Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 2001
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission File No. 1-3548
ALLETE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0418150
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30 WEST SUPERIOR STREET, DULUTH, MINNESOTA 55802-2093
(Address of principal executive offices including zip code)
(218) 279-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH STOCK EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------------
Common Stock, without par value New York Stock Exchange
8.05% Cumulative Quarterly Income
Preferred Securities of ALLETE
Capital I, a subsidiary of ALLETE New York Stock Exchange
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. /X/
The aggregate market value of voting stock held by nonaffiliates on January 28,
2002 was $2,205,233,476.
As of January 28, 2002 there were 84,060,127 shares of ALLETE Common Stock,
without par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders are
incorporated by reference in Part III.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 7
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
DEFINITIONS ............................................................... 9
SAFE HARBOR STATEMENT ..................................................... 10
PART I
Item 1. Business ......................................................... 11
Energy Services .................................................. 12
Retail Electric Sales ....................................... 13
Purchased Power and Capacity Sales .......................... 14
Fuel ........................................................ 14
Wholesale Electric Sales .................................... 15
Regulatory Issues ........................................... 16
Competition ................................................. 17
Franchises .................................................. 17
Environmental Matters ....................................... 17
Automotive Services .............................................. 19
Competition ................................................. 21
Environmental Matters ....................................... 21
Investments and Corporate Charges ................................ 22
Environmental Matters ....................................... 22
Executive Officers of the Registrant ............................. 23
Item 2. Properties ....................................................... 24
Item 3. Legal Proceedings ................................................ 24
Item 4. Submission of Matters to a Vote of Security
Holders .......................................................... 24
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters .................................. 24
Item 6. Selected Financial Data .......................................... 25
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................................... 27
Consolidated Overview ............................................ 27
Net Income ....................................................... 27
2001 Compared to 2000 ............................................ 28
2000 Compared to 1999 ............................................ 29
Outlook .......................................................... 29
Liquidity and Capital Resources .................................. 31
Capital Requirements ............................................. 33
Market Risk ...................................................... 34
New Accounting Standards ......................................... 34
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk ................................................ 35
Item 8. Financial Statements and Supplementary
Data ............................................................. 35
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure ....................................................... 35
PART III
Item 10. Directors and Executive Officers
of the Registrant ................................................ 35
Item 11. Executive Compensation ........................................... 35
Item 12. Security Ownership of Certain Beneficial
Owners and Management ............................................ 35
Item 13. Certain Relationships and Related
Transactions ..................................................... 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K .............................................. 36
SIGNATURES ................................................................ 40
CONSOLIDATED FINANCIAL STATEMENTS ......................................... 41
---------------------------------------------------------------------------
8 ALLETE 2001 Form 10-K
DEFINITIONS
DEFINITIONS
The following abbreviations or acronyms are used in the text.
ABBREVIATION
OR ACRONYM TERM
- --------------------------------------------------------------------------------
ACE ACE Limited
ADESA ADESA Corporation
ADESA Canada ADESA Canada Inc.
ADESA Importation ADESA Importation Services, Inc.
AFC Automotive Finance Corporation
ALLETE ALLETE, Inc. and its subsidiaries
APC Auto Placement Center
AutoVIN AutoVIN, Inc.
Blandin Paper Blandin Paper Company
BNI Coal BNI Coal, Ltd.
Boswell Boswell Energy Center
CAG Canadian Auction Group
Cape Coral Holdings Cape Coral Holdings, Inc.
Capital Re Capital Re Corporation
CIP Conservation Improvement Program(s)
Cleveland-Cliffs Cleveland-Cliffs Inc.
Company ALLETE, Inc. and its subsidiaries
ComSearch ComSearch, Inc.
EBITDAL Earnings Before Interest, Taxes,
Depreciation, Amortization and
Lease Expense
EndTrust EndTrust Lease End Services, LLC
Enventis Telecom Enventis Telecom, Inc.
EPA Environmental Protection Agency
ESOP Employee Stock Ownership Plan
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Florida Water Florida Water Services Corporation
Form 8-K ALLETE Current Report on Form 8-K
Form 10-K ALLETE Annual Report on Form 10-K
Form 10-Q ALLETE Quarterly Report on Form 10-Q
FPSC Florida Public Service Commission
Great River Great River Energy
Heater Heater Utilities, Inc.
Hibbard M.L. Hibbard Station
Impact Auto Impact Auto Auctions Ltd. and
Suburban Auto Parts Inc., collectively
Invest Direct ALLETE's Direct Stock Purchase and
Dividend Reinvestment Plan
kWh Kilowatthour(s)
kV Kilovolt(s)
Laskin Laskin Energy Center
Lehigh Lehigh Acquisition Corporation
LTV LTV Steel Mining Co.
Manheim Manheim Auctions, Inc.
MAPP Mid-Continent Area Power Pool
MBtu Million British thermal units
Minnesota Power An operating division of ALLETE, Inc.
Minnkota Power Minnkota Power Cooperative, Inc.
MISO Midwest Independent Transmission
System Operator Inc.
MP Telecom Minnesota Power Telecom, Inc.
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
MWh Megawatthour(s)
NCUC North Carolina Utilities Commission
Note___ Note___ to the consolidated financial
statements indexed in Item 14(a) of
this Form 10-K
NPDES National Pollutant Discharge
Elimination System
PAR PAR, Inc.
PSCW Public Service Commission of
Wisconsin
Rainy River Energy Rainy River Energy Corporation
SFAS Statement of Financial Accounting
Standards No.
Split Rock Energy Split Rock Energy LLC
Square Butte Square Butte Electric Cooperative
SWL&P Superior Water, Light and Power
Company
WPPI Wisconsin Public Power, Inc.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 9
SAFE HARBOR STATEMENT
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, we are hereby filing cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) made by or on
behalf of ALLETE in this Annual Report on Form 10-K, in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "anticipates," "believes," "estimates," "expects," "intends,"
"plans," "projects," "will likely result," "will continue" or similar
expressions) are not statements of historical facts and may be forward-looking.
Forward-looking statements involve estimates, assumptions, risks and
uncertainties and are qualified in their entirety by reference to, and are
accompanied by, the following important factors, which are difficult to predict,
contain uncertainties, are beyond our control and may cause actual results or
outcomes to differ materially from those contained in forward-looking
statements:
- war and acts of terrorism;
- prevailing governmental policies and regulatory actions, including
those of the United States Congress, state legislatures, the FERC, the
MPUC, the FPSC, the NCUC, the PSCW and various county regulators, about
allowed rates of return, financings, industry and rate structure,
acquisition and disposal of assets and facilities, operation and
construction of plant facilities, recovery of purchased power and
capital investments, and present or prospective wholesale and retail
competition (including but not limited to transmission costs) as well
as general vehicle-related laws, including vehicle brokerage and
auction laws;
- unanticipated impacts of restructuring initiatives in the electric
industry;
- economic and geographic factors, including political and economic
risks;
- changes in and compliance with environmental and safety laws and
policies;
- weather conditions;
- population growth rates and demographic patterns;
- the effects of competition, including competition for retail and
wholesale customers, as well as suppliers and purchasers of
automobiles;
- pricing and transportation of commodities;
- market demand, including structural market changes;
- changes in tax rates or policies or in rates of inflation;
- unanticipated project delays or changes in project costs;
- unanticipated changes in operating expenses and capital expenditures;
- capital market conditions;
- competition for economic expansion or development opportunities;
- our ability to manage expansion and integrate recent acquisitions; and
- legal and administrative proceedings (whether civil or criminal) and
settlements that affect the business and profitability of ALLETE.
Any forward-looking statement speaks only as of the date on which such statement
is made, and we undertake no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which that statement is
made or to reflect the occurrence of unanticipated events. New factors emerge
from time to time and it is not possible for management to predict all of these
factors, nor can it assess the impact of each of these factors on the businesses
of ALLETE or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statement.
---------------------------------------------------------------------------
10 ALLETE 2001 Form 10-K
PART I
ITEM 1. BUSINESS
ALLETE is a diversified company incorporated under the laws of Minnesota since
1906. References in this report to "we" and "our" are to ALLETE and its
subsidiaries, collectively.
Our core operations in 42 states and nine Canadian provinces focus on two
segments:
ENERGY SERVICES includes electric and gas services, coal mining and
telecommunications; and
AUTOMOTIVE SERVICES includes a network of wholesale and "total loss" vehicle
auctions, a finance company, a vehicle remarketing company, a company that
provides vehicle inspection services to the automotive industry and its lenders,
and a company that provides Internet-based parts location and insurance claim
audit services nationwide.
Under INVESTMENTS AND CORPORATE CHARGES we capture our real estate operations,
investments in emerging technologies related to the electric utility industry, a
securities portfolio and corporate charges. Corporate charges represent general
corporate expenses, including interest, not specifically related to any one
business segment.
In September 2001 we initiated a strategic review of all of the Company's
businesses to identify ways of unlocking shareholder value not reflected in the
price of our common stock. During the review process certain businesses were
identified as having more value to potential purchasers than to us and have been
included in discontinued operations. Discontinued operations include water and
wastewater services in Florida, North Carolina and Georgia and our auto
transport company.
We anticipate selling our auto transport company by the end of first quarter
2002 and our Water Services businesses before the end of 2002. We anticipate
selling our Water Services businesses at a significant gain, providing us with
additional liquidity and financial strength. Net proceeds from these sales will
be used to fund growth initiatives and may be used to pay down debt.
As of December 31, 2001 we had approximately 14,000 employees, 4,000 of which
were part time.
In 2001 Energy Services purchased the electric generating facilities of LTV
(Taconite Harbor Energy Center) and is working to complete maintenance
activities and restart 225 MW of generation in the first half of 2002. In 2001
we initiated permitting for a planned 225-MW co-generation energy facility
adjacent to the Blandin Paper facility in Grand Rapids, Minnesota and the
proposed addition of 160 MW of generation in Wisconsin. Energy Services also
received significant regulatory approvals during 2001 to construct in
partnership with Wisconsin Public Service Corporation a 220-mile, 345-kV
transmission line from Duluth, Minnesota to Wausau, Wisconsin. In July 2001
Energy Services added Enventis Telecom, an integrated data services provider, to
its telecommunications business. (See Energy Services.)
In 2001 Automotive Services acquired one wholesale auction facility and
increased its "total loss" vehicle auctions by 13. These additions combined with
the acquisition of ComSearch, which provides Internet-based parts location and
insurance claim audit services, established ADESA as the third largest provider
of "total loss" vehicle services in North America.
In 2001 Investments reported record sales by its real estate operations.
YEAR ENDED DECEMBER 31 2001 2000 1999
- ----------------------------------------------------------------------------
CONSOLIDATED OPERATING
REVENUE - Millions $1,528 $1,190 $996
PERCENTAGE OF CONSOLIDATED
OPERATING REVENUE
ENERGY SERVICES
Retail
Industrial
Taconite Producers 10% 14% 15%
Paper and Wood Products 4 5 6
Pipelines and Other Industries 3 3 3
- ----------------------------------------------------------------------------
Total Industrial 17 22 24
Residential 5 6 6
Commercial 5 6 7
Sales to Other Power Suppliers 4 5 8
Other Revenue 10 10 11
- ----------------------------------------------------------------------------
Total Energy Services 41 49 56
AUTOMOTIVE SERVICES 54 44 38
INVESTMENTS 5 7 6
- ----------------------------------------------------------------------------
100% 100% 100%
- ----------------------------------------------------------------------------
For a detailed discussion of results of operations and trends, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations. For business segment information, see Notes 1 and 2.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 11
ENERGY SERVICES
The businesses we include in Energy Services generate, transmit, distribute,
market and trade electricity. Coal mining and telecommunications are also
included. The discussion below summarizes the major businesses we include in
Energy Services. Statistical information is presented as of December 31, 2001.
All subsidiaries are wholly owned unless otherwise specifically indicated.
MINNESOTA POWER, a division of ALLETE, provides electricity in a 26,000 square
mile electric service territory located in northeastern Minnesota. Minnesota
Power supplies retail electric service to 131,000 customers and wholesale
electric service to 16 municipalities. SWL&P sells electricity and natural gas,
and provides water service in northwestern Wisconsin. SWL&P has 14,000 electric
customers, 12,000 natural gas customers and 10,000 water customers.
Minnesota Power had an annual net peak load of 1,376 MW on January 2, 2001. Our
power supply sources are shown below.
We have electric transmission and distribution lines of 500 kV (8 miles), 230 kV
(606 miles), 161 kV (43 miles), 138 kV (66 miles), 115 kV (1,259 miles) and less
than 115 kV (6,550 miles). We own and operate 178 substations with a total
capacity of 8,550 megavoltamperes. Some of our transmission and distribution
lines interconnect with other utilities.
We own offices and service buildings, an energy control center, and repair
shops, and lease offices and storerooms in various localities. Substantially all
of our electric plant is subject to mortgages which collateralize our
outstanding first mortgage bonds. Generally, our properties are held by the
Company in fee and are free from other encumbrances, subject to minor
exceptions. Some of our electric lines are located on land not owned in fee, but
are covered by necessary permits of governmental authorities or by appropriate
easement rights. WPPI owns 20% of Boswell Unit 4. WPPI has the right to use our
transmission line facilities to transport its share of generation. (See Note
14.)
In January 2002 Minnesota Power announced MPEX, our power marketing and trading
division which buys and sells capacity and energy in the wholesale power market,
will be transferred to Split Rock Energy. The transfer, which is expected to
occur in March 2002, will facilitate Split Rock Energy's plans to grow by adding
new members and providing trading and related services to others. Split Rock
Energy currently contracts for wholesale power marketing and trading services
exclusively from MPEX. During 2000 Minnesota Power and Great River formed Split
Rock Energy. With headquarters in Elk River, Minnesota, Great River is a
consumer-owned generation and transmission cooperative and is Minnesota's second
largest utility in terms of generating capacity. Split Rock Energy combines the
two companies' power supply capabilities and customer loads for power pool
operations and generation outage protection. Ownership of generation assets and
current customer supply arrangements have not changed for either company. Split
Rock Energy will continue to have access to members' resources, assets and
financial support.
FOR THE YEAR ENDED
UNIT YEAR NET WINTER DECEMBER 31, 2001
POWER SUPPLY NO. INSTALLED CAPABILITY ELECTRIC REQUIREMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
MW MWh %
Steam
Coal-Fired
Boswell Energy Center
near Grand Rapids, MN 1 1958 69
2 1960 69
3 1973 351
4 1980 425
- ----------------------------------------------------------------------------------------------------------------------------------
914 6,154,537 52.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Laskin Energy Center in Hoyt Lakes, MN 1 1953 55
2 1953 55
- ----------------------------------------------------------------------------------------------------------------------------------
110 659,278 5.7
- ----------------------------------------------------------------------------------------------------------------------------------
Purchased Steam
M.L. Hibbard in Duluth, MN 3 & 4 1949, 1951 49 58,802 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
Total Steam 1,073 6,872,617 59.1
- ----------------------------------------------------------------------------------------------------------------------------------
Hydro
Group consisting of ten stations in MN Various 115 511,341 4.4
- ----------------------------------------------------------------------------------------------------------------------------------
Purchased Power
Square Butte burns lignite coal near Center, ND 322 1,933,302 16.6
All Other - Net - 2,310,849 19.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total Purchased Power 322 4,244,151 36.5
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1,510 11,628,109 100.0%
- ----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
12 ALLETE 2001 Form 10-K
BNI COAL owns and operates a lignite mine in North Dakota. Two electric
generating cooperatives, Minnkota Power and Square Butte, presently consume
virtually all of BNI Coal's production of lignite coal under cost-plus coal
supply agreements expiring in 2027. (See Fuel and Note 13.) A large dragline,
shop complex and other property at BNI Coal are leased under a leveraged lease
agreement that expires in 2002. During 2000 BNI Coal entered into an agreement
to purchase in 2002 all property and equipment subject to this lease for $4.7
million.
ENVENTIS TELECOM. Our telecommunications subsidiaries, MP Telecom and Enventis,
Inc. (acquired in July 2001), are being merged to operate as Enventis Telecom.
Enventis Telecom is an integrated data services provider offering fiber
optic-based communication and advanced data services to businesses and
communities in Minnesota and Wisconsin. Enventis Telecom provides converged IP
(or Internet protocol) services that allow all communications (voice, video and
data) to use the same delivery technology. Enventis Telecom owns or has rights
to approximately 1,500 route miles of fiber optic cable. These route miles
contain multiple fibers that total approximately 47,500 fiber miles. Enventis
Telecom also owns optronic and data switching equipment that is used to "light
up" the fiber optic cable and provides customer bandwidth services. Enventis
Telecom services customers from facilities that are primarily leased from third
parties.
RAINY RIVER ENERGY is engaged in the acquisition and development of merchant
generation and wholesale power marketing. Merchant generation is non-rate base
generation sold at wholesale at market-based rates, pursuant to authority from
the FERC.
RETAIL ELECTRIC SALES
Approximately 62% of the ore consumed by integrated steel facilities in the
United States originates from five taconite customers of Minnesota Power.
Taconite, an iron-bearing rock of relatively low iron content that is abundantly
available in Minnesota, is an important domestic source of raw material for the
steel industry. Taconite processing plants use large quantities of electric
power to grind the ore-bearing rock, and agglomerate and pelletize the iron
particles into taconite pellets. Annual taconite production in Minnesota was 33
million tons in 2001 (47 million tons in 2000; 43 million tons in 1999). The
decrease in 2001 taconite production was due to the closing of LTV, which was
not a Large Power Customer (defined below), and reduced demand for iron ore from
the operating mines as a result of high steel import levels and a softer
economy. Based on our research of the taconite industry, Minnesota taconite
production for 2002 is anticipated to be about 36 million tons. While taconite
production is currently expected to continue at annual levels of about 35
million tons, the longer-term outlook of this cyclical industry is less certain.
We expect any excess energy not used by our Large Power Customers will be
marketed through Split Rock Energy.
LARGE POWER CUSTOMER CONTRACTS. Minnesota Power has large power customer
contracts with 12 customers (Large Power Customers), each of which requires 10
MW or more of generating capacity. Large Power Customer contracts require
Minnesota Power to have a certain amount of generating capacity available. (See
table on next page.) In turn, each Large Power Customer is required to pay a
minimum monthly demand charge that covers the fixed costs associated with having
this capacity available to serve the customer, including a return on common
equity. Most contracts allow customers to establish the level of megawatts
subject to a demand charge on a bi-annual (power pool season) basis and require
that a portion of their megawatt needs be committed on a take-or-pay basis for
the entire term of the agreement. In addition to the demand charge, each Large
Power Customer is billed an energy charge for each kilowatthour used that
recovers the variable costs incurred in generating electricity. Six of the Large
Power Customers have interruptible service for a portion of their needs which
provides a discounted demand rate and energy priced at Minnesota Power's
incremental cost after serving all firm power obligations. Minnesota Power also
provides incremental production service for customer demand levels above the
contract take-or-pay levels. There is no demand charge for this service and
energy is priced at an increment above Minnesota Power's cost. Incremental
production service is interruptible. Contracts with 10 of the 12 Large Power
Customers provide for deferral without interest of one-half of demand charge
obligations incurred during the first three months of a strike or illegal
walkout at a customer's facilities, with repayment required over the 12-month
period following resolution of the work stoppage.
Each contract continues past the contract termination date unless the required
four-year advance notice of cancellation has been given. Such contracts minimize
the impact on earnings that otherwise would result from significant reductions
in kilowatthour sales to such customers. Large Power Customers are required to
purchase any electric service requirements from Minnesota Power for the duration
of their contracts. The rates and corresponding revenue associated with capacity
and energy provided under these contracts are subject to change through the same
regulatory process governing all retail electric rates. (See Regulatory Issues -
Electric Rates.)
MINIMUM REVENUE AND DEMAND UNDER CONTRACT
AS OF FEBRUARY 1, 2002
- --------------------------------------------------------------
MINIMUM MONTHLY
ANNUAL REVENUE MEGAWATTS
- --------------------------------------------------------------
2002 $79.3 million 523
2003 $65.2 million 385
2004 $58.3 million 344
2005 $41.9 million 250
2006 $30.9 million 183
- --------------------------------------------------------------
BASED ON PAST EXPERIENCE AND PROJECTED OPERATING LEVELS, WE
BELIEVE REVENUE FROM LARGE POWER CUSTOMERS WILL BE
SUBSTANTIALLY IN EXCESS OF THE MINIMUM CONTRACT AMOUNTS.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 13
CONTRACT STATUS FOR MINNESOTA POWER LARGE POWER CUSTOMERS
AS OF FEBRUARY 1, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
EARLIEST
CUSTOMER INDUSTRY LOCATION OWNERSHIP TERMINATION DATE
- ------------------------------------------------------------------------------------------------------------------------------------
Eveleth Mines LLC Taconite Eveleth, MN 45% Rouge Steel Co. October 31, 2008
40% AK Steel Co.
15% Stelco Inc.
Hibbing Taconite Co. Taconite Hibbing, MN 70.3% Bethlehem Steel Corp. December 31, 2008
15% Cleveland-Cliffs Inc.
14.7% Stelco Inc.
Ispat Inland Mining Company Taconite Virginia, MN Ispat Inland Steel Company December 31, 2007
National Steel Pellet Co. Taconite Keewatin, MN National Steel Corp. December 31, 2005
USX Corporation Taconite Mt. Iron, MN USX Corporation December 31, 2007
Blandin Paper Company Paper Grand Rapids, MN UPM-Kymmene Corporation April 30, 2006
Boise Cascade Corporation Paper International Falls, MN Boise Cascade Corporation December 31, 2002
Potlatch Corporation Paper, Pulp and Cloquet, MN Potlatch Corporation December 31, 2008
Wood Products Brainerd, MN
Grand Rapids, MN
Stora Enso North America, Paper and Pulp Duluth, MN Stora Enso July 31, 2008
Duluth Paper Mill and
Duluth Recycled Pulp Mill
USG Interiors, Inc. Manufacturer Cloquet, MN USG Corporation December 31, 2005
Enbridge Energy Company, Pipeline Deer River, MN Enbridge Energy Company, May 31, 2004
Limited Partnership Floodwood, MN Limited Partnership
Minnesota Pipeline Company Pipeline Staples, MN 60% Koch Pipeline Co. L.P. September 30, 2002
Little Falls, MN 40% Marathon Ashland
Park Rapids, MN Petroleum LLC
- ------------------------------------------------------------------------------------------------------------------------------------
PURCHASED POWER AND CAPACITY SALES
A purchase or sale is generally made to balance the supply or demand, thereby
capping the cost of power or fixing a margin. Minnesota Power's risk management
policy, contract provisions, operational flexibility, credit policy and
procedures for purchasing power to cap cost or fix margins are designed to
minimize Minnesota Power's risk and exposure in a market with volatile prices.
Minnesota Power has contracts to purchase capacity and energy from various
entities. The largest contract is with Square Butte. Under an agreement with
Square Butte, expiring at the end of 2026, Minnesota Power is currently entitled
to approximately 71% of the output of a 455-MW coal-fired generating unit
located near Center, North Dakota. (See Note 13.)
In October 2000 Minnesota Power entered into a power purchase agreement with
Great River. Under this agreement Minnesota Power purchased 240 MW beginning
June 2001 until April 2003 and 80 MW from May 2003 to April 2004 from Lakefield
Junction Station, a natural gas-fired peaking plant located in southern
Minnesota.
For capacity sales see Wholesale Electric Sales.
FUEL
Minnesota Power purchases low-sulfur, sub-bituminous coal from the Powder River
Basin coal field located in Montana and Wyoming. Coal consumption in 2001 for
electric generation at Minnesota Power's Minnesota coal-fired generating
stations was about 4.5 million tons. As of December 31, 2001 Minnesota Power had
a coal inventory of about 535,000 tons. Minnesota Power has four coal supply
agreements with Montana suppliers. Under these agreements Minnesota Power has
the tonnage flexibility to procure 70% to 100% of its total coal requirements.
Minnesota Power will obtain coal in 2002 under these agreements and in the spot
market. This mix of coal supply options allows Minnesota Power to manage market
price and supply risk and to take advantage of favorable spot market prices.
Minnesota Power is exploring future coal supply options and believes that
adequate supplies of low-sulfur, sub-bituminous coal will continue to be
available.
The Burlington Northern and Santa Fe Railway Company transports coal by unit
train from the Powder River Basin to Minnesota Power's generating stations. In
2001 Minnesota Power and Burlington Northern entered into a 10-year agreement
under which Burlington Northern will ship all of Minnesota Power's coal needs to
the Boswell Energy Center
---------------------------------------------------------------------------
14 ALLETE 2001 Form 10-K
near Grand Rapids, Minnesota, to the Laskin Energy Center in Hoyt Lakes,
Minnesota, and to Taconite Harbor Energy Center near Schroeder, Minnesota,
through 2011.
COAL DELIVERED TO MINNESOTA POWER
YEAR ENDED DECEMBER 31 2001 2000 1999
- ---------------------------------------------------------------
Average Price Per Ton $20.52 $21.19 $20.60
Average Price Per MBtu $1.18 $1.16 $1.14
- ---------------------------------------------------------------
The Square Butte generating unit operated by Minnkota Power burns North Dakota
lignite coal supplied by BNI Coal, in accordance with the terms of a contract
expiring in 2027. Square Butte's cost of lignite burned in 2001 was
approximately 76 cents per MBtu. The lignite acreage that has been dedicated to
Square Butte by BNI Coal is located on lands essentially all of which are under
private control and presently leased by BNI Coal. This lignite supply is
sufficient to provide the fuel for the anticipated useful life of the generating
unit.
WHOLESALE ELECTRIC SALES
Minnesota Power has wholesale contracts with a number of municipal customers.
See Regulatory Issues - Federal Energy Regulatory Commission.)
In an increasingly volatile wholesale marketplace, Minnesota Power's Split Rock
Energy alliance mitigates marketplace risk while creating additional marketing
opportunities for both Minnesota Power and Great River. MPEX, which is expected
to transfer its operations to Split Rock Energy by March 2002, provides power
trading and marketing, energy sourcing and risk management services to Split
Rock Energy. Split Rock Energy's risk management policies are consistent with
Minnesota Power's.
In September 1999 Rainy River Energy entered into an amended 15-year power
purchase agreement with a company that was subsequently purchased by NRG Energy,
Inc., an independent power producer. The agreement includes the purchase of the
output of one entire unit (approximately 275 MW) of a four unit (approximately
1,100 MW) natural gas-fired combined cycle generation facility located near
Chicago, Illinois. Construction of the generation facility began in 2000 and
completion is expected in April 2002. Rainy River Energy will be obligated to
pay fixed capacity related charges beginning May 1, 2002. Rainy River Energy has
entered into a 15-year agreement to sell approximately 50 MW, has a 10-year
agreement to sell another 50 MW and is engaged in wholesale marketing of the
remaining electrical power. Under the terms of the resale agreements, the buyers
will pay a charge for capacity made available and energy delivered starting May
1, 2002 and procure their own fuel. Rainy River Energy plans to arrange for its
fuel supply through a blend of purchases including spot market and hedges
structured to match the wholesale marketing of the remaining electrical power.
It is currently expected that the agreement with NRG Energy, Inc. and resale
contracts will be transferred to Minnesota Power, which will market the
remaining wholesale power produced by this unit through Split Rock Energy.
Minnesota Power expects the agreement will enhance its ability to serve an
expanding customer base within the MISO region (See Regulatory Issues - Federal
Energy Regulatory Commission), as well as enable additional participation in the
wholesale bulk power marketplace.
In June 1999 Minnesota Power announced plans to build a natural gas-fired,
combustion turbine power plant near Superior, Wisconsin. Unavailability of
combustion turbines led to a decision to purchase near-term peaking capacity
from Great River's new Lakefield Junction Station for 2001 to 2004. In August
2001 Minnesota Power announced that its subsidiary, Rainy River Energy
Corporation - Wisconsin was proceeding with the permitting for a 160-MW merchant
peaking plant in Superior expected to be in service in late 2003. Rainy River
Energy Corporation - Wisconsin has sold 100 MW of the plant output under a
long-term contract.
In August 2001 Minnesota Power and UPM-Kymmene, the owner of Blandin Paper,
proposed a state-of-the-art energy facility adjacent to Blandin Paper in Grand
Rapids, Minnesota, through a partnering arrangement. A new company, Rapids Power
LLC, was created to own the facility. Rainy River Energy owns 71.5% of Rapids
Power and Blandin Paper owns 28.5%. Rapids Power plans to build a low-sulfur
sub-bituminous coal-fired generating facility designed to satisfy up to 40% of
its fuel requirements by burning renewable biomass fuel, such as wood waste. The
project, which is expected to cost Minnesota Power $200 million, is contingent
on timely receipt of necessary federal and state approvals and permits and final
approval by Blandin Paper and Minnesota Power.
In October 2001 Rainy River Energy completed a transaction with LTV and
Cleveland-Cliffs to acquire the 225-MW Taconite Harbor Energy Center and other
non-mining assets for $75 million. One of the three 75-MW units in this facility
was re-started for commercial operation in January 2002. The other units are
expected to be on-line by May 2002. Rainy River Energy has filed the necessary
market-based rate tariff applications with FERC to sell in the wholesale market
by Split Rock Energy. In December 2001 Minnesota Power requested approval from
the MPUC to acquire the ownership of the facility. Under Minnesota Power
ownership, the generation output would still be sold in the wholesale market and
it is anticipated that only in limited circumstances could some of the energy be
allocated to Minnesota Power customers through Split Rock Energy.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 15
REGULATORY ISSUES
We are exempt from regulation under the Public Utility Holding Company Act of
1935, except as to Section 9(a)(2) which relates to acquisition of securities of
public utility companies.
We are subject to the jurisdiction of various regulatory authorities. The MPUC
has regulatory authority over Minnesota Power's service area in Minnesota,
retail rates, retail services, issuance of securities and other matters. The
FERC has jurisdiction over the licensing of hydroelectric projects, the
establishment of rates and charges for the sale of electricity for resale and
transmission of electricity in interstate commerce, and certain accounting and
record keeping practices. The PSCW has regulatory authority over the retail
sales of electricity, water and gas by SWL&P. The MPUC, FERC and PSCW had
regulatory authority over 25%, 3% and 3%, respectively, of our 2001 consolidated
operating revenue.
ELECTRIC RATES. Minnesota Power has historically designed its electric service
rates based on cost of service studies under which allocations are made to the
various classes of customers. Nearly all retail sales include billing adjustment
clauses which adjust electric service rates for changes in the cost of fuel and
purchased energy, and recovery of current and deferred CIP expenditures.
In addition to Large Power Customer contracts, Minnesota Power also has
contracts with large industrial and commercial customers with monthly demands of
more than 2 MW but less than 10 MW of capacity. The terms of these contracts
vary depending upon the customer's demand for power and the cost of extending
Minnesota Power's facilities to provide electric service.
Minnesota Power requires that all large industrial and commercial customers
under contract specify the date when power is first required, and thereafter the
customer is billed for at least the minimum power for which they contracted.
These conditions are part of all contracts covering power to be supplied to new
large industrial and commercial customers and to current customers as their
contracts expire or are amended. All contracts provide that new rates which have
been approved by appropriate regulatory authorities will be substituted
immediately for existing rates, without regard to any unexpired term of the
existing contract. All rates and other contract terms are subject to approval by
appropriate regulatory authorities.
FEDERAL ENERGY REGULATORY COMMISSION. The FERC has jurisdiction over our
wholesale electric service and open access transmission service. Minnesota
Power's hydroelectric facilities, which are located in Minnesota, are licensed
by the FERC. (See Environmental Matters - Water.)
Minnesota Power has long-term contracts with 16 Minnesota municipalities
receiving wholesale electric service. Three contracts are for service through
2002 and 2005, while the other 13 are for service through at least 2007. The
contracts limit rate increases (including fuel costs) to about 2% per year on a
cumulative basis. In 2001 municipal customers purchased 688,000 MWh from
Minnesota Power.
Effective February 28, 2001 Minnesota Power and SWL&P became members of the MISO
pursuant to FERC's Order No. 2000 and Wisconsin state law. Minnesota Power and
SWL&P retain ownership of their respective transmission assets and control area
functions, but will operate their transmission network under the regional
operational control of the MISO and take and provide transmission service under
the MISO tariff. On December 19, 2001 FERC approved MISO as the nation's first
regional transmission organization (RTO) under Order No. 2000 criteria, noting
that it believes the MISO will benefit the public interest by enhancing the
reliability of the Midwest electric grid and facilitating and enhancing
wholesale competition. The MISO will accomplish this primarily through
standardization of rates, terms and conditions of transmission service over a
broad region encompassing all or parts of 20 states and one Canadian province,
and over 120,000 MW of generating capacity MISO operations are phasing in during
the first half of 2002.
Minnesota Power also participates in MAPP, a power pool operating in parts of
eight states in the Upper Midwest and in three provinces in Canada. MAPP
functions include a regional reliability council that maintains generation
reserve sharing requirements and a wholesale power and energy market committee.
MINNESOTA PUBLIC UTILITIES COMMISSION. Minnesota Power's retail rates are based
on a 1994 MPUC retail rate order that allows for an 11.6% return on common
equity dedicated to utility plant.
Minnesota requires investor owned electric utilities to spend a minimum of 1.5%
of gross annual retail electric revenue on conservation improvement programs
(CIP) each year. These investments are recovered from retail customers through a
billing adjustment and amounts included in retail base rates. The MPUC allows
utilities to accumulate, in a deferred account for future recovery, all CIP
expenditures as well as a carrying charge on the deferred account balance, which
was $0.3 million at December 31, 2001. During 1999 the Minnesota legislature
enacted Minnesota Power-supported legislation allowing customers with 20 MW or
more of connected load at one service point to opt out of the CIP minimum
spending requirements, and associated expense recovery, upon showing the MPUC
that they had implemented all reasonably available conservation measures. Opt
outs were approved in early 2000 for seven of Minnesota Power's industrial
customers. The 2000/2001 CIP investment goal was $2.7 million each year with
actual spending at $1.9 million and $2.6 million, respectively. Minnesota Power
has addressed the shortfall with the Minnesota Department of Commerce, the
agency with authority over CIP spending programs, and expects to resolve the
spending shortfall during 2002.
---------------------------------------------------------------------------
16 ALLETE 2001 Form 10-K
Until 1999 the MPUC approved Minnesota Power's request to recover lost margins.
Lost margins represented energy sales lost over a five-year period due to
Minnesota Power's efforts to assist customers in conserving energy. Lost margin
recovery compensated utilities for reduced sales resulting from CIP activities.
In 1999 the MPUC denied Minnesota Power's request to recover $3.5 million of
lost margins related to 1998 CIP activities. Minnesota Power appealed the
decision to the Minnesota Court of Appeals. In December 2000 the court reversed
the MPUC's denial of Minnesota Power's 1998 lost margin claim. The court found
that the MPUC's action constituted retroactive ratemaking and was arbitrary and
capricious. The MPUC appealed the court's decision to the Minnesota Supreme
Court, which denied the appeal in February 2001. Minnesota Power subsequently
requested and was granted approval to recover the 1998 lost margins and
associated carrying charges during 2001. The recovery was completed in 2001.
PUBLIC SERVICE COMMISSION OF WISCONSIN. SWL&P's current retail rates are based
on a September 2001 PSCW retail rate order that allows for a 12.25% return on
common equity.
In 1999 Minnesota Power and Wisconsin Public Service Corporation (WPS) announced
plans to construct a 220-mile, 345-kV Duluth-to-Wausau electric transmission
line. The proposal, called "Power Up Wisconsin," is a direct response to former
Wisconsin Governor Thompson's call to address the pressing need for more
dependable electricity in Wisconsin and the Upper Midwest. In March 2001 the
Minnesota Environmental Quality Board (MEQB) approved the Minnesota portion of
the line. In August 2001 the PSCW unanimously agreed that construction of the
line is necessary and in October 2001 issued its written order that outlines the
details and route specifics of the line. Appeals are pending in Wisconsin.
Depending on the outcome of the pending appeals, the new transmission line could
be in service in 2005 at an estimated cost of $200 million. Approximately $30
million to $40 million of the estimated cost is for facilities in Minnesota that
may be owned by Minnesota Power.
The PSCW must approve the ownership, control and operation of any affiliated
wholesale merchant generating plants in Wisconsin. (See Wholesale Electric
Sales.)
COMPETITION
INDUSTRY RESTRUCTURING. The electric utility industry continues to restructure
itself in response to growing competition at both the wholesale and retail
levels. This restructuring has primarily affected Minnesota Power's wholesale
power marketing and trading activity through Split Rock Energy, discussed above.
New legislation and regulation that aims to maintain reliability, assure
adequate energy supply, and address wholesale price volatility while encouraging
wholesale competition is being considered at the federal level. Over one-half
the states representing approximately 70% of the United States population have
passed either legislation or regulation that initiates a process which may lead
to retail customer choice. These initiatives lack momentum in Minnesota and
Wisconsin. Legislative and regulatory activity, as well as the actions of
competitors affect the way Minnesota Power strategically plans for its future.
We cannot predict the timing or substance of any future legislation or
regulation.
FRANCHISES
Minnesota Power holds franchises to construct and maintain an electric
distribution and transmission system in 90 cities and towns located within its
electric service territory. SWL&P holds franchises in 15 cities and towns within
its service territory. The remaining cities and towns served do not require a
franchise to operate within their boundaries.
ENVIRONMENTAL MATTERS
Certain businesses included in our Energy Services segment are subject to
regulation by various federal, state and local authorities about air quality,
water quality, solid wastes and other environmental matters. We consider these
businesses to be in substantial compliance with those environmental regulations
currently applicable to their operations and believe all necessary permits to
conduct such operations have been obtained. We do not currently anticipate that
potential capital expenditures for environmental matters will be material.
However, because environmental laws and regulations are constantly evolving, the
character, scope and ultimate costs of environmental compliance cannot be
estimated.
AIR. Minnesota Power's generating facilities in Minnesota burn mainly low-sulfur
western coal and Square Butte, located in North Dakota, burns lignite coal. All
of these facilities are equipped with pollution control equipment such as
scrubbers, baghouses or electrostatic precipitators. The federal Clean Air Act
Amendments of 1990 (Clean Air Act) created emission allowances for sulfur
dioxide. Each allowance is an authorization to emit one ton of sulfur dioxide,
and each utility must have sufficient allowances to cover its annual emissions.
Sulfur dioxide emission requirements are currently being met by all of Minnesota
Power's generating facilities, creating a surplus allowance situation for
Minnesota Power. Square Butte anticipates meeting its sulfur dioxide
requirements through increased use of existing scrubbers and by annually
purchasing additional allowances as necessary.
In accordance with the Clean Air Act, the EPA has established nitrogen oxide
limitations for electric generating units. To meet nitrogen oxide limitations,
Minnesota Power installed advanced low-emission burner technology and associated
control equipment to operate the Boswell and Laskin facilities at or below the
compliance emission limits. Nitrogen oxide limitations at Square Butte are being
met by
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 17
combustion tuning. Minnesota Power has obtained all necessary Title V air
operating permits from the Minnesota Pollution Control Agency for its applicable
facilities to conduct electric operations.
In December 2000 the EPA announced their decision to regulate mercury emissions
from coal and oil-fired power plants under Section 112 of the Clean Air Act.
Section 112 will require all such power plants in the United States to adhere to
the EPA maximum achievable control technology (MACT) standards for mercury. The
EPA's announcements clarified that the EPA will establish applicable mercury
MACT standards through a four-year rule-making and public comment period, giving
consideration to factors such as a facility's installed design and operation.
Final regulations defining control requirements are planned for December 2004.
Cost estimates are premature at this time.
In December 2000 Minnesota Power received a request from the EPA, under Section
114 of the Clean Air Act, seeking information regarding capital expenditures at
all of its coal-fired generating stations. This action is part of an
industry-wide investigation assessing compliance with the New Source Review and
the New Source Performance Standards (emissions standards that apply to new and
changed units) of the Clean Air Act at electric generating stations. We are
unable to predict whether the EPA will take any further action on this matter or
whether Minnesota Power will be required to incur any costs as a result. An EPA
statement on prospective New Source Review revisions is expected in early 2002.
WATER. The Federal Water Pollution Control Act of 1972 (FWPCA), as amended by
the Clean Water Act of 1977 and the Water Quality Act of 1987, established the
National Pollutant Discharge Elimination System (NPDES) permit program. The
FWPCA requires NPDES permits to be obtained from the EPA (or, when delegated,
from individual state pollution control agencies) for any wastewater discharged
into navigable waters. Minnesota Power has obtained all necessary NPDES permits,
including NPDES storm water permits for applicable facilities, to conduct its
electric operations.
Minnesota Power holds FERC licenses authorizing the ownership and operation of
seven hydroelectric generating projects with a total generating capacity of
about 118 MW. In June 1996 Minnesota Power filed in the U.S. Court of Appeals
for the District of Columbia Circuit a petition for review of the license as
issued by the FERC for Minnesota Power's St. Louis River Hydro Project. Separate
petitions for review were also filed by the U.S. Department of the Interior and
the Fond du Lac Band of Lake Superior Chippewa (Fond du Lac Band), two
intervenors in the licensing proceedings. The court consolidated the three
petitions for review and suspended the briefing schedule while Minnesota Power
and the Fond du Lac Band negotiate the reasonable fee for use of tribal lands as
mandated by the new license. Both parties informed the court that these
negotiations may resolve other disputed issues, and they are obligated to report
to the court periodically the status of these discussions. Beginning in 1996,
and most recently in January 2002, Minnesota Power filed requests with the FERC
for extensions of time to comply with certain plans and studies required by the
license that might conflict with the settlement discussions. In 2001 the Fond du
Lac Band and Minnesota Power reached a confidential settlement agreement for the
St. Louis River Hydro Project. The Fond du Lac Band and Minnesota Power have
included the U.S. Department of Interior in the settlement process in an effort
to achieve a comprehensive agreement with all intervening parties to the project
license. Any final settlement must be approved by the FERC, who would then amend
the project license in accordance with the settlement agreement.
SOLID AND HAZARDOUS WASTE. The Resource Conservation and Recovery Act of 1976
regulates the management and disposal of solid wastes and hazardous wastes. As a
result of this legislation, the EPA has promulgated various hazardous waste
rules. Minnesota Power is required to notify the EPA of hazardous waste activity
and routinely submits the necessary annual reports to the EPA.
Rainy River Energy is in the permitting process to construct, in early 2002, a
dry ash disposal landfill to handle ash generated from the Taconite Harbor
Energy Center at a cost estimated to be $800,000.
In response to EPA Region V's request for utilities to participate in the Great
Lakes Initiative by voluntarily removing remaining polychlorinated biphenyl
(PCB) inventories, Minnesota Power has scheduled replacement of PCB-contaminated
oil by the end of 2004. The total cost is expected to be between $2.5 million
and $3 million, of which $1.1 million was spent through December 31, 2001.
---------------------------------------------------------------------------
18 ALLETE 2001 Form 10-K
AUTOMOTIVE SERVICES
Automotive Services includes several subsidiaries that are integral parts of the
vehicle redistribution business. Vehicle sales within the auto auction industry
are expected to rise at a rate of 2% to 3% annually through 2003. Automotive
Services plans to grow through increased sales at existing businesses, selective
acquisitions in both wholesale and "total loss" vehicle auction facilities,
integration of "total loss" vehicle services at certain wholesale vehicle
auction facilities and expansion of services to customers. The discussion below
summarizes the major businesses we include in Automotive Services. Statistical
information is presented as of December 31, 2001. All subsidiaries are wholly
owned.
ADESA is the second largest wholesale vehicle auction network in North America.
Headquartered in Indianapolis, Indiana, ADESA owns (or leases) and operates 53
wholesale vehicle auction facilities in the United States and Canada through
which used cars and other vehicles are sold to franchised automobile dealers and
licensed used car dealers. Sellers at ADESA's auctions include domestic and
foreign auto manufacturers, car dealers, automotive fleet/lease companies, banks
and finance companies.
The table on the next page lists the vehicle auctions owned or leased by ADESA.
Each auction has a multi-lane, drive-through auction facility, as well as
additional buildings for reconditioning, registration, maintenance, bodywork,
and other ancillary and administrative services. Each auction also has secure
parking areas to store vehicles for auction.
ADESA IMPACT in the U.S. and IMPACT AUTO in Canada, collectively ADESA Impact,
represent the third largest "total loss" vehicle service business in North
America. They provide "total loss" vehicle services to the property and casualty
insurance industry, and vehicle leasing and rental car companies. ADESA Impact
provides "total loss" vehicle claim services such as vehicle appraisals,
inspections, evaluations, titling and settlement administration to its clients.
Auto imaging, Internet bidding and vehicle enhancement services are provided
through an array of "total loss" management programs. ADESA Impact has 23 "total
loss" auction facilities in the United States and Canada. United States
operations are based in Rhode Island and Canadian operations are headquartered
in Toronto.
COMSEARCH provides professional claim outsourcing services to the property and
casualty insurance industry and is the nation's largest automobile recycled part
locating service, processing over 100,000 part searches a month. Our locating
service has over 2,300 customers. ComSearch's services compliment ADESA Impact's
business. ComSearch is headquartered in Warren, Rhode Island.
AFC provides inventory financing for wholesale and retail automobile dealers who
purchase vehicles from ADESA auctions, independent auctions, other auction
chains and outside sources. AFC is headquartered in Indianapolis, Indiana, and
has 82 loan production offices at or near auto auctions across North America.
These offices provide qualified dealers credit to purchase vehicles at any of
the 400 plus auctions approved by AFC. AFC's computer-based system follows each
loan from origination to payoff and allows AFC to better manage its business,
while expediting services through its branch network to 18,000 registered
dealers.
PAR, which is doing business as PAR North America, provides customized vehicle
remarketing services to various companies such as banks, non-prime finance
companies, captive finance, leasing companies, commercial fleets and rental car
companies throughout the United States. PAR's services include nationwide
repossessions, remarketing, pre- and post-term lease-end management, 50-state
titling services and Canadian registrations turned to U.S. titles. PAR offers
its telemarketing service through its affiliate company, EndTrust. PAR, together
with another affiliate company ADESA Importation, offer a complete range of
vehicle importation services. PAR has its headquarters in Carmel, Indiana.
AUTOVIN provides technology-enabled vehicle inspection services and inventory
auditing to the automotive industry and the industry's secured lenders.
AutoVIN's services include vehicle condition reporting, inventory verification
auditing, program compliance auditing and facility inspection. AutoVIN works
closely with AFC to offer auto dealers one-stop shopping for financial and
information services.
ADESA IMPORTATION is headquartered in Holly, Michigan, with additional
facilities in Buffalo, New York; Grand Forks, North Dakota; Sweetgrass, Montana;
and Blaine, Washington. ADESA Importation is the largest independent, commercial
registered importer of vehicles in the United States. It provides a full range
of importation services, including marshalling, transportation, brokerage,
titling, tax processing and speedometer/odometer conversions from metric to the
U.S. measuring system.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 19
YEAR NUMBER OF
STATE/ OPERATIONS AUCTION
ADESA AUCTIONS CITY PROVINCE COMMENCED LANES
- ------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
ADESA Birmingham Moody Alabama 1987 10
ADESA Phoenix Chandler Arizona 1988 12
ADESA Central Arkansas Beebe Arkansas 1987 6
ADESA Little Rock Little Rock Arkansas 1984 10
ADESA Los Angeles Mira Loma California 2000 6
ADESA Sacramento Fremont California 1997 5
ADESA San Diego San Diego California 1982 6
ADESA Golden Gate San Francisco California 1985 6
ADESA Colorado Springs Colorado Springs Colorado 1982 5
ADESA Clearwater Clearwater Florida 1972 4
ADESA Jacksonville Jacksonville Florida 1996 6
ADESA Ocala Ocala Florida 1996 5
ADESA Orlando-Sanford Sanford Florida 1987 8
ADESA Tampa Tampa Florida 1989 8
ADESA Atlanta Newnan Georgia 1986 6
ADESA Southern Indiana Edinburgh Indiana 1997 3
ADESA Indianapolis Plainfield Indiana 1983 10
ADESA Des Moines Grimes Iowa 1967 5
ADESA Lexington Lexington Kentucky 1982 6
ADESA Ark-La-Tex Shreveport Louisiana 1979 5
ADESA Concord Acton Massachusetts 1947 5
ADESA Boston Framingham Massachusetts 1995 11
ADESA Lansing Dimondale Michigan 1976 5
ADESA St. Louis Barnhart Missouri 1987 3
ADESA Kansas City Lee's Summit Missouri 1963 7
ADESA New Jersey Manville New Jersey 1996 8
ADESA Buffalo Akron New York 1992 10
ADESA Charlotte Charlotte North Carolina 1994 10
ADESA Cincinnati/Dayton Franklin Ohio 1986 8
ADESA Cleveland Northfield Ohio 1994 8
ADESA Tulsa Tulsa Oklahoma 1987 6
ADESA Pittsburgh Mercer Pennsylvania 1971 7
ADESA Knoxville Lenoir City Tennessee 1984 6
ADESA Memphis Memphis Tennessee 1990 6
ADESA Austin Austin Texas 1990 6
ADESA Houston Houston Texas 1995 8
ADESA Dallas Mesquite Texas 1990 8
ADESA San Antonio San Antonio Texas 1989 8
ADESA Seattle Auburn Washington 1984 4
ADESA Wisconsin Portage Wisconsin 1984 5
CANADA
ADESA Calgary Airdrie Alberta 2000 4
ADESA Edmonton Edmonton Alberta 1988 3
ADESA Vancouver New Westminster British Columbia 1972 7
CAG Vancouver Surrey British Columbia 1986 2
ADESA Winnipeg Winnipeg Manitoba 1987 4
ADESA Moncton Moncton New Brunswick 1987 2
ADESA St. John's St. John's Newfoundland 1994 1
ADESA Halifax Enfield Nova Scotia 1993 5
ADESA Kitchener Ayr Ontario 1988 4
ADESA Toronto Brampton Ontario 1987 6
ADESA Ottawa Vars Ontario 1990 5
ADESA Montreal St. Eustache Quebec 1974 12
ADESA Saskatoon Saskatoon Saskatchewan 1980 2
- ------------------------------------------------------------------------------------------------------------------------------
LEASED AUCTION FACILITIES. (SEE NOTE 7.)
ADESA OWNS 51% OF THIS AUCTION BUSINESS.
ADESA OWNS 80% OF THIS AUCTION BUSINESS.
---------------------------------------------------------------------------
20 ALLETE 2001 Form 10-K
COMPETITION
Within the automobile auction industry, ADESA's competition includes
independently owned auctions, as well as a major chain and associations with
auctions in geographic proximity. ADESA competes with these other auctions for a
supply of vehicles to be sold on consignment for automobile dealers, financial
institutions and other sellers. ADESA also competes for a supply of rental
repurchase vehicles from automobile manufacturers for auction at factory sales.
Automobile manufacturers often choose between auctions across multi-state areas
in distributing rental repurchase vehicles. ADESA competes for these customers
by attempting to attract a large number of dealers to purchase vehicles, which
ensures competitive prices and supports the volume of vehicles auctioned. ADESA
is also competitive by providing a full range of automotive services, including
dealer inventory financing, reconditioning services that prepare vehicles for
auction and processing of sales transactions.
ADESA utilizes e-commerce as another component in its array of services. Dealers
are provided training on how to use on-line products, including the purchase of
vehicles on-line. The dealers can also access auction runlists and other market
report information offered on ADESA's website, www.ADESA.com. ADESA believes it
has a competitive advantage in a small but growing segment of the used vehicle
market combining on-line services with auction facilities and knowledgeable
auction personnel located across North America.
AFC is the largest provider of dealer floorplan financing to independent
automobile dealers in North America. AFC's competition includes other specialty
lenders, banks and other financial institutions. AFC has distinguished itself
from its competitors by convenience of payment, quality of service and scope of
services offered.
PAR provides customized remarketing services throughout North America. Although
other providers are larger in size and volume, PAR's competition comes from a
handful of similar service providers, none of which offer as many diverse
services. PAR offers an interactive website, electronically connecting customers
with its services. In 2001 PAR included interactive connection with repossession
agents and auction vendor networks. PAR's affiliation with EndTrust gives it a
competitive edge in gaining market share in the lease-end management services
arena. Another area that distinguishes PAR from its competition is ADESA
Importation.
ADESA Impact's competition is primarily two major investor owned "total loss"
auction businesses that are located across the United States. We believe through
strategic acquisitions, shared facilities with ADESA, and greenfield expansion
that ADESA Impact can become a prominent "total loss" services provider to the
insurance industry in the United States. In Canada, ADESA Impact is the largest
provider of "total loss" vehicle services. Its competitors include auto
recyclers and dismantlers, independent auto auctions, brokers and Internet
auction companies. ADESA Impact believes it is strategically positioned in this
niche market in providing a full array of value-added services to its insurance
clients including Internet programs, data analyses, consultation and "total
loss" vehicle services throughout North America.
ENVIRONMENTAL MATTERS
Certain businesses in our Automotive Services segment are subject to regulation
by various federal, state and local authorities concerning air quality, water
quality, solid wastes and other environmental matters. We consider these
businesses to be in substantial compliance with those environmental regulations
currently applicable to their operations and believe all necessary permits to
conduct such operations have been obtained. We do not currently anticipate that
potential capital expenditures for environmental matters will be material.
However, because environmental laws and regulations are constantly evolving, the
character, scope and ultimate costs of environmental compliance cannot be
estimated.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 21
INVESTMENTS AND CORPORATE CHARGES
Our Investments and Corporate Charges segment consists of real estate
operations, investments in emerging technologies related to the electric utility
industry, a securities portfolio and corporate charges. Corporate Charges
represent general corporate expenses, including interest, not specifically
related to any one business segment. The discussion below summarizes the major
components of Investments. Statistical information is presented as of December
31, 2001 unless otherwise noted. All subsidiaries are wholly owned unless
otherwise specifically indicated.
REAL ESTATE OPERATIONS. Our real estate operations include CAPE CORAL HOLDINGS;
PALM COAST LAND, LLC; PALM COAST FOREST, LLC; WINTER HAVEN CITI CENTRE, LLC; and
an 80% ownership in LEHIGH. Through subsidiaries, we own Florida real estate
operations in five different locations:
- Lehigh Acres with 1,000 acres of land and approximately 400 home sites
adjacent to Fort Myers, Florida;
- Sugarmill Woods with 420 home sites in Citrus County, Florida;
- Palm Coast with 1,300 home sites and 16,000 acres of residential,
commercial and industrial land at Palm Coast, Florida. Palm Coast is a
planned community between St. Augustine and Daytona Beach;
- Winter Haven, located in central Florida, with a retail shopping center
located on a 30-acre site and three out parcels of land that are
available for sale; and
- Cape Coral, also located adjacent to Fort Myers, Florida, with 325
acres of commercial and residential zoned land, including home sites
and commercial buildings.
Our real estate operations may, from time to time, acquire packages of
diversified properties at low cost, add value through entitlements and
infrastructure enhancements and sell the properties at current market prices.
EMERGING TECHNOLOGY INVESTMENTS. Since 1985 we have invested $46.4 million in
start-up companies which are developing technologies that may be utilized by the
electric utility industry. We are committed to invest an additional $11.0
million through 2008. The investments were first made through emerging
technology funds (Funds) initiated by other electric utilities and us. More
recently, we have made investments directly in privately held companies. The
majority of our direct investments relate to distributed generation technology,
such as micro generation and fuel cell technology. Many of these direct
investments are also in the Funds' portfolios.
The Funds have also made investments in companies that develop advanced
technologies to be used by the utility industry, including electrotechnologies,
renewable energy technologies, and software and communications technologies
related to utility customer support systems.
Several of the companies in the Funds' portfolios completed initial public
offerings (IPOs) in 2000. Subsequent to the public trading of the IPO companies,
the Funds will, in some instances, distribute publicly tradable shares to us.
Some restrictions on sale may apply, including, but not limited to, underwriter
lock-up periods that typically extend for 180 days following an IPO. As
companies included in our emerging technology investments are sold, we will
recognize a gain or loss. Portions of any proceeds received on these investments
may be reinvested back into companies to encourage development of future
technology.
Since going public, the market value of the publicly traded investments has
experienced significant volatility. Our investment in the companies that have
gone public had a cost basis of approximately $12 million at December 31, 2001
($12 million at December 31, 2000). The aggregate market value of these
investments at December 31, 2001 was approximately $24 million ($52 million at
December 31, 2000).
SECURITIES PORTFOLIO. Our securities portfolio is managed by selected outside
managers as well as internal managers. It is intended to provide stable earnings
and liquidity. Proceeds from the securities portfolio are available for
investment in existing businesses, to fund strategic initiatives and for other
corporate purposes. Our investment in the securities portfolio at December 31,
2001 was $156 million ($91 million at December 31, 2000).
ENVIRONMENTAL MATTERS
Certain businesses included in our Investments and Corporate Charges segment are
subject to regulation by various federal, state and local authorities concerning
air quality, water quality, solid wastes and other environmental matters. We
consider these businesses to be in substantial compliance with those
environmental regulations currently applicable to their operations and believe
all necessary permits to conduct such operations have been obtained. We do not
currently anticipate that potential capital expenditures for environmental
matters will be material. However, because environmental laws and regulations
are constantly evolving, the character, scope and ultimate costs of
environmental compliance cannot be estimated.
---------------------------------------------------------------------------
22 ALLETE 2001 Form 10-K
EXECUTIVE OFFICERS OF THE REGISTRANT
INITIAL
EXECUTIVE OFFICERS EFFECTIVE DATE
- ---------------------------------------------------------------------------------------------------------------------------
DAVID G. GARTZKE, Age 58
Chairman, President and Chief Executive Officer January 23, 2002
President August 28, 2001
Senior Vice President - Finance and Chief Financial Officer December 1, 1994
DONNIE R. CRANDELL, Age 58
Executive Vice President - ALLETE;
President - ALLETE Water Services, Inc.; and
President and Chief Executive Officer - Florida Water September 6, 2001
Executive Vice President - ALLETE and President - ALLETE Properties, Inc. January 15, 1999
Senior Vice President - ALLETE and President - ALLETE Properties, Inc. January 1, 1996
ROBERT D. EDWARDS, Age 57
Executive Vice President - ALLETE and
Chief Executive Officer - Minnesota Power December 19, 2001
Executive Vice President - ALLETE and President - Minnesota Power July 26, 1995
BRENDA J. FLAYTON, Age 46
Vice President - Human Resources July 22, 1998
JAMES P. HALLETT, Age 48
Executive Vice President - ALLETE and
President and Chief Executive Officer - ALLETE Automotive Services, Inc. November 5, 2001
Executive Vice President - ALLETE and Chief Executive Officer - ADESA October 1, 2001
Executive Vice President - ALLETE and President and Chief Executive Officer - ADESA April 23, 1997
President and Chief Executive Officer - ADESA August 21, 1996
President - ADESA Canada Inc. May 26, 1994
PHILIP R. HALVERSON, Age 53
Vice President, General Counsel and Secretary January 1, 1996
DAVID P. JERONIMUS, Age 59
Vice President - Environmental Services - ALLETE and
Senior Vice President - Environmental Services - Minnesota Power January 1, 2002
Vice President - Environmental Services - ALLETE February 1, 1999
MARK A. SCHOBER, Age 46
Vice President and Controller April 18, 2001
Controller March 1, 1993
TIMOTHY J. THORP, Age 47
Vice President - Investor Relations and Corporate Communications November 16, 2001
JAMES K. VIZANKO, Age 48
Vice President, Chief Financial Officer and Treasurer August 28, 2001
Vice President and Treasurer April 18, 2001
Treasurer March 1, 1993
CLAUDIA SCOTT WELTY, Age 49
Vice President - Information Technology February 1, 1999
Vice President - Support Services July 1, 1995
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 23
All of the executive officers have been employed by us for more than five years
in executive or management positions. In the five years prior to election to the
positions shown on the previous page, Ms. Flayton was director of human
resources, Mr. Jeronimus was director of environmental resources and Mr. Thorp
was director of investor relations.
There are no family relationships between any of the executive officers. All
officers and directors are elected or appointed annually.
The present term of office of the executive officers listed on the previous page
extends to the first meeting of our Board of Directors after the next annual
meeting of shareholders. Both meetings are scheduled for May 14, 2002.
ITEM 2. PROPERTIES
Properties are included in the discussion of our business in Item 1. and are
incorporated by reference herein.
ITEM 3. LEGAL PROCEEDINGS
Material legal and regulatory proceedings are included in the discussion of our
business in Item 1. and are incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
We have paid dividends without interruption on our common stock since 1948. A
quarterly dividend of $0.275 per share on our common stock will be paid on March
1, 2002 to the holders of record on February 15, 2002. Our common stock is
listed on the New York Stock Exchange under the symbol ALE. Dividends paid per
share, and the high and low prices for our common stock for the periods
indicated as reported by the New York Stock Exchange on its NYSEnet website, are
in the accompanying chart.
The amount and timing of dividends payable on our common stock are within the
sole discretion of our Board of Directors. In 2001 we paid out 59% of our per
share earnings in dividends.
Our Articles of Incorporation, and Mortgage and Deed of Trust contain provisions
which under certain circumstances would restrict the payment of common stock
dividends. As of December 31, 2001 no retained earnings were restricted as a
result of these provisions. At January 31, 2002 there were approximately 39,000
common stock shareholders of record.
Price Range
------------------------- Dividends
Quarter High Low Paid
- ------------------------------------------------------------------------------
2001 - First $26.00 $20.19 $0.2675
Second 26.13 22.04 0.2675
Third 26.89 21.50 0.2675
Fourth 25.85 21.14 0.2675
- ------------------------------------------------------------------------------
Annual Total $1.07
- ------------------------------------------------------------------------------
2000 - First $18.06 $14.75 $0.2675
Second 20.75 16.00 0.2675
Third 24.25 17.31 0.2675
Fourth 25.50 20.13 0.2675
- ------------------------------------------------------------------------------
Annual Total $1.07
- ------------------------------------------------------------------------------
---------------------------------------------------------------------------
24 ALLETE 2001 Form 10-K
ITEM 6. SELECTED FINANCIAL DATA
Operating results of our Water Services businesses and auto transport company
are included in discontinued operations and, accordingly, amounts have been
adjusted for all periods presented. Common share and per share amounts have also
been adjusted for all periods to reflect our March 2, 1999 two-for-one common
stock split.
BALANCE SHEET 2001 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Millions
ASSETS
Current Assets $ 869.5 $ 692.2 $ 521.6 $ 459.4 $ 363.9 $ 319.6
Discontinued Operations - Current 40.4 38.8 42.9 28.1 21.4 14.8
Property, Plant and Equipment 1,324.0 1,201.9 1,003.4 955.6 948.3 959.4
Investments 141.0 116.4 197.2 263.5 252.9 236.5
Goodwill 494.4 472.8 181.0 169.8 158.9 167.0
Other Assets 103.6 87.3 82.4 91.2 98.9 103.4
Discontinued Operations - Other 309.6 304.6 284.1 241.3 242.0 249.6
- -----------------------------------------------------------------------------------------------------------------------------------
$3,282.5 $2,914.0 $2,312.6 $2,208.9 $2,086.3 $2,050.3
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $ 658.7 $ 661.6 $ 366.1 $ 326.3 $ 317.8 $ 319.0
Discontinued Operations - Current 45.8 45.4 32.2 19.7 24.8 20.7
Long-Term Debt 933.8 817.2 577.9 540.6 553.0 605.4
Other Liabilities 270.3 257.5 265.2 286.0 288.9 287.5
Discontinued Operations - Other 155.1 156.5 158.9 144.2 145.3 100.4
Mandatorily Redeemable Preferred
Securities of ALLETE Capital I 75.0 75.0 75.0 75.0 75.0 75.0
Redeemable Preferred Stock - - 20.0 20.0 20.0 20.0
Stockholders' Equity 1,143.8 900.8 817.3 797.1 661.5 622.3
- -----------------------------------------------------------------------------------------------------------------------------------
$3,282.5 $2,914.0 $2,312.6 $2,208.9 $2,086.3 $2,050.3
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT
- -----------------------------------------------------------------------------------------------------------------------------------
Millions
OPERATING REVENUE
Energy Services $ 620.8 $ 589.5 $ 554.5 $ 559.8 $ 541.9 $ 529.2
Automotive Services 832.1 522.6 383.2 305.5 242.4 171.9
Investments 74.8 77.4 57.8 55.5 60.7 48.6
- -----------------------------------------------------------------------------------------------------------------------------------
1,527.7 1,189.5 995.5 920.8 845.0 749.7
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Fuel and Purchased Power 233.1 229.0 200.2 205.7 194.1 190.9
Operations 1,012.1 730.6 598.8 541.0 495.3 435.7
Interest Expense 74.7 58.8 49.5 54.6 53.2 49.6
- -----------------------------------------------------------------------------------------------------------------------------------
1,319.9 1,018.4 848.5 801.3 742.6 676.2
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME BEFORE CAPITAL RE AND ACE 207.8 171.1 147.0 119.5 102.4 73.5
INCOME (LOSS) FROM INVESTMENT IN CAPITAL RE
AND RELATED DISPOSITION OF ACE - 48.0 (34.5) 15.2 14.8 11.8
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME FROM CONTINUING OPERATIONS 207.8 219.1 112.5 134.7 117.2 85.3
DISTRIBUTIONS ON REDEEMABLE PREFERRED
SECURITIES OF ALLETE CAPITAL I 6.0 6.0 6.0 6.0 6.0 4.7
INCOME TAX EXPENSE 73.2 76.2 50.3 48.6 42.0 16.9
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 128.6 136.9 56.2 80.1 69.2 63.7
INCOME FROM DISCONTINUED OPERATIONS 10.1 11.7 11.8 8.4 8.4 5.5
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME 138.7 148.6 68.0 88.5 77.6 69.2
PREFERRED DIVIDENDS - 0.9 2.0 2.0 2.0 2.4
- -----------------------------------------------------------------------------------------------------------------------------------
EARNINGS AVAILABLE FOR COMMON STOCK 138.7 147.7 66.0 86.5 75.6 66.8
COMMON STOCK DIVIDENDS 81.8 74.5 73.0 65.0 62.5 59.6
- -----------------------------------------------------------------------------------------------------------------------------------
RETAINED (DEFICIT) IN THE BUSINESS $ 56.9 $ 73.2 $ (7.0) $ 21.5 $ 13.1 $ 7.2
- -----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 25
2001 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING - Millions
Year-End 83.9 74.7 73.5 72.3 67.1 65.5
Average
Basic 75.8 69.8 68.4 64.0 61.2 58.6
Diluted 76.5 70.1 68.7 64.2 61.2 58.6
DILUTED EARNINGS PER SHARE
Continuing Operations $1.68 $1.94 $0.80 $1.22 $1.10 $1.05
Discontinued Operations 0.13 0.17 0.17 0.13 0.14 0.09
- -----------------------------------------------------------------------------------------------------------------------------------
$1.81 $2.11 $0.97 $1.35 $1.24 $1.14
- -----------------------------------------------------------------------------------------------------------------------------------
RETURN ON COMMON EQUITY 13.3% 17.1% 8.3% 12.4% 12.1% 11.3%
COMMON EQUITY RATIO 49.9% 46.3% 49.3% 49.9% 44.9% 43.1%
DIVIDENDS PAID PER SHARE $1.07 $1.07 $1.07 $1.02 $1.02 $1.02
DIVIDEND PAYOUT 59.1% 50.7% 110% 76% 83% 89%
BOOK VALUE PER SHARE AT YEAR-END $13.63 $12.06 $10.97 $10.86 $9.69 $9.32
MARKET PRICE PER SHARE
High $26.89 $25.50 $22.09 $23.13 $22.00 $14.88
Low $20.19 $14.75 $16.00 $19.03 $13.50 $13.00
Close $25.20 $24.81 $16.94 $22.00 $21.78 $13.75
MARKET/BOOK AT YEAR-END 1.85 2.06 1.54 2.03 2.25 1.48
PRICE EARNINGS RATIO AT YEAR-END 13.9 11.8 17.5 16.3 17.6 12.1
DIVIDEND YIELD AT YEAR-END 4.2% 4.3% 6.3% 4.6% 4.7% 7.4%
EMPLOYEES 13,763 12,633 8,246 7,003 6,817 6,537
NET INCOME
Energy Services $ 50.0 $ 43.1 $45.0 $47.4 $43.1 $39.4
Automotive Services 74.8 49.9 40.3 24.6 13.8 3.6
Investments and Corporate Charges 3.8 43.9 (29.1) 8.1 12.3 20.7
- -----------------------------------------------------------------------------------------------------------------------------------
128.6 136.9 56.2 80.1 69.2 63.7
Discontinued Operations 10.1 11.7 11.8 8.4 8.4 5.5
- -----------------------------------------------------------------------------------------------------------------------------------
$138.7 $148.6 $68.0 $88.5 $77.6 $69.2
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC CUSTOMERS - Thousands 145.0 144.0 139.7 138.1 135.8 135.1
ELECTRIC SALES - Millions of MWh 10.9 11.7 11.3 12.0 12.4 13.2
POWER SUPPLY - Millions of MWh
Steam Generation 6.9 6.4 6.2 6.3 6.1 6.4
Hydro Generation 0.5 0.5 0.7 0.6 0.6 0.7
Long-Term Purchase - Square Butte 1.9 2.4 2.3 2.1 2.3 2.4
Purchased Power 2.3 3.1 2.6 3.2 3.8 4.4
- -----------------------------------------------------------------------------------------------------------------------------------
11.6 12.4 11.8 12.2 12.8 13.9
- -----------------------------------------------------------------------------------------------------------------------------------
COAL SOLD - Millions of Tons 4.1 4.4 4.5 4.2 4.2 4.5
VEHICLES SOLD - Thousands 1,909 1,319 1,037 897 769 637
VEHICLES FINANCED - Thousands 904 795 695 531 323 140
CAPITAL EXPENDITURES - Millions $153.0 $168.7 $99.7 $80.8 $72.2 $101.5
- -----------------------------------------------------------------------------------------------------------------------------------
EXCLUDES UNALLOCATED ESOP SHARES.
