SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8709
CANAL CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0102492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
717 Fifth Avenue
New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 826-6040
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) or the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. Yes X No
The aggregate market value of the voting stock held by nonaffiliates of
the registrant at January 15, 1998, was approximately $572,000. The number
of shares of Common Stock, $.01 par value, outstanding at January 15, 1998
was 4,326,929.
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
Description Page
PART I
ITEM 1. Business............................................ 1
ITEM 2 Properties.......................................... 6
ITEM 3. Legal Proceedings................................... 7
ITEM 4. Submission of Matters to a Vote of Stockholders..... 9
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters................................. 10
ITEM 6. Selected Financial Data............................. 11
ITEM 7. Management's Discussion and Analysis of the
Results of Operations and Financial Condition....... 13
ITEM 8. Financial Statements and Supplementary Data......... 21
ITEM 9. Disagreements on Accounting and Financial
Disclosure.......................................... 21
PART III
ITEM 10. Directors and Executive Officers of the Registrant.. 22
ITEM 11. Executive Compensation.............................. 23
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management...................................... 26
ITEM 13. Certain Relationships and Related Transactions...... 28
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................. 29
i
PART I
Item 1. Business
A. General
The Registrant, Canal Capital Corporation ("Canal" or the "Company"),
incorporated in the state of Delaware in 1964, commenced business
operations through a predecessor in 1936.
Canal is engaged in two distinct businesses -- the management and
further development of its agribusiness related real estate properties and
its art operations.
Canal's real estate properties located in six midwest states are
primarily associated with its former agribusiness related operations. Each
property is adjacent to a stockyards operations (five of which operate on
land leased from the company) and consist, for the most part, of an
Exchange Building (commercial office space), land and structures leased to
third parties (meat packing facilities, rail car repair shops, truck stops,
lumber yards and various other commercial and retail businesses) as well as
vacant land available for development or resale. In connection with the
1989 sale of its stockyards operations, Canal entered into a master lease
(the "Lease") with the purchaser covering approximately 139 acres of land
and certain facilities used by the stockyards operations. The Lease is a
ten year lease renewable at the purchaser's option for an additional ten
year period, with escalating annual rentals. In addition, Canal retained
the right to receive income from certain volume based rental income leases
with two meat packing companies located near the stockyards. See
"Agribusiness".
Its principal real estate operating revenues are derived from the
Lease, income from the volume based rental leases with meat packing
companies located near the stockyards, rental income from its five Exchange
Buildings
(commercial office space), lease income from land and structures leased to
various commercial and retail enterprises and proceeds from the sale of
real estate properties. Canal has continued its program of developing what
was excess stockyard property. See "Real Estate Operations".
Canal's art dealing operations consist primarily of inventories held
for resale of antiquities primarily from ancient Mediterranean cultures and
contemporary art primarily of one artist. See "Art Operations".
1
B. Factors That May Affect Future Results
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended. The Company s actual results of operations and future
financial condition may differ materially from those expressed in any such
forward-looking statements as a result of many factors that may be beyond
the Company s control. Such factors include, without limitation: overall
economic conditions; competition for tenants in the agribusiness; the
ability of the Company s tenants to compete in their respective businesses;
the effect of fluctuations in supply, demand, international monetary
conditions and inflation on the Company s art operations; the effects of
forgery and counterfeiting on the Company s art operations; securities
risks associated with collections of antiquities and art; and the effect of
fluctuations in interest rates and inflation on the Company s indebtedness.
These risks and uncertainties are beyond the ability of the Company to
control, and in many cases, the Company cannot predict the risks and
uncertainties that could cause its actual results to differ materially from
those indicated by the forward-looking statements. When used in this
Annual Report on Form 10-K, the words believes, estimates, plans,
expects, and anticipates and similar expressions as they relate to the
Company or its management are intended to identify forward-looking
statements.
C. Real Estate Operations
General
Real estate operations, which relate primarily to Canal's former
agribusiness operations, resulted in operating income of $1.9 million,
while contributing $5.2 million to Canal's revenues for fiscal 1997. Canal
is involved in the management, development or sale of its agribusiness
related real estate properties (as described above) at its former stockyard
locations, the lease of certain property underlying the stockyards
operations sold by Canal in 1989 and the revenue from a volume based rental
agreement with a meat packing company located near the Fargo, North Dakota
stockyards.
In December 1996, Canal lost its largest tenant (State of Minnesota)
in its South St. Paul, Minnesota Exchange Building. This tenant
represented 50% (approximately $250,000) of the rental income from this
building. While Canal s agents are actively pursuing replacement tenants
for this space, it is taking an extended period of time to relet this
space.
2
As of October 31, 1997, there are approximately 271 acres of
undeveloped land owned by Canal adjacent to its former stockyards. Canal
is continuing the program, which it started several years ago, to develop
or sell this property.
Agribusiness
Under the Lease, Canal has net leased 139 acres of land as well as
certain stockyard facilities at five of its former stockyard locations to
the group which purchased the stockyard operations. This lease is a 10
year lease, renewable at the purchaser's option for an additional ten year
period,
with annual rentals of $750,000 per year for the first year escalating to
$1.0 million per year for the fourth through the tenth years and $1.0
million per year adjusted for CPI increases thereafter. Canal has
renegotiated this lease as it relates to the Omaha, Nebraska property, and
accordingly, Canal s fiscal 1997 revenue from this lease was $924,000.
Canal is entitled to receive additional rent if the stockyard's livestock
volume or cash flow (as defined) exceeds certain levels.
Canal retained the right to receive income from certain volume based
rental income leases with two meat packing companies located near the
stockyards in Sioux City, Iowa and Fargo, North Dakota. The Sioux City,
Iowa lease was terminated and the property sold to the meat packer in
fiscal 1996. The Fargo, North Dakota lease is a fifty year lease expiring
in 2028 with B&H Investment Company ("B&H"). This lease calls for B&H to
pay Canal a per head fee for all cattle slaughtered at B&H s plant that
were not purchased at the Fargo stockyards. For information on the
revenues generated by this lease see Note 3 to the Consolidated Financial
Statements. The Fargo, North Dakota lease is the subject of ongoing
litigation. For further information about this litigation (see - Item 3
Legal Proceedings and Note 16).
Risk
Real estate activities in general may involve various degrees of risk,
such as competition for tenants, general market conditions and interest
rates. Furthermore, there can be no assurance that Canal will be
successful in the development, lease or sale of its agribusiness related
real estate properties.
Competition
Canal competes in the area of agribusiness related real estate
development with other regional developers, some of which are substantially
larger and have significantly greater financial resources than Canal. To a
3
certain extent, Canal's agribusiness revenues are dependent on the ability
of the stockyard operations purchaser and the various meat packers with
whom Canal has yardage agreements to successfully compete in their
respective businesses.
D. Art Operations
General
Canal established its art operations in October 1988 by acquiring a
significant inventory for resale of antiquities primarily from the ancient
Mediterranean cultures. In November 1989, Canal expanded its art
operations by entering into a cost and revenue sharing agreement with a New
York City gallery for the exclusive representation of Jules Olitski, a
world renowned artist of contemporary paintings. As part of this agreement
Canal purchased
a number of Olitski paintings which it holds for resale with a book value
of approximately $1,000,000 at October 31, 1997. The representation
agreement expired December 1, 1994 and Canal now operates independently in
the marketing of its contemporary art inventory.
Due to general economic conditions and the softness of the art
markets, Canal has not purchased inventory in several years. However,
Canal continues its marketing efforts to sell its existing art inventory
through various consignment agreements and at public auctions. Antiquities
and contemporary art represented 63% ($1,775,594) and 37% ($1,035,263) and
64% ($2,311,825) and 36% ($1,277,263) of total art inventory at October 31,
1997 and 1996, respectively.
Canal sells its art primarily through two sources, in galleries and at
art auctions. In the case of sales in galleries, the Company has
consignment arrangements with various art galleries in the United States.
In these arrangements Canal consigns its pieces at specific prices to the
gallery. In the case of auctions, the Company primarily consigns its art
pieces to the two largest auction houses for their spring and fall art
auctions. The Company assigns a minimum acceptable price on the pieces
consigned. The auction house negotiates a commission on the sale of major
pieces. The pieces can be withdrawn at any time before or during the
auction. There are no significant differences between the prices obtained
in galleries and those obtained at auction.
Art operations resulted in an operating loss of approximately $700,000
while contributing approximately $115,000 to Canal's revenues for fiscal
1997. The 1997 loss includes a $350,000 increase in the art inventory
valuation allowance.
4
Risk
Dealing in art in general involves various degrees of risk. There can
be no assurance that the operations will be profitable. The success of a
program of this nature is dependent at least in part, on general economic
conditions, including supply, demand, international monetary conditions and
inflation. There can be no assurance that Canal will be able to sell its
art
inventory at a price greater than or equal to its acquisition costs or be
able to turn over its art inventory at a desirable rate. In addition,
forgery and counterfeiting are risks inherent in the art industry.
However, Canal and its associates, through their experience and certain
precautionary
measures taken in the purchasing process, are confident that this risk has
been minimized. Moreover, there are security risks associated with
collections of antiquities and art, including problems of security in their
storage, transportation and exhibition. Canal has procured insurance to
cover such risks.
Competition
Canal competes in its art operations with investment groups and other
dealers, some of whom are substantially larger and have greater financial
resources and staff than Canal. There may be a number of institutions and
private collectors and dealers who may attempt to acquire the same pieces
of art at the same time as Canal, particularly at auction. Similarly,
there may be a number of dealers offering similar pieces of art, thereby
exerting a downward pressure on prices.
E. Investments Available for Sale
Canal has an investment in a company in which it, together with other
affiliated entities, comprise a reporting group for regulatory purposes.
It is important to note that it is the group (as defined) that can exercise
influence over this company, not Canal. Accordingly, this investment does
not qualify for consolidation as a method of reporting. Certain of Canal s
officers and directors also serve as officer and/or directors of this
company. This investment (in which Canal s ownership interest is
approximately 2%) is carried at market value and the realized gains or
losses, if any, are recognized in operating results. Any unrealized gains
or losses are reflected in Stockholders Equity.
F. Employees
At December 31, 1997, Canal had 7 employees.
5
ITEM 2. Properties
Canal's real estate properties located in six Midwest states are
primarily associated with its former agribusiness related operations. Each
property is adjacent to a stockyard operation (five of which operate on
land leased from the company) and consist, for the most part, of an
Exchange Building (commercial office space), land and structures leased to
third parties (meat packing facilities, rail car repair shops, truck stops,
lumber yards and various other commercial and retail businesses) as well as
vacant land available for development or resale. As landlord, Canal's
m a n a gement responsibilities include leasing, billing, repairs and
maintenance and overseeing the day to day operations of its properties.
Canal's properties at October 31, 1997 include:
Stockyard Leased Held for
Year Total Exchange Master to Third
Develop-
Location Acquired Site(2) Bldgs. Lease(1) Parties ment (3)
St. Joseph, MO 1942 137 2 37 0 98
West Fargo, ND 1937 81 2 0 17 62
S. St. Paul, MN 1937 119 5 30 21 63
Sioux City, IA 1937 64 2 24 24 14
Omaha, NE 1976 85 2 17 34 32
Sioux Falls, SD 1937 37 0 31 4 2
Total 523 13 139 100 271
The following schedule shows the average occupancy rate and average rental
rate at each of Canal's five Exchange Buildings:
1997 1996
Occupancy Average(5) Occupancy Average(5)
Location Rate Rental Rate Rate Rental Rate
St. Joseph, MO 75% $ 4.75 75% $ 4.75
West Fargo, ND(4) N/A N/A N/A N/A
S. St. Paul, MN(6) 46% $12.29 84% $14.48
Sioux City, IA 46% $ 4.14 63% $ 3.59
Omaha, NE 51% $ 4.80 56% $ 4.80
NOTES
(1) Leased to the purchaser of Canal's stockyard operations.
(2) For information with respect to mortgages and pledges see Note 7.
(3) For information related to this see Note 2(c).
(4) Canal has closed this building and is offering it for sale.
(5) Per square foot.
(6) None of the leases relating to the above Exchange Buildings represents
10% or more of rental income.
6
ITEM 3. Legal Proceedings
Canal and its subsidiaries are from time to time involved in
litigation incidental to their normal business activities, none of which,
in the opinion of management, will have a material adverse effect on the
consolidated financial condition and operations of the Company. In
addition, Canal or its subsidiaries are party to the following litigation:
Federal Beef Processors, Inc. v. Union Stockyards Company of Fargo
This action involves Union Stockyards Company of Fargo ( Union ), a
wholly owned subsidiary of Canal. It is an action which involves claims
which are similar to some of the claims brought by B&H Investment Co.
( B&H ) against Union several years ago which was dismissed in 1994
following a decision by the Minnesota Court of Appeals in favor of Union.
The dispute involves a Lease Agreement relating to certain real estate
owned by Union and leased to Federal Beef Processors, Inc. ( Federal
Beef ). Federal Beef operates a meat packing plant on the leased premises,
and it is a related entity to B&H, which previously operated the packing
plant. By the terms of the Lease Agreement, Federal Beef s obligation to
pay additional rent is suspended during any period that Union fails to
provide adequate yardage service (under the terms of a separate Yardage
Agreement between the parties) that materially affects the business of
Federal Beef.
Federal Beef filed a Complaint on June 2, 1995 in the District Court
for Cass County, North Dakota, for damages claimed to be suffered as a
result of Union s alleged failure to provide adequate maintenance and
cleaning services for the livestock pens used by Federal Beef under the
Yardage Agreement. The damages sought by Federal Beef are in an
unspecified amount consisting of the additional rent paid by Federal Beef
during the time Union allegedly was in breach of the Lease Agreement and
the Yardage Agreement. As of June 1995, Federal Beef alleged it was
entitled to the return of additional rent in excess of $70,000. In
addition, Federal Beef seeks all direct and consequential damages allegedly
suffered by Federal Beef because of the claimed breach, including loss of
profits from animals allegedly damaged by reason of the condition of the
pens. Federal Beef subsequently filed an Amended Complaint in which it has
also sought a determination that it is entitled to exercise an option to
purchase the leased premises under the terms of the Lease Agreement for a
price measured by the unimproved value of the leased premises.
7
Union has filed an Answer and Complaint denying the allegations in the
Amended Complaint, seeking a determination that Federal Beef s claims are
frivolous, and asking for an award of Union s reasonable attorneys fees
and costs in connection with the defense of the action. In July 1995,
Union successfully defeated a motion by Federal Beef for an order which
would have allowed Federal Beef to deposit into Court all rent payments due
from Federal Beef to Union pending the outcome of the litigation. As a
result, Federal Beef has continued to make all rent payments due under the
Lease Agreement while reserving its alleged claims against Union.
Management does not believe that the revenues generated by this lease
will be materially affected in resolving this dispute.
Pine Valley Meats, Inc. v. Canal Capital Corporation
On May 5, 1995 an action was commenced against Canal by Pine Valley
Meats, Inc. ( Plaintiff ) in the County Court for Dakota County, State of
Minnesota. The lawsuit arises out of the alleged breach by Canal of a
certain cattle walkway agreement (the walkway agreement ) relating to the
passage of cattle over land owned by Canal in South St. Paul, Minnesota.
Plaintiff contends that the walkway agreement is a permanent easement
thereby requiring Canal to maintain a cattle walkway for its use in
perpetuity. Canal s position is that the walkway agreement is in fact a
license and can be terminated at Canal s discretion. Canal did close the
cattle walkway for several weeks in April 1995.
In June 1995, plaintiff sought and won a temporary injunction
requiring Canal to continue to maintain the cattle walkway for plaintiff s
use until the rights of the parties can be determined at trial. Plaintiff
is seeking a permanent injunction determining that the walkway agreement
creates an easement as well as unspecified damages for lost profits when
the walkway was closed. On January 5, 1996, the Dakota County Court ruled
that the walkway agreement constituted a license only and denied the
plaintiff s request for a permanent injunction.
On May 30 and 31, 1996, damages in favor of the plaintiff in the
amount of $400,000 (including $50,000 in punitive damages) were awarded in
the County Court of Dakota County, State of Minnesota. Further damages for
costs, disbursements and interest in the amount of approximately $40,000
were awarded to plaintiff on September 26, 1996.
8
Canal filed a Notice of Appeal on October 8, 1996. On September 18,
1997, the Minnesota Court of Appeals affirmed in part and reversed in part
the judgement in favor of Pine Valley and Canal paid Pine Valley damages
and interest of $388,000 in final settlement of this suit.
Canal Capital Corporation v. Valley Pride Pack, Inc.
Canal commenced an action in U.S. District Court in Minnesota on
October 25, 1996, as the assignee of United Market Services Company,
against Valley Pride Pack, Inc. (formerly known as Pine Valley Meats, Inc.
and referred to herein as Pine Valley ) for the unpaid livestock fees and
charges due under the 1936 Agreement between the predecessors of Pine
Valley and Canal. Pine Valley filed a motion to dismiss Canal s complaint
on the grounds that the complaint was barred on principles of issue
preclusion and the Rooker-Feldman doctrine, or, that the action should be
stayed pending the appeal before the Minnesota Court of Appeals in a state
court suit involving the same parties. Canal agreed to dismiss the action
without prejudice to its right to reinstitute the action following the
Minnesota Court of Appeals decision. On September 18, 1997, the Minnesota
Court of Appeals affirmed in part and reversed in part a judgement against
Canal and Canal paid Pine Valley damages and interest of $388,000 in
connection with the state court suit. On September 23, 1997, Canal
reinstituted its lawsuit in federal court against Pine Valley for the
recovery of livestock fees. Pine Valley has since brought a motion to
dismiss this second federal court lawsuit on the same grounds as its motion
to dismiss the first federal court lawsuit. There has been no claim
asserted by Pine Valley against Canal in this second federal court lawsuit.
ITEM 4. Submission of Matters to a Vote of Shareholders
None.
9
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stock Matters
Canal's stock is traded over-the-counter through the "pink sheets". The
high and low price ranges of Canal's common stock for the eight quarters
ended October 31, 1997 as reported on the "pink sheets" were:
Fiscal 1997 Fiscal 1996
Quarter Ended High Low High Low
October 31 ................. $ 1/4 -- $ 5/16 $ 1/4 -- $ 3/16
July 31 .................... 1/4 -- 5/16 5/16 -- 3/16
April 30 ................... 1/4 -- 5/16 1/4 -- 3/16
January 31 ................. 1/4 -- 5/16 1/4 -- 1/16
There were no cash dividends paid during fiscal 1997 or 1996. Canal
is subject to restrictions on the payment of cash dividends under certain
debt agreements. As of January 20, 1998, Canal had approximately 1,500
holders of record of its common stock, par value $.01 per share.
10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE FOLLOWING DATA HAVE BEEN DERIVED FROM CONSOLIDATED FINANCIAL
STATEMENTS THAT HAVE BEEN AUDITED BY TODMAN & CO., CPAs, P.C., INDEPENDENT
ACCOUNTANTS. THE INFORMATION SET FORTH BELOW IS NOT NECESSARILY INDICATIVE
OF THE RESULTS OF FUTURE OPERATIONS AND SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS ANNUAL REPORT ON FORM 10-K.
(000'S OMITTED, EXCEPT PER SHARE DATA)
YEARS ENDED OCTOBER 31, 1997 1996 1995 1994 1993
OPERATING DATA:
REVENUES FROM CONTINUING
OPERATIONS $5,311 $9,049(2) $4,854(5) $8,460(4) $4,535(3)
NET(LOSS)INCOME FROM
CONTINUING OPERATIONS ($1,001) $ 842(6) $1,518(9) $1,362(8) ($2,160)(7)
EXTRAORDINARY GAIN
ON RETIREMENT OF DEBT 0 0 0 0 366
PROVISION FOR INCOME TAXES 0 0 0 0 0
NET(LOSS)INCOME ($1,001) $ 842 ($1,518) $1,362 ($1,794)
BASIC (LOSS)INCOME PER SHARE:
NET(LOSS)INCOME BEFORE
EXTRAORDINARY ITEM ($0.27) $0.16 ($0.40) $0.23 ($0.52)
EXTRAORDINARY ITEM 0.00 0.00 0.00 0.00 0.08
NET(LOSS)INCOME ($0.27) $0.16 ($0.40) $0.23 ($0.44)
DILUTED (LOSS)INCOME PER SHARE:
NET(LOSS)INCOME BEFORE
EXTRAORDINARY ITEM ($0.27) $0.13 ($0.40) $0.20 ($0.52)
EXTRAORDINARY ITEM 0.00 0.00 0.00 0.00 0.08
NET(LOSS)INCOME ($0.27) $0.13 ($0.40) $0.20 ($0.44)
CASH DIVIDENDS PAID $0.00 $0.00 $0.00 $0.00 $0.00
WEIGHTED AVERAGE NUMBER OF SHARES:
- BASIC 4,327 4,327 4,352 4,476 4,327
- DILUTED 5,327 5,327 5,352 5,170 4,933
11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (Continued ...)
(000'S OMITTED)
AT OCTOBER 31, 1997 1996 1995 1994 1993
BALANCE SHEET DATA:
CURRENT ASSETS $2,151 $2,015 $1,443 $1,416 $1,321
PROPERTY ON OPERATING
LEASES, NET 5,323 7,106 8,385 8,708 9,784
ART INVENTORY NON-CURRENT 2,311 3,089 4,901 5,744 6,074
OTHER ASSETS 3,175 3,279 3,474 4,260 5,184
TOTAL ASSETS $12,960 $15,489 $18,203 $20,128 $22,363
CURRENT LIABILITIES $2,068 $3,426 $2,710 $ 6,122 $15,015
LONG-TERM DEBT 6,050 6,980 11,379 8,062 2,394
STOCKHOLDERS' EQUITY 4,842 5,083 4,114 5,944 4,954
TOTAL LIAB. &
STOCKHOLDERS'EQUITY $12,960 $15,489 $18,203 $20,128 $22,363
COMMON SHARES OUTSTANDING
AT YEAR-END 4,327 4,327 4,327 4,327 4,327
11(a)
ITEM 6. Selected Financial Data (continued..)
NOTES:
(1) For discussion of material uncertainties and commitments, see Notes 11
and 15 to the Consolidated Financial Statement.
(2) The revenue increase was due primarily to a $4.4 million increase in
sales of real estate which was attributable to the Sioux City, Iowa
lease termination and property sale.
(3) The revenue decrease is due primarily to a reduction in art sales.
(4) The revenue increase is due primarily to an increase of $2.3 million
in real estate sales and the reversal of a loss provision established
in fiscal 1992 in connection with a judgment against the Company.
(5) The revenue decrease is due primarily to a decrease of $2.1 million in
real estate sales and the absence of a $1.5 million judgment reversal
taken in fiscal 1994.
(6) Includes a $3.8 million gain on the sale of real estate offset by a
$1.7 million loss from art operations which included a $1.5 million
increase in the art inventory valuation allowance.
(7) Includes an $873,000 write-off in connection with a lease termination,
a $400,000 provision for litigation settlement and a $300,000
valuation allowance to the art inventory.
(8) Includes the reversal of a $1.5 million loss provision established in
fiscal 1992 in connection with a judgment against the Company, a $0.6
million gain on property sales and a $0.3 million gain on the sale of
investments offset by a $0.3 million loss on the write down of
investments and $0.2 million increase in the art inventory valuation
reserve.
(9) Includes the absence of a judgment reversal of $1.5 million in 1994
against the Company, a $0.5 million increase in the art inventory
valuation reserve, absence of $0.3 million gain on sale of
investments, a $0.2 million increase in interest expense partially
offset by a $0.6 million gain on real estate sales.
(10) Common and common equivalent shares have been calculated to give
effect to certain convertible notes issued in March 1994.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations - General
While the Company is currently operating as a going concern, certain
significant factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company has suffered recurring losses
from operations in seven of the last nine years and is involved in
litigation with a major tenant in Fargo, North Dakota. The financial
statements do not include any adjustments that might result from the
resolution of these uncertainties (See Notes 1, 6 and 16). Additionally,
the accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Canal recognized a net loss of $1.0 million for 1997 as compared to
the 1996 net income of $0.8 million and the 1995 net loss of $1.5 million.
After recognition of preferred stock dividend payments of $182,000 in 1997,
$162,000 in 1996 and $193,000 in 1995, the results attributable to common
stockholders were a net loss of $1.2 million in 1997, net income of $0.7 in
1996 and a net loss of $1.7 million in 1995. Canal s 1997 net loss of $1.0
million was due primarily to a $3.4 million decrease in income from real
estate operations (due to a $2.7 million reduction in real estate sales and
a $0.9 million write-down in value of certain property located in Omaha,
Nebraska) offset by a $1.0 million reduction in the loss from art
operations, a $0.1 million increase in other income and a $0.6 million
decrease in interest expense. The 1996 net income of $0.8 million was due
primarily to a $3.0 million increase in income from real estate operations
(due to increased real estate sales) offset by a $1.7 million loss from art
operations, which included a $1.5 million increase in the art inventory
valuation allowance.
Canal's revenues from continuing operations consist of revenues from
its real estate and art operations. Due to general economic conditions
and more specifically a depressed national art market, Canal's aggregate
revenues from art sales and the prices at which sales were made have
significantly declined in recent years. Revenues in 1997 decreased by
$3.7 million to $5.3 million as compared with 1996 revenues which had
increased by $4.2 million to $9.0 million from 1995 revenues of $4.9
million. The 1997 decrease is due primarily to a $2.7 million decrease in
sales of real estate. The 1996 increase was due primarily to a $4.4 million
increase in real estate sales.
13
Capital Resources and Liquidity
While the Company is currently operating as a going concern, certain
significant factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company has suffered recurring losses
from operations in seven of the last nine years and is involved in
litigation with a major tenant in Fargo, North Dakota. The financial
statements do not include any adjustments that might result from the
resolution of these uncertainties (See Notes 1, 6 and 16). Additionally,
the accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
On January 8, 1998, the Company issued $3,700,000 of variable rate
mortgage notes due May 15, 2001, the proceeds of which were used to repay
in full the Company s variable rate mortgage notes due May 15, 1998
($2,605,000), its variable rate mortgage notes due September 15, 1998
($700,000) and two notes which were due December 31, 1997 ($320,000) plus
accrued interest thereon. The purchasers of these notes included certain
entities controlled by the Company s Chairman, the Company s Chief
Executive Officer and members of their families. The variable rate
mortgage notes issued have essentially the same terms and conditions as the
variable rate mortgage notes which were repaid. The notes carry interest
at the highest of four variable rates, determined on a quarterly basis.
These notes, among other things, prohibits Canal from becoming an
investment company as defined by the Investment Company Act of 1940;
requires Canal to maintain minimum net worth; restricts Canal s ability to
pay cash dividends or repurchase stock; requires principal prepayments to
be made only out of the proceeds from the sale of certain assets, and
requires the accrual of additional interest (to be paid at maturity) of
approximately three percent per annum. As a result of the refinancing all
of the debt that was repaid on January 8, 1998 was classified as long term
debt-related party at October 31, 1997.
Cash and cash equivalents of $28,000 at October 31, 1997 increased
$17,000 or 165.5% from $11,000 at October 31, 1996. Net cash used by
operations in fiscal 1997 was $1.5 million. Substantially all of the 1997
net proceeds from the sale of real estate of $2.5 million and the proceeds
from the sale of art of $0.1 million less the cash used in operations was
used to reduce outstanding debt and accrued expenses.
During 1997 Canal reduced its variable rate mortgage notes by $1.5
million and other long-term debt by $0.1 million for a net 1997 debt
reduction of $1.6 million.
14
At October 31, 1997 the Company s current assets exceed current
liabilities by $0.1 million as compared to October 31, 1996 when the
Company's current liabilities exceeded current assets by $1.4 million,
which represented an increase of $0.1 million from 1995. The 1997 increase
is due primarily to a decrease in the current portion of long-term debt.
The only required principal repayments under Canal's debt agreements for
fiscal 1998 will be from the proceeds of the sale of certain assets (if
any), and approximately $0.1 million on various fixed mortgages.
Canal continues to closely monitor and reduce where possible its
overhead expenses and plans to continue to reduce the level of its art
inventories to enhance current cash flows. Management believes that its
income from operations combined with its cost cutting program and planned
reduction of its art inventory will enable it to finance its current
business activities. There can, however, be no assurance that Canal will
be able to effectuate its planned art inventory reductions or that its
income from operations combined with its cost cutting program in itself
will be sufficient to fund operating cash requirements.
1997 COMPARED TO 1996
Real Estate Revenues
Real estate revenues for 1997 of $5.2 million accounted for 97.8% of
the 1997 revenues as compared to revenues of $8.9 million or 97.8% for
1996. Real estate revenues are comprised of rental income from Exchange
Building (commercial office space) rentals and other lease income from the
rental of vacant land and certain structures (30.6% and 23.4%), Ground
lease income (17.8% and 10.6%), volume based rental income (2.1% and 7.4%)
and sale of real estate and other income (49.5% and 58.6%) for 1997 and
1996, respectively. The 1997 decrease is due primarily to the $2.7 million
decrease in sales of real estate and the $0.9 million write down in value
of the Omaha property. The percentage variations in the year to year
comparisons are due to the significant decrease in real estate sales for
fiscal 1997.
Real Estate Expenses
Real estate expenses for 1997 of $3.3 million decreased by $0.3
million (8.3%) from $3.6 million in 1996. Real estate expenses are
comprised of labor, operating and maintenance (25.2% and 26.7%),
depreciation and amortization (10.4% and 10.0%), taxes other than
income taxes (7.8% and
15
10.0%), cost of real estate sold (27.1% and 38.3%), provision for
litigation settlement (0.0% and 12.0%) and general and administrative and
other expenses (29.5% and 3.0%) for 1997 and 1996, respectively. The 1997
decrease in real estate expenses is due primarily to the $0.05 million
reduction in cost of real estate sold, a $0.4 million reduction in the
provision for litigation
settlement offset by the $0.9 million write down in value of the Omaha
property. The increase in general and administrative and other expenses
reflects the 1997 $0.9 million write down in value of the Omaha property.
The percentage variations in year to year comparisons is also due to the
decrease in the cost of real estate sold for fiscal 1997.
Art Operations
Management estimates it may take two to five years to dispose of its
current art inventory. The Company's ability to dispose of its art
inventory
is dependent at least in part, on general economic conditions, including
supply, demand, international monetary conditions and inflation.
Additionally, the art market itself is a very competitive market.
Accordingly, there can be no assurance that Canal will be successful in
disposing of its art inventory within the time frame discussed above.
Canal has its art inventory appraised by independent appraisers
annually. The 1997 appraisal covered approximately 49% of the inventory
value. The appraised values estimate the current market value of each
piece giving consideration to Canal's practices of engaging in consignment,
private and public auction sales. The net realizable value of the
remaining 51% of the inventory was estimated by management based in part on
operating history and in part on the results of the independent appraisals
done. In fiscal
1997 Canal recognized a $350,000 valuation allowance against its art
inventory, thereby, increasing the total valuation allowance to $2,850,000
as of October 31, 1997 as compared to $2,500,000 and $1,000,000 at October
31, 1996 and 1995, respectively. These estimates were based in part on the
Company's history of losses sustained on art sales in the current and
previous years.
The valuation allowance represents management's best estimate of the
loss that will be incurred by the Company in the normal course of business.
The estimate is predicated on past history and the information that was
available at the time that the financial statements were prepared. The
provision contemplates the loss that could result if the level of sale
anticipated was achieved.
16
The nature of art makes it difficult to determine a replacement value.
The most compelling evidence of a value in most cases is an independent
appraisal. The price at which pieces are consigned is usually in line with
appraisals and above the cost of the piece. The amount classified as
current represents management's best estimate of the minimum amount of
inventory that will be sold in this market. Management believes that the
provision discussed above has effectively reduced inventory to its
estimated net realizable value. The Company will continually monitor the
market for its art inventory and will make adjustments to the carrying
value of its art inventory as such adjustments become necessary.
The Company's plan to sell inventory at auction is contemplated in the
normal course of business. Auction in this context is one of the usual
channels used for disposal of its art inventory. The proceeds from these
sales are used to reduce the Company's outstanding debt and finance current
operations. If these sales are not made the Company has alternate means of
raising cash such as sales of real estate, sales of investments available
for sale, raising of new capital and further restructuring of debt. Some
of these measures were successfully implemented in fiscal 1997.
Art Revenues
Art revenues for 1997 of $117,000 decreased $78,000 or 40.0% from
$195,000 in 1996. Art revenues are comprised of proceeds from the sale of
antiquities and contemporary art (97.5% and 100.0%) and commission income
on sale of art owned by third parties (2.5% and 0.0%) for 1997 and 1996,
respectively. The Company's art inventory was reduced through sales by
$0.4 million and $0.3 in fiscal years 1997 and 1996, respectively.
Art Expenses
Art expenses for 1997 of $0.08 million decreased by $1.1 million
(55.9%) from $1.9 million in 1996. Art expenses (excluding valuation
allowances) consisted of the cost of art sold (90.7% and 86.9%) and
selling, general and administrative expenses (9.3% and 13.1%) for 1997 and
1996, respectively. Included in art expenses is a $0.4 million and a $1.5
million valuation allowance against the Company's art inventory (see Note
10 to the Consolidated Financial Statements) for fiscal years 1997 and
1996, respectively.
17
General and Administrative
General and administrative expenses for 1997 of $1.3 million decreased
$0.1 million (6.8%) from $1.3 million in 1996. The major components of
general and administrative expenses are officers salaries (34.3% and
32.0%), rent (8.9% and 9.1%), legal and professional fees (10.0% and 9.4%),
insurance (11.9% and 11.3%) and office salaries (10.0% and 10.1%) for 1997
and 1996,
respectively. The percentage increases in officers salaries, legal and
professional fees and insurance is a result of the aggregate decrease in
total general and administrative expenses.
Interest and Other Income
Interest and other income of $236,000 for 1997 increased $91,000
(62.2%) from $145,000 in fiscal 1996. The 1997 amounts are comprised
primarily of dividend income, interest income and other income.
Interest Expense
Interest expense for 1997 of $1.0 million decreased by $0.6 million
(37.1%) from $1.5 million in 1996. The 1997 decrease is due primarily to
the aggregate reduction in the outstanding debt. Interest rates on Canal's
variable rate mortgage notes increased to an average of 12.00% in 1997 as
compared to an average of 11.94% in 1996 and an average of 11.78% in
1995. At October 31, 1996 Canal had reduced the outstanding face value of
these notes from the original $20.0 million to $2.7 million.
Other Expense
In fiscal 1997 and 1995 Canal incurred other expenses of approximately
$200,000 and $286,000, respectively. The 1997 expense was associated with
the settlement of a state tax audit while the 1995 expense was due
primarily to the write down of Canal s investments.
1996 COMPARED TO 1995
Canal s 1996 net income of $0.8 million was due primarily to a $3.0
million increase in income from real estate operations (due to increased
real estate sales) offset by a $1.7 million loss from art operations, which
included a $1.5 million increase in the art inventory valuation allowance.
The 1995 net loss of $1.5 million was due primarily to a $0.7 million loss
from art operations (which included a $0.5 million increase in the art
inventory valuation allowance), a $0.3 million write down of the Company s
investment, an increase in interest expense of approximately $0.3 million
due to rate increases and a $0.1 million increase in general and
administrative expenses associated primarily with increased legal fees.
18
Real Estate Revenues
Real estate revenues for 1996 of $8.9 million accounted for 97.8% of
the 1996 revenues as compared to revenues of $4.6 million or 94.6% for
1995. Real estate revenues are comprised of rental income from Exchange
Building (commercial office space) rentals and other lease income from the
rental of vacant land and certain structures (23.4% and 45.5%), Ground
lease income (10.6% and 21.2%), volume based rental income (7.4% and 15.9%)
and sale of
real estate and other income (58.6% and 17.4%) for 1996 and 1995,
respectively. The 1996 increase is due primarily to the $4.4 million
increase in sales of real estate. The percentage variations in the year to
year comparisons are due to the significant increase in real estate sales
for fiscal 1996.
Real Estate Expenses
Real estate expenses for 1996 of $3.6 million increased by $1.2
million (50.6%) from $2.4 million in 1995. Real estate expenses are
comprised of labor, operating and maintenance (26.7% and 40.9%),
depreciation and amortization (10.0% and 15.2%), taxes other than income
taxes (10.0% and 22.1%), cost of real estate sold (38.3% and 18.0%),
provision for litigation settlement (12.0% and 0.0%) and general and
administrative expenses (3.0% and 3.8%) for 1996 and 1995, respectively.
The 1996 increase in real estate expenses is due primarily to the $0.9
million increase in cost of real estate sales for fiscal 1996. The
percentage variations in year to year comparisons is also due to the
increase in the cost of real estate sold for fiscal 1996.
Art Revenues
Art revenues for 1996 of $195,000 decreased $65,000 or 24.9% from
$260,000 in 1995. Art revenues are comprised of proceeds from the sale of
antiquities and contemporary art (100.0% and 94.7%) and commission income
(primarily from the Salander-O'Reilly agreement) on sale of art owned by
third parties (0.0% and 5.3%) for 1996 and 1995, respectively. The
Company's art inventory was reduced through sales by $0.3 million and $0.4
in fiscal years 1996 and 1995, respectively.
Art Expenses
Art expenses for 1996 of $1.9 million increased by $0.9 million
(89.9%) from $1.0 million in 1995. Art expenses (excluding valuation
allowances)
19
consisted of the cost of art sold (86.9% and 83.6%) and selling, general
and administrative expenses (13.1% and 16.4%) for 1996 and 1995,
respectively. Included in art expenses is a $1.5 million and a $0.5
million valuation allowance against the Company's art inventory (see Note
10 to the Consolidated Financial Statements) for fiscal years 1996 and
1995, respectively.
General and Administrative
General and administrative expenses for 1996 of $1.3 million decreased
$0.1 million (2.3%) from $1.4 million in 1995. The major components of
general and administrative expenses are officers salaries (32.0% and
30.5%), rent (9.1% and 5.7%), legal and professional fees (9.4% and 17.1%),
insurance (11.3% and 11.4%) and office salaries (10.1% and 10.4%) for 1996
and 1995,
respectively. The percentage increases in officers salaries, insurance and
office salaries is a result of the aggregate decrease in total general and
administrative expenses as a result of the decrease in legal fees. The
percentage decrease in rent expense is due to Canal s New York office space
lease providing for four months without rent commencing February 1, 1996.
Interest and Other Income
Interest and other income of $146,000 for fiscal 1996 decreased
$18,000 (11.2%) from $164,000 in fiscal 1995. These amounts are comprised
primarily of dividend and interest income and to a lesser extent the
proceeds from the sale of non-essential assets.
Interest Expense
Interest expense remained stable at $1.5 million in 1996. Interest
rates on Canal's variable rate mortgage notes increased to an average of
11.94% in 1996 as compared to an average of 11.78% in 1995 and an average
of 9.1% in 1994. At October 31, 1996 Canal had reduced the outstanding
face value of these notes from the original $20.0 million to $4.0 million.
20
ITEM 8. Financial Statements and Supplemental Data
The response to this item is included in Item 14(A) of the report.
ITEM 9. Disagreements on Accounting and Financial Disclosure
None.
