PIPING & EQUIPMENT, INC.’S (I) OBJECTION TO DEBTORS ... · piping & equipment, inc.’s (i)...

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0B0IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS

IN RE:

LOCKWOOD HOLDINGS, INC., et al.,

Debtor(s).

Case No. BK 18-30197 (DRJ)

Chapter 11

PIPING & EQUIPMENT, INC.’S (I) OBJECTION TO DEBTORS’ EXPEDITED

MOTION PURSUANT TO TO SECTIONS 363 AND 365 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 6004, AND 6006 FOR ORDER (A)

APPROVING COMPREHENSIVE SALE PROCESS, (B) APPROVING BIDDING PROCEDURES AND CERTAIN BID PROTECTIONS, (C) SCHEDULING AN

AUCTION AND A SALE HEARING, (D) APPROVING FORM AND MANNER OF NOTICE RELATED THERETO, (E) AUTHORIZING SALE FREE AND CLEAR OF

LIENS, CLAIMS, INTERESTS, AND ENCUMBRANCES, (F) AUTHORIZING ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND

UNEXPIRED LEASES AND PROPOSED CURE AMOUNTS WITH RESPECT THERETO AND (G) GRANTING RELATED RELIEF; (II) REQUEST FOR

ADEQUATE PROTECTION PURSUANT TO 11 U.S.C. § 363(E); AND (III) OBJECTION TO DEBTORS’ AMENDED EXPEDITED MOTION TO REJECT

NON-RESIDENTIAL REAL PROPERTY LEASE (CLUTE, TEXAS) [ T H I S O B J E C T I O N R E L A T E S T O D O C N O S . 4 8 3 & 5 6 5 ]

Piping and Equipment, Inc. (“Piping and Equipment”), a creditor and interested party in

the above-captioned bankruptcy, hereby (I) objects to Debtors’ Expedited Motion Pursuant to

Sections 363 and 365 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, and 6006 For

Order (A) Approving Comprehensive Sale Process, (B) Approving Bidding Procedures, (C)

Scheduling an Auction and a Sale Hearing, (D) Approving Form and Manner of Noticed Related

Thereto, (E) Authorizing Sale Free and Clear of All Liens, Claims, Interests and Encumbrances,

(F) Authorizing Assumption and Assignment of Certain Executory Contracts and Unexpired

Leases and Proposed Cure Amounts With Respect Thereto, and (G) Granted Related Relief

(Doc. 483) (the “Sale Motion”); (II) requests that the Court grant Piping and Equipment adequate

protection pursuant to 11 U.S.C. § 363(e); and (III) objects to Debtors’ Amended Expedited

Motion to Reject Nonresidential Real Property Lease (Clute, Texas) (Doc. 565) (the “Motion to

Case 18-30197 Document 606 Filed in TXSB on 08/17/18 Page 1 of 17

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Reject”). In support of this Objection and request for adequate protection (the “Objection and

Request for Adequate Protection”), Piping and Equipment respectfully states as follows:

INTRODUCTION

Piping and Equipment files this Objection and Request for Adequate Protection out of an

abundance of caution. Piping and Equipment is a lessee under an unexpired lease of

nonresidential real property with one of the Debtors acting as landlord. In the Motion to Reject

and Sale Motion, Debtors are seeking to sell the real property that is the subject of the unexpired

lease under Section 363 of the Bankruptcy Code, free and clear of the lease and Piping and

Equipment’s leasehold interest in the real property, and are further seeking to reject the

unexpired lease in a manner that deprives Piping and Equipment of its rights under Section

365(h) of the Bankruptcy Code. As of the date hereof, the proposed buyer is seeking an

assumption and assignment of the unexpired lease in connection with its proposed purchase of

the property. If the lease is assumed and assigned to the buyer, Piping and Equipment’s

leasehold interest and rights under the lease should be protected.

However, because the proposed asset purchase agreement provides that the proposed

buyer can change its mind regarding the lease at any time between now and closing, and not seek

an assumption and assignment of the lease, Piping and Equipment objects to the Motion to

Reject and Sale Motion and requests adequate protection under Section 363(e) to protect and

maintain Piping and Equipment’s leasehold interest in the property, rights under the lease, and

Section 365(h) rights.

BACKGROUND

(A). The Lease.

1. Piping and Equipment is a full line industrial distributor of pipe, valves, fittings

and related products.


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2. On October 1, 2017, Debtor Lockwood Holdings, Inc. (“Lockwood”), as landlord,

entered into a Lease with Piping and Equipment, as lessee (the “Lease”), regarding the property

located at 901 Wilson Road, Clute, Texas 77531 (the “Leased Premises”). Lockwood is the

owner of the Leased Premises. (Doc. 565, p. 3, ¶ 8)

3. The Lease does not expire for over one year, on September 30, 2019. (Doc. 202,

Debtors’ Schedule G, 2.30, p. 39)

4. Under the Lease, Piping and Equipment pays Lockwood $8,160.00 per month in

rent. As part of the Lease, Piping and Equipment is entitled to use all of the racking and

furniture in the Leased Premises and all of the racking in the pipe yard.

5. Section 12.2 of the Lease provides that if the Leased Premises is sold during the

term of the Lease, it will not affect Piping and Equipment.

6. The Lease is the result of an arms-length negotiation between Lockwood and

Piping and Equipment and its terms are commercially reasonable.

7. A true and correct copy of the Lease is attached as Exhibit A.

(B). The Sale Motion & the Sale Order.

8. On June 29, 2018, Debtors filed the Sale Motion, seeking, among other things, the

approval of a comprehensive sale process to sell unidentified assets pursuant to 11 U.S.C. § 363,

including the approval of Bidding Procedures, the scheduling of an Auction, and the scheduling

of the Sale Hearing.1 (Doc. 483)

9. The Sale Motion makes no reference to any specific asset that Debtors are seeking

to sell, nor does the Sale Motion state that any real property will be sold free and clear of any

leasehold interest that exists with respect to any real property. (Doc. 483, pp. 19-21) The Sale

1 For ease of reference, capitalized terms used herein when referring to the Sale Motion and Sale Order have the same meaning as set forth in the Sale Motion and Sale Order.


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Motion also does not mention the potential rejection of any lease, instead setting forth

procedures for the assumption and assignment of assumed contracts. (Id., pp. 16-19)

10. On July 17, 2018, the Court entered an Order Granting the Sale Motion (Doc.

513) (the “Sale Order”). The Sale Order states that any objections to the Sale Motion and the

proposed Sale shall be filed on or before August 17, 2018 at 4:00 p.m. Central Time. (Id., p. 5)

The Sale Order approved the Bidding Procedures and scheduled a Sale Hearing, but did not

otherwise approve the sale of any of Debtors’ assets under § 363(f) of the Bankruptcy Code.

(Id.)

(C). Debtors’ Motion to Reject – a Proposal to Deprive Piping and Equipment of Its Protections Under § 365(h)(1)(A).

11. On August 8, 2018, Debtors filed the Motion to Reject regarding the Lease. (Doc.

565) In the Motion to Reject, “Debtors seek authority to reject and terminate the Lease” subject

to the terms of a proposed order that is attached as Exhibit A to the Motion to Reject, with the

“rejection and termination to be effective at 11:59 p.m. (prevailing Central Standard Time) on

the 10th calendar day after Debtors file a notice of rejection and termination of the Lease with the

Court.” (Id., p. 4, ¶ 10)2

12. Essentially, Debtors are requesting the option of being able to reject the Lease

whenever they want to do so, and to provide Piping and Equipment with only ten (10) days’

notice prior to the effective date of such rejection and the date that Debtors argue Piping &

Equipment must vacate the Leased Premises. (Id.)

13. Prior to filing the amended Motion to Reject, on July 31, 2018, Debtors filed

Debtors’ Expedited Motion to Reject Non-Residential Real Property Lease (Clute, Texas) (Doc.

2 Throughout the Motion to Reject, Debtors ask the Court for authority to “reject and terminate” the Lease. See, e.g., (Doc. 565, p. 4) (emphasis added) It is well settled, however, that a rejection of a lease constitutes a breach of the lease, not a termination of it. Matter of Austin Dev. Co., 19 F.3d 1077, 1082 (5th Cir. 1994). See also 11 U.S.C. § 365(g). Accordingly, if Debtors are successful on the Motion to Reject, the result of the rejection is a breach of the Lease. There is no basis for the Lease to be terminated.


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548) (the “Initial Motion”). In the Initial Motion, Debtors asked the Court to approve rejection

of the Lease effective one day prior to the date scheduled for the Auction. (Doc. 548, p. 4, ¶ 10)

Debtors filed the Motion to Reject, however, after realizing that a potential purchaser of the

Leased Premises may want an assumption of the Lease. July 31, 2018 was the first date that

Debtors addressed the Lease during this bankruptcy, which has been pending since January 18,

2018.

14. As part of filing the Motion to Reject, Debtors seem to realize that a rejection of

the Lease triggers Piping & Equipment’s rights under 11 U.S.C. § 365(h)(1)(A). 11 U.S.C. §

365(h)(1)(A). Under § 365(h)(1)(A), Piping and Equipment has two options upon rejection of

the Lease: (a) treat the Lease as terminated and file a rejection damages claim, or (b) elect to

remain in possession of the Leased Premises and pay rent. See infra (Argument, Section I). In

the Motion to Amend, however, Debtors argue that if the Motion to Reject is granted, and if a

Sale of the Leased premises is approved under 11 U.S.C. § 363(f), the Leased Premises will be

sold “free and clear” of Piping and Equipment’s “leasehold interest, including [Piping and

Equipment’s] § 365(h) rights.” (Doc. 565, p. 10) Debtors argue that a rejection of the Lease will

permit the Debtors to sell the Leased Premises “without any restrictions,” including the Lease.

(Doc. 565, p. 5, ¶ 13)

15. As set forth herein, Debtors’ argument is wrong: a rejection of the Lease does not

result in Piping and Equipment being deprived of the protections provided to it by §

365(h)(1)(A) and any sale of the Leased Premises should be subject to Piping and Equipment’s

leasehold interest in the Leased Premises.

(D). The Proposed Sale of the Leased Premises.