INCLUDED A $4.4 MILLION, OR $0.06 PER SHARE, CHARGE TO EXIT THE AUTO TRANSPORT COMPANY.
IN MAY 2000 WE RECORDED A $30.4 MILLION, OR $0.44 PER SHARE, AFTER-TAX GAIN ON THE SALE OF 4.7 MILLION SHARES OF ACE THAT WE
RECEIVED IN DECEMBER 1999 WHEN CAPITAL RE MERGED WITH ACE. AS A RESULT OF THE MERGER, IN 1999 WE RECORDED A $36.2 MILLION, OR
$0.52 PER SHARE, AFTER-TAX CHARGE. EXCLUDING THE CAPITAL RE AND ACE TRANSACTIONS, DILUTED EARNINGS PER SHARE WERE $1.67 IN 2000
($1.49 IN 1999), THE RETURN ON COMMON EQUITY WAS 13.6% IN 2000 (12.9% IN 1999), THE DIVIDEND PAYOUT WAS 64.1% IN 2000 (72% IN
1999), THE PRICE EARNINGS RATIO WAS 14.9 IN 2000 (11.4 IN 1999) AND NET INCOME FROM INVESTMENTS AND CORPORATE CHARGES WAS
$29.3 MILLION IN 2000 ($26.8 MILLION IN 1999).
---------------------------------------------------------------------------
26 ALLETE 2001 Form 10-K
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED OVERVIEW
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Dollars in millions except per share amounts
OPERATING REVENUE
Energy Services $ 620.8 $ 589.5 $554.5
Automotive Services 832.1 522.6 383.2
Investments 74.8 77.4 57.8
- --------------------------------------------------------------------------------------------------------------------
$1,527.7 $1,189.5 $995.5
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Energy Services $ 537.0 $ 516.0 $479.0
Automotive Services 713.1 438.6 313.5
Investments and
Corporate Charges 69.8 63.8 56.0
- --------------------------------------------------------------------------------------------------------------------
$1,319.9 $1,018.4 $848.5
- --------------------------------------------------------------------------------------------------------------------
NET INCOME
Energy Services $ 50.0 $ 43.1 $45.0
Automotive Services 74.8 49.9 40.3
Investments and
Corporate Charges 3.8 13.5 7.1
- --------------------------------------------------------------------------------------------------------------------
128.6 106.5 92.4
Capital Re and ACE
Transactions - 30.4 (36.2)
- --------------------------------------------------------------------------------------------------------------------
128.6 136.9 56.2
Discontinued Operations 10.1 11.7 11.8
- --------------------------------------------------------------------------------------------------------------------
$138.7 $148.6 $68.0
- --------------------------------------------------------------------------------------------------------------------
DILUTED AVERAGE SHARES
OF COMMON STOCK 76.5 70.1 68.7
- --------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
OF COMMON STOCK
Continuing Operations
Before Capital Re and
ACE Transactions $1.68 $1.50 $1.32
Capital Re and
ACE Transactions - 0.44 (0.52)
- --------------------------------------------------------------------------------------------------------------------
1.68 1.94 0.80
Discontinued Operations 0.13 0.17 0.17
- --------------------------------------------------------------------------------------------------------------------
$1.81 $2.11 $0.97
- --------------------------------------------------------------------------------------------------------------------
RETURN ON COMMON EQUITY 13.3% 13.6% 12.9%
- --------------------------------------------------------------------------------------------------------------------
INCLUDED A $4.4 MILLION, OR $0.06 PER SHARE, CHARGE TO EXIT THE AUTO
TRANSPORT COMPANY.
INCLUDING THE $30.4 MILLION GAIN ASSOCIATED WITH THE ACE TRANSACTION,
2000 NET INCOME FROM INVESTMENTS AND CORPORATE CHARGES WAS $43.9 MILLION
FOR 2000 AND THE RETURN ON EQUITY WAS 17.1%. (SEE NOTE 15.)
INCLUDING THE $36.2 MILLION CHARGE ASSOCIATED WITH THE CAPITAL RE
TRANSACTION, 1999 NET INCOME FROM INVESTMENTS AND CORPORATE CHARGES WAS A
$29.1 MILLION LOSS AND THE RETURN ON EQUITY WAS 8.3%. (SEE NOTE 15.)
Each of our operating segments continued to produce solid financial results
during 2001, reflecting the success of ALLETE's growth initiatives. Even though
the events of September 11, 2001 and their aftermath negatively impacted results
for Automotive Services, performance from this segment remained strong in 2001.
Excluding a charge to exit our auto transport company in 2001 and the ACE
transaction in 2000 (see net income discussion), net income increased $24.9
million, or 21%, and earnings per share increased $0.20, or 12%, over 2000. The
2001 earnings per share calculation was impacted by our second quarter common
stock issuance.
An evaluation of strategic and financial alternatives with respect to all our
various businesses resulted in the decision to discontinue our Water Services
businesses and our auto transport company. Our Investments and Corporate Charges
segment captures the results of our real estate operations, our investments in
emerging technologies, our securities portfolio, and general corporate expenses,
including interest, not specifically related to any one business segment.
We measure performance of our operations through careful budgeting and
monitoring of EBITDAL and contributions to consolidated net income by each
business segment.
NET INCOME
ENERGY SERVICES. In 2001 net income from Energy Services was up $6.9 million, or
16%, over 2000. Our wholesale marketing and trading activities were more
profitable due to warmer summer weather and overall market conditions.
Megawatthour sales declined in 2001 reflecting decreased sales to our taconite
customers because of planned shutdowns and reduced taconite production. Net
income in 2001 also reflected recovery of 1998 CIP lost margins and additional
costs incurred as a result of a severe spring ice storm and planned maintenance
outages. In 2000 net income from Energy Services was down slightly from 1999 as
strong megawatthour sales primarily from large industrial customers were more
than offset by lower margins on wholesale power marketing and trading
activities. Lower demand in the region's wholesale power market as a result of
more moderate summer weather led to the decrease in wholesale margins in 2000.
In 1999 megawatthour sales to large industrial customers were impacted by lower
demand for domestic steel, stronger competition in the paper markets and lower
pipeline pumping levels. A one-time property tax levy associated with an
industrial development project was also reflected in 1999. Total megawatthour
sales were 10.9 million in 2001 (11.7 million in 2000; 11.3 million in 1999).
AUTOMOTIVE SERVICES. Net income from Automotive Services increased $24.9
million, or 50%, over 2000. As in 2000, recent acquisitions and increased sales
at both ADESA and AFC were the contributing factors.
At ADESA wholesale auction facilities 1.8 million vehicles were sold in 2001
(1.3 million in 2000; 1.0 million in 1999). In
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 27
addition, at our "total loss" vehicle auctions 148,000 vehicles were sold in
2001 (33,000 in 2000). During 2001 ADESA acquired or opened 13 auction
facilities (10 in 2000) that provide "total loss" vehicle services to insurance
companies and added one wholesale vehicle auction facility (28 in 2000; two in
1999). Same store EBITDAL at ADESA's wholesale auction facilities increased 13%
in 2001 (12% in 2000). Increased costs and reduced sales volumes because of
inclement weather and a depressed used vehicle market in early 2001 hampered
financial results, as did the events of September 11 and aggressive financing
incentives offered by vehicle manufacturers since October 2001. Conversion
rates, the percentage of vehicles sold from those that were run through auction
lanes, were also impacted by these events. Dealer attendance at auctions
declined as a result of a disruption in air travel. Wholesale prices were
further depressed by the events of September 11 and the offering of aggressive
financing incentives by vehicle manufacturers. Sellers were reluctant to accept
these lower wholesale prices. The conversion rate related to wholesale vehicles
sold was 58% for 2001 (59% for 2000; 62% for 1999). For 2001 we estimated that
the impact of the events of September 11 resulted in a $3.5 million decrease to
net income. Costs of assimilating the 28 wholesale vehicle auction facilities
acquired or opened in 2000 also impacted 2001 results.
AFC contributed 40% of the net income from Automotive Services in 2001 (47% in
2000; 46% in 1999). AFC had 82 loan production offices in 2001 (86 in 2000; 84
in 1999). The growth of AFC's dealer/customer base from 15,000 in 1999 to 18,000
in 2001 has enabled AFC to finance more vehicles, 904,000 vehicles in 2001
(795,000 in 2000; 695,000 in 1999).
INVESTMENTS AND CORPORATE CHARGES. Stronger sales from our real estate
operations in 2001, including its largest sale ever, helped to offset lower
earnings from our securities portfolio and emerging technology funds. Our
securities portfolio earned an after-tax annualized return of 5.6% in 2001 (7.0%
in 2000; 3.3% in 1999) on a lower average balance. During 2000 we reduced the
size of our securities portfolio to partially fund significant acquisitions made
by Automotive Services. Income from our emerging technology investments was
lower in 2001 as a result of fewer sales of these investments. In 2001 Corporate
Charges reflected more interest expense as a result of debt issued to fund
strategic initiatives and additional expenses for incentive compensation. In
2000 financial results reflected the resolution of various federal and state tax
issues which increased net income.
CAPITAL RE AND ACE TRANSACTIONS. In May 2000 we recorded a $30.4 million, or
$0.44 per share, after-tax gain on the sale of 4.7 million shares of ACE that we
received in December 1999 when Capital Re merged with ACE. As a result of the
merger, in 1999 we recorded a $36.2 million, or $0.52 per share, after-tax
charge.
DISCONTINUED OPERATIONS included the operating results of our Water Services
businesses and our auto transport company, which are currently held for sale.
Income from discontinued operations was down $1.6 million in 2001 primarily due
to a $4.4 million charge to exit the auto transport company. Operating results
from our Water Services businesses were up $3.9 million from 2000. Strategic
acquisitions and customer growth since 1999 within our Water Services businesses
helped temper the negative financial impact of above-average rainfall in Florida
and North Carolina during the majority of 2001 and conservation efforts in
Florida. Water consumption was up in 2000 as a result of dry weather conditions.
In addition, operating results for Water Services reflected gains related to the
disposal of certain assets in 2001, an October 2000 rate increase implemented by
Heater and regulatory relief granted in Florida in 2000.
2001 COMPARED TO 2000
ENERGY SERVICES
OPERATING REVENUE was up $31.3 million, or 5%, in 2001. Wholesale power
marketing and trading revenue was higher in 2001 due to warmer summer weather
and overall market conditions. Retail megawatthour sales were down 6% from 2000
because of planned shutdowns and reduced production by taconite customers.
Operating revenue from retail sales, however, was up in 2001 due to additional
demand revenue from Large Power Customers who converted a portion of their
interruptible power to firm power and fuel clause recoveries for higher
purchased power and gas prices. Operating revenue in 2001 also included recovery
of 1998 CIP lost margins and Enventis, Inc. operations. Enventis, Inc. was
acquired in July 2001 and accounted for as a pooling of interests.
OPERATING EXPENSES were up $21.0 million, or 4%, in 2001 because of a planned
maintenance outage at Square Butte, the inclusion of Enventis, Inc. operations
and additional costs incurred as a result of a severe spring ice storm.
AUTOMOTIVE SERVICES
Both operating revenue and expenses for Automotive Services were up in 2001 due
to significant acquisitions made in 2000 and early 2001. Financial results for
2001 included 12 full months of operations from 28 wholesale and 10 "total loss"
vehicle auction facilities acquired or opened primarily in the second half of
2000 and results from acquisitions made in January and May 2001.
OPERATING REVENUE was up $309.5 million, or 59%, in 2001 reflecting a 37%
increase in vehicles sold at ADESA wholesale auction facilities, the inclusion
of revenue related to "total loss" vehicle services and a 14% increase in
vehicles financed at AFC's loan production offices. Sales volumes in
---------------------------------------------------------------------------
28 ALLETE 2001 Form 10-K
2001, however, were negatively impacted by the events of September 11 as dealer
attendance and already depressed wholesale prices both dropped suddenly during
the last half of September and remained soft through year end, reflecting the
impact of aggressive financing incentives offered by vehicle manufacturers.
Also, inclement weather earlier in the year resulted in both low attendance at
and canceled auctions.
OPERATING EXPENSES were up $274.5 million, or 63%, in 2001 reflecting additional
expenses associated with having more auctions and increased financing activity.
Expenses in 2001 included increased direct costs associated with processing
vehicles multiple times that did not sell as a result of the events of September
11. The events of September 11 caused low auction attendance, and further
depressed wholesale prices as did financing incentives offered by vehicle
manufacturers. Operating expenses in 2001 also included integration costs,
additional amortization of goodwill, additional interest expense related to debt
issued in late 2000 to finance acquisitions, higher utility expense and more
labor costs incurred as a result of inclement weather in early 2001.
INVESTMENTS AND CORPORATE CHARGES
OPERATING REVENUE was down $2.6 million, or 3%, in 2001 reflecting less revenue
from our securities portfolio, partially due to a lower average balance for most
of the year. The decrease in revenue was also attributed to $4.9 million less
from our emerging technology investments as a result of fewer sales of these
investments in 2001. Our real estate operations, however, reported stronger
sales in 2001, including its largest sale ever. Six large real estate sales in
2001 contributed $37.5 million to revenue, while in 2000 seven large real estate
sales contributed $31.9 million to revenue.
OPERATING EXPENSES in 2001 were up $6.0 million, or 9%, as a result of increased
interest expense and additional expenses for incentive compensation. These
increases were tempered by lower expenses at our real estate operations.
2000 COMPARED TO 1999
ENERGY SERVICES
OPERATING REVENUE was up $35.0 million, or 6%, in 2000 due to a 6% increase in
retail megawatthour sales because of higher demand from large industrial
customers. This increase was partially offset by fewer sales from wholesale
power marketing and trading activities. Wholesale prices and volumes were down
from 1999 because of lower demand for electricity in the region's wholesale
power market as a result of more moderate summer weather and transmission
constraints.
OPERATING EXPENSES were up $37.0 million, or 8%, in 2000 primarily due to
increased fuel and purchased power expenses. Fuel expense was $5.7 million
higher in 2000 because we paid higher prices for coal and generated 247,000, or
4%, more megawatthours to meet the higher requirements of our industrial
customers. In 2000 purchased power expense was up $23.1 million because of
higher prices. In 1999 Energy Services reflected a one-time property tax levy
associated with an industrial development project.
AUTOMOTIVE SERVICES
Both operating revenue and expenses related to Automotive Services were up in
2000 due to significant acquisitions made during that year. Financial results
for 2000 included a partial year of operations for the 28 wholesale and 10
"total loss" vehicle auction facilities acquired or opened primarily in the
second half of 2000 and 12 full months of operations for two wholesale auction
facilities acquired in 1999.
OPERATING REVENUE was up $139.4 million, or 36%, in 2000 reflecting a 24%
increase in vehicles sold through ADESA wholesale auction facilities, the
inclusion of revenue related to "total loss" vehicle services and a 14% increase
in the number of vehicles financed by AFC. The increase in vehicles sold was
primarily attributable to new auctions acquired or opened in 1999 and 2000.
OPERATING EXPENSES were up $125.1 million, or 40%, in 2000 primarily due to the
inclusion of new wholesale and "total loss" vehicle auction facilities acquired
or opened in 1999 and 2000. Increased sales activity at the auction facilities
and increased financing activity at AFC also contributed to higher operating
expenses in 2000.
INVESTMENTS AND CORPORATE CHARGES
OPERATING REVENUE was up $19.6 million, or 34%, in 2000. Significant sales by
our real estate operations were the primary reason for the increase. In 2000
seven large sales contributed $31.9 million to revenue, while in 1999 five large
sales contributed $17.1 million to revenue. Despite a lower average balance in
2000, income from our securities portfolio was higher due to improved returns.
Income from our emerging technology investments was $4.6 million lower in 2000
because in 1999 we reported gains received from one of our emerging technology
investments.
OPERATING EXPENSES were up $7.8 million, or 14%, in 2000 due to the cost of
property sold by our real estate operations.
OUTLOOK
CORPORATE. Our businesses in 42 states and nine Canadian provinces employ 14,000
employees. Since 1980 our annual total shareholder return (TSR) averaged 17%.
For the five-year and two-year periods ending December 31, 2001, our TSR has
averaged 19% and 28% per year, respectively. In order to continue this record of
TSR growth, we will focus on year-over-year earnings performance, maintain
strong cash flow discipline and focus on our core competencies which are Energy
Services and Automotive Services.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 29
We expect earnings growth for 2002 to be between 8% and 10%, resulting in per
share earnings in the range of $2.01 to $2.05, as compared to our 2001 pro forma
earnings per share of $1.87. This projection excludes the $0.06 per share charge
to exit our auto transport company in 2001 and a $0.12 per share increase from
an accounting change related to the amortization of goodwill in 2002. Including
the accounting change our anticipated 2002 earnings growth is expected to be
between 14% and 16%, resulting in per share earnings in the range of $2.13 to
$2.17, as compared to our 2001 pro forma earnings per share of $1.87. These
projections do not reflect any potential gain recognized on the sales of our
Water Services businesses. We plan to achieve this growth in earnings per share
through internal growth within our businesses.
Other factors that could affect net income or earnings per share for 2002
include any gains or losses from the sale of our auto transport company or other
businesses and acquisitions.
Our decision to sell our Water Services businesses and our auto transport
company allows us to focus on strengthening and growing our Energy Services and
Automotive Services segments. We anticipate selling our Water Services
businesses at a significant gain providing us with additional liquidity and
financial strength. Net proceeds from these sales will be used to fund growth
initiatives and may be used to pay down debt. We anticipate selling our auto
transport company by the end of first quarter 2002 and our Water Services
businesses before the end of 2002. We are currently entertaining offers for both
Florida Water and Heater.
We will also look at eliminating other businesses that have little or no growth
potential for us, are not strategic or significant, or have more value by being
monetized than by continuing to operate.
ENERGY SERVICES. Energy Services continues to generate strong cash flow from
operations and we anticipate net income from Energy Services to remain stable.
The accomplishments of 2001 will position Minnesota Power to generate more
electricity, move it more readily, manage more transactions with less risk and
benefit system reliability. Our access to and ownership of low-cost power are
Energy Services' greatest strengths and we will continue to look for
opportunities to add to our low-cost energy portfolio. We have more than
adequate generation to serve our native load. Power over and above our
customers' requirements is and will continue to be marketed through Split Rock
Energy.
Since approximately half of the electricity Minnesota Power sells is to large
industrial customers, primarily taconite producers, which have long-term
all-requirements contracts, the livelihood of the taconite industry is important
to us. The economic health of the taconite industry continues to be adversely
impacted by foreign steel imports. With the closure of LTV (which was not a
Large Power Customer) in January 2001 and various temporary shutdowns at other
Minnesota taconite facilities, the annual taconite production in Minnesota was
33 million tons in 2001 (47 million tons in 2000; 43 million tons in 1999).
Based on our research of the taconite industry, Minnesota taconite production
for 2002 is anticipated to be about 36 million tons. While taconite production
is currently expected to continue at annual levels of about 35 million tons, the
longer-term outlook for this cyclical industry is less certain. Long-term
contracts with our Large Power Customers help minimize the impact on earnings
that otherwise would result from such decreases in taconite production.
In addition to our 2001 acquisition of three 75-MW generating units at Taconite
Harbor, Minnesota, we have announced plans for 595 MW of low-cost merchant
generation (non-rate base generation sold at wholesale at market-based rates,
pursuant to authority from the FERC). If permitted and built, these additions
will increase our generation portfolio by over 50% between now and 2006.
Beginning in May 2002, we will have another 275 MW available for sale through
our 15-year power purchase agreement with a subsidiary of NRG Energy, Inc. The
permitting process has also been started for a 160-MW merchant peaking plant in
Superior, Wisconsin and a 225-MW energy facility at Blandin Paper in Grand
Rapids, Minnesota. Our ownership of the planned energy facility at Blandin Paper
is approximately 160 MW. While there has been recent publicity about excess
generating capacity in parts of the United States, the MAPP region within which
we operate has not seen the same major generation development. The latest MAPP
Load and Capability forecast indicates a deficit in reserve generation capacity
by 2006.
Depending on the outcome of pending appeals, a 220-mile, 345-kV Duluth-to-Wausau
electric transmission line proposed by Minnesota Power in partnership with
Wisconsin Public Service Corporation could be in service in 2005. The new line
addresses the pressing need for more dependable electricity in Wisconsin and the
Upper Midwest.
The merger of our telecommunication subsidiaries, MP Telecom and Enventis, Inc.
(acquired in July 2001), into Enventis Telecom will position the company to be a
leading integrated data services provider in the Upper Midwest.
Energy Services intends to seek additional cost-saving alternatives and
efficiencies, and expand its non-regulated services to increase its contribution
to consolidated net income. Overall, we believe Energy Services is well
positioned for future growth opportunities.
AUTOMOTIVE SERVICES. Automotive Services continues to be our largest contributor
to net income. We anticipate earnings from Automotive Services to increase by
over 30% in 2002, 20% excluding the impact of the accounting change for
amortization of goodwill.
---------------------------------------------------------------------------
30 ALLETE 2001 Form 10-K
Since 1995 when we first entered the automotive industry, we have transformed
and expanded our Automotive Services operations. Significant acquisitions over
the past few years have established ADESA as the second largest and the fastest
growing wholesale vehicle auction business in North America and the third
largest provider of "total loss" vehicle services in North America. ADESA is
also the premier automotive remarketing company in Canada. AFC is the leading
provider of independent auto dealer inventory financing. By offering an
expanding circle of customers new levels of service in the vehicle remarketing
industry, Automotive Services expects to expand its presence in the North
American auto industry. We believe further consolidation of the "total loss"
vehicle auction industry will occur, not unlike what has happened in the
wholesale vehicle auction business. In addition to internally growing our
existing auctions and dealer floorplan financing business, we will continue to
look for accretive acquisitions not only in the wholesale vehicle auction
business, but also in the "total loss" vehicle auction business. We will also
consider greenfield sites as appropriate and the integration of "total loss"
vehicle services at certain wholesale vehicle auction facilities.
The vehicle remarketing industry has been challenged by the events of September
11, by a softening economy and by lower wholesale prices resulting from high
used vehicle inventories and zero-percent financing on new vehicles. With
wholesale prices beginning to improve in 2002, we view these challenges as
short-term. We believe that used vehicle sales within the auto auction industry
will rise at a rate of 2% to 3% annually through 2003.
Automotive Services continue to focus on growth in the volume of vehicles sold
and financed, increased ancillary services, and operating and technological
efficiencies.
INVESTMENTS AND CORPORATE CHARGES. We anticipate net income from Investments and
Corporate Charges to remain stable in 2002. An expected lower contribution from
our real estate operations should be offset by better returns from our emerging
technology investments and securities portfolio, and lower corporate charges.
Revenue from property sales by real estate operations continues to be three to
four times more than the acquisition cost, creating strong cash generation and
profitability. Our real estate operations may, from time to time, acquire
packages of diversified properties at low cost, add value through entitlements
and infrastructure enhancements and sell the properties at current market
prices.
Our investments in emerging technologies make capital available to companies
developing products and services critical to the future of the electric utility
industry. Our focus has been primarily on micro generation and fuel cell
technology. We view our investments as a source of capital for redeployment into
existing businesses and additional business opportunities. We expect these
investments to add to income in the future.
With respect to our securities portfolio, we plan to continue to concentrate on
market-neutral investment strategies designed to provide stable and acceptable
returns without sacrificing needed liquidity. Our portfolio is hedged against
market downturns with the objective to maintain corporate liquidity.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ACTIVITIES
A primary goal of the strategic plan is to improve cash flow from operations.
Our strategy includes growing the businesses both internally with expanded
facilities, services and operations (see Capital Requirements) and externally
through acquisitions.
During 2001 cash flow from operations reflected strong operating results and
continued focus on working capital management. The decrease in cash flow from
operations in 2001 was primarily attributable to changes in trading securities.
In 2001 additional trading securities were purchased with a portion of the
proceeds from our second quarter common stock issuance (see Securities), while
in 2000 trading securities were sold to partially fund the acquisition of
Auction Finance Group, Inc. Cash flow from operations was also affected by a
number of factors representative of normal operations.
WORKING CAPITAL. Additional working capital, if and when needed, generally is
provided by the sale of commercial paper. Our securities investments can be
liquidated to provide funds for reinvestment in existing businesses or
acquisition of new businesses. Approximately 5.3 million original issue shares
of our common stock are available for issuance through INVEST DIRECT, our direct
stock purchase and dividend reinvestment plan. ALLETE's $205 million bank line
of credit provides credit support for our commercial paper program. The amount
and timing of future sales of our securities will depend upon market conditions
and our specific needs. We may sell securities to meet capital requirements, to
provide for the retirement or early redemption of issues of long-term debt, to
reduce short-term debt and for other corporate purposes.
A substantial amount of ADESA's working capital is generated internally from
payments for services provided. However, ADESA has arrangements to use proceeds
from the sale of commercial paper issued by ALLETE to meet short-term working
capital requirements arising from the timing of payment obligations to vehicle
sellers and the availability of funds from vehicle purchasers. During the sales
process, ADESA does not typically take title to vehicles.
AFC offers short-term on-site financing for dealers to purchase vehicles at
auctions in exchange for a security interest in those vehicles. The financing is
provided through the earlier of the date the dealer sells the vehicle or a
general borrowing term of 30 to 45 days. AFC has arrangements to
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 31
use proceeds from the sale of commercial paper issued by ALLETE to meet its
operational requirements. In addition, AFC has entered into an arrangement with
a manufacturer to floorplan up to $110 million of certain vehicles located at
auctions awaiting resale. AFC is fully collateralized as the manufacturer has
granted a security interest to AFC in these vehicles. To fund a portion of these
receivables, AFC has entered into a revolving line of credit with a bank for the
lesser of $55 million or 50% of the eligible receivables generated under this
floorplan. This agreement expires in June 2002. Borrowing under the line of
credit is collateralized by substantially all of AFC's assets. The outstanding
balance under this agreement was $29.1 million at December 31, 2001.
At December 31, 2001 approximately 81% of AFC's finance receivables were
securitized. AFC sells certain finance receivables on a revolving basis to a
wholly owned, unconsolidated, qualified special purpose subsidiary. This
subsidiary in turn sells, on a revolving basis, an undivided interest in
eligible finance receivables, up to a maximum at any one time outstanding of
$300 million, to third party purchasers under an agreement that expires at the
end of 2002. At December 31, 2001 AFC had sold $381.2 million of finance
receivables to the special purpose subsidiary ($335.7 million at December 31,
2000). Third party purchasers had purchased an undivided interest in finance
receivables of $267.0 million from this subsidiary at December 31, 2001 ($239.0
million at December 31, 2000). Unsold finance receivables held by the special
purpose subsidiary are recorded by AFC as residual interest at fair value. Fair
value is based upon estimates of future cash flows, using assumptions that
market participants would use to value such instruments, including estimates of
anticipated credit losses over the life of the receivables sold without
application of a discount rate due to the short-term nature of the receivables
sold. The fair value of AFC's residual interest was $103.0 million at December
31, 2001 ($106.2 million at December 31, 2000). Proceeds from the sale of the
receivables were used to repay borrowings from ALLETE and fund vehicle inventory
purchases for AFC's customers. AFC must maintain certain financial covenants
such as minimum tangible net worth to comply with the terms of the
securitization agreement.
Significant changes in accounts receivable balance at December 31, 2001 compared
to December 31, 2000 were due to increased sales and financing activity at
Automotive Services.
We provide credit support to facilitate the power marketing and trading
activities of Split Rock Energy, and had $36.0 million in outstanding support at
December 31, 2001 ($30.1 million at December 31, 2000). The support generally
expires one year from the date of issuance.
ACQUISITIONS AND DIVESTITURES. In January 2001 we acquired all of the
outstanding stock of ComSearch in exchange for ALLETE common stock and paid cash
to purchase all of the assets of Auto Placement Center (now ADESA Impact) in
transactions with an aggregate value of $62.4 million. ADESA Impact was funded
with internally generated funds and short-term debt which was refinanced with
long-term debt. (See Securities.) ADESA Impact is a provider of "total loss"
vehicle recovery services with 12 auction facilities in the United States.
ComSearch provides Internet-based parts location and insurance claim audit
services nationwide.
In May 2001 ADESA purchased the assets of the I-44 Auto Auction in Tulsa,
Oklahoma. The I-44 Auto Auction, which is located on 75 acres, was renamed ADESA
Tulsa and has six auction lanes, storage for over 3,000 vehicles and a five-bay
reconditioning and detail facility. The transaction was funded with internally
generated funds.
In July 2001 we acquired Enventis, Inc., a data network systems provider
headquartered in the Minneapolis-St. Paul area. In connection with this
acquisition, we issued 310,878 shares of ALLETE common stock. This transaction
complements our existing infrastructure and fiber optics network in Minnesota
and Wisconsin, and helps position our telecommunications business as one of the
leading integrated data service providers in the Upper Midwest.
In October 2001 we acquired certain non-mining properties from LTV and
Cleveland-Cliffs for $75 million. The non-mining properties include a 225-MW
electric generating facility and existing coal inventory at Taconite Harbor, a
60-mile transmission line, railroad trackage rights, and approximately 30,000
acres of forest and recreation land in northeast Minnesota. The transaction was
funded with short-term debt.
Proceeds from the June 2001 sale of Tarpon Point Marina and the surrounding 150
acres of development property in Cape Coral, Florida, to the Grosse Point
Development Company for $29 million in cash were invested in additional real
estate property in Florida. Winter Haven Citi Centre, which was acquired in
September 2001 from Faison-Winter Haven, LLC, is a 187,000 square foot retail
shopping center located on a 30-acre site and includes three out parcels for
sale. Approximately 6,000 acres of additional land in Palm Coast, Florida, were
purchased in December 2001 and January 2002. In aggregate, these transactions
totaled approximately $31 million.
We anticipate selling our auto transport company by the end of the first quarter
of 2002 and our Water Services businesses before the end of 2002. We anticipate
selling our Water Services businesses at a significant gain providing us with
additional liquidity and financial strength. Net proceeds from these sales will
be used to fund growth initiatives and may be used to pay down debt.
---------------------------------------------------------------------------
32 ALLETE 2001 Form 10-K
SECURITIES. In February 2001 we issued $125 million of 7.80% Senior Notes, due
February 15, 2008. Proceeds were used to repay a portion of ALLETE's short-term
bank borrowings incurred for the acquisition of vehicle auction facilities in
2000 and early 2001 and for general corporate purposes.
In March 2001 ALLETE, ALLETE Capital II and ALLETE Capital III, jointly filed a
registration statement with the SEC pursuant to Rule 415 under the Securities
Act of 1933. The registration statement, which has been declared effective by
the SEC, relates to the possible issuance, from time to time when market
conditions and the needs of ALLETE warrant, of an aggregate amount of $500
million of securities which may include ALLETE common stock, first mortgage
bonds, and other debt securities and ALLETE Capital II and ALLETE Capital III
preferred trust securities, of which approximately $387 million remains
available to be issued. ALLETE also previously filed a registration statement,
which has been declared effective by the SEC, relating to the possible issuance,
from time to time when market conditions and the needs of ALLETE warrant, of $25
million of first mortgage bonds and other debt securities. We may sell all or a
portion of the remaining registered securities if warranted by market conditions
and our capital requirements. Any offer and sale of the above mentioned
securities will be made only by means of a prospectus meeting the requirements
of the Securities Act of 1933 and the rules and regulations thereunder.
On May 30, 2001 we issued and sold in an underwritten public offering 6.5
million shares of common stock at $23.68 per share. In addition, an
over-allotment option for 100,000 shares at $23.68 per share was exercised by
the underwriters and sold on June 7, 2001. Total net proceeds of $150 million
were used to repay a portion of our short-term borrowings with the remainder
invested in short-term instruments. The increase in the number of shares of our
common stock outstanding as of December 31, 2001 had an immaterial impact on
2001 earnings per share.
INVESTMENTS. As companies included in our emerging technology investments are
sold, we will recognize a gain or loss. Our investment in the companies that
have gone public has a cost basis of approximately $12 million. The aggregate
market value of our investment in these companies at December 31, 2001 was $24
million ($52 million at December 31, 2000). These investments provide us with
access to developing technologies before their commercial debut, as well as
potential financial returns and diversification opportunities. We view these
investments as a source of capital for redeployment in existing businesses.
BOND RATINGS. ALLETE's first mortgage bonds and secured pollution control bonds
are currently rated Baa1 by Moody's Investors Service, Inc. (Moody's) and A by
Standard and Poor's Rating Group (Standard and Poor's). ALLETE's senior notes
and unsecured debt are rated Baa2 by Moody's and BBB by Standard and Poor's. The
disclosure of these securities ratings is not a recommendation to buy, sell or
hold our securities. Ratings may be subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should be evaluated
independently of any other rating.
PAYOUT RATIO. In 2001 we paid out 59% (51% in 2000; 110% in 1999) of our per
share earnings in dividends. Excluding the gain related to the ACE transaction,
in 2000 we paid out 64% of our per share earnings in dividends. Excluding the
charge related to the Capital Re transaction, in 1999 we paid out 72% of our per
share earnings in dividends.
CAPITAL REQUIREMENTS
Consolidated capital expenditures totaled $153.0 million in 2001 ($168.7 million
in 2000; $99.7 million in 1999). Expenditures in 2001 included $59.9 million for
Energy Services, $61.0 million for Automotive Services, and $32.1 million for
Water Services. Internally generated funds and the proceeds from the issuance of
long-term debt were the primary sources of funding these capital expenditures.
Capital expenditures are expected to be $184 million in 2002 and total about
$714 million for 2003 through 2006. The 2002 amount includes $78 million for
Energy Services, $55 million for Automotive Services and $5 million for
Investments and Corporate Charges. Energy Services' expenditures are for
electric co-generation, system component replacement and upgrades,
telecommunication fiber and coal handling equipment. Automotive Services'
expenditures are for new auctions currently under construction, expansions and
on-going improvements at existing vehicle auction facilities and associated
computer systems. The 2002 amount also includes $46 million to expand water and
wastewater treatment facilities to accommodate customer growth, to meet
environmental standards and for water conservation initiatives. We expect to use
internally generated funds and the proceeds from the 2001 issuance of equity
securities to fund these capital expenditures.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 33
MARKET RISK
Our securities portfolio has exposure to both price and interest rate risk.
Investments held principally for near-term sale are classified as trading
securities and recorded at fair value. Trading securities consist primarily of
the common stock of publicly traded companies. In strategies designed to hedge
overall market risks, we also sell common stock short. Short stock sales
outstanding at December 31, 2001 had a contract amount of $19.8 million and an
associated fair value loss of $0.8 million (contract amount of $5.3 million and
associated fair value loss of $0.5 million at December 31, 2000). Investments
held for an indefinite period of time are classified as available-for-sale
securities and also recorded at fair value. At December 31, 2001
available-for-sale securities consisted of the common stock of publicly traded
companies and equity securities in a grantor trust established to fund certain
employee benefits.
Our trading securities portfolio had a fair value of $155.6 million at December
31, 2001 ($90.8 million at December 31, 2000). Our available-for-sale securities
portfolio had a fair value of $26.5 million at December 31, 2001 ($25.3 million
at December 31, 2000).
In October 2001 we entered into an interest rate swap agreement with a notional
amount of $250 million to hedge $250 million of floating rate debt issued in
October 2000. Under the 15-month swap agreement, we make fixed quarterly
payments based on a fixed rate of 3.2% and receive payments at a floating rate
based on LIBOR (2.4% at December 31, 2001).
Our foreign currency exposure is limited to the conversion of operating results
of our Canadian subsidiaries and, therefore, we have not entered into any
foreign exchange contracts to hedge the conversion of our Canadian operating
results into United States dollars.
PRINCIPAL CASH FLOW BY EXPECTED MATURITY DATE
INTEREST RATE SENSITIVE ------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS FAIR
DECEMBER 31, 2001 2002 2003 2004 2005 2006 THEREAFTER TOTAL VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in Millions
Long-Term Debt
Fixed Rate $3.5 $30.3 $6.5 $0.7 $91.3 $494.0 $626.3 $652.5
Average Interest Rate - % 9.6 6.7 7.2 7.8 7.7 7.2 7.2 -
Variable Rate $3.4 $250.9 $3.2 $0.2 - $49.8 $307.5 $307.5
Average Interest Rate - % 4.6 4.1 4.8 5.2 - 2.0 3.8 -
Mandatorily Redeemable Preferred
Securities of Subsidiary - - - - - $75.0 $75.0 $74.7
Average Distribution Rate - % - - - - - 8.05 8.05 -
Interest Rate Swaps
Variable to Fixed $(2.1) $(0.5) - - - - $(2.6) $(2.5)
Average Pay Rate - % 3.2 3.2 - - - - - -
Average Receive Rate - % 2.4 2.4 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
ASSUMES VARIABLE RATE IN EFFECT AT DECEMBER 31, 2001 REMAINS CONSTANT THROUGH REMAINING TERM.
NEW ACCOUNTING STANDARDS
In July 2001 the FASB issued SFAS 141, 142 and 143. SFAS 141, "Business
Combinations," requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the pooling of
interests method of accounting is prohibited.
SFAS 142, "Goodwill and Other Intangible Assets," changes the accounting for
goodwill from an amortization method to an impairment-only approach. Effective
January 1, 2002 goodwill is no longer amortized. We had $536 million of goodwill
as of December 31, 2001 and after-tax goodwill amortization expense of
approximately $11 million in 2001. As required by SFAS 142, we will perform
impairment testing within the first six months of 2002. We do not believe we
have any goodwill impairment at this time.
SFAS 143, "Accounting for Asset Retirement Obligations," requires the
recognition of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the carrying
amount of the related long-lived asset is correspondingly increased. Over time,
the liability is accreted to its present value and the related capitalized
charge is depreciated over the useful life of the asset. SFAS 143 is effective
for fiscal years beginning after June 15, 2002. We are currently reviewing the
impact of SFAS 143 on the Company.
In August 2001 the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144
---------------------------------------------------------------------------
34 ALLETE 2001 Form 10-K
establishes a single accounting model for long-lived assets that are impaired or
are to be disposed. We adopted SFAS 144 in the fourth quarter of 2001. Under the
provisions of SFAS 144, we reported the results of our Water Services businesses
and our auto transport company as discontinued operations, and ceased
depreciation of assets related to these businesses in the fourth quarter of
2001.
--------------------------------------
READERS ARE CAUTIONED THAT FORWARD-LOOKING STATEMENTS INCLUDING THOSE CONTAINED
ABOVE, SHOULD BE READ IN CONJUNCTION WITH OUR DISCLOSURES UNDER THE HEADING:
"SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995" LOCATED ON PAGE 10 OF THIS FORM 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition - Market Risk for information related to quantitative and
qualitative disclosure about market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See our consolidated financial statements as of December 31, 2001 and 2000 and
for each of the three years in the period ended December 31, 2001, and
supplementary data, also included, which are indexed in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required for this Item is incorporated by reference herein and
will be set forth under the "Election of Directors" section in our Proxy
Statement for the 2002 Annual Meeting of Shareholders, except for information
with respect to executive officers which is set forth in Part I hereof. The 2002
Proxy Statement will be filed with the Securities and Exchange Commission within
120 days after the end of our 2001 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required for this Item is incorporated by reference herein from
the "Compensation of Executive Officers" section in our Proxy Statement for the
2002 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this Item is incorporated by reference herein from
the "Security Ownership of Certain Beneficial Owners and Management" section in
our Proxy Statement for the 2002 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Certain Documents Filed as Part of this Form 10-K.
(1) Financial Statements PAGES
ALLETE
Report of Independent Accountants ............................... 42
Consolidated Balance Sheet at
December 31, 2001 and 2000 .................................. 43
For the Three Years Ended December 31, 2001
Consolidated Statement of Income ............................ 44
Consolidated Statement of Cash Flows ........................ 45
Consolidated Statement of Stockholders' Equity............... 46
Notes to Consolidated Financial Statements.................... 47-61
(2) Financial Statement Schedules
Report of Independent Accountants on
Financial Statement Schedule ................................ 62
Schedule II - ALLETE Valuation and Qualifying
Accounts and Reserves ....................................... 62
All other schedules have been omitted either because the information is
not required to be reported by ALLETE or because the information is
included in the consolidated financial statements or the notes.
(3) Exhibits including those incorporated by reference
EXHIBIT NUMBER
- --------------------------------------------------------------------------------
*2 - Agreement and Plan of Merger by and among Minnesota Power & Light
Company (now ALLETE), AC Acquisition Sub, Inc., ADESA Corporation and
Certain ADESA Management Shareholders dated February 23, 1995 (filed
as Exhibit 2 to the March 3, 1995 Form 8-K, File No. 1-3548).
*3(a)1 - Articles of Incorporation, amended and restated as of May 8, 2001
(filed as Exhibit 3(b) to the March 31, 2001 Form 10-Q, File No.
1-3548).
*3(a)2 - Amendment to Certificate of Assumed Name, filed with the
Minnesota Secretary of State on May 8, 2001 (filed as Exhibit 3(a) to
the March 31, 2001 Form 10-Q, File No. 1-3548).
*3(b) - Bylaws, as amended effective May 8, 2001 (filed as Exhibit 3(c) to
the March 31, 2001 Form 10-Q, File No. 1-3548).
*4(a)1 - Mortgage and Deed of Trust, dated as of September 1, 1945, between
Minnesota Power & Light Company (now ALLETE) and The Bank of New York
(formerly Irving Trust Company) and Douglas J. MacInnes (successor to
Richard H. West), Trustees (filed as Exhibit 7(c), File No. 2-5865).
*4(a)2 - Supplemental Indentures to ALLETE's Mortgage and Deed of Trust:
NUMBER DATED AS OF REFERENCE FILE EXHIBIT
- --------------------------------------------------------------------------------
First March 1, 1949 2-7826 7(b)
Second July 1, 1951 2-9036 7(c)
Third March 1, 1957 2-13075 2(c)
Fourth January 1, 1968 2-27794 2(c)
Fifth April 1, 1971 2-39537 2(c)
Sixth August 1, 1975 2-54116 2(c)
Seventh September 1, 1976 2-57014 2(c)
Eighth September 1, 1977 2-59690 2(c)
Ninth April 1, 1978 2-60866 2(c)
Tenth August 1, 1978 2-62852 2(d)2
Eleventh December 1, 1982 2-56649 4(a)3
Twelfth April 1, 1987 33-30224 4(a)3
Thirteenth March 1, 1992 33-47438 4(b)
Fourteenth June 1, 1992 33-55240 4(b)
Fifteenth July 1, 1992 33-55240 4(c)
Sixteenth July 1, 1992 33-55240 4(d)
Seventeenth February 1, 1993 33-50143 4(b)
Eighteenth July 1, 1993 33-50143 4(c)
Nineteenth February 1, 1997 1-3548
(1996 Form 10-K) 4(a)3
Twentieth November 1, 1997 1-3548
(1997 Form 10-K) 4(a)3
Twenty-first October 1, 2000 333-54330 4(c)3
*4(b)1 - Indenture (for Unsecured Debt Securities), dated as of February
1, 2001, between ALLETE and LaSalle Bank National Association, as
Trustee (filed as Exhibit 4(d)1, File Nos. 333-57104, 333-57104-01 and
333-57104-02).
*4(b)2 - Officer's Certificate, dated February 21, 2001, establishing the terms
of the 7.80% Senior Notes, due February 15, 2008, of ALLETE (filed as
Exhibit 4(d)2, File Nos. 333-57104, 333-57104-01 and 333-57104-02).
*4(c)1 - Mortgage and Deed of Trust, dated as of March 1, 1943, between
Superior Water, Light and Power Company and Chemical Bank & Trust
Company and Howard B. Smith, as Trustees, both succeeded by U.S. Bank
Trust N.A., as Trustee (filed as Exhibit 7(c), File No. 2-8668).
---------------------------------------------------------------------------
36 ALLETE 2001 Form 10-K
EXHIBIT NUMBER
- --------------------------------------------------------------------------------
*4(c)2 - Supplemental Indentures to Superior Water, Light and Power Company's
Mortgage and Deed of Trust:
NUMBER DATED AS OF REFERENCE FILE EXHIBIT
- --------------------------------------------------------------------------------
First March 1, 1951 2-59690 2(d)(1)
Second March 1, 1962 2-27794 2(d)1
Third July 1, 1976 2-57478 2(e)1
Fourth March 1, 1985 2-78641 4(b)
Fifth December 1, 1992 1-3548
(1992 Form 10-K) 4(b)1
Sixth March 24, 1994 1-3548
(1996 Form 10-K) 4(b)1
Seventh November 1, 1994 1-3548
(1996 Form 10-K) 4(b)2
Eighth January 1, 1997 1-3548
(1996 Form 10-K) 4(b)3
*4(d)1 - Indenture, dated as of March 1, 1993, between Southern States
Utilities, Inc. (now Florida Water Services Corporation) and
Nationsbank of Georgia, National Association (now SunTrust Bank,
Central Florida, N.A.), as Trustee (filed as Exhibit 4(d) to the 1992
Form 10-K, File No. 1-3548).
*4(d)2 - Supplemental Indentures to Florida Water Services Corporation's
Indenture:
NUMBER DATED AS OF REFERENCE FILE EXHIBIT
- --------------------------------------------------------------------------------
First March 1, 1993 1-3548
(1996 Form 10-K) 4(c)1
Second March 31, 1997 1-3548
(March 31, 1997
Form 10-Q) 4
Third May 28, 1997 1-3548
(June 30, 1997
Form 10-Q) 4
*4(e) - Amended and Restated Trust Agreement, dated as of March 1, 1996,
relating to MP&L (now ALLETE) Capital I's 8.05% Cumulative Quarterly
Income Preferred Securities, between the Company, as Depositor, and
The Bank of New York, The Bank of New York (Delaware), Philip R.
Halverson, David G. Gartzke and James K. Vizanko, as Trustees (filed
as Exhibit 4(a) to the March 31, 1996 Form 10-Q, File No. 1-3548), as
modified by Amendment No. 1, dated April 11, 1996 (filed as Exhibit
4(b) to the March 31, 1996 Form 10-Q, File No. 1-3548 and First
Amendment [2000] dated August 23, 2000 (filed as Exhibit 4(f)2, File
No. 333-54330).
*4(f) - Indenture, dated as of March 1, 1996, relating to Minnesota Power &
Light Company's (now ALLETE) 8.05% Junior Subordinated Debentures,
Series A, Due 2015, between the Company and The Bank of New York, as
Trustee (filed as Exhibit 4(c) to the March 31, 1996 Form 10-Q, File
No. 1-3548).
*4(g) - Guarantee Agreement, dated as of March 1, 1996, relating to MP&L (now
ALLETE) Capital I's 8.05% Cumulative Quarterly Income Preferred
Securities, between Minnesota Power & Light Company (now ALLETE), as
Guarantor, and The Bank of New York, as Trustee (filed as Exhibit 4(d)
to the March 31, 1996 Form 10-Q, File No. 1-3548).
*4(h) - Agreement as to Expenses and Liabilities, dated as of March 20, 1996,
relating to MP&L (now ALLETE) Capital I's 8.05% Cumulative Quarterly
Income Preferred Securities, between Minnesota Power & Light Company
(now ALLETE) and MP&L (now ALLETE) Capital I (filed as Exhibit 4(e) to
the March 31, 1996 Form 10-Q, File No. 1-3548).
*4(i) - Officer's Certificate, dated March 20, 1996, establishing the terms of
the 8.05% Junior Subordinated Debentures, Series A, Due 2015 issued in
connection with the 8.05% Cumulative Quarterly Income Preferred
Securities of MP&L (now ALLETE) Capital I (filed as Exhibit 4(i) to
the 1996 Form 10-K, File No. 1-3548).
*4(j) - Rights Agreement, dated as of July 24, 1996, between Minnesota
Power & Light Company (now ALLETE) and the Corporate Secretary of the
Company, as Rights Agent (filed as Exhibit 4 to the August 2, 1996
Form 8-K, File No. 1-3548).
*4(k) - Indenture (for Unsecured Debt Securities), dated as of May 15, 1996,
between ADESA Corporation and The Bank of New York, as Trustee
relating to the ADESA Corporation's 7.70% Senior Notes, Series A, Due
2006, and its 8.10% Senior Notes, Series B, Due 2010 (filed as Exhibit
4(k) to the 1996 Form 10-K, File No. 1-3548).
*4(l) - Guarantee of the Company, dated as of May 30, 1996, relating to the
ADESA Corporation's 7.70% Senior Notes, Series A, Due 2006 (filed as
Exhibit 4(l) to the 1996 Form 10-K, File No. 1-3548).
*4(m) - ADESA Corporation Officer's Certificate 1-D-1, dated May 30, 1996,
relating to the ADESA Corporation's 7.70% Senior Notes, Series A, Due
2006 (filed as Exhibit 4(m) to the 1996 Form 10-K, File No. 1-3548).
*4(n) - Guarantee of Minnesota Power, Inc. (now ALLETE), dated as of March 30,
2000, relating to ADESA Corporation's 8.10% Senior Notes, Series B,
Due 2010 (filed as Exhibit 4(a) to the March 31, 2000 Form 10-Q, File
No. 1-3548).
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 37
EXHIBIT NUMBER
- --------------------------------------------------------------------------------
*4(o) - ADESA Corporation Officer's Certificate 2-D-2, dated as of March 30,
2000, relating to ADESA Corporation's 8.10% Senior Notes, Series B,
Due 2010 (filed as Exhibit 4(b) to the March 31, 2000 Form 10-Q, File
No. 1-3548).
*10(a) - Participation Agreement, dated as of March 31, 2000, among Asset
Holdings III, L.P., as Lessor, ADESA Corporation, as Lessee, SunTrust
Bank, as Credit Bank, and Cornerstone Funding Corporation I, as Issuer
(filed as Exhibit 10(a) to the March 31, 2000 Form 10-Q, File No.
1-3548).
*10(b) - Lease Agreement, dated as of March 31, 2000, between Asset Holdings
III, L.P., as Lessor and ADESA Corporation, as Lessee (filed as
Exhibit 10(b) to the March 31, 2000 Form 10-Q, File No. 1-3548).
*10(c) - Reimbursement Agreement, dated as of March 31, 2000, between SunTrust
Bank, as Credit Bank, and Asset Holdings III, L.P., as Lessor (filed
as Exhibit 10(c) to the March 31, 2000 Form 10-Q, File No. 1-3548).
*10(d) - Appendix I to Participation Agreement, Lease Agreement and
Reimbursement Agreement, all which are dated as of March 31, 2000,
relating to the Lease Financing for ADESA Corporation Auto Auction
Facilities (filed as Exhibit 10(d) to the March 31, 2000 Form 10-Q,
File No. 1-3548).
*10(e) - Assignment of Lease and Rents (without Exhibit A) entered into as of
March 31, 2000, by and between Asset Holdings III, L.P., as Lessor and
SunTrust Bank, as Credit Bank (filed as Exhibit 10(e) to the March 31,
2000 Form 10-Q, File No. 1-3548).
*10(f) - Limited Guaranty of Minnesota Power, Inc. (now ALLETE), dated as of
March 31, 2000, relating to the Lease Financing for ADESA Corporation
Auto Auction Facilities (filed as Exhibit 10(f) to the March 31, 2000
Form 10-Q, File No. 1-3548).
10(g) - Master Agreement (without Exhibits), dated as of July 30, 2001, among
ADESA Corporation, as a Guarantor, ADESA California, Inc. and certain
subsidiaries of ADESA Corporation that may hereafter become party
hereto, as Lessees, Atlantic Financial Group, Ltd., as Lessor, certain
financial institutions parties hereto, as Lenders, and SunTrust Bank,
as Agent.
10(h) - Master Lease Agreement (without Exhibits), dated as of July 30, 2001,
between Atlantic Financial Group, Ltd., as Lessor, and ADESA
California, Inc. and certain other subsidiaries of ADESA Corporation,
as Lessees.
10(i) - Loan Agreement, dated as of July 30, 2001, among Atlantic Financial
Group, Ltd., as Lessor and Borrower, the financial institutions party
hereto, as Lenders, and SunTrust Bank, as Agent.
10(j) - Guaranty Agreement from ALLETE, dated as of July 30, 2001, relating to
the Master Agreement, dated as of July 30, 2001.
*10(k) - Wholesale Power Coordination and Dispatch Operating Agreement, dated
April 14, 2000, between Minnesota Power, Inc. (now ALLETE) and Split
Rock Energy LLC (filed as Exhibit 10(a) to the June 30, 2000 Form
10-Q, File No. 1-3548).
*10(l) - Letter addressed to the Federal Energy Regulatory Commission, dated
April 21, 2000, amending the Wholesale Power Coordination and Dispatch
Operating Agreement, dated April 14, 2000, between Minnesota Power,
Inc. (now ALLETE) and Split Rock Energy LLC (filed as Exhibit 10(b) to
the June 30, 2000 Form 10-Q, File No. 1-3548).
*10(m) - Guarantee Agreement, dated August 16, 2000, made by and among
Minnesota Power, Inc. (now ALLETE), CoBank, ACB and ABN AMRO Bank,
N.V. (filed as Exhibit 10 to the September 30, 2000 Form 10-Q, File
No. 1-3548).
*10(n)1 - Receivables Purchase Agreement, dated as of December 31, 1996, among
AFC Funding Corporation, as Seller, Automotive Finance Corporation, as
Servicer, Pooled Accounts Receivable Capital Corporation, as
Purchaser, and Nesbitt Burns Securities Inc., as Agent (filed as
Exhibit 10(f) to the 1996 Form 10-K, File No. 1-3548).
*10(n)2 - Amendments to Receivables Purchase Agreement:
NUMBER DATED AS OF REFERENCE FILE EXHIBIT
- --------------------------------------------------------------------------------
First February 28, 1997 1-3548
(1996 Form 10-K) 10(g)
Second August 15, 1997 1-3548
(September 30, 1997
Form 10-Q) 10
Third October 30, 1998 1-3548
(September 30, 1999
Form 10-Q) 10(a)
Fourth September 22, 1999 1-3548
(September 30, 1999
Form 10-Q) 10(b)
*10(o) - Purchase and Sale Agreement, dated as of December 31, 1996, between
AFC Funding Corporation and Automotive Finance Corporation (filed as
Exhibit 10(h) to the 1996 Form 10-K, File No. 1-3548).
---------------------------------------------------------------------------
38 ALLETE 2001 Form 10-K
EXHIBIT NUMBER
- --------------------------------------------------------------------------------
*10(p) - Power Purchase and Sale Agreement, dated as of May 29, 1998, between
Minnesota Power, Inc. (now ALLETE) and Square Butte Electric
Cooperative (filed as Exhibit 10 to the June 30, 1998 Form 10-Q, File
No. 1-3548).
+*10(q) - Minnesota Power (now ALLETE) Executive Annual Incentive Plan,
effective January 1, 1996 (filed as Exhibit 10(a) to the 1995 Form
10-K, File No. 1-3548).
+*10(r) - Minnesota Power (now ALLETE) and Affiliated Companies Supplemental
Executive Retirement Plan, as amended and restated, effective August
1, 1994 (filed as Exhibit 10(b) to the 1995 Form 10-K, File No.
1-3548).
+*10(s) - Executive Investment Plan-I, as amended and restated, effective
November 1, 1988 (filed as Exhibit 10(c) to the 1988 Form 10-K, File
No. 1-3548).
+*10(t) - Executive Investment Plan-II, as amended and restated, effective
November 1, 1988 (filed as Exhibit 10(d) to the 1988 Form 10-K, File
No. 1-3548).
+*10(u) - Deferred Compensation Trust Agreement, as amended and restated,
effective January 1, 1989 (filed as Exhibit 10(f) to the 1988 Form
10-K, File No. 1-3548).
+*10(v) - Minnesota Power (now ALLETE) Executive Long-Term Incentive
Compensation Plan, effective January 1, 1996 (filed as Exhibit 10(a)
to the June 30, 1996 Form 10-Q, File No. 1-3548).
+*10(w) - Minnesota Power (now ALLETE) Director Stock Plan, effective January 1,
1995 (filed as Exhibit 10 to the March 31, 1995 Form 10-Q, File No.
1-3548).
+*10(x) - Minnesota Power (now ALLETE) Director Long-Term Stock Incentive Plan,
effective January 1, 1996 (filed as Exhibit 10(b) to the June 30, 1996
Form 10-Q, File No. 1-3548).
+*10(y) - Retirement Agreement, dated August 28, 2001, between ALLETE and Edwin
L. Russell (filed as Exhibit 10 to the September 30, 2001 Form 10-Q,
File No. 1-3548).
12 - Computation of Ratios of Earnings to Fixed Charges and Supplemental
Ratios of Earnings to Fixed Charges. (Included as page 63 of this
document.)
*21 - Subsidiaries of the Registrant (reference is made to ALLETE's Form
U-3A-2 for the year ended December 31, 2001, File No. 69-78).
23(a) - Consent of Independent Accountants.
23(b) - Consent of General Counsel.
- ----------------------------------------
* INCORPORATED HEREIN BY REFERENCE AS INDICATED.
+ MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED
AS AN EXHIBIT TO THIS REPORT PURSUANT TO ITEM 14(C) OF FORM 10-K.
(b) Reports on Form 8-K.
Report on Form 8-K filed October 10, 2001 with respect to Item 5. Other
Events.
Report on Form 8-K filed October 18, 2001 with respect to Item 7.
Financial Statements and Exhibits.
Report on Form 8-K filed December 21, 2001 with respect to Item 5. Other
Events.
Report on Form 8-K filed January 14, 2002 with respect to Item 5. Other
Events.
Report on Form 8-K filed January 24, 2002 with respect to Item 7.
Financial Statements and Exhibits.
Report on Form 8-K filed January 25, 2002 with respect to Item 5. Other
Events.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 39
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.
ALLETE, Inc.
Dated: February 8, 2002 By David G. Gartzke
------------------------------------------------
David G. Gartzke
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
David G. Gartzke Chairman, President and February 8, 2002
- ----------------------------------- Chief Executive Officer
David G. Gartzke
James K. Vizanko Vice President, February 8, 2002
- ----------------------------------- Chief Financial Officer and Treasurer
James K. Vizanko
Mark A. Schober Vice President and Controller February 8, 2002
- -----------------------------------
Mark A. Schober
Kathleen A. Brekken Director February 8, 2002
- -----------------------------------
Kathleen A. Brekken
Dennis E. Evans Director February 8, 2002
- -----------------------------------
Dennis E. Evans
Glenda E. Hood Director February 8, 2002
- -----------------------------------
Glenda E. Hood
Peter J. Johnson Director February 8, 2002
- -----------------------------------
Peter J. Johnson
George L. Mayer Director February 8, 2002
- -----------------------------------
George L. Mayer
Jack I. Rajala Director February 8, 2002
- -----------------------------------
Jack I. Rajala
Arend J. Sandbulte Director February 8, 2002
- -----------------------------------
Arend J. Sandbulte
Nick Smith Director February 8, 2002
- -----------------------------------
Nick Smith
Bruce W. Stender Director February 8, 2002
- -----------------------------------
Bruce W. Stender
Donald C. Wegmiller Director February 8, 2002
- -----------------------------------
Donald C. Wegmiller
---------------------------------------------------------------------------
40 ALLETE 2001 Form 10-K
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999
WITH REPORT OF INDEPENDENT ACCOUNTANTS
AND REPORT OF MANAGEMENT
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 41
REPORTS
INDEPENDENT ACCOUNTANTS [PRICEWATERHOUSECOOPERS LLP LOGO]
To the Shareholders and
Board of Directors of ALLETE, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of ALLETE, Inc.
and its subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of ALLETE, Inc.'s management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 21, 2002
- --------------------------------------------------------------------------------
MANAGEMENT
The consolidated financial statements and other financial information were
prepared by management, who is responsible for their integrity and objectivity.
The financial statements have been prepared in conformity with generally
accepted accounting principles and necessarily include some amounts that are
based on informed judgments and best estimates and assumptions of management.
To meet management's responsibilities with respect to financial information, we
maintain and enforce a system of internal accounting controls designed to
provide assurance, on a cost effective basis, that transactions are carried out
in accordance with management's authorizations and that assets are safeguarded
against loss from unauthorized use or disposition. The system includes an
organizational structure that provides an appropriate segregation of
responsibilities, careful selection and training of personnel, written policies
and procedures, and periodic reviews by our internal audit department. In
addition, we have personnel policies that require all employees to maintain a
high standard of ethical conduct. Management believes the system is effective
and provides reasonable assurance that all transactions are properly recorded
and have been executed in accordance with management's authorization. Management
modifies and improves our system of internal accounting controls in response to
changes in business conditions. Our internal audit staff is charged with the
responsibility for determining compliance with our procedures.
Four of our directors, not members of management, serve as the Audit Committee.
Our Board of Directors, through the Audit Committee, oversees management's
responsibilities for financial reporting. The Audit Committee meets regularly
with management, the internal auditors and the independent accountants to
discuss auditing and financial matters and to assure that each is carrying out
their responsibilities. The internal auditors and the independent accountants
have full and free access to the Audit Committee without management present.
PricewaterhouseCoopers LLP, independent accountants, are engaged to express an
opinion on the financial statements. Their audit is conducted in accordance with
generally accepted auditing standards and includes a review of internal controls
and tests of transactions to the extent necessary to allow them to report on the
fairness of our operating results and financial condition.
David G. Gartzke
David G. Gartzke
Chairman, President and Chief Executive Officer
James K. Vizanko
James K. Vizanko
Chief Financial Officer
---------------------------------------------------------------------------
42 ALLETE 2001 Form 10-K
REPORTS
CONSOLIDATED FINANCIAL STATEMENTS
ALLETE CONSOLIDATED BALANCE SHEET
DECEMBER 31 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Millions
ASSETS
Current Assets
Cash and Cash Equivalents $ 221.1 $ 208.0
Trading Securities 155.6 90.8
Accounts Receivable 328.4 242.3
Inventories 32.7 25.1
Prepayments and Other 131.7 126.0
Discontinued Operations 40.4 38.8
- ---------------------------------------------------------------------------------------------------------------------
Total Current Assets 909.9 731.0
Property, Plant and Equipment 1,324.0 1,201.9
Investments 141.0 116.4
Goodwill 494.4 472.8
Other Assets 103.6 87.3
Discontinued Operations 309.6 304.6
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $3,282.5 $2,914.0
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 239.8 $ 260.3
Accrued Taxes, Interest and Dividends 38.1 45.2
Notes Payable and Long-Term Debt Due Within One Year 274.3 271.6
Other 106.5 84.5
Discontinued Operations 45.8 45.4
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 704.5 707.0
Long-Term Debt 933.8 817.2
Accumulated Deferred Income Taxes 106.9 111.8
Other Liabilities 163.4 145.7
Discontinued Operations 155.1 156.5
Commitments and Contingencies
- ---------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,063.7 1,938.2
- ---------------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary ALLETE Capital I Which Holds Solely Company Junior
Subordinated Debentures 75.0 75.0
- ---------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock Without Par Value, 130.0 Shares Authorized
83.9 and 74.7 Shares Outstanding 770.3 576.9
Unearned ESOP Shares (52.7) (55.7)
Accumulated Other Comprehensive Loss (14.5) (4.2)
Retained Earnings 440.7 383.8
- ---------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,143.8 900.8
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,282.5 $2,914.0
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 43
ALLETE CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Millions Except Per Share Amounts
OPERATING REVENUE
Energy Services $ 620.8 $ 589.5 $554.5
Automotive Services 832.1 522.6 383.2
Investments 74.8 77.4 57.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenue 1,527.7 1,189.5 995.5
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel and Purchased Power 233.1 229.0 200.2
Operations 1,012.1 730.6 598.8
Interest 74.7 58.8 49.5
- ---------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 1,319.9 1,018.4 848.5
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME BEFORE CAPITAL RE AND ACE 207.8 171.1 147.0
INCOME (LOSS) FROM INVESTMENT IN CAPITAL RE AND
RELATED DISPOSITION OF ACE - 48.0 (34.5)
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME FROM CONTINUING OPERATIONS 207.8 219.1 112.5
DISTRIBUTIONS ON REDEEMABLE
PREFERRED SECURITIES OF ALLETE CAPITAL I 6.0 6.0 6.0
INCOME TAX EXPENSE 73.2 76.2 50.3
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 128.6 136.9 56.2
INCOME FROM DISCONTINUED OPERATIONS 10.1 11.7 11.8
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 138.7 $ 148.6 $ 68.0
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OF COMMON STOCK
BASIC 75.8 69.8 68.4
DILUTED 76.5 70.1 68.7
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK
BASIC
Continuing Operations $1.70 $1.95 $0.80
Discontinued Operations 0.13 0.17 0.17
- ---------------------------------------------------------------------------------------------------------------------------------
$1.83 $2.12 $0.97
- ---------------------------------------------------------------------------------------------------------------------------------
DILUTED
Continuing Operations $1.68 $1.94 $0.80
Discontinued Operations 0.13 0.17 0.17
- ---------------------------------------------------------------------------------------------------------------------------------
$1.81 $2.11 $0.97
- ---------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE OF COMMON STOCK $1.07 $1.07 $1.07
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
---------------------------------------------------------------------------
44 ALLETE 2001 Form 10-K
ALLETE CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Millions
OPERATING ACTIVITIES
Net Income $ 138.7 $ 148.6 $ 68.0
Loss (Income) from Investment in Capital Re and Related
Disposition of ACE - Net of Dividends Received - (48.0) 34.5
Depreciation and Amortization 101.6 86.7 76.9
Deferred Income Taxes 10.3 (6.6) (12.8)
Changes in Operating Assets and Liabilities - Net of the
Effects of Acquisitions
Trading Securities (64.8) 88.9 16.1
Accounts Receivable (85.7) (29.1) (20.3)
Inventories (3.0) (2.2) (0.2)
Accounts Payable (23.9) 92.7 1.4
Other Current Assets and Liabilities 10.5 (75.1) 0.3
Other - Net 19.9 19.6 9.9
- -----------------------------------------------------------------------------------------------------------------------------------
Cash from Operating Activities 103.6 275.5 173.8
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sale of Investments 2.6 146.0 67.6
Additions to Investments (11.2) (42.5) (27.5)
Additions to Property, Plant and Equipment (153.0) (168.7) (99.7)
Acquisitions - Net of Cash Acquired (157.1) (453.0) (93.6)
Other - Net 21.3 24.4 (16.9)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash for Investing Activities (297.4) (493.8) (170.1)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of Long-Term Debt 125.2 306.3 51.5
Issuance of Common Stock 189.2 23.6 21.8
Changes in Notes Payable - Net 5.5 177.8 15.5
Reductions of Long-Term Debt (18.1) (58.8) (9.9)
Redemption of Preferred Stock - (31.5) -
Dividends on Preferred and Common Stock (81.8) (75.4) (75.0)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash from Financing Activities 220.0 342.0 3.9
- -----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (11.3) (5.9) 4.5
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS 14.9 117.8 12.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 219.3 101.5 89.4
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 234.2 $219.3 $101.5
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Period for
Interest - Net of Capitalized $84.2 $66.3 $61.3
Income Taxes $60.5 $107.1 $60.3
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 45
ALLETE CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ACCUMULATED
TOTAL OTHER UNEARNED CUMULATIVE
STOCKHOLDERS' RETAINED COMPREHENSIVE ESOP COMMON PREFERRED
EQUITY EARNINGS INCOME (LOSS) SHARES STOCK STOCK
- ------------------------------------------------------------------------------------------------------------------------------------
Millions
BALANCE AT DECEMBER 31, 1998 $ 797.1 $317.6 $ 1.5 $(62.5) $529.0 $11.5
COMPREHENSIVE INCOME
Net Income 68.0 68.0
Other Comprehensive Income-- Net of Tax
Unrealized Losses on Securities-- Net (3.6) (3.6)
Foreign Currency Translation Adjustments 4.5 4.5
--------
Total Comprehensive Income 68.9
COMMON STOCK ISSUED - NET 23.0 23.0
DIVIDENDS DECLARED (75.0) (75.0)
ESOP SHARES EARNED 3.3 3.3
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 817.3 310.6 2.4 (59.2) 552.0 11.5
COMPREHENSIVE INCOME
Net Income 148.6 148.6
Other Comprehensive Income - Net of Tax
Unrealized Losses on Securities - Net (0.7) (0.7)
Foreign Currency Translation Adjustments (5.9) (5.9)
--------
Total Comprehensive Income 142.0
COMMON STOCK ISSUED - NET 24.9 24.9
REDEMPTION OF CUMULATIVE PREFERRED STOCK (11.5) (11.5)
DIVIDENDS DECLARED (75.4) (75.4)
ESOP SHARES EARNED 3.5 3.5
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 900.8 383.8 (4.2) (55.7) 576.9 -
COMPREHENSIVE INCOME
Net Income 138.7 138.7
Other Comprehensive Income - Net of Tax
Unrealized Gains on Securities - Net 2.5 2.5
Interest Rate Swap (1.5) (1.5)
Foreign Currency Translation Adjustments (11.3) (11.3)
--------
Total Comprehensive Income 128.4
COMMON STOCK ISSUED - NET 193.4 193.4
DIVIDENDS DECLARED (81.8) (81.8)
ESOP SHARES EARNED 3.0 3.0
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 $1,143.8 $440.7 $(14.5) $(52.7) $770.3 -
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
---------------------------------------------------------------------------
46 ALLETE 2001 Form 10-K
NOTES TO FINANCIAL STATEMENTS
1 BUSINESS SEGMENTS
Millions INVESTMENTS
AND
ENERGY AUTOMOTIVE CORPORATE
FOR THE YEAR ENDED DECEMBER 31 CONSOLIDATED SERVICES SERVICES CHARGES
- ----------------------------------------------------------------------------------------------------------------------------
2001
Operating Revenue $1,527.7 $620.8 $832.1 $74.8
Operation and Other Expense 1,129.3 468.2 610.9 50.2
Depreciation and Amortization Expense 89.0 46.0 42.7 0.3
Lease Expense 26.9 2.7 24.2 -
Interest Expense 74.7 20.1 35.3 19.3
- ----------------------------------------------------------------------------------------------------------------------------
Operating Income 207.8 83.8 119.0 5.0
Distributions on Redeemable
Preferred Securities of Subsidiary 6.0 2.4 - 3.6
Income Tax Expense (Benefit) 73.2 31.4 44.2 (2.4)
- ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 128.6 $ 50.0 $ 74.8 $ 3.8
--------------------------------------------
Income from Discontinued Operations 10.1
- ----------------------------------------------------------------------
Net Income $ 138.7
EBITDAL from Continuing Operations $398.4 $152.6 $221.2 $24.6
Total Assets $3,282.5 $1,055.8 $1,515.4 $361.3
Property, Plant and Equipment $1,324.0 $877.3 $446.7 -
Accumulated Depreciation and Amortization $829.2 $693.5 $133.4 $2.3
Capital Expenditures $153.0 $59.9 $61.0 -
- ----------------------------------------------------------------------------------------------------------------------------
2000
Operating Revenue $1,189.5 $589.5 $522.6 $77.4
Operation and Other Expense 865.5 445.8 370.8 48.9
Depreciation and Amortization Expense 73.0 46.3 26.2 0.5
Lease Expense 21.1 2.8 18.3 -
Interest Expense 58.8 21.1 23.3 14.4
- ----------------------------------------------------------------------------------------------------------------------------
Operating Income Before ACE 171.1 73.5 84.0 13.6
Income from Disposition of ACE 48.0 - - 48.0
Distributions on Redeemable
Preferred Securities of Subsidiary 6.0 2.0 - 4.0
Income Tax Expense 76.2 28.4 34.1 13.7
- ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 136.9 $ 43.1 $ 49.9 $43.9
--------------------------------------------
Income from Discontinued Operations 11.7
- ----------------------------------------------------------------------
Net Income $ 148.6
EBITDAL from Continuing Operations $324.0 $143.7 $151.8 $28.5
Total Assets $2,914.0 $950.7 $1,339.0 $280.9
Property, Plant and Equipment $1,201.9 $792.5 $409.4 -
Accumulated Depreciation and Amortization $746.0 $661.9 $81.9 $2.2
Capital Expenditures $168.7 $64.7 $74.2 $0.2
- ----------------------------------------------------------------------------------------------------------------------------
1999
Operating Revenue $995.5 $554.5 $383.2 $ 57.8
Operation and Other Expense 719.8 409.4 272.3 38.1
Depreciation and Amortization Expense 63.1 45.2 17.4 0.5
Lease Expense 16.1 3.2 12.9 -
Interest Expense 49.5 21.2 10.9 17.4
- ----------------------------------------------------------------------------------------------------------------------------
Operating Income Before Capital Re 147.0 75.5 69.7 1.8
Loss from Investment in Capital Re (34.5) - - (34.5)
Distributions on Redeemable
Preferred Securities of Subsidiary 6.0 1.7 - 4.3
Income Tax Expense (Benefit) 50.3 28.8 29.4 (7.9)
- ----------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations 56.2 $ 45.0 $ 40.3 $(29.1)
--------------------------------------------
Income from Discontinued Operations 11.8
- ----------------------------------------------------------------------
Net Income $ 68.0
EBITDAL from Continuing Operations $275.7 $145.1 $110.9 $19.7
Total Assets $2,312.6 $995.7 $661.9 $328.0
Property, Plant and Equipment $1,003.4 $770.0 $233.4 -
Accumulated Depreciation and Amortization $688.7 $629.7 $57.1 $1.9
Capital Expenditures $99.7 $47.7 $23.8 $1.3
- ----------------------------------------------------------------------------------------------------------------------------
INCLUDED $139.4 MILLION OF CANADIAN OPERATING REVENUE IN 2001 ($107.4 MILLION IN 2000; $56.8 MILLION IN 1999).
