsor's good standing as a corporation in such State. (f) A certificate of the Secretary or Assistant Secretary of Guarantor certifying (i) the names and true signatures of the officers of Sponsor authorized to execute the Guaranty Agreement, this Agreement, the Servicing Agreement and the other Operative Documents to be delivered hereunder to which each is a party, (ii) the bylaws of Sponsor, and (iii) the resolutions of the Board of Directors of Sponsor, respectively, approving the Operative Documents to which each is a party and the transactions contemplated hereby. (g) A favorable written opinion of Kilpatrick Stockton, LLP, counsel for Sponsor, in a form satisfactory to the Bank and covering such matters relating to the transactions contemplated hereby as the Bank may reasonably request. (h) All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident hereto or delivered in connection therewith shall be satisfactory in form and substance to the Bank. 13. MISCELLANEOUS 13.1 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, telecopy or similar teletransmission or writing) and shall be given to such party at its address or applicable teletransmission number set forth on the signature pages hereof, or such other address or applicable teletransmission number as such party may hereafter specify by notice to the Bank and Sponsor. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answer back is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, (iii) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and the appropriate confirmation is received, or (iv) if given by any other means (including, 35 37 without limitation, by air courier), when delivered or received at the address specified in this Section; provided that notices to the Bank shall not be effective until received. 13.2 Amendments, Etc. No amendment or waiver of any provision of this Agreement or the other Operative Documents, nor consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank (and in the case of any amendment, the applicable Credit Party), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing and signed by the Bank affect the rights or duties of the Bank under this Agreement or under any other Operative Document or Loan Document. 13.3 No Waiver; Remedies Cumulative. No failure or delay on the part of the Bank in exercising any right or remedy hereunder or under any other Operative Document, and no course of dealing between any Credit Party and the Bank shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy hereunder or under any other Operative Document preclude any other or further exercise thereof or the exercise of any other right or remedy hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Bank would otherwise have. No notice to or demand on any Credit Party not required hereunder or under any other Operative Document in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Bank to any other or further action in any circumstances without notice or demand. 13.4 Payment of Expenses, Etc. Sponsor shall: (a) whether or not the transactions hereby contemplated are consummated, pay all reasonable, out-of-pocket costs and expenses of the Bank in the administration (both before and after the execution hereof and including reasonable expenses actually incurred relating to advice of counsel as to the rights and duties of the Bank with respect thereto) of, and in connection with the preparation, execution and delivery of, preservation of rights under, enforcement of, and, after a Unmatured Credit Event or Credit Event, refinancing, renegotiation or restructuring of, this Agreement and the other Operative Documents and the documents and instruments referred to therein, and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees actually incurred and disbursements of counsel for the Bank); and (b) Pay and hold the Bank harmless from and against any and all present and future stamp, documentary, and other similar Taxes with respect to this Agreement, the Loan Documents and any other Operative Documents, any collateral described therein, or any payments due thereunder, and save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such Taxes. 36 38 13.5 Right of Setoff. In addition to and not in limitation of all rights of offset that the Bank may have under applicable law, the Bank shall, upon the occurrence of any Credit Event and whether or not the Bank has made any demand or any Credit Party's obligations have matured, have the right to appropriate and apply to the payment of any Credit Party's obligations hereunder and under the other Operative Documents, all deposits of any Credit Party (general or special, time or demand, provisional or final) then or thereafter held by and other indebtedness or property then or thereafter owing by the Bank or other holder to any Credit Party, whether or not related to this Agreement or any transaction hereunder. 13.6 Benefit of Agreement; Assignments; Participations. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that Sponsor may not assign or transfer any of its interest hereunder without the prior written consent of the Bank. (b) The Bank may grant a participation in the Commitment and the Loans held by it to any financial institution, provided, however, that no participant shall have any direct rights hereunder. (c) The Bank may make, carry or transfer Loans at, to or for the account of, any of its branch offices or the office of an Affiliate of the Bank. (d) The Bank may at any time assign all or any portion of its rights in this Agreement to a Federal Reserve Bank; provided that no such assignment shall release the Bank from any of its obligations hereunder. 13.7 Governing Law; Submission to Jurisdiction. (A) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA. (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT MAY BE BROUGHT IN THE SUPERIOR COURT OF FULTON COUNTY, GEORGIA, OR ANY OTHER COURT OF THE STATE OF GEORGIA OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF GEORGIA, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, SPONSOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND SPONSOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION 37 39 TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. (c) Nothing herein shall affect the right of the Bank or any Credit Party to commence legal proceedings or otherwise proceed against Sponsor in any other jurisdiction. 13.8 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 13.9 Severability. In case any provision in or obligation under this Agreement or the other Operative Documents shall be invalid, illegal or unenforceable, in whole or in part, in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 13.10 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant, shall not avoid the occurrence of a Unmatured Credit Event or an Credit Event if such action is taken or condition exists. 13.11 No Joint Venture. Nothing in this Agreement or any of the Loan Documents shall be construed as constituting Sponsor and the Bank as partners or joint venturers or as creating the relationship of employer and employee, master and servant, principle and agent, or franchisor or franchisee between Sponsor and the Bank. Neither Sponsor nor Bank shall have any right or authority to bind the other party or to assume or create any obligation or responsibility, express or implied, on behalf of the other party or in the other party's name. All rights, duties and obligations under this Agreement and the Operative Documents are exclusively for the benefit of Sponsor and the Bank, as the case may be, and shall not be deemed to affect any agreement between either of such parties and any third party (including, without limitation, any Borrower). 13.12 Repurchase Right. 38 40 Sponsor may at any time (upon thirty (30) days' prior written notice to Bank) purchase from Bank all Loans and assume all Loan Commitments and all rights, titles and interests of the Bank in and to the Loan Documents and the Collateral relating thereto for a purchase price (payable in immediately available funds) equal to the aggregate Loan Indebtedness, plus all amounts otherwise owing by the Sponsor pursuant to the Operative Documents, and the Bank shall assign, without recourse, representation or warranty (except as to its own title), its right, title and interest therein to Sponsor upon the Bank's receipt of such purchase price. Thereafter, Bank shall have no responsibility with respect to any Loans or Loan Commitments. 13.13 Effect on Existing Loans and Loan Commitments; Execution of New Loan Documents. Upon the Effective Date all loan commitments established by the Bank in favor of certain Franchisee Owners and loans made pursuant to such loan commitments, all as more particularly described on Schedule 13.13 (such loan commitments described on Schedule 13.13 shall be referred to herein as the "Prior Loan Commitments" and such loans referred to in Schedule 13.13 shall be referred to herein as the "Prior Loans") prior to the Effective Date of this Agreement shall be deemed to be Loans Commitments and Loans outstanding pursuant to the Commitment. Sponsor and Bank hereby acknowledge and agree that the Prior Loan Commitments and Prior Loans shall be subject in all respects to terms and provisions of this Agreement. 13.14 Confidentiality. The Bank agrees that it will maintain in confidence and will not disclose, publish or disseminate, to any Person, any confidential information which it has or shall acquire during the term of this Agreement relating to the business, operations and condition, financial or otherwise of the Sponsor or any Borrower, except that such information may be disclosed by the Bank if and to the extent that: (i) such information is in the public domain at the time of disclosure; (ii) such information is required to be disclosed by subpoena or similar process of applicable law or regulations; (iii) such information is required to be disclosed to any regulatory or administrative body or commission to whose jurisdiction the Bank or any of its Affiliates may be subject; (iv) such information is disclosed to counsel, auditors or other professional advisors to the Bank or to affiliates of the Bank provided that such affiliates agree to keep such information confidential as set forth herein; (v) such information is disclosed with the prior written consent of the Sponsor or the relevant Borrower, as the case may be, which consent shall not be unreasonably withheld or delayed; 39 41 (vi) such information is disclosed in connection with any litigation or dispute between the Bank and the Sponsor or any Borrower concerning the Operative Documents or the Loan Documents of such Borrower; (vii) such information is disclosed in connection with a prospective assignment, grant of a participation interest in or other transfer by the Bank of any of its interest in the Operative Documents, provided that the Person to whom such information shall be disclosed shall have agreed to keep such information confidential as set forth herein; (viii) such information was in the possession of such Person or such Person's affiliates without obligation of confidentiality prior to the Borrower furnishing it to such Person; or (ix) such information is received by the Bank, without restriction as to its disclosure or use, from a Person, who, to the Bank's knowledge or reasonable belief, was not prohibited from disclosing it by any duty of confidentiality. The Bank agrees to use its best efforts to give the Sponsor prompt notice of any subpoena or similar process referred to in clause (ii) above, provided that the Bank shall have no liability in event such notice is not given. 13.15 Headings Descriptive; Entire Agreement. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. This Agreement, the other Operative Documents, and the agreements and documents required to be delivered pursuant to the terms of this Agreement constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements, representations and understandings related to such subject matters. 13.16 Time. Time is of the essence of this Agreement and the performance of all agreements and covenants described herein. 40 42 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Address for Notices: AARON RENTS, INC. 309 East Paces Ferry Road, NE By: Atlanta, Georgia 30305 -------------------------------- Attn: Gilbert L. Danielson Gilbert L. Danielson Telecopy: 404-240-6584 Executive Vice President and Chief Financial Officer Attest: ---------------------------- Name: ----------------------- Title: ---------------------- [Corporate Seal] Address for Notices: SOUTHTRUST BANK, an Alabama Banking Corporation 600 W. Peachtree Street, N.E. One Georgia Center - 27th Floor Atlanta, Georgia 30308 Attention: Ron Fontenot, V.P. By: Telecopy No.: (404) 724-3716 -------------------------------- Name: ------------------------------ Title: ----------------------------- 41 43 EXHIBIT A: COMMITMENT EXHIBIT B: CORPORATE AUTHORIZATION EXHIBIT C: LOAN REQUEST EXHIBIT D: FRANCHISEE GUARANTY EXHIBIT E: FUNDING APPROVAL NOTICE EXHIBIT F: LOAN COMMITMENT -- BORROWERS EXHIBIT G: MASTER NOTE EXHIBIT H: PLEDGE AGREEMENT EXHIBIT N: FRANCHISE GUARANTY EXHIBIT O: RESERVED 42 44 TABLE OF CONTENTS 1. DEFINITIONS..................................................................................... 1 1.1 Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (such meanings to be equally applicable to both the singular and plural forms of the terms defined)................................................. 1 1.2 Accounting Terms and Determination.............................................................. 9 1.3 Other Definitional Terms........................................................................ 9 1.4 Exhibits and Schedules.......................................................................... 9 2. LOAN FACILITY................................................................................... 9 2.1 Establishment of the Commitment; Loans; Closing Fee............................................. 9 2.2 Funding of Loans; Loan Payment Dates............................................................ 11 2.3 Prepayment...................................................................................... 12 2.4 Default Interest................................................................................ 12 2.5 Voluntary Reduction of the Unutilized Commitment................................................ 13 2.6 Late Payment Fees; Servicing Fee; Minimum Bank Interest; Calculation of Interest and Fees....... 13 2.7 Wind-Down Events................................................................................ 14 2.8 Reserve Requirements; Change in Circumstances; Change in Lending Offices........................ 14 2.9 Payments........................................................................................ 15 3. BANK'S SERVICING OBLIGATIONS; DISTRIBUTION OF PAYMENTS.......................................... 15 3.1 Servicing of Loans.............................................................................. 15 3.2 Application of Payments......................................................................... 16 3.3 Servicing Reports............................................................................... 17 3.4 Sponsor Instructions............................................................................ 17 3.5 Amendments and Additional Loan Documents........................................................ 17 3.6 Assignment of Loans............................................................................. 17 4. LOAN DEFAULT; RIGHT TO MAKE GUARANTY DEMAND..................................................... 18 4.1 Notice of Loan Defaults......................................................................... 18 4.2 Waiver or Cure By The Sponsor................................................................... 18 4.3 Defaulted Loan Guaranty Demand.................................................................. 19 4.4 No Waiver or Cure Available..................................................................... 19 5. REPRESENTATIONS AND WARRANTIES.................................................................. 19 5.1 Organization and Qualification.................................................................. 19 5.2 Sponsor's Powers................................................................................ 19 5.3 Enforceability of Agreement and Other Operative Documents....................................... 20 5.4 Statutes, Judgments............................................................................. 20 5.5 No Credit Event; Unmatured Credit Event or Change of Control.................................... 20 5.6 Possession of Franchises, Licenses, Etc.; Laws.................................................. 20 5.7 Contingent Liabilities.......................................................................... 20 5.8 Compliance with Laws............................................................................ 20 5.9 Representations and Warranties with Respect to Specific Loans................................... 21 6. AFFIRMATIVE COVENANTS........................................................................... 21 6.1 Financial Statements, Reports and Other Financial Data.......................................... 22 6.2 Payment......................................................................................... 23
i 45 6.3 Notice of Credit Event, Unmatured Credit Event.................................................. 23 6.4 Corporate Existence............................................................................. 23 6.5 Compliance with Laws, Etc....................................................................... 23 7. NEGATIVE COVENANTS.............................................................................. 24 8. CREDIT EVENTS AND REMEDIES...................................................................... 24 9. GUARANTY........................................................................................ 26 9.1 Unconditional Guaranty.......................................................................... 26 9.2 Continuing Guaranty............................................................................. 27 9.3 Waivers......................................................................................... 27 9.4 Additional Actions.............................................................................. 27 9.5 Additional Waivers.............................................................................. 28 9.6 Postponement of Obligations..................................................................... 29 9.7 Effect on Additional Guaranties................................................................. 29 9.8 Reliance on Guaranty and Purchase Obligation; Disclaimer of Liability........................... 29 9.9 Reinstatement of Obligations.................................................................... 30 9.10 Right to Bring Separate Action.................................................................. 30 9.11 Subordination of Liens.......................................................................... 30 9.12 Exercise of Remedies With Respect to Collateral................................................. 31 9.13 Rights of Sponsor Upon Payment; Cooperation By Bank............................................. 31 10. INDEMNIFICATION................................................................................. 32 10.1 Indemnification................................................................................. 32 10.2 Notice Of Proceedings; Right To Defend.......................................................... 33 10.3 Third Party Beneficiaries....................................................................... 34 11. SURVIVAL OF LOAN FACILITY....................................................................... 34 12. CONDITIONS PRECEDENT............................................................................ 34 12.1 Receipt of Documents............................................................................ 34 13. MISCELLANEOUS................................................................................... 35 13.1 Notices......................................................................................... 35 13.2 Amendments, Etc................................................................................. 36 13.3 No Waiver; Remedies Cumulative.................................................................. 36 13.4 Payment of Expenses, Etc. Sponsor shall:....................................................... 36 13.5 Right of Setoff................................................................................. 37 13.6 Benefit of Agreement; Assignments; Participations............................................... 37 13.7 Governing Law; Submission to Jurisdiction....................................................... 37 13.8 Counterparts.................................................................................... 38 13.9 Severability.................................................................................... 38 13.10 Independence of Covenants....................................................................... 38 13.11 No Joint Venture................................................................................ 38 13.12 Repurchase Right................................................................................ 38 13.13 Effect on Existing Loans and Loan Commitments; Execution of New Loan Documents.................. 39 13.14 Confidentiality................................................................................. 39 13.15 Headings Descriptive; Entire Agreement.......................................................... 40
ii EX-10.(M) 4 g67848ex10-m.txt LOAN AGREEMENT 1 EXHIBIT 10(m) LOAN AGREEMENT between --------------------------------------- FORT BEND COUNTY INDUSTRIAL DEVELOPMENT CORPORATION and AARON RENTS, INC. --------------------------------------- relating to $4,200,000 FORT BEND COUNTY INDUSTRIAL DEVELOPMENT CORPORATION INDUSTRIAL DEVELOPMENT REVENUE BONDS (AARON RENTS, INC. PROJECT), SERIES 2000 --------------------------------------- NOTE: CERTAIN RIGHTS OF THE FORT BEND COUNTY INDUSTRIAL DEVELOPMENT CORPORATION UNDER THIS LOAN AGREEMENT HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF, FIRST UNION NATIONAL BANK, AS TRUSTEE, UNDER A TRUST INDENTURE OF EVEN DATE HEREWITH, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM THE TRUSTEE AT FIRST UNION NATIONAL BANK, HOUSTON, TEXAS, ATTENTION: CORPORATE TRUST DEPARTMENT. --------------------------------------- DATED AS OF OCTOBER 1, 2000 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION...................................................... 1 Section 1.1 DEFINITIONS........................................................................... 1 Section 1.2 RULES OF CONSTRUCTION................................................................. 9 ARTICLE II REPRESENTATIONS............................................................................ 10 Section 2.1 REPRESENTATIONS BY THE ISSUER......................................................... 10 Section 2.2 REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE COMPANY.............................. 11 ARTICLE III.......PERMITS AND APPROVALS; COMPANY CONSENT TO ASSIGNMENT....................................... 18 Section 3.1 APPROVALS REQUIRED FOR THE PROJECT.................................................... 18 Section 3.2 COMPANY CONSENT TO ASSIGNMENT OF AGREEMENT AND EXECUTION OF INDENTURE................. 18 ARTICLE IV ISSUANCE OF THE BONDS...................................................................... 19 Section 4.1 AGREEMENT TO ISSUE THE BONDS.......................................................... 19 Section 4.2 DISBURSEMENTS FROM THE PROJECT FUND................................................... 19 Section 4.3 CLOSEOUT OF THE PROJECT FUND.......................................................... 19 Section 4.4 DISPOSITION OF THE BALANCE IN THE PROJECT FUND........................................ 19 Section 4.5 COMPANY REQUIRED TO PAY IN EVENT PROJECT FUND INSUFFICIENT............................ 19 Section 4.6 NO THIRD PARTY BENEFICIARY............................................................ 20 ARTICLE V LOAN BY THE ISSUER TO THE.................................................................. 21 Section 5.1 LOAN BY THE ISSUER; REPAYMENT......................................................... 21 Section 5.2 PAYMENT OBLIGATIONS OF THE COMPANY.................................................... 21 Section 5.3 SECURITY FOR PAYMENTS UNDER THE LOAN AGREEMENT........................................ 22 Section 5.4 COMPANY'S PERFORMANCE UNDER INDENTURE................................................. 22 Section 5.5 NO SET-OFF............................................................................ 22 Section 5.6 PREPAYMENTS........................................................................... 22 Section 5.7 LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT.......................................... 22 ARTICLE VI MAINTENANCE AND MODIFICATIONS; TAXES AND UTILITY........................................... 23 Section 6.1 MAINTENANCE AND MODIFICATION OF THE PROJECT BY THE COMPANY............................ 23 Section 6.2 TAXES AND UTILITY CHARGES............................................................. 23 Section 6.3 CASUALTY AND LIABILITY INSURANCE REQUIRED............................................. 24 Section 6.4 GENERAL REQUIREMENTS APPLICABLE TO INSURANCE.......................................... 25 Section 6.5 ADVANCES BY THE ISSUER OR THE TRUSTEE................................................. 25 Section 6.6 COMPANY TO MAKE UP DEFICIENCY IN INSURANCE COVERAGE................................... 26 Section 6.7 EMINENT DOMAIN........................................................................ 26 Section 6.8 APPLICATION OF NET PROCEEDS OF INSURANCE AND EMINENT DOMAIN........................... 26 Section 6.9 PARTIES TO GIVE NOTICE................................................................ 27 Section 6.10 NO WARRANTY OF CONDITION OR SUITABILITY BY ISSUER..................................... 27
i 3 ARTICLE VII SPECIAL COVENANTS.......................................................................... 29 Section 7.1 ACCESS TO THE PROJECT AND INSPECTION.................................................. 29 Section 7.2 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS......................................... 29 Section 7.3 RECORDING AND FILING; OTHER INSTRUMENTS............................................... 29 Section 7.4 ARBITRAGE COVENANTS: NOTICE OF EVENT OF TAXABILITY.................................... 30 Section 7.5 NO PROHIBITED PAYMENTS................................................................ 33 Section 7.6 PERMITTED INVESTMENTS: PROHIBITED PAYMENTS............................................ 33 Section 7.7 INVESTMENT IN TAX-EXEMPT SECURITIES................................................... 33 Section 7.8 ADMINISTRATIVE EXPENSES............................................................... 33 Section 7.9 INDEMNITY AGAINST CLAIMS.............................................................. 34 Section 7.10 INDEMNITY OF ISSUER AND TRUSTEE....................................................... 34 Section 7.11 ADDITIONAL INFORMATION................................................................ 35 Section 7.12 DEFAULT CERTIFICATES.................................................................. 36 Section 7.13 OBSERVE LAWS.......................................................................... 36 ARTICLE VIII ASSIGNMENT, LEASING AND SELLING............................................................ 37 Section 8.1 ASSIGNMENT OF THIS LOAN AGREEMENT OR LEASE OR SALE OF THE PROJECT BY THE COMPANY...... 37 Section 8.2 RESTRICTIONS ON TRANSFER OF THE ISSUER'S RIGHTS....................................... 37 Section 8.3 ASSIGNMENT BY THE ISSUER.............................................................. 37 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES............................................................. 38 Section 9.1 EVENTS OF DEFAULT DEFINED............................................................. 38 Section 9.2 REMEDIES ON DEFAULT................................................................... 39 Section 9.3 APPLICATION OF AMOUNTS REALIZED IN ENFORCEMENT OF REMEDIES............................ 39 Section 9.4 NO REMEDY EXCLUSIVE................................................................... 39 Section 9.5 AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES......................................... 40 Section 9.6 CORRELATIVE WAIVERS................................................................... 40 ARTICLE X PREPAYMENTS................................................................................ 41 Section 10.1 OPTIONAL PREPAYMENTS.................................................................. 41 Section 10.2 MANDATORY PREPAYMENTS................................................................. 41 Section 10.3 OTHER MANDATORY PREPAYMENTS........................................................... 41 ARTICLE XI REBATE PROVISIONS.......................................................................... 43 Section 11.1 CREATION OF THE REBATE FUND........................................................... 43 Section 11.2 DETERMINATIONS, NOTICES AND RECORDS OF REBATE AMOUNT.................................. 43 Section 11.3 INVESTMENT EARNINGS ON BOND FUNDS..................................................... 43 Section 11.4 FILING OF REQUIRED REBATE............................................................. 44 ARTICLE XII MISCELLANEOUS.............................................................................. 45 Section 12.1 REFERENCES TO THE BONDS INEFFECTIVE AFTER BONDS PAID.................................. 45 Section 12.2 NO IMPLIED WAIVER..................................................................... 45 Section 12.3 ISSUER REPRESENTATIVE................................................................. 45 Section 12.4 COMPANY REPRESENTATIVE................................................................ 45
ii 4 Section 12.5 NOTICES............................................................................... 45 Section 12.6 IF PAYMENT OR PERFORMANCE DATE IS OTHER THAN A BUSINESS DAY........................... 46 Section 12.7 BINDING EFFECT........................................................................ 46 Section 12.8 SEVERABILITY.......................................................................... 46 Section 12.9 AMENDMENTS, CHANGES AND MODIFICATIONS................................................. 46 Section 12.10 EXECUTION IN COUNTERPARTS............................................................. 46 Section 12.11 APPLICABLE LAW........................................................................ 46 Section 12.12 EXPENSES.............................................................................. 46 Section 12.13 AMOUNTS REMAINING WITH THE TRUSTEE.................................................... 47 Section 12.14 REFERENCES TO THE CREDIT FACILITY ISSUER AND CREDIT FACILITY.......................... 47 Section 12.15 COVENANTS OF ISSUER NOT COVENANTS OF OFFICIALS INDIVIDUALLY........................... 47 Section 12.16 NO PERSONAL LIABILITY................................................................. 47 Section 12.17 LIMITED LIABILITY OF THE ISSUER....................................................... 48
iii 5 LOAN AGREEMENT This LOAN AGREEMENT, dated as of October 1, 2000 between THE FORT BEND COUNTY INDUSTRIAL DEVELOPMENT CORPORATION (the "Issuer"), a political subdivision duly organized and existing under the laws of the Constitution and laws of the State of Texas (the "State") and AARON RENTS, INC. (the "Company"), a Georgia corporation. WITNESSETH: WHEREAS, the Issuer is authorized and empowered by the provisions of the Development Corporation Act of 1979, Article 5190.6, Texas Revised Civil Statutes, as amended, (the "Act") to issue its special revenue bonds for the purpose of financing projects (as defined in the Act) and to lend the proceeds of revenue bonds upon terms and conditions as the Issuer may deem advisable; and WHEREAS, to obtain funds for such purposes the Issuer will issue and sell its Fort Bend County Industrial Development Corporation Industrial Development Revenue Bonds (Aaron Rents, Inc. Project), Series 2000 (the "Bonds"), under and pursuant to the Act, to be secured by and contain such terms and provisions as are set forth in that certain Trust Indenture (the "Indenture") dated as of October 1, 2000 between the Issuer and First Union National Bank, as Trustee (the "Trustee"), and the proceeds from the sale of the Bonds shall be deposited with the Trustee and disbursed in the manner and for the purposes set forth herein and in the Indenture, all as more fully provided herein and therein; and NOW, THEREFORE, in consideration of the respective representations and agreements contained herein, the parties hereto, recognizing that under the Act this Loan Agreement shall not be a debt of the Issuer and neither the Issuer, Fort Bend County (the "County"), the State nor any political subdivision thereof, shall be liable thereon within the meaning of any constitutional provision or statutory limitation, except from moneys received or to be received under the provisions of this Loan Agreement and from the Credit Facility Issuer under a Credit Facility (each as hereinafter defined) or derived from the exercise of the rights of the Issuer thereunder, agree as follows: 6 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION SECTION 1.1 DEFINITIONS. In addition to words and terms elsewhere defined in this Loan Agreement or in the Indenture, the following words and terms shall have the following meanings: "Act" shall mean Development Corporation Act of 1979, Article 5190.6, Texas Revised Civil Statutes, as amended, and other applicable provisions of applicable law. "Administrative Expenses" shall mean the amounts payable pursuant to Section 7.8 hereof by the Company to or for the account of the Issuer to provide for payment of the costs and expenses incurred by the Issuer. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control", when used with respect to a Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bank" shall initially mean First Union National Bank as issuer of the Credit Facility. "Bond" or "Bonds" shall mean the Fort Bend County Industrial Development Corporation Industrial Development Revenue Bonds (Aaron Rents, Inc. Project), Series 2000, authorized to be issued pursuant to the Indenture, including such Bonds issued in replacement for mutilated, destroyed, lost or stolen Bonds pursuant to Section 212 of the Indenture, and any amendments and supplements thereto, and any renewals and extensions thereof, permitted by the Indenture. "Bond Documents" shall mean collectively the Indenture, the Bonds, this Loan Agreement, the Letter of Credit Documents and the Remarketing Agreement. "Bond Resolution" shall mean the resolution adopted by the Issuer on September 19, 2000, as supplemented, authorizing, among other things, the execution and delivery of the Issuer Documents to be signed by the Issuer and the issuance of the Bonds by the Issuer. "Bond Year" means a one-year period commencing on October 1 of each year. "Business Day" means a day on which (a) banks located in each of the cities in which the principal office of the Trustee, the Credit Facility Issuer and the Remarketing Agent is located are not required or authorized by law or executive order to close for business, and (b) The New York Stock Exchange is not closed. "Capital Expenditures" shall have the meaning as specified in Section 2.2(j) hereof. 7 "Closing Date" means the date of the issuance and delivery of the Bonds. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" shall mean Aaron Rents, Inc., a Georgia corporation and any surviving, resulting or transferee corporation or other entity. "Company Representative" shall mean any one of the persons at the time designated to act on behalf of the Company by written certificate furnished to the Trustee containing the specimen signatures of such persons and signed on behalf of the Company. "Completion Date" shall mean the date of completion of the Project, as that date shall be certified as provided in Section 4.3 hereof. "Computation Date" shall mean each Installment Computation Date and the Final Computation Date. "Consistent Basis" shall mean, in reference to the application of Generally Accepted Accounting Principles, that the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preceding period, except as to any changes consented to by the Trustee and the Credit Facility Issuer. "Construction," when used in connection with the Project, shall mean, without limitation, the acquisition construction, installation, improving or equipping of the Project. "Costs of the Project" shall mean all costs and allowances for the acquisition, equipping and renovation of the Project which are permitted under the Act and which include, but are not limited to, all capital costs of the Project, including the following: (1) the acquisition, expansion and improving of the Project, including the acquisition of all machinery and equipment; (2) preparation of the plans and specifications for the Project (including any preliminary study or plan of the Project or any aspect thereof), any labor, services, materials and supplies used or furnished in the Construction of the Project, the construction and installation necessary to provide utility services or other services and all real and tangible personal property deemed necessary by the Company in connection with the Project; (3) the fees for architectural, engineering, supervisory and consulting services in connection with Construction of the Project; 2 8 (4) to the extent they shall not be paid by a contractor, the premiums of all insurance and surety and performance bonds required to be maintained in connection with the Construction of the Project; (5) any fees and expenses incurred in connection with construction, perfection and protection of title to the Project; (6) interest prior to and during the period until completion of construction of the Project; and (7) any administrative or other fees charged by the Issuer or reimbursement thereof of expenses, in connection with the Project to the completion of construction of the Project. "Counsel" shall mean an attorney or firm of attorneys acceptable to the Trustee, and may, but need not, be counsel to the Issuer or the Company. "County" shall mean Fort Bend County, Texas. "Credit Facility" shall mean the Letter of Credit or any Alternate Credit Facility delivered to the Trustee pursuant to Section 503 of the Indenture. "Credit Facility Issuer" shall mean the Bank with respect to the Letter of Credit and the institution issuing any Alternate Credit Facility. "Department" shall mean the Texas Department of Economic Development. "Determination of Taxability" shall be defined as and shall be deemed to have occurred on the first to occur of the following: (1) on the date when the Company files any statement, supplemental statement or other tax schedule, return or document which discloses that an Event of Taxability shall have in fact occurred; (2) on the date when any Bondholder or former Bondholder notifies the Company or the Trustee that it has received a written opinion of Bond Counsel to the effect that an Event of Taxability shall have occurred unless, within one (1) year after receipt by the Company of such notification from the Trustee, any Bondholder or any former Bondholder, the Company shall obtain and deliver to the Trustee a favorable ruling or determination letter issued to or on behalf of the Company by the Commissioner or any District Director of Internal Revenue (or any other government official exercising the same or a substantially similar function from time to time) to the effect that, after taking into consideration such facts as form the basis for the opinion that an Event of Taxability has occurred, an Event of Taxability shall not have occurred; 3 9 (3) on the date when the Company shall be advised in writing by the Commissioner or any District Director of Internal Revenue (or any other government official or agent exercising the same or a substantially similar function from time to time) that, based upon filings of the Company, or upon any review or audit of the Company, or upon any other ground whatsoever, an Event of Taxability shall have occurred; (4) on the date when the Company shall receive notice in writing from any Bondholder or former Bondholder, or from the Trustee, that the Internal Revenue Service (or any other government agency exercising the same or a substantially similar function from time to time) has assessed as includable in the gross income of any Bondholder or former Bondholder the interest on such Bondholder's or former Bondholder's Bonds due to the occurrence of an Event of Taxability; provided, however, no Determination of Taxability shall be deemed to have occurred under subparagraph (3) or (4) hereof unless the Company has been afforded the opportunity, at its expense, to contest any such assessment or unfavorable ruling and, further, no Determination of Taxability shall be deemed to have occurred until such contest, if made, has been finally determined. "Eminent Domain" shall mean the taking of title to, or the temporary use of, the Project or any part thereof pursuant to eminent domain or condemnation proceedings, or any voluntary conveyance of any part of the Project during the pendency of, or as a result of a threat of, such proceedings. "Event of Default" or "Default" shall have the meaning set forth in Section 9.1 hereof. "Event of Taxability" shall mean a change in law or fact or the interpretation thereof, or the occurrence or existence of any fact, event or circumstance (including, without limitation, the issuance of obligations or the incurring of capital expenditures in excess of those permitted by Section 144(a)(4) of the Code, or the taking of any action by the Company, or the failure to take any action by the Company, or the making by the Company of a misrepresentation herein or in any certificate required to be given in connection with the issuance, sale or delivery of the Bonds) which has the effect of causing the interest paid or payable on any Bond to become includable in the gross income of any Bondholder or former Bondholder of any Bond other than a Bondholder or former Bondholder who is or was a Substantial User or Related Person. "Fair Market Value" means the price at which a willing buyer would purchase an investment from a willing seller in a bona-fide, arm's length transaction, as more specifically set forth in Section 1.148-5(d)(6) of the Regulations. "Final Computation Date" shall mean the final maturity of the Bonds. 