21
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The Board of Directors has designated an Executive Committee
consisting of Messrs. Edelman and Schultz. The Board of Directors has
delegated to the Executive Committee general authority with respect to most
matters that would otherwise be considered by the full Board. During
fiscal 1997 the Board of Directors held one meeting, and the Executive
Committee held five meetings, all of which were attended by both Mr.
Edelman and Mr. Schultz.
The following information with respect to the principal occupation or
employment of each director and executive officer and the name and
principal business of the Company or other organization in which such
occupation or employment is carried on, and in regard to other affiliations
and business experience during the past five years, has been furnished to
the Company by the respective directors.
Asher B. Edelman, age 58, has been Chairman of the Board since
September 1991 and prior thereto Vice Chairman of the Board and Chairman of
the Executive Committee since February, 1985. Mr. Edelman has been a
Director, Chairman of the Board, and Chairman of the Executive Committee of
Datapoint Corporation ("Datapoint") since March 1985 and has been
Datapoint s Chief Executive Officer since February 1993. Mr. Edelman has
served as General Partner of Asco Partners, a general partner of Edelman
Securities Company L.P. (formerly Arbitrage Securities Company) since June
1984 and is a General Partner and Manager of various investment
partnerships and funds.
Michael E. Schultz, age 61, has been President and Chief Executive
Officer since September 1991 and a Director since 1985; and had been a
partner in the law firm of Ehrenkranz, Ehrenkranz & Schultz until December
31, 1994.
Gerald N. Agranoff, age 51, has been a Director since 1984. Mr.
Agranoff is currently Vice President, General Counsel and Corporate
Secretary of Datapoint and has been a Director of Datapoint since 1991.
Mr. Agranoff has been a General Partner of Edelman Securities Company L.P.
(formerly Arbitrage Securities Company) and Plaza Securities Company for
more than five years. Mr. Agranoff is a director of Bull Run Corporation,
Atlantic Gulf Communities and The American Energy Group, Ltd.. Mr.
Agranoff has also been the General Counsel to Edelman Securities Company
L.P. and Plaza Securities Company for more than five years.
Reginald Schauder, age 48, has been Vice President, Chief Financial
Officer and Treasurer since January 1989 and assumed responsibility as
22
Secretary of the Company in September 1995. Mr. Schauder was corporate
controller from July 1985 to January 1989.
There are no family relationships between any of the aforementioned
executive officers of the Registrant and such executive officers were
elected to serve for a term of one year or until the election and
qualification of their respective successors.
ITEM 11. Executive Compensation
The following table summarizes the compensation of the Company's Chief
Executive Officer and the other two executive officers of the Company whose
salary for fiscal 1997 exceeded $100,000.
SUMMARY COMPENSATION TABLE - Annual Compensation
Name and Principal
Position Year Salary
Michael E. Schultz 1997 $ 165,000
President and Chief 1996 $ 165,000
Executive Officer 1995 $ 162,500
Asher B. Edelman 1997 $ 165,000
Chairman of the Board 1996 $ 165,000
and Executive Committee 1995 $ 162,500
Reginald Schauder 1997 $ 101,200
Vice President, Chief 1996 $ 101,200
Financial Officer 1995 $ 92,000
Treasurer and Secretary
The Company pays certain expenses related to Mr. Edelman's European
offices as well as his travel expenses between Europe and the U.S. These
expenses totaled $52,000, $68,000 and $87,000 for fiscal years 1997, 1996
and 1995, respectively.
Retirement Plans
The Canal Capital Corporation Retirement Plan (the "Retirement Plan")
provides benefits to eligible employees of the Company and its subsidiaries
and affiliates. Directors who are not employees are not eligible to
participate in the Retirement Plan. The Retirement Plan is administered by
23
the Company. All Company contributions under the Retirement Plan were
deposited with an insurance company and invested in a group annuity
contract through May 30, 1985. Thereafter, all Company contributions have
been held in trust under a Trust Agreement between the Company and the
Executive Committee of the Board of Directors, as trustee. Contributions
to the Retirement Plan are determined on an actuarial basis, without
individual allocation.
In October 1991, each of three executive officers of the Company
voluntarily withdrew from participation in the Retirement Plan. As a
result of prior service, Messrs. Edelman and Schauder have deferred annual
accumulated benefits of approximately $1,300 and $600, respectively, as of
October 31, 1997. Mr. Schultz has no benefit under the Retirement Plan.
For further information on the Retirement Plan see Note 9.
Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year End Option Value
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Name Options at Fiscal Year End At Fiscal Year End
Michael E. Schultz 255,500* $ 8,000
Asher B. Edelman 20,000* $ -0-
Reginald Schauder 19,600* $ -0-
* All options were exercisable at October 31, 1997.
COMPENSATION OF DIRECTORS
Fees and Expenses; Other Benefits
Directors who are not officers of the Company do not receive cash
compensation for service as Directors. Mr. Agranoff was granted $25,000
options of the Company under the 1985 Directors Stock Option Plan, as
amended, in lieu of an annual retainer and per meeting fees. The options
were granted December 1991. Directors are reimbursed for expenses incurred
in attending Board and Committee meetings, including those for travel, food
and lodging.
24
Stock Options for Directors
The Company maintains an option plan for the benefit of directors of
the Company -- the 1985 Directors' Stock Option Plan (the "1985 Plan"),
which was approved by the stockholders of the Company on March 12, 1986.
Pursuant to the 1985 Plan, a maximum of 264,000 shares of common stock,
$0.01 par value per share, of the Company have been reserved for issuance
to directors and members of the Executive Committee of the Company and its
subsidiaries.
Options granted under the 1985 Plan are nonqualified stock options and
have an exercise price equal to 100% of fair market value of the shares on
the date of grant. The options may be exercised no earlier than one year
from the date of grant and no later than ten years after the date of grant.
Under the 1985 Plan, options covering 22,000 shares are automatically
granted to each new director upon the effective date of his election to
office and options covering 5,500 shares are automatically granted to each
new member of the Executive Committee upon the effective date of his
appointment to office. In addition, the 1985 Plan was amended on December
18, 1991 to provide an automatic grant of options covering 25,000 shares to
each current and new director who is not an employee of the Company
including Mr. Agranoff. The 1985 Plan is administered by the Board of
Directors of the Company.
During the 1997 fiscal year, no options under the 1985 plan were
granted and no options previously granted were exercised. At October 31,
1997, options covering an aggregate of 30,500 shares were outstanding under
the 1985 Plan and were held by members of the Board of Directors and
Executive Committee. The exercise price per share of all outstanding
options under the 1985 Plan ranges from $0.13 to $0.25. The expiration
dates for outstanding options under the 1985 Plan range from December 2001
to January 2003.
Compensation Committee - Interlocks and Insider Participation
The Board of Directors (comprised of Asher B. Edelman, Chairman of the
Board and Chairman of the Executive Committee, Michael E. Schultz,
President and Chief Executive Officer), and Gerald N. Agranoff determines
the compensation of the Chief Executive Officer and the Company's other
executive
officers and administers the Company's 1984 Stock Option Plan and 1985
Stock Option Plan for Directors.
In connection with the Company's investment activities, the Executive
Committee of the Board of Directors, through Mr. Edelman, has the authority
to invest funds of the Company in securities of other companies. Certain
funds of the Company have been invested in the securities of other
companies in which Mr. Edelman, other directors of the Company or their
affiliates are
25
directors or officers, or in which one or more of such persons may also
have invested. Since November 1, 1993, such companies included Datapoint
Corporation. The Company has filed with the SEC Schedules 13D jointly with
Plaza, Mr. Edelman, Edelman Management, Edelman Limited Partnership,
certain investment partnerships of which Mr. Edelman is sole or controlling
general partner, certain of the companies referred to in the preceding
sentence and other persons, indicating that the filing parties constitute
groups for purposes of such filings with respect to the acquisition of
securities in the companies referred to in the preceding sentence.
ITEM 12. Securities Ownership of Certain Beneficial Owners and Management
To the knowledge of the Company, the only beneficial owners of 5% or
more of the voting stock of the Company (other than those listed below
under "Securities Owned by Management") as of January 15, 1998 were:
SECURITIES BENEFICIALLY OWNED
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
Asher B. Edelman 1,769,269 (c) 40.70
Michael E. Schultz 312,135 (c) 6.81
William G. Walters 234,440 (b) 5.42
(a) Under applicable regulations of the Securities and Exchange
Commission (the "SEC"), a person who has or shares the power to direct the
voting or disposition of stock is considered a "beneficial owner". Each
individual referred to in the above table has the sole power to direct the
voting and disposition of the shares shown.
(b) The number reported herein for Mr. Walters includes 117,220
shares owned by Mr. Walters, 117,220 shares owned by Whale Securities Co.,
L.P., of which Mr. Walters is Chief Executive Officer. Mr. Walters has
sole power to vote and dispose of the shares described herein.
(c) For additional information about beneficial ownership see
"Securities Owned by Management" below.
26
SECURITIES OWNED BY MANAGEMENT
The following table sets forth certain information as of January 15,
1998, with respect to the beneficial ownership of the Company's Common
Stock with respect to all persons who are directors, each of the executives
named in the Executive Compensation Table and by all directors and officers
as of the most practical date. Unless otherwise indicated, the percentage
of stock owned constitutes less than one percent of the outstanding Common
Stock and the beneficial ownership for each person consists of sole voting
and sole
investment power.
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
Gerald Agranoff 25,000 (b) 0.57
Asher B. Edelman 1,769,269 (c)(d) 40.70
Reginald Schauder 19,600 (e) 0.45
Michael E. Schultz 312,135 (f)(g) 6.81
All Directors and Officers
as a group (4 persons) 2,126,004 48.53
(a) Under applicable regulations of the Securities and Exchange
Commission (the "SEC"), a person who has or shares the power to direct the
voting or disposition of stock is considered a "beneficial owner". Each
director and officer referred to in the above table has the sole power to
direct the voting and disposition of the shares shown, except as otherwise
set forth in footnotes (c), (d) and (f) below.
(b) Includes 25,000 shares subject to options which are presently
exercisable.
(c) The number reported herein for Mr. Edelman includes 20,000 shares
subject to options granted to Mr. Edelman which are presently exercisable,
8,400 shares owned by Aile Blanche, Inc., of which Mr. Edelman is the sole
stockholder, 3,399 shares owned by Felicitas Partners, L.P. ("Felicitas"),
the general partner of which is Citas Partners ("Citas") of which Mr.
Edelman
is the controlling general partner, 1,017,220 shares owned by A.B. Edelman
Limited Partnership ("Edelman Limited Partnership"), of which Mr. Edelman
is the sole general partner, 355,250 shares of common stock owned by the
Edelman
27
Value Fund Ltd. (the Fund ) of which Mr. Edelman is the investment manager
and 31,300 shares held in Mr. Edelman's retirement plan. Aile Blanche,
Inc. has the sole power to vote and dispose of the shares owned by it,
which power is exercisable by Mr. Edelman as President. Felicitas has the
sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as the controlling general partner of Citas.
Edelman Limited Partnership has the sole power to vote and dispose of the
shares owned by it, which power is exercisable by Mr. Edelman as the sole
general partner of Edelman Limited Partnership. Mr. Edelman as the
investment manager of the Fund directs the voting and disposition of the
Fund s securities. Additionally, the number reported herein for Mr.
Edelman includes 142,150 shares of common stock owned by Mr. Edelman's
wife, 2,900 shares held in his wife's retirement plan and 188,650 shares of
common stock held in three Uniform Gifts to Minors Act accounts for the
benefit of Mr. Edelman's children of which Mr. Edelman is the custodian.
(d) The number reported herein for Mr. Edelman excludes 26,620 shares
of common stock held by Canal Capital Corporation Retirement Plan of which
Mr. Edelman serves as a trustee, 39,865 shares of common stock owned by Mr.
Edelman's former wife, 22,510 shares of common stock held in three Uniform
Gifts to Minors Act accounts for the benefit of Mr. Edelman's children, of
which Mr. Edelman's former wife is the custodian and 590,186 shares of
common stock held in three trusts for the benefit of Mr. Edelman's
children, as to which Mr. Edelman expressly disclaims beneficial ownership.
(e) Includes 19,500 shares subject to options which are presently
exercisable.
(f) Includes 255,500 shares subject to options which are presently
exercisable.
(g) The number reported herein for Mr. Schultz excludes 26,620 shares
of common stock held by the Canal Capital Corporation Retirement Plan of
which Mr. Schultz serves as a trustee and 590,186 shares of common stock
held in three trusts for the benefit of Mr. Edelman's children of which
Mr. Schultz serves as the trustee for each of the trusts.
ITEM 13. Certain Relationships and Related Transactions
See: "Compensation Committee Interlocks and Insider
Participation"
28
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) 1. Financial Statements and Notes
See accompanying index to consolidated financial statements.
(a) 2. Schedules and Supplementary Note
None
(a) 3. Exhibits
See accompanying index to exhibits.
(b) Reports on Form 8-K
During the quarter ended October 31, 1997 the Company filed
no reports on Form 8-K.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
30th day of January, 1998.
CANAL CAPITAL CORPORATION
By: /S/ Michael E. Schultz
Michael E. Schultz
President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
President and Chief
/S/ Michael E. Schultz Executive Officer and Director
Michael E. Schultz (Principal Executive Officer) January 30, 1998
Vice President-Finance
Secretary and Treasurer
/S/ Reginald Schauder (Principal Financial and
Reginald Schauder Accounting Officer) January 30, 1998
/S/ Asher B. Edelman Chairman of the Board
Asher B. Edelman and Director January 30, 1998
/S/ Gerald N. Agranoff
Gerald N. Agranoff Director January 30,
1998
30
FORM 10-K -- ITEM 14(a)(1) and (2)
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this report:
(a) 1. Financial Statements --
Independent Accountants Report.......................... F-2
Consolidated Balance Sheets October 31, 1997 and 1996... F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended October 31, 1997, 1996
and 1995............................................. F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended October 31, 1997, 1996
and 1995............................................. F-7
Consolidated Statements of Cash Flows for the
years ended October 31, 1997, 1996 and 1995.......... F-8
Notes to Consolidated Financial Statements.............. F-9
F-1
INDEPENDENT ACCOUNTANTS REPORT
To the Stockholders of Canal Capital Corporation:
We have audited the accompanying consolidated balance sheets of Canal
Capital Corporation (a Delaware corporation) and Subsidiaries as of October
31, 1997 and 1996 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
three year period ended October 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Canal Capital
Corporation and Subsidiaries as of October 31, 1997 and 1996, and the
results of their operations and cash flows for each of the years in the
three year period ended October 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Notes 1, 6
and 16 to the financial statements, the Company has suffered recurring
losses from operations in seven of the last nine years and is involved in
various litigations. All of these matters raise substantial doubt about
the company s ability to continue as a going concern. Management's plans
in regard to these matters are also described in Notes 1, 6 and 16.
The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
/S/ Todman & Co., CPA s,P.C.
New York, N.Y.
TODMAN & CO., CPAs, P.C.
January 9 , 1998
Certified Public Accountants (N.Y.)
F-2
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
1997 1996
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 28,225 $ 10,632
RESTRICTED CASH AND CASH EQUIVALENTS 0 470,000
NOTES AND ACCOUNTS RECEIVABLE, NET 271,891 295,202
ART INVENTORY (NET OF A VALUATION
ALLOWANCE OF $ 500,000 AT
OCTOBER 31, 1997 AND 1996,
RESPECTIVELY) 500,000 500,000
INVESTMENTS 1,151,358 535,558
PREPAID EXPENSES 199,888 203,238
TOTAL CURRENT ASSETS 2,151,362 2,014,630
NON-CURRENT ASSETS:
PROPERTY ON OPERATING LEASES, NET OF
ACCUMULATED DEPRECIATION OF $ 2,407,533
AND $ 5,753,088 FOR 1997 AND 1996,
RESPECTIVELY 5,323,177 7,105,534
ART INVENTORY NON-CURRENT (NET OF
VALUATION ALLOWANCE OF $ 2,350,000
AND $2,000,000) AT OCTOBER 31,
1997 AND 1996, RESPECTIVELY 2,310,857 3,089,088
OTHER ASSETS:
PROPERTY HELD FOR DEVELOPMENT
OR RESALE 2,843,305 2,938,905
DEFERRED LEASING AND FINANCING COSTS 39,655 92,919
DEPOSITS AND OTHER 291,787 248,132
3,174,747 3,279,956
$12,960,143 $15,489,208
============ ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
LIABILITIES & STOCKHOLDERS' EQUITY 1997 1996
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT-
RELATED PARTY $ 0 $500,000
CURRENT PORTION OF LONG-TERM DEBT 98,000 64,000
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES 1,871,963 1,984,692
ACCRUED LITIGATION SETTLEMENT 0 850,000
INCOME TAXES PAYABLE 97,995 27,877
TOTAL CURRENT LIABILITIES 2,067,958 3,426,569
LONG-TERM DEBT, LESS CURRENT PORTION 2,375,496 6,130,769
LONG-TERM DEBT, RELATED PARTY 3,675,000 849,000
6,050,496 6,979,769
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $0.01 PAR VALUE:
5,000,000 SHARES AUTHORIZED; 2,997,900 AND
2,703,299 SHARES ISSUED AND OUTSTANDING
AND AGGREGATE LIQUIDATION PREFERENCE OF
$ 29,979,000 AND $ 27,032,990 AT OCTOBER 31,
1997 AND 1996, RESPECTIVELY 29,979 27,033
COMMON STOCK, $0.01 PAR VALUE:
10,000,000 SHARES AUTHORIZED; 5,313,794
SHARES ISSUED AT OCTOBER 31, 1997
AND 1996, RESPECTIVELY 53,138 53,138
ADDITIONAL PAID-IN CAPITAL 26,826,293 26,636,939
ACCUMULATED DEFICIT (10,194,335) (9,010,999)
986,865 SHARES OF COMMON STOCK
HELD IN TREASURY, AT COST (11,003,545) (11,003,545)
COMPREHENSIVE INCOME:
PENSION VALUATION RESERVE (1,485,641) (1,619,696)
UNREALIZED GAIN ON INVESTMENTS
AVAILABLE FOR SALE 615,800 0
4,841,689 5,082,870
$12,960,143 $15,489,208
============ ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
REAL ESTATE OPERATIONS:
REAL ESTATE REVENUES:
SALE OF REAL ESTATE $2,496,943 $5,170,872 $ 770,012
RENTAL INCOME 1,591,005 2,072,593 2,090,068
GROUND LEASE INCOME 924,000 936,000 972,500
VOLUME BASED RENTAL INCOME 110,414 657,184 729,335
OTHER INCOME 71,109 17,091 31,892
5,193,471 8,853,740 4,593,807
REAL ESTATE EXPENSES:
COST OF REAL ESTATE SOLD 896,698 1,386,029 431,736
LABOR, OPERATING AND MAINTENANCE 833,181 964,918 980,626
DEPRECIATION AND AMORTIZATION 343,741 359,263 364,594
TAXES OTHER THAN INCOME TAXES 256,800 360,000 530,202
PROVISION FOR LITIGATION
SETTLEMENT (60,359) 434,918 0
WRITE DOWN OF REAL ESTATE
PROPERTY 936,689 0 0
GENERAL AND ADMINISTRATIVE 104,606 107,239 90,888
3,311,356 3,612,367 2,398,046
INCOME FROM REAL ESTATE
OPERATIONS 1,882,115 5,241,373 2,195,761
ART OPERATIONS:
ART REVENUES:
SALES 114,350 195,400 246,550
OTHER REVENUES 2,982 0 13,740
117,332 195,400 260,290
ART EXPENSES:
COST OF ART SOLD 432,286 326,399 407,557
VALUATION RESERVE 350,000 1,500,000 500,000
SELLING, GENERAL AND
ADMINISTRATIVE 44,541 49,010 79,803
826,827 1,875,409 987,360
LOSS FROM ART OPERATIONS (709,495) (1,680,009) (727,070)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
Continued ...
1997 1996 1995
GENERAL AND ADMINISTRATIVE
EXPENSE (1,256,854) (1,348,179) (1,380,415)
(LOSS) INCOME FROM OPERATIONS (84,234) 2,213,185 88,276
OTHER INCOME (EXPENSE):
INTEREST AND OTHER INCOME 236,470 145,819 164,209
INTEREST EXPENSE (804,719) (1,494,271) (1,433,828)
INTEREST EXPENSE-RELATED
PARTY (149,000) (23,000) (51,000)
OTHER EXPENSE (200,000) 0 (285,871)
(917,249) (1,371,452) (1,606,490)
(LOSS) INCOME BEFORE PROVISION FOR INCOME
TAXES (1,001,483) 841,733 (1,518,214)
PROVISION FOR INCOME TAXES 0 0 0
NET (LOSS) INCOME ($1,001,483) $ 841,733 ($1,518,214)
OTHER COMPREHENSIVE (LOSS) INCOME:
MINIMUM PENSION LIABILITY
ADJUSTMENT 134,055 116,975 (327,928)
UNREALIZED GAIN ON INVESTMENTS
AVAILABLE FOR SALE 615,800 0 0
COMPREHENSIVE (LOSS) INCOME ($251,628) $ 958,708 ($1,846,142)
(LOSS) INCOME PER COMMON SHARE:
- BASIC ($0.27) $ 0.16 ($0.40)
- DILUTED ($0.27) $ 0.13 ($0.40)
WEIGHTED AVERAGE NUMBER OF SHARES:
- BASIC 4,326,929 4,326,929 4,351,680
- DILUTED 5,326,929 5,326,929 5,351,680
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996, AND 1995
COMMON STOCK PREFERRED STOCK
NUMBER NUMBER
OF OF
SHARES AMOUNT SHARES AMOUNT
BALANCE, NOVEMBER 1, 1994 5,313,794 $53,138 2,055,194 $20,552
NET INCOME 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 303,348 3,033
-------------------- ---------------------
BALANCE, OCTOBER 31, 1995 5,313,794 $53,138 2,358,542 $23,585
NET INCOME 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 344,757 3,448
-------------------- ---------------------
BALANCE, OCTOBER 31, 1996 5,313,794 $53,138 2,703,299 $27,033
NET LOSS 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 294,601 2,946
-------------------- ---------------------
BALANCE, OCTOBER 31, 1997 5,313,794 $53,138 2,997,900 $29,979
==================== =====================
ADDITIONAL TREASURY
PAID-IN ACCUMULATED COMPREHENSIVE STOCK,
CAPITAL DEFICIT (LOSS)INCOME AT COST
BALANCE, NOV. 1,
1994 $26,262,346 ($7,979,331) ($1,408,74 ($11,003,545)
NET INCOME 0 (1,518,214) 0 0
PREFERRED STOCK
DIVIDEND 205,662 (193,148) 0 0
MINIMUM PEN.
LIAB. ADJ. 0 0 (327,928) 0
UNREALIZED GAIN
ON INVEST. 0 0 0 0
--------------- -------------- ------------ ------------
BALANCE, OCT. 31,
1995 $26,468,008 ($9,690,693) ($1,736,671) ($11,003,545)
NET INCOME 0 841,733 0 0
PREFERRED STOCK
DIVIDEND 168,931 (162,039) 0 0
MINIMUM PEN.
LIAB. ADJ. 0 0 116,975 0
UNREALIZED GAIN
ON INVEST. 0 0 0 0
--------------- -------------- ----------------
BALANCE, OCT. 31,
1996 $26,636,939 ($9,010,999) ($1,619,696) ($11,003,545)
NET INCOME 0 (1,001,483) 0 0
PREFERRED STOCK
DIVIDEND 189,354 (181,853) 0 0
MINIMUM PEN.
LIAB. ADJ. 0 0 134,055 0
UNREALIZED GAIN
ON INVEST. 0 0 615,800 0
--------------- -------------- ------------ -------------
BALANCE, OCT. 31,
1997 $26,826,293 ($10,194,335) ($ 869,841) ($11,003,545)
============== ============== ================ ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET INCOME (LOSS) ($1,001,483) $ 841,733 ($1,518,214)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES:
(CREDIT)PROV. FOR LITIGATION
SETTLEMENT (60,359) 434,918 0
DEPRECIATION AND
AMOR4TIZATION 419,897 434,532 412,505
GAIN ON SALES OF
REAL ESTATE (1,600,245) (3,784,843) (338,276)
VALUATION RESERVE -
ART INVENTORY 350,000 1,500,000 500,000
CHANGES IN ASSETS AND LIABILITIES:
NOTES AND ACCOUNTS
RECEIVABLES, NET 23,311 (53,424) 351,045
ART INVENTORY, NET 428,231 311,507 343,537
PREPAID EXPENSES AND
OTHER, NET 826,419 (677,535) (254,208)
PAYABLES AND ACCRUED
EXPENSES, NET (892,611) 203,221 690,964
NET CASH (USED) PROVIDED
BY OPERATING ACTIVITIES (1,506,840) (789,891) 187,353
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF
REAL ESTATE 2,496,943 5,170,872 770,012
CAPITAL EXPENDITURES (47,237) (128,626) (91,740)
NET CASH PROVIDED BY
INVESTING ACTIVITIES 2,449,706 5,042,246 678,272
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM LONG-TERM
DEBT-RELATED PARTIES 0 0 1,032,275
REPAYMENT OF SHORT-TERM
BORROWINGS (466,000) 0 (787,305)
REPAYMENT OF LONG-TERM
DEBT OBLIGATIONS (929,273) (3,886,473) (1,029,440)
NET CASH USED BY
FINANCING ACTIVITIES (1,395,273) (3,886,473) (784,470)
DECREASE (INCREASE) IN
RESTRICTED CASH AND
CASH EQUIVALENTS 470,000 (470,000) 0
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS 17,593 (104,118) 81,155
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 10,632 114,750 33,595
CASH AND CASH EQUIVALENTS
AT END OF YEAR $28,225 $ 10,632 $114,750
============ ========== ==============
NOTE: IN FISCAL 1997, 1996 AND 1995,$ 181,183, $ 162,039 AND $ 193,148,
RESPECTIVELY, OF PREFERRED STOCK DIVIDENDS WERE PAID THROUGH THE
ISSUANCE OF 294,611, 344,757 AND 303,348 , RESPECTIVELY, OF SHARES OF
PREFERRED STOCK.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Canal Capital Corporation ("Canal"), incorporated in the state of
Delaware in 1964, commenced business operations through a predecessor in
1936. Canal was a wholly-owned subsidiary of Canal-Randolph Corporation
until June 1, 1984, when Canal-Randolph Corporation distributed to its
stockholders all of the outstanding shares of Canal's common stock, under a
plan of complete liquidation.
Canal is engaged in two distinct businesses - the management of its
agribusiness related real estate properties located in the midwest and art
operations, consisting mainly of the acquisition of art for resale.
While the Company is currently operating as a going concern, certain
significant factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company has suffered recurring losses
from operations in seven of the last nine years and is involved in
litigation with a major tenant in Fargo, North Dakota. The financial
statements do not include any adjustments that might result from the
resolution of these uncertainties (See Notes 1, 6 and 16). Additionally,
the accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Canal continues to closely monitor and reduce where possible its
overhead expenses and plans to continue to reduce the level of its art
inventories to enhance current cash flows. Management believes that its
income from operations combined with its cost cutting program and planned
reduction of its art inventory will enable it to finance its current
business activities. There can, however, be no assurance that Canal will
be able to effectuate its planned art inventory reductions or that its
income from operations combined with its cost cutting program in itself
will be sufficient to fund operating cash requirements.
F-9
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Principles of Consolidation -- The consolidated financial
statements include the accounts of Canal Capital Corporation ("Canal") and
its subsidiaries ( the Company ). Investments in which ownership interest
range from 20% to 50% or less owned joint ventures are accounted for under
the equity method. These joint ventures are not, in the aggregate,
material in relation to the financial position or results of operations of
Canal. The carrying amount of such investments was $208,000 and $150,000
at October 31, 1997 and 1996, respectively, and is included in other
assets. The operating results of joint ventures accounted for on the
equity method, for fiscal year 1997, 1996 and 1995 were not material to
financial statement presentation and were therefore included in other
income from real estate operations. All significant intercompany balances
and transactions have been eliminated in consolidation.
B) Investments Available for Sale -- Canal has an investment in a
company in which it, together with other affiliated entities, comprise a
reporting group for regulatory purposes. It is important to note that it
is the group (as defined) that can exercise influence over this company,
not Canal. Accordingly, this investment does not qualify for consolidation
as a method of reporting. Certain of Canal s officers and directors also
serve as officers and/or directors of this company. This investment (in
which Canal s ownership interest is approximately 2%) is carried at market
value and the realized gains or losses, if any, are recognized in operating
results. Any unrealized gains or losses are reflected in Stockholders
Equity.
C) Properties and Related Depreciation -- Properties are stated at
cost less accumulated depreciation. Depreciation is provided on the
straight-line method over the estimated useful lives of the properties.
Such lives are estimated from 35 to 40 years for buildings and from 5 to 20
years for improvements and equipment.
Property held for Development or Resale -- Property held for
development or resale consist of approximately 271 acres located in the
midwest of undeveloped land not currently utilized for corporate purposes
nor included in any of the present operating leases. The Company
constantly evaluates proposals received for the purchase, leasing or
development of this asset. The land is valued at cost which does not
exceed the net realizable value.
F-10
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
D) Expenditures for maintenance and repairs are charged to operations
as incurred. Significant renewals and betterments are capitalized. When
properties are sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any gain or loss
is reflected in current income.
E) Art Inventory - Inventory of art is valued at the lower of cost,
including direct acquisition and restoration expenses, or net realizable
value on a specific identification basis. Net realizable value is
determined in part by independent appraisal. Independent appraisals
covered approximately 49% and 66% of the inventory value at October 31,
1997 and 1996, respectively. The remaining 51% and 34% at October 31, 1997
and 1996, respectively was estimated by management based in part on the
independent appraisals done. However, because of the nature of art
inventory, such determination is very subjective and, therefore, the
estimated values could differ significantly from the amount ultimately
realized.
The cost of art is generally specified on the purchase invoice.
When individual art is purchased as part of a group or collection of art,
cost is allocated to individual pieces by management using the information
available to it. A significant portion of the art inventory remains in
inventory longer than a year. Consequently, for financial statement
purposes, Canal has classified a portion of its inventory as non-current
assets (see Note 10). Antiquities and contemporary art represented 63%
($1,775,594) and 37% ($1,035,263) and 64% ($2,311,825) and 36% ($1,277,263)
of total art inventory at October 31, 1997 and 1996, respectively.
Substantially all of the contemporary art inventory held for resale is
comprised of the work of Jules Olitski.
F) Deferred Leasing and Financing Costs -- Costs incurred in
obtaining new leases and long-term financing are deferred and amortized
over the terms of the related leases or debt agreements, as applicable.
G) Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-11
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
H) Revenue Recognition -- Revenues from art sales are recognized
using the specific identification method, when the piece is shipped to the
purchaser. Art owned by Canal which is on consignment, joint venture, or
being examined in contemplation of sale is not removed from inventory and
not recorded as a sale until notice of sale or acceptance has been
received. Lease and rental revenues are recognized ratably over the period
covered. All real estate leases are accounted for as operating leases.
Revenues from real estate sales are recognized generally when title to the
property passes. Revenues from the sale of investments available for sale,
if any, are recognized, on a specific identification method, on a trade
date basis.
I) Income Taxes -- Canal and its subsidiaries file a consolidated
Federal income tax return. Deferred income taxes, if any, are provided for
temporary differences between financial reporting and taxable basis of
assets and liabilities.
J) Statements of Cash Flows -- The company considers all short-term
investments with a maturity of three months or less to be cash equivalents.
Cash equivalents primarily include bank, broker and time deposits with an
original maturity of less than three months. These investments are carried
at cost, which approximates market value. Canal made federal and state
income tax payments of $40,000, $38,000 and $47,000 and interest payments
of $954,000, $1,297,000 and $1,485,000 in 1997, 1996 and 1995,
respectively.
K) Earnings Per Share -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 128 Earnings Per Share, which will require companies to present basic
earnings per share (EPS) and diluted earnings per share, instead of the
primary and fully diluted EPS that is currently required. The new standard
requires additional information disclosure, and also makes certain
modifications to the currently applicable EPS calculations defined in
Accounting Principles Board No. 15. The new standard is required to be
adopted by all public companies for reporting periods ending after December
15, 1997, and will require restatement of EPS for all prior periods
reported. The Company decided on earlier adoption under the requirement of
SFAS No. 128, for the year ended October 31, 1997, 1996 and 1995.
L) Comprehensive Income -- Effective for fiscal years beginning after
December 15, 1997, Statement of Financial Accounting Standards No. 130
F-12
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
requires that comprehensive income and its components, as defined in the
statement, be reported in a financial statement. SFAS No. 130 does not
require that comprehensive income and its components be reported in an
income statement.
The Company elected for early adoption of SFAS No. 130 and is
presenting its Consolidated Statement of Operations in a single step form
at October 31, 1997 and, accordingly, certain reclassifications of prior
year amounts have been made to conform to this presentation.
M) Reclassification -- Certain prior year amounts have been
reclassified to conform to the current year's presentation.
3. INVESTMENTS AVAILABLE FOR SALE
At October 31, the investments available for sale consisted of the
following:
($ 000's Omitted) 1997 1996
Aggregate market value..................... $1,151 $ 535
Aggregate carrying value................... $1,151 $ 535
Canal has an investment in a company in which it, together with other
affiliated entities, comprise a reporting group for regulatory purposes.
It is important to note that it is the group (as defined) that can exercise
influence over this company, not Canal. Accordingly, this investment does
not qualify for consolidation as a method of reporting. Certain of Canal s
officers and directors also serve as officers and/or directors of this
company. This investment (in which Canal s ownership interest is
approximately 2%) is carried at market value and the realized gains or
losses, if any, are recognized in operating results. Any unrealized gains
or losses are reflected in Stockholders Equity.
In fiscal 1997 Canal recognized an unrealized gain on investments of
$616,000 which is shown as a separate component of Stockholders Equity.
4. NOTES AND ACCOUNTS RECEIVABLE
Included in notes and accounts receivable at October 31, 1997 and 1996
were the current portion of notes receivable in the amount of $25,000 which
F-13
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
were generated by real estate and other sales. Notes and accounts
receivable is shown net of a provision for doubtful accounts in the amount
of $20,000 and $12,000 for fiscal 1997 and 1996, respectively.
5. STOCKYARD OPERATIONS SALE
On October 31, 1989, Canal sold most of its stockyards assets to a
group formed by a former Executive Vice President and Director of the
Company. Not included in the sale was certain land and some facilities
previously used by the stockyards operations. Canal entered into a master
lease (the "Lease")
with the purchaser covering this land and facilities at five locations.
The lease is a ten year lease, renewable at the purchaser s option
for an
additional ten years, with annual rentals of $750,000 per year for the
first year escalating to $1 million per year for the fourth through the
tenth years and $1 million adjusted for CPI increases thereafter. Canal
has renegotiated the lease as it relates to the Omaha, Nebraska property,
and accordingly, Canal s fiscal 1997 revenue from this lease was $924,000.
Canal could be entitled to receive additional rent if the stockyards
livestock value or cash flow (as defined) exceeds certain levels. In
addition, Canal retained the right to receive income from certain volume
based rental income agreements with various meat packing companies located
near the stockyards. The income from the ground lease is included in
Canal's operating results as Real Estate operations.
Revenues from the volume based rental agreements for the three years
ended October 31, 1997 were:
($ 000's Omitted) 1997 1996 1995
Sioux City, Iowa (1) $ 0 $ 537 $ 629
Fargo, North Dakota (2) 110 120 100
$ 110 $ 657 $ 729
(1) On September 20, 1996 Canal entered into a Mutual Release and
Settlement Agreement with the Sioux City, Iowa meat packer which
terminated the lease. Accordingly, the 1996 revenues are for
eleven months only and there were no such revenues in fiscal
1997.
(2) Canal is involved in litigation with the operator under this
lease.(see Note 15).
F-14
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. BORROWINGS
At October 31, 1997, substantially all of Canal's real properties, the
stock of certain subsidiaries, the investments and a substantial portion of
its art inventories are pledged as collateral for the following
obligations:
October 31,
($ 000's Omitted) 1997 1996
Variable rate mortgage notes
due May 15, 1998 ................................ $ 2,655 $ 3,960
Variable Rate Mortgage Notes
due September 15, 1998 - related party ......... 700 849
11% mortgage note; original principal amount
$1,697; due April 1, 2011; payable in monthly
installments (including interest) of $17....... 1,266 1,336
9.5% mortgage note; original principal amount
$472; due November 1, 2012; payable in monthly
installments (including interest) of $4........ 405 414
10 1/2% mortgage note (adjusted periodically to
prime plus 1 3/4%); original principal amount
$556 due January 15, 2013; payable in monthly
installments (including interest) of $6........ 477 485
Other Note - related party....................... 320 500
Other Note ...................................... 325 0
Total ........................................... 6,148 7,544
Less -- current maturities ...................... 98 564
Long-term debt $ 6,050 $ 6,980
F-15
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
On May 22, 1985, Canal completed the sale of $20 million face value of
Variable Rate Mortgage Notes, due May 15, 1993. As discussed more fully
below, Canal has extended these notes to May 15, 1998 under essentially the
same terms and conditions. The notes carry interest at the highest of four
variable rates, determined on a quarterly basis. At October 31, 1997, the
interest rate was 12.00%. This rate remained unchanged at November 15,
1997 and for the next successive 90-day period. The average interest rate
on these notes during 1997 was 12.00%. The new agreement, among other
things, prohibit Canal from becoming an investment company as defined by
the Investment Company Act of 1940; requires Canal to maintain minimum net
worth; restricts Canal's ability to pay cash dividends or repurchase stock;
requires principal prepayments to be made only out of the proceeds from the
sale of certain assets; and requires the accrual of additional interest (to
be paid at maturity) of two, three and four percent per annum for the
fiscal years commencing May 15, 1995, 1996 and 1997, respectively. In
fiscal 1996, this agreement was amended to provide for the forgiveness of
all additional interest accrued in the event that the Company meets on a
timely basis all its obligations under the Note, including the payment of
all other principal and accrued interest on or before May 15, 1998. In
consideration for the new agreement, Canal agreed to pay a fee to the
noteholders of 2% of the principal amount outstanding as of May 15, 1995.
The balance outstanding at October 31, 1997 of these notes was $2,655,000.
On September 20, 1995, the Company issued $1,032,000 of variable rate
mortgage notes due September 15, 1998 to a group which includes an
investment partnership controlled by the Company s Chairman and the
Company s Chief Executive Officer and members of his family. The notes
issued have essentially the same terms and conditions as the notes
discussed above. These notes, among other things, prohibit Canal from
becoming an investment company as defined by the Investment Company Act of
1940; requires Canal to maintain minimum net worth; restricts Canal s
ability to pay cash dividends or repurchase stock; requires principal
prepayments to be made only out of the proceeds from the sale of certain
assets, and requires the accrual of additional interest (to be paid at
maturity) of two, three and four percent per annum for the fiscal years
commencing September 15, 1995, 1996 and 1997, respectively. The balance
outstanding at October 31, 1997 of these notes was $700,000.