16. An Auction to sell at least certain of Debtors’ assets was held on August 15, 2018

at 10:00 a.m. (Doc. 513, pp. 18-20)


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17. As of the date and time of filing this Objection and Request for Adequate

Protection, Debtors have not filed a notice of the Successful Bid and Successful Bidders. See

(Doc. 513, p. 20) (stating that “[p]romptly following the Debtors’ selection of the Successful

Bid(s) and the conclusion of the Auction, the Debtors shall announce the Successful Bid(s) and

Successful Bidder(s) and shall file with the Bankruptcy Court notice of the Successful Bid(s) and

Successful Bidder(s)”) (emphasis added)

18. Therefore, as of the date and time of filing this Objection and Request for

Adequate Protection, it is not clear what exact assets Debtors are proposing to sell and the

proposed terms and conditions of such a sale.

19. Prior to the Auction, on August 9, 2018, Debtors filed a Notice of Stalking Horse

Bidder (Certain U.S. Assets and Singapore Inventory) (Doc. 570) (the “Notice of Stalking Horse

Bidder”) identifying Lockwood Holdco, LLC (the “Buyer”) as the stalking horse bidder for

certain of the Debtors’ assets in the United States and Singapore, as enumerated on the terms set

forth in an Asset Purchase Agreement attached to the Notice (the “Proposed APA”). (Doc. 570)

20. On August 13, 2018, Debtors filed a Second Amended Notice of Stalking Horse

Bidder (Certain U.S. Assets and Singapore Inventory) (Doc. 582), attached to which are

amended schedules to the Proposed APA. (Doc. 582)

21. Piping and Equipment has been informed in email communications that the Buyer

is the Sucessful Bidder, however, the only Asset Purchase Agreement it has received a copy of is

the Proposed APA attached to the Notice of Stalking Horse Bidder. For purposes of this

Objection and Request for Adequate Protection, Piping and Equipment will assume (as it must)

that the terms and conditions of the Proposed APA have not materially changed as a result of the

Auction, at least with respect to those terms and conditions that affect Piping and Equipment.


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22. Under Section 2.1(a) and Schedule 2.1(a) of the Proposed APA, Buyer is seeking

to purchase the Leased Premises. (Doc. 570, p. 17); (Doc. 582, p. 5)

23. Section 7.3 of the Proposed APA states that Schedule 7.3(b) “contains a list of

those Contracts and Permits that Buyer elects to have assumed and assigned to Buyer on the

Closing Date hereof (the “Designated Contracts”).” (Doc. 570, p. 33)

24. The Lease is listed as a Designated Contract on Schedule 7.3(b), meaning that

Buyer is electing to have the Lease assumed and assigned to it. (Doc. 582, p. 28) Therefore, the

sale of the Leased Premises will be subject to the Lease.

25. However, Section 7.3 of the Proposed APA further states that “Buyer shall be

entitled to remove certain Contracts at any time prior to the date that is one business day prior to

Closing.” (Doc. 570, p. 33) Closing will not take place until after the Court has entered an order

approving the proposed Sale. (Id., pp. 8, 38) Therefore, under the language of the APA, at any

time between now and a date that is within fifteen (15) days after the Court enters an order

approving the proposed Sale, the Lease could be removed from the Designated Contracts list,

without notice to Piping and Equipment. (Id., p. 33) Debtors’ counsel has confirmed this

interpretation of the APA, communicating that the APA gives Buyer the “option” not assuming

the listed leases and executory contracts.

26. Piping and Equipment therefore files this Objection and Request for Adequate

Protection out of an abundance of caution, to protect its § 365(h) rights, its leasehold interest in

the Leased Premises, and its rights under the Lease, and to object to the proposed Sale of the

Leased Premises to the extent that the proposed Sale is not subject to the Lease.

ARGUMENT & AUTHORITIES

(I). THE MOTION TO REJECT AND SALE MOTION SHOULD BE DENIED TO THE EXTENT THAT EITHER OR BOTH MOTIONS SEEK TO DEPRIVE PIPING AND EQUIPMENT OF ITS RIGHTS AND PROTECTIONS UNDER 11 U.S.C. §


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365(H)(1)(A), INCLUDING THE RIGHT TO REMAIN IN POSSESSION OF THE LEASED PREMISES UNTIL THE END OF THE LEASE TERM.

27. Section 365(h)(1)(A) of the Bankruptcy Code provides “special protections” to a

lessee in the event that a debtor that is a lessor rejects an unexpired lease of nonresidential real

property, stating as follows:

If the trustee rejects an unexpired lease of real property under which the debtor is the lessor and – (i) if the rejection by the trustee amounts to such a breach as would entitle the lessee to treat such lease as terminated by virtue of its terms, applicable nonbankruptcy law, or any agreement made by the lessee, then the lessee under such lease may treat such lease as terminated by the rejection; or (ii) if the term of such lease has commenced, the lessee may retain its rights under such lease (including rights such as those relating to the amount and timing of payment of rent and other amounts payable by the lessee and any right of use, possession, quiet enjoyment, subletting, assignment, or hypothecation) that are in or appurtenant to the real property for the balance of the term of such lease and for any renewal or extension of such rights to the extent that such rights are enforceable under applicable nonbankruptcy law.

11 U.S.C. § 365(h)(1)(A). See In re Haskell L.P., 321 B.R. 1, 6-7 (D. Mass. Bankr. 2005)

(describing the two options provided to a lessee as “special protections”).

28. To state it more succinctly: in the event that a debtor, as lessor, rejects an

unexpired lease of nonresidential real property – like the Lease – the debtor’s rejection power is

limited and a lessee, like Piping and Equipment, is given two options: either treat the Lease as

terminated and make a claim for rejection damages, or continue in possession of the Leased

Premises and pay rent. Id. at 7.

29. Here, Debtors seek to deprive Piping and Equipment of the special protections

provided by § 365(h)(1)(A), primarily the right to continue in possession of the Leased Premises

until the end of the Lease term. (Doc. 565) Debtors argue that because the rejection of the Lease

is being sought in connection with a possible sale of the Leased Premises under § 363(f), the sale


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of the Leased Premises will be free and clear of liens, claims, interests or encumbrances,

including Piping and Equipment’s leasehold interest, and therefore, Piping and Equipment will

no longer have a leasehold interest in the Leased Premises and it will not be entitled to the

protections for lessees under § 365(h)(1)(A). (Id.)3

30. This question – the interplay between a lessee’s rights under § 365(h) and a sale

of property under § 363(f) – is the source of a split of authority between courts. See Matter of

Spanish Peaks Holdings II, LLC, 872 F.3d 892, 898 (9th Cir. 2017). The majority of courts that

have addressed this question have rejected Debtors’ argument, and instead recognized Piping and

Equipment’s rights as a lessee under § 365(h). See id. (recognizing that a majority of courts that

have addressed the apparent conflict between §§ 363(f) and 363(h) “hold that section 365 trumps

section 363” and a lessee cannot be deprived of its protections under § 365(h) by a sale under §

363).

31. The majority view has held that “the provisions of § 365(h) are the exclusive

remedies of a debtor lessor, and the debtor cannot avail itself of the provisions of § 363 to sell

property and extinguish a tenant’s leasehold interest.” Haskell, 321 B.R. at 7 (citing In re

Churchill Props. III, L.P., 197 B.R. 283 (Bankr. N.D. Ill. 1996); In re Taylor, 198 B.R. 142

(Bankr. D.S.C. 1996); In re LHD Realty Corp., 20 B.R. 717 (Bankr. S.D. Ind. 1982)).

32. The Haskell court explained that if the court were to grant a § 363(f) sale motion

that authorized a sale free and clear of a tenant’s leasehold interest, “the provisions of § 365(h)

would be eviscerated. In other words, the Debtor would be doing indirectly what it could not do

directly, namely, dispossessing [the tenant].” Id. Section 365(h) does not permit a debtor to

dispossess a lessee under an unexpired lease that is paying rent and fulfilling its lease

3 Notably, the Motion to Reject is the only motion in which Debtors articulate this position. The Sale Motion does not mention selling any real property free and clear of a leasehold interest. Debtors seem to be combining the relief requested in the two motions to make their argument.


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obligations. 11 U.S.C. § 365(h). See also Churchill, 197 B.R. at 288 (determining that “Section

365(h) is clear and specific in providing for certain rights and remedies available to the lessee

after rejection of its lease. . . Here, if the Court were to adopt the [] application of Section 363(f),

the application of Section 365(h)(1)(A)(ii) as it relates to non-debtor lessees would be

nugatory.”); Taylor, 198 B.R. at 167-68 (stating that “Congress intended § 365(h) to control the

rights of landlord and the tenant when a landlord files bankruptcy and that § 365(h) reflects a

careful balance between the needs of the bankrupt’s estate and the rights of a tenant to the estate

to which the tenant bargained.”).

33. Here, if Debtors reject the Lease, Piping and Equipment has two options under §

365(h), including staying in possession of the Leased Premises and paying rent for the remainder

of the Lease term. 11 U.S.C. § 365(h)(1)(A). Under the majority view, neither the Motion to

Reject, nor the Sale Motion, can deprive Piping and Equipment of this right and its leasehold

interest. See Haskell, 321 B.R. at 7.

34. Although a minority of courts have reached a different conclusion, it is important

to recognize a distinction between the scenario faced by those courts and this case. In Spanish

Peaks, the Ninth Circuit found that there was no conflict between §§ 363 and 365 because in that

case, § 365 had not been implicated because there was no rejection of the lease. Spanish Peaks,

872 F.3d at 899. The Ninth Circuit specifically declined to address the interplay of §§ 363 and

365 when a debtor rejects a lease and then proposes to sell the real property subject to the lease.

Id. n.6. The same is true of Precision Industries, Inc. v. Qualitech Steel SBQ, LLC (In re

Qualitech Steel Corp. & Qualitech Steel Holdings Corp.), 327 F.3d 537, 548 (7th Cir. 2003), in

which the Seventh Circuit held that § 363 permits a sale to occur free and clear of a lessee’s

possessory interest – provided the lessee is granted adequate protection for its interest. In

Qualitech, there had been no rejection of a lease prior to the sale motion and thus, according to


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the Seventh Circuit, there was no conflict between § 363 and § 365 for the court to resolve. Id.

at 547.

