<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
ECHELON INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-2554218
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE PROGRESS PLAZA 33701
SUITE 2400 (ZIP CODE)
ST. PETERSBURG, FLORIDA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(813) 824-6767
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- --------------------------------------- ------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
<PAGE> 2
ITEM 1. BUSINESS.
The information required by this item is contained under the sections
"Business," "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in the Echelon Financial
Statements of the Information Statement dated ____________, 1996 included
herewith as Exhibit 2.1 (the "Information Statement") and such sections and
financial statements are incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Information Statement and
such sections are incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the sections
"Business -- The Real Estate Business -- Commercial Real Estate Ownership and
Management" and "Business -- The Real Estate Business -- Other Owned Real
Estate; Multi-Family Residential and Commercial Real Estate Development" of the
Information Statement and such sections are incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is contained under the sections
"Management and Executive Compensation -- Management Ownership of Securities"
and "Management and Executive Compensation -- Security Ownership of Certain
Beneficial Owners" of the Information Statement and such sections are
incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the sections
"Management and Executive Compensation -- Board of Directors" and "Management
and Executive Compensation -- Executive Officers" of the Information Statement
and such sections are incorporated herein by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the section
"Management and Executive Compensation" of the Information Statement and such
section is incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is contained under the sections
"Relationship Between Florida Progress and Echelon After the Distribution" and
"Management and Executive Compensation -- Certain Relationships and Related
Transactions" of the Information Statement and such sections are incorporated
herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the section
"Business -- Legal Proceedings" of the Information Statement and such section
is incorporated herein by reference.
<PAGE> 3
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained under the sections
"The Distribution -- Manner of Effecting the Distribution," "The Distribution --
Listing and Trading of Echelon Common Stock," "Dividend Policy" and "Description
of Capital Stock" of the Information Statement and such sections are
incorporated herein by reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the section
"Description of Capital Stock" of the Information Statement and such section is
incorporated herein by reference, except for the information under the caption
"Echelon Rights Agreement", which is not incorporated by reference herein as the
Series A Junior Participating Echelon Preferred Stock described under such
caption will be registered separately on a Registration Statement on Form 8-A.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
"Description of Capital Stock -- Provisions of Echelon Articles of Incorporation
and By-laws Affecting Changes in Control -- Indemnification and Limitation of
Liability for Directors and Officers" of the Information Statement and such
section is incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is identified in the "Index to
Financial Statements" and is contained in (i) the Echelon Financial Statements
in the Information Statement and such index and financial statements are
incorporated herein by reference, and (ii) Schedule II -- "Valuation and
Qualifying Accounts", Schedule III -- "Real Estate and Accumulated
Depreciation", and Schedule IV -- "Mortgage Loans and Real Estate" to this
Registration Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The information required by this items in contained in (i) the "Index
to Financial Statements" on page F-1 of the Information Statement to
this Registration Statement and such index is incorporated herein by
reference, and (ii) Schedule II -- "Valuation and Qualifying Accounts",
Schedule III -- "Real Estate and Accumulated Depreciation", and
Schedule IV -- "Mortgage Loans and Real Estate" to this Registration
Statement.
(b) Exhibits
<PAGE> 4
The following documents are filed as exhibits hereto:
<PAGE> 5
Exhibit
No. Description
- ------- -----------
2.1 Information Statement dated as of ____________, 1996
3.1 Form of Amended and Restated Articles of Incorporation of
Echelon International Corporation
3.2 Form of Amended and Restated By-laws of Echelon International
Corporation
4.1 Specimen Common Share certificate
10.1 Form of Distribution Agreement between Florida Progress
Corporation and Echelon International Corporation
10.2 Form of Tax Sharing Agreement between Florida Progress
Corporation and Echelon International Corporation
10.3 Form of Employee Benefits Allocation Agreement between Florida
Progress Corporation and Echelon International Corporation
10.4 Form of Transition Services Agreement between Florida Progress
Corporation and Echelon International Corporation
10.5 Form of Note issued by Echelon International Corporation to
Progress Capital Holdings, Inc.
99.1 Form of Rights Agreement between Echelon International
Corporation and ____________________, as Rights Agent
99.2 Form of Articles of Amendment of Articles of Incorporation
Providing for Series A Junior Participating Preferred Stock
of Echelon International Corporation (attached as Exhibit A to
the Rights Agreement filed as Exhibit 99.2 hereto)
99.3 Form of Right Certificate (attached as Exhibit B to the Rights
Agreement filed as Exhibit 99.2 hereto)
<PAGE> 6
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
ECHELON INTERNATIONAL CORPORATION
By: /s/ Darryl A. LeClair
------------------------------
Name: Darryl A. LeClair
Title: President
Date: September 20, 1996
<PAGE> 7
Independent Auditors' Report
The Stockholder of
Echelon International Corporation:
Under date of September 18, 1996, we reported on the consolidated balance
sheets of Echelon International Corporation and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations and
deficit and cash flows for each of the years in the three-year period ended
December 31, 1995, which are included in the Form 10 included in the
Information Statement. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules in the Form 10. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
St. Petersburg, Florida
September 18, 1996
S-1
<PAGE> 8
ECHELON INTERNATIONAL CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND FROM END OF
OF PERIOD EXPENSES RESERVES OTHER(a) PERIOD
---------- ---------- ---------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for losses on loans and
leases................................. $ 33.7 $5.0 $ (6.7) $0.0 $ 32.0
Allowance for losses on real estate....... 16.8 1.2(b) (18.0)(c) 0.0 0.0
Allowance for doubtful accounts........... 0.9 0.1 0.0 0.0 1.0
YEAR ENDED DECEMBER 31, 1994:
Allowance for losses on loans and
leases................................. $ 24.5 $9.9 $ (0.7) $0.0 $ 33.7
Allowance for losses on real estate....... 16.1 0.7 0.0 0.0 16.8
Allowance for doubtful accounts........... 0.6 0.3 0.0 0.0 0.9
YEAR ENDED DECEMBER 31, 1993:
Allowance for losses on loans and
leases................................. $ 22.9 $5.9 $ (4.3) $0.0 $ 24.5
Allowance for losses on real estate....... 14.8 0.6 0.0 0.7 16.1
Allowance for doubtful accounts........... 0.6 0.0 0.0 0.0 0.6
</TABLE>
- ---------------
(a) Represents a balance sheet transfer from investment in unconsolidated
affiliates.