F-16
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In March 1994 the Company borrowed $500,000 from an individual. The
Company executed a $350,000 note due December 31, 1996 and a $150,000
$150,000 convertible note also due December 31, 1996. Both these notes
were
subsequently extended to December 31, 1997. The $150,000 note is
convertible at the holder s option into one million (1,000,000) shares of
the Company's common stock. The notes pay quarterly interest at the prime
rate per annum (which was 8.5% at October 31, 1997) and are secured by
125,000 shares of Datapoint Corporation common stock owned by the Company.
The proceeds from this loan were used by the Company to meet its
obligations under its then secured credit line. The balance outstanding at
October 31, 1997 of these notes was $320,000.
On December 1, 1997 the Company issued a $325,000 promissory note due
December 1, 2001 as the result of a settlement agreement with the buyer of
a parcel of land located in Portland, Oregon which Canal sold in 1988. The
note carries interest at the prime rate (8.5% at October 31, 1997) adjusted
semi-annually and requires principal and interest payments in each of the
first four years (based on a 30 year amortization schedule) commencing
December 1, 1997. The balance is payable in full on December 1, 2001.
On January 8, 1998, the Company issued $3,700,000 of variable rate
mortgage notes due May 15, 2001, the proceeds of which were used to repay
in full the Company s variable rate mortgage notes due May 15, 1998
($2,605,000), its variable rate mortgage notes due September 15, 1998
($700,000) and two notes which were due December 31, 1997 ($320,000) plus
accrued interest thereon. The purchasers of these notes included certain
entities controlled by the Company s Chairman, the Company s Chief
Executive Officer and members of their families. The variable rate
mortgage notes issued have essentially the same terms and conditions as the
variable rate mortgage notes which were repaid. These notes carry interest
at the highest of four variable rates, determined on a quarterly basis.
These notes, among other things, prohibits Canal from becoming an
investment company as defined by the Investment Company Act of 1940;
requires Canal to maintain minimum net worth; restricts Canal s ability to
pay cash dividends or repurchase stock; requires principal prepayments to
be made only out of the proceeds from the sale of certain assets, and
requires the accrual of additional interest (to be paid at maturity) of
approximately three percent per annum. As a result of the refinancing all
of the debt that was repaid on January 8, 1998 was classified as long term
debt-related party at October 31, 1997.
F-17
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The scheduled maturities and sinking fund requirements of long-term
debt during the next five years are as follows ($ 000's Omitted):
Year Ending Amount
1998 $ 98
1999 100
2000 100
2001 3,800
2002 410
Thereafter 1,640
$ 6,148
7. INCOME TAXES
Statement of Financial Accounting Standard No. 109 - Accounting for
income taxes, which establishes accounting and reporting standards for the
effects of income taxes that result from an enterprise's activities during
the current year and preceding years became effective for the Company for
its fiscal year ended October 31, 1994. Its implementation had no
material
effect on the financial statements of the Company. Under FAS 109, the
utilization of the net operating loss carryforwards are not presented as
extraordinary items. For the year ended October 31, 1994 approximately
$760,000 of net operating loss carryforwards have been utilized to
eliminate the Company s taxable income.
In addition, the Company has carryforward losses which are available
to offset future federal and state taxable income. For federal income tax
reporting purposes, such losses expire as follows:
Year Ending Amount
2006 $3,633,545
2008 1,750,455
2010 1,379,952
2011 283,972
$7,047,924
Deferred income tax assets as of October 31, 1997, 1996 and 1995, due
primarily to net operating losses, have been reduced to zero by valuation
reserves of approximately $1,200,000, $2,700,000 and $2,600,000,
respectively due to uncertainties concerning their realization.
F-18
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. PENSION PLANS
Canal has a defined benefit pension plan covering substantially all of
its salaried employees (the "Plan"). The benefits are based on years of
service and the employee's compensation earned each year. The Company's
funding policy is to contribute the amount that can be deducted for federal
income tax purposes. Accordingly, the Company will make a contribution of
approximately $162,000 for fiscal 1997 and has made contributions of
approximately $164,000 for fiscal 1996 and $160,000 for fiscal 1995.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future.
Assets of the plan were invested in U.S. Government securities, common
stocks and antiquities.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheets at October 31, 1997
and 1996.
Plan Year
($ 000's Omitted) 1997 1996
Actuarial present value of benefit
obligations:
Accumulated benefit obligation, including
vested benefits of $1,487 and $1,451 in
1997 and 1996, respectively ............. $ 1,490 $ 1,452
Additional benefit due to assumed future
compensation levels ......................... 25 21
Projected benefit obligation (1) .............. 1,515 1,473
Plan assets at fair value ..................... 1,105 884
Projected benefit obligation in excess
of plan assets .............................. 410 588
Unrecognized net asset ........................ 126 152
Unrecognized net loss ......................... (1,636) (1,792)
Valuation reserve to recognize accrued pension
costs in the consolidated balance sheets .... 1,486 1,620
Accrued pension cost included among accrued
expenses in the consolidated balance sheets.. $ 386 $ 568
(1) The vast majority of the projected benefit obligation is related
to the Company's former stockyard employees.
F-19
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Net periodic pension cost for plan years ended October 31, 1997, 1996
and 1995 included the following components:
Plan Year
($ 000's Omitted) 1997 1996 1995
Service costs - benefits earned during
the period ............................ $ 8 $ 8 $ 6
Interest cost on projected benefit
obligation ............................ 106 104 114
(Return) loss on assets .............. (250) (95) 34
Net amortization and deferral ........... 193 35 (121)
Net period pension cost ................. $ 57 $ 52 $ 33
Assumptions used in computing the 1997, 1996 and 1995 pension cost
were:
1997 1996 1995
Discount rate ........................... 7.25% 7.75% 7.25%
Rate of increase in compensation
level ................................. 5.75% 6.25%
5.75% Expected long-term rate of return
on assets ............................. 10.00% 10.00% 10.00%
9. ART OPERATIONS
Canal's art dealing operations consist primarily of inventories held
for resale of antiquities primarily from ancient Mediterranean cultures and
contemporary art primarily of one artist. Canal carries on its art dealing
operations through various consignment agreements relating to its
antiquities and contemporary art inventories.
F-20
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Canal established its art operations in October 1988 by acquiring a
significant inventory for resale of antiquities primarily from the ancient
Mediterranean cultures. In November 1989, Canal expanded its art
operations by entering into a cost and revenue sharing agreement with a New
York City gallery for the exclusive representation of Jules Olitski, a
world renowned
artist of contemporary paintings. As part of this agreement Canal
purchased a number of Olitski paintings which it holds for resale with a
book value of approximately $1,000,000 at October 31, 1997. The
representation agreement expired December 1, 1994 and Canal now operates
independently in the marketing of its contemporary art inventory.
Due to general economic conditions and the softness of the art
markets, Canal has not purchased inventory in several years. However,
Canal continues its marketing efforts to sell its existing art inventory
through various consignment agreements and at public auctions. Antiquities
and contemporary art represented 63% ($1,775,594) and 37% ($1,035,263) and
64% ($2,311,825) and 36% ($1,277,263) of total art inventory at October 31,
1997 and 1996, respectively. Substantially all of the contemporary art
inventory held for resale is comprised of the work of Jules Olitski.
Management estimates it may take two to five years to dispose of its
current art inventory. The Company's ability to dispose of its art
inventory is dependent at least in part, on general economic conditions,
including supply, demand, international monetary conditions and inflation.
Additionally, the art market itself is very competitive. Accordingly,
there can be no assurance that Canal will be successful in disposing of its
art inventory within the time frame discussed above.
Canal has its art inventory appraised by an independent appraiser
annually. The 1997 appraisal covered approximately 49% of the inventory
value. The appraised values estimate the current market value of each
piece giving consideration to Canal's practices of engaging in consignment,
private and public auction sales. The net realizable value of the
remaining 51% of the inventory was estimated by management based in part on
operating history and in part on the results of the independent appraisals
done. In fiscal 1997 Canal recognized a $350,000 valuation allowance
against its art inventory, thereby, increasing the total valuation
allowance to $2,850,000 as of October 31, 1997 as compared to $2,500,000
and $1,000,000 at October 31, 1996 and 1995, respectively. These estimates
were based in part on the Company's history of losses sustained on art
sales in the current and previous years.
F-21
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The nature of art makes it difficult to determine a replacement value.
The most compelling evidence of a value in most cases is an independent
appraisal. The price at which pieces are consigned is usually in line with
appraisals and above the cost of the piece. The amount classified as
current represents management's best estimate of the amount of inventory
that will be sold in this market. Management believes that the provision
discussed above has effectively reduced inventory to its estimated net
realizable value. Canal will continue to closely monitor the market for
its art inventory and will make adjustments to the carrying value of its
inventory as such adjustments become necessary.
The Company's plan to sell inventory at auction is contemplated in the
normal course of business. Auction in this context is one of the usual
channels used for disposal of its art inventory. The proceeds from these
sales are used to reduce the Company's outstanding debt and finance current
operations. If these sales are not made, the Company has alternate means
of raising cash such as sales of investments, sale of real estate, raising
of new capital and further rescheduling of debt. Some of these measures
were successfully implemented in fiscal 1997.
Canal's art operations have generated operating losses of
approximately $709,000, $1,680,000 and $727,000 on revenues of
approximately $117,000, $195,000 and $260,000 for the years ended October
31, 1997, 1996 and 1995, respectively. Art sales have resulted primarily
through activities in conjunction with sales of antiquities. Canal's
management believes that through its consignment agreements as well as
other potential distribution outlets Canal will continue to deal in
antiquities and contemporary art.
The Company had approximately $1,683,000 and $1,268,000 of art
inventory on consignment with third party dealers at October 31, 1997 and
1996, respectively.
F-22
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ART INVENTORY - The Company classified its art inventory for the two
years ended October 31, 1997 and 1996 as follows ($ 000's Omitted):
Current Portion Non-Current Portion Total
1997 1996 1997 1996 1997 1996
Antiquities $ 900 $ 900 $ 2,026 $2,212 $ 2,926 $ 3,112
Contemporary 100 100 2,635 2,877 2,735 2,977
Valuation
Allowance (500) (500) (2,350) (2,000) ( 2,850) (2,500)
Net Value $ 500 $ 500 $ 2,311 $3,089 $ 2,811 $ 3,589
The amount recorded as the current portion of art inventory represents
management's estimate of the inventory expected to be sold during the next
twelve months. The Company recorded a valuation allowance against the
current portion of its inventory to reduce it to its estimated net
realizable value based on the history of losses sustained on inventory
items sold in the current and previous years.
Art sales for the three years ended October 31, 1997, 1996, and 1995
were as follows:
($ 000's Omitted) 1997 1996 1995
Antiquities $ 77 $ 195 $ 246
Contemporary 40 0 14
$ 117 $ 195 $ 260
F-23
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. LEASE COMMITMENTS
Canal currently occupies 4,200 square feet of commercial office space
in New York City for its headquarters operation. This space is under a
five year lease expiring December 31, 1998.
The following is a schedule of future minimum payments required under
operating leases that have initial or remaining noncancellable terms in
excess of one year as of October 31, 1997:
Year ended October 31, ($ 000's Omitted)
1998 ........................................ $ 159
1999 ........................................ 26
Minimum payments required ....................... 185
Rental income under subleases ................... 74
Net minimum payments required ................... $ 111
Rent expense under these and other operating leases for the years
ended October 31, 1997, 1996 and 1995 were as follows:
($ 000's Omitted) 1997 1996 1995
Minimum rentals ................... $ 159 $ 160 $ 116
Less: sublease rentals ........... (47) (39) (40)
$ 112 $ 121 $ 76
F-24
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. STOCK OPTION PLAN
Under Canal's 1984 Employee and 1985 Directors Stock Option Plans,
$550,000 and 264,000 shares, respectively, of Canal's common stock have
been reserved for option grants. The purchase price of shares subject to
each option granted, under the Employee and Directors Plans, will not be
less than 85% and 100%, respectively, of their fair market value at the
date of grant. At October 31, 1997 the purchase price of shares subject to
each option granted equaled 100% of the fair market value on the date of
grant. Options granted under both plans are exercisable for 10 years from
the date of grant, but no option will be exercisable earlier than one year
from the date of grant. Under the Employee Plan, stock appreciation rights
may be granted in connection with stock options, either at the time of
grant of the options or at any time thereafter. No stock appreciation
rights have been granted under this plan. At October 31, 1997, there were
323,000 exercisable options outstanding under these plans.
Transactions under these plans are summarized as follows:
Shares Option Price Range
Balance outstanding October 31, 1995.... 327,000 $0.125-$8.625
Options granted ........................ 0 - -
Options expired ........................ 0 $ - -
Balance outstanding October 31, 1996.... 327,000 $0.125-$8.625
Options granted 0 - -
Options expired (4,000) $8.625-$8.625
Balance outstanding October 31, 1997.... 323,000 $0.125-$5.375
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plan. Accordingly, no compensation cost
has been recognized for the years ended October 31, 1997, 1996 and 1995.
In October, 1995, the Financial Accounting Standards Board issued
Statement (SFAS) No. 123, Accounting for Stock Based Compensation, which
becomes effective for transactions entered into in fiscal years beginning
after December 15, 1995. This statement permits an entity to apply the
fair value based method to stock options awarded during 1995 and thereafter
in order to measure the compensation cost at the grant date and recognize
it over its vesting period. This statement also allows an entity to
continue to measure compensation costs for these plans pursuant to APB
Opinion 25.
F-25
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Entities electing to remain with the accounting treatment under APB Opinion
25 must make proforma disclosures of net income and earnings per share to
include the effects of all awards granted in fiscal years beginning after
December 31, 1994, as if the fair value based method of accounting pursuant
to SFAS No. 123 has been applied.
The Company adopted the disclosure requirements for this statement
effective for the year ending October 31, 1996, while continuing to
measure compensation cost using APB 25. Had compensation cost been
determined on the basis of SFAS No. 123, the proforma effect on the
Company s net income and earnings per share for the years ended October 31,
1997 and 1996 would have been deminimus.
12. EARNINGS (LOSS) PER COMMON SHARE AND DIVIDENDS PAID
Basic earnings (loss) per share are computed by dividing earnings
(loss) available to common stockholders by the weighted average number of
common share outstanding during the period.
Diluted earnings (loss) per share reflect per share amounts that would
have resulted if dilutive potential common stock had been reported in the
financial statements.
For the Year Ended October 31, 1997
Income Shares Per-share
(Numerator) (Denominator) Amount
Net loss $(1,001,000)
Less preferred stock dividends (182,000)
Loss available to common stock-
holders-basic earnings per share (1,183,000) 4,327,000 $(0.27)
Effect of dilutive securities:
Options (antidilutive) - -
8.5% convertible note
(antidilutive) 13,000 1,000,000
Loss available to common stock-
holders-diluted earnings per share $(1,170,000) 5,327,000 $(0.27)
F-26
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the Year Ended October 31, 1996
Income Shares Per-share
(Numerator) (Denominator) Amount
Net income $ 842,000
Less preferred stock dividends (162,000)
Income available to common stock-
holders-basic earnings per share 680,000 4,327,000 $ 0.16
Effect of dilutive securities:
Options (antidilutive) - -
7% convertible note
(antidilutive) 11,000 1,000,000
Net income available to common stock-
holders-diluted earnings per share $ 691,000 5,327,000 $ 0.13
For the Year Ended October 31, 1995
Income Shares Per share
(Numerator) (Denominator) Amount
Net loss $(1,518,000)
Less preferred stock dividends (193,000)
Loss available to common stock-
holders-basic earnings per share (1,711,000) 4,327,000 $(0.40)
Effect of dilutive securities:
Options (antidilutive) - -
7% convertible note 11,000 1,000,000
Loss available to common stock-
holders-diluted earnings per share $(1,700,000) 5,327,000 $(0.40)
F-27
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
During the fiscal years ended October 31, 1997, 1996 and 1995, the
Company had 323,000, 327,000 and 327,000 options outstanding, respectively.
The options were not included in the computation of diluted earnings (loss)
per share because the effect of exercisable price conversion would be
antidilutive.
There were no dividends declared on common stock during the years
ended October 31, 1997, 1996 and 1995. Dividends declared on preferred
stock during the years ended October 31, 1997, 1996 and 1995 were
approximately $182,000, $162,000 and $193,000.
13. PREFERRED STOCK ISSUANCE
On October 15, 1986 Canal exchanged 986,865 shares of its $1.30
Exchangeable Preferred Stock ("the Preferred Stock") for a like amount of
its outstanding common stock. Since the exchange, the Company has issued
an additional 1,991,035 shares in the form of stock dividends for a total
outstanding at October 31, 1997 of 2,977,900. All of the Preferred Stock
has a par value of $0.01 per share and a liquidation preference of $10 per
share. The Preferred Stock is subject to optional redemption, in exchange
for Canal's 13% Subordinated Notes, by Canal, in whole or in part at any
time on or after September 30, 1988 at the redemption price of $10 per
share. Dividends on the Preferred Stock accrue at an annual rate of $1.30
per share and are cumulative. Dividends are payable quarterly in cash or
in Preferred Stock at Canal's option. Payment commenced December 31, 1986.
To date, thirty-two of the forty-four quarterly payments have been paid in
additional stock resulting in the issuance of 1,991,035 shares recorded at
their fair value at the time of issuance.
Canal is restricted from paying cash dividends by certain of its debt
agreements (See Note 6). The last cash dividend paid on Canal's preferred
stock was in September 1989. The quarterly dividends payable September 30,
1997 and December 31, 1997 were passed by the Board of Directors. It is
the Company s intention to pay its next dividend on the preferred stock on
June 30, 1998 at which time a one year dividend will have accumulated. The
dividend planned for June 30, 1998 will also be paid in additional stock.
F-28
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
VOTING RIGHTS - The holders of the Preferred Stock shall not have any
voting rights except as set forth in the following paragraphs.
The following actions must be approved by holders of 66 2/3% of the
shares of Preferred Stock, voting as a class: (I) any amendment to the
Certificate of Incorporation of Canal which would materially alter the
relative rights and preferences of the Preferred Stock so as to adversely
affect the holders thereof; and (ii) issuance of securities of any class of
Canal's capital stock ranking prior (as to dividends or upon liquidation,
dissolution or winding up) to the Preferred Stock. The holders of the
Preferred Stock shall be entitled to specific enforcement of the foregoing
covenants and to injunctive relief against any violation thereof.
Whenever quarterly dividends payable on the Preferred Stock are in
arrears in the aggregate amount at least equal to six full quarterly
dividends (which need not be consecutive), the number of directors
constituting the Board of Directors of Canal shall be increased by two and
the holders of the Preferred Stock shall have, in addition to the rights
set forth above, the special right, voting separately as a single class, to
elect two directors of Canal to fill such newly created directorships at
the next succeeding annual meeting of shareholders (and at each succeeding
annual meeting of shareholders thereafter until such cumulative dividends
have been paid in full).
14. VALUATION RESERVE
The Valuation Reserve represents the excess of additional minimum
pension liability required under the provisions of SFAS No. 87 over the
unrecognized prior service costs of former stockyard employees. Such
excess arose due to the decline in the market value of pension assets
available for pension benefits of former employees, which benefits were
frozen at the time the stockyard operations were sold in 1989. The excess
will be expensed as actuarial computations of annual pension cost (made in
accordance with SFAS No. 87) recognize the deficiency that exists.
F-29
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. FINANCIAL INFORMATION FOR BUSINESS SEGMENTS
As a result of the sale of the Stockyard Operations and curtailment of
the securities trading and investing program, Canal is engaged in two lines
of business: Art operations and real estate.
The following summary presents segment information relating to these
lines of business except for the respective revenues, operating income and
the reconciliation of operating income with pre-tax income which
information is presented on Canal's income statement.
October 31,
($ 000's Omitted) 1997 1996 1995
Identifiable assets:
Art ............................... $ 2,818 $ 3,833 $ 5,408
Real estate ....................... 8,630 10,478 11,630
Corporate ......................... 1,512 1,178 1,165
$ 12,960 $ 15,489 $ 18,203
($ 000's Omitted) 1997 1996 1995
Capital expenditures:
Art ............................... $ 0 $ 0 $ 0
Real estate ....................... 41 125 75
Corporate ......................... 6 4 17
$ 47 $ 129 $ 92
Income from real estate operations includes gains (losses) on sales of
real estate of $1.6 million, $3.8 million and $0.3 million in 1997, 1996
and 1995, respectively. Art identifiable assets include approximately $1.0
million and $1.3 million of art inventory in galleries or on consignment
abroad as of October 31, 1997 and 1996, respectively.
F-30
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. LITIGATION
Canal and its subsidiaries are from time to time involved in
litigation incidental to their normal business activities, none of which,
in the opinion of management, will have a material adverse effect on the
consolidated financial condition of the Company. In addition, Canal or its
subsidiaries are party to the following litigations:
Federal Beef Processors, Inc. v. Union Stockyards Company of Fargo
This action involves Union Stockyards Company of Fargo ( Union ), a
wholly owned subsidiary of Canal. It is an action which involves claims
which are similar to some of the claims brought by B&H Investment Co.
( B&H ) against Union several years ago which was dismissed in 1994
following a decision by the Minnesota Court of Appeals in favor of Union.
The dispute involves a Lease Agreement relating to certain real estate
owned by Union and leased to Federal Beef Processors, Inc. ( Federal
Beef ). Federal Beef operates a meat packing plant on the leased premises,
and it is a related entity to B&H, which previously operated the packing
plant. By the terms of the Lease Agreement, Federal Beef s obligation to
pay additional rent is suspended during any period that Union fails to
provide adequate yardage service (under the terms of a separate Yardage
Agreement between the parties) that materially affects the business of
Federal Beef.
Federal Beef filed a Complaint on June 2, 1995 in the District Court
for Cass County, North Dakota, for damages claimed to be suffered as a
result of Union s alleged failure to provide adequate maintenance and
cleaning services for the livestock pens used by Federal Beef under the
Yardage Agreement. The damages sought by Federal Beef are in an
unspecified amount consisting of the additional rent paid by Federal Beef
during the time Union allegedly was in breach of the Lease Agreement and
the Yardage Agreement. As of June 1995, Federal Beef alleged it was
entitled to the return of additional rent in excess of $70,000. In
addition, Federal Beef seeks all direct and consequential damages allegedly
suffered by Federal Beef because of the claimed breach, including loss of
profits from animals allegedly damaged by reason of the condition of the
pens. Federal Beef subsequently filed an Amended Complaint in which it has
also sought a determination that it is entitled to exercise an option to
purchase the leased premises under the terms of the Lease Agreement for a
price measured by the unimproved value of the leased premises.
F-31
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Union has filed an Answer and Counterclaim denying the allegations in
the Amended Complaint, seeking a determination that Federal Beef s claims
are frivolous, and asking for an award of Union s reasonable attorneys
fees and costs in connection with the defense of the action. In July 1995,
Union successfully defeated a motion by Federal Beef for an order which
would have allowed Federal Beef to deposit into Court all rent payments due
from Federal Beef to Union pending the outcome of the litigation. As a
result, Federal Beef has continued to make all rent payments due under the
Lease Agreement while reserving its alleged claims against Union.
Management does not believe that the revenues generated by this lease
will be materially affected in resolving this dispute.
Pine Valley Meats, Inc. v. Canal Capital Corporation
On May 5, 1995 an action was commenced against Canal by Pine Valley
Meats, Inc. ( Plaintiff ) in the County Court for Dakota County, State of
Minnesota. The lawsuit arises out of the alleged breach by Canal of a
certain cattle walkway agreement (the walkway agreement ) relating to the
passage of cattle over land owned by Canal in South St. Paul, Minnesota.
Plaintiff contends that the walkway agreement is a permanent easement
thereby requiring Canal to maintain a cattle walkway for its use in
perpetuity. Canal s position is that the walkway agreement is in fact a
license and can be terminated at Canal s discretion. Canal did close the
cattle walkway for several weeks in April 1995.
In June 1995, plaintiff sought and won a temporary injunction
requiring Canal to continue to maintain the cattle walkway for plaintiff s
use until the rights of the parties can be determined at trial. Plaintiff
is seeking a permanent injunction determining that the walkway agreement
creates an easement and unspecified damages for lost profits when the
walkway was closed. On January 5, 1996, the Dakota County Court ruled that
the walkway agreement constituted a license only and denied the plaintiff s
request for a permanent injunction.
On May 30 and 31, 1996, damages in favor of the plaintiff in the
amount of $400,000 (including $50,000 in punitive damages) were awarded in
the County Court of Dakota County, State of Minnesota. Further damages for
costs, disbursements and interest in the amount of approximately $40,000
were awarded to plaintiff on August 16, 1996.
F-32
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Canal filed a Notice of Appeal on October 8, 1996. On September 18,
1997, the Minnesota Court of Appeals affirmed in part and reversed in part
the judgement in favor of Pine Valley and Canal paid Pine Valley damages
and interest of $388,000 in final settlement of this suit.
Canal Capital Corporation v. Valley Pride Pack, Inc.
Canal commenced an action in the U.S. District Court in Minnesota on
October 25, 1996, as the assignee of United Market Services Company against
Valley Pride Pack, Inc. (formerly known as Pine Valley Meats, Inc. and
referred to herein as Pine Valley ) for the unpaid livestock fees and
charges due under the 1936 Agreement between the predecessors of Pine
Valley and Canal. Pine Valley filed a motion to dismiss Canal s complaint
on the grounds that the complaint was barred on principles of issue
preclusion and the Rooker-Feldman doctrine, or, that the action should be
stayed pending the appeal before the Minnesota Court of Appeals in a state
court suit involving the same parties. Canal agreed to dismiss the action
without prejudice to its right to reinstitute the action following the
Minnesota Court of Appeals decision. On September 18, 1997, the Minnesota
Court of Appeals affirmed in part and reversed in part a judgement against
Canal and Canal paid Pine Valley damages and interest of $388,000 in
connection with the state court suit. On September 23, 1997, Canal
reinstituted its lawsuit in federal court against Pine Valley for the
recovery of livestock fees. Pine Valley has since brought a motion to
dismiss this second federal court lawsuit on the same grounds as its motion
to dismiss the first federal court lawsuit. There has been no claim
asserted by Pine Valley against Canal in this second federal court lawsuit.
17. Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued a Statement of
Financial Accounting Standards 121 Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of (the Statement )
which, when adopted could have a material impact on the results of
operations and financial position of the Company in the year of adoption.
The application of this Statement, which became effective for fiscal years
beginning after December 15, 1995, and requires the Company to carry real
estate projects no longer under development, at the lower of cost or fair
value less cost to sell. If the sum of the expected future net cash flow
(undiscounted and without interest charges) is less than the carrying
amount of undeveloped projects, an impairment loss would be recognized.
The
F-33
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Company, consistent with existing generally accepted accounting principles,
currently states the majority of its land and land under development at the
lower of cost or net realizable value. The Company has not quantified the
effect on the financial statements.
Other pronouncements issued by the Financial Accounting Standards
Board with future effective dates are either not applicable or not material
to the consolidated financial statements of the Company.
18. PROPERTY ON OPERATING LEASES
The following schedule provides an analysis of the Company's
investment in property on operating leases by location as of October 31,
1997:
($ 000's Omitted)
Accumulated
Location Land Improvements Depreciation Value
St. Joseph, MO $ 862 $ 304 $ (178) $ 988
West Fargo, ND 2 292 (216) 78
S. St. Paul, MN 663 2,769 (847) 2,585
Sioux City, IA 446 1,009 (964) 491
Omaha, NE 1,000 0 0 1,000
Sioux Falls, SD 118 98 (77) 142
Corporate Office 0 168 (126) 42
$ 3,091 $ 4,640 $ (2,408) $ 5,323
F-34
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following is a schedule by years of minimum future rentals on
operating leases as of October 31, 1997: (5)
($ 000's Omitted)
Volume
Year Ending Rental Ground Based
October 31, Income (1) Lease(2) Income(3) Total
1998 $ 1,800 $ 924 $ 0 $ 2,724
1999 1,900 924 0 2,824
2000 2,000 0 0 2,000
2001 (4) 2,100 0 0 2,100
2002 2,200 0 0 2,200
$10,000 $ 1,848 $ 0 $ 11,848
(1) Consists of rental income from Exchange Building (commercial office
space), lease income from vacant land and structures and other rental
income. In December 1996, Canal lost its largest tenant (State of
Minnesota) in its South St. Paul, Minnesota Exchange Building. This
tenant represented 50% (approximately $250,000) of the rental income
from this building. While Canal s agents are actively pursuing
replacement for this space, it is taking an extended period of time to
relet this space.
(2) Ground Lease covers approximately 139 acres leased to the purchaser
of Canal's former stockyard operations.
(3) Excludes any estimate of volume based income from the Fargo, ND lease
due to the uncertainty of these future revenues. However, Canal s
volume based income from this lease has averaged $100,000 annually for
the past five years.
(4) The stockyard ground lease has a ten year renewal option (adjusted for
CPI increases) which can be exercised November 1, 1999 on essentially
the same terms that currently exist. Canal anticipates that the option
will be exercised.
(5) All real estate leases are accounted for as operating leases.
F-35
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments (all of which are held for
non-trading purposes) for which it is practicable to estimate that value.
a) Cash and cash equivalents: The carrying amount approximates fair
market value because of the short maturities of such instruments.
b) Accrued Litigation: The carrying amount approximates the fair
value.
c) Long-Term Debt (See Note 13): The fair value of the Company s
long- term debt, including the current portion thereof, is estimated based
on the quoted market price for the same or similar issues.
d) Long-Term Debt Related Party (see Note 13): It is not practicable
to estimate the fair value of the related party debt.
October 31,
1997 1996
($ 000's Omitted)
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash, restricted cash
and cash equivalents $ 28 $ 28 $ 481 $ 481
Accrued Litigation 0 0 850 850
Current Portion of Long-
Term Debt - related party 0 (d) 500 (d)
Current Portion of Long-
Term Debt 98 98 64 64
Long-Term Debt 2,375 2,375 6,131 6,131
Long-Term Debt - Related
Party 3,675 (d) 849 (d)
F-36
CANAL CAPITAL CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
20. QUARTERLY INFORMATION (UNAUDITED)
FINANCIAL INFORMATION FOR THE INTERIM PERIODS FISCAL 1997 AND 1996 IS
PRESENTED BELOW:
(000'S OMITTED, EXCEPT PER SHARE DATA)
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
1997 1997 1997 1997
REVENUES $1,000 $2,640 $ 887 $ 784
========= ========= ========= =========
NET (LOSS) INCOME ($197) $927 ($98) ($1,633)
========= ========= ========= =========
NET (LOSS) INCOME
PER COMMON SHARE:
- BASIC ($0.06) $0.20 ($0.03) ($0.39)
========= ========= ========= =========
- DILUTED ($0.06) $0.17 ($0.03) ($0.39)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES:
- BASIC 4,327 4,327 4,327 4,327
======== ========= ========= =========
- DILUTED 5,327 5,327 5,327 5,327
========= ========= ========= =========
(000'S OMITTED, EXCEPT PER SHARE DATA)
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
1996 1996 1996 1996
REVENUES $1,557 $940 $1,051 $5,501
========= ========= ========= =========
NET (LOSS) INCOME ($4) ($223) ($599) $1,668
========= ========= ========= =========
NET (LOSS) INCOME
PER COMMON SHARE:
- BASIC ($0.01) ($0.06) ($0.15) $0.38
========= ========= ========= =========
- DILUTED ($0.01) ($0.06) ($0.15) $0.31
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES:
- BASIC 4,327 4,327 4,327 4,327
======== ========= ======== ========
- DILUTED 5,327 5,327 5,327 5,327
========= ========= ========= =========
F-37
FORM 10-K - ITEM 14(a)(3)
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
(a) 3. Exhibits -
The following exhibits required by Item 601 of Regulations S-K are
filed as part of this report. For convenience of reference, the exhibits
are listed according to the numbers appearing in Table I to Item 601 of
Regulation S-K. Each exhibit which is incorporated by reference and the
document in which such exhibit was originally filed are indicated in
parentheses immediately following the description of such exhibit.
Exhibit No.
3(a) Restated Certificate of Incorporation (filed as Exhibit 3(a)
to the Registrant's Registration Statement on Form 10 filed
with the Securities and Exchange Commission on May 3, 1984
(the "Form 10") and incorporated herein by reference).
3(b) Bylaws (filed as Exhibit 3(b) to the Registrant's
Registration Statement on Form 10 and incorporated herein
by reference).
3(c) Certificate of Amendment of the Restated Certificate of
Incorporation dated September 22, 1988 (filed as Exhibit
3(c) to the Registrant's Form 10-K filed January 29, 1989
and incorporated herein by reference).
10(a) 1984 Stock Option Plan (1) (see Exhibit A included in the
Registrant's Proxy Statement dated January 31, 1985,
relating to the annual meeting of stockholders held March
18, 1985, which exhibit is incorporated herein by
reference).
10(b) Form of Incentive Stock Option Agreement (filed as Exhibit
10(b) to the Registrant's Form 10-K filed January 31, 1986
and incorporated herein by reference).
10(c) Form of Nonstatutory Stock Option Agreement (filed as
Exhibit 10(c) to the Registrant's Form 10-K filed January
31, 1986 and incorporated herein by reference).
E-1
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(d) 1985 Directors' Stock Option Plan (1) (See Exhibit A
included in the Registrant's Proxy Statement dated January
31, 1986, relating to the annual meeting of stockholders
held March 12, 1986, which exhibit is incorporated herein by
reference).
10(e) Form of Directors' Stock Option Agreement (filed as Exhibit
10(ab) to the Registrant's Form 10-K filed January 29, 1986
and incorporated herein by reference).
10(f) Agreement for Investment Advisory and Financial Management
Services, dated January 2, 1986, by and between the Company
and Arbitrage Securities Company (filed as Exhibit 10(ad) to
the Registrant's Form 10-K filed January 29, 1987, and
incorporated herein by reference).
10(g) Assignment of Agreement for Investment Advisory and
Financial Management Services dated January 2, 1986, Exhibit
number 10(ad) to A.B. Edelman Management Company (filed as
Exhibit 10(ai) to the Registrant's Form 10-K filed January
29, 1989 and incorporated herein by reference).
10(h) Master Ground Lease, dated October 27, 1989 by and between
USK Acquisition Corporation, Canal Capital Corporation,
Omaha Livestock Market, Inc. and Sioux Falls Stock Yards
Company (filed as Exhibit 10(am) to the Registrant's Form 8-
K filed November 9, 1989 and incorporated herein by
reference).
10(i) Note Exchange Agreement dated May 15, 1993 by and between
Hanseatic Corporation, Guaranty Reassurance Company and
Canal Capital Corporation (filed as Exhibit 10 (bb) to the
Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(j) Amended and Restated $3,000,000 Variable Rate Mortgage Note
Due May 15, 1996 by and between Guaranty Reassurance Company
and Canal Capital Corporation (filed as Exhibit 10 (bc) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
E-2
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(k) Amended and Restated $5,800,000 Variable Rate Mortgage Note
Due May 15, 1996 by and between Deltec Asset Management
Corporation and Canal Capital Corporation (filed as Exhibit
10 (bd) to the Registrant's Form 10-K filed January 27, 1995
and incorporated herein by reference).
10(l) Security Agreement dated May 15, 1993 by and between
Hanseatic Corporation, Guaranty Reassurance Company, Canal
Arts Corporation and Canal Capital Corporation (filed as
Exhibit 10 (be) to the Registrant's Form 10-K filed January
27, 1995 and incorporated herein by reference).
10(m) Collateral Agency Agreement dated May 15, 1993 by and
between Hanseatic Corporation, Guaranty Reassurance Company
and Canal Capital Corporation (filed as Exhibit 10 (bf) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(n) Assignment of Mortgage - Minnesota dated May 15, 1993 by and
between Chemical Bank, Hanseatic Corporation and Guaranty
Reassurance Company (filed as Exhibit 10 (bg) to the
Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(o) First Amendment to Mortgage - Minnesota dated May 15, 1993
by and between Hanseatic Corporation, Guaranty Reassurance
Company and Canal Capital Corporation (filed as Exhibit 10
(bh) to the Registrant's Form 10-K filed January 27, 1995
and incorporated herein by reference).
10(p) Assignment of Mortgage - Iowa dated May 15, 1993 by and
between Chemical Bank, Hanseatic Corporation and Guaranty
Reassurance Company (filed as Exhibit 10 (bi) to the
Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
E-3
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(q) First Amendment to Mortgage - Iowa dated May 15, 1993 by and
between Hanseatic Corporation, Guaranty Reassurance Company
and Canal Capital Corporation (filed as Exhibit 10 (bj) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(r) Assignment of Mortgage - South Dakota dated May 15, 1993 by
and between Chemical Bank, Hanseatic Corporation and
Guaranty Reassurance Company (filed as Exhibit 10 (bk) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(s) First Amendment to Mortgage - South Dakota dated May 15,
1993 by and between Hanseatic Corporation, Guaranty
Reassurance Company, Sioux Falls Stockyards Company and
Canal Capital Corporation (filed as Exhibit 10 (bl) to the
Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(t) $350,000 Promissory Note dated March 25, 1994 by and between
Cowen & Company Custodian F/B/O William G. Walters,
Individual Retirement Account and Canal Capital Corporation
(filed as Exhibit 10 (bm) to the Registrant's Form 10-K
filed January 27, 1995 and incorporated herein by
reference).
10(u) $150,000 Convertible Promissory Note dated March 25, 1994 by
and between Cowen & Company Custodian F/B/O William G.
Walters, Individual Retirement Account and Canal Capital
Corporation (filed as Exhibit 10 (bn) to the Registrant's
Form 10-K filed January 27, 1995 and incorporated herein by
reference).
10(v) Stock Pledge and Security Agreement dated March 28, 1994 by
and between Cowen & Company Custodian F/B/O William G.
Walters, Individual Retirement Account, Tenzer, Greenblatt,
Fallon & Kaplan and Canal Capital Corporation (filed as
Exhibit 10 (bo) to the Registrant's Form 10-K filed January
27, 1995 and incorporated herein by reference).
E-4
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(w) Agreement of Lease dated January 14, 1994 by and between The
Equitable Life Assurance Society of the United States,
Intelogic Trace Incorporated, Datapoint Corporation and
Canal Capital Corporation (filed as Exhibit 10 (bp) to the
Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(x) First Amendment to Amended and Restated Variable Rate
Mortgage Note due May 15, 1998 dated May 15, 1995 by and
between Deltec Asset Management Corporation and Canal
Capital Corporation (filed as Exhibit 10 (bq) to the
Registrant s Form 10-K filed January 25, 1996 and
incorporated herein by reference).
10(y) First Amendment to Amended and Restated Variable Rate
Mortgage Note due May 15, 1998 dated May 15, 1995 by and
between Guaranty Reassurance Corporation and Canal Capital
Corporation (filed as Exhibit 10 (br) to the Registrant s
Form 10-K filed January 25, 1996 and incorporated herein
byreference).
10(z) Note Exchange Agreement dated September 15, 1995 by and
between Michael E. Schultz Defined Benefit Trust, Edelman
Value Partners, L.P., Lora K. Schultz, SES Trust, Roger A.
Schultz Pension Plan and Canal Capital Corporation (filed as
Exhibit 10 (bs) to the Registrant s Form 10-K filed January
25, 1996 and incorporated herein by reference).
10(aa) $150,000 Promissory Note dated September 15, 1995 by and
between Michael E. Schultz Defined Benefit Trust and Canal
Capital Corporation (filed as Exhibit 10 (bt) to the
Registrant s Form 10-K filed January 25, 1996 and
incorporated herein by reference).