35. Here, Debtors are seeking to reject the Lease – thus triggering Piping and

Equipment’s § 365(h) rights – and then sell the Leased Premises free and clear of Piping and

Equipment’s leasehold interest, including its right to possession under § 365(h).

36. Piping and Equipment requests that the Court follow the majority view and hold

that Piping and Equipment’s right to remain in possession of the Leased Premises until the end of

the Lease term as explicitly provided by § 365(h) prohibits the sale of the Leased Premises free

and clear of Piping and Equipment’s leasehold interest. As the Haskell court found, a holding

otherwise would “eviscerate” Piping and Equipment’s § 365(h) rights and allow Debtors to do

what they cannot do: dispossess Piping and Equipment. See Haskell, 321 B.R. at 9.

(II). THE SALE MOTION SHOULD BE DENIED TO THE EXTENT THAT THE BUYER IS PROPOSING TO PURCHASE THE LEASED PREMISES NOT SUBJECT TO THE LEASE BASED ON A FAILURE TO SATISFY § 363(F).

37. As set forth above, as of the date hereof, Buyer is electing to assume the Lease

and have the Lease assigned to it. (Doc. 570, p. 33); (Doc. 582, p. 28) Nevertheless, the

Proposed APA gives Buyer the option of not assuming and taking an assignment of the Lease at

any time between now and Closing. (Doc. 570, p. 33) Accordingly, based on this state of

uncertainty, Piping and Equipment objects to the Sale Motion out of an abundance of caution to

the extent that the Buyer purports to change its mind and seeks to purchase the Leased Premises

free and clear of the Lease.

38. Section 363(f) permits a trustee to sell property free and clear of any interest in

such property of an entity other than the estate, only if –

(1) applicable nonbankruptcy law permits sale of such property free and

clear of such interest;


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(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold

is greater than the aggregate value of all liens on such property;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or equitable proceeding, to

accept a money satisfaction of such interest.

11 U.S.C. § 363(f).

39. In this case, Debtors argue that “[e]ach lien, claim, interest or encumbrance . . .

satisfies at least one of the five conditions of section 363(f).” (Doc. 483, p. 20, ¶ 43) This,

however, is not the case with respect to Piping and Equipment’s leasehold interest.

40. To begin with, the following subsections of § 363(f) are clearly not applicable to

Piping and Equipment’s leasehold interest:

• (2) – Piping and Equipment does not consent to the proposed Sale of the

Leased Premises if the proposed Sale is not subject to the Lease;

• (3) – Piping and Equipment’s leasehold interest is not a lien; and

• (4) – there is no dispute that the Lease exists and does not expire until

September 30, 2019.

41. The remaining subsections of § 363(f) also do not permit the Sale.

42. First, with respect to subsection (1), applicable nonbankruptcy law does not

permit a sale of the Leased Premises free and clear of Piping and Equipment’s leasehold interest.

Under Texas law, a purchaser with actual or constructive notice of a lease purchases real

property subject to that lease. See Alamo Fireworks, Inc. v. Truckload Fireworks, Inc., Case No.

08-01-00229-cv, 2002 WL 313191, *4 (Tex. Ct. App. Feb. 28, 2002) (citing Madison v. Gordon,

39 S.W.2d 604, 606 (Tex. 2001)).


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43. Here, the Buyer certainly has notice of the Lease. Subsection (1) therefore does

not authorize a sale free and clear of the Lease. See Dishi & Sons v. Bay Condos LLC, 510 B.R.

696, 710 (S.D.N.Y. 2016) (holding that a § 363(f) sale of real property was not free and clear of

a lease because such a sale was not authorized under applicable nonbankruptcy law).

44. Second, subsection (5) permits a sale of the Leased Premises free and clear of the

Lease if Piping and Equipment could be compelled to accept a money satisfaction of its interest

in a legal or equitable proceeding. 11 U.S.C. § 363(f). In Dishi & Sons, the court rejected the

argument that this subsection permits a sale free and clear of a leasehold interest. Id. at 711

(expressly rejecting the debtor’s argument that a sale free and clear is authorized under

subsection (5) because of a possible foreclosure by a creditor). Piping and Equipment is not

aware of any hypothetical legal or equitable proceeding in which Debtors could force Piping and

Equipment to vacate the Leased Premises in exchange for a money satisfaction of its leasehold

interest.

45. Accordingly, to the extent the Court disagrees with the majority line of cases cited

above, and finds that Piping and Equipment’s § 365(h) rights do not take precedence over a right

to sell the Leased Premises free and clear in a § 363 sale, the Court may still find that the

proposed Sale of the Leased Premises is subject to Piping and Equipment’s leasehold interest

because Debtors have failed to prove that any of the subsections of § 363(f) are met in this

instance. See Dishi, 510 B.R. at 699 (holding that although § 363(h) does not give a lessee an

absolute right that takes precedence over a trustee’s right to sell free and clear of interests, §

363(f) will rarely permit a sale free and clear of a lessee’s rights). Putting aside Piping and

Equipment’s § 365(h) rights, a sale of the Leased Premises free and clear of Piping and

Equipment’s leasehold interest is not permitted under § 363(f).


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(III). PIPING AND EQUIPMENT IS ENTITLED TO ADEQUATE PROTECTION UNDER § 363(E) WHICH MEANS ALLOWING PIPING AND EQUIPMENT TO STAY IN POSSESSION OF THE LEASED PREMISES PURSUANT TO THE TERMS OF THE LEASE.

46. Piping and Equipment requests adequate protection under § 363(e) in the event

that the Court permits the proposed Sale of the Leased Premises to move forward in a manner

that is free and clear of the Lease.

47. Courts that have taken the minority view and held that property may be sold free

and clear of a lessee’s leasehold interest have not denied the lessee protection of its interest in the

property. Indeed, these courts have still recognized the need for protection of lessees, and have

specifically found that lessees have the right to adequate protection under 11 U.S.C. § 363(e).

Spanish Peaks, 872 F.3d at 899 (finding that a bankruptcy court “must provide adequate

protection for an interest that will be terminated by a sale if the holder of the interest requests it. .

. . the broad definition of adequate protection makes it a powerful check on potential abuses of

free-and-clear sales.”); Qualitech, 327 F.3d at 548 (reasoning that lessees are not without

recourse in the event of a sale free and clear of their interest, stating that “[t]hey have the right to

seek protection under section 363(e), and upon request, the bankruptcy court is obligated to

ensure that their interests are adequately protected.”).

48. Section 363(e) states that “[a]t any time, on request of any entity that has an

interest in property . . . proposed to be used, sold, or leased, by the trustee, the court, with or

without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide

adequate protection of such interest.” 11 U.S.C. § 363(e) (emphasis added).

49. The Bankruptcy Code explains that when adequate protection is required under §

363, such adequate protection may be provided by “granting such relief” that “will result in the

realization by such entity of the indubitable equivalent of such entity’s interest in such property.”

11 U.S.C. § 361(3).


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50. In cases similar to this – in which a debtor is proposing to sell property free and

clear of a leasehold interest – courts have held that the necessary adequate protection to provide

the lessee is continued possession of the property. Dishi, 510 B.R. at 711-12 (affirming the

bankruptcy court’s decision to grant adequate protection in the form of continued possession

under § 363(e)); Haskell, 321 B.R. at 10 (finding that under the circumstances, “adequate

protection can only be achieved through continued possession of the leased premises.”).

51. Indeed, there is no other adequate protection that will result in Piping and

Equipment realizing the “indubitable equivalent” of its leasehold interest in the Leased Premises

other than continued possession of the Leased Premises through the term of the Lease pursuant

to the terms of the Lease. See 11 U.S.C. § 361(3). Debtors have not proposed any cash

compensation for the significant monetary loss and expense that Piping and Equipment would

incur by having to shut down and vacate the Clute, Texas facility. The only possible adequate

protection that fulfills the requirement of §§ 363(e) and 361(3) is continued possession of the

Leased Premises pursuant to the terms of the Lease through the end of the Lease Term. This

includes the continued right to use all of the racking and furniture in the Leased Premises and all

of the racking in the pipe yard.

(IV). THE PORT ARTHUR, TEXAS LEASE BETWEEN LOCKWOOD AND PIPING AND EQUIPMENT EXPIRED BY ITS OWN TERMS ON JULY 31, 2018 AND IS NOT SUBJECT TO ASSUMPTION BY THE BUYER.

52. As a final matter, the Proposed APA presents an issue related to Piping and

Equipment that is not connected with the Lease that Piping and Equipment seeks to clarify.

53. On the Proposed APA’s Designated Contracts schedule, the Buyer and Debtors

have listed the lease between Lockwood, as landlord, and Piping and Equipment, as lessee,

regarding property located in Port Arthur, Texas (a different lease than the unexpired Lease that

is the subject to the Motion to Reject). (Doc. 570, p. 33); (Doc. 582, p. 28) (the “Port Arthur


16

Lease”). Thus, Buyer appears to be proposing to assume and have assigned to it the Port Arthur

Lease.

54. The Port Arthur Lease, however, expired by its own terms on July 31, 2018.

(Doc. 202, Debtors’ Schedule G, 2.32, p. 40) Prior to July 31, 2018, the Port Arthur Lease was

not assumed or rejected by the Debtors.

55. The Port Arthur Lease is therefore no longer an executory contract and is not

subject to assumption or rejection. See In re B & K Hydraulic Co., 106 B.R. 131, 136 (Bankr.

E.D. Mich. 1989); In re Pesce Baking Co., 43 B.R. 949, 957 (Bankr. N.D. Ohio 1984). To the

extent that the Sale Motion seeks an assumption of the Port Arthur Lease, it is moot.

WHEREFORE, Piping and Equipment, Inc. respectfully requests that the Court (a) deny

the Motion to Reject and the Sale Motion to the extent that either or both motions seek to deny

Piping and Equipment its rights under § 365(h)(1)(A) and seek authorization to sell the Leased

Premises not subject to the Lease, free and clear of Piping and Equipment’s § 365(h) rights and

leasehold interest in the Leased Premises; (b) deny the Sale Motion to the extent that it seeks to

assume the non-existent Port Arthur Lease because such assumption has been rendered moot by

the post-petition expiration of the Port Arthur Lease; and (c) and for such other, further, and

different relief as the Court deems just and equitable.