4 10 "Financing Statements" means any and all financing statements (including continuation statements) filed for record from time to time to perfect the security interests created or assigned pursuant to the Bond Documents. "Generally Accepted Accounting Principles" shall mean those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board and its predecessors or pronouncements of the American Institute of Certified Public Accountants or those principles of accounting which have other substantial authoritative support and are applicable in the circumstances as of the date of application, as such principles are from time to time supplemented and amended. "Indenture" shall mean the Trust Indenture of even date herewith between the Issuer and the Trustee, together with any amendments or supplements thereof permitted thereby. "Installment Computation Date" shall mean the last day of the fifth and each succeeding fifth Bond Year. "Issuer" shall mean the Fort Bend County Industrial Development Corporation and its successors and assigns. "Issuer Documents" shall mean collectively the Indenture, the Placement Agent Agreement and this Loan Agreement. "Issuer Representative" shall mean any one of the persons at the time designated to act on behalf of the Issuer by written certificate furnished to the Company and the Trustee containing the specimen signatures of such persons and signed on behalf of the Issuer by the Chairman. "Letter of Credit" shall mean the irrevocable direct pay letter of credit dated October 26, 2000 in the amount of $4,287,500 issued by the Bank, with an initial term of three (3) years, subject to any extensions thereof. "Letter of Credit Documents" shall mean the Letter of Credit, the Reimbursement Agreement and the Pledge Agreement. "Loan Agreement" shall mean this Loan Agreement and any amendments and supplements thereto permitted by the Indenture. "Local Facilities" means "facilities" (as that term is used in Section 144(a)(4) of the Code) of which the Company, any other Principal User of the Project, or a Related Person of any of the foregoing, is or will be a Principal User and which are located within the unincorporated areas of the County. For the purposes of this definition, a "contiguous or integrated facility" (as that term is used in Section 1.103-10(d)(2)(i) of the Regulations) located partly within and partly without the 5 11 unincorporated areas of the County, shall be considered as being located entirely within the unincorporated areas of the County. "Net Proceeds," when used with respect to (i) any insurance proceeds or (ii) any award resulting from, or other amount received in connection with, Eminent Domain, means the gross proceeds from such proceeds, award or other amount, less all expenses (including reasonable and actual attorneys' fees) incurred in the realization thereof. "Non-Purpose Investment" means any investment property (other than a tax-exempt obligation under Section 103(a) of the Code) that is not acquired to carry out the governmental purpose of the Bonds. "Overdue Rate" shall mean the Prime Rate plus two percent per annum, or the maximum contract rate permitted by law, whichever is lower. "Payment of the Bonds" shall mean payment of (i) the principal of and interest on the Bonds in accordance with their terms whether through payment at maturity, upon acceleration or prepayment, (ii) all amounts due as Administrative Expenses or otherwise, and (iii) any and all other liabilities and obligations arising under the Indenture and this Loan Agreement; in any case, payment in such a manner that all such amounts due and owing with respect to the Bonds shall have been paid. "Permitted Encumbrances" shall mean, as of any particular time, (i) liens for ad valorem taxes and special assessments, if any, which are not then delinquent or which are being contested in good faith, (ii) the liens created pursuant to the Indenture, any mortgage or deed to secure debt from the Company to the Bank, (iii) judgment liens which remain undischarged and unstayed for not more than thirty (30) days and (iv) mechanic's, materialmen's, warehousemen's, carrier's and other similar liens incurred in the ordinary course of business remaining undischarged or unstayed for not longer than sixty (60) days from the date of attachment thereof. "Person" shall mean an individual, partnership, corporation, trust, unincorporated organization, association, joint venture, joint-stock company, or a government or agency or political subdivision thereof. "Placement Agent" shall mean the securities dealer, bank or trust company which is designated by the Company with the consent of the Credit Facility Issuer, which will use its best efforts to arrange for the initial placement of the Bonds and which will agree to establish the Preliminary Fixed Rate and to use its best efforts to arrange for the sale of Tendered Bonds on the Conversion Date, all as more particularly described in Section 2.2(e) of the Indenture. "Placement Agent Agreement" shall mean that certain letter agreement dated the date of issuance of the Bonds among the Issuer, the Company and Placement Agent for the initial placement of the Bonds. 6 12 "Pledge Agreement" shall mean the Pledge Agreement of even date herewith by the Company to the Bank, and any amendments or supplements thereof. "Prime Rate," prior to the Conversion Date, shall mean that rate of interest per annum announced by First Union National Bank at its principal office in Charlotte, North Carolina, from time to time to be its "prime rate," and after the Conversion Date shall mean the interest rate published in the "Money Rate" table of The Wall Street Journal as such rate (or if a range of rates is published, then the highest rate in such range). In the event that The Wall Street Journal shall abolish or abandon the practice of publishing a "prime rate," or should the same become unascertainable, the Trustee shall designate a comparable reference rate which shall be deemed to be the Prime Rate for purposes hereof. "Principal User" shall have the meaning as specified in Section 2.2(v) hereof. "Project" shall mean the financing, in whole or in part, of the acquisition, construction, installation and equipping of a manufacturing facility located in the County, to be used to manufacture upholstered furniture and wood office furniture. "Project Fund" shall mean the trust fund so designated which is established pursuant to Section 4.1 of the Indenture. "Qualified Costs" means those Costs of the Project paid and incurred subsequent to June 4, 2000 for the acquisition and renovation of land or property of a character subject to the allowance for depreciation under Section 167 of the Code and shall include all amounts which are chargeable to the capital account of the Project or would be so chargeable either with a proper election by the Company or but for a proper election by the Company to deduct such amounts and shall exclude all costs paid to a Related Person to the Company. "Rebate Amount" has the meaning ascribed in Section 1.148-3 of the Regulations and generally means the excess as of any date of the future value of all receipts on Nonpurpose Investments over the future value of all payments on Nonpurpose Investments, all as determined in accordance with Section 1.148-3 of the Regulations. "Rebate Fund" means the fund of that name created pursuant to Section 405 of the Indenture and described in Section 11.1 hereof. "Regulations" shall mean the applicable Treasury Regulations under Sections 103 and 141 through 150 of the Code whether at the time proposed, temporary, final or otherwise, including, where applicable, Treasury Regulations under Section 103 of the Internal Revenue Code of 1954, as amended and in effect prior to adoption of the Code. "Reimbursement Agreement" shall mean the Letter of Credit and Reimbursement Agreement, of even date herewith, by and between the Company and the Bank, and any supplements or amendments thereto. 7 13 "Related Person" means "related person" within the meaning of Section 144(a)(3) of the Code. "Remarketing Agent" shall mean First Union National Bank, Charlotte, North Carolina and its successors as provided in Section 1101 of the Indenture. "Remarketing Agreement" shall mean the Remarketing Agreement of even date herewith between the Company and the Remarketing Agent. "Security Interest" or "security interests" shall refer to the security interests created in the Indenture. "State" shall mean the State of Texas. "Substantial User" shall have the meaning as specified in Section 2.2 hereof. "Trustee" shall mean the banking institution at the time serving as Trustee under the Indenture. "Yield" means, (1) on a fixed yield issue, the discount rate that, when used in computing the present value as of the issue date of all unconditionally payable payments of principal, interest, and fees for qualified guarantees on such issue and amounts reasonably expected to be paid as fees for qualified guarantees on such issue, produces an amount equal to the present value, using the same discount rate, of the same aggregate issue price of the issue as of the issue date thereof. The "yield "on an investment allocated to an issue of bonds is the discount rate that, when used in computing the present value as of the date the investment is first allocated to such issue of all unconditionally payable receipts from the investment, produces an amount equal to the present value of all unconditionally payable payments for the investment. The yield on an investment allocated to an issue is computed under the economic accrual method, using the same compounding interval and financial conventions to compute the yield on the issue. Thus, for example, if the yield on an investment allocated to an issue is determined on the basis of semiannual interest compounding, then the yield on the issue shall also be expressed in terms of semiannual interest compounding. (2) The yield on a variable yield issue is computed separately for each computation period. The yield for each computation period is the discount rate that, when used in computing the present value as of the first day of the computation period of all the payments of principal and interest and fees for qualified guarantees that are attributable to the computation period, produces an amount equal to the present value, using the same discount rate, of the aggregate issue price (or deemed issued price, as determined in Regulation Section 1.148-4(c)(2)(iv)) of the Bonds as of the first day of the computation period. SECTION 1.2 RULES OF CONSTRUCTION. (1) Words of masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders, and words of the neuter gender 8 14 shall be deemed and construed to include correlative words of the masculine and feminine genders. (2) The table of contents, captions and headings in this Loan Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Loan Agreement. (3) All references herein to particular Articles or Sections are references to Articles or Sections of this Loan Agreement unless some other reference is established. (4) All accounting terms not specifically defined herein shall be construed in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. (5) All references herein to the Company shall be deemed to refer to each of the Persons if more than one are described by such term. Obligation, duty or liability of the Company shall be a joint and several agreement, obligation, duty or liability of each of the Persons so described by such term. (6) Any terms not defined herein but defined in any of the other Bond Documents shall have the same meaning herein. 9 15 ARTICLE II REPRESENTATIONS SECTION 2.1 REPRESENTATIONS BY THE ISSUER. The Issuer represents, warrants and agrees as follows: (a) The Issuer is a nonprofit industrial development corporation duly organized under the Constitution and laws of the State. (b) Under the provisions of the Act, the Issuer is duly authorized to enter into, execute and deliver or, if appropriate, accept the Issuer Documents, to issue and deliver the Bonds, to undertake the transactions contemplated by the Issuer Documents and the Bonds and to carry out its obligations hereunder and thereunder. (c) The Issuer proposes to issue the Bonds in the aggregate principal amount of $4,200,000 to finance, in whole or in part, the acquisition, construction, installation and equipping of the Project. (d) By the Bond Resolution, the Issuer has duly authorized the execution, delivery and performance or, if appropriate, acceptance of the Issuer Documents, including the borrowing under and the issuance and performance of the Bonds. (e) The Bonds will be issued under and pursuant to the Indenture and will mature, bear interest, and have the other terms and provisions set forth or provided for in the Indenture. (f) To the best of its knowledge, no event has occurred and no condition exists with respect to the Issuer which would constitute an "event of default" as defined in this Loan Agreement or the Indenture or which, with the lapse of time or with the giving of notice or both, would become an "event of default" under this Loan Agreement or the Indenture. (g) Neither this Loan Agreement nor any portion of the Trust Estate have been pledged or hypothecated in any manner or for any purpose other than as provided in the Indenture as security for the payment of the Bonds. The Bonds constitute the only bonds or other obligations of the Issuer in any manner payable from the revenues to be derived from this Loan Agreement, and except for the Bonds, no bonds or other obligations have been or will be issued on the basis of this Loan Agreement. (h) With respect to the Bonds, there are no other obligations of the Issuer that have been, are being or will be sold (1) at substantially the same time, (2) under the same plan of financing, and (3) payable from the same source of funds. (i) On August 2, 2000, the Issuer adopted an initial resolution approving the issuance of the Bonds. 10 16 (j) No member of the Issuer voting on this financing has any interest whatsoever in the Company or in the transactions contemplated by this Loan Agreement. (k) The Issuer will not enter into any agreement or instrument which might in any way prevent or materially impair its ability to perform its obligations under the Bond Documents. (l) So long as any Bonds shall remain unpaid, the Issuer will, upon request of the Trustee and provided it shall be furnished with sufficient funds to pay all costs and expenses (including reasonable and actual attorney's fees) reasonably incurred by it as such costs and expenses accrue: (1) take all action and do all things which it is authorized by law to take and do in order to perform and observe all covenants and agreements on its part to be performed and observed under the Bond Documents; and (2) execute, acknowledge, where appropriate, and deliver from time to time promptly at the request of the Trustee all such instruments and documents as in the opinion of the Trustee are necessary or desirable to carry out the intent and purpose of the Bonds Documents or any of them. (m) So long as any Bonds shall remain unpaid, the Issuer will not, without the written consent of the Trustee: (1) take any action which, directly or indirectly, adversely affects its existence or status as a political subdivision organized and existing under the laws of the State; (2) take any action which would adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds; or (3) pledge any interest in this Loan Agreement, or the amounts to be derived herefrom, other than as contemplated by the Indenture. SECTION 2.2 REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE COMPANY. The Company represents, warrants and covenants and agrees as follows: (a) The Company is a corporation duly organized and validly existing under the laws of the State of Georgia. The Company is not in violation of any provision of its Articles of Incorporation, as amended, has the corporate power to enter into and perform this Agreement, and has duly authorized by proper corporate action the execution and delivery of this Agreement, and is qualified to do business and is in good standing under the laws of the State. (b) Neither the execution and delivery of this Loan Agreement, the Remarketing Agreement, the Reimbursement Agreement or the Pledge Agreement, nor the consummation of 11 17 the transactions contemplated hereby and thereby, nor the fulfillment of or compliance with the terms and conditions hereof or thereof (i) conflicts with or results in a breach of the articles of incorporation or the bylaws of the Company or constitutes a default under the articles or bylaws of the Company, (ii) materially conflicts with or results in a material breach of the terms, conditions, or provisions of any agreement or instrument to which the Company is now a party or by which the Company is bound, or constitutes a material default under any of the foregoing, or (iii) results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of the Company other than as expressly contemplated by the terms of any such instrument or agreement. (c) There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, known to be pending or threatened against or affecting the Company or any of its officers, nor to the best knowledge of the Company is there any basis therefor, wherein an unfavorable decision, ruling, or finding would materially adversely affect the transactions contemplated by this Loan Agreement or which would adversely affect, in any way, the validity or enforceability of the Bonds, this Loan Agreement, the Pledge Agreement, the Reimbursement Agreement, the Remarketing Agreement, or any agreement or instrument to which the Company is a party, used or contemplated for use in the consummation of the transactions contemplated hereby. (d) The Project is of the type authorized and permitted by the Act, and its estimated cost is not less than $4,200,000. (e) The sales and investment proceeds of the Bonds deposited under the Indenture will be used only for payment of Costs of the Project and costs of issuing the Bonds (not exceeding 2% of the principal amount of the Bonds). None of the proceeds of the Bonds will be used as working capital or to finance inventory. The Company will pay all Project costs not paid with Bond proceeds. (f) The Company will use due diligence to cause the Project to be constructed and operated in accordance with the laws, rulings, regulations and ordinances of the State and the departments, agencies and political subdivisions thereof. The Company has obtained or will cause to be obtained all requisite approvals of the State and of other federal, state, regional and local governmental bodies for the construction and equipping of the Project. (g) The Company will not claim an exemption arising from the issuance of the Bonds from State sales, use or excise taxes on personal property or property taxes on real property with respect to property acquired in connection with the Project. (h) The Company will keep all taxes and assessments against the Project fully paid before the same become delinquent. (i) The Company will fully and faithfully perform all the duties and obligations which the Issuer has covenanted and agreed in the Indenture to cause the Company to perform, any duties and obligations which the Company is required in the Indenture to perform and any delegable or assignable duties and obligations which the Issuer is required in the Indenture to 12 18 perform. The foregoing shall not apply to any duty or undertaking of the Issuer which by its nature cannot be delegated or assigned. (j) Except for any architectural, engineering, surveying, soil testing, or similar preliminary activities occurring earlier, the commencement of the construction of the Project, and each of the several components thereof, occurred subsequent to June 4, 2000, which is sixty days prior to the date of adoption by the Issuer of its initial inducement resolution. No sales and investment proceeds of the Bonds will be used to reimburse the Company for amounts paid prior to June 4, 2000 other than for "preliminary expenditures" as defined in Section 1.150-2(f) of the Income Tax Regulations. (k) The Company has entered into various contracts providing for the construction and improving of the Project that collectively create a substantial binding commitment on the Company's part to expend at least five percent (5%) of the net sale proceeds of the Bonds on the Project. For purposes of the preceding sentence and subsection (m) below, the term "net sale proceeds" means the proceeds actually or constructively received by the Issuer from the sale of the Bonds (including amounts used to pay any placement agent's or underwriters' discount). (l) The Project consists of land and/or property subject to the allowance for depreciation under the Code, and substantially all of the net proceeds of the Bonds, including earnings from the investment thereof, will be used to pay Qualified Costs. (m) No changes shall be made in the Project and no actions will be taken by the Company that shall in any way cause interest on the Bonds to be included in gross income for federal income tax purposes. (n) Based on current facts, estimates and circumstances, the Company currently expects: (1) that the acquisition, construction, installation and equipping of the Project and the expenditure of all of the net sale proceeds of the Bonds will be completed by October 1, 2003; (2) to proceed with due diligence toward completion of the Project (the work on which has already commenced) and the expenditure of the net sale proceeds of the Bonds in connection with the Project; and (3) the proceeds of the Bonds deposited under the Indenture are needed for the purpose of paying all or a part of the Cost of the Project. (o) As of the date of execution and delivery of this Loan Agreement, there exists no Event of Default or any condition or event which would constitute, or with the passage of time or the giving of notice, or both, would constitute an Event of Default hereunder. 13 19 (p) The average maturity of the Bonds does not exceed one hundred twenty percent (120%) of the average reasonably expected economic life of the assets being financed with the proceeds of the Bonds, with the average reasonably expected economic life of each asset being measured from the later of the date of issuance of the Bonds or the date such asset is reasonably expected to be placed in service and by taking into account the respective cost of each asset being financed. The information furnished by the Company and used by the Issuer to verify the average reasonably expected economic life of each asset of the Project to be financed with the proceeds of the Bonds is true, accurate and complete. (q) (i) The payment of principal or interest with respect to the Bonds is not guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof); (ii) five percent (5%) or more of the proceeds of the Bonds will not be (A) used in making loans the payment of principal and interest with respect to which are to be guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof), or (B) invested (directly or indirectly) in federally insured deposits or accounts as defined in Section 149(B) of the Code; and (iii) the payment of principal or interest on the Bonds is not otherwise indirectly guaranteed (in whole or in part) by the United States (or any agency or instrumentality thereof). The foregoing provisions of this subsection shall not apply to proceeds of the Bonds being (i) invested for an initial temporary period until such proceeds are needed for the purpose for which such issue was issued; (ii) held in a bona fide debt service fund; (iii) held in a reserve that meets the requirements of Section 148(d) of the Code with respect to reasonably required reserve or replacement funds; (iv) invested in obligations issued by the United States Treasury; or (v) held in a refunding escrow (i.e., a fund containing proceeds of a refunding bond issue established to provide for the payment of principal or interest on one or more prior bond issues); or (vi) invested in other investments permitted under regulations promulgated pursuant to Section 149(b)(3)(B) of the Code. (r) Any information supplied by the Company that has been relied upon by the Issuer and by Bond Counsel with respect to the eligibility of the Project and the exclusion from gross income for federal income tax purposes of interest on the Bonds is true and correct. (s) The Company shall promptly provide written notice to the Issuer and the Trustee if the Company becomes aware of an Event of Default as such term is used in Section 9.1 hereof. (t) All components of the Project are or will be located wholly within the unincorporated boundaries of the County. (u) This Loan Agreement constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (v) There is no other bond or issue of bonds, the interest on which is tax exempt pursuant to Section 144(a) of the Code or Section 103(b)(6) of the Internal Revenue Code of 14 20 1954, as amended, part or all of the net proceeds of which are to be used with part or all of the net proceeds of the Bonds with respect to a single building, an enclosed shopping mall, or a strip of offices, stores or warehouses using substantial common facilities, as contemplated by Section 144(a)(9) of the Code. There are no heating, cooling or other facilities shared by the Project and by any other facility financed with tax-exempt bonds. There are no common entrances, to plazas, malls, lobbies, parking, elevators or stairways shared by the Project and any other facility financed with tax-exempt use by employees or patrons of the Project and such facility. (w) Neither the Company nor any Related Persons (as such term is used in the Code) to the Company are owners or principal users (as such term is used in the Code) of any facility (other than the Project) in the unincorporated area of the County, or outside of, but contiguous with, the unincorporated area of the County. (x) The Project is not integrated with any facility located outside of the unincorporated area of the County. (y) (i) The aggregate authorized face amount of the Bonds allocated to any test-period beneficiary (as such term is used in the Code), when increased by the outstanding tax-exempt facility-related bonds (within the meaning of Section 144(a)(10) of the Code) of such beneficiary, does not exceed $40,000,000. (ii) For purposes of applying subparagraph (i) above, with respect to any issue, the outstanding tax-exempt facility-related bonds of any person who is a test-period beneficiary, as such term is used in the Code, with respect to such issue is the aggregate face amount of all tax-exempt bonds which, within the meaning of Section 144(a)(10)(B)(ii) of the Code, are exempt facility bonds, qualified small issue bonds and qualified redevelopment bonds or industrial development bonds (as defined in Section 103(b)(2) of the Internal Revenue Code of 1954, as in effect on the date before the date of enactment of the Tax Reform Act of 1986) to which Section 141(a) of the Code does not apply: (A) which are allocated to such beneficiary, and (B) which are outstanding on the date of issuance of the Bonds (not including as outstanding any obligation which is to be redeemed from the proceeds of the Bonds). (iii) The amount of any issue shall be allocated so that: (y) except as may otherwise be provided in regulations promulgated under Section 144(a)(10)(C) of the Code, the portion of the face amount of any issue allocated to any test-period beneficiary of the facility financed by the proceeds of such issue (other than an owner of such facility) is an amount which bears the same relationship to the entire face amount of such issue as the portion of such facility used by such beneficiary bears to the entire facility; and (z) except as otherwise provided in regulations promulgated under Section 144(a)(10)(C) of the Code, the portion of the face amount of an issue allocated to any test period beneficiary who is an owner of a facility financed by the proceeds of such issue is an amount which bears the same relationship to the entire face amount of such issue as the portion of such facility owned by such beneficiary bears to the entire facility. (z) The information furnished by the Company and used by the Issuer in making its election to issue the Bonds pursuant to Section 144(a)(4) of the Code was true and complete as of the date hereof. The aggregate principal amount of all obligations assumed, expenditures 15 21 made and obligations incurred during the six year period beginning on the date three years prior to the issuance of the Bonds and ending on the date three years after the issuance of the Bonds with respect to Local Facilities (including, without limitation, the leasing of equipment) which constitute "capital expenditures", as that term is used in Section 144(a)(4) of the Code ("Capital Expenditures") (other than those mentioned in Section 144(a)(4)(C) of the Code), by the Company, any other Principal User of the Project, any Related Person of either, or otherwise with respect to Local Facilities, but excluding such Capital Expenditures paid out of the proceeds of the Bonds, did not at any time during the period referenced above exceed $10,000,000. (aa) No customer of the Company is expected to purchase ten percent (10%) or more of the Company's annual output from the Project during the first three years of the term of the Loan Agreement on a basis different than any other customer of the Company. (bb) The Project constitutes a "manufacturing facility" within the meaning and contemplation of Section 144(a)(12) of the Code, and any office space included as part of the Project will be (i) located at or within the Project, (ii) directly related to the day-to-day manufacturing operations at the Project, and (iii) de minimis in size and cost in relation to the size and cost of the Project. (cc) The Company shall use at least 95% of the sale and investment proceeds of the Bonds that are disbursed to finance Qualified Costs. (dd) The Company shall timely provide the written direction required under Section 401(g) of the Indenture in order to comply with the requirements of Section 1.144-2 of the Regulations. (ee) The Project will not include at any time any airplane, skybox or other private luxury box, health club facility, facility primarily used for gambling, store the principal business of which is the sale of alcoholic beverages for consumption off premises, any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard, and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, or racetrack. (ff) Less than 25 percent of the Net Proceeds of the Bonds actually expended will be used, directly or indirectly, for the acquisition of land or an interest therein. Notwithstanding the immediately preceding sentence no portion of the Net Proceeds of the Bonds will be used, directly or indirectly, for the acquisition of land or an interest therein to be used for farming purposes. (gg) No portion of the Net Proceeds of the Bonds will be used for the acquisition of any existing property or an interest therein unless (i) the first use of such property is pursuant to such acquisition or (ii) the rehabilitation expenditures with respect to any building and the equipment therefore equal or exceed 15 percent of the cost of acquiring such building financed with the proceeds of the Bonds (with respect to structures other than buildings, this clause shall be applied by substituting 100 percent for 15 percent). For purposes of the preceding 16 22 sentence, the term "rehabilitation expenditures" shall have the meaning set forth in section 147(d)(3) of the Code. (hh) The costs of issuance (within the meaning of section 147(g) of the Code and applicable regulations thereunder) financed with the proceeds of the Bonds shall not exceed 2 percent of the proceeds from the sale of the Bonds. When used in this Section 2.2, the term Net Proceeds of the Bond shall mean the proceeds from the sale of the Bonds, including investment earnings on such proceeds, less accrued interest. All of the above representations, warranties, covenants and agreements shall survive the execution of this Loan Agreement. 17 23 ARTICLE III PERMITS AND APPROVALS; COMPANY CONSENT TO ASSIGNMENT SECTION 3.1 APPROVALS REQUIRED FOR THE PROJECT. The Company has obtained or caused to be obtained all necessary material permits and approvals for the operation and maintenance of the Project and has complied and will continue to comply in all material respects with all lawful requirements of any governmental body regarding the use or condition of the Project. The Company may, however, contest any such requirement by an appropriate proceeding diligently prosecuted. SECTION 3.2 COMPANY CONSENT TO ASSIGNMENT OF AGREEMENT AND EXECUTION OF INDENTURE. The Company understands that the Issuer, as security for the payment of the principal of, and the interest on, the Bonds, will assign and pledge to, and create a security interest in favor of, the Trustee pursuant to the Indenture certain of its rights, title and interest in and to this Loan Agreement including all Revenues, reserving, however, its rights (a) pursuant to this Loan Agreement providing that notices, approvals, consents, requests and other communications be given to the Issuer, (b) to reimbursement and payment of costs and expenses under this Loan Agreement, and (c) to indemnification and to exemption from liability, both individual and corporate, under this Loan Agreement, and the Company hereby agrees and consents to such assignment and pledge. The Company acknowledges that it has received a copy of the Indenture and consents to the execution of the same by the Issuer. 18 24 ARTICLE IV ISSUANCE OF THE BONDS SECTION 4.1 AGREEMENT TO ISSUE THE BONDS. To provide funds to finance the acquisition, construction and improving of the Project, the Issuer agrees that it will authorize, sell, issue and deliver the Bonds in the aggregate principal amount of $4,200,000 in the manner set forth in the Indenture and cause the proceeds of the Bonds to be applied as provided in the Indenture. SECTION 4.2 DISBURSEMENTS FROM THE PROJECT FUND. The Issuer has, in the Indenture, authorized and directed the Trustee to make disbursements from the Project Fund in accordance with the terms of this Loan Agreement including refinancing the loan as more fully set forth in the Indenture. SECTION 4.3 CLOSEOUT OF THE PROJECT FUND. The Completion Date for the Project shall be promptly established and evidenced to the Trustee and shall be the date on which the Company Representative delivers to the Trustee a certificate stating that, except for amounts retained by the Trustee at the Company's direction for any Cost of the Project not then due and payable, the Construction of the Project has been completed substantially in accordance with the plans and specifications, if any, and all costs and expenses incurred in connection therewith have been paid. Notwithstanding the foregoing, such certificate may state that it is given without prejudice to any rights against third parties that exist at the date of such certificate or that may subsequently come into being. SECTION 4.4 DISPOSITION OF THE BALANCE IN THE PROJECT FUND. Pursuant to Section 401(g) of the Indenture, as soon as practicable after, and in any event within sixty (60) days from, the Trustee's receipt of the certificate mentioned in Section 4.3 hereof, all amounts remaining in the Project Fund, including any unliquidated investments made with money theretofore deposited in the Project Fund, except for amounts to be retained in the Project Fund for any Cost of the Project not then due and payable as provided in Section 4.3 hereof, shall be transferred by the Trustee to the Bond Fund and shall be applied immediately as set forth in the written direction of the Company as described in subsections (i) through (iii) of Section 401(g) of the Indenture. SECTION 4.5 COMPANY REQUIRED TO PAY IN EVENT PROJECT FUND INSUFFICIENT. In the event the moneys in the Project Fund available for the Project are not sufficient for the Project, the Company agrees to provide such funds and to pay the amount in excess of the moneys available therefor in the Project Fund. The Issuer does not make any warranty, either express or implied, that the moneys paid into the Project Fund will be sufficient for such purpose. The Company agrees that if after exhaustion of the moneys in the Project Fund, the Company should pay any amount to finance the construction and equipping of the Project pursuant to the provisions of this Section, the Company shall not be entitled to any reimbursement therefor from the Issuer, the Trustee or the Bondholders, nor shall the Company be entitled to any diminution of the amounts payable under Section 5.2 hereof. 19 25 SECTION 4.6 NO THIRD PARTY BENEFICIARY. It is specifically agreed between the parties executing this Loan Agreement that it is not intended by any of the provisions of any part of this Loan Agreement to create in the public or any member thereof, other than as may be expressly provided herein or as contemplated in the Indenture, a third party beneficiary hereunder, except for the Department, or to authorize anyone not a party to this Loan Agreement to maintain a suit for personal injuries or property damage pursuant to the terms or provisions of this Loan Agreement. The duties, obligations, and responsibilities of the parties to this Loan Agreement with respect to third parties shall remain as imposed by law. 20 26 ARTICLE V LOAN BY THE ISSUER TO THE COMPANY; REPAYMENT SECTION 5.1 LOAN BY THE ISSUER; REPAYMENT. (a) Upon the terms and conditions of this Loan Agreement, the Issuer shall lend to the Company the proceeds from the sale of the Bonds. The loan shall be evidenced by and repayable as set forth in this Loan Agreement. The loan shall be made by depositing said proceeds in the Project Fund in accordance with the terms of the Indenture. (b) As consideration for the issuance of the Bonds and the making of the loan to the Company by the Issuer, the Company will execute and deliver this Loan Agreement, and the Issuer will assign this Loan Agreement to the Trustee, as the assignee of the Issuer under the Indenture, contemporaneously with the issuance of the Bonds. The Company shall repay the loan in accordance with the provisions of this Loan Agreement. SECTION 5.2 PAYMENT OBLIGATIONS OF THE COMPANY. (a) One day prior to the first Business Day of each month beginning on the first Business Day of November 2000, and in each year thereafter until payment in full of the Bonds, the Company shall pay or cause to be paid to the Trustee for the account of the Issuer as loan payments a sum equal to the amount payable on each such date as principal of (whether at maturity or upon redemption prior to maturity) and interest on the Bonds, as provided in the Indenture. Each loan payment under this Section shall be sufficient to pay the total amount of principal (whether at maturity or upon redemption prior to maturity) and interest payable on such payment date, and if at any payment date the balance in the Bond Fund is insufficient to make required payments of principal and interest on such date, the Company shall forthwith pay any such deficiency. Such payments may be applied by the Trustee to reimburse the Credit Facility Issuer if funds for such payment or redemption are obtained or are to be obtained pursuant to a draw under the Credit Facility. On or by the third Business Day before the first Business Day of each month that the Company's payment has not been received, the Issuer hereby directs the Trustee, in accordance with the Indenture, to give telephonic and written notice to the Company of the upcoming loan payment date. Anything herein to the contrary notwithstanding, any amount at any time held by the Trustee in the Bond Fund shall be credited against the next succeeding loan payment and such credit shall reduce the payment to be then made by the Company; and further, if the amount held by the Trustee in the Bond Fund should be sufficient to pay at the times required the principal of and interest on all Bonds then remaining unpaid, the Company shall not be obligated to make any further loan payments under the provisions of this Section. (b) The Company agrees to pay to the Trustee until the Bonds are paid in full, (i) an amount equal to the aggregate annual fee of the Trustee which is $2,750.00 for the ordinary services of the Trustee rendered and its ordinary expenses incurred under the Indenture, (ii) the 21 27 reasonable fees and charges of the Trustee and any other paying agent for acting as paying agent and as Bond Registrar as and when the same become due, and (iii) the reasonable fees and charges of the Trustee for extraordinary services rendered by it and extraordinary expenses incurred by it under the Indenture, as and when the same become due. If the Company should fail to make any of the payments required in this paragraph, the item or installment so in default shall continue as an obligation of the Company until the same shall have been fully paid, and the Company agrees to pay the same with interest thereon, to the extent legally enforceable, at the Overdue Rate until paid. SECTION 5.3 SECURITY FOR PAYMENTS UNDER THE LOAN AGREEMENT. It is understood and agreed that payments required to be made to the Issuer under this Loan Agreement are assigned and pledged to the Trustee under the Indenture. The Company hereby assents to such assignment and pledge. The Company further agrees that (i) all payments under this Loan Agreement shall be paid directly to the Trustee for the account of the Issuer and shall be deposited in the Bond Fund; and (ii) all payments required to be made as provided in Section 5.2(b) hereof shall be paid directly to the Trustee for its own use, or any paying agents or Counsel. SECTION 5.4 COMPANY'S PERFORMANCE UNDER INDENTURE. The Company agrees, for the benefit of the holders from time to time of the Bonds, to do and perform all acts and things contemplated in the Indenture to be done or performed by it. SECTION 5.5 NO SET-OFF. The obligation of the Company to make the payments required by this Loan Agreement shall be absolute and unconditional. The Company will pay without abatement, diminution or deduction (whether for taxes or otherwise) all such amounts regardless of any cause or circumstance whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim that the Company may have or assert against the Issuer, the Trustee, any Bondholder or any other person. The provisions of this Section 5.5, however, are subject to the provisions of the last paragraph of Section 5.2. SECTION 5.6 PREPAYMENTS. The Company may prepay all or any part of the amounts it is obligated to pay as provided in Section 601 of the Indenture with respect to prepayment of the Bonds. Except as provided in this Section 5.6 and in Sections 10.1, 10.2 and 10.3 hereof, the Company shall not be entitled to cause the Bonds to be prepaid. The Company shall prepay all of the amounts it is required to prepay as provided in Sections 10.2 and 10.3 hereof. SECTION 5.7 LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT. As a further condition to the Issuer's financing the Project hereunder, the Company shall: (a) cause the Letter of Credit to be issued and delivered to the Trustee as security for the Bonds and until the Conversion Date, cause a Credit Facility meeting the requirements of Section 503 of the Indenture to be maintained with the Trustee; and 22 28 (b) enter into the Reimbursement Agreement with the Bank in form and substance satisfactory to the Bank and execute and deliver the other Letter of Credit Documents required by the Bank. ARTICLE VI MAINTENANCE AND MODIFICATIONS; TAXES AND UTILITY CHARGES; INSURANCE AND EMINENT DOMAIN SECTION 6.1 MAINTENANCE AND MODIFICATION OF THE PROJECT BY THE COMPANY. (a) The Company agrees that, until Payment of the Bonds shall be made, it will at its own expense, (1) keep the Project or cause the Project to be kept in as reasonably safe condition as its operations shall permit, (2) make or cause to be made from time to time all necessary repairs thereto and renewals and replacements thereof and otherwise keep the Project in good repair and in good operating condition, and (3) not permit or suffer others to commit a nuisance on or about the Project. The Company shall pay or cause to be paid all costs and expenses of operation and maintenance of the Project. (b) The Company may, at its own expense, make from time to time any additions, modifications or improvements to the Project that it may deem desirable for its business purposes and that do not materially impair the effective use or decrease the value of the Project. SECTION 6.2 TAXES AND UTILITY CHARGES. (a) The Company shall pay as the same respectively become due, (i) all taxes, assessments, levies, claims and charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project (including, without limiting the generality of the foregoing, any tax upon or with respect to the income or profits of the Issuer from the Project and that, if not paid, would become a charge on the payments to be made under this Loan Agreement prior to or on a parity with the charge thereon created by the Indenture and including ad valorem, sales and excise taxes, assessments and charges upon the Company's interest in the Project), (2) all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project and (3) all assessments and charges lawfully made by any governmental body for public improvements that may be secured by a lien on any portion of the Project. (b) The Company may, at its expense, contest in good faith any such levy, tax, assessment, claim or other charge, but the Company may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom only if the Company shall notify the Issuer and the Trustee that in the opinion of Counsel, by non-payment of any such items, the rights of the Trustee with respect to this Loan Agreement created by the assignment under the Indenture, as to the rights assigned under this Loan Agreement or