10(ab) $150,000 Promissory Note dated September 15, 1995 by and
between Edelman Value Partners, L.P. and Canal Capital
Corporation (filed as Exhibit 10 (bu) to the Registrant s
Form 10-K filed January 25, 1996 and incorporated herein by
reference).
E-5
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(ac) $182,275 Promissory Note dated September 15, 1995 by and
between Lora K. Schultz and Canal Capital Corporation (filed
as Exhibit 10 (bv) to the Registrant s Form 10-K filed
January 25, 1996 and incorporated herein by reference).
10(ad) $300,000 Promissory Note dated September 15, 1995 by and
between SES Trust and Canal Capital Corporation (filed as
Exhibit 10 (bw) to the Registrant s Form 10-K filed January
25, 1996 and incorporated herein by reference).
10(ae) $250,000 Promissory Note dated September 15, 1995 by and
between Roger A. Schultz Pension Plan and Canal Capital
Corporation (filed as Exhibit 10 (bx) to the Registrant s
Form 10-K filed January 25, 1996 and incorporated herein by
reference).
10(af) General Release dated December 19, 1996 by and between Waste
Management Disposal Services of Oregon, Inc. and Canal
Capital Corporation (filed as Exhibit 10 (by) to the
Registrant s Form 10-K filed January 24, 1997 and
incorporated herein by reference).
10(ag) $325,000 Promissory Note dated December 19, 1996 by and
between Waste Management Disposal Services of Oregon, Inc.
and Canal Capital Corporation (filed as Exhibit 10 (bz) to
the Registrant s Form 10-K filed January 24, 1997 and
incorporated herein by reference).
10(ah) Mutual Release and Settlement Agreement dated September 30,
1996 by and between John Morrell & Co. and Canal Capital
Corporation (filed as Exhibit 10 (ca) to the Registrant s
Form 10-K filed January 24, 1997 and incorporated herein by
reference).
E-6
INVESTOR INFORMATION
Annual Meeting Corporate Headquarters
The Annual Meeting of Shareholders 7l7 Fifth Avenue
of Canal Capital Corporation will New York, NY 10022
be held in our offices at 717
Fifth Avenue, 4th floor, New York,
NY, on a date to be announced.
Stock Certificates
The Board of Directors of Canal Inquiries regarding change of
Capital Corporation urges all name or address, or to replace
shareholders to vote their shares lost certificates should be made
in person or by proxy and thus directly to American Stock
participate in the decisions that Transfer and Trust Co., 40 Wall
will be made at the annual meeting. Street, New York, NY 10005 or
telephone (718) 921-8200
Stock Listing
Canal Capital Corporation common stock Auditors
is traded on the over-the-counter
market through the "pink sheets".
Todman & Co., CPAs, P.C.
120 Broadway
New York, NY 10271
Investment Analyst Inquiries General Counsel
Analyst inquiries are welcome. Proskauer Rose Goetz
& Mendelsohn, LLP
1585 Broadway
Phone or write: Michael E. Schultz, New York, NY 10036
President at (212) 826-6040 (212) 969-3000
iii
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 28225
<SECURITIES> 1151358
<RECEIVABLES> 271891
<ALLOWANCES> 0
<INVENTORY> 500000
<CURRENT-ASSETS> 2151362
<PP&E> 7730710
<DEPRECIATION> 2407533
<TOTAL-ASSETS> 12960143
<CURRENT-LIABILITIES> 2067958
<BONDS> 0
0
29979
<COMMON> 53138
<OTHER-SE> 4758572
<TOTAL-LIABILITY-AND-EQUITY> 12960143
<SALES> 0
<TOTAL-REVENUES> 5310803
<CGS> 0
<TOTAL-COSTS> 4138183
<OTHER-EXPENSES> 1256854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 953719
<INCOME-PRETAX> (1001483)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1001483)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1001483)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
INDEX TO EXHIBITS
Exhibit No.
10(ai) Stock Pledge and Security Agreement dated January 8, 1998 by and
between Canal Capital Corporation, SY Trading Corporation and CCC
Lending Corporation.
10(aj) Note Exchange and Loan Agreement dated January 8, 1998 by and
between Canal Capital Corporation, Michael E. Schultz, Michael E.
Schultz Defined Benefit Trust, Lora K. Schultz, Roger A. Schultz,
Roger A. Schultz Pension Plan, Richard A. Schultz, Edelman Value
Partners, L.P., Edelman Value Fund, LTD, Maria Regina Mayall
Edelman and SES Trust.
10(ak) Collateral Agency Agreement dated January 8, 1998 by and between
Canal Capital Corporation, CCC Lending Corporation, Michael E.
Schultz, Michael E. Schultz Defined Benefit Trust, Lora K.
Schultz, Roger A. Schultz, Roger A. Schultz Pension Plan, Richard
A. Schultz, Edelman Value Partners, L.P., Edelman Value Fund,
LTD, Maria Regina Mayall Edelman and SES Trust.
10(al) Assignment Agreement dated January 8, 1998 by and between Deltec
Asset Management Corporation, Hanseatic Corporation, Michael E.
Schultz, Michael E. Schultz Defined Benefit Trust, Lora K.
Schultz, Roger A. Schultz, Roger A. Schultz Pension Plan, Richard
A. Schultz, Edelman Value Partners, L.P., Edelman Value Fund,
LTD, Maria Regina Mayall Edelman and SES Trust.
10(am) Assignment Agreement dated January 8, 1998 by and between
Guaranty Reassurance Company, Michael E. Schultz, Michael E.
Schultz Defined Benefit Trust, Lora K. Schultz, Roger A. Schultz,
Roger A. Schultz Pension Plan, Richard A. Schultz, Edelman Value
Partners, L.P., Edelman Value Fund, LTD, Maria Regina Mayall
Edelman and SES Trust.
10(an) Security Agreement dated January 8, 1998 by and between Canal
Capital Corporation, Canal Galleries Corporation, Canal Arts
Corporation and CCC Lending Corporation.
10(ao) $1,000,000 Promissory Note dated January 8, 1998 by and between
Michael E. Schultz and Canal Capital Corporation.
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(ap) $242,000 Promissory Note dated January 8, 1998 by and between
Michael E. Schultz Defined Benefit Trust and Canal Capital
Corporation.<PAGE>
10(aq) $229,000 Promissory Note dated January 8, 1998 by and between
Lora K. Schultz and Canal Capital Corporation.
10(ar) $186,000 Promissory Note dated January 8, 1998 by and between
Roger A. Schultz Pension Plan and Canal Capital Corporation.
10(as) $143,000 Promissory Note dated January 8, 1998 by and between
Richard A. Schultz and Canal Capital Corporation.
10(at) $350,000 Promissory Note dated January 8, 1998 by and between
Edelman Value Partners, L.P. and Canal Capital Corporation.
10)au) $550,000 Promissory Note dated January 8, 1998 by and between
Edelman Value Fund, LTD and Canal Capital Corporation.
10(av) $300,000 Promissory Note dated January 8, 1998 by and between
Maria Regina Mayall Edelman and Canal Capital Corporation.
10(aw) $200,000 Promissory Note dated January 8, 1998 by and between SES
Trust and Canal Capital Corporation.
10(ax) $500,000 Promissory Note dated January 8, 1998 by and between
Roger A. Schultz and Canal Capital Corporation.
22 Subsidiaries of the registrant.
STOCK PLEDGE AND SECURITY AGREEMENT
STOCK PLEDGE AGREEMENT dated as of January 8, 1998, among CANAL
CAPITAL CORPORATION and SY TRADING CORPORATION (together, the "Pledgor"),
the parties listed on the signature page hereto under the heading
Noteholders (together with their respective successors and assigns, the
"Pledgees") and CCC LENDING CORPORATION, as agent for the Pledgee (the
"Pledge Agent").
The parties hereto, intending to be legally bound, hereby agree
as follows:
0. Pledge of Securities and Grant of Security Interest. To
secure the obligations of the Pledgor (the "Obligations") under (i) a
certain loan of even date herewith made by Pledgor to the Pledgees in the
aggregate principal amount of $395,000 to finance the payment by the
Company of the notes previously issued to Cowan & Company Custodian f/b/o
William G. Walters Individual Retirement Account and (ii) those certain
promissory notes of even date herewith made by Pledgor to the Pledgees in
the aggregate principal amount of $3,305,000 in replacement of notes
p r eviously issued to Deltec Asset Management Corporation, Guaranty
Reassurance Company and certain of the Noteholders (each of the notes in
(i) or (ii) individually called, a "Note" or collectively, the "Notes") and
(iii) this Agreement, the Pledgor hereby pledges to the Pledgees, and
grants to the Pledgees a continuing security interest in, the shares of
stock described on Schedule A hereto (the "Pledged Securities"). The
Pledgor is herewith delivering the Pledged Securities to the Pledge Agent
to be held in accordance with the terms of this Agreement. The Pledgor is
also delivering to the Pledge Agent fully executed blank stock powers,
which blank stock powers may be utilized by the Pledge Agent on behalf of
the Pledgee in the exercise of the Pledgee's rights as herein granted.
0. Representations, Warranties and Covenants of Pledgor. The
Pledgor represents and warrants that it is, and covenants and agrees that
at all times during the term of this Stock Pledge and Security Agreement it
will be, the legal and beneficial owner of the Pledged Securities, free and
clear of any lien, security interest, charge or other encumbrance except
for the security interest created hereby.
0. Pledge.
a. Upon receipt of written notice from the Pledgees and
the Pledgor, the Pledge Agent shall deliver the certificate evidencing the
Pledged Securities, together with the stock powers held by it to the
Pledgor. Further, if within 30 days of receipt of a notice from the
Pledgor (with a duplicate copy sent to the Pledgee) that the Notes have
been paid in full, the Pledge Agent shall not have received written
notification from one or more Pledgee to the contrary, the Pledge Agent
shall deliver the certificate evidencing the Pledged Securities together
with the stock power held by it, to the Pledgor.
a. In the event one or more Pledgees deem that an Event of
Default (as hereinafter defined) has occurred under either of the Notes,
the Pledgee shall provide written notice of such claimed default to the
Pledgor and send a duplicate copy of such notice to the Pledge Agent. In
the event that the Pledgor disputes the Pledgee's claimed default, it
shall, within 15 days of the Pledgee's notice, send a letter so stating to
the Pledgee, with a duplicate copy to the Pledge Agent. In the event of a
dispute between the Pledgor and the Pledgee as to whether an Event of
Default has occurred, the Pledge Agent will continue to hold the Pledged
Securities in accordance herewith and shall take further action only upon a
court order or a written consent signed by both the Pledgor and the
Pledgee.
a. In the event that the Pledgor does not dispute the
Pledgee's claimed default within 15 days of the Pledgee's notice, the
Pledge Agent shall have the right on behalf of and at the direction of the
Pledgee to sell the Pledged Securities.
a. The Pledge Agent shall have no duties or obligations
other than those specifically set forth in this Agreement. The Pledgor and
Pledgees each agrees jointly and severally to indemnify the Pledge Agent
and hold it harmless against any and all liabilities and expenses incurred
by it hereunder, whether or not such liabilities are a consequence of any
action by the Pledgor or Pledgees, except for liabilities incurred by the
Pledge Agent resulting from its own willful misconduct or gross negligence.
0. Default Defined; Remedies.
a. An Event of Default shall mean (1) the occurrence of an
event (and the lapse of all applicable cure periods) which would allow the
holder of the Note to declare the Note immediately due and payable and (2)
the breach of any representation, warranty or covenant of the Pledgor made
herein.
a. Unless and until there exists an Event of Default, the
Pledgor shall be entitled to exercise all voting and other consensual
rights pertaining to the Pledged Securities and shall be entitled to
receive and retain any cash dividends thereon and any cash distributions
made in respect thereof.
a. In the event the Pledge Agent sells the Pledged
Securities pursuant to Paragraph 3(c) the Pledge Agent on behalf of the
Pledgees shall have all of the rights of a secured party upon the
occurrence of a default under the Uniform Commercial Code then in effect in
the State of New York; and without limiting the generality of the
foregoing, upon the occurrence of a Default, the Pledgees shall have the
right at any time or times to direct the Pledge Agent to sell, resell,
assign and deliver, all in a commercially reasonable manner, the Pledged
Securities or any part thereof, in one or more parcels, at such price or
prices as shall be commercially reasonable, at public or private sale, at
any exchange or broker's board or elsewhere.
a. The proceeds of any such sale or sales, and any
proceeds the Pledge Agent receives in respect of any realization upon the
Pledged Securities, shall be received and applied: first, to the expenses
of the sale of the Pledged Securities or expenses incurred in enforcing the
t e rms of this Agreement (including, without limitation, reasonable
attorneys fees), second to the payment of the Obligations and, third, any
surplus thereafter remaining shall be paid to the Pledgor or to whosoever
may be lawfully entitled to receive the same.
0. Right to Substitute and Sell. Pledgor shall have the right
from time to time during the term of this Agreement to replace the Pledged
Securities with different collateral; provided that such substitute
collateral has a value equal or greater than $500,000. In addition, the
Pledgor shall have the right from time to time during the term of this
Agreement to direct the Pledge Agent to place an order to sell the Pledged
Securities at a specified price (if unable to sell at such price, the
Pledge Agent shall so notify the Pledgor); provided that the proceeds from
such sale shall be applied to the Notes in accordance with and if permitted
by the terms thereof. The Net Proceeds realized from the sale of the
Pledged Securities in accordance with Section 5 shall be distributed as
follows: (a) seventy percent (70%) shall be used to repay the outstanding
Notes, and (b) the remaining thirty percent (30%) shall be distributed to
the Pledgor or its designee. The Pledgor hereby acknowledges that the
Pledge Agent shall have no liability to the Pledgor with respect to the
conduct or failure to make any sale in accordance with paragraph 5, other
than resulting from Pledge Agent's wilful misconduct or from negligence.
0. Miscellaneous. This Stock Pledge and Security Agreement
(a) may only be modified by a written instrument which is executed by both
of the parties hereto; (b) shall be governed by the laws of the State of
New York applicable to contracts made and to be wholly performed therein;
(c) sets forth the entire agreement of the parties with respect to the
subject matter hereof; (d) may not be assigned by either party hereto
without the prior written consent of the other party, and (e) shall inure
to the benefit of, and be binding upon, each of the parties hereto and
their respective successors and assigns. All notices and/or other
communications relating to this Stock Pledge and Security Agreement shall
be in writing and deemed delivered as of the date delivered, if delivered
personally, or three (3) days after having been mailed, if mailed by
registered or certified mail, postage prepaid, return receipt requested, as
follows:
if to Pledgees, to:
CCC LENDING CORPORATION
c/o Michael E. Schultz
2830 Long Meadow Drive
West Palm Beach, Florida 33414
with a copy to:
EDELMAN VALUE PARTNERS L.P.
c/o Irving Garfinkle
717 Fifth Avenue
New York, N.Y. 10022
if to Pledgor, to:
Canal Capital Corporation
717 Fifth Avenue
New York, New York 10022
with a copy to:
Gerald N. Agranoff
717 Fifth Avenue
New York, New York 10022
if to Pledge Agent, to:
MICHAEL E. SCHULTZ
2830 Long Meadow Drive
West Palm Beach, Florida 33414
or to such other address as either of such parties shall have designated by
like notice to the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Stock
Pledge Agreement to be executed and delivered on the date first-above
written.
CANAL CAPITAL CORPORATION
By: /S/ Reginald Schauder
Vice President
SY TRADING CORPORATION
By: /S/ Reginald Schauder
Vice President
NOTEHOLDERS
/S/ Michael E. Schultz
MICHAEL E. SCHULTZ
2830 Long Meadow Drive
West Palm Beach, Florida 33414
MICHAEL E. SCHULTZ DEFINED BENEFIT TRUST
By: /S/ Michael E. Schultz
Michael E. Schultz, Trustee
c/o Michael E. Schultz
2830 Long Meadow Drive
West Palm Beach, Florida 33414
/S/ Lora K. Schultz
LORA K. SCHULTZ
2830 Long Meadow Drive
West Palm Beach, Florida 33414
/S/ Roger A. Schultz
ROGER A. SCHULTZ
131 N. Hibiscus Drive
Miami Beach, Florida 33129
ROGER A. SCHULTZ PENSION PLAN
By: /S/ Roger A. Schultz
Roger A. Schultz, Trustee
c/o Roger A. Schultz
131 N. Hibiscus Drive
Miami Beach, Florida 33129
/S/ Richard A. Schultz
RICHARD A. SCHULTZ
136 East 56 Street, Apt. 12H
New York, NY 10022
EDELMAN VALUE PARTNERS, L.P.
By: A. B. Edelman Management Company, Inc.,
General Partner
By: /S/ Asher B. Edelman
Name:
Title:
717 Fifth Avenue
New York, New York 10022
EDELMAN VALUE FUND, LTD
By: /S/ Asher B. Edelman
Name:
Title:
c/o Bayand (Luxembourg) Admin.
1A Rue du St. Esprit
L-1475 Luxembourg
/S/ Maria Regina Mayall Edelman
MARIA REGINA MAYALL EDELMAN
Chemin de Pecholettaz 9
1066 Eppallinges, Switzerland
SES TRUST
By: /S/ Sharon E. Sigesmund
Sharon E. Sigesmund
Trustee
c/o Sharon E. Sigesmund
2859 Queens Courtyard Drive
Las Vegas, Nevada 89109
SCHEDULE A
125,000 shares of Common Stock of Datapoint Corporation
236,267 shares of Common Stock of Datapoint Corporation
CANAL CAPITAL CORPORATION
717 Fifth Avenue
New York, NY 10022
Dated as of January 8, 1998
To each of the Persons named on Schedule I attached hereto (the "Holders")
Re: Note Exchange and Loan Agreement
Dear Sirs:
CANAL CAPITAL CORPORATION (the "Company"), a Delaware corporation,
agrees with each of the Holders as follows:
1. Background. (a) The parties acknowledge that certain of
the Holders have purchased, for full and fair consideration, the Company's
promissory note issued as of May 15, 1993 to Deltec Asset Management
Corporation in the original principal amount of $5,800,000 (the "Deltec
Note") and the Company's promissory note issued as of May 15, 1993 to
Guaranty Reassurance Company in the original principal amount of $3,000,000
(the GRC Note"; together with the Deltec Note, the "Old Notes"). The
Holders desire to exchange the Old Notes for new promissory notes of the
Company on the terms and conditions set forth herein, including without
limitation, the deferral of principal payments due under the Old Notes.
Terms that are not capitalized in the sections in which they first appear
are as defined in Section 11 below.
(b) In addition, the Company has requested that certain of
the Holders loan the Company $395,000 ( Refinancing Loan ) on the terms and
conditions of the new promissory notes referred to below in order to
refinance certain obligations that have become due and payable, and the
Holders have agreed to make such loan.
(c) The parties further acknowledge that certain of the
Holders own the Company s promissory notes issued as of September 15, 1995
in the original principal amount of $1,032,275 (the Original Notes ).
Such Holders desire to exchange the Original Notes for new promissory notes
of the Company on the terms and conditions set forth herein including,
without limitation, the deferral of principal payments due under the
Original Notes.
13
2. Amended and Restated Notes.
2.1. Authorization of Amended and Restated Notes. The Company
has authorized the issue of $3,700,000 aggregate principal amount of its
Amended and Restated Variable Rate Mortgage Notes due May 15, 2001 (the
"New Notes", such term to include any notes issued in substitution therefor
pursuant to Section 6), to be in the form of Exhibit A attached hereto and
to bear interest as provided in such Exhibit A. The New Notes are intended
to amend, restate, supersede and replace the Old Notes and the Original
Notes.
2.2. Exchange of Notes/Making of Loan. The Company hereby
issues and delivers the New Notes to each of the Holders in the principal
amounts set forth opposite each such Holder's name on Schedule I hereto.
The New Notes amend, restate, supersede and replace in their entirety the
Old Notes and the Original Notes. In exchange for the New Notes, the
Holders (i) hereby deliver and surrender to the Company the Old Notes and
the Original Notes, duly endorsed to the Company and to be canceled
immediately thereafter, and (ii) deliver to the Company $395,000 in payment
of the Refinancing Loan.
3. Representations and Warranties of the Company. As an
inducement for the Holders to enter into this Agreement, the Company
represents and warrants that:
3.1. Organization, Standing, etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted
and proposed to be conducted, to enter into this Agreement, to issue the
New Note and to carry out the terms hereof and thereof.
3.2. Qualification. The Company is duly qualified or licensed
as a foreign corporation authorized to do business in each jurisdiction
(other than the jurisdiction of its incorporation) where the nature of its
activities conducted or of the properties owned or leased by it requires
such qualification.
3.3. Authorization. The issuance and delivery by the Company of
the New Notes to the Holders has been duly authorized by all necessary
corporate action on the part of the Company.
14
3.4. Compliance with Other Instruments. The execution, delivery
and performance of this Agreement and the New Notes will not result in any
violation of or be in conflict with any term of the charter or by-laws of
the Company or any of its Subsidiaries or breach, conflict with any term
of, or result in a default under, any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to the
Company or any of its Subsidiaries, or result in the creation of (or impose
any obligation on the Company or any Subsidiary to create) any Lien upon
any of the properties or assets of the Company or any of its Subsidiaries
pursuant to any such term.
3.5. Title to Properties; Liens. The Company has good and
sufficient title to the Collateral, and none of such Collateral is subject
to any Lien, except Liens of the character permitted by Section 7.15. The
Mortgaged Property constitutes all real property of the Company and its
Subsidiaries which is not, as of the date hereof, encumbered by mortgages
or deeds of trust in favor of the holders of the Bank Indebtedness, with
the exception of the real property of the Company located in St. Paul,
Minnesota, known as the "Port Crosby" property.
3.6. Governmental Consent. No consent, approval or
authorization of, or declaration or filing with, any governmental authority
on the part of the Company is required for the valid execution and delivery
by the Company of this Agreement and the valid offer, issue, sale and
delivery by the Company of the New Notes as contemplated hereby.
3.7. Solvency. Both immediately before and after giving effect
to the issuance and sale of the New Notes as contemplated hereby: (a) the
Company does not intend to incur, nor believes that it has incurred or will
incur, debts that will be beyond its ability to pay as they mature; (b) the
fair saleable value of the assets of the Company as a whole will exceed the
amount that will be required to pay the probable liabilities on its debts
(whether matured or unmatured, liquidated or unliquidated, absolute, fixed
or contingent) as they mature; and (c) the Company is not incurring
obligations or making transfers under any evidence of indebtedness with the
intent to hinder, delay, or defraud any entity to which it is or will
become indebted.
15
4. Representations and Warranties of the Holders.
4.1. Securities Act. Each Holder represents and warrants to the
Company that such Holder understands that the New Notes have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and may not be sold except pursuant to an effective registration
statement or pursuant to an available exemption from such registration
requirements. Further, such Holder is receiving the New Notes for its own
account and not with a view to or for sale in violation of the Securities
Act. Information concerning the New Notes, the Company or any other matter
relevant to the decision of the Holders to exchange the Old Notes for the
New Notes has been made available to the Holders either in reports filed by
the Company under the Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise.
4.2. Ownership; Authority; No Liens. The Holders represent and
warrant to the Company that the Holders are the sole and undivided
beneficial owners of the Old Notes which they are delivering and
surrendering to the Company pursuant to Section 2.2, have the authority to
deliver and surrender such Old Notes pursuant to the terms hereof, and hold
such Old Notes free and clear of any liens, encumbrances or restrictions on
transfer. The Holders shall indemnify the Company for any loss or expense
which it may suffer or incur as a result of any breach of the Holders'
representations in the preceding sentence.
5. Prepayment of Amended and Restated Notes.
5.1. Optional Prepayment Without Premium. So long as the New
Notes shall be outstanding, the Company may, at its option, upon notice as
provided below, prepay the New Notes in an aggregate principal amount equal
to a multiple of $10,000 and greater than $100,000. Not less than five (5)
Business Days prior to the date proposed for any prepayment under this
Section 5.1, the Company will give written notice of such prepayment to
each Holder, specifying such date, the principal amount of each New Note
held by such Holder to be prepaid on such date and the amount of interest
on such principal amount accrued to such date. Each such notice of a
prepayment shall be accompanied by an Officers' Certificate specifying the
source or sources of the funds being used for such prepayment.
5.2. Prepayments to be Pro Rata. Notwithstanding anything in
this Article 5 to the contrary, the Company shall not at any time prepay
16
any New Note without prepaying all the New Notes on a pro rata basis at
such time.
6. Transfer and Substitution of Amended and Restated Notes.
6.1. Replacement Notes. If any Holder claims that a New Note
has been lost, destroyed or wrongfully taken, the Company shall issue a
replacement New Note. The Company may require that an indemnity bond be
posted to protect the Company from any loss that it may suffer if a New
Note is replaced, and may charge such Holder for its reasonable expenses,
including attorneys' fees, in replacing a New Note.
Every replacement New Note will be entitled to the benefits of
this Agreement.
6.2. Treasury Notes. In determining whether the Holders of the
required principal amount of New Notes have concurred in any direction,
waiver or consent, New Notes owned by the Company or any of its Affiliates
shall be disregarded.
7. Covenants of the Company.
7.1. Payment of Securities. The Company shall pay the principal
of and interest on the New Notes on the dates and in the manner provided in
the New Notes. The Company shall pay interest on overdue principal and on
overdue installments of interest at the rate set forth in the New Notes.
7.2. Maintenance of Office. The Company agrees not to change
its name, identity or corporate structure to such an extent that any
financing statement filed in connection with the Security Agreement would
become misleading, without giving at least thirty (30) days' prior written
notice thereof to the Holders.
7.3. Limitation on Dividends and Other Distributions. The
Company will not declare or pay any dividend or make any distribution on
its Capital Stock or to the holders of its Capital Stock (other than
dividends or distributions payable in its Capital Stock) or purchase,
redeem or otherwise acquire or retire for value, or permit any Subsidiary
to purchase, redeem or otherwise acquire or retire for value, any such
Capital Stock.
7.4. Limitation on Total Indebtedness. The Company may not
incur, create, assume or guarantee any additional Indebtedness (other than
17
Indebtedness which is an amendment, renewal, extension or refunding on
substantially the same terms of any existing Indebtedness), or enter into a
Capitalized Lease Obligation or any other lease not terminable within
twelve (12) months, provided, however, that the Company may enter into a
new lease of corporate office space on reasonable terms.
7.5. Limitation on Investments. The Company will not, and will
not permit any Subsidiary to, make any investment in any other Person
( including, without limitation, by way of stock purchase, capital
contribution, loan, advance, guaranty of indebtedness or creation or
assumption of any other liability), provided, however, that the Company may
purchase Investment Securities.
7.6. Prohibition Against Becoming an Investment Company. The
Company will not register as, or conduct its business or take any action
which shall cause it to become, or to be deemed to be, an "investment
company" as defined under the provisions of the Investment Company Act of
1940.
7.7. Corporate Existence. The Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence in accordance with its organizational documents and the
rights (charter and statutory) and franchises of the Company; provided,
however, that the Company shall not be required to preserve any such right
o r franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business
of the Company and that the loss thereof is not, and will not be, adverse
in any material respect to the Holders.
7.8. Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges
levied or imposed upon the Company or any Subsidiary or upon the income,
profits or property of the Company or any Subsidiary and (b) all lawful
claims for labor, materials and supplies which, if unpaid, might by law
become a Lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate provision has been made;
and provided further, that except with respect to property constituting
18
Collateral, compliance with clauses (a) and (b) above shall not be required
so long as such nonpayment is, in the judgment of the Board of Directors,
desirable in the conduct of the Company's business and such nonpayment is
not disadvantageous in any material respect to the Holders.
7.9. Notice of Defaults. In the event that the Company or any
of its Subsidiaries receives written notice from any holder of Indebtedness
that the full amount of such Indebtedness has been declared due and payable
before its maturity because of an acceleration of such indebtedness or the
occurrence of any default under such Indebtedness, the Company will
promptly give written notice to the Holders of such declaration.
7.10. Maintenance of Properties. The Company will cause all
material properties owned by or leased to it or any Subsidiary and used or
useful in the conduct of its business or the business of any Subsidiary to
be maintained and kept in normal condition, repair and working order
(normal wear and tear excepted) and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterment and improvements thereof, all as in the judgment of the Company
may be necessary, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times; provided,
however, that the Company may not incur in any year capital expenditures
exceeding $100,000, except to the extent that any excess over such amount
is made in order to maintain the Company's real property in good working
order; and provided, further, that nothing in this Section shall prevent
the Company or any Subsidiary from discontinuing the use, operation or
maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal is, in the judgment of the Board of Directors or
of the Board of Directors, board of trustees or managing partners of the
Subsidiary concerned, or of an officer (or other agent employed by the
Company or of any of its Subsidiaries) of the Company or such Subsidiary
having managerial responsibility for any such property, desirable in the
conduct of the business of the Company or any Subsidiary, and if such
discontinuance or disposal is not disadvantageous in any material respect
to the Holders. The Company will operate all material properties owned by
or leased to it or any Subsidiary in compliance with all applicable
federal, state and local laws, ordinances, regulations, administrative or
judicial orders, including, without limitation, those pertaining to
hazardous or toxic materials and other environmental matters.
19
7.11. Compliance Certificate and Notices of Default.
(a) The Company shall deliver to each of the Holders within 90
days after the end of each fiscal year of the Company an Officers'
Certificate stating whether or not the signers know of any Default or Event
of Default by the Company that occurred during such fiscal year. If they
do know of such Default or Event of Default, the certificate shall describe
the Default and its status. The first certificate to be delivered by the
Company pursuant to this Section 7.11 shall be for the fiscal year ending
October 31, 1997.
(b) The Company shall deliver to each of the Holders prompt
written notice of any Default or Event of Default under this Agreement by
the Company, describing the Default and its status.
7.12. Financial and Other Reports.
(a) The Company will prepare, for the first three quarters of
each fiscal year, quarterly financial statements substantially equivalent
to the financial statements required to be included in a report on Form 10-
Q under the Exchange Act. The Company will also prepare, on an annual
basis, complete audited consolidated financial statements including, but
not limited to, a balance sheet, a statement of income and cash flow and
all appropriate notes. All such financial statements will be prepared in
accordance with generally accepted accounting principles consistently
a p p lied, except for changes with which the Company's independent
accountants concur, and except that quarterly statements may be subject to
year-end adjustments. The Company will cause a copy of such financial
statements to be mailed to each of the Holders within 45 days after the
close of each of the first three quarters of each fiscal years and within
90 days after the close of each fiscal year. In addition, to the extent
that the Company files any other reports, information or documents with the
SEC, the Company shall send copies of such reports, information and other
documents to the Holders.
(b) The Company shall cause, within thirty (30) days after the
end of each calendar month, a monthly result of operations statement
detailing the financial and operational results of the Company and its
Subsidiaries for such month, in a form currently used by the Company, to be
mailed to each of the Holders.
7.13. Waiver of Stay, Extension or Usury Laws. The Company
20
covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or
other law which would prohibit or forgive the Company from paying all or
any portion of the principal of and/or interest on the New Notes as
contemplated herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of this
Agreement; and (to the extent it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Holders, but will suffer and permit the execution of every
such power as though no such law had been enacted.
7.14. Reference Bank. In the event that any Reference Bank
shall be unwilling or unable to act as such for the purpose of determining
LIBOR and Prime Rate on the New Notes, the Company shall promptly appoint
another leading domestic bank engaged in transactions in Eurodollar
deposits in the international Eurocurrency market to act as such in its
place.
7.15. Other Liens. Except for Permitted Encumbrances, the
Company will not grant or permit any Liens or other defects in title in or
upon the Collateral; provided, however, that the Company may grant or
permit such Liens or defects if the monetary value of the Collateral will
not be impaired by the existence of the Lien or other defect in title in
any material manner and the Company shall have delivered to each of the
Holders a copy of an Officers' Certificate to that effect.
7.16. Validity of Liens. The Company shall warrant, preserve
and defend the interest and title of the Holders to the Mortgages and the
Collateral described in the Security Agreement against the claims of all
persons and will continue to perform its obligations pursuant thereto.
7.17. Transactions with Affiliates. Neither the Company nor
any Subsidiary shall enter into or participate in any agreements or
transactions of any kind with any Affiliates of any of the Company or its
Subsidiaries unless such transactions or agreements (i) are in the ordinary
course of business, (ii) include only terms or provisions which are fair
and equitable to the Company, (iii) require no fees, charges or commissions
other than those which are reasonable and disclosed to the Collateral
Agents, (iv) are clearly and accurately disclosed in the Company's books
21
and records, and (v) involve terms no less favorable to the Company than
would the terms of a similar agreement or transaction with a Person other
than an Affiliate.
7.18. Minimum Net Worth. The Company shall not cause or
permit the Consolidated Net Worth of itself and its Subsidiaries at the end
of any calendar month to be less than 75% of the amount reflected in the
Company's most recent balance sheet.
7.19. Negative Pledge. In the event that any property of the
Company or any of its Subsidiaries which is currently encumbered by a Lien
in favor of the holders of any Bank Indebtedness is released from such
Lien, the Company and its Subsidiaries shall not, without the prior written
consent of the Holders, thereafter encumber, mortgage, pledge or otherwise
grant, suffer or permit any Lien on such property.
8. Default and Remedies.
8.1. Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on any New
Note when the same becomes due and payable and the default continues for
the later of (i) a period of 30 days and (ii) 10 days after written notice
to the Company;
(b) the Company defaults in the payment of the principal of any
New Note when the same becomes due and payable at maturity, upon redemption
or otherwise;
(c) the Company fails to observe or perform any of its other
covenants contained in the New Notes or this Agreement, and such failure to
observe or perform continues uncured for a period of 30 days after the
Company's receipt of a written notice from Holders of at least 25% in
principal amount of New Notes then outstanding that specifies the Default,
demands that it be remedied and states that such notice is a "Notice of
Default";
(d) any representation or warranty at any time made by the
Company herein or any material representation or warranty which is
contained in any certificate, document, written report or financial or
other statement shall prove to have been untrue, incorrect or breached in
any material respect on or as of the date on which such representation or
warranty was made;
22
(e) there shall be a default under any bond, debenture, note or
other evidence of indebtedness for money borrowed or under any mortgage,
indenture or other instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by
the Company or under any guaranty of payment by the Company of indebtedness
for money borrowed, whether such indebtedness or guaranty now exists or
shall hereafter be created, which default extends beyond any period of
grace provided with respect thereto and which default relates to (i) the
obligation to pay the principal of or interest on any such indebtedness or
guaranty or (ii) an obligation other than the obligation to pay the
principal of or interest on any such indebtedness and the effect of such
default is the cause, with the giving of notice if required, such
indebtedness to become due prior to its stated maturity; provided, however,
that no default under this clause (e) shall exist if all such defaults do
not relate to such indebtedness or such guaranties with an aggregate
principal amount in excess of $100,000;
(f) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(i) commences a voluntary case or proceeding,
(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(iv) makes a general assignment for the benefit of its
creditors;
(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company in an involuntary
case or proceeding,
(ii) appoints a Custodian of the Company or for all or
substantially all of its properties, or
(iii) orders the liquidation of the Company,
and in each case the order or decree remains unstayed and in effect for 45
days;
23
(h) final judgments for the payment of money which in the
aggregate exceed $100,000 shall be rendered against the Company by a court
of competent jurisdiction and shall remain undischarged for a period
(during which execution shall not be effectively stayed or bonded) of 30
days after such judgment becomes final and nonappealable; or
(i) at any time after the date hereof, there shall be
transfers, either legally or beneficially, of more than 50% in the
aggregate of the issued and outstanding shares of common stock of the
Company.
The term "Bankruptcy Law" means Title 11 U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means
any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
8.2. Acceleration. If an Event of Default (other than an Event
of Default specified in Section 8.1(f) or (g)) occurs and is continuing,
the Holders of at least 25% in principal amount of the New Notes then
outstanding may, by notice to the Company, declare all unpaid principal and
accrued interest to the date of acceleration on the New Notes then
outstanding (if not then due and payable) to be due and payable and upon
any such declaration, the same shall become and be immediately due and
payable. If an Event of Default specified in Section 8.1(f) or (g) occurs,
all unpaid principal and accrued interest on the New Notes then outstanding
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of any Holder. Upon payment of such
principal amount and interest all of the Company's obligations under the
New Notes and this Agreement shall terminate. The Holders of a majority in
principal amount of the New Notes then outstanding, by notice to the
Company, may rescind an acceleration and its consequences if (i) all
existing Events of Default, other than the non-payment of the principal of
the New Notes which has become due solely by such declaration of
acceleration, have been cured or waived within ninety (90) days after the
first occurrence of each such Event of Default, (ii) to the extent the
payment of such interest is lawful, interest on overdue installments of
interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, and (iii) the recision would
not conflict with any judgment or decree of a court of competent
jurisdiction.
24
8.3. Other Remedies. If any Event of Default occurs and is
continuing, any Holder may pursue any available remedy by proceeding at law
or in equity to collect the payment of principal or interest on the New
Notes or to enforce the performance of any provision of the New Notes or
this Agreement.
A delay or omission by any Holder in exercising any right or
remedy accruing upon Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are
cumulative to the extent permitted by law.
8.4. Waiver of Past Defaults. Subject to Sections 8.5 and 9.1,
the Holders of a majority in principal amount of the New Notes then
outstanding, by notice to the Company, may waive an existing Default or
Event of Default and its consequences, except that waiver of a Default in
the payment of principal or interest on any New Note shall require the
consent of all the Holders. When a Default or Event of Default is waived,
it is cured and ceases.
8.5. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Agreement, the right of any Holder to receive
payment of principal and interest on the New Notes on or after the
respective due dates expressed in the New Notes, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder; provided,
however, that a Holder may not institute such a suit if and to the extent
that the institution or prosecution thereof or the entry of judgment
therein would, under applicable law, result in the surrender, impairment,
waiver or loss of the Lien on the Collateral.
9. Amendments, Supplements and Waivers.
9.1. General. The Company, when authorized by a resolution of
its Board of Directors, and the Holders may amend or supplement this
Agreement, the New Notes, the Mortgages or the Security Agreement. Subject
to Section 8.5, the Holders of a majority in principal amount of the New
Notes then outstanding may waive compliance by the Company with any
provision of this Agreement or the New Notes. However, without the consent
of each Holder affected, an amendment, supplement or waiver, including a
waiver pursuant to Section 8.4, may not:
25
(a) reduce the amount of the New Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the rate or extend the time for payment of
interest on any New Note;
(c) reduce the principal of or extend the fixed maturity of
any New Note or alter the redemption provisions with respect
thereto;
(d) waive a Default in the payment of the principal of,
interest on or redemption payment with respect to any New Note;
(e) make any changes to Section 8.4, 8.5 or the third
sentence of this Section 9.1; or
(f) modify the provisions of Article 10 or Article 11
hereof in a manner adverse to the Holders.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure
by the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amendment,
supplement or waiver.
9.2. Revocation and Effect of Consents. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing
consent by the Holder and every subsequent Holder of a New Note or portion
of a New Note that evidences the same debt as the consenting Holder's New
Note, even if notation of the consent is not made on any New Note.