(b) Reconciliation of 1995 provision for losses charged to operations:
<TABLE>
<S> <C>
Amount credited to allowance account.............. $1.2
Amount charged directly to asset account.......... 0.8
----
Total provision charged to operations... $2.0
====
</TABLE>
(c) Reserve was eliminated through the writedown of assets due to impairment.
S-2
<PAGE> 9
ECHELON INTERNATIONAL CORPORATION
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS CARRYING VALUE
INITIAL COST COSTS AT DECEMBER 31, 1995
-------------------- CAPITALIZED IMPAIRMENT --------------------
BUILDINGS & SUBSEQUENT TO WRITEDOWN BUILDINGS &
REAL ESTATE PROPERTY LAND IMPROVEMENTS ACQUISITION (A) LAND IMPROVEMENTS
- ------------------------------------------------------- ----- ------------ ------------- ---------- ----- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FOR SALE AND UNDER DEVELOPMENT
St. Petersburg, Florida:
9th Street Property.................................. $ 5.4 $0.0 $ 0.0 $ 0.0 $ 5.4 $ 0.0
4th Street Property.................................. 2.5 0.0 1.0 (1.9) 1.6 0.0
Carillon............................................. 23.7 0.0 17.4 0.0 41.1 0.0
Lakeland, Florida:
Riverside Ranch...................................... 1.2 0.6 0.1 0.0 1.2 0.7
Gainesville, Florida:
Progress Center Land................................. 0.6 0.0 2.9 (2.5) 1.0 0.0
Miscellaneous.......................................... 1.0 0.0 0.8 (0.9) 0.9 0.0
----- ---- ------ ------ ----- ------
Sub-total.............................................. 34.4 0.6 22.2 (5.3) 51.2 0.7
----- ---- ------ ------ ----- ------
INCOME PRODUCING
OFFICE AND INDUSTRIAL BUILDINGS
St. Petersburg, Florida:
Barnett Tower........................................ 3.6 0.0 53.5 0.0 3.6 53.5
McNulty Station...................................... 1.5 0.5 9.9 (0.3) 2.0 9.6
Bayboro Properties................................... 2.8 0.9 0.8 (0.3) 2.6 1.6
3rd & 3rd............................................ 0.3 0.0 2.3 0.0 0.8 1.8
100 Carillon......................................... 1.5 0.0 6.3 0.0 1.5 6.3
Tampa, Florida:
7th Avenue........................................... 1.4 0.0 4.1 (0.9) 1.4 3.2
5th Avenue........................................... 0.1 0.0 0.1 0.0 0.1 0.1
Progress Packaging................................... 0.4 1.2 0.0 0.0 0.4 1.2
Tallahassee, Florida:
Highpoint Center..................................... 0.8 0.0 13.3 0.0 0.8 13.3
Gainesville, Florida:
Progress Center...................................... 0.3 0.0 11.2 (1.2) 0.3 10.0
Miscellaneous.......................................... 0.0 0.3 1.5 (0.9) 0.0 0.9
----- ---- ------ ------ ----- ------
Sub-total.............................................. 12.7 2.9 103.0 (3.6) 13.5 101.5
----- ---- ------ ------ ----- ------
DOCKAGE AND MARINE SERVICES
St. Petersburg, Florida:
Harborage of Bayboro................................. 1.7 4.4 9.7 (9.1) 1.7 5.0
----- ---- ------ ------ ----- ------
GRAND TOTAL............................................ $48.8 $7.9 $ 134.9 $(18.0) $66.4 $107.2
===== ==== ====== ====== ===== ======
<CAPTION>
ACCUMULATED CONSTRUCTION YEAR
REAL ESTATE PROPERTY TOTAL DEPRECIATION YEAR ACQUIRED
- ------------------------------------------------------- ------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
FOR SALE AND UNDER DEVELOPMENT
St. Petersburg, Florida:
9th Street Property.................................. $ 5.4 $ 0.0 n/a 1991
4th Street Property.................................. 1.6 0.0 n/a 1993
Carillon............................................. 41.1 0.0 n/a 1990
Lakeland, Florida:
Riverside Ranch...................................... 1.9 (0.7) 1984 1984
Gainesville, Florida:
Progress Center Land................................. 1.0 0.0 n/a 1984
Miscellaneous.......................................... 0.9 0.0 n/a n/a
------ ------
Sub-total.............................................. 51.9 (0.7)
------ ------
INCOME PRODUCING
OFFICE AND INDUSTRIAL BUILDINGS
St. Petersburg, Florida:
Barnett Tower........................................ 57.1 (7.1) 1990 1986
McNulty Station...................................... 11.6 (3.0) 1984 - 1988 1983 - 1985
Bayboro Properties................................... 4.2 (1.7) n/a 1984 - 1985