any part of the payments to be made under this Loan Agreement will not be materially endangered, nor will the Project or any part thereof be subject to loss or 23 29 forfeiture. If the Company is unable to deliver such an opinion of Counsel, the Company shall promptly pay or bond and cause to be satisfied or discharged all such unpaid items or furnish, at the expense of the Company, indemnity satisfactory to the Trustee; but provided further, that any tax, assessment, charge, levy or claim shall be paid forthwith upon the commencement of proceedings to foreclose any lien securing the same. The Issuer and the Trustee, at the expense of the Company, will cooperate fully in any such permitted contest. (c) If the Company shall fail to pay any of the items required to be paid by it pursuant to (a) above, the Issuer or the Trustee may (but shall be under no obligation to) pay the same, and any amounts so advanced therefor by the Issuer or the Trustee shall become an additional obligation of the Company to the one making the advancement which amounts, together with interest thereon at the Overdue Rate, from the date of payment, the Company agrees to pay on demand therefor. (d) The Company shall furnish the Issuer and the Trustee, upon request, with proof of payment of any taxes, governmental charges, utility charges, insurance premiums or other charges required to be paid by the Company under this Loan Agreement. SECTION 6.3 CASUALTY AND LIABILITY INSURANCE REQUIRED. Until Payment of the Bonds shall be made, the Company will keep the Project properly and continuously insured against such risks as are customarily insured against by businesses of like size and type engaged in the same or similar operations (other than business interruption insurance) including, without limiting the generality of the foregoing, all insurance required under the Reimbursement Agreement or any of the Letter of Credit Documents; (a) casualty insurance on the Project in an amount not less than the full insurable value of all property located at, and all improvements to, the Project, against loss or damage by fire and lightning and other hazards ordinarily included under uniform broad form of extended coverage endorsement at the time in use in the State; (b) general comprehensive liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Project (such coverage to include provisions waiving subrogation against the Issuer and the Trustee) in amounts no less than $1,000,000 with respect to bodily injury to any one person, $1,000,000 with respect to bodily injury to two or more persons in any one accident and $1,000,000 with respect to property damage resulting from any one occurrence; (c) liability insurance with respect to the Project under the workers' compensation laws of the State; provided, however, that the insurance so required may be provided by blanket policies or under a self insurance program now or hereafter maintained by the Company; and (d) if at any time any portion of the Project is in an area that has been identified by the Secretary of Housing and Urban Development as having special flood and mudslide hazards, a policy of flood insurance covering improvements located on such portion of the 24 30 Project with amounts and coverage reasonably satisfactory to the Trustee and the Credit Facility Issuer. SECTION 6.4 GENERAL REQUIREMENTS APPLICABLE TO INSURANCE. (a) Except as otherwise agreed to by the Credit Facility Issuer during such time as a Credit Facility is in effect, each insurance policy obtained in satisfaction of the requirements of Section 6.3 hereof: (1) shall be by such insurer (or insurers) as shall be financially responsible, qualified to do business in the State and of recognized standing; (2) shall be in such form and have such provisions (including, without limitation, the lenders long-form loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of insurance involved and are acceptable in all respects to the Trustee and the Credit Facility Issuer; (3) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least thirty (30) days' prior written notice to the Issuer, the Trustee and the Credit Facility Issuer; (4) shall provide that losses thereunder, prior to the occurrence of an Event of Default (or event which, with notice or lapse of time or both, would constitute an Event of Default) shall be adjusted with the insurer by the Company at its expense on behalf of the insured parties and the decision of the Company as to any adjustment shall be final and conclusive; and (5) without limiting the generality of the foregoing, all insurance policies carried on the Project shall name the Company, the Trustee and the Credit Facility Issuer as parties insured thereunder as the respective interests of each of such parties may appear, and any loss thereunder shall be made payable and shall be applied as provided in Section 6.8 hereof. (b) Prior to expiration of any such policy, the Company shall furnish the Issuer and the Trustee with evidence satisfactory to them that the policy or certificate has been renewed or replaced in compliance with this Loan Agreement or is no longer required by this Loan Agreement and the Credit Facility Issuer. SECTION 6.5 ADVANCES BY THE ISSUER OR THE TRUSTEE. In the event the Company shall fail to maintain, or cause to be maintained, the full insurance coverage required by this Loan Agreement or shall fail to keep or cause to be kept the Project in good repair and good operating condition, the Issuer or the Trustee may (but shall be under no obligation to), after ten (10) days written notice to the Company, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and the Company agrees to reimburse the Issuer and the Trustee to the extent of the amounts so 25 31 advanced by them or any of them with interest thereon at the Overdue Rate, from the date of advance to the date of reimbursement. Any amounts so advanced by the Issuer or the Trustee shall become an additional obligation of the Company, shall be payable on demand, and shall be deemed a part of the obligation of the Company. SECTION 6.6 COMPANY TO MAKE UP DEFICIENCY IN INSURANCE COVERAGE. The Company agrees that to the extent that it shall not carry insurance required by Sections 6.3 and 6.4 hereof, it shall pay promptly to the Trustee for application in accordance with the provisions of Section 6.8 hereof, such amount as would have been received as Net Proceeds by the Trustee under the provisions of Section 6.8 hereof had such insurance been carried to the extent required. SECTION 6.7 EMINENT DOMAIN. Unless the Company shall have prepaid its obligations pursuant to the provisions of Article X hereof, in the event that title to, or the temporary use of, the Project or any part thereof shall be taken by Eminent Domain, the Company shall be obligated to continue to make the payments required to be made pursuant to this Loan Agreement and the Net Proceeds received as a result of such Eminent Domain shall be applied as provided in Section 6.8(b) hereof. SECTION 6.8 APPLICATION OF NET PROCEEDS OF INSURANCE AND EMINENT DOMAIN. (a) Except as otherwise agreed to by the Credit Facility Issuer during such time as a Credit Facility is in effect, the Net Proceeds of the insurance carried pursuant to the provisions of Sections 6.3(b) and 6.3(c) hereof shall be applied by the Company toward extinguishment of the defect or claim or satisfaction of the liability with respect to which such insurance proceeds may be paid. (b) Except as otherwise provided in the Reimbursement Agreement (which shall govern during such time that the Credit Facility is in effect), the Net Proceeds of the insurance carried with respect to the Project pursuant to the provisions of Sections 6.3(a) and (d) hereof (excluding the Net Proceeds of any business interruption insurance, which shall be paid to the Company), and the Net Proceeds resulting from Eminent Domain shall be paid to the Trustee and applied as follows: (1) If the amount of the Net Proceeds does not exceed $50,000, the Net Proceeds shall be paid to the Company and shall be applied to any repair, replacement, renewal or improvement of the Project, if any, as the Company deems necessary. (2) If the amount of the Net Proceeds exceeds $50,000, the Net Proceeds shall be paid to and held by the Trustee as a special trust fund and invested in accordance with Section 502 of the Indenture and the provisions of Article XI hereof pending receipt of written instructions from the Company. At the option of the Company, to be exercised within the period of ninety (90) days from the receipt by the Trustee of such Net Proceeds, the Company shall advise the Trustee that (A) the Company will use the Net Proceeds for the repair, replacement, renewal or improvement of the Project (such funds to be delivered by the Trustee to the 26 32 Company), or (B) the Net Proceeds shall be applied to the prepayment of the Bonds as provided in Section 10.1 hereof. If the Company does not advise the Trustee within said period of ninety (90) days that it elects to proceed under clause (A) to use such Net Proceeds for the repair, replacement, renewal or improvement of the Project, such Net Proceeds shall be applied to the prepayment of the Bonds pursuant to Article X hereof. Any prepayment pursuant to the preceding sentence shall be effected on the next Interest Payment Date not less than thirty (30) days after the expiration of said period of ninety (90) days without an election by the Company. (c) The Company agrees that if it shall elect to use the moneys paid to the Trustee pursuant to subsection (b)(2) of this Section 6.8 for the repair, replacement, renewal or improvement of the Project, it will restore the Project, or cause the same to be done, to a condition substantially equivalent to its condition prior to the occurrence of the event to which the Net Proceeds were attributable. To the extent that the Net Proceeds are not sufficient to restore or replace the Project, the Company shall use its own funds to complete the restoration or replacement of the Project. Prior to the commencement of such work, the Trustee may require the Company to furnish a completion bond, escrow deposit or other satisfactory evidence of the Company's ability to pay or provide for the payment of any estimated costs in excess of the amount of the Net Proceeds. Any balance remaining after any such application of such Net Proceeds shall be paid to the Company. The Company shall be entitled to the Net Proceeds of any insurance or resulting from Eminent Domain relating to property of the Company not included in the Project and not providing security for this Loan Agreement. SECTION 6.9 PARTIES TO GIVE NOTICE. In case of any material damage to or destruction of all or any part of the Project, the Company shall give prompt notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. In case of a taking or proposed taking of all or any part of the Project or any right therein by Eminent Domain, the Company shall give prompt notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. SECTION 6.10 NO WARRANTY OF CONDITION OR SUITABILITY BY ISSUER. The Company recognizes that the Issuer does not deal in goods of the kind comprising components of the Project or otherwise hold itself out as having knowledge or skill peculiar to the practices or goods involved in the Project, and that the Issuer is not one to whom such knowledge or skill may be attributed by its employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. The Company further recognizes that since the components of the Project have been and are to be designated and selected by the Company, THE ISSUER HAS NOT MADE AN INSPECTION OF THE PROJECT OR OF ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, AND, EXCEPT AS OTHERWISE PROVIDED HEREIN, THE ISSUER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED OR OTHERWISE, WITH RESPECT TO THE SAME OR TO THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF, TO THE 27 33 QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY THE COMPANY. IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE PROJECT OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, OR WHETHER PATENT OR LATENT, THE ISSUER SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES OR REPRESENTATIONS BY THE ISSUER, EXPRESS OR IMPLIED (TO THE EXTENT PERMITTED BY APPLICABLE LAW), WITH RESPECT TO THE PROJECT OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE U.C.C. OR ANOTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE. 28 34 ARTICLE VII SPECIAL COVENANTS SECTION 7.1 ACCESS TO THE PROJECT AND INSPECTION. The Credit Facility Issuer, the Trustee and the Issuer shall have the right, at all reasonable times upon the furnishing of reasonable notice to the Company under the circumstances, to enter upon the Project site and to examine and inspect the Project. The Trustee, the Credit Facility Issuer, the Issuer and their duly authorized agents shall also have such right of access to the Project as may be reasonably necessary for its proper maintenance, in the event of failure by the Company to perform its obligations relating to maintenance under this Loan Agreement. The Company hereby covenants to execute, acknowledge and deliver all such further documents, and do all such other acts and things as may be reasonably necessary to grant to the Credit Facility Issuer, the Trustee and the Issuer such right of entry. The Credit Facility Issuer, the Trustee and the Issuer shall also be permitted, at all reasonable times, to examine the books and records of the Company with respect to obligations of the Company hereunder, but neither shall be entitled to access to trade secrets or other proprietary information (other than financial information) of the Company. All information obtained in any such examination shall be kept confidential and shall not be disclosed except in connection with any proceedings to enforce the Company's obligations hereunder. SECTION 7.2 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. Subject to the provisions of the Indenture, the Issuer and the Company agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements and amendments hereto and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Project and for carrying out the intention or facilitating the performance of this Loan Agreement. SECTION 7.3 RECORDING AND FILING; OTHER INSTRUMENTS. (a) The Company covenants that it will, upon the request of the Trustee and at the Company's expense, cause Counsel in the State to take all steps as are reasonably necessary to render an opinion to the Issuer and the Trustee to the effect that all financing statements, continuation statements, notices and other instruments required by applicable law have been recorded or filed or re-recorded or re-filed in such manner and in such places required by law in order to fully preserve and protect the rights of the Trustee in the granting by the Issuer of certain rights of the Issuer, pursuant to the Indenture, under this Loan Agreement. (b) The Company, the Issuer and the Trustee shall execute and deliver all instruments and shall furnish all information and evidence deemed necessary or advisable by such Counsel to enable such Counsel to render the opinion referred to in subsection (a) of this Section. The Company, at the request of the Trustee, shall file and re-file and record and re-record or cause to be filed and re-filed and recorded and re-recorded all instruments required to be filed and re-filed and recorded or re-recorded pursuant to the opinion of such Counsel and shall continue or cause to be continued the liens of such instruments for so long as the Bonds shall be outstanding, except as otherwise required by this Loan Agreement. 29 35 SECTION 7.4 ARBITRAGE COVENANTS: NOTICE OF EVENT OF TAXABILITY. (a) Neither the Company nor the Issuer shall take any action or fail to take any action, and the Company covenants that it will not approve the Trustee's taking any action or failure to take any action or making any investment or use of the proceeds of the Bonds, if such action, use or failure would adversely affect the tax-exempt status of the interest on the Bonds under Section 103 of the Code or cause any of the Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Code and the Regulations as the same may be applicable to the Bonds at the time of such action, investment or use. (b) The Company shall give prompt written notice to the Issuer, the Department and the Trustee of the filing by the Company of any statement, tax schedule, return or document with the Internal Revenue Service which discloses that an Event of Taxability shall have occurred and its receipt of any oral or written advice from the Internal Revenue Service that an Event of Taxability shall have occurred. (c) The Company acknowledges that it has examined the provisions of this Loan Agreement and the certificates executed by the Company in connection with the issuance of the Bonds relating to compliance with the Code and shall comply in all material respects with the covenants, instructions and guidelines contained herein and therein. The Company's obligation herein and/or therein to make any rebate payments and to prepare and furnish to the Issuer and the Trustee the statements and forms described herein and/or therein shall survive payment in full of the Bonds notwithstanding any provision of this Loan Agreement to the contrary. (d) The Company and the Issuer also covenant and agree that the Company and the Issuer will furnish accurate information necessary to enable Bond Counsel to make any certifications which might be required under the Regulations. (e) Whenever the Issuer shall be required to file, deliver or execute, or produce any reports, notices of other documents while the Bonds are outstanding, the Company shall furnish or cause the proper person to furnish in due time to the Issuer, through the attorney for the Issuer, the completed form of such report, notice or other required document together with (i) a certification by the Company or other proper person required to provide information that such document is accurate, and (ii) if requested by the Issuer or if otherwise required herein or in the Indenture, an opinion of Bond Counsel addressed to the Issuer that the report or other document is not in violation of any provision of law or of the documents constituting the complete transcript of proceedings relating to the issuance of the Bonds and that such report, notice or other required document meets the legal requirements for such filing, delivery or execution. In the event of the failure or refusal of the Company or other proper person to comply with this provision, the Company agrees to pay the statement for reasonable and actual attorney's fees and administrative time presented by the Issuer for filing, delivering or executing such report or documents, such statement to be paid within thirty (30) days after written notice to the Company by the Issuer. (f) In order to insure that interest on the Bonds is not and will not become subject to federal income taxes as a result of failure of the Bonds to satisfy the requirement of 30 36 Section 149(e) of the Code, the Company covenants with the Issuer and the Trustee that it will, on or before the date of issuance of the Bonds supply to the Issuer and the Trustee all information required under Internal Revenue Service Form 8038, Information Return for Private Activity Bond Issues (Form 8038), including without limitation the following: (1) the name and address of the Issuer; (2) the date of issue, the amount of lendable proceeds of the issue, and the stated interest rate, term and face amount of each obligation which is part of the issue; (3) where required, the name of the applicable elected representative who approved the issue, or a description of the voter referendum by which the issue was approved; and (4) a description of any property to be refinanced from the proceeds of the issue. The Company further covenants that on or before the due date thereof, it will cause Form 8038 to be completed, executed and filed with the appropriate office of the Internal Revenue Service. (g) Rebate. The Company agrees to take all steps necessary to compute and pay any rebatable arbitrage in accordance with Section 148(f) of the Code, including: (1) Delivery of Documents and Money on Computation Dates. The Company shall deliver to the Trustee, within 55 days after each Computation Date, (a) a statement, signed by an officer of the Company, stating the Rebate Amount as of such Computation Date; and (b) (a) if such Computation Date is an Installment Computation Date, an amount that, together with any amount then held for the credit of the Rebate Fund, is equal to at least 90% of the Rebate Amount in respect of the Bonds as of such Installment Computation Date, less any prior payments made to the United States for "rebatable arbitrage" (as that term is defined in Section 148(f) of the Code) in respect of the Bonds, or (b) if such Computation Date is the Final Computation Date, an amount which, together with any amount then held for the credit of the Rebate Fund in respect of the Bonds, is equal to the Rebate Amount as of such Final Computation Date, less any prior payments made to the United States for "rebatable arbitrage" (as that term is defined in Section 148(f) of the Code) in respect of such issue of Bonds; and (c) an Internal Revenue Service Form 8038-T completed as of such Computation Date. 31 37 (2) Correction of Underpayments. If the Company shall discover or be notified as of any date that any payment paid to the United States Treasury pursuant to this Section of an amount described above shall have failed to satisfy any requirement of Section 1.148-3 of the Regulations (whether or not such failure shall be due to any default by the Company, the Issuer, or the Trustee), the Company shall (1) pay to the Trustee (for deposit to the Rebate Fund) and cause the Trustee to pay to the United States Treasury from the Rebate Fund the Rebate Amount, together with any penalty and/or interest due, as specified in Section 1.148-3(h) of the Regulations, within 175 days after any discovery or notice and (2) deliver to the Trustee an Internal Revenue Service Form 8038-T completed as of such date. If such Rebate Amount, together with any penalty and/or interest due, is not paid to the United States Treasury in the amount and manner and by the time specified in the Regulations the Company shall take such steps as are necessary to prevent the Bonds from becoming arbitrage bonds, within the meaning of Section 148 of the Code. (3) Records. The Company shall retain all of its accounting records relating to the Debt Service Fund and the Rebate Fund and all calculations made in preparing the statements described in this Section for at least six years after the later of the final maturity of the Bonds or the first date on which no Bonds are outstanding for federal income tax purposes. (4) Fees and Expenses. The Company agrees to pay all of the fees and expenses of a nationally-recognized bond counsel, a certified public accountant and any other necessary consultant employed by the Company, the Trustee or the Issuer in connection with computing the Rebate Amount. (5) No Diversion of Rebatable Arbitrage. The Company will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that is not purchased at fair market value or includes terms that the Company would not have included if the Bonds were not subject to Section 148(f) of the Code. (6) Modification of Requirements. If at any time during the term of this Agreement the Issuer, the Trustee, or the Company desires to take any action that would otherwise be prohibited by the terms of this Section, such Person shall be permitted to take such action if it shall first obtain and provide to the other Persons named herein an Opinion of Bond Counsel to the effect that such action shall not adversely affect the exclusion of interest on the Bonds from gross income of the Holders thereof for federal income tax purposes and shall be in compliance with the laws of the State of Texas and the terms of this Agreement. SECTION 7.5 NO PROHIBITED PAYMENTS. The Company covenants and agrees that it will not purchase, nor will it direct the Trustee to purchase, any Non-Purpose Investment for a price in excess of the Fair Market Value of such investment. This Section shall apply to all 32 38 investments made by the Company and the Trustee under the Indenture, except for investments of moneys in the Bond Fund in any Bond Year in which earnings on investments in the Bond Fund do not exceed $100,000.00. SECTION 7.6 PERMITTED INVESTMENTS: PROHIBITED PAYMENTS. Reference is made to Section 6.2 of the Indenture, wherein the investments permitted to be made by the Trustee are set forth. For the purpose of determining the Fair Market Value of an investment, the following rules shall apply: (1) The Fair Market Value of a United States Treasury obligation purchased directly from the United States Treasury is its purchase price. (2) The purchase price of a certificate of deposit is treated as its Fair Market Value if the yield on such certificate of deposit is not less than (i) the yield on reasonably comparable direct obligations of the United States and (ii) the highest yield that is published or posted by the provider to be currently available from the provider on reasonably comparable certificates of deposit offered to the public. (3) The purchase price of a guaranteed investment contract is treated as its Fair Market Value on the purchase date if the requirements of Section 1.148-5(d)(6)(iii) of the Regulations are satisfied. Any investment not described in subsections (1), (2), or (3) of this Section 7.6 or which is not alternatively of a type traded on an established securities market, within the meaning of Section 1273 of the Code, or otherwise within the definition of Investment Obligations shall not be permitted unless the Trustee receives, if the Trustee so requests, an opinion of Bond Counsel that such investment will not adversely affect the tax-exempt status of the Bonds. The Company agrees that it shall bear the cost of obtaining such opinion and shall not require the Trustee to make any such investment without said opinion of Bond Counsel. SECTION 7.7 INVESTMENT IN TAX-EXEMPT SECURITIES. Notwithstanding anything to the contrary in Section 7.5 or 7.6, the Trustee may invest moneys under the terms of the Indenture in tax-exempt obligations described in Section 103(a) of the Code without obtaining any opinion of Bond Counsel, if and to the extent permitted by the Indenture, but all such investments shall be directed and authorized by the Company. SECTION 7.8 ADMINISTRATIVE EXPENSES. The Company shall pay to or for the account of the Issuer within thirty (30) days after notice thereof all reasonable and actual costs and expenses incurred by the Issuer in connection with the financing and administration of the Project, except such as may be paid out of the proceeds of the Bonds on deposit in the Project Fund, including, without limitation, the costs of administering this Loan Agreement and the fees and expenses of the Trustee, attorneys, consultants and others. 33 39 SECTION 7.9 INDEMNITY AGAINST CLAIMS. (a) The Company will pay and discharge and will indemnify and hold harmless the Issuer and the Trustee from (1) any lien or charge upon amounts payable hereunder by the Company to the Issuer, and (2) any taxes, assessments, impositions and other charges in respect of the Project. (b) If any claim of any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges, are sought to be imposed, the Issuer or the Trustee, as the case may be, will give prompt notice to the Company, and the Company shall have the right and duty to assume, and shall assume, the defense thereof, with full power to litigate, compromise or settle the same in its sole discretion. SECTION 7.10 INDEMNITY OF ISSUER, THE DEPARTMENT AND TRUSTEE. If the Issuer, the Department or the Trustee, or any director, member, employee, officer, attorney or agent thereof (collectively the "Indemnified Persons") is made a party defendant to any litigation concerning the Project or any part thereof, or concerning the occupancy thereof by the Company, or concerning the issuance of the Bonds, the Company agrees to indemnify, defend and hold Indemnified Persons harmless from and against any and all liability by reason of such litigation, including reasonable and actual attorneys' fees and expenses incurred by the Indemnified Persons, whether or not any such litigation is prosecuted to judgment. If the Indemnified Persons commence an action against the Company to enforce any of the terms of any of the documents executed in connection with the Bonds, or for the breach by the Company of any such terms, the Company shall pay to the Indemnified Persons reasonable and actual attorneys' fees and expenses in connection with such action, and the right to such attorneys' fees and expenses shall be enforceable whether or not such action is prosecuted to judgment. If the Company breaches any term of any of the documents executed in connection with the Bonds, the Indemnified Persons may employ an attorney or attorneys to protect its rights, and in the event of such employment following any such breach by the Company, the Company shall pay the reasonable and actual attorneys' fees and expenses of the Indemnified Persons so incurred, whether or not any action is actually commenced against the Company by reason of such breach. (a) It is the intention of the parties that the Indemnified Persons shall not incur pecuniary liability by reason of the terms of this Agreement or by reason of the undertakings of the Indemnified Persons required hereunder in connection with the issuance of the Bonds or execution of this Loan Agreement or the Indenture or in connection with the performance of any act by the Indemnified Persons requested by the Company or in any way arising from the transaction with which this Agreement is a part arising in any manner in connection with the Project or financing of the Project; nevertheless, if any of the Indemnified Persons should incur any such pecuniary liability, then in such event the Company shall indemnify and hold the Indemnified Persons harmless against all claims by and on behalf of any person arising out of the same, and all costs incurred in connection with any claim, action or proceeding brought thereon, and upon notice from the Indemnified Persons, the Company shall defend the Indemnified Persons in any such action, or proceeding in consultation with counsel for the 34 40 Indemnified Persons. In the event any proceeding shall be initiated against any of the Indemnified Persons, the Company shall furnish a defense to the Indemnified Persons, shall be permitted to control, in the exercise of its reasonable judgment, the defense of any such action or proceeding, and pay all fees of counsel to the Indemnified Persons. Any settlement of litigation that involves the Issuer shall require the consent of the Issuer. Notwithstanding anything to the contrary contained herein, the Company shall have no liability to indemnify the Issuer, the Department or the Trustee against claims or damages resulting from the Indemnified Persons' own willful misconduct, bad faith or fraud. (b) No recourse shall be had for the enforcement of any obligation, promise or agreement of the Indemnified Persons contained herein or in the other documents to which the Indemnified Persons is a party or for any claim based hereon or otherwise in respect hereof or thereof against any director, member, officer, agent, attorney or employee, as such, in his individual capacity, past, present or future, of the Indemnified Persons or of any successor entity, either directly or through the Indemnified Persons or any successor entity whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise. No personal liability whatsoever shall attach to, or be incurred by, any director, member, officer, agent, attorney or employee as such, past, present or future, of the Indemnified Persons or any successor entity, either directly or through the Indemnified Persons or any successor entity, under or by reason of any of the obligations, promises or agreements entered into between the Indemnified Persons and the Company, whether herein contained or to be implied herefrom as being supplemental hereto; and all personal liability of that character against every such director, member, officer, agent, attorney and employee is, by the execution of this Loan Agreement and as a condition of, and as part of the consideration for execution of this Loan Agreement, expressly waived and released. Notwithstanding any other provision of this Loan Agreement, the Issuer shall not be liable to the Company or the Trustee or any other person for any failure of the Issuer to take action under this Loan Agreement unless the Issuer (a) is requested in writing by an appropriate person to take such action, (b) is assured of payment of, or reimbursement for, any reasonable expenses in such action, and (c) is afforded, under the existing circumstances, a reasonable period to take such action. In acting under this Loan Agreement, or in refraining from acting under this Loan Agreement, the Issuer may conclusively rely on the advice of its counsel. SECTION 7.11 ADDITIONAL INFORMATION. Until payment of the Bonds shall have occurred, the Company shall promptly from time to time deliver to the Trustee such information regarding the operations, business affairs and financial condition of the Company as the Trustee may reasonably request. The Trustee is hereby authorized to deliver a copy of any such financial information delivered hereunder to any regulatory authority having jurisdiction over the Trustee and to any other Person as may be required by law. The Issuer and the Trustee are authorized to provide information concerning the outstanding principal amount and payment history of, and other information pertaining to, the Bonds to any agency or regulatory authority of the State requesting such information. 35 41 SECTION 7.12 DEFAULT CERTIFICATES. The Company shall deliver to the Trustee forthwith, upon obtaining knowledge of any Event of Default hereunder, under the Indenture or the Reimbursement Agreement, or an event which would constitute such an Event of Default but for the requirement that notice be given or time elapse or both, a certificate of the Company specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. SECTION 7.13 OBSERVE LAWS. The Company shall observe in all material respects all applicable laws, regulations and other valid requirements of any regulatory authority with respect to its operations at the Project. 36 42 ARTICLE VIII ASSIGNMENT, LEASING AND SELLING SECTION 8.1 ASSIGNMENT OF THIS LOAN AGREEMENT OR LEASE OR SALE OF THE PROJECT BY THE COMPANY. The rights of the Company under this Loan Agreement may be assigned, and the Project may be leased or sold as a whole or in part, without the necessity of obtaining the consent of the Issuer or the Trustee, subject to the following conditions: (a) no assignment, transfer, sale or lease shall relieve the Company from primary liability for any of its obligations hereunder, and if any such assignment, transfer, sale or lease occurs, the Company shall continue to remain primarily liable for the payments specified herein and for performance and observance of the other agreements on its part herein provided to be performed and observed by it, subject to the provisions of the last paragraph of Section 5.2; (b) the assignee, lessee or purchaser shall assume the obligations of the Company hereunder to the extent of the interest assigned, leased or sold (except to the extent such lease relates to less than ten percent (10%) of the property and is on a temporary or transitional basis and does not adversely effect the tax-exempt status of the Bonds); (c) the Company shall, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the Issuer and to the Trustee a true and complete copy of each such assignment, instrument of transfer, lease or sale agreement, as the case may be, together with any instrument of assumption; (d) the Company shall, prior to such assignment, transfer, sale or lease, deliver to the Trustee an opinion of Bond Counsel to the effect that such assignment, transfer, sale or lease does not adversely affect the legality of the Bonds or the exclusion of interest on the Bonds from gross income for federal income tax purposes; and (e) if a Credit Facility is in effect, such assignment, transfer, sale or lease must be permitted under the Reimbursement Agreement or the Credit Facility Issuer must have given its prior written consent to such assignment, transfer, sale or lease. SECTION 8.2 RESTRICTIONS ON TRANSFER OF THE ISSUER'S RIGHTS. Except for the assignment made pursuant to the Indenture of certain of its rights under this Loan Agreement, the Issuer will not during the term of this Loan Agreement sell, assign, transfer or convey any of its interests in this Loan Agreement except as hereinafter provided in Section 8.3 hereof. SECTION 8.3 ASSIGNMENT BY THE ISSUER. It is understood, agreed and acknowledged that the Issuer, as security for payment of the principal of and interest on the Bonds, will grant to the Trustee pursuant to the Indenture, inter alia, certain of its right, title and interest in and to this Loan Agreement (reserving certain of its rights, as more particularly described in the Indenture). 37 43 ARTICLE IX EVENTS OF DEFAULT AND REMEDIES SECTION 9.1 EVENTS OF DEFAULT DEFINED. The term "Event of Default" shall mean any one or more of the following events: (a) the failure by the Company to pay when due on the first Business Day of each month beginning on November 1, 2000, any payment of principal of or interest on or other amount payable under Section 5.2 of this Loan Agreement; (b) [Reserved.] (c) the failure of the Company to perform any of its obligations under Section 7.4 hereof provided, however, that unless an Event of Taxability shall have occurred the Company shall be afforded a thirty (30) day cure period after notice of same from the Issuer or the Trustee to perform such obligations; (d) the occurrence of an "Event of Default" or "event of default" under any of the other Bond Documents upon the expiration of any applicable notice or cure period; (e) any representation or warranty of the Company contained in Section 2.2 hereof, or in any document, instrument or certificate delivered pursuant hereto or to the Indenture or in connection with the issuance and sale of the Bonds shall be false, misleading or incomplete in any material respect on the date as of which made and to the extent curable, has not been cured within thirty (30) days after notice of same from the Issuer or the Trustee; (f) failure by the Company to observe and perform any covenant, condition or agreement on the part of the Company under this Loan Agreement, other than as referred to in the preceding paragraphs of this Section 9.1, for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, is given to the Company by the Issuer or the Trustee, unless the Issuer and the Trustee shall agree in writing to an extension of such time prior to its expiration; provided, however, if such default shall be such that it cannot be corrected within the applicable period, it shall not constitute an Event of Default if corrective action is instituted by the Company within the applicable period and diligently pursued until the default is corrected; (g) the commencement against the Company of an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, or of any action or proceeding for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or for the winding-up or liquidation of its affairs and the continuance of any such case, action, or proceeding unstayed and in effect for a period of ninety (90) consecutive days; or (h) the commencement by the Company of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or 38 44 state bankruptcy, insolvency or other similar law, or the consent by it to, or its acquiescence in the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of or the consent by it to any assignment for the benefit of creditors, or the failure of the Company generally to pay its debts as such debts become due, or the taking of any action by the Company in furtherance of any of the foregoing. SECTION 9.2 REMEDIES ON DEFAULT. (a) If Payment of the Bonds shall not have been made, whenever any Event of Default referred to in Section 9.1 hereof shall have happened and shall not have been waived: (1) The Issuer may, by written notice, declare all installments of principal repayable pursuant to this Loan Agreement for the remainder of the term hereof to be immediately due and payable, whereupon the same, together with accrued interest thereon as provided for in this Loan Agreement, shall become immediately due and payable without presentment, demand, protest or any other notice whatsoever, all of which are hereby expressly waived by the Company; provided, however, all such amounts shall automatically be and become immediately due and payable without notice upon the occurrence of any event described in Section 9.1(g) or 9.1(h) hereof, which notice the Company hereby expressly waives. (2) The Issuer may take whatever other action at law or in equity may appear necessary or desirable to collect the amounts payable pursuant to this Loan Agreement then due and thereafter to become due, or to enforce the performance and observance of any obligation, agreement or covenant of the Company under this Loan Agreement or under any of the other Bond Documents. (b) In the enforcement of the remedies provided in this Section 9.2, the Issuer may treat all reasonable expenses of enforcement including, without limitation, legal, accounting and advertising fees and expenses, as additional amounts payable by the Company then due and owing, and the Company agrees to pay such additional amounts upon demand, the amount of such legal fees to be without regard to any statutory presumption. SECTION 9.3 APPLICATION OF AMOUNTS REALIZED IN ENFORCEMENT OF REMEDIES. Any amounts collected pursuant to action taken under Section 9.2 hereof shall be paid to the Trustee and applied as set forth in Article VIII of the Indenture. SECTION 9.4 NO REMEDY EXCLUSIVE. No remedy herein conferred upon or reserved to the Issuer 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 Loan Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon the occurrence of an Event of 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. 39 45 SECTION 9.5 AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In any Event of Default, if the Issuer, the Trustee, the Credit Facility Issuer or any Bondholder employs attorneys or incurs other expenses for the collection of amounts payable hereunder or for the enforcement of the performance or observance of any covenants or agreements on the part of the Company herein contained, the Company agrees that it will on demand therefor pay to the Issuer, the Trustee, the Credit Facility Issuer or such Bondholder the reasonable and actual fees of such attorneys and such other reasonable expenses so incurred by the Issuer, the Trustee, the Credit Facility Issuer or such Bondholder, the amount of such fees of attorneys to be without regard to any statutory presumption. SECTION 9.6 CORRELATIVE WAIVERS. If an "Event of Default" under Section 801 of the Indenture shall be cured or waived and any remedial action by the Trustee rescinded, any correlative default under this Loan Agreement shall be deemed to have been cured or waived. 