DATED this 17th day of August, 2018.

PIPING AND EQUIPMENT, INC. By: /s/ Kristin Krueger

Kristin M.V. Krueger, #23919 KOLEY JESSEN P.C., LLO 1125 South 103 Street, Suite 800 Omaha, NE 68124 (402) 390-9500; (402) 390-9005 [email protected]

Attorneys for Piping and Equipment, Inc.


17

CERTIFICATE OF SERVICE

On this 17th day of August, 2018, I electronically filed the foregoing with the Clerk of

the Bankruptcy Court using the CM/ECF system which sent notification of such filing to all

CM/ECF participants as well as the following:

COUNSEL FOR DEBTOR GRAY REED & MCGRAW LLP Jason S. Brookner

[email protected]

CHIEF RESTRUCTURING OFFICER FOR DEBTOR GLASSRATNER ADVISORY AND CAPITAL GROUP Mark Shapiro

[email protected]

COUNSEL TO THE COMMITTEE MCKOOL SMITH Christopher D. Johnson

[email protected]

UNITED STATES TRUSTEE Hector Duran [email protected]

COUNSEL TO WELLS FARGO WINSTEAD PC Rakhee V. Patel Sean B. Davis

[email protected] [email protected]

_/s/ Kristin Krueger_______________ Kristin Krueger

4837-2729-7135.3


LEASE

This Lease ("Lease"), dated effective as of October I, 2017, is made and entered into between Lockwood Holdings, Inc., a Texas corporation ("Landlord"), and Piping and Equipment, Inc., a Florida corporation ("Tenant"), upon the following terms and conditions:

ARTICLE I

DEFINITIONS

For purposes of this Lease:

1.1 Building. The term "Building" means the approximately 9,600 square feet building located on the land comprising the Premises (as hereinafter defined).

1.2 Premises. The "Premises" are that certain land and the Building commonly known as 90 I Wilson Road, Clute, Texas 77531, together with parking facilities, driveways, sidewalks, outdoor space, landscaping and all easements, rights-of-way and other rights appurtenant thereto.

I .3 Term. "Tenn" means the period between the Commencement Date and the Expiration Date (as such terms are hereinafter defined), unless sooner terminated.

1.4

1.5

1.6

Commencement Date. The "Commencement Date" is October I, 2017.

Expiration Date. The "Expiration Date" is September 30, 2019.

Base Rent. The "Base Rent" shall be as specified in Section 4.1.

I. 7 Tenant's Permitted Use. The term "Tenant's Permitted Use" means (a) office, warehouse, storage and distribution activities including outside storage related thereto, and (b) any other uses permitted by Law.

1.8 Landlord's Address for Notices. The term "Landlord's Address for Notices" means: c/o Janet Diaz, I 0002 Windfern Road, Houston, Texas 77064.

1.9 Tenant's Address for Notices. The term "Tenant's Address for Notices" shall mean the Premises address c/o Brian Saenz, with a copy by overnight mail to Piping and Equipment, Inc., 437 Jefferson Avenue, Washington, PA 1530 I, Attention: General Counsel.

ARTICLE II

PREMISES

2.1 Lease of Premises. Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord, upon all of the terms, covenants and conditions contained in this Lease. On the Commencement Date described herein, Landlord shall deliver the Premises to Tenant broom clean and in the condition described in Section 2.2. Landlord shall promptly remove all signage, other than Tenant's signage, from the Premises. Tenant shall be entitled to use all of the racking and furniture at the Premises including, without limitation, all of the racking in the pipe yard, during the Term of this Lease, at no additional charge. Tenant shall be responsible for normal maintenance of such racking and furniture, but any repairs or replacement shall be Landlord;s responsibility and at Landlord's expense.

4819-4389-1025.1

EXHIBIT A

Case 18-30197 Document 606-1 Filed in TXSB on 08/17/18 Page 1 of 15

2.2 Condition of Premises. Landlord represents and warrants that, to its knowledge (a) the structural and non-structural areas of the Building are free of material defects, (b) the Building and Premises comply in all material respects with all Laws (as hereinafter defined in this Section 2.2), (c) the Building and Premises and all electrical, plumbing, heating, ventilation, air conditioning and other mechanical components are in good condition and repair, (d) the Premises are free from Hazardous Materials (as hereinafter defined), there is no planned or ongoing environmental investigation or remediation with respect to the Premises and the Premises do not contain any underground storage tanks or any regulated wetlands, (e) there are no known environmental conditions at properties that adjoin the Premises, such as the presenceof Hazardous Materials in upgradient groundwater at adjoining properties in concentrations that exceed anyapplicable standard, that are adversely impacting or reasonably would be expected to adversely impact thePremises, and (t) the Premises have access to a public road. Landlord also represents and warrants that nonotices have been received by Landlord of violations of any Law affecting the Building or Premises thathave not been heretofore corrected. As used herein, "Laws" mean all federal, state and local laws, statutes,regulations, ordinances or other public requirements, including, without limitation, any building code, allrules and policies, all court and administrative orders and decrees, all permits and licenses, all arbitrationawards, and the common law, that are applicable as of the date hereof. Notwithstanding anything to thecontrary contained herein, in accepting the Premises, Tenant shall not be responsible for latent defects, anynon-compliance with Laws or pre-existing environmental conditions or Hazardous Materials. Except asotherwise expressly provided in this Lease, neither Landlord nor any of its officers, employees or agents ismaking any representations or warranties with respect to the Premises. As used herein, "HazardousMaterials" means any hazardous or toxic substance or waste as those terms are defined by any applicablefederal or state law or regulation (including, without limitation, the Comprehensive EnvironmentalResponse, Compensation and Liability Act, 42 U.S.C. 960 I et. sec. ["CERCLA"] and the ResourceConservation and Recovery Act, 42 U.S.C. 6901 et. sec. ["RCRA"]) and petroleum products and oil.

ARTICLE III

TERM

The Term of this Lease shall be for the period described in Section 1.3 of this Lease.

ARTICLE IV

RENT/ADDITIONAL RENT

4.1 Base Rent. During the Term of this Lease, Tenant shall pay to Landlord at Landlord's Address for Notices Base Rent for the Premises of $8,160.00 per month payable in advance on the first day of each calendar month.

4.2 Payment. Base Rent shall be payable in advance on the first business day of each calendar month. Base Rent shall be prorated for any partial calendar month. All rent and other amounts payable to Landlord by Tenant pursuant to the provisions of this Lease, shall be paid to Landlord, in lawful money of the United States, without deduction or setoff except as expressly permitted hereunder, at the address specified by Landlord or to such other person or at such other place as Landlord may designate from time to time by written notice given to Tenant.

4.3 Late Charge. Tenant acknowledges that the late payment of Base Rent or any other amounts payable by Tenant to Landlord hereunder (all of which shall constitute additional rental) will cause Landlord to incur administrative costs and other damages, the exact amount of which would be impracticable or extremely difficult to ascertain. Landlord and Tenant agree that if Landlord does not receive any such payment on or before ten ( I 0) days after the date the payment is due, Tenant shal I pay to Landlord, as additional rent, a late charge equal to three percent (3%) of the overdue amount to cover such additional administrative costs.

4819-4389-1025.1 2


4.4 Payment of Real Property Taxes. Landlord shall pay, prior to delinquency (or properly protest), all real property taxes applicable to the Premises; provided, however, that Tenant shall pay and reimburse to Landlord, during the term hereof as additional rent hereunder, the amount of the real prope,ty taxes applicable to the land and Building of which the Premises are a part during the term hereof. Tenant shall pay the amount of such real property taxes within thirty (30) days a fter receipt of Landlord's written statement, setting forth the amount thereof and providing written backup, including paid invoices and other supporting documentation. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such real property taxes, Tenant's liability for the amount of real property taxes shall be prorated on an annual basis. Tenant shall promptly pay (and in no event shall Landlord pay or be responsible for) taxes levied or assessed on Tenant's personal property, including, but not limited to, Tenant's furniture, fixtures and equipment.

ARTICLE V

USE OF PREMISES

5.1 Tenant's Permitted Use. Tenant shall use the Premises only for Tenant's Permitted Use as set forth in Section 1.7 and shall not use or permit the Premises to be used for any unlawful purpose. Tenant shall, at its sole cost and expense, obtain all governmental licenses and permits required to al low Tenant to conduct Tenant's Permitted Use on the Premises.

5.2 Landlord's Representations and Warranties. Landlord represents and warrants that, to its knowledge, as of the Commencement Date, the Premises (and the operations thereon) (a) are in compliance with applicable zoning ordinances and other Laws, (b) are served by all water, sewer, electrical, telephone, drainage and other utilities required for the operations ongoing as of the Commencement Date, (c) are not zoned as a non-conforming use, (d) do not require material expenditures to be made for therepair, replacement or maintenance of the Building or any other improvements on the Premises, (e) thereare no challenges or appeals pending or, to Landlord's knowledge, threatened regarding the amount of theproperty taxes on, or the assessed valuation for, the Premises, and Landlord has not entered into any specialarrangements or agreements with any governmental authority with respect thereto, (f) there are nocondemnation proceedings pending or, to Landlord's knowledge, threatened with respect to the Premises,and (g) there has been no damage or loss to the Premises by fire, flood, weather, earthquake or other casualtyprior to the date hereof.

5.3 Compliance with Laws and Other Requirements. Tenant shall not use or permit upon the Premises anything that will invalidate any policies of insurance now or hereafter carried on the Building or that will increase the rate of insurance on the Premises or on the Building, unless Tenant pays all extra insurance premiums which may be caused by the use which Tenant shall make of the Premises. Tenant will not do anything or permit anything to be done upon the Premises in any way creating a nuisance. Subject to Section 7.2, Tenant shall comply with all Laws now or hereafter affecting Tenant's use of the Premises.

ARTICLE VI

UTILITIES AND SERVICES

Tenant shal I pay al I water, sanitary sewer, gas, electricity, telephone and other uti Ii ties and services supplied to the Premises, together with any taxes, connection fees or deposits directly assessed or charged with respect thereto. Provided Landlord is not the cause of such interruption or failure, Landlord shall not be responsible or liable for interruption or failure in the supply of any utilities nor shall same be construed as an eviction of Tenant or work in abatement of rent. Tenant may install in or on the Premises, at its own expense, any phone, internet or other lines required to conduct its business.