INCLUDED $187.6 MILLION OF CANADIAN ASSETS IN 2001 ($215.6 MILLION IN 2000; $119.3 MILLION IN 1999).
DISCONTINUED OPERATIONS REPRESENTED $350.0 MILLION OF TOTAL ASSETS IN 2001 ($343.4 MILLION IN 2000; $327.0 MILLION IN 1999)
AND $32.1 MILLION OF CAPITAL EXPENDITURES IN 2001 ($29.6 MILLION IN 2000; $26.9 MILLION IN 1999).
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 47
2 OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PREPARATION. References in this report to "we" and "our" are
to ALLETE and its subsidiaries, collectively. We prepare our financial
statements in conformity with generally accepted accounting principles. These
principles require management to make informed judgments, best estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION. Our consolidated financial statements include the
accounts of ALLETE and all of our majority owned subsidiary companies. All
material intercompany balances and transactions have been eliminated in
consolidation. Information for prior periods has been reclassified to present
comparable information for all periods.
BUSINESS SEGMENTS. Energy Services and Automotive Services segments were
determined based on products and services provided. The Investment and Corporate
Charges segment was determined based on short-term corporate liquidity needs and
the need to provide financial flexibility to pursue strategic initiatives in the
other business segments. We measure performance of our operations through
careful budgeting and monitoring of EBITDAL and contributions to consolidated
net income by each business segment. Discontinued operations included operating
results of businesses within our Water Services segment and our auto transport
company.
ENERGY SERVICES. Energy Services generate, transmit, distribute, market and
trade electricity. Native load electric service is provided to 145,000 customers
in northeastern Minnesota and northwestern Wisconsin. Large Power Customers,
which include five taconite producers, four paper and pulp mills, two pipeline
companies and one manufacturer, purchase about half of the electricity Minnesota
Power sells under all-requirements contracts with expiration dates extending
from September 2002 through December 2008. (See Item 1. - Energy Services -
Large Power Customers in this Form 10-K.) MPEX, a division of Minnesota Power,
markets power across the Midwest and Canada. Split Rock Energy LLC, formed as an
alliance between Minnesota Power and Great River Energy, combines power supply
capabilities and customer loads to share market and supply risks and to optimize
power trading opportunities. Split Rock Energy contracts for exclusive services
from MPEX. It was announced in January 2002 that MPEX will be transferred to
Split Rock Energy. The transfer is expected to occur in March 2002. We account
for our 50% ownership interest in Split Rock Energy under the equity method of
accounting. For the year ended December 31, 2001 Split Rock Energy's total net
income was $6.9 million (net loss of $27,000 in 2000). We purchase power from
Split Rock Energy to serve native load requirements and sell generation to Split
Rock Energy. Purchases and sales are at market rates. In 2001 we made power
purchases from Split Rock Energy of $56.1 million ($25.1 million in 2000) and
power sales to Split Rock Energy of $13.3 million ($11.7 million in 2000). BNI
Coal, a wholly owned subsidiary, mines and sells lignite coal to two North
Dakota mine-mouth generating units, one of which is Square Butte. Square Butte
supplies approximately 71% (322 MW) of its output to Minnesota Power under a
long-term contract. (See Note 13.)
Electric rates are under the jurisdiction of various state and federal
regulatory authorities. Billings are rendered on a cycle basis. Revenue is
accrued for service provided but not billed. Electric rates include adjustment
clauses that bill or credit customers for fuel and purchased energy costs above
or below the base levels in rate schedules and bill retail customers for the
recovery of CIP expenditures not collected in base rates.
AUTOMOTIVE SERVICES. Automotive Services include several wholly owned
subsidiaries operating as integral parts of the vehicle redistribution business.
ADESA is the second largest wholesale vehicle auction network in North America.
ADESA owns or leases, and operates 53 wholesale vehicle auctions in the United
States and Canada through which used cars and other vehicles are sold to
franchised automobile dealers and licensed used car dealers. Sellers at ADESA's
auctions include domestic and foreign auto manufacturers, car dealers,
automotive fleet/lease companies, banks and finance companies. ADESA Impact has
23 auction facilities in the United States and Canada that provide "total loss"
vehicle services to insurance, vehicle leasing and rental car companies. AFC
provides inventory financing for wholesale and retail automobile dealers who
purchase vehicles at auctions. AFC has 82 loan production offices located across
the United States and Canada. These offices provide qualified dealers credit to
purchase vehicles at any of the 400 plus auctions approved by AFC. PAR provides
customized vehicle remarketing services, including nationwide repossessions and
the liquidation of off-lease vehicles, to various businesses with fleet
operations. AutoVIN provides technology-enabled vehicle inspection services and
inventory auditing to the automotive industry. ADESA, ADESA Impact, PAR and
AutoVIN recognize revenue when services are performed. AFC's revenue is
comprised of gains on sales of receivables, and interest, fee and servicer
income. As is customary for finance companies, AFC's revenue is reported net of
interest expense of $3.4 million in 2001 ($2.7 million in 2000; $2.0 million in
1999). AFC generally sells its United States dollar denominated finance
receivables through a private securitization structure. Gains and losses on such
sales are generally recognized at the time of settlement based on the difference
between the sales proceeds and the allocated basis of the finance receivables
sold, adjusted for transaction
---------------------------------------------------------------------------
48 ALLETE 2001 Form 10-K
fees and residual interest retained. AFC also retains the right to service
receivables sold through securitization and receives a fee for doing so.
INVESTMENTS AND CORPORATE CHARGES. Investments and Corporate Charges include
real estate operations, investments in emerging technologies related to the
electric utility industry, a securities portfolio and general corporate
expenses, including interest, not specifically related to any other segment. Our
real estate operations include several wholly owned subsidiaries and an 80%
ownership in Lehigh. All are Florida companies which through their subsidiaries
own real estate in Florida. Real estate revenue is recognized on the accrual
basis.
DEPRECIATION. Property, plant and equipment are recorded at original cost and
are reported on the balance sheet net of accumulated depreciation. Expenditures
for additions and significant replacements and improvements are capitalized;
maintenance and repair costs are expensed as incurred. Expenditures for major
plant overhauls are also accounted for using this same policy. When non-utility
property, plant and equipment are retired or otherwise disposed of, gains or
losses are recognized in revenue. When utility property, plant and equipment are
retired or otherwise disposed of, no gain or loss is recognized.
Depreciation is computed using the estimated useful lives of the various classes
of plant. In 2001 average depreciation rates for the energy and automotive
services segments were 3.0% and 4.0% (3.3% and 3.7% in 2000; 3.3% and 3.9% in
1999).
ASSET IMPAIRMENTS. The Company periodically reviews its long-lived assets
whenever events indicate the carrying amount of the assets may not be
recoverable. As of December 31, 2001 and 2000 no significant write-downs were
required.
ACCOUNTS RECEIVABLE. Accounts receivable are reported on the balance sheet net
of an allowance for doubtful accounts. The allowance is based on our evaluation
of the receivable portfolio under current conditions, the size of the portfolio,
overall portfolio quality, review of specific problems and such other factors
that in our judgment deserve recognition in estimating losses.
AFC sells certain finance receivables on a revolving basis to a wholly owned,
unconsolidated, qualified special purpose subsidiary. This subsidiary in turn
sells, on a revolving basis, an undivided interest in eligible finance
receivables, up to a maximum at any one time outstanding of $300 million, to
third party purchasers under an agreement that expires at the end of 2002. At
December 31, 2001 AFC had sold $381.2 million of finance receivables to the
special purpose subsidiary ($335.7 million at December 31, 2000). Third party
purchasers had purchased an undivided interest in finance receivables of $267
million from this subsidiary at December 31, 2001 ($239 million at December 31,
2000). At December 31, 2000 AFC had $53.5 million of finance receivables sold to
another wholly owned, unconsolidated, qualified special purpose subsidiary under
an agreement that expired in June 2001. Unsold finance receivables held by the
special purpose subsidiary are recorded by AFC as residual interest at fair
value. Fair value is based upon estimates of future cash flows, using
assumptions that market participants would use to value such instruments,
including estimates of anticipated credit losses over the life of the
receivables sold without application of a discount rate due to the short-term
nature of the receivables sold. The fair value of AFC's residual interest was
$103.0 million at December 31, 2001 ($106.2 million at December 31, 2000).
Proceeds from the sale of the receivables were used to repay borrowings from
ALLETE and fund vehicle inventory purchases for AFC's customers. AFC must
maintain certain financial covenants such as minimum tangible net worth to
comply with the terms of the securitization agreement.
ACCOUNTS RECEIVABLE
DECEMBER 31 2001 2000
- --------------------------------------------------------------------------------
Millions
Trade Accounts Receivable $198.5 $184.8
Less: Allowance for Doubtful Accounts 5.8 4.8
- --------------------------------------------------------------------------------
192.7 180.0
- --------------------------------------------------------------------------------
Finance Receivables 522.8 458.0
Less: Amount Sold 381.2 389.2
Allowance for Doubtful Accounts 5.9 6.5
- --------------------------------------------------------------------------------
135.7 62.3
- --------------------------------------------------------------------------------
Total Accounts Receivable $328.4 $242.3
- --------------------------------------------------------------------------------
INVENTORIES. Inventories, which include fuel, material and supplies, are stated
at the lower of cost or market. Cost is determined by the average cost method.
GOODWILL. Goodwill relates to the Automotive Services segment and represents the
excess of cost over identifiable net assets of businesses acquired. Amortization
was computed on a straight-line basis over a 40 year period. Operating expenses
in 2001 included $13.8 million of goodwill amortization ($8.2 million in 2000;
$5.1 million in 1999).
In July 2001 the FASB issued SFAS 142, "Goodwill and Other Intangible Assets."
SFAS 142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Effective January 1, 2002 goodwill is no longer
amortized. We had $535.8 million of goodwill as of December 31, 2001. As
required by SFAS 142, we will perform impairment testing within the first six
months of 2002. We do not believe we have any goodwill impairment at this time.
UNAMORTIZED EXPENSE, DISCOUNT AND PREMIUM ON DEBT. Expense, discount and premium
on debt are deferred and amortized over the lives of the related issues.
CASH AND CASH EQUIVALENTS. We consider all investments purchased with maturities
of three months or less to be cash equivalents.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 49
FOREIGN CURRENCY TRANSLATION. Results of operations for our Canadian
subsidiaries are translated into United States dollars using the average
exchange rates during the period. Assets and liabilities are translated into
United States dollars using the exchange rate on the balance sheet date, except
for intangibles and fixed assets, which are translated at historical rates.
NEW ACCOUNTING STANDARDS. In July 2001 the FASB issued SFAS 141 and 143. SFAS
141, "Business Combinations," requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling of interests method of accounting is prohibited.
SFAS 143, "Accounting for Asset Retirement Obligations," requires the
recognition of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the carrying
amount of the related long-lived asset is correspondingly increased. Over time,
the liability is accreted to its present value and the related capitalized
charge is depreciated over the useful life of the asset. SFAS 143 is effective
for fiscal years beginning after June 15, 2002. We are currently reviewing the
impact of SFAS 143 on the Company.
In August 2001 the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 establishes a single accounting model
for long-lived assets that are impaired or are to be disposed. We adopted SFAS
144 in the fourth quarter of 2001. Under the provisions of SFAS 144, we reported
the results of our Water Services businesses and the auto transport company as
discontinued operations and ceased depreciation of assets related to these
businesses in the fourth quarter of 2001.
3 ACQUISITIONS AND DIVESTITURES
ADESA AUCTION FACILITIES. In January 2001 we acquired all of the outstanding
stock of ComSearch in exchange for ALLETE common stock and paid cash to purchase
all of the assets of Auto Placement Center (now ADESA Impact) in transactions
with an aggregate value of $62.4 million. In May 2001 ADESA purchased the assets
of the I-44 Auto Auction in Tulsa, Oklahoma. ADESA Impact and ADESA Tulsa were
accounted for using the purchase method and financial results have been included
in our consolidated financial statements since the date of purchase. Pro forma
financial results were not material. ComSearch was accounted for as a pooling of
interests. Financial results for prior periods have not been restated to reflect
this pooling due to immateriality.
In February 2000 ADESA purchased the Mission City Auto Auction in San Diego,
California. In May 2000 ADESA Canada purchased the remaining 27% of Impact Auto.
ADESA Canada acquired 20% of Impact Auto on October 1, 1995, 27% in March 1999
and another 26% in January 2000. In June 2000 ADESA acquired all of the
outstanding common shares of Auction Finance Group, Inc. (AFG). AFG owned CAAG
Auto Auction Holdings Ltd., which was doing business as Canadian Auction Group.
In August 2000 ADESA acquired Beebe Auto Exchange, Inc. and 51% of Interstate
Auto Auction. In October 2000 ADESA purchased nine auction facilities from
Manheim. These transactions had a combined purchase price of approximately $438
million and resulted in goodwill of $298 million. We used the purchase method of
accounting for these transactions. Financial results have been included in our
consolidated financial statements since the date of each purchase. Pro forma
financial results were not material.
In April 1999 ADESA acquired Des Moines Auto Auction and in July 1999 ADESA
Canada Inc. purchased the Vancouver Auto Auction. The two transactions had a
combined purchase price of $31.3 million and were accounted for using the
purchase method of accounting resulting in goodwill of $11.9 million. Financial
results for each facility have been included in our consolidated financial
statements since the date of purchase. Financial results prior to the
acquisition were not material.
ACQUISITION OF ENVENTIS, INC. In July 2001 we acquired Enventis, Inc., a data
network systems provider headquartered in the Minneapolis-St. Paul area. In
connection with this acquisition, we issued 310,878 shares of ALLETE common
stock. Enventis was accounted for as a pooling of interests. Financial results
for prior periods have not been restated to reflect this pooling due to
immateriality.
ACQUISITION OF GENERATING FACILITY. In October 2001 we acquired certain non-
mining properties from LTV and Cleveland-Cliffs for $75 million. The non-mining
properties include a 225-MW electric generating facility.
REAL ESTATE ACQUISITIONS. In September 2001 our real estate subsidiary purchased
Winter Haven Citi Centre, a retail shopping center. In December 2001 and January
2002 real estate subsidiaries purchased additional land in Palm Coast, Florida.
These transactions had a combined purchase price of approximately $31 million
and were accounted for using the purchase method.
ACQUISITION OF CAPE CORAL. In June 1999 Cape Coral Holdings, a subsidiary of
ALLETE Properties, purchased, for $36.2 million, certain real estate properties
located in Cape Coral, Florida. The transaction was accounted for using the
purchase method of accounting. Financial results have been included in our
consolidated financial statements since the date of purchase. Financial results
prior to the acquisition were not material..
---------------------------------------------------------------------------
50 ALLETE 2001 Form 10-K
4 DISCONTINUED OPERATIONS
In September 2001 we began a process of systematically evaluating our businesses
to determine the strategic value of our assets and explore ways to unlock that
value. As a result, our management and Board of Directors have committed to a
plan to sell our Water Services businesses and the auto transport company. Water
Services includes water and wastewater services operated by several wholly owned
subsidiaries in Florida, North Carolina and Georgia. We anticipate selling our
auto transport company by the end of the first quarter 2002 and our Water
Services businesses before the end of 2002. The financial results of these
businesses have been accounted for as discontinued operations. In accordance
with SFAS 144, we ceased depreciation of assets related to these businesses in
the fourth quarter of 2001.
During the fourth quarter of 2001 we recognized a $4.4 million, or $0.06 per
share, charge to exit the auto transport company. When this company is actually
sold this amount may be adjusted. The final amount is not expected to be
material.
SUMMARY OF DISCONTINUED OPERATIONS
INCOME STATEMENT
YEAR ENDED DECEMBER 31 2001 2000 1999
- --------------------------------------------------------------------------------
Millions
Operating Revenue $140.4 $142.4 $136.3
- --------------------------------------------------------------------------------
Pre-Tax Income $17.4 $20.0 $19.2
Income Tax Expense 7.3 8.3 7.4
- --------------------------------------------------------------------------------
Income from
Discontinued Operations $10.1 $11.7 $11.8
- --------------------------------------------------------------------------------
BALANCE SHEET INFORMATION
DECEMBER 31 2001 2000
- --------------------------------------------------------------------------------
Millions
Assets of Discontinued Operations
Current Assets $ 40.4 $ 38.8
Property, Plant and Equipment 280.1 277.8
Other Assets 29.5 26.8
- --------------------------------------------------------------------------------
$350.0 $343.4
- --------------------------------------------------------------------------------
Liabilities of Discontinued Operations
Current Liabilities $ 45.8 $ 45.4
Long-Term Debt 128.7 135.1
Other Liabilities 26.4 21.4
- --------------------------------------------------------------------------------
$200.9 $201.9
- --------------------------------------------------------------------------------
5 REGULATORY MATTERS
We file for periodic rate revisions with the Minnesota Public Utilities
Commission (MPUC), the Federal Energy Regulatory Commission and other state
regulatory authorities. Interim rates in Minnesota are placed into effect,
subject to refund with interest, pending a final decision by the appropriate
commission. In 2001 31% of our consolidated operating revenue (41% in 2000; 44%
in 1999) was under regulatory authority. The MPUC had regulatory authority over
approximately 25% in 2001 (33% in 2000; 36% in 1999) of our consolidated
operating revenue.
ELECTRIC RATES. The electric utility industry continues to restructure itself in
response to growing competition at both the wholesale and retail levels. This
restructuring has primarily affected Minnesota Power's wholesale power marketing
and trading activity through MPEX and Split Rock Energy. New legislation and
regulation that aims to maintain reliability, assure adequate energy supply, and
address wholesale price volatility while encouraging wholesale competition is
being considered at the federal level. Over one-half the states, representing
approximately 70% of the United States population, have passed either
legislation or regulation that initiates a process which may lead to retail
customer choice. These initiatives lack momentum in Minnesota and Wisconsin.
Legislative and regulatory activity as well as the actions of competitors affect
the way Minnesota Power strategically plans for its future. We cannot predict
the timing or substance of any future legislation or regulation.
DEFERRED REGULATORY CHARGES AND CREDITS. Our utility operations are subject to
the provisions of SFAS 71, "Accounting for the Effects of Certain Types of
Regulation." We capitalize as deferred regulatory charges incurred costs which
are probable of recovery in future utility rates. Deferred regulatory credits
represent amounts expected to be credited to customers in rates. Deferred
regulatory charges and credits are included in other assets and other
liabilities on our consolidated balance sheet.
DEFERRED REGULATORY CHARGES AND CREDITS
DECEMBER 31 2001 2000
- ------------------------------------------------------------------------------
Millions
Deferred Charges
Income Taxes $ 12.8 $ 13.9
Conservation Improvement Programs 0.3 1.1
Premium on Reacquired Debt 4.5 5.0
Other 0.4 1.0
- ------------------------------------------------------------------------------
18.0 21.0
Deferred Credits
Income Taxes 63.2 53.9
- ------------------------------------------------------------------------------
Net Deferred Regulatory Charges (Credits) $(45.2) $(32.9)
- ------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 51
6 FINANCIAL INSTRUMENTS
SECURITIES INVESTMENTS. Our securities portfolio is managed internally and by
selected outside managers. Securities held principally for near-term sale are
classified as trading securities and included in current assets at fair value.
Changes in the fair value of trading securities are recognized in earnings.
Trading securities consist primarily of the common stock of publicly traded
companies. Securities held for an indefinite period of time are classified as
available-for-sale securities and included in investments at fair value.
Unrealized gains and losses on available-for-sale securities are included in
accumulated other comprehensive income, net of tax. Unrealized losses on
available-for-sale securities that are other than temporary are recognized in
earnings. Realized gains and losses are computed on each specific investment
sold. Available-for-sale securities consisted of equity securities in a grantor
trust established to fund certain employee benefits and the common stock of
publicly traded companies. At December 31, 1999 available-for-sale securities
also included 4.7 million shares of ACE Limited (which were sold in 2000).
AVAILABLE-FOR-SALE SECURITIES
- ----------------------------------------------------------------------
Millions
GROSS
UNREALIZED FAIR
AT DECEMBER 31 COST GAIN (LOSS) VALUE
- ----------------------------------------------------------------------
2001 $18.1 $10.3 $(1.9) $26.5
2000 $10.8 $14.5 - $25.3
1999 $87.8 $6.3 $(0.3) $93.8
- ----------------------------------------------------------------------
NET
UNREALIZED
GAIN (LOSS)
GROSS IN OTHER
SALES REALIZED COMPREHENSIVE
AT DECEMBER 31 PROCEEDS GAIN (LOSS) INCOME
- ----------------------------------------------------------------------
2001 - - - $3.6
2000 $129.9 $49.1 - $(0.5)
1999 $0.2 - - $1.6
- ----------------------------------------------------------------------
The net unrealized gain included in earnings for trading securities in 2001 was
$0.9 million ($2.3 million loss in 2000; $1.6 million loss in 1999).
We also have several minority investments in venture capital funds and
privately-held start-up companies. These investments are accounted for under the
cost method. The total carrying value was $40.6 million at December 31, 2001
($38.5 million at December 31, 2000). We cannot estimate the fair value of these
investments as there is no public market or other practicable means of
estimation.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS AND RISKS. In portfolio strategies
designed to reduce market risks, we sell common stock securities short.
Unrealized gains and losses on short sales are recognized in earnings.
In October 2001 we entered into an interest rate swap agreement with a notional
amount of $250 million to hedge $250 million of floating rate debt issued in
October 2000. Under the 15-month swap agreement, we make fixed quarterly
payments based on a fixed rate of 3.2% and receive payments at a floating rate
based on LIBOR (2.4% at December 31, 2001). The agreement is subject to market
risk due to interest rate fluctuation. The swap is recorded on the balance sheet
at fair value and treated as a cash flow hedge with unrealized gains and losses
included in accumulated other comprehensive income.
The fair value of off-balance sheet financial instruments reflected the
estimated amounts that we would receive or pay if the contracts were terminated
at December 31. This fair value represents the difference between the estimated
future receipts and payments under the terms of each instrument, and is
estimated by obtaining quoted market prices or by using common pricing models.
These fair values should not be viewed in isolation, but rather in relation to
the fair value of the underlying hedged transaction.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
- ---------------------------------------------------------------------------
Millions
FAIR VALUE
CONTRACT RECEIVABLE
DECEMBER 31 AMOUNT (PAYABLE)
- ---------------------------------------------------------------------------
2001
Short Stock Sales Outstanding $19.8 $(0.8)
Interest Rate Swap $250.0 $(2.5)
- ---------------------------------------------------------------------------
2000
Short Stock Sales Outstanding $5.3 $(0.5)
Interest Rate Swap $250.0 $(1.1)
- ---------------------------------------------------------------------------
We provide credit support to facilitate the power marketing and trading
activities of Split Rock Energy, and had $36.0 million in outstanding support at
December 31, 2001 ($30.1 million at December 31, 2000). The support generally
expires one year from the date of issuance.
FAIR VALUE OF FINANCIAL INSTRUMENTS. With the exception of the items listed
below, the estimated fair values of all financial instruments approximate the
carrying amount. The fair values for the items below were based on quoted market
prices for the same or similar instruments.
FINANCIAL INSTRUMENTS CARRYING FAIR
DECEMBER 31 AMOUNT VALUE
- -------------------------------------------------------------------------
Millions
Long-Term Debt
2001 $933.8 $960.0
2000 $817.2 $825.3
Quarterly Income Preferred Securities
2001 $75.0 $74.7
2000 $75.0 $72.8
- -------------------------------------------------------------------------
---------------------------------------------------------------------------
52 ALLETE 2001 Form 10-K
CONCENTRATION OF CREDIT RISK. Financial instruments that subject us to
concentrations of credit risk consist primarily of accounts receivable.
Minnesota Power sells electricity to about 15 customers in northern Minnesota's
taconite, pipeline, paper and wood products industries. Receivables from these
customers totaled approximately $9 million at December 31, 2001 ($12 million at
December 31, 2000). Minnesota Power does not obtain collateral to support
utility receivables, but monitors the credit standing of major customers.
Our Automotive Services have trade receivables from fees to be collected from
the buyers and finance receivables created by financing dealer purchases of
automobiles in exchange for a security interest in those automobiles.
Substantially all trade and finance receivables are due from automobile dealers.
We have possession of automobiles or automobile titles collateralizing a
significant portion of the trade and finance receivables.
7 LEASING AGREEMENTS
In April 2000 leases for three ADESA auction facilities (Boston, Charlotte and
Knoxville) were refinanced in a $28.4 million leveraged lease transaction. The
new lease is treated as an operating lease for financial reporting purposes and
expires in April 2010 with no renewal options. ADESA is required to guarantee up
to $23 million of any deficiency in sales proceeds that the lessor realizes in
disposing of the leased properties. ADESA receives any sales proceeds in excess
of $29.3 million.
ADESA has guaranteed the payment of principal and interest up to $23 million on
the lessor's indebtedness, which consists of $28.4 million mortgage notes
payable, due April 1, 2020. Terms of the mortgage notes payable require, among
other things, that ADESA maintain certain minimum financial ratios. Interest on
the notes varies and is payable monthly. It is not practical to estimate the
fair value of the guarantee; however, ADESA does not anticipate that it will
incur losses as a result of this guarantee. We have guaranteed ADESA's
obligations under the lease.
ADESA has signed an agreement to lease a new auction facility in suburban San
Francisco to replace an existing facility. Construction on the new facility is
expected to be complete in the second half of 2002.
We lease other properties and equipment in addition to those listed above under
operating and capital lease agreements with terms expiring through 2010. The
aggregate amount of future minimum lease payments for capital and operating
leases during 2002 is $15.7 million ($11.9 million in 2003; $7.3 million in
2004; $6.3 million in 2005; and $5.2 million in 2006). Total rent expense was
$26.9 million in 2001 ($21.1 million in 2000; $16.1 million in 1999).
8 MANDITORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
ALLETE Capital I (Trust) was established as a wholly owned business trust of the
Company for the purpose of issuing common and preferred securities (Trust
Securities). In March 1996 the Trust publicly issued three million 8.05%
Cumulative Quarterly Income Preferred Securities (QUIPS), representing preferred
beneficial interests in the assets held by the Trust. The proceeds from the sale
of the QUIPS, and from common securities of the Trust issued to us, were used by
the Trust to purchase from us $77.5 million of 8.05% Junior Subordinated
Debentures, Series A, Due 2015 (Subordinated Debentures), resulting in net
proceeds to us of $72.3 million. Holders of the QUIPS are entitled to receive
quarterly distributions at an annual rate of 8.05% of the liquidation preference
value of $25 per security. We have the right to defer interest payments on the
Subordinated Debentures which would result in the similar deferral of
distributions on the QUIPS during extension periods up to 20 consecutive
quarters. We are the owner of all the common trust securities, which constitute
approximately 3% of the aggregate liquidation amount of all the Trust
Securities. The sole asset of the Trust is Subordinated Debentures, interest on
which is deductible by us for income tax purposes. The Trust will use interest
payments received on the Subordinated Debentures it holds to make the quarterly
cash distributions on the QUIPS.
The QUIPS are subject to mandatory redemption upon repayment of the Subordinated
Debentures at maturity or upon redemption. We have the option to redeem the
Subordinated Debentures at any time.
We have guaranteed, on a subordinated basis, payment of the Trust's obligations.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 53
9 LONG-TERM DEBT
LONG-TERM DEBT
DECEMBER 31 2001 2000
- --------------------------------------------------------------------------
Millions
First Mortgage Bonds
Floating Rate Due 2003 $250.0 $250.0
6 1/4% Series Due 2003 25.0 25.0
6.68% Series Due 2007 20.0 20.0
7% Series Due 2007 60.0 60.0
7 1/2% Series Due 2007 35.0 35.0
7 3/4% Series Due 2007 50.0 55.0
7% Series Due 2008 50.0 50.0
6% Pollution Control Series E Due 2022 111.0 111.0
7.70% Senior Notes, Series A Due 2006 90.0 90.0
7.80% Senior Notes Due 2008 125.0 -
8.10% Senior Notes, Series B Due 2010 35.0 35.0
Variable Demand Revenue Refunding
Bonds Series 1997 A, B, C and D
Due 2007 - 2020 39.0 39.0
Other Long-Term Debt, 3.7 - 9.0%
Due 2002 - 2026 50.7 58.7
Less Due Within One Year (6.9) (11.5)
- --------------------------------------------------------------------------
Total Long-Term Debt $933.8 $817.2
- --------------------------------------------------------------------------
The aggregate amount of long-term debt maturing during 2002 is $6.9 million
($281.2 million in 2003; $9.7 million in 2004; $0.9 million in 2005; and $91.3
million in 2006). Substantially all of our electric plant is subject to the lien
of the mortgages securing various first mortgage bonds.
At December 31, 2001 we had long-term bank lines of credit aggregating $5.0
million ($8.1 million at December 31, 2000). Drawn portions on these lines of
credit were zero at December 31, 2001 and 2000.
In February 2001 we issued $125 million of 7.80% Senior Notes due February 2008.
Proceeds were used to repay a portion of ALLETE's short-term borrowings incurred
for the acquisition of vehicle auction facilities purchased in 2000 and early
2001, and for general corporate purposes. These Senior Notes are unsecured.
In October 2000 we issued $250 million of Floating Rate First Mortgage Bonds due
October 2003. We have the option to redeem these bonds in whole or in part from
time to time, on any interest payment date prior to their maturity. The interest
rate is equal to LIBOR plus .85%. In October 2001 we entered into an interest
rate swap agreement to hedge the floating rate. We make fixed payments at 3.2%
and receive payments at a variable rate based on LIBOR. Including the impact of
the swap, the overall effective interest rate on this debt at December 31, 2001
was 4.1% (7.6% at December 31, 2000).
The 7 1/2% Series Due 2007 are redeemable after August 1, 2005; the 7 3/4%
Series Due 2007 are redeemable after June 1, 2002; the 7% Series Due 2008 are
redeemable after March 1, 2006; and the 6% Pollution Control Series E Due 2022
are redeemable after July 1, 2002. These bonds may be redeemed in whole or in
part at our option according to the terms of the obligations.
10 SHORT-TERM BORROWINGS AND COMPENSATING BALANCES
We have bank lines of credit aggregating $264.5 million ($210.5 million at
December 31, 2000), which make financing available through short-term bank loans
and provide credit support for commercial paper. At December 31, 2001, $234.4
million was available for use ($209 million at December 31, 2000). At December
31, 2001 we had issued commercial paper with a face value of $238.2 million
($260.6 million in 2000), with support provided by bank lines of credit and our
securities portfolio.
Certain lines of credit require a commitment fee of 0.0150%. Interest rates on
commercial paper and borrowings under the lines of credit ranged from 2.75% to
3.10% at December 31, 2001 (7.28% to 7.9% at December 31, 2000). The weighted
average interest rate on short-term borrowings at December 31, 2001 was 2.96%
(7.57% at December 31, 2000). The total amount of compensating balances at
December 31, 2001 and 2000, was immaterial.
11 PREFERRED STOCK
In 2000 we redeemed all of our outstanding Preferred Stock and Preferred Stock A
with proceeds from the sale of a portion of our securities portfolio and
internally generated funds.
All 100,000 shares of Serial Preferred Stock A, $7.125 Series were redeemed in
April 2000 for an aggregate of $10 million. All 100,000 shares of Serial
Preferred Stock A, $6.70 Series were redeemed in July 2000 for an aggregate of
$10 million. All 113,358 shares of 5% Preferred Stock were redeemed in August
2000 at $102.50 per share plus accrued and unpaid dividends of $0.75 per share
for an aggregate of $11.7 million.
---------------------------------------------------------------------------
54 ALLETE 2001 Form 10-K
12 COMMON STOCK AND EARNINGS PER SHARE
Our Articles of Incorporation and mortgages contain provisions that, under
certain circumstances, would restrict the payment of common stock dividends. As
of December 31, 2001 no retained earnings were restricted as a result of these
provisions.
COMMON STOCK SPLIT. On March 2, 1999 our common stock was split two-for-one. All
common share and per share amounts in our financial statements and notes to the
financial statements have been adjusted for all periods to reflect the
two-for-one stock split.
SUMMARY OF COMMON STOCK SHARES EQUITY
- -------------------------------------------------------------------------
Millions
Balance at December 31, 1998 72.3 $529.0
1999 Employee Stock Purchase Plan 0.1 1.3
Invest Direct 0.9 17.4
Other 0.2 4.3
- -------------------------------------------------------------------------
Balance at December 31, 1999 73.5 552.0
2000 Employee Stock Purchase Plan 0.1 1.1
Invest Direct 1.0 18.8
Other 0.1 5.0
- -------------------------------------------------------------------------
Balance at December 31, 2000 74.7 576.9
2001 Public Offering 6.6 150.0
Employee Stock Purchase Plan 0.1 1.4
Invest Direct 0.8 18.9
Other 1.7 23.1
- -------------------------------------------------------------------------
Balance at December 31, 2001 83.9 $770.3
- -------------------------------------------------------------------------
INVEST DIRECT IS ALLETE'S DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT
PLAN.
COMMON STOCK ISSUANCE. In May and June 2001 we sold 6.6 million shares of our
common stock in a public offering at $23.68 per share. Total net proceeds of
approximately $150 million were used to repay a portion of our short-term
borrowings with the remainder invested in short-term instruments.
SHAREHOLDER RIGHTS PLAN. In 1996 we adopted a rights plan that provides for a
dividend distribution of one preferred share purchase right (Right) to be
attached to each share of common stock.
The Rights, which are currently not exercisable or transferable apart from our
common stock, entitle the holder to purchase one two-hundredth of a share of
ALLETE's Junior Serial Preferred Stock A, without par value, at an exercise
price of $45. These Rights would become exercisable if a person or group
acquires beneficial ownership of 15% or more of our common stock or announces a
tender offer which would increase the person's or group's beneficial ownership
interest to 15% or more of our common stock, subject to certain exceptions. If
the 15% threshold is met, each Right entitles the holder (other than the
acquiring person or group) to purchase common stock (or, in certain
circumstances, cash, property or other securities of ours) having a market price
equal to twice the exercise price of the Right. If we are acquired in a merger
or business combination, or 50% or more of our assets or earning power are sold,
each exercisable Right entitles the holder to purchase common stock of the
acquiring or surviving company having a value equal to twice the exercise price
of the Right. Certain stock acquisitions will also trigger a provision
permitting the Board of Directors to exchange each Right for one share of our
common stock.
The Rights which expire on July 23, 2006, are nonvoting and may be redeemed by
us at a price of $.005 per Right at any time they are not exercisable. One
million shares of Junior Serial Preferred Stock A have been authorized and are
reserved for issuance under the plan.
EARNINGS PER SHARE. The difference between basic and diluted earnings per share
arises from outstanding stock options and performance share awards granted under
our Executive and Director Long-Term Incentive Compensation Plans.
RECONCILIATION OF
BASIC AND DILUTED BASIC DILUTIVE DILUTED
EARNINGS PER SHARE EPS SECURITIES EPS
- --------------------------------------------------------------------------------
Millions Except Per Share Amounts
2001
Income from Continuing Operations $128.6 - $128.6
Common Shares 75.8 0.7 76.5
Per Share from Continuing Operations $1.70 - $1.68
- --------------------------------------------------------------------------------
2000
Income from Continuing Operations $136.9 - $136.9
Less: Dividends on Preferred Stock 0.9 - 0.9
- --------------------------------------------------------------------------------
$136.0 - $136.0
Common Shares 69.8 0.3 70.1
Per Share from Continuing Operations $1.95 - $1.94
- --------------------------------------------------------------------------------
There was no difference between basic and diluted earnings per share for 1999.
We paid dividends on preferred stock of $0.9 million in 2000 ($2.0 million in
1999).
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 55
13 SQUARE BUTTE POWER PURCHASE AGREEMENT
Minnesota Power has a power purchase agreement with Square Butte that extends
through 2026 (Agreement). It provides a long-term supply of low-cost energy to
customers in our electric service territory and enables Minnesota Power to meet
power pool reserve requirements. Square Butte, a North Dakota cooperative
corporation, owns a 455-megawatt coal-fired generating unit (Unit) near Center,
North Dakota. The Unit is adjacent to a generating unit owned by Minnkota Power
Cooperative, Inc. (Minnkota), a North Dakota cooperative corporation whose Class
A members are also members of Square Butte. Minnkota serves as the operator of
the Unit and also purchases power from Square Butte.
Minnesota Power is entitled to approximately 71% of the Unit's output under the
Agreement. After 2005 and upon compliance with a two-year advance notice
requirement, Minnkota has the option to reduce Minnesota Power's entitlement by
5% annually, to a minimum of 50%. Minnesota Power is obligated to pay its pro
rata share of Square Butte's costs based on Minnesota Power's entitlement to
Unit output. Minnesota Power's payment obligation is suspended if Square Butte
fails to deliver any power, whether produced or purchased, for a period of one
year. Square Butte's fixed costs consist primarily of debt service. At December
31, 2001 Square Butte had total debt outstanding of $298.8 million. Total annual
debt service for Square Butte is expected to be approximately $36 million in
both 2002 and 2003 and $23 million in each of the years 2004 through 2006.
Variable operating costs include the price of coal purchased from BNI Coal, our
subsidiary, under a long-term contract.
Minnesota Power's cost of power purchased from Square Butte during 2001 was
$63.3 million ($58.7 million in 2000 and in 1999). This reflects Minnesota
Power's pro rata share of total Square Butte costs based on the 71% output
entitlement in 2001, 2000 and 1999. Included in this amount was Minnesota
Power's pro rata share of interest expense of $14.2 million in 2001 ($14.8
million in 2000; $15.5 million in 1999). Minnesota Power's payments to Square
Butte are approved as purchased power expense for ratemaking purposes by both
the MPUC and FERC.
14 JOINTLY OWNED ELECTRIC FACILITY
We own 80% of the 531-megawatt Boswell Energy Center Unit 4 (Boswell Unit 4).
While we operate the plant, certain decisions about the operations of Boswell
Unit 4 are subject to the oversight of a committee on which we and Wisconsin
Public Power, Inc. (WPPI), the owner of the other 20% of Boswell Unit 4, have
equal representation and voting rights. Each of us must provide our own
financing and is obligated to pay our ownership share of operating costs. Our
share of direct operating expenses of Boswell Unit 4 is included in operating
expense on our consolidated statement of income. Our 80% share of the original
cost included in electric plant at December 31, 2001 was $309 million ($309
million at December 31, 2000). The corresponding provision for accumulated
depreciation was $163 million at December 31, 2001 ($157 million at December 31,
2000).
15 INVESTMENTS IN CAPITAL RE AND ACE
In May 2000 we recorded a $30.4 million, or $0.44 per share, after-tax gain on
the sale of 4.7 million shares of ACE Limited. We received 4.7 million shares of
ACE plus $25.1 million in December 1999 when Capital Re merged with ACE. At the
time of the merger we owned 7.3 million shares, or 20%, of Capital Re.
As a result of the merger, in 1999 we recorded a $36.2 million, or $0.52 per
share, after-tax charge as follows: a $24.1 million, or $0.35 per share, charge
in the second quarter following the merger agreement and discontinuance of our
equity accounting for Capital Re and a $12.1 million, or $0.17 per share, charge
in the fourth quarter upon completion of the merger.
---------------------------------------------------------------------------
56 ALLETE 2001 Form 10-K
16 INCOME TAX EXPENSE
INCOME TAX EXPENSE
YEAR ENDED DECEMBER 31 2001 2000 1999
- -------------------------------------------------------------------------------
Millions
Current Tax Expense
Federal $51.3 $69.1 $56.0
Foreign 7.6 8.0 6.9
State 7.7 6.4 5.8
- -------------------------------------------------------------------------------
66.6 83.5 68.7
Deferred Tax Expense (Benefit)
Federal 6.9 (5.9) (11.1)
Foreign 0.2 0.9 (0.4)
State (0.1) (2.7) (6.0)
- -------------------------------------------------------------------------------
7.0 (7.7) (17.5)
Change in Valuation Allowance 1.0 1.8 0.6
- -------------------------------------------------------------------------------
Deferred Tax Credits (1.4) (1.4) (1.5)
- -------------------------------------------------------------------------------
Income Taxes on
Continuing Operations 73.2 76.2 50.3
Income Taxes on
Discontinued Operations 7.3 8.3 7.4
- -------------------------------------------------------------------------------
Total Income Tax Expense $80.5 $84.5 $57.7
- -------------------------------------------------------------------------------
RECONCILIATION OF TAXES FROM
FEDERAL STATUTORY RATE TO
TOTAL INCOME TAX EXPENSE
YEAR ENDED DECEMBER 31 2001 2000 1999
- -------------------------------------------------------------------------------
Millions
Tax Computed at Federal
Statutory Rate $76.7 $81.6 $44.0
Increase (Decrease) in Tax
State Income Taxes -- Net of
Federal Income Tax Benefit 8.3 4.4 6.5
Capital Re Transaction - - 10.8
Foreign Taxes 0.5 1.2 2.3
Tax Credits (1.7) (1.4) (3.3)
Other (3.3) (1.3) (2.6)
- -------------------------------------------------------------------------------
Total Income Tax Expense $80.5 $84.5 $57.7
- -------------------------------------------------------------------------------
DEFERRED TAX ASSETS AND LIABILITIES
DECEMBER 31 2001 2000
- -----------------------------------------------------------------------------
Millions
Deferred Tax Assets
Deferred Compensation Plans $19.1 $14.7
Depreciation 18.2 13.9
Investment Tax Credits 16.8 17.7
Allowance for Bad Debts 11.3 9.2
Employee Stock Ownership Plan 9.8 9.4
Postemployment Benefits 8.8 9.2
Lehigh Basis Difference 8.2 7.9
State NOL Carryover 7.2 1.9
Conservation Improvement Programs 5.4 5.5
Other 27.4 28.2
- -----------------------------------------------------------------------------
Gross Deferred Tax Assets 132.2 117.6
Deferred Tax Asset Valuation Allowance (6.0) (5.0)
- -----------------------------------------------------------------------------
Total Deferred Tax Assets 126.2 112.6
- -----------------------------------------------------------------------------
Deferred Tax Liabilities
Depreciation 168.7 177.2
Investment Tax Credits 23.7 25.1
Allowance for Funds Used During
Construction 11.7 12.8
Prepaid Pension 7.8 3.9
Like-Kind Exchange 7.3 -
Goodwill 5.6 1.5
Other 8.3 3.9
- -----------------------------------------------------------------------------
Total Deferred Tax Liabilities 233.1 224.4
- -----------------------------------------------------------------------------
Accumulated Deferred Income Taxes $106.9 $111.8
- -----------------------------------------------------------------------------
UNDISTRIBUTED EARNINGS. Undistributed earnings of our foreign subsidiaries were
approximately $36.3 million at December 31, 2001 ($27.9 million at December 31,
2000). Since this amount has been or will be reinvested in property, plant and
working capital, it is not practicable to calculate the deferred taxes
associated with the remittance of these investments.
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 57
17 OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME PRE-TAX TAX EXPENSE NET-OF-TAX
YEAR ENDED DECEMBER 31 AMOUNT (BENEFIT) AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Millions
2001
Unrealized Gain (Loss) on Securities
Gain During the Year $ 3.6 $ 1.1 $ 2.5
Less: Gain Included in Net Income - - -
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized Gain on Securities 3.6 1.1 2.5
Interest Rate Swap (2.5) (1.0) (1.5)
Foreign Currency Translation Adjustments (11.3) - (11.3)
- ------------------------------------------------------------------------------------------------------------------
Other Comprehensive Loss $(10.2) $ 0.1 $(10.3)
- ------------------------------------------------------------------------------------------------------------------
2000
Unrealized Gain (Loss) on Securities
Gain During the Year $ 47.8 $17.4 $ 30.4
Less: Gain Included in Net Income 49.1 18.0 31.1
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized Loss on Securities (1.3) (0.6) (0.7)
Foreign Currency Translation Adjustments (5.9) - (5.9)
- ------------------------------------------------------------------------------------------------------------------
Other Comprehensive Loss $ (7.2) $(0.6) $ (6.6)
- ------------------------------------------------------------------------------------------------------------------
1999
Unrealized Gain (Loss) on Securities
Gain During the Year $ 1.6 $0.7 $ 0.9
Add: Loss Included in Net Income 1.7 0.7 1.0
Less: Unrealized Gains of Disposed Equity Investee 6.7 1.2 5.5
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized Loss on Securities (3.4) 0.2 (3.6)
Foreign Currency Translation Adjustments 4.5 - 4.5
- ------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income $ 1.1 $ 0.2 $ 0.9
- ------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income at December 31, 2001 consisted of $3.8
million ($2.8 million at December 31, 2000) in net unrealized gains on
securities and $(18.3) million ($(7.0) million at December 31, 2000) in foreign
currency translation adjustments. The gain included in net income for the year
2000 included the gain from our sale of ACE shares.
---------------------------------------------------------------------------
58 ALLETE 2001 Form 10-K
18 PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Certain eligible employees of ALLETE are covered by noncontributory defined
benefit pension plans. At December 31, 2001 approximately 10% of the defined
benefit pension plan assets were invested in our common stock. We have defined
contribution pension plans covering eligible employees, for which the aggregate
annual cost was $7.1 million in 2001 ($5.7 million in 2000; $4.7 million in
1999). We provide certain health care and life insurance benefits for eligible
retired employees.
The assumed health care cost trend rate declines gradually to an ultimate rate
of 5.0% by 2007. For postretirement health and life benefits, a 1% increase in
the assumed health care cost trend rate would result in a $9.4 million and a
$1.2 million increase in the benefit obligation and total service and interest
costs, respectively; a 1% decrease would result in a $7.9 million and $1.0
million decrease in the benefit obligation and total service and interest costs,
respectively.
PENSION
- --------------------------------------------------------------------------
Millions
PLAN STATUS
AT SEPTEMBER 30 2001 2000
- --------------------------------------------------------------------------
Change in Benefit Obligation
Obligation, Beginning of Year $228.5 $220.0
Service Cost 4.2 4.1
Interest Cost 17.7 16.5
Actuarial Loss 13.6 2.4
Benefits Paid (14.8) (14.5)
- --------------------------------------------------------------------------
Obligation, End of Year 249.2 228.5
Change in Plan Assets
Fair Value, Beginning of Year 309.8 283.3
Actual Return on Assets (14.7) 40.3
Benefits Paid (14.8) (14.5)
Other 1.6 0.7
- --------------------------------------------------------------------------
Fair Value, End of Year 281.9 309.8
Funded Status 32.7 81.3
Unrecognized Amounts
Net Gain (19.5) (76.4)
Prior Service Cost 5.2 3.8
Transition Obligation 0.7 0.8
- --------------------------------------------------------------------------
Prepaid Pension Cost $ 19.1 $ 9.5
- --------------------------------------------------------------------------
BENEFIT EXPENSE
YEAR ENDED DECEMBER 31 2001 2000 1999
- --------------------------------------------------------------------------
Service Cost $ 4.2 $ 4.1 $ 4.7
Interest Cost 17.6 16.5 15.8
Expected Return on Assets (29.6) (27.5) (24.7)
Amortized Amounts
Unrecognized Gain (2.5) (2.3) (0.4)
Prior Service Cost 0.5 0.5 0.5
Transition Obligation 0.2 0.2 0.2
- --------------------------------------------------------------------------
Net Pension Credit $(9.6) $(8.5) $(3.9)
- --------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS 2001 2000
- --------------------------------------------------------------------------
Discount Rate 7.75% 8.0%
Expected Return on Plan Assets 10.0% 10.25%
Rate of Compensation Increase 3.5 - 4.5% 3.5 - 4.5%
HEALTH AND LIFE
- --------------------------------------------------------------------------
Millions
PLAN STATUS
AT SEPTEMBER 30 2001 2000
- --------------------------------------------------------------------------
Change in Benefit Obligation
Obligation, Beginning of Year $ 66.2 $ 61.3
Service Cost 2.7 2.7
Interest Cost 5.2 4.7
Actuarial (Gain) Loss 5.8 (0.2)
Participant Contributions 0.9 0.7
Benefits Paid (3.6) (3.0)
- --------------------------------------------------------------------------
Obligation, End of Year 77.2 66.2
Change in Plan Assets
Fair Value, Beginning of Year 39.9 29.7
Actual Return on Assets (2.3) 3.1
Employer Contribution 1.8 9.4
Participant Contributions 0.9 0.7
Benefits Paid (3.6) (3.0)
- --------------------------------------------------------------------------
Fair Value, End of Year 36.7 39.9
Funded Status (40.5) 26.3)
Unrecognized Amounts
Net Gain (4.9) (17.7)
Transition Obligation 27.1 29.5
- --------------------------------------------------------------------------
Accrued Cost $(18.3) $(14.5)
- --------------------------------------------------------------------------
BENEFIT EXPENSE
YEAR ENDED DECEMBER 31 2001 2000 1999
- --------------------------------------------------------------------------
Service Cost $2.7 $2.7 $2.7
Interest Cost 5.2 4.7 3.7
Expected Return on Assets (3.4) (2.7) (2.3)
Amortized Amounts
Unrecognized Gain (0.9) (0.9) (0.9)
Transition Obligation 2.4 2.4 2.4
- --------------------------------------------------------------------------
6.0 6.2 5.6
Amortization of Deferred Charge - - 2.8
- --------------------------------------------------------------------------
Net Expense $6.0 $6.2 $8.4
- --------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS 2001 2000
- --------------------------------------------------------------------------
Discount Rate 7.75% 8.0%
Expected Return on Plan Assets 8.0 - 10.0% 6.0 - 10.0%
Rate of Compensation Increase 3.5 - 4.5% 3.5 - 4.5%
Health Care Cost Trend Rate 10% 6.9%
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 59
19 EMPLOYEE STOCK AND INCENTIVE PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. We sponsor a leveraged employee stock ownership
plan (ESOP) that covers certain eligible employees. In 1989 the ESOP used the
proceeds from a $16.5 million third-party loan (15-year term at 9.125%),
guaranteed by us, to purchase 1.2 million shares of our common stock on the open
market. In 1990 the ESOP issued a $75 million note (term not to exceed 25 years
at 10.25%) to us as consideration for 5.6 million shares of our newly issued
common stock. The Company makes annual contributions to the ESOP equal to the
ESOP's debt service less available dividends received by the ESOP. The majority
of dividends received by the ESOP are used to pay debt service, with the balance
distributed to certain participants. The ESOP shares were initially pledged as
collateral for its debt. As the debt is repaid, shares are released from
collateral and allocated to participants, based on the proportion of debt
service paid in the year. The third-party debt of the ESOP is recorded as
long-term debt and the shares pledged as collateral are reported as unearned
ESOP shares in the Balance Sheet. As shares are released from collateral, the
Company reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings-per-share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; available dividends on unallocated ESOP shares are recorded as a
reduction of debt and accrued interest. ESOP compensation expense was $2.6
million in 2001 ($2.3 million in 2000; $2.2 million in 1999).
YEAR ENDED DECEMBER 31 2001 2000 1999
- ------------------------------------------------------------------------
Millions
Shares
Allocated Shares 3.9 3.9 3.8
Unreleased Shares 4.0 4.2 4.4
- ------------------------------------------------------------------------
Total ESOP Shares 7.9 8.1 8.2
- ------------------------------------------------------------------------
Fair Value of Unreleased Shares $100.3 $104.6 $75.8
- ------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN. We have an Employee Stock Purchase Plan that
permits eligible employees to buy up to $23,750 per year of our common stock at
95% of the market price. At December 31, 2001, 1.2 million shares had been
issued under the plan and 97,380 shares were held in reserve for future
issuance.
STOCK OPTION AND AWARD PLANS. We have an Executive Long-Term Incentive
Compensation Plan (Executive Plan) and a Director Long-Term Stock Incentive Plan
(Director Plan). The Executive Plan allows for the grant of up to 6.7 million
shares of our common stock to key employees. To date, these grants have taken
the form of stock options, performance share awards and restricted stock awards.
The Director Plan allows for the grant of up to 0.3 million shares of our common
stock to nonemployee directors. Each nonemployee director receives an annual
grant of 1,500 stock options and a biennial grant of performance shares equal to
$10,000 in value of common stock at the date of grant. Stock options are
exercisable at the market price of common shares on the date the options are
granted, and vest in equal annual installments over two years with expiration
ten years from the date of grant. Performance shares are earned over multi-year
time periods and are contingent upon the attainment of certain performance goals
of ALLETE. Restricted stock vests once certain periods of time have elapsed. At
December 31, 2001 2.4 million and 0.2 million shares were held in reserve for
future issuance under the Executive Plan and Director Plan, respectively.
We have elected to account for our stock-based compensation plans in accordance
with the Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees," and accordingly, compensation expense has not been recognized for
stock options granted. Compensation expense is recognized over the vesting
periods for performance and restricted share awards based on the market value of
our common stock, and was approximately $9 million in 2001 ($5 million in 2000;
$3 million in 1999). Pro forma net income and earnings per share under SFAS 123
"Accounting for Stock-Based Compensation" have not been presented because such
amounts are not materially different from actual amounts reported. This may not
be representative of the pro forma effects for future years if additional awards
are granted.
AVERAGE
EXERCISE
STOCK OPTION ACTIVITY OPTIONS PRICE
- ------------------------------------------------------------------------------
Options in Millions
2001
Outstanding, Beginning of Year 2.4 $18.52
Granted 0.8 $23.63
Exercised (0.8) $18.39
Canceled (0.1) $21.05
- ------------------------------------------------------------------------------
Outstanding, End of Year 2.3 $20.18
- ------------------------------------------------------------------------------
Exercisable, End of Year 1.2 $19.55
Fair Value of Options Granted
During the Year $5.39
- ------------------------------------------------------------------------------
2000
Outstanding, Beginning of Year 1.6 $19.77
Granted 1.0 $16.33
Exercised (0.1) $14.91
Canceled (0.1) $18.85
- ------------------------------------------------------------------------------
Outstanding, End of Year 2.4 $18.52
- ------------------------------------------------------------------------------
Exercisable, End of Year 1.1 $19.42
Fair Value of Options Granted
During the Year $3.20
- ------------------------------------------------------------------------------
1999
Outstanding, Beginning of Year 1.0 $17.31
Granted 0.9 $21.77
Exercised (0.2) $13.91
Canceled (0.1) $21.25
- ------------------------------------------------------------------------------
Outstanding, End of Year 1.6 $19.77
- ------------------------------------------------------------------------------
Exercisable, End of Year 0.6 $16.38
Fair Value of Options Granted
During the Year $3.38
- ------------------------------------------------------------------------------
---------------------------------------------------------------------------
60 ALLETE 2001 Form 10-K
At December 31, 2001 options outstanding consisted of 0.8 million with an
exercise price of $13.69 to $16.25, and 1.5 million with an exercise price of
$21.63 to $23.63. The options with an exercise price of $13.69 to $16.25 have an
average remaining contractual life of 7.3 years with 0.4 million exercisable on
December 31, 2001 at an average price of $15.26. The options with an exercise
price of $21.63 to $23.63 have an average remaining contractual life of 7.8
years with 0.8 million exercisable on December 31, 2001 at an average price of
$21.91.
A total of 0.6 million performance share grants were awarded in 2000 and 2001
for the performance period ended December 31, 2001. The grant date fair value of
the share grants was $9.6 million. The shares will be issued in 2002 and 2003.
A total of 0.3 million performance share grants were awarded during 1999 and
1998 for the performance period ended December 31, 1999. The grant date fair
value of the share grants was $6.5 million. At December 31, 2001 75% of the
shares had already been issued, with the balance to be issued in 2002.
In January 2002 we granted stock options to purchase approximately 0.8 million
shares of common stock (exercise price of $25.68 per share), and 0.3 million
performance share grants. The ultimate issuance of performance share grants is
contingent upon the attainment of certain future performance goals of ALLETE.
The grant date fair value of the share grants was $8.5 million.
20 QUARTERLY FINANCIAL DATA (UNAUDITED)
Information for any one quarterly period is not necessarily indicative of the
results which may be expected for the year. Financial results for the fourth
quarter of 2001 included a $4.4 million, or $0.06 per share, after-tax charge to
exit the auto transport company. Financial results for 2000 included a $30.4
million, or $0.44 per share, after-tax gain on the sale of 4.7 million shares of
ACE in the second quarter. (See Note 15.)
QUARTER ENDED MAR. 31 JUN. 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------
Millions Except Earnings Per Share
2001
Operating Revenue $377.3 $405.5 $383.3 $361.6
Operating Income from
Continuing Operations $51.6 $66.8 $52.1 $37.3
Net Income
Continuing Operations $30.2 $39.2 $34.5 $24.7
Discontinued Operations 2.7 3.3 3.3 0.8
- --------------------------------------------------------------------------------------------
$32.9 $42.5 $37.8 $25.5
Earnings Available for
Common Stock $32.9 $42.5 $37.8 $25.5
Earnings Per Share of Common Stock
Basic
Continuing Operations $0.42 $0.54 $0.44 $0.30
Discontinued Operations 0.04 0.04 0.04 0.01
- --------------------------------------------------------------------------------------------
$0.46 $0.58 $0.48 $0.31
Diluted
Continuing Operations $0.42 $0.53 $0.43 $0.30
Discontinued Operations 0.04 0.04 0.04 0.01
- --------------------------------------------------------------------------------------------
$0.46 $0.57 $0.47 $0.31
2000
Operating Revenue $288.7 $289.3 $287.6 $323.9
Operating Income from
Continuing Operations $48.6 $98.7 $43.8 $28.0
Net Income
Continuing Operations $28.3 $60.3 $31.6 $16.7
Discontinued Operations 2.1 3.9 3.4 2.3
- --------------------------------------------------------------------------------------------
$30.4 $64.2 $35.0 $19.0
Earnings Available for
Common Stock $29.9 $63.9 $34.9 $19.0
Earnings Per Share of Common Stock
Basic
Continuing Operations $0.40 $0.86 $0.45 $0.24
Discontinued Operations 0.03 0.06 0.05 0.03
- --------------------------------------------------------------------------------------------
$0.43 $0.92 $0.50 $0.27
Diluted
Continuing Operations $0.40 $0.86 $0.45 $0.24
Discontinued Operations 0.03 0.06 0.05 0.03
- --------------------------------------------------------------------------------------------
$0.43 $0.92 $0.50 $0.27
- ---------------------------------------------------------------------------
ALLETE 2001 Form 10-K 61
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE [PRICEWATERHOUSECOOPERS LLP LOGO]
To the Board of Directors
of ALLETE, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 21, 2002 appearing on page 42 of this Form 10-K also included an
audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, the Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 21, 2002
- --------------------------------------------------------------------------------
SCHEDULE II
ALLETE
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS
BALANCE AT ------------------------ DEDUCTIONS BALANCE AT
BEGINNING CHARGED OTHER FROM END OF
FOR THE YEAR ENDED DECEMBER 31 OF YEAR TO INCOME CHANGES RESERVES PERIOD
- --------------------------------------------------------------------------------------------------------------------------
Millions
Reserve Deducted from Related Assets
Reserve For Uncollectible Accounts
2001 Trade Accounts Receivable $4.8 $4.4 - $3.4 $5.8
Finance Receivables 6.5 2.4 - 3.0 5.9
2000 Trade Accounts Receivable 6.9 2.3 - 4.4 4.8
Finance Receivables 6.3 0.8 - 0.6 6.5
1999 Trade Accounts Receivable 5.5 3.3 - 1.9 6.9
Finance Receivables 3.6 3.8 - 1.1 6.3
Deferred Asset Valuation Allowance
2001 Deferred Tax Assets 5.0 1.0 - - 6.0
2000 Deferred Tax Assets 3.2 1.8 - - 5.0
1999 Deferred Tax Assets 2.6 0.6 - - 3.2
Reserve for uncollectible accounts includes bad debts written off.
---------------------------------------------------------------------------
62 ALLETE 2001 Form 10-K
EXHIBIT INDEX
EXHIBIT
NUMBER
- --------------------------------------------------------------------------------
10(g) - Master Agreement (without Exhibits), dated as of July 30, 2001, among
ADESA Corporation, as a Guarantor, ADESA California, Inc. and certain
subsidiaries of ADESA Corporation that may hereafter become party
hereto, as Lessees, Atlantic Financial Group, Ltd., as Lessor, certain
financial institutions parties hereto, as Lenders, and SunTrust Bank,
as Agent.
10(h) - Master Lease Agreement (without Exhibits), dated as of July 30, 2001,
between Atlantic Financial Group, Ltd., as Lessor, and ADESA
California, Inc. and certain other subsidiaries of ADESA Corporation,
as Lessees.
10(i) - Loan Agreement, dated as of July 30, 2001, among Atlantic Financial
Group, Ltd., as Lessor and Borrower, the financial institutions party
hereto, as Lenders, and SunTrust Bank, as Agent.
10(j) - Guaranty Agreement from ALLETE, dated as of July 30, 2001, relating to
the Master Agreement, dated as of July 30, 2001.
12 - Computation of Ratios of Earnings to Fixed Charges and Supplemental
Ratios of Earnings to Fixed Charges.
23(a) - Consent of Independent Accountants.
23(b) - Consent of General Counsel.