3rd & 3rd............................................ 2.6 (0.6) 1984 1993
100 Carillon......................................... 7.8 (1.2) 1987 1994
Tampa, Florida:
7th Avenue........................................... 4.6 (1.0) 1986 1986
5th Avenue........................................... 0.2 0.0 1979 1985
Progress Packaging................................... 1.6 (0.3) 1993 1993
Tallahassee, Florida:
Highpoint Center..................................... 14.1 (3.1) 1990 1995
Gainesville, Florida:
Progress Center...................................... 10.3 (3.0) 1984 - 1988 1984
Miscellaneous.......................................... 0.9 (0.5) n/a n/a
------ ------
Sub-total.............................................. 115.0 (21.5)
------ ------
DOCKAGE AND MARINE SERVICES
St. Petersburg, Florida:
Harborage of Bayboro................................. 6.7 (4.0) 1984 - 1988 1984
------ ------
GRAND TOTAL............................................ $173.6 $ (26.2)
====== ======
</TABLE>
- ---------------
(A) See "Notes to Schedule III -- Real Estate and Accumulated Depreciation."
S-3
<PAGE> 10
ECHELON INTERNATIONAL CORPORATION
NOTES TO SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
(A) Impairment writedown is based on management's estimate of fair market
value of assets determined to be impaired at December 31, 1995.
(B) The aggregate cost for Federal income tax purposes is $144.1 million.
(C) Reconciliation:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REAL ESTATE
Balance at beginning of period........................... $158.3 $156.3 $171.8
Acquisitions and improvements.......................... 17.0 7.8 3.7
Cost of real estate sold............................... (1.7) (5.8) (19.2)
------ ------ ------
Balance at end of period................................. $173.6 $158.3 $156.3
====== ====== ======
ACCUMULATED DEPRECIATION
Balance at beginning of period........................... $ 19.4 $ 15.2 $ 12.6
------ ------ ------
Additions:
Depreciation........................................ 4.8 3.6 4.1
Other............................................... 3.1 1.7 1.7
------ ------ ------
7.9 5.3 5.8
Deductions:
Accumulated depreciation of real estate sold........ (1.1) (1.1) (3.2)
------ ------ ------
Balance at end of period................................. $ 26.2 $ 19.4 $ 15.2
====== ====== ======
</TABLE>
S-4
<PAGE> 11
ECHELON INTERNATIONAL CORPORATION
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
FINAL FACE CARRYING
MATURITY PRIOR AMOUNT OF AMOUNT OF
DESCRIPTION INTEREST RATE DATE PERIODIC PAYMENT TERMS LIENS MORTGAGES MORTGAGES
- --------------------------- ------------- ---------- ----------------------------------- ----- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
First Mortgage Loans --
Office Buildings:
Madison Building......... Prime + .75% Nov. 1998 Varying amounts with $3.1 balloon $0.0 $ 3.6 $ 3.4
Continuum Building....... Prime + 1.5% Dec. 1998 Varying amounts with $8.2 balloon 0.0 11.0 9.2
Plaza Del Rio............ Prime + 1.5% Feb. 1997 Level amount with $5.3 balloon 0.0 5.5 5.3
Vine Street -- Olympia... Prime + .75% July 2001 $5.3 balloon 0.0 5.3 5.3
Vine Street -- Capital
View I................. Prime + .75% Oct. 1998 $5.8 balloon 0.0 5.8 5.8
Vine Street -- Capital
View II................ Prime + .75% Dec. 1999 $5.0 balloon 0.0 5.0 5.0
Vine Street -- Town
Square VI.............. Prime + .75% May 2001 $4.5 balloon 0.0 4.5 4.5
Vine Street -- Tacoma.... Prime + .75% Aug. 1996 $12.3 balloon(D) 0.0 12.3 12.3
---- ------ ------
0.0 53.0 50.8
---- ------ ------
First Mortgage Loans -- Industrial
Marquardt................ Prime + 2% Dec. 1998 $23.5 balloon 0.0 35.0 23.5
MacDill.................. Prime + 2% April 1997 Level amount with $0.4 balloon 0.0 0.5 0.4
First Mortgage Loans -- Life Care
South Port............... 11% April 2000 Varying amounts with $16.7 balloon 0.0 25.0 23.5
South Port
Supplemental........... 11% April 2000 Varying amounts with $2.1 balloon 0.0 2.5 2.4
Lake Port................ 11% April 2000 Varying amounts with $9.2 balloon 0.0 11.0 10.3
---- ------ ------
0.0 38.5 36.2
---- ------ ------
$0.0 $127.0 $110.8
==== ====== ======
</TABLE>
(A) At December 31, 1995 there were no loans subject to delinquent principal or
interest.