4819-4389-J 025.1 3


ARTICLE VII

MAINTENANCE AND REPAIRS

7. I Landlord's Maintenance. At all times during the Term, Landlord, at Landlord's expense, shall maintain, repair and replace all structural elements and components of the Building and the other improvements on the Premises, which shall include, but not be limited to, the foundation, slabs, exterior walls, load-bearing walls, and the roof, as well as all parking areas, the electrical systems, plumbing fixtures, heating, ventilation and air conditioning equipment and systems and other mechanical equipment and

systems of the Building and parking lot, in good condition and repair, making all necessary repairs and replacements, ordinary or extraordinary, foreseen or unforeseen, to such components, unless damage to such components was caused by an act or the negligence of Tenant. Additionally, Landlord shall make all alterations and repairs which are necessary to such components as listed herein above or otherwise to cause the Premises to comply with all Laws and all insurance company requirements applicable to the Premises,

unless arising solely due to Tenant's specific use (as opposed to mere occupancy). Tenant shall give Landlord written notice of any repair required by Landlord pursuant to this ARTICLE VII, after which Landlord shall have a reasonable period of time to complete the required repairs; provided, however, that Landlord shall complete any such repairs within thirty (30) days (or such longer period, not to exceed ninety (90) days in any event, as it may take to cure such default so long as Landlord is diligently pursuing saidcure) following receipt of written notice from Tenant, except in the event of an emergency, in which eventLandlord shall use commercially reasonable efforts to immediately complete any such repairs.Notwithstanding the above, Tenant shall have the right to perform any required maintenance, repairs andreplacements to any portion of the Building provided that Tenant has obtained Landlord's prior writtenapproval, which approval shall not be unreasonably withheld, conditioned or delayed and which approvalor disapproval shall be given within fifteen ( 15) days following Tenant's written request therefor; provided,however, in the event of an emergency, Landlord shall be deemed to have approved unless Landlord notifiesTenant that Landlord will immediately take corrective action. In the event Tenant completes any suchrepairs, Tenant shall be entitled to offset the reasonable cost from the immediately succeeding rentpayments.

7.2 Tenant's Maintenance. Tenant, at Tenant's expense, excluding maintenance, repairs and replacements which are the express obligation of Landlord under this Lease, shall (a) maintain the Premises, including all doors and windows of the Building, in the same condition and repair as when received, (b) perform customary and routine (minor) maintenance to the Premises, including HV AC, electrical and plumbing repairs, not to exceed in the aggregate$ I 0,000.00 per calendar year (any excess to be paid solely by Landlord), (c) maintain the Premises in a clean, orderly and sanitary condition (and shall not permit undue accumulation of garbage, trash, rubbish and other refuse), and ( d) otherwise take all necessary action to cause the Premises to be maintained in the same condition and repair as when received, all subject to ordinary wear, tear and obsolescence and damage due to fire or other casualty, condemnation or Landlord's failure to perform any of its obligations under this Lease.

7.3 Standard of Maintenance. All repairs, replacements and alterations required to be made by Landlord or Tenant shall be made in a good and workmanlike manner and of a quality or class not less than the original work or construction.

ARTICLE VIII

AL TERA TIO NS, ADDITIONS AND lMPROVEMENTS

8. I Landlord's Consent. Tenant shall not make any alteration, improvement or addition to the Premises or any other alteration, improvement or addition to the Premises costing in excess of $20,000 .00 in any lease year or which would affect any structural elements or components of the Building or require any land or soil to be disturbed (any of the foregoing being hereinafter referred to as a "Restricted

4819-4389-1025.1 4


Alteration"), without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed. Landlord shall have the right to deny any Restricted Alteration or any alteration that would adversely affect the structural integrity of the Building. If Tenant proposes to make any Restricted Alterations, Tenant shall submit to Landlord plans and specifications for such Restricted Alteration and such other information as Landlord may reasonably request in connection therewith. If Landlord does not consent to any Restricted Alteration, Landlord shall state the reasons for such denial of consent with reasonable specificity. Landlord's consent to any Restricted Alteration shall be deemed approved if no consent or denial of consent is received within ten ( I 0) days after Tenant submits all reasonably necessary plans and specifications for such Restricted Alteration to Landlord. Approval of plans and specifications by Landlord shall not constitute a representation or warranty by Landlord as to the accuracy, adequacy, sufficiency or propriety of such plans and specifications or the quality of workmanship or the compliance of any alteration or modification with applicable Laws. Tenant shall pay the entire cost of each alteration, including each Restricted Alteration.

8.2 Alterations Generally. All alterations by Tenant shall be performed in a good and workmanlike manner and shall meet or exceed the standards for construction and quality of materials otherwise used in the Building. Each alteration shall be performed in compliance with all applicable Laws and insurance company requirements. Each alteration (excepting Tenant's equipment, trade fixtures and personal prope1ty) shall become Landlord's property and shall remain upon the Premises at the expiration or termination of this Lease without compensation to Tenant unless removed by Tenant prior to the termination of this Lease, at Tenant's option, provided Tenant repairs any damage to the Premises caused by such removal.

8.3 Liens. Upon completion of any Restricted Alteration, Tenant shall furnish Landlord with copies of sworn owner's and contractors' statements and full and final waivers of lien covering all labor and materials included in such alteration, subject to Tenant's right to contest liens as hereinafter provided. If any mechanic's lien is filed against the Premises or any part thereof arising out of any work performed, or alleged to have been performed, by Tenant, Tenant shall, within twenty (20) days after notice, pay and remove such lien, cause Landlord's title insurer to insure over such lien, or deliver a reasonably acceptable bond or other security protecting Landlord against costs and liabilities resulting from such lien and foreclosure or attempted foreclosure thereof. If Tenant fails to do so, Landlord, without investigating the validity of such lien, may pay and discharge the same; and Tenant shall reimburse Landlord for the amount so paid by Landlord, including Landlord's reasonable attorneys' fees and expenses, and other administrative costs, within ten ( I 0) days after demand therefor. Tenant shall have the right to contest in good faith and with reasonable diligence the validity of any such lien or claimed lien if Tenant shall comply with the preceding provisions of this paragraph and promptly pay and discharge any final adverse judgment.

8.4 Outside Storage Space. Landlord represents and warrants to Tenant that all outdoor storage space owned by Landlord in connection with the Building and other improvements at the Premises is included within the Premises and that such outside storage is permitted by Law.

8.5 Signage. Notwithstanding anything contained herein to the contrary, Landlord hereby approves the installation of additional signage identifying Tenant's business operations at the Premises; provided, however, all such signage shall be at Tenant's sole expense, in compliance with all Laws and shall be subject to Tenant obtaining any and all requisite permits.

4819-4389-1025.1 5


ARTICLE lX

INSURANCE AND INDEMNIFICATION

9.1 Property Insurance.

(a) Landlord shall at all times during the Term, keep the Building and any other improvementson the Premises insured against loss or damage by casualty. Tenant agrees to reimburse Landlord, on a monthly basis and within fifteen ( 15) days of receipt of an invoice therefor and supporting documentation, for the cost of such insurance.

(b) Tenant, at Tenant's expense, shall at all times during the Term keep its contents, personalproperty, equipment and trade fixtures located on the Premises insured against loss or damage by casualty.

(c) Landlord has inspected Tenant's insurance certificates and deems Tenant's coverageadequate.

9.2 Liabilitv Insurance. At all times during the Term, Tenant, at Tenant's expense, shall procure and maintain commercial general liability insurance applying to the use and occupancy of the Premises and the business operated by Tenant. Such insurance shall have a minimum combined single limit of liability of at least One Million Dollars ($1,000,000) per occurrence and a general aggregate limit of at least Two Million Dollars ($2,000,000). All such policies shall be written to apply to all bodily injury, property damage and personal injury losses and shall be endorsed to include Landlord as an additional named insured.

9.3 Policy Requirements. All insurance required to be maintained by Landlord or Tenant

shall be issued by insurance companies authorized to do insurance business in the state where the Premises are located and rated not less than A-VIII in Best's Insurance Guide or a Standard and Poor's claims paying ability rating of not less than A. A certificate of insurance evidencing the insurance required under this ARTICLE IX shall be delivered by each party to the other party prior to or on the Commencement Date. Landlord or Tenant as the case may be shall furnish the other party with a replacement certificate with

respect to any insurance not less than thirty (30) days prior to the expiration of the current policy. No insurance required under this ARTICLE IX shall be subject to cancellation or modification without fifteen ( 15) days prior written notice to the other party. Tenant shall have the right to provide the insurance requiredby this ARTICLE IX pursuant to blanket policies, but only if such blanket policies expressly providecoverage to the Premises and Landlord of the types and amounts required by this Lease. All such insuranceshall provide that it is specific and not contributory. Wherever Landlord is required to carry insuranceunder this Lease, Landlord will, upon Tenant's request, provide a certificate evidencing such insurance andnaming Tenant as an additional insured.

9.4 Waiver of Subrogation. The parties shall procure an appropriate clause in, or endorsement on, any fire or extended coverage insurance (or special perils insurance) covering the Premises, the Building and personal property, fixtures and equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery and having obtained such clauses or endorsements of waiver of subrogation or consent to a waiver of right of recovery, will not make any claim against or seek to recover from the other for any loss or damage to its property or the property of others resulting from fire or other hazards of the type covered by such fire and extended coverage insurance. Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant each waive, for itself and anyone claiming by, through or under it, any claims against the other party which may arise during the Term hereof with respect to any loss or damage to its property or the property of others which is covered (or required to be covered by the terms hereof) by property or casualty insurance carried by the damaged party.

4819-4389-1025.1 6


9.5 Failure to Insure. If either Landlord or Tenant fails to maintain any insurance required pursuant to this ARTICLE IX, then the failing party shall be liable to the other party for any loss or cost resulting from such failure to maintain.