40 46 ARTICLE X PREPAYMENTS SECTION 10.1 OPTIONAL PREPAYMENTS. (a) The Company is hereby granted, and shall have, the option to prepay the unpaid principal of the Bonds in whole or in part in accordance with and as set forth in Section 601(a) of the Indenture with respect to the prepayment of the Bonds; provided, all prepayments shall be made in immediately available funds and with interest accrued to the date of prepayment and that any prepayment of the Bonds in part shall be applied to unpaid installments of principal in inverse order of maturity. Any prepayment pursuant to this subsection (a) shall be made by the Company taking, or causing the Issuer to take, the actions required (1) for Payment of the Bonds, in the case of prepayment of the Bonds in whole, or (2) to effect prepayment of less than all of the Bonds according to their terms in the case of a partial prepayment Bonds. (b) To exercise the option granted in subsection (a) of this Section 10.1, the Company shall give written notice to the Issuer and the Trustee which shall specify therein (i) the date of the intended prepayment of the Bonds, which shall not be less than forty-five (45) nor more than sixty (60) days from the date the notice is mailed and (2) the principal amount of the Bonds to be prepaid. When given, such notice shall be irrevocable by the Company unless the Company in such notice states that it is revocable and requests that the notice of the Trustee to the Bondholders pursuant to Section 604 of the Indenture be conditioned on the deposit of Available Moneys with the Trustee no later than the redemption date of the Bonds. SECTION 10.2 MANDATORY PREPAYMENTS. (a) In the event of a Determination of Taxability, the Company shall, on a date selected by the Company not more than one hundred eighty (180) days following the receipt by the Trustee of written notice of a Determination of Taxability, prepay the entire unpaid principal balance of the Bonds in full. Immediately upon the occurrence of a Determination of Taxability, the Company shall notify the Issuer and the Trustee of the date selected for payment pursuant to this Section 10.2. (b) During the Variable Rate Period, in the event any Credit Facility is not renewed and an Alternate Credit Facility has not been provided in accordance with Section 503 of the Indenture, the Company shall on or before the Interest Payment Date occurring closest to but not after fifteen (15) days prior to the expiration date of the then current Credit Facility, prepay the entire unpaid principal balance of the Bonds in full. The Company shall promptly notify the Issuer and the Trustee of the date selected for such payment. SECTION 10.3 OTHER MANDATORY PREPAYMENTS. The amounts required to be applied to the prepayment of the Bonds by Section 4.4 hereof shall be applied by the Company to prepay, together with accrued interest, all or a portion of the unpaid principal of the Bonds. Such 41 47 prepayment shall be made by the Company taking, or causing the Issuer to take, the actions required (a) for Payment of the Bonds, in the case of prepayment of the Bonds in whole, or (b) to effect the prepayment of less than all of the Bonds in inverse order of their maturities. 42 48 ARTICLE XI REBATE PROVISIONS SECTION 11.1 CREATION OF THE REBATE FUND. (a) The Issuer hereby creates and establishes with the Trustee on behalf of the Company a special trust fund in the name of the Issuer to be designated by the Trustee and which is referred to herein as the Rebate Fund (the "Rebate Fund"), which shall be held, invested, expended and accounted for in accordance with this Loan Agreement and the Indenture. (b) Moneys in the Rebate Fund shall be held in trust by the Trustee and, subject to Section 7.4 hereof, shall be held for the benefit of the United States as contemplated under the provisions of this Loan Agreement and shall not be considered to be held for the benefit of the Issuer, the Company, the Trustee or the owners of the Bonds. SECTION 11.2 DETERMINATIONS, NOTICES AND RECORDS OF REBATE AMOUNT. (a) The Company shall determine the Rebate Amount or cause the same to be determined in the manner provided in Section 148(i) of the Code and the Regulations. The Company shall provide the Trustee and the Issuer with a written copy of each such determination when made; this covenant shall survive the defeasance of any Bonds pursuant to Article XIV of the Indenture. The Company shall retain records of each such determination until a date six (6) years after the retirement of the last Bond. The Company shall make such records available for review by the Issuer and the Trustee upon reasonable notice. (b) The Company shall make payments to the Trustee for deposit in the Rebate Fund in such amounts and at such times as are required by the Code, the Regulations and this Loan Agreement so that the Trustee will have sufficient amounts in the Rebate Fund to pay the Rebate Amount to the United States when required by the Code and the Regulations. In the event that the amount in the Rebate Fund shall be insufficient to make the necessary payment to the United States of the Rebate Amount when required by the Code and the Regulations, the Company shall immediately pay to the Trustee for deposit into the Rebate Fund such insufficiency. The Issuer and the Trustee have no responsibility for calculating, receiving, holding or paying the Rebate Amount nor for compelling the Company to calculate or pay the Rebate Amount. (c) The Company shall furnish the Trustee with all information and forms necessary to cause the Rebate Amount to be properly and timely paid to the United States in accordance with the Code and the Regulations. SECTION 11.3 INVESTMENT EARNINGS ON BOND FUNDS. For the purpose of determining the amount to be paid into the Rebate Fund hereunder, the Company shall not take into account amounts earned on the investment of moneys in the Bond Fund during a Bond Year (or earnings attributable to the reinvestment of such amounts) if such earnings during the Bond 43 49 Year in question do not exceed One Hundred Thousand Dollars ($100,000). Pursuant to Section 148-3(k) of the Regulations, an issue with an average annual debt service that is not in excess of $2,500,000 may be treated as satisfying this $100,000 limitation. SECTION 11.4 FILING OF REQUIRED REBATE. Each payment of the Rebate Amount shall be filed by the Company with the Internal Revenue Service Center, Ogden, Utah 84201 and shall be accompanied by (i) a copy of Form 8038-T, and (ii) a statement summarizing the Company's determination of the amount of the Rebate Amount so paid. The Company shall provide the Trustee, and to the Issuer upon request, with copies of all documents and reports required by this Section and filed with the Internal Revenue Service. 44 50 ARTICLE XII MISCELLANEOUS SECTION 12.1 REFERENCES TO THE BONDS INEFFECTIVE AFTER BONDS PAID. Upon Payment of the Bonds, all references in this Loan Agreement to the Bonds shall be ineffective and the Issuer and any owner of the Bonds shall not thereafter have any rights hereunder, excepting reporting and payment of rebate payments under Sections 7.4, 11.2 and 11.4 hereof and rights of the Issuer to indemnification and payment of expenses contained, without limitation, in Sections 7.8, 7.9 and 7.10 hereof. SECTION 12.2 NO IMPLIED WAIVER. In the event any agreement contained in this Loan Agreement 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. Neither any failure nor any delay on the part of the Trustee to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. SECTION 12.3 ISSUER REPRESENTATIVE. Whenever under the provisions of this Loan Agreement the approval of the Issuer is required or the Issuer is required to take some action at the request of the Company, such approval may be made or such action may be taken by the Issuer Representative or by the Issuer; and the Company, the Trustee and the Bondholders shall be authorized to rely on any such approval or action. SECTION 12.4 COMPANY REPRESENTATIVE. Whenever under the provisions of this Loan Agreement the approval of the Company is required or the Company is required to take some action upon the request of the Issuer, such approval shall be made or such action shall be taken by the Company Representative; and the Issuer, the Trustee and the Bondholders shall be authorized to act on any such approval or action. SECTION 12.5 NOTICES. (a) All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered by hand delivery, sent via overnight courier service or mailed by first class, postage prepaid, registered or certified mail, addressed as follows: (1) if to the Issuer, to Fort Bend County Industrial Development Corporation, c/o Greater Fort Bend Economic Development Council, One Fluor Daniel Drive, Sugar Land, Texas 77478; (2) if to the Department, to Texas Department of Economic Development, 1700 N. Congress, P. O. Box 12728, Austin, Texas 78711, Attention: Finance Section IRB Program; 45 51 (3) if to the Company, to Aaron Rents, Inc., 309 E. Paces Ferry Road, N.E., Atlanta, Georgia 30305, Attention: Gilbert L. Danielson; (4) if to the Trustee, to First Union National Bank, 5847 San Felipe, Suite 1050, Houston, Texas 77057, Attention: Corporate Trust Department; or (5) if to any successor Trustee or Co-Trustee, addressed to it at its principal corporate trust office (Attention: Corporate Trust Department). (b) The Issuer, the Company or the Trustee may, by notice given hereunder, designate from time to time any further or different addresses to which subsequent notices, certificates or other communications shall be sent. SECTION 12.6 IF PAYMENT OR PERFORMANCE DATE IS OTHER THAN A BUSINESS DAY. If the specified or last date for the making of any payment, the performance of any act or the exercising of any right, as provided in this Loan Agreement, shall be a day other than a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day; provided that interest shall accrue during any such period during which payment shall not occur. SECTION 12.7 BINDING EFFECT. This Loan Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Company and their respective successors and assigns, subject to the provisions of Sections 7.12, 8.1 and 8.3 hereof. SECTION 12.8 SEVERABILITY. In the event any provision of this Loan Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or thereof. SECTION 12.9 AMENDMENTS, CHANGES AND MODIFICATIONS. Subsequent to the issuance of the Bonds and prior to Payment of the Bonds, this Loan Agreement and the Indenture may not be effectively amended, changed, modified, altered or terminated except in accordance with the Indenture. SECTION 12.10 EXECUTION IN COUNTERPARTS. This Loan Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument, and no one counterpart of which need be executed by all parties. SECTION 12.11 APPLICABLE LAW. This Loan Agreement shall be governed by and construed in accordance with the laws of the State. SECTION 12.12 EXPENSES. The Company agrees to pay all reasonable fees and expenses incurred in connection with the preparation, execution, delivery, modification, waiver, and amendment of this Loan Agreement, the other Bond Documents and related documents, and the fees and expenses of Bond Counsel, Counsel for the Issuer and Counsel for the Trustee. The Company also agrees to pay to the Trustee, as and when the same become due, an aggregate of $2,750.00 each year for services rendered and its expenses incurred as Trustee, 46 52 including the reasonable fees of its counsel, and such other amounts as the Company herein assumes or agrees to pay, including any costs or expenses necessary to cancel and discharge the Indenture. The Company also agrees to pay all expenses incurred by the Trustee or the Issuer in collection of any indebtedness incurred hereunder in the event of default by the Company, including reasonable and actual attorneys fees, provided that the amount of any legal fees so incurred shall be without regard to any statutory presumption. SECTION 12.13 AMOUNTS REMAINING WITH THE TRUSTEE. Any amounts remaining in the Bond Fund, the Project Fund or otherwise in trust with the Trustee under the Indenture or this Loan Agreement shall, after Payment of the Bonds and all Administrative Expenses in accordance with this Loan Agreement, be disbursed by the Trustee in accordance with the provisions of the Indenture or otherwise as may be required by law. SECTION 12.14 REFERENCES TO THE CREDIT FACILITY ISSUER AND CREDIT FACILITY. If the Credit Facility is not in effect at any time, all references herein to the Credit Facility Issuer, the Credit Facility and the Trustee shall be deemed ineffective during such time. SECTION 12.15 COVENANTS OF ISSUER NOT COVENANTS OF OFFICIALS INDIVIDUALLY. All covenants, stipulations, obligations and agreements of the Issuer contained in this Indenture shall be deemed to be covenants, stipulations, obligations and agreements of the Issuer to the full extent permitted by the Constitution and laws of the State. No covenant, stipulation, obligation or agreement contained herein shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future officer, member, agent or employee of the Issuer in his individual capacity, and no officer of the Issuer executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. No officer, agent or employee of the Issuer shall incur any personal liability in acting or proceeding or in not acting or not proceeding in accordance with the terms of this Indenture. SECTION 12.16 NO PERSONAL LIABILITY. No recourse shall be had for the enforcement of any obligation, promise or agreement of the Issuer contained herein or in the Bonds or other documents to which the Issuer is a party or for any claim based hereon or thereon or otherwise in respect hereof or thereof against any director, member, officer, agent, attorney or employee, as such, in his/her individual capacity, past, present or future, of the Issuer or of any successor entity, either directly or through the Issuer or any successor entity, under or by reason of any of the obligations, promises or agreements entered into in the Bonds or between the Issuer and the Trustee, whether herein contained or to be implied herefrom as being supplemental hereto; and all personal liability of that character against every such director, member, officer, agent, attorney and employee is, by the execution of this Indenture and as a condition of, and as part of the consideration for, the execution of this Indenture, expressly waived and released. The Bonds shall be limited obligations of the Issuer. The Bonds and the interest thereon and redemption premium, if any, shall not be deemed to constitute or create an indebtedness, liability or obligation of the Issuer, the State or any political subdivision or 47 53 agency thereof within the meaning of any State constitutional provision or statutory limitation or a pledge of the faith the credit or the taxing power of the State or any such political subdivision or agency. The Bonds and the interest thereon are payable solely from and secured by the Trust Estate, including the moneys available to be drawn by the Trustee under the Letter of Credit that may be in effect from time to time to support payments due on or with respect to the Bonds, all as described in and subject to limitations set forth in this Indenture, for the equal and ratable benefit of the Holders, from time to time, of the Bonds. Nothing in the Bonds or in the Indenture or the proceedings of the Issuer to create a debt of the Issuer, the State, or any political subdivision thereof within the meaning of any constitutional or statutory provision of the State. No member, director or officer, agent, attorney or employee of the Issuer, including any person executing the Indenture or the Bonds, shall be liable personally on the Bonds or subject to any personal liability for any reason relating to the issuance of the Bonds. The Bonds and interest due thereon shall not be a general obligation, debt or liability of the Issuer and do not constitute or give rise to any pecuniary liability or charge against the general credit of the Issuer. No recourse shall be had for the enforcement of any obligation, promise or agreement of the Issuer contained herein or in the Bonds or the other documents to which the Issuer is a party or for any claim based hereon or thereon or otherwise in respect hereof or thereof against any director, member, officer, agent, attorney or employee, as such, in his/her individual capacity, past, present or future, of the Issuer or of any successor entity, either directly or through the Issuer or any successor entity whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise. No personal liability whatsoever shall attach to, or be incurred by, any member, officer, agent, attorney or employee as such, past, present or future, of the Issuer or of any successor entity, either directly or through the Issuer or any successor entity, under or by reason of any of the obligations, promises or agreements entered into in the Bonds or between the Issuer and the Trustee, whether herein contained or to be implied herefrom as being supplemental hereto; and all personal liability of that character against every such direct, member, officer, agent, attorney and employee is, by the extension of this Indenture and as a condition of, and as part of the consideration for, the execution of this Indenture, expressly waived and released. SECTION 12.17 LIMITED LIABILITY OF THE ISSUER. Notwithstanding anything to the contrary, any liability for payment of money and any other liability or obligation which the Issuer may incur under the Bonds, this Indenture, the Loan Agreement or the Placement Agreement shall not constitute a general obligation of the Issuer but shall constitute limited obligations of the Issuer payable solely from and enforced only against the Trust Estate. No recourse shall be had for the enforcement of any obligation, promise or agreement of the Issuer contained herein or in the Bonds or the Loan Agreement to which the Issuer is a party or for any claim based hereon or thereon or otherwise in respect hereof or thereof against any director, member, officer, agent, attorney or employee, as such, in his individual capacity, past, present or future, of the Issuer or of any successor entity, either directly or through the Issuer or any successor entity whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty otherwise. No personal liability whatsoever shall attach to, or be incurred by, any director, member, officer, agent, attorney or 48 54 employee as such, past, present or future, of the Issuer or of any successor entity, either directly or through the Issuer or any successor entity, under or by reason of any of the obligations, promises or agreements entered into in the Bonds or between the Issuer and the Trustee, whether herein contained or to be implied herefrom as being supplemental hereto; and to all personal liability of that character against every such director, member, officer, agent, attorney and employee is by the execution of this Indenture and as a condition of, and as part of the consideration for, the execution of this Indenture, expressly waived and released. 49 55 IN WITNESS WHEREOF, the Issuer and the Company have caused this Loan Agreement to be executed in their respective legal names by their duly authorized representatives as of the date first above written. Fort Bend County Industrial Development Corporation By: ----------------------------------- Chairman Attest: ----------------------------- Secretary Aaron Rents, Inc. By: ----------------------------------- Title: Attest: ----------------------------- Secretary 50 EX-10.(N) 5 g67848ex10-n.txt LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT 1 EXHIBIT 10(n) LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT between AARON RENTS, INC. "Company" and FIRST UNION NATIONAL BANK "Bank" Dated as of October 1, 2000 2 LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of October 1, 2000 between AARON RENTS, INC., a Georgia corporation ("Company"), and FIRST UNION NATIONAL BANK, a national banking association ("Bank"); WITNESSETH: In consideration of the premises and of the mutual covenants herein contained and to induce Bank to extend credit to Company, the parties agree as follows: 1. DEFINITIONS. 1.1 Defined Terms. Capitalized terms that are not otherwise defined herein shall have the meanings set forth below. If not so defined below or herein, such capitalized terms shall have the meanings assigned to them in the Indenture. "Affiliate" of a Person means (a) any Person directly or indirectly owning 5% or more of the voting stock or rights of such named Person or of which the named Person owns 5% or more of such voting stock or rights; (b) any Person controlling, controlled by or under common control with such named Person; (c) any officer, director or employee of such named Person or any Affiliate of the named Person; and (d) any family member of the named Person or any Affiliate of such named Person. "Arbitration Rules" has the meaning set forth in Section 8.15. "Authority" shall mean any governmental authority, central bank or comparable agency charged with the interpretation or administration of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof. "Bonds" means the $4,200,000 Fort Bend County Industrial Development Corporation Industrial Development Revenue Bonds (Aaron Rents, Inc. Project), Series 2000. "Bond Documents" means, collectively, the Indenture, Loan Agreement, the Bonds, the Remarketing Agreement, the Placement Agreement and the Placement Memorandum, as the same may be amended, modified or supplemented from time to time in accordance with their respective terms. "Business Day" shall mean any day on which the offices of the Bank at which drawings on the Letter of Credit are made, the Trustee, the Paying Agent, the Tender Agent, the Bond Registrar and the Remarketing Agent are each open for business (which is not a Saturday or Sunday) and on which the New York Stock Exchange is not closed. 3 "Change of Law" shall mean the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Authority. "Conversion Draft" shall have the meaning ascribed to such term in the Letter of Credit. "Credit Agreement" means Second Amended and Restated Revolving Credit and Term Loan Agreement, dated as of January 6, 1995, between the Company and Banks named therein (including the Bank), as amended or modified from time to time. "Default" or "default" means any of the events specified in Section 7.1, whether or not any requirement in such Section for the giving of notice or the lapse of time or the happening of any further condition, event or act shall have been satisfied. "Default Rate" means the "default rate" of interest per annum equal to the Prime Rate plus 2% per annum. "Disputes" has the meaning set forth in Section 8.15. "Event of Default" means any event specified as such in Section 7.1 hereof ("Events of Default"), provided that there shall have been satisfied any requirement in connection with such event for the giving of notice or the lapse of time, or both. "Indenture" means the Trust Indenture, dated as of October 1, 2000, by and between the Issuer and First Union National Bank, as trustee, as it may be modified from time to time. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect a Person against fluctuations in interest rates or to hedge such Person's interest rate risk exposure. "Issuer" means Fort Bend County Industrial Development Corporation and its successors and assigns. "Loan Agreement" means the Loan Agreement, dated as of October 1, 2000, between the Issuer and the Company, as amended from time to time. "Loan Documents" means this Agreement, the Pledge Agreement, any Interest Rate Agreement, and all other documents and instruments now or hereafter evidencing, describing, guaranteeing or securing the Obligations contemplated hereby or delivered in connection herewith, as they may be modified. "Material Adverse Effect" means any (i) material adverse effect upon the validity, performance or enforceability of any of the Loan Documents or the Bond Documents or any of the transactions contemplated hereby or thereby, (ii) material adverse effect upon the properties, business, prospects or condition (financial or otherwise) of Company and its Subsidiaries, taken as a whole, any Subsidiary and/or any other Person obligated under any of the Loan Documents 2 4 or the Bond Documents, or (iii) material adverse effect upon the ability of Company, any Subsidiary or any other Person to fulfill any obligation under any of the Loan Documents or the Bond Documents. "Obligations" means all obligations now or hereafter owed to Bank by Company, whether related or unrelated to the Letter of Credit and Company's reimbursement obligations hereunder, including, without limitation, amounts owed or to be owed under the terms of the Loan Documents and the Bond Documents, or arising out of the transactions described therein, including, without limitation, sums advanced to pay overdrafts on any account maintained by Company with Bank, reimbursement obligations for other outstanding letters of credit or banker's acceptances issued for the account of Company or its Subsidiaries, amounts paid by Bank under letters of credit or drafts accepted by Bank for the account of Company or its Subsidiaries, together with all interest accruing thereon, all obligations under any swap agreements as defined in 11 U.S.C. ss.101 between Bank and Company whenever executed, all fees, all costs of collection, attorneys' fees and expenses of or advances by Bank which Bank pays or incurs in discharge of obligations of Company, whether such amounts are now due or hereafter become due, direct or indirect and whether such amounts due are from time to time reduced or entirely extinguished and thereafter re-incurred. "Person" means any natural person, corporation, unincorporated organization, trust, joint-stock company, joint venture, association, company, limited or general partnership, limited liability company, any government or any agency or political subdivision of any government, or any other entity or organization. "Placement Agreement" means the Placement Agent Agreement, dated the date of issuance of the Bonds by and among the Issuer, the Company and First Union National Bank, as Placement Agent for the Bonds. "Pledge Agreement" means the Pledge Agreement dated as of October 1, 2000 from the Company to the Bank, as amended, restated or supplemented from time to time. "Prime Rate" means that rate announced by Bank from time to time as its prime rate and is one of several interest rate bases used by Bank. Bank lends at rates both above and below Bank's Prime Rate, and Company acknowledges that Bank's Prime Rate is not represented or intended to be the lowest or most favorable rate of interest offered by Bank. The rate of Bank's Prime Rate as that rate may change from time to time with changes to occur on the date Bank's Prime Rate changes. "Private Placement Memorandum" the Private Placement Memorandum dated the date of issuance of, and relating to, the Bonds. "Project" shall have the meaning ascribed to the term in the Indenture. "Remarketing Agreement" means the Remarketing Agreement, dated as of October 1, 2000, by and between the Company and First Union National Bank, as Remarketing Agent, as supplemented and amended from time to time. 3 5 "Solvent" means, as to any Person, that such Person has capital sufficient to carry on its business and transactions in which it is currently engaged and all business and transactions in which it is about to engage, is able to pay its debts as they mature, and has assets having a fair valuation greater than its liabilities, at fair valuation. "Stated Expiration Date" means October 15, 2003, the expiration date of the Letter of Credit. "Subsidiary" means any corporation, partnership or other entity in which Company, directly or indirectly, owns more than fifty percent (50%) of the stock, capital or income interests, or other beneficial interests, or which is effectively controlled by such Person. "Tender Advance" has the meaning assigned to that term in Section 2.3 of this Agreement. "Tender Draft" has the meaning assigned to that term in the Letter of Credit. "Termination Date" means the last day a drawing is available under the Letter of Credit. "Trustee" means any Person or group of Persons at the time serving as trustee under the Indenture. 1.2. Financial Terms. All financial terms used herein shall have the meanings assigned to them under GAAP unless another meaning shall be specified. 2. THE LETTER OF CREDIT FACILITY. 2.1. Letter of Credit. The Bank agrees, on the terms and conditions hereinafter set forth, to issue and deliver the Letter of Credit in favor of the Trustee in substantially the form of Exhibit A attached hereto upon fulfillment of the applicable conditions set forth in Article III hereof. The Bank agrees that any and all payments under the Letter of Credit will be made with the Bank's own funds. 2.2. Reimbursement and Other Payments. Except as otherwise provided in Section 3.3 below, the Company shall pay to the Bank: (a) on or before 3:00 P.M. on the date that any amount is drawn under the Letter of Credit, a sum (together with interest on such sum from the date such amount is drawn until the same is paid, at the rate per annum provided in clause (b) of this Section 2.2) equal to such amount so drawn under the Letter of Credit; (b) on demand, interest on any and all amounts remaining unpaid by the Company when due hereunder from the date such amounts become due until payment thereof in full, at a fluctuating interest rate per annum equal at all times to the lesser of 4 6 the Prime Rate plus two percent (2%) or the highest lawful rate permitted by applicable law, provided, after an Event of Default, interest shall accrue at the Default Rate; (c) within 10 days of demand by the Bank, any and all reasonable expenses actually incurred by the Bank in enforcing any rights under this Agreement and the other Loan Documents; and (d) within 10 days of demand by the Bank all charges, commissions, costs and expenses set forth in Sections 2.4, 2.11 and 8.3 hereof 2.3. Tender Advances. (a) If the Bank shall make any payment of that portion of the purchase price corresponding to principal and interest of the Bonds drawn under the Letter of Credit pursuant to a Tender Draft and the conditions set forth in Section 3.3 shall have been fulfilled, such payment shall constitute a tender advance made by the Bank to the Company on the date and in the amount of such payment (a "Tender Advance"); provided that if the conditions of said Section 3.3 have not been fulfilled, the amount so drawn pursuant to the Tender Draft shall be payable in accordance with the terms of Section 2.2(a) above. Notwithstanding any other provision hereof, the Company shall repay the unpaid amount of each Tender Advance, together with all unpaid interest thereon, on the earlier to occur of: (i) such date as any Bonds purchased pursuant to a Tender Draft are resold as provided in paragraph 2.3(d) hereof; (ii) on the date one year and one day following the date of such Tender Advance; or (iii) the Termination Date. The Company may prepay the outstanding amount of any Tender Advance in whole or in part, together with accrued interest to the date of such prepayment on the amount prepaid. (b) The Company shall pay interest on the unpaid amount of each Tender Advance from the date of such Tender Advance until such amount is paid in full, payable monthly, in arrears, on the first day of each month during the term of each Tender Advance and on the date such amount is paid in full, at a fluctuating interest rate per annum in effect from time to time equal to the Prime Rate, provided that the unpaid amount of any Tender Advance which is not paid when due shall bear interest at the Default Rate, payable on demand and on the date such amount is paid in full. (c) Pursuant to the Pledge Agreement the Company has agreed that, in accordance with the terms of the Indenture, Bonds purchased with proceeds of any Tender Draft or a Conversion Draft shall be delivered by the Tender Agent to the Bank or its designee to be held by the Bank or its designee in pledge as collateral securing the Company's payment obligations to the Bank hereunder. Bonds so delivered to the Bank or its designee shall be registered in the name of the Company, as provided for in Section 3 of the Pledge Agreement. (d) Prior to or simultaneously with the resale of Pledged Bonds, the Company shall prepay the then outstanding Tender Advances (in the order in which they were made) by paying to the Bank an amount equal to the sum of (A) the amounts advanced by the Bank pursuant to the corresponding Tender Drafts or a Conversion Drafts relating to such Bonds, plus (B) the aggregate amount of accrued and unpaid interest on such Tender Advances. Such 5 7 payment shall be applied by the Bank in reimbursement of such drawings (and as prepayment of Tender Advances resulting from such drawings in the manner described above), and, upon receipt by the Bank of a certificate completed and signed by the Trustee in substantially the form of Annex F to the Letter of Credit, the Company irrevocably authorizes the Bank to rely on such certificate and to reinstate the Letter of Credit in accordance therewith. Funds held by the Tender Agent as a result of sales of the Pledged Bonds by the Remarketing Agent shall be paid to the Bank by the Tender Agent to be applied to the amounts owing by Company to the Bank pursuant to this paragraph (d). Upon payment to the Bank of the amount of such Tender Advance to be prepaid, together with accrued interest on such Tender Advance to the date of such prepayment on the amount to be prepaid, the principal amount outstanding of Tender Advances shall be reduced by the amount of such prepayment and interest shall cease to accrue on the amount prepaid. (e) Nothing herein shall affect any of the Company's obligations under any Interest Rate Agreement, including Company's obligation to pay breakage fees, if any, as described therein. 2.4. Letter of Credit Commission and Fees (a) The Company shall pay to the Bank a fee or commission at the rate of half of one percent (0.5%) per annum on the amount available to be drawn under the Letter of Credit (computed on the date that such commission is payable) from and including the date of issuance of the Letter of Credit until the Termination Date, payable annually in advance on the date of issuance and thereafter payable on anniversary of the date of issuance of each year, commencing October 26, 2001. (b) The Company shall pay to the Bank, upon transfer of the Letter of Credit in accordance with its terms, a transfer fee of $1,000. (c) The Company shall pay to the Bank, upon each drawing under the Letter of Credit in accordance with its terms, a fee of $50 per drawing. 2.5. Overdue Amounts. Any payments not made as and when due shall bear interest from the date due until paid at the Default Rate, in Bank's discretion. 2.6. Computation. All payments of interest, commission, annual letter of credit fees and other charges under this Agreement shall be computed on the per annum basis of a year of 365 days and calculated for the actual number of days elapsed. 2.7. Payment Procedure. All payments made by the Company under this Agreement shall be made to the Bank in lawful currency of the United States of America and in immediately available funds at the Bank's office in Atlanta, Georgia before 2:00 p.m. (prevailing Eastern time) on the date when due, except for payments made pursuant to Section 2.2(a). 2.8. Business Days. If the date for any payment hereunder falls on a day which is not a Business Day, then for all purposes of this Agreement and the other Loan 6 8 Documents, the same shall be deemed to have fallen on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payments of interest or commission, as the case may be. 2.9. Extension of Stated Expiration Date. The Bank may, in its sole and absolute discretion, agree that the Stated Expiration Date may be extended for successive one-year terms effective each anniversary date of the issuance of the Letter of Credit. 2.10. Statement of Account. If Bank provides Company with a statement of account on a periodic basis, such statement will be presumed complete and accurate and will be definitive and binding on Company, unless objected to with specificity by Company in writing within forty-five (45) days after receipt. 2.11. Increased Costs; Reduced Returns. (a) If after the date hereof, a Change of Law or compliance by Bank with any request or directive (whether or not having the force of law) of any Authority either: (i) shall subject Bank to any tax, duty or other charge with respect to the Letter of Credit or its obligations hereunder, or shall change the basis of taxation of payments to Bank of the principal of or interest on Letter of Credit or its obligations hereunder or any other amounts due under this Agreement or the other Loan Documents in respect of the Letter of Credit or its obligations hereunder (except for changes in the rate of tax on the overall net income of Bank imposed by the jurisdiction in which Bank's principal executive office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit insurance or similar requirement (including, without limitation, any such requirements imposed by the Board of Governors of the Federal Reserve System) against assets of, deposits with or for the account of, or credit extended by, Bank; or (iii) shall impose on the Bank or the London Interbank Market any other similar condition affecting the Letter of Credit or its obligations hereunder; and the result of any of the foregoing is to increase the cost to Bank of making or maintaining Letter of Credit or its obligations hereunder, or to reduce the amount received or receivable by Bank under this Agreement, under the Letter of Credit or hereunder or under the other Loan Documents with respect thereto, by an amount deemed by Bank to be material, then, within fifteen (15) days after demand by Bank, Company shall pay to Bank such additional amount or amounts as will compensate Bank for such increased cost or reduction. (b) If Bank shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any Authority, has or would have the direct effect of reducing the rate of return on Bank's capital as a consequence of its obligations with respect to such adoption, change or compliance (taking into consideration Bank's policies with respect to capital adequacy), by an amount deemed by Bank to be material, then from time to time, within fifteen (15) days after demand by Bank, Company shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. 7 9 (c) Bank will promptly notify Company of any event of which it has knowledge, occurring after the date hereof, which will entitle Bank to compensation pursuant to this Section. A certificate of Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, Bank may use any reasonable averaging and attribution methods. 2.12. Obligations Absolute. The obligations of the Company under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of the Letter of Credit, the Bonds, any of the other Bond Documents, any of the Loan Documents or any other agreement or instrument related thereto; (b) any amendment or waiver of or any consent to departure from the terms of the Letter of Credit, the Bonds, any of the other Bond Documents, any of the Loan Documents or any other agreement or instrument related thereto; (c) the existence of any claim, setoff, defense or other right which the Company may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any Person for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the Loan Documents, the Letter of Credit, the Bond Documents, the Project or any unrelated transaction; (d) any statement, draft or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever, provided the Company shall be under no obligation to make any payment hereunder resulting from the Bank's gross negligence in accepting any such forged or fraudulent draft or document; or (e) the surrender or impairment of any security for the performance or observance of any of the terms of this Agreement, or any of the other Loan Documents. 3. CONDITIONS PRECEDENT TO ISSUANCE; CHANGE OF INTEREST RATE MODES. 3.1. Conditions Precedent to Initial Advance. In addition to any other requirement set forth in this Agreement, Bank will not issue the Letter of Credit unless and until the following conditions shall have been satisfied: (a) Documents. Company and each other party to any Loan Document and Bond Documents, as applicable, shall have executed and delivered this Agreement, the Loan Agreement, and other required Loan Documents, the Indenture and all of the required Bond Documents, all in form and substance satisfactory to Bank. 8 10 (b) Supporting Documents. Company shall cause to be delivered to Bank the following documents: (i) A copy of the governing instruments of Company, and a good standing certificate of Company, certified by the appropriate official of its state of organization, if different; (ii) Incumbency certificate of Company and each other Person executing any Loan Documents, signed by the Secretary or another authorized officer of Company or such other Person, authorizing the execution, delivery and performance of the Loan Documents; (iii) The legal opinion of Company's legal counsel addressed to Bank regarding such matters as Bank and its counsel may request; and (iv) Satisfactory evidence of payment of all fees due and reimbursement of all costs incurred by Bank, and evidence of payment to other parties of all fees or costs which Company is required under this Agreement to pay by the date of the initial Advance. (c) Additional Documents. Company shall have delivered to Bank all additional opinions, documents, certificates and other assurances that Bank or its counsel may require. (d) Payment of Fees. Company shall have paid all fees, costs and expenses as required by the Loan Documents in connection with the Closing. (e) Adverse Events. There shall have been no introduction of or change in, or in the interpretation of, any law or regulation that would make it unlawful or unduly burdensome for the Bank to issue the Letter of Credit, no outbreak or escalation of hostilities or other calamity or crisis affecting the Bank, no suspension of or material limitation on trading on the New York Stock Exchange or any other national securities exchange, no declaration of a general banking moratorium by United States, North Carolina, Texas or Georgia banking authorities, and no establishment of any new restrictions on transactions in securities or on banks materially affecting the free market for securities or the extension of credit by banks. 3.2. Conditions Precedent to Each Tender Advance. Each payment made by the Bank under the Letter of Credit pursuant to a Tender Draft shall constitute a Tender Advance hereunder only if on the date of such payment the following statements shall be true: (a) No Default. No Default or Event of Default then exists or would be caused by the making of such Tender Advance. (b) Correctness of Representations. The representations and warranties contained in Article 4 of this Agreement, in the Loan Agreement, and in the Loan Documents are 9 11 correct in all material respects on and as of the date of such Tender Advance as though made on and as of such date; and. (c) No Adverse Change. There shall have been no change which could have a Material Adverse Effect on the condition, financial or otherwise, of Company from such condition as it existed on the date of the most recent financial statements of such Person delivered prior to date hereof. (d) Further Assurances. Company shall have delivered such further documentation or assurances as Bank may reasonably require. Unless the Company shall have previously advised the Bank in writing or the Bank has actual knowledge that one or more of the above statements is no longer true (in which case Company shall not be entitled to a Tender Advance), the Company shall be deemed to have represented and warranted, on the date of payment by the Bank under the Letter of Credit pursuant to a Tender Draft, that on the date of such payment the above statements are true and correct. 3.3. Changes in Interest Rate Modes. The Company shall not convert the interest rate mode on the Bonds to a different interest rate mode without the written consent of the Bank. 4. REPRESENTATIONS AND WARRANTIES. In order to induce Bank to enter into this Agreement and to issue the Letter of Credit provided for herein, Company hereby represents and warrants (all of which shall survive the execution and delivery of the Loan Documents and all of which shall be deemed made as of the date hereof and as of the date of each Tender Advance), on behalf of it, that: 4.1. Valid Existence and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified or licensed to transact business in all places where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect on it; and it and each other Person which is a party to any Loan Document or Bond Document (other than Bank) has the power to make and perform the Loan Documents and Bond Documents executed by it, and all such instruments will constitute the legal, valid and binding obligations of such Person, enforceable in accordance with their respective terms, subject only to bankruptcy and similar laws affecting creditors' rights generally. 