(B) Reconciliation of the carrying amount of mortgage loans to total carrying
amount of mortgages:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Beginning balance............................................ $122.5 $152.3 $143.6
New mortgage loans........................................... 0.0 0.0 38.2
Collections of principal..................................... (11.6) (29.8) (29.5)
------ ------ ------
Ending balance............................................... $110.9 $122.5 $152.3
====== ====== ======
</TABLE>
Total amount of mortgages extended as of December 31, 1995 is $28.8
million.
(C) The aggregate cost for federal income tax purposes is $110.5 million.
(D) Paid off in August 1996.
S-5
<PAGE> 12
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1 Information Statement dated as of ____________, 1996
3.1 Form of Amended and Restated Articles of Incorporation of
Echelon International Corporation
3.2 Form of Amended and Restated By-laws of Echelon International
Corporation
4.1 Specimen Common Share certificate
10.1 Form of Distribution Agreement between Florida Progress
Corporation and Echelon International Corporation
10.2 Form of Tax Sharing Agreement between Florida Progress
Corporation and Echelon International Corporation
10.3 Form of Employee Benefits Allocation Agreement between Florida
Progress Corporation and Echelon International Corporation
10.4 Form of Transition Services Agreement between Florida Progress
Corporation and Echelon International Corporation
10.5 Form of Note issued by Echelon International Corporation to
Progress Capital Holdings, Inc.
99.1 Form of Rights Agreement between Echelon International
Corporation and ____________________, as Rights Agent
99.2 Form of Articles of Amendment of Articles of Incorporation
Providing for Series A Junior Participating Preferred Stock
of Echelon International Corporation (attached as Exhibit A to
the Rights Agreement filed as Exhibit 99.2 hereto)
99.3 Form of Right Certificate (attached as Exhibit B to the Rights
Agreement filed as Exhibit 99.2 hereto)
<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM 10 RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PRELIMINARY
INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
SUBJECT TO COMPLETION OR AMENDMENT, DATED , 1996
INFORMATION STATEMENT
---------------------
ECHELON INTERNATIONAL CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
This Information Statement is being furnished in connection with the
distribution (the "Distribution") to holders of common stock, without par value
(the "Florida Progress Common Stock"), of Florida Progress Corporation ("Florida
Progress") of all outstanding shares of common stock, par value $.01 per share
(the "Echelon Common Stock"), of Echelon International Corporation ("Echelon").
As of , 1996, Echelon will own all of the real estate and financial
services businesses and operations which comprise the Echelon Business (as
defined below). See "Business."
Shares of Echelon Common Stock will be distributed to holders of Florida
Progress Common Stock of record as of the close of business on ,
1996 (the "Record Date"). Each such holder will receive one share of Echelon
Common Stock for every 15 shares of Florida Progress Common Stock held on the
Record Date. Share certificates representing shares of Echelon will be mailed on
, 1996 or as promptly as practicable thereafter. No consideration
will be paid by Florida Progress's stockholders for shares of Echelon Common
Stock. There is no current trading market for Echelon Common Stock, although a
"when-issued" market is expected to develop prior to the Distribution.
Application has been made for listing of the shares of Echelon Common Stock on
the New York Stock Exchange ("NYSE") under the symbol " ." See "The
Distribution -- Listing and Trading of Echelon Common Stock."
---------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY RECIPIENTS OF
ECHELON COMMON STOCK, SEE "RISK FACTORS."
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
---------------------
Stockholders of Florida Progress with inquiries related to the Distribution
should contact , telephone ( ) , the Distribution
Agent for the Distribution.
The date of this Information Statement is , 1996.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION STATEMENT SUMMARY......................................................... 1
SUMMARY FINANCIAL DATA................................................................ 7
SUMMARY PRO FORMA DATA................................................................ 8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS............................. 9
RISK FACTORS.......................................................................... 9
THE DISTRIBUTION...................................................................... 18
RELATIONSHIP BETWEEN FLORIDA PROGRESS AND ECHELON AFTER THE DISTRIBUTION.............. 23
DIVIDEND POLICY....................................................................... 25
CAPITALIZATION........................................................................ 26
SELECTED FINANCIAL DATA............................................................... 27
PRO FORMA FINANCIAL DATA.............................................................. 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 31
BUSINESS.............................................................................. 36
MANAGEMENT AND EXECUTIVE COMPENSATION................................................. 52
DESCRIPTION OF CAPITAL STOCK.......................................................... 57
AVAILABLE INFORMATION................................................................. 63
REPORTS OF ECHELON.................................................................... 63
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
i
<PAGE> 3
INFORMATION STATEMENT SUMMARY
The following is a summary of certain information contained in this
Information Statement. This summary is included for convenience only and should
not be considered complete. This summary is qualified in its entirety by the
more detailed information and financial statements contained elsewhere in this
Information Statement. Certain capitalized terms used but not expressly defined
in this summary are defined elsewhere in this Information Statement. This
Information Statement contains forward-looking statements which involve risks
and uncertainties. The actual results of Echelon and the degree to which Echelon
is able to implement its business plan, maximize the value of its assets, grow
its business and achieve profitability may differ significantly from the
proposed implementation and contemplated actions discussed in the forward-
looking statements. In particular, Echelon may not be able to collect loan and
lease receivables, to maintain occupancy levels at existing properties or
collect rent payments on existing assets, to identify and develop new properties
or to sell existing properties, loans or other assets in the manner or at the
times contemplated by the business plan and business described herein. Factors
that might cause such differences include, but are not limited to, those
discussed in "Risk Factors."