9.6 Waiver of Claims and Indemnitv.

(a) Tenant agrees that, to the extent not expressly prohibited by Law, or caused by thenegligent or willful misconduct of Landlord or its agents or employees or arising out of a breach by Landlord of its covenants under this Lease, Landlord and its officers, agents, servants and employees shall not be liable for any damages sustained by Tenant, its servants, employees, agents, invitees or guests due to the Building or any part thereof or any appurtenances thereof becoming out of repair, or due to the happening of any accident in or about said Building. Tenant further agrees that all of Tenant's personal property in the Premises or the Building shall be at the risk of Tenant only and that Landlord shall not be liable for any loss or damage thereto or theft thereof, unless caused by the negligence or willful misconduct of Landlord, its employees, agents or contractors.

(b) Landlord shall protect, indemnify and save Tenant and its officers, agents, partners,shareholders, members, servants and employees harm less from and against any and all damages of whatever nature arising from injury to persons or damage to property on the Premises or in or about the Building arising out of or in connection with Landlord's ownership and operation of the Building or otherwise by, through or under Landlord, or Landlord's agents, contractors, servants, employees or invitees, only to the extent that all such damages are not covered or required to be covered by the insurance to be maintained by Tenant hereunder.

ARTICLE X

DAMAGE OR DESTRUCTION

10.1 Restoration by Landlord. If a fire or other casualty shall render the Premises unusable in whole or in part for the purpose intended, then Landlord shall, except as provided in Sections I 0.2 and I 0.3, begin restoration of the Premises to substantially the same condition as existed prior to the casualty within thirty (30) days of the date of such damage.

10.2 Termination by Tenant. Within twenty (20) days following any casualty, Landlord shall give notice to Tenant that Landlord, at Landlord's expense and subject to receipt of sufficient insurance proceeds to complete such restoration, will restore the Premises and the specific number of days required to do so. Notwithstanding anything contained herein to the contrary, if either (a) Landlord under such circumstances shall not give such notice within twenty (20) days after the casualty, (b) such notice shall specify that such repairs will require more than one hundred twenty ( 120) days to complete from the date of the casualty, (c) such repairs are not substantially completed within one hundred twenty (120) days, (d) the casualty renders at least twenty-five percent (25%) of the Premises unusable for the purposes intended, or ( e) the casualty occurs within one hundred eighty ( 180) days prior to the expiration of the Term, then Tenant may, at its option, terminate this Lease, provided Tenant (other than in relation to item (c) above) gives notice of such termination within thirty (30) days of receiving notice of Landlord's intent to rebuild.

I 0.3 Termination by Landlord; Insurance Proceeds. If more than seventy-five percent (75%) of the replacement cost of the improvements on the Premises shall be destroyed or damaged by reason of fire or other casualty covered by Landlord's fire and extended coverage insurance and such damage was not caused by Tenant, in whole or in part, regardless of the time remaining in the term of this Lease, Landlord shall either (a) cause such damage to be repaired (using insurance proceeds), in which event the rent shall abate during such repair as provided above, to the extent that Tenant is actually unable to use the improvements on the Premises for the purpose set forth herein, or (b) within thirty (30) days

4819-4389-1025.1 7


following the date of such occurrence, terminate this Lease by providing Tenant written notice of such termination, in which event the Lease shall so terminate and all rent and other sums hereunder shall be

prorated as of the date of such termination. Unless Landlord or Tenant terminates this Lease or Landlord's lender or mortgage holder requires otherwise, Landlord shall apply all insurance proceeds received by

Landlord as the result of a casualty to restoration of the Premises. Notwithstanding anything contained herein to the contrary, in the event of a casualty in which Landlord's lender or mortgage holder does not allow the insurance proceeds to be applied to the restoration of the Premises, Landlord shall notify Tenant

within ten ( I 0) days and unless Landlord expressly states in such notice that Land lord wi II fund the restoration, this Lease shall terminate at either Landlord's or Tenant's option.

I 0.4 Abatement of Rent. A 11 rent shal I abate, on a pro rata basis, in proportion to the portion of the Premises rendered unusable from the date of the damage until either (i) the repairs are substantially completed so that Tenant may occupy the Premises and conduct its business operations as conducted prior to such damage or (ii) the Term ends.

I 0.5 Access. Following any fire or other casualty, Tenant shall be entitled to immediate access to the Premises, subject only to the orders and requirements of local authorities provided that Tenant shall reasonably cooperate with Landlord so as to minimize any inconvenience to Landlord and its contractors

in the performance of the restoration work. If this Lease terminates as provided in this ARTICLE X, Tenant shall vacate the Premises within thirty (30) days of receiving Landlord's written notification of termination.

ARTICLE XI

CONDEMNATION

11.1 Taking. If the entire Premises or so much of the Premises as to render the balance

materially unusable by Tenant (as reasonably determined by Tenant) shall be taken by condemnation, sale in lieu of condemnation or in any other manner for any public or quasi-public purpose (collectively, "Condemnation"), this Lease shall terminate on the date that title or possession to the Premises is taken by the condemning authority, whichever is earlier. If this Lease is not so terminated or the Condemnation does not otherwise render the balance of the Premises materially unusable by Tenant, the award shall be applied to restoring the balance of the Premises such that it is a self-contained, fully functioning unit and rent shall be equitably adjusted.

11.2 Award. In the event of any Condemnation, the entire award for such taking shall belong to Landlord, except any portion of such award which relates to Tenant's losses including without limitation relocation costs directly associated with the taking, the value of Tenant's trade fixtures and leasehold improvements and loss of business. Tenant shall have no claim against Landlord or the award for the value of any unexpired term of this Lease or otherwise. If not a part of the initial award, Tenant shall be entitled to independently pursue a separate award in a separate proceeding for Tenant's losses including without limitation relocation costs directly associated with the taking, the value of Tenant's trade fixtures and leasehold improvements and loss of business.

I I .3 Temporarv Taking. No temporary taking of thirty (30) days or less of the Premises shall terminate this Lease or entitle Tenant to any abatement of the rent payable to Landlord under this Lease; provided, further, that any award for such temporary taking shall belong to Tenant to the extent that the award applies to any time period during the Term and to Landlord to the extent that the award applies to any time period outside the Term. Notwithstanding the foregoing, if any such temporary taking occurs during the last 365 days of the Term, Tenant, at Tenant's option, may terminate this Lease.

4819-4389-1025.1 8


12.1

ARTICLE XJI

ASSIGNMENT AND SUBLETTING

Assignment by Tenant.

(a) Except as otherwise permitted in this Section I 2. I (a), Tenant may not assign this Lease, or

sublease all or any portion of the Premises, without the prior written consent of Landlord, which consent will not be unreasonably withheld, conditioned or delayed. Notwithstanding anything to the contrary contained herein, Tenant may, without Landlord's consent, (i) assign this Lease or sublet all or any portion of the Premises to any affiliate of Tenant, (ii) in connection with and in contemplation of a reorganization

or consolidation by and between or among affiliates, or (iii) in connection with a merger or a sale of all or

substantially all of the assets or stock of Tenant (or any other transaction substantially similar in effect) (any of the foregoing being hereinafter referred to as a "Permitted Transfer"). Tenant shall notify Landlord of each Permitted Transfer and furnish a copy of the pertinent assignment or sublease to Landlord prior to

such Permitted Transfer.

(b) Any subletting or assignment hereunder shall not release or discharge Tenant of or from any liability, whether past, present or future, under this Lease, and Tenant shall continue fully liable thereunder. Any subtenant or assignee shall agree in a form reasonably satisfactory to Landlord to comply

with and be bound by all of the terms, covenants, conditions, provisions and agreements of this Lease to the extent of the space sublet or assigned, and Tenant shall deliver to Landlord promptly after execution, an executed copy of each such sublease or assignment. Any sale, assignment, mortgage, transfer, or subletting of this Lease which is not in compliance with the provisions of this ARTICLE XII shall be of no effect and void.

12.2 Sale by Landlord. Landloi:.d may sell the Premises or the Building at any time hereafter without in any manner affecting the obligations of Tenant hereunder and upon reasonable notice to Tenant, Tenant shall recognize such successor as the "Landlord" hereunder and such successor shall have all of the rights and obligations of Landlord hereunder. If any security deposit, prepaid rent or other sums have been paid by Tenant, Landlord shall transfer such sums to Landlord's successor and upon such transfer, Landlord shall be released from any liability for return thereof.

ARTICLE XIII

DEFAULT AND REMEDIES

I 3. I Events of Default by Tenant. Tenant shall be deemed to be in default under this Lease only if (a) Tenant fails to pay any installment of Base Rent within five (5) days of the date when due and such failure continues for five (5) days after notice from Landlord to Tenant specifying such default, provided Landlord shall only be required to give such notice twice within any consecutive twelve ( I 2) month period; (b) Tenant fails to pay any other amounts due Landlord under this Lease when due and such failure continues for ten ( I 0) days after notice from Landlord to Tenant specifying such default; (c) Tenant fails to perform any of its other obligations, covenants or agreements under this Lease when due and such failure continues for thirty (30) days after written notice from Landlord to Tenant specifying such default ( or if such defau It cannot reasonably be cured within such thirty (30) day period, Tenant has not commenced its curative efforts within such thirty (30) day period and has not diligently pursued such cure and completed

such cure within ninety (90) days); (d) Tenant abandons the Premises and stops paying rent; or (e) Tenant becomes insolvent, as evidenced by an assignment by Tenant for the benefit of creditors, a petition in bankruptcy or for reorganization or an arrangement under any bankruptcy or insolvency law being filed voluntarily by Tenant, the adjudication of Tenant as bankrupt, the tiling against Tenant of a petition for appointment of a receiver of all or any part of Tenant's assets or property either in bankruptcy or other

insolvency proceedings, unless such proceeding shall be stayed or dismissed within ninety (90) days of the

4819-4389-1025.1 9


filing thereof.

In the event of default by Tenant under this Lease, any and all remedies of Landlord set forth in this Lease (i) shall be in addition to any and all other remedies Landlord may have at Jaw or in equity, (ii) shall be cumulative and (iii) may be pursued successively or concurrently as Landlord may elect. To the extent permitted by law or in equity, the exercise of any remedy by Landlord shall not be deemed an election of remedies or preclude Landlord from exercising any other remedies in the future.

Landlord may elect to terminate this Lease or, without terminating this Lease, terminate Tenant's right to possession of the Premises, without relinquishing Landlord's rights to rent or any other right given to Landlord hereunder.