However, any such Holder or subsequent Holder may revoke the consent as to
its New Note or portion of a New Note.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph,
those persons who were Holders at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent
to such amendment, supplement or waiver or to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date.
26
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of
clause (a) through (f) of Section 9.1. In that case, the amendment,
supplement or waiver shall bind each Holder of a new Note who has consent
to it and every subsequent Holder of a New Note or portion of a New Note
that evidences the same debt as the consenting Holder's New Note.
10. Security Interest and Mortgage.
10.1. Continuation and Amendment.
(a) The Company's obligation to pay the principal amount of
and interest and Additional Interest on the New Notes (i) shall continue to
be subject to the security interest created by the Security Agreement and
the Mortgages and (ii) shall also be subject to the security interest
created by the Pledge Agreement, in an amount equal to at least 100% of the
aggregate principal amount of the New Notes outstanding at any time.
(b) The Security Interest and the Mortgages as now or
hereafter in effect shall be held for the equal and ratable benefit and
security of the New Notes without preference, priority or distinction of
any thereof over any other by any reason, or difference in time, of
issuance, sale or otherwise, and for the enforcement and payment of
principal and interest on the New Notes in accordance with their terms.
(c) The Company and/or one or more of its Subsidiaries has
executed and delivered, filed, or recorded and/or will and/or will cause
one or more of the Subsidiaries to execute and deliver, file and record,
all instruments and documents, and has done or will do or will cause to do
all such acts and other things as are necessary to amend the Security
Agreement and the Mortgages in order to maintain, perfect and protect the
security interests of the Holders in the Collateral and the Mortgaged
Properties.
10.2. Release of Collateral. The Collateral Agent (as
defined herein) shall from time to time at the request of the Company
execute and deliver any instruments necessary or appropriate to release all
or a part of the Collateral from the Security Interest, upon compliance by
the Company with the following:
(a) Receipt by the Collateral Agent of the Company's
written notice, at least five Business Days in advance of the
27
requested date for the delivery of the release instruments,
r e q uesting the Collateral Agent to execute one or more
specifically described release instruments, and certifying (A)
that no Event of Default or material Default under this Agreement
has occurred and is continuing and (B) that the conditions of
this Section 10.2 set forth below, have been fulfilled.
(b) No release of Collateral shall be effected unless
simultaneously or prior thereto the Company has paid to the
Holders, by federal funds wire transfer, 70% of the Net Proceeds
from the sale or other disposition of such Collateral.
10.3. Reliance on Opinion of Counsel. The Collateral Agent
shall, before taking any action under this Article 10, be entitled to
receive an Opinion of Counsel, stating the legal effect of such action, the
steps necessary to consummate the same and to perfect the priority of the
Collateral Agent (as agent for the Holders) with respect to a Lien and that
such action will not be in contravention of the provisions hereof or the
New Notes.
10.4. Purchaser May Rely. A purchaser in good faith of the
Collateral or any part thereof or interest therein which is purported to be
transferred, granted or released by the Collateral Agent as provided in
this Article 10 shall not be bound (a) to ascertain, and may rely on the
authority of the Collateral Agent to execute, transfer, grant or release,
(b) to inquire as to the satisfaction of any conditions precedent to the
exercise of such authority, or (c) to see to the application of the
purchase price therefor.
10.5. Payment of Expenses. On demand of the Collateral
Agent, the Company forthwith shall pay or satisfactorily provide for all
reasonable expenditures incurred by the Collateral Agent under this Article
10 and all such sums shall be secured thereby.
10.6. Authority of Collateral Agent. The Company may rely on
the directions of CCC Lending Corporation, a Delaware corporation, as
collateral agent with respect to the Collateral and the Mortgaged
Properties, without incurring liability therefor to the Holders, except to
the extent otherwise provided in the Collateral Agency Agreement dated the
date hereof.
28
11. Definitions.
11.1. "Affiliate" of any specified person means any other
person related by blood, marriage, employed by or employing, or directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct
the management and policies of such person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
11.2. "Agreement" shall mean this letter agreement.
11.3. "Artwork" means the collateral under the Security
Agreement.
11.4. "Bank Indebtedness" means the principal of and interest
on and other amounts due on or in connection with any Indebtedness of the
Company, outstanding on the date of this Agreement. Bank Indebtedness
shall not include (i) any Indebtedness of the Company which, by its terms
or the terms of the instrument creating or evidencing it, is subordinate in
right of payment to or pari passu with the New Notes or (ii) any
Indebtedness of the Company to a Subsidiary.
11.5. "Business Day" means a day, other than a Saturday or a
Sunday, on which banks are open for business in New York, New York.
11.6. "Capitalized Lease Obligations" means Indebtedness
represented by obligations under a lease that is required to be capitalized
for financial reporting purposes in accordance with generally accepted
accounting principles; the amount of such Indebtedness shall be the
capitalized amount of such obligations determined in accordance with such
principles.
11.7. "Capital Stock " means any and all shares, interest,
participations or other equivalents (however designated) of corporate
stock.
11.8. "Collateral" means Mortgaged Property, the Artwork and
the Securities.
11.9. "Collateral Agent" means CCC Lending Corporation, a
29
Delaware corporation.
11.10. "Company " means the party named as such in this
Agreement, until a successor replaces it pursuant to the Agreement, and
thereafter means the successor.
11.11. "Consolidated Net Worth" means, as of any date, total
stockholders' equity which under generally accepted accounting principles
would be included on a consolidated balance sheet of the Company and its
Subsidiaries, determined in accordance with generally accepted accounting
principles consistently applied, as of the end of the last period for which
a quarterly financial report is available, less all goodwill, trademarks,
trade names, patents, unamortized debt discount and expense and other like
intangibles that would be included on such balance sheet.
11.12. "Default" means any event which is, or after notice or
passage of time would be, an Event of Default.
11.13. "Indebtedness" means (i) any liability of any person
(a) for borrowed money, (b) evidenced by a note, debenture or similar
instrument (including a purchase money obligation) given in connection with
the acquisition of any property or assets (other than inventory or similar
p r o perty acquired in the ordinary course of business), including
securities, or (c) for the payment of money relating to a Capitalized Lease
Obligation; (ii) any liability of others described in the preceding clause
(i) which the person has guaranteed or which is otherwise its legal
liability; and (iii) any amendment, renewal, extension or refunding of any
liability of the types referred to in clauses (i) and (ii) above.
11.14. "Investment Securities" means (i) U.S. Government
Obligations, or (ii) securities, certificates of deposit or commercial
paper rated at least "P-1" by Moody's Investors Service, Inc. and at least
"A-1" by Standard and Poors Corporation.
11.15. "LIBOR" shall have the meaning provided in Exhibit A
annexed hereto.
11.16. "Lien" means any mortgage, liens, pledge, charge or
other security
interest or encumbrance of any kind or assignment thereof.
11.17. "Mortgages" means any one or all of the mortgages or
30
deeds of trust covering the Mortgaged Property, as assigned to the Holders,
substantially in the form annexed hereto as Exhibit C and constituting a
part hereof for all purposes, or such other form as may be required by
applicable state law or by local custom.
11.18. "Mortgaged Property" means property of the Company
described in or from time to time subject to the Mortgages.
11.19. "Net Proceeds" means, cash received by the Company or
any of its Subsidiaries with respect to any sale, transfer or disposition
of property after (a) reasonable provision for taxes incurred by the
Company or any of its Subsidiaries during the fiscal year in which such
sale, transfer or disposition occurred as a direct result thereof, (b)
payment of reasonable brokerage commissions and reasonable attorneys' fees
and expenses incurred as a result of such sale, transfer or disposition,
and (c) deduction of appropriate amounts to be provided by the Company and
its Subsidiaries as a reserve, in accordance with generally accepted
a c counting principles consistently applied, against any liabilities
associated with such asset and retained by the Company and its Subsidiaries
after such sale, transfer or disposition.
11.20. "Officers' Certificate" means a certificate signed by
two officers of the Company having authority to sign such certificates on
behalf of the Company.
11.21. "Opinion of Counsel" means a written opinion from legal
counsel, who may be an employee of or counsel to the Company, and who is
reasonably acceptable to the Holder.
11.22. "Permitted Encumbrances" means (i) liens for taxes,
assessments and other governmental charges not delinquent; (2) liens for
taxes, assessments and other governmental charges already delinquent which
are currently being contested in accordance with the provisions of the
Mortgages; (3) mechanics' and materialmen's liens not filed of record and
s i m i l ar charges not delinquent, incident to current permissible
construction and mechanics' and materialmen's liens incident to such
construction which are filed of record but which are being contested in
accordance with the provisions of the Mortgages; (4) mechanics', workmen's,
repairmen's, materialmen's, warehousemen's and carriers' liens and other
similar liens arising in the ordinary course of business for charges which
are not delinquent, or which are being contested in accordance with the
31
provisions of the Mortgages; (5) liens in respect of judgments or awards
with respect to which the Company shall in good faith currently be
prosecuting an appeal or proceedings for review in accordance with the
provisions of the Mortgages, and with respect to which the Company shall
have secured a stay of execution pending such appeal or proceedings for
review; provided, however, that the Company shall have set aside on its
books adequate reserves with respect thereto; (6) easements and rights of
way, leases, reservations or other rights of others in any property of the
Company for streets, roads, bridges, pipes, pipe lines, utilities,
railroad, electric transmission and distribution lines, telegraph and
telephone lines, flood rights, river control and development rights, sewage
and drainage rights, restrictions against pollution and zoning laws;
provided, however, that such easements, leases, reservations, rights,
restrictions and laws do not in the aggregate materially impair the
usefulness of such property for the purposes for which it is held by the
Company and do not materially impair the marketability or value of such
property as security for the New Notes; (7) leases or other occupancy
agreements existing at the date of affecting the Mortgaged Properties and
any leases or other occupancy agreements entered into by the Company or its
Affiliates which are commercially reasonable and in the ordinary course of
business; (8) the burdens of any law or governmental regulation or permit
requiring the Company to maintain certain facilities or perform certain
acts as a condition of its occupancy of or interference with any public
lands or any river or stream or navigable waters; and (9) whether or not
included in the foregoing clauses (1) through (8), all restrictions,
easements, rights-of-way, exceptions, reservations, conditions,
limitations, interests, covenants, agreements and other encumbrances do not
in the aggregate materially impair the value of such property as security
for the New Notes.
11.23. "Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
11.24. Pledge Agreement means the Stock Pledge and Security
Agreement dated as of January 8, 1998, among the Company and SY Trading
Corporation, as pledgors, and the Holders and CCC Lending Corporation, as
secured parties.
32
11.25. "Reference Bank" shall have the meaning provided in
Exhibit A annexed hereto.
11.26. "SEC" means the Securities and Exchange Commission.
11.27. "Security Agreement" means the Security Agreement,
d a ted as of January 8, 1998, among the Company, Canal Galleries
Corporation, and Canal Arts Corporation as debtors, the Holders, as secured
parties, and CCC Lending Corporation, as Collateral Agent respecting
collateral covered by (i) the Security Agreement dated as of May 15, 1993
among the Company and Canal Arts Corporation, as debtors, and Hanseatic
Corporation and Guaranty Reassurance Company as secured parties, as
assigned to the Holders and (ii) the Security Agreement dated as of March
31, 1995, between the Company, as debtor, and Cooperative Centrale
Raiffeisen - Boerenleenbank B.A., Rabobank Nederland , New York branch, as
secured party, as assigned to certain of the Holders.
11.28. "Security Interest" means the Liens on the Collateral
created by the Mortgages, the Security Agreement and the Pledge Agreement.
11.29. Securities means the collateral under the Pledge
Agreement consisting currently of 361,267 shares of Common Stock of
Datapoint Corporation.
11.30. "Subsidiary" means (i) a corporation a majority of
whose capital stock with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned by the
Company, by the Company and a Subsidiary of the Company or by a Subsidiary
of the Company or (ii) any other person (other than a corporation) in which
the Company, a Subsidiary of the Company directly or indirectly, at the
date of determination thereof, has at least a majority ownership interest.
11.31. "U.S. Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the United
States of America or any person or agency controlled or supervised by or
acting as an instrumentality of the United States of America pursuant to
authority granted by the Congress of the United States of America for the
payment of which guarantee or obligation the full faith and credit of the
United States or any person or agency controlled or supervised by or acting
as an instrumentality of the United States of America pursuant to authority
granted by the Congress of the United States is pledged.
33
12. Miscellaneous.
12.1. Notices. Any notice or communication shall be given in
writing and delivered in person or mailed by first-class mail addressed if
to the Company, to the addresses set forth on the first page hereof, and if
to the Holders, at such addresses as appear on the signature pages to this
Agreement.
The Company or the Holders by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Failure to mail a notice or communication to a Holder or any
defect in any notice shall not affect the sufficiency of any notice with
respect to the other Holders.
12.2. Statements Required in Certificate or Opinion. Each
Officers' Certificate or Opinion of Counsel with respect to compliance with
a condition or covenant provided for in this Agreement or in the Security
Agreement or the Mortgages shall include:
(a) a statement that the person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether or not, in the opinion or such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
12.3. Legal Holidays. A "Legal Holiday" is a Saturday,
Sunday or a day on which banking institutions in New York, New York are not
required to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that
is not a Legal Holiday, and no interest shall accrue for the intervening
period.
34
12.4. Governing Law. The laws of the State of New York shall
govern this Agreement without regard to principles of conflicts of law.
12.5. No Adverse Interpretation of Other Agreements. This
Agreement may not be used to interpret another indenture, loan or debt
agreement of Company or any of its Subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Agreement.
12.6. No Recourse Against Others. A director, officer,
employee or shareholder, as such, of the Company shall not have any
liability for any obligations of the Company under this Agreement or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder by accepting the New Notes waives and releases all
such liability.
12.7. Successors. All agreements of the Company in this
Agreement and the New Notes shall bind its successor.
12.8. Duplicate Originals. The parties may sign any number
of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent that same agreement.
12.9. Severability. In case any provision of this Agreement
or in the New Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
35
SIGNATURES
IN WITNESS WHEREOF, the undersigned has caused this Agreement to
be duly executed, and its corporate seal to be hereunto affixed and
attested, all as of the date first written above.
CANAL CAPITAL CORPORATION
By: /S/ Reginald Schauder
Vice President
The foregoing Agreement is hereby
accepted by each of the Holders
as of the date hereof:
/S/ Michael E. Schultz
MICHAEL E. SCHULTZ
2830 Long Meadow Drive
West Palm Beach, Florida 33414
MICHAEL E. SCHULTZ DEFINED BENEFIT TRUST
By: /S/ Michael E. Schultz
Michael E. Schultz, Trustee
c/o Michael E. Schultz
2830 Long Meadow Drive
West Palm Beach, Florida 33414
36
/S/ Lora K. Schultz
LORA K. SCHULTZ
2830 Long Meadow Drive
West Palm Beach, Florida 33414
/S/ Roger A. Schultz
ROGER A. SCHULTZ
131 N. Hibiscus Drive
Miami Beach, Florida 33129
ROGER A. SCHULTZ PENSION PLAN
By: /S/ Roger A. Schultz
Roger A. Schultz, Trustee
c/o Roger A. Schultz
131 N. Hibiscus Drive
Miami Beach, Florida 33129
/S/ Richard A. Schultz
RICHARD A. SCHULTZ
th136 East 56 Street, Apt. 12H
New York, NY 10022
37
EDELMAN VALUE PARTNERS, L.P.
By: A. B. Edelman Management Company, Inc.,
General Partner
By: /S/ Asher B. Edelman
Name:
Title:
717 Fifth Avenue
New York, New York 10022
EDELMAN VALUE FUND, LTD
By: /S/ Asher B. Edelman
Name:
Title:
c/o Bayand (Luxembourg) Admin.
1A Rue du St. Esprit
L-1475 Luxembourg
/S/ Maria Regina Mayall Edelman
MARIA REGINA MAYALL EDELMAN
Chemin de Pecholettaz 9
1066 Eppallinges, Switzerland
SES TRUST
By: /S/ Sharon E. Sigesmund
Sharon E. Sigesmund
Trustee
38
c/o Sharon E. Sigesmund
2859 Queens Courtyard Drive
Las Vegas, Nevada 89109
39
EXHIBIT A
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. $__________
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to ,
or ___ registered assigns at the address of
or at such other address as may be designated by the registered
holder hereof to the Company, the principal sum of
__________________________________________ Dollars on May 15, 2001 and to
pay interest thereon monthly on the 15th day of each month (each an
"Interest Payment Date"), in each year, commencing on January 15, 1998, at
the applicable rate per annum determined as a provided below, until the
principal hereof is paid or made available for payment.
13. For each Quarterly Period, this Note shall bear interest at
a variable rate per annum, equal to the greatest of (i) the Three Month
Treasury Rate with respect to such quarterly period plus 600 basis points,
(ii) LIBOR with respect to such Quarterly Period plus 475 basis points,
(iii) 120% of the Ten Year Treasury Rate with respect to such Quarterly
Period plus 150 basis points, or (iv) Prime Rate with respect to such
quarterly period plus 350 basis points. If the Agent Bank cannot determine
LIBOR or Prime Rate, as the case may be, for at least five Business Days
during the Rate Determination Period for any Quarterly Period then this
Note will bear interest following such Quarterly Period at a rate per annum
equal to the greatest of the remaining variable rates with respect to such
Quarterly Period. Prior to the beginning of each Quarterly Period, the
Company must compute the interest rate for such Quarterly Period. The
Company must mail notice of the rate to each holder of a Note for each
Quarterly Period. Interest will be computed on the basis of a 360-day year
of twelve 30 -day months.
14. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $339,620 which had accrued with
respect to the Old Notes but had remained unpaid by the Company as of the
date of this Note shall also be considered Additional Interest hereunder
and shall continue to be due and payable to the holder hereof as provided
above.
15. The interest payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Note Exchange
Agreement, be paid to the person in whose name this Note is registered at
the close of business on the regular record date, which shall be the first
day of each month (whether or not a Business Day) next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for, and any interest payable on such defaulted interest (to the
extent lawful), will forthwith cease to be payable to the Holder on such
regular record date and shall be paid to the person in whose name this Note
is registered at the close of business on a special record date for the
payment of such defaulted interest to be fixed by the Company, notice of
which shall be given to Holders not less than 15 days prior to such special
record date. Payment of the principal of and interest on this Note will be
made in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, by
check mailed to the address of the holder of this Note, as specified in the
first paragraph hereof.
16. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
17. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
2
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
18. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
19. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
20. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
21. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
22. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
3
23. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
24. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
25. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
4
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
o f ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
5
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
26. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
6
Gifts to Minors Act).
27. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
28. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By:_________________________
____________________________
7
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
8
SCHEDULE I
Name of Assignee Percentage
Michael E. Schultz 27.03%
Michael E. Schultz Defined Benefit Trust 6.54%
Lora K. Schultz 6.19%
Roger A. Schultz 13.51%
Roger A. Schultz Pension Plan 5.03%
Richard A. Schultz 3.86%
Edelman Value Partners, L.P. 9.46%
Edelman Value Fund, LTD 14.86%
Maria Regina Mayall Edelman 8.11%
SES Trust 5.41%
COLLATERAL AGENCY AGREEMENT, dated as of January 8, 1998, among
(1) the parties listed on the signature pages hereto under the heading
"Noteholders" (together with their respective successors and assigns, the
"Noteholders", and (2) CCC LENDING CORPORATION, a Delaware corporation
9
(together with its successors and assigns, collectively, the "Collateral
Agent").
BACKGROUND
The Noteholders are purchasing, for full and fair consideration,
the promissory note issued by Canal Capital Corporation, a Delaware
corporation (the "Company"), as of May 15, 1993 to Deltec Asset Management
Corporation, in the original principal amount of $5,800,000 (the "Deltec
Note") and the Company's promissory note issued as of May 15, 1993 to
G u aranty Reassurance Company, in the original principal amount of
$3,000,000 (the "GRC Note"; together with the Deltec Note, the "Old
Notes").
The Old Notes are secured by certain collateral and mortgages
which are being assigned to the Noteholders.
Pursuant to that certain Note Exchange and Loan Agreement dated
as of the date hereof between the Company and the Noteholders (the "Note
Exchange Agreement"), the Noteholders are exchanging the Old Notes and
making an additional loan to the Company in exchange for new promissory
notes of the Company on the terms and conditions set forth therein,
including without limitation, the deferral of principal payments due under
the Old Notes.
In connection with the Note Exchange Agreement, (i) the Company
will amend certain Mortgages and a Security Agreement (as such terms are
defined in the Note Exchange Agreement; herein, such terms are collectively
referred to, together with the Pledge Agreement defined below, as the
"Collateral Documents"), to secure the obligations incurred by the Company
u n d e r the Note Exchange Agreement and the Collateral Documents
(collectively, the "Obligations"), and (ii) the Company will enter into a
certain Pledge Agreement ( Pledge Agreement ) to further secure the
Obligations.
The Noteholders desire to provide for their respective rights and
interests in respect of the Collateral (as defined below) and to make
certain other commitments and undertakings in connection with the Note
Exchange Agreement, the Collateral Documents, the Obligations and the
rights of the Noteholders under such agreements.
N O W THEREFORE, in consideration of the mutual agreements
contained herein, the parties hereto hereby agree as follows:
10
ARTICLE XXIX
DEFINITIONS
Section 29.1. Definitions of Terms Used in Note Exchange
Agreement. All capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Note Exchange Agreement.
Section 29.2. Definitions of Certain Terms. As used herein,
the following terms shall have the meanings set forth below:
"Actionable Default" shall mean any Event of Default under and as
defined in the Note Exchange Agreement and/or the Collateral Documents.
"Collateral" shall mean all the assets of the Company or its
Subsidiaries in which the Collateral Agent has been granted a Lien pursuant
to the Collateral Documents.
"Insolvency or Liquidation Proceeding" means (i) any insolvency
or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding, relative to the Company
or to any of the assets of the Company, or (ii) any liquidation,
dissolution, or winding up of the Company.
"Notice of Actionable Default" shall mean a notice by or on
behalf of the Required Creditors delivered to the Collateral Agent, stating
that an Actionable Default has occurred. A Notice of Actionable Default
shall be deemed to have been given when the notice referred to in the
preceding sentence has actually been received by the Collateral Agent and
to have been rescinded when the Collateral Agent has actually received from
the Required Creditors a notice withdrawing such notice. A Notice of
Actionable Default shall be deemed to be outstanding at all times after
such notice has been given until such time, if any, as such notice has been
rescinded.
"Required Creditors" shall mean, at any time, Noteholders
holding, collectively, New Notes representing more than 25% of the
outstanding principal balance of the New Notes.
Section 29.3. Terms Generally. The definitions in Section 1.2
shall apply equally to both the singular and plural forms and of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
11
ARTICLE XXX
ACTS OF REQUIRED CREDITORS;
AMOUNT OF OBLIGATIONS
Section 30.1. Acts of Required Creditors. Any request, demand,
authorization, direction, notice, consent, waiver or other action permitted
or required by this Agreement to be given or taken by the Required
Creditors may be and, at the request of the Collateral Agent, shall be,
embodied in and evidenced by one or more written instruments satisfactory
in form to the Collateral Agent and signed by or on behalf of such persons
and, except as otherwise expressly provided in any such instrument, any
such action shall become effective when such instrument or instruments
shall have been delivered to the Collateral Agent. The instrument or
instruments evidencing any action (and the action embodied therein and
evidenced thereby) are sometimes referred to herein as an "Act" of the
persons signing such instrument or instruments.
Section 30.2. Determination of Amounts of Outstanding Principal
Balance. Whenever the Collateral Agent is required to determine the
outstanding principal balance of the Notes or the existence of any
Actionable Default for any purposes of this Agreement, it shall be entitled
to make such determination on the basis of one or more certificates of the
Noteholders; provided, however, that if notwithstanding the request of the
Collateral Agent, the Noteholders shall fail or refuse promptly to certify
as to the outstanding principal balance of the New Notes or the existence
of an Actionable Default, the Collateral Agent shall be entitled to
determine such existence or amount by such method as the Collateral Agent
may, in its sole discretion, determine, including by reliance upon a
certificate of the Company. The Collateral Agent may rely conclusively,
and shall be fully protected in so relying, on any determination made by it
in accordance with the provisions of the preceding sentence (or as
otherwise directed by a court of competent jurisdiction) and shall have no
liability to the Company, any Noteholder or any other person as a result of
such determination. Upon any request of the Collateral Agent, the Company
will, and by countersigning this Agreement the Company agrees to, furnish a
certificate to the Collateral Agent as to the outstanding principal balance
of the New Notes or as to the existence of any Actionable Default.
ARTICLE XXXI
DUTIES OF COLLATERAL AGENT
Section 31.1. Notices to Authorized Representative and
Noteholders. The Collateral Agent shall promptly furnish to each
Noteholder:
(i) a copy of each of Notice of Actionable Default received by
the Collateral Agent;
12
(ii) a copy of each certificate received by the
Collateral Agent rescinding a Notice of Actionable Default;
(iii) written notice, and a reasonably detailed
description, of any additional Collateral in which the
Collateral Agent has been granted a Lien;
(iv) written notice of their receipt, and the amount,
of any proceeds received by the Collateral Agent upon the
disposition of any Collateral;
(v) written notice of the aggregate amount distributed to the
Noteholders in connection with any distribution hereunder; and
(vi) written notice of any release by the Collateral Agent
of any Collateral, together with any consents received
by the Collateral Agent from Noteholders to permit such
release.
Section 31.2. A c t i ons Under Collateral Documents. The
Collateral Agent shall not be obligated to take any action under this
Agreement or any of the Collateral Documents except for the performance of
such duties as are specifically set forth herein or therein. Subject to
the provisions of Article V, the Collateral Agent shall take any action
under or with respect to the Collateral Documents or this Agreement which
is requested by the Required Creditors and which is not inconsistent with
or contrary to the provisions of this Agreement or the Collateral
Documents. The Collateral Agent may amend or waive any provision of any
Collateral Document without the approval of the Required Creditors so long
as such amendment or waiver does not adversely affect in any material
respect the interests of any Noteholder. At any time when a Notice of
Actionable Default shall have been given and shall be outstanding, the
Collateral Agent shall, subject in all cases to the provisions of Article
V, exercise or refrain from exercising all such rights, powers and remedies
as shall be available to it under the Collateral Documents or any of them
in accordance with any written instructions received from the Required
Creditors. Absent written instruction from the Required Creditors at a
time when a Notice of Actionable Default shall be outstanding, the
Collateral Agent may take, but shall have no obligation to take, any and
all such actions under the Collateral Documents or any of them or otherwise
as it shall deem to be in the best interest of the Noteholders; provided,
however, that in the absence of written instructions (which may relate to
the exercise of specific remedies or to the exercise of remedies in
general) from the Required Creditors the Collateral Agent shall not
exercise remedies available to it under any Collateral Documents with
respect to the Collateral or any part thereof.
13
ARTICLE XXXII
PROCEEDS RECEIVED UNDER COLLATERAL DOCUMENTS
Section 32.1. Collateral Account.
(a) The Collateral Agent shall establish and maintain an account
(the "Collateral Account") into which it shall (except as otherwise
explicitly provided in any Collateral Document) deposit all amounts
received by it in its capacity as Collateral Agent in respect of the
Collateral. All amounts deposited in such account shall be held by the
Collateral Agent subject to the terms hereof and of the Collateral
Documents. The Company shall have no rights with respect to, and the
Collateral Agent shall have exclusive dominion and control over, the
Collateral Account. All moneys received by the Collateral Agent with
respect to all or any part of the Collateral either (i) prior to the
occurrence of an Actionable Default, (ii) prior to the Collateral Agent's
receipt of a Notice of Actionable Default or (iii) after withdrawal of all
pending Notices of Actionable Default shall be delivered to the Company or
any other person entitled thereto in accordance with the Collateral
Documents, at such person's instruction.
(b) N o t w ithstanding the provisions of Section 4.2, the
Collateral Agent shall have the right at any time and from time to time
(prior to making any distributions described in Section 4.2) to apply any
amounts in the Collateral Account to the payment of the reasonable out-of-
pocket costs and expenses (including reasonable attorneys fees and
disbursements) incurred by the Collateral Agent in administering and
carrying out its obligations under this Agreement or any of the Collateral
Documents, in exercising or attempting to exercise any right or remedy
hereunder or thereunder or in taking possession of, protecting, preserving
or disposing of any item of Collateral, and all amounts against or for
which the Collateral Agent is to be indemnified or reimbursed hereunder
(excluding any such costs, expenses or amounts which have theretofore been
reimbursed) until all of such costs, expenses and amounts have been paid in
full; provided, however, that any such application shall be allocated pro
rata among the Noteholders. The Collateral Agent shall reimburse any
Noteholder prior to applying any amounts in the Collateral Account pursuant
to Section 4.2 for any and all amounts expended with respect to pay
indemnity provided in accordance with Section 5.3(e) to such Noteholder, by
application of funds in the account established hereunder in the same
manners provided in the provision the preceding sentence.
Section 32.2. Distribution of Amounts Deposited in Collateral
Accounts.
(a) All amounts deposited in the Collateral Account shall be
distributed in the following order of priority:
First, to the Noteholders pro rata in accordance with the
aggregate principal amounts of the Notes outstanding at such time held
14
by such holders, until the Obligations shall have been paid in full;
Second, the balance, if any, to the Company or such other person
or persons as shall be entitled thereto pursuant to the Collateral
Documents.
(b) Notwithstanding any provision of this Agreement or the
Collateral Documents, any sums and amounts received by any Noteholder
pursuant to this Section shall be applied as provided in the Notes, the
Note Exchange Agreement and the Collateral Documents.
Section 32.3. Time of Payment. All distributions under Section
4.2 of amounts deposited in the Collateral Account shall be made promptly
after the deposit of such amounts into the Collateral Account.
Section 32.4. Investment of Amounts in Account. Pending the
disbursement thereof pursuant to the terms of this Agreement, all amounts
in the account shall (to the extent the Collateral Agent deem practical) be
invested by the Collateral Agent in (a) marketable direct obligations of,
or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America (or by any agency thereof to
the extent such obligations are backed by the full faith and credit of the
United States of America), in each case maturing not later than the earlier
of the anticipated distribution date of such amounts and the date 180 days
from the date of acquisition thereof; (b) investments in commercial paper
maturing not later than the earlier of the anticipated distribution date of
such amounts and the date 180 days from the date of acquisition thereof and
having, at such date of acquisition, the highest credit rating obtainable
from Standard & Poor's Corporation or from Moody's Investors Service, Inc.;
or (c) investments in certificates of deposit, banker's acceptances and
time deposits maturing not later than the earlier of the anticipated
distribution date of such amounts and the date 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any office of any commercial
b a nk which has a combined capital and surplus of not less than
$500,000,000.
ARTICLE XXXIII
CONCERNING THE COLLATERAL AGENT
Section 33.1. Appointment of Collateral Agent. Each of the
Noteholders appoints the Collateral Agent to act as Collateral Agent
pursuant to the terms of the Collateral Documents and this Agreement, and
the Collateral Agent agrees to act as Collateral Agent for the Noteholders
pursuant to the terms of the Collateral Documents and this Agreement.
Section 33.2. Limitations of Responsibilities of Collateral
Agent. The Collateral Agent shall not be responsible in any manner
whatsoever for the correctness of any recitals, statements, representations
15
or warranties contained herein or in any Collateral Document, except for
those made by it herein. The Collateral Agent makes no representation as
to the value or condition of the Collateral or any part thereof, as to the
title of the Company to the Collateral, as to the security afforded by this
Agreement or any Collateral Document or, except as set forth in Article VI,
as to the validity, execution, enforceability, legality, or sufficiency of
this Agreement or any Collateral Documents, and the Collateral Agent shall
incur no liability or responsibility in respect of any such matters. The
Collateral Agent shall not be responsible for insuring the Collateral for
the payment of taxes, charges, assessments or liens upon the Collateral or
otherwise as to the maintenance of the Collateral, except as provided in
the immediately following sentence when the Collateral Agent has possession
of the Collateral. The Collateral Agent shall have no duty to the Company
or to the holders of the Secured Obligations as to any Collateral in its
possession or control or in the possession or control of any agent or
nominee of the Collateral Agent or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto, except the duty to accord such of the Collateral as may be in its
possession substantially the same care as it accords its own assets and the
duty to account for monies received by it. The Collateral Agent shall not
be required to ascertain or inquire as to the performance by the Company of
any of the covenants or agreements contained herein or in any of the
Collateral Documents. Neither the Collateral Agent nor any officer, agent
or representative thereof shall be personally liable for any action taken
or omitted to be taken by any such person in connection with this Agreement
or any Collateral Document except for such person's own gross negligence or
wilful misconduct. Neither the Collateral Agent nor any officer, agent or
representative thereof shall be personally liable for any action taken by
any such person in accordance with any notice given by the Required
Creditors or the Noteholders, as the case may be, hereunder even if, at the
time such action is taken by any such person, the Required Creditors or
Noteholders, as the case may be, which gave the notice to take such action
are no longer the Required Creditors or all the Noteholders, as applicable,
and if the Collateral Agent has not received written notice of such fact.
The Collateral Agent may execute any of the powers granted under this
Agreement or any of the Collateral Documents and perform any duty hereunder
or thereunder either directly or by or through agents or attorneys-in-fact,
and shall not be responsible for the negligence or misconduct of any agents
or attorneys-in-fact selected by it without gross negligence or wilful
misconduct.
Section 33.3. Reliance on Collateral Agent; Indemnity Against
Liabilities; etc.
(a) Whenever in the performance of its duties under this
Agreement the Collateral Agent shall deem it necessary or desirable that a
matter be proved or established with respect to the Company or other person
in connection with the taking, suffering or omitting of any action
hereunder by the Collateral Agent, such matter may be conclusively deemed
to be proved or established by a certificate executed by an officer of such
person, and the Collateral Agent shall have no liability with respect to
any action taken, suffered or omitted in reliance thereon.
(b) The Collateral Agent may consult with counsel and shall be
fully protected in taking any action hereunder in accordance with any
16
advice of such counsel. The Collateral Agent shall have the right but not
t h e obligation at any time to seek instructions concerning the
administration of this Agreement, the duties created hereunder or the
Collateral from any court of competent Jurisdiction.
(c) The Collateral Agent shall be fully protected in relying
upon any resolution, statement, certificate, instrument, opinion, report,
notice, request, consent, order or other paper or document which it
believes to be genuine and to have been signed or presented by the proper
party or parties. In the absence of its gross negligence or wilful
misconduct, the Collateral Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificate or opinions furnished to the Collateral Agent in connection
with this Agreement.
(d) The Collateral Agent shall not be deemed to have actual,
constructive, direct or indirect notice or knowledge of the occurrence of
any Actionable Default unless and until the Collateral Agent shall have
received a Notice of Actionable Default. The Collateral Agent shall have
no obligation whatsoever either prior to or after receiving such a notice
to inquire whether an Actionable Default has, in fact, occurred and shall
be entitled to rely conclusively, and shall be fully protected in so
relying, on any certificate so furnished to them.
(e) If the Collateral Agent has been requested to take any
specific action pursuant to any provision of this Agreement, the Collateral
Agent shall not be under any obligation to exercise any of the rights or
powers vested in it by this Agreement in the manner so requested unless it
shall have been provided indemnity satisfactory to it against the costs,
expenses and liabilities which may be incurred by it in connection with
such request or direction.
Section 33.4. Resignation and Removal of the Collateral Agent.
The Collateral Agent may at any time, by giving 30 days' prior written
notice to the Company, and each Noteholder, resign and be discharged from
the responsibilities hereby created, such resignation to become effective
upon the earlier of (i) 30 days after the date of such notice or (ii) the
appointment of a successor by the Required Creditors and the acceptance of
such appointment be such successor. If no successor shall be appointed and
approved within 30 days after the date of any such resignation, the
Collateral Agent (notwithstanding the termination of all their other duties
and obligations hereunder by reason of such resignation) may apply to any
court of competent jurisdiction to appoint a successor to act until a
successor shall have been appointed by the Required Creditors as above
provided or may, on behalf of the Noteholders, appoint one or more
successor Collateral Agent. The Collateral Agent may be removed at any
time by the affirmative vote of the Required Creditors and, upon the
appointment of a successor by the Required Creditors and the acceptance of
such appointment by such successor, the Collateral Agent shall be
discharged from the responsibilities hereby created.
Section 33.5. Expenses and Indemnification by the Company. By
countersigning this Agreement, the Company agrees (i) to reimburse the
17
Collateral Agent, on demand, for any expenses incurred by the Collateral
Agent, including counsel fees and compensation of agents, arising out of,
in any way connected with, or as a result of, the execution or delivery of
this Agreement or any Collateral Document or any agreement or instrument
contemplated thereby or the performance by the parties thereto of their
respective obligations hereunder or in connection with the enforcement or
protection of the rights of the Collateral Agent or the Noteholders under
the Collateral Documents and (ii) to indemnify and hold harmless the
Collateral Agent and its affiliates, and each of their partners, trustees,
officers, employees and agents, on demand, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Collateral
Agent in its capacity as the Collateral Agent in any way relating to or
arising out of this Agreement or any Collateral Document or any action
taken or omitted by it under this Agreement or any Collateral Document;
provided that the Company shall not be liable to the Collateral Agent for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
the gross negligence or wilful misconduct of the Collateral Agent or any of
its officers, employees or agents.
Section 33.6. Expenses and Indemnification by Credit Agreement
Creditors and Noteholders. Each Noteholder agrees (i) to reimburse the
Collateral Agent, on demand, in the amount of its pro rata share (based on
the amount of the Obligations held by it), for any expenses referred to in
Section 5.5 which shall not have been reimbursed by the Company or paid
from the proceeds of Collateral as provided herein and (ii) to indemnify
and hold harmless the Collateral Agent and its affiliates, and each of
their partners, trustees, officers, employees and agents, on demand, in the
amount of such pro rata share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements referred to in Section 5.5, to the extent the
same shall not have been reimbursed by the Company or paid from the
proceeds of Collateral as provided herein; provided that no Noteholder
shall be liable to the Collateral Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence
or wilful misconduct of the Collateral Agent or any of officers, employees
or agents.
ARTICLE XXXIV
REPRESENTATIONS AND WARRANTIES
The Collateral Agent, each of the Noteholders and the Company
represents and warrants to the other parties hereto that (a) the execution,
delivery and performance of this Agreement (i) has been duly authorized by
all requisite corporate, partnership or trust action on its part, as the
case may be, and (ii) will not contravene any provision of its governing
documents or any order of any court or other governmental authority having
applicability to it, and (b) this Agreement has been duly executed and
delivered by it and constitutes its legal, valid and binding obligation.
18
ARTICLE XXXV
INTERCREDITOR ARRANGEMENTS
Section 35.1. Security Interests. The Collateral Agent and
each of the Noteholders hereby agree that the Liens granted to the
Collateral Agent under the Collateral Documents shall be treated, as
between the Noteholders as having equal priority and shall at all times be
shared by the Noteholders as provided herein.
Section 35.2. Release of Collateral. The Noteholders and the
Collateral Agent agree as follows:
(a) Release Following Sale of Collateral. The Collateral Agent
shall release all Collateral from the Liens created by the Collateral
Documents, so long as such release is in connection with the sale of such
Collateral and at least seventy percent (70%) of the Net Proceeds from such
sale are used to pay the Obligations.
(b) Release at Direction of all Noteholders. Except under the
circumstances specified in the foregoing paragraph (a), the Collateral
Agent shall release Collateral from the Liens created by the Collateral
Documents only at the direction of all the Noteholders.
Section 35.3. Purchase of Collateral. Any Noteholder (or the
Collateral Agent on behalf of all the Noteholders with the consent and
direction of each of the Noteholders) may purchase Collateral at any public
sale of such Collateral pursuant to any of the Collateral Documents and may
make payment on account thereof by using any claim then due and payable to
such Noteholder (or all the Noteholders, in the case of a purchase by the
Collateral Agent) from the person which granted a security interest in such
Collateral as a credit against the purchase price.
Section 35.4. Sharing of Payments. If any Noteholder shall
obtain any payment (whether voluntary, involuntary, through the exercise of
any right of set-off or otherwise) on account of any Obligation in excess
of its ratable share (determined by application of the provisions of this
Agreement, and the Note Exchange Agreement) of payments on account of
Obligations, such Noteholder shall, within 90 days after receipt of written
notice from one or more of the Noteholders and of adequate supporting
documentation and information, purchase from the other Noteholders such
participations in their Obligations as shall be necessary to cause such
purchasing Noteholder to share the excess payment ratably with each of
them; provided, however, that if all or any portion of such excess payment
is thereafter recovered from such purchasing Noteholder, such purchase from
each Noteholder shall be rescinded and each such Noteholder shall promptly
repay to the purchasing Noteholder the purchase price to the extent of such
recovery together with an amount equal to such Noteholder's ratable share
(according to the proportion of (i) the amount of such Noteholder's
required repayment to (ii) the total amount so recovered from the
purchasing Noteholder) of any interest or other amount paid or payable by
19
the purchasing Noteholder in respect of the total amount so recovered. The
Company agrees that any Noteholder so purchasing a participation from
another Noteholder pursuant to this Section 7.5 may, to the fullest extent
permitted by law, exercise all its rights of payment with respect to such
participation as fully as if such Noteholder were the direct creditor of
the Company in the amount of such participation.
Section 35.5. Setoffs. If any Noteholder exercises any right
of setoff or similar right with respect to any assets (whether or not such
assets shall constitute Collateral) of the Company for payment of any
Obligations, the amounts so setoff shall constitute Collateral for purposes
of this Agreement and such Noteholder shall promptly cause such amounts to
be delivered to or put in the custody, possession or control of the
Collateral Agent for disposition or distribution in accordance with the
provisions of Sections 4.1 and 4.2. Until such time as the provisions of
the immediately preceding sentence have been complied with, such Noteholder
shall be deemed to hold such Collateral in trust for the parties hereto
entitled thereto hereunder.
Section 35.6. Further Assurances, etc. Each party hereto shall
execute and deliver such other documents and instruments, in form and
substance reasonably satisfactory to the other parties hereto, and shall
take such other action, in each case as any other party hereto may
reasonably have requested (at the cost and expense of the Company which, by
countersigning this Agreement, agrees to pay such costs and expenses), to
effectuate and carry out the provisions of this Agreement, including by
recording or filing in such places as the requesting party may deem
desirable this Agreement or such other documents or instruments.
ARTICLE XXXVI
APPROVAL BY THE COMPANY
By countersigning this Agreement, the Company, although not a
party hereto, acknowledges and consents to, and agrees to perform and be
bound by, the provisions hereof.
ARTICLE XXXVII
MISCELLANEOUS
Section 37.1. N o Individual Action. No holder of any
Obligations may require the Collateral Agent to take or refrain from taking
any action hereunder or under any of the Collateral Documents or with
respect to any of the Collateral except as and to the extent expressly set
forth in this Agreement.
Section 37.2. Successors and Assigns. This Agreement shall be
binding on and inure to the benefit of the Collateral Agent and each of the
20
Noteholders and their respective successors and assigns. Except as
specifically set forth above, this Agreement is not intended to confer any
benefit on, or create any obligation of a party hereto to, any third party,
including, without limitation, the Company.
Section 37.3. N o tices. Notices and other communications
provided for herein or in any Collateral Document shall be in writing and
shall be delivered by hand or overnight courier service, mailed or sent by
telex, graphic scanning or other telegraphic communications equipment of
the sending party, to each party at its address specified in the Note
Exchange Agreement. All notices and other communications given to any
party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by telex, graphic scanning or other
telegraphic communications equipment of the sender, or on the date five
business days after dispatch by certified or registered mail if mailed, in
each case delivered, sent or mailed (properly addressed) to such party as
provided in this Section 9.3 or in accordance with the latest unrevoked
direction from such party given in accordance with this Section 9.3.
Section 37.4. Termination. This Agreement shall terminate
automatically upon the indefeasible payment in full of the Obligations;
provided, however, that Sections 5.5 and 5.6 of this Agreement shall
survive, and remain operative and in full force and effect, regardless of
the termination of this Agreement.
Section 37.5. A p p licable Law. This agreement shall be
construed in accordance with and governed by the laws of the State of New
York.
Section 37.6. Waiver of Rights. Neither any failure nor any
delay on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, and a single or
partial exercise thereof shall not preclude any other or further exercise
or the exercise of any other right, power or privilege.
Section 37.7. Severability. In case one or more of the
provisions contained in this invalid, illegal or unenforceable in validity,
legality and enforceability provisions contained herein shall not in case
any one or Agreement should be any respect, the of the remaining any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions
with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provision.
Section 37.8. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but
all of which, when taken together, shall constitute but one instrument.
Section 37.9. Section Headings. The Article and Section
headings used herein are for convenience of reference only and are not to
21
affect the construction of or be taken into consideration in interpreting
this Agreement.
Section 37.10. Complete Agreement. This Agreement constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior representations, negotiations,
writings, memoranda and agreements. To the extent any provision of this
Agreement conflicts with the Note Exchange Agreement or any other Note
Purchase Document, the provisions of this Agreement shall be controlling.
Nothing in this Agreement, expressed or implied, is intended to confer upon
any person, other than the parties hereto and their permitted successors
and assigns pursuant to Section 9.2 hereof, any rights or remedies under or
by reason of this Agreement,
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their duly authorized officers, all as of the day
and year first above written.
CCC LENDING CORPORATION
By /S/ Michael E. Schultz
Michael E. Schultz, President
CANAL CAPITAL CORPORATION
By: /S/ Michael E. Schultz
Michael E. Schultz, President
22
NOTEHOLDERS
/S/ Michael E. Schultz
MICHAEL E. SCHULTZ
2830 Long Meadow Drive
West Palm Beach, Florida 33414
MICHAEL E. SCHULTZ DEFINED BENEFIT TRUST
By: /S/ Michael E. Schultz
Michael E. Schultz, Trustee
c/o Michael E. Schultz
2830 Long Meadow Drive
West Palm Beach, Florida 33414
/S/ Lora K. Schultz
LORA K. SCHULTZ
2830 Long Meadow Drive
West Palm Beach, Florida 33414
/S/ Roger A. Schultz
ROGER A. SCHULTZ
131 N. Hibiscus Drive
Miami Beach, Florida 33129
23
ROGER A. SCHULTZ PENSION PLAN
By: /S/ Roger A. Schultz
Roger A. Schultz, Trustee
c/o Roger A. Schultz
131 N. Hibiscus Drive
Miami Beach, Florida 33129
/S/ Richard A. Schultz
RICHARD A. SCHULTZ
th
136 East 56 Street, Apt. 12H
New York, NY 10022
EDELMAN VALUE PARTNERS, L.P.
By: A. B. Edelman Management Company, Inc.,
General Partner
By: /S/ Asher B. Edelman
Name:
Title:
717 Fifth Avenue
New York, New York 10022
24
EDELMAN VALUE FUND, LTD
By: /S/ Asher B. Edelman
Name:
Title:
c/o Bayand (Luxembourg) Admin.
1A Rue du St. Esprit
L-1475 Luxembourg
/S/ Maria Regina Mayall Edelman
MARIA REGINA MAYALL EDELMAN
Chemin de Pecholettaz 9
1066 Eppallinges, Switzerland
SES TRUST
By: /S/ Sharon E. Sigesmund
Sharon E. Sigesmund
Trustee
c/o Sharon E. Sigesmund
2859 Queens Courtyard Drive
Las Vegas, Nevada 89109
25
AGREEMENT
THIS AGREEMENT dated as of January 8, 1998 by and between DELTEC
A S SET MANAGEMENT CORPORATION ( Deltec ) and HANSEATIC CORPORATION
( Hanseatic ; and collectively, Assignors ), and each of the persons and
entities set forth on Schedule I hereto (the Assignees ).
W I T N E S S E T H:
WHEREAS, Deltec is the holder of a promissory note issued by
Canal Capital Corporation, a Delaware corporation (the Borrower ), as of
May 15, 1993 in the original principal amount of $5,800,000 (the Note ),
pursuant to and in accordance with the Note Exchange Agreement dated as of
May 15, 1993 among Assignors, the Borrower and Guaranty Reassurance Company
(the Note Agreement ); and
WHEREAS, the Borrower's obligations under the Note are secured by
c e rtain Collateral pursuant to the Security Agreement and certain
Mortgages, all as defined in the Note Agreement; and
WHEREAS, Assignors wish to assign to the Assignees all of
Assignors rights, title and interest in and to the Note, the Collateral
and the Mortgages, and under the Note Agreement and the Security Agreement,
for the consideration set forth herein.
26
NOW, THEREFORE, the parties hereby agree as follows:
a. Assignment and Assumption. Assignors hereby assign, sell,
transfer and convey to the Assignees all of Assignors rights, title and
interest in and to the Note, the Collateral and the Mortgages, and under
the Note Agreement and the Security Agreement. Each Assignee shall hold a
proportional interest in the Note, the Collateral and the Mortgages and
under the Security Agreement based on the percentage set forth opposite its
or his name on Schedule I hereto. Assignors are delivering the original
Note to the Assignees simultaneously herewith. The Assignees hereby agree
to assume any and all of Assignors obligations under the Note Agreement
and the Security Agreement that may arise after the date hereof.
b. Other Documentation. Simultaneously herewith, Assignors are
executing and delivering to the collateral agent of the Assignees, CCC
L e nding Corporation, for recording and filing with all applicable
authorities, assignments of the Mortgages listed on Schedule II hereto and
Forms UCC-3 with respect to the Collateral (the Security Documents ).
c. Further Assurances. At any time, and from time to time
after the date hereof, Assignors shall, without further consideration,
execute and deliver such additional agreements, instruments, documents or
certificates, and shall take such other action as shall reasonably be
requested by the Assignees in order better to transfer and convey to the
Assignees all of Assignors rights, title and interest in and to the
Collateral and the Mortgages. In the event that the Borrower makes any
payments to Assignors after the date hereof in respect of the Note,
Assignors shall promptly forward such payments to CCC Lending Corporation,
the collateral agent of the Assignees, at c/o Michael E. Schultz, 2830 Long
Meadow Drive, West Palm Beach, Florida 33414.
d. Consideration. In consideration for Assignors undertakings
herein, including, without limitation, its making the assignments set forth
in this Agreement and executing and delivering the Security Documents, the
Assignees are paying to Deltec, by wire transfer to Deltec's account, the
sum of (a) $1,717,456.00, constituting the full principal amount remaining
under the Note, plus (b) $30,900.51, constituting interest accrued as of
the date hereof, plus (c) $28,930.10 constituting certain fees that are
accrued but unpaid with respect to the Note.
e. Representations and Warranties.
i. Each of the Assignors and the Assignees hereby
represents and warrants to the other that (i) it has all requisite power
and authority to enter into and to perform this Agreement; (ii) this
Agreement has been duly executed and delivered by it and constitutes its
legal, valid and binding agreement, enforceable against it in accordance
with its terms; (iii) such party's execution, delivery and performance of
this Agreement will not violate the applicable organizational documents of
27
such party; and (iv) such party's execution, delivery and performance of
this Agreement will not breach of, or constitute a default under, any other
agreement or instrument to which any Assignor or any Assignee, as the case
may be, is a party or by which its assets are bound.
ii. In addition, Assignors hereby jointly and severally
represent and warrant to the Assignees that (i) Assignors have not
assigned, sold, transferred, pledged, hypothecated or otherwise encumbered
Assignors rights under the Note or in and to the Collateral and the
Mortgages, (ii) Assignors have not agreed to do any of the foregoing with
any person or entity other than the Assignees and (iii) upon consummation
of the transactions contemplated hereby, the Assignees will own all of
Assignors' rights, title and interest in and to the Note, free and clear of
any and all liens, claims, charges, rights or other encumbrances.
iii. The representations and warranties set forth in this
Section 5 shall survive the consummation of the transactions contemplated
hereby.
f. Governing Law. This Agreement shall be construed and
enforced in accordance with laws of the State of New York, without
consideration of principles governing conflicts of law.
g. Entire Agreement. This Agreement, including the Security
Documents, contains a complete statement of all the arrangements between
the parties with respect to the subject matter thereof and supersedes any
previous arrangement or understanding between them relating to the subject-
matter hereof.
IN WITNESS WHEREOF, the Assignors and the Assignees have executed
and delivered this Agreement as of the date first above written.
Assignors:
DELTEC ASSET MANAGEMENT CORPORATION
By: /S/ John Cento
Name: John Cento
Title: Senior Vice President
HANSEATIC CORPORATION
28
By: /S/ Paul Biddelman
Treasurer
Assignees:
/S/ Michael E. Schultz
Michael E. Schultz
MICHAEL E. SCHULTZ DEFINED BENEFIT TRUST
By: /S/ Michael E. Schultz
Michael E. Schultz
Trustee
/S/ Lora K. Schultz
Lora K. Schultz
29
ROGER A. SCHULTZ PENSION PLAN
By: /S/ Roger A. Schultz
Roger A. Schultz
Trustee
/S/ Richard A. Schultz
Richard A. Schultz
EDELMAN VALUE PARTNERS, L.P.
By: A. B. Edelman Management Company, Inc.,
General Partner
By: /S/ Asher B. Edelman
Name:
Title:
EDELMAN VALUE FUND, LTD.
By: /S/ Asher B. Edelman
Name:
Title:
/S/ Maria Regina Mayall Edelman
Maria Regina Mayall Edelman
30
SES TRUST
By: /S/ Sharon E. Sigesmund
Sharon E. Sigesmund
Trustee
(THIS PAGE HAS BEEN LEFT BLANK)
31
SCHEDULE I
Name of Assignee Percentage
Michael E. Schultz 27.03%
Michael E. Schultz Defined Benefit Trust 6.54%
Lora K. Schultz 6.19%
Roger A. Schultz 13.51%
Roger A. Schultz Pension Plan 5.03%
Richard A. Schultz 3.86%
Edelman Value Partners, L.P. 9.46%
Edelman Value Fund, LTD 14.86%
Maria Regina Mayall Edelman 8.11%
SES Trust 5.41%
32
SCHEDULE II
Assignment of Mortgage - Minnesota (Schedule II-A attached)
Assignment of Mortgage - Iowa (Schedule II-B attached)
Assignment of Mortgage - South Dakota (Schedule II-C attached)
Schedule II-A
33
ASSIGNMENT OF MORTGAGE - MINNESOTA
As of January 8, 1998, for valuable consideration, Hanseatic
Corporation, having an address at 450 Park Avenue, Suite 2302, New York,
New York 10022 ( Hanseatic ), and Guaranty Reassurance Company, having an
address at 7800 Belfort Parkway, Suite 200, Jacksonville, Florida 32256,
collectively, as Collateral Agent pursuant to that certain Collateral
Agency Agreement dated as of May 15, 1993 (hereafter collectively
Assignor ), as successor in interest to Chemical Bank (formerly known as
Manufacturers Hanover Trust Company) by that First Amendment to Mortgage
dated May 15, 1993, does hereby sell, assign and transfer to CCC Lending
Corporation, a Delaware corporation, all of its right, title and interest
in that certain Mortgage, Assignment, Security Agreement and Financing
Statement dated as of May 15, 1985, made by United Stockyards Corporation
(which by name change became Canal Capital Corporation), a Delaware
corporation, as grantor ( Grantor ) and the Assignor, in its capacity as
Trustee pursuant to that certain Indenture dated as of May 15, 1985, as
amended by a First Supplemental Indenture dated as of April 20, 1988, by
and between Grantor and Chemical Bank, said Mortgage being filed for record
in the Office of the Register of Deeds in and for the County of Dakota,
State of Minnesota on the 31st day of May, 1985, as Document Number 688807.
This assignment is made without recourse or warranty.
The legal description of the property encumbered by the Mortgage is
attached to the Mortgage, portions of which have been released from time to
time.
Hanseatic Corporation Guaranty Reassurance Company
Collateral Agent Collateral Agent
By: Trust Company of the West
Its Investment Advisor
By: Paul Biddelman By: Melissa V. Weiler
Its:President Its:Managing Director
Schedule II-A (cont d)
STATE OF )
) SS.
COUNTY OF )
34
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of Hanseatic Corporation, a New York corporation, on behalf of the
Corporation.
Notary Public
STATE OF )
) SS.
COUNTY OF )
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of the Trust Company of the West, as investment advisor of Guaranty
Reassurance Corporation, a Florida corporation, on behalf of the
Corporation.
Notary Public
Schedule II-B
35
ASSIGNMENT OF MORTGAGE - IOWA
As of January 8, 1998, for valuable consideration, Hanseatic
Corporation, having an address at 450 Park Avenue, Suite 2302, New York,
New York 10022 ( Hanseatic ), and Guaranty Reassurance Company, having an
address at 7800 Belfort Parkway, Suite 200, Jacksonville, Florida 32256,
collectively, as Collateral Agent pursuant to that certain Collateral
Agency Agreement dated as of May 15, 1993 (hereafter collectively
Assignor ), as successor in interest to Chemical Bank (formerly known as
Manufacturers Hanover Trust Company) by that First Amendment to Mortgage
dated May 15, 1993, does hereby sell, assign and transfer to CCC Lending
Corporation, a Delaware corporation, all of its right, title and interest
in that certain Mortgage, Assignment, Security Agreement and Financing
Statement dated as of May 15, 1985, made by United Stockyards Corporation
(which by name change became Canal Capital Corporation), a Delaware
corporation, as grantor ( Grantor ) and the Assignor, in its capacity as
Trustee pursuant to that certain Indenture dated as of May 15, 1985, as
amended by a First Supplemental Indenture dated as of April 20, 1988, by
and between Grantor and Chemical Bank, said Mortgage being filed for record
on the 31st day of May, 1985, on Roll 157, Image 1841 in the Office of the
County Recorder for Woodbury County, Iowa, as amended by that certain First
Amendment to Mortgage - Iowa dated as of May 15, 1993 and filed for record
December 28, 1995 on Roll 340, Image 832 in the Office of the County
Recorder for Woodbury County, Iowa.
This assignment is made without recourse or warranty.
The legal description of the property encumbered by the Mortgage is
attached to the Mortgage, portions of which have been released from time to
time.
Hanseatic Corporation Guaranty Reassurance Company
Collateral Agent Collateral Agent
By: Trust Company of the West
Its Investment Advisor
By: Paul Biddelman By: Melissa V. Weiler
Its:President Its:Managing Director
Schedule II-B (cont d)
STATE OF )
) SS.
36
COUNTY OF )
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of Hanseatic Corporation, a New York corporation, on behalf of the
Corporation.
Notary Public
STATE OF )
) SS.
COUNTY OF )
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of the Trust Company of the West, as investment advisor of Guaranty
Reassurance Corporation, a Florida corporation, on behalf of the
Corporation.
Notary Public
37
Schedule II-C
ASSIGNMENT OF MORTGAGE - SOUTH DAKOTA
As of January 8, 1998, for valuable consideration, Hanseatic
Corporation, having an address at 450 Park Avenue, Suite 2302, New York,
New York 10022 ( Hanseatic ), and Guaranty Reassurance Company, having an
address at 7800 Belfort Parkway, Suite 200, Jacksonville, Florida 32256,
collectively, as Collateral Agent pursuant to that certain Collateral
Agency Agreement dated as of May 15, 1993 (hereafter collectively
Assignor ), as successor in interest to Chemical Bank (formerly known as
Manufacturers Hanover Trust Company) by that First Amendment to Mortgage
dated May 15, 1993, does hereby sell, assign and transfer to CCC Lending
Corporation, a Delaware corporation, all of its right, title and interest
in that certain Mortgage, Assignment, Security Agreement and Financing
Statement dated as of May 15, 1985, made by United Stockyards Corporation
(which by name change became Canal Capital Corporation), a Delaware
corporation, and Sioux Falls Stockyards Company, a South Dakota
corporation, together as grantor ( Grantor ) and the Assignor, in its
capacity as Trustee pursuant to that certain Indenture dated as of May 15,
1985, by and between Grantor and Chemical Bank, said Mortgage recorded on
May 29, 1985 at 11:10 o clock a.m. in Book 760 of Mortgages on Pages 838-
898 in the Office of the Minnehaha County, South Dakota Register of Deeds.
This assignment is made without recourse or warranty.
The legal description of the property encumbered by the Mortgage is
attached herein as Exhibit A, portions of which have been released from
time to time.
Hanseatic Corporation Guaranty Reassurance Company
Collateral Agent Collateral Agent
By: Trust Company of the West
Its Investment Advisor
By: Paul Biddelman By: Melissa V. Weiler
Its:President Its:Managing Director
CORPORATE SEAL CORPORATE SEAL
Schedule II-C (cont d)
38
STATE OF )
) SS.
COUNTY OF )
On this day of , in the year , before me
personally appeared , known to me to be the
of the corporation that is described in and that
executed the within instruments and acknowledged to me that such
corporation executed the same.
Notary Public -
My commission expires
STATE OF )
) SS.
COUNTY OF )
On this day of , in the year , before me
personally appeared , known to me to be the
of the corporation that is described in and that
executed the within instruments and acknowledged to me that such
corporation executed the same.
Notary Public -
My commission expires
39
AGREEMENT
THIS AGREEMENT dated as of January 8, 1998 by and between
GUARANTY REASSURANCE COMPANY ( Assignor ) and each of the persons and
entities set forth on Schedule I hereto (the Assignees ).
W I T N E S S E T H:
WHEREAS, Assignor is the holder of a promissory note issued by
Canal Capital Corporation, a Delaware corporation (the Borrower ), as of
May 15, 1993 in the original principal amount of $3,000,000 (the Note ),
pursuant to and in accordance with the Note Exchange Agreement dated as of
May 15, 1993 among Assignor, the Borrower and Hanseatic Corporation (the
Note Agreement ); and
WHEREAS, the Borrower's obligations under the Note are secured by
certain Collateral pursuant to the Security Agreement and certain
Mortgages, all as defined in the Note Agreement; and
40
WHEREAS, Assignors wish to assign to the Assignees all of
Assignors rights, title and interest in and to the Note, the Collateral
and the Mortgages, and under the Note Agreement and the Security Agreement,
for the consideration set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
h. Assignment and Assumption. Assignor hereby assigns, sells,
transfers and conveys to the Assignees all of Assignor s rights, title and
interest in and to the Note, the Collateral and the Mortgages, and under
the Note Agreement and the Security Agreement. Each Assignee shall hold a
proportional interest in the Note, the Collateral and the Mortgages and
under the Security Agreement based on the percentage set forth opposite its
or his name on Schedule I hereto. Assignor is delivering the original Note
to the Assignees simultaneously herewith. The Assignees hereby agree to
assume any and all of Assignor s obligations under the Note Agreement and
the Security Agreement that may arise after the date hereof.
i. Other Documentation. Simultaneously herewith, Assignor is
executing and delivering to the collateral agent of the Assignees, CCC
Lending Corporation, for recording and filing with all applicable
authorities, assignments of the Mortgages listed on Schedule II hereto and
Forms UCC-3 with respect to the Collateral (the Security Documents ).
j. Further Assurances. At any time, and from time to time
after the date hereof, Assignor shall, without further consideration,
execute and deliver such additional agreements, instruments, documents or
certificates, and shall take such other action as shall reasonably be
requested by the Assignees in order better to transfer and convey to the
Assignees all of Assignor s rights, title and interest in and to the
Collateral and the Mortgages. In the event that the Borrower makes any
payments to Assignor after the date hereof in respect of the Note, Assignor
shall promptly forward such payments to CCC Lending Corporation, the
collateral agent of the Assignees, at c/o Michael E. Schultz, 2830 Long
Meadow Drive, West Palm Beach, Florida 33414.
k. Consideration. In consideration for Assignor s undertakings
herein, including, without limitation, its making the assignments set forth
in this Agreement and executing and delivering the Security Documents, the
Assignees are paying to Assignor, by wire transfer to Assignor s account,
the sum of (a) $887,544.00, constituting the full principal amount
remaining under the Note, plus (b) $15,989.49, constituting interest
accrued as of the date hereof, plus (c) $14,969.90 constituting certain
fees that are accrued but unpaid with respect to the Note.
l. Representations and Warranties.
i. Each of the Assignor and the Assignees hereby
41
represents and warrants to the other that (i) it has all requisite power
and authority to enter into and to perform this Agreement; (ii) this
Agreement has been duly executed and delivered by it and constitutes its
legal, valid and binding agreement, enforceable against it in accordance
with its terms; (iii) such party's execution, delivery and performance of
this Agreement will not violate the applicable organizational documents of
such party; and (iv) such party's execution, delivery and performance of
this Agreement will not breach of, or constitute a default under, any other
agreement or instrument to which the Assignor or any Assignee, as the case
may be, is a party or by which its assets are bound.
ii. In addition, Assignor hereby represents and warrants to
the Assignees that (i) Assignor has not assigned, sold, transferred,
pledged, hypothecated or otherwise encumbered Assignor's rights under the
Note or in and to the Collateral and the Mortgages, (ii) Assignor has not
agreed to do any of the foregoing with any person or entity other than the
Assignees and (iii) upon consummation of the transactions contemplated
hereby, the Assignees will own all of Assignor s rights, title and interest
in and to the Note, free and clear of any and all liens, claims, charges,
rights or other encumbrances.
iii. The representations and warranties set forth in this
Section 5 shall survive the consummation of the transactions contemplated
hereby.
m. Governing Law. This Agreement shall be construed and
enforced in accordance with laws of the State of New York, without
consideration of principles governing conflicts of law.
n. Entire Agreement. This Agreement, including the Security
Documents, contains a complete statement of all the arrangements between
the parties with respect to the subject matter thereof and supersedes any
previous arrangement or understanding between them relating to the subject-
matter hereof.
IN WITNESS WHEREOF, the Assignors and the Assignees have executed
and delivered this Agreement as of the date first above written.
Assignors:
GUARANTY REASSURANCE COMPANY
By: /S/ Melissa V. Weiler
Name: Melissa V. Weiler
Title: Managing Director
42
Assignees:
/S/ Michael E. Schultz
Michael E. Schultz
MICHAEL E. SCHULTZ DEFINED BENEFIT TRUST
By: /S/ Michael E. Schultz
Michael E. Schultz
Trustee
/S/ Lora K. Schultz
Lora K. Schultz
43
ROGER A. SCHULTZ PENSION PLAN
By: /S/ Roger A. Schultz
Roger A. Schultz
Trustee
/S/ Richard A. Schultz
Richard A. Schultz
EDELMAN VALUE PARTNERS, L.P.
By: A. B. Edelman Management Company, Inc.,
General Partner
By: /S/ Asher B. Edelman
Name:
Title:
EDELMAN VALUE FUND, LTD.
By: /S/ Asher B. Edelman
Name:
Title:
/S/ Maria Megina Mayall Edelman
Maria Regina Mayall Edelman
44
SES TRUST
By: /S/ Sharon E. Sigesmund
Sharon E. Sigesmund
Trustee
SCHEDULE I
Name of Assignee Percentage
Michael E. Schultz 27.03%
Michael E. Schultz Defined Benefit Trust 6.54%
Lora K. Schultz 6.19%
Roger A. Schultz 13.51%
Roger A. Schultz Pension Plan 5.03%
Richard A. Schultz 3.86%
Edelman Value Partners, L.P. 9.46%
Edelman Value Fund, LTD 14.86%
Maria Regina Mayall Edelman 8.11%
SES Trust 5.41%
45
46
SCHEDULE II
Assignment of Mortgage - Minnesota (Schedule II-A attached)
Assignment of Mortgage - Iowa (Schedule II-B attached)
Assignment of Mortgage - South Dakota (Schedule II-C attached)
Schedule II-A
47
ASSIGNMENT OF MORTGAGE - MINNESOTA
As of January 8, 1998, for valuable consideration, Hanseatic
Corporation, having an address at 450 Park Avenue, Suite 2302, New York,
New York 10022 ( Hanseatic ), and Guaranty Reassurance Company, having an
address at 7800 Belfort Parkway, Suite 200, Jacksonville, Florida 32256,
collectively, as Collateral Agent pursuant to that certain Collateral
Agency Agreement dated as of May 15, 1993 (hereafter collectively
Assignor ), as successor in interest to Chemical Bank (formerly known as
Manufacturers Hanover Trust Company) by that First Amendment to Mortgage
dated May 15, 1993, does hereby sell, assign and transfer to CCC Lending
Corporation, a Delaware corporation, all of its right, title and interest
in that certain Mortgage, Assignment, Security Agreement and Financing
Statement dated as of May 15, 1985, made by United Stockyards Corporation
(which by name change became Canal Capital Corporation), a Delaware
corporation, as grantor ( Grantor ) and the Assignor, in its capacity as
Trustee pursuant to that certain Indenture dated as of May 15, 1985, as
amended by a First Supplemental Indenture dated as of April 20, 1988, by
and between Grantor and Chemical Bank, said Mortgage being filed for record
in the Office of the Register of Deeds in and for the County of Dakota,
State of Minnesota on the 31st day of May, 1985, as Document Number 688807.
This assignment is made without recourse or warranty.
The legal description of the property encumbered by the Mortgage is
attached to the Mortgage, portions of which have been released from time to
time.
Hanseatic Corporation Guaranty Reassurance Company
Collateral Agent Collateral Agent
By: Trust Company of the West
Its Investment Advisor
By: Paul Biddelman By: Melissa V. Weiler
Its:President Its:Managing Director
Schedule II-A (cont d)
STATE OF )
) SS.
COUNTY OF )
48
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of Hanseatic Corporation, a New York corporation, on behalf of the
Corporation.
Notary Public
STATE OF )
) SS.
COUNTY OF )
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of the Trust Company of the West, as investment advisor of Guaranty
Reassurance Corporation, a Florida corporation, on behalf of the
Corporation.
Notary Public
Schedule II-B
49
ASSIGNMENT OF MORTGAGE - IOWA
As of January 8, 1998, for valuable consideration, Hanseatic
Corporation, having an address at 450 Park Avenue, Suite 2302, New York,
New York 10022 ( Hanseatic ), and Guaranty Reassurance Company, having an
address at 7800 Belfort Parkway, Suite 200, Jacksonville, Florida 32256,
collectively, as Collateral Agent pursuant to that certain Collateral
Agency Agreement dated as of May 15, 1993 (hereafter collectively
Assignor ), as successor in interest to Chemical Bank (formerly known as
Manufacturers Hanover Trust Company) by that First Amendment to Mortgage
dated May 15, 1993, does hereby sell, assign and transfer to CCC Lending
Corporation, a Delaware corporation, all of its right, title and interest
in that certain Mortgage, Assignment, Security Agreement and Financing
Statement dated as of May 15, 1985, made by United Stockyards Corporation
(which by name change became Canal Capital Corporation), a Delaware
corporation, as grantor ( Grantor ) and the Assignor, in its capacity as
Trustee pursuant to that certain Indenture dated as of May 15, 1985, as
amended by a First Supplemental Indenture dated as of April 20, 1988, by
and between Grantor and Chemical Bank, said Mortgage being filed for record
on the 31st day of May, 1985, on Roll 157, Image 1841 in the Office of the
County Recorder for Woodbury County, Iowa, as amended by that certain First
Amendment to Mortgage - Iowa dated as of May 15, 1993 and filed for record
December 28, 1995 on Roll 340, Image 832 in the Office of the County
Recorder for Woodbury County, Iowa.
This assignment is made without recourse or warranty.
The legal description of the property encumbered by the Mortgage is
attached to the Mortgage, portions of which have been released from time to
time.
Hanseatic Corporation Guaranty Reassurance Company
Collateral Agent Collateral Agent
By: Trust Company of the West
Its Investment Advisor
By: Paul Biddelman By: Melissa V. Weiler
Its:President Its:Managing Director
Schedule II-B (cont d)
STATE OF )
) SS.
50
COUNTY OF )
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of Hanseatic Corporation, a New York corporation, on behalf of the
Corporation.
Notary Public
STATE OF )
) SS.
COUNTY OF )
The foregoing instrument was duly acknowledged before me, a notary
public, by , the
of the Trust Company of the West, as investment advisor of Guaranty
Reassurance Corporation, a Florida corporation, on behalf of the
Corporation.
Notary Public
51
Schedule II-C
ASSIGNMENT OF MORTGAGE - SOUTH DAKOTA
As of January 8, 1998, for valuable consideration, Hanseatic
Corporation, having an address at 450 Park Avenue, Suite 2302, New York,
New York 10022 ( Hanseatic ), and Guaranty Reassurance Company, having an
address at 7800 Belfort Parkway, Suite 200, Jacksonville, Florida 32256,
collectively, as Collateral Agent pursuant to that certain Collateral
Agency Agreement dated as of May 15, 1993 (hereafter collectively
Assignor ), as successor in interest to Chemical Bank (formerly known as
Manufacturers Hanover Trust Company) by that First Amendment to Mortgage
dated May 15, 1993, does hereby sell, assign and transfer to CCC Lending
Corporation, a Delaware corporation, all of its right, title and interest
in that certain Mortgage, Assignment, Security Agreement and Financing
Statement dated as of May 15, 1985, made by United Stockyards Corporation
(which by name change became Canal Capital Corporation), a Delaware
corporation, and Sioux Falls Stockyards Company, a South Dakota
corporation, together as grantor ( Grantor ) and the Assignor, in its
capacity as Trustee pursuant to that certain Indenture dated as of May 15,
1985, by and between Grantor and Chemical Bank, said Mortgage recorded on
May 29, 1985 at 11:10 o clock a.m. in Book 760 of Mortgages on Pages 838-
898 in the Office of the Minnehaha County, South Dakota Register of Deeds.
This assignment is made without recourse or warranty.
The legal description of the property encumbered by the Mortgage is
attached herein as Exhibit A, portions of which have been released from
time to time.
Hanseatic Corporation Guaranty Reassurance Company
Collateral Agent Collateral Agent
By: Trust Company of the West
Its Investment Advisor
By: Paul Biddelman By: Melissa V. Weiler
Its:President Its:Managing Director
CORPORATE SEAL CORPORATE SEAL
Schedule II-C (cont d)
52
STATE OF )
) SS.
COUNTY OF )
On this day of , in the year , before me
personally appeared , known to me to be the
of the corporation that is described in and that
executed the within instruments and acknowledged to me that such
corporation executed the same.
Notary Public -
My commission expires
STATE OF )
) SS.
COUNTY OF )
On this day of , in the year , before me
personally appeared , known to me to be the
of the corporation that is described in and that
executed the within instruments and acknowledged to me that such
corporation executed the same.
Notary Public -
My commission expires
53
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of January 8, 1998, by and among
CANAL CAPITAL CORPORATION, formerly known as United Stockyards Corporation
("Canal Capital"), CANAL GALLERIES CORPORATION ( Canal Galleries ) and
CANAL ARTS CORPORATION ("Canal Arts"; together with Canal Capital and Canal
Galleries, collectively, "Debtor"), a Delaware corporation having an
address at 717 Fifth Avenue, New York, New York 10022, and the parties
listed on Schedule I hereto ( Noteholders ) and CCC LENDING CORPORATION (
"Collateral Agent"), as collateral agent pursuant to that certain
Collateral Agency Agreement of even date herewith.
RECITALS
38. Canal Capital is a party to that certain Indenture (the
"Indenture") dated as of May 15, 1985, between United Stockyards
Corporation (the predecessor-in-interest to Canal Capital) and
Manufacturers Hanover Trust Company, as Trustee ("Trustee"), pursuant to
which Debtor issued its Variable Rate Mortgage Notes (the "MHTC Notes").
39. The indebtedness evidenced by the MHTC Notes (the
"Indebtedness") is secured by certain mortgages of Canal Capital's real
property, each dated as of May 15, 1985, from Canal Capital to Trustee (the
"MHTC Mortgages").
54
40. In connection with a modification of the Indebtedness
described in that certain Note Exchange Agreement dated as of May 15, 1993
(the "1993 Note Exchange Agreement"), the MHTC Notes were amended, restated
and replaced by Amended and Restated Notes (the "1993 Notes") from Canal
Capital to Hanseatic Corporation ( Hanseatic ) and Guaranty Reassurance
Company ( Guaranty ).
41. Canal Capital has issued and outstanding certain other
promissory notes, dated as of September 15, 1995, (the Other Notes ) due
to certain of the Noteholders, secured by certain other Mortgages on Canal
Capital s real property (the Other Mortgages ) and certain other
collateral.
42. In connection with a further modification of the
Indebtedness described in that certain Note Exchange and Loan Agreement of
even date herewith (the Note Exchange Agreement ), the 1993 Notes and the
Other Notes have been amended, restated and replaced by, and a further loan
has been made to Canal Capital to refinance certain existing indebtedness
pursuant to, certain Amended and Restated Notes (the Notes ) from Canal
Capital to the Noteholders (as defined in the Note Exchange Agreement).
43. The Notes are secured by (i) the MHTC Mortgages, which had
been assigned by Trustee to Hanseatic and Guaranty, (ii) by certain
additional mortgages from Canal Capital to Hanseatic and Guaranty
encumbering property of Canal Capital not encumbered by the MHTC Mortgages,
all of which have been assigned by Hanseatic and Guaranty to Collateral
Agent and (iii) by the Other Mortgages (all of the foregoing collectively
the "Mortgages").
44. In connection with the issuance of the Notes, Canal Capital
has pledged certain shares of stock pursuant to a Stock Pledge and Security
Agreement dated the date hereof ( Pledge Agreement ).
45. Canal Arts and Canal Galleries are wholly-owned
subsidiaries of Canal Capital, and are directly benefited by the
modification of the Indebtedness described above.
46. In connection with the 1993 Notes, Debtor agreed to grant to
Hanseatic and Guaranty a security interest in all of the property described
in Part I of Schedule A annexed hereto, together with any substitutions
therefor and proceeds therefrom (the "1993 Collateral") pursuant to a
Security Agreement dated as of May 15, 1993 which security interest has
been assigned to Collateral Agent in connection with the Note Exchange
Agreement.
47. In connection with the Other Notes, Debtor has agreed to
grant certain of the Noteholders a security interest in all of the property
described in Part II of Schedule A, together with any substitutions
therefor and proceeds therefrom (together with the 1993 Collateral, the
Collateral ).