THE DISTRIBUTION
Distributing Company....... Florida Progress Corporation, a Florida
corporation.
Distributed Company........ Echelon, a Florida corporation. Echelon, formerly
known as PLC Leasing Corporation, is the successor
to Progress Credit Corporation ("PCC") and its
subsidiaries.
Business of Distributed
Company.................. Echelon is a real estate and financial services
company with operations in two business segments:
(i) development, ownership and management of
commercial and multi-family residential real estate
(the "Real Estate Business") and (ii)
collateralized financing of commercial real estate
and aircraft and leasing of aircraft and other
assets (the "Lending and Leasing Business"). The
Real Estate Business and the Lending and Leasing
Business are referred to collectively as the
"Echelon Business". Echelon's strategy subsequent
to the Distribution will be to focus on expanding
the Real Estate Business as follows:
- Residential Real Estate Development. Echelon
initially plans to develop, own and operate
apartment complexes on company-owned land in the
St. Petersburg area, and eventually on land to be
acquired elsewhere in Florida and the
southeastern United States. Echelon owns 137
acres of zoned developable land in the Gateway
area between Tampa, St. Petersburg and
Clearwater, which accounts for a substantial
portion of all the land currently zoned for
apartment development in that area. Echelon
believes the favorable market demographics, as
well as limited housing supply and growing local
employment base, suggest that apartment
development in the Gateway area is warranted and
could support 500 to 600 units annually for the
next five years.
- Commercial Real Estate Development. Echelon
intends to take advantage of the commercial real
estate market in the Gateway area, where
occupancy levels are averaging over 95%, by
developing its holdings within Carillon Park, a
432-acre commercial, office and multi-family
residential park. In particular, Echelon's plans
include office building development within
Carillon Park and elsewhere, subject to market
conditions and other relevant factors.
<PAGE> 4
- Low Income Housing Development. As part of
Echelon's real estate development plan, Echelon
intends to invest in, develop and operate,
affordable housing projects, including projects
entitled to the benefits of federal low-income
housing tax credits. Structured properly and as
presently available under federal law, these
housing tax credit projects generate
dollar-for-dollar tax credits over a 10-year
period and can be applied to Echelon's expected
future United States federal income tax
liability.
- Real Estate Property Management. Echelon
currently manages its owned office buildings.
After the Distribution, Echelon intends to expand
its real estate management services business by
offering to manage office buildings for third
parties, managing Echelon's new apartment
developments (see above) and managing low-income
housing tax credit projects for its own account
and for third parties.
With regard to the Lending and Leasing Business,
Echelon's strategies subsequent to the Distribution
are as follows:
- Real Estate and Aircraft Loans. Echelon does not
anticipate originating any new financings of
commercial real estate or aircraft unless such
financings facilitate a sale of an existing
asset. Echelon's strategy is to collect
outstanding loan balances as soon as practicable,
to take the steps necessary to maximize the value
of each asset, and, ultimately, to withdraw from
the business of commercial real estate lending
and aircraft lending as existing loans mature and
are repaid or otherwise liquidated.
- Aircraft and Other Leases. Echelon plans to hold
its leveraged lease assets to maturity or until
the termination value of the leveraged leasing
assets equals their market values and to hold its
other lease assets through expiration in
accordance with their respective terms. Echelon
will then either sell or hold and re-lease
pursuant to operating leases the underlying
aircraft or other assets, depending upon which
option is determined to provide the highest
risk-adjusted return.
For a more complete discussion of Echelon's assets
and strategy, see "Business."
Shares to be Distributed... The Distribution will be made to holders of record
on the Record Date of issued and outstanding shares
of Florida Progress Common Stock. Based on the
shares of Florida Progress Common Stock
outstanding as of , 1996, the
Distribution would consist of shares of
Echelon Common Stock. Each holder of Florida
Progress Common Stock will receive as a dividend
one share of Echelon Common Stock for every 15
shares of Florida Progress Common Stock held on the
Record Date.
The Board of Directors of Echelon has adopted a
stockholder rights agreement (the "Echelon Rights
Agreement"). Certificates evidencing shares of
Echelon Common Stock issued in the Distribution
will therefore represent the same number of Echelon
Rights (as defined below) issued under the Echelon
Rights Agreement. See "Description of Echelon
Capital Stock -- Echelon Rights Agreement." Unless
the context otherwise requires, references herein
to the Echelon Common Stock include the related
Echelon Rights.
2
<PAGE> 5
Florida Progress stockholders will not have to make
any payment or surrender or exchange shares of
Florida Progress Common Stock in order to receive
their pro rata share of the Distribution. No vote
of holders of Florida Progress Common Stock is
required or sought in connection with the
Distribution.
Fractional Share
Interests.................. Fractional shares of Echelon Common Stock will not
be distributed. Fractional shares of Echelon Common
Stock will be aggregated and sold in the public
market by the Distribution Agent, and the aggregate
net cash proceeds will be distributed ratably to
those stockholders otherwise entitled to such
fractional interests. See "The
Distribution -- Manner of Effecting the
Distribution."
Record Date................ The Record Date is , 1996. In order to
be entitled to receive shares of Echelon Common
Stock in the Distribution, holders of shares of
Florida Progress Common Stock must be such as of
the close of business on the Record Date.