Exhibit 10(g)
============================================================
MASTER AGREEMENT
Dated as of July 30, 2001
among
ADESA CORPORATION,
as a Guarantor
ADESA CALIFORNIA, INC. AND
CERTAIN SUBSIDIARIES OF
ADESA CORPORATION
THAT MAY HEREAFTER BECOME PARTY HERETO,
as Lessees
ATLANTIC FINANCIAL GROUP, LTD., as Lessor,
CERTAIN FINANCIAL INSTITUTIONS PARTIES HERETO,
as Lenders
and
SUNTRUST BANK, as Agent
============================================================
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS; INTERPRETATION....................................1
ARTICLE II. ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS;NATURE OF
TRANSACTION....................................................2
SECTION 2.1 Agreement to Acquire, Construct, Fund and
Lease...........................................2
SECTION 2.2 Fundings of Purchase Price and Construction
Costs...........................................2
SECTION 2.3 Funded Amounts and Interest and Yield Thereon;
Unused Fee......................................5
SECTION 2.4 Lessee Owner for Tax Purposes...................6
ARTICLE III. CONDITIONS PRECEDENT; DOCUMENTS................................6
SECTION 3.1 Conditions to the Obligations of the Funding
Parties on each Closing Date....................6
SECTION 3.2 Additional Conditions for the Initial Closing
Date...........................................11
SECTION 3.3 Conditions to the Obligations of Lessee........12
SECTION 3.4 Conditions to the Obligations of the Funding
Parties on each Funding Date...................12
SECTION 3.5 Completion Date Conditions.....................13
SECTION 3.6 Addition of Lessees............................14
ARTICLE IV. REPRESENTATIONS...............................................15
SECTION 4.1 Representations of ADESA and other Lessees.....15
SECTION 4.2 Survival of Representations and Effect of
Fundings.......................................20
SECTION 4.3 Representations of the Lessor..................20
SECTION 4.4 Representations of each Lender.................22
ARTICLE V. COVENANTS OF ADESA, LESSEES AND THE LESSOR....................22
SECTION 5.1 Qualification as to Corporate Status...........22
SECTION 5.2 Further Assurances.............................22
SECTION 5.3 Reporting......................................22
SECTION 5.4 Affirmative Covenants of ADESA.................24
SECTION 5.5 Financial Covenants...........................25
SECTION 5.6 Additional Required Appraisals.................26
SECTION 5.7 Lessor's Covenants.............................26
ARTICLE VI. TRANSFERS BY LESSOR AND LENDERS; DISTRIBUTION OF PAYMENTS
AND PROCEEDS..................................................27
SECTION 6.1 Lessor Transfers...............................27
SECTION 6.2 Lender Transfers...............................27
SECTION 6.3 Distribution and Application of Rent
Payments.......................................29
-i-
SECTION 6.4 Distribution and Application of Purchase
Payment........................................29
SECTION 6.5 Distribution and Application to Funding Party
Balances of Lessee Payment of Recourse
Deficiency Amount Upon Exercise of Remarketing
Option.........................................30
SECTION 6.6 Distribution and Application to Funding
Party Balances of Remarketing Proceeds of
Leased Property................................30
SECTION 6.7 Distribution and Application of Payments
Received When an Event of Default Exists or
Has Ceased to Exist Following Rejection of
the Lease......................................31
SECTION 6.8 Distribution of Other Payments.................32
SECTION 6.9 Timing of Agent Distributions..................32
SECTION 6.10 Release of Leased Properties...................32
ARTICLE VII. INDEMNIFICATION...............................................33
SECTION 7.1 General Indemnification........................33
SECTION 7.2 Environmental Indemnity........................35
SECTION 7.3 Proceedings in Respect of Claims...............36
SECTION 7.4 General Tax Indemnity..........................38
SECTION 7.5 Increased Costs, etc...........................44
SECTION 7.6 End of Term Indemnity..........................47
ARTICLE VIII. MISCELLANEOUS.................................................48
SECTION 8.1 Survival of Agreements.........................48
SECTION 8.2 Documentary Conventions........................49
SECTION 8.3 Expenses.......................................49
SECTION 8.4 Liabilities of the Funding Parties: Sharing
of Payments....................................49
SECTION 8.5 Liabilities of the Agent.......................50
APPENDIX A Definitions and Interpretation
-ii-
SCHEDULES
SCHEDULE 2.2 Commitments
SCHEDULE 8.2 Notice Addresses
EXHIBITS
EXHIBIT A Form of Funding Request
EXHIBIT B Form of Assignment of Lease and Rents
EXHIBIT C Form of Security Agreement and Assignment
EXHIBIT D-1 Form of Mortgage
EXHIBIT D-2 Form of Deed of Trust
EXHIBIT E Form of Joinder Agreement
EXHIBIT F Form of Assignment and Acceptance Agreement
EXHIBIT G Forms of Opinions of Counsel
EXHIBIT H Form of Certification of Construction Completion
EXHIBIT I Form of Payment Date Notice
-iii-
MASTER AGREEMENT
THIS MASTER AGREEMENT, dated as of July 30, 2001 (as it may be amended
or modified from time to time in accordance with the provisions hereof, this
"MASTER AGREEMENT"), is among ADESA CORPORATION, an Indiana corporation
("ADESA"), as a Guarantor, ADESA CALIFORNIA, INC., a California corporation
("ADESA CALIFORNIA"), and certain other Subsidiaries of ADESA that may hereafter
become parties hereto as lessees pursuant to SECTION 3.6 (individually, a
"LESSEE" and collectively the "LESSEES"), as Lessees, ATLANTIC FINANCIAL GROUP,
LTD., a Texas limited partnership (the "LESSOR"), certain financial institutions
parties hereto as lenders (together with any other financial institution that
becomes a party hereto as a lender, collectively referred to as "LENDERS" and
individually as a "LENDER"), and SUNTRUST BANK, a Georgia state banking
corporation ("SunTrust Bank"), as agent for the Lenders (in such capacity, the
"AGENT").
PRELIMINARY STATEMENT
In accordance with the terms and provisions of this Master Agreement,
the Lease, the Loan Agreement and the other Operative Documents, (i) the Lessor
contemplates acquiring Land and, in certain cases, the Buildings on such Land
identified by ADESA or ADESA California from time to time, and leasing such Land
and Buildings thereon to a Lessee, (ii) ADESA California, as Construction Agent
for the Lessor, wishes, in certain instances, to arrange for the construction of
Buildings on Land for the Lessor and, when completed, the related Lessee wishes
to lease such Buildings from the Lessor as part of the Leased Properties under
the Lease, (iii) ADESA California, in carrying out its duties as agent, wishes
to obtain from Lessor, and the Lessor is willing to provide, funding for the
acquisition of the Land and Buildings, or, in certain instances, the
construction of Buildings, and (iv) the Lessor wishes to obtain, and Lenders are
willing to provide, from time to time, financing of a portion of the funding of
the acquisition of the Land and Buildings and, if applicable, the construction
of the Buildings.
In consideration of the mutual agreements contained in this Master
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in APPENDIX A hereto
for all purposes hereof; and the rules of interpretation set forth in APPENDIX A
hereto shall apply to this Master Agreement.
ARTICLE II.
ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS;
NATURE OF TRANSACTION
SECTION 2.1 AGREEMENT TO ACQUIRE, CONSTRUCT, FUND AND LEASE
(a) LAND. Subject to the terms and conditions of this Master
Agreement, with respect to each parcel of Land identified by ADESA or ADESA
California, on the related Closing Date (i) the Lessor agrees to acquire such
interest in the related Land, and any Building thereon, from the applicable
Seller as is transferred, sold, assigned and conveyed to the Lessor pursuant to
the applicable Purchase Agreement or to lease such interest in the related Land,
and any Building thereon, from the applicable Ground Lessor as is leased to the
Lessor pursuant to the applicable Ground Lease, (ii) the Lessor hereby agrees to
lease, or sublease, as the case may be, such Land and any Building thereon to
the related Lessee pursuant to the Lease, and (iii) the related Lessee hereby
agrees to lease, or sublease, as the case may be, such Land, and any Building
thereon, from the Lessor pursuant to the Lease. With respect to each IDB
Property, (i) the applicable Authority may acquire such interest in the related
Land from the applicable Seller as is transferred, sold, assigned and conveyed
to the Authority pursuant to the applicable Purchase Agreement, (ii) the
applicable Authority will lease such Land to the Lessor pursuant to the related
IDB Lease, and (iii) the related Lessee hereby agrees to sublease such Land from
the Lessor pursuant to the Lease (it being understood that any reference in the
Operative Documents to the lease by a Lessee of an IDB Property shall be deemed
to refer to the sublease thereof pursuant to the Lease, if title to such IDB
Property is held by the related Authority).
(b) BUILDING. With respect to each parcel of Land on which a
Building is to be constructed, subject to the terms and conditions of this
Master Agreement, from and after the Closing Date relating to such Land (i) the
Construction Agent agrees, pursuant to the terms of the Construction Agency
Agreement, to construct and install the Building on such Land for the Lessor
prior to the Scheduled Construction Termination Date, (ii) the Lenders and the
Lessor agree to fund the Construction Costs with respect to such Building, (iii)
the Lessor shall lease, or sublease, as the case may be, such Building as part
of such Leased Property to the related Lessee pursuant to the Lease, and (iv)
the related Lessee shall lease, or sublease, as the case may be, such Building
from the Lessor pursuant to the Lease.
SECTION 2.2 FUNDINGS OF PURCHASE PRICE AND CONSTRUCTION COSTS
(a) INITIAL FUNDING AND PAYMENT OF PURCHASE PRICE FOR LAND
AND DEVELOPMENT COSTS ON CLOSING DATE. Subject to the terms and conditions of
this Master Agreement, on the Closing Date for any Land, and any Building
thereon, each Lender shall make available, or arrange to make available, to the
Lessor its initial Loan with respect to such Land, and any Building thereon, in
an amount equal to the product of such Lender's Commitment Percentage times the
purchase price or the ground rent for such Land, and any Building thereon, and
the Construction Costs incurred by the Construction Agent, as agent, through
such Closing Date, which funds the Lessor shall use, together with the Lessor's
own funds in an amount equal to the
2
product of the Lessor's Commitment Percentage times the purchase price or ground
rent for the related Land and any Building thereon, and the Construction Costs
incurred by the Construction Agent, as agent for the Lessor, through such
Closing Date, to purchase such Land, and any Building thereon, from the
applicable Seller pursuant to the applicable Purchase Agreement or lease the
Land and any Building thereon, from the applicable Ground Lessor pursuant to the
applicable Ground Lease, as the case may be, and to pay the amount of such
Construction Costs, and the Lessor shall lease, or sublease, as the case may be,
such Land to the related Lessee pursuant to the Lease.
(b) SUBSEQUENT FUNDINGS AND PAYMENTS OF CONSTRUCTION COSTS
DURING CONSTRUCTION TERM. Subject to the terms and conditions of this Master
Agreement, if a Building is to be constructed on Land, on each Funding Date
following the Closing Date for each such parcel of Land until the related
Construction Term Expiration Date, (i) each Lender shall make available, or
arrange to make available, to the Lessor a Loan in an amount equal to the
product of such Lender's Commitment Percentage times the amount of Funding
requested by the Construction Agent for such Funding Date, which funds the
Lessor hereby directs each Lender to pay over, or cause to be paid over, to the
Agent, for distribution to the Construction Agent, as agent for the Lessor, as
set forth in PARAGRAPH (d), and (ii) the Lessor shall pay over to the Agent, for
distribution to the Construction Agent, as agent for the Lessor, its own funds
(which shall constitute a part of, and an increase in, the Lessor's Invested
Amount with respect to such Leased Property) in an amount equal to the product
of the Lessor's Commitment Percentage times the amount of Funding requested by
the Construction Agent for such Funding Date.
(c) AGGREGATE LIMITS ON FUNDED AMOUNTS. The aggregate amount
that the Funding Parties shall be committed to provide, or cause to be provided,
as Funded Amounts under this Master Agreement and the Loan Agreement shall not
exceed (x) with respect to each Leased Property, the costs of purchase (or
ground lease, as the case may be) and construction of such Leased Property and
the related Construction Costs, or (y) $45,000,000 in the aggregate for all
Leased Properties. The aggregate amount that any Funding Party shall be
committed to fund, or cause to be funded, under this Master Agreement and the
Loan Agreement shall not exceed the lesser of (i) such Funding Party's
Commitment and (ii) such Funding Party's Commitment Percentage of the aggregate
Fundings requested under this Master Agreement.
(d) NOTICE, TIME AND PLACE OF FUNDINGS. With respect to each
Funding, a Lessee or the Construction Agent, as the case may be, shall give the
Lessor and the Agent an irrevocable prior telephone (followed within one
Business Day with written) or written notice not later than 11:00 a.m., Atlanta,
Georgia time, at least three Business Days prior to the proposed Closing Date or
other Funding Date, as the case may be, pursuant, in each case, to a Funding
Request in the form of EXHIBIT A (a "FUNDING REQUEST"), specifying the Closing
Date or subsequent Funding Date, as the case may be, the amount of Funding
requested, the Leased Property to which such Funding relates, whether such
Funding shall be a LIBOR Advance or a Base Rate Advance or a combination thereof
and the Rent Period(s) therefor. The Agent shall promptly forward a copy of each
Funding Request to the Lenders (which distribution may be by e-mail or facsimile
transmission). All documents and instruments required to be delivered on
3
such Closing Date pursuant to this Master Agreement shall be delivered at the
offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois
60603, or at such other location as may be determined by the Lessor, the
Construction Agent and the Agent. Each Funding shall occur on a Business Day and
shall be in an amount equal to $100,000 or an integral multiple of $10,000 in
excess thereof, with the exception of the final draw, which may be for such
lesser amount as may be due and owing to fund the balance of the Construction
Costs for the related Leased Property. All remittances made by, or caused to be
made by, any Lender and the Lessor for any Funding shall be made in immediately
available funds by wire transfer to or, as is directed by, the Construction
Agent, with receipt by the Construction Agent not later than 12:00 noon,
Atlanta, Georgia time, on the applicable Funding Date, upon satisfaction or
waiver of the conditions precedent to such Funding set forth in SECTION 3; such
funds shall (1) in the case of the initial Funding on a Closing Date, be used to
pay the purchase price to the applicable Seller, or ground rent to the
applicable Ground Lessor, for the related Land and any Building thereon and pay
Construction Costs related to such Land, and (2) in the case of each subsequent
Funding be paid to the Construction Agent, as agent for the Lessor, for the
payment or reimbursement of Construction Costs incurred through such Funding
Date and not previously paid or reimbursed.
(e) LESSEE'S DEEMED REPRESENTATION FOR EACH FUNDING. Each
Funding Request by a Lessee or the Construction Agent shall be deemed a
reaffirmation of each Lessee's indemnity obligations in favor of the Indemnitees
under the Operative Documents and a representation and warranty to the Lessor,
the Agent and the Lenders that on the proposed Closing Date or Funding Date, as
the case may be, (i) the amount of Funding requested represents amounts owing in
respect of the purchase price or ground rent of the related Land, and any
Building thereon, and Construction Costs in respect of the Leased Property (in
the case of the initial Funding on a Closing Date) or amounts that are then due
to third parties in respect of the Construction, or amounts paid by the
Construction Agent, as agent for the Lessor, to third parties which the
Construction Agent has not previously been reimbursed by a Funding (in the case
of any Funding), (ii) no Event of Default or Potential Event of Default exists,
and (iii) the representations and warranties of ADESA and each Lessee set forth
in SECTION 4.1 are true and correct in all material respects as though made on
and as of such Funding Date, except to the extent such representations or
warranties relate solely to an earlier date, in which case such representations
and warranties shall have been true and correct in all material respects on and
as of such earlier date.
(f) NOT JOINT OBLIGATIONS. Notwithstanding anything to the
contrary set forth herein or in the other Operative Documents, each Lender's and
the Lessor's commitments shall be several, and not joint. In no event shall any
Funding Party be obligated to fund, or cause to be funded, an amount in excess
of such Funding Party's Commitment Percentage of any Funding, or to fund, or
cause to be funded, amounts in the aggregate in excess of such Funding Party's
Commitment.
(g) NON-PRO RATA FUNDINGS. Notwithstanding anything to the
contrary set forth in this Master Agreement, but subject to SECTION 2.2(f)
above, at the Agent's option, Fundings may be made by drawing on the Lessor's
Commitment until such Commitment is fully
4
funded before drawing on the Lenders' Commitments. In such event, when the
Lessor's Commitment is fully funded, the Lenders will fund, or cause to be
funded, on a pro rata basis as among themselves, 100% of the amount of the
Fundings thereafter, PROVIDED that, in no event will the Lessor's Invested
Amount be less than 3.5% of the aggregate Funded Amounts.
SECTION 2.3 FUNDED AMOUNTS AND INTEREST AND YIELD THEREON; UNUSED
FEE
(a) The Lessor's Invested Amount for any Leased Property
outstanding from time to time shall accrue yield ("YIELD") at the Lessor Rate,
computed using the actual number of days elapsed and a 360 day year. If all or a
portion of the principal amount of or Yield on the Lessor's Invested Amounts
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall, without limiting the rights of the Lessor
under the Lease, to the maximum extent permitted by law, accrue Yield at the
Overdue Rate, from the date of nonpayment until paid in full (both before and
after judgment).
(b) Each Lender's Funded Amount for any Leased Property
outstanding from time to time shall accrue interest as provided in the Loan
Agreement.
(c) During the Construction Term, in lieu of the payment of
accrued interest, on each Payment Date, each Lender's Funded Amount in respect
of a Construction Land Interest shall automatically be increased by the amount
of interest accrued and unpaid on the related Loans pursuant to the Loan
Agreement during the Rent Period ending immediately prior to such Payment Date
(except to the extent that at any time such increase would cause such Lender's
Funded Amount to exceed such Lender's Commitment, in which event the related
Lessee shall pay such excess amount to such Lender in immediately available
funds on such Payment Date). Similarly, in lieu of the payment of accrued Yield,
on each Payment Date, the Lessor's Invested Amount in respect of a Construction
Land Interest shall automatically be increased by the amount of Yield accrued on
the Lessor's Invested Amount in respect of such Leased Property during the Rent
Period ending immediately prior to such Payment Date (except to the extent that
at any time such increase would cause the Lessor's Invested Amount to exceed the
Lessor's Commitment, in which event the related Lessee shall pay such excess
amount to the Lessor in immediately available funds on such Payment Date). Such
increases in Funded Amounts may occur without any disbursement of funds by the
Funding Parties, and without the need for delivery of a Funding Request.
(d) Three Business Days prior to the last day of each Rent
Period, ADESA or ADESA California shall deliver (which delivery may be by
facsimile) to the Lessor and the Agent a notice substantially in the form of
EXHIBIT I (each, a "PAYMENT DATE NOTICE"), appropriately completed, specifying
the allocation of the Funded Amounts related to such Rent Period to LIBOR
Advances and Base Rate Advances and the Rent Periods therefor, PROVIDED that no
such allocation to LIBOR Advances shall be in an amount less than $1,000,000.
Each such Payment Date Notice shall be irrevocable. The Agent shall promptly
forward a copy of each Payment Date Notice to the Lenders (which distribution
may be by e-mail or facsimile
5
transmission). If no such notice is given, the Funded Amounts shall be allocated
to a LIBOR Advance with a Rent Period of three (3) months.
(e) ADESA California agrees to pay to the Agent, for the pro
rata benefit of the Funding Parties, an unused fee for each day from the date
hereof until the Lease Termination Date equal to (i) the Fee Percentage TIMES
(ii) the aggregate Commitments, MINUS the Funded Amounts on such day, TIMES
(iii) 1/360. Such fees shall be payable in arrears on each Quarterly Payment
Date and, prior to the Funding Termination Date, may be paid with the proceeds
of Advances.
SECTION 2.4 LESSEE OWNER FOR TAX PURPOSES. With respect to each
Leased Property, it is the intent of the Lessees and the Funding Parties that
for federal, state and local tax purposes and commercial and bankruptcy law
purposes the Lease shall be treated as the repayment and security provisions of
a loan by the Lessor to the Lessees, and that the related Lessee shall be
treated as the legal and beneficial owner entitled to any and all benefits of
ownership of such Leased Property and all payments of Basic Rent during the
Lease Term shall be treated as payments of interest and principal. Each of
Lessor and each Lessee shall report the transactions contemplated by the Lease
consistent with such treatment and shall take no position contrary thereto
unless otherwise required by a determination within the meaning of Section 1313
of the Code or similar provision of state or local law. Nevertheless, each of
Guarantor and each Lessee acknowledges and agrees that neither the Agent, nor
any Funding Party, nor any other Person has made any representations or
warranties concerning the tax, financial, accounting or legal characteristics or
treatment of the Operative Documents and that each of Guarantor and each Lessee
has obtained and relied solely upon the advice of its own tax, accounting and
legal advisors concerning the Operative Documents and the accounting, tax,
financial and legal consequences of the transactions contemplated therein.
ARTICLE III.
CONDITIONS PRECEDENT; DOCUMENTS
SECTION 3.1 CONDITIONS TO THE OBLIGATIONS OF THE FUNDING PARTIES ON
EACH CLOSING DATE. The obligations of the Lessor and each Lender to carry out
their respective obligations under SECTION 2 of this Master Agreement to be
performed on the Closing Date with respect to any Land and any Building thereon
shall be subject to the fulfillment to the satisfaction of, or waiver by, each
such party hereto (acting directly or through its counsel), on or prior to such
Closing Date of the following conditions precedent, PROVIDED that the
obligations of any Funding Party shall not be subject to any conditions
contained in this SECTION 3.1 which are required to be performed by such Funding
Party:
(a) DOCUMENTS. The following documents shall have been
executed and delivered by the respective parties thereto:
6
(i) DEED AND PURCHASE AGREEMENT; GROUND LEASE. The
related original Deed duly executed by the applicable Seller
in favor of the Lessor and in recordable form, and copies of
the related Purchase Agreement, assigned to the Lessor (unless
Lessor is the original party thereto), shall each have been
delivered to the Agent by ADESA or the related Lessee, with
copies thereof to each other Funding Party or the related
Ground Lease, duly assigned to the Lessor (unless Lessor is
the original party thereto), shall have been delivered to the
Agent, with copies thereof to each other Funding Party, as
applicable (IT BEING UNDERSTOOD, that each Purchase Agreement
and each Ground Lease shall be reasonably satisfactory in form
and substance to the Lessor and the Lenders).
(ii) LEASE SUPPLEMENT. The original of the related
Lease Supplement, duly executed by the related Lessee and the
Lessor and in recordable form, shall have been delivered to
the Agent by such Lessee.
(iii) MORTGAGE AND ASSIGNMENT OF LEASE AND RENTS.
Counterparts of the Mortgage (substantially in the form of
EXHIBIT D-1 or D-2, as the case may be, attached hereto), duly
executed by the Lessor and in recordable form, shall have been
delivered to the Agent (which Mortgage shall secure all of the
obligations of the Lessor under the Operative Documents to the
Agent unless such mortgage is subject to a tax based on the
amount of indebtedness secured thereby, in which case the
amount secured will be limited to debt of the Lessor in an
amount equal to 125% of the projected cost of acquisition and
construction of such Leased Property); and the Assignment of
Lease and Rents (substantially in the form of EXHIBIT B
attached hereto) in recordable form, duly executed by the
Lessor, shall have been delivered to the Agent by the Lessor.
(iv) SECURITY AGREEMENT AND ASSIGNMENT. If Buildings
are to be constructed on the Land, counterparts of the
Security Agreement and Assignment (substantially in the form
of EXHIBIT C attached hereto), duly executed by the
Construction Agent, with an acknowledgment and consent thereto
satisfactory to the Lessor and the Agent duly executed by the
related General Contractor and the related Architect or
Engineer, as applicable, and complete copies of the related
Construction Contract and the related Architect's Agreement or
Engineer's Agreement certified by the Construction Agent,
shall have been delivered to the Lessor and the Agent (it
being understood and agreed that if no related Construction
Contract, Architect's Agreement or Engineer's Agreement exists
on such Closing Date, such delivery shall not be a condition
precedent to the Funding on such Closing Date, and in lieu
thereof the Construction Agent shall deliver complete copies
of such Security Agreement and Assignment and consents
concurrently with the Construction Agent's entering into such
contracts). If such Leased Property is a Construction Land
Interest, counterparts of the supplement to the Construction
Agency Agreement for such Leased Property,
7
duly executed by the Construction Agent and the Lessor, shall
have been delivered to the Agent.
(v) SURVEY. The related Lessee shall have delivered,
or shall have caused to be delivered, to the Lessor and the
Agent, at such Lessee's expense, an accurate survey certified
to the Lessor and the Agent in a form reasonably satisfactory
to the Lessor and the Agent and prepared within one year of
such Closing Date (or such other time period agreed to by the
Lessor and the Agent) by a Person reasonably satisfactory to
the Lessor and the Agent. Such survey shall (1) be acceptable
to the Title Insurance Company for the purpose of providing
extended coverage to the Lessor and a lender's comprehensive
endorsement to the Agent, (2) show no encroachments on such
Land by structures owned by others, and no encroachments from
any part of such Leased Property onto any land owned by
others, and (3) disclose no state of facts reasonably
objectionable to the Lessor, the Agent or the Title Insurance
Company, and be reasonably acceptable to each such Person.
(vi) TITLE AND TITLE INSURANCE. On such Closing Date,
the Lessor shall receive from a title insurance company
reasonably acceptable to the Lessor and the Agent an ALTA
Owner's Policy of Title Insurance issued by such title
insurance company and the Agent shall receive from such title
insurance company an ALTA Mortgagee's Policy of Title
Insurance issued by such title insurance company, in each
case, in the amount of the projected cost of acquisition and
construction of such Leased Property, reasonably acceptable in
form and substance to the Lessor and the Agent, respectively
(collectively, the "TITLE POLICY"). The Title Policy shall be
dated as of such Closing Date, and, to the extent permitted
under Applicable Law, shall include such affirmative
endorsements as the Lessor or the Agent shall reasonably
request.
(vii) APPRAISAL. Each Funding Party shall have
received a report of the Appraiser (an "APPRAISAL"), paid for
by Guarantor or the related Lessee, which shall meet the
requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, shall be satisfactory to such
Funding Party and shall state in a manner satisfactory to such
Funding Party the estimated "as vacant" value of such Land and
existing Buildings or any Building to be constructed thereon.
Such Appraisal must show that the "as vacant" value of such
Leased Property (if a Building is to be constructed on the
Land, determined as if the Building had already been completed
in accordance with the related Plans and Specifications and by
excluding from such value the amount of assessments on such
Leased Property) is at least 45% of the total cost of such
Leased Property, including the cost of the trade fixtures,
equipment and personal property related to such Leased
Property and to be funded by the Funding Parties.
8
(viii) ENVIRONMENTAL AUDIT AND RELATED RELIANCE
LETTER. The Lessor and the Agent shall have received an
Environmental Audit for such Leased Property, which shall be
conducted in substantial compliance with ASTM standards and
shall not include a recommendation for further investigation
and is otherwise satisfactory to the Lessor and the Agent; and
the firm that prepared the Environmental Audit for such Leased
Property shall have delivered to the Lessor and the Agent a
letter stating that the Lessor, the Agent and the Lenders may
rely upon such firm's Environmental Audit of such Land, IT
BEING UNDERSTOOD that the Lessor's and the Agent's acceptance
of any such Environmental Audit shall not release or impair
the Guarantor's or any Lessee's obligations under the
Operative Documents with respect to any environmental
liabilities relating to such Leased Property.
(ix) EVIDENCE OF INSURANCE. The Lessor and the Agent
shall have received from the related Lessee certificates of
insurance evidencing compliance with the provisions of Article
VIII of the Lease (including the naming of the Lessor, the
Agent and the Lenders as additional insured or loss payee with
respect to such insurance, as their interests may appear), in
form and substance reasonably satisfactory to the Lessor and
the Agent.
(x) UCC FINANCING STATEMENT; RECORDING FEES; TRANSFER
TAXES. Each Funding Party shall have received satisfactory
evidence of (i) the execution and delivery to Agent of a UCC-1
and, if required by applicable law, UCC-2 financing statement
to be filed with the Secretary of State of the applicable
State (or other appropriate filing office) and the county
where the related Land is located, respectively, and such
other Uniform Commercial Code financing statements as any
Funding Party deems necessary or desirable in order to perfect
such Funding Party's interests and (ii) the payment of all
recording and filing fees and taxes with respect to any
recordings or filings made of the related Deed, the Lease, the
related Lease Supplement, the related Mortgage and the related
Assignment of Lease and Rents.
(xi) OPINIONS. An opinion of local counsel for the
related Lessee qualified in the jurisdiction in which such
Leased Property is located, substantially in the form set
forth in EXHIBIT G attached hereto, and containing such other
matters as the parties to whom they are addressed shall
reasonably request, shall have been delivered and addressed to
each of the Lessor, the Agent and the Lenders. To the extent
reasonably requested by the Agent, opinions supplemental to
those delivered under SECTION 3.2(vi) and reasonably
satisfactory to the Agent shall have been delivered and
addressed to each of the Lessor, the Agent and the Lenders.
9
(xii) GOOD STANDING CERTIFICATES. The Agent shall
have received good standing certificates for the Lessor and
the related Lessee from the appropriate offices of the state
where the related Land is located.
(xiii) IDB PROPERTY. If such Leased Property is an
IDB Property or is otherwise subject to industrial development
or revenue bonds, the IDB Documentation shall have been
executed by the parties thereto, and shall be in form and
substance reasonably acceptable to the Agent, the Lessor and
the Lenders.
(b) LITIGATION. No action or proceeding shall have been
instituted or, to the knowledge of any Funding Party, threatened nor shall any
governmental action, suit, proceeding or investigation be instituted or
threatened before any Governmental Authority, nor shall any order, judgment or
decree have been issued or proposed to be issued by any Governmental Authority,
to set aside, restrain, enjoin or prevent the performance of this Master
Agreement or any transaction contemplated hereby or by any other Operative
Document or which is reasonably likely to materially adversely affect any Leased
Property or any transaction contemplated by the Operative Documents or which
would reasonably be expected to result in a Material Adverse Effect.
(c) LEGALITY. In the opinion of such Funding Party or its
counsel, the transactions contemplated by the Operative Documents shall not
violate any Applicable Law, and no change shall have occurred or been proposed
in Applicable Law that would make it illegal for such Funding Party to
participate in any of the transactions contemplated by the Operative Documents.
(d) NO EVENTS. (i) No Event of Default, Potential Event of
Default, Event of Loss or Event of Taking relating to such Leased Property shall
have occurred and be continuing, (ii) no action shall be pending or threatened
by a Governmental Authority to initiate a Condemnation or an Event of Taking,
and (iii) there shall not have occurred any event that would reasonably be
expected to have a Material Adverse Effect since December 31, 2000.
(e) REPRESENTATIONS. Each representation and warranty of the
parties hereto or to any other Operative Document contained herein or in any
other Operative Document shall be true and correct in all material respects as
though made on and as of such Closing Date, except to the extent such
representations or warranties relate solely to an earlier date, in which case
such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date.
(f) CUTOFF DATE. No Closing Date shall occur after the
Funding Termination Date.
(g) APPROVAL. Except for the Leased Property located in San
Joaquin County, California, the Lenders shall have approved such Leased Property
for inclusion in the Lease.
10
SECTION 3.2 ADDITIONAL CONDITIONS FOR THE INITIAL CLOSING DATE. The
obligations of the Lessor and each Lender to carry out their respective
obligations under SECTION 2 of this Master Agreement to be performed on the
Initial Closing Date shall be subject to the satisfaction of, or waiver by, each
such party hereto (acting directly or through its counsel), on or prior to the
Initial Closing Date of the following conditions precedent in addition to those
set forth in SECTION 3.1, PROVIDED that the obligations of any Funding Party
shall not be subject to any conditions contained in this SECTION 3.2 which are
required to be performed by such Funding Party:
(i) LOAN AGREEMENT; GUARANTY AGREEMENTS. Counterparts
of the Loan Agreement, duly executed by the Lessor, the Agent
and each Lender shall have been delivered to each of the
Lessor and the Agent. The Note, duly executed by the Lessor,
shall have been delivered to the Agent. The Guaranty
Agreements, duly executed by the respective Guarantors, shall
have been delivered to the Agent.
(ii) MASTER AGREEMENT. Counterparts of this Master
Agreement, duly executed by the parties hereto, shall have
been delivered to each of the parties hereto.
(iii) CONSTRUCTION AGENCY AGREEMENT. Counterparts of
the Construction Agency Agreement, duly executed by the
parties thereto shall have been delivered to each of the
parties hereto.
(iv) LEASE. Counterparts of the Lease, duly executed
by the Lessees party to this Master Agreement on the Initial
Closing Date, and the Lessor, shall have been delivered to
each Funding Party and the original, chattel paper copy of the
Lease shall have been delivered to the Agent.
(v) LESSEE'S RESOLUTIONS AND INCUMBENCY CERTIFICATE,
ETC. Each of the Agent and the Lessor shall have received (x)
a certificate of the Secretary or an Assistant Secretary of
each Lessee party hereto on the Initial Closing Date and each
Guarantor, attaching and certifying as to (i) the Board of
Directors' (or appropriate committee's) resolution duly
authorizing the execution, delivery and performance by it of
each Operative Document to which it is or will be a party,
(ii) the incumbency and signatures of persons authorized to
execute and deliver such documents on its behalf, (iii) its
articles or certificate of incorporation, certified as of a
recent date by the Secretary of State of the state of its
incorporation and (iv) its by-laws, and (y) good standing or
active status certificates for each Lessee party hereto on the
Initial Closing Date and each Guarantor from the appropriate
offices of the states of such Guarantor's or such Lessee's
incorporation and principal place of business.
(vi) OPINIONS OF COUNSEL. The opinions of Ice Miller,
in-house counsel for ADESA and in-house counsel for Parent,
each dated the Initial Closing Date,
11
containing such matters as the parties to whom it is addressed
shall reasonably request, shall have been delivered and
addressed to each of the Lessor, the Agent and the Lenders.
The opinion of Brown McCarroll L.L.P., dated the Initial
Closing Date, containing such matters as the parties to whom
it is addressed shall reasonably request, shall have been
delivered to each of the Agent, the Lenders and ADESA.
(vii) GOOD STANDING CERTIFICATE. The Agent and ADESA
shall have received a good standing certificate for the Lessor
and the General Partner from the appropriate office of the
State of Texas.
(viii) LESSOR'S CONSENTS AND INCUMBENCY CERTIFICATE,
ETC. The Agent and ADESA shall have received a certificate of
the Secretary or an Assistant Secretary of the General Partner
of the Lessor attaching and certifying as to (i) the consents
of the partners of the Lessor duly authorizing the execution,
delivery and performance by it of each Operative Document to
which it is or will be a party, (ii) the incumbency and
signatures of persons authorized to execute and deliver such
documents on its behalf, and (iii) the Partnership Agreement.
SECTION 3.3 CONDITIONS TO THE OBLIGATIONS OF LESSEE. The obligations
of any Lessee to lease a Leased Property from the Lessor are subject to the
fulfillment on the related Closing Date to the satisfaction of, or waiver by,
such Lessee, of the following conditions precedent:
(a) GENERAL CONDITIONS. The conditions set forth in SECTIONS
3.1 and 3.2 that require fulfillment by the Lessor or the Lenders shall have
been satisfied.
(b) LEGALITY. In the opinion of such Lessee or its counsel,
the transactions contemplated by the Operative Documents shall not violate any
Applicable Law, and no change shall have occurred or been proposed in Applicable
Law that would make it illegal for such Lessee to participate in any of the
transactions contemplated by the Operative Documents.
(c) PURCHASE AGREEMENT; GROUND LEASE. The Purchase Agreement
and, if applicable, the Ground Lease and all documents to be delivered under the
Purchase Agreement or Ground Lease, including title insurance, survey and
environmental audit, shall be reasonably satisfactory to such Lessee.
SECTION 3.4 CONDITIONS TO THE OBLIGATIONS OF THE FUNDING
PARTIES ON EACH FUNDING DATE. The obligations of the Lessor and each Lender to
carry out their respective obligations under SECTION 2 of this Master Agreement
to be performed on each Funding Date shall be subject to the fulfillment to the
satisfaction of, or waiver by, each such party hereto (acting directly or
through their respective counsel) on or prior to each such Funding Date of the
following conditions precedent, PROVIDED that the obligations of any Funding
Party shall not be subject to any conditions contained in this SECTION 3.4 which
are required to be performed by such Funding Party:
12
(a) FUNDING REQUEST. The Lessor and the Agent shall have
received from the Construction Agent or a Lessee the Funding Request therefor
pursuant to SECTION 2.2(d).
(b) CONDITIONS FULFILLED. As of such Funding Date, the
conditions set forth in SECTIONS 3.1(c) and (d) shall have been satisfied.
(c) REPRESENTATIONS. As of such Funding Date, both before
and after giving effect to the Funding requested by the Construction Agent or a
Lessee on such date, the representations and warranties that the Construction
Agent or such Lessee is deemed to make pursuant to SECTION 2.2(e) shall be true
and correct in all material respects on and as of such Funding Date as though
made on and as of such Funding Date, except to the extent such representations
or warranties relate solely to an earlier date, in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date.
(d) NO BONDED STOP NOTICE OR FILED MECHANICS LIEN. As of
such Funding Date, and as to any Funded Amount requested for any Leased Property
on such Funding Date, (i) none of the Lessor, the Agent or any Lender has
received (with respect to such Leased Property) a bonded notice to withhold Loan
funds that has not been discharged by the related Lessee or the Construction
Agent, and (ii) no mechanic's liens or materialman's liens have been filed
against such Leased Property that have not been discharged by the related
Lessee, bonded over in a manner reasonably satisfactory to the Agent or insured
over by the Title Insurance Company.
(e) LEASE SUPPLEMENT. If the Funding relates to a Building
that will be leased under a Lease Supplement separate from the Lease Supplement
for the related Land, the original of such separate Lease Supplement, duly
executed by the related Lessee and the Lessor and in recordable form, shall have
been delivered to the Agent.
SECTION 3.5 COMPLETION DATE CONDITIONS. The occurrence of the
Completion Date with respect to any Leased Property shall be subject to the
fulfillment to the satisfaction of, or waiver by, each party hereto (acting
directly or through its counsel) of the following conditions precedent:
(a) CERTIFICATE OF OCCUPANCY. The Construction Agent shall
have furnished to the Agent copies of a certificate or certificates of occupancy
for such Leased Property or other legally equivalent permission to occupy such
Leased Property.
(b) CONSTRUCTION COMPLETION. Any related Construction shall
have been completed substantially in accordance with the related Plans and
Specifications (subject to punch list requirements), the related Deed and all
Applicable Laws, and such Leased Property shall be ready for occupancy and
operation. All fixtures, equipment and other property contemplated under the
Plans and Specifications to be incorporated into or installed in such Leased
Property shall have been substantially incorporated or installed, free and clear
of all Liens except for Permitted Liens.
13
(c) CONSTRUCTION AGENT CERTIFICATION. The Construction Agent
shall have furnished the Lessor, the Agent and each Lender with a certification
of the Construction Agent (substantially in the form of EXHIBIT H) that:
(i) all amounts owing to third parties for the
related Construction have been paid in full (other than contingent
obligations for which the Construction Agent, as agent for the Lessor,
has made adequate reserves), and no litigation or proceedings are
pending, or to the best of the Construction Agent's knowledge, are
threatened, against such Leased Property or the Construction Agent or
the related Lessee which could reasonably be expected to have a
Material Adverse Effect;
(ii) all material consents, licenses and permits and
other governmental authorizations or approvals required for such
Construction and operation of such Leased Property have been obtained
and are in full force and effect;
(iii) such Leased Property has available all services
of public facilities and other utilities necessary for use and
operation of such Leased Property for its intended purposes including,
without limitation, adequate water, gas and electrical supply, storm
and sanitary sewerage facilities, telephone, other required public
utilities and means of access between the related Building and public
highways for pedestrians and motor vehicles;
(iv) all material agreements, easements and other
rights, public or private, which are necessary to permit the lawful use
and operation of such Leased Property as the related Lessee intends to
use such Leased Property under the Lease and which are necessary to
permit the lawful intended use and operation of all then intended
utilities, driveways, roads and other means of egress and ingress to
and from the same have been obtained and are in full force and effect
and neither the Construction Agent nor the related Lessee has any
knowledge of any pending modification or cancellation of any of the
same; and the use of such Leased Property does not depend on any
variance, special exception or other municipal approval, permit or
consent that has not been obtained and is in full force and effect for
its continuing legal use;
(v) all of the requirements and conditions set forth
in SECTION 3.5(b) hereof have been completed and fulfilled with respect
to such Leased Property and the related Construction; and
(vi) such Leased Property is in compliance in all
material respects with all applicable zoning laws and regulations.
SECTION 3.6 ADDITION OF LESSEES. After the date hereof, additional
Subsidiaries of ADESA may become Lessees hereunder and under the other Operative
Documents upon satisfaction of the following conditions precedent:
14
(a) such Subsidiary and each Guarantor shall have executed
and delivered to the Agent and the Lessor a Joinder Agreement, substantially in
the form of EXHIBIT E;
(b) such Subsidiary shall have delivered to each of the
Agent and the Lessor (x) a certificate of the Secretary or an Assistant
Secretary of such Subsidiary, attaching and certifying as to (i) the Board of
Directors' (or other governing body) resolution duly authorizing the execution,
delivery and performance by it of each Operative Document to which it is or will
be a party, (ii) the incumbency and signatures of persons authorized to execute
and deliver such documents on its behalf, (iii) its articles or certificate of
incorporation or other organizational documents, certified as of a recent date
by the Secretary of State of its incorporation or formation and (iv) its
by-laws, if applicable, and (y) good standing or active status certificates from
the appropriate offices of the States of such Subsidiary's incorporation or
formation and principal place of business;
(c) such Subsidiary shall have delivered an opinion of Ice
Miller, or other counsel to such Subsidiary, addressed to each of the Lessor,
the Agent and the Lenders, substantially in the form of the opinion delivered by
counsel to ADESA on the Initial Closing Date; and
(d) the Agent, the Lessor and the Lenders shall have
received such other documents, certificates and information as any of them shall
have reasonably requested.
ARTICLE IV.
REPRESENTATIONS
SECTION 4.1 REPRESENTATIONS OF ADESA AND OTHER LESSEES. Effective as
of the date of execution hereof, as of each Closing Date and as of each Funding
Date, each of ADESA and each Lessee represents and warrants to each of the other
parties hereto as follows:
(a) ORGANIZATION; CORPORATE POWERS. It (i) is a corporation
duly organized, validly existing under the laws of the State of Indiana, in the
case of ADESA, or of the jurisdiction of its organization, in the case of any
Lessee, for which the most recent required biennial report has been filed with
the office of the Secretary of State of Indiana or which is otherwise in good
standing, as applicable, and no articles of dissolution have been filed in such
office, (ii) is duly qualified as a foreign corporation and in good standing
under the laws of each jurisdiction where the failure to be duly qualified and
in good standing would have a Material Adverse Effect and (iii) has all
requisite corporate power and authority to own, operate and encumber its
property and assets and to conduct its business as presently conducted and as
proposed to be conducted in connection with and following the consummation of
the transactions contemplated by the Operative Documents.
(b) AUTHORITY. It has the requisite corporate power and
authority to execute, deliver and perform the Operative Documents executed or to
be executed by it; and the
15
execution, delivery and performance (or recording or filing, as the case may be)
of the Operative Documents, and the consummation of the transactions
contemplated on its part thereby, have been duly approved by its Board of
Directors and no other corporate proceedings on its part are necessary to
consummate the transactions so contemplated.
(c) DUE EXECUTION AND DELIVERY OF OPERATIVE DOCUMENTS. The
Operative Documents executed by it have been duly executed and delivered (or
recorded or filed, as the case may be) by it, and, in each case, constitute its
legal, valid and binding obligation, enforceable against it in accordance with
the respective terms of each such Operative Document, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or limiting creditors' rights generally or by equitable principles
generally.
(d) NO CONFLICT. The execution, delivery and performance by
it of each Operative Document to which it is a party and of each of the
transactions contemplated thereby do not and will not (i) violate any Applicable
Law or Contractual Obligation binding on it the consequences of which violation,
singly or in the aggregate, would have a Material Adverse Effect, (ii) result in
or require the creation or imposition of any Lien whatsoever on any Leased
Property (other than Permitted Liens) or (iii) require any approval of
stockholders which has not been obtained.
(e) GOVERNMENTAL CONSENTS. Except as have been made,
obtained or given, no filing or registration with, consent or approval of,
notice to, with or by any Governmental Authority is required to authorize, or is
required in connection with, the execution, delivery and performance by it of
the Operative Documents to which it is a party, the use of the proceeds of the
Funding made to effect the acquisition of the interest in the Land and the use
of the Leased Property, or the legality, validity, binding effect or
enforceability of any Operative Document.
(f) GOVERNMENTAL REGULATION. It is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(g) REQUIREMENTS OF LAW. It is in compliance with all
Requirements of Law applicable to it and its business, in each case where the
failure to so comply would have a Material Adverse Effect, either individually
or together with other such cases.
(h) RIGHTS IN RESPECT OF THE LEASED PROPERTY. It is not a
party to any contract or agreement to sell any interest in any Leased Property
or any part thereof other than pursuant to this Master Agreement and the Lease.
(i) TAXES. It and its Affiliates have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is
16
not individually or in the aggregate Material or (ii) the amount, applicability
or validity of which is currently being contested in good faith by appropriate
proceedings, and as to which there is no imminent threat of forfeiture, and with
respect to which it or a Subsidiary, as the case may be, has established
adequate reserves in accordance with GAAP; it knows of no basis for any other
tax or assessment that could reasonably be expected to have a Material Adverse
Effect; and the charges, accruals and reserves on the books of ADESA and its
Subsidiaries in respect of Federal, state or other taxes for all fiscal periods
are adequate.
(j) USE OF PROCEEDS; MARGIN REGULATIONS. It will apply the
proceeds of the Fundings as set forth in SECTION 2 hereof; no part of the
proceeds from the Fundings will be used, directly or indirectly by it, for the
purpose of buying or carrying any margin stock within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System (12 CFR 207), or for
the purpose of buying or carrying or trading in any securities under such
circumstances as to involve it in a violation of Regulation X of said Board (12
CFR 224) or to involve any broker or dealer in a violation of Regulation T of
said Board (12 CFR 220).
(k) ERISA. It has not incurred any material accumulated
funding deficiency as defined in ERISA and the regulations promulgated
thereunder and no Reportable Event has occurred with respect to any Pension Plan
involving it; neither has the Pension Benefit Guaranty Corporation asserted that
it has incurred any material liability in connection with any such pension plan
nor has any lien attached nor any Person threatened to attach a lien on any of
its property as a result of the failure of it or any of its Affiliates to comply
with ERISA or regulations promulgated thereunder.
(l) SOLVENCY. The transactions contemplated by this Master
Agreement and the other Operative Documents have not been entered into by it in
contemplation of its insolvency nor have such transactions been entered into
with the intent to hinder, delay or defraud its equity holders or its creditors.
(m) DISCLOSURE. Neither this Master Agreement nor any of the
other Operative Documents, nor any certificate or other document furnished to
any other party hereto by it or on its behalf pursuant to any Operative Document
contains, or will contain, as of its date, any untrue statement of a material
fact or omits to state or will omit to state, as of its date, a material fact
necessary in order to make the statements contained herein and therein not
misleading. There are no facts known to it which, individually or in the
aggregate, materially adversely affect, or could reasonably be expected to
materially adversely affect, the condition, business or affairs of ADESA and its
Subsidiaries or their respective properties and assets, taken as a whole, which
have not been disclosed herein or in written materials delivered to any other
party hereto in connection with the negotiation of the Operative Documents.
(n) TITLE TO COLLATERAL. It owns good and marketable title
to all collateral pledged as security for its obligations in connection with the
transactions contemplated by this Master Agreement and the other Operative
Documents free and clear of all liens and encumbrances, except as disclosed in
writing to the Agent and the Funding Parties.
17
(o) OTHER OBLIGATIONS. It is not a party to or bound by any
agreement, contract, instrument or understanding or commitment of any kind or
subject to any corporate or other restriction, the performance or observance of
which by it now or, as far it can reasonably foresee, will have a Material
Adverse Effect, financial or otherwise, upon the assets or business of ADESA and
its Subsidiaries taken as a whole; and neither it nor any other person or party
to a contract or agreement material to its financial condition or operations,
taken as a whole, is in default under any such contract or agreement, and no
event has occurred which, but for the giving of notice or the passage of time,
or both, would constitute a default thereunder.
(p) FINANCIAL STATEMENTS. The consolidated balance sheets of
ADESA and its Subsidiaries as of the quarterly period most recently ended before
the Initial Closing Date and the statements of income for the period then ended,
heretofore furnished to the Agent and each Funding Party, are true and complete,
have been prepared in accordance with GAAP (except for the absence of footnotes
and the lack of year end adjustments) and fairly present in all material
respects the consolidated financial condition of ADESA and its Subsidiaries as
of the date thereof and the results of their operations for the period then
ended. Since the date thereof, there has been no material adverse change in the
financial condition, properties or businesses of ADESA and its Subsidiaries
which has not been disclosed in writing by ADESA to the Agent and each Funding
Party.
(q) HAZARDOUS MATERIALS - LEASED PROPERTIES.
(i) To the Knowledge of the related Lessee, except as
described in the related Environmental Audit, on the Closing
Date for each Leased Property, there are no Hazardous
Materials present at, upon, under or within such Leased
Property or released or transported to or from such Leased
Property (except in compliance in all material respects with
all Applicable Law).
(ii) On the related Closing Date, no Governmental
Actions have been taken or are in process or have been
threatened, which could reasonably be expected to subject such
Leased Property, any Lender or the Lessor to any material
Claims or Liens with respect to such Leased Property under any
Environmental Law or would otherwise have a Material Adverse
Effect.
(iii) The related Lessee has, or will obtain on or
before the date required by Applicable Law, all Environmental
Permits necessary to operate each Leased Property, if any, in
accordance with Environmental Laws and is complying with and
has at all times complied with all such Environmental Permits,
except to the extent the failure to obtain such Environmental
Permits or to so comply would not have a Material Adverse
Effect.
(iv) Except as set forth in the related Environmental
Audit or in any notice subsequently furnished by the related
Lessee to the Agent and approved by the Agent in writing prior
to the respective times that the representations and
18
warranties contained herein are made or deemed made hereunder,
no notice, notification, demand, request for information,
citations, summons, complaint or order has been issued or
filed to or with respect to the related Lessee, no penalty has
been assessed on the related Lessee and no investigation or
review is pending or, to its Knowledge, threatened by any
Governmental Authority or other Person in each case relating
to any Leased Property with respect to any alleged material
violation or liability of the related Lessee under any
Environmental Law. To the Knowledge of the related Lessee, no
material notice, notification, demand, request for
information, citations, summons, complaint or order has been
issued or filed to or with respect to any other Person, no
material penalty has been assessed on any other Person and no
investigation or review is pending or threatened by any
Governmental Authority or other Person relating to any Leased
Property with respect to any alleged material violation or
liability under any Environmental Law by any other Person.
(v) Each Leased Property and each portion thereof are
presently in compliance in all material respects with all
Environmental Laws, and, to the Knowledge of the related
Lessee, there are no present or past facts, circumstances,
activities, events, conditions or occurrences regarding such
Leased Property (including without limitation the release or
presence of Hazardous Materials) that would reasonably be
anticipated to (A) form the basis of a material Claim against
such Leased Property, any Funding Party or the related Lessee,
(B) cause such Leased Property to be subject to any material
restrictions on ownership, occupancy, use or transferability
under any Environmental Law, (C) require the filing or
recording of any notice or restriction relating to the
presence of Hazardous Materials in the real estate records in
the county or other appropriate municipality in which such
Leased Property is located, other than notices filed in the
ordinary course of business, or (D) prevent or materially
interfere with the continued operation and maintenance of such
Leased Property as contemplated by the Operative Documents.
(r) LEASED PROPERTY. The present condition of each Leased
Property conforms in all material respects with all conditions or requirements
of all existing permits and approvals issued with respect to such Leased
Property, and the related Lessee's future intended use of such Leased Property
under the Lease does not violate any Applicable Law, except for any such
violations that have not had, and would not have, a Material Adverse Effect. To
the Knowledge of the related Lessee, no material notices, complaints or orders
of violation or non-compliance have been issued or threatened or contemplated by
any Governmental Authority with respect to any Leased Property or any present or
intended future use thereof. All material agreements, easements and other
rights, public or private, which are necessary to permit the lawful use and
operation of each Leased Property as the related Lessee intends to use such
Leased Property under the Lease and which are necessary to permit the lawful
intended use and operation of all presently intended utilities, driveways, roads
and other means of egress and ingress to and from the same have been, or to the
related Lessee's Knowledge will be, obtained
19
and are or will be in full force and effect, and the related Lessee has no
Knowledge of any pending material modification or cancellation of any of the
same.
SECTION 4.2 SURVIVAL OF REPRESENTATIONS AND EFFECT OF FUNDINGS.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in SECTION 4.1 shall survive delivery of the
Operative Documents and every Funding, and shall remain in effect until all of
the Obligations are fully and irrevocably paid.
(b) EACH FUNDING A REPRESENTATION. Each Funding accepted by
a Lessee or the Construction Agent shall be deemed to constitute a
representation and warranty by ADESA and each Lessee to the effect of SECTION
4.1.
SECTION 4.3 REPRESENTATIONS OF THE LESSOR. Effective as of the date
of execution hereof, as of each Closing Date and as of each Funding Date, in
each case, with respect to each of the Leased Properties, the Lessor represents
and warrants to the Agent, the Lenders, ADESA and the Lessees as follows:
(a) SECURITIES ACT. The interest being acquired or to be
acquired by the Lessor in such Leased Property is being acquired for its own
account, without any view to the distribution thereof or any interest therein,
PROVIDED that the Lessor shall be entitled to assign, convey or transfer its
interest in accordance with SECTION 6.1.
(b) DUE ORGANIZATION, ETC. The Lessor is a limited
partnership duly organized and validly existing in good standing under the laws
of Texas and each state in which a Leased Property is located and has full
power, authority and legal right to execute, deliver and perform its obligations
under the Lease, this Master Agreement and each other Operative Document to
which it is or will be a party.
(c) DUE AUTHORIZATION; ENFORCEABILITY, ETC. This Master
Agreement and each other Operative Document to which the Lessor is or will be a
party have been or will be duly authorized, executed and delivered by or on
behalf of the Lessor and are, or upon execution and delivery will be, legal,
valid and binding obligations of the Lessor enforceable against it in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting creditors' rights
generally and by general equitable principles.
(d) NO CONFLICT. The execution and delivery by the Lessor of
the Lease, this Master Agreement and each other Operative Document to which the
Lessor is or will be a party, are not or will not be, and the performance by the
Lessor of its obligations under each are not and will not be, inconsistent with
its Partnership Agreement, do not and will not contravene any Applicable Law
applicable generally to parties providing financing and do not and will not
contravene any provision of, or constitute a default under, any Contractual
Obligation of Lessor, do not and will not require the consent or approval of,
the giving of notice to, the registration
20
with or taking of any action in respect of or by, any Governmental Authority
applicable generally to parties providing financing, except such as have been
obtained, given or accomplished, and the Lessor possesses all requisite
regulatory authority to undertake and perform its obligations under the
Operative Documents.
(e) LITIGATION. There are no pending or, to the knowledge of
the Lessor, threatened actions or proceedings against the Lessor before any
court, arbitrator or administrative agency with respect to any Operative
Document or that would have a material adverse effect upon the ability of the
Lessor to perform its obligations under this Master Agreement or any other
Operative Documents to which it is or will be a party.
(f) LESSOR LIENS. No Lessor Liens (other than those
expressly created by the Operative Documents) exist on any Closing Date on the
Leased Property, or any portion thereof, and the execution, delivery and
performance by the Lessor of this Master Agreement or any other Operative
Document to which it is or will be a party will not subject any Leased Property,
or any portion thereof, to any Lessor Liens (other than those expressly created
by the Operative Documents).
(g) EMPLOYEE BENEFIT PLANS. The Lessor is not and will not
be making its investment hereunder, and is not performing its obligations under
the Operative Documents, with the assets of an "employee benefit plan" (as
defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or
"plan" (as defined in Section 4975(e)(1)) of the Code.
(h) GENERAL PARTNER. The sole general partner of the Lessor
is Atlantic Financial Managers, Inc., and the General Partner is duly organized
and validly existing in good standing under the laws of Texas and each state in
which a Leased Property is located.
(i) FINANCIAL INFORMATION. (A) The unaudited balance sheet
of the Lessor as of December 31, 2000 and the related statements of income,
partners' capital and cash flows for the year then ended, copies of which have
been delivered to the Agent, fairly present, in conformity with sound accounting
principles, the financial condition of the Lessor as of such date and the
results of operations and cash flows for such period.
(B) Since December 31, 2000, there has been no event, act,
condition or occurrence having a material adverse effect upon the financial
condition, operations, performance or properties of the Lessor, or the ability
of the Lessor to perform in any material respect its obligations under the
Operative Documents.
(j) NO OFFERING. The Lessor has not offered the Notes to
any Person in any manner that would subject the issuance thereof to registration
under the Securities Act or any applicable state securities laws.
21
(k) INVESTMENT COMPANY. The Lessor is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 4.4 REPRESENTATIONS OF EACH LENDER. Effective as of the date
of execution hereof, as of each Closing Date and as of each Funding Date, each
Lender represents and warrants to the Lessor and to the Lessees as follows:
(a) SECURITIES ACT. The interest being acquired or to be
acquired by such Lender in the Funded Amounts is being acquired for its own
account, without any view to the distribution thereof or any interest therein,
PROVIDED that such Lender shall be entitled to assign, convey or transfer its
interest in accordance with SECTION 6.2.
(b) EMPLOYEE BENEFIT PLANS. Such Lender is not and will not
be making its investment hereunder, and is not performing its obligations under
the Operative Documents, with the assets of an "employee benefit plan" (as
defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or
"plan" (as defined in Section 4975(e)(1)) of the Code.
ARTICLE V.
COVENANTS OF ADESA, LESSEES AND THE LESSOR
SECTION 5.1 QUALIFICATION AS TO CORPORATE STATUS. Each of ADESA and
each Lessee shall remain a validly existing corporation, partnership or limited
liability company organized under the laws of its state of formation and shall
qualify and remain qualified to do business in each State in which the Leased
Property leased by such Lessee is located.
SECTION 5.2 FURTHER ASSURANCES. Upon the written request of the
Agent or any Funding Party, each of ADESA and each Lessee, at its own cost and
expense, will cause all financing statements (including precautionary financing
statements), fixture filings and other similar documents to be signed by ADESA
or such Lessee and recorded or filed at such places and times in such manner as
may be necessary or requested by the Agent or such Funding Party to preserve,
protect and perfect the interest of the Agent and the Funding Parties in the
Leased Properties as contemplated by the Operative Documents.
SECTION 5.3 REPORTING.
(a) FINANCIAL STATEMENTS. ADESA shall deliver or cause to
be delivered to the Agent and each Funding Party:
(i) As soon as practicable, and in any event within
forty-five (45) days after the close of each of the first three
quarterly accounting periods in each Fiscal Year, the consolidated
balance sheet of ADESA and its Subsidiaries as at the end of such
quarterly period and the related consolidated statements of operations
for such quarterly
22
period and for the elapsed portion of the current Fiscal Year ended
with the last day of such quarterly period, and setting forth
comparative consolidated figures for the related periods in the prior
Fiscal Year, which financial statements shall be certified by a duly
authorized officer of ADESA that they fairly present in all material
respects the consolidated financial condition of ADESA and its
Subsidiaries as at the dates indicated, subject to changes resulting
from audit and normal year-end adjustments, PROVIDED that so long as
ADESA is subject to informational requirements of the Securities
Exchange Act and in accordance therewith files reports and other
information with the SEC, the Agent and the Funding Parties shall be
deemed to have been furnished with the foregoing reports and forms so
long as such reports and forms are available for electronic access at
the SEC's homepage on the internet;
(ii) As soon as practicable, and in any event within
one hundred twenty (120) days after the end of each Fiscal Year,
consolidated balance sheets of ADESA and its Subsidiaries as at the end
of such Fiscal Year and the related consolidated statements of
earnings, shareholders' equity and changes in cash flows of ADESA and
its Subsidiaries for such Fiscal Year, setting forth in comparative
form the consolidated figures for ADESA and its Subsidiaries for the
previous Fiscal Year, all in reasonable detail and accompanied by a
report thereon of PricewaterhouseCoopers or other independent public
accountants of recognized national standing selected by ADESA which
report shall be unqualified as to the scope of audit and as to the
status of ADESA and its Subsidiaries as a going concern and shall state
that such consolidated financial statements present fairly in all
material respects the financial position of ADESA and its Subsidiaries
as at the dates indicated and the results of their operations and cash
flows for the periods indicated in conformity with GAAP (or, in the
event of a change in accounting principles, such accountants'
concurrence with such change) and that the examination by such
accountants in connection with such consolidated financial statements
has been made in accordance with generally accepted auditing standards,
PROVIDED that so long as ADESA is subject to informational requirements
of the Securities Exchange Act and in accordance therewith files
reports and other information with the SEC, the Agent and the Funding
Parties shall be deemed to have been furnished with the foregoing
reports and forms so long as such reports and forms are available for
electronic access at the SEC's homepage on the internet;
(iii) Together with each delivery of any financial
statements pursuant to CLAUSES (i) and (ii) of this subsection, an
officer's certificate of ADESA, executed by a duly authorized officer
of ADESA, stating (A) that the signer has instituted procedures for the
review of the terms of this Master Agreement and the principal
Operative Documents and the review in reasonable detail of the
transactions and conditions of ADESA and its Subsidiaries taken as a
whole during the accounting period covered by such financial
statements, and that such review has not disclosed the existence,
during or at the end of such accounting period, nor does the signer
have knowledge of the existence as of the date of such officer's
certificate, of any condition or event which constitutes an Event of
Default, or, if any such condition or event existed or exists,
specifying the
23
nature and period of existence thereof and what action ADESA has taken,
is taking and proposes to take with respect thereto, (B) that, to the
best of such officer's knowledge, the financial statements delivered
pursuant to CLAUSE (i) of this subsection present fairly in all
material respects the financial position of ADESA and its Subsidiaries
as at the dates indicated and the results of their operations and cash
flows for the periods indicated in conformity with GAAP, and (C) that
ADESA is in compliance with each of the covenants contained in SECTION
5.5 hereof, and setting out in reasonable detail the data and
calculations upon which the officer bases such statement;
(iv) Promptly, and in any event within five (5)
Business Days after an executive officer of ADESA or any Lessee obtains
knowledge thereof, notice of (A) the occurrence of any event which
constitutes an Event of Default which notice shall specify the nature
thereof, the period of existence thereof and what action ADESA or such
Lessee proposes to take with respect thereto and (B) any litigation or
governmental proceedings pending against ADESA or any Lessee which, if
determined adversely to such Lessee, would have a Material Adverse
Effect on such Lessee's ability to perform under the Operative
Documents; and
(v) With reasonable promptness, such information with
respect to the financial condition of ADESA, any Lessee or any Leased
Property as from time to time may be reasonably requested by the Agent
or any Funding Party; PROVIDED, HOWEVER, that the Agent and each
Funding Party shall keep such information confidential, except in
connection with enforcement or exercise of the Agent's or any Funding
Party's rights under this Master Agreement or the other Operative
Documents, or otherwise available at law or in equity and PROVIDED,
FURTHER, that the Agent and each Funding Party may disclose such
information to the extent necessary to respond to inquiries of bank
regulatory authorities or to comply with legal process or any other
legal disclosure obligations, or to the extent such information has
been made publicly available by parties other than the Agent or any
Funding Party.
(b) OTHER REPORTS. Promptly after the same are available to it,
during any period in which ADESA shall be or become a reporting company under
the Securities Exchange Act, ADESA shall deliver to the Agent and each Funding
Party copies of the annual report of ADESA and each filing made by ADESA or any
Affiliate thereof with the SEC.
SECTION 5.4 AFFIRMATIVE COVENANTS OF ADESA.
(a) COMPLIANCE WITH LAW. ADESA will, and will cause each of its
Subsidiaries to, comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such
24
licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(b) PAYMENT OF TAXES AND CLAIMS. ADESA will, and will cause each
of its Subsidiaries to, file all tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on properties or assets of ADESA or any
Subsidiary, provided that neither ADESA nor any Subsidiary need pay any such tax
or assessment or claims if (i) the amount, applicability or validity thereof is
contested by ADESA or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and ADESA or a Subsidiary has established adequate
reserves therefor in accordance with GAAP on the books of ADESA or such
Subsidiary or (ii) the nonpayment of all such taxes and assessments in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
(c) CORPORATE EXISTENCE. Each of ADESA and each Lessee will at all
times preserve and keep in full force and effect its corporate, partnership or
limited liability company existence. ADESA will at all times preserve and keep
in full force and effect the corporate, partnership or limited liability company
existence of each of its Subsidiaries (unless merged into ADESA or a Subsidiary)
and all rights and franchises of ADESA and its Subsidiaries unless, in the good
faith judgment of ADESA, the termination of or failure to preserve and keep in
full force and effect such corporate existence, right or franchise could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(d) MAINTENANCE OF PROPERTIES. ADESA will and will cause each of
its Subsidiaries to maintain and keep, or cause to be maintained and kept, their
respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the business carried on in connection therewith
may be properly conducted at all times, provided that this SECTION 5.4(d) shall
not prevent ADESA or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and ADESA has concluded that such discontinuance could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 5.5 FINANCIAL COVENANTS. ADESA shall at all times:
(a) MAXIMUM TOTAL FUNDED DEBT TO EBITDA RATIO. Maintain, as of the
last day of each Fiscal Quarter, commencing with the Fiscal Quarter ending
December 31, 2000, a Total Funded Debt to EBITDA Ratio of not greater than
3.75:1.00 for each Fiscal Quarter ending prior to December 31, 2001 and
3.50:1.00 for each Fiscal Quarter ending on or after December 31, 2001.
25
(b) MINIMUM FIXED CHARGE COVERAGE RATIO. Maintain, as of the last
day of each Fiscal Quarter, commencing with the Fiscal Quarter ending December
31, 2000, a Fixed Charge Coverage Ratio of not less than 1.30:1.00.
(c) MINIMUM NET WORTH. Maintain at all times a Net Worth of not
less than $406,806,505 with such minimum amount to be permanently increased at
the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on
March 31, 2001, by an amount equal to fifty percent (50%) of Net Income for such
Fiscal Quarter; PROVIDED, HOWEVER, in the event that the Consolidated Companies
suffer a net loss for any Fiscal Quarter, Net Income shall be deemed to be $0
for such Fiscal Quarter, so that in no event shall Net Worth at the end of any
Fiscal Quarter be less than that required at the end of the preceding Fiscal
Quarter.
SECTION 5.6 ADDITIONAL REQUIRED APPRAISALS. If, as a result of any
change in Applicable Law after the date hereof, an Appraisal of all or any of
the Leased Properties is required during the Lease Term under Applicable Law
with respect to any Funding Party's interest therein, such Funding Party's
Funded Amount with respect thereto or the Operative Documents, then the related
Lessee shall pay the reasonable cost of such Appraisal.
SECTION 5.7 LESSOR'S COVENANTS. The Lessor covenants and agrees
that, unless the Agent, ADESA and the Lenders shall have otherwise consented in
writing:
(a) the proceeds of the Loans received from the Lenders will
be used by the Lessor solely to acquire the related Leased Property and to pay
the Construction Agent, as agent for the Lessor, or the related Lessee for
Construction Costs. No portion of the proceeds of the Loans will be used by the
Lessor (i) in connection with, whether directly or indirectly, any tender offer
for, or other acquisition of, stock of any corporation with a view towards
obtaining control of such other corporation or (ii) directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any Margin Stock;
(b) it shall not engage in any business or activity, or
invest in any Person, except for activities similar to its activities conducted
on the date hereof, the Transaction and lease transactions similar to the
Transaction;
(c) it will maintain tangible net worth in an amount no less
than the sum of (i) $100,000 PLUS (ii) 3% of its total assets (calculated
assuming no reduction in the value of any leased property from its original cost
to the Lessor) and will at all times be solvent (as defined in the Bankruptcy
Code);
(d) it will deliver to the Agent and ADESA, as soon as
available and in any event within 90 days after the end of each fiscal year, a
balance sheet of the Lessor as of the end of such fiscal year and the related
statements of income, partners' capital and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
fiscal year, prepared in accordance with sound accounting principles, together
with copies of its tax returns,
26
all certified by an officer of the General Partner (and if the Lessor ever
prepares audited financial statements, it shall deliver copies thereof to the
Agent and ADESA);
(e) it will permit the Agent and its representatives to
examine, and make copies from, the Lessor's books and records, and to visit the
offices and properties of the Lessor for the purpose of examining such
materials, and to discuss the Lessor's performance hereunder with any of its, or
its general partner's, officers and employees, in each case during normal
business hours and upon reasonable notice;
(f) it shall not consent to or permit the creation of any
easement or other restriction against any Leased Property other than as
permitted pursuant to Article VI of the Lease; and
(g) it shall not incur or permit to exist, and will promptly
discharge each Lessor Lien and shall indemnify the Lenders and the Lessees for
any loss, cost, expense or diminution in value of any Leased Property resulting
from, or incurred as a result of, such Lessor Liens.
ARTICLE VI.
TRANSFERS BY LESSOR AND LENDERS;
DISTRIBUTION OF PAYMENTS AND PROCEEDS
SECTION 6.1 LESSOR TRANSFERS. The Lessor shall not assign, convey,
encumber or otherwise transfer all or any portion of its right, title or
interest in, to or under any Leased Property or any of the Operative Documents,
except to a Lessee in accordance with the Operative Documents without the prior
written consent of the Lenders and, unless an Event of Default has occurred and
is continuing, ADESA. Any proposed transferee of the Lessor shall make the
representation set forth in SECTION 4.3 to the other parties hereto.
SECTION 6.2 LENDER TRANSFERS
(a) Any Lender may make, carry or transfer Loans at, to or
for the account of, any of its branch offices or the office of an Affiliate of
such Lender.
(b) Each Lender may assign all or a portion of its
interests, rights and obligations under this Master Agreement and the Loan
Agreement (including all or a portion of its Commitment and the Loans at the
time owing to it) to any Person; PROVIDED, HOWEVER, that (i) the Agent and,
except during the continuance of a Potential Event of Default or Event of
Default, ADESA must give its prior written consent to such assignment (which
consent shall not be unreasonably withheld or delayed) unless such assignment is
to another Lender or Affiliate of the assigning Lender, (ii) unless such Lender
is assigning all of its Commitment, after giving effect to such assignment, the
Commitment of both the assignor and the assignee is at least $1,000,000 and
(iii) the parties to each such assignment shall execute and deliver to the Agent
an Assignment and Acceptance, and, a processing and recordation fee of $2,500.
Any such
27
assignment of the Loans shall include both the A Loans and the B Loans
of such assigning Lender, on a pro rata basis. From and after the effective date
specified in each Assignment and Acceptance, the assignee thereunder shall be a
party hereto and to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Master
Agreement and the Loan Agreement.
(c) Each Lender may, without the consent of ADESA or any
Lessee, sell participations to one or more banks or other entities in all or a
portion of its rights and obligations under this Master Agreement and the Loan
Agreement (including all or a portion of its Commitments in the Loans owing to
it), PROVIDED, HOWEVER, that (i) no Lender may sell a participation in its
Commitment (after giving effect to any permitted assignment hereunder) in an
amount in excess of fifty percent (50%) of such Commitment (PROVIDED that (1)
sales of participations to an Affiliate of such Lender shall not be included in
such calculation and (2) no such maximum amount shall be applicable to any
participation sold at any time there exists an Event of Default), (ii) such
Lender's obligations under this Master Agreement and the Loan Agreement shall
remain unchanged, (iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iv) the participating
bank or other entity shall not be entitled to any greater benefit than its
selling Lender under the cost protection provisions contained in SECTION 7.5 of
this Master Agreement, and (v) ADESA, each Lessee, the Agent and the other
Lenders shall continue to deal solely and directly with each Lender in
connection with such Lender's rights and obligations under this Master Agreement
and the other Operative Documents, and such Lender shall retain the sole right
to enforce the obligations of Lessor relating to the Loans and to approve any
amendment, modification or waiver of any provisions of this Master Agreement and
the Loan Agreement (except that such Lender may permit the participant to
approve any amendment, modification or waiver which would reduce the principal
of or the interest rate on its Loan, extend the term of such Lender's
Commitment, reduce the amount of any fees to which such participant is entitled
or extend the final scheduled payment date of any Loan, IT BEING UNDERSTOOD that
in all events, the other parties hereto may conclusively rely on such Lender's
approval of any such amendment, modification or waiver and shall have no
obligation to ascertain whether such participant has approved such amendment,
modification or waiver). Any Lender selling a participation hereunder shall
provide prompt written notice to the Agent of the name of such participant.
(d) Any Lender or participant may, in connection with the
assignment or participation or proposed assignment or participation, pursuant to
this Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to ADESA or its Subsidiaries furnished to
such Lender by or on behalf of ADESA. With respect to any disclosure of
confidential, non-public, proprietary information, such proposed assignee or
participant shall agree to use the information only for the purpose of making
any necessary credit judgments with respect to this facility and not to use the
information in any manner prohibited by any law, including without limitation,
the securities laws of the United States. The proposed participant or assignee
shall agree not to disclose any of such information except as permitted by this
Master Agreement. The proposed participant or assignee shall further agree to
return all documents or other written material and copies thereof received from
any Lender, the Agent or
28
any Lessee relating to such confidential information unless otherwise properly
disposed of by such entity.
(e) Any Lender may at any time assign all or any portion of
its rights under this Master Agreement and the Note to a Federal Reserve Bank
without complying with the requirements of PARAGRAPH (b) above; PROVIDED that no
such assignment shall release such Lender from any of its obligations hereunder.
(f) The Lenders hereby acknowledge and agree that the
Lessees shall have the right to the quiet enjoyment of the Leased Properties
pursuant to the Lease, whether or not a Loan Event of Default that is not an
Event of Default has occurred and is continuing, so long as no Event of Default
has occurred and is continuing.
SECTION 6.3 DISTRIBUTION AND APPLICATION OF RENT PAYMENTS.
(a) BASIC RENT. Each payment of Basic Rent (and any payment
of interest on overdue installments of Basic Rent) received by the Agent shall
be distributed pro rata to the Funding Parties to be applied to the amounts of
accrued and unpaid interest (including overdue interest) on the Loans and
accrued and unpaid Yield (including overdue Yield).
(b) SUPPLEMENTAL RENT. Each payment of Supplemental Rent
received by the Agent shall be paid to or upon the order of the Person owed the
same in accordance with the Operative Documents.
(c) PAYMENT DIRECTION. The Lessor hereby irrevocably directs
each Lessee, each Guarantor and the Construction Agent to make all payments
payable by any of them under the Operative Documents to the Agent (as assignee
of the Lessor), other than indemnity payments that are for the account of the
Lessor (which shall be payable directly to the Lessor).
SECTION 6.4 DISTRIBUTION AND APPLICATION OF PURCHASE PAYMENT. With
respect to any Leased Property, the payment by a Lessee of:
(a) the purchase price for a consummated sale of such Leased
Property received by the Agent in connection with such Lessee's exercise of the
Purchase Option or Partial Purchase Option under Section 14.1 of the Lease or
such Lessee's or the Construction Agent's exercise of its option to purchase
such Leased Property under Section 5.3 of the Construction Agency Agreement, or
(b) the payment payable in connection with such Lessee's
compliance with its obligation to purchase the Leased Property in accordance
with Section 14.2 or 14.3 of the Lease, or
(c) the Leased Property Balance therefor in accordance with
Section 10.1 or Section 10.2 of the Lease,
29
shall be distributed by the Agent, as promptly as possible, to the Funding
Parties PRO RATA in accordance with, and for application to, their respective
Funding Party Balances in respect of such Leased Property or Properties
(including both that portion of the A Loans and that portion of the B Loans
allocated to such Leased Property or Properties).
SECTION 6.5 DISTRIBUTION AND APPLICATION TO FUNDING PARTY BALANCES
OF LESSEE PAYMENT OF RECOURSE DEFICIENCY AMOUNT UPON EXERCISE OF REMARKETING
OPTION. With respect to any Leased Property, the payment by a Lessee of the
Recourse Deficiency Amount to the Agent on the Lease Termination Date in
accordance with Section 14.6 or Section 14.7 of the Lease following the Lessees'
exercise of the Remarketing Option, shall be applied by the Agent to the accrued
and unpaid interest on, and the outstanding principal of, the A Loans in respect
of such Leased Property. With respect to any Leased Property, the payment by a
Lessee or the Construction Agent of the Construction Failure Payment with
respect thereto pursuant to the Construction Agency Agreement shall be applied
by the Agent, FIRST to the accrued and unpaid interest on, and the outstanding
principal of, the A Loans in respect of such Leased Property, SECOND to the
accrued and unpaid interest on, and outstanding principal of, the B Loans
related to such Leased Property and THIRD to the accrued and unpaid Yield on,
and outstanding Lessor Invested Amount related to such Leased Property.
SECTION 6.6 DISTRIBUTION AND APPLICATION TO FUNDING PARTY BALANCES
OF REMARKETING PROCEEDS OF LEASED PROPERTY. (a) Any payments received by the
Lessor as proceeds from the sale of any Leased Property sold pursuant to the
Lessees' exercise of the Remarketing Option pursuant to Section 14.6 or 14.7 of
the Lease, shall be distributed (or applied, in the case of CLAUSE THIRD below)
by the Lessor as promptly as possible (it being understood that any such payment
received by the Lessor on a timely basis and in accordance with the provisions
of the Lease shall be distributed on the date received in the funds so received)
in the following order of priority:
FIRST, to the extent not previously deducted from such
proceeds, to the Agent and the Funding Parties as reimbursement for any
and all reasonable remarketing, sale, closing or other transfer costs,
prorations or commissions (including broker fees, appraisal costs,
legal fees and expenses and transfer taxes), paid or incurred by the
Agent or any Funding Party and not reimbursed by the Lessees, PRO RATA
according to the amount of such costs and fees;
SECOND, to the Lenders PRO RATA for application to their B
Loans in respect of all of the Leased Properties, an amount equal to
their B Loans in respect of all of the Leased Properties;
THIRD, to the Lessor for application to the Lessor's Invested
Amounts in respect of all of the Leased Properties, an amount equal to
the Lessor's Invested Amounts in respect of all of the Leased
Properties;
30
FOURTH, to the Funding Parties PRO RATA for application to any
other amount owing to the Funding Parties under the Operative Documents
(including accrued and unpaid interest on the Loans, accrued and unpaid
Yield and any outstanding principal of the A Loans), an amount equal to
such other amounts; and
FIFTH, (i) if sold by a Lessee pursuant to Section 14.6 of the
Lease, the excess, if any, to such Lessee, and (ii) otherwise, the
excess, if any, to the Lessor.
(b) Any payments received by the Lessor as proceeds from the sale
of any Leased Property sold following the payment of the Construction Failure
Payment shall be distributed (or applied, as appropriate) by the Lessor as
promptly as possible (it being understood that any such payment received by the
Lessor on a timely basis and in accordance with the provisions of the
Construction Agency Agreement shall be distributed on the date received in the
funds so received) in the following order of priority:
FIRST, to the Funding Parties or the Agent, as the case may
be, in reimbursement of all reasonable costs, expenses and taxes, if
any, incurred by any of them to complete the construction of such
Leased Property, maintain and insure such Leased Property, remarket
such Leased Property and sell such Leased Property, PRO RATA according
to the amount of such costs, expenses and taxes;
SECOND, to the Funding Parties PRO RATA for application to
their Funding Party Balances in respect to such Leased Property
(including both that portion of the A Loans and that portion of the B
Loans allocated to such Leased Property), an amount equal to such
Funding Party Balances in respect of such Leased Property; and
THIRD, to the Lessor.
SECTION 6.7 DISTRIBUTION AND APPLICATION OF PAYMENTS RECEIVED WHEN
AN EVENT OF DEFAULT EXISTS OR HAS CEASED TO EXIST FOLLOWING REJECTION OF THE
LEASE.
(a) PROCEEDS OF LEASED PROPERTY. Any payments received by
the Lessor or the Agent when an Event of Default exists (or has ceased to exist
by reason of a rejection of the Lease in a proceeding with respect to a Lessee
described in Article XII(f) of the Lease), as
(i) proceeds from the sale of any or all of the
Leased Property sold pursuant to the exercise of the Lessor's
remedies pursuant to Article XIII of the Lease, or
(ii) proceeds of any amounts from any insurer or any
Governmental Authority in connection with an Event of Loss or
Event of Taking
shall if received by the Lessor be paid to the Agent as promptly as possible,
and shall be distributed or applied in the following order of priority prior to
the Release Date:
31
FIRST, to the Agent for any amounts reasonably expended by it
in connection with such Leased Property or the Operative Documents and
not previously reimbursed to it;
SECOND, to the Funding Parties PRO RATA for application to
their Funding Party Balances in respect of all of the Leased
Properties, an amount equal to such Funding Party Balances; and
THIRD, to the related Lessee or the Person or Persons
otherwise legally entitled thereto, the excess, if any.
(b) PROCEEDS OF RECOVERIES FROM LESSEE. Any payments
received by any Funding Party when an Event of Default exists (or has ceased to
exist by reason of a rejection of the Lease in a proceeding with respect to a
Lessee described in Article XII(f) of the Lease), from a Lessee as a payment in
accordance with the Lease shall be paid to the Agent as promptly as possible,
and shall then be distributed or applied by the Agent as promptly as possible in
the order of priority set forth in PARAGRAPH (a) above.
SECTION 6.8 DISTRIBUTION OF OTHER PAYMENTS. All payments under
SECTION 7.6 of this Master Agreement shall be made FIRST, to the Funding
Parties, PRO RATA, until their Funding Party Balances have been paid in full,
and SECOND, to the Lessor who shall be entitled to retain all such remaining
amounts. Except as otherwise provided in this SECTION 6, any payment received by
the Lessor which is to be paid to Agent pursuant hereto or for which provision
as to the application thereof is made in an Operative Document but not elsewhere
in this SECTION 6 shall, if received by the Lessor, be paid forthwith to the
Agent and when received shall be distributed forthwith by the Agent to the
Person and for the purpose for which such payment was made in accordance with
the terms of such Operative Document.
SECTION 6.9 TIMING OF AGENT DISTRIBUTIONS. Payments received by the
Agent in immediately available funds before 12:00 p.m. (noon), Atlanta, Georgia
time, on any Business Day shall be distributed to the Funding Parties in
accordance with and to the extent provided in this SECTION 6 on such Business
Day. Payments received by the Agent in immediately available funds after 12:00
p.m. (noon), Atlanta, Georgia time shall be distributed to the Funding Parties
in accordance with and to the extent provided in this SECTION 6 on the next
Business Day.
SECTION 6.10 RELEASE OF LEASED PROPERTIES. (a) If one or more of the
Lessees shall at any time purchase any or all of the Leased Properties pursuant
to Section 13.3 or Article 14 of the Lease, or if any or all of the Leased
Properties shall be sold in accordance with, and the Lessees otherwise satisfy
each of the obligations and conditions set forth in, Section 14.6 of the Lease
in respect thereof, then, upon application of such amounts to prepay the related
Loans pursuant to this Master Agreement and the Loan Agreement and the Agent's
and the Lenders' receipt of all accrued interest and any other payments due and
owing from the Lessees and/or the Lessor to the Agent and the Lenders on such
date in respect thereof, such Leased Property or Properties, as the case may be,
shall be released from the applicable Mortgage and the Assignment of Lease and
Rents, to the extent relating to such Leased Property or Properties.
32
(b) Upon the termination of the Lenders' Commitments and the
payment in full of all of the Loans and all other amounts owing by the Lessees
and/or the Lessor hereunder or under any other Operative Document to the Lessor,
the Agent and the Lenders (other than unasserted indemnities), the Leased
Properties shall be released from the Mortgages and Assignments of Lease and
Rents.
(c) Upon request of the Lessor or a Lessee following a
release of any Leased Property described in CLAUSE (a) or (b) above, the Agent
shall, at the sole cost and expense of the Lessees, execute and deliver to the
Lessor or the requesting Lessee such documents as the Lessor or such Lessee
shall reasonably request to evidence such release, including, if requested, a
release of the Assignments of Lease and Rents to the extent relating to such
Leased Property.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1 GENERAL INDEMNIFICATION. Each of ADESA and each Lessee,
jointly and severally, agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to assume liability for, and to
indemnify, protect, defend, save and hold harmless each Indemnitee, on an
After-Tax Basis, from and against, any and all Claims that may be imposed on,
incurred by or asserted, or threatened to be asserted, against such Indemnitee,
whether or not such Indemnitee shall also be indemnified as to any such Claim by
any other Person (PROVIDED that no Indemnitee shall have the right to double
recovery with respect to any Claim) and whether or not such Claim arises or
accrues prior to any Closing Date or after the Lease Termination Date, or
results from such Indemnitee's negligence, in any way relating to or arising out
of:
(a) any of the Operative Documents or any of the
transactions contemplated thereby, and any amendment, modification or waiver in
respect thereof; or
(b) the purchase, design, construction, preparation,
installation, inspection, delivery, non-delivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition,
substitution, storage, transfer of title, redelivery, use, financing,
refinancing, disposition, operation, condition, sale (including, without
limitation, any sale pursuant to the Lease), return or other disposition of all
or any part of any interest in any Leased Property or the imposition of any
Lien, other than a Lessor Lien (or incurring of any liability to refund or pay
over any amount as a result of any Lien, other than a Lessor Lien) thereon,
including, without limitation: (i) Claims or penalties arising from any
violation or alleged violation of law or in tort (strict liability or
otherwise), (ii) latent or other defects, whether or not discoverable, (iii) any
Claim based upon a violation or alleged violation of the terms of any
restriction, easement, condition or covenant or other matter affecting title to
any Leased Property or any part thereof, (iv) the making of any Alterations in
violation of any standards imposed by any insurance policies required to be
maintained by any Lessee pursuant to the Lease which are in effect at any time
with respect to any Leased Property or any part thereof, (v) any Claim for
patent, trademark or
33
copyright infringement, (vi) Claims arising from any public improvements with
respect to any Leased Property resulting in any charge or special assessments
being levied against any Leased Property or any Claim for utility "tap-in" fees,
and (vii) Claims for personal injury or real or personal property damage
occurring, or allegedly occurring, on any Land, Building or Leased Property;
(c) the breach by ADESA or any Lessee of any representation
or warranty made by it or deemed made by it and set forth in any Operative
Document or any certificate required to be delivered by any Operative Document
(without giving effect to any exception in any representation based on the
absence of a Material Adverse Effect or on the absence of Knowledge);
(d) the retaining or employment of any broker, finder or
financial advisor by ADESA or any Lessee to act on its behalf in connection with
this Master Agreement, or the incurring of any fees or commissions to which the
Lessor, the Agent or any Lender might be subjected by virtue of their entering
into the transactions contemplated by this Master Agreement (other than fees or
commissions due to any broker, finder or financial advisor retained by the
Lessor, the Agent or any Lender);
(e) the existence of any Lien (other than a Lessor Lien) on
or with respect to any Leased Property, the Construction, any Basic Rent or
Supplemental Rent, title thereto, or any interest therein, including any Liens
which arise out of the possession, use, occupancy, construction, repair or
rebuilding of any Leased Property or by reason of labor or materials furnished
or claimed to have been furnished to the Construction Agent, any Lessee, or any
of its contractors or agents or by reason of the financing of any personalty or
equipment purchased or leased by any Lessee or Alterations constructed by any
Lessee, except, in all cases, the Liens described in item (a) of the definition
of Permitted Liens;
(f) the transactions contemplated hereby or by any other
Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B
of Title I of ERISA and any prohibited transaction described in Section 4975(c)
of the Code;
(g) any act or omission by ADESA or any Lessee under any
Purchase Agreement or any other Operative Document, or any breach by ADESA or
any Lessee of any requirement, condition, restriction or limitation in any Deed,
Purchase Agreement, IDB Documentation or Ground Lease; or
(h) any IDB Documentation;
PROVIDED, HOWEVER, neither ADESA nor any Lessee shall be required to indemnify
any Indemnitee under this SECTION 7.1 for any Claim to the extent that such
Claim results from (i) the willful misconduct or gross negligence of such
Indemnitee (other than gross negligence or willful misconduct imputed to such
Indemnitee solely by reason of its interest in any Leased Property), or (ii) any
Claim resulting from Lessor Liens; and, PROVIDED, FURTHER, that with respect
34
to each Construction Land Interest, each Lessee's indemnity obligations with
respect to such Leased Property shall be governed solely by Section 3.3 of the
Construction Agency Agreement during the Construction Term therefor. It is
expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of, and shall be separate and independent
from any other remedy under this Master Agreement, the Lease or any other
Operative Document.
SECTION 7.2 ENVIRONMENTAL INDEMNITY. In addition to and without
limitation of SECTION 7.1 or Section 3.3 of the Construction Agency Agreement,
each of ADESA and each Lessee, jointly and severally, agrees to indemnify, hold
harmless and defend each Indemnitee, on an After-Tax Basis, from and against any
and all claims (including without limitation third party claims for personal
injury or real or personal property damage), losses (including but not limited
to any loss of value of any Leased Property), damages, liabilities, fines,
penalties, charges, suits, settlements, demands, administrative and judicial
proceedings (including informal proceedings and investigations) and orders,
judgments, remedial action, requirements, enforcement actions of any kind, and
all reasonable costs and expenses actually incurred in connection therewith
(including, but not limited to, reasonable attorneys' and/or paralegals' fees
and expenses), including, but not limited to, all costs incurred in connection
with any investigation or monitoring of site conditions or any clean-up,
remedial, removal or restoration work by any federal, state or local government
agency, arising directly or indirectly, in whole or in part, out of:
(i) the presence on or under any Land of any Hazardous
Materials, or any releases or discharges of any Hazardous Materials on,
under, from or onto any Land,
(ii) any activity, including, without limitation,
construction, carried on or undertaken on or off any Land, and whether
by a Lessee or any predecessor in title or any employees, agents,
contractors or subcontractors of a Lessee or any predecessor in title,
or any other Person, in connection with the handling, treatment,
removal, storage, decontamination, clean-up, transport or disposal of
any Hazardous Materials that at any time are located or present on or
under or that at any time migrate, flow, percolate, diffuse or in any
way move onto or under any Land,
(iii) loss of or damage to any property or the environment
(including, without limitation, clean-up costs, response costs,
remediation and removal costs, cost of corrective action, costs of
financial assurance, fines and penalties and natural resource damages),
or death or injury to any Person, and all expenses associated with the
protection of wildlife, aquatic species, vegetation, flora and fauna,
and any mitigative action required by or under Environmental Laws, in
each case to the extent related to any Leased Property,
(iv) any claim concerning any Leased Property's lack of
compliance with Environmental Laws, or any act or omission causing an
environmental condition on or
35
with respect to any Leased Property that requires remediation or would
allow any governmental agency to record a lien or encumbrance on the
land records, or
(v) any residual contamination on or under any Land, or
affecting any natural resources on any Land, and to any contamination
of any property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of any such
Hazardous Materials on or from any Leased Property; in each case
irrespective of whether any of such activities were or will be
undertaken in accordance with applicable laws, regulations, codes and
ordinances;
in any case with respect to the matters described in the foregoing CLAUSES (i)
through (v) that arise or occur
(w) prior to or during the Lease Term,
(x) at any time during which a Lessee or any Affiliate
thereof owns any interest in or otherwise occupies or possesses any
Leased Property or any portion thereof, or
(y) during any period after and during the continuance of
any Event of Default;
PROVIDED, HOWEVER, no Lessee shall be required to indemnify any Indemnitee under
this SECTION 7.2 for any Claim to the extent that such Claim results from the
willful misconduct or gross negligence of such Indemnitee (other than gross
negligence or willful misconduct imputed to such Indemnitee solely by reason of
any action or inaction of the Construction Agent or any Lessee). It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of, and shall be separate and independent from any
other remedy under this Master Agreement, the Lease or any other Operative
Document.
SECTION 7.3 PROCEEDINGS IN RESPECT OF CLAIMS. With respect to any
amount that a Lessee is requested by an Indemnitee to pay by reason of SECTION
7.1 or 7.2, such Indemnitee shall, if so requested by such Lessee and prior to
any payment, submit such additional information to such Lessee as such Lessee
may reasonably request and which is in the possession of, or under the control
of, such Indemnitee to substantiate properly the requested payment. In case any
action, suit or proceeding shall be brought against any Indemnitee, such
Indemnitee promptly shall notify ADESA of the commencement thereof (PROVIDED
that the failure of such Indemnitee to promptly notify ADESA shall not affect
ADESA's or any Lessee's obligation to indemnify hereunder except to the extent
that ADESA's or a Lessee's rights to contest are materially prejudiced by such
failure), and such Lessee shall be entitled, at its expense, to participate in,
and, to the extent that such Lessee desires to, assume and control the defense
thereof with counsel reasonably satisfactory to such Indemnitee; PROVIDED,
HOWEVER, that such Indemnitee may pursue a motion to dismiss such Indemnitee
from such action, suit or proceeding with counsel of such Indemnitee's choice at
the Lessees' expense; and PROVIDED
36
FURTHER that a Lessee may assume and control the defense of such proceeding only
if ADESA, if requested to do so by the Indemnitee, shall have acknowledged in
writing its and each Lessee's obligations to fully indemnify such Indemnitee in
respect of such action, suit or proceeding, Lessees shall pay all reasonable
costs and expenses related to such action, suit or proceeding as and when
incurred and the related Lessee shall keep such Indemnitee fully apprised of the
status of such action, suit or proceeding and shall provide such Indemnitee with
all information with respect to such action, suit or proceeding as such
Indemnitee shall reasonably request; and, PROVIDED FURTHER, that no Lessee shall
be entitled to assume and control the defense of any such action, suit or
proceeding if and to the extent that, (A) in the reasonable opinion of such
Indemnitee, (x) such action, suit or proceeding involves any possibility of
imposition of criminal liability or any material risk of civil liability on such
Indemnitee in excess of $5,000,000 or (y) such action, suit or proceeding will
involve a material risk of the sale, forfeiture or loss of, or the creation of
any Lien (other than a Permitted Lien) on any Leased Property or any part
thereof unless the related Lessee or ADESA shall have posted a bond or other
security satisfactory to the relevant Indemnitees in respect to such risk or (z)
the control of such action, suit or proceeding would involve an actual or
potential conflict of interest, (B) such proceeding involves Claims not fully
indemnified by the Lessees which the related Lessee and the Indemnitee have been
unable to sever from the indemnified claim(s), or (C) an Event of Default has
occurred and is continuing. The Indemnitee may participate in a reasonable
manner at its own expense and with its own counsel in any proceeding conducted
by a Lessee in accordance with the foregoing.
If a Lessee fails to fulfill the conditions to such Lessee's assuming
the defense of any Claim after receiving notice thereof on or prior to the later
of (a) the date that is ten (10) days after receiving notice thereof and (b) the
date that is ten (10) days prior to the date that an answer or response is
required, the Indemnitee may undertake such defense, at the Lessees' expense. No
Lessee shall enter into any settlement or other compromise with respect to any
Claim which admits any liability or wrong-doing on part of any Indemnitee or
which is in excess of $5,000,000 which is entitled to be indemnified under
SECTION 7.1 or 7.2 without the prior written consent of the related Indemnitee,
which consent shall not be unreasonably withheld. Unless an Event of Default
shall have occurred and be continuing, no Indemnitee shall enter into any
settlement or other compromise with respect to any claim which is entitled to be
indemnified under SECTION 7.1 or 7.2 without the prior written consent of ADESA,
which consent shall not be unreasonably withheld, unless such Indemnitee waives
its right to be indemnified under SECTION 7.1 or 7.2 with respect to such Claim.
Upon payment in full of any Claim by the Lessees pursuant to SECTION
7.1 or 7.2 to or on behalf of an Indemnitee, the Lessees, without any further
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in respect of insurance policies maintained
by such Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be reasonably necessary
to preserve any such claims and otherwise cooperate with the Lessees and give
such further assurances as are reasonably necessary or advisable to enable the
Lessees vigorously to pursue such claims.
37
If for any reason the indemnification provided for in SECTION 7.1 or
7.2 is unavailable to an Indemnitee or is insufficient to hold an Indemnitee
harmless, then each of ADESA and each Lessee agrees to contribute to the amount
paid or payable by such Indemnitee as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnitee on the one hand and by ADESA and the
Lessees on the other hand but also the relative fault of such Indemnitee as well
as any other relevant equitable considerations. It is expressly understood and
agreed that the right to contribution provided for herein shall survive the
expiration or termination of and shall be separate and independent from any
other remedy under this Master Agreement, the Lease or any other Operative
Document.
The provisions of this SECTION 7.3 shall apply to all Claims for which
a Lessee or the Construction Agent has an indemnity obligation pursuant to any
Operative Document.
SECTION 7.4 GENERAL TAX INDEMNITY. (a) TAX INDEMNITY. Except as
otherwise provided in this SECTION 7.4, each of ADESA and each Lessee, jointly
and severally, shall pay on an After-Tax Basis, and on written demand shall
indemnify and hold each Tax Indemnitee harmless from and against, any and all
fees (including, without limitation, documentation, recording, license and
registration fees), taxes (including, without limitation, income, gross
receipts, sales, rental, use, turnover, value-added, property, excise and stamp
taxes), levies, imposts, duties, charges, assessments or withholdings of any
nature whatsoever, together with any penalties, fines or interest thereon or
additions thereto (any of the foregoing being referred to herein as "TAXES" and
individually as a "TAX" (for the purposes of this SECTION 7.4, the definition of
"Taxes" includes amounts imposed on, incurred by, or asserted against each Tax
Indemnitee as the result of any prohibited transaction, within the meaning of
Section 406 or 407 of ERISA or Section 4975(c) of the Code, arising out of the
transactions contemplated hereby or by any other Operative Document)) imposed on
or with respect to any Tax Indemnitee, any Lessee, ADESA, any Leased Property or
any portion thereof or any Land, or any sublessee or user thereof, by the United
States or by any state or local government or other taxing authority in the
United States in connection with or in any way relating to (i) the acquisition,
financing, mortgaging, construction, preparation, installation, inspection,
delivery, non-delivery, acceptance, rejection, purchase, ownership, possession,
rental, lease, sublease, maintenance, repair, storage, transfer of title,
redelivery, use, operation, condition, sale, return or other application or
disposition of all or any part of any Leased Property or the imposition of any
Lien (or incurrence of any liability to refund or pay over any amount as a
result of any Lien) thereon, (ii) Basic Rent or Supplemental Rent or the
receipts or earnings arising from or received with respect to any Leased
Property or any part thereof, or any interest therein or any applications or
dispositions thereof, (iii) any other amount paid or payable pursuant to the
Note or any other Operative Documents, (iv) any Leased Property, any Land or any
part thereof or any interest therein (including, without limitation, all
assessments payable in respect thereof, including, without limitation, all
assessments noted on the related Title Policy), (v) all or any of the Operative
Documents, any other documents contemplated thereby, any amendments and
supplements thereto, and (vi) otherwise with respect to or in connection with
the transactions contemplated by the Operative Documents. Notwithstanding the
foregoing, during the Construction Term for any Construction Land Interest, (i)
ADESA and the Lessees shall only be obligated to indemnify the Lessor and its
38
Affiliates, successors, permitted assigns, permitted transferees, employees,
officers, directors and agents, with respect to Taxes related to such
Construction Land Interest and (ii) Lessor hereby indemnifies the other Tax
Indemnitees for such Taxes, to the extent that Lessor receives payment therefor
from ADESA or any Lessee.
(b) EXCLUSIONS FROM GENERAL TAX INDEMNITY. SECTION 7.4(a)
shall not apply to:
(i) Taxes on, based on, or measured by or with
respect to net income of the Lessor, the Agent and the Lenders
(including, without limitation, minimum Taxes, capital gains Taxes,
Taxes on or measured by items of tax preference or alternative minimum
Taxes) other than (A) any such Taxes with respect to any Leased
Property or the Transaction that are, or are in the nature of, sales,
use, license, rental or property Taxes, and (B) withholding Taxes
imposed by the United States or any state in which Leased Property is
located (i) on payments with respect to the Notes, to the extent
imposed by reason of a change in Applicable Law occurring after the
date on which Lender became a Lender hereunder or (ii) on Rent, to the
extent the net payment of Rent after deduction of such withholding
Taxes would be less than amounts currently payable with respect to the
Funded Amounts;
(ii) Taxes on, based on, or in the nature of, or
measured by Taxes on doing business and business privilege, franchise,
capital, capital stock, net worth, gross receipts or similar Taxes,
other than (A) any increase in such Taxes imposed on such Tax
Indemnitee by any state in which Leased Property is located, net of any
decrease in such taxes realized by such Tax Indemnitee, to the extent
that such tax increase would not have occurred if on each Funding Date
the Lessor and the Lenders had advanced funds to a Lessee or the
Construction Agent in the form of loans secured by the Leased Property
in an amount equal to the Funded Amounts funded on such Funding Date,
with debt service for such loans equal to the Basic Rent payable on
each Payment Date and a principal balance at the maturity of such loans
in a total amount equal to the Funded Amounts at the end of the Lease
Term, or (B) any Taxes that are or are in the nature of sales, use,
rental, license or property Taxes relating to any Leased Property;
(iii) Taxes that are based on, or measured by, the
fees or other compensation received by a Person acting as Agent (in its
individual capacities) or any Affiliate of any thereof for acting as
trustee under the Loan Agreement;
(iv) Taxes that result from any act, event or
omission, or are attributable to any period of time, that occurs after
the earlier of (A) the expiration of the Lease Term with respect to any
Leased Property and, if such Leased Property is required to be returned
to the Lessor in accordance with the Lease, such return and (B) the
discharge in full of the Lessees' obligations to pay the Lease Balance,
or any amount determined by reference thereto, with respect to any
Leased Property and all other amounts due under the Lease, unless such
Taxes relate to acts, events or matters occurring prior to the earlier
39
of such times or are imposed on or with respect to any payments due
under the Operative Documents after such expiration or discharge;
(v) Taxes imposed on a Tax Indemnitee that result
from any voluntary sale, assignment, transfer or other disposition or
bankruptcy by such Tax Indemnitee or any related Tax Indemnitee of any
interest in any Leased Property or any part thereof, or any interest
therein or any interest or obligation arising under the Operative
Documents, or from any sale, assignment, transfer or other disposition
of any interest in such Tax Indemnitee or any related Tax Indemnitee,
it being understood that each of the following shall not be considered
a voluntary sale: (A) any substitution, replacement or removal of any
of the Leased Property by any Lessee, (B) any sale or transfer
resulting from the exercise by any Lessee of any termination option,
any purchase option or sale option, (C) any sale or transfer while an
Event of Default shall have occurred and be continuing under the Lease,
and (D) any sale or transfer resulting from the Lessor's exercise of
remedies under the Lease;
(vi) any Tax which is being contested in accordance
with the provisions of SECTION 7.4(c), during the pendency of such
contest;
(vii) any Tax that is imposed on a Tax Indemnitee as
a result of such Tax Indemnitee's gross negligence or willful
misconduct (other than gross negligence or willful misconduct imputed
to such Tax Indemnitee solely by reason of its interest in any Leased
Property);
(viii) any Tax that results from a Tax Indemnitee
engaging, with respect to any Leased Property, in transactions
unrelated to the Leased Properties or the transactions contemplated by
the Operative Documents;
(ix) to the extent of any interest, penalties or
additions to tax that result in whole or in part from the failure of a
Tax Indemnitee to file a return or pay a Tax that it is required to
file or pay in a proper and timely manner, unless such failure (A)
results from the transactions contemplated by the Operative Documents
in circumstances where a Lessee did not give timely notice to such Tax
Indemnitee (and such Tax Indemnitee otherwise had no actual knowledge)
of such filing or payment requirement that would have permitted a
proper and timely filing of such return or payment of such Tax, as the
case may be, or (B) results from the failure of a Lessee to supply
information necessary for the proper and timely filing of such return
or payment of such Tax, as the case may be, that was not in the
possession of such Tax Indemnitee; and
(x) any Tax that results from the breach by the
Lessor of its representation and warranty made in SECTION 4.3(g) or the
breach of any Lender of its representation and warranty made in SECTION
4.4(b).
40
(c) CONTESTS. If any claim shall be made against any Tax
Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee
(including a written notice of such proceeding) for any Taxes as to which the
Lessees may have an indemnity obligation pursuant to SECTION 7.4, or if any Tax
Indemnitee shall determine that any Taxes as to which the Lessees may have an
indemnity obligation pursuant to SECTION 7.4 may be payable, such Tax Indemnitee
shall promptly notify ADESA. ADESA shall be entitled, at its expense, to
participate in, and, to the extent that ADESA desires to, assume and control the
defense thereof; PROVIDED, HOWEVER, that ADESA, shall have acknowledged in
writing its and each Lessee's obligation to fully indemnify such Tax Indemnitee
in respect of such action, suit or proceeding if the contest is unsuccessful;
and, PROVIDED FURTHER, that ADESA shall not be entitled to assume and control
the defense of any such action, suit or proceeding (but the Tax Indemnitee shall
then contest, at the sole cost and expense of ADESA and the Lessees, on behalf
of ADESA with representatives reasonably satisfactory to ADESA or a Lessee) if
and to the extent that, (A) in the reasonable opinion of such Tax Indemnitee,
such action, suit or proceeding (x) involves any risk of imposition of criminal
liability or any material risk of civil liability in excess of $5,000,000 on
such Tax Indemnitee or (y) will involve a material risk of the sale, forfeiture
or loss of, or the creation of any Lien (other than a Permitted Lien) on any
Leased Property or any part thereof unless ADESA or a Lessee shall have posted a
bond or other security satisfactory to the relevant Tax Indemnitees in respect
to such risk, (B) such proceeding involves Claims not fully indemnified by the
Lessees which ADESA and the Tax Indemnitee have been unable to sever from the
indemnified claim(s), (C) an Event of Default has occurred and is continuing,
(D) such action, suit or proceeding involves matters which extend beyond or are
unrelated to the Transaction and if determined adversely could be materially
detrimental to the interests of such Tax Indemnitee notwithstanding
indemnification by the Lessees or (E) such action, suit or proceeding involves
the federal or any state income tax liability of the Tax Indemnitee. With
respect to any contests controlled by a Tax Indemnitee, (i) if such contest
relates to the federal or any state income tax liability of such Tax Indemnitee,
such Tax Indemnitee shall be required to conduct such contest only if ADESA
shall have provided to such Tax Indemnitee an opinion of independent tax counsel
selected by the Tax Indemnitee and reasonably satisfactory to ADESA stating that
a reasonable basis exists to contest such claim or (ii) in the case of an appeal
of an adverse determination of any contest relating to any Taxes, an opinion of
such counsel to the effect that such appeal is more likely than not to be
successful, PROVIDED, HOWEVER, such Tax Indemnitee shall in no event be required
to appeal an adverse determination to the United States Supreme Court. The Tax
Indemnitee may participate in a reasonable manner at its own expense and with
its own counsel in any proceeding conducted by ADESA in accordance with the
foregoing.
Each Tax Indemnitee shall, at ADESA's and the Lessees' expense, supply
ADESA with such information and documents in such Tax Indemnitee's possession as
are reasonably requested by ADESA and are necessary or advisable for ADESA to
participate in any action, suit or proceeding to the extent permitted by this
SECTION 7.4. Unless an Event of Default shall have occurred and be continuing,
no Tax Indemnitee shall enter into any settlement or other compromise with
respect to any Claim which is entitled to be indemnified under this SECTION 7.4
without the prior written consent of ADESA, which consent shall not be
unreasonably withheld,
41
unless such Tax Indemnitee waives its right to be indemnified under this SECTION
7.4 with respect to such Claim.
Notwithstanding anything contained herein to the contrary, (a) a Tax
Indemnitee will not be required to contest a claim with respect to the
imposition of any Tax if such Tax Indemnitee shall waive its right to
indemnification under this SECTION 7.4 with respect to such claim (and any
related claim with respect to other taxable years the contest of which is
precluded as a result of such waiver) and (b) no Tax Indemnitee shall be
required to contest any claim if the subject matter thereof shall be of a
continuing nature and shall have previously been decided adversely, unless there
has been a change in law which in the opinion of Tax Indemnitee's counsel
creates substantial authority for the success of such contest. Each Tax
Indemnitee and ADESA shall consult in good faith with each other regarding the
conduct of such contest controlled by either.
(d) REIMBURSEMENT FOR TAX SAVINGS. If (x) a Tax Indemnitee
shall obtain a credit or refund of any Taxes paid by or assessed against ADESA
or any Lessee pursuant to this SECTION 7.4 or (y) by reason of the incurrence or
imposition of any Tax for which a Tax Indemnitee is indemnified hereunder or any
payment made to or for the account of such Tax Indemnitee by ADESA or any Lessee
pursuant to this SECTION 7.4, such Tax Indemnitee at any time realizes a
reduction in any Taxes for which the Lessees are not required to indemnify such
Tax Indemnitee pursuant to this SECTION 7.4, which reduction in Taxes was not
taken into account in computing such payment by ADESA or any Lessee to or for
the account of such Tax Indemnitee, then such Tax Indemnitee shall promptly pay
to ADESA (xx) the amount of such credit or refund, together with the amount of
any interest received by such Tax Indemnitee on account of such credit or refund
or (yy) an amount equal to such reduction in Taxes, as the case may be; PROVIDED
that no such payment shall be made so long as an Event of Default shall have
occurred and be continuing (but shall be paid promptly after all Events of
Default have been cured) and, PROVIDED, FURTHER, that the amount payable to
ADESA by any Tax Indemnitee pursuant to this SECTION 7.4(d) shall not at any
time exceed the aggregate amount of all indemnity payments made by ADESA and the
Lessees under this SECTION 7.4 to such Tax Indemnitee with respect to the Taxes
which gave rise to the credit or refund or with respect to the Tax which gave
rise to the reduction in Taxes less the amount of all prior payments made to
ADESA by such Tax Indemnitee under this SECTION 7.4(d). Each Tax Indemnitee
agrees to act in good faith to claim such refunds and other available Tax
benefits, and take such other actions as may be reasonable to minimize any
payment due from ADESA or the Lessees pursuant to this SECTION 7.4. The
disallowance or reduction of any credit, refund or other tax savings with
respect to which a Tax Indemnitee has made a payment to ADESA and the Lessees
under this SECTION 7.4(d) shall be treated as a Tax for which ADESA and the
Lessees are obligated to indemnify such Tax Indemnitee hereunder without regard
to SECTION 7.4(b) hereof.
(e) PAYMENTS. Any Tax indemnifiable under this SECTION 7.4
shall be paid by ADESA or a Lessee directly when due to the applicable taxing
authority if direct payment is practicable and permitted. If direct payment to
the applicable taxing authority is not permitted or is otherwise not made, any
amount payable to a Tax Indemnitee pursuant to SECTION 7.4 shall be paid within
thirty (30) days after receipt of a written demand therefor from such Tax
Indemnitee
42
accompanied by a written statement describing in reasonable detail the amount so
payable, but not before the date that the relevant Taxes are due. Any payments
made pursuant to SECTION 7.4 shall be made to the Tax Indemnitee entitled
thereto or ADESA, as the case may be, in immediately available funds at such
bank or to such account as specified by the payee in written directions to the
payor, or, if no such direction shall have been given, by check of the payor
payable to the order of the payee by certified mail, postage prepaid at its
address as set forth in this Master Agreement. Upon the request of any Tax
Indemnitee with respect to a Tax that ADESA and the Lessees are required to pay,
ADESA shall furnish to such Tax Indemnitee the original or a certified copy of a
receipt for ADESA's or a Lessee's payment of such Tax or such other evidence of
payment as is reasonably acceptable to such Tax Indemnitee.
(f) REPORTS. If ADESA or any Lessee knows of any report,
return or statement required to be filed with respect to any Taxes that are
subject to indemnification under this SECTION 7.4, such Lessee shall, if such
Lessee is permitted by Applicable Law, timely file such report, return or
statement (and, to the extent permitted by Applicable Law, show ownership of the
applicable Leased Property in such Lessee); PROVIDED, HOWEVER, that if such
Lessee is not permitted by Applicable Law or does not have access to the
information required to file any such report, return or statement, such Lessee
will promptly so notify the appropriate Tax Indemnitee, in which case Tax
Indemnitee will file such report. In any case in which the Tax Indemnitee will
file any such report, return or statement, the related Lessee shall, upon
written request of such Tax Indemnitee, prepare such report, return or statement
for filing by such Tax Indemnitee or, if such Tax Indemnitee so requests,
provide such Tax Indemnitee with such information as is reasonably available to
such Lessee.
(g) VERIFICATION. At ADESA's request, the amount of any
indemnity payment by a Lessee or any payment by a Tax Indemnitee to ADESA
pursuant to this SECTION 7.4 shall be verified and certified by an independent
public accounting firm selected by ADESA and reasonably acceptable to the Tax
Indemnitee. Unless such verification shall disclose an error in ADESA's favor of
5% or more of the related indemnity payment, the costs of such verification
shall be borne by ADESA; otherwise, such costs shall be borne by the related Tax
Indemnitee. In no event shall ADESA or any Lessee have the right to review the
Tax Indemnitee's Tax returns or receive any other confidential information from
the Tax Indemnitee in connection with such verification. The Tax Indemnitee
agrees to cooperate with the independent public accounting firm performing the
verification and to supply such firm with all information reasonably necessary
(including, without limitation, copies of such Tax Indemnitee's Tax returns) to
permit it to accomplish such verification, PROVIDED that the information
provided to such firm by such Tax Indemnitee shall be for its confidential use.
The parties agree that the sole responsibility of the independent public
accounting firm shall be to verify the amount of a payment pursuant to this
Master Agreement and that matters of interpretation of this Master Agreement are
not within the scope of the independent accounting firm's responsibilities.
43
SECTION 7.5 INCREASED COSTS, ETC.
(a) ILLEGALITY. Notwithstanding any other provision herein,
if any change in any Requirement of Law or in the interpretation or application
thereof shall make it unlawful for any Funding Party to make or maintain LIBOR
Advances as contemplated by this Master Agreement, (a) the commitment of such
Funding Party hereunder to continue LIBOR Advances as such and convert Funded
Amounts to LIBOR Advances shall forthwith be cancelled and (b) such Funding
Party's Funded Amounts then outstanding as LIBOR Advances, if any, shall be
converted automatically to Base Rate Advances on the respective last days of the
then current Rent Periods with respect to such Funded Amounts or within such
earlier period as required by law. If any such conversion of a LIBOR Advance
occurs on a day which is not the last day of the then current Rent Period with
respect thereto, each of ADESA and each Lessee, jointly and severally, shall pay
to such Funding Party such amounts, if any, as may be required pursuant to
SECTION 7.5(f).
(b) REQUIREMENTS OF LAW. In the event that Eurocurrency
Reserve Requirements or any change in any Requirement of Law or in the
interpretation or application thereof or compliance by any Funding Party with
any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Funding Party to any tax of any kind
whatsoever with respect to this Master Agreement, any Note or any LIBOR
Advance made by it, or change the basis of taxation of payments to such
Funding Party in respect thereof (except for taxes covered by SECTION
7.5(d) and changes in franchise taxes or the rate of tax on the overall
net income of such Funding Party);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Funding Party which is not
otherwise included in the determination of the LIBOR Rate; or
(iii) shall impose on such Funding Party any other condition;
and the result of any of the foregoing is to increase the cost to such Funding
Party, by an amount which such Funding Party deems to be material, of making,
converting into, continuing or maintaining LIBOR Advances or to reduce any
amount receivable hereunder in respect thereof then, in any such case, each of
ADESA and each Lessee, jointly and severally, shall promptly pay such Funding
Party, upon its demand, any additional amounts necessary to compensate such
Funding Party for such increased cost or reduced amount receivable. If any
Funding Party becomes entitled to claim any additional amounts pursuant to this
subsection in relation to such outstanding LIBOR Advances, it shall promptly
notify ADESA, through the Agent, of the event by reason of which it has become
so entitled. A certificate as to any additional amounts payable
44
pursuant to this subsection submitted by such Funding Party, through the Agent,
to ADESA in good faith and setting forth in reasonable detail the calculation of
such amounts shall be conclusive in the absence of manifest error. The
provisions of this PARAGRAPH (b) shall survive the termination of this Master
Agreement and the Lease and the payment of the Notes and all other amounts
payable under the Operative Documents.
(c) CAPITAL ADEQUACY. In the event that any Funding Party or
corporation controlling such Funding Party shall have determined that any change
in any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Funding Party or such corporation with
any request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority made subsequent to the date hereof
does or shall have the effect of reducing the rate of return on such Funding
Party's capital as a consequence of its obligations hereunder to a level below
that which such Funding Party could have achieved but for such change or
compliance (taking into consideration such Funding Party's policies with respect
to capital adequacy) by an amount deemed by such Funding Party to be material,
then from time to time, after submission by such Funding Party in good faith to
ADESA (with a copy to the Agent) of a written request therefor setting forth in
reasonable detail the calculation of such amount (which request shall be
conclusive in the absence of manifest error), each of ADESA and each Lessee,
jointly and severally, shall pay to such Funding Party such additional amount or
amounts as will compensate such Funding Party for such reduction to the extent
imposed generally on other lessees or borrowers with whom such Funding Party has
similar lease or credit arrangements (but in the case of outstanding Base Rate
Advances, without duplication of any amounts already covered by such Funding
Party by reason of an adjustment in the applicable Base Rate). The provisions of
this PARAGRAPH (c) shall survive the termination of this Master Agreement and
the Lease and the payment of the Notes and all other amounts payable under the
Operative Documents.
(d) TAXES. Subject to SECTION 7.5(e), all payments made by a
Lessee under the Lease and the other Operative Documents shall be made free and
clear of, and without deduction or withholding for or on account of, any present
or future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, excluding, in the case of
the Agent and each Funding Party, net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or such Funding Party, as the
case may be, as a result of a present or former connection between the
jurisdiction of the government or taxing authority imposing such tax and the
Agent or such Funding Party (excluding a connection arising solely from the
Agent or such Funding Party having executed, delivered or performed its
obligations or received a payment under, or enforced, this Master Agreement or
any other Operative Document) or any political subdivision or taxing authority
thereof or therein (all such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions and withholdings being hereinafter called "WITHHOLDING
TAXES"). If any Withholding Taxes are required to be withheld from any amounts
payable to the Agent or any Funding Party hereunder or under any other Operative
Document, the amounts so payable to the Agent or such Funding Party (so long as
such Funding Party is in compliance with SECTION 7.5(e), as appropriate) shall
be increased to the
45
extent necessary to yield to the Agent or such Funding Party (after payment of
all Withholding Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in the Operative Documents. Whenever any
Withholding Taxes are payable by a Lessee, as promptly as possible thereafter
such Lessee shall send to the Agent for its own account or for the account of
such Funding Party, as the case may be, a certified copy of an original official
receipt received by such Lessee showing payment thereof. If a Lessee fails to
pay any Withholding Taxes when due to the appropriate taxing authority or fails
to remit to the Agent the required receipts or other required documentary
evidence, each of ADESA and each Lessee, jointly and severally, shall indemnify
the Agent and the Funding Parties for any incremental taxes, interest or
penalties that may become payable by the Agent or any Funding Party as a result
of any such failure. The agreements in this subsection shall survive the
termination of this Master Agreement and the Lease and the payment of the Notes
and all other amounts payable under the Operative Documents.
(e) TAX FORMS. Each Lender to this Master Agreement on the
Initial Closing Date that is not incorporated under the laws of the United
States of America or a state thereof agrees that, on or prior to the Initial
Closing Date, it will deliver to ADESA and the Agent two duly completed copies
of (i) United States Internal Revenue Service Form W-8BEN or W-8ECI or successor
applicable form, as the case may be, and (ii) an Internal Revenue Service Form
W-9 or successor applicable form. Each such Lender also agrees to deliver to
ADESA and the Agent two further copies of the said Form W-8BEN or W-8ECI and
Form W-9, or successor applicable forms or other manner of certification, as the
case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to ADESA, and such extensions or renewals
thereof as may reasonably be requested by ADESA or the Agent, unless in any such
case an event (including, without limitation, any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Funding Party from duly completing and delivering any such form
with respect to it and such Funding Party so advises ADESA and the Agent. Such
Lender shall certify (i) in the case of a Form W-8BEN or W-8ECI, that it is
entitled to receive payments under the Operative Documents without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-9, that it is entitled to an exemption from United States backup
withholding tax.
(f) BREAKAGE COSTS. Each of ADESA and each Lessee, jointly
and severally, agrees to indemnify each Funding Party and to hold each Funding
Party harmless from any loss or expense which such Funding Party may sustain or
incur as a consequence of (a) default by a Lessee in payment when due of the
principal amount of or interest on any LIBOR Advance, (b) default by a Lessee in
making a borrowing or conversion after such Lessee or the Construction Agent has
given (or is deemed to have given) a notice in accordance with this Master
Agreement, (c) default by a Lessee in making any prepayment of LIBOR Advances
after such Lessee has given a notice thereof in accordance with the provisions
of the Operative Documents or (d) the making of a prepayment, payment or
conversion, of LIBOR Advances on a day which is not the last day of a Rent
Period with respect thereto, including, without limitation, in each
46
case, any such loss (other than non-receipt of the Applicable Margin or, without
duplication, anticipated profits) or expense arising from the reemployment of
funds obtained by it or from fees payable to terminate the deposits from which
such funds were obtained (it being understood that any such calculation will be
made on notional amounts as the Funding Parties are not required to show that
they matched deposits specifically). A certificate as to any additional amounts
payable pursuant to this subsection submitted by such Funding Party, through the
Agent, to ADESA in good faith shall be conclusive in the absence of manifest
error. The provisions of this PARAGRAPH (f) shall survive the termination of
this Master Agreement and the Lease and the payment of the Notes and all other
amounts payable under the Operative Documents.
(g) ACTION OF AFFECTED FUNDING PARTIES. Each Funding Party
agrees to use reasonable efforts (including reasonable efforts to change the
booking office for its Loans) to avoid or minimize any illegality pursuant to
SECTION 7.5(a) or any amounts which might otherwise be payable pursuant to
SECTION 7.5(c) or (d); PROVIDED, HOWEVER, that such efforts shall not cause the
imposition on such Funding Party of any additional costs or legal or regulatory
burdens reasonably deemed by such Funding Party to be material and shall not be
deemed by such Funding Party to be otherwise contrary to its policies. In the
event that such reasonable efforts are insufficient to avoid all such illegality
or all amounts that might be payable pursuant to SECTION 7.5(c) or (d), then
such Funding Party (the "AFFECTED FUNDING PARTY") shall use its reasonable
efforts to transfer to any other Funding Party (which itself is not then an
Affected Funding Party) its Loans and Commitment, subject to the provisions of
SECTION 6.2; PROVIDED, HOWEVER, that such transfer shall not be deemed by such
Affected Funding Party, in its sole discretion, to be disadvantageous to it or
contrary to its policies. In the event that the Affected Funding Party is
unable, or otherwise is unwilling, so to transfer its Loans and Commitment,
ADESA may designate an alternate lender (reasonably acceptable to the Agent) to
purchase the Affected Funding Party's Loans and Commitment, at par and including
accrued interest, and, subject to the provisions of SECTION 6.2, the Affected
Funding Party shall transfer its Commitment to such alternate lender and such
alternate lender shall become a Funding Party hereunder. Any fee payable to the
Agent pursuant to SECTION 6.2 in connection with such transfer shall be for the
account of ADESA and the Lessees.
(h) CONSTRUCTION LAND INTERESTS. Any amounts payable by the
Lessees pursuant to this SECTION 7.5 with respect to Construction Land Interests
during the Construction Term therefor shall be paid with the proceeds of
Advances.
SECTION 7.6 END OF TERM INDEMNITY. In the event that at the end of
the Lease Term for the Leased Properties: (i) the related Lessee elects the
option set forth in Section 14.6 of the Lease, and (ii) after the Lessor
receives the sales proceeds from the Leased Properties under Section 14.6 or
14.7 of the Lease, together with Lessees' payment of the Recourse Deficiency
Amount, the Lessor shall not have received the entire Lease Balance, then,
within 90 days after the end of the Lease Term, the Lessor or the Agent may
obtain, at Lessees' sole cost and expense, a report from the Appraiser (or, if
the Appraiser is not available, another appraiser reasonably satisfactory to the
Lessor or the Agent, as the case may be, and approved by ADESA,
47
such approval not to be unreasonably withheld) in form and substance reasonably
satisfactory to the Lessor and the Agent (the "REPORT") to establish the reason
for any decline in value of the Leased Properties from the Lease Balance. The
Lessees, jointly and severally, shall promptly reimburse the Lessor for the
amount equal to such decline in value to the extent that the Report indicates
that such decline was due to:
(v) during the time while any property was a Leased
Property, extraordinary use, failure to maintain, to repair, to
restore, to rebuild or to replace as required by the Operative
Documents, failure to comply with all Applicable Laws, failure to use
good workmanship with respect to work performed after the Closing Date
related to such Leased Property, method of installation or removal or
maintenance, repair, rebuilding or replacement, or any other cause or
condition resulting in the Building failing to be of the type and
quality contemplated by the Appraisal (excepting in each case ordinary
wear and tear) that arose from an act or a failure to act of a Lessee,
or
(w) any Alteration made to, or any rebuilding of, any Leased
Property or any part thereof by any Lessee, or
(x) any restoration or rebuilding carried out by any Lessee
or any condemnation of any portion of any Leased Property pursuant to
Article X of the Lease, or
(y) any use of any Leased Property or any part thereof by
any Lessee other than as permitted by the Lease, or any act or omission
constituting a breach of any requirement, condition, restriction or
limitation set forth in the related Deed, related Ground Lease or the
related Purchase Agreement, or
(z) the existence or compliance with any IDB Documentation.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1 SURVIVAL OF AGREEMENTS. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Master Agreement and any of the
Operative Documents, the transfer of any Land to the Lessor as provided herein
(and shall not be merged into any Deed), any disposition of any interest of the
Lessor in any Leased Property, the purchase and sale of the Note, payment
therefor and any disposition thereof and shall be and continue in effect
notwithstanding any investigation made by any party hereto or to any of the
other Operative Documents and the fact that any such party may waive compliance
with any of the other terms, provisions or conditions of any of the Operative
Documents.
48
SECTION 8.2 DOCUMENTARY CONVENTIONS. The Documentary Conventions
shall apply to this Master Agreement.
SECTION 8.3 EXPENSES. Whether or not the transactions herein
contemplated are consummated, each of ADESA and the Lessees, jointly and
severally, agrees to pay, as Supplemental Rent, all actual, reasonable and
documented out-of-pocket costs and expenses of the Lessor, the Agent and the
Lenders in connection with the preparation, execution and delivery of the
Operative Documents and the documents and instruments referred to therein and
any amendment, waiver or consent relating thereto (including, without
limitation, the reasonable fees and disbursements of Mayer, Brown & Platt) and
of the Lessor, the Agent and the Lenders in connection with endeavoring to
enforce the Operative Documents and the documents and instruments referred to
therein (including, without limitation, the reasonable fees actually incurred
and disbursements of counsel for the Lessor, the Agent and the Lenders), unless
such enforcement action is finally denied by a court on the merits. All
references in the Operative Documents to "attorneys' fees" or "reasonable
attorneys fees" shall mean reasonable attorneys' fees actually incurred, without
regard to any statutory definition thereof. Notwithstanding the foregoing, all
such costs and expenses related to the any Construction Land Interest shall be
paid with the proceeds of Advances (subject to the conditions set forth in this
Master Agreement).
SECTION 8.4 LIABILITIES OF THE FUNDING PARTIES: SHARING OF PAYMENTS.
(a) No Funding Party shall have any obligation to any other Funding Party or to
the Guarantor or any Lessee with respect to the transactions contemplated by the
Operative Documents except those obligations of such Funding Party expressly set
forth in the Operative Documents or except as set forth in the instruments
delivered in connection therewith, and no Funding Party shall be liable for
performance by any other party hereto of such other party's obligations under
the Operative Documents except as otherwise so set forth. No Lender shall have
any obligation or duty to ADESA or any Lessee, any other Funding Parties or any
other Person with respect to the transactions contemplated hereby except to the
extent of the obligations and duties expressly set forth in this Master
Agreement or the Loan Agreement.
(b) If any Funding Party shall obtain any payment (whether voluntary or
involuntary, or through the exercise of any right of set-off or otherwise) on
account of the Advances made by it in excess of its ratable share of payments on
account of the Advances obtained by all the Funding Parties, such Funding
Parties shall forthwith purchase from the other Funding Parties such
participations in the Advances owed to them as shall be necessary to cause such
purchasing Funding Party to share the excess payment ratably with each of them,
PROVIDED, HOWEVER, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Funding Party, such purchase from each
Funding Party shall be rescinded and such Funding Party shall repay to the
purchasing Funding Party the purchase price to the extent of such Funding
Party's ratable share (according to the proportion of (i) the amount of the
participation purchased from such Funding Party as a result of such excess
payment to (ii) the total amount of such excess payment) of such recovery
together with an amount equal to such Funding Party's ratable share (according
to the proportion of (i) the amount of such Funding Party's required repayment
to (ii) the total amount so recovered from the purchasing Funding Party) of any
interest or other
49
amount paid or payable by the purchasing Funding Party in respect of the total
amount so recovered. Each Funding Party agrees that any Funding Party so
purchasing a participation from another Funding Party pursuant to this SECTION
8.4 may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Funding Party were the direct creditor of such Funding Party in
the amount of such participation.
SECTION 8.5 LIABILITIES OF THE AGENT. The Agent shall have no duty,
liability or obligation to any party to this Master Agreement with respect to
the transactions contemplated hereby except those duties, liabilities or
obligations expressly set forth in this Master Agreement or the Loan Agreement,
and any such duty, liability or obligations of the Agent shall be as expressly
limited by this Master Agreement or the Loan Agreement, as the case may be. All
parties to this Master Agreement acknowledge that the Agent is not, and will not
be, performing any due diligence with respect to documents and information
received pursuant to this Master Agreement or any other Operative Agreement
including, without limitation, any Environmental Audit, Title Policy or survey.
The acceptance by the Agent of any such document or information shall not
constitute a waiver by any Funding Party of any representation or warranty of
ADESA or any Lessee even if such document or information indicates that any such
representation or warranty is untrue.
50
IN WITNESS WHEREOF, the parties hereto have caused this Master
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written
ADESA CORPORATION, as a Guarantor
/s/ William T. Stackhouse
--------------------------------------
William T. Stackhouse, Chief
Financial Officer
ADESA CALIFORNIA, INC., as a Lessee
/s/ William T. Stackhouse
--------------------------------------
William T. Stackhouse, Treasurer
MASTER AGREEMENT S-1
ATLANTIC FINANCIAL GROUP, LTD., as
Lessor
By: Atlantic Financial Managers, Inc.,
its General Partner
By: /s/ Stephen Brookshire
----------------------------------
Name Printed: Stephen Brookshire
Title: President
MASTER
S-2 AGREEMENT
SUNTRUST BANK, as Agent and as a
Lender
By: /s/ W. David Wisdom
----------------------------------
Name Printed: W. David Wisdom
------------------------
Title: Vice President
-------------------------------
MASTER
S-3 AGREEMENT
LASALLE BANK NATIONAL ASSOCIATION, as
a Lender
By: /s/ Matthew R. Doye
---------------------------------
Name Printed: Matthew R. Doye
------------------------
Title: Commercial Loan Officer
-------------------------------
MASTER
S-4 AGREEMENT
HARRIS TRUST AND SAVINGS BANK, as a
Lender
By: /s/ THAD D. RASCHE
----------------------------------
Name Printed: Thad D. Rasche
------------------------
Title: Vice President
------------------------------
MASTER
S-5 AGREEMENT
APPENDIX A
to
Master Agreement
DEFINITIONS, INTERPRETATION AND DOCUMENTARY CONVENTIONS
A. INTERPRETATION. In each Operative Document, unless a clear
contrary intention appears:
(i) the singular number includes the plural number and
VICE VERSA;
(ii) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and
assigns are permitted by the Operative Documents;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative
Document), document or instrument means such agreement, document or
instrument as amended, supplemented, waived, restated or modified and
in effect from time to time in accordance with the terms thereof and,
if applicable, the terms of the other Operative Documents and reference
to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor;
(v) reference to any Applicable Law means such Applicable
Law as amended, waived, restated, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to time,
including rules and regulations promulgated thereunder and reference to
any section or other provision of any Applicable Law means that
provision of such Applicable Law from time to time in effect and
constituting the substantive amendment, modification, codification,
replacement or reenactment of such section or other provision;
(vi) reference in any Operative Document to any ARTICLE,
SECTION, APPENDIX, SCHEDULE or EXHIBIT means such ARTICLE or SECTION
thereof or APPENDIX, SCHEDULE or EXHIBIT thereto;
(vii) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to an Operative Document as a whole
and not to any particular ARTICLE, SECTION, paragraph or other
provision of such Operative Document;
(viii) "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term;
(ix) "or" is not exclusive; and
(x) relative to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding".
B. ACCOUNTING TERMS. In each Operative Document, unless
expressly otherwise provided, accounting terms shall be construed and
interpreted, and accounting determinations and computations shall be made, in
accordance with GAAP.
C. CONFLICT IN OPERATIVE DOCUMENTS. If there is any conflict
between any Operative Documents, each such Operative Document shall be
interpreted and construed, if possible, so as to avoid or minimize such conflict
but, to the extent (and only to the extent) of such conflict, the Master
Agreement shall prevail and control.
D. LEGAL REPRESENTATION OF THE PARTIES. The Operative Documents
were negotiated by the parties with the benefit of legal representation and any
rule of construction or interpretation otherwise requiring any Operative
Document to be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
E. DEFINED TERMS. Unless a clear contrary intention appears,
terms defined herein have the respective indicated meanings when used in each
Operative Document.
"A LOAN" means with respect to any Leased Property, the principal
portion of the related Loans equal to the Recourse Deficiency Amount for such
Leased Property.
"ACQUISITION" means any transaction or series of related transactions
for the purpose of, or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interest, membership interest, or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation of, or any other combination with, another Person (other than a
Person that is a Subsidiary), provided that ADESA or a Subsidiary is the
surviving entity.
"ADDITIONAL INSURED" means each of the Agent, each Lender and Lessor.
"ADDRESS" means with respect to any Person, its address set forth in
SCHEDULE I hereto or such other address as it shall have identified to the
parties to the Master Agreement in writing in the manner provided for the giving
of notices thereunder.
"ADESA" means ADESA Corporation, an Indiana corporation.
"ADESA CALIFORNIA" means ADESA California, Inc., a California
corporation.
-2-
"ADJUSTED LIBO RATE" shall mean, with respect to each Rent Period for a
LIBOR Advance, 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
As used herein, LIBOR Reserve Percentage shall mean, for any Rent Period for a
LIBOR Advance, the reserve percentage (expressed as a decimal) equal to the then
stated maximum rate of all reserves requirements (including, without limitation,
any marginal, emergency, supplemental, special or other reserves) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or against any successor category of
liabilities as defined in Regulation D).
"ADVANCE" means a LIBOR Advance or a Base Rate Advance.
"AFFILIATE" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the Person specified. For purposes
of this definition, the term "CONTROL" (including the correlative meanings of
the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"AFTER-TAX BASIS" means (a) with respect to any payment to be received
by an Indemnitee (which, for purposes of this definition, shall include any Tax
Indemnitee), the amount of such payment supplemented by a further payment or
payments so that, after deducting from such payments the amount of all Taxes
(net of any current credits, deductions or other Tax benefits arising from the
payment by the Indemnitee of any amount, including Taxes, for which the payment
to be received is made) imposed currently on the Indemnitee by any Governmental
Authority or taxing authority with respect to such payments, the balance of such
payments shall be equal to the original payment to be received and (b) with
respect to any payment to be made by any Indemnitee, the amount of such payment
supplemented by a further payment or payments so that, after increasing such
payment by the amount of any current credits or other Tax benefits realized by
the Indemnitee under the laws of any Governmental Authority or taxing authority
resulting from the making of such payments, the sum of such payments (net of
such credits or benefits) shall be equal to the original payment to be made;
PROVIDED, HOWEVER, for the purposes of this definition, and for purposes of any
payment to be made to an Indemnitee or by an Indemnitee on an after-tax basis,
it shall be assumed that (i) federal, state and local taxes are payable at the
highest combined marginal federal and state statutory income tax rate (taking
into account the deductibility of state income taxes for federal income tax
purposes) applicable to corporations from time to time and (ii) such Indemnitee
or the recipient of such payment from an Indemnitee has sufficient income to
utilize any deductions, credits (other than foreign tax credits,
-3-
the use of which shall be determined on an actual basis) and other Tax benefits
arising from any payments described in CLAUSE (b) of this definition.
"AGENT" means SunTrust Bank, a Georgia banking corporation, in its
capacity as agent under the Master Agreement and the Loan Agreement.
"ALTERATIONS" means, with respect to any Leased Property, fixtures,
alterations, improvements, modifications and additions to such Leased Property.
"AMORTIZATION" shall mean, for any period, amortization expense of the
Consolidated Companies determined on a consolidated basis in accordance with
GAAP.
"APPLICABLE LAW" means, each as and to the extent applicable: all laws
(including Environmental Laws), rules, regulations (including proposed,
temporary and final income tax regulations), statutes, treaties, codes,
ordinances, permits, certificates, orders and licenses of any Governmental
Authority, judgments, decrees, injunctions, writs, and orders or like action of
any court, arbitrator or other administrative, judicial or quasi-judicial
tribunal or agency of competent jurisdiction (including those pertaining to
health, safety or the environment (including wetlands) and those pertaining to
the construction, use or occupancy of any Leased Property).
"APPLICABLE MARGIN" shall mean, for any day, (i) with respect to Base
Rate Advances, the applicable rate per annum set forth below under the captions
"Base Rate Advances," and (ii) with respect to LIBOR Advances, the applicable
rate per annum set forth below under the captions "LIBOR Advances," as the case
may be, based upon the ratings by Moody's and S&P, respectively, applicable on
such date to the Index Debt:
---------------------- -------------------- --------------------
INDEX DEBT BASE RATE LIBOR ADVANCES
ADVANCES
---------------------- -------------------- --------------------
Category 1 0.00% 0.875%
---------------------- -------------------- --------------------
Category 2 0.00% 1.00%
---------------------- -------------------- --------------------
Category 3 0.25% 1.375%
---------------------- -------------------- --------------------
Category 4 0.75% 1.875%
---------------------- -------------------- --------------------
Category 5 1.25% 2.25%
---------------------- -------------------- --------------------
For purposes of the foregoing, (i) if either Moody's or S&P shall not
have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agency shall be deemed to have established a rating in Category 5; (ii)
if the ratings established or deemed to have been established by Moody's and
-4-
S&P for the Index Debt shall fall within different Categories, the Applicable
Margin shall be based on the higher of the two ratings, PROVIDED that if the
difference in such ratings is more than two notches, then the Category that is
one Category below the highest rating shall apply; and (iii) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt shall be changed (other than as a result of a change in the rating system
of Moody's or S&P), such change shall be effective as of the earlier of (i) the
date on which it is first announced by the applicable rating agency and (ii) the
date on which ADESA gives notice of such change to the Agent. For the purposes
hereof, ADESA shall be required to notify the Agent of such change immediately
upon gaining knowledge of such change. Each change in the Applicable Margin
shall apply during the period commencing on the effective date of such change
and ending on the date immediately preceding the effective date of the next such
change. If the rating system of Moody's or S&P shall change, or if either such
rating agency shall cease to be in the business of rating corporate debt
obligations, ADESA and the Lenders shall negotiate in good faith to amend this
definition to reflect such changed rating system or the unavailability of
ratings from such rating agency and, pending the effectiveness of any such
amendment, the Applicable Margin shall be determined by reference to the rating
most recently in effect prior to such change or cessation.