4.2. Authority. The execution, delivery and performance thereof by it and each other Person (other than Bank) executing any Loan Document or Bond Document have been duly authorized by all necessary action of such Person, and do not and will not violate any provision of law or regulation, or any writ, order or decree of any court or Authority or any provision of the governing instruments of such Person, and do not and will not, with the passage of time or the giving of notice, result in a breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of such Person pursuant to, any law, regulation, instrument or agreement to which any such Person is a party or by which any such Person or its respective properties may be subject, bound or affected. 10 12 4.3. Financial Condition. Other than as disclosed in financial statements delivered on or prior to the date hereof to Bank, neither it nor any Subsidiary has any direct or contingent obligations or liabilities (including any guarantees or leases) or any unrealized or anticipated losses from any commitments of such Person which could reasonably be expected to have a Material Adverse Effect; all such financial statements have been prepared in accordance with GAAP and fairly present the financial condition of Company or Subsidiary, as the case may be, as of the date thereof; and it is not aware of any adverse fact (other than facts which are generally available to the public and not particular to it, such as general economic or industry trends) concerning its financial or business condition or future prospects or any Subsidiary which could reasonably be expected to have a Material Adverse Effect and which has not been fully disclosed to Bank, including any adverse change in the operations or financial condition of such Person since the date of the most recent financial statements delivered to Bank; and it is Solvent, and after consummation of the transactions set forth in this Agreement and the other Loan Documents and Bond Documents, it will be Solvent. 4.4. Litigation. There are no suits or proceedings pending, or to its best knowledge threatened, before any court or by or before any governmental or regulatory authority, commission, bureau or agency or public regulatory body against or affecting it, any Subsidiary, or their assets, which if adversely determined could reasonably be expected to have a Material Adverse Effect. 4.5. Agreements, Etc. Neither it nor any Subsidiary is a party to any agreement or instrument or subject to any court order, governmental decree or any charter, limited partnership or other corporate restriction, materially adversely affecting its business, assets, operations or condition (financial or otherwise), nor is any such Person in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any agreement or instrument to which it is a party, or any law, regulation, decree, order or the like. 4.6. Authorizations. All authorizations, consents, approvals and licenses required under applicable law or regulation for the ownership or operation of the property owned or operated by it or any Subsidiary or for the conduct of any business in which it is engaged have been duly issued and are in full force and effect, and it is not in default, nor has any event occurred which with the passage of time or the giving of notice, or both, would constitute a default, under any of the terms or provisions of any part thereof, or under any order, decree, ruling, regulation, closing agreement or other decision or instrument of any Authority having jurisdiction over such Person, which default could reasonably be expected to have a Material Adverse Effect. Except as noted herein, no approval, consent or authorization of, or filing or registration with, any Authority or agency is required with respect to the execution, delivery or performance of any Loan Document or Bond Document. 4.7. Investment Company Act. Neither it nor any Subsidiary is an "investment company" as defined in the Investment Company Act of 1940, as amended. 4.8. Insider. It is not, and no Person having "control" (as that term is defined in 12 U.S.C.ss. 375(b)(5) or in regulations promulgated pursuant thereto) of it is, an "executive 11 13 officer," "director," or "principal shareholder" (as those terms are defined in 12 U.S.C.ss. 375(b) or in regulations promulgated pursuant thereto) of Bank, of a bank holding company of which Bank is a subsidiary, or of any subsidiary of a bank holding company of which Bank is a subsidiary. 4.9. Full Disclosure. There is no material fact which is known or which should be known by it that it has not disclosed to Bank which could have a Material Adverse Effect; and no Loan Document, nor any agreement, document, certificate or statement delivered by it to Bank, contains any untrue statement of a material fact or omits to state any material fact which is known or which should be known by it necessary to keep the other statements from being misleading. 5. AFFIRMATIVE COVENANTS OF COMPANY. Company covenants and agrees that from the date hereof and until payment in full of the Obligations and the formal termination of this Agreement, Company and each Subsidiary: 5.1. Incorporation of Affirmative Covenants of Credit Agreement. Shall comply with the covenants, agreements and obligations of Article VIII of the Credit Agreement, as if such covenants, agreements or obligations (as modified from time to time) were specified herein. In the event that the Credit Agreement shall terminate prior to the termination of this Agreement, such covenants, agreements or obligations in verbatim under Article VIII of the Credit Agreement existing at the time of the termination of the Credit Agreement shall become a part of this Agreement and shall be in effect hereunder. 5.2. Use of Letter of Credit. Shall use the Letter of Credit to secure its obligations with respect to the Bonds. 5.3. Maintenance of Business and Properties. Shall at all times maintain, preserve and protect its material property used or useful in the conduct of its business, and keep the same in good repair, working order and condition, except for reasonable wear and tear, and from time to time make, or cause to be made, all material needful and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be conducted properly and in accordance with standards generally accepted in businesses of a similar type and size at all times, and maintain and keep in full force and effect all material licenses and permits necessary to the proper conduct of its business. Shall maintain insurance as may be required by law or as customary and usual. 5.4. Notice of Default. Shall provide to Bank immediate notice of (a) the occurrence of a Default or Event of Default and what action (if any) it is taking to correct the same, (b) any material litigation or any judgment against it or its assets, (c) any damage or loss to property that could reasonably be expected to have a Material Adverse Effect, (d) any Reportable Event, as defined in the Employment Retirement Income Security Act of 1974, as amended, that could reasonably be expected to have a Material Adverse Effect, (e) any rejection, return, offset, dispute, loss or other circumstance that could reasonably be expected to have a Material Adverse Effect, (f) the cancellation or termination of, or any default under, any agreement to which it is a party or by which any of its properties are bound, which cancellation or termination could 12 14 reasonably be expected to have a Material Adverse Effect, or any acceleration of the maturity of any of its debt; and (g) any loss of licenses or permits, which loss could reasonably be expected to have a Material Adverse Effect. 6. NEGATIVE COVENANTS OF COMPANY. Company covenants and agrees that from the date hereof and until payment in full of the Obligations and the formal termination of this Agreement, to comply with the covenants, agreements and obligations (as modified from time to time) in Article IX of the Credit Agreement, as if such covenants, agreements or obligations were specified herein. In the event that the Credit Agreement shall terminate prior to the termination of this agreement, such covenants, agreements or obligations in verbatim under Article IX of the Credit Agreement existing at the time of the termination of the Credit Agreement shall become a part of this Agreement and shall be in effect hereunder. 7. DEFAULT. 7.1. Events of Default. Each of the following shall constitute an Event of Default: (a) There shall occur any default by Company in the payment of (i) any principal of or interest on or with respect to the Bonds, (ii) any amounts due hereunder or under any other Loan Document or Bond Documents, or (iii) any other Obligations; or (b) There shall occur any default by Company or any other party to any Loan Document or Bond Document (other than Bank) in the performance of any agreement, covenant or obligation contained in this Agreement or such Loan Document or such Bond Document not provided for elsewhere in this Section 7 and such Default shall continue for a period of 30 days after the earlier of (i) the day on which an officer of the Company first obtains actual knowledge of such default or (ii) notice thereof shall have been given to the Company by the Bank; or (c) Any representation or warranty made by the Company or any other party to any Loan Document or Bond Document (other than Bank) herein or therein or in any certificate or report furnished in connection herewith or therewith shall prove to have been untrue or incorrect in any material respect when made; or (d) Any Event of Default shall occur and be continuing under (and as defined in) the Credit Agreement; or (e) Company or any Subsidiary or any other party to any Loan Document or Bond Document shall voluntarily dissolve, liquidate or terminate operations or apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of such Person or of all or of a substantial part of its assets, admit in writing its inability, or be generally unable, to pay its debts as the debts become due, make a general assignment for the benefit of its creditors, commence a voluntary case under the federal Bankruptcy Code (as now or hereafter in effect), file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, fail to controvert in a timely and appropriate manner, or acquiesce in 13 15 writing to, any petition filed against it in an involuntary case under Bankruptcy Code, or take any corporate action for the purpose of effecting any of the foregoing; or (f) An involuntary petition or complaint shall be filed against Company or any other party to any Loan Document or Bond Document seeking bankruptcy relief or reorganization or the appointment of a receiver, custodian, trustee, intervenor or liquidator of Company or any other party to any Loan Document, of all or substantially all of its assets, and such petition or complaint shall not have been dismissed within sixty (60) days of the filing thereof; or an order, order for relief, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving or ordering any of the foregoing actions. 7.2. Remedies. Without in any way limiting the right of Bank to demand payment of any portion of the Obligations payable on demand in accordance with this Agreement or any of the other Loan Documents, upon or at any time after the occurrence of and during the continuation of, an Event of Default, all of the Obligations then outstanding (whether under this Agreement, any of the other Loan Documents or otherwise) shall, at the option of Bank and without notice or demand by Bank, become at once due and payable and Company shall forthwith pay to Bank, in addition to any and all sums and charges due, the entire principal of and interest accrued on the Obligations plus actual and reasonable attorneys' fees, if the same are collected by or through an attorney at law. From and after the date of such acceleration of the maturity of the Obligations, the unpaid principal amount of the Obligations shall bear interest at the Default Rate until paid in full. Furthermore, upon the occurrence of an Event of Default and at any time thereafter, the Bank may (A) pursuant to Section 902 of the Indenture, advise the Trustee that an Event of Default has occurred and instruct the Trustee to declare the principal of all Bonds then outstanding and interest thereon to be immediately due and payable, and (B) proceed hereunder, and under any of the Loan Documents and, to the extent therein provided, under the Bond Documents, in such order as it may elect and the Bank shall have no obligation to proceed against any Person or exhaust any other remedy or remedies which it may have and without resorting to any other security, whether held by or available to the Bank. Bank may declare any or all Obligations to be immediately due and payable (if not earlier demanded), bring suit against Company to collect the Obligations, exercise any remedy available to Bank hereunder or at law and take any action or exercise any remedy provided herein or in any other Loan Document or under applicable law. No remedy shall be exclusive of other remedies or impair the right of Bank to exercise any other remedies. 7.3. Deposits; Insurance. After the occurrence of and during the continuation of, an Event of Default, Company authorizes Bank to collect and apply against the Obligations when due any cash or deposit accounts in its possession, and irrevocably appoints Bank as its attorney-in-fact to endorse any check or draft or take other action necessary to obtain such funds. 8. MISCELLANEOUS. 8.1. No Waiver, Remedies Cumulative. No failure on the part of Bank to exercise, and no delay in exercising, any right hereunder or under any other Loan Document or 14 16 Bond Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and are in addition to any other remedies provided by law, any Loan Document, any Bond Document or otherwise. 8.2. Survival of Representations. All representations and warranties made herein shall survive the issuance of the Letter of Credit, and shall continue in full force and effect so long as any Obligations is outstanding, there exists any commitment by Bank to Company, and until this Agreement is formally terminated in writing. 8.3. Indemnification. The Company hereby indemnifies and holds the Bank harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the Bank may incur (or which may be claimed against the Bank by any Person): (i) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit, provided that the Company shall not be required to indemnify the Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (A) the willful misconduct or gross negligence of the Bank in connection with paying drafts presented under the Letter of Credit or (B) the Bank's willful or negligent failure to pay under the Letter of Credit (other than in connection with a court order) after the presentation to it by the Credit Facility Trustee or a successor corporate fiduciary under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit; or (ii) by reason of or in connection with the execution, delivery or performance of any of the Bond Documents or Loan Documents or any transaction contemplated by any thereof. Anything herein to the contrary notwithstanding, nothing in this Section 8.3 is intended or shall be construed to limit the Company's reimbursement obligation contained in Article III hereof. Without prejudice to the survival of any other obligation of the Company, the indemnities and obligations of the Company contained in this Section 8.3 shall survive the payment in full of amounts payable pursuant to Article III and the Termination Date. Company's obligation for indemnification for all of the foregoing losses, damages, liabilities, obligations, penalties, fees, costs and expenses of Bank shall be part of the Obligations, chargeable against Company's loan account, and shall survive termination of this Agreement. 8.4. Transfer of Letter of Credit. The Letter of Credit may be transferred and assigned in accordance with the terms of the Letter of Credit. 8.5. Reduction of Letter of Credit. The Letter of Credit is subject to reduction pursuant to its terms. If the amount available to be drawn under the Letter of Credit shall be permanently reduced in accordance with the terms thereof, then the Bank shall have the right to require the Trustee to surrender the Letter of Credit to the Bank and to issue on such date, in substitution for such outstanding Letter of Credit, a substitute irrevocable letter of credit, substantially in the form of the Letter of Credit but with such changes therein as shall be appropriate to give effect to such reduction, dated such date, for the amount to which the amount available to be drawn under the Letter of Credit shall have been reduced. 8.6. Liability of the Bank. The Company, to the extent permitted by applicable law, assumes all risks of the acts or omissions of the Trustee and any beneficiary or transferee of 15 17 the Letter of Credit with respect to its use of the Letter of Credit. Neither the Bank nor any of its officers, directors, employees, agents or consultants shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee or any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not comply with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in any way related to the making or failure to make payment under the Letter of Credit; except only that the Company shall have a claim against the Bank, and the Bank shall be liable to the Company, to the extent but only to the extent, of any direct, as opposed to consequential damages suffered by the Company which the Company proves were caused by (i) willful misconduct or gross negligence of the Bank in determining whether documents presented under the Letter of Credit complied with the terms of the Letter of Credit or (ii) willful failure of the Bank to pay under the Letter of Credit after the presentation to it by the Trustee or a successor trustee or credit facility trustee under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. 8.7. Notices. Any notice or other communication hereunder to any party hereto or thereto shall be by hand delivery, overnight delivery, facsimile, telegram, telex or registered or certified mail and unless otherwise provided herein shall be deemed to have been given or made when delivered, telegraphed, telexed, faxed or three (3) Business Days after having been deposited in the mails, postage prepaid, addressed to the party at its address specified below (or at any other address that the party may hereafter specify to the other parties in writing): Bank: FIRST UNION NATIONAL BANK 999 Peachtree Street Atlanta, Georgia 30309 Attn: Portfolio Management 16 18 and for Letter of Credit drawings First Union National Bank 8739 Research Drive-URP4 Charlotte, North Carolina 28262 Attn: International Trade Operations Company: Aaron Rents, Inc. 309 E. Paces Ferry Road, N.E. Atlanta, Georgia 30305-2377 Attn: Executive Vice President and CFO 8.8. Governing Law. This Agreement and the Loan Documents shall be deemed contracts made under the laws of the State of Georgia and shall be governed by and construed in accordance with the laws of said state (excluding its conflict of laws provisions if such provisions would require application of the laws of another jurisdiction). The Company hereby acknowledges that the Letter of Credit shall be governed by and construed in accordance with the International Standby Practices (1998) of the Institute of International Banking Law and Practice, International Chamber of Commerce Publication No. 590. 8.9. Indirect Means. Any act which the Company is prohibited from doing shall not be done indirectly through a subsidiary or by any other indirect means. 8.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Company and Bank, and their respective successors and assigns; provided, that Company may not assign any of its rights hereunder without the prior written consent of Bank, and any such assignment made without such consent will be void. 8.11. Counterparts. This Agreement 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 an original and all of which when taken together shall constitute but one and the same instrument. 8.12. No Usury. Regardless of any other provision of this Agreement, the Bond Documents or in any other Loan Document, if for any reason the effective interest should exceed the maximum lawful interest, the effective interest shall be deemed reduced to, and shall be, such maximum lawful interest, and (i) the amount which would be excessive interest shall be deemed applied to the reduction of the principal balance of the Company's obligations hereunder and under the Bond Documents and Loan Documents and not to the payment of interest, and (ii) if the Company's obligations hereunder and under the Bond Documents and Loan Documents have been or is thereby paid in full, the excess shall be returned to the party paying same, such application to the principal balance of such obligations or the refunding of excess to be a complete settlement and acquittance thereof. 8.13. Powers. All powers of attorney granted to Bank are coupled with an interest and are irrevocable. 17 19 8.14. Approvals. If this Agreement calls for the approval or consent of Bank, such approval or consent may be given or withheld in the discretion of Bank unless otherwise specified herein. 8.15. Binding Arbitration; Preservation of Remedies. (a) Binding Arbitration. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any claim or controversy arising out of, or relating to the Loan Documents between the parties (a "Dispute") shall be resolved by binding arbitration conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, or claims arising from documents executed in the future. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. (b) Special Rules. All arbitration hearings shall be conducted in the city in which the office of Bank first stated above is located. A hearing shall begin within 90 days of demand for arbitration and all hearings shall be concluded within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of 60 days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. The parties do not waive applicable Federal or state substantive law except as provided herein. (c) Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to the parties' entitlement to such remedies is a Dispute. (d) No Punitive Damages. Each party agrees that it shall not have a remedy of punitive or exemplary damages against the other in any Dispute and hereby waives any right or claim to punitive or exemplary damages it may have now or which may arise in the future in connection with any Dispute, whether the Dispute is resolved by arbitration or judicially. 18 20 (e) Waiver of Jury Trial. The parties acknowledge that by agreeing to binding arbitration they have irrevocably waived any right they may have to a jury trial with regard to a Dispute. 8.16. Participations. Bank shall have the right to enter into one or more participation with other lenders with respect to the Obligations. Upon prior notice to Company of such participation, Company shall thereafter furnish to such participant any information furnished by Company to Bank pursuant to the terms of the Loan Documents. Nothing in this Agreement or any other Loan Document shall prohibit Bank from pledging or assigning this Agreement and Bank's rights under any of the other Loan Documents, including collateral therefor, to any Federal Reserve Bank in accordance with applicable law. 19 21 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. BANK: FIRST UNION NATIONAL BANK By: ---------------------------------------- Title: ------------------------------------- COMPANY: AARON RENTS, INC. By: ---------------------------------------- Name: Title: [SEAL] 20 22 SCHEDULE OF EXHIBITS
Exhibit Section Reference Title ------- ----------------- ----- A 2.1 ("Letter of Credit") Form of Letter of Credit
23 TABLE OF CONTENTS
Page ---- 1. Definitions..........................................................................................1 2. The Letter of Credit Facility........................................................................4 2.1. Letter of Credit.....................................................................................4 2.2. Reimbursement and Other Payments.....................................................................4 2.3. Tender Advances......................................................................................5 2.4. Letter of Credit Commission and Fees.................................................................6 2.5. Overdue Amounts......................................................................................6 2.6. Computation..........................................................................................6 2.7. Payment Procedure....................................................................................7 2.8. Business Days........................................................................................7 2.9. Extension of Stated Expiration Date..................................................................7 2.10. Statement of Account.................................................................................7 2.11. Increased Costs; Reduced Returns.....................................................................7 2.12. Obligations Absolute.................................................................................8 3. Conditions Precedent to Issuance; Disbursement of Bond Proceeds; Change of Interest Rate Modes.......9 3.1. Conditions Precedent to Initial Advance..............................................................9 3.2. Conditions Precedent to Each Tender Advance.........................................................10 3.3. Changes in Interest Rate Modes......................................................................10 4. Representations and Warranties......................................................................10 4.1. Valid Existence and Power...........................................................................10 4.2. Authority...........................................................................................11 4.3. Financial Condition.................................................................................11 4.4. Litigation..........................................................................................11 4.5. Agreements, Etc.....................................................................................11 4.6. Authorizations......................................................................................11 4.7. Investment Company Act..............................................................................12 4.8. Insider 12 4.9. Full Disclosure.....................................................................................12 5. Affirmative Covenants of Company....................................................................12 5.1. Incorporation of Affirmative Covenants of Credit Agreement..........................................12 5.2. Use of Letter of Credit............................................................................12 5.3. Maintenance of Business and Properties..............................................................12 5.4. Notice of Default...................................................................................13 6. Negative Covenants of Company.......................................................................13 7. Default.............................................................................................13 7.1. Events of Default...................................................................................13
-i- 24 7.2. Remedies 14 7.3. Deposits; Insurance.................................................................................15 8. Miscellaneous.......................................................................................15 8.1. No Waiver, Remedies Cumulative......................................................................15 8.2. Survival of Representations.........................................................................15 8.3. Indemnification.....................................................................................15 8.4. Transfer of Letter of Credit........................................................................16 8.5. Reduction of Letter of Credit.......................................................................16 8.6. Liability of the Bank...............................................................................16 8.7. Notices 17 8.8. Governing Law.......................................................................................17 8.9. Indirect Means......................................................................................18 8.10. Successors and Assigns..............................................................................18 8.11. Counterparts........................................................................................18 8.12. No Usury 18 8.13. Powers 18 8.14. Approvals...........................................................................................18 8.15. Binding Arbitration; Preservation of Remedies.......................................................18 8.16. Participations......................................................................................19
-ii- EX-10.(O) 6 g67848ex10-o.txt TERM LOAN AGREEMENT AMONG AARON RENTS, INC. 1 EXHIBIT 10(O) TERM LOAN AGREEMENT DATED AS OF NOVEMBER 21, 2000 AMONG AARON RENTS, INC. PUERTO RICO as Borrower AARON RENTS, INC. as Guarantor THE LENDERS FROM TIME TO TIME PARTY HERETO AND SUNTRUST BANK as Administrative Agent ================================================================================ SUNTRUST EQUITABLE SECURITIES CORPORATION as Arranger and Book Manager 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; CONSTRUCTION.................................................1 Section 1.1. Definitions..........................................................1 Section 1.2. Classifications of Loans and Borrowings.............................11 Section 1.3. Accounting Terms and Determination..................................11 Section 1.4. Terms Generally.....................................................11 ARTICLE II AMOUNT AND TERMS OF THE COMMITMENTS......................................11 Section 2.1. Term Loan Commitments...............................................11 Section 2.2. Funding of Borrowings...............................................12 Section 2.3. Interest Elections..................................................12 Section 2.4. Optional Reduction and Termination of Commitments...................13 Section 2.5. Repayment of Loans..................................................13 Section 2.6. Evidence of Indebtedness............................................13 Section 2.7. Optional Prepayments................................................13 Section 2.8. Interest on Loans...................................................14 Section 2.9. Fees................................................................14 Section 2.10. Computation of Interest and Fees....................................14 Section 2.11. Inability to Determine Interest Rates...............................15 Section 2.12. Illegality..........................................................15 Section 2.13. Increased Costs.....................................................15 Section 2.14. Funding Indemnity...................................................16 Section 2.15. Taxes...............................................................17 Section 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.........18 Section 2.17. Mitigation of Obligations; Replacement of Lenders...................19 ARTICLE III CONDITIONS PRECEDENT TO LOANS............................................19 Section 3.1. Conditions To Effectiveness.........................................19 Section 3.2. Delivery of Documents...............................................21 ARTICLE IV REPRESENTATIONS AND WARRANTIES...........................................21 Section 4.1. Organization and Qualification......................................21 Section 4.2. Borrower's Powers...................................................21 Section 4.3. Enforceability of Agreement and Other Loan Documents................22 Section 4.4. Consent.............................................................22 Section 4.5. Statutes, Judgments.................................................22 Section 4.6. Financial Statements................................................22 Section 4.7. Actions Pending.....................................................23 Section 4.8. Outstanding Debt....................................................23 Section 4.9. Title to Properties.................................................23 Section 4.10. Taxes...............................................................23 Section 4.11. Regulation U, Etc...................................................23 Section 4.12. No Default, Event of Default or Change of Control...................24 Section 4.13. ERISA...............................................................24 Section 4.14. Pollution and Environmental Control.................................24 Section 4.15. Possession of Franchises, Licenses, Etc.............................24
3 Section 4.16. Contingent Liabilities..............................................24 Section 4.17. Compliance with Laws................................................24 ARTICLE V AFFIRMATIVE COVENANTS....................................................25 Section 5.1. Financial Statements, Reports and Other Financial Data..............25 Section 5.2. Inspection of Property..............................................26 Section 5.3. Maintenance of Insurance............................................26 Section 5.4. Funded Debt Ratio...................................................26 Section 5.5. Leverage Ratio......................................................26 Section 5.6. Fixed Charge Coverage...............................................26 Section 5.7. Account Verification................................................27 Section 5.8. ERISA...............................................................27 Section 5.9. Payment.............................................................27 Section 5.10. Notice of Default, Event of Default or Change of Control............27 Section 5.11. Corporate Existence.................................................27 Section 5.12. Compliance with Laws, Etc...........................................27 ARTICLE VI NEGATIVE COVENANTS.......................................................28 Section 6.1. Liens...............................................................28 Section 6.2. Minimum Net Worth...................................................29 Section 6.3. Loans, Advances, Investments and Contingent Liabilities.............29 Section 6.4. Sale of Stock and Debt of Subsidiaries..............................30 Section 6.5. Merger and Sale of Assets...........................................30 Section 6.6. Additional Negative Pledges.........................................31 ARTICLE VII EVENTS OF DEFAULT........................................................31 Section 7.1. Events of Default...................................................31 ARTICLE VIII THE ADMINISTRATIVE AGENT.................................................33 Section 8.1. Appointment of Administrative Agent.................................33 Section 8.2. Nature of Duties of Administrative Agent............................34 Section 8.3. Lack of Reliance on the Administrative Agent........................34 Section 8.4. Certain Rights of the Administrative Agent..........................34 Section 8.5. Reliance by Administrative Agent....................................35 Section 8.6. The Administrative Agent in its Individual Capacity.................35 Section 8.7. Successor Administrative Agent......................................35 Section 8.8. Authorization to Execute other Loan Documents.......................36 ARTICLE IX MISCELLANEOUS............................................................36 Section 9.1. Notices.............................................................36 Section 9.2. Waiver; Amendments..................................................37 Section 9.3. Expenses; Indemnification...........................................38 Section 9.4. Successors and Assigns..............................................39 Section 9.5. Governing Law; Jurisdiction; Consent to Service of Process..........41 Section 9.6. WAIVER OF JURY TRIAL................................................41 Section 9.7. Right of Setoff.....................................................42 Section 9.8. Counterparts; Integration...........................................42 Section 9.9. Survival............................................................42 Section 9.10. Severability........................................................42 Section 9.11. Confidentiality.....................................................43 Section 9.12. Interest Rate Limitation............................................43
ii 4 Schedules Schedule 4.16 - Contingent Liabilities Schedule 6.1 - Existing Liens Exhibits Exhibit A - Form of Note Exhibit B - Form of Assignment and Acceptance Exhibit 2.9 - Form of Continuation/Conversion Exhibit 3.1(b)(iv) - Form of Secretary's Certificate Exhibit 3.1(b)(vii) - Form of Officer's Certificate
iii 5 TERM LOAN AGREEMENT THIS TERM LOAN AGREEMENT (this "Agreement") is made and entered into as of November 21, 2000, by and among AARON RENTS, INC. PUERTO RICO, a Puerto Rico corporation (the "Borrower"), AARON RENTS, INC., a Georgia corporation (the "Guarantor"), the several banks and other financial institutions from time to time party hereto (the "Lenders"), and SUNTRUST BANK, in its capacity as Administrative Agent for the Lenders (the "Administrative Agent"). WITNESSETH: WHEREAS, the Borrower has requested that the Lenders make term loans in an aggregate principal amount equal to $10,000,000 to the Borrower; WHEREAS, subject to the terms and conditions of this Agreement, the Lenders severally, to the extent of their respective Commitments as defined herein, are willing severally to make the term loans to the Borrower. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower, the Lenders and the Administrative Agent agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION SECTION 1.1. DEFINITIONS. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined): "ADJUSTED LIBO RATE" shall mean, with respect to each Interest Period for a Eurodollar Borrowing, the rate per annum obtained by dividing (i) LIBOR for such Interest Period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage. "ADMINISTRATIVE AGENT" shall have the meaning assigned to such term in the opening paragraph hereof. "ADMINISTRATIVE QUESTIONNAIRE" shall mean, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender. "AFFILIATE" shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. "APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or an Affiliate of such Lender) designated for such Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to 6 the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained. "APPLICABLE MARGIN" shall mean one percent (1.00%) per annum. "ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4(b)) and accepted by the Administrative Agent, in the form of Exhibit B attached hereto or any other form approved by the Administrative Agent. "BASE RATE" shall mean the higher of (i) the per annum rate which the Administrative Agent publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%). The Administrative Agent's prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers. The Administrative Agent may make commercial loans or other loans at rates of interest at, above or below the Administrative Agent's prime lending rate. Each change in the Administrative Agent's prime lending rate shall be effective from and including the date such change is publicly announced as being effective. "BORROWER" shall have the meaning in the introductory paragraph hereof. "BORROWING" shall mean a borrowing consisting of Loans of the same Type, made, converted or continued on the same date and in case of Eurodollar Loans, as to which a single Interest Period is in effect. "BUSINESS DAY" shall mean (i) any day other than a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia or New York, New York are authorized or required by law to close and (ii) if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any day on which dealings in Dollars are carried on in the London interbank market. "CHANGE IN CONTROL" shall mean (i) any person or group of persons (other than the Loudermilk Family) (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 50% or more in voting power of the outstanding Voting Stock of the Guarantor, (ii) members of the Board of Directors of the Guarantor on the date hereof, plus any additional members of such Board whose nomination for election or election to such Board is recommended or approved by the then current members of such Board or by Robert Charles Loudermilk, Sr., shall at any time fail to constitute a majority of such Board or (iii) the Guarantor shall cease to own and control, beneficially and of record, 100% of the issued and outstanding shares of capital stock of the Borrower. "CHANGE IN LAW" shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by any Lender (or its Applicable 2 7 Lending Office)(or for purposes of Section 2.19(b), by such Lender's holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "CLOSING DATE" shall mean the date on which the conditions precedent set forth in Section 3.1 and Section 3.2 have been satisfied or waived in accordance with Section 9.2. "CODE" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time. "COMMITMENT" shall mean, with respect to each Lender, the obligation of such Lender to make a Term Loan hereunder on the Closing Date, in a principal amount not exceeding the amount set forth with respect to such Lender on the signature pages to this Agreement. The aggregate principal amount of all Lenders' Term Loan Commitments as of the Closing Date is $ 10,000,000. "CONSOLIDATED NET WORTH" shall mean, as of the date of determination, the Guarantor's total shareholders' equity, determined on a consolidated basis in accordance with GAAP. "CONTRACTUAL OBLIGATION" of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of the property owned by it is bound. "CONTROL" shall mean the power, directly or indirectly, either to (i) vote 5% or more of securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms "CONTROLLING", "CONTROLLED BY", and "UNDER COMMON CONTROL WITH" have meanings correlative thereto. "DEFAULT" shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "DEFAULT INTEREST" shall have the meaning set forth in Section 2.8(b). "DOLLAR(S)" and the sign "$" shall mean lawful money of the United States of America. "ELIGIBLE ASSIGNEE" shall mean (i) a commercial bank organized under the laws of the United States or any state thereof having total assets in excess of $1,000,000,000.00 or any commercial finance or asset-based lending affiliate of any such commercial bank and (ii) any Lender. "ENVIRONMENTAL LAWS" shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, 3 8 preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters. "ENVIRONMENTAL LIABILITY" shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) any actual or alleged violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) any actual or alleged exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA AFFILIATE" shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "EURODOLLAR" when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate. "EURODOLLAR RESERVE PERCENTAGE" shall mean the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal (rounded upwards to the next 1/100th of 1%) in effect on any day to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate pursuant to regulations issued by the Board of Governors of the Federal Reserve System (or any Governmental Authority succeeding to any of its principal functions) with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities" under Regulation D). Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "EVENT OF DEFAULT" shall have the meaning provided in Article VIII. "EXCLUDED TAXES" shall mean with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Lender is 4 9 located and (c) in the case of a Foreign Lender, any withholding tax that (i) is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement, (ii) is imposed on amounts payable to such Foreign Lender at any time that such Foreign Lender designates a new lending office, other than taxes that have accrued prior to the designation of such lending office that are otherwise not Excluded Taxes, and (iii) is attributable to such Foreign Lender's failure to comply with Section 2.15(e). "FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. "FOREIGN LENDER" shall mean any Lender that is not a United States person under Section 7701(a)(3) of the Code. "FUNDED DEBT" shall mean all indebtedness for money borrowed, plus purchase money mortgages, capitalized leases, conditional sales contracts and similar title retention debt instruments (including any current maturities of such debt) which by its terms matures more than one year from the date of the calculation hereof and/or which is renewable or extendable for such a period. "FUNDED DEBT RATIO" shall mean, as to the Guarantor for any period, a ratio of (i) its Funded Debt to (ii) the sum of its net income before income taxes, plus interest expense for such period, determined on a consolidated basis. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or, if no such statements are promulgated, then such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORITY" shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "GUARANTEE" of or by any Person (the "GUARANTOR") shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (a) to purchase or pay (or advance or supply funds for the purchase or payment of) 5 10 such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; provided, that the term "Guarantee" shall not include endorsements for collection or deposits in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term "Guarantee" used as a verb has a corresponding meaning. "GUARANTEE AGREEMENT" shall mean the Guarantee Agreement, dated as of the date hereof, made by the Guarantor in favor of the Administrative Agent for the benefit of the Lenders, as amended, restated, supplemented or otherwise modified from time to time. "GUARANTOR" shall have the meaning in the introductory paragraph hereof. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "HEDGING AGREEMENTS" shall mean interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity agreements and other similar agreements or arrangements designed to protect against fluctuations in interest rates, currency values or commodity values, in each case to which any Borrower or any Subsidiary is a party. "INDEMNIFIED TAXES" shall mean Taxes other than Excluded Taxes. "INTEREST PERIOD" shall mean with respect to any Eurodollar Borrowing, a period of one, two, three or six months; provided, that: (i) the initial Interest Period for such Borrowing shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of another Type), and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day; 6 11 (iii) any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and (iv) each principal installment of the Term Loans shall have an Interest Period ending on each installment payment date and the remaining principal balance (if any) of the Term Loans shall have an Interest Period determined as set forth above. "LENDERS" shall have the meaning assigned to such term in the opening paragraph of this Agreement. "LIBOR" shall mean, for any applicable Interest Period with respect to any Eurodollar Loan, the rate per annum for deposits in Dollars for a period equal to such Interest Period appearing on the display designated as Page 3750 on the Dow Jones Markets Service (or such other page on that service or such other service designated by the British Banker's Association for the display of such Association's Interest Settlement Rates for Dollar deposits) as of 11:00 a.m. (London, England time) on the day that is two Business Days prior to the first day of the Interest Period or if such Page 3750 is unavailable for any reason at such time, the rate which appears on the Reuters Screen ISDA Page as of such date and such time; provided, that if the Administrative Agent determines that the relevant foregoing sources are unavailable for the relevant Interest Period, LIBOR shall mean the rate of interest determined by the Administrative Agent to be the average (rounded upward, if necessary, to the nearest 1/100th of 1%) of the rates per annum at which deposits in Dollars are offered to the Administrative Agent two (2) Business Days preceding the first day of such Interest Period by leading banks in the London interbank market as of 10:00 a.m. for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Loan of the Administrative Agent. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien, charge, hypothecation, assignment, deposit arrangement, title retention, preferential property right, trust or other arrangement having the practical effect of the foregoing (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, including any lease or similar arrangement with a public authority executed in connection with the issuance of industrial revenue bonds or pollution control revenue bonds, and the filing of or agreements to give any financing statement under the Uniform Commercial Code of any jurisdiction). "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Notes (if any), the Guarantee Agreement, all Notices of Conversion/Continuation and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing. "LOAN FACILITY AGREEMENT" shall mean that certain Amended and Restated Loan Facility and Guaranty Agreement, dated as of November 3, 1999, by and among the Guarantor, SunTrust Bank, formerly known as SunTrust Bank, Atlanta, as Servicer and the Participants party thereto as may be amended, modified, supplemented or restated from time to time. 7 12 "LOAN PARTIES" shall mean the Borrower and the Guarantor. "LOUDERMILK FAMILY" shall mean, collectively, Robert Charles Loudermilk, Sr., his spouse, his children, his grandchildren and any trust which may be now or hereafter established for the sole benefit of any of the foregoing persons. "MARGIN REGULATIONS" shall mean Regulation T, Regulation U and Regulation X of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time. "MATERIALLY ADVERSE EFFECT" shall mean any materially adverse change in (i) the business, results of operations, financial condition, assets or prospects of the Borrower or Guarantor and its Subsidiaries, taken as a whole, (ii) the ability of the Borrower or Guarantor to perform their respective obligations under this Agreement, or (iii) the ability of the Guarantor to perform its obligations under the Guaranty Agreement. "MATURITY DATE" shall mean the earlier of (i) November 20, 2001, (ii) the date on which the Revolving Credit Agreement is refinanced, or (iii) the date on which the principal amount of all outstanding Term Loans have been declared or automatically have become due and payable (whether by acceleration or otherwise). "MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "NOTE" shall mean a promissory note of the Borrower substantially in the form of Exhibit A, executed by the Borrower in favor of a Lender, as amended, restated, supplemented or otherwise modified from time to time. "NOTICE OF CONVERSION/CONTINUATION" shall mean the notice given by the Borrower to the Administrative Agent in respect of the conversion or continuation of an outstanding Borrowing as provided in Section 2.3(b) hereof. "OBLIGATIONS" shall mean all amounts owing by the Borrower to the Administrative Agent or any Lender pursuant to or in connection with this Agreement or any other Loan Document, including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all reimbursement obligations, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Administrative Agent and any Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, and all obligations arising under Hedging Agreements relating to the foregoing to the extent permitted hereunder, and all obligations and liabilities incurred in connection with collecting and enforcing the foregoing, together with all renewals, extensions, modifications or refinancings thereof. "OTHER TAXES" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment 8 13 made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "PAYMENT OFFICE" shall mean the office of the Administrative Agent located at 303 Peachtree Street, N.E., Atlanta, Georgia 30308, or such other location as to which the Administrative Agent shall have given written notice to the Borrower and the other Lenders. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions. "PERSON" shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority. "PLAN" shall mean any "employee benefit plan" (as defined in Section 3(3)f ERISA), including, but not limited to, any defined benefit pension plan, profit sharing plan, money purchase pension plan, savings or thrift plan, stock bonus plan, employee stock ownership plan, Multiemployer Plan, or any plan, fund, program, arrangement or practice providing for medical (including post-retirement medical), hospitalization, accident, sickness, disability, or life insurance benefits. "PRO RATA SHARE" shall mean, for any Lender, a percentage, the numerator of which shall be such Lender's Loans, and the denominator of which shall be the sum of all Loans. "REGULATION D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations. "RELATED PARTIES" shall mean, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "RELEASE" means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. "REQUIREMENT OF LAW" for any person shall mean the articles or certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "REPORTABLE EVENT" shall have the meaning assigned to such term under ERISA. 9 14 "REQUIRED LENDERS" shall mean, at any time, Lenders holding more than 50% of the aggregate outstanding Term Loans at such time. "RESPONSIBLE OFFICER" shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Borrower or the Guarantor, as the case may be, or such other representative of the Borrower or the Guarantor, as the case may be designated in writing by any one of the foregoing with the consent of the Administrative Agent; and, with respect to the financial covenants only, the chief financial officer or the treasurer of the Guarantor. "REVOLVING CREDIT AGREEMENT" shall mean that certain Second Amended and Restated Revolving Credit and Term Loan Agreement, dated as of January 6, 1995 by and among the Guarantor, First Union National Bank (formerly First Union National Bank of Georgia), Bank One, N.A. (formerly Bank of America Illinois) and SunTrust (formerly Trust Company Bank), as a lender and as Agent, as may be amended, modified, supplemented or restated from time to time. "SUBSIDIARY" shall mean, with respect to any Person, any corporation or other entity (including, without limitation, partnerships, joint ventures, and associations) regardless of its jurisdiction of organization or formation, at least a majority of the total combined voting power of all classes of voting stock or other ownership interests of which shall, at the time as of which any determination is being made, be owned by such Person, either directly or indirectly through one or more other Subsidiaries. "SYNTHETIC LEASE DOCUMENTS" shall mean, collectively, the Master Agreement, dated as of September 20, 1996, among the Guarantor, SunTrust Banks, Inc., as lessor (the "Lessor"), SunTrust Bank, Atlanta and SouthTrust Bank of Georgia, N.A., as lenders, and SunTrust Bank, Atlanta, as agent, the Lease Agreement, dated as of September 20, 1996, between the Lessor and the Guarantor and any supplements thereto, the Construction Agency Agreement, dated as of September 20, 1996, among the Lessor and the Guarantor, the Guaranty, dated as of September 20, 1996, executed by the Guarantor in favor of the Funding Parties (as defined therein), and any and all Security Agreements and Assignments (Construction Contract, Architect's Agreement, Permits, Licenses and Governmental Approvals, and Plans and Specifications and Drawings) executed from time to time by the Guarantor in favor of the Lessor, and any modifications of or replacements for any or all of the foregoing. "TAXES" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "TERM LOAN" or "LOAN" shall have the meaning set forth in Section 2.1. "TYPE", when used in reference to a Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Base Rate. "WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. 10 15 SECTION 1.2. CLASSIFICATIONS OF LOANS AND BORROWINGS. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g. a "Eurodollar Loan" or "Base Rate Loan"). Borrowings also may be classified and referred to by Type (e.g. "Eurodollar Borrowing"). SECTION 1.3. ACCOUNTING TERMS AND DETERMINATION. Unless otherwise defined or specified herein, all accounting terms shall be construed herein, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP. SECTION 1.4. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to the time in the city and state of the Administrative Agent's principal office, unless otherwise indicated. ARTICLE II AMOUNT AND TERMS OF THE COMMITMENTS SECTION 2.1. TERM LOAN COMMITMENTS. Subject to the terms and conditions set forth herein, each Lender severally agrees to make a single loan (each, a "TERM LOAN") to the Borrower on the Closing Date in a principal amount not to exceed the Term Loan Commitment of such Lender; provided, that if for any reason the full amount of such Lender's Term Loan Commitment is not fully drawn on the Closing Date, the undrawn portion thereof shall automatically be cancelled. The Term Loans may be, from time to time, Base Rate Loans or Eurodollar Loans or a combination thereof; provided, that on the Closing Date all Term Loans shall be Base Rate Loans. The execution and delivery of this Agreement by the Borrower and the satisfaction of all conditions precedent pursuant to Section 3.1 shall be deemed to constitute the Borrower's request to borrow the Term Loans on the Closing Date. 11 16 SECTION 2.2. FUNDING OF BORROWINGS. Each Lender will make available each Loan to be made by it hereunder on the proposed date thereof by wire transfer in immediately available funds by 11:00 a.m. to the Administrative Agent at the Payment Office. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts that it receives, in like funds by the close of business on such proposed date, to an account maintained by the Borrower with the Administrative Agent or at the Borrower's option, by effecting a wire transfer of such amounts to an account designated by the Borrower to the Administrative Agent. SECTION 2.3. INTEREST ELECTIONS. (a) Each Borrowing initially shall be a Base Rate Borrowing. Thereafter, the Borrower may elect to convert such Borrowing into a different Type or to continue such Borrowing, and in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall give the Administrative Agent prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing (a "NOTICE OF CONVERSION/CONTINUATION") that is to be converted or continued, as the case may be, (x) prior to 10:00 a.m. one (1) Business Day prior to the requested date of a conversion into a Base Rate Borrowing and (y) prior to 11:00 a.m. three (3) Business Days prior to a continuation of or conversion into a Eurodollar Borrowing. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Continuation/Conversion applies and if different options are being elected with respect to different portions thereof, the portions thereof that are to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Notice of Continuation/Conversion, which shall be a Business Day, (iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is to be a Eurodollar Borrowing, the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of "Interest Period". If any such Notice of Continuation/Conversion requests a Eurodollar Borrowing but does not specify an Interest Period, the Borrower shall be deemed to have selected an Interest Period of one month. The principal amount of any resulting Borrowing shall satisfy the minimum borrowing amount for Eurodollar Borrowings and Base Rate Borrowings set forth in Section 2.3. (c) If, on the expiration of any Interest Period in respect of any Eurodollar Borrowing, the Borrower shall have failed to deliver a Notice of Conversion/ Continuation, then, unless such Borrowing is repaid as provided herein, the Borrower shall be deemed to have elected to convert such Borrowing to a Base Rate Borrowing. No Borrowing may be converted into, or continued as, a Eurodollar Borrowing if a Default or an Event of Default exists, unless the Administrative Agent and each of the Lenders shall have otherwise consented in writing. No 12 17 conversion of any Eurodollar Loans shall be permitted except on the last day of the Interest Period in respect thereof. (d) Upon receipt of any Notice of Conversion/Continuation, the Administrative Agent shall promptly notify each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. SECTION 2.4. OPTIONAL REDUCTION AND TERMINATION OF COMMITMENTS. The Term Loan Commitments shall terminate on the Closing Date upon the making of the Term Loans pursuant to Section 2.1. SECTION 2.5. REPAYMENT OF LOANS. The Borrower unconditionally promises to pay to the Administrative Agent for the account of each Lender the entire unpaid principal balance of the Term Loans in full on the Maturity Date. SECTION 2.6. EVIDENCE OF INDEBTEDNESS. (a) Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the Loan made by such Lender, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the Term Loan Commitment of each Lender, (ii) the amount of each Loan made hereunder by each Lender, the Type thereof and the Interest Period applicable thereto, (iii) the date of each continuation thereof pursuant to Section 2.3, (iv) the date of each conversion of all or a portion thereof to another Type pursuant to Section 2.3, (v) the date and amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of such Loans and (vi) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Loans and each Lender's Pro Rata Share thereof. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement. (b) At the request of any Lender at any time, the Borrower agrees that it will execute and deliver to such Lender a Note. SECTION 2.7. OPTIONAL PREPAYMENTS. The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, without premium or penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent no later than (i) in the case of prepayment of any Eurodollar Borrowing, 11:00 a.m. not less than three (3) Business Days prior to any such prepayment, and (ii) in the case of any prepayment of any Base Rate Borrowing, not less than one Business Day prior to the date of such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of each Borrowing or portion thereof to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender of the contents thereof and of such Lender's Pro Rata Share of any such prepayment. If such notice is given, the aggregate amount specified in such notice shall be due 13 18 and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid; provided, that if a Eurodollar Borrowing is prepaid on a date other than the last day of an Interest Period applicable thereto, the Borrower shall also pay all amounts required pursuant to Section 2.14. Each prepayment shall be applied ratably to the Loans. SECTION 2.8. INTEREST ON LOANS. (a) The Borrower shall pay interest on each Base Rate Loan at the Base Rate in effect from time to time and on each Eurodollar Loan at the Adjusted LIBO Rate for the applicable Interest Period in effect for such Loan, plus, with respect to Eurodollar Loans only, the Applicable Margin in effect from time to time. (b) While an Event of Default exists or after acceleration, at the option of the Required Lenders, the Borrower shall pay interest ("DEFAULT INTEREST") with respect to all Eurodollar Loans at the rate otherwise applicable for the then-current Interest Period plus an additional 2% per annum until the last day of such Interest Period, and thereafter, and with respect to all Base Rate Loans and all other Obligations hereunder (other than Loans), at an all-in rate in effect for Base Rate Loans, plus an additional 2% per annum. (c) Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Interest on all outstanding Base Rate Loans shall be payable quarterly in arrears on the last day of each March, June, September and December and on the Maturity Date. Interest on all outstanding Eurodollar Loans shall be payable on the last day of each Interest Period applicable thereto, and, in the case of any Eurodollar Loans having an Interest Period in excess of three months or 90 days, respectively, on each day which occurs every three months or 90 days, as the case may be, after the initial date of such Interest Period, and on the Maturity Date. Interest on any Loan which is converted into a Loan of another Type or which is repaid or prepaid shall be payable on the date of such conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) thereof. All Default Interest shall be payable on demand. (d) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Borrower and the Lenders of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.9. FEES. (a) The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon in writing by the Borrower and the Administrative Agent, if any. (b) The Borrower shall pay to the Administrative Agent, for the ratable benefit of each Lender, a closing fee equal to 0.10% per annum multiplied by the aggregate Term Loan Commitments. SECTION 2.10. COMPUTATION OF INTEREST AND FEES. 14 19 All computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable (to the extent computed on the basis of days elapsed). Each determination by the Administrative Agent of an interest amount or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes. SECTION 2.11. INABILITY TO DETERMINE INTEREST RATES. If prior to the commencement of any Interest Period for any Eurodollar Borrowing, (i) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant interbank market, adequate means do not exist for ascertaining LIBOR for such Interest Period, or (ii) the Administrative Agent shall have received notice from the Required Lenders that the Adjusted LIBO Rate does not adequately and fairly reflect the cost to such Lenders (or Lender, as the case may be) of making, funding or maintaining their (or its, as the case may be) Eurodollar Loans for such Interest Period, the Administrative Agent shall give written notice (or telephonic notice, promptly confirmed in writing) to the Borrower and to the Lenders as soon as practicable thereafter. In the case of Eurodollar Loans, until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) the obligations of the Lenders to continue or convert outstanding Loans as or into Eurodollar Loans shall be suspended and (ii) all such affected Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto unless the Borrower prepays such Loans in accordance with this Agreement. SECTION 2.12. ILLEGALITY. If any Change in Law shall make in unlawful or impossible for any Lender to make, maintain or fund any Eurodollar Loan and such Lender shall so notify the Administrative Agent, the Administrative Agent shall promptly give notice thereof to the Borrower and the other Lenders, whereupon until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to continue or convert outstanding Loans as or into Eurodollar Loans, shall be suspended. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, designate a different Applicable Lending Office if such designation would avoid the need for giving such notice and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion. SECTION 2.13. INCREASED COSTS. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the Adjusted LIBO Rate hereunder against assets of, deposits with or for the account of, or credit extended 15 20 by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) ; or (ii) impose on any Lender or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by such Lender; and the result of the foregoing is to increase the cost to such Lender of making, converting into, continuing or maintaining a Eurodollar Loan, then the Borrower shall promptly pay, upon written notice from and demand by such Lender on the Borrower (with a copy of such notice and demand to the Administrative Agent), to the Administrative Agent for the account of such Lender, within five Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital (or on the capital of such Lender's parent corporation) as a consequence of its obligations hereunder to a level below that which such Lender or such Lender's parent corporation could have achieved but for such Change in Law (taking into consideration such Lender's policies or the policies of such Lender's parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written demand by such Lender (with a copy thereof to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender or such Lender's parent corporation for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or such Lender's parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower (with a copy to the Administrative Agent) and shall be conclusive, absent manifest error. The Borrower shall pay any such Lender such amount or amounts within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation. SECTION 2.14. FUNDING INDEMNITY. In the event of (a) the payment of any principal of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion or continuation of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure by the Borrower to borrow, prepay, convert or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event, the Borrower shall compensate each Lender, within five (5) Business Days after written demand from such Lender, for any loss, cost or expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense shall be deemed to include an amount determined by such Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at the Adjusted LIBO Rate applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or in the case of a failure to 16 21 borrow, convert or continue, for the period that would have been the Interest Period for such Eurodollar Loan) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if the Adjusted LIBO Rate were set on the date such Eurodollar Loan was prepaid or converted or the date on which the Borrower failed to borrow, convert or continue such Eurodollar Loan. A certificate as to any additional amount payable under this Section 2.14 submitted to the Borrower by any Lender (with a copy to the Administrative Agent) shall be conclusive, absent manifest error. SECTION 2.15. TAXES. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or any Lender (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the Code or any treaty to which the United States is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. 17 22 Without limiting the generality of the foregoing, each Foreign Lender agrees that it will deliver to the Administrative Agent and the Borrower (or in the case of a Lender, to the Lender from which the related participation shall have been purchased), as appropriate, two (2) duly completed copies of (i) Internal Revenue Service Form W-8 ECI, or any successor form thereto, certifying that the payments received from the Borrower hereunder are effectively connected with such Foreign Lender's conduct of a trade or business in the United States; or (ii) Internal Revenue Service Form W-8 BEN, or any successor form thereto, certifying that such Foreign Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest; or (iii) Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, together with a certificate (A) establishing that the payment to the foreign lender qualifies as "portfolio interest" exempt from U.S. withholding tax under Code section 871(h) or 881(c), and (B) stating that (1) the Foreign Lender is not a bank for purposes of Code section 881(c)(3)(A), or the obligation of the Borrower hereunder is not, with respect to such Foreign Lender, a loan agreement entered into in the ordinary course of its trade or business, within the meaning of that section; (2) the Foreign Lender is not a 10% shareholder of the Borrower within the meaning of Code section 871(h)(3) or 881(c)(3)(B); and (3) the Foreign Lender is not a controlled foreign corporation that is related to the Borrower within the meaning of Code section 881(c)(3)(C); or (iv) such other Internal Revenue Service forms as may be applicable to the Foreign Lender, including Forms W-8 IMY or W-8 EXP. Each such Foreign Lender shall deliver to the Borrower and the Administrative Agent such forms on or before the date that it becomes a party to this Agreement (or in the case of a Lender, on or before the date such Lender purchases the related participation). In addition, each such Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Each such Foreign Lender shall promptly notify the Borrower and the Administrative Agent at any time that it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the Internal Revenue Service for such purpose). SECTION 2.16. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or of amounts payable under Section 2.12, 2.13 or 2.14, or otherwise) prior to 12:00 noon, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office, except that payments pursuant to Sections 2.12, 2.13 and 2.14 and 9.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars. 18 23 (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount or amounts due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (d) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.1 or 9.3(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.17. MITIGATION OF OBLIGATIONS. If any Lender requests compensation under Section 2.13 or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15 then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.13 or Section 2.15 as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all costs and expenses incurred by any Lender in connection with such designation or assignment. ARTICLE III CONDITIONS PRECEDENT TO LOANS SECTION 3.1. CONDITIONS TO EFFECTIVENESS. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.2). (a) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including reimbursement or payment of all out-of- 19 24 pocket expenses (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower hereunder, under any other Loan Document and under any agreement with the Administrative Agent. (b) Each of the following statements must be true and correct: (i) at the time of and immediately after giving effect to the funding of the Term Loans, no Default or Event of Default shall exist; (ii) all representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects; and (iii) since December 31, 1999, there shall have been no change which has had or could reasonably be expected to have a Materially Adverse Effect. (c) The Administrative Agent (or its counsel) shall have received the following: (i) a counterpart of this Agreement signed by or on behalf of each party thereto or written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement; (ii) if requested by any Lender, duly executed Notes payable to such Lender; (iii) a duly executed Guarantee Agreement; (iv) certificate of the Secretary or Assistant Secretary of each Loan Party, attaching and certifying copies of its bylaws and of the resolutions of its boards of directors, authorizing the execution, delivery and performance of the Loan Documents to which it is a party and certifying the name, title and true signature of each officer of such Loan Party executing the Loan Documents to which it is a party; (v) certified copies of the articles of incorporation or other charter documents of each Loan Party, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of incorporation of such Loan Party and each other jurisdiction where such Loan Party is required to be qualified to do business as a foreign corporation; (vi) a favorable written opinion of Kilpatrick Stockton LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each of the Lenders, and covering such matters relating to the Loan Parties, the Loan Documents and the transactions contemplated therein as the Administrative Agent or the Required Lenders shall reasonably request; (vii) a favorable written opinion of Pietrantoni Mendez & Alvarez LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each of the Lenders, and covering such matters relating to the Loan Parties, the Loan Documents and the 20 25 transactions contemplated therein as the Administrative Agent or the Required Lenders shall reasonably request; (viii) a certificate, dated the Closing Date and signed by a Responsible Officer of the Borrower and Guarantor confirming compliance with the conditions set forth in paragraph (b) of Section 3.1; (ix) a duly executed funds disbursement letter; and (x) certified copies of all consents, approvals, authorizations, registrations and filings and orders required or advisable to be made or obtained under any Requirement of Law, or by any Contractual Obligation of each Loan Party, in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated thereby, and such consents, approvals, authorizations, registrations, filings and orders shall be in full force and effect and all applicable waiting periods shall have expired. SECTION 3.2. DELIVERY OF DOCUMENTS. All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article III, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders and, except for the Notes, in sufficient counterparts or copies for each of the Lenders and shall be in form and substance satisfactory in all respects to the Administrative Agent. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each of the Guarantor and the Borrower represents and warrants to the Administrative Agent and each Lender as follows: SECTION 4.1. ORGANIZATION AND QUALIFICATION. Each of the Borrower and the Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Puerto Rico and the State of Georgia, respectively; the Borrower and the Guarantor have the corporate power to own their property and to carry on their business as now being conducted; and the Borrower and the Guarantor are duly qualified as foreign corporations to do business and are in good standing in every jurisdiction in which the nature of the business conducted by them makes such qualification necessary and where failure to qualify would have a Materially Adverse Effect. SECTION 4.2. BORROWER'S POWERS. The execution, delivery and performance of the Loan Documents required hereunder are within the Borrower's or the Guarantor's corporate powers, as the case may be, have been duly authorized by all necessary shareholder or corporate action, and do not and will not contravene or conflict with the terms of any charter, by-law or other organizational papers of the Borrower, the Guarantor or any of its Subsidiaries, or any indenture, agreement or 21 26 undertaking to which the Borrower, the Guarantor or any of its Subsidiaries is a party or by which the Borrower, the Guarantor or any of its Subsidiaries is bound or affected. SECTION 4.3. ENFORCEABILITY OF AGREEMENT AND OTHER LOAN DOCUMENTS. This Agreement is a legal, valid and binding agreement of the Borrower and the Guarantor, enforceable against the Borrower and the Guarantor in accordance with its terms, and each other Loan Document and any other instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable against the Borrower and the Guarantor, as applicable, in accordance with their respective terms. SECTION 4.4. CONSENT. No consent, permission, authorization, order or license of any governmental authority is necessary in connection with the execution, delivery, performance or enforcement of this Agreement, the other Loan Documents or any other instrument or agreement required hereunder, except as may have been obtained and certified copies of which have been delivered to each Lender. SECTION 4.5. STATUTES, JUDGMENTS. There is no law, statute, rule or regulation, nor is there any judgment, decree or order of any court or agency binding on the Borrower, the Guarantor or any of its Subsidiaries, which would be contravened by the execution, delivery or performance of this Agreement or any other Loan Document or any other instrument or agreement required hereunder. SECTION 4.6. FINANCIAL STATEMENTS. The Guarantor has furnished each Lender with the following financial statements, identified by a principal financial officer of the Guarantor: Audited Consolidated Financial and Operating Statements for the Guarantor for the years ended December 31, 1999, December 31, 1998, December 31, 1997 and December 31, 1996, and audit opinions with respect to such statements of Ernst & Young LLP; and unaudited financial and operating statements for the six-month period ended September 30, 2000. The above financial statements (including any related schedules and/or notes) are true and correct in all material respects and have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all known liabilities, direct and contingent, of the entities covered thereby required to be shown in accordance with such principles. The balance sheets fairly present the condition of the entities covered thereby as at the dates thereof, and the profit and loss and surplus statements fairly present the results of the operations of the entities covered thereby for the periods indicated. There has been no material adverse change in the business, condition or operations (financial or otherwise) of the Guarantor since December 31, 1999. 22 27 SECTION 4.7. ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Borrower or the Guarantor, threatened against or affecting the Borrower, the Guarantor or any of its Subsidiaries, or any properties or rights of the Borrower, the Guarantor or any of its Subsidiaries, before any court, arbitrator or administrative or governmental body which is reasonably likely to result in any Materially Adverse Effect. SECTION 4.8. OUTSTANDING DEBT. Neither the Borrower, the Guarantor nor any of its Subsidiaries has outstanding any indebtedness except debt permitted hereunder, under the Revolving Credit Agreement, or under the Loan Facility Agreement. There exists no default under the provisions of any instrument evidencing such indebtedness or of any agreement relating thereto. SECTION 4.9. TITLE TO PROPERTIES. The Borrower, the Guarantor and each of its Subsidiaries have good and marketable title to their respective real properties, subject only to Liens permitted under Section 6.1, and good title to all of its other respective properties and assets, including the properties and assets reflected in the balance sheet as of December 31, 1999 hereinabove described (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted under Section 6.1. The Borrower and the Guarantor enjoy full and undisturbed possession of all leases necessary in any material respect for the operation of their respective properties and assets, none of which contains any unusual or burdensome provisions which might materially affect or impair the operation of such properties and assets. All such leases are valid and subsisting and are free from defaults by the Borrower, the Guarantor or respective landlords and in full force and effect. SECTION 4.10. TAXES. Each of the Borrower and the Guarantor has, and each of the Guarantor's Subsidiaries has filed all federal and state income tax returns which, to the best knowledge of the officers of the Borrower and the Guarantor, are required to be filed, and each has paid all taxes as shown on said returns and on all assessments received by it to the extent such taxes have become due, except to the extent expressly permitted by Section 6.1(a). SECTION 4.11. REGULATION U, ETC. Neither the Borrower, the Guarantor nor any of its Subsidiaries own or have any present intention of acquiring any "margin security" as defined in Regulation U of the Board of Governors of the Federal Reserve System (herein called a "margin security"). None of the proceeds of any Advance will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin security or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of said Regulation U. 23 28 SECTION 4.12. NO DEFAULT, EVENT OF DEFAULT OR CHANGE OF CONTROL. No Default, Event of Default, or Change of Control, has occurred and is continuing or will occur as a result of the incurring of any obligation under this Agreement. SECTION 4.13. ERISA. No fact or circumstance, including but not limited to any Reportable Event, exists in connection with any Plan of the Borrower, the Guarantor or its Subsidiaries which might constitute grounds for the termination of any such Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan. For purposes of this representation and warranty, if the Borrower is not the Plan administrator, it shall nonetheless be deemed to have knowledge of all facts attributable to the Plan administrator designated pursuant to ERISA. SECTION 4.14. POLLUTION AND ENVIRONMENTAL CONTROL. Each of the Borrower and the Guarantor has obtained all permits, licenses and other authorizations which are required under, and is in material compliance with, all federal, state, and local laws and regulations relating to pollution, reclamation, or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes. SECTION 4.15. POSSESSION OF FRANCHISES, LICENSES, ETC. The Borrower and the Guarantor and its Subsidiaries possess all franchises, certificates, licenses, permits and other authorizations from governmental political subdivisions or regulatory authorities, and all patents, trademarks, service marks, trade names, copyrights, licenses and other rights, free from burdensome restrictions, that are necessary for the ownership, maintenance and operation of any of their respective properties and assets, and neither the Borrower, the Guarantor nor any of its Subsidiaries is in violation in any material respect of any thereof. SECTION 4.16. CONTINGENT LIABILITIES. After due inquiry, there exists no material contingent liability or obligation assertable against the Borrower, the Guarantor or its Subsidiaries that is not identified and disclosed to the Lenders in the consolidated financial statements delivered pursuant to Sections 4.6 or 5.1 or in Schedule 4.16 attached hereto. SECTION 4.17. COMPLIANCE WITH LAWS. Each of the Borrower and the Guarantor and its Subsidiaries is in compliance in all material respects with all applicable federal, state and local laws, rules, regulations and orders, including, without limitation, all federal, state and local laws, rules, regulations and 24 29 orders relating to pollution, reclamation or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes, and all federal, state and local laws, rules, regulations and orders relating to franchising activities. ARTICLE V AFFIRMATIVE COVENANTS Each of the Guarantor and the Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or the principal of and interest on any Loan remains unpaid: SECTION 5.1. FINANCIAL STATEMENTS, REPORTS AND OTHER FINANCIAL DATA. The Guarantor will deliver to each Lender: (a) as soon as practicable and in any event within forty-five (45) days after the end of each calendar quarter (other than the last calendar quarter) in each fiscal year, consolidated statements of income, cash flow and retained earnings of the Guarantor and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such calendar quarter, and consolidated balance sheets of the Guarantor and its Subsidiaries as at the end of such calendar quarter, 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 the Chief Financial Officer of the Guarantor, subject to changes resulting from year-end adjustments; (b) as soon as practicable and in any event within 90 days after the end of each fiscal year (or as soon as made available by the Guarantor's independent public accountants if availability is delayed beyond such 90-day period for reasons beyond the Guarantor's control) audited consolidated statements of income, cash flow and retained earnings of the Guarantor and its Subsidiaries for such year, and an audited consolidated balance sheet of the Guarantor and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual statements, all in reasonable detail and reasonably satisfactory in scope to Lenders, and the consolidated financial statements shall be certified by independent public accountants of recognized standing, selected by the Guarantor, whose report shall be in scope and substance reasonably satisfactory to Lenders, and shall be certified by the Chief Financial Officer of the Guarantor; (c) along with the quarterly and annual reports required by clauses (a) and (b) above, a certificate of the Chief Financial Officer of the Guarantor certifying that no Event of Default exists and that no event exists which