Distribution Date.......... The "Distribution Date" is presently expected to be
on or about , 1996.
Distribution Agent......... will be the Distribution Agent (the
"Distribution Agent") for the Distribution.
United States Federal
Income Tax Consequences of
the Distribution......... Florida Progress has received a ruling from the
Internal Revenue Service ("IRS") to the effect that
the Distribution will be tax-free for United States
federal income tax purposes, except to the extent
that cash is received for fractional shares of
Echelon Common Stock. Florida Progress stockholders
will apportion their tax bases in Florida Progress
Common Stock held immediately before the
Distribution between such Florida Progress Common
Stock and the Echelon Common Stock received in the
Distribution, based on the relative fair market
values of the Florida Progress Common Stock and the
Echelon Common Stock as of the Distribution Date.
Florida Progress will provide appropriate
information to each holder of record of Florida
Progress Common Stock as of the Record Date
concerning the basis allocation. See "The
Distribution -- United States Federal Income Tax
Consequences of the Distribution."
Stock Exchange Listing..... There is not currently a public market for the
Echelon Common Stock. Application has been made to
list the Echelon Common Stock on the NYSE under the
symbol " ." It is presently anticipated
that Echelon Common Stock will be approved for
listing on the NYSE prior to the Distribution Date,
and trading is expected to commence on a
"when-issued" basis prior to the Distribution. On
the first NYSE trading day following the
Distribution Date, "when-issued" trading in respect
of the Echelon Common Stock will end and
"regular-way" trading will begin. See "The
Distribution -- Listing and Trading of Echelon
Common Stock."
Limited Relationships
Between Florida Progress
and Echelon After the
Distribution............. After the Distribution, neither Florida Progress
nor Echelon will have any ownership interest in the
other. Each of Florida Progress and
3
<PAGE> 6
Echelon will be an independent public company.
Prior to the Distribution, Florida Progress and
Echelon will enter into certain agreements
governing their relationships subsequent to the
Distribution and providing for the allocation of
tax, employee benefits and certain other
liabilities and obligations arising from periods
prior to the Distribution. Prior to the
Distribution, in connection with the repayment of
certain indebtedness owed by Echelon to Progress
Capital Holdings, Inc. ("PCH"), the current direct
parent corporation of Echelon and a direct, wholly
owned subsidiary of Florida Progress, Echelon will
issue a note to PCH (the "PCH Note"). In the
ordinary course of their respective businesses,
Echelon and Florida Progress and its affiliates are
parties to lease agreements pursuant to which
Echelon leases certain of its premises to Florida
Progress and its affiliates. These lease agreements
will continue after the Distribution. See
"Relationship Between Florida Progress and Echelon
After the Distribution."
Dividend Policies.......... The payment and level of cash dividends by Echelon
after the Distribution will be subject to the
discretion of the Echelon Board of Directors.
Echelon currently intends to retain all future
earnings for the development of its business and
does not anticipate paying any cash dividends for
the foreseeable future.
Pre-Distribution
Recapitalization and
Related Financing
Transactions............. Prior to the Distribution, Florida Progress
contributed $140 million to the equity of Echelon,
which was used by Echelon to repay advances from
Florida Progress. This recapitalization, and the
resulting reduction in interest expense of $8.1
million per year for each of the years ended
December 31, 1995, 1994, and 1993, has been
reflected retroactively in the historical
Consolidated Financial Statements of Echelon
included elsewhere in this Information Statement as
if such recapitalization occurred at the beginning
of the earliest period presented. After giving
effect to such recapitalization, as of June 30,
1996, Echelon remained obligated to repay $121.1
million of advances from Florida Progress. Echelon
expects that immediately prior to the Distribution,
Echelon's obligation to Florida Progress will have
been reduced to $84.1 million, reflecting the
repayment of a portion of such advances with
proceeds generated from operations, from maturities
and collections on loans and from planned sales of
assets. In addition to the contribution by Florida
Progress of $140 million to the equity of Echelon
as part of the recapitalization, Florida Progress
will contribute an additional $18 million to the
equity of Echelon prior to the Distribution to
provide cash for the payment of expenses incurred
in evaluating and implementing the Distribution and
to provide additional liquidity. Of the $84.1
million in advances expected to remain unpaid
immediately prior to the Distribution, $43 million
will be repaid concurrently with the Distribution
upon receipt of the $103 million in proceeds from
new, third-party secured financing which Echelon
expects to obtain, and the expected remaining
amount of $41.1 million will be evidenced by the
PCH Note. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
4
<PAGE> 7
Pre-Distribution
Reorganization........... Prior to the Distribution, as part of a
pre-Distribution reorganization, (i) Talquin
Development Company ("Talquin"), a direct, wholly
owned subsidiary of PCC, will be merged with and
into PCC, (ii) PCC will be merged with and into
Progress Leasing Corporation ("Progress Leasing"),
a direct, wholly owned subsidiary of PCC, and (iii)
Progress Leasing will be merged with and into
Echelon, a direct, wholly owned subsidiary of
Progress Leasing. Echelon, together with PCC,
Talquin, Progress Leasing and their respective
subsidiaries, are collectively referred to as the
"Echelon Group". Upon the merger of Progress
Leasing with and into Echelon, Echelon became the
successor to the Echelon Group.