55
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Collateral Agent and Debtor agree as follows:
47.1. As collateral security for the payment, performance and
discharge of the Obligations (as herein after defined), Debtor hereby
pledges, grants, assigns, transfers, and sets over to Collateral Agent and
grants to Collateral Agent a first priority lien on and security interest
in, all of Debtor's rights, title and interest in and to the Collateral,
whether heretofore or hereafter acquired. Debtor further grants to
Collateral Agent full power and authority, in the name of Debtor or
otherwise, to take any action which Collateral Agent may deem necessary or
advisable in connection with effectuating and perfecting the assignment
herein and lien and security interest created hereby, Debtor hereby
irrevocably constituting and appointing Collateral Agent, the true and
lawful attorney-in-fact of Debtor for such purposes, which appointment is
coupled with an interest. This appointment is unconditional and
irrevocable and continuing and these rights, powers and privileges shall be
exclusive in Collateral Agent, its successors and assigns, so long as any
of the Obligations remain unpaid or unperformed.
47.2. This Agreement constitutes a security agreement under
the New York Uniform Commercial Code (the "Code") with respect to the
Collateral for the purposes of Article 9 of the Code. This Agreement and
any photostatic copies hereof may, at the option of Collateral Agent, be
filed in the Department of State of the State of New York, the Office of
the City Register, New York County, and in such other filing offices as
Collateral Agent shall desire to give notice of the lien and security
interest created hereby, Debtor hereby irrevocably constituting and
appointing Collateral Agent the true and lawful attorney-in-fact of Debtor
for such purposes, which appointment is coupled with an interest and is
unconditional and irrevocable. Debtor hereby further authorizes Collateral
Agent to file financing and continuation statements with respect to the
Collateral without the signature of Debtor and, upon request of Collateral
Agent, Debtor shall promptly execute and file at Debtor's expense financing
and continuation statements, in form satisfactory to Collateral Agent to
further evidence and secure Collateral Agent's lien on and security
interest in the Collateral.
47.3. This Agreement is made for the purpose of securing the
following (collectively, the "Obligations"):
(a) The payment by Canal Capital of the principal sum, interest
and indebtedness evidenced by the Notes and any renewal, extension,
refinancing, substitution or reissuance thereof, and all other sums, with
interest thereon, becoming due and payable to or for the benefit of
Collateral Agent under the provisions of this Agreement, the Mortgages, the
Pledge Agreement or any other documents executed in connection with or
securing the Notes (collectively, the "Loan Documents").
56
(b) The performance and discharge of each and every obligation,
covenant and agreement of Debtor contained in this Agreement, the Notes,
the Mortgages, the Pledge Agreement or any other Loan Documents.
47.4. Debtor represents and warrants to Collateral Agent as
follows:
(a) The execution, delivery or performance of this Agreement by
Debtor will not require the consent or approval of, or the registration,
declaration or filing with, any person or entity, which have not been
obtained or completed, or violate or result in a breach of, or constitute a
default under, any applicable law or regulation or any other agreement to
which Debtor is bound. This Agreement has been duly executed by Debtor and
constitutes a valid, legal and binding obligation of Debtor enforceable
against the Debtor in accordance with its terms.
(b) Canal Arts is the sole owner of record, legal and beneficial
title to the Collateral, free and clear of all liens, claims, options,
charges, pledges and encumbrances, other than the liens and security
interest created pursuant to this Agreement.
(c) Debtor shall immediately notify Collateral Agent of any
actual or contemplated change in the principal place of business of Debtor,
of the establishment of any additional place of business of Debtor or of
any change of name of Debtor, and shall promptly, upon demand of Collateral
Agent, execute and file, at Debtor's expense all financing statements and
other documents and instruments requested by Collateral Agent so that any
such change in or other establishment of place of business or change of
name of Debtor shall not adversely affect the lien on or security interest
in the Collateral.
47.5. Debtor hereby covenants with Collateral Agent as
follows:
(a) Debtor will not, nor will it, consent, agree or commit
itself to, sell, assign, transfer, convey, pledge, delegate, grant any
option with respect to, grant a security interest in, or otherwise dispose
of or encumber in any other manner, or permit, agree or commit itself to
permit, any such sale, assignment, transfer, conveyance, pledge, grant,
delegation, disposition or encumbrance of, all or any portion of the
Collateral or any beneficial or other interest therein. In the event of
the sale, exchange or other disposition of the Collateral, or any portion
thereof or any interest therein, in violation of this Agreement (and no
such sale, exchange or other disposition is hereby authorized or consented
to), the lien and security interest of Collateral Agent shall nevertheless
continue in said Collateral (including, without limitation, all proceeds
therefrom). Notwithstanding said sale, exchange or other disposition; all
of said proceeds shall remain Collateral hereunder and shall be transferred
and paid over to Collateral Agent immediately following said sale,
exchange, or other disposition and shall be applied in accordance with the
provisions of Section 9 hereof; and the receipt by Collateral Agent of all
or any part of said proceeds shall not be deemed or construed to be an
57
authorization or consent of Collateral Agent to such sale, exchange or
other disposition of said Collateral or a waiver of any breach resulting
therefrom of this Agreement.
(b) Debtor will furnish promptly to Collateral Agent such
information as shall reasonably be requested by Collateral Agent in
connection with the Collateral of the performance by Debtor of the
Obligations, or required for effectuating the rights and benefits of
Collateral Agent herein.
(c) From and after the date hereof, Debtor agrees to maintain
the Collateral in at least as good condition as it is on the date hereof.
Debtor will not move all or any portion of the Collateral from its present
locations, which locations are indicated on Schedule A annexed hereto. At
all times during the terms of this Security Agreement, Debtor will comply
with the terms of conditions of all applicable insurance policies
maintained hereunder; and Debtor will not taken any action, or suffer or
permit any action to be taken by any person or persons (other than
Collateral Agent and its officers and agents), which is in violation of any
provision thereof, including, without limitation, any provision relating to
the maintenance, storage or use of the Collateral, the protection of same,
the condition or use of the premises where same is located, or any other
provision which would affect the amount of recovery hereunder in the event
of any loss or damage to the Collateral.
(d) From and after the date hereof, Maker agrees to maintain
Fine Art All Risk insurance on the Collateral, with a deductible not in
excess of $5,000, at all times at least equal to the outstanding principal
amount of the Notes plus accrued but unpaid interest. Such insurance shall
be written only by insurance companies licensed to do business in New York
having an A.M. Best's rating of "A" or better. Debtor agrees to provide
Collateral Agent with a valid Certificate of Insurance in form and
substance reasonably satisfactory to Collateral Agent naming Collateral
Agent or its assignee as loss payee under the insurance policy, which
policy shall not be cancelable by the insurance company without at least 30
days' prior written notice to Collateral Agent and providing that
Collateral Agent shall be notified by the insurance company of the payment
or non-payment of the premiums in respect of the insurance policy. Debtor
agrees not to cancel any such insurance policy without at least 60 days'
prior written notice to Collateral Agent and obtaining a substitute
insurance policy that satisfies the terms provided herein. In the event of
an Event of Default, Debtor agrees to maintain insurance in accordance with
the provisions herein, regardless of whether Debtor or Collateral Agent is
in possession of the Collateral.
47.6. The occurrence of any one or more of the following
events shall constitute an "Event of Default" under this Agreement:
(a) Any default beyond applicable grace or cure periods, if any,
shall occur under the Notes, the Mortgages, the Pledge Agreement or any
other Loan Document; or
58
(b) Debtor shall fail to perform any Obligation or fail to
observe any of the provisions contained in this Agreement or breach any
covenant or agreement made or given by Debtor herein; or
(c) Any representation or warranty made by or on behalf of
Debtor herein or otherwise in writing shall prove to have been false or
incorrect in any material respect; or
(d) Debtor shall file a voluntary petition seeking an order for
relief under Title 11 of the United States Code, or Debtor shall be
adjudicated a debtor, bankrupt or insolvent, or shall file any petition or
answer seeking, consenting to or acquiescing in any order for relief,
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future general
bankruptcy act or any other present or future applicable federal, state or
other statute or law (foreign or domestic), or shall file an answer
admitting or failing to deny the material allegations in a petition against
it for any such relief, or shall admit in writing its inability to pay its
debts as they mature, or shall make an assignment for the benefit of
creditors or shall seek or consent or acquiesce in the appointment of any
trustee, receiver, examiner, sequestrator, custodian or liquidator or
similar official of Debtor or of all or any portion of the Collateral; or
if, within sixty (60) days after the commencement of any proceeding against
Debtor, whether by the filing of a petition or otherwise, seeking any order
for relief, reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
federal bankruptcy act or any other present or future applicable federal,
state or other statute or law (foreign or domestic), such proceeding shall
not have been dismissed, or if, within sixty (60) days after the
appointment of any trustee, receiver or liquidator of Debtor or of all or
any part of the Collateral, without the consent or acquiescence of Debtor,
such appointment shall not have been vacated or otherwise discharged, or if
any execution or attachment shall be issued against Debtor or all or any
portion of the Collateral.
47.7. Upon the occurrence of an Event of Default, or at any
time thereafter, and in each and every such case, unless such Event of
Default shall have been remedied or waived by Collateral Agent by written
notice given in accordance with the provisions hereof, then all of the
Obligations shall become immediately due and payable without notice,
presentment or demand, each of which is hereby waived by Debtor, and
Collateral Agent shall be entitled to any and all rights, recourse and
remedies available to it at law, in equity or by statute, or pursuant to
this Agreement and any other Loan Document, including, without limitation,
all rights and remedies available to a secured party under the Code. In
furtherance, and not in limitation of the foregoing, Collateral Agent shall
have the following rights and remedies upon the occurrence of an Event of
Default:
(a) Collateral Agent may, without being required to give any
notice, demand or advertisement, except to the extent specifically set
forth herein, take possession of and sell all or any portion of the
Collateral at public or private sale in New York City or elsewhere, as
Collateral Agent shall determine, for cash, upon credit or for future
59
delivery and at such price or prices as Collateral Agent may deem
satisfactory, and, subject to compliance with applicable law, Collateral
Agent may be the purchaser of any or all of the Collateral sold. Upon any
such sale, Collateral Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold and Debtor, to the
extent permitted by applicable law, hereby specifically waives all rights
of redemption, stay or appraisal which it may have with respect to the
Collateral under any rule of law or statute now existing or hereafter
adopted. At any such sale Collateral Agent may, in its discretion,
restrict the prospective bidders or purchasers to persons who will
represent and warrant that they are acquiring the Collateral, or any
portion thereof, for their own account, for investment only and not with a
view toward the resale or distribution thereof and who will make such
further representations and warranties as Collateral Agent may, in its
discretion, deem necessary or desirable to assure Collateral Agent that
such prospective bidders or purchasers are, with respect to the applicable
Federal and state securities laws, regulations and rules, suitable bidders
or purchasers of such Collateral, which restrictions as to prospective
bidders or purchasers the parties agree are commercially reasonable. If
notice of sale of all or any portion of the Collateral hereunder is
required by law, the parties agree that written notice mailed to Debtor ten
(10) business days prior to the date of public sale of the Collateral or
ten (10) business days prior to the date after which a private sale or any
other disposition of the Collateral is intended to be made shall constitute
reasonable notice (all other notices, demands or advertisements of any kind
being hereby expressly waived), but notice given in any other reasonable
manner or at any other reasonable time shall be sufficient. Collateral
Agent shall not be obligated to make any sale or other disposition pursuant
to any notice thereof, and without notice or publication, adjourn any
public or private sale or other disposition or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
the sale or other disposition, and such sale or other disposition may be
made at any time or place to which the same may be so adjourned. In case
of any sale or other disposition of all or any part of the Collateral on
credit or for further delivery, the Collateral so sold or disposed of may
be retained by Collateral Agent until the selling price is paid by the
purchaser thereof, but Collateral Agent shall not incur any liability in
case of the failure of such purchaser to pay for the Collateral so sold or
disposed of, and, in case of any such failure, such Collateral may again be
sold or disposed of upon like notice and pursuant to the provisions hereof.
Collateral Agent shall have no duty as to the collection or protection of
the Collateral or any income thereon or as to the preservation of any
rights pertaining thereto.
(b) Collateral Agent, instead of exercising the power of sale
herein conferred upon it may, at its option, proceed by a suit or suits at
law or in equity to foreclose the security interest and sell all or any
portion of the Collateral under a judgment or decree of a court or courts
of competent jurisdiction, or may bring an action on any Obligation and
obtain and enforce a judgment thereon, with or without first or
simultaneously foreclosing, judicially or non-judicially, on the
Collateral.
(c) Collateral Agent, as attorney-in-fact, may, in the name and
stead of Debtor, make and execute all conveyances, agreement and transfers
of the Collateral sold pursuant to this Section 9 which Collateral Agent
60
shall deem advisable, and Debtor hereby ratifies and confirms all such acts
taken by Debtor as such attorney-in-fact. Notwithstanding the foregoing,
Debtor shall, if so requested by Collateral Agent, ratify and confirm any
sale or sales by executing and delivering to Collateral Agent, or to any
purchaser or purchasers of the Collateral sold, all such instruments as
may, in the reasonable judgment of Collateral Agent, be advisable for such
purpose.
(d) Debtor shall be liable for all costs and expenses
(including, without limitation, reasonable attorneys' fees, disbursements
and legal expenses) incurred by Collateral Agent in enforcing any of the
rights or remedies of Collateral Agent provided for in this Agreement, at
law, in equity or by statute, and the amount thereof shall be deemed part
of the Obligations and payment thereof shall be secured by the Collateral.
If the proceeds of the sale or other disposition of the Collateral are
insufficient to cover the costs and expenses (including, without
limitation, reasonable attorneys' fees, disbursements and legal expenses)
of such sale or other disposition and to pay in full the amount of the
Obligations, Debtor shall remain liable for any such deficiency.
(e) The proceeds of any sale or other disposition of all or any
portion of the Collateral under this Agreement shall be applied by
Collateral Agent in the following order of priority:
First, to the payment of all costs and expenses (including,
without limitation, reasonable attorneys' fees, disbursements and
legal expenses) of such sale or other disposition;
Second, to the payment of the amounts (other than principal and
interest) due and payable under the Notes, the Mortgages and the
other Obligations;
Third, to the payment of interest due on the Notes;
Fourth, to the payment of the principal of the Notes;
Fifth, subject to the provisions of Section 9-504(c) of the Code,
to the payment of any indebtedness, lien or encumbrance affecting
such Collateral which is subordinate to the lien created hereby;
and
Finally, the balance, if any, to Debtor or as a court of
competent jurisdiction may direct.
47.8. Debtor waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended,
collateral received or delivered or other action taken in reliance hereon
and all other notices of any description.
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47.9. Debtor, at its expense, will execute and deliver all
such instruments, agreements and other document, and take all such actions,
as Collateral Agent, from time to time, may reasonably request in order to
obtain the full benefits of this Agreement and the rights and powers herein
created. Debtor hereby constitutes and appoints Collateral Agent its true
and lawful attorney-in-fact, coupled with an interest, and in the name,
place and stead of Debtor, to execute and file any instrument, agreement or
other document required to be executed or filed by Debtor pursuant to this
Agreement (including, without limitation, any instrument assigning,
transferring or conveying all or any portion of the Collateral). This
appointment is unconditional and irrevocable and continuing and these
rights, power and privileges shall be exclusive in Collateral Agent, its
successors and assigns, so long as any of the Obligations remain
unsatisfied or any part of the indebtedness secured hereby shall remain
unpaid.
47.10. No delay or omission by Collateral Agent in insisting
upon the strict observance or performance of any provision of this
Agreement, or in exercising any right or remedy, shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right
or remedy.
47.11. This Agreement is given as security in addition to the
security of the other documents executed in connection herewith. All
rights and remedies herein conferred may be exercised whether or not any
proceedings of any nature are pending under any of such other documents.
Collateral Agent shall not be required to resort first to the security of
this Agreement or any of such other documents before resorting to the
security of the other such documents and Debtor may exercise the security
hereof or thereof concurrently or independently and in any order or
preference. The rights and remedies set forth herein are cumulative and in
addition to, and not in lieu of, any other rights and remedies to which
Collateral Agent may be entitled, whether under any such other document, at
law or in equity.
47.12. This Agreement shall terminate upon payment in full and
performance and discharge of all of the Obligations, Collateral Agent at
Debtor's expense, will execute and deliver such instruments as Debtor may
reasonably request to evidence such termination.
47.13. Except as otherwise specifically provided herein, all
notices, election, approvals, requests, demands and other communications
permitted or required to be made or given hereunder (collectively,
"notices") shall be in writing, signed by the party giving such notice and
shall be sufficiently given only when (x) sent by registered or certified
mail, postage prepaid, return receipt requested, to the party for which
such notice is intended at the address set forth below or at such other or
additional address as may be designated by notice given in conformity with
the terms of this Section 13, (y) delivered by hand, or tendered for
delivery by hand, at such address, or (z) sent to such address by way of a
recognized commercial overnight delivery service, and notices shall be
effectively given only if received at such address by, or tendered for
receipt to, a person who is or who reasonably appears to be authorized to
receive written communications on behalf of the party to which the notice
62
is directed. The present notice addresses of the parties are as follows:
(i) for Collateral Agent: CCC Lending Corporation c/o Michael E. Schultz,
2830 Long Meadow Drive, West Palm Beach, Florida 33414 and (ii) for
Debtor: 717 Fifth Avenue, New York, New York, 10022, Attention: Gerald
Agranoff.
47.14. This Agreement shall be governed by and construed in
accordance with, the laws of the State of New York governing contracts made
and performed in the State of New York, without regard to principles of
conflicts of law.
47.15. This Agreement shall be binding upon Debtor, its
successors and assigns, and shall inure to the benefit of Collateral Agent,
their respective successors and assigns (including each subsequent holder
of the Notes, whether or not an express assignment to such holder of rights
under this Agreement shall have been made).
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IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly
executed as of the 8th day of January, 1998.
CANAL ARTS CORPORATION, CANAL CAPITAL CORPORATION,
Debtor Debtor
By: /S/ Reginald Schauder By: /S/ Reginald Schauder
Vice President - Finance Vice President - Finance
CANAL GALLERIES CORPORATION, CCC LENDING CORPORATION,
Debtor as Collateral Agent
By: /S/ Reginald Schauder By: /S/ Michael E.
Schultz
Vice President - Finance President
64
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this ___ day of January, 1998, before me personally appeared
Reginald Schauder to me known, who being by me duly sworn, did depose and
say that he is the Vice President of each of Canal Capital Corporation,
Canal Galleries Corporation and Canal Arts Corporation, the corporations
described in and which executed the foregoing instrument, and he
acknowledged that he executed the same by order of the board of directors
of such corporation.
Notary Public
My commission expires on
STATE OF _____________ )
) SS.:
COUNTY OF ___________ )
On this ___ day of January, 1998, before me personally appeared
Michael E. Schultz, to me known, who being by me duly sworn, did depose and
say that he is President of CCC Lending Corporation, the corporation
described in and which executed the above instrument; and that he signed
his name thereto by order of the board of directors of said corporation.
Notary Public
My commission expires on
65
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of January 8, 1998, by and among
CANAL CAPITAL CORPORATION, formerly known as United Stockyards Corporation
("Canal Capital"), CANAL GALLERIES CORPORATION ( Canal Galleries ) and
CANAL ARTS CORPORATION ("Canal Arts"; together with Canal Capital and Canal
Galleries, collectively, "Debtor"), a Delaware corporation having an
address at 717 Fifth Avenue, New York, New York 10022, and the parties
listed on Schedule I hereto ( Noteholders ) and CCC LENDING CORPORATION (
"Collateral Agent"), as collateral agent pursuant to that certain
Collateral Agency Agreement of even date herewith.
RECITALS
48. Canal Capital is a party to that certain Indenture (the
"Indenture") dated as of May 15, 1985, between United Stockyards
Corporation (the predecessor-in-interest to Canal Capital) and
Manufacturers Hanover Trust Company, as Trustee ("Trustee"), pursuant to
which Debtor issued its Variable Rate Mortgage Notes (the "MHTC Notes").
49. The indebtedness evidenced by the MHTC Notes (the
"Indebtedness") is secured by certain mortgages of Canal Capital's real
property, each dated as of May 15, 1985, from Canal Capital to Trustee (the
"MHTC Mortgages").
50. In connection with a modification of the Indebtedness
described in that certain Note Exchange Agreement dated as of May 15, 1993
(the "1993 Note Exchange Agreement"), the MHTC Notes were amended, restated
and replaced by Amended and Restated Notes (the "1993 Notes") from Canal
Capital to Hanseatic Corporation ( Hanseatic ) and Guaranty Reassurance
Company ( Guaranty ).
51. Canal Capital has issued and outstanding certain other
promissory notes, dated as of September 15, 1995, (the Other Notes ) due
to certain of the Noteholders, secured by certain other Mortgages on Canal
Capital s real property (the Other Mortgages ) and certain other
collateral.
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52. In connection with a further modification of the
Indebtedness described in that certain Note Exchange and Loan Agreement of
even date herewith (the Note Exchange Agreement ), the 1993 Notes and the
Other Notes have been amended, restated and replaced by, and a further loan
has been made to Canal Capital to refinance certain existing indebtedness
pursuant to, certain Amended and Restated Notes (the Notes ) from Canal
Capital to the Noteholders (as defined in the Note Exchange Agreement).
53. The Notes are secured by (i) the MHTC Mortgages, which had
been assigned by Trustee to Hanseatic and Guaranty, (ii) by certain
additional mortgages from Canal Capital to Hanseatic and Guaranty
encumbering property of Canal Capital not encumbered by the MHTC Mortgages,
all of which have been assigned by Hanseatic and Guaranty to Collateral
Agent and (iii) by the Other Mortgages (all of the foregoing collectively
the "Mortgages").
54. In connection with the issuance of the Notes, Canal Capital
has pledged certain shares of stock pursuant to a Stock Pledge and Security
Agreement dated the date hereof ( Pledge Agreement ).
55. Canal Arts and Canal Galleries are wholly-owned
subsidiaries of Canal Capital, and are directly benefited by the
modification of the Indebtedness described above.
56. In connection with the 1993 Notes, Debtor agreed to grant to
Hanseatic and Guaranty a security interest in all of the property described
in Part I of Schedule A annexed hereto, together with any substitutions
therefor and proceeds therefrom (the "1993 Collateral") pursuant to a
Security Agreement dated as of May 15, 1993 which security interest has
been assigned to Collateral Agent in connection with the Note Exchange
Agreement.
57. In connection with the Other Notes, Debtor has agreed to
grant certain of the Noteholders a security interest in all of the property
described in Part II of Schedule A, together with any substitutions
therefor and proceeds therefrom (together with the 1993 Collateral, the
Collateral ).
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Collateral Agent and Debtor agree as follows:
57.1. As collateral security for the payment, performance and
discharge of the Obligations (as herein after defined), Debtor hereby
pledges, grants, assigns, transfers, and sets over to Collateral Agent and
grants to Collateral Agent a first priority lien on and security interest
67
in, all of Debtor's rights, title and interest in and to the Collateral,
whether heretofore or hereafter acquired. Debtor further grants to
Collateral Agent full power and authority, in the name of Debtor or
otherwise, to take any action which Collateral Agent may deem necessary or
advisable in connection with effectuating and perfecting the assignment
herein and lien and security interest created hereby, Debtor hereby
irrevocably constituting and appointing Collateral Agent, the true and
lawful attorney-in-fact of Debtor for such purposes, which appointment is
coupled with an interest. This appointment is unconditional and
irrevocable and continuing and these rights, powers and privileges shall be
exclusive in Collateral Agent, its successors and assigns, so long as any
of the Obligations remain unpaid or unperformed.
57.2. This Agreement constitutes a security agreement under
the New York Uniform Commercial Code (the "Code") with respect to the
Collateral for the purposes of Article 9 of the Code. This Agreement and
any photostatic copies hereof may, at the option of Collateral Agent, be
filed in the Department of State of the State of New York, the Office of
the City Register, New York County, and in such other filing offices as
Collateral Agent shall desire to give notice of the lien and security
interest created hereby, Debtor hereby irrevocably constituting and
appointing Collateral Agent the true and lawful attorney-in-fact of Debtor
for such purposes, which appointment is coupled with an interest and is
unconditional and irrevocable. Debtor hereby further authorizes Collateral
Agent to file financing and continuation statements with respect to the
Collateral without the signature of Debtor and, upon request of Collateral
Agent, Debtor shall promptly execute and file at Debtor's expense financing
and continuation statements, in form satisfactory to Collateral Agent to
further evidence and secure Collateral Agent's lien on and security
interest in the Collateral.
57.3. This Agreement is made for the purpose of securing the
following (collectively, the "Obligations"):
(a) The payment by Canal Capital of the principal sum, interest
and indebtedness evidenced by the Notes and any renewal, extension,
refinancing, substitution or reissuance thereof, and all other sums, with
interest thereon, becoming due and payable to or for the benefit of
Collateral Agent under the provisions of this Agreement, the Mortgages, the
Pledge Agreement or any other documents executed in connection with or
securing the Notes (collectively, the "Loan Documents").
(b) The performance and discharge of each and every obligation,
covenant and agreement of Debtor contained in this Agreement, the Notes,
the Mortgages, the Pledge Agreement or any other Loan Documents.
57.4. Debtor represents and warrants to Collateral Agent as
follows:
(a) The execution, delivery or performance of this Agreement by
Debtor will not require the consent or approval of, or the registration,
declaration or filing with, any person or entity, which have not been
68
obtained or completed, or violate or result in a breach of, or constitute a
default under, any applicable law or regulation or any other agreement to
which Debtor is bound. This Agreement has been duly executed by Debtor and
constitutes a valid, legal and binding obligation of Debtor enforceable
against the Debtor in accordance with its terms.
(b) Canal Arts is the sole owner of record, legal and beneficial
title to the Collateral, free and clear of all liens, claims, options,
charges, pledges and encumbrances, other than the liens and security
interest created pursuant to this Agreement.
(c) Debtor shall immediately notify Collateral Agent of any
actual or contemplated change in the principal place of business of Debtor,
of the establishment of any additional place of business of Debtor or of
any change of name of Debtor, and shall promptly, upon demand of Collateral
Agent, execute and file, at Debtor's expense all financing statements and
other documents and instruments requested by Collateral Agent so that any
such change in or other establishment of place of business or change of
name of Debtor shall not adversely affect the lien on or security interest
in the Collateral.
57.5. Debtor hereby covenants with Collateral Agent as
follows:
(a) Debtor will not, nor will it, consent, agree or commit
itself to, sell, assign, transfer, convey, pledge, delegate, grant any
option with respect to, grant a security interest in, or otherwise dispose
of or encumber in any other manner, or permit, agree or commit itself to
permit, any such sale, assignment, transfer, conveyance, pledge, grant,
delegation, disposition or encumbrance of, all or any portion of the
Collateral or any beneficial or other interest therein. In the event of
the sale, exchange or other disposition of the Collateral, or any portion
thereof or any interest therein, in violation of this Agreement (and no
such sale, exchange or other disposition is hereby authorized or consented
to), the lien and security interest of Collateral Agent shall nevertheless
continue in said Collateral (including, without limitation, all proceeds
therefrom). Notwithstanding said sale, exchange or other disposition; all
of said proceeds shall remain Collateral hereunder and shall be transferred
and paid over to Collateral Agent immediately following said sale,
exchange, or other disposition and shall be applied in accordance with the
provisions of Section 9 hereof; and the receipt by Collateral Agent of all
or any part of said proceeds shall not be deemed or construed to be an
authorization or consent of Collateral Agent to such sale, exchange or
other disposition of said Collateral or a waiver of any breach resulting
therefrom of this Agreement.
(b) Debtor will furnish promptly to Collateral Agent such
information as shall reasonably be requested by Collateral Agent in
connection with the Collateral of the performance by Debtor of the
Obligations, or required for effectuating the rights and benefits of
Collateral Agent herein.
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(c) From and after the date hereof, Debtor agrees to maintain
the Collateral in at least as good condition as it is on the date hereof.
Debtor will not move all or any portion of the Collateral from its present
locations, which locations are indicated on Schedule A annexed hereto. At
all times during the terms of this Security Agreement, Debtor will comply
with the terms of conditions of all applicable insurance policies
maintained hereunder; and Debtor will not taken any action, or suffer or
permit any action to be taken by any person or persons (other than
Collateral Agent and its officers and agents), which is in violation of any
provision thereof, including, without limitation, any provision relating to
the maintenance, storage or use of the Collateral, the protection of same,
the condition or use of the premises where same is located, or any other
provision which would affect the amount of recovery hereunder in the event
of any loss or damage to the Collateral.
(d) From and after the date hereof, Maker agrees to maintain
Fine Art All Risk insurance on the Collateral, with a deductible not in
excess of $5,000, at all times at least equal to the outstanding principal
amount of the Notes plus accrued but unpaid interest. Such insurance shall
be written only by insurance companies licensed to do business in New York
having an A.M. Best's rating of "A" or better. Debtor agrees to provide
Collateral Agent with a valid Certificate of Insurance in form and
substance reasonably satisfactory to Collateral Agent naming Collateral
Agent or its assignee as loss payee under the insurance policy, which
policy shall not be cancelable by the insurance company without at least 30
days' prior written notice to Collateral Agent and providing that
Collateral Agent shall be notified by the insurance company of the payment
or non-payment of the premiums in respect of the insurance policy. Debtor
agrees not to cancel any such insurance policy without at least 60 days'
prior written notice to Collateral Agent and obtaining a substitute
insurance policy that satisfies the terms provided herein. In the event of
an Event of Default, Debtor agrees to maintain insurance in accordance with
the provisions herein, regardless of whether Debtor or Collateral Agent is
in possession of the Collateral.
57.6. The occurrence of any one or more of the following
events shall constitute an "Event of Default" under this Agreement:
(a) Any default beyond applicable grace or cure periods, if any,
shall occur under the Notes, the Mortgages, the Pledge Agreement or any
other Loan Document; or
(b) Debtor shall fail to perform any Obligation or fail to
observe any of the provisions contained in this Agreement or breach any
covenant or agreement made or given by Debtor herein; or
(c) Any representation or warranty made by or on behalf of
Debtor herein or otherwise in writing shall prove to have been false or
incorrect in any material respect; or
(d) Debtor shall file a voluntary petition seeking an order for
relief under Title 11 of the United States Code, or Debtor shall be
70
adjudicated a debtor, bankrupt or insolvent, or shall file any petition or
answer seeking, consenting to or acquiescing in any order for relief,
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future general
bankruptcy act or any other present or future applicable federal, state or
other statute or law (foreign or domestic), or shall file an answer
admitting or failing to deny the material allegations in a petition against
it for any such relief, or shall admit in writing its inability to pay its
debts as they mature, or shall make an assignment for the benefit of
creditors or shall seek or consent or acquiesce in the appointment of any
trustee, receiver, examiner, sequestrator, custodian or liquidator or
similar official of Debtor or of all or any portion of the Collateral; or
if, within sixty (60) days after the commencement of any proceeding against
Debtor, whether by the filing of a petition or otherwise, seeking any order
for relief, reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
federal bankruptcy act or any other present or future applicable federal,
state or other statute or law (foreign or domestic), such proceeding shall
not have been dismissed, or if, within sixty (60) days after the
appointment of any trustee, receiver or liquidator of Debtor or of all or
any part of the Collateral, without the consent or acquiescence of Debtor,
such appointment shall not have been vacated or otherwise discharged, or if
any execution or attachment shall be issued against Debtor or all or any
portion of the Collateral.
57.7. Upon the occurrence of an Event of Default, or at any
time thereafter, and in each and every such case, unless such Event of
Default shall have been remedied or waived by Collateral Agent by written
notice given in accordance with the provisions hereof, then all of the
Obligations shall become immediately due and payable without notice,
presentment or demand, each of which is hereby waived by Debtor, and
Collateral Agent shall be entitled to any and all rights, recourse and
remedies available to it at law, in equity or by statute, or pursuant to
this Agreement and any other Loan Document, including, without limitation,
all rights and remedies available to a secured party under the Code. In
furtherance, and not in limitation of the foregoing, Collateral Agent shall
have the following rights and remedies upon the occurrence of an Event of
Default:
(a) Collateral Agent may, without being required to give any
notice, demand or advertisement, except to the extent specifically set
forth herein, take possession of and sell all or any portion of the
Collateral at public or private sale in New York City or elsewhere, as
Collateral Agent shall determine, for cash, upon credit or for future
delivery and at such price or prices as Collateral Agent may deem
satisfactory, and, subject to compliance with applicable law, Collateral
Agent may be the purchaser of any or all of the Collateral sold. Upon any
such sale, Collateral Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold and Debtor, to the
extent permitted by applicable law, hereby specifically waives all rights
of redemption, stay or appraisal which it may have with respect to the
Collateral under any rule of law or statute now existing or hereafter
adopted. At any such sale Collateral Agent may, in its discretion,
restrict the prospective bidders or purchasers to persons who will
represent and warrant that they are acquiring the Collateral, or any
portion thereof, for their own account, for investment only and not with a
71
view toward the resale or distribution thereof and who will make such
further representations and warranties as Collateral Agent may, in its
discretion, deem necessary or desirable to assure Collateral Agent that
such prospective bidders or purchasers are, with respect to the applicable
Federal and state securities laws, regulations and rules, suitable bidders
or purchasers of such Collateral, which restrictions as to prospective
bidders or purchasers the parties agree are commercially reasonable. If
notice of sale of all or any portion of the Collateral hereunder is
required by law, the parties agree that written notice mailed to Debtor ten
(10) business days prior to the date of public sale of the Collateral or
ten (10) business days prior to the date after which a private sale or any
other disposition of the Collateral is intended to be made shall constitute
reasonable notice (all other notices, demands or advertisements of any kind
being hereby expressly waived), but notice given in any other reasonable
manner or at any other reasonable time shall be sufficient. Collateral
Agent shall not be obligated to make any sale or other disposition pursuant
to any notice thereof, and without notice or publication, adjourn any
public or private sale or other disposition or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
the sale or other disposition, and such sale or other disposition may be
made at any time or place to which the same may be so adjourned. In case
of any sale or other disposition of all or any part of the Collateral on
credit or for further delivery, the Collateral so sold or disposed of may
be retained by Collateral Agent until the selling price is paid by the
purchaser thereof, but Collateral Agent shall not incur any liability in
case of the failure of such purchaser to pay for the Collateral so sold or
disposed of, and, in case of any such failure, such Collateral may again be
sold or disposed of upon like notice and pursuant to the provisions hereof.
Collateral Agent shall have no duty as to the collection or protection of
the Collateral or any income thereon or as to the preservation of any
rights pertaining thereto.
(b) Collateral Agent, instead of exercising the power of sale
herein conferred upon it may, at its option, proceed by a suit or suits at
law or in equity to foreclose the security interest and sell all or any
portion of the Collateral under a judgment or decree of a court or courts
of competent jurisdiction, or may bring an action on any Obligation and
obtain and enforce a judgment thereon, with or without first or
simultaneously foreclosing, judicially or non-judicially, on the
Collateral.
(c) Collateral Agent, as attorney-in-fact, may, in the name and
stead of Debtor, make and execute all conveyances, agreement and transfers
of the Collateral sold pursuant to this Section 9 which Collateral Agent
shall deem advisable, and Debtor hereby ratifies and confirms all such acts
taken by Debtor as such attorney-in-fact. Notwithstanding the foregoing,
Debtor shall, if so requested by Collateral Agent, ratify and confirm any
sale or sales by executing and delivering to Collateral Agent, or to any
purchaser or purchasers of the Collateral sold, all such instruments as
may, in the reasonable judgment of Collateral Agent, be advisable for such
purpose.
(d) Debtor shall be liable for all costs and expenses
(including, without limitation, reasonable attorneys' fees, disbursements
and legal expenses) incurred by Collateral Agent in enforcing any of the
72
rights or remedies of Collateral Agent provided for in this Agreement, at
law, in equity or by statute, and the amount thereof shall be deemed part
of the Obligations and payment thereof shall be secured by the Collateral.
If the proceeds of the sale or other disposition of the Collateral are
insufficient to cover the costs and expenses (including, without
limitation, reasonable attorneys' fees, disbursements and legal expenses)
of such sale or other disposition and to pay in full the amount of the
Obligations, Debtor shall remain liable for any such deficiency.
(e) The proceeds of any sale or other disposition of all or any
portion of the Collateral under this Agreement shall be applied by
Collateral Agent in the following order of priority:
First, to the payment of all costs and expenses (including,
without limitation, reasonable attorneys' fees, disbursements and
legal expenses) of such sale or other disposition;
Second, to the payment of the amounts (other than principal and
interest) due and payable under the Notes, the Mortgages and the
other Obligations;
Third, to the payment of interest due on the Notes;
Fourth, to the payment of the principal of the Notes;
Fifth, subject to the provisions of Section 9-504(c) of the Code,
to the payment of any indebtedness, lien or encumbrance affecting
such Collateral which is subordinate to the lien created hereby;
and
Finally, the balance, if any, to Debtor or as a court of
competent jurisdiction may direct.
57.8. Debtor waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended,
collateral received or delivered or other action taken in reliance hereon
and all other notices of any description.
57.9. Debtor, at its expense, will execute and deliver all
such instruments, agreements and other document, and take all such actions,
as Collateral Agent, from time to time, may reasonably request in order to
obtain the full benefits of this Agreement and the rights and powers herein
created. Debtor hereby constitutes and appoints Collateral Agent its true
and lawful attorney-in-fact, coupled with an interest, and in the name,
place and stead of Debtor, to execute and file any instrument, agreement or
other document required to be executed or filed by Debtor pursuant to this
Agreement (including, without limitation, any instrument assigning,
transferring or conveying all or any portion of the Collateral). This
appointment is unconditional and irrevocable and continuing and these
73
rights, power and privileges shall be exclusive in Collateral Agent, its
successors and assigns, so long as any of the Obligations remain
unsatisfied or any part of the indebtedness secured hereby shall remain
unpaid.
57.10. No delay or omission by Collateral Agent in insisting
upon the strict observance or performance of any provision of this
Agreement, or in exercising any right or remedy, shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right
or remedy.
57.11. This Agreement is given as security in addition to the
security of the other documents executed in connection herewith. All
rights and remedies herein conferred may be exercised whether or not any
proceedings of any nature are pending under any of such other documents.
Collateral Agent shall not be required to resort first to the security of
this Agreement or any of such other documents before resorting to the
security of the other such documents and Debtor may exercise the security
hereof or thereof concurrently or independently and in any order or
preference. The rights and remedies set forth herein are cumulative and in
addition to, and not in lieu of, any other rights and remedies to which
Collateral Agent may be entitled, whether under any such other document, at
law or in equity.
57.12. This Agreement shall terminate upon payment in full and
performance and discharge of all of the Obligations, Collateral Agent at
Debtor's expense, will execute and deliver such instruments as Debtor may
reasonably request to evidence such termination.
57.13. Except as otherwise specifically provided herein, all
notices, election, approvals, requests, demands and other communications
permitted or required to be made or given hereunder (collectively,
"notices") shall be in writing, signed by the party giving such notice and
shall be sufficiently given only when (x) sent by registered or certified
mail, postage prepaid, return receipt requested, to the party for which
such notice is intended at the address set forth below or at such other or
additional address as may be designated by notice given in conformity with
the terms of this Section 13, (y) delivered by hand, or tendered for
delivery by hand, at such address, or (z) sent to such address by way of a
recognized commercial overnight delivery service, and notices shall be
effectively given only if received at such address by, or tendered for
receipt to, a person who is or who reasonably appears to be authorized to
receive written communications on behalf of the party to which the notice
is directed. The present notice addresses of the parties are as follows:
(i) for Collateral Agent: CCC Lending Corporation c/o Michael E. Schultz,
2830 Long Meadow Drive, West Palm Beach, Florida 33414 and (ii) for
Debtor: 717 Fifth Avenue, New York, New York, 10022, Attention: Gerald
Agranoff.