If Landlord elects to terminate this Lease and the Term created hereby, Landlord may forthwith repossess the Premises with process of law and be entitled to recover forthwith as damages a sum of money equal to the present value (applying a discount rate of ten percent ( I 0%)) of the difference between (i) the rent provided to be paid by Tenant for the balance of the stated Term of the Lease, and (ii) the fair rental value of the Premises for said period, and any other sum of money and damages owed by Tenant to Landlord.

Alternatively, Landlord may terminate Tenant's right of possession and may lawfully repossess the Premises, without terminating this Lease, in which event Landlord shall mitigate its damages by using its commercially reasonable efforts to re let all or any part of the Premises, for such rent and upon such terms as shall be reasonably satisfactory to Landlord. For the purpose of such reletting, Landlord is authorized to decorate or to make any repairs, changes, alterations or additions in or to the Premises that may be reasonably necessary, and if Landlord shall fail to relet the Premises (after using such mitigation efforts as are required hereby) or if the Premises are relet and a sufficient sum shall not be realized from such reletting after paying all of the reasonable costs and expenses of such decorations, changes, alterations and additions and the reasonable costs of such reletting and of the collection of the rent accruing therefrom to satisfy the rent provided for in this Lease to be paid, then Tenant shall pay to Landlord as damages a sum equal to the amount of the rent reserved in this Lease for such period or periods as the same become due and payable, or, if the Premises have been re let, Tenant shall satisfy and pay any such deficiency upon demand therefor from time to time, and Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this paragraph and any other sums due under this Lease from time to time and that no suit or

recovery of any portion due Landlord hereunder shall be any defense to any subsequent action brought for any amount not theretofore reduced to judgment in favor of Landlord.

I 3.2 Default bv Landlord. If Landlord defaults in any of its obligations under this Lease, including if Landlord voluntarily files, or has involuntarily filed against it, a petition in bankruptcy or for reorganization or an arrangement under any bankruptcy or insolvency law, or a petition for appointment of a receiver for all or any part of Landlord's assets or property, and such default continues for thirty (30) days after written notice from Tenant to Landlord specifying such default (or if such default cannot reasonably be cured within such thirty (30) day period, Landlord has not commenced its curative efforts within such thirty (30) day period and completed such curative efforts within ninety (90) days after such written notice from Tenant), except that no notice shall be required in an emergency (where there is a risk of substantial personal injury or substantial property damage), in addition to any remedies available at law or equity, Tenant may perform Landlord's obligation and shall provide Landlord an invoice for the actual out-ofpocket costs and expenses of doing so. In the event that Landlord fails to pay the invoice within thirty (30) days after receipt of the same, Tenant may offset from the rent or any other amounts next payable the amount set out in the invoice provided to Landlord. Interest on the delinquent amounts due from Landlord hereunder shall accrue at the lesser of the maximum rate permitted by Law, or ten percent ( I 0%) per annum from the thirty first (31 51) day after the date of the invoice to the date paid.

4819-4389-1025. l 10


ARTICLE XIV

SUBORDINATION, NONDISTURBANCE AND ATTORNMENT

14.1 Subordination.

(a) Subject to Tenant's right of quiet enjoyment and peaceful possession as set out inArticle XV hereof, this Lease is subject and subordinate to any lien, mortgage, deed of trust or master lease which may now or hereafter encumber the Premises and to all renewals, modifications, consolidations, replacements and extensions thereof. This provision shall be self-operative and no further instrument shall be required by any mortgagee. In the event of foreclosure, Tenant will not hold any mortgagee liable for repayment of any security or other deposit not actually received by said mo,tgage.

(b) Tenant agrees, upon request of Landlord, to subordinate this Lease and Tenant's rightshereunder to the lien of any mortgage, deed of trust or other voluntary hypothecation arising out of any security instrument duly executed by Landlord charged against the Premises, or any portion or portions thereof, and Tenant shall execute at any time and from time to time such documents as may be reasonably required to effectuate such subordination; provided, however, that Tenant shall not be required to effectuate any such subordination or other document hypothecating any interest in the Premises unless the mortgagee or beneficiary named in such mortgage or deed of trust shall at such time enter into a customary and reasonable subordination, non-disturbance and attornment agreement (a "Non-Disturbance Agreement"), which Non-Disturbance Agreement shall include at least all of the following: So long as Tenant shall not be in default in payment of rent or any other provision of this Lease after receipt of written notice and expiration of the applicable cure period, Tenant's possession and use of the Premises in accordance with the provisions of this Lease shall not be affected or disturbed by reason of the subordination of this Lease to, or any modification of or default under, the mortgage. If there is or will be, as of the date of th is Lease, any lease, mortgage or deed of trust in effect with respect to the Premises, or any portion or portions thereof, which would thereby be superior to this Lease, Landlord shall use commercially reasonable efforts to obtain and deliver to Tenant, within thirty (30) days after the date of this Lease, a customary and reasonable NonDisturbance Agreement duly executed on behalf of each such lessor, mortgagee and beneficiary, which shall include the provisions set forth above. Landlord and Tenant shall have no obligation to amend any term or provision of this Lease in connection with the Non-Disturbance Agreement.

ARTICLE XV

QUIET ENJOYMENT

Provided that Tenant performs in all material respects all of its obligations hereunder, Tenant shall have and peaceably enjoy the Premises during the Term free of claims by, through or under Landlord, subject to all of the terms and conditions contained in this Lease. Landlord represents and warrants that it is the legal owner of the Premises, has full power and authority to lease the Premises to Tenant and that, when executed by the individuals signing on behalf of Landlord and delivered to Tenant, this Lease will be the valid and binding obligation of Landlord, enforceable in accordance with its terms.

ARTICLE XVI

ESTOPPEL CERTIFICATES

From time to time, each party shall furnish to the other, within twenty (20) days after a request therefor, a certificate confirming, if true (a) that this Lease is unmodified and in full force and effect (or if there have been modifications, a description of such modifications and that this Lease as modified is in full force and effect); (b) the dates to which Base Rent has been paid; (c) that Tenant is in possession of the Premises, if that is the case; (d) that, to the knowledge of the party giving the certificate, the party requesting the certificate is not in default under this Lease, or, if the party giving the certi ficate believes that the

4819-4389-1025. I 11


requesting party is in default, the nature thereof in detail; (e) that, to its knowledge, the party giving the certificate has no current off-sets or defenses to the performance of its obligations under this Lease (or if such party believes there are any current off-sets or defenses, a full and complete explanation thereof); and (t) such factual certifications and representations as to this Lease as either party may reasonably request.

ARTICLE XVII

ENTRY BY LANDLORD

Landlord, its agents and representatives, shall have the right to enter the Premises. Landlord's entry shall be at reasonable times upon reasonable prior notice to Tenant, and only in order to inspect the Premises, to render services, to show the Premises to prospective lenders, tenants (but only within the last sixty (60) days of the then current term) or purchasers, or to make any necessary repairs to the Premises for which Landlord is responsible or permitted to make hereunder. Notwithstanding the foregoing, Landlord shall also have the right to enter the Premises in an emergency (where there is a risk of personal injury or property damage) without being accompanied by a representative of Tenant. Landlord shall take commercially reasonable steps not to interfere with Tenant's use of the Premises during all such times of access to the Premises and shall indemnify Tenant for any and all damages arising by, through or under Landlord as a result of such access.

ARTICLE XVIII

SURRENDER

Upon expiration of this Lease or termination of this Lease for any reason, including, without limitation, casualty, condemnation or default by Landlord or Tenant, Tenant will surrender the Premises to Landlord in the same order and condition as when received, except for (a) ordinary wear and tear and (b) damage by fire, hurricane, tornado, earthquake or other casualty, condemnation or circumstances for which Tenant has no responsibility or for which Landlord is responsible pursuant to this Lease.

ARTICLE XIX

HOLDOVER TENANCY

If Tenant retains possession of the Premises or any portion thereof after the expiration or termination of the Term or of Tenant's right to possession without Landlord's consent, Tenant shall pay an amount equal to 110% of the Base Rent for the Premises in effect immediately preceding the holding over and shall pay all other rent during the period of such holdover as provided in this Lease. Tenant shall be considered a month-to-month tenant subject to termination by Land lord upon thirty (30) days written notice. All terms and conditions of this Lease shall remain in effect. Acceptance of rent by Landlord after the termination or expiration of this Lease will give Tenant no greater rights than as set forth in this ARTICLE XIX.

ARTICLE XX

NOTICES

All notices which Landlord or Tenant may be required, or may desire, to serve on the other shall be served by mailing the same by registered or certified mai I, postage prepaid, or by a nationally recognized overnight courier, addressed to Landlord at the address for Landlord set forth in Section 1.8 above and to Tenant at the address for Tenant set forth in Section 1.9 above, or addressed to such other address or addresses as either Landlord or Tenant may from time to time designate to the other in writing. Any notice shall be deemed to have been given when actually received if by personal delivery, three (3) business days after deposit in the United States mail, or one (I) business day after delivery to a nationally recognized overnight courier.

48 I 9-4389-1025.1 12


ARTICLE XX]

BROKERS

Each party represents, covenants and warrants to the other that it has not engaged or retained any real estate broker or other person who is entitled to any brokerage commission or similar fee in respect to leasing, subleasing or renting space in the Building or the Premises and each party shall indemnify, defend and hold the other party harmless against all loss, liability and expense, including reasonable attorney's fees and costs, suffered by such other party due to a breach of the foregoing representation, covenant, and warranty.

ARTICLE XXII

MISCELLANEOUS

22.1 Entire Agreement; Termination of Existing Lease. This Lease contains all of the agreements and understandings relating to the leasing of the Premises and the obligations of Landlord and Tenant in connection with such leasing. This Lease supersedes any and all prior agreements and understandings between Landlord and Tenant. Upon the Commencement Date, the existing Lease dated

July I, 2017 between the parties will terminate and be of no further force or effect, except for any final payments or reconciliations due thereunder for periods prior to October I, 2017.

22.2 Amendments. This Lease shall not be amended, changed or modified in any way unless in writing executed by Landlord and Tenant. Landlord shall not have waived or released any of its rights hereunder unless in writing and executed by Landlord.