Antitakeover Provisions.... The Amended and Restated Articles of Incorporation
(the "Articles of Incorporation") and Amended and
Restated By-laws (the "By-laws") of Echelon contain
provisions that may have the effect of discouraging
an acquisition of control of Echelon not approved
by its Board of Directors. Such provisions may also
have the effect of discouraging third parties from
making proposals involving an acquisition or change
of control of Echelon, although such proposals, if
made, might be considered desirable by a majority
of the stockholders of Echelon. Such provisions
could further have the effect of making it more
difficult for third parties to cause the
replacement of the Board of Directors of Echelon.
These provisions have been designed to enable
Echelon to develop its businesses and foster its
long-term growth without disruptions caused by the
threat of a takeover not deemed by its Board of
Directors to be in the best interests of Echelon
and its stockholders. Certain provisions of the
distribution agreement to be entered into between
Florida Progress and Echelon (the "Distribution
Agreement") may also have the effect of
discouraging third parties from making proposals
involving an acquisition or change of control of
Florida Progress or Echelon. See "Description of
Echelon Capital Stock" and "Relationship Between
Florida Progress and Echelon After the
Distribution -- Distribution Agreement."
The Board of Directors of Echelon has adopted a
stockholder rights agreement. A stockholder rights
agreement is designed to protect stockholders in
the event of an unsolicited offer and other
takeover tactics which, in the opinion of the Board
of Directors, could impair its ability to represent
stockholder interests. The provisions of a
stockholder rights agreement may render an
unsolicited takeover of Echelon more difficult or
less likely to occur or might prevent such a
takeover. See "Description of Capital
Stock -- Echelon Rights Agreement."
Echelon is subject to provisions of Florida
corporate law which may restrict certain business
combination transactions. See "Description of
Echelon Capital Stock -- Florida Business
Corporation Act."
See also "Description of Echelon Capital
Stock -- Provisions of Echelon Articles of
Incorporation and By-laws Affecting Change in
Control."
Echelon is also subject to contractual restrictions
limiting to 25% the portion of its voting
securities that may be owned by persons who are not
citizens of the United States or resident aliens of
the United States. See "Relationship Between
Florida Progress and Echelon After the
Distribution -- Distribution Agreement."
5
<PAGE> 8
Risk Factors............... Stockholders should carefully consider the matters
discussed under the section entitled "Risk Factors"
in this Information Statement.
* * *
This Information Statement is being furnished by Florida Progress solely to
provide information to stockholders of Florida Progress who will receive Echelon
Common Stock in the Distribution. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any securities of Florida Progress or
Echelon. The information contained in this Information Statement is believed by
Florida Progress and Echelon to be accurate with respect to Florida Progress and
Echelon, respectively, as of the date set forth on its cover. Changes may occur
after that date, and neither Florida Progress nor Echelon will update the
information except in the normal course of their respective public disclosure
practices.
6
<PAGE> 9
SUMMARY FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
of Echelon which have been derived from the Consolidated Financial Statements of
Echelon for the five years ended December 31, 1995, and the six months ended
June 30, 1996 and 1995. Results for the interim periods may not be indicative of
results for the full year. Historical consolidated financial information is not
expected to be indicative of Echelon's future performance as an independent
company. The information set forth below should be read in conjunction with the
information set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Echelon's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Information
Statement. The following information is qualified in its entirety by the
information and financial statements appearing elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ------ ------ ------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenue.............................. $ 27.6 $ 23.0 $ 47.6 $ 48.8 $ 66.5 $ 42.4 $ 94.4
Income from operations before
depreciation and provisions for
losses(1).......................... 3.5 12.5 25.5 29.7 31.7 25.7 63.0
Income (loss) from operations........ (30.5)(2) 5.8 12.1 13.9 19.7 14.5 35.0
Net income (loss)(3)................. $ (24.5)(2) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ (8.1) $ 4.3
BALANCE SHEET DATA:
Assets:
Lending and leasing................ $ 362.5 $ 429.3 $400.3 $478.8 $552.6 $ 598.1 $ 670.3
Real estate........................ 151.7 142.5 154.2 144.6 148.9 187.1 166.8
------- ------- ------- ------- ------- ------- -------
Total assets................ $ 514.2 $ 571.8 $554.5 $623.4 $701.5 $ 785.2 $ 837.1
======= ======= ======= ======= ======= ======= =======
Deferred income taxes................ $ 167.8 $ 194.3 $182.3 $224.3 $244.9 $ 268.3 $ 291.3
======= ======= ======= ======= ======= ======= =======
Capitalization:
Advances from Florida
Progress(3)...................... $ 121.1 $ 110.3 $110.0 $143.8 $181.2 $ 201.4 $ 264.8
Debt............................... 24.0 25.4 33.2 32.7 32.5 29.4 34.7
Common equity...................... 174.1 204.8 200.8 209.0 217.2 224.7 269.3
------- ------- ------- ------- ------- ------- -------
Total capitalization........ $ 319.2 $ 340.5 $344.0 $385.5 $430.9 $ 455.5 $ 568.8
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Income from operations before depreciation and provisions for losses is not
a defined term under generally accepted accounting principles ("GAAP") and
should not be construed as an alternative to operating income, net income or
cash flows from operating activities as determined by GAAP and should not be
construed as an indication of Echelon's operating performance or as a
measure of liquidity.