with notice or the lapse of time or 25 30 both would become such an Event of Default, which certificate shall also demonstrate in reasonable detail, with respect to both quarterly reports and annual reports, the Guarantor's compliance with the covenants set out in Sections 5.4, 5.5, 5.6, 6.2 and 6.3; (d) promptly upon receipt thereof, copies of any detailed reports submitted to the Guarantor by its independent public accountants in connection with each annual audit or interim review of the books of the Guarantor or its Subsidiaries made by such accountants; (e) promptly upon transmission thereof, copies of all financial statements, proxy statements, notices and reports as the Guarantor shall send to its shareholders and of all regular or periodic reports which it is or may be required to file with the Securities and Exchange Commission or any governmental department, bureau, commission or agency succeeding to the functions of the Securities and Exchange Commission; and (f) with reasonable promptness, such other financial data as any Lender, through the Administrative Agent, may reasonably request. SECTION 5.2. INSPECTION OF PROPERTY. The Borrower and the Guarantor will permit any Person designated by a Lender in writing, to visit and inspect any of the properties, corporate books and financial records of the Borrower, the Guarantor and its Subsidiaries and to make copies thereof and take extracts therefrom and to discuss the affairs, finances and accounts of any such corporations with the principal officers of the Borrower, the Guarantor or its Subsidiaries, all at such reasonable times and as often as such Lender may reasonably request, subject in all cases to the confidentiality requirements of Section 9.11. SECTION 5.3. MAINTENANCE OF INSURANCE. The Borrower, the Guarantor and each Subsidiary will maintain insurance in such amounts and against such liabilities and hazards as customarily is maintained by other companies operating similar businesses. SECTION 5.4. FUNDED DEBT RATIO. The Guarantor shall maintain and operate its business in a manner to insure that its Funded Debt Ratio, measured as of the last day of each fiscal quarter for the four immediately preceding quarters ending on such date, is less than 4.00:1.00. SECTION 5.5. LEVERAGE RATIO. The Guarantor shall maintain and operate its business in such a manner to insure that its ratio, measured as of the last day of each fiscal quarter, of (i) Funded Debt to (ii) the sum of Funded Debt plus the Consolidated Net Worth of the Guarantor and its Subsidiaries, is less than 0.50:1.00. SECTION 5.6. FIXED CHARGE COVERAGE. The Guarantor will operate its business in such a manner to insure that the sum of its (i) consolidated net income before income taxes, plus (ii) interest expense, plus (iii) rental and lease expense are greater than 150% of the sum of (i) interest expense, plus (ii) rental and lease expense, all determined on a consolidated basis for the Guarantor and its Subsidiaries. Compliance with the aforementioned fixed charge coverage ratio will be determined at the end of each fiscal quarter of the Guarantor and taking into account operations during the four consecutive fiscal quarters ending on such date. The following mathematical formula illustrates the Guarantor's fixed charge coverage obligation: 26 31 Pretax Net Interest Rental and Lease Income + Expense + Expense > 1.50 ------------------------------------------------- - Interest Expense + Rental and Lease Expense SECTION 5.7. ACCOUNT VERIFICATION. Upon the request of any Lender, made at reasonable intervals and on a reasonable basis, the Guarantor and the Borrower will mail letters to selected lease customers or account debtors requesting them to verify the status of their leases or accounts, with responses to be returned directly to the Administrative Agent. SECTION 5.8. ERISA. The Borrower and each Subsidiary will: (a) At all times, make prompt payment of contributions required to meet the minimum funding standard set forth in ERISA with respect to its Plans; (b) Notify Lenders and the Administrative Agent immediately of any fact, including, but not limited to, any Reportable Event arising in connection with any of its Plans which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan, together with a statement, if requested by Lenders, as to the reasons therefor and the action, if any, which the Borrower or any of its Subsidiaries proposes to take with respect thereto; and (c) Furnish to Lenders or the Administrative Agent, upon request, such additional information concerning any of its Plans as may be reasonably requested. SECTION 5.9. PAYMENT. The Borrower will pay all sums due under this Agreement and the other Loan Documents according to the terms hereof. SECTION 5.10. NOTICE OF DEFAULT, EVENT OF DEFAULT OR CHANGE OF CONTROL. The Guarantor will immediately give notice to the Administrative Agent and each Lender of any Default, Event of Default or Change of Control. SECTION 5.11. CORPORATE EXISTENCE. Except as expressly permitted by Section 6.5, each of the Borrower and the Guarantor will maintain, and will cause each Subsidiary to maintain, its corporate existence and good standing in the jurisdiction of its incorporation, and each of the Borrower and the Guarantor will qualify, and will cause each Subsidiary to qualify, and remain qualified to do business as a foreign corporation in each jurisdiction in which the nature of the business conducted by it or its ownership of property makes such qualification necessary and where failure to qualify would have a Materially Adverse Effect. SECTION 5.12. COMPLIANCE WITH LAWS, ETC. Each of the Borrower and the Guarantor will comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable federal, state, and local laws, rules, regulations and orders, including, without limitation, all federal, state and local laws, rules, regulations and orders relating to pollution, reclamation, or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into air, water, or land, or otherwise relating to the manufacture, processing, distribution, 27 32 use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes, and all federal, state and local law, rules, regulations and orders relating to franchising activities. ARTICLE VI . NEGATIVE COVENANTS Each of the Guarantor and the Borrower covenants and agrees that so long as the Loans remain outstanding or the Guarantor or the Borrower has any obligations under the Loan Documents, unless otherwise consented to in writing by the Required Lenders: SECTION 6.1. LIENS. Neither the Guarantor nor the Borrower will, nor will it permit any of its Subsidiaries to, create, assume or suffer to exist any Lien upon any of its property or assets, whether now owned or hereafter acquired, except: (a) Liens for taxes not yet due or which are being actively contested in good faith by appropriate proceedings; (b) other Liens incidental to the conduct of its business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (c) Liens on property or assets of a Subsidiary to secure obligations of such Subsidiary to the Guarantor or another Subsidiary; (d) Liens on insurance policies owned by the Guarantor on the lives of its officers securing policy loans obtained from the insurers under such policies, provided that (A) the aggregate amount borrowed on each policy shall not exceed the loan value thereof, and (B) the Guarantor shall not incur any liability to repay any such loan; (e) Liens on real property or equipment acquired by the Guarantor to secure (i) all or any portion of the purchase price thereof or the financing of the purchase price thereof, provided that the aggregate principal amount of equipment loans secured by such Liens shall be limited to $500,000 in aggregate or (ii) the costs of improvements being constructed thereon or on real property leased by the Guarantor for use by the Guarantor as stores or warehouses or as a part thereof or the financing of such costs; (f) Liens existing on the date hereof as set forth on Schedule 6.1 attached hereto and incorporated herein; (g) easements, rights of way, restrictive covenants and similar encumbrances on or exceptions to title to real property which do not materially and adversely affect the value or the utility of the real property involved; and (h) Liens granted under the Synthetic Lease Documents in the real or personal property financed thereunder and in certain related rights of the Borrower to secure the 28 33 Borrower's indebtedness and liabilities under the Synthetic Lease Documents to the extent permitted under Section 6.3(h) (i) Liens assigned and granted by the Borrower or Guarantor to the Administrative Agent in any existing or hereafter created lien or security interest in favor of the Borrower or Guarantor in any property of any franchisee or franchisees that participate in the franchisee financing program permitted pursuant to Section 6.3(k) hereof, solely to the extent of any indebtedness owing by such franchisee to the Administrative Agent under such franchisee financing program. SECTION 6.2. MINIMUM NET WORTH. The Guarantor will not permit its Consolidated Net Worth as of the last day of any fiscal quarter, commencing with the fiscal quarter ending September 30, 1999, to be less than the sum of (a) $112,000,000 plus (b) 50% of the Guarantor's consolidated net income after taxes (but not loss) (as determined in accordance with generally accepted accounting principles) for the period beginning July 1, 1999 and ending on the last day of such fiscal quarter. SECTION 6.3. LOANS, ADVANCES, INVESTMENTS AND CONTINGENT LIABILITIES. Neither the Borrower or the Guarantor will and will permit any of their respective Subsidiaries to make or permit to remain outstanding any loan or advance to, or extend credit to, or guarantee, endorse or otherwise be or become contingently liable, directly or indirectly, in connection with the obligations, stock or dividends of, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contributions to, any Person, except that the Guarantor, the Borrower or any of their respective Subsidiaries may: (a) create, incur, assure or suffer to exist, debt evidenced by the Loan Documents or the Revolving Credit Agreement; (b) suffer to exist unsecured current liabilities (not resulting from borrowing) incurred in the ordinary cause of business for current purposes and not represented by a promissory note or other evidence of indebtedness; (c) permit to remain outstanding loans or advances to or investments in any of its Subsidiaries existing on the date of this Agreement; (d) 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 or will be merged with Guarantor, provided, however, written consent of the Lenders, which any of them may withhold in their sole discretion, is required for purchases and acquisitions with (A) a cash purchase price greater than or equal to $10,000,000, or (B) a total purchase price (including cash, stock of the Guarantor and any of its Subsidiaries and any other consideration) greater than or equal to $15,000,000; (e) acquire and own stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Guarantor or any of its Subsidiaries; 29 34 (f) own, purchase or acquire (i) prime commercial paper and certificates of deposit in United States commercial banks (whose long-term debt is rated "A" or better by Moody's Investors Service or Standard and Poor's Corporation) (issued by banks having capital resources in excess of $50,000,000), in each case due within one year from the date of purchase and payable in the United States in dollars, direct obligations of the United States Government or any agency thereof, or obligations fully guaranteed as to principal and interest by the United States Government or any agency thereof, in each case maturing within one year from the date of creation of such obligation or (ii) up to an additional $500,000 of other securities or investments at any one time; (g) endorse negotiable instruments for collection in the ordinary course of business; (h) incur or guaranty indebtedness or contingent liability under the Synthetic Lease Documents provided that the aggregate outstanding principal amount of all such indebtedness or liabilities does not exceed $25,000,000 at any one time; and (i) make or permit to remain outstanding loans or advances to officers, stockholders, employees and directors of the Guarantor, provided that the aggregate principal amount of such loans and advances shall not exceed $350,000 at any time outstanding for the Guarantor and all Subsidiaries, and further provided that no Subsidiary shall make any loan or advance to, or acquire any stock, obligations or securities of, the Guarantor; (j) guarantee in the ordinary course of business up to $15,000,000 of indebtedness or obligations of any franchise operators or owners (in addition to the guarantee of indebtedness permitted by clause (a) above); and (k) guarantee the indebtedness of obligations of certain franchise operators, provided such guarantees are (A) given in connection with (1) such franchise operators' purchase of merchandise financed through a third-party lender or (2) loans made for other purposes pursuant to the terms of the Loan Facility Agreement, and (B) limited to $70,000,000 in aggregate outstanding principal amount at any one time for all franchise operators. SECTION 6.4. SALE OF STOCK AND DEBT OF SUBSIDIARIES. The Guarantor will not sell or otherwise dispose of, or part with control of, any shares of stock or debt of any of its Subsidiaries without the prior written consent of the Required Lenders. SECTION 6.5. MERGER AND SALE OF ASSETS. Neither the Borrower nor the Guarantor will merge or consolidate, or permit any of their respective Subsidiaries to merge or consolidate, with any other corporation or sell, lease or transfer or otherwise dispose of all or a substantial part of its assets or the assets of a Subsidiary, or assets which shall have contributed a substantial part of consolidated net earnings for any of the three fiscal years then most recently ended, to any Person, except that any of their respective Subsidiaries may merge with or liquidate into the Guarantor (provided that the Guarantor shall be the continuing or surviving corporation) or 30 35 merge with the Borrower or any one or more other Subsidiaries, provided that immediately after giving effect to such merger or liquidation no Default or Event of Default shall exist. SECTION 6.6. ADDITIONAL NEGATIVE PLEDGES. Neither the Borrower nor the Guarantor shall permit any of their respective Subsidiaries to, create or otherwise cause or suffer to exist or become effective, directly or indirectly, any prohibition or restriction on the creation or existence of any Lien upon any assets of the Guarantor, the Borrower or any of their respective Subsidiaries, other than pursuant to (a) Section 6.1, (b) the terms of any agreement, instrument or other document pursuant to which any debt permitted by Section 6.1(e) is incurred by the Guarantor, the Borrower or any of its Subsidiaries, so long as such prohibition or restriction applies only to the property or asset being financed by such debt, (c) the terms of the Revolving Credit Agreement, the Loan Facility Agreement and the terms of the Synthetic Lease Documents, and (d) any requirement of applicable law or any regulatory authority having jurisdiction over the Borrower, the Guarantor or any of its Subsidiaries. ARTICLE VII EVENTS OF DEFAULT SECTION 7.1. EVENTS OF DEFAULT. If any of the following events (each an "Event of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; or (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount payable under clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days; or (c) any representation or warranty made or deemed made by or on behalf of any Loan Party in or in connection with this Agreement or any other Loan Document (including the Schedules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document submitted to the Administrative Agent or the Lenders by any Loan Party or any representative of any Loan Party pursuant to or in connection with this Agreement or any other Loan Document shall prove to be incorrect in any material respect when made or deemed made or submitted; or (d) the Borrower or the Guarantor shall fail to observe or perform any covenant or agreement contained in Sections 5.4, 5.5 or 5.6 or Articles VI; or (e) any Loan Party shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those referred to in clauses (a), (b) and (d) above), and such failure shall remain unremedied for 30 days after the earlier of (i) any Responsible Officer becomes aware of such failure, or (ii) notice thereof shall have been given to the Guarantor by the Administrative; or 31 36 (f) The Borrower or the Guarantor or any of their respective Subsidiaries makes an assignment for the benefit of creditors or fails to pay its debts generally as they become due; or (g) Any order, judgment or decree is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law (herein called the "Bankruptcy Law") of any jurisdiction adjudicating the Borrower or the Guarantor or any of their respective Subsidiaries bankrupt or insolvent; or (h) The Borrower or the Guarantor or any of their respective Subsidiaries petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian or liquidator or similar official of the Borrower or the Guarantor or any of their respective Subsidiaries, or of any substantial part of the assets of the Borrower or the Guarantor or any of their respective Subsidiaries, or commences any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Borrower or the Guarantor or any of their respective Subsidiaries under the Bankruptcy Law of any jurisdiction, whether now or hereafter in effect, or any such petition or application is filed, or any such proceedings are commenced, against the Borrower or the Guarantor or any of their respective Subsidiaries and the Borrower or the Guarantor or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order for relief is entered in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order judgment, or decree remains unstayed and in effect for more than 60 days; or (i) Any order, judgment or decree is entered in any proceedings against the Borrower or the Guarantor decreeing the dissolution of the Borrower or the Guarantor and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (j) Any order, judgment or decree is entered in any proceedings against the Borrower or the Guarantor or any of their respective Subsidiaries decreeing a split-up of the Sponsor or such Subsidiary which requires the divestiture of a substantial part, or the divestiture of assets, or stock of a Subsidiary, which shall have contributed a substantial part of consolidated net earnings for any of the three fiscal years most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (k) Any Reportable Event shall have occurred, or any finding or determination shall be made with respect to a Plan under Section 4041(c) or (e) of ERISA, or any fact or circumstance shall occur with respect to a Plan which, in the opinion of the Required Participants, provides grounds for the commencement of any proceeding under Section 4042 of ERISA, or any proceeding shall be commenced with respect to a Plan under Section 4042 of ERISA; or (l) There shall exist or occur any Event of Default as provided under the terms of any other Loan Document, or any Loan Document ceases to be in full force and effect or the validity or enforceability thereof is disaffirmed by or on behalf of any Loan Party, or at any time it is or becomes unlawful for any Loan Party to perform or comply with its obligations under any 32 37 Loan Document, or the obligations of Loan Party under any Loan Document are not or cease to be legal, valid and binding on Loan Party; or (m) The Borrower or the Guarantor or any of their respective Subsidiaries shall fail to make any payment as and when such payment is due under the Revolving Credit Agreement, the Loan Facility Agreement or the Synthetic Lease Documents, or any other default, event or condition shall have occurred or exist under the Revolving Credit Agreement, the Loan Facility Agreement or the Synthetic Lease Documents, the effect of which is to cause, or to permit the holder of the obligations of the Borrower or the Guarantor or any such Subsidiary under the Revolving Credit Agreement, the Loan Facility Agreement or the Synthetic Lease Documents to cause, the obligations of the Borrower or the Guarantor or any of their respective Subsidiaries, or any portion thereof, to become due prior to its stated maturity date or prior to its regularly scheduled date of payment; (n) a Change in Control shall occur or exist; or (o) any provision of the Guarantee Agreement shall for any reason cease to be valid and binding on, or enforceable against, the Guarantor, or the Guarantor shall so state in writing, or the Guarantor shall seek to terminate the Guarantee Agreement; then, and in every such event (other than an event with respect to the Borrower described in clause (g) or (h) of this Section) and at any time thereafter during the continuance of such event, the Administrative Agent may, and upon the written request of the Required Lenders shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, whereupon the Commitment of each Lender shall terminate immediately; (ii) declare the principal of and any accrued interest on the Loans, and all other Obligations owing hereunder, to be, whereupon the same shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and (iii) exercise all remedies contained in any other Loan Document; and that, if an Event of Default specified in either clause (g) or (h) shall occur, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees, and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII THE ADMINISTRATIVE AGENT SECTION 8.1. APPOINTMENT OF ADMINISTRATIVE AGENT. Each Lender irrevocably appoints SunTrust Bank as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions set 33 38 forth in this Article shall apply to any such sub-agent and the Related Parties of the Administrative Agent and any such sub-agent and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. SECTION 8.2. NATURE OF DUTIES OF ADMINISTRATIVE AGENT. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.2), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.2) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article III or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. SECTION 8.3. LACK OF RELIANCE ON THE ADMINISTRATIVE AGENT. Each of the Lenders acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own decisions in taking or not taking of any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder. SECTION 8.4. CERTAIN RIGHTS OF THE ADMINISTRATIVE AGENT. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act, unless and until it shall have received 34 39 instructions from such Lenders; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement. SECTION 8.5. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts. SECTION 8.6. THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The bank serving as the Administrative Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent; and the terms "Lenders", "Required Lenders", "holders of Notes", or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The bank acting as the Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent hereunder. SECTION 8.7. SUCCESSOR ADMINISTRATIVE AGENT. (a) The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval by the Borrower provided that no Default or Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or any state thereof or a bank which maintains an office in the United States, having a combined capital and surplus of at least $500,000,000. (b) Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent's resignation under this Section 8.7 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Administrative Agent's resignation shall become effective, (ii) 35 40 the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Required Lenders appoint a successor Administrative Agent as provided above. After any retiring Administrative Agent's resignation hereunder, the provisions of this Article VIII shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent. SECTION 8.8. AUTHORIZATION TO EXECUTE OTHER LOAN DOCUMENTS. Each Lender hereby authorizes the Administrative Agent to execute on behalf of all Lenders all Loan Documents other than this Agreement. ARTICLE IX MISCELLANEOUS SECTION 9.1. NOTICES. (a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: To the Borrower: Aaron Rents, Inc. Puerto Rico c/o Aaron Rents, Inc. 309 East Paces Ferry Road Atlanta, Georgia 30305 Attn: Gilbert L. Danielson To the Administrative Agent: SunTrust Bank 303 Peachtree Street, N.E., 2nd Floor Atlanta, Georgia 30308 Attention: Michael Dunlap Telecopy Number: 404-588-8833 To any other Lender: the address set forth in the Administrative Questionnaire Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mails or if delivered, upon delivery; provided, that notices delivered to the Administrative Agent shall not be effective until actually received by such Person at its address specified in this Section 9.1. 36 41 (b) Any agreement of the Administrative Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent and the Lenders to be contained in any such telephonic or facsimile notice. SECTION 9.2. WAIVER; AMENDMENTS. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default or Event of Default at the time. (b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower, the Guarantor and the Required Lenders or the Borrower, the Guarantor and the Administrative Agent with the consent of the Required Lenders and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment or waiver shall: (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or interest thereon or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.16 (b) or (c) in a manner that would alter the pro rata sharing of payments required thereby , without the written consent of each Lender, (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of 37 42 Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (vi) release any guarantor or limit the liability of any such guarantor under any guaranty agreement, without the written consent of each Lender; (vii) release all or substantially all collateral (if any) securing any of the Obligations, without the written consent of each Lender; provided further, that no such agreement shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent without the prior written consent of such Person. SECTION 9.3. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, in connection with the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), (ii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) incurred by the Administrative Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing (each, an "INDEMNITEE") against, and hold each of them harmless from, any and all costs, losses, liabilities, claims, damages and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, which may be incurred by or asserted against any Indemnitee arising out of, in connection with or as a result of (i) the execution or delivery of this Agreement or any other agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of any of the transactions contemplated hereby, (ii) any Loan or any actual or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned by the Borrower or any Subsidiary or any Environmental Liability related in any way to the Borrower or any Subsidiary or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided, that the Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final and nonappealable judgment. (c) The Borrower shall pay, and hold the Administrative Agent and each of the Lenders harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes. 38 43 (d) To the extent that the Borrower fails to pay any amount required to be paid to the Administrative Agent under clauses (a), (b) or (c) hereof, each Lender severally agrees to pay to the Administrative Agent such Lender's Pro Rata Share (determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (e) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or the use of proceeds thereof. (f) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 9.4. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). (b) Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment and the Loans at the time owing to it and including non-pro rata assignments of its Commitments and related Loans); provided, that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent must give their prior written consent (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire amount of the assigning Lender's Commitment hereunder or an assignment while an Event of Default has occurred and is continuing, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 (unless the Borrower and the Administrative Agent shall otherwise consent), (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations with respect to any Commitment and the Loans related thereto under this Agreement and the other Loan Documents, (iv) the assigning Lender and the assignee shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee payable by the assigning Lender or the assignee (as determined between such Persons) in an amount equal to $1,000 and (v) such assignee, if it is not a Lender, shall deliver a duly completed Administrative Questionnaire to the Administrative Agent; provided, that any consent of the Borrower otherwise required hereunder shall not be required if an Event of Default has occurred and is continuing. Upon the execution and delivery of the Assignment and 39 44 Acceptance and payment by such assignee to the assigning Lender of an amount equal to the purchase price agreed between such Persons, such assignee shall become a party to this Agreement and any other Loan Documents to which such assigning Lender is a party and, to the extent of such interest assigned by such Assignment and Acceptance, shall have the rights and obligations of a Lender under this Agreement, and the assigning Lender shall be released from its obligations hereunder to a corresponding extent (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13 and 2.14 and 9.3. Upon the consummation of any such assignment hereunder, the assigning Lender, the Administrative Agent and the Borrower shall make appropriate arrangements to have new Notes issued if so requested by either or both the assigning Lender or the assignee. Any assignment or other transfer by a Lender that does not fully comply with the terms of this clause (b) shall be treated for purposes of this Agreement as a sale of a participation pursuant to clause (c) below. (c) Any Lender may at any time, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of its obligations hereunder, and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. Any agreement between such Lender and the Participant with respect to such participation shall provide that such Lender shall retain the sole right and responsibility to enforce this Agreement and the other Loan Documents and the right to approve any amendment, modification or waiver of this Agreement and the other Loan Documents; provided, that such participation agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver of this Agreement described in the first proviso of Section 9.2(b) that affects the Lender. The Borrower agrees that each Lender shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender hereunder and had acquired its interest by assignment pursuant to paragraph (b); provided, that no Participant shall be entitled to receive any greater payment under Section 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Lender unless the sale of such participation is made with the Borrower's prior written consent. To the extent permitted by law, the Borrower agrees that each Participant shall be entitled to the benefits of Section 2.16 as though it were a Lender, provided, that such Participant agrees to share with the Lenders the proceeds thereof in accordance with Section 2.16 as fully as if it were a Lender hereunder. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower is notified of such participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as though it were a Lender hereunder. (d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and its Notes (if any) to secure its obligations to a Federal Reserve Bank without complying with this Section; provided, that no such pledge or 40 45 assignment shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 9.5. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) This Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of Georgia. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the United States District Court of the Northern District of Georgia, and of any state court of the State of Georgia located in Fulton County and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Georgia state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law. SECTION 9.6. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN 41 46 INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.7. RIGHT OF SETOFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by such Lender to or for the credit or the account of the Borrower against any and all Obligations held by such Lender, as the case may be, irrespective of whether such Lender shall have made demand hereunder and although such Obligations may be unmatured. Each Lender agrees promptly to notify the Administrative Agent and the Borrower after any such set-off and any application made by such Lender; provided, that the failure to give such notice shall not affect the validity of such set-off and application. SECTION 9.8. COUNTERPARTS; INTEGRATION. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Administrative Agent constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. SECTION 9.9. SURVIVAL. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15, and 9.3 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, or the termination of this Agreement or any provision hereof. All representations and warranties made herein, in the certificates, reports, notices, and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Loans. SECTION 9.10. SEVERABILITY. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and 42 47 the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 9.11. CONFIDENTIALITY. Each of the Administrative Agent and each Lender agrees to take normal and reasonable precautions to maintain the confidentiality of any information designated in writing as confidential and provided to it by the Borrower or any Subsidiary, except that such information may be disclosed (i) to any Related Party of the Administrative Agent or any such Lender, including without limitation accountants, legal counsel and other advisors, (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to the extent requested by any regulatory agency or authority, (iv) to the extent that such information becomes publicly available other than as a result of a breach of this Section, or which becomes available to the Administrative Agent, any Lender or any Related Party of any of the foregoing on a nonconfidential basis from a source other than the Borrower, (v) in connection with the exercise of any remedy hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, and (ix) subject to provisions substantially similar to this Section 9.11, to any actual or prospective assignee or Lender, or (vi) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information. SECTION 9.12. INTEREST RATE LIMITATION. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the "CHARGES"), shall exceed the maximum lawful rate of interest (the "MAXIMUM RATE") which may be contracted for, charged, taken, received or reserved by a Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by such Lender. SECTION 9.13. CHANGE IN ACCOUNTING PRINCIPLES, FISCAL YEAR OR TAX LAWS. If (i) any preparation of the financial statements referred to in Section 5.1 hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accounts (or successors thereto or agencies with similar functions) result in a material change in the method of calculation of financial covenants, standards or terms found in this Agreement, (ii) there is any change in the Guarantor's fiscal quarter or fiscal year, or (iii) there is a material change in federal tax laws which materially affects any of the ability of the Loan Parties to comply with the financial covenants, standards or terms found in this Agreement, the Loan Parties and the Lenders agree to enter into negotiations in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating any of the financial 43 48 condition of the Loan Parties shall be the same after such changes as if such changes had not been made. Unless and until such provisions have been so amended, the provisions of this Agreement shall govern. (remainder of page left intentionally blank) 44 49 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BORROWER: AARON RENTS, INC. PUERTO RICO By ----------------------------------------- Name: Title: GUARANTOR: AARON RENTS, INC. By ----------------------------------------- Name: Title: ADMINISTRATIVE AGENT AND LENDERS SUNTRUST BANK, AS ADMINISTRATIVE AGENT AND AS A LENDER By ----------------------------------------- Name: Title: Term Loan Commitment: $5,000,000 FIRST UNION NATIONAL BANK By ----------------------------------------- Name: Title: Term Loan Commitment: $5,000,000 50 EXHIBIT A NOTE $ ___________ Atlanta, Georgia __________________,_________ FOR VALUE RECEIVED, the undersigned, AARON RENTS, INC. PUERTO RICO, a Puerto Rico corporation (the "BORROWER"), hereby promises to pay to _____________________ (the "LENDER") or its registered assigns, at the office of SunTrust Bank ("SUNTRUST") at 303 Peachtree St., N.E., Atlanta, Georgia 30308, on the Maturity Date, as defined in the Term Loan Agreement dated as of November ___, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, Aaron Rents, Inc., as Guarantor, the lenders from time to time party thereto and SunTrust, as administrative agent for the lenders, the aggregate unpaid principal amount of the Term Loan made by the Lender to the Borrower pursuant to the Credit Agreement, and the principal amount of the Term Loan made to the Borrower by the Lender pursuant to the Credit Agreement and payable to the Lender on such date as specified therein, in each case in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on such dates as provided in the Credit Agreement. In addition, should legal action or an attorney-at-law be utilized to collect any amount due hereunder, the Borrower further promises to pay all reasonable costs of collection, including the reasonable attorneys' fees of the Lender actually incurred. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at a rate or rates provided in the Credit Agreement. All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and the date thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligations of the Borrower to make the payments of principal and interest in accordance with the terms of this Note and the Credit Agreement. This Note is issued in connection with, and is entitled to the benefits of, the Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. THIS NOTE SHALL BE CONSTRUED IN Exhibit 3.1(b)(vii) 51 ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF GEORGIA AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. AARON RENTS, INC. PUERTO RICO By: ----------------------------------------- Name: Title: [SEAL] EX-13 7 g67848ex13.txt PORTIONS OF THE AARON RENTS, INC. 1 EXHIBIT 13 FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED (DOLLAR AMOUNTS IN THOUSANDS, DECEMBER 31, DECEMBER 31, PERCENTAGE EXCEPT PER SHARE) 2000 1999 CHANGE - ------------------------------------------------------------------------------------- Operating Results Revenues $ 502,920 $ 437,359 15.0% Earnings Before Taxes 43,906 41,302 6.3 Net Earnings 27,261 25,602 6.5 Earnings Per Share 1.38 1.28 7.8 Earnings Per Share Assuming Dilution 1.37 1.26 8.7 - ------------------------------------------------------------------------------------- Financial Position Total Assets $ 380,379 $ 318,408 19.5% Rental Merchandise, Net 267,713 219,831 21.8 Interest-Bearing Debt 104,769 72,760 44.0 Shareholders' Equity 208,538 183,718 13.5 Book Value Per Share 10.50 9.22 13.8 Debt to Capitalization 33.4% 28.4% Pre-Tax Profit Margin 8.7 9.4 Net Profit Margin 5.4 5.9 Return on Average Equity 13.9 14.5 - ------------------------------------------------------------------------------------- Stores Open Sales & Lease Ownership 263 213 23.5% Sales & Lease Ownership Franchised 193 155 24.5 Rent-to-Rent 98 107 (8.4) - ------------------------------------------------------------------------------------- Total Stores 554 475 16.6%
Revenues by calendar year [CHART] Net Earnings by calendar year [CHART] 2 SELECTED FINANCIAL INFORMATION
(DOLLAR AMOUNTS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED IN THOUSANDS DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, EXCEPT PER SHARE) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------ Operating Results Systemwide Revenues(1) $ 656,096 $ 547,255 $ 464,175 $ 364,306 $ 306,200 Revenues: Rentals & Fees $ 359,880 $ 318,154 $ 289,272 $ 231,207 $ 208,463 Sales 127,915 107,690 81,561 73,223 61,527 Other 15,125 11,515 8,826 6,321 4,255 ------------------------------------------------------------------------ 502,920 437,359 379,659 310,751 274,245 ------------------------------------------------------------------------ Costs & Expenses: Cost of Sales 105,152 87,705 62,017 55,914 46,168 Operating Expenses 227,587 201,923 189,719 149,728 135,012 Depreciation of Rental Merchandise 120,650 102,324 89,171 71,151 64,437 Interest 5,625 4,105 3,561 3,721 3,449 ------------------------------------------------------------------------ 459,014 396,057 344,468 280,514 249,066 ------------------------------------------------------------------------ Earnings Before Income Taxes 43,906 41,302 35,191 30,237 25,179 Income Taxes 16,645 15,700 13,707 11,841 9,786 ------------------------------------------------------------------------ Net Earnings $ 27,261 $ 25,602 $ 21,484 $ 18,396 $ 15,393 ------------------------------------------------------------------------ Earnings Per Share $ 1.38 $ 1.28 $ 1.06 $ .96 $ .81 Earnings Per Share Assuming Dilution 1.37 1.26 1.04 .94 .77 ------------------------------------------------------------------------ Dividends Per Share: Common $ .04 $ .04 $ .04 $ .04 $ .04 Class A .04 .04 .04 .04 .04 - ------------------------------------------------------------------------------------------------------ Financial Position Rental Merchandise, Net $ 267,713 $ 219,831 $ 194,163 $ 176,968 $ 149,984 Property, Plant & Equipment, Net 63,174 55,918 50,113 39,757 33,267 Total Assets 380,379 318,408 272,174 239,382 198,103 Interest-Bearing Debt 104,769 72,760 51,727 76,486 55,365 Shareholders' Equity 208,538 183,718 168,871 116,455 107,335 - ------------------------------------------------------------------------------------------------------ At Year End Stores Open: Company-Operated 361 320 291 292 240 Franchised 193 155 136 101 61 Rental Agreements in Effect 281,000 254,000 227,400 219,800 179,600 Number of Employees 3,900 3,600 3,400 3,100 2,550 - ------------------------------------------------------------------------------------------------------