"APPRAISAL" is defined in Section 3.1 of the Master Agreement.
"APPRAISER" means an MAI appraiser reasonably satisfactory to the
Agent.
"ARCHITECT" means with respect to any Leased Property the architect
engaged in connection with the construction of the related Building, if any, who
may be an employee of the General Contractor for such Leased Property.
"ARCHITECT'S AGREEMENT" means, with respect to any Leased Property, the
architectural services agreement, if any, between the related Lessee and the
related Architect.
"ASSIGNMENT OF LEASE AND RENTS" means, with respect to any Leased
Property, the Assignment of Lease and Rents, dated as of the related Closing
Date, from the Lessor to the Agent, substantially in the form of Exhibit B to
the Master Agreement.
"AUTHORITY" means a development or similar authority of any state,
county or municipality that is an issuer of Bonds.
"AWARD" means any award or payment received by or payable to the Lessor
or a Lessee on account of any Condemnation or Event of Taking (less the actual
costs, fees and expenses, including reasonable attorneys' fees, incurred in the
collection thereof, for which the Person incurring the same shall be reimbursed
from such award or payment).
"B LOAN" means with respect to any Leased Property, the excess of the
principal of the Loans related to such Leased Property over the Recourse
Deficiency Amount for such Leased Property.
-5-
"BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as amended.
"BASE RATE" means (with any change in the Base Rate to be effective as
of the date of change of either of the following rates) the higher of (i) the
rate which the Agent publicly announces from time to time as its prime lending
rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in
effect from time to time, PLUS one-half of one percent (0.50%) per annum. The
Agent's prime lending rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to customers; the Agent may
make commercial loans or other loans at rates of interest at, above or below the
Agent's prime lending rate. The Base Rate is determined daily.
"BASE RATE ADVANCE" means that portion of the Funded Amount bearing
interest at the Base Rate.
"BASE LEASE TERM" means, with respect to any Leased Property, (a) the
period commencing on the Completion Date for such Leased Property (or the
Closing Date, if such Leased Property is not a Construction Land Interest) and
ending on July 30, 2006 or (b) such shorter period as may result from earlier
termination of the Lease as provided therein.
"BASIC RENT" means, for any Lease Term, the rent payable pursuant to
Section 3.1 of the Lease, determined in accordance with the following: each
installment of Basic Rent payable on any Payment Date shall be in an amount
equal to the sum of (A) the aggregate amount of Lender Basic Rent payable on
such Payment Date, PLUS (B) the aggregate amount of Lessor Basic Rent payable on
such Payment Date.
"BONDS" means industrial revenue or development bonds issued by a
state, county or municipal authority in connection with any Leased Property.
"BUILDING" means, with respect to any Leased Property, (i) the
buildings, structures and improvements located or to be located on the related
Land, along with all fixtures used or useful in connection with the operation of
such Leased Property, including all furnaces, boilers, compressors, elevators,
fittings, pipings, connectives, conduits, ducts, partitions, equipment and
apparatus of every kind and description now or hereafter affixed or attached or
used or useful in connection with the Building, (ii) all equipment and other
personal property financed by the Lessor and/or the Lenders and (iii) all
Alterations (including all restorations, repairs, replacements and rebuilding of
such buildings, improvements and structures) thereto (but in each case excluding
trade fixtures financed other than by the Lessor or the Lenders).
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which banks are required or authorized to be closed for business in Atlanta,
Georgia and, if the applicable Business Day relates to a LIBOR Advance, on which
trading is not carried on by and between banks in the London interbank market.
-6-
"CAPITAL LEASE" shall mean, as applied to any Person, any lease of any
asset by that Person as lessee which, in accordance with GAAP, is or should be
accounted for as a capital lease on the balance sheet of that Person.
"CASUALTY" means an event of damage or casualty relating to all or part
of any Leased Property that does not constitute an Event of Loss.
"CATEGORY 1" means A- or higher by S&P or A3 or higher by Moody's.
"CATEGORY 2" means BBB+ or higher by S&P or Baa1 or higher by Moody's
(but not Category 1).
"CATEGORY 3" means BBB or higher by S&P or Baa2 or higher by Moody's
(but not Category 1 or Category 2).
"CATEGORY 4" means BBB- or higher by S&P or Baa3 or higher by Moody's
(but not Category 1, Category 2 or Category 3).
"CATEGORY 5" means lower than BBB- by S&P and lower than Baa3 by
Moody's.
"CLAIMS" means liabilities, obligations, damages, losses, demands,
penalties, fines, claims, actions, suits, judgments, proceedings, settlements,
utility charges, costs, expenses and disbursements (including, without
limitation, reasonable legal fees and expenses) of any kind and nature
whatsoever.
"CLOSING DATE" means, with respect to each parcel of Land, the date on
which such Land is acquired by the Lessor pursuant to a Purchase Agreement or
such Land is leased to the Lessor pursuant to a Ground Lease and the initial
Funding occurs with respect to such Land under the Master Agreement.
"CODE" or "TAX CODE" means the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"COMMITMENT" means as to each Funding Party, its obligation to make
Fundings as investments in each Leased Property, or to make Loans to the Lessor,
in an aggregate amount not to exceed at any one time outstanding the amount set
forth for such Funding Party on Schedule 2.2 to the Master Agreement (as it may
be adjusted from time to time pursuant to Section 6 of the Master Agreement).
"COMMITMENT PERCENTAGE" means as to any Funding Party, at a particular
time, the percentage of the aggregate Commitments in effect at such time
represented by such Funding Party's Commitment, as such percentage is shown for
such Funding Party on Schedule 2.2 to the Master Agreement (as it may be
adjusted from time to time pursuant to Section 6 of the Master Agreement).
-7-
"COMPLETION DATE" with respect to any Leased Property that is a
Construction Land Interest means the Business Day on which the conditions
specified in Section 3.5 of the Master Agreement have been satisfied or waived
with respect to such Leased Property.
"CONDEMNATION" means any condemnation, requisition, confiscation,
seizure, permanent use or other taking or sale of the use, occupancy or title to
any Leased Property or any part thereof in, by or on account of any actual
eminent domain proceeding or other action by any Governmental Authority or other
Person under the power of eminent domain or any transfer in lieu of or in
anticipation thereof, which in any case does not constitute an Event of Taking.
A Condemnation shall be deemed to have "occurred" on the earliest of the dates
that use is prevented or occupancy or title is taken.
"CONSOLIDATED COMPANIES" shall mean, collectively, ADESA and all of its
Subsidiaries, if any, and "Consolidated Company" shall mean, individually, ADESA
or any of its Subsidiaries, if any.
"CONSOLIDATED LEASE EXPENSE" shall mean rental expense under Operating
Leases of the Consolidated Companies on a consolidated basis for the applicable
period, as determined in accordance with GAAP. Except as expressly provided
otherwise, the applicable period shall be for the four consecutive Fiscal
Quarters ending as of the date of determination.
"CONSTRUCTION" means, with respect to any Leased Property, the
construction of the related Building pursuant to the related Plans and
Specifications.
"CONSTRUCTION AGENCY AGREEMENT" means the Construction Agency
Agreement, dated as of July 30, 2001, between ADESA California and the Lessor.
"CONSTRUCTION AGENT" means ADESA California in its capacity as
construction agent pursuant to the Construction Agency Agreement.
"CONSTRUCTION BUDGET" is defined in Section 2.4 of the Construction
Agency Agreement.
"CONSTRUCTION CONDITIONS" means the conditions set forth in Section 3.5
of the Master Agreement.
"CONSTRUCTION CONTRACT" means, with respect to any Leased Property,
that certain construction contract, if any, between the related Lessee or the
Construction Agent and a General Contractor for the Construction of the related
Building, which contract shall be assigned to the Lessor, and such assignment
shall be consented to by such General Contractor, pursuant to an assignment of
such construction contract substantially in the form of the Security Agreement
and Assignment set forth as Exhibit D to the Master Agreement.
"CONSTRUCTION COSTS" means, with respect to any Leased Property, all
costs of acquisition or ground lease, as applicable, of the related Land, all
closing, development and transaction costs
-8-
related thereto, including fees, costs and expenses of attorneys, architects,
surveyors, engineers, title and other insurance companies, appraisers and
environmental firms, all costs of Construction, and all interest and Yield
accrued on the Funded Amounts related to such Leased Property during the
Construction Term therefor.
"CONSTRUCTION FAILURE EVENT" is defined in Section 5.1 of the
Construction Agency Agreement.
"CONSTRUCTION FAILURE PAYMENT" means, with respect to any Leased
Property and as of any date of calculation, an amount equal to (i) 100% of the
related Raw Land Cost, plus (ii) the excess of (A) 89.9% of the Project Costs
(exclusive of Raw Land Cost) incurred as of the date of calculation, minus (B)
the sum of (1) Force Majeure Losses incurred with respect to such Leased
Property during the Construction Term, and (2) the Present Value of any payments
(other than Unrestricted Indemnification Amounts) paid or payable by the
Construction Agent under the Operative Documents that the Construction Agent is
legally required to pay as of the date of calculation (PROVIDED that such
payments shall not include any amounts that are payable by the Construction
Agent that require the approval or consent but have not been approved or
consented to by the Agent in accordance with Section 3.4 of the Construction
Agency Agreement) that have not been reimbursed as of the date of calculation.
"CONSTRUCTION FORCE MAJEURE DECLARATION" is defined in Section 3.4 of
the Construction Agency Agreement.
"CONSTRUCTION FORCE MAJEURE EVENT" means, with respect to any Leased
Property:
(a) an act of God arising after the related Closing Date, or
(b) any change in any state or local law, regulation or other
legal requirement arising after such Closing Date and relating
to the use of the Land or the construction of a building on
the Land, or
(c) strikes, lockouts, labor troubles, unavailability of materials
(including delays in delivery), riots, insurrections or other
causes beyond a Lessee's control
which prevents the Construction Agent from completing the Construction prior to
the Scheduled Construction Termination Date and which could not have been
avoided or which cannot be remedied by the Construction Agent through the
exercise of all commercially reasonable efforts or the expenditure of funds and,
in the case of (b) above, the existence or potentiality of which was not known
to and could not have been discovered prior to such Closing Date through the
exercise of reasonable due diligence by the Construction Agent.
"CONSTRUCTION LAND INTEREST" means each parcel of Land on which the
related Lessee intends to build a Building and for which the Completion Date has
not yet occurred.
-9-
"CONSTRUCTION TERM" means, with respect to any Leased Property, the
period commencing on the related Closing Date and ending on the related
Construction Term Expiration Date, or such shorter period as may result from
earlier termination of the Lease as provided therein.
"CONSTRUCTION TERM EXPIRATION DATE" means, with respect to any Leased
Property, the earliest of the following:
(a) the related Completion Date,
(b) the date on which the aggregate Funded Amounts equal the
Commitments, and
(c) the related Scheduled Construction Termination Date.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision
of any Securities issued by that Person or any indenture, mortgage, deed of
trust, contract, undertaking, agreement, instrument or other document to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject (including, without limitation, any
restrictive covenant affecting any of the properties of such Person).
"CURRENCY CONTRACTS" shall mean any forward contracts, futures
contracts, foreign exchange contracts, currency swap agreements, and other
similar agreements and arrangements entered into by any Consolidated Company
designed to protect any Consolidated Company against fluctuations in foreign
exchange rates.
"DEED" means, with respect to any Land, a general warranty deed (or, if
the related Title Policy is acceptable to the related Lessee and the Agent, a
special or limited warranty deed, provided that unless consented to by the
related Lessee, the Lessor and the Agent, such deed is not the equivalent of a
quit-claim deed in the applicable jurisdiction), dated on or before the
applicable Closing Date, from the applicable Seller to the Lessor, conveying
such Land.
"DEFAULT" means an Event of Default or a Potential Event of Default.
"DEPRECIATION" shall mean, for any period, depreciation expense of the
Consolidated Companies determined on a consolidated basis in accordance with
GAAP.
"DOCUMENTARY CONVENTIONS" means the provisions set forth in PARAGRAPH F
of this Appendix A.
"EBITDA" shall mean, for any period (which period, for the purposes of
calculating the Total Funded Debt to EBITDA Ratio, shall be four Fiscal
Quarters), an amount equal to the sum of (i) Net Income (Loss) for such period
PLUS (ii) to the extent deducted in determining Net Income (Loss) for such
period, (A) Interest Expense, (B) Income Taxes, (C) Depreciation, (D)
Amortization and (E) all other non-cash charges determined on a consolidated
basis in
-10-
accordance with GAAP, in each case for such period; PROVIDED, HOWEVER, that with
respect to any Person, or substantially all of the assets of a Person, that
becomes a Subsidiary of, or was merged with or consolidated into, or acquired
by, a Consolidated Company in accordance with the terms of the Master Agreement
during such period, "EBITDA" shall also include the EBITDA of such Person or the
EBITDA attributable to such assets during such period as if such Person or
assets were acquired as of the first day of such period.
"ENGINEER" means, with respect to any Leased Property, the engineer
engaged in connection with the construction of the related Building, if any, who
may be an employee of the General Contractor for such Leased Property.
"ENGINEER'S AGREEMENT" means, with respect to any Leased Property the
engineering services agreement, if any, between the Construction Agent, in its
capacity as agent for Lessor, and the related Engineer.
"ENVIRONMENTAL AUDIT" means, with respect to each parcel of Land, a
Phase I Environmental Assessment and, if recommended in such Phase I
Environmental Assessment, a Phase II Environmental Assessment, dated no more
than six months prior to the related Closing Date, by an environmental services
firm satisfactory to the Agent.
"ENVIRONMENTAL LAWS" means and include the Resource Conservation and
Recovery Act of 1976, (RCRA) 42 U.S.C. Sections 6901-6987, as amended by the
Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. Sections 9601-9657, (CERCLA), the
Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections 1801-1812,
the Toxic Substances Control Act, 15 U.S.C. Sections 2601-2671, the Clean Air
Act, 42 U.S.C. Sections 7401 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Sections 136 et seq., and all similar federal, state
and local environmental laws, ordinances, rules, orders, statutes, decrees,
judgments, injunctions, codes and regulations, and any other federal, state or
local laws, ordinances, rules, codes and regulations, and any other federal,
state or local laws, ordinances, rules, codes and regulations relating to the
environment, human health or natural resources or the regulation or control of
or imposing liability or standards of conduct concerning human health, the
environment, Hazardous Materials or the clean-up or other remediation of any
Leased Property, or any part thereof, as any of the foregoing may have been from
time to time amended, supplemented or supplanted.
"ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations,
certificates and approvals of Governmental Authorities required by Environmental
Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA AFFILIATE" shall mean any corporation or trade or business that
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as
-11-
ADESA or is under common control (within the meaning of Section 414(c) of the
Code) with ADESA.
"EVENT OF DEFAULT" means any event or condition designated as an "Event
of Default" in Article XII of the Lease.
"EVENT OF LOSS" is defined in Section 10.1 of the Lease.
"EVENT OF TAKING" is defined in Section 10.2 of the Lease.
"FAIR MARKET SALES VALUE" means, with respect to any Leased Property or
any portion thereof, the fair market sales value as determined by an independent
appraiser chosen by the Agent, and, unless an Event of Default has occurred,
reasonably acceptable to the related Lessee, that would be obtained in an
arm's-length transaction between an informed and willing buyer (other than a
lessee currently in possession) and an informed and willing seller, under no
compulsion, respectively, to buy or sell and neither of which is related to the
Lessor or the related Lessee, for the purchase of such Leased Property. Such
fair market sales value shall be calculated as the value for such Leased
Property, assuming, in the determination of such fair market sales value, that
such Leased Property is in the condition and repair required to be maintained by
the terms of the Lease (unless such fair market sales value is being determined
for purposes of Section 13.1 of the Lease and except as otherwise specifically
provided in the Lease or the Master Agreement, in which case this assumption
shall not be made).
"FEDERAL FUNDS RATE" means for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with member banks of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of Atlanta, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"FEE PERCENTAGE" shall mean, for any day, the applicable rate per annum
set forth below based upon the ratings by Moody's and S&P, respectively,
applicable on such date to the Index Debt:
----------------------------- --------------------------
INDEX DEBT FEE PERCENTAGE
----------------------------- --------------------------
Category 1 0.125%
----------------------------- --------------------------
Category 2 0.125%
----------------------------- --------------------------
-12-
----------------------------- --------------------------
Category 3 0.175%
----------------------------- --------------------------
Category 4 0.25%
--------------------------------------------------------
Category 5 0.50%
----------------------------- --------------------------
For purposes of the foregoing, (i) if either Moody's or S&P shall not
have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agency shall be deemed to have established a rating in Category 5; (ii)
if the ratings established or deemed to have been established by Moody's and S&P
for the Index Debt shall fall within different Categories, the Fee Percentage
shall be based on the higher of the two ratings, PROVIDED that if the difference
in such ratings is more than two notches, then the Category that is one Category
below the highest rating shall apply; and (iii) if the ratings established or
deemed to have been established by Moody's and S&P for the Index Debt shall be
changed (other than as a result of a change in the rating system of Moody's or
S&P), such change shall be effective as of the earlier of (i) the date on which
it is first announced by the applicable rating agency and (ii) the date on which
ADESA gives notice of such change to the Agent. For the purposes hereof, ADESA
shall be required to notify the Agent of such change immediately upon gaining
knowledge of such change. Each change in the Fee Percentage shall apply during
the period commencing on the effective date of such change and ending on the
date immediately preceding the effective date of the next such change. If the
rating system of Moody's or S&P shall change, or if either such rating agency
shall cease to be in the business of rating corporate debt obligations, ADESA
and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the Fee
Percentage shall be determined by reference to the rating most recently in
effect prior to such change or cessation.
"FINAL RENT PAYMENT DATE" with respect to any Leased Property is
defined in Section 13.1(e) of the Lease.
"FINANCIAL OFFICER" shall mean the chief financial officer, principal
accounting officer, treasurer or controller of ADESA whose signature and
incumbency shall have been certified to the Agent and the Funding Parties from
time to time. Unless otherwise specified, all references to a Financial Officer
herein shall mean a Financial Officer of ADESA.
"FISCAL QUARTER" shall mean a fiscal quarter of ADESA.
"FIXED CHARGE COVERAGE RATIO" shall mean, as of any date of
determination, the ratio of (a) the sum of (i) EBITDA measured for the four
consecutive Fiscal Quarters ending on such date, or if such date of
determination is not the last day of any Fiscal Quarter, then ending immediately
prior to such date of determination, plus (ii) Consolidated Lease Expense, to
(b) the sum of (i) the current maturities of all Long Term Indebtedness
scheduled during the four
-13-
consecutive Fiscal Quarters immediately following the Fiscal Quarter in which
such date occurs, PLUS (ii) Consolidated Lease Expense, PLUS (iii) Interest
Expense measured for the four consecutive Fiscal Quarters ending on such date,
or if such date of determination is not the last day of any Fiscal Quarter, then
ending immediately prior to such date of determination.
"FORCE MAJEURE LOSSES" means, with respect to any Leased Property and
as of any date of calculation, the loss incurred by the Lessor in connection
with a Construction Force Majeure Event with respect to which a Construction
Force Majeure Declaration has been made, measured by the sum of (i) the lower of
(A) the insurance proceeds paid with respect thereto plus the related deductible
amount and (B) the reduction in Fair Market Sales Value of the Leased Property
as a result of the Construction Force Majeure Event as set forth in an
Appraisal, plus (ii) other direct costs incurred by the Lessor or by the
Construction Agent that the Lessor has consented to in accordance with Section
3.4 of the Construction Agency Agreement in connection with such Construction
Force Majeure Event to the extent such costs are not covered by insurance;
PROVIDED that insurance proceeds shall be used in such calculation only to the
extent the event giving rise to the loss can be remediated for an amount equal
to the resulting insurance proceeds plus the deductible; PROVIDED, FURTHER, that
it is expressly understood and agreed that Force Majeure Losses shall not
include the costs of repairing damage occasioned not as a result of the
Construction Force Majeure Event, but as a result of the Construction Agent's
failure to take all reasonable steps to minimize the damages caused by such
Construction Force Majeure Event.
"FUNDED AMOUNT" means, as to the Lessor, the Lessor's Invested Amounts,
and, as to each Lender, the outstanding principal amount of such Lender's Loans.
"FUNDING" means any funding by the Funding Parties pursuant to Section
2.2 of the Master Agreement.
"FUNDING DATE" means each Closing Date and each other date on which a
Funding occurs under Section 2 of the Master Agreement.
"FUNDING PARTIES" means the Lessor and the Lenders, collectively.
"FUNDING PARTY BALANCE" means, with respect to any Leased Property, (i)
for the Lessor as of any date of determination, an amount equal to the sum of
the outstanding related Lessor's Invested Amount, all accrued and unpaid Yield
on such outstanding related Lessor's Invested Amount, all unpaid related fees
owing to the Lessor under the Operative Documents, and all other related amounts
owing to the Lessor by the Lessees under the Operative Documents, and (ii) for
each Lender as of any date of determination, an amount equal to the sum of the
outstanding principal of such Lender's related Loans, all accrued and unpaid
interest thereon, all unpaid related fees owing to such Lender under the
Operative Documents, and all other related amounts owing to such Lender by the
Lessees under the Operative Documents.
"FUNDING REQUEST" is defined in Section 2.2 of the Master Agreement.
-14-
"FUNDING TERMINATION DATE" means the earliest of (i) the date that is
two years after the Initial Closing Date and (ii) the termination of the
Commitments pursuant to Section 5.2 of the Loan Agreement.
"FUTURE VALUE" means, with respect to any component of the Recourse
Deficiency Percentage, the accreted value of such component as of the end of the
Base Lease Term, that is giving effect to the time value of money using the
Implicit Rate.
"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 in 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.
"GENERAL CONTRACTOR" with respect to any Leased Property means the
general contractor therefor selected by the Construction Agent.
"GENERAL PARTNER" means Atlantic Financial Managers, Inc., a Texas
corporation.
"GOVERNMENTAL ACTION" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, decrees,
licenses, exemptions, publications, filings, notices to and declarations of or
with, or required by, any Governmental Authority, or required by any Applicable
Law and shall include, without limitation, all citations, environmental and
operating permits and licenses that are required for the use, occupancy, zoning
and operation of any Leased Property.
"GOVERNMENTAL AUTHORITY" shall include the country, the state, county,
city and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them, including monetary authorities which
exercises valid jurisdiction over any such Person or such Person's Property.
Unless otherwise specified, all references to Governmental Authority herein
shall mean a Governmental Authority having jurisdiction over, where applicable,
ADESA, the Subsidiaries or any of their Property or the Agent or any Funding
Party.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement, including Environmental Laws and occupational, safety and health
standards or controls, of any Governmental Authority.
"GROUND LEASE" means, with respect to any Land, the ground lease
between the related Ground Lessor and the Lessor pursuant to which a leasehold
estate is conveyed in the Land to the Lessor.
-15-
"GROUND LESSOR" means, as to any Land, the ground lessor of such Land.
"GUARANTOR" means the Parent, in its capacity as guarantor under the
Guaranty Agreement to which it is a party and ADESA, in its capacity as
guarantor under the Guaranty Agreement to which it is a party.
"GUARANTY" shall mean any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including contractual obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make any
payment other than for value received. The amount of any Guaranty shall be
deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which guaranty 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.
"GUARANTY AGREEMENT" means each of the Guaranties, dated as of July 30,
2001, by the Parent and ADESA, respectively, in favor of the Funding Parties.
"HAZARDOUS MATERIAL" means any substance, waste or material which is
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous, including petroleum, crude oil or any fraction
thereof, petroleum derivatives, by products and other hydrocarbons, or which is
or becomes regulated under any Environmental Law by any Governmental Authority,
including any agency, department, commission, board or instrumentality of the
United States, any jurisdiction in which a Leased Property is located or any
political subdivision thereof and also including, without limitation, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon
gas.
"IDB DOCUMENTATION" means the Bonds, each IDB Lease and all other
agreements, documents, contracts and instruments entered into in connection with
any Bonds or IDB Property.
"IDB PROPERTY" means each Leased Property that is the subject of Bonds.
"IDB LEASE" means a lease between the Lessor and an Authority with
respect to a Leased Property.
-16-
"IMPLICIT RATE" means the weighted average of the Lessor Rate and the
rate at which interest on the Lenders' Loans is capitalized, each as in effect
on the date of calculation based on the outstanding Funded Amounts.
"INCOME TAXES" shall mean, for any period, any provision made by any of
the Consolidated Companies in respect of such period for income taxes or other
taxes payable by any Consolidated Company in respect of its income or profits.
"INDEBTEDNESS" of any Person shall mean, without duplication (a) all
obligations of such Person for borrowed money; (b) all obligations of such
person evidenced by bonds, debentures, notes, drafts, bankers' acceptances or
other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services (other than trade accounts
payable incurred in the ordinary course of business that are not past due by
more than ninety (90) days), (d) all obligations of such Person under leases
required to be capitalized under GAAP, (e) all obligations or liabilities of
others secured by any Lien upon property owned by such Person whether or not
such obligation or liability is assumed, (f) all obligations of such Person
under Interest Rate Contracts or Currency Contracts, (g) all obligations of such
Person in respect of letters of credit issued for its account (including all
contingent reimbursement obligations, whether or not any draws under such
letters of credit have been presented for payment) and all drafts, bankers
acceptances or similar instruments issued in connection therewith, (h) all
Guaranties of such Person of the type of Indebtedness described above, but
excluding all items of shareholders' equity or capital stock or surplus or
general contingency or deferred tax reserves), (i) the purchase price for any
asset leased to such Person pursuant to a Synthetic Lease that such Person would
have to pay to acquire the asset at the end of the term of the Synthetic Lease,
and (j) all other obligations and liabilities of such Person that are required
by GAAP to be shown as liabilities on a balance sheet for such Person (other
than reserves required under GAAP).
"INDEMNITEE" means the Agent (in its individual capacity and in its
capacity as Agent), each Lender and the Lessor, and their respective Affiliates,
successors, permitted assigns, permitted transferees, employees, officers,
directors and agents; PROVIDED, HOWEVER, that in no event shall any Lessee or
the Guarantor be an Indemnitee.
"INDEX DEBT" means senior, unsecured, long-term indebtedness for
borrowed money of the Parent that is not guaranteed by any other Person or
subject to any other credit enhancement.
"INITIAL CLOSING DATE" means the Closing Date for the first Leased
Property acquired by the Lessor.
"INTEREST EXPENSE" shall mean, for any period, all interest expense of
the Consolidated Companies (including without limitation, interest expense
attributable to capitalized leases in accordance with GAAP, all capitalized
interest, all commissions, discounts and other fees and charges owed with
respect to bankers acceptance financing, and total interest expense (whether
-17-
shown as interest expense or as loss and expenses on sale of receivables) under
a receivables purchase facility) determined on a consolidated basis in
accordance with GAAP.
"INTEREST RATE CONTRACTS" shall mean any forward contracts, future
contracts, interest rate exchange agreements, interest rate cap agreements,
interest rate collar agreements, and other similar agreements and arrangements
entered into by any Consolidated Company designed to protect any Consolidated
Company against fluctuations in interest rates.
"INVESTMENT" in any Person shall mean: (a) the acquisition of capital
stock, bonds, notes, debentures, partnership, or other ownership interests,
other securities, or Indebtedness of such Person; (b) any deposit with, or loan
or other extension of credit to, such Person; (c) any Guarantee of Indebtedness
or other liabilities of such Person; and (d) any amount committed to be lent to
such Person.
"KNOWLEDGE" means the actual knowledge of any executive officer of the
related Lessee, or of any other officer or employee of the related Lessee that
is primarily responsible for the construction, operation or management of the
related Leased Property or the Transaction.
"JOINDER AGREEMENT" means an agreement substantially in the form of
Exhibit E to the Master Agreement pursuant to which a Subsidiary of ADESA shall
become a Lessee.
"LAND" means the land described in Appendix B to the related Lease
Supplement.
"LEASE" means the Master Lease Agreement, dated as of July 30, 2001,
among the Lessees and the Lessor, together with each Lease Supplement.
"LEASE BALANCE" means, with respect to all of the Leased Properties, as
of any date of determination, an amount equal to the aggregate sum of the
outstanding Funded Amounts of all Funding Parties, all accrued and unpaid
interest on the Loans, all accrued and unpaid Yield on the Lessor's Invested
Amounts, all unpaid fees owing to the Funding Parties under the Operative
Documents, and all other amounts owing to the Funding Parties by any Lessee
under the Operative Documents.
"LEASE SUPPLEMENT" is defined in Section 2.2 of the Lease.
"LEASE TERM" with respect to any (i) Leased Property that is a
Construction Land Interest, means the period from the Closing Date for such
Leased Property to the Completion Date for such Leased Property (or such shorter
period as may result from earlier termination of the Lease as provided therein)
PLUS the Base Lease Term therefor and (ii) any other Leased Property, the Base
Lease Term therefor.
"LEASE TERMINATION DATE" means the last day of the Lease Term.
-18-
"LEASED PROPERTY" means Land and the related Building(s). For purposes
of the Lease, "Leased Property" means the Land identified in a Lease Supplement
to the Lease and the Buildings related thereto, unless the context provides
otherwise.
"LEASED PROPERTY BALANCE" means, with respect to any Leased Property,
as of any date of determination, an amount equal to the aggregate sum of the
outstanding related Funded Amounts of all Funding Parties, all accrued and
unpaid interest on the related Loans, all accrued and unpaid Yield on the
related Lessor's Invested Amounts, all related unpaid fees owing to the Funding
Parties under the Operative Documents, and all other amounts owing to the
Funding Parties by the related Lessee under the Operative Documents.
"LENDER BASIC RENT" means, for any Rent Period under the Lease, the
aggregate amount of interest accrued on the Loans pursuant to Section 2.4 of the
Loan Agreement during such Rent Period.
"LENDERS" means such financial institutions as are, or who may
hereafter become, parties to the Loan Agreement as lenders to the Lessor.
"LENDING OFFICE" for each Lender means the office such Lender
designates in writing from time to time to ADESA and the Agent.
"LESSEE" is defined in the preamble to the Master Agreement. The
"related" Lessee with respect to any Leased Property means the Lessee that is a
party to the Lease Supplement for such Leased Property or that is leasing such
Leased Property, as the case may be.
"LESSOR" is defined in the preamble to the Master Agreement.
"LESSOR BASIC RENT" means, for any Rent Period, the aggregate amount of
Yield accrued and unpaid on the Lessor's Invested Amounts under Section 2.3(a)
of the Master Agreement during such Rent Period.
"LESSOR LIENS" means Liens on or against any Leased Property, the
Lease, any other Operative Document or any payment of Rent (a) which result from
any act or omission of, or any Claim against, the Lessor, or any Person claiming
through the Lessor unrelated to the transactions contemplated by the Operative
Documents or from Lessor's failure to perform as required under the Operative
Documents or (b) which result from any Tax owed by the Lessor, or any Person
claiming through the Lessor, except any Tax for which a Lessee is obligated to
indemnify (including, without limitation, in the foregoing exception, any
assessments with respect to any Leased Property noted on the related Title
Policy or assessed in connection with any construction or development by a
Lessee or the Construction Agent).
"LESSOR RATE" is defined in the Lessor Side Letter.
-19-
"LESSOR SIDE LETTER" means the letter agreement, dated as of July 30,
2001, between ADESA and the Lessor.
"LESSOR'S INVESTED AMOUNT" means the amounts funded by the Lessor
pursuant to Section 2 of the Master Agreement that are not proceeds of Loans by
a Lender, as such amount may be increased during the related Construction Term
pursuant to Section 2.3(c) of the Master Agreement.
"LIBOR" means, for any Rent Period, with respect to LIBOR Advances the
offered rate for deposits in U.S. Dollars, for a period comparable to the Rent
Period and in an amount comparable to such Advances, appearing on the Telerate
Screen Page 3750 as of 11:00 A.M. (London, England time) on the day that is two
London Business Days prior to the first day of the Rent Period. If two or more
of such rates appear on the Telerate Screen Page 3750, the rate for that Rent
Period shall be the arithmetic mean of such rates. If the foregoing rate is
unavailable from the Telerate Screen for any reason, then such rate shall be
determined by the Agent from the Reuters Screen LIBO Page or, if such rate is
also unavailable on such service, then on any other interest rate reporting
service of recognized standing designated in writing by the Agent to ADESA and
the other Lenders; in any such case rounded, if necessary, to the next higher
1/100 of 1.0%, if the rate is not such a multiple.
"LIBOR ADVANCE" means that portion of the Funded Amount bearing
interest at a rate based on the Adjusted LIBO Rate.
"LIEN" shall mean any mortgage, pledge, security interest, lien,
charge, hypothecation, assignment, deposit arrangement, title retention,
preferential right, trust or other arrangement having the practical effect of
the foregoing and shall include the interest of a vendor or lessor under any
conditional sale agreement, capitalized lease or other title retention
agreement.
"LIMITED EVENT OF DEFAULT" means an Event of Default under PARAGRAPH
(e), (j) or (k) of Article XII of the Lease, solely if the breach of the related
covenant, representation or warranty was based on a subjective interpretation of
the term "diligently," "Material Adverse Effect," "material" or "diligently."
"LOAN" shall have the meaning specified in Section 2.1 of the Loan
Agreement.
"LOAN AGREEMENT" means the Loan Agreement, dated as of July 30, 2001,
among the Lessor, the Agent and the Lenders.
"LOAN DOCUMENTS" means the Loan Agreement, the Note, the Assignments of
Lease and Rents, the Mortgages and all documents and instruments executed and
delivered in connection with each of the foregoing.
-20-
"LOAN EVENT OF DEFAULT" means any of the events specified in Section
5.1 of the Loan Agreement, PROVIDED that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, event or act has
been satisfied.
"LOAN POTENTIAL EVENT OF DEFAULT" means any event, condition or failure
which, with notice or lapse of time or both, would become a Loan Event of
Default.
"LONG TERM INDEBTEDNESS" shall mean (a) all Indebtedness which at the
time of incurrence or issuance, has a final maturity or term greater than one
year or which is renewable at the option of the obligor thereof for a term of
greater than one year from the date of original incurrence or issuance or (b)
Indebtedness which at the time of incurrence or issuance has a final maturity or
term of less than one year and which is intended to be repaid out of proceeds of
other Long Term Indebtedness.
"LOSS PROCEEDS" is defined in Section 10.6 of the Lease.
"MARGIN REGULATIONS" means Regulations T, U and X of the Board of
Governors of the Federal Reserve System, as the same may be in effect from time
to time.
"MARGIN STOCK" shall have the meaning set forth in Regulation U of the
Board of Governors of the Federal Reserve System as the same may be amended or
interpreted from time to time.
"MASTER AGREEMENT" means the Master Agreement, dated as of July 30,
2001, among ADESA, as a Guarantor, the Lessees, the Lessor, the Agent and the
Lenders.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, assets, operations or condition, financial or otherwise, of ADESA and
its Subsidiaries taken as a whole, or of the Parent, (b) the ability of the
Parent, ADESA or any Lessee to perform any of its respective obligations under
the Operative Documents to which it is a party, (c) the rights of or benefits
available to the Funding Parties under the Operative Documents, (d) the value,
utility or useful life of any Leased Property or (e) the priority, perfection or
status of the Agent's or any Funding Party's interest in any Leased Property or
in the Lease, the Guaranty or the Construction Agency Agreement.
"MOODY'S" means Moody's Investors Service, Inc.
"MORTGAGE" means, with respect to any Leased Property, that certain
mortgage, deed of trust or security deed, dated as of the related Closing Date,
by the Lessor to the Agent, substantially in the form of Exhibit D-1 or D-2, as
applicable, attached to the Master Agreement, with such modifications as are
satisfactory to the Lessor and the Agent in conformity with Applicable Law to
assure customary remedies in favor of the Agent in the jurisdiction where the
Leased Property is located.
-21-
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by ADESA or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"NET INCOME (LOSS)" shall mean, for any period, the net income (or
loss), after deducting all operating expenses, provisions for taxes and reserves
(including reserves for deferred income tax) and all other proper deductions, of
the Consolidated Companies for such period (taken as a single accounting period)
determined on a consolidated basis in conformity with GAAP, including any income
or loss of any Person accrued prior to the date such Person becomes a Subsidiary
of any Consolidated Company or is merged into or consolidated with any
Consolidated Company or all or substantially all of such Person's assets are
acquired by any Consolidated Company, but excluding therefrom (to the extent
otherwise included therein) (i) any extraordinary items, and (ii) any equity
interest of the Consolidated Companies in the unremitted earnings of any Person
that is not a Subsidiary.
"NET WORTH" shall mean, as of any date, total stockholders' equity of
ADESA and its Subsidiaries determined on a consolidated basis.
"NOTE" means the note issued by the Lessor under the Loan Agreement,
and any and all notes issued in replacement or exchange therefor in accordance
with the provisions thereof.
"OBLIGATIONS" means all indebtedness (whether principal, interest, fees
or otherwise), obligations and liabilities of each Guarantor and each Lessee to
the Funding Parties (including without limitation all extensions, renewals,
modifications, rearrangements, restructures, replacements and refinancings
thereof, whether or not the same involve modifications to interest rates or
other payment terms of such indebtedness, obligations and liabilities), whether
arising under any of the Operative Documents or otherwise, and whether now
existing or hereafter created, absolute or contingent, direct or indirect, joint
or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, or
acquired by Funding Parties outright, conditionally or as collateral security
from another, including but not limited to the obligation of each Guarantor and
each Lessee to repay future advances by the Funding Parties, whether or not made
pursuant to commitment and whether or not presently contemplated by each
Guarantor or any Lessee and the Funding Parties under the Operative Documents.
"OBLIGOR" means each Lessee, the Construction Agent and each Guarantor.
"OFFICER'S CERTIFICATE" of a Person means a certificate signed by the
Chairman of the Board, the President, any Vice President, any Senior Vice
President, any Administrative Vice President, the Treasurer, any Assistant
Treasurer, the Controller or the Secretary of such Person, signing alone.
-22-
"OPERATING LEASE" shall mean, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the lessee at
any time) of any asset which is not a Capital Lease other than any such lease in
which that Person is the lessor.
"OPERATIVE DOCUMENTS" means the Master Agreement, the Guaranty
Agreements, the Purchase Agreements, the Deeds, the Lease, each Security
Agreement and Assignment, the Loan Agreement, the Assignments of Lease and
Rents, the Mortgages, the Note, the Ground Leases, the Joinder Agreements, the
IDB Documentation, the Construction Agency Agreement, and the other documents
delivered in connection with the transactions contemplated by the Master
Agreement.
"OVERDUE RATE" means the lesser of (a) the highest interest rate
permitted by Applicable Law and (b) an interest rate per annum (calculated on
the basis of a 365-day (or 366-day, if appropriate) year equal to 2.0% above the
Base Rate in effect from time to time or, in the case of Yield, 2% above the
Lessor Rate.
"PARENT" means ALLETE Inc., a Minnesota corporation.
"PARTIAL PURCHASE OPTION" is defined in Section 14.1(b) of the Lease.
"PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of
Atlantic Financial Group, Ltd., dated as of February 28, 1996, among the General
Partner and the persons listed on Schedule A thereto as limited partners.
"PAYMENT DATE" means the last day of each Rent Period.
"PBGC" means the Pension Benefit Guaranty Corporation, or any entity
succeeding to any or all of its functions.
"PERMITTED INVESTMENTS" means: (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any Lender or by any
bank or trust company organized under the laws of the United States of America
or any state thereof whose short-term unsecured debt is rated A-1 or better or
P-1 by S&P or Moody's, respectively, and having capital, surplus and undivided
profits of at least $500,000,000, maturing not more than 90 days from the date
of acquisition thereof; (c) commercial paper rated A-1 or better or P-1 by S&P
or Moody's, respectively, maturing not more than one month from the date of
acquisition thereof; (d) commercial paper of any Lender (or any Affiliate
thereof located in the United States of America) that is rated A-1 or better or
P-1 by S&P or Moody's, respectively, maturing not more than one month from the
date of acquisition thereof; (e) repurchase agreements entered into with any
Lender or with any bank or trust company satisfying the conditions of CLAUSE (b)
hereof that is secured by any obligation of the type described in CLAUSES
-23-
(a) through (d) of this definition; and (f) money market funds acceptable to the
Required Lenders.
"PERMITTED LEASE BALANCE" means, with respect to any Leased Property
and calculated as of any date, (i) the Leased Property Balance with respect to
such Leased Property as of the date of such calculation, MINUS (ii) Force
Majeure Losses with respect to such Leased Property, PLUS (iii) the amount of
insurance proceeds applied towards the remediation of such Force Majeure Losses.
For purposes of this definition, Leased Property means the Raw Land and/or the
Building subject to a particular Lease Supplement.
"PERMITTED LIEN" means: (a) Liens for Taxes not assessed or, if
assessed, not yet due and payable, or are being contested in good faith by
appropriate proceedings; (b) repairman's, mechanic's, carrier's or other similar
Liens arising in the ordinary course of business or by operation of law securing
obligations that are not more than 30 days overdue, which have been bonded or
which are being contested in good faith by appropriate proceedings; (c) Lessor
Liens; (d) Liens of subleases permitted by the Lease; (e) Liens arising out of
judgments or awards with respect to which appeals or other proceedings for
review are being prosecuted in good faith and for which adequate provisions have
been made; (f) easements, rights of way and other encumbrances on title to real
property to the extent permitted by the Lease; and (g) Liens described on the
Title Policy delivered in connection with the related Leased Property on the
Closing Date therefor, but only if, in the case of Liens being contested as
described in CLAUSE (a), (b) or (e) above, (i) adequate reserves have been
provided by the related Lessee for the payment of the Taxes or other
obligations; and (ii) such proceedings, or the continued existence of such Lien,
do not give rise to any substantial likelihood of the sale, forfeiture or other
loss of the related Leased Property or any interests therein, or any likelihood
of criminal liability on the part of the Agent or any Funding Party.
"PERSON" means an individual, corporation, company, partnership,
limited liability company, joint venture, voluntary association, trust,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof or any other form of entity.
"PLAN" shall mean an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA other than a Multiemployer Plan.
"PLANS AND SPECIFICATIONS" means with respect to any Building the final
plans and specifications for such Building, which may be standard forms for
buildings of that type, and, if applicable, referred to by the Appraiser in the
Appraisal, as such Plans and Specifications may be hereafter amended,
supplemented or otherwise modified from time to time.
"POTENTIAL EVENT OF DEFAULT" means any event, condition or failure
which, with notice or lapse of time or both, would become an Event of Default.
"PRESENT VALUE" with respect to any payment to be made in the future
means the amount of such payment, discounted to present value as of the date of
calculation employing a discount
-24-
rate equal to the Implicit Rate, and, with respect to any payment made prior to
the date of such calculation means the amount of such payment, plus interest on
such amount calculated at the Implicit Rate for such Leased Property.
"PROJECT COSTS" means, as of any date and with respect to any Leased
Property, those portions, in the aggregate, of the Funded Amount for such Leased
Property as of such date that, when expended by the Lessor, were, or would have
been, capitalized by Lessor in accordance with GAAP. For purposes of calculating
the Construction Failure Payment, "Project Costs" shall also include other costs
related to Construction paid to third parties other than the Funding Parties as
described in EITF 97-10. For purposes of calculating the Recourse Deficiency
Percentage, as used in this definition, Leased Property means the Raw Land
and/or the Building subject to a particular Lease Supplement.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"PURCHASE AGREEMENT" means with respect to any Land, the purchase
agreement or option agreement, as the case may be, with the Seller for the
conveyance of such Land to the Lessor.
"PURCHASE OPTION" is defined in Section 14.1(a) of the Lease.
"QUARTERLY PAYMENT DATE" means the last Business Day of each March,
June, September and December of each year.
"RATING AGENCY" means either Moody's or S&P.
"RAW LAND" means, with respect to any Leased Property, the parcel of
land described in the related Lease Supplement, excluding any improvements
thereon.
"RAW LAND COST" means, with respect to any Leased Property, the
acquisition cost of the Raw Land.
"RECOURSE DEFICIENCY AMOUNT" means, with respect to any Leased
Property, calculated as of the Completion Date, in the case of Leased Properties
that shall have been subject to the Construction Agency Agreement, or the
Closing Date, in the case of all other Leased Properties, for such Leased
Property, the result of (A) the Recourse Deficiency Percentage times (B) the
Project Costs for such Leased Property; PROVIDED, HOWEVER, that, if Raw Land is
leased pursuant to a separate Lease Supplement, the Recourse Deficiency Amount
with respect to such Leased Property shall equal the Raw Land Cost with respect
to such Raw Land. For purposes of this definition, Leased Property means the Raw
Land and/or the Building subject to a particular Lease Supplement.
"RECOURSE DEFICIENCY PERCENTAGE" means, with respect to any Leased
Property, the percentage set forth in the related Lease Supplement calculated as
follows and expressed as a
-25-
percentage: (a) the Future Value of: ((i) 89.9% of (x) the estimated Project
Cost (estimated as of the Closing Date for such Leased Property based upon the
Construction Budget as of such date) or (y) the actual Project Cost in the case
of Leased Properties not subject to the Construction Agency Agreement, less (ii)
the Present Value, as of such date, of any "minimum lease payments" with respect
to such Leased Property as such term is used in Section 7(d) of Financial
Accounting Standard No. 13 (excluding for purposes of this calculation the
Recourse Deficiency Amount)), divided by (b) such estimated or actual Project
Cost, as the case may be.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REGULATIONS" means the income tax regulations promulgated from time to
time under and pursuant to the Code.
"RELEASE" means the release, deposit, disposal or leak of any Hazardous
Material into or upon or under any land or water or air, or otherwise into the
environment, including, without limitation, by means of burial, disposal,
discharge, emission, injection, spillage, leakage, seepage, leaching, dumping,
pumping, pouring, escaping, emptying, placement and the like.
"RELEASE DATE" means, with respect to any Leased Property, the earlier
of (i) the date that the Lease Balance has been paid in full, and (ii) the date
on which the Agent gives written notice to the Lessor that the Lenders release
any and all interest they may have in such Leased Property, and all proceeds
thereof, and any rights to direct, consent or deny consent to any action by the
Lessor with respect to such Leased Property.
"REMARKETING OPTION" is defined in Section 14.6 of the Lease.
"RENT" means Basic Rent and Supplemental Rent, collectively.
"RENT PERIOD" means, in the case of Base Rate Advances, the period
from, and including, a Quarterly Payment Date to, but excluding, the next
succeeding Quarterly Payment Date and (y) in the case of LIBOR Advances:
(1) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such
LIBOR Advance and ending one, two or three months thereafter,
as selected by ADESA in its Funding Notice or Payment Date
Notice, as the case may be, given with respect thereto; and
(2) thereafter, each period commencing on the last day of the next
preceding Rent Period applicable to such LIBOR Advance and
ending one, two or three months
-26-
thereafter, as selected by ADESA by irrevocable notice to the
Agent in its related Payment Date Notice;
PROVIDED that:
(a) The initial Rent Period for any Funding shall commence on
the Funding Date of such Funding and each Rent Period occurring
thereafter in respect of such Funding shall commence on the day on
which the next preceding Rent Period expires;
(b) If any Rent Period would otherwise expire on a day which
is not a Business Day, such Rent Period shall expire on the next
succeeding Business Day, PROVIDED that if any Rent Period in respect of
LIBOR Advances would otherwise expire on a day that is not a Business
Day but is a day of the month after which no further Business Day
occurs in such month, such Rent Period shall expire on the next
preceding Business Day;
(c) Any Rent Period in respect of LIBOR Advances which begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Rent Period shall, subject to
PARAGRAPH (d) below, expire on the last Business Day of such calendar
month;
(d) No Rent Period shall extend beyond the Lease Termination
Date; and
(e) At any one time, there shall be no more than five (5) Rent
Periods.
"REPORT" is defined in Section 7.6 of the Master Agreement.
"REPORTABLE EVENT" means any of the events set forth in Section 4043(c)
of ERISA, other than those events as to which the post-event notice requirement
is waived.
"REQUIRED FUNDING PARTIES" means, at any time, Funding Parties holding
an aggregate outstanding principal amount of Funded Amounts equal to at least
66-2/3% of the aggregate outstanding principal amount of all Funded Amounts.
"REQUIRED LENDERS" means, at any time, Funding Parties holding an
aggregate outstanding principal amount of Loans equal to at least 66-2/3% of the
aggregate outstanding principal amount of all Loans.
"REQUIREMENT OF LAW" means, as to any Person, the 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.
-27-
"RESPONSIBLE OFFICER" means the Chairman or Vice Chairman of the Board
of Directors, the Chairman or Vice Chairman of the Executive Committee of the
Board of Directors, the President, any Senior Vice President or Executive Vice
President, any Vice President, any Administrative Vice President, the Secretary,
any Assistant Secretary, the Treasurer, or any Assistant Treasurer.
"REUTERS SCREEN" means, when used in connection with any designated
page and LIBOR, the display page so designated on the Reuters Monitor Money
Rates Service (or such other page as may replace that page on that service for
the purpose of displaying rates comparable to LIBOR).
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Corporation.
"SCHEDULED CONSTRUCTION TERMINATION DATE" means with respect to any
Building eighteen (18) months after the Closing Date for the related Land,
subject to the occurrence of a Construction Force Majeure Event, but in no event
later than the Lease Termination Date.
"SEC" means the United States Securities and Exchange Commission, or
any successor Governmental Authority.
"SECURITIES" means any stock, shares, voting trust certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities", or any certificates of interest, shares, or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY AGREEMENT AND ASSIGNMENT" means, with respect to any Leased
Property, the Security Agreement and Assignment (Construction Contract,
Architect's Agreement, Permits, Licenses and Governmental Approvals, and Plans,
Specifications and Drawings) from the Construction Agent to the Lessor,
substantially in the form of Exhibit C to the Master Agreement.
"SELLER" means as to any Leased Property, the seller thereof to the
Lessor on the related Closing Date.
"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 of 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
-28-
any determination is being made, be owned by such Person, either directly or
indirectly through one or more other Subsidiaries.
"SUNTRUST BANK" is defined in the preamble to the Master Agreement.
"SUPPLEMENTAL RENT" means any and all amounts, liabilities and
obligations other than Basic Rent which a Lessee assumes or agrees or is
otherwise obligated to pay under the Lease or any other Operative Document
(whether or not designated as Supplemental Rent) to the Lessor, the Agent, any
Lender or any other party, including amounts under Article XVI of the Lease, and
indemnities and damages for breach of any covenants, representations, warranties
or agreements, and all overdue or late payment charges in respect of any Funded
Amount.
"SYNTHETIC LEASE" shall mean a so-called "synthetic" lease that is not
treated as a capital lease under GAAP, but that is treated as a financing under
the Code.
"TAX" or "TAXES" is defined in Section 7.4 of the Master Agreement.
"TAX CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time and any successor statute.
"TAX INDEMNITEE" means the Lessor, the Agent, each Lender and their
respective Affiliates, successors, permitted assigns, permitted transferees,
employees, officers, directors and agents thereof, PROVIDED, HOWEVER, that in no
event shall any Lessee or any Guarantor be a Tax Indemnitee.
"TELERATE" means, when used in connection with any designated page and
LIBOR, the display page so designated on the Dow Jones Telerate Service (or such
other page as may replace that page on that service for the purpose of
displaying rates comparable to LIBOR).
"TITLE INSURANCE COMPANY" means the company that has or will issue the
title policies with respect to a Leased Property, which company shall be
reasonably acceptable to the Agent.
"TITLE POLICY" is defined in Section 3.1 of the Master Agreement.
"TOTAL FUNDED DEBT" shall mean all outstanding Indebtedness of the
Consolidated Companies measured on a consolidated basis.
"TOTAL FUNDED DEBT TO EBITDA RATIO" shall mean, as of any date of
determination, the ratio of (i) Total Funded Debt as of such date to (ii) EBITDA
measured for the four Fiscal Quarter period ending on such date, or if such date
is not the last day of any Fiscal Quarter, then ending immediately prior to such
date.
"TRANSACTION" means all the transactions and activities referred to in
or contemplated by the Operative Documents.
-29-
"UCC" means the Uniform Commercial Code of Georgia, as in effect from
time to time.
"UNRESTRICTED ENVIRONMENTAL INDEMNIFICATION AMOUNTS" means, with
respect to any Leased Property, any Unrestricted Indemnification Amounts of the
type described in subpart (i)(D) of the definition of Unrestricted
Indemnification Amounts.
"UNRESTRICTED INDEMNIFICATION AMOUNTS" means, with respect to any
Leased Property (i) any amounts payable by the Construction Agent with respect
to such Leased Property pursuant to (A) Section 3.3(ii) of the Construction
Agency Agreement, (B) Section 3.3(iii) of the Construction Agency Agreement, (C)
that portion of Section 3.3(i) of the Construction Agency Agreement within the
parenthetical phrase within such Section 3.3(i) relating to Claims for personal
injury or damage to property, or (D) any provision of any Operative Document
requiring indemnification for Claims arising from environmental conditions with
respect to such Leased Property and (ii) any other amounts that EITF 97-10
allows a Lessee to pay that are capitalizable under GAAP and are not required to
be included in the calculation of a Lessee's maximum guaranty amount under EITF
97-10.
"YIELD" is defined in Section 2.3 of the Master Agreement.
F. DOCUMENTARY CONVENTIONS. The following provisions shall be
applicable to each Operative Document.
SECTION 1. NOTICES. All notices, requests, demands or other
communications to or upon the respective parties to each agreement to which the
Documentary Conventions apply shall be addressed to such parties at the
addresses therefor as set forth in SCHEDULE I hereto, or such other address as
any such party shall specify to the other parties hereto, and shall be deemed to
have been given (i) the Business Day after being sent, if sent by overnight
courier service; (ii) the Business Day received, if sent by messenger; (iii) the
day sent, if sent by facsimile and confirmed electronically or otherwise during
business hours of a Business Day (or on the next Business Day if otherwise sent
by facsimile and confirmed electronically or otherwise); or (iv) three Business
Days after being sent, if sent by registered or certified mail, postage prepaid.
SECTION 2. COUNTERPARTS. Each agreement to which the Documentary
Conventions apply may be executed by the parties thereto in separate
counterparts (including by facsimile), each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 3. AMENDMENTS. No Operative Document nor any of the terms
thereof may be terminated, amended, supplemented, waived or modified with
respect to the Lessees or any Funding Party, except (a) in the case of a
termination, amendment, supplement, waiver or modification to be binding on the
Lessees, with the written agreement or consent of ADESA, and (b) in the case of
a termination, amendment, supplement, waiver or modification to be
-30-
binding on the Funding Parties, with the written agreement or consent of the
Required Funding Parties; PROVIDED, HOWEVER, that
(x) notwithstanding the foregoing provisions of this SECTION
3, the consent of each Funding Party affected thereby shall be required
for any amendment, modification or waiver:
(i) amending, modifying, waiving or supplementing
any of the provisions of Section 6 of the Master Agreement or
the representations of such Funding Party in SECTION 4.2 or
4.3 of the Master Agreement or this SECTION 3 or changing the
definition of "REQUIRED FUNDING PARTIES" or "REQUIRED
LENDERS";
(ii) increasing the Commitment of such Funding
Party or reducing any amount payable to such Funding Party
under the Operative Documents or extending the time for
payment of any such amount, including, without limitation, any
Rent, any Funded Amount, any fees, any indemnity, the Leased
Property Balance, the Lease Balance, any Funding Party
Balance, Recourse Deficiency Amount, interest or Yield; or
(iii) consenting to any assignment of the Lease or
the extension of the Lease Term, releasing any of the
collateral assigned to the Agent pursuant to any Mortgage and
any Assignment of Lease and Rents (but excluding a release of
any rights that the Agent may have in any Leased Property, or
the proceeds thereof as contemplated in the definition of
"Release Date"), releasing any Lessee from its obligations in
respect of the payments of Rent and the Lease Balance,
releasing any Guarantor from its obligations under the
Guaranty Agreement to which it is a party or the other
Operative Documents or changing the absolute and unconditional
character of any such obligation;
(y) no such termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the
Lessor, the Agent and the Required Lenders, be made to the Lease or the
Construction Agency Agreement; and
(z) subject to the foregoing CLAUSES (x) and (y), so long as
no Event of Default has occurred and is continuing, the Lessor, the
Agent and the Lenders may not amend, supplement, waive or modify any
terms of the Loan Agreement, the Mortgages and the Assignments of Lease
and Rents without the consent of ADESA (such consent not to be
unreasonably withheld or delayed); PROVIDED that in no event may the
Loan Agreement be amended so as to increase the amount of Basic Rent
payable by any Lessee without the consent of ADESA.
SECTION 4. HEADINGS, ETC. The Table of Contents and headings of the
various Articles and Sections of each agreement to which the Documentary
Conventions apply are for
-31-
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
SECTION 5. PARTIES IN INTEREST. Except as expressly provided therein,
none of the provisions of any agreement to which the Documentary Conventions
apply is intended for the benefit of any Person except the parties thereto and
their respective successors and permitted assigns.
SECTION 6. GOVERNING LAW. EACH AGREEMENT TO WHICH THE DOCUMENTARY
CONVENTIONS APPLY HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES.
SECTION 7. SEVERABILITY. Any provision of each agreement to which the
Documentary Conventions apply that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 8. SUBMISSION TO JURISDICTION; WAIVERS. Each party to an
agreement to which the Documentary Conventions apply hereby irrevocably and
unconditionally:
(i) submits for itself and its property in any legal action
or proceeding relating to the Master Agreement or any other Operative
Document, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the
State of Georgia sitting in Fulton County, Georgia, the courts of the
United States of America for the Northern District of Georgia, and
appellate courts from any thereof; PROVIDED that this provision shall
not limit a party's right to remove such legal action or proceeding
from a Georgia state court to a Federal court sitting in the Northern
District of Georgia.
(ii) consents that any such action or proceedings may be
brought to such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such party at its address set forth in SCHEDULE I hereto or
at such other address of which the other parties hereto shall have been
notified pursuant to SECTION 1; and
-32-
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law.
EACH PARTY TO EACH AGREEMENT TO WHICH THE DOCUMENTARY CONVENTIONS APPLY
HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
SUCH AGREEMENT, ANY OTHER OPERATIVE DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
SECTION 9. NO ORAL AGREEMENTS. THE OPERATIVE DOCUMENTS EMBODY THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER THEREOF. THE OPERATIVE DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES OR ANY COURSE OF PRIOR DEALINGS. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SECTION 10. CONSTRUCTION. No agreement to which the Documentary
Conventions apply shall be construed more strictly against any one party, it
being recognized that all parties have contributed substantially and materially
to the preparation and negotiations of the Operative Documents.
-33-
SCHEDULE I
ADDRESSES FOR NOTICES
ADESA or any Lessee: ADESA Corporation
310 E. 96th Street, Suite 400
Indianapolis, IN 46240
Attn: William T. Stackhause; copy to Karen C. Turner
Fax No.: 317/815-3656
Lessor: Atlantic Financial Group, Ltd.
2808 Fairmount, Suite 250
Dallas, Texas 75201
Attn: Stephen Brookshire
Fax No.: 214/871-9237
Lenders: SunTrust Bank
MC 1106
200 South Orange Avenue
Orlando, Florida 32801
Attn: Ed Wooten
Fax No.:407/237-4076
with a copy to:
SunTrust Capital Markets, Inc.
303 Peachtree Street, Suite 2400
MC 3951
Atlanta, Georgia 30308
Attn: Robert Kennedy
Fax No.: 404/230-1344
Harris Trust and Savings Bank
111 West Monroe
10th Floor West
Chicago, Illinois 60603
Attn: Thad Rasche
Fax No.: 312/461-5225
LaSalle Bank National Association
One American Square
Suite 1600
Indianapolis, Indiana 46282
Attn: Matthew Doye
Fax No.: 317/756-7021
SCHEDULE 2.2
AMOUNT OF EACH FUNDING PARTY'S COMMITMENT
Lessor Commitment Percentage: 3.5%
Lessor Commitment: $1,575,000
Lender Commitment Percentages:
SunTrust Bank 32.1667%
Harris Trust and Savings Bank 32.1667%
LaSalle Bank National Association 32.1667%
Lender Commitments:
SunTrust Bank $14,475,000
Harris Trust and Savings Bank $14,475,000
LaSalle Bank National Association $14,475,000
SCHEDULE 8.2
ADDRESSES FOR NOTICES
ADESA or any Lessee: ADESA Corporation
310 E. 96th Street, Suite 400
Indianapolis, IN 46240
Attn: William T. Stackhause; copy to Karen C. Turner
Fax No.: 317/815-3656
Lessor: Atlantic Financial Group, Ltd.
2808 Fairmount, Suite 250
Dallas, Texas 75201
Attn: Stephen Brookshire
Fax No.: 214/871-9237
Lenders: SunTrust Bank
MC 1106
200 South Orange Avenue
Orlando, Florida 32801
Attn: Ed Wooten
Fax No.:407/237-4076
with a copy to:
SunTrust Capital Markets, Inc.
303 Peachtree Street, Suite 2400
MC 3951
Atlanta, Georgia 30308
Attn: Robert Kennedy
Fax No.: 404/230-1344
Harris Trust and Savings Bank
111 West Monroe
10th Floor West
Chicago, Illinois 60603
Attn: Thad Rasche
Fax No.: 312/461-5225
LaSalle Bank National Association
One American Square
Suite 1600
Indianapolis, Indiana 46282
Attn: Matthew Doye
Fax No.: 317/756-7021
Exhibit 10(h)
================================================================================
MASTER LEASE AGREEMENT
Dated as of July 30, 2001
between
ATLANTIC FINANCIAL GROUP, LTD., as Lessor,
and
ADESA CALIFORNIA, INC. AND CERTAIN OTHER SUBSIDIARIES
OF ADESA CORPORATION, as Lessees
-------------------------------------------
================================================================================
TABLE OF CONTENTS
(Lease Agreement)
Page
ARTICLE I. DEFINITIONS................................................ 1
ARTICLE II. LEASE OF LEASED PROPERTY................................... 1
2.1 Acceptance and Lease of Property........................... 1
2.2 Acceptance Procedure....................................... 2
ARTICLE III. RENT....................................................... 2
3.1 Basic Rent................................................. 2
3.2 Supplemental Rent.......................................... 2
3.3 Method of Payment.......................................... 3
3.4 Late Payment............................................... 3
3.5 Net Lease; No Setoff, Etc.................................. 3
3.6 Certain Taxes.............................................. 4
3.7 Utility Charges............................................ 5
ARTICLE IV. WAIVERS.................................................... 5
ARTICLE V. LIENS; EASEMENTS; PARTIAL CONVEYANCES...................... 6
ARTICLE VI. MAINTENANCE AND REPAIR; ALTERATIONS,
MODIFICATIONS AND ADDITIONS................................ 7
6.1 Maintenance and Repair; Compliance With Law................ 7
6.2 Alterations................................................ 8
6.3 Title to Alterations....................................... 8
ARTICLE VII. USE........................................................ 8
ARTICLE VIII. INSURANCE.................................................. 9
ARTICLE IX. ASSIGNMENT AND SUBLEASING................................. 11
ARTICLE X. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE................. 11
10.1 Event of Loss............................................. 11
10.2 Event of Taking........................................... 12
10.3 Casualty.................................................. 13
10.4 Condemnation.............................................. 13
10.5 Verification of Restoration and Rebuilding................ 13
10.6 Application of Payments................................... 13
10.7 Prosecution of Awards..................................... 14
10.8 Application of Certain Payments Not Relating to an Event
of Taking................................................. 15
10.9 Other Dispositions........................................ 15
10.10 No Rent Abatement......................................... 15
ARTICLE XI. INTEREST CONVEYED TO LESSEES.............................. 16
ARTICLE XII. EVENTS OF DEFAULT......................................... 16
ARTICLE XIII. ENFORCEMENT............................................... 19
13.1 Remedies.................................................. 19
13.2 Remedies Cumulative; No Waiver; Consents.................. 21
13.3 Purchase Upon an Event of Default......................... 21
13.4 Limitation on Liability................................... 22
ARTICLE XIV. SALE, RETURN OR PURCHASE OF LEASED PROPERTY; RENEWAL ..... 22
14.1 Lessee's Option to Purchase............................... 22
14.2 Conveyance to Lessee...................................... 23
14.3 Acceleration of Purchase Obligation....................... 23
14.4 Determination of Purchase Price........................... 23
14.5 Purchase Procedure........................................ 23
14.6 Option to Remarket........................................ 24
14.7 Rejection of Sale......................................... 27
14.8 Return of Leased Property................................. 27
14.9 Renewal................................................... 27
ARTICLE XV. LESSEE'S EQUIPMENT........................................ 28
ARTICLE XVI. RIGHT TO PERFORM FOR LESSEE............................... 28
ARTICLE XVII. MISCELLANEOUS............................................. 29
17.1 Reports................................................... 29
17.2 Binding Effect; Successors and Assigns; Survival.......... 29
17.3 Quiet Enjoyment........................................... 29
17.4 Documentary Conventions................................... 29
17.5 Liability of Lessor Limited............................... 29
17.6 Estoppel Certificates..................................... 30
17.7 No Joint Venture.......................................... 30
17.8 No Accord and Satisfaction................................ 30
17.9 No Merger................................................. 30
17.10 Survival.................................................. 31
17.11 Chattel Paper............................................. 31
17.12 Time of Essence........................................... 31
17.13 Recordation of Lease...................................... 31
(ii)
17.14 Investment of Security Funds.............................. 31
17.15 Ground Leases............................................. 32
17.16 Land and Building......................................... 32
17.17 Joint and Several......................................... 32
17.18 IDB Documentation......................................... 32
EXHIBIT A Lease Supplement
(iii)
THIS MASTER LEASE AGREEMENT (as from time to time amended or
supplemented, this "LEASE"), dated as of July 30, 2001, is among ATLANTIC
FINANCIAL GROUP, LTD., a Texas limited partnership (together with its successors
and assigns hereunder, the "LESSOR"), as Lessor, and ADESA CALIFORNIA, INC., a
California corporation, and certain other Subsidiaries of ADESA Corporation
hereafter parties hereto (individually, with its successors and permitted
assigns hereunder, each a "LESSEE" and collectively, the "LESSEES"), as Lessees.
PRELIMINARY STATEMENT
A. Lessor will purchase, or acquire a leasehold interest in, from one
or more third parties designated by the Construction Agent, on a Closing Date,
certain parcels of real property to be specified by the Construction Agent,
together with any improvements thereon.
B. Lessor desires to lease to each Lessee, and each Lessee desires to
lease from Lessor, certain of such properties as described on the Lease
Supplement(s) to which such Lessee is a party.
C. If applicable, the Construction Agent will, on behalf of Lessor,
cause to be constructed, certain improvements on such parcels of real property
which as constructed will be the property of Lessor and will become part of such
property subject to the terms of this Lease.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, Lessor
and Lessees hereby agree as follows:
ARTICLE I.
DEFINITIONS
Terms used herein and not otherwise defined shall have the meanings
assigned thereto in Appendix A to the Master Agreement, dated as of July 30,
2001 (as amended, supplemented or otherwise modified from time to time, the
"MASTER AGREEMENT") among ADESA, as a Guarantor, the Lessees, Lessor, the
financial institutions party thereto as Lenders and SunTrust Bank, as Agent, for
all purposes hereof.
ARTICLE II.
LEASE OF LEASED PROPERTY
Section 2.1 ACCEPTANCE AND LEASE OF PROPERTY. On each Closing Date
for Land, Lessor, subject to the satisfaction or waiver of the conditions set
forth in Section 3 of the Master Agreement, hereby agrees to accept delivery on
such Closing Date of such Land (through a Deed
1
or a Ground Lease, as applicable) pursuant to the terms of the Master Agreement,
together with any Building or Buildings and other improvements thereon, and
simultaneously to lease to the related Lessee hereunder for the Lease Term,
Lessor's interest in such Land and in such Building or Buildings and other
improvements, together with any Building which thereafter may be constructed
thereon pursuant to the Construction Agency Agreement, and such related Lessee
hereby agrees, expressly for the direct benefit of Lessor, commencing on such
Closing Date for the Lease Term, to lease from Lessor Lessor's interest in such
Land to be delivered on such Closing Date, together with, in the case of Land,
Lessor's interest in the Building or Buildings and other improvements thereon
and/or which thereafter may be constructed thereon pursuant to the Construction
Agency Agreement.
Section 2.2 ACCEPTANCE PROCEDURE. Lessor hereby authorizes one or
more employees of the related Lessee, to be designated by such Lessee, as the
authorized representative or representatives of Lessor to accept delivery on
behalf of Lessor of that Leased Property identified on the applicable Funding
Request. Each Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
such Lessee on each Closing Date for property to be leased hereunder of a Lease
Supplement in substantially the form of EXHIBIT A hereto (each, a "LEASE
SUPPLEMENT") (appropriately completed) shall, without further act, constitute
the irrevocable acceptance by such Lessee of that Leased Property which is the
subject thereof for all purposes of this Lease and the other Operative Documents
on the terms set forth therein and herein, and that such Leased Property,
together with, in the case of Land, any and all Buildings and other improvements
thereon and/or to be constructed thereon pursuant to the Construction Agency
Agreement, shall be deemed to be included in the leasehold estate of this Lease
and shall be subject to the terms and conditions of this Lease as of such
Closing Date. The demise and lease of each parcel of Land and each Building
pursuant to this SECTION 2.2 shall include any additional right, title or
interest in each such parcel of Land and each such Building which may at any
time be acquired by Lessor, the intent being that all right, title and interest
of Lessor in and to each such parcel of Land and each such Building shall at all
times be demised and leased to the related Lessee hereunder.
ARTICLE III.
RENT
Section 3.1 BASIC RENT. Beginning with and including the first
Payment Date occurring after the Initial Closing Date, each Lessee shall pay to
the Agent the Basic Rent for the Leased Properties subject to a Lease Supplement
to which such Lessee is a party, in installments, payable in arrears on each
Payment Date during the Lease Term, subject to Section 2.3(c) of the Master
Agreement.
Section 3.2 SUPPLEMENTAL RENT. Each Lessee shall pay to the Agent, or
to whomever shall be entitled thereto as expressly provided herein or in any
other Operative Document, any and all Supplemental Rent on the date the same
shall become due and payable and in the event of any failure on the part of such
Lessee to pay any Supplemental Rent, the Agent shall have all
2
rights, powers and remedies provided for herein or by law or in equity or
otherwise in the case of nonpayment of Basic Rent. All Supplemental Rent to be
paid pursuant to this SECTION 3.2 shall be payable in the type of funds and in
the manner set forth in SECTION 3.3.
Section 3.3 METHOD OF PAYMENT. Basic Rent shall be paid to the Agent,
and Supplemental Rent (including amounts due under ARTICLE XIV hereof) shall be
paid to the Agent (or to such Person as may be entitled thereto) or, in each
case, to such Person as the Agent (or such other Person) shall specify in
writing to the related Lessee, and at such place as the Agent (or such other
Person) shall specify in writing to the related Lessee. Each payment of Rent
(including payments under ARTICLE XIV hereof) shall be made by the Lessees prior
to 12:00 p.m. (noon) Atlanta, Georgia time at the place of payment in funds
consisting of lawful currency of the United States of America which shall be
immediately available on the scheduled date when such payment shall be due,
unless such scheduled date shall not be a Business Day, in which case such
payment shall be made on the next succeeding Business Day.
Section 3.4 LATE PAYMENT. If any Basic Rent shall not be paid on the
date when due, the related Lessee shall pay to the Agent, as Supplemental Rent,
interest (to the maximum extent permitted by law) on such overdue amount from
and including the due date thereof to but excluding the Business Day of payment
thereof at the Overdue Rate.
Section 3.5 NET LEASE; NO SETOFF, ETC. This Lease is a net lease and
notwithstanding any other provision of this Lease, each Lessee shall pay all
Basic Rent and Supplemental Rent, and all costs, charges, assessments and other
expenses foreseen or unforeseen, for which such Lessee or any Indemnitee is or
shall become liable by reason of such Lessee's or such Indemnitee's estate,
right, title or interest in the Leased Properties, or that are connected with or
arise out of the acquisition (except the initial costs of purchase by Lessor of
its interest in any Leased Property, which costs, subject to the terms of the
Master Agreement, shall be funded by the Funding Parties pursuant to the Master
Agreement), construction (except Construction Costs which costs, subject to the
terms of the Master Agreement, shall be funded under the Master Agreement),
installation, possession, use, occupancy, maintenance, ownership, leasing,
repairs and rebuilding of, or addition to, the Leased Properties or any portion
thereof, and any other amounts payable hereunder and under the other Operative
Documents without counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and each Lessee's
obligation to pay all such amounts throughout the Lease Term, including the
Construction Term, is absolute and unconditional. The obligations and
liabilities of each Lessee hereunder shall in no way be released, discharged or
otherwise affected for any reason, including without limitation: (a) any defect
in the condition, merchantability, design, quality or fitness for use of any
Leased Property or any part thereof, or the failure of any Leased Property to
comply with all Applicable Law, including any inability to occupy or use any
Leased Property by reason of such non-compliance; (b) any damage to, removal,
abandonment, salvage, loss, contamination of or Release from, scrapping or
destruction of or any requisition or taking of any Leased Property or any part
thereof; (c) any restriction, prevention or curtailment of or interference with
any use of any Leased Property or any part thereof including eviction; (d) any
3
defect in title to or rights to any Leased Property or any Lien on such title or
rights or on any Leased Property; (e) any change, waiver, extension, indulgence
or other action or omission or breach in respect of any obligation or liability
of or by Lessor, the Agent or any Lender; (f) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceedings relating to any Lessee, Lessor, any Lender, the Agent or any other
Person, or any action taken with respect to this Lease by any trustee or
receiver of any Lessee, Lessor, any Lender, the Agent, any Ground Lessor or any
other Person, or by any court, in any such proceeding; (g) any claim that any
Lessee has or might have against any Person, including without limitation,
Lessor, any vendor, manufacturer, contractor of or for any Leased Property or
any part thereof, the Agent, any Ground Lessor, any Governmental Authority, or
any Lender; (h) any failure on the part of Lessor to perform or comply with any
of the terms of this Lease, any other Operative Document, any applicable IDB
Documentation or of any other agreement; (i) any invalidity or unenforceability
or illegality or disaffirmance of this Lease against or by any Lessee or any
provision hereof or any of the other Operative Documents or any provision of any
thereof whether or not related to the Transaction; (j) the impossibility or
illegality of performance by any Lessee, Lessor or both; (k) any action by any
court, administrative agency or other Governmental Authority; (l) any
restriction, prevention or curtailment of or interference with the Construction
or any use of any Leased Property or any part thereof; or (m) any other
occurrence whatsoever, whether similar or dissimilar to the foregoing, whether
or not any Lessee shall have notice or knowledge of any of the foregoing. Except
as specifically set forth in ARTICLES XIV or X of this Lease, this Lease shall
be noncancellable by each Lessee in any circumstance whatsoever and each Lessee,
to the extent permitted by Applicable Law, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Lease, or
to any diminution, abatement or reduction of Rent payable by such Lessee
hereunder. Each payment of Rent made by a Lessee hereunder shall be final and
such Lessee shall not seek or have any right to recover all or any part of such
payment from Lessor, the Agent, any Lender or any party to any agreements
related thereto for any reason whatsoever. Each Lessee assumes the sole
responsibility for the condition, use, operation, maintenance, and management of
the Leased Properties leased by it and Lessor shall have no responsibility in
respect thereof and shall have no liability for damage to the property of either
any Lessee or any subtenant of any Lessee on any account or for any reason
whatsoever, other than solely by reason of Lessor's willful misconduct or gross
negligence (except for willful misconduct and gross negligence imputed to Lessor
solely as a result of its interest in any Leased Property).
Section 3.6 CERTAIN TAXES. Without limiting the generality of SECTION
3.5, each Lessee agrees to pay when due all real estate taxes, personal property
taxes, gross sales taxes, including any sales or lease tax imposed upon the
rental payments hereunder or under a sublease, occupational license taxes, water
charges, sewer charges, assessments of any nature and all other governmental
impositions and charges of every kind and nature whatsoever (the "TAX(ES)"),
when the same shall be due and payable without penalty or interest; PROVIDED,
HOWEVER, that this Section shall not apply to any of the taxes covered by the
exclusion described in Section 7.4(b) of the Master Agreement. It is the
intention of the parties hereto that, insofar as the same may lawfully be done,
Lessor shall be, except as specifically provided for herein, free from all
4
expenses in any way related to the Leased Properties and the use and occupancy
thereof. Any tax relating to a fiscal period of any taxing authority falling
partially within and partially outside the Lease Term, shall be apportioned and
adjusted between Lessor and the related Lessee. Each Lessee covenants to furnish
Lessor and the Agent, upon the Agent's written request, within forty-five (45)
days after the last date when any tax must be paid by such Lessee as provided in
this SECTION 3.6, official receipts of the appropriate taxing, authority or
other proof satisfactory to Lessor, evidencing the payment thereof.
So long as no Event of Default has occurred and is continuing, the
related Lessee may defer payment of a tax so long as the validity or the amount
thereof is contested by such Lessee with diligence and in good faith; PROVIDED,
HOWEVER, that such Lessee shall pay the tax in sufficient time to prevent
delivery of a tax deed. Such contest shall be at the related Lessee's sole cost
and expense. Each Lessee covenants to indemnify and save harmless Lessor, the
Agent and each Lender from any actual and reasonable costs or expenses incurred
by Lessor, the Agent or any Lender as a result of such contest, which
indemnification shall survive the termination of this Lease; PROVIDED that
neither the Agent nor any Lender shall be entitled to claim any indemnity
against any Lessee pursuant to this sentence with respect to any Construction
Land Interest during the Construction Term therefor.
Section 3.7 UTILITY CHARGES. Each Lessee agrees to pay or cause to be
paid as and when the same are due and payable all charges for gas, water, sewer,
electricity, lights, heat, power, telephone or other communication service and
all other utility services used, rendered or supplied to, upon or in connection
with the Leased Properties leased by it.
ARTICLE IV.
WAIVERS
During the Lease Term, Lessor's interest in the Leased Properties,
including the Equipment, the Building(s) (whether or not completed) and the
Land, is demised and let by Lessor "AS IS" subject to (a) the rights of any
parties in possession thereof, (b) the state of the title thereto existing at
the time Lessor acquired its interest in the Leased Properties, (c) any state of
facts which an accurate survey or physical inspection might show (including the
survey delivered on the related Closing Date), (d) all Applicable Law, and (e)
any violations of Applicable Law which may exist upon or subsequent to the
commencement of the Lease Term. EACH LESSEE ACKNOWLEDGES THAT, ALTHOUGH LESSOR
WILL OWN AND HOLD TITLE TO THE LEASED PROPERTIES, LESSOR IS NOT A MANUFACTURER
OF, OR DEALER IN ANY LEASED PROPERTY, AND IS NOT RESPONSIBLE FOR THE DESIGN,
DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE BUILDING(S) OR ANY ALTERATIONS.
NEITHER LESSOR, THE AGENT NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO
HAVE ANY LIABILITY WHATSOEVER AS TO THE VALUE, MERCHANTABILITY, TITLE,
HABITABILITY,
5
CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE LEASED PROPERTIES (OR
ANY PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS
OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTIES (OR ANY PART THEREOF), ALL
SUCH WARRANTIES BEING HEREBY DISCLAIMED, AND NEITHER LESSOR, THE AGENT NOR ANY
LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE
FAILURE OF ANY LEASED PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY
APPLICABLE LAW, except that Lessor hereby represents and warrants that each
Leased Property is and shall be free of Lessor Liens. As between Lessor and the
Lessees, each related Lessee has been afforded full opportunity to inspect each
Leased Property, is satisfied with the results of its inspections of such Leased
Property and is entering into this Lease solely on the basis of the results of
its own inspections and all risks incident to the matters discussed in the two
preceding sentences, as between Lessor, the Agent or the Lenders on the one
hand, and the Lessees, on the other, are to be borne by the Lessees, except for
the foregoing representation and warranty of Lessor relative to the absence of
Lessor Liens. The provisions of this ARTICLE IV have been negotiated, and,
except to the extent otherwise expressly stated, the foregoing provisions are
intended to be a complete exclusion and negation of any representations or
warranties by Lessor, the Agent or the Lenders, express or implied, with respect
to the Leased Properties, that may arise pursuant to any law now or hereafter in
effect, or otherwise.
ARTICLE V.
LIENS; EASEMENTS; PARTIAL CONVEYANCES
No Lessee shall directly or indirectly create, incur or assume, and
each Lessee shall promptly discharge, any Lien on or with respect to any Leased
Property, the title thereto, or any interest therein, including any Liens which
arise out of the possession, use, occupancy, construction, repair or rebuilding
of any Leased Property or by reason of labor or materials furnished or claimed
to have been furnished to a Lessee, or any of its contractors or agents or
Alterations constructed by a Lessee, except, in all cases, Permitted Liens.
Notwithstanding the foregoing paragraph, at the request of a Lessee,
Lessor shall, from time to time during the Lease Term and upon reasonable
advance written notice from such Lessee, and receipt of the materials specified
in the next succeeding sentence, consent to and join in any (i) grant of
easements, licenses, rights of way and other rights in the nature of easements,
including, without limitation, utility easements to facilitate Lessees' use,
development and construction of the Leased Properties, (ii) release or
termination of easements, licenses, rights of way or other rights in the nature
of easements which are for the benefit of the Land or the Building(s) or any
portion thereof, (iii) dedication or transfer of portions of the Land, not
improved with a Building, for road, highway or other public purposes, (iv)
execution of agreements for ingress and egress and amendments to any covenants
and restrictions affecting the Land or the Building(s) or any portion thereof
and (v) request to any Governmental Authority for platting or subdivision or
replatting or resubdivision approval with respect to the
6
Land or any portion thereof or any parcel of land of which the Land or any
portion thereof forms a part or a request for rezoning or any variance from
zoning or other governmental requirements. Lessor's obligations pursuant to the
preceding sentence shall be subject to the requirements that:
(a) any such action shall be at the sole cost and expense of
the requesting Lessee and such Lessee shall pay all actual and reasonable
out-of-pocket costs of Lessor, the Agent and any Lender in connection therewith
(including, without limitation, the reasonable fees of attorneys, architects,
engineers, planners, appraisers and other professionals reasonably retained by
Lessor, the Agent or any Lender in connection with any such action),
(b) the requesting Lessee shall have delivered to Lessor and
Agent a certificate of a Responsible Officer of such Lessee stating that
(i) such action will not cause any Leased Property,
the Land or any Building or any portion thereof to fail to comply in
any material respect with the provisions of this Lease or any other
Operative Documents or any applicable IDB Documentation, or in any
material respect with Applicable Law; and
(ii) such action will not materially reduce the Fair
Market Sales Value, utility or useful life of any Leased Property, the
Land or any Building nor Lessor's interest therein; and
(c) in the case of any release or conveyance, if Lessor, the
Agent or any Lender so reasonably requests, the requesting Lessee will cause to
be issued and delivered to Lessor and the Agent by the Title Insurance Company
an endorsement to the Title Policy pursuant to which the Title Insurance Company
agrees that its liability for the payment of any loss or damage under the terms
and provisions of the Title Policy will not be affected by reason of the fact
that a portion of the real property referred to in Schedule A of the Title
Policy has been released or conveyed by Lessor.
ARTICLE VI.
MAINTENANCE AND REPAIR;
ALTERATIONS, MODIFICATIONS AND ADDITIONS
Section 6.1 MAINTENANCE AND REPAIR; COMPLIANCE WITH LAW. Each Lessee,
at its own expense, shall at all times after the Completion Date for the related
Leased Property (a) maintain each Leased Property leased by it in good repair
and condition (subject to ordinary wear and tear), in accordance with prudent
industry standards and, in any event, in no less a manner as other similar
property owned or leased by such Lessee or its Affiliates, (b) make all
Alterations in accordance with, and maintain (whether or not such maintenance
requires structural modifications or Alterations) and operate and otherwise keep
each Leased Property in compliance in all material respects with, all Applicable
Laws and insurance requirements, and
7
(c) make all material repairs, replacements and renewals of each Leased Property
or any part thereof which may be required to keep such Leased Property in the
condition required by the preceding CLAUSES (a) and (b). Each Lessee shall
perform the foregoing maintenance obligations regardless of whether any Leased
Property is occupied or unoccupied. Each Lessee waives any right that it may now
have or hereafter acquire to (i) require Lessor, the Agent or any Lender to
maintain, repair, replace, alter, remove or rebuild all or any part of any
Leased Property or (ii) make repairs at the expense of Lessor, the Agent or any
Lender pursuant to any Applicable Law or other agreements or otherwise. NEITHER
LESSOR, THE AGENT NOR ANY LENDER SHALL BE PERSONALLY LIABLE TO ANY LESSEE OR TO
ANY CONTRACTORS, SUBCONTRACTORS, LABORERS, MATERIALMEN, SUPPLIERS OR VENDORS FOR
SERVICES PERFORMED OR MATERIAL PROVIDED ON OR IN CONNECTION WITH ANY LEASED
PROPERTY OR ANY PART THEREOF. Neither Lessor, the Agent nor any Lender shall be
required to maintain, alter, repair, rebuild or replace any Leased Property in
any way.
Section 6.2 ALTERATIONS. Each Lessee may, with the prior written
consent of Lessor, which consent shall not be unreasonably withheld (unless the
reasonably anticipated cost of such Alteration is less than $1,000,000, in which
case no such consent shall be required), at such Lessee's own cost and expense,
make Alterations which do not materially adversely affect the Fair Market Sales
Value, utility, remaining useful life or residual value of the related Leased
Property and do not materially violate or conflict with, or constitute or result
in a material default under, any Applicable Law or any insurance policy required
hereunder.
Section 6.3 TITLE TO ALTERATIONS. Title to all Alterations shall
without further act vest in Lessor (subject to each Lessee's right to remove
trade fixtures, personal property and equipment which do not constitute
Alterations and which were not acquired with funds advanced by Lessor or any
Lender) and shall be deemed to constitute a part of the Leased Properties and be
subject to this Lease.
ARTICLE VII.
USE
Each Lessee may use each Leased Property leased by it or any part
thereof for any lawful purpose, and in a manner consistent with the standards
applicable to properties of a similar nature in the geographic area in which
such Leased Property is located, PROVIDED that such use does not materially
adversely affect the Fair Market Sales Value, utility, remaining useful life or
residual value of such Leased Property, and does not materially violate or
conflict with, or constitute or result in a material default under, any
Applicable Law or any insurance policy required hereunder. In the event that any
use of any of the Leased Property changes the character or original intended use
of such Leased Property, as such character and intended use existed on the
Closing Date therefor, or Completion Date therefor and the Lessees do not
purchase the Leased Properties at the end of the Lease Term, the related Lessee,
upon request of
8
Lessor, shall restore such Leased Property to its general character and intended
use on the Closing Date or Completion Date therefor, ordinary wear and tear
excepted. No Lessee shall commit or permit any waste of any Leased Property or
any material part thereof.
ARTICLE VIII.
INSURANCE
The provisions of this ARTICLE VIII shall not apply to any Construction
Land Interest during the Construction Term therefor; during the Construction
Term for any Leased Property, the Construction Agent shall maintain insurance in
accordance with Section 2.9 of the Construction Agency Agreement.
(a) At any time during which any part of any Building or any
Alteration is under construction, which construction is reasonably anticipated
to cost more than $1,000,000, and as to any part of any Building or any
Alteration under construction, the related Lessee shall maintain, or cause to be
maintained, at its sole cost and expense, as a part of its blanket policies or
otherwise, "all risks" non-reporting completed value form of builder's risk
insurance.
(b) During the Lease Term and with respect to each Leased
Property leased by it, each related Lessee shall maintain, or cause to be
maintained, at its sole cost and expense, as a part of its blanket policies or
otherwise, insurance against loss or damage to any Building by fire and other
risks, including comprehensive boiler and machinery coverage, on terms and in
amounts no less favorable than insurance covering other similar properties owned
or leased by such Lessee or its Affiliates and which is of the type usually
carried by corporations engaged in the same or similar business, similarly
situated with the related Lessee, and owning or operating similar property, and
which cover risks of all kind customarily insured against by such corporations,
but in no event less than the replacement cost of such Building from time to
time. If at any time during the Lease Term with respect to a Leased Property
subject hereto the area in which such Leased Property is located is designated a
"100 year flood-prone" area pursuant to the Flood Disaster Protection Act of
1973, or any amendments or supplements thereto, then the related Lessee shall
comply with the National Flood Insurance Program as set forth in the Flood
Disaster Protection Act of 1973. In addition, the related Lessee will fully
comply with the requirements of the National Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of 1973, as each may be amended from time to time,
and with any other Applicable Law, concerning flood insurance to the extent that
it may apply to any such Leased Property.
(c) During the Lease Term and with respect to each Leased
Property leased by it, each related Lessee shall maintain, or cause to be
maintained, at its sole cost and expense, commercial general liability insurance
which is of the type usually carried by corporations engaged in the same or
similar business, similarly situated with the related Lessee, and owning or
operating similar property, and which cover risks of all kind customarily
insured against by such corporations. Such insurance shall be on terms and in
amounts that are no less favorable
9
than insurance maintained by such Lessee or its Affiliates with respect to
similar properties that it owns or leases, but in no event less than $1,000,000
per occurrence, with an umbrella policy with at least $10,000,000 per occurrence
coverage. Nothing in this ARTICLE VIII shall prohibit any Additional Insured
from carrying at its own expense other insurance on or with respect to the
Leased Properties, PROVIDED that any insurance carried by such Additional
Insured shall not prevent any Lessee from carrying the insurance required
hereby.
(d) Each policy of insurance required to be maintained by a
Lessee pursuant to PARAGRAPHS (a) and (b) of this ARTICLE VIII shall provide
that all insurance proceeds in respect of any loss or occurrence shall be
adjusted by such Lessee, except (a) that with respect to any loss, the estimated
cost of restoration of which is in excess of the greater of $5,000,000 and 50%
of the Funded Amounts with respect to the related Leased Property, the
adjustment thereof shall be subject to the prior written approval of Lessor,
which approval shall not be unreasonably withheld, delayed or conditioned, and
the insurance proceeds therefor shall be paid to the Agent for application in
accordance with this Lease, and (b) if, and for so long as, an Event of Default
exists, all losses shall be adjusted solely by, and all insurance proceeds shall
be paid solely to, the Agent for application pursuant to this Lease.
(e) On the Initial Closing Date and on each anniversary of the
Initial Closing Date, each Lessee shall furnish Lessor, or cause to be furnished
to Lessor, with certificates, which may be blanket certificates covering all of
the Leased Properties leased by it and other properties owned by such Lessee or
its Affiliates, showing the insurance required under this ARTICLE VIII to be in
effect and naming the Additional Insureds, as additional insureds (with respect
to the insurance described in PARAGRAPH (c)) or, in the case of the Agent with
respect to the circumstances described in PARAGRAPH (d), loss payee, as
applicable.
(f) Each policy of insurance maintained by, or on behalf of, a
Lessee pursuant to this ARTICLE VIII shall (i) provide that such insurance shall
be primary, without right of contribution from any other insurance that is
covered by any Additional Insured, (ii) provide that all of the provisions
thereof, except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each Additional Insured, (iii) provide
that the related insurer waives any right of set-off or counterclaim against
each Additional Insured, (iv) provide that no Additional Insured shall have any
obligation or liability for premiums, commissions, assessments or calls in
connection with such insurance, (v) contain the waiver of any right of
subrogation of the insurer against each Additional Insured, (vi) provide that in
respect of the interests of each Additional Insured, such policies shall not be
invalidated by any fraud, action, inaction or misrepresentation of any Lessee or
any other Person (other than, with respect to such Person, the acts of such
Person) and shall insure each Additional Insured regardless of any breach of any
terms, conditions or warranty contained in such policy by any Lessee or any
other Person (other than, with respect to such Person, breaches or violations by
such Person) and (vii) provide that if the related insurer cancels such
insurance for any reason whatsoever, or such insurance is allowed to lapse for
nonpayment of premium or the scope of coverage thereof is changed in any
material way, such cancellation, shall not be effective as to any Additional
10
Insured until thirty (30) days after written notice is given by such insurer to
such Additional Insured or such lapse shall not be effective as to any
Additional Insured until ten (10) days after written notice is given by such
insurer to such Additional Insured.
(g) All insurance policies carried in accordance with this
ARTICLE VIII shall be maintained with insurers of recognized responsibility
rated at least A by A.M. Best & Company, and in all cases the insurer shall be
qualified to insure risks in the State where each Leased Property is located.
ARTICLE IX.
ASSIGNMENT AND SUBLEASING
No Lessee may assign any of its right, title or interest in, to or
under this Lease, except as set forth in the following sentence. Each Lessee may
sublease all or any portion of any Leased Property, PROVIDED that with respect
to a sublease (a) all obligations of such Lessee shall continue in full effect
as obligations of a principal and not of a guarantor or surety, as though no
sublease had been made; (b) such sublease shall be expressly subject and
subordinate to this Lease, the Loan Agreement and the other Operative Documents;
and (c) each such sublease shall terminate on or before the Lease Termination
Date. Each Lessee shall give the Agent and Lessor prompt written notice of any
such sublease.
Except pursuant to an Operative Document, this Lease shall not be
mortgaged or pledged by any Lessee, nor shall any Lessee mortgage or pledge any
interest in any Leased Property or any portion thereof. Any such mortgage or
pledge shall be void.
ARTICLE X.
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
Section 10.1 EVENT OF LOSS. Any event (i) which would otherwise
constitute a Casualty during the Base Term, and (ii) which, in the good-faith
judgment of the related Lessee, (A) renders repair and restoration of a Leased
Property impossible or impractical, or requires repairs to the related Leased
Property that, with the exercise of reasonable diligence, are impossible to
complete by the Lease Termination Date or (B) requires repairs to a Leased
Property that would cost in excess of 50% of the original cost of such Leased
Property, and as to which such Lessee has determined not to rebuild, shall
constitute an "EVENT OF LOSS". Within sixty (60) days after the occurrence of
such event, the related Lessee shall deliver to Lessor an Officer's Certificate
notifying Lessor of such event and, in the case of an event described in the
foregoing CLAUSE (ii), of such Lessee's determination not to rebuild. In the
case of any other event which constitutes a Casualty, the related Lessee shall
restore such Leased Property pursuant to SECTION 10.3. If an Event of Loss shall
occur, the related Lessee shall pay to Lessor on the earlier of (i) the Lease
Termination Date and (ii) the next Payment Date occurring not less than thirty
(30) days after the delivery of the Officer's Certificate pursuant to this
SECTION 10.1 above an amount equal to the
11
related Leased Property Balance. Upon Lessor's receipt of such Leased Property
Balance on such date, Lessor shall cause Lessor's interest in such Leased
Property to be conveyed to the related Lessee in accordance with and subject to
the provisions of SECTION 14.5 hereof; upon completion of such purchase, but not
prior thereto, this Lease with respect to such Leased Property and all
obligations hereunder with respect to such Leased Property shall terminate,
except with respect to obligations and liabilities hereunder, actual or
contingent, that have arisen or relate to events occurring on or prior to such
date of purchase, or which are expressly stated herein to survive termination of
this Lease.
Upon the consummation of the purchase of any Leased Property pursuant
to this SECTION 10.1, any proceeds derived from insurance required to be
maintained by the related Lessee pursuant to this Lease for any Leased Property
remaining after payment of such purchase price shall be paid over to, or
retained by, such Lessee or as it may direct, and Lessor shall assign to such
Lessee, without warranty, all of Lessor's rights to and interest in such
insurance required to be maintained by such Lessee pursuant to this Lease.
Section 10.2 EVENT OF TAKING. Any event (i) which constitutes a
Condemnation of all of, or substantially all of, a Leased Property, or (ii) (A)
which would otherwise constitute a Condemnation and (B) which, in the good-faith
judgment of the related Lessee, (1) renders restoration and rebuilding of a
Leased Property impossible or impractical, or requires restoration to the
related Leased Property that, with the exercise of reasonable diligence, is
impossible to complete by the Lease Termination Date or (2) requires repairs to
a Leased Property that would cost in excess of 50% of the original cost of such
Leased Property, and as to which such Lessee has determined not to rebuild shall
constitute an "EVENT OF TAKING". Within sixty (60) days after the occurrence of
such event, the related Lessee shall deliver to Lessor an Officer's Certificate
notifying Lessor of such event and, in the case of an event described in the
foregoing CLAUSE (ii), of such Lessee's determination not to rebuild. In the
case of any other event which constitutes a Condemnation, the related Lessee
shall restore and rebuild such Leased Property pursuant to SECTION 10.4. If an
Event of Taking shall occur, the related Lessee shall pay to Lessor (1) on the
earlier of (A) the Lease Termination Date and (B) the next Payment Date
occurring not less than thirty (30) days after the occurrence of such Event of
Taking, in the case of an Event of Taking described in CLAUSE (i) above, or (2)
on the earlier of (A) the Lease Termination Date and (B) the next Payment Date
occurring not less than thirty (30) days after the delivery of the Officer's
Certificate pursuant to CLAUSE (ii) above, in the case of an Event of Taking
described in CLAUSE (ii) above, an amount equal to the related Leased Property
Balance. Upon Lessor's receipt of such Leased Property Balance on such date,
Lessor shall cause Lessor's interest in such Leased Property, and in all
condemnation proceeds related thereto, to be conveyed to the related Lessee in
accordance with and subject to the provisions of SECTION 14.5 hereof (provided
that such conveyance shall be subject to all rights of the condemning
authority); upon completion of such purchase, but not prior thereto, this Lease
with respect to such Leased Property and all obligations hereunder with respect
to such Leased Property shall terminate, except with respect to obligations and
liabilities hereunder, actual or contingent, that have arisen or relate to
events
12
occurring on or prior to such date of purchase, or which are expressly stated
herein to survive termination of this Lease.
Upon the consummation of the purchase of such Leased Property pursuant
to this SECTION 10.2, all Awards received by Lessor, after deducting any
reasonable out-of-pocket costs incurred by Lessor in collecting such Awards,
received or payable on account of an Event of Taking with respect to such Leased
Property during the related Lease Term shall be promptly paid to the related
Lessee, and all rights of Lessor in Awards not then received shall be assigned
to Lessee by Lessor.
Section 10.3 CASUALTY. If a Casualty shall occur which is not an Event
of Loss, the related Lessee shall rebuild and restore the affected Leased
Property, will complete the same prior to the Lease Termination Date, and will
cause the condition set forth in Section 3.5 (c) of the Master Agreement to be
fulfilled with respect to such restoration and rebuilding prior to the Lease
Termination Date, regardless of whether insurance proceeds received as a result
of such Casualty are sufficient for such purpose.
Section 10.4 CONDEMNATION. If a Condemnation shall occur which is not
an Event of Taking, the related Lessee shall rebuild and restore the affected
Leased Property, will complete the same prior to the Lease Termination Date, and
will cause the condition set forth in Section 3.5 (c) of the Master Agreement to
be fulfilled with respect to such restoration and rebuilding prior to the Lease
Termination Date.
Section 10.5 VERIFICATION OF RESTORATION AND REBUILDING. In the event
of Casualty or Condemnation that involves, or is reasonably expected to involve,
repair or rebuilding costs in excess of $1,000,000, to verify the related
Lessee's compliance with the foregoing SECTION 10.3 or 10.4, as appropriate,
Lessor, the Agent, the Lenders and their respective authorized representatives
may, upon five (5) Business Days' notice to such Lessee, make a reasonable
number of inspections of the affected Leased Property with respect to (i) the
extent of the Casualty or Condemnation and (ii) the restoration and rebuilding
of the related Building and the Land. All actual and reasonable out-of-pocket
costs of such inspections incurred by Lessor, the Agent or any Lender will be
paid by the related Lessee promptly after written request. No such inspection
shall unreasonably interfere with the related Lessee's operations or the
operations of any other occupant of such Leased Property. None of the inspecting
parties shall have any duty to make any such inspection or inquiry and none of
the inspecting parties shall incur any liability or obligation by reason of
making or not making any such inspection or inquiry.
Section 10.6 APPLICATION OF PAYMENTS. All proceeds (except for
payments under insurance policies maintained other than pursuant to ARTICLE VIII
of this Lease) received at any time by Lessor, any Lessee or the Agent from any
insurer, Governmental Authority or other Person with respect to any Condemnation
or Casualty to any Leased Property or any part thereof or with respect to an
Event of Loss or an Event of Taking, PLUS the amount of any payment that
13
would have been due from an insurer but for a Lessee's self-insurance or
deductibles ("LOSS PROCEEDS"), shall (except to the extent SECTION 10.9 applies)
be applied as follows:
(a) In the event the related Lessee purchases such Leased
Property pursuant to SECTION 10.1 or SECTION 10.2, such Loss Proceeds
shall be applied as set forth in SECTION 10.1 or SECTION 10.2, as the
case may be;
(b) In the event of a Casualty at such time when no Event of
Default has occurred and is continuing and the related Lessee is
obligated to repair and rebuild such Leased Property pursuant to
SECTION 10.3, such Lessee may, in good faith and subsequent to the date
of such Casualty, certify to Lessor and to the applicable insurer that
no Event of Default has occurred and is continuing, in which event the
applicable insurer shall pay the Loss Proceeds to such Lessee, unless
the estimated cost of restoration exceeds the greater of $5,000,000 or
50% of the original cost of such Leased Property, in which case such
Loss Proceeds shall be paid to the Agent and shall be promptly released
to the related Lessee upon certification by such Lessee to the Agent
that such Lessee has incurred costs in the amount requested to be
released for repair and rebuilding of such Leased Property;
(c) In the event of a Condemnation at such time when no Event
of Default has occurred and is continuing and the related Lessee is
obligated to repair and rebuild such Leased Property pursuant to
SECTION 10.4, such Lessee may, in good faith and subsequent to the date
of such Condemnation, certify to Lessor and the Agent that no Event of
Default has occurred and is continuing, in which event the applicable
Award shall be paid over to such Lessee, unless the estimated cost of
restoration exceeds the greater of $5,000,000 or 50% of the original
cost of such Leased Property, in which case such Loss Proceeds shall be
paid to the Agent and shall be promptly released to the related Lessee
upon certification by such Lessee to the Agent that such Lessee has
incurred costs in the amount requested to be released for repair and
rebuilding of such Leased Property; and
(d) As provided in SECTION 10.8, if such section is
applicable.
During any period of repair or rebuilding pursuant to this ARTICLE X,
this Lease will remain in full force and effect and Basic Rent shall continue to
accrue and be payable without abatement or reduction. Each Lessee shall maintain
records setting forth information relating to the receipt and application of
payments in accordance with this SECTION 10.6. Such records shall be kept on
file by each Lessee at its offices and shall be made available to Lessor, the
Lenders and the Agent upon request.
Section 10.7 PROSECUTION OF AWARDS. (a) If any Condemnation shall
occur, the party receiving the notice of such Condemnation shall give to the
other party and the Agent promptly, but in any event within thirty (30) days
after the occurrence thereof, written notice of such occurrence and the date
thereof, generally describing the nature and extent of such
14
Condemnation. With respect to any Event of Taking or any Condemnation, the
related Lessee shall control the negotiations with the relevant Governmental
Authority as to any proceeding in respect of which Awards are required, under
SECTION 10.6, to be assigned or released to such Lessee, unless an Event of
Default shall have occurred and be continuing, in which case (i) the Agent (or
Lessor if the Loans have been fully paid) shall control such negotiations; and
(ii) such Lessee hereby irrevocably assigns, transfers and sets over to Lessor
all rights of such Lessee to any Award on account of any Event of Taking or any
Condemnation and, if there will not be separate Awards to Lessor and such Lessee
on account of such Event of Taking or Condemnation, irrevocably authorizes and
empowers the Agent (or Lessor if the Loans have been fully paid) during the
continuance of an Event of Default, with full power of substitution, in the name
of such Lessee or otherwise (but without limiting the obligations of such Lessee
under this ARTICLE X), to file and prosecute what would otherwise be such
Lessee's claim for any such Award and to collect, receipt for and retain the
same. In any event Lessor and the Agent may participate in such negotiations,
and no settlement will be made without the prior consent of the Agent (or Lessor
if the Loans have been fully paid), not to be unreasonably withheld.
(b) Notwithstanding the foregoing, each Lessee may prosecute, and
Lessor shall have no interest in, any claim with respect to such Lessee's
personal property and equipment not financed by or otherwise property of Lessor,
business interruption or similar award and such Lessee's relocation expenses.
Section 10.8 APPLICATION OF CERTAIN PAYMENTS NOT RELATING TO AN EVENT
OF TAKING. In case of a requisition for temporary use of all or a portion of any
Leased Property which is not an Event of Taking, this Lease shall remain in full
force and effect with respect to such Leased Property, without any abatement or
reduction of Basic Rent, and the Awards for such Leased Property shall, unless
an Event of Default has occurred and is continuing, be paid to the related
Lessee.
Section 10.9 OTHER DISPOSITIONS. Notwithstanding the foregoing
provisions of this ARTICLE X, so long as an Event of Default shall have occurred
and be continuing, any amount that would otherwise be payable to or for the
account of, or that would otherwise be retained by, Lessee pursuant to this
ARTICLE X shall be paid to the Agent (or Lessor if the Loans have been fully
paid) as security for the obligations of the Lessees under this Lease and, at
such time thereafter as no Event of Default shall be continuing, such amount
shall be paid promptly to the related Lessee to the extent not previously
applied by Lessor or the Agent in accordance with the terms of this Lease or the
other Operative Documents.
Section 10.10 NO RENT ABATEMENT. Rent shall not abate hereunder by
reason of any Casualty, any Event of Loss, any Event of Taking or any
Condemnation of any Leased Property, and each Lessee shall continue to perform
and fulfill all of such Lessee's obligations, covenants and agreements hereunder
notwithstanding such Casualty, Event of Loss, Event of Taking or Condemnation
until the Lease Termination Date.
15
ARTICLE XI.
INTEREST CONVEYED TO LESSEES
Notwithstanding anything contained in this Lease to the contrary, in
the event there is a conflict between other provisions of this Lease and this
ARTICLE XI, this ARTICLE XI shall control. Each Lessee and Lessor intend that
this Lease be treated, for accounting purposes, as an operating lease. For
purposes of federal and state income taxes, and commercial and bankruptcy law,
each Lessee and Lessor intend that the transaction represented by this Lease be
treated as a financing transaction; for such purposes, it is the intention of
the parties hereto (i) that this Lease be treated as a mortgage or deed of trust
(whichever is applicable in the jurisdictions in which the Leased Properties are
located) and security agreement, encumbering the Leased Properties, and that
each Lessee, as grantor, hereby grants to Lessor, as mortgagee or beneficiary
and secured party, or any successor thereto, a first and paramount Lien on each
Leased Property in which such Lessee has an interest, (ii) that Lessor shall
have, as a result of such determination, all of the rights, powers and remedies
of a mortgagee, deed of trust beneficiary or secured party available under
Applicable Law to take possession of and sell (whether by foreclosure or
otherwise) any Leased Property, (iii) that the effective date of such mortgage,
security deed or deed of trust shall be the effective date of this Lease, or the
related Lease Supplement, if later, (iv) that the recording of this Lease or a
Lease Supplement shall be deemed to be the recording of such mortgage, security
deed or deed of trust, (v) that the obligations secured by such mortgage,
security deed or deed of trust shall include the Funded Amounts and all Basic
Rent and Supplemental Rent hereunder and all other obligations of and amounts
due from each Lessee hereunder and under the Operative Documents and (vi) that
the related Lessee will be treated as the owner of the Leased Properties leased
by such Lessee for tax purposes, and that Lessor and the related Lessee shall
each report the transactions contemplated by this Lease consistent with such
treatment and shall take no position contrary thereto, unless otherwise required
by a determination pursuant to Section 1313 of the Code or similar provision of
state or local law.
ARTICLE XII.
EVENTS OF DEFAULT
The following events shall constitute Events of Default (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) any Lessee shall fail to make any payment of Basic Rent within five
(5) days after the date that such Basic Rent is due;
(b) any Lessee shall fail to make any payment of Rent (other than Basic
Rent and other than as set forth in CLAUSE (c)) or any other amount payable
hereunder or under any of the other Operative Documents (other than Basic Rent
and other than as set forth in CLAUSE (c)), and
16
such failure shall continue for a period of ten days after written notice
thereof from Lessor or the Agent to ADESA;
(c) any Lessee shall fail to pay the Funded Amount or Lease Balance
when due pursuant to SECTION 10.1, 10.2, 14.1 or 14.2, or any Lessee shall fail
to pay the Recourse Deficiency Amount when required pursuant to ARTICLE XIV or
the Construction Agent shall fail to make any payment when due under the
Construction Agency Agreement;
(d) any Lessee shall fail to maintain insurance as required by ARTICLE
VIII hereof, and such failure shall continue until the earlier of (i) fifteen
(15) days after written notice thereof from Lessor and (ii) the day immediately
preceding the date on which any applicable insurance coverage would otherwise
finally lapse or terminate;
(e) there shall occur any default or event of default with respect to,
or any event that might become such with notice or the passage of time or both,
or any similar event with respect to, or any event that requires the prepayment
(other than mandatory prepayment at a time when no event of default exists with
respect to such Indebtedness unless such mandatory prepayment results from a
change in control) of, Indebtedness of ADESA or any Subsidiary in the aggregate
amount of $10,000,000 or more, or of the Parent in the aggregate amount of
$20,000,000 or more, or the acceleration of the maturity thereof under the terms
of any evidence of Indebtedness or other agreement issued or assumed or entered
into by the Parent, ADESA or any Subsidiary, or under the terms of any
indenture, agreement or other instrument under which any such Indebtedness in
the aggregate amount of $10,000,000 or more (in the case of ADESA or any
Subsidiary) or $20,000,000 or more (in the case of the Parent) is evidenced,
issued, assumed, secured, or guaranteed, and such default, event of default or
event shall continue beyond any applicable period of grace;
(f) (i) if the entry of a decree or order by a court or agency or
supervisory authority of competent jurisdiction for the appointment of a
conservator, receiver, liquidator or trustee for the Parent, ADESA or any Lessee
in any bankruptcy, receivership, conservatorship, insolvency or similar
proceedings, or for the winding up or liquidation of its affairs, and any such
decree or order continues unstayed and in effect for a period of 90 consecutive
days, or (ii) the consent by the Parent, ADESA or any Lessee to the appointment
of a conservator, receiver, liquidator or trustee for the Parent, ADESA or any
Lessee in any bankruptcy, receivership, conservatorship, insolvency or similar
proceedings of or relating to the Parent, ADESA or any Lessee or relating to
substantially all its property, the admission in writing by the Parent, ADESA or
any Lessee of its inability to pay its debts generally as they become due, the
filing by the Parent, ADESA or any Lessee of a petition to take advantage of any
applicable bankruptcy, receivership, conservatorship, insolvency or similar
statue, the making by the Parent, ADESA or any Lessee of an assignment for the
benefit of its creditors or the voluntary suspension by the Parent, ADESA or any
Lessee of payment of its obligations.
17
(g) an event or condition shall occur or exist with respect to any Plan
or Multiemployer Plan if as a result of such event or condition, together with
all other such events or conditions, the Parent, ADESA or any ERISA Affiliate
shall incur or in the opinion of the Required Lenders shall be reasonably likely
to incur a liability to a Plan, a Multiemployer Plan or the PBGC (or any
combination of the foregoing) which could, in the determination of the Required
Lenders, have a Material Adverse Effect.
(h) (i) one or more non-interlocutory judgments, non-interlocutory
orders, decrees of arbitration awards is entered against the Parent, ADESA or
any Subsidiary involving in the aggregate a liability (to the extent not covered
by independent third-party insurance as to which the insurer does not dispute
coverage) as to any single or related series of transactions, incidents or
conditions, of $5,000,000 or more (in the case of ADESA and its Subsidiaries on
a consolidated basis) or $20,000,000 or more (in the case of the Parent) and the
same shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of 60 days after the entry thereof; or
(ii) any non-monetary judgment, order or decree is entered against
the Parent, ADESA or any Subsidiary which does or would reasonably be expected
to have a material and adverse effect on the business, assets, liabilities,
financial condition, continued operations or business prospects of the Parent,
ADESA or any Subsidiary, and there shall be a period of 20 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
(i) if any of the Operative Documents shall be cancelled, terminated,
revoked or rescinded or any action at law, suit or in equity or other legal
proceeding to cancel, revoke or rescind any of the Operative Documents shall be
commenced by or on behalf of any Obligor, or any court or any other governmental
or regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the effect
that, any one or more of the Operative Documents is illegal, invalid or
unenforceable in accordance with the terms thereof in any material respect;
(j) any representation or warranty by ADESA or any Lessee in any
Operative Document or in any certificate or document delivered to Lessor, the
Agent or any Funding Party pursuant to any Operative Document shall have been
incorrect in any material respect when made; or
(k) any Lessee or ADESA shall fail in any material respect to timely,
perform or observe any covenant or agreement (not included in CLAUSE (a) through
(j) of this ARTICLE XII) to be performed or observed by it hereunder or under
any other Operative Document and such failure shall continue for a period of
thirty (30) days (or 10 Business Days in the case of financial covenants) after
such Lessee's or ADESA's receipt of written notice thereof from Lessor, the
Agent or any Funding Party or such Lessee or ADESA shall have knowledge of such
failure; PROVIDED, HOWEVER, that if such failure is capable of cure, but is not
capable of cure
18
within such thirty day period, so long as such Lessee or ADESA
shall be diligently pursuing such cure, such failure shall not constitute an
Event of Default unless it shall continue for a period of ninety (90) days after
such Lessee's or ADESA's receipt of notice or knowledge thereof.
ARTICLE XIII.
ENFORCEMENT
Section 13.1 REMEDIES. Upon the occurrence and during the continuance
of any Event of Default, Lessor may do one or more of the following as Lessor in
its sole discretion shall determine, without limiting any other right or remedy
Lessor may have on account of such Event of Default (including, without
limitation, the obligation of the Lessees to purchase the Leased Properties as
set forth in SECTION 14.3):
(a) Lessor may, by notice to ADESA, rescind or terminate this Lease as
of the date specified in such notice; however, (A) no reletting, reentry or
taking of possession of any Leased Property by Lessor will be construed as an
election on Lessor's part to terminate this Lease unless a written notice of
such intention is given to ADESA, (B) notwithstanding any reletting, reentry or
taking of possession, Lessor may at any time thereafter elect to terminate this
Lease for a continuing Event of Default, and (C) no act or thing done by Lessor
or any of its agents, representatives or employees and no agreement accepting a
surrender of any Leased Property shall be valid unless the same be made in
writing and executed by Lessor;
(b) Lessor may (i) demand that the Lessees, and the Lessees shall upon
the written demand of Lessor, return the Leased Properties promptly to Lessor in
the manner and condition required by, and otherwise in accordance with all of
the provisions of, ARTICLES VI and XIV hereof as if the Leased Properties were
being returned at the end of the Lease Term, and Lessor shall not be liable for
the reimbursement of any Lessee for any costs and expenses incurred by such
Lessee in connection therewith and (ii) without prejudice to any other remedy
which Lessor may have for possession of the Leased Properties, and to the extent
and in the manner permitted by Applicable Law, enter upon any Leased Property
and take immediate possession of (to the exclusion of the related Lessee) any
Leased Property or any part thereof and expel or remove the related Lessee and
any other person who may be occupying such Leased Property, by summary
proceedings or otherwise, all without liability to any Lessee for or by reason
of such entry or taking of possession, whether for the restoration of damage to
property caused by such taking or otherwise and, in addition to Lessor's other
damages, the Lessees shall be responsible for the actual and reasonable costs
and expenses of reletting, including brokers' fees and the reasonable
out-of-pocket costs of any alterations or repairs made by Lessor;
(c) Lessor may (i) sell all or any part of any Leased Property at
public or private sale, as Lessor may determine, free and clear of any rights of
any Lessee and without any duty to account to any Lessee with respect to such
action or inaction or any proceeds with respect
19
thereto (except to the extent required by Applicable Law or CLAUSE (ii) below if
Lessor shall elect to exercise its rights thereunder) in which event the related
Lessee's obligation to pay Basic Rent for such Leased Property hereunder for
periods commencing after the date of such sale shall be terminated or
proportionately reduced, as the case may be; and (ii) if Lessor shall so elect,
demand that the Lessees pay to Lessor, and the Lessees shall pay to Lessor, on
the date of such sale, as liquidated damages for loss of a bargain and not as a
penalty (the parties agreeing that Lessor's actual damages would be difficult to
predict, but the aforementioned liquidated damages represent a reasonable
approximation of such amount) (in lieu of Basic Rent due for periods commencing
on or after the Payment Date coinciding with such date of sale (or, if the sale
date is not a Payment Date, the Payment Date next preceding the date of such
sale)), an amount equal to (a) the excess, if any, of (1) the sum of (A) all
Rent due and unpaid to and including such Payment Date and (B) the Lease
Balance, computed as of such date, over (2) the net proceeds of such sale (that
is, after deducting all out-of-pocket costs and expenses incurred by Lessor, the
Agent or any Lender incident to such conveyance (including, without limitation,
all costs, expenses, fees, premiums and taxes described in SECTION 14.5(b)));
PLUS (b) interest at the Overdue Rate on the foregoing amount from such Payment
Date until the date of payment;
(d) Lessor may, at its option, not terminate this Lease, and continue
to collect all Basic Rent, Supplemental Rent, and all other amounts (including,
without limitation, the Funded Amount) due Lessor (together with all costs of
collection) and enforce the Lessees' obligations under this Lease as and when
the same become due, or are to be performed, and at the option of Lessor, upon
any abandonment of any Leased Property by Lessee or re-entry of same by Lessor,
Lessor may, in its sole and absolute discretion, elect not to terminate this
Lease with respect thereto and may make such reasonable alterations and
necessary repairs in order to relet such Leased Property, and relet such Leased
Property or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such other terms and conditions as Lessor in its reasonable discretion may deem
advisable; and upon each such reletting all rentals actually received by Lessor
from such reletting shall be applied to the Lessees' obligations hereunder in
such order, proportion and priority as Lessor may elect in Lessor's sole and
absolute discretion. If such rentals received from such reletting during any
Rent Period are less than the Rent to be paid during that Rent Period by the
Lessees hereunder, the Lessees shall pay any deficiency, as reasonably
calculated by Lessor, to Lessor on the Payment Date for such Rent Period;
(e) Lessor may, whether or not Lessor shall have exercised or shall
thereafter at any time exercise any of its rights under PARAGRAPH (b), (c) or
(d) of this ARTICLE XIII, demand, by written notice to ADESA specifying a date
(the "FINAL RENT PAYMENT DATE") not earlier than 30 days after the date of such
notice, that Lessees purchase, on the Final Rent Payment Date, all of the
remaining Leased Properties in accordance with the provisions of SECTIONS 14.2,
14.4 and 14.5; PROVIDED, HOWEVER, that (1) such purchase shall occur on the date
set forth in such notice, notwithstanding the provision in SECTION 14.2 calling
for such purchase to occur on the Lease Termination Date; and (2) Lessor's
obligations under SECTION 14.5(a) shall be limited to delivery
20
of a special warranty deed and quit claim bill of sale of such Leased
Properties, without recourse or warranty, but free and clear of Lessor Liens and
the Liens of the Operative Documents;
(f) Lessor may exercise any other right or remedy that may be available
to it under Applicable Law, or proceed by appropriate court action (legal or
equitable) to enforce the terms hereof or to recover damages for the breach
hereof. Separate suits may be brought to collect any such damages for any Rent
Period(s), and such suits shall not in any manner prejudice Lessor's right to
collect any such damages for any subsequent Rent Period(s), or Lessor may defer
any such suit until after the expiration of the Lease Term, in which event such
suit shall be deemed not to have accrued until the expiration of the Lease Term;
or
(g) Lessor may retain and apply against Lessor's damages all sums which
Lessor would, absent such Event of Default, be required to pay to, or turn over
to, a Lessee pursuant to the terms of this Lease.
Section 13.2 REMEDIES CUMULATIVE; NO WAIVER; CONSENTS. To the extent
permitted by, and subject to the mandatory requirements of, Applicable Law, each
and every right, power and remedy herein specifically given to Lessor or
otherwise in this Lease shall be cumulative and shall be in addition to every
other right, power and remedy herein specifically given or now or hereafter
existing at law, in equity or by statute, and each and every right, power and
remedy whether specifically herein given or otherwise existing may be exercised
from time to time and as often and in such order as may be deemed expedient by
Lessor, and the exercise or the beginning of the exercise of any power or remedy
shall not be construed to be a waiver of the right to exercise at the same time
or thereafter any right, power or remedy. No delay or omission by Lessor in the
exercise of any right, power or remedy or in the pursuit of any remedy shall
impair any such right, power or remedy or be construed to be a waiver of any
default on the part of any Lessee or to be an acquiescence therein. Lessor's
consent to any request made by any Lessee shall not be deemed to constitute or
preclude the necessity for obtaining Lessor's consent, in the future, to all
similar requests. No express or implied waiver by Lessor of any Event of Default
shall in any way be, or be construed to be, a waiver of any future or subsequent
Potential Event of Default or Event of Default. To the extent permitted by
Applicable Law, each Lessee hereby waives any rights now or hereafter conferred
by statute or otherwise that may require Lessor to sell, lease or otherwise use
any Leased Property or part thereof in mitigation of Lessor's damages upon the
occurrence of an Event of Default or that may otherwise limit or modify any of
Lessor's rights or remedies under this ARTICLE XIII.
Section 13.3 PURCHASE UPON AN EVENT OF DEFAULT. Upon the occurrence
and during the continuance of an Event of Default, until such time as Lessor has
performed or undertaken material preparations for the sale or re-lease of the
Leased Properties, the Lessees may purchase all, but not less than all, of the
Leased Properties for the Lease Balance, including any amounts due pursuant to
Section 7.5 of the Master Agreement. Such purchase shall be made in accordance
with SECTION 14.5, upon not less than five (5) Business Days' written notice
(which
21
shall be irrevocable) to Lessor, which notice shall set forth the date of
purchase (which shall be a date no later than 30 days from the date of such
notice).
Section 13.4 LIMITATION ON LIABILITY. Notwithstanding the provisions
of SECTION 13.1, the Lessees' recourse liability to Lessor as a consequence of
the occurrence of a Limited Event of Default shall be limited to the payment by
the Lessees of the Recourse Deficiency Amount; PROVIDED, HOWEVER if Lessor used
commercial reasonable standards in determining that such Limited Event of
Default occurred, then the Lessor shall be entitled to exercise any of the
remedies set forth in SECTION 13.1.
ARTICLE XIV.
SALE, RETURN OR PURCHASE OF LEASED PROPERTY; RENEWAL
Section 14.1 LESSEE'S OPTION TO PURCHASE. (a) Subject to the terms,
conditions and provisions set forth in this ARTICLE XIV, each Lessee shall have
the option (the "PURCHASE OPTION"), to be exercised as set forth below, to
purchase from Lessor, Lessor's interest in all of the Leased Properties;
PROVIDED that, except as set forth in PARAGRAPH (b) below, such option must be
exercised with respect to all, but not less than all, of the Leased Properties
under all of the Lease Supplements. Such option must be exercised by written
notice to Lessor not later than twelve months prior to the Lease Termination
Date which notice shall be irrevocable; such notice shall specify the date that
such purchase shall take place, which date shall be a date occurring not less
than thirty (30) days after such notice or the Lease Termination Date (whichever
is earlier). If the Purchase Option is exercised pursuant to the foregoing,
then, subject to the provisions set forth in this ARTICLE XIV, on the applicable
purchase date or the Lease Termination Date, as the case may be, Lessor shall
convey to each Lessee, by special warranty deed and bill of sale, without
recourse or warranty (other than as to the absence of Lessor Liens and Liens of
the Operative Documents) and each Lessee shall purchase from Lessor, Lessor's
interest in the Leased Properties leased by such Lessee.
(b) Subject to the terms, conditions and provisions set forth in this
ARTICLE XIV, each Lessee shall have the option (the "PARTIAL PURCHASE OPTION"),
to be exercised as set forth below, to purchase from Lessor Lessor's interest in
any Leased Property leased by such Lessee; PROVIDED that, after giving effect to
such purchase no less than one Leased Property remain subject to this Lease.
Such option may be exercised by written notice to Lessor at any time prior to
the last twelve months of the term of this Lease, which notice shall be
irrevocable; such notice shall specify the Leased Property to be purchased and
the date that such purchase shall take place, which date shall be a date
occurring not less than thirty (30) days after such notice. If a Partial
Purchase Option is exercised pursuant to the foregoing, subject to the
provisions set forth in this ARTICLE XIV, on the applicable purchase date,
Lessor shall convey to the related Lessee, and such Lessee shall purchase from
Lessor, Lessor's interest in the Leased Property that is the subject of such
Partial Purchase Option pursuant to SECTION 14.5.
22
Section 14.2 CONVEYANCE TO LESSEE. Unless (a) the Lessees shall have
properly exercised the Purchase Option and purchased the Leased Properties
pursuant to SECTION 14.1(a) or 14.1(b) hereof, or (b) the Lessees shall have
properly exercised the Remarketing Option and shall have fulfilled all of the
conditions of SECTION 14.6 hereof, then, subject to the terms, conditions and
provisions set forth in this ARTICLE XIV, each Lessee shall purchase from
Lessor, and Lessor shall convey to each Lessee, on the Lease Termination Date
all of Lessor's interest in the Leased Properties leased to such Lessee. Any
Lessee may designate, in a notice given to Lessor not less than ten (10)
Business Days prior to the closing of such purchase, or any purchase pursuant to
SECTION 14.1(a) or (b),(time being of the essence), the transferee to whom the
conveyance shall be made (if other than to such Lessee), in which case such
conveyance shall (subject to the terms and conditions set forth herein) be made
to such designee; PROVIDED, HOWEVER, that such designation of a transferee shall
not cause any Lessee to be released, fully or partially, from any of its
obligations under this Lease.
Section 14.3 ACCELERATION OF PURCHASE OBLIGATION. The Lessees shall be
obligated to purchase Lessor's interest in the Leased Properties immediately,
automatically and without notice upon the occurrence of any Event of Default
specified in CLAUSE (f) of ARTICLE XII, for the purchase price set forth in
SECTION 14.4. Upon the occurrence and during the continuance of any other Event
of Default, the Lessees shall be obligated to purchase Lessor's interest in the
Leased Properties for the purchase price set forth in SECTION 14.4 upon notice
of such obligation from Lessor.
Section 14.4 DETERMINATION OF PURCHASE PRICE. Upon the purchase by the
Lessees of Lessor's interest in the Leased Properties upon the exercise of the
Purchase Option or pursuant to SECTION 14.2 or 14.3, the aggregate purchase
price for all of the Leased Properties shall be an amount equal to the Lease
Balance as of the closing date for such purchase, including any amount due
pursuant to Section 7.5(f) of the Master Agreement as a result of such purchase.
Upon the purchase by a Lessee of Lessor's interest in a Leased Property upon the
exercise of a Partial Purchase Option, the purchase price for such Leased
Property shall be an amount equal to the Leased Property Balance for such Leased
Property as of the closing date for such purchase, including any amount due
pursuant to Section 7.5(f) of the Master Agreement as the result of such
purchase.
Section 14.5 PURCHASE PROCEDURE. (a) If a Lessee shall purchase
Lessor's interest in a Leased Property pursuant to any provision of this Lease,
(i) such Lessee shall accept from Lessor and Lessor shall convey such Leased
Property by a duly executed and acknowledged special warranty deed and quit
claim bill of sale of such a Leased Property in recordable form, (ii) upon the
date fixed for any purchase of Lessor's interest in Leased Property hereunder,
the related Lessee(s) shall pay to the order of the Agent (or Lessor if the
Loans have been paid in full) the Lease Balance or Leased Property Balance, as
applicable, including any amount due pursuant to Section 7.5 of the Master
Agreement as a result of such purchase, by wire transfer of immediately
available funds, (iii) Lessor will execute and deliver to the related Lessee
such other documents, including releases, affidavits, termination agreements and
termination statements, as
23
may be legally required or as may be reasonably requested by such Lessee in
order to effect such conveyance, free and clear of Lessor Liens and the Liens of
the Operative Documents and (iv) if such Leased Property is subject to a Ground
Lease, Lessor will execute and deliver to the related Lessee an assignment or
termination of such Ground Lease, as directed by such Lessee, in such form as
may be reasonably requested by such Lessee, and such Lessee shall pay any
amounts due with respect thereto under such Ground Lease.
(b) Each Lessee shall, at such Lessee's sole cost and expense, obtain
all required governmental and regulatory approval and consents and in connection
therewith shall make such filings as required by Applicable Law; in the event
that Lessor is required by Applicable Law to take any action in connection with
such purchase and sale, the Lessees shall pay prior to transfer all reasonable
out-of-pocket costs incurred by Lessor in connection therewith. Without limiting
the foregoing, all costs incident to such conveyance, including, without
limitation, each Lessee's attorneys' fees, Lessor's attorneys' fees,
commissions, each Lessee's and Lessor's escrow fees, recording fees, title
insurance premiums and all applicable documentary transfer or other transfer
taxes and other taxes required to be paid in order to record the transfer
documents that might be imposed by reason of such conveyance and the delivery of
such deed shall be borne entirely by and paid by the Lessees.
(c) Upon expiration or termination of this Lease resulting in
conveyance of Lessor's interest in the title to the Leased Properties to the
Lessees, there shall be no apportionment of rents (including, without
limitation, water rents and sewer rents), taxes, insurance, utility charges or
other charges payable with respect to the Leased Properties, all of such rents,
taxes, insurance, utility or other charges due and payable with respect to the
Leased Properties prior to termination being payable by the Lessees hereunder
and all due after such time being payable by the Lessees as the then owners of
the Leased Properties.
Section 14.6 OPTION TO REMARKET. Subject to the fulfillment of each of
the conditions set forth in this SECTION 14.6, the Lessees shall have the option
to market all of, but not less than all of, the Leased Properties for Lessor
(the "REMARKETING OPTION").
The Lessees' effective exercise and consummation of the Remarketing
Option shall be subject to the due and timely fulfillment of each of the
following provisions, the failure of any of which, unless waived in writing by
Lessor and the Lenders, shall render the Remarketing Option and the Lessees'
exercise thereof null and void, in which event, each Lessee shall be obligated
to perform its obligations under SECTION 14.2.
(a) Not later than twelve months prior to the Lease
Termination Date, ADESA shall give to Lessor and the Agent written
notice of the Lessees' exercise of the Remarketing Option.
(b) Not later than ten (10) Business Days prior to the Lease
Termination Date, each Lessee shall deliver to Lessor and the Agent an
environmental assessment of each
24
Leased Property leased by it dated not earlier than forty-five (45)
days prior to the Lease Termination Date. Such environmental assessment
shall be prepared by an environmental consultant selected by the
related Lessee and reasonably satisfactory to the Required Funding
Parties, shall be in form, detail and substance reasonably satisfactory
to the Required Funding Parties, and shall otherwise indicate no
degradation in environmental conditions beyond those described in the
related Environmental Audit and shall not include a recommendation for
further investigation to make such determination.
(c) On the date of ADESA's notice to Lessor and the Agent of
the Lessees' exercise of the Remarketing Option, each of the
Construction Conditions shall have been timely satisfied and no Event
of Default or Potential Event of Default shall exist, and thereafter,
no Event of Default or Potential Event of Default shall exist under
this Lease.
(d) Each Lessee shall have completed all Alterations,
restoration and rebuilding of the Leased Properties leased by it
pursuant to SECTIONS 6.1, 6.2, 10.3 and 10.4 (as the case may be) and
shall have fulfilled in all material respects all of the conditions and
requirements in connection therewith pursuant to said SECTIONS, in each
case by the date on which Lessor and the Agent receive ADESA's notice
of the Lessees' exercise of the Remarketing Option (time being of the
essence), regardless of whether the same shall be within such Lessee's
control.
(e) Upon request by the Agent, each Lessee shall promptly
provide any maintenance records relating to each Leased Property leased
by it to Lessor, the Agent and any potential purchaser, and shall
otherwise do all things necessary to deliver possession of such Leased
Property to the potential purchaser at the appropriate closing date.
Each Lessee shall allow Lessor, the Agent and any potential purchaser
reasonable access during normal business hours to any Leased Property
for the purpose of inspecting the same.
(f) On the Lease Termination Date, each Lessee shall surrender
the Leased Properties leased by it in accordance with SECTION 14.8
hereof.
(g) In connection with any such sale of the Leased Properties,
each Lessee will provide to the purchaser all customary "seller's"
indemnities requested by the potential purchaser (taking into account
the location and nature of the Leased Properties), representations and
warranties regarding title, absence of Liens (except Lessor Liens and
the Liens of the Operative Documents) and the condition of the Leased
Properties. Each Lessee shall fulfill all of the requirements set forth
in CLAUSE (b) of SECTION 14.5, and such requirements are incorporated
herein by reference. As to Lessor, any such sale shall be made on an
"as is, with all faults" basis without representation or warranty by
Lessor, other than the absence of Lessor Liens and the Liens of the
Operative Documents.
25
(h) In connection with any such sale of Leased Properties,
each Lessee shall pay directly, and not from the sale proceeds, all
prorations, credits, costs and expenses of the sale of the Leased
Properties leased by it, whether incurred by Lessor, any Lender, the
Agent or such Lessee, including without limitation, to the extent not
paid by the purchaser, the cost of all title insurance, surveys,
environmental reports, appraisals, transfer taxes, Lessor's and the
Agent's attorneys' fees, such Lessee's attorneys' fees, commissions,
escrow fees, recording fees, and all applicable documentary and other
transfer taxes.
(i) The Lessees, jointly and severally, shall pay to the Agent
on the Lease Termination Date (or to such other Person as Agent shall
notify Lessee in writing, or in the case of Supplemental Rent, to the
Person entitled thereto) an amount equal to the Recourse Deficiency
Amount, PLUS all accrued and unpaid Basic Rent and Supplemental Rent,
and all other amounts hereunder which have accrued prior to or as of
such date, in the type of funds specified in SECTION 3.3 hereof.
If the Lessees have exercised the Remarketing Option, the following additional
provisions shall apply: During the period commencing on the date twelve months
prior to the scheduled expiration of the Lease Term, one or more of the Lessees
shall, as nonexclusive agent for Lessor, use commercially reasonable efforts to
sell Lessor's interest in the Leased Properties and will attempt to obtain the
highest purchase price therefor. All such marketing of the Leased Properties
shall be at the Lessees' sole expense. Lessee promptly shall submit all bids to
Lessor and the Agent; the Agent will have the right to review the same; and the
Agent and Lessor will have the right to submit any one or more bids. All bids
shall be on an all-cash basis. In no event shall such bidder be a Lessee or any
Subsidiary or Affiliate of a Lessee. The written offer must specify the Lease
Termination Date as the closing date. If, and only if, the aggregate selling
price (net of closing costs and prorations, as reasonably estimated by the
Agent) is less than the difference between the Lease Balance at such time minus
the Recourse Deficiency Amount, then Lessor or the Agent may, in its sole and
absolute discretion, by notice to ADESA, given within 30 days of receipt of such
offer, reject such offer to purchase, in which event the parties will proceed
according to the provisions of SECTION 14.7 hereof. If neither Lessor nor the
Agent rejects such purchase offer as provided above, the closing of such
purchase of the Leased Properties by such purchaser shall occur on the Lease
Termination Date, contemporaneously with the Lessees' surrender of the Leased
Properties in accordance with SECTION 14.8 hereof, and the gross proceeds of the
sale (i.e., without deduction for any marketing, closing or other costs,
prorations or commissions) shall be paid directly to the Agent (or Lessor if the
Funded Amounts have been fully paid); PROVIDED, HOWEVER, that if the sum of the
gross proceeds from such sale plus the Recourse Deficiency Amount paid by the
Lessees on the Lease Termination Date pursuant to SECTION 14.6(i), minus any and
all reasonable costs and expenses (including broker fees, appraisal costs,
reasonable legal fees and transfer taxes) incurred by the Agent or Lessor in
connection with the marketing of the Leased Properties or the sale thereof
exceeds the Lease Balance as of such date, then the excess shall be paid to
ADESA on the Lease Termination Date.
26
No Lessee shall have the right, power or authority to bind Lessor in connection
with any proposed sale of the Leased Properties.
Section 14.7 REJECTION OF SALE. Notwithstanding anything contained
herein to the contrary, if Lessor or the Agent rejects the purchase offer for
the Leased Properties as provided in (and subject to the conditions set forth
in) SECTION 14.6, then (a) the Lessees, jointly and severally, shall pay to the
Agent the Recourse Deficiency Amount on the Lease Termination Date pursuant to
SECTION 14.6(i), and (b) Lessor shall retain title to the Leased Properties.
Section 14.8 RETURN OF LEASED PROPERTY. If Lessor retains title to any
Leased Property pursuant to SECTION 14.7 hereof, then each Lessee shall, on the
Lease Termination Date, and at its own expense, return possession of the Leased
Properties leased by it to Lessor for retention by Lessor or, if the Lessees
properly exercise the Remarketing Option and fulfill all of the conditions of
SECTION 14.6 hereof and neither Lessor nor the Agent rejects such purchase offer
pursuant to SECTION 14.6, then each Lessee shall, on such Lease Termination
Date, and at its own cost, transfer possession of the Leased Properties leased
by it to the independent purchaser thereof, in each case by surrendering the
same into the possession of Lessor or such purchaser, as the case may be, free
and clear of all Liens other than Lessor Liens and the Liens of the Operative
Documents, in as good condition as it was on the Completion Date therefor in the
case of new Construction, or the Closing Date (as modified by Alterations
permitted by this Lease), ordinary wear and tear excepted, and in compliance in
all material respects with Applicable Law. Each Lessee shall, on and within a
reasonable time before and after the Lease Termination Date, cooperate with
Lessor and the independent purchaser of any Leased Property leased by such
Lessee in order to facilitate the ownership and operation by such purchaser of
such Leased Property after the Lease Termination Date, which cooperation shall
include the following, all of which such Lessee shall do on or before the Lease
Termination Date or as soon thereafter as is reasonably practicable: providing
all books and records regarding the related Lessee's maintenance of such Leased
Property and all know-how, data and technical information relating thereto,
providing a copy of the Plans and Specifications within the possession of such
Lessee or ADESA, granting or assigning all licenses (to the extent assignable)
necessary for the operation and maintenance of such Leased Property, and
cooperating in seeking and obtaining all necessary Governmental Action. Each
Lessee shall have also paid the cost of all Alterations commenced prior to the
Lease Termination Date. The obligations of such Lessee under this ARTICLE XIV
shall survive the expiration or termination of this Lease.
Section 14.9 RENEWAL. Subject to the conditions set forth herein,
ADESA may, by written notice to Lessor and the Agent given not later than twelve
months and not earlier than sixteen months, prior to the then scheduled Lease
Termination Date, request to renew this Lease for five years, commencing on the
date following such Lease Termination Date. No later than the date that is 45
days after the date the request to renew has been delivered to each of Lessor
and the Agent, the Agent will notify ADESA whether or not Lessor and the Lenders
consent to such renewal request (which consent may be granted or denied in the
Lessor's and each Lender's sole discretion and may be conditioned on such
conditions precedent as may be specified by
27
Lessor or such Lender). If the Agent fails to respond in such time frame, such
failure shall be deemed to be a rejection of such request.
ARTICLE XV.
LESSEE'S EQUIPMENT
After any repossession of any Leased Property (whether or not this
Lease has been terminated), the related Lessee, at its expense and so long as
such removal of such trade fixture, personal property or equipment shall not
result in a violation of Applicable Law, shall, within a reasonable time after
such repossession or within ninety (90) days after such Lessee's receipt of
Lessor's written request (whichever shall first occur), remove all of such
Lessee's trade fixtures, personal property and equipment from such Leased
Property (to the extent that the same can be readily removed from such Leased
Property without causing material damage to such Leased Property); PROVIDED,
HOWEVER, that such Lessee shall not remove any such trade fixtures, personal
property or equipment that has been financed by Lessor and/or the Lenders under
the Operative Documents or otherwise constituting Leased Property (or that
constitutes a replacement of such property). Any of a Lessee's trade fixtures,
personal property and equipment not so removed by such Lessee within such period
shall be considered abandoned by such Lessee, and title thereto shall without
further act vest in Lessor, and may be appropriated, sold, destroyed or
otherwise disposed of by Lessor without notice to any Lessee and without
obligation to account therefor and the related Lessee will pay Lessor, upon
written demand, all reasonable costs and expenses incurred by Lessor in
removing, storing or disposing of the same and all costs and expenses incurred
by Lessor to repair any damage to such Leased Property caused by such removal.
Each Lessee will immediately repair at its expense all damage to such Leased
Property caused by any such removal (unless such removal is effected by Lessor,
in which event such Lessee shall pay all reasonable costs and expenses incurred
by Lessor for such repairs). Lessor shall have no liability in exercising
Lessor's rights under this ARTICLE XV, nor shall Lessor be responsible for any
loss of or damage to any Lessee's personal property and equipment.
ARTICLE XVI.
RIGHT TO PERFORM FOR LESSEE
If any Lessee shall fail to perform or comply with any of its
agreements contained herein and either such failure shall continue for a period
of 10 or more days after notice to ADESA or to such Lessee by Lessor or the
Agent (or such longer time as is reasonably necessary to cure such failure, so
long as ADESA or such Lessee is diligently prosecuting such cure) or such
failure has resulted in immediate material danger to any Leased Property or
Lessor's or the Agent's interest therein, Lessor, upon reasonable notice to
ADESA or such Lessee, may perform or comply with such agreement, and Lessor
shall not thereby be deemed to have waived any default caused by such failure,
and the amount of such payment and the amount of the actual and
28
reasonable expenses of Lessor (including actual and reasonable attorneys' fees
and expenses) incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, shall be deemed Supplemental
Rent, payable by the related Lessee to Lessor within thirty (30) days after
written demand therefor.
ARTICLE XVII.
MISCELLANEOUS
Section 17.1 REPORTS. To the extent required under Applicable Law and
to the extent it is reasonably practical for a Lessee to do so, such Lessee
shall prepare and file in timely fashion, or, where such filing is required to
be made by Lessor or it is otherwise not reasonably practical for a Lessee to
make such filing, Lessee shall prepare and deliver to Lessor (with a copy to the
Agent) within a reasonable time prior to the date for filing and Lessor shall
file, any material reports with respect to the condition or operation of such
Leased Property that shall be required to be filed with any Governmental
Authority.
Section 17.2 BINDING EFFECT; SUCCESSORS AND ASSIGNS; SURVIVAL. The
terms and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor and the Lessees, shall be binding upon their respective
successors, legal representatives and assigns (including, in the case of Lessor,
any Person to whom Lessor may transfer any Leased Property or any interest
therein in accordance with the provisions of the Operative Documents), and inure
to the benefit of their respective permitted successors and assigns, and the
rights granted hereunder to the Agent and the Lenders shall inure (subject to
such conditions as are contained herein) to the benefit of their respective
permitted successors and assigns. Each Lessee hereby acknowledges that Lessor
has assigned all of its right, title and interest to, in and under this Lease to
the Agent and the Lenders pursuant to the Loan Agreement and related Operative
Documents, and that all of Lessor's rights hereunder may be exercised by the
Agent.
Section 17.3 QUIET ENJOYMENT. Lessor covenants that it will not
interfere in the related Lessee's or any of its permitted sublessees' quiet
enjoyment of the Leased Properties in accordance with this Lease during the
Lease Term, so long as no Event of Default has occurred and is continuing. Such
right of quiet enjoyment is independent of, and shall not affect, Lessor's
rights otherwise to initiate legal action to enforce the obligations of the
Lessees under this Lease.
Section 17.4 DOCUMENTARY CONVENTIONS. The Documentary Conventions
shall apply to this Lease.
Section 17.5 LIABILITY OF LESSOR LIMITED. Except as otherwise
expressly provided below in this SECTION 17.5, it is expressly understood and
agreed by and between each Lessee, Lessor and their respective successors and
assigns that nothing herein contained shall be construed as creating any
liability of Lessor or any of its Affiliates or any of their respective
officers, directors, employees or agents, individually or personally, for any
failure to perform
29
any covenant, either express or implied, contained herein, all such liability
(other than that resulting from Lessor's gross negligence or willful misconduct,
except to the extent imputed to Lessor by virtue of any Lessee's action or
failure to act), if any, being expressly waived by each Lessee and by each and
every Person now or hereafter claiming by, through or under any Lessee, and
that, so far as Lessor or any of its Affiliates or any of their respective
officers, directors, employees or agents, individually or personally, is
concerned, each Lessee and any Person claiming by, through or under any Lessee
shall look solely to the right, title and interest of Lessor in and to the
Leased Properties and any proceeds from Lessor's sale or encumbrance thereof
(PROVIDED, HOWEVER, that no Lessee shall be entitled to any double recovery) for
the performance of any obligation under this Lease and under the Operative
Documents and the satisfaction of any liability arising therefrom (other than
that resulting from Lessor's gross negligence or willful misconduct, except to
the extent imputed to Lessor by virtue of any Lessee's action or failure to
act).
Section 17.6 ESTOPPEL CERTIFICATES. Each party hereto agrees that at
any time and from time to time during the Lease Term, it will promptly, but in
no event later than thirty (30) days after request by the other party hereto,
execute, acknowledge and deliver to such other party or to any prospective
purchaser (if such prospective purchaser has signed a commitment or letter of
intent to purchase any Leased Property or any part thereof or any Note),
assignee or mortgagee or third party designated by such other party, a
certificate stating (a) that this Lease is unmodified and in force and effect
(or if there have been modifications, that this Lease is in force and effect as
modified, and identifying the modification agreements); (b) the date to which
Basic Rent has been paid; (c) whether or not there is any existing default by
any Lessee in the payment of Basic Rent or any other sum of money hereunder, and
whether or not there is any other existing default by either party with respect
to which a notice of default has been served, and, if there is any such default,
specifying the nature and extent thereof; (d) whether or not, to the knowledge
of the signer, there are any setoffs, defenses or counterclaims against
enforcement of the obligations to be performed hereunder existing in favor of
the party executing such certificate and (e) other items that may be reasonably
requested; PROVIDED that no such certificate may be requested unless the
requesting party has a good faith reason for such request.
Section 17.7 NO JOINT VENTURE. Any intention to create a joint
venture, partnership or other fiduciary relationship between Lessor and any
Lessee is hereby expressly disclaimed.
Section 17.8 NO ACCORD AND SATISFACTION. The acceptance by Lessor of
any sums from any Lessee (whether as Basic Rent or otherwise) in amounts which
are less than the amounts due and payable by the Lessees hereunder is not
intended, nor shall be construed, to constitute an accord and satisfaction of
any dispute between Lessor and any Lessee regarding sums due and payable by any
Lessee hereunder, unless Lessor specifically deems it as such in writing.
Section 17.9 NO MERGER. In no event shall the leasehold interests,
estates or rights of any Lessee hereunder, or of the holder of any Notes secured
by a security interest in this Lease, merge with any interests, estates or
rights of Lessor in or to the Leased Properties, it being
30
understood that such leasehold interests, estates and rights of each Lessee
hereunder, and of the holder of any Notes secured by a security interest in this
Lease, shall be deemed to be separate and distinct from Lessor's interests,
estates and rights in or to the Leased Properties, notwithstanding that any such
interests, estates or rights shall at any time or times be held by or vested in
the same person, corporation or other entity.
Section 17.10 SURVIVAL. The obligations of the parties to be
performed under this Lease prior to the Lease Termination Date and the
obligations of the parties pursuant to ARTICLES III, X, XI, XIII, SECTIONS 14.2,
14.3, 14.4, 14.5, 14.8, Articles XV and XVI, and SECTION 17.5 shall survive the
expiration or termination of this Lease. The extension of any applicable statute
of limitations by Lessor, any Lessee, the Agent or any Indemnitee shall not
affect such survival.
Section 17.11 CHATTEL PAPER. To the extent that this Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code in any
applicable jurisdiction), no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the sole
original counterpart, which shall be identified as the original counterpart by
the receipt of the Agent.
Section 17.12 TIME OF ESSENCE. Time is of the essence of this Lease.
Section 17.13 RECORDATION OF LEASE. Each Lessee will, at its expense,
cause each Lease Supplement or a memorandum of lease in form and substance
reasonably satisfactory to Lessor and such Lessee (if permitted by Applicable
Law) to be recorded in the proper office or offices in the States and the
municipalities in which the Land is located.
Section 17.14 INVESTMENT OF SECURITY FUNDS. The parties hereto agree
that any amounts not payable to a Lessee pursuant to any provision of ARTICLE
VIII, X or XIV or this SECTION 17.14 shall be held by the Agent (or Lessor if
the Loans have been fully paid) as security for the obligations of the Lessees
under this Lease and the Master Agreement and of Lessor under the Loan
Agreement. At such time as such amounts are payable to the Lessee, such amounts,
net of any amounts previously applied to the Lessees' obligations hereunder or
under the Master Agreement (which application is hereby agreed to by Lessee),
shall be paid to the related Lessee. Any such amounts which are held by the
Agent (or Lessor if the Loans have been fully paid) pending payment to a Lessee
shall until paid to such Lessee, as provided hereunder or until applied against
the Lessees' obligations herein and under the Master Agreement and distributed
as provided in the Loan Agreement or herein (after the Loan Agreement is no
longer in effect) in connection with any exercise of remedies hereunder, be
invested by the Agent or Lessor, as the case may be, as directed from time to
time in writing by Lessee (PROVIDED, HOWEVER, if an Event of Default has
occurred and is continuing it will be directed by the Agent or, if the Loans
have been fully paid, Lessor) and at the expense and risk of the Lessees, in
Permitted Investments. Any gain (including interest received) realized as the
result of any such investment (net of any fees, commissions and other expenses,
if any, incurred in connection with such investment) shall be applied in the
same manner as the principal invested. Lessee upon demand shall pay to the
31
Agent or Lessor, as appropriate, the amount of any loss incurred in connection
with all such investments and the liquidation thereof.
Section 17.15 GROUND LEASES. Each Lessee will, at its expense, timely
perform all of the obligations of Lessor, in its capacity as ground lessee,
under each Ground Lease and, if requested by Lessor shall provide satisfactory
evidence to Lessor of such performance.
Section 17.16 LAND AND BUILDING. If any Building and the Land on which
such Building is located are subject to separate Lease Supplements, at any time
that the related Lessee exercises an option to purchase such Building or such
Land, or to renew this Lease with respect to such Building or such Land, or is
obligated to purchase such Building or such Land as a result of an Event of
Loss, an Event of Taking or an Event of Default, such purchase or renewal shall
be made simultaneously with respect to all of such Building and such Land.
Section 17.17 JOINT AND SEVERAL. Each obligation of each Lessee
hereunder shall be a joint and several obligation of all of the Lessees.
Section 17.18 IDB DOCUMENTATION. If any Leased Property is subject to
an IDB Lease, this Lease shall be deemed to be a sublease. Each Lessee hereby
agrees to perform all of its obligations and all obligations of Lessor under all
IDB Documentation related to any Leased Property. In the event that a Lessee
purchases any Leased Property that is the subject of IDB Documentation, such
Lessee shall prepay, or cause to be prepaid, the Bonds related to such Leased
Property or shall assume all obligations of the Lessor related to such IDB
Documentation and cause the Lessor to be released therefrom pursuant to
documentation reasonably satisfactory to the Lessor. The parties hereto hereby
acknowledge that the Leased Property located in San Joaquin County, California
is not subject to any IDB Documentation.
[Signature page follows]
32
IN WITNESS WHEREOF, the undersigned have each caused this Lease
Agreement to be duly executed and delivered and attested by their respective
officers thereunto duly authorized as of the day and year first above written
Witnessed: ADESA CALIFORNIA, INC., as a Lessee
By: /s/ Denise L. McAtee /s/ W. T. Stackhouse
-------------------------- ------------------------------------
Name: Denise L. McAtee William T. Stackhouse, Treasurer
----------------
By: /s/ Melody L. Dugan
--------------------------
Name: Melody L. Dugan
---------------
LEASE AGREEMENT S-1
ATLANTIC FINANCIAL GROUP, LTD.,
as Lessor
By: Atlantic Financial Managers,
Inc., its General Partner
Witnessed:
By: /s/ Pattie Keate By: /s/ Stephen Brookshire
-------------------------- ---------------------------------
Name: Pattie Keate Name: Stephen Brookshire
-------------------- Title: President
By: /s/ Rori Mitchell
--------------------------
Name: Rori Mitchell
--------------------
LEASE
S-2 AGREEMENT
STATE OF INDIANA )
-------------- ) ss.:
COUNTY OF MARION )
-------------
The foregoing Lease Agreement was acknowledged before me, the
undersigned Notary Public, in the County of Marion this 27 day of July, 2001,
by William T. Stackhouse, as Treasurer, of ADESA CALIFORNIA, INC., a California
corporation, on behalf of the corporation.
[Notarial Seal] /s/ Denise L. McAtee
------------------------------
Notary Public
Denise L. McAtee
------------------------------
Printed Name
County of Residence: Marion
---------
My commission expires: 4/9/09
------
DENISE L MC ATEE
NOTARY PUBLIC STATE OF INDIANA
MARION COUNTY
MY COMMISSION EXP. APR. 9, 2009
LEASE
N-1 AGREEMENT
STATE OF Texas )
--------- ) ss.:
COUNTY OF Dallas )
--------
The foregoing Lease Agreement was acknowledged before me, the
undersigned Notary Public, in the County of Dallas, TX, this 25 day of July,
2001, by STEPHEN S. BROOKSHIRE, as PRESIDENT of Atlantic Financial Group, Ltd.,
on behalf of such partnership.
[Notarial Seal]
/s/ Lisa M. Williams
LISA M. WILLIAMS --------------------
NOTARY PUBLIC NOTARY PUBLIC Notary Public
STATE OF TEXAS State of Texas
Comm. Exp. 12-17-2001
My commission expires:
----------
LEASE
N-2 AGREEMENT
Exhibit 10(i)
=============================================================
LOAN AGREEMENT
Dated as of July 30, 2001
among
ATLANTIC FINANCIAL GROUP, LTD.
as Lessor and Borrower,
the financial institutions party hereto,
as Lenders
and
SUNTRUST BANK,
as Agent
=============================================================
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS; INTERPRETATION..............................1
SECTION 2 AMOUNT AND TERMS OF COMMITMENTS; REPAYMENT
AND PREPAYMENT OF LOANS..................................1
SECTION 2.1 Commitment...............................................1
SECTION 2.2 Note.....................................................2
SECTION 2.3 Scheduled Principal Repayment............................2
SECTION 2.4 Interest.................................................2
SECTION 2.5 Allocation of Loans to Leased Properties.................3
SECTION 2.6 Prepayment...............................................3
SECTION 3 RECEIPT, DISTRIBUTION AND APPLICATION OF CERTAIN
PAYMENTS IN RESPECT OF LEASE AND LEASED PROPERTY.........3
SECTION 4 THE LESSOR; EXERCISE OF REMEDIES UNDER LEASE.............3
SECTION 4.1 Covenant of Lessor.......................................3
SECTION 4.2 Lessor Obligations Nonrecourse; Payment from Certain
Lease Obligations and Certain Proceeds of Leased
Property Only.......................................4
SECTION 4.3 Exercise of Remedies Under the Lease.....................4
SECTION 5 LOAN EVENTS OF DEFAULT; REMEDIES.........................5
SECTION 5.1 Loan Events of Default...................................5
SECTION 5.2 Remedies.................................................6
SECTION 6 THE AGENT................................................7
SECTION 6.1 Appointment..............................................7
SECTION 6.2 Delegation of Duties.....................................7
SECTION 6.3 Exculpatory Provisions...................................8
SECTION 6.4 Reliance by Agent........................................8
SECTION 6.5 Notice of Default........................................8
SECTION 6.6 Non-Reliance on Agent and Other Lenders..................9
SECTION 6.7 Indemnification..........................................9
SECTION 6.8 Agent in Its Individual Capacity........................10
SECTION 6.9 Successor Agent.........................................10
SECTION 7 MISCELLANEOUS...........................................10
SECTION 7.1 Documentary Conventions.................................10
SECTION 7.2 No Waiver; Cumulative Remedies..........................10
SECTION 7.3 Successors and Assigns..................................11
SECTION 7.4 Survival and Termination of Agreement...................11
EXHIBITS
EXHIBIT A Form of Note
-ii-
THIS LOAN AGREEMENT (as it may be amended or modified from time to time
in accordance with the provisions hereof, this "LOAN AGREEMENT") dated as of
July 30, 2001 is among ATLANTIC FINANCIAL GROUP, LTD., a Texas limited
partnership, as lessor and borrower (the "LESSOR"); SUNTRUST BANK and the other
financial institutions which are, or may from time to time become, parties
hereto as lenders (the "LENDERS") and SUNTRUST BANK, a Georgia banking
corporation, as agent for the Lenders (in such capacity, the "AGENT").
PRELIMINARY STATEMENT
In accordance with the terms and provisions of the Master Agreement,
the Lease, this Loan Agreement and the other Operative Documents, (i) the Lessor
contemplates acquiring the Leased Properties and leasing the Leased Properties
to the Lessees, (ii) ADESA California as Construction Agent for the Lessor,
wishes, in certain instances, to construct Buildings on the Land for the Lessor
and, when completed, to lease the Buildings, or to cause the Buildings to be
leased, from the Lessor as part of the Leased Properties under the Lease, (iii)
ADESA California wishes to obtain, and the Lessor is willing to provide, funding
for the acquisition of the Land and any Buildings thereon and, in certain
instances, the construction of the Buildings, and (iv) the Lessor wishes to
obtain, and the Lenders are willing to provide, financing of a portion of the
funding for the acquisition of the Land and any Buildings thereon and, if
applicable, the construction of the Buildings.
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in APPENDIX A to the
Master Agreement dated as of July 30, 2001 (as amended, or supplemented or
otherwise modified from time to time, the "MASTER AGREEMENT"), among ADESA
Corporation, as Guarantor, ADESA California, Inc. and certain other Subsidiaries
of ADESA Corporation that may become party thereto, as Lessees, the Lessor, the
Lenders and the Agent; and the rules of interpretation set forth in such
APPENDIX A shall apply to this Loan Agreement.
SECTION 2 AMOUNT AND TERMS OF COMMITMENTS; REPAYMENT AND PREPAYMENT
OF LOANS
SECTION 2.1 COMMITMENT. (a) Subject to the terms and conditions
hereof and of the Master Agreement, each Lender agrees to make term loans to the
Lessor ("LOANS") from time to time during the period from and including the
Initial Closing Date through the Funding Termination Date, on each Closing Date
and on each subsequent Funding Date, in the amounts required under Section 2.2
of the Master Agreement. Each such Loan shall consist of an A Loan in the amount
of such Lender's pro rata share of the Recourse Deficiency Amount for the
related
Leased Property and a B Loan in the amount of such Lender's pro rata share of
the remaining principal amount of the Loan related to such Leased Property.
SECTION 2.2 NOTE. The Loans made by each Lender to the Lessor shall
be evidenced by a note of the Lessor (the "NOTE"), substantially in the form of
EXHIBIT A with appropriate insertions, duly executed by the Lessor and payable
to the order of the Agent, on behalf of the Lenders, and in a principal amount
equal to the aggregate Commitments of the Lenders (or, if less, the aggregate
unpaid principal amount of all Loans made by the Lenders to the Lessor). The
Note shall be dated the Initial Closing Date and delivered to the Agent in
accordance with Section 3.2 of the Master Agreement. The Agent is hereby
authorized to record the date and amount of each Loan made by each Lender to the
Lessor on the Note or in its records, and each Lender is hereby authorized to
record the date and amount of each Loan made by such Lender to the Lessor in its
records, but the failure by the Agent or any Lender to so record such Loan shall
not affect or impair any obligations with respect thereto. The Note shall (i) be
stated to mature no later than the final Lease Termination Date and (ii) bear
interest from the date a Loan is made on the unpaid principal amount thereof
from time to time outstanding at the applicable interest rate per annum
determined as provided in, and payable as specified in, SECTION 2.4. Upon the
occurrence of an Event of Default under clause (f) of Article XII of the Lease,
or upon Acceleration as described in SECTION 4.3(b) hereof, the Note shall
automatically become due and payable in full.
SECTION 2.3 SCHEDULED PRINCIPAL REPAYMENT. On the Lease Termination
Date, the Lessor shall pay the aggregate unpaid principal amount of all Loans as
of such date.
SECTION 2.4 INTEREST. (a) Each Loan related to a LIBOR Advance shall
bear interest during each Rent Period at a rate equal to the sum of (i) the
Adjusted LIBO Rate for such Rent Period, computed using the actual number of
days elapsed and a 360 day year, PLUS (ii) the Applicable Margin per annum. Each
Loan related to a Base Rate Advance shall bear interest at a rate equal to the
sum of (i) the Base Rate in effect from time to time, computed using the actual
number of days elapsed and a 360 day year, PLUS (ii) the Applicable Margin per
annum.
(b) If all or a portion of the principal amount of or interest on the
Loans shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall, without limiting the
rights of the Lenders under SECTION 5, bear interest at the Overdue Rate, in
each case from the date of nonpayment until paid in full (after as well as
before judgment).
(c) Interest accruing on each Loan with respect to any Leased Property
during the Construction Term of such Leased Property shall, subject to the
limitations set forth in Section 2.3(c) of the Master Agreement, be added to the
principal amount of such Loan from time to time. Following the date each Loan is
made (or in the case of Loans with respect to a Construction Land Interest, the
Construction Term Expiration Date), interest on such Loan shall be payable in
arrears on each Payment Date with respect thereto.
ii
(d) Any change in the interest rate on the Loans resulting from a
change in the Base Rate shall become effective as of the opening of business on
the day on which such Base Rate changes as provided in the definition thereof.
SECTION 2.5 ALLOCATION OF LOANS TO LEASED PROPERTIES. Pursuant to
each Funding Request, each Loan shall be allocated to the Leased Property, the
cost of acquisition or construction of which the proceeds of such Loan are used
to pay. For purposes of the Operative Documents, the "related Loans" with
respect to any Leased Property or Loans "related to" any Leased Property shall
mean those Loans allocated to such Leased Property as set forth in the foregoing
sentence.
SECTION 2.6 PREPAYMENT. Except in conjunction with a payment by a
Lessee or the Construction Agent of the Lease Balance, a Construction Failure
Payment or a Leased Property Balance pursuant to the terms of the Lease or the
Construction Agency Agreement, the Lessor shall have no right to prepay the
Loans.
SECTION 3 RECEIPT, DISTRIBUTION AND APPLICATION OF CERTAIN PAYMENTS
IN RESPECT OF LEASE AND LEASED PROPERTY.
Payments of Rent, other payments made pursuant to the Operative
Documents and proceeds of the Leased Properties shall be distributed as set
forth in Section 6 of the Master Agreement.
SECTION 4 THE LESSOR; EXERCISE OF REMEDIES UNDER LEASE
SECTION 4.1 COVENANT OF LESSOR. So long as any Lender's Commitment
remains in effect, any Loan remains outstanding and unpaid or any other amount
is owing to any Lender with respect to its Funding Party Balances, subject to
SECTION 4.2, the Lessor will promptly pay all amounts payable by it under this
Loan Agreement and the Note issued by it in accordance with the terms hereof and
thereof and shall duly perform each of its obligations under this Loan Agreement
and the Note. The Lessor agrees to provide to the Agent a copy of each estoppel
certificate that the Lessor proposes to deliver pursuant to Section 17.13 of the
Lease at least five (5) days prior to such delivery and to make any corrections
thereto reasonably requested by the Agent prior to such delivery. The Lessor
shall keep each Leased Property owned by it free and clear of all Lessor Liens.
The Lessor shall not reject any sale of any Leased Property pursuant to Section
14.6 of the Lease unless all of the related Loans have been paid in full or the
Lenders consent to such rejection. In the event that the Lenders reject any sale
of any Leased Property pursuant to Section 14.6 of the Lease, the Lessor agrees
to take such action as the Lenders reasonably request to effect a sale or other
disposition of such Leased Property, PROVIDED that the Lessor shall not be
required to expend its own funds in connection with such sale or disposition. In
the event that the Construction Agent returns any Leased Property to the Lessor
pursuant to Section 5.3(a) of the Construction Agency Agreement, unless all of
the related Loans are paid in full, the Lessor agrees to take such action as the
Lenders reasonably request to complete the Construction, or to effect a sale or
other disposition, of such Leased Property, PROVIDED that the
iii
Lessor shall not be required to expend its own funds in connection therewith.
During the Construction Term for each Leased Property, the Lessor agrees to
assume liability for, and to indemnify, protect, defend, save and hold harmless
the Agent, each Lender and each of their respective Affiliates, successors,
assigns, employees, officers and directors, on an After-Tax Basis, from and
against, any and all Claims that may be imposed on, incurred by or asserted or
threatened to be asserted against the Agent or any Lender, in any way relating
to or arising out of the circumstances described in Section 7.1 or 7.4 of the
Master Agreement, PROVIDED that the Lessor shall only be obligated to make a
payment pursuant to this sentence to the extent that the Lessor receives payment
from the Construction Agent or any other Person with respect to such Claim.
SECTION 4.2 LESSOR OBLIGATIONS NONRECOURSE; PAYMENT FROM CERTAIN
LEASE OBLIGATIONS AND CERTAIN PROCEEDS OF LEASED PROPERTY ONLY. All payments to
be made by the Lessor in respect of the Loans, the Note and this Loan Agreement
shall be made only from certain payments received under the Lease, the Guaranty
Agreements, and the Construction Agency Agreement and certain proceeds of the
Leased Properties and only to the extent that the Lessor or the Agent shall have
received sufficient payments from such sources to make payments in respect of
the Loans in accordance with SECTION 3. Each Lender agrees that it will look
solely to such sources of payments to the extent available for distribution to
such Lender as herein provided and that neither the Lessor nor the Agent is or
shall be personally liable to any Lender for any amount payable hereunder or
under the Note. Nothing in this Loan Agreement, the Note or any other Operative
Document shall be construed as creating any liability (other than for willful
misconduct or gross negligence) of the Lessor individually to pay any sum or to
perform any covenant, either express or implied, in this Loan Agreement, the
Notes or any other Operative Documents (all such liability, if any, being
expressly waived by each Lender) and that each Lender, on behalf of itself and
its successors and assigns, agrees in the case of any liability of the Lessor
hereunder or thereunder (except for such liability attributable to its willful
misconduct or gross negligence) that it will look solely to those certain
payments received under the Lease, the Guaranty Agreements and the Construction
Agency Agreement and those certain proceeds of the Leased Properties, PROVIDED,
HOWEVER, that the Lessor in its individual capacity shall in any event be liable
with respect to (i) the removal of Lessor's Liens or involving its gross
negligence or willful misconduct or (ii) failure to turn over payments the
Lessor has received in accordance with SECTION 3; and PROVIDED FURTHER that the
foregoing exculpation of the Lessor shall not be deemed to be exculpations of
either Guarantor, any Lessee or any other Person.
SECTION 4.3 EXERCISE OF REMEDIES UNDER THE LEASE.
(a) EVENT OF DEFAULT. With respect to any Potential Event of Default as
to which notice thereof by the Lessor to ADESA or a Lessee is a requirement to
cause such Potential Event of Default to become an Event of Default, the Lessor
agrees to give such notice to ADESA or such Lessee promptly upon receipt of a
written request by any Lender or the Agent. With respect to any event as to
which notice thereof by the Lessor to the Construction Agent is a requirement to
cause such event to become a Construction Agency Event of Default, the Lessor
agrees to give such notice to the Construction Agent promptly upon receipt of a
written request
iv
by any Lender or the Agent. The Lessor shall not, without the prior written
consent of the Required Lenders, waive any Event of Default or any Construction
Agency Event of Default.
(b) ACCELERATION OF LEASE BALANCE. When an Event of Default or a
Construction Failure Event exists, the Lessor shall exercise remedies under
Article XIII of the Lease or Section 5 of the Construction Agency Agreement, as
the case may be, as directed by the Required Lenders, including, if so directed,
demanding payment in full of the Lease Balance by the Lessees (the
"ACCELERATION"). The Lessor shall consult with the Lenders regarding actions to
be taken in response to such Event of Default or a Construction Failure Event.
The Lessor (1) shall not, without the prior written consent of the Required
Lenders and (2) shall (subject to the provisions of this SECTION), if so
directed by the Required Lenders, do any of the following: commence eviction or
foreclosure proceedings, or file a lawsuit against any Lessee under the Lease,
or sell the Leased Properties, or exercise other remedies against the Lessees or
the Guarantors under the Operative Documents in respect of such Event of Default
or a Construction Failure Event; PROVIDED, HOWEVER, that any payments received
by the Lessor shall be distributed in accordance with Section 6 of the Master
Agreement. Notwithstanding any such consent, direction or approval by the
Required Lenders of any such action or omission, the Lessor shall not have any
obligation to follow such direction if the same would, in the Lessor's
reasonable judgment, require the Lessor to expend its own funds or expose the
Lessor to expense, unless Required Lenders provide to the Lessor an indemnity,
in form and substance reasonably acceptable to the Lessor, for such liability,
loss or damage or unless and until the Lenders advance to the Lessor an amount
which is sufficient, in the Lessor's reasonable judgment, to cover such
liability, expense, loss or damage (excluding the Lessor's pro rata share
thereof, if any). Notwithstanding the foregoing, on and after the related
Release Date (and any application otherwise required under Section 6 of the
Master Agreement has been made): the Lenders shall have no rights to such Leased
Property or any proceeds thereof; the Lenders shall have no rights to direct or
give consent to any actions with respect to such Leased Property and the
proceeds thereof; the Lessor shall have absolute discretion (but in all events
subject to the terms of the Operative Documents) with respect to such exercise
of remedies with respect to such Leased Property, and the proceeds thereof,
including, without limitation, any foreclosure or sale of such Leased Property;
and the Lessor shall have no liability to the Lenders with respect to the
Lessor's actions or failure to take any action with respect to such Leased
Property.
SECTION 5 LOAN EVENTS OF DEFAULT; REMEDIES
SECTION 5.1 LOAN EVENTS OF DEFAULT. Each of the following events
shall constitute a Loan Event of Default (whether any such event shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any Governmental Authority) and each such Loan
Event of Default shall continue so long as, but only as long as, it shall not
have been remedied:
(a) Lessor shall fail to distribute in accordance with the
provisions of Section 6 of the Master Agreement any amount received by
the Lessor pursuant to any of the
v
Operative Documents within two (2) Business Days of receipt thereof if and to
the extent that the Agent or the Lenders are entitled to such amount or a
portion thereof; or
(b) the Lessor shall fail to pay to the Agent, within two (2)
Business Days of the Lessor's receipt thereof, any amount which a
Lessee or a Guarantor is required, pursuant to the Operative Documents,
to pay to the Agent but erroneously pays to the Lessor; or
(c) failure by the Lessor to perform in any material respect
any other covenant or condition herein or in any other Operative
Document to which the Lessor is a party, which failure shall continue
unremedied for thirty (30) days after receipt by the Lessor of written
notice thereof from the Agent or any Lender; or
(d) any representation or warranty of the Lessor contained in
any Operative Document or in any certificate required to be delivered
thereunder shall prove to have been incorrect in a material respect
when made and shall not have been cured within thirty (30) days of
receipt by the Lessor of written notice thereof from the Agent or any
Lender; or
(e) the Lessor or the General Partner shall become bankrupt or
make an assignment for the benefit of creditors or consent to the
appointment of a trustee or receiver; or a trustee or a receiver shall
be appointed for the Lessor or the General Partner or for substantially
all of its property without its consent and shall not be dismissed or
stayed within a period of ninety (90) days; or bankruptcy,
reorganization or insolvency proceedings shall be instituted by or
against the Lessor or the General Partner and, if instituted against
the Lessor or the General Partner, shall not be dismissed or stayed for
a period of ninety (90) days; or
(f) any Event of Default shall occur and be continuing.
SECTION 5.2 REMEDIES.
(a) Upon the occurrence of a Loan Event of Default hereunder, (i) if
such event is a Loan Event of Default specified in CLAUSE (e) of SECTION 5.1
with respect to the Lessor, automatically the Lenders' Commitments shall
terminate and the outstanding principal of, and accrued interest on, the Loans
shall be immediately due and payable, and (ii) if such event is any other Loan
Event of Default, upon written request of the Required Lenders, the Agent shall,
by notice of default to the Lessor, declare the Commitments of the Lenders to be
terminated forthwith and the outstanding principal of, and accrued interest on,
the Loans to be immediately due and payable, whereupon the Commitments of the
Lenders shall immediately terminate and the outstanding principal of, and
accrued interest on, the Loans shall become immediately due and payable.
vi
(b) When a Loan Event of Default exists, the Agent may, and upon the
written instructions of the Required Lenders shall, exercise any or all of the
rights and powers and pursue any and all of the remedies available to it
hereunder, under the Note, the Mortgages and the Assignments of Lease and Rents
and shall have and may exercise any and all rights and remedies available under
the Uniform Commercial Code or any provision of law. When a Loan Event of
Default exists, the Agent may, and upon the written instructions of the Required
Lenders shall, have the right to exercise all rights of the Lessor under the
Lease pursuant to the terms and in the manner provided for in the Mortgages and
the Assignments of Lease and Rents.
(c) Except as expressly provided above, no remedy under this SECTION
5.2 is intended to be exclusive, but each shall be cumulative and in addition to
any other remedy provided under this SECTION 5.2 or under the other Operative
Documents or otherwise available at law or in equity. The exercise by the Agent
or any Lender of any one or more of such remedies shall not preclude the
simultaneous or later exercise of any other remedy or remedies. No express or
implied waiver by the Agent or any Lender of any Loan Event of Default shall in
any way be, or be construed to be, a waiver of any future or subsequent Loan
Event of Default. The failure or delay of the Agent or any Lender in exercising
any rights granted it hereunder upon any occurrence of any of the contingencies
set forth herein shall not constitute a waiver of any such right upon the
continuation or recurrence of any such contingencies or similar contingencies
and any single or partial exercise of any particular right by the Agent or any
Lender shall not exhaust the same or constitute a waiver of any other right
provided herein.
SECTION 6 THE AGENT
SECTION 6.1 APPOINTMENT. Each Lender hereby irrevocably designates
and appoints the Agent as the agent of such Lender under this Loan Agreement and
the other Operative Documents, and each such Lender irrevocably authorizes the
Agent, in such capacity, to take such action on its behalf under the provisions
of this Loan Agreement and the other Operative Documents and to exercise such
powers and perform such duties as are expressly delegated to the Agent by the
terms of this Loan Agreement and the other Operative Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Loan Agreement, the Agent shall not
have any duties or responsibilities, except those expressly set forth herein, or
any fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Loan Agreement or any other Operative Document or otherwise exist against the
Agent.
SECTION 6.2 DELEGATION OF DUTIES. The Agent may execute any of its
duties under this Loan Agreement and the other Operative Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
vii
SECTION 6.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Loan Agreement or any other Operative
Document (except for its or such Person's own gross negligence or willful
misconduct) or (b) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Lessor or any
Lessee or any officer thereof contained in this Loan Agreement or any other
Operative Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent under or in connection
with, this Loan Agreement or any other Operative Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this Loan
Agreement or any other Operative Document or for any failure of the Lessor or
any Lessee to perform its obligations hereunder or thereunder. The Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Loan Agreement or any other Operative Document, or to inspect the
properties, books or records of the Lessor, any Guarantor or any Lessee.
SECTION 6.4 RELIANCE BY AGENT. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Lessor or any Lessee), independent accountants and
other experts selected by the Agent. The Agent may deem and treat each Lender as
the owner of its pro rata share of the Loans for all purposes unless a written
notice of assignment, negotiation or transfer thereof shall have been filed with
the Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Loan Agreement or any other Operative Document unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Funding
Parties against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Subject to the Operative
Documents, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Loan Agreement and the other Operative
Documents in accordance with a request of the Required Lenders, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of an interest in the Note.
SECTION 6.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Loan Potential Event of Default or
Loan Event of Default hereunder unless the Agent has received notice from a
Lender referring to this Loan Agreement, describing such Loan Potential Event of
Default or Loan Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Lenders. The Agent shall take such action, subject to
the Operative Documents with respect to such Loan Potential Event of Default or
Loan Event of Default as shall be reasonably directed by the Required Lenders;
PROVIDED that unless and until the Agent
viii
shall have received such directions, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Loan Potential Event of Default or Loan Event of Default as it shall deem
advisable in the best interests of the Lenders.
SECTION 6.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Lessor, any Guarantor or any
Lessee, shall be deemed to constitute any representation or warranty by the
Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Lessor, each Guarantor
and each Lessee and made its own decision to make its Loans hereunder and enter
into this Loan Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Loan Agreement and the other Operative Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Lessor, each Guarantor and each Lessee. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Lessor, any Guarantor or any
Lessee which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 6.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent
in its capacity as such (to the extent not reimbursed by a Lessee and without
limiting the obligation of any Lessee to do so), ratably according to the
percentage each Lender's Commitment bears to the total Commitments of all of the
Lenders on the date on which indemnification is sought under this SECTION 6.7
(or, if indemnification is sought after the date upon which the Lenders'
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with the percentage that each Lender's Commitment bears to
the Commitments of all of the Lenders immediately prior to such date), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Note) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of, the Commitments,
this Loan Agreement, any of the other Operative Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; PROVIDED that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross
ix
negligence or willful misconduct. The agreements in this SECTION 6.7 shall
survive the payment of the Note and all other amounts payable hereunder.
SECTION 6.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Lessor, any Guarantor or any Lessee as though the
Agent were not the Agent hereunder and under the other Operative Documents. With
respect to Loans made or renewed by it, the Agent shall have the same rights and
powers under this Loan Agreement and the other Operative Documents as any Lender
and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" shall include the Agent in its individual capacity. Each
Lender acknowledges that the Agent in its individual capacity has had and
continues to have other business relations and transactions with ADESA, ADESA's
Affiliates and the Lessor.
SECTION 6.9 SUCCESSOR AGENT. The Agent may resign as Agent upon 20
days' notice to the Lenders effective upon the appointment of a successor agent.
The Required Lenders may remove the Agent for cause upon 10 days' notice to the
Agent effective upon the appointment of a successor agent. If the Agent shall
resign or be removed as Agent under this Loan Agreement and the other Operative
Documents, then the Required Lenders shall appoint a successor agent for the
Lenders, which successor agent shall be a commercial bank organized under the
laws of the United States of America or any State thereof or under the laws of
another country which is doing business in the United States of America and
having a combined capital, surplus and undivided profits of at least
$100,000,000, whereupon such successor agent shall succeed to the rights, powers
and duties of the Agent, and the term "Agent" shall mean such successor agent
effective upon such appointment and approval, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further act
or deed on the part of such former Agent or any of the parties to this Loan
Agreement or any holders of an interest in the Note. After any retiring Agent's
resignation or removal as Agent, all of the provisions of this SECTION 6 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Loan Agreement and the other Operative Documents.
SECTION 7 MISCELLANEOUS
SECTION 7.1 DOCUMENTARY CONVENTIONS. The Documentary Conventions
shall apply to this Loan Agreement.
SECTION 7.2 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise
and no delay in exercising, on the part of the Agent or any Lender, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
x
SECTION 7.3 SUCCESSORS AND ASSIGNS. This Loan Agreement shall be
binding upon and inure to the benefit of the Lessor, the Agent, the Lenders, all
future holders of an interest in the Note and their respective successors and
permitted assigns.
SECTION 7.4 SURVIVAL AND TERMINATION OF AGREEMENT. All covenants,
agreements, representations and warranties made herein and in any certificate,
document or statement delivered pursuant hereto or in connection herewith shall
survive the execution and delivery of this Loan Agreement and the Note, and
shall continue in full force and effect so long as any amount payable to any
Lender under or in connection with this Loan Agreement or the Note is unpaid, at
which time this Loan Agreement shall terminate.
xi
IN WITNESS THEREOF, the parties hereto have caused this Loan Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
SUNTRUST BANK, as Agent
By: /s/ W. David Wisdom
-------------------------------
Name: W. David Wisdom
-------------------------
Title: Vice President
------------------------
S-1 LOAN AGREEMENT
ATLANTIC FINANCIAL GROUP, LTD., as
Lessor and Borrower
By: Atlantic Financial Managers, Inc.,
its General Partner
By: /s/ Stephen Brookshire
---------------------------------
Name: Stephen Brookshire
Title: President
S-2 LOAN AGREEMENT
SUNTRUST BANK,
as a Lender
By: /s/ W. David Wisdom
-------------------------------------
Name: W. David Wisdom
----------------------------
Title: Vice President
----------------------------
S-3 LOAN AGREEMENT
LASALLE BANK NATIONAL ASSOCIATION,
as a Lender
By: /s/ Matthew R. Doye
-------------------------------------
Name: Matthew R. Doye
-----------------------------
Title: Commercial Loan Officer
----------------------------
S-4 LOAN AGREEMENT
HARRIS TRUST AND SAVINGS BANK,
as a Lender
By: /s/ Thad D. Rasche
-------------------------------------
Name: Thad D. Rasche
-----------------------------
Title: Vice President
----------------------------
S-5 LOAN AGREEMENT
EXHIBIT A TO
LOAN AGREEMENT
NOTE
Atlanta, Georgia
$43,425,000 July 30, 2001
FOR VALUE RECEIVED, the undersigned, ATLANTIC FINANCIAL GROUP,
LTD.("LESSOR") promises to pay to the order of SUNTRUST BANK, in its capacity as
Agent (as defined below), for the ratable benefit of the Lenders, at the office
of the Agent at 303 Peachtree Street, Atlanta, Georgia 30308 or such other
address as the holder hereof shall have previously designated in writing to the
Lessor, the aggregate unpaid principal amount of all Loans made by the Lenders
to, or for the benefit of, the Lessor, as recorded either on the grid attached
to this Note or in the records of the Agent or the Lenders (and such recordation
shall constitute PRIMA FACIE evidence of the information so recorded; PROVIDED,
HOWEVER, that the failure to make any such recordation shall not in any way
affect the Lessor's obligation to repay this Note). The principal amount of each
Loan evidenced hereby shall be payable on or prior to the Lease Termination Date
as provided in the Loan Agreement.
The Lessor further promises to pay interest on the unpaid principal
amount of this Note from time to time outstanding, payable as provided in the
Loan Agreement, at the rates PER ANNUM provided in the Loan Agreement; PROVIDED,
HOWEVER, that such interest rate shall not at any time exceed the maximum rate
permitted by law. All payments of principal of and interest on this Note shall
be payable in lawful currency of the United States of America at the office of
the Agent as provided above or such other address as the holder hereof shall
have designated to the Lessor, in immediately available funds.
This Note is the Note referred to in that certain Loan Agreement, dated
as of July 30, 2001, among the Lessor, the lenders from time to time party
thereto, and SunTrust Bank, as agent (the "AGENT") for such lenders (as it may
be amended or modified from time to time, herein called the "LOAN AGREEMENT").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Loan Agreement. This Note is secured
pursuant to the other Loan Documents from the Lessor to the Agent referred to in
the Loan Agreement (including, without limitation, the Mortgages) and reference
is hereby made to the Loan Agreement and such other Loan Documents for a
statement of the terms and provisions of such security.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest, and notice of
dishonor, notice of the existence, creation or nonpayment of all or any of the
Loans and all other notices whatsoever.
This Note shall be governed by and construed in accordance with the
laws of the State of Georgia, without regard to conflicts of law principles.
All payments and other obligations to be made or performed by the
Lessor in respect of the Loans and this Note shall be made only from certain
payments received under the Lease, the Guaranty Agreements and the Construction
Agency Agreement and certain proceeds of the Leased Properties and only to the
extent that the Lessor shall have received sufficient payments from such sources
to make payments in respect of the Loans in accordance with and subject to the
priorities set forth in the Loan Agreement. Each Lender agrees that it will look
solely to such sources of payments to the extent available for distribution to
the Lenders or the Agent as provided in the Loan Agreement and that neither the
Lessor, nor any of its partners, nor the Agent is or shall be personally liable
to any Lender for any amount payable hereunder or under the Loan Agreement.
Notwithstanding anything to the contrary contained herein, nothing in this Note
shall be construed as creating any liability (other than for willful misconduct,
gross negligence or misrepresentation) of Lessor individually to pay any sum or
to perform any covenant, condition, obligation or warranty either express or
implied, in this Note (all such liability, if any, being expressly waived by
each Lender) and that each Lender, on behalf of itself and its successors and
assigns, agrees in the case of any liability of Lessor hereunder (other than for
willful misconduct or gross negligence) that it will look solely to those
certain payments received under the Lease, the Guaranty Agreements and the
Construction Agency Agreement and those certain proceeds of the Leased
Properties as provided in the Loan Agreement; PROVIDED, HOWEVER, that Lessor in
its individual capacity shall in any event be liable with respect to (i) the
removal of Lessor Liens, (ii) its gross negligence or willful misconduct or
(iii) failure to turn over payments the Lessor has received in accordance with
the Loan Agreement and the Master Agreement; and PROVIDED FURTHER that the
foregoing exculpation of the Lessor shall not be deemed to be exculpations of
either Guarantor, any Lessee or any other Person.
-2-
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized officer as of the day and year first above written.
ATLANTIC FINANCIAL GROUP, LTD.
By: Atlantic Financial Managers,
Inc., its General Partner
By: Stephen Brookshire
------------------------------------
Name Printed: Stephen Brookshire
Title: President
-3-
GRID ATTACHED TO A NOTE
DATED JULY 30, 2001 OF
ATLANTIC FINANCIAL GROUP, LTD.
AS LESSOR
PAYABLE TO THE ORDER OF SUNTRUST BANK, AS AGENT
Loans made by the Lenders to the Lessor and payments of principal of such Loans.
- --------------------------------------------------------------------------------
Outstanding Related
Amount of Interest Principal Leased Notation
Date Loan Rate Balance Property Made By
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Exhibit 10(j)
===================================================================
GUARANTY AGREEMENT
from
ALLETE INC.
Dated as of July 30, 2001
===================================================================
TABLE OF CONTENTS
Page
SECTION 1. Guaranty.....................................................1
SECTION 2. Bankruptcy...................................................2
SECTION 3. Continuing Guaranty..........................................2
SECTION 4. Reinstatement................................................3
SECTION 5. Certain Actions..............................................3
SECTION 6. Application..................................................3
SECTION 7. Waiver.......................................................3
SECTION 8. Assignment...................................................5
SECTION 9. Subrogation..................................................5
SECTION 10. Miscellaneous................................................5
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, dated as of July 30, 2001 (as amended or
otherwise modified from time to time, this "GUARANTY"), is made by ALLETE INC.,
a Minnesota corporation ("GUARANTOR").
W I T N E S S E T H:
-------------------
WHEREAS, ADESA Corporation, as a Guarantor, ADESA California, Inc. and
certain other Subsidiaries of ADESA Corporation that are or may become party
thereto, as Lessees, Atlantic Financial Group, Ltd., as Lessor, the financial
institutions party thereto, as Lenders, and SunTrust Bank, as Agent, have
entered into that certain Master Agreement, dated as of July 30, 2001 (as it may
be modified, amended or restated from time to time as and to the extent
permitted thereby, the "MASTER AGREEMENT"; and, unless otherwise defined herein,
terms which are defined or defined by reference in the Master Agreement
(including Appendix A thereto) shall have the same meanings when used herein as
such terms have therein); and
WHEREAS, it is a condition precedent to the Funding Parties
consummating the transactions to be consummated on the Initial Closing Date that
the Guarantor execute and deliver this Guaranty; and
WHEREAS, it is in the best interests of the Guarantor that the
transactions contemplated by the Master Agreement be consummated on the Initial
Closing Date; and
WHEREAS, this Guaranty, and the execution, delivery and performance
hereof, have been duly authorized by all necessary corporate action of
Guarantor; and
WHEREAS, this Guaranty is offered by the Guarantor as an inducement to
the Funding Parties to consummate the transactions contemplated in the Master
Agreement, which transactions, if consummated, will be of benefit to Guarantor;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Guarantor, the Guarantor hereby agrees as follows:
SECTION 1. GUARANTY. Guarantor hereby unconditionally guarantees to the
Agent and the Funding Parties the full and prompt payment when due, whether by
acceleration or otherwise, and at all times thereafter, and the full and prompt
performance, of all of the Liabilities (as hereinafter defined), including rent,
interest and Yield on any such Liabilities, whether accruing before or after any
bankruptcy or insolvency case or proceeding involving Guarantor, any Lessee or
any other Person and, if rent, interest or Yield on any portion of such
obligations ceases to accrue by operation of law by reason of the commencement
of such case or
proceeding, including such rent, interest and earnings as would have accrued on
any such portion of such obligations if such case or proceeding had not
commenced, and further agrees to pay all reasonable expenses (including
reasonable attorneys' fees and legal expenses) actually paid or incurred by each
of the Funding Parties in endeavoring to collect the Liabilities, or any part
thereof, and in enforcing this Guaranty. Notwithstanding the foregoing, during
the Construction Term for any Leased Property, only the Lessor shall be entitled
to make a claim under this Guaranty for Liabilities related to such Leased
Property. The term "LIABILITIES", as used herein, shall mean all of the
following, in each case howsoever created, arising or evidenced, whether direct
or indirect, joint or several, absolute or contingent, or now or hereafter
existing, or due or to become due: all amounts payable by the Lessees or the
Construction Agent to the Agent and the Funding Parties under the Lease
(including, without limitation, Basic Rent, Supplemental Rent and the Recourse
Deficiency Amount), the Master Agreement, the Construction Agency Agreement or
any other Operative Document; PROVIDED, HOWEVER, that the Guarantor will not be
obligated to pay to the Agent and Funding Parties under this Guaranty any
amounts greater than the Lessees and the Construction Agent would have had to
pay to the Agent and the Funding Parties under the Lease, the Master Agreement,
the Construction Agency Agreement and the other Operative Documents assuming
that such documents were enforced in accordance with their terms (and without
giving effect to any discharge or limitation thereon resulting or arising by
reason of the bankruptcy or insolvency of a Lessee), plus all actual and
reasonable costs of enforcing this Guaranty.
By way of extension but not in limitation of any of its other
obligations hereunder, Guarantor stipulates and agrees that if any foreclosure
proceedings are commenced with respect to any Leased Property and result in the
entering of a foreclosure judgment, any such foreclosure judgment, to the extent
related to the Liabilities and payable to any of the Funding Parties, shall be
treated as part of the Liabilities, and Guarantor unconditionally guarantees the
full and prompt payment of such judgment.
SECTION 2. BANKRUPTCY. Guarantor agrees that, in the event any
bankruptcy, reorganization or insolvency proceeding shall be instituted by or
against Guarantor and, if instituted against Guarantor, shall not be dismissed
or stayed for a period of ninety (90) days, and if such event shall occur at a
time when any of the Liabilities may not then be due and payable, Guarantor will
pay to the Funding Parties forthwith the full amount which would be payable
hereunder by Guarantor if all Liabilities were then due and payable.
SECTION 3. CONTINUING GUARANTY. THIS GUARANTY SHALL IN ALL RESPECTS BE
A CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY OF PROMPT AND COMPLETE PAYMENT
AND PERFORMANCE (AND NOT MERELY OF COLLECTION), AND SHALL REMAIN IN FULL FORCE
AND EFFECT (NOTWITHSTANDING, WITHOUT LIMITATION, THE DISSOLUTION OF GUARANTOR)
UNTIL THE TERMINATION OF THE COMMITMENTS AND THE FULL AND FINAL PAYMENT OF ALL
OF THE LIABILITIES.
2
SECTION 4. REINSTATEMENT. Guarantor further agrees that, if at any time
all or any part of any payment theretofore applied to any of the Liabilities is
or must be rescinded or returned for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of Guarantor or any
Lessee), such Liabilities shall, for the purposes of this Guaranty, to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application, and this Guaranty
shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application had not been made.
SECTION 5. CERTAIN ACTIONS. The Funding Parties may, from time to time
at their discretion and without notice to Guarantor (but subject to the terms of
the other Operative Documents), take any or all of the following actions without
impairing Guarantor's obligations hereunder: (a) retain or obtain (i) a security
interest in any Lessee's interests in the Lease or the Leased Property and (ii)
a lien or a security interest hereafter granted by any Person upon or in any
property, in each case to secure any of the Liabilities or any obligation
hereunder; (b) retain or obtain the primary or secondary obligation of any
obligor or obligors, in addition to the Guarantors, with respect to any of the
Liabilities; (c) extend or renew for one or more periods (regardless of whether
longer than the original period), or release or compromise any obligation of
Guarantor hereunder or any obligation of any nature of any other obligor
(including, without limitation, the Lessor and the Lessees) with respect to any
of the Liabilities; (d) release or fail to perfect its Lien upon or security
interest in, or impair, surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Liabilities or
any obligation hereunder, or extend or renew for one or more periods (regardless
of whether longer than the original period) or release or compromise any
obligations of any nature of any obligor with respect to any such property; and
(e) resort to Guarantor for payment of any of the Liabilities, regardless of
whether the Agent or any other Person shall have resorted to any property
securing any of the Liabilities or any obligation hereunder or shall have
proceeded against any Lessee or any other obligor primarily or secondarily
obligated with respect to any of the Liabilities (all of the actions referred to
in this CLAUSE (e) being hereby expressly waived by Guarantor).
SECTION 6. APPLICATION. Any amounts received by any Funding Party from
whatever source on account of the Liabilities shall be applied by it toward the
payment of such of the Liabilities, and in such order of application, as is set
forth in the Operative Documents.
SECTION 7. WAIVER. Guarantor expressly waives: (a) any defense based
upon any legal disability or other defense of any Lessee, any other guarantor or
other person, or by reason of the cessation or limitation of the liability of
any Lessee from any cause other than full payment of all sums payable under the
Operative Documents; (b) any defense based upon any lack of authority of the
officers, directors, partners or agents acting or purporting to act on behalf of
any Lessee or any principal of any Lessee or any defect in the formation of any
Lessee or any principal of any Lessee; (c) any defense based upon the
application by any Lessee of the proceeds of the Advances for purposes other
than the purposes represented by the Lessees and/or the Construction Agent to
the Funding Parties or intended or understood by the Funding Parties
3
or Guarantor; (d) any and all rights and defenses arising out of an election of
remedies by the Agent or any Funding Party, even though that election of
remedies may adversely affect Guarantor's rights of subrogation and
reimbursement against the principal; (e) any defense based upon a Funding
Party's or the Agent's failure to disclose to Guarantor any information
concerning any Lessee's financial condition or any other circumstances bearing
on any Lessee's ability to pay all sums payable under the Operative Documents;
(f) any defense based upon any statute or rule of law which provides that the
obligation of a surety must be neither larger in amount nor in any other
respects more burdensome than that of a principal; (g) any defense based upon
the Agent's or any Funding Party's election, in any proceeding instituted under
Bankruptcy Code (defined below), of the application of Section 1111(b)(2) of
Bankruptcy Code or any successor statute; (h) any defense based upon any
borrowing or any grant of a security interest under Section 364 of the
Bankruptcy Code; (i) any right of subrogation, any right to enforce any remedy
which the Agent or any Funding Party may have against any Lessee and any right
to participate in, or benefit from, any security for the Operative Documents now
or hereafter held by the Agent or any Funding Party (except as set forth in
SECTION 9); (j) presentment, demand, protest and notice of any kind; (k) the
benefit of any statute of limitations affecting the liability of Guarantor
hereunder or the enforcement hereof; (l) any right to require the Agent or any
Funding Party to institute suit or exhaust remedies against any Lessee or others
liable for any of such indebtedness, to enforce the Agent's or any Funding
Party's rights against any collateral which shall have been given to secure the
Liabilities, to enforce the Agent's or any Funding Party's rights against any
other guarantors of such indebtedness, to join any Lessee or any others liable
on such indebtedness in any action seeking to enforce this Guaranty, to resort
to any other means of obtaining payment of such indebtedness; (m) notices of
disbursement of Advance proceeds, acceptance hereof, proof of non-payment,
default under any Operative Document, notices and demands of any kind; and (n)
all diligence in collection of or realization upon the Liabilities or any
thereof. Guarantor further waives any and all rights and defenses that Guarantor
may have because any Lessee's debt is secured by real property; this means,
among other things, that: (1) the Agent and the Funding Parties may collect from
Guarantor without first foreclosing on any real or personal property collateral
pledged by any Lessee; (2) if the Agent or any Funding Party forecloses on any
real property collateral pledged by any Lessee, then (A) the amount of the debt
may be reduced only by the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price, and
(B) the Agent and the Funding Parties may collect from Guarantor even if the
Agent or any Funding Party, by foreclosing on the real property collateral, has
destroyed any right Guarantor may have to collect from any Lessee. The foregoing
sentence is an unconditional and irrevocable waiver of any rights and defenses
Guarantor may have because any Lessee's debt is secured by real property. These
rights and defenses being waived by Guarantor include, but are not limited to,
any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure. Without limiting the generality of the
foregoing or any other provision hereof, Guarantor further expressly waives to
the extent permitted by law any and all rights and defenses, including without
limitation any rights of subrogation, reimbursement, indemnification and
contribution, which might otherwise be available to Guarantor under California
Civil Code Sections 2787 to 2855, inclusive, 2899 and 3433, or under California
Code of Civil Procedure Sections 580a, 580b, 580d and 726, or any of such
sections. Finally, Guarantor agrees that the
4
performance of any act or any payment which tolls any statute of limitations
applicable to any of the other Operative Documents shall similarly operate to
toll the statute of limitations applicable to Guarantor's liability hereunder.
SECTION 8. ASSIGNMENT. Subject to Section 6 of the Master Agreement,
each Funding Party may, from time to time, whether before or after any
discontinuance of this Guaranty, at its sole discretion and without notice to
Guarantor, assign or transfer any or all of its portion of the Liabilities or
any interest therein; and, notwithstanding any such assignment or transfer or
any subsequent assignment or transfer thereof, such Liabilities shall be and
remain Liabilities for the purposes of this Guaranty, and each and every such
immediate and successive assignee or transferee of any of the Liabilities or of
any interest therein shall, to the extent of such assignee's or transferee's
interest in the Liabilities, be entitled to the benefits of this Guaranty to the
same extent as if such assignee or transferee were such Funding Party.
SECTION 9. SUBROGATION. The undersigned shall be subrogated to the
rights of the Agent and the Funding Parties under the Liabilities and this
Guaranty in respect of the Liabilities and all other amounts paid or payable by
the undersigned under this Guaranty. The undersigned shall not exercise any
right of subrogation against, and shall not require the Agent and the Funding
Parties to marshall any assets held as collateral security for, any Lessee or
any other party liable on the Liabilities unless and until all Liabilities
hereunder have been paid in full.
SECTION 10. MISCELLANEOUS. No delay in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action permitted hereunder shall in
any way affect or impair any Funding Party's rights or Guarantor's obligations
under this Guaranty. For the purposes of this Guaranty, Liabilities shall
include all of the obligations described in the definition thereof,
notwithstanding any right or power of any Lessee or the Lessor or anyone else to
assert any claim or defense (other than final payment or full performance) as to
the invalidity or unenforceability of any such obligation, and no such claim or
defense shall affect or impair the obligations of Guarantor hereunder. Guarantor
hereby acknowledges that there are no conditions to the effectiveness of this
Guaranty.
This Guaranty shall be binding upon Guarantor and upon Guarantor's
successors and permitted assigns; and all references herein to Guarantor shall
be deemed to include any successor or successors thereof, whether immediate or
remote, to such Person; provided that Guarantor shall not assign its obligations
hereunder, in whole or in part, without the prior written consent of the Funding
Parties, except that if Guarantor is a party to an internal reorganization
pursuant to which all or substantially all of Guarantor's common stock is
exchanged for the common stock of an entity that becomes the parent of
Guarantor, the Guarantor may assign and delegate its rights and obligations
under this Guaranty to Guarantor's new parent so long as (i) such new parent is
at least of the same credit quality (as reasonably determined by the Funding
Parties) as Guarantor immediately prior to such reorganization and (ii) such new
parent executes and delivers to the Agent such assumption agreements,
certificates and opinions as the Agent reasonably requests. Upon any such
delegation and assumption of obligations in accordance
5
with the previous sentence, Guarantor shall be relieved of and fully discharged
from all obligations hereunder, whether such obligations arose before or after
such delegation and assumption.
The Documentary Conventions shall apply to this Guaranty.
6
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
and delivered as of the date first above written.
ALLETE, INC.
By: /s/ Philip R. Halverson
--------------------------------------
Name Printed: Philip R. Halverson
Title: Vice President, General Counsel
and Secretary
S-1 GUARANTY
EXHIBIT 12
ALLETE
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
SUPPLEMENTAL RATIOS OF EARNINGS TO FIXED CHARGES
FOR THE YEAR ENDED DECEMBER 31 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Millions Except Ratios
Income from Continuing Operations Before Income Taxes $201.8 $213.1 $106.5 $128.7 $111.2
Add (Deduct)
Undistributed Income from Less than 50%
Owned Equity Investments - - (0.6) (14.1) (13.9)
Minority Interest 0.1 - 1.8 2.0 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
201.9 213.1 107.7 116.6 99.6
Fixed Charges
Interest on Long-Term Debt 74.0 54.5 48.4 48.5 50.4
Capitalized Interest 1.0 0.9 0.7 1.0 1.5
Other Interest Charges - Net 12.9 15.9 12.0 17.1 14.3
Interest Component of All Rentals 10.4 8.5 4.8 5.7 3.7
Distributions on Redeemable Preferred Securities of Subsidiary 6.0 6.0 6.0 6.0 6.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed Charges 104.3 85.8 71.9 78.3 75.9
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and Fixed Charges
(Excluding Capitalized Interest) $305.2 $298.0 $178.9 $193.9 $174.0
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges 2.93 3.47 2.49 2.48 2.29
Earnings Before Income Taxes and Fixed Charges
(Excluding Capitalized Interest) $305.2 $298.0 $178.9 $193.9 $174.0
Supplemental Charges 14.2 14.8 15.4 14.5 12.0
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and Fixed
and Supplemental Charges (Excluding Capitalized Interest) $319.4 $312.8 $194.3 $208.4 $186.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed Charges $104.3 $85.8 $71.9 $78.3 $75.9
Supplemental Charges 14.2 14.8 15.4 14.5 12.0
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed and Supplemental Charges $118.5 $100.6 $87.3 $92.8 $87.9
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Ratio of Earnings to Fixed Charges 2.70 3.11 2.23 2.25 2.12
- ------------------------------------------------------------------------------------------------------------------------------------
THE SUPPLEMENTAL RATIO OF EARNINGS TO FIXED CHARGES INCLUDES MINNESOTA POWER'S OBLIGATION UNDER A CONTRACT WITH SQUARE BUTTE
WHICH EXTENDS THROUGH 2026, PURSUANT TO WHICH MINNESOTA POWER IS ENTITLED TO APPROXIMATELY 71% OF THE OUTPUT OF A 455-MEGAWATT
COAL-FIRED GENERATING UNIT (UNIT). MINNESOTA POWER IS OBLIGATED TO PAY ITS PRO RATA SHARE OF SQUARE BUTTE'S COSTS BASED ON UNIT
OUTPUT ENTITLEMENT. MINNESOTA POWER'S PAYMENT OBLIGATION IS SUSPENDED IF SQUARE BUTTE FAILS TO DELIVER ANY POWER, WHETHER
PRODUCED OR PURCHASED, FOR A PERIOD OF ONE YEAR. SQUARE BUTTE'S FIXED COSTS CONSIST PRIMARILY OF DEBT SERVICE. VARIABLE
OPERATING COSTS INCLUDE THE PRICE OF COAL PURCHASED FROM BNI COAL UNDER A LONG-TERM CONTRACT. (SEE NOTE 13.)
EXHIBIT 23(a)
[PRICEWATERHOUSECOOPERS LLP LOGO]
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
650 Third Avenue South
Park Building
Suite 1300
Minneapolis, MN 55402-4333
Telephone (612) 596 6000
Facsimile (612) 373 7160
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-51989, 333-26755, 333-16463, 333-16445,
333-82901) of ALLETE, Inc. of our report dated January 21, 2002 appearing on
page 42 of this Annual Report on Form 10-K for the year ended December 31, 2001.
We also consent to the incorporation by reference of our report dated January
21, 2002 relating to the Financial Statement Schedule, which appears on page 62
of this Form 10-K for the year ended December 31, 2001.
We also consent to the incorporation by reference in the Prospectus constituting
part of the Registration Statement on Form S-3 (Nos. 333-02109, 333-40797,
333-58945, 333-41882, 333-54330, 333-57104, 333-71320) of ALLETE, Inc. of our
report dated January 21, 2002 appearing on page 42 of this Annual Report on Form
10-K for the year ended December 31, 2001. We also consent to the incorporation
by reference of our report dated January 21, 2002 relating to the Financial
Statement Schedule, which appears on page 62 of this Form 10-K for the year
ended December 31, 2001.
PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 7, 2002
EXHIBIT 23(b)
CONSENT OF GENERAL COUNSEL
The statements of law and legal conclusions under "Item 1. Business" in ALLETE's
Annual Report on Form 10-K for the year ended December 31, 2001 have been
reviewed by me and are set forth therein in reliance upon my opinion as an
expert.
I hereby consent to the incorporation by reference of such statements of law and
legal conclusions in Registration Statement Nos. 333-02109, 333-40797,
333-58945, 333-41882, 333-54330, 333-57104 and 333-71320 on Form S-3, and
Registration Statement Nos. 33-51989, 333-26755, 333-16463, 333-16445 and
333-82901 on Form S-8.
Philip R. Halverson
Philip R. Halverson
Duluth, Minnesota
February 7, 2002