(2) Reflects $31.1 million pre-tax write-down of certain assets held for sale
and $8 million of pre-tax costs associated with the Distribution.
(3) Reflects a recapitalization of Echelon pursuant to which Florida Progress
contributed $140 million to the equity of Echelon which has been reflected
retroactively as if it had occurred at the beginning of the earliest earlier
period presented, and which was used to repay advances from Florida
Progress. Net income (loss) reflects the related reduction in interest
expense. The similarity of net income (loss) for the years ended December
31, 1995, 1994 and 1993 reflects, to some degree, the orderly withdrawal
strategy pursuant to which Echelon was being operated during such years. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
7
<PAGE> 10
SUMMARY PRO FORMA DATA
The following summary pro forma financial data have been derived from and
should be read in conjunction with the unaudited Pro Forma Consolidated Results
of Operations for the six months ended June 30, 1996 and the year ended December
31, 1995 and Pro Forma Consolidated Balance Sheet at June 30, 1996, which
present the consolidated results of operations and consolidated financial
position of Echelon assuming that certain transactions contemplated by the
Distribution had been completed as of January 1, 1995 and at January 1, 1996,
respectively, for purposes of the Pro Forma Consolidated Results of Operations,
and at June 30, 1996 for purposes of the Pro Forma Consolidated Balance Sheet.
These pro forma consolidated financial data should be read in conjunction with
the audited consolidated financial statements and footnotes for the three year
period ended December 31, 1995. The pro forma consolidated financial data are
presented for informational purposes only and may not necessarily reflect the
future results of operations or financial position of Echelon or what the
results of operations or financial position would have been had Echelon's
business been operated as a separate, independent company during the periods
shown. See "Pro Forma Financial Data."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE YEAR ENDED
30, 1996 DECEMBER 31, 1995
------------- -----------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
SUMMARY OF OPERATIONS:(1)
Revenue................................................................ $ 27.6 $47.6
Income from operations before depreciation and provisions for losses... 10.2 23.0
Income from operations................................................. 7.3 9.6
Net loss............................................................... $ (1.4) $(2.9)
======= ======
Net loss per common share(2)........................................... $ (.22) $(.45)
======= ======
BALANCE SHEET DATA:(3)
Assets:
Lending and leasing.................................................. $ 362.5
Real estate.......................................................... 186.4
-------
Total assets.................................................. $ 548.9
=======
Deferred income taxes.................................................. $ 167.8
=======
Capitalization:
Advances from Florida Progress....................................... $ 41.1
Long-term debt....................................................... 127.0
-------
Total debt.................................................... 168.1
Common equity........................................................ 192.1
-------
Total capitalization.......................................... $ 360.2
=======
</TABLE>
- ---------------
(1) The summary of operations data reflect additional general and administrative
expenses which would have been incurred by Echelon as a separate,
independent company and refinancing of advances from Florida Progress and
elimination of expenses not associated with Echelon's ongoing operations.
See "Pro Forma Consolidated Results of Operations" and the Notes thereto.
(2) Pro forma net loss per share is computed based on 6,466,897 shares of
Echelon being distributed in the Distribution.
(3) The balance sheet data reflect the refinancing of advances from Florida
Progress and a $18 million equity contribution by Florida Progress. See "Pro
Forma Consolidated Balance Sheet" and the Notes thereto.
8
<PAGE> 11
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding matters that are not
historical facts are forward-looking statements (as such term is defined in the
Securities Act of 1933, as amended), including (i) certain statements contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," such as those statements concerning Echelon's strategies,
generally, Echelon's expected sources of funds, and Echelon's expected uses of
funds, including its expected capital expenditures, and (ii) certain statements
contained in "Business," such as those statements concerning Echelon's strategy
(a) with respect to its office properties, to hold its existing portfolio of
properties with a focus on generating favorable growth in operating income
through leasing to high quality tenants and controlling operating expenses, (b)
with respect to its industrial and other properties, to increase cash flow as
market conditions improve and to determine and implement the optimum operation,
sale or development option for each property, (c) with respect to its real
estate management business, to expand such business, (d) with respect to its
other owned real estate and commercial and residential real estate development
activities, to develop commercial and residential real estate projects on its
currently owned properties and, eventually, on properties to be acquired and, in
addition, to sell certain properties to third parties, (e) with respect to its
collateralized commercial real estate loan portfolio, to collect outstanding
loan balances upon repayment at maturity or upon foreclosure and sale of the
collateral, (f) with respect to its leasing business, to hold the leveraged
leases to maturity or until the termination values of the assets equal their
respective market values and to re-lease or sell the assets underlying the
various leases to maximize returns, (g) with respect to its aircraft lending
business, to negotiate a sale or refinancing of its loans or to foreclose and
sell the collateral, and (h) to deploy the proceeds generated by the ultimate
disposition of certain assets to the Real Estate Business and to repayment of
the PCH Note. Because such statements involve risks and uncertainties, actual
strategies and the timing and expected results thereof may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause such differences include, but are not limited to, those discussed
herein under "Risk Factors."
RISK FACTORS
ABSENCE OF PRIOR TRADING MARKET FOR THE ECHELON COMMON STOCK; CHANGES IN TRADING
PRICES
Prior to the date hereof, there has not been any established trading market
for Echelