Item 1.01
Entry into a Material Definitive Agreement.
On November 30, 2017, AVDC, Inc. (“AVDC”), a wholly owned subsidiary of Big Lots, Inc. (“we,” “us,” “our” or “Company”), entered into a Real Property Lease Agreement (“Lease”) with Wachovia Service Corporation (“Lessor”) pursuant to which Lessor will lease certain property located in The Town of Apple Valley, California (“Leased Property”) to AVDC. The Leased Property will consist of approximately 106 acres of land and a to-be-constructed approximately 1,350,000 square foot distribution facility (“Distribution Facility”).
Also on November 30, 2017, AVDC, Lessor, Wells Fargo Bank, N.A., as agent (“Agent”), and the lease participant parties thereto (the “Lease Participants”) entered into a Participation Agreement (“Participation Agreement”), pursuant to which Lessor and the Lease Participants will fund the costs of the acquisition of the Leased Property and the construction of the Distribution Facility in an aggregate amount not to exceed $160 million.
Also on November 30, 2017, AVDC and Lessor entered into a Construction Agency Agreement (“Agency Agreement”), pursuant to which Lessor designated AVDC as its exclusive agent in connection with the acquisition of the Leased Property and the construction of the Distribution Facility.
The Company, together with all of its direct and indirect subsidiaries that serve as guarantors under the Company’s credit agreement dated July 22, 2011, as amended, guaranteed all of AVDC’s payment and performance obligations under the Lease, the Participation Agreement, the Agency Agreement and related documents (the “Operative Agreements”). The Operative Agreements contain customary representations and warranties, covenants and events of default. AVDC’s obligations under the Operative Agreements are secured by a pledge of AVDC’s interest in the Leased Property pursuant to a Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated November 30, 2017 by AVDC in favor of First American Title Insurance Company, as trustee for the benefit of Agent.
The Lease provides for an initial term of 78 months. The Lease may be extended for up to three successive five-year terms, with each renewal subject to approval by the Lessor and the Lease Participants in their absolute discretion. Following the completion of the construction of the Distribution Facility, the Lease requires AVDC to pay basic rent on the scheduled payment dates in arrears in an amount equal to the Yield (as defined below) on the aggregate outstanding amounts advanced by Lessor and the Lease Participants to fund the acquisition of the Leased Property and the construction of the Distribution Facility. In addition to basic rent, AVDC must pay all costs and expenses associated with the use or occupancy of the Leased Property, including without limitation, maintenance, insurance and certain indemnity payments. AVDC will also be responsible for any applicable unused fees with respect to the construction period, break-funding costs, annual lease administration fees and increased costs.
During the term of the Lease, under certain circumstances and subject to certain limitations and if AVDC is not in default thereunder, AVDC shall have the option to: (1) purchase the Leased Property for the Termination Value; or (2) arrange for the sale of the Leased Property to a third party.
If an event of default occurs under the Agency Agreement during the construction period relating to the Leased Property (including, without limitation, failing to complete the construction of the Distribution Facility within 18 months of November 30, 2017), Lessor may, among other remedies, (1) terminate the Lease and the Agency Agreement, transfer the Property to AVDC and require AVDC to pay to Lessor, as liquidated damages, the Termination Value, or (2) pursue a sale of the Leased Property to an unrelated third-party. The maximum amount that Lessor and the other lessor parties shall be entitled to recover from AVDC or any guarantor under these circumstances may be limited. In the event of an event of default under the Agency Agreement relating to fraud or other bad acts, AVDC would be liable for 100% of the Termination Value.
If an event of default occurs under the Lease, Lessor generally has the right to recover from AVDC the Termination Value and, following such payment, AVDC is entitled to receive ownership in the Leased Property from Lessor. In certain instances, AVDC’s liability to pay the Termination Value to Lessor may be limited. The Lease will be subject to early termination upon the occurrence of certain casualty or condemnation events or certain environmental violations with respect to the Leased Property.
The “Termination Value” for the Leased Property at any time will equal the sum of: (1) the aggregate amount advanced by Lessor and the Lease Participants to fund the acquisition of the Leased Property and construction of the Distribution Facility; (2) any accrued and unpaid Yield on such advances; and (3) all rent and other amounts owing and unpaid to Lessor, the Lease Participants and Agent under the Lease, the Participation Agreement and related documents.
The “Yield” on amounts advanced by Lessor and the Lease Participants will be calculated based on the applicable LIBOR rate or the prime rate, as selected by AVDC, plus a margin based on our credit ratings. As of the date of this report, the LIBOR margin was 160 basis points.