57.14. This Agreement shall be governed by and construed in
accordance with, the laws of the State of New York governing contracts made
and performed in the State of New York, without regard to principles of
conflicts of law.
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57.15. This Agreement shall be binding upon Debtor, its
successors and assigns, and shall inure to the benefit of Collateral Agent,
their respective successors and assigns (including each subsequent holder
of the Notes, whether or not an express assignment to such holder of rights
under this Agreement shall have been made).
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IN WITNESS WHEREOF, Debtor has caused this Agreement to be duly
executed as of the 8th day of January, 1998.
CANAL ARTS CORPORATION, CANAL CAPITAL CORPORATION,
Debtor Debtor
By: /S/ Reginald Schauder By: /S/ Reginald Schauder
Vice President - Finance Vice President - Finance
CANAL GALLERIES CORPORATION, CCC LENDING CORPORATION,
Debtor as Collateral Agent
By: /S/ Reginald Schauder By: /S/ Michael E.
Schultz
Vice President - Finance President
76
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this ___ day of January, 1998, before me personally appeared
Reginald Schauder to me known, who being by me duly sworn, did depose and
say that he is the Vice President of each of Canal Capital Corporation,
Canal Galleries Corporation and Canal Arts Corporation, the corporations
described in and which executed the foregoing instrument, and he
acknowledged that he executed the same by order of the board of directors
of such corporation.
Notary Public
My commission expires on
STATE OF _____________ )
) SS.:
COUNTY OF ___________ )
On this ___ day of January, 1998, before me personally appeared
Michael E. Schultz, to me known, who being by me duly sworn, did depose and
say that he is President of CCC Lending Corporation, the corporation
described in and which executed the above instrument; and that he signed
his name thereto by order of the board of directors of said corporation.
Notary Public
My commission expires on
77
Schedule A
Part I
Property:
St. Paul, Minnesota - Represents approximately a 60% interest in the
property which totals 75 acres. Includes 30 acres leased to the stockyard
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operator and a two story (48,000 sq. ft.) Exchange Building.
Sioux Falls, South Dakota - The property totals 37 acres. Includes 31
acres leased to the stockyard operator and an additional 4 acres leased on
a long-term basis to a rail car repair company and a commercial bank. The
remaining two acres are available for sale or development.
Sioux City, Iowa - The property totals 64 acres. Includes 24 acres leased
to the stockyard operator. An additional 24 acres are leased to third
parties including a lumber yard, feed and grain supplier, railcar repair
company and various other commercial businesses. The balance of 14 acres
is available for sale or development.
Art:
Contemporary art - includes 64 paintings by three artists primarily Jules
Olitski.
Investments:
236,000 shares of Common Stock of Datapoint Corporation.
Schedule A (cont d)
79
Part II
Property:
St. Paul, Minnesota - Represents approximately a 40% interest in the
property which totals 75 acres. Includes various third party leases
including a lumber yard, service station and truck wash and a fast food
restaurant.
Omaha, Nebraska - The property totals 85 acres. Canal has entered into an
agreement to sell approximately 55 acres to the city of Omaha in mid 1998.
The remaining 30 acres are leased on a long-term basis to a railcar repair
company.
St. Joseph, Missouri - The property totals 137 acres. The stockyard
operator leases 37 acres and the Exchange Building. The remaining 100
acres are available for sale or development.
Fargo, North Dakota - The property totals 81 acres. A meat packing
facility leases 17 acres on a long-term basis. The balance of 64 acres
including a two story Exchange Building are available for sale or
development.
Art:
Antiquities - Includes 53 pieces of antiquity from ancient Mediterranean
cultures.
Investments:
125,000 shares of Common Stock of Datapoint Corporation.
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 1 $1,000,000
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to MICHAEL E.
SCHULTZ, or his registered assigns at his address of 2830 Long Meadow
Drive, West Palm Beach, Florida 33414, or at such other address as may be
designated by the registered holder hereof to the Company, the principal
sum of One Million Dollars on May 15, 2001 and to pay interest thereon
monthly on the 15th day of each month (each an "Interest Payment Date"), in
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each year, commencing on January 15, 1998, at the applicable rate per annum
determined as a provided below, until the principal hereof is paid or made
available for payment.
58. For each Quarterly Period, this Note shall bear interest at
a variable rate per annum, equal to the greatest of (i) the Three Month
Treasury Rate with respect to such quarterly period plus 600 basis points,
(ii) LIBOR with respect to such Quarterly Period plus 475 basis points,
(iii) 120% of the Ten Year Treasury Rate with respect to such Quarterly
Period plus 150 basis points, or (iv) Prime Rate with respect to such
quarterly period plus 350 basis points. If the Agent Bank cannot determine
LIBOR or Prime Rate, as the case may be, for at least five Business Days
during the Rate Determination Period for any Quarterly Period then this
Note will bear interest following such Quarterly Period at a rate per annum
equal to the greatest of the remaining variable rates with respect to such
Quarterly Period. Prior to the beginning of each Quarterly Period, the
Company must compute the interest rate for such Quarterly Period. The
Company must mail notice of the rate to each holder of a Note for each
Quarterly Period. Interest will be computed on the basis of a 360-day year
of twelve 30 -day months.
59. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $91,799.29 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
60. The interest payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Note Exchange
Agreement, be paid to the person in whose name this Note is registered at
the close of business on the regular record date, which shall be the first
day of each month (whether or not a Business Day) next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for, and any interest payable on such defaulted interest (to the
extent lawful), will forthwith cease to be payable to the Holder on such
regular record date and shall be paid to the person in whose name this Note
is registered at the close of business on a special record date for the
payment of such defaulted interest to be fixed by the Company, notice of
81
which shall be given to Holders not less than 15 days prior to such special
record date. Payment of the principal of and interest on this Note will be
made in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, by
check mailed to the address of the holder of this Note, as specified in the
first paragraph hereof.
61. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
62. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
63. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
64. Persons Deemed Owners.
82
The registered Holder of a Note may be treated as the owner of it
for all purposes.
65. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
66. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
67. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
68. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
69. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
83
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
70. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
84
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
85
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
71. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
72. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
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73. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By: /S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
87
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 2 $242,000
88
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to MICHAEL E. SCHULTZ
DEFINED BENEFIT TRUST, or its registered assigns at the address of c/o
Michael E. Schultz, 2830 Long Meadow Drive, West Palm Beach, Florida 33414,
or at such other address as may be designated by the registered holder
hereof to the Company, the principal sum of Two Hundred Forty-two Thousand
Dollars on May 15, 2001 and to pay interest thereon monthly on the 15th day
of each month (each an "Interest Payment Date"), in each year, commencing
on January 15, 1998, at the applicable rate per annum determined as a
provided below, until the principal hereof is paid or made available for
payment.
74. For each Quarterly Period, this Note shall bear interest at
a variable rate per annum, equal to the greatest of (i) the Three Month
Treasury Rate with respect to such quarterly period plus 600 basis points,
(ii) LIBOR with respect to such Quarterly Period plus 475 basis points,
(iii) 120% of the Ten Year Treasury Rate with respect to such Quarterly
Period plus 150 basis points, or (iv) Prime Rate with respect to such
quarterly period plus 350 basis points. If the Agent Bank cannot determine
LIBOR or Prime Rate, as the case may be, for at least five Business Days
during the Rate Determination Period for any Quarterly Period then this
Note will bear interest following such Quarterly Period at a rate per annum
equal to the greatest of the remaining variable rates with respect to such
Quarterly Period. Prior to the beginning of each Quarterly Period, the
Company must compute the interest rate for such Quarterly Period. The
Company must mail notice of the rate to each holder of a Note for each
Quarterly Period. Interest will be computed on the basis of a 360-day year
of twelve 30 -day months.
75. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $22,211.15 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
76. The interest payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Note Exchange
89
Agreement, be paid to the person in whose name this Note is registered at
the close of business on the regular record date, which shall be the first
day of each month (whether or not a Business Day) next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for, and any interest payable on such defaulted interest (to the
extent lawful), will forthwith cease to be payable to the Holder on such
regular record date and shall be paid to the person in whose name this Note
is registered at the close of business on a special record date for the
payment of such defaulted interest to be fixed by the Company, notice of
which shall be given to Holders not less than 15 days prior to such special
record date. Payment of the principal of and interest on this Note will be
made in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, by
check mailed to the address of the holder of this Note, as specified in the
first paragraph hereof.
77. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
78. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
90
79. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
80. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
81. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
82. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
83. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
84. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
91
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
85. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
86. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
92
Three Month Discount Rate (%) x 365
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
93
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
87. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
88. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
94
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
89. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By: /S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
95
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 3 $229,000
96
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to LORA K. SCHULTZ,
or her registered assigns at the address of 2830 Long Meadow Drive, West
Palm Beach, Florida 33414, or at such other address as may be designated by
the registered holder hereof to the Company, the principal sum of Two
Hundred Twenty-nine Thousand Dollars on May 15, 2001 and to pay interest
thereon monthly on the 15th day of each month (each an "Interest Payment
Date"), in each year, commencing on January 15, 1998, at the applicable
rate per annum determined as a provided below, until the principal hereof
is paid or made available for payment.
90. For each Quarterly Period, this Note shall bear interest at
a variable rate per annum, equal to the greatest of (i) the Three Month
Treasury Rate with respect to such quarterly period plus 600 basis points,
(ii) LIBOR with respect to such Quarterly Period plus 475 basis points,
(iii) 120% of the Ten Year Treasury Rate with respect to such Quarterly
Period plus 150 basis points, or (iv) Prime Rate with respect to such
quarterly period plus 350 basis points. If the Agent Bank cannot determine
LIBOR or Prime Rate, as the case may be, for at least five Business Days
during the Rate Determination Period for any Quarterly Period then this
Note will bear interest following such Quarterly Period at a rate per annum
equal to the greatest of the remaining variable rates with respect to such
Quarterly Period. Prior to the beginning of each Quarterly Period, the
Company must compute the interest rate for such Quarterly Period. The
Company must mail notice of the rate to each holder of a Note for each
Quarterly Period. Interest will be computed on the basis of a 360-day year
of twelve 30 -day months.
91. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $21,022.48 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
92. The interest payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Note Exchange
Agreement, be paid to the person in whose name this Note is registered at
97
the close of business on the regular record date, which shall be the first
day of each month (whether or not a Business Day) next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for, and any interest payable on such defaulted interest (to the
extent lawful), will forthwith cease to be payable to the Holder on such
regular record date and shall be paid to the person in whose name this Note
is registered at the close of business on a special record date for the
payment of such defaulted interest to be fixed by the Company, notice of
which shall be given to Holders not less than 15 days prior to such special
record date. Payment of the principal of and interest on this Note will be
made in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, by
check mailed to the address of the holder of this Note, as specified in the
first paragraph hereof.
93. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
94. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
95. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
98
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
96. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
97. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
98. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
99. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
100. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
99
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
101. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
102. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
100
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
101
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
103. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
104. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
102
105. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By: /S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
103
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 5 $186,000
104
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to ROGER A. SCHULTZ
PENSION PLAN, or its registered assigns at the address of c/o Roger A.
Schultz, 131 N. Hibiscus Drive, Miami Beach, Florida 33139 or at such other
address as may be designated by the registered holder hereof to the
Company, the principal sum of One Hundred Eighty-six Thousand Dollars on
May 15, 2001 and to pay interest thereon monthly on the 15th day of each
month (each an "Interest Payment Date"), in each year, commencing on
January 15, 1998, at the applicable rate per annum determined as a provided
below, until the principal hereof is paid or made available for payment.
106. For each Quarterly Period, this Note shall bear
interest at a variable rate per annum, equal to the greatest of (i) the
Three Month Treasury Rate with respect to such quarterly period plus 600
basis points, (ii) LIBOR with respect to such Quarterly Period plus 475
basis points, (iii) 120% of the Ten Year Treasury Rate with respect to such
Quarterly Period plus 150 basis points, or (iv) Prime Rate with respect to
such quarterly period plus 350 basis points. If the Agent Bank cannot
determine LIBOR or Prime Rate, as the case may be, for at least five
Business Days during the Rate Determination Period for any Quarterly Period
then this Note will bear interest following such Quarterly Period at a rate
per annum equal to the greatest of the remaining variable rates with
respect to such Quarterly Period. Prior to the beginning of each Quarterly
Period, the Company must compute the interest rate for such Quarterly
Period. The Company must mail notice of the rate to each holder of a Note
for each Quarterly Period. Interest will be computed on the basis of a
360-day year of twelve 30 -day months.
107. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $17,082.89 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
108. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Note
Exchange Agreement, be paid to the person in whose name this Note is
105
registered at the close of business on the regular record date, which shall
be the first day of each month (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for, and any interest payable on such defaulted
interest (to the extent lawful), will forthwith cease to be payable to the
Holder on such regular record date and shall be paid to the person in whose
name this Note is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the Company,
notice of which shall be given to Holders not less than 15 days prior to
such special record date. Payment of the principal of and interest on this
Note will be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts, by check mailed to the address of the holder of this Note, as
specified in the first paragraph hereof.
109. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
110. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
111. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
106
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
112. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
113. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
114. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
115. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
116. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
107
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
117. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
118. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
108
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
109
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
119. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
120. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
110
121. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By:/S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
111
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 6 $143,000
112
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay RICHARD A. SCHULTZ,
or his registered assigns at the address of 136 East 56 Street,
Apt. 12H, New York, New York 10022, or at such other address as may be
designated by the registered holder hereof to the Company, the principal
sum of One Hundred Forty-three Thousand Dollars on May 15, 2001 and to pay
interest thereon monthly on the 15th day of each month (each an "Interest
Payment Date"), in each year, commencing on January 15, 1998, at the
applicable rate per annum determined as a provided below, until the
principal hereof is paid or made available for payment.
122. For each Quarterly Period, this Note shall bear
interest at a variable rate per annum, equal to the greatest of (i) the
Three Month Treasury Rate with respect to such quarterly period plus 600
basis points, (ii) LIBOR with respect to such Quarterly Period plus 475
basis points, (iii) 120% of the Ten Year Treasury Rate with respect to such
Quarterly Period plus 150 basis points, or (iv) Prime Rate with respect to
such quarterly period plus 350 basis points. If the Agent Bank cannot
determine LIBOR or Prime Rate, as the case may be, for at least five
Business Days during the Rate Determination Period for any Quarterly Period
then this Note will bear interest following such Quarterly Period at a rate
per annum equal to the greatest of the remaining variable rates with
respect to such Quarterly Period. Prior to the beginning of each Quarterly
Period, the Company must compute the interest rate for such Quarterly
Period. The Company must mail notice of the rate to each holder of a Note
for each Quarterly Period. Interest will be computed on the basis of a
360-day year of twelve 30 -day months.
123. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $13,109.33 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
124. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Note
Exchange Agreement, be paid to the person in whose name this Note is
113
registered at the close of business on the regular record date, which shall
be the first day of each month (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for, and any interest payable on such defaulted
interest (to the extent lawful), will forthwith cease to be payable to the
Holder on such regular record date and shall be paid to the person in whose
name this Note is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the Company,
notice of which shall be given to Holders not less than 15 days prior to
such special record date. Payment of the principal of and interest on this
Note will be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts, by check mailed to the address of the holder of this Note, as
specified in the first paragraph hereof.
125. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
126. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
127. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
114
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
128. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
129. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
130. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
131. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
132. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
115
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
133. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
134. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
116
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
117
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
135. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
136. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
118
137. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By:/S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
119
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 7 $350,000
120
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to EDELMAN VALUE
PARTNERS, L.P., or its registered assigns at the address of c/o A.B.
Edelman Management Company, Inc., 717 Fifth Avenue, New York, New York
10022, or at such other address as may be designated by the registered
holder hereof to the Company, the principal sum of Three Hundred Fifty
Thousand Dollars on May 15, 2001 and to pay interest thereon monthly on the
15th day of each month (each an "Interest Payment Date"), in each year,
commencing on January 15, 1998, at the applicable rate per annum determined
as a provided below, until the principal hereof is paid or made available
for payment.
138. For each Quarterly Period, this Note shall bear
interest at a variable rate per annum, equal to the greatest of (i) the
Three Month Treasury Rate with respect to such quarterly period plus 600
basis points, (ii) LIBOR with respect to such Quarterly Period plus 475
basis points, (iii) 120% of the Ten Year Treasury Rate with respect to such
Quarterly Period plus 150 basis points, or (iv) Prime Rate with respect to
such quarterly period plus 350 basis points. If the Agent Bank cannot
determine LIBOR or Prime Rate, as the case may be, for at least five
Business Days during the Rate Determination Period for any Quarterly Period
then this Note will bear interest following such Quarterly Period at a rate
per annum equal to the greatest of the remaining variable rates with
respect to such Quarterly Period. Prior to the beginning of each Quarterly
Period, the Company must compute the interest rate for such Quarterly
Period. The Company must mail notice of the rate to each holder of a Note
for each Quarterly Period. Interest will be computed on the basis of a
360-day year of twelve 30 -day months.
139. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $32,128.05 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
140. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Note
121
Exchange Agreement, be paid to the person in whose name this Note is
registered at the close of business on the regular record date, which shall
be the first day of each month (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for, and any interest payable on such defaulted
interest (to the extent lawful), will forthwith cease to be payable to the
Holder on such regular record date and shall be paid to the person in whose
name this Note is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the Company,
notice of which shall be given to Holders not less than 15 days prior to
such special record date. Payment of the principal of and interest on this
Note will be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts, by check mailed to the address of the holder of this Note, as
specified in the first paragraph hereof.
141. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
142. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
143. Denominations, Transfer, Exchange.
122
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
144. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
145. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
146. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
147. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
148. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
123
Notes to be due and payable immediately in accordance with Section 7.2 of
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
149. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
150. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
124
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
125
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
151. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
152. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
126
153. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By: /S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
127
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 8 $550,000
128
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to EDELMAN VALUE
FUND, LTD, or its registered assigns at the address of c/o Bayand
(Luxembourg) Admin., 1A Rue du St. Espirit, L-1475 Luxembourg, or at such
other address as may be designated by the registered holder hereof to the
Company, the principal sum of Five Hundred Fifty Thousand Dollars on May
15, 2001 and to pay interest thereon monthly on the 15th day of each month
(each an "Interest Payment Date"), in each year, commencing on January 15,
1998, at the applicable rate per annum determined as a provided below,
until the principal hereof is paid or made available for payment.
154. For each Quarterly Period, this Note shall bear
interest at a variable rate per annum, equal to the greatest of (i) the
Three Month Treasury Rate with respect to such quarterly period plus 600
basis points, (ii) LIBOR with respect to such Quarterly Period plus 475
basis points, (iii) 120% of the Ten Year Treasury Rate with respect to such
Quarterly Period plus 150 basis points, or (iv) Prime Rate with respect to
such quarterly period plus 350 basis points. If the Agent Bank cannot
determine LIBOR or Prime Rate, as the case may be, for at least five
Business Days during the Rate Determination Period for any Quarterly Period
then this Note will bear interest following such Quarterly Period at a rate
per annum equal to the greatest of the remaining variable rates with
respect to such Quarterly Period. Prior to the beginning of each Quarterly
Period, the Company must compute the interest rate for such Quarterly
Period. The Company must mail notice of the rate to each holder of a Note
for each Quarterly Period. Interest will be computed on the basis of a
360-day year of twelve 30 -day months.
155. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $50,467.53 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
156. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Note
Exchange Agreement, be paid to the person in whose name this Note is
129
registered at the close of business on the regular record date, which shall
be the first day of each month (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for, and any interest payable on such defaulted
interest (to the extent lawful), will forthwith cease to be payable to the
Holder on such regular record date and shall be paid to the person in whose
name this Note is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the Company,
notice of which shall be given to Holders not less than 15 days prior to
such special record date. Payment of the principal of and interest on this
Note will be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts, by check mailed to the address of the holder of this Note, as
specified in the first paragraph hereof.
157. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
158. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
159. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
130
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
160. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
161. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
162. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
163. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
164. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
131
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
165. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
166. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
132
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
133
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
167. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
168. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
134
169. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By: /S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
135
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 9 $300,000
136
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to MARIA REGINA
MAYALL EDELMAN, or her registered assigns at the address of Chemin de
Pecholettaz 9, 1066 Eppallinges, Switzerland, or at such other address as
may be designated by the registered holder hereof to the Company, the
principal sum of Three Hundred Thousand Dollars on May 15, 2001 and to pay
interest thereon monthly on the 15th day of each month (each an "Interest
Payment Date"), in each year, commencing on January 15, 1998, at the
applicable rate per annum determined as a provided below, until the
principal hereof is paid or made available for payment.
170. For each Quarterly Period, this Note shall bear
interest at a variable rate per annum, equal to the greatest of (i) the
Three Month Treasury Rate with respect to such quarterly period plus 600
basis points, (ii) LIBOR with respect to such Quarterly Period plus 475
basis points, (iii) 120% of the Ten Year Treasury Rate with respect to such
Quarterly Period plus 150 basis points, or (iv) Prime Rate with respect to
such quarterly period plus 350 basis points. If the Agent Bank cannot
determine LIBOR or Prime Rate, as the case may be, for at least five
Business Days during the Rate Determination Period for any Quarterly Period
then this Note will bear interest following such Quarterly Period at a rate
per annum equal to the greatest of the remaining variable rates with
respect to such Quarterly Period. Prior to the beginning of each Quarterly
Period, the Company must compute the interest rate for such Quarterly
Period. The Company must mail notice of the rate to each holder of a Note
for each Quarterly Period. Interest will be computed on the basis of a
360-day year of twelve 30 -day months.
171. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $27,543.18 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
172. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Note
Exchange Agreement, be paid to the person in whose name this Note is
137
registered at the close of business on the regular record date, which shall
be the first day of each month (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for, and any interest payable on such defaulted
interest (to the extent lawful), will forthwith cease to be payable to the
Holder on such regular record date and shall be paid to the person in whose
name this Note is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the Company,
notice of which shall be given to Holders not less than 15 days prior to
such special record date. Payment of the principal of and interest on this
Note will be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts, by check mailed to the address of the holder of this Note, as
specified in the first paragraph hereof.
173. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
174. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
175. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
138
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
176. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
177. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
178. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
179. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
180. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
139
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
181. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
182. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
140
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
141
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
183. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
184. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
142
185. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By: /S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
143
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 10 $200,000
144
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to SES TRUST, or its
registered assigns at the address of c/o Sharon E. Sigesmund, 2859 Queens
Courtyard Drive, Las Vegas, Nevada 89109, or at such other address as may
be designated by the registered holder hereof to the Company, the principal
sum of Two Hundred Thousand Dollars on May 15, 2001 and to pay interest
thereon monthly on the 15th day of each month (each an "Interest Payment
Date"), in each year, commencing on January 15, 1998, at the applicable
rate per annum determined as a provided below, until the principal hereof
is paid or made available for payment.
186. For each Quarterly Period, this Note shall bear
interest at a variable rate per annum, equal to the greatest of (i) the
Three Month Treasury Rate with respect to such quarterly period plus 600
basis points, (ii) LIBOR with respect to such Quarterly Period plus 475
basis points, (iii) 120% of the Ten Year Treasury Rate with respect to such
Quarterly Period plus 150 basis points, or (iv) Prime Rate with respect to
such quarterly period plus 350 basis points. If the Agent Bank cannot
determine LIBOR or Prime Rate, as the case may be, for at least five
Business Days during the Rate Determination Period for any Quarterly Period
then this Note will bear interest following such Quarterly Period at a rate
per annum equal to the greatest of the remaining variable rates with
respect to such Quarterly Period. Prior to the beginning of each Quarterly
Period, the Company must compute the interest rate for such Quarterly
Period. The Company must mail notice of the rate to each holder of a Note
for each Quarterly Period. Interest will be computed on the basis of a
360-day year of twelve 30 -day months.
187. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $18,373.44 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
188. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Note
Exchange Agreement, be paid to the person in whose name this Note is
145
registered at the close of business on the regular record date, which shall
be the first day of each month (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for, and any interest payable on such defaulted
interest (to the extent lawful), will forthwith cease to be payable to the
Holder on such regular record date and shall be paid to the person in whose
name this Note is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the Company,
notice of which shall be given to Holders not less than 15 days prior to
such special record date. Payment of the principal of and interest on this
Note will be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts, by check mailed to the address of the holder of this Note, as
specified in the first paragraph hereof.
189. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
190. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
191. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
146
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
192. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
193. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
194. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
195. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
196. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
147
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
197. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
198. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
148
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
149
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
199. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
200. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
150
201. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By:/S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
151
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
Amended and Restated Variable Rate Mortgage Note Due May 15, 2001.
No. 4 $500,000
152
CANAL CAPITAL CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the
"Company") for value received, hereby promises to pay to ROGER A. SCHULTZ,
or his registered assigns at the address of 131 N. Hibiscus Drive, Miami
Beach, Florida 33139 or at such other address as may be designated by the
registered holder hereof to the Company, the principal sum of Five Hundred
Thousand Dollars on May 15, 2001 and to pay interest thereon monthly on the
15th day of each month (each an "Interest Payment Date"), in each year,
commencing on January 15, 1998, at the applicable rate per annum determined
as a provided below, until the principal hereof is paid or made available
for payment.
202. For each Quarterly Period, this Note shall bear
interest at a variable rate per annum, equal to the greatest of (i) the
Three Month Treasury Rate with respect to such quarterly period plus 600
basis points, (ii) LIBOR with respect to such Quarterly Period plus 475
basis points, (iii) 120% of the Ten Year Treasury Rate with respect to such
Quarterly Period plus 150 basis points, or (iv) Prime Rate with respect to
such quarterly period plus 350 basis points. If the Agent Bank cannot
determine LIBOR or Prime Rate, as the case may be, for at least five
Business Days during the Rate Determination Period for any Quarterly Period
then this Note will bear interest following such Quarterly Period at a rate
per annum equal to the greatest of the remaining variable rates with
respect to such Quarterly Period. Prior to the beginning of each Quarterly
Period, the Company must compute the interest rate for such Quarterly
Period. The Company must mail notice of the rate to each holder of a Note
for each Quarterly Period. Interest will be computed on the basis of a
360-day year of twelve 30 -day months.
203. (a) For each Quarterly Period, this Note shall bear
interest, in addition to the interest provided in Section 1 (the
"Additional Interest"), at a rate per annum equal to 4.0%. The rate per
annum of Additional Interest for any Quarterly Period shall be limited to
the rate which, when added to the interest rate established pursuant to
Section 1, does not exceed a rate of 15% per annum.
(b) Additional Interest shall accrue quarterly and be added
to the principal amount of this Note for the purpose of calculating the
amount of Additional Interest to be accrued. The aggregate accrued amount
of Additional Interest shall be payable on May 15, 2001 or upon the earlier
retirement of this Note. The obligation to pay Additional Interest shall
be entitled to the benefits of the security interest granted pursuant to
the Security Agreement and the Pledge Agreement.
(c) Additional Interest of $45,882.66 which had accrued
with respect to the Old Notes but had remained unpaid by the Company as of
the date of this Note shall also be considered Additional Interest
hereunder and shall continue to be due and payable to the holder hereof as
provided above.
204. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Note
Exchange Agreement, be paid to the person in whose name this Note is
153
registered at the close of business on the regular record date, which shall
be the first day of each month (whether or not a Business Day) next
preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for, and any interest payable on such defaulted
interest (to the extent lawful), will forthwith cease to be payable to the
Holder on such regular record date and shall be paid to the person in whose
name this Note is registered at the close of business on a special record
date for the payment of such defaulted interest to be fixed by the Company,
notice of which shall be given to Holders not less than 15 days prior to
such special record date. Payment of the principal of and interest on this
Note will be made in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts, by check mailed to the address of the holder of this Note, as
specified in the first paragraph hereof.
205. Note Exchange Agreement; Limitations.
This Note is one of a duly authorized issue of Notes of the
Company (which
term includes any successor corporation under the Note Exchange Agreement
hereinafter
referred to) designated as its Variable Rate Mortgage Notes due May 15,
2001 (the "Notes"), in the aggregate principal amount of $3,700,000 issued
pursuant to that certain Note Exchange and Loan Agreement, dated as of
January 8, 1998 (the "Note Exchange Agreement"), among the Company and the
Holders. This is one of the New Notes described in the Note Exchange
Agreement. The terms of this Note include those stated in the Note
Exchange Agreement. Reference is hereby made to the Note Exchange
Agreement and all amendments and supplements thereto for a statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company and the Holder and of the terms upon which the Notes are,
and are to be, delivered.
206. Security.
This Note is secured by (i) a security interest in the Artwork,
(ii) the Mortgages and (iii) a security interest in the Securities, in an
amount equal to at least 100% of the aggregate principal amount of this
Note outstanding at any time and accrued Additional Interest. The Note
Exchange Agreement imposes certain limits on the payment of dividends and
other distributions on the Company's capital stock, the ability of the
Company to incur additional indebtedness and the amount and type of
permitted investments by the Company. It also obligates the Company to
conduct its business so as to avoid becoming an investment company within
the meaning of the Investment Company Act of 1940. Once a year the Company
must report to the Holder with respect to its compliance with such
limitations.
207. Denominations, Transfer, Exchange.
The Notes are issuable only in registered form without coupons in
154
denominations of $1,000 and any integral multiple thereof. The Holder may
transfer or exchange Notes in accordance with the Note Exchange Agreement.
The Company may require the Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay taxes and fees
required by law or permitted by the Note Exchange Agreement.
208. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it
for all purposes.
209. Discharge Prior to Redemption or Maturity.
The Note Exchange Agreement will be discharged and canceled
except for certain Sections thereof, subject to the terms of the Note
Exchange Agreement, upon the payment of the Notes, or, following the date
on which the Company has given notice to the Holder of the repayment of the
Notes upon the irrevocable deposit with the Holder of funds or U.S.
Government Obligations sufficient for such payment.
210. Amendment and Waiver.
The Note Exchange Agreement contains provisions permitting the
Holders to waive compliance by the Company with certain provisions of the
Note Exchange Agreement and certain past defaults under the Note Exchange
Agreement and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
Future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
211. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the New Notes and the Note Exchange Agreement, the
predecessor corporation will be released from those obligations.
212. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of
interest on the Notes; default in payment of principal on them; failure by
the Company for 30 days after notice to it to comply with any of its other
agreements in the Note Exchange Agreement or the Notes; acceleration or
default under other Indebtedness of the Company aggregating at least
$100,000; the existence of certain unsatisfied judgments aggregating at
least $100,000; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Holder may declare all the
Notes to be due and payable immediately in accordance with Section 7.2 of
155
the Note Exchange Agreement. The Holders may not enforce the Note Exchange
Agreement or the Notes except as provided in the Note Exchange Agreement.
213. No Recourse against Others.
A director, officer, employee or shareholder, as such, of the
Company shall not have any liability for any obligations of the Company
under the Notes or the Note Exchange Agreement or for any claim based on,
in respect of or by reason of, such obligations or their creation. The
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the New
Notes.
214. Definitions.
All terms used in this Note which are defined in the Note
Exchange Agreement shall have the meanings assigned to them in the Note
Exchange Agreement.
"Three Month Discount Rate" means, with respect to any Quarterly
Period, the arithmetic average of the weekly average per annum secondary
market discount rates for three-month United States Treasury obligations
for the three calendar weeks constituting the Rate Determination Period
with respect to such Quarterly Period (x) as published by the Federal
Reserve Board (i) in its Statistical Release H.15 (519), "Selected Interest
Rates," which weekly per annum secondary market discount rates presently
are set forth in such Statistical Release under the caption "U.S.
Government Securities -- Treasury Bills -- Secondary Market -- 3 Month," or
(ii) if said Statistical Release H.15 (519) is not then published, in any
release comparable to Statistical Release H.15(519), or (y) if the Federal
Reserve Board shall not then be publishing a comparable release, as
published in any official publication or release of any other United States
Government department or agency. However, if the Three Month Discount Rate
cannot be determined as provided above, then the Three Month Discount Rate
shall mean the arithmetic average of the average per annum secondary market
discount rates, based on the asked prices, for each business day during the
Rate Determination Period of all of the issues of non-interest bearing
United States Treasury obligations with a maturity of not less than 80 nor
more than 100 days from such business day (1) as published in The Wall
Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices as quoted by each of three
United States Government securities dealers of recognized national standing
selected by the Company.
"Three Month Treasury Rate" means, with respect to any Quarterly
Period, the result of the following calculation regarding the Three Month
Discount Rate for such Quarterly Period, rounded to the nearest basis
point:
Three Month Discount Rate (%) x 365
156
360 - (91 x.01 x Three Month Discount Rate (%))
"Ten Year Treasury Rate" means, with respect to any date, the
arithmetic average (rounded to the nearest basis point) of the weekly
average per annum yield to maturity values adjusted to constant maturities
of ten years for the three calendar weeks constituting the Rate
Determination Period for the Quarterly Period in which such date occurs as
read from the yield curves of the most actively traded marketable United
States Treasury fixed interest rate securities (x) constructed daily by the
United States Treasury Department (i) as published by the Federal Reserve
Board in its Statistical Release H.15 (519), "Selected Interest Rates,"
which weekly average yield to maturity values presently are set forth in
such statistical release under the caption "U.S. Government Securities --
Treasury Constant Maturities -- 10 Year", or (ii) if said Statistical
Release H.15(519) is not then published, as published by the Federal
Reserve Board in any release comparable to its Statistical Release H.15
(519), or (iii) if the Federal Reserve Board shall not then be publishing a
comparable release, as published in any official publication or release of
any other United States Government department or agency, or (y) if the
United States Treasury Department shall not then be constructing such yield
curves, as constructed by the Federal Reserve Board or any other United
States Government department or agency and published as set forth in (x)
above. However, if the Ten Year Treasury Rate cannot be determined as
provided above, then the Ten Year Treasury Rate shall mean the arithmetic
average (rounded to the nearest basis point) of the per annum yields to
maturity for each business day during the Rate Determination Period of all
of the issues of actively traded marketable United States Treasury fixed
interest rate securities with a maturity of not less then 117 months nor
more than 123 months from such business day (excluding all such securities
which can be surrendered at the option of the holder at face value in
payment of any federal estate tax, which provide tax benefits to the holder
or which were issued at a substantial discount) (1) as published in The
Wall Street Journal, or (2) if The Wall Street Journal shall cease such
publication, based on average asked prices (or yields) as quoted by each of
three United States Government securities dealers of recognized national
standing selected by the Company.
"LIBOR" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of LIBOR for each
business day in the Rate Determination Period for such Quarterly Period, as
determined by Bankers Trust Company or its successor as the agent bank (the
"Agent Bank") of the Company in accordance with the following provisions.
On each business day during the Rate Determination Period with respect to
such Quarterly Period, the Agent Bank will request the principal London
office of each of Bankers Trust Company, Citibank, N.A. and Chemical Bank
(the "Reference Banks", which term shall include any successor Reference
Bank or Reference Banks appointed by the Company as provided in the Note
Exchange Agreement) to provide the Agent Bank with its offered quotation
for three-month United States dollar deposits to leading banks in the
London interbank market at approximately 11:00 A.M. (London time). LIBOR,
for each such business day, shall be the arithmetic average (rounded to the
nearest basis point) of such offered quotations of the Reference Banks for
such business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such offered quotations, LIBOR
for that day shall be determined in accordance with the two preceding
157
sentences on the basis of the offered quotations of those Reference Banks
providing such quotations. If on any business day during a Rate
Determination Period fewer than two of the Reference Banks provide the
Agent Bank with such an offered quotation, the Agent Bank shall not
determine LIBOR for that day.
"Prime Rate" means, with respect to any Quarterly Period, the
arithmetic average (rounded to the nearest basis point) of Prime Rate for
each business day in the Rate Determination Period for such Quarterly
Period, as determined by the Agent Bank in accordance with the following
provisions. On each business day during the Rate Determination Period with
respect to such Quarterly Period, the Agent Bank will request the principal
New York office of each of the Reference Banks to provide the Agent Bank
with the rate announced by such Reference Bank as its prime commercial
lending rate per annum at approximately 11 A.M. (New York time). Prime
Rate, for each such business day, shall be arithmetic average (rounded to
the nearest basis point) of such rates of the Reference Banks for such
business day as determined by the Agent Bank. If on any business day
during a Rate Determination Period at least two but fewer than all the
Reference Banks provide the Agent Bank with such rates, Prime Rate for that
day shall be determined in accordance with the two preceding sentences on
the basis of the rates of those Reference Banks providing such rates. If
on any business day during a Rate Determination Period fewer than two of
the Reference Banks provide the Agent bank with such rates, the Agent Bank
shall not determine Prime Rate for that day.
"Quarterly Period" means the period from each November 15 through
the next February 14, from each February 15 through the next May 14, from
each May 15 through the next August 14, or from each August 15 through the
next November 14, as the case may be.
"Rate Determination Period" means, with respect to any Quarterly
Period, the three calendar weeks ending on the last Friday that is more
than 15 days prior to the first day of such Quarterly Period.
215. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder
or any assignee, such as: TEN COM (= tenant in common), TEN ENT (= tenants
by the entire entities), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform
Gifts to Minors Act).
216. Copies of Note Exchange Agreement.
The Company will furnish to any Noteholder of record upon written
request without charge a copy of the Note Exchange Agreement. Requests may
be made to: Canal
Capital Corporation, 717 Fifth Avenue, New York, New York 10022, Attention:
Treasurer.
158
217. Amendment and Restatement.
The New Notes, including this Note, amend, supersede and replace
the Old Notes, and are delivered in substitution for, but not in payment
of, the Old Notes.
IN WITNESS WHEREOF, CANAL CAPITAL CORPORATION has caused this
instrument to be executed in its corporate name by the signature of its
Vice President.
Dated: As of January 8, 1998
CANAL CAPITAL CORPORATION
Attest: By: /S/ Reginald Schauder
Vice President
/S/ Dante C. Ortiz
159
ASSIGNMENT FORM
If you the holder want to assign this Variable Rate Mortgage
Note, fill in the form below and have your signature guaranteed:
I or we assign and transfer this Variable Rate Mortgage Note to:
(Print or Type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this
Variable Rate Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
Dated: _____________________________ Signed:
_____________________________
_____________________________
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee
CANAL CAPITAL CORPORATION
717 FIFTH AVENUE
NEW YORK, NY 10022
160
SUBSIDIARIES IDENTIFICATION #
SY Trading Corp. 13-3244066
Omaha Livestock Market, Inc. 47-0582031
Union Stockyards Co. of Fargo 45-0205040
Sioux Falls Stockyards Company 46-0189565
Wheeling Industrial Corporation 36-2545924
Canal Galleries Corporation 13-3492920
Canal Arts Corporation 13-3492921
DIVISIONS
Canal Capital Corporation (parent) 51-0102492
St. Joseph Stockyards
St. Paul Union Stockyards
Sioux City Stockyards
Note: All subsidiaries are 100% owned
161
162