(1) Systemwide revenues include rental revenues of franchised Aaron's Sales & Lease Ownership stores. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Year Ended December 31, 2000 versus Year Ended December 31, 1999 Total revenues for 2000 increased $65.6 million (15.0%) to $502.9 million compared to $437.4 million in 1999 due primarily to a $41.7 million (13.1%) increase in rentals and fees revenues, plus a $20.1 million (44.3%) increase in non-retail sales. Of this increase in rentals and fees revenues, $37.7 million was attributable to Aaron's Sales & Lease Ownership, the Company's rental purchase division. Rentals and fees revenues from the Company's rent-to-rent operations increased $4.0 million during the same period. Revenues from retail sales increased $121,000 (.2%) to $62.4 million in 2000, from $62.3 million for the same period last year. Non-retail sales, which primarily represent merchandise sold to Aaron's Sales & Lease Ownership franchisees, increased $20.1 million (44.3%) to $65.5 million compared to $45.4 million for the same period last year. The increased sales are due to the growth of the franchise operations. Other revenues for 2000 increased $3.6 million (31.4%) to $15.1 million compared to $11.5 million in 1999. This increase was attributable to franchise fee and royalty income increasing $3.3 million (36.3%) to $12.4 million compared to $9.1 million last year, reflecting the net addition of 38 new franchised stores in 2000 and improved operating revenues at mature franchised stores. Cost of sales from retail sales decreased $1.1 million (2.4%) to $44.2 million compared to $45.3 million, and as a percentage of sales, decreased to 70.7% from 72.6% primarily due to product mix. Cost of sales from non-retail sales increased $18.5 million (43.7%) to $61.0 million from $42.5 million, and as a percentage of sales, decreased to 93.1% from 93.5%. The increased margins on non-retail sales was primarily the result of slightly higher margins on certain products sold to franchisees. Operating expenses increased $25.7 million (12.7%) to $227.6 million from $201.9 million. As a percentage of total revenues, operating expenses were 45.3% in 2000 and 46.2% in 1999. Operating expenses decreased as a percentage of total revenues between years primarily due to increased revenues in the Aaron's Sales & Lease Ownership division. Depreciation of rental merchandise increased $18.3 million (17.9%) to $120.7 million, from $102.3 million, and as a percentage of total rentals and fees increased to 33.5% from 32.2% in 1999. The increase as a percentage of rentals and fees is primarily due to a greater percentage of the Company's rentals and fees coming from the Aaron's Sales & Lease Ownership division which depreciates its rental merchandise at a faster rate than the rent-to-rent division. Interest expense increased $1.5 million (37.0%) to $5.6 million compared to $4.1 million. As a percentage of total revenues, interest expense was 1.1% in 2000 compared to .9% in 1999. The increase in interest expense as a percentage of revenues was due to increased interest rates along with higher daily average debt levels. The Company manages its exposure to changes in short-term interest rates, particularly to reduce the impact on its floating-rate revolving credit facility, by entering into interest rate swap agreements. The counterparties to these contracts are high credit quality commercial banks. Consequently, credit risk, which is inherent in all swaps, has been minimized to a large extent. Interest expense is adjusted for the differential to be paid or received as interest rates change. The effect of such adjustments on interest expense has not been significant. The level of floating-rate debt fixed by swap agreements was $40.0 million during the year and the Company does not expect a significant change in this amount in 2001. Accordingly, the Company does not believe it has material exposure of potential near-term losses in future earnings, and/or cash flows from reasonably possible near-term changes in market rates. Income tax expense increased $945,000 (6.0%) to $16.6 million compared to $15.7 million. The Company's effective tax rate was 37.9% in 2000 compared to 38.0% in 1999. As a result, net earnings increased $1.7 million (6.5%) to $27.3 million for 2000 compared to $25.6 million for the same period in 1999. As a percentage of total revenues, net earnings were 5.4% in 2000 and 5.9% in 1999. The decrease in net earnings as a percentage of total revenues is the result of startup losses associated with the increased rate at which the Company opened new Aaron's Sales & Lease Ownership stores with 32 stores opened in 2000 compared to 17 in 1999. Year Ended December 31, 1999 versus Year Ended December 31, 1998 Total revenues for 1999 increased $57.7 million (15.2%) to $437.4 million compared to $379.7 million in 1998 due primarily to a $28.9 million (10.0%) increase in rentals and fees revenues, plus a $26.4 million (139.1%) increase in non-retail sales. Of this increase in rentals and fees revenues, $32.7 million was attributable to the Aaron's Sales & Lease Ownership division. Rentals and fees from the Company's rent-to-rent operations increased $2.0 million excluding $5.8 million of rentals and fees from the Company's convention furnishings division, which was sold in the fourth quarter of 1998. Revenues from retail sales decreased $280,000 (.4%) to $62.3 million in 1999 from $62.6 million for the same period in 1998. The decrease was the result of new sales in the rent-to-rent division decreasing and the discontinued sale of prepaid cellular air time in the rental purchase division. Non-retail sales, which primarily represent merchandise sold to Aaron's Sales & Lease Ownership franchisees, increased $26.4 million (139.1%) to $45.4 million compared to $19.0 million for the same period in 1998. The increased sales are due to the growth of the franchise operations coupled with the addition of a new distribution center. 4 Other revenues for 1999 increased $2.7 million (30.5%) to $11.5 million compared to $8.8 million in 1998. This increase was attributable to franchise fee and royalty income increasing $1.8 million (25.3%) to $9.1 million compared to $7.3 million in 1998, reflecting the net addition of 19 new franchised stores in 1999 and increasing operating revenues at mature franchised stores. Cost of sales from retail sales increased $868,000 (2.0%) to $45.3 million compared to $44.4 million, and as a percentage of sales, increased slightly to 72.6% from 70.9% primarily due to product mix. Cost of sales from non-retail sales increased $24.8 million (140.8%) to $42.5 million from $17.6 million, and as a percentage of sales, increased to 93.5% from 92.9%. The reduced margins on non-retail sales was primarily the result of lower margins on certain products sold to franchisees. Operating expenses increased $12.2 million (6.4%) to $201.9 million from $189.7 million. As a percentage of total revenues, operating expenses were 46.2% in 1999 and 50.0% in 1998. Operating expenses decreased as a percentage of total revenues between years primarily due to increased revenues in the Aaron's Sales & Lease Ownership division and the sale of the Company's convention furnishings division which had higher operating expenses than traditional rent-to-rent and rental purchase operations. Depreciation of rental merchandise increased $13.2 million (14.8%) to $102.3 million, from $89.2 million, and as a percentage of total rentals and fees, was 32.2% compared to 30.8% in 1998. The increase as a percentage of rentals and fees is primarily due to a greater percentage of the Company's rentals and fees coming from the Aaron's Sales & Lease Ownership division which depreciates its rental merchandise at a faster rate than the rent-to-rent division. Interest expense increased $544,000 (15.3%) to $4.1 million compared to $3.6 million. As a percentage of total revenues, interest expense remained unchanged at 0.9%. Income tax expense increased $2.0 million (14.5%) to $15.7 million compared to $13.7 million. The Company's effective tax rate was 38.0% in 1999 compared to 39.0% in 1998. As a result, net earnings increased $4.1 million (19.2%) to $25.6 million for 1999 compared to $21.5 million for the same period in 1998. As a percentage of total revenues, net earnings were 5.9% in 1999 and 5.7% in 1998. Liquidity and Capital Resources Cash flows from operations for the years ended December 31, 2000 and 1999 were $166.2 million and $140.3 million, respectively. Such cash flows include profits on the sale of rental return merchandise. The Company's primary capital requirements consist of acquiring rental merchandise for both rent-to-rent and Company-operated Aaron's Sales & Lease Ownership stores. As the Company continues to grow, the need for additional rental merchandise will continue to be the Company's major capital requirement. These capital requirements historically have been financed through bank credit, cash flow from operations, trade credit, proceeds from the sale of rental return merchandise and stock offerings. The Company has financed its growth through a revolving credit agreement with several banks, trade credit and internally generated funds. The revolving credit agreement provides for unsecured borrowings up to $90.0 million which includes a $6.0 million credit line to fund daily working capital requirements. At December 31, 2000, an aggregate of $90.0 million was outstanding under this facility, bearing interest at a weighted average variable rate of 7.04%. The Company uses interest rate swap agreements as part of its overall long-term financing program. At December 31, 2000, the Company had swap agreements with notional principal amounts of $40.0 million which effectively fixed the interest rates on an equal amount of the Company's revolving credit agreement at 6.93%. In 2000, the Company entered into a credit agreement with two banks providing for unsecured borrowings up to $10,000,000. At December 31, 2000 and aggregate of $10,000,000 bearing interest at libor plus 1.00% was outstanding under the agreement. The debt matures in 2001. In addition, the Company issued $4,200,000 of industrial development corporation revenue bonds. The average weighted borrowing rate on these bonds in 2000 was 4.55%. No principal payments are due on the bonds until maturity in 2015. On April 28, 1998, the Company issued through a public offering 2.1 million shares of Common Stock. The net proceeds to the Company after deducting underwriting discounts and offering expenses were $40.0 million. The proceeds were used to reduce bank debt. The Company believes that the expected cash flows from operations, proceeds from the sale of rental return merchandise, bank borrowings and vendor credit will be sufficient to fund the Company's capital and liquidity needs for at least the next 24 months. During 2000, 327,500 shares of the Company's stock were purchased at an aggregate cost of $4.6 million and the Company was authorized to purchase an additional 1,284,690 shares at December 31, 2000. The Company has paid dividends for fourteen consecutive years. A $.02 per share dividend on Common Stock and on Class A Common Stock was paid in January 2000 and July 2000, for a total fiscal year cash outlay of $792,000. The Company currently expects to continue its policy of paying dividends. 5 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, (IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999 - --------------------------------------------------------------------------------------- Assets Cash $ 95 $ 99 Accounts Receivable 23,637 21,030 Rental Merchandise 381,930 316,294 Less: Accumulated Depreciation (114,217) (96,463) ----------------------------- 267,713 219,831 Property, Plant & Equipment, Net 63,174 55,918 Prepaid Expenses & Other Assets 25,760 21,530 ----------------------------- Total Assets $ 380,379 $ 318,408 - --------------------------------------------------------------------------------------- Liabilities & Shareholders' Equity Accounts Payable & Accrued Expenses $ 34,693 $ 36,941 Dividends Payable 399 399 Deferred Income Taxes Payable 20,986 14,410 Customer Deposits & Advance Payments 10,994 10,180 Bank Debt 100,000 72,225 Other Debt 4,769 535 ----------------------------- Total Liabilities 171,841 134,690 Commitments & Contingencies Shareholders' Equity Common Stock, Par Value $.50 Per Share; Authorized: 25,000,000 Shares; Shares Issued: 18,270,987 9,135 9,135 Class A Common Stock, Par Value $.50 Per Share; Authorized: 25,000,000 Shares; Shares Issued: 5,361,761 2,681 2,681 Additional Paid-In Capital 53,662 54,181 Retained Earnings 185,782 159,313 ----------------------------- 251,260 225,310 Less: Treasury Shares at Cost, Common Stock, 2,230,446 Shares at December 31, 2000 & 2,177,956 Shares at December 31, 1999 (28,486) (27,356) Class A Common Stock, 1,532,255 Shares (14,236) (14,236) ----------------------------- Total Shareholders' Equity 208,538 183,718 ----------------------------- Total Liabilities & Shareholders' Equity $ 380,379 $ 318,408 - ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 6 CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED YEAR ENDED YEAR ENDED (IN THOUSANDS, DECEMBER 31, DECEMBER 31, DECEMBER 31, EXCEPT PER SHARE) 2000 1999 1998 - ------------------------------------------------------------------------------------ Revenues Rentals & Fees $ 359,880 $ 318,154 $ 289,272 Retail Sales 62,417 62,296 62,576 Non-Retail Sales 65,498 45,394 18,985 Other 15,125 11,515 8,826 -------------------------------------------- 502,920 437,359 379,659 - ------------------------------------------------------------------------------------ Costs & Expenses Retail Cost of Sales 44,156 45,254 44,386 Non-Retail Cost of Sales 60,996 42,451 17,631 Operating Expenses 227,587 201,923 189,719 Depreciation of Rental Merchandise 120,650 102,324 89,171 Interest 5,625 4,105 3,561 -------------------------------------------- 459,014 396,057 344,468 -------------------------------------------- Earnings Before Income Taxes 43,906 41,302 35,191 Income Taxes 16,645 15,700 13,707 -------------------------------------------- Net Earnings $ 27,261 $ 25,602 $ 21,484 -------------------------------------------- Earnings Per Share $ 1.38 $ 1.28 $ 1.06 Earnings Per Share Assuming Dilution 1.37 1.26 1.04 - ------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL TREASURY STOCK COMMON STOCK PAID-IN RETAINED (IN THOUSANDS) SHARES AMOUNT COMMON CLASS CAPITAL EARNINGS - ----------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 (2,583) $ (23,659) $ 8,085 $ 2,681 $ 15,484 $ 113,864 Stock Offering 1,050 38,908 Reacquired Shares (736) (10,560) Dividends (837) Reissued Shares 235 2,479 (108) Net Earnings 21,484 - ----------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 (3,084) (31,740) 9,135 2,681 54,284 134,511 Reacquired Shares (860) (12,673) Dividends (800) Reissued Shares 234 2,821 (103) Net Earnings 25,602 - ----------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 (3,710) (41,592) 9,135 2,681 54,181 159,313 Reacquired Shares (328) (4,625) Dividends (792) Reissued Shares 275 3,495 (519) Net Earnings 27,261 - ----------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 (3,763) $ (42,722) $ 9,135 $ 2,681 $ 53,662 $ 185,782 - -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 7 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 1998 ========================================================================================== Operating Activities Net Earnings $ 27,261 $ 25,602 $ 21,484 Depreciation & Amortization 133,109 112,746 98,090 Deferred Income Taxes 6,576 6,599 1,124 Change in Accounts Payable & Accrued Expenses (2,248) 3,480 3,109 Change in Accounts Receivable (2,607) (4,804) (4,432) Other Changes, Net 4,074 (3,330) 1,253 ---------------------------------------------- Cash Provided by Operating Activities 166,165 140,293 120,628 ========================================================================================== Investing Activities Additions to Property, Plant & Equipment (23,761) (21,030) (22,209) Book Value of Property Retired or Sold 7,326 5,833 3,521 Additions to Rental Merchandise (279,580) (218,933) (174,496) Book Value of Rental Merchandise Sold 115,601 95,840 69,018 Contracts & Other Assets Acquired (14,273) (11,393) (1,841) ---------------------------------------------- Cash Used by Investing Activities (194,687) (149,683) (126,007) ========================================================================================== Financing Activities Proceeds from Revolving Credit Agreement 198,403 180,213 157,622 Repayments on Revolving Credit Agreement (170,628) (158,399) (183,115) Proceeds from Common Stock Offering 39,958 Increase (Decrease) in Other Debt 4,234 (781) 734 Dividends Paid (792) (816) (801) Acquisition of Treasury Stock (4,625) (12,673) (10,560) Issuance of Stock under Stock Option Plans 1,926 1,850 1,540 ---------------------------------------------- Cash Provided by Financing Activities 28,518 9,394 5,378 (Decrease) Increase in Cash (4) 4 (1) Cash at Beginning of Year 99 95 96 ---------------------------------------------- Cash at End of Year $ 95 $ 99 $ 95 ---------------------------------------------- Cash Paid During the Year: Interest $ 5,674 $ 4,025 $ 4,082 Income Taxes 5,762 15,289 10,004 ==========================================================================================
The accompanying notes are an integral part of the Consolidated Financial Statements. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2000 and 1999, and for the Years Ended December 31, 2000, 1999 and 1998. Note A: Summary of Significant Accounting Policies BASIS OF PRESENTATION -- The consolidated financial statements include the accounts of Aaron Rents, Inc. and its wholly-owned subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. LINE OF BUSINESS -- The Company is engaged in the business of renting and selling residential and office furniture, consumer electronics, appliances and other merchandise throughout the U.S. and Puerto Rico. The Company manufactures furniture principally for its rental and sales operations. RENTAL MERCHANDISE consists primarily of residential and office furniture, consumer electronics, appliances and other merchandise and is recorded at cost. The sales & lease ownership division depreciates merchandise over the agreement period, generally 12 months, when on rent, and 36 months, when not on rent, to a 0% salvage value. This method is similar to a method referred to as the income forecasting method in the rental purchase industry. The rent-to-rent division depreciates merchandise over its estimated useful life which ranges from 6 months to 60 months, net of its salvage value which ranges from 0% to 60%. All rental merchandise is available for rental and sale. PROPERTY, PLANT AND EQUIPMENT are recorded at cost. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the respective assets, which are from 8 to 27 years for buildings and improvements and from 1 to 5 years for other depreciable property and equipment. Gains and losses related to dispositions and retirements are expensed as incurred. Maintenance and repairs are also expensed as incurred; renewals and betterments are capitalized. DEFERRED INCOME TAXES are provided for temporary differences between the amounts of assets and liabilities for financial and tax reporting purposes. Such temporary differences arise principally from the use of accelerated depreciation methods on rental merchandise for tax purposes. COST OF SALES includes the net book value of merchandise sold, primarily using specific identification in the sales & lease ownership division and first-in, first-out in the rent-to-rent division. It is not practicable to allocate operating expenses between selling and rental operations. SHIPPING AND HANDLING COSTS -- Shipping and handling costs are classified as operating expenses in the accompanying consolidated statements of operations and totaled approximately $17,397,000 in 2000, $15,129,000 in 1999 and $13,458,000 in 1998. ADVERTISING -- The Company expenses advertising costs as incurred. Such costs aggregated $11,937,000 in 2000, $12,496,000 in 1999, and $11,523,000 in 1998. STOCK BASED COMPENSATION -- The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations in accounting for its employee stock options and adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (FAS 123). The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant and, accordingly, recognizes no compensation expense for the stock option grants. Income tax benefits resulting from stock option exercises credited to additional paid-in capital totaled approximately $540,000, $867,000 and $830,000, in 2000, 1999 and 1998, respectively. EXCESS COSTS OVER NET ASSETS ACQUIRED -- Goodwill is amortized on a straight-line basis over a period of twenty years. Long-lived assets, including goodwill, are periodically reviewed for impairment based on an assessment of future operations. The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Measurement of an impairment loss is based on the estimated fair value of the asset. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts reflected in the consolidated balance sheets for cash, accounts receivable, bank and other debt approximate their respective fair values. REVENUE RECOGNITION -- Rental revenues are recognized as revenue in the month they are due. Rental payments received prior to the month due are recorded as deferred rental revenue. Revenues from the sale of residential and office furniture and other merchandise are recognized at the time of shipment. 9 NEW ACCOUNTING PRONOUNCEMENTS -- In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133). The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company adopted Statement 133 on January 1, 2001. The cumulative effect of this adoption had no significant effect on the Company's financial position or results of operations. Note B: Earnings Per Share Earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year which were 19,825,000 shares in 2000, 20,062,000 shares in 1999, and 20,312,000 in 1998. The computation of earnings per share assuming dilution includes the dilutive effect of stock options and awards. Such stock options and awards had the effect of increasing the weighted average shares outstanding assuming dilution by 142,000 in 2000, 273,000 in 1999 and 421,000 in 1998, respectively. Note C: Property, Plant & Equipment
DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 - -------------------------------------------------------------------------------- Land $ 8,977 $ 8,837 Buildings & Improvements 28,681 25,612 Leasehold Improvements & Signs 34,128 31,294 Fixtures & Equipment 25,786 24,622 Construction in Progress 2,051 1,043 --------------------------- 99,623 91,408 Less: Accumulated Depreciation & Amortization (36,449) (35,490) --------------------------- $ 63,174 $ 55,918 - --------------------------------------------------------------------------------
Note D: Debt BANK DEBT -- The Company has a revolving credit agreement with four banks providing for unsecured borrowings up to $90,000,000, which includes a $6,000,000 credit line to fund daily working capital requirements. Amounts borrowed bear interest at the lower of the lender's prime rate, LIBOR plus .50%, or the rate at which certificates of deposit are offered in the secondary market plus .625%. The pricing under the working capital line is based upon overnight bank borrowing rates. At December 31, 2000 and 1999, an aggregate of $90,000,000 (bearing interest at 7.04%) and $72,225,000 (bearing interest at 6.88%), respectively, was outstanding under this agreement. The Company pays a .22% commitment fee on unused balances. The weighted average interest rate on borrowings under the revolving credit agreement (before giving effect to interest rate swaps) was 7.07% in 2000, 5.94% in 1999 and 6.41% in 1998. The effects of interest rate swaps on the weighted average interest rate were not material. The Company has entered into interest rate swap agreements that effectively fix the interest rate on $20,000,000 of borrowings under the revolving credit agreement at an average rate of 7.0% until November 2003 and an additional $20,000,000 at an average rate of 6.85% until June 2005. These swap agreements involve the receipt of amounts when the floating rates exceed the fixed rates and the payment of amounts when the fixed rates exceed the floating rates in such agreements over the life of the agreements. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to the floating rate interest expense related to the debt. The related amount payable to or receivable from counterparties is included in accrued liabilities or other assets. Unrealized losses under the swap agreements aggregated $804,000 at December 31, 2000. The revolving credit agreement may be terminated on ninety days' notice by the Company or six months' notice by the lenders. The debt is payable in 60 monthly installments following the termination date if terminated by the lenders. The agreement requires that the Company not permit its consolidated net worth as of the last day of any fiscal quarter to be less than the sum of (a) $105,000,000 plus (b) 50% of the Company's consolidated 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS net income (but not loss) for the period beginning July 1, 1997 and ending on the last day of such fiscal quarter. It also places other restrictions on additional borrowings and requires the maintenance of certain financial ratios. At December 31, 2000, $61,640,000 of retained earnings were available for dividend payments and stock repurchases under the debt restrictions. In September 2000, the Company entered into a credit agreement with two banks providing for unsecured borrowings up to $10,000,000. At December 31, 2000 an aggregate of $10,000,000 bearing interest at LIBOR plus 1.00% was outstanding under the agreement. The debt matures in 2001. OTHER DEBT -- Other debt at December 31, 2000 of $4,769,000 is primarily comprised of $4,200,000 of industrial development corporation revenue bonds. The average weighted borrowing rate on these bonds in 2000 was 4.55%. No principal payments are due on the bonds until maturity in 2015. Note E: Income Taxes
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 1998 - --------------------------------------------------------------------------------- Current Income Tax Expense: Federal $ 9,461 $ 8,020 $ 11,422 State 608 1,081 1,161 -------------------------------------------- 10,069 9,101 12,583 Deferred Income Tax Expense: Federal 5,520 5,989 949 State 1,056 610 175 -------------------------------------------- 6,576 6,599 1,124 -------------------------------------------- $ 16,645 $ 15,700 $ 13,707 - ---------------------------------------------------------------------------------
Significant components of the Company's deferred income tax liabilities and assets are as follows:
DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 - ----------------------------------------------------------------------------- Deferred Tax Liabilities: Rental Merchandise and Property, Plant & Equipment $ 25,770 $ 19,345 Other, Net 1,531 577 --------------------------- Total Deferred Tax Liabilities 27,301 19,922 Deferred Tax Assets: Accrued Liabilities 1,324 961 Advance Payments 3,179 2,858 Other, Net 1,812 1,693 --------------------------- Total Deferred Tax Assets 6,315 5,512 --------------------------- Net Deferred Tax Liabilities $ 20,986 $ 14,410 - -----------------------------------------------------------------------------
The Company's effective tax rate differs from the federal income tax statutory rate as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 - ----------------------------------------------------------------------------------- Statutory Rate 35.0% 35.0% 35.0% Increases in Taxes Resulting From: State Income Taxes, Net of Federal Income Tax Benefit 2.5 2.7 2.4 Other, Net 0.4 0.3 1.6 ---------------------------------------------- Effective Tax Rate 37.9% 38.0% 39.0% - -----------------------------------------------------------------------------------
11 Note F: Commitments The Company leases warehouse and retail store space for substantially all of its operations under operating leases expiring at various times through 2013. Most of the leases contain renewal options for additional periods ranging from 1 to 15 years or provide for options to purchase the related property at predetermined purchase prices which do not represent bargain purchase options. The Company also leases transportation equipment under operating leases expiring during the next 3 years. Management expects that most leases will be renewed or replaced by other leases in the normal course of business. Future minimum rental payments, including guaranteed residual values, required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2000, are as follows: $28,238,000 in 2001; $19,892,000 in 2002; $14,388,000 in 2003; $10,558,000 in 2004; $9,252,000 in 2005; and $6,404,000 thereafter. Rental expense was $30,659,000 in 2000; $28,851,000 in 1999; and $25,563,000 in 1998. The Company leases one building from an officer of the Company under a lease expiring in 2008 for annual rentals aggregating $212,700. The Company maintains a 401(k) savings plan for all full-time employees with at least one year of service with the Company and who meet certain eligibility requirements. The plan allows employees to contribute up to 10% of their annual compensation with 50% matching by the Company on the first 4% of compensation. The Company's expense related to the plan was $427,000 in 2000; $447,000 in 1999; and $415,000 in 1998. Note G: Shareholders' Equity In February 1999, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's Common Stock and/or Class A Common Stock. During 2000, 327,500 shares of the Company's common shares were purchased at an aggregate cost of $4,625,000 and the Company was authorized to purchase an additional 1,284,690 at December 31, 2000. At December 31, 2000, the Company held a total of 3,762,701 common shares in its treasury. On April 28, 1998, the Company issued, through a public offering, 2,100,000 shares of Common Stock. The net proceeds to the Company after deducting underwriting discounts and offering expenses were $39,958,000. The net proceeds were used to reduce indebtedness and for general business purposes. The Company has 1,000,000 shares of preferred stock authorized. The shares are issuable in series with terms for each series fixed by the Board and such issuance is subject to approval by the Board of Directors. No preferred shares have been issued. Note H: Stock Options The Company has stock option plans under which options to purchase shares of the Company's Common Stock are granted to certain key employees. Under the plans, options granted become exercisable after a period of two or three years and unexercised options lapse five or ten years after the date of the grant. Options are subject to forfeiture upon termination of service. Under the plans, 1,425,000 of the Company shares are reserved for issuance at December 31, 2000. The weighted average fair value of options granted was $8.11 in 2000, $9.55 in 1999 and $9.26 in 1998. Pro forma information regarding net earnings and earnings per share is required by FAS 123, and has been determined as if the Company had accounted for its employee stock options granted in 2000, 1999 and 1998 under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of 6.47%, 6.36% and 5.36%, a dividend yield of .28%, .23% and .26%; a volatility factor of the expected market price of the Company's Common Stock of .45, .42 and .43; and a weighted average expected life of the option of 8 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
YEARS ENDED DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE) 2000 1999 1998 - ----------------------------------------------------------------------------------------- Pro Forma Net Earnings $25,910 $24,424 $20,076 Pro Forma Earnings Per Share 1.31 1.22 .99 Pro Forma Earnings Per Share Assuming Dilution 1.30 1.20 .97 - -----------------------------------------------------------------------------------------
The table below summarizes option activity for the periods indicated in the Company's stock option plans.
WEIGHTED AVERAGE EXERCISE (IN THOUSANDS EXCEPT PER SHARE) OPTIONS PRICE - ----------------------------------------------------------------------------------------- Outstanding at December 31, 1997 1,585 $10.07 Granted 133 16.73 Exercised (235) 6.53 Forfeited (101) 15.47 - ---------------------------------------------------------------------------------------- Outstanding at December 31, 1998 1,382 10.92 Granted 230 16.74 Exercised (233) 7.91 Forfeited (77) 16.33 - ---------------------------------------------------------------------------------------- Outstanding at December 31, 1999 1,302 12.17 Granted 405 13.73 Exercised (235) 8.22 Forfeited (95) 16.18 - ---------------------------------------------------------------------------------------- Outstanding at December 31, 2000 1,377 13.02 - ---------------------------------------------------------------------------------------- Exercisable at December 31, 2000 726 $11.38 - ----------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at December 31, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------ ---------------------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED NUMBER REMAINING AVERAGE NUMBER AVERAGE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE RANGE OF EXERCISE PRICES DECEMBER 31, 2000 LIFE PRICE DECEMBER 31, 2000 PRICE - ------------------------------------------------------------------ ---------------------------------------------- $ 9.87 - $10.00 544,500 5.27 years $ 9.88 544,500 $9.88 $10.01 - $15.00 449,500 9.18 years 13.49 $15.01 - $20.25 383,250 8.16 years 16.94 182,000 15.94 - ------------------------------------------------------------------ ---------------------------------------------- $ 9.87 - $20.25 1,377,250 7.19 years $13.02 726,500 $11.38 - ------------------------------------------------------------------ ----------------------------------------------
13 Note I: Franchising of Aaron's Sales & Lease Ownership Stores The Company franchises Aaron's Sales & Lease Ownership stores. As of December 31, 2000 and December 31, 1999, 339 and 277 franchises had been awarded, respectively. Franchisees pay a non-refundable initial franchise fee of $35,000 and an ongoing royalty of 5% of cash receipts. Franchise fees and area development franchise fees are generated from the sale of rights to develop, own and operate Aaron's Sales & Lease Ownership stores. These fees are recognized when substantially all of the Company's obligations per location are satisfied (generally at the date of the store opening). Franchise fees and area development fees received prior to the substantial completion of the Company's obligations are deferred. The Company includes this income in Other Revenues in the Consolidated Statement of Earnings. The Company has guaranteed certain debt obligations of some of the franchisees amounting to $39,127,000 at December 31, 2000. The Company receives a guarantee and servicing fee based on such franchisees' outstanding debt obligations which it recognizes as income as earned. The Company has recourse rights to the assets securing the debt obligations. As a result, the Company does not expect to incur any significant losses under these guarantees. Note J: Acquisitions and Dispositions During 1998, the Company acquired five rental purchase stores from a franchisee and acquired a lamp designer and manufacturer, Lamps Forever, Inc. The aggregate purchase price of these 1998 acquisitions was not significant. In 1999, the Company acquired 18 rental purchase stores with an aggregate purchase price of $10,252,000. The excess cost over the fair market value of tangible assets acquired was approximately $5,985,000. Also in 1999, the Company acquired two rent-to-rent stores. The aggregate purchase price of these 1999 acquisitions was not significant. During 2000, the Company acquired 20 rental purchase stores including nine stores purchased from franchisees and 10 stores located in Puerto Rico. The aggregate purchase price of these 2000 acquisitions was $14,273,000 and the excess cost over the fair market value of tangible assets acquired was approximately $7,150,000. These acquisitions were accounted for under the purchase method and, accordingly, the results of operations of the acquired businesses are included in the Company's results of operations from their dates of acquisition. The effect of these acquisitions on the 2000, 1999 and 1998 consolidated financial statements was not significant. In October 1998, the Company sold substantially all of the assets of its convention furnishings division. In 2000, the Company sold four of its rent-to-rent stores and an additional four in 1999. The effect of these sales on the consolidated financial statements was not significant. Note K: Segments DESCRIPTION OF PRODUCTS AND SERVICES OF REPORTABLE SEGMENTS Aaron Rents, Inc. has four reportable segments: sales & lease ownership, rent-to-rent, franchise and manufacturing. The sales & lease ownership division offers electronics, residential furniture and appliances to consumers primarily on a monthly payment basis with no credit requirements. The rent-to-rent division rents and sells residential and office furniture to businesses and consumers who meet certain minimum credit requirements. The Company's franchise operation sells and supports franchises of its sales & lease ownership concept. The manufacturing division manufactures upholstery, office furniture, lamps and accessories, and bedding predominantly for use by the other divisions. The principal source of revenue in the "Other" category was the Company's convention furnishings division which was sold during 1998. MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS The Company evaluates performance and allocates resources based on revenue growth and pre-tax profit or loss from operations. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies except that the sales & lease ownership division revenues and certain other items are presented on a cash basis. Intersegment sales are completed at internally negotiated amounts ensuring competitiveness with outside vendors. Since the intersegment profit and loss affect inventory valuation, depreciation and cost of goods sold are adjusted when intersegment profit is eliminated in consolidation. FACTORS USED BY MANAGEMENT TO IDENTIFY THE REPORTABLE SEGMENTS Aaron Rents, Inc.'s reportable segments are business units that service different customer profiles using distinct payment arrangements. The reportable segments are each managed separately because of differences in both customer base and infrastructure. 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information on segments and a reconciliation to earnings before income taxes are as follows:
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------- Revenues From External Customers: Sales & Lease Ownership $ 312,921 $ 252,284 $ 193,283 Rent-to-Rent 174,918 173,579 173,657 Franchise 12,621 9,079 7,209 Other 4,057 1,551 5,470 Manufacturing 54,340 54,550 52,628 Elimination of Intersegment Revenues (54,807) (53,941) (52,067) Cash to Accrual Adjustments (1,130) 257 (521) ----------------------------------------------- Total Revenues From External Customers $ 502,920 $ 437,359 $ 379,659 ----------------------------------------------- Earnings Before Income Taxes: Sales & Lease Ownership $ 19,527 $ 20,630 $ 11,668 Rent-to-Rent 16,346 14,369 19,565 Franchise 7,484 5,042 3,607 Other (943) (1,072) (744) Manufacturing 728 717 1,068 ----------------------------------------------- Earnings Before Income Taxes For Reportable Segments 43,142 39,686 35,164 Elimination of Intersegment Profit (441) (357) (901) Cash to Accrual Adjustments (804) 855 (344) Other Allocations & Adjustments 2,009 1,118 1,272 ----------------------------------------------- Total Earnings Before Income Taxes $ 43,906 $ 41,302 $ 35,191 ----------------------------------------------- Assets: Sales & Lease Ownership $ 205,043 $ 139,177 $ 103,930 Rent-to-Rent 128,163 138,349 138,734 Franchise 12,961 10,755 5,415 Other 17,485 16,097 9,286 Manufacturing 16,727 14,030 14,809 ----------------------------------------------- Total Assets $ 380,379 $ 318,408 $ 272,174 ----------------------------------------------- Depreciation & Amortization: Sales & Lease Ownership $ 97,139 $ 78,385 $ 67,401 Rent-to-Rent 34,557 32,946 29,327 Franchise 412 347 276 Other 354 492 562 Manufacturing 647 576 524 ----------------------------------------------- Total Depreciation & Amortization $ 133,109 $ 112,746 $ 98,090 ----------------------------------------------- Interest Expense: Sales & Lease Ownership $ 2,750 $ 1,702 $ 2,826 Rent-to-Rent 2,496 2,317 1,698 Franchise 144 117 48 Other 235 (31) (1,011) Manufacturing 406 Elimination of Intersegment Allocations (406) ----------------------------------------------- Total Interest Expense $ 5,625 $ 4,105 $ 3,561 - --------------------------------------------------------------------------------------------------------------
15 Note L: Quarterly Financial Information (Unaudited)
FIRST SECOND THIRD FOURTH (IN THOUSANDS EXCEPT PER SHARE) QUARTER QUARTER QUARTER QUARTER - ---------------------------------------------------------------------------------------- Year Ended December 31, 2000 Revenues $125,372 $121,910 $124,850 $130,788 Gross Profit 65,660 64,357 64,818 67,158 Earnings Before Taxes 11,741 11,177 10,799 10,189 Net Earnings 7,278 6,929 6,706 6,348 Earnings Per Share $ .37 $ .35 $ .34 $ .32 Earnings Per Share Assuming Dilution .36 .35 .34 .32 - ---------------------------------------------------------------------------------------- Year Ended December 31, 1999 Revenues $104,303 $107,364 $109,379 $116,313 Gross Profit 57,706 59,246 59,340 59,523 Earnings Before Taxes 10,779 10,615 9,860 10,048 Net Earnings 6,679 6,575 6,108 6,240 Earnings Per Share $ .33 $ .33 $ .30 $ .32 Earnings Per Share Assuming Dilution .33 .32 .30 .31 - ----------------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Aaron Rents, Inc.: We have audited the accompanying consolidated balance sheets of Aaron Rents, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, shareholders' equity and cash flows for the years ended December 31, 2000, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aaron Rents, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years ended December 31, 2000, 1999 and 1998, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Atlanta, Georgia February 19, 2001 16 COMMON STOCK MARKET PRICES & DIVIDENDS The following table shows, for the periods indicated, the range of high and low prices per share for the Common Stock and Class A Common Stock and the cash dividends declared per share. The Company's Common Stock and Class A Common Stock are listed on the New York Stock Exchange under the symbols "RNT" and "RNT.A," respectively. The approximate number of shareholders of the Company's Common Stock and Class A Common Stock at March 15, 2001, was 4,000. The closing price for the Common Stock and Class A Common Stock on March 15, 2001, was $15.65 and $15.35, respectively.
CASH DIVIDENDS CLASS A COMMON STOCK HIGH LOW PER SHARE - ----------------------------------------------------------------- December 31, 2000 First Quarter $17.89 $13.46 Second Quarter 14.96 11.45 .02 Third Quarter 15.48 12.61 Fourth Quarter 18.00 11.74 .02 - ----------------------------------------------------------------- December 31, 1999 First Quarter $17.00 $12.88 Second Quarter 22.25 15.06 .02 Third Quarter 22.00 16.50 Fourth Quarter 20.00 15.25 .02 - -----------------------------------------------------------------
CASH DIVIDENDS CLASS A COMMON STOCK HIGH LOW PER SHARE - ----------------------------------------------------------------- December 31, 2000 First Quarter $18.58 $16.46 Second Quarter 17.08 14.59 .02 Third Quarter 16.10 15.35 Fourth Quarter 15.92 13.44 .02 - ----------------------------------------------------------------- December 31, 1999 First Quarter $15.50 $11.63 Second Quarter 18.00 11.88 .02 Third Quarter 18.56 14.75 Fourth Quarter 20.00 14.75 .02 - -----------------------------------------------------------------
STORE LOCATION MAP [MAP] At December 31, 2000 - - Company-Operated Sales & Lease Ownership 263 - - Franchised Sales & Lease Ownership 193 - - Rent-to-Rent 98 ------ Total Stores 554 - -------------------------------------------------- - - Manufacturing & Distribution Centers 17 EX-21 8 g67848ex21.txt SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION - ---- ---------------------- Aaron Investment Company Delaware Aaron Rents, Inc. Puerto Rico Commonwealth of Puerto Rico
EX-23 9 g67848ex23.txt CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Aaron Rents, Inc. of our report dated February 19, 2001, included in the 2000 Annual Report to Shareholders of Aaron Rents, Inc. We also consent to the incorporation by reference in the Registration Statements of Aaron Rents, Inc. listed below of our report dated February 19, 2001, with respect to the consolidated financial statements of Aaron Rents, Inc. incorporated by reference or included in the Annual Report (Form 10-K) for the year ended December 31, 2000. - - Registration Statement No. 33-9026 on Form S-8 pertaining to the Aaron Rents, Inc. Retirement Plan and Trust - - Registration Statement No. 33-62538 on Form S-8 pertaining to the Aaron Rents, Inc. Retirement Plan and Trust - - Registration No. 333-33363 on Form S-8 pertaining to the Aaron Rents, Inc. 1996 Stock Option Incentive Award Plan. /s/Ernst & Young LLP Atlanta, Georgia March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----