22.3 Successors. Except as expressly provided herein, this Lease and the obligations of Landlord and Tenant contained herein shall bind and benefit the successors and assigns of the parties hereto.

22.4 Force Majeure. If Landlord or Tenant fail to timely perform any of the terms, covenants and conditions of this Lease on such party's part to be performed, excluding failure to make any payment due hereunder, and such failure is due in whole or in part to any strike, lockout, labor trouble, civil disorder, inability to procure materials, failure of power, restrictive Laws, riots, insurrections, war, fuel shortages, accidents, casualties, acts of God, acts caused by the other party, or any other cause beyond the reasonable control of such party, then such party shall not be deemed in default under this Lease as a result of such failure, provided that any time for performance by such party provided for herein shall be extended by the period of delay resulting from such cause.

22.5 Governing Law. This Lease shall be governed by, and construed in accordance with, the internal Laws of the State in which the Premises are located.

22.6 Severability. In the event any provision of this Lease is found to be unenforceable, the remainder of this Lease shall not be affected, and any provision found to be invalid shall be enforceable to the extent permitted by Law. The parties agree that in the event two different interpretations may be given to any provision hereunder, one of which will render the provision unenforceable, and one of which will render the provision enforceable, the interpretation rendering the provision enforceable shall be adopted.

22. 7 Captions. All captions, headings, titles, numerical references and computer highlighting are for convenience only and shall have no effect on the interpretation of this Lease.

22.8 Construction. The headings contained in this Lease are for convenience ofreference only and shall not affect the meaning or interpretation of this Lease. Unless this Lease expressly provides otherwise, each definition herein applies (a) for purposes of this entire Lease; and (b) to both the singular

4819-4389-1025.1 13


and plural forms (and other grammatical variations) of the defined term. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms "including," "includes," "include" and words of like import shall be construed broadly as if followed by the words "without limitation." The terms "herein," "hereunder,'' "hereor· and words of like import refer to this entire Lease instead of just the provision in which they are found. This Lease shall be construed as if drafted jointly by all of the parties, and no presumption, burden of proof or rule of construction shall be applied that favors or disfavors any party by virtue of the authorship of any provision of th is Lease.

22.9 Time is of the Essence. Time is of the essence of this Lease and the performance of all obi igations hereunder.

22.10 Accord and Satisfaction. Unless the parties otherwise agree in writing: (a) no acceptance by Landlord of an amount less than the monthly rent and other payments stipulated to be due under this Lease shall be deemed to be other than a payment on account of the earliest such rent or other payment then due or in arrears nor shall any endorsement or statement on any check or letter accompanying any such payment be deemed an accord and satisfaction, (b) Landlord may accept any check for payment by Tenant without prejudice to Landlord's right to recover the remainder of any rent or other payment then in arrears and Landlord may pursue any other remedy provided in this Lease, and (c) no acceptance by Landlord of any payment of rent or other sum by Tenant shall be deemed a waiver of any of the obi igations of Tenant under this Lease.

22.11 Counterparts. This Lease may be executed in counterparts, each of which shall be deemed to be an original and all of which shall together constitute one and the same instrument. For purposes of this Lease, facsimile copies or other electronically generated copies shall be deemed the same as originals.

22.12 Landlord's Waiver/Access Agreement. Landlord hereby waives any statutory, common law or other right to distrain for rent against and any lien on or against Tenant's trade fixtures and personal property. Additionally, Landlord, upon the request by Tenant, agrees to execute a commercially reasonable collateral access agreement for the benefit of Tenant's lender.

22.13 Landlord's Consent. Whenever the consent or approval of Landlord (or anyone acting, by, through or under Landlord) is required under this Lease, Landlord agrees not to unreasonably withhold or delay its consent or approval. Whenever the discretion or opinion of Landlord ( or anyone acting by, through or under Landlord) is required under this Lease, Landlord agrees to exercise its discretion reasonably and to give its opinion on a reasonable basis. Whenever an estimate is required under this Lease, Landlord (or anyone acting by, through or under Landlord) shall make its estimate on a reasonable basis. Whenever Landlord undertakes an action as permitted by the terms of this Lease, whether by Landlord or by, through or under a third party, such actions shall be undertaken in a customary and reasonable manner and at reasonable fees, costs and expenses.

22.14 Limitation on Landlord's Liability. Tenant agrees to look solely to Landlord's then equity interest in the Premises (including all rents, profits, awards and proceeds generated from or associated with the Premises) at the time of recovery for recovery of any judgment against Landlord, and agrees that no beneficiary, trustee, member, manager, partner, director, officer, employee or shareholder of Landlord shall ever be personally liable for any such judgment, or for the payment of any monetary obligation to Tenant; provided, however, if Tenant obtains a judgment against Landlord, then Tenant shall also have the right to offset the amount of such judgment from and against future rent due under this Lease.

4819-4389-1025.1 14


IN WITNESS WHEREOF. the parties hereto have executed this Lease as of the date first above written.

LANDLORD:

By: -/!-,l'--1/--.f'-�"--------..'---

Title: ---"-""-""''--------------

-1819-4389-1025. I

TENANT:

\


1

0B0IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS

IN RE:

LOCKWOOD HOLDINGS, INC., et al.,

Debtor(s).

Case No. BK 18-30197 (DRJ)

Chapter 11

ORDER SUSTAINING PIPING & EQUIPMENT, INC.’S OBJECTION TO DEBTORS’

MOTION TO REJECT AND SALE MOTION AND REQUEST FOR ADEQUATE PROTECTION1

[REFERS TO DOC. NO. 483 & 565]

This matter comes before the Court on the following:

1. Debtors’ Expedited Motion Pursuant to Sections 363 and 365 of the Bankruptcy

Code and Bankruptcy Rules 2002, 6004, and 6006 For Order (A) Approving Comprehensive

Sale Process, (B) Approving Bidding Procedures, (C) Scheduling an Auction and a Sale

Hearing, (D) Approving Form and Manner of Noticed Related Thereto, (E) Authorizing Sale

Free and Clear of All Liens, Claims, Interests and Encumbrances, (F) Authorizing Assumption

and Assignment of Certain Executory Contracts and Unexpired Leases and Proposed Cure

Amounts With Respect Thereto, and (G) Granted Related Relief (Doc. 483) (the “Sale Motion”);

2. Debtors’ Amended Expedited Motion to Reject Nonresidential Real Property

Lease (Clute, Texas) (Doc. 565) (the “Motion to Reject”);

3. Piping and Equipment, Inc.’s (“Piping and Equipment”) (I) Objection to

Debtors’ Expedited Motion Pursuant to Sections 363 and 365 of the Bankruptcy Code and

Bankruptcy Rules 2002, 6004, and 6006 for Order (A) Approving Comprehensive Sale Process,

(B) Approving Bidding Procedures and Certain Bid Protections, (C) Scheduling an Auction and

a Sale Hearing, (D) Approving Form and Manner of Notice Related Thereto, (E) Authorizing

1 Capitalized terms used but not otherwise defined herein shall have the meanings provided to them in the Objection and Request for Adequate Protection.


2

Sale Free and Clear Of Liens, Claims, Interests, and Encumbrances, (F) Authorizing Assumption

and Assignment of Certain Executory Contracts And Unexpired Leases and Proposed Cure

Amounts With Respect Thereto and (G) Granting Related Relief; (II) Request For Adequate

Protection Pursuant To 11 U.S.C. § 363(E); and (III) Objection to Debtors’ Amended Expedited

Motion To Reject Non-Residential Real Property Lease (Clute, Texas);

4. Piping and Equipment’s (I) Objection to Debtors’ Amended Expedited Motion to

Reject Non-Residential Real Property Lease (Clute, Texas) (II) Objection to Debtors’ Expedited

Motion Pursuant To Sections 363 and 365 of the Bankruptcy Code and Bankruptcy Rules 2002,

6004, and 6006 for Order (A) Approving Comprehensive Sale Process, (B) Approving Bidding

Procedures and Certain Bid Protections, (C) Scheduling an Auction and a Sale Hearing, (D)

Approving Form and Manner of Notice Related Thereto, (E) Authorizing Sale Free and Clear of

Liens, Claims, Interests, and Encumbrances, (F) Authorizing Assumption and Assignment of

Certain Executory Contracts and Unexpired Leases and Proposed Cure Amounts With Respect

Thereto and (G) Granting Related Relief; and (III) Request for Adequate Protection Pursuant to

11 U.S.C. § 363(E); and

5. Piping and Equipment’s foregoing objections are collectively referred to herein as

the “Objection and Request for Adequate Notice.”

This Court, having reviewed the Debtors’ Sale Motion, the Debtors’ Motion to Reject,

and Piping and Equipment’s Objection and Request for Adequate Protection, and having

considered the statements of counsel at a hearing before the Court, if any, finds that:

6. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334; this matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2); and due and sufficient

notice of the Objection and Request for Adequate Protection has been provided.


3

7. Having considered the evidence, arguments of counsel, and responses, if any, this

Court is of the opinion that the Objection and Request for Adequate Protection is meritorious and

establishes sufficient grounds for the relief requested therein.

ACCORDINGLY IT IS HEREBY ORDERED THAT:

1. The Objection and Request for Adequate Protection is sustained.

2. The Motion to Reject and the Sale Motion are denied insofar that either or both

motions seek to deny Piping & Equipment’s rights under Section 365(h) of the Bankruptcy Code

and propose to sell the Leased Premises not subject to the Lease and not subject to Piping &

Equipment’s leasehold interest in the Leased Premises.

3. The proposed Sale of the Leased Premises is subject to the Lease.

4. Piping & Equipment is hereby granted adequate protection under 11 U.S.C. §

363(e) in the form of allowing it to continue in possession of the Leased Premises pursuant to the

terms of the Lease through the end of the Lease term, including but not limited to the right to use

all of the existing furniture and racking in the Leased Premises, and all of the existing racking in

the pipe yard, at no additional charge.

5. This Court retains exclusive jurisdiction with respect to all matters arising from or

related to the implementation, interpretation, and enforcement of this Order.

DATED AND ENTERED August ____, 2018.

BY THE COURT:

____________________________________ U.S. Bankruptcy Judge

4851-9194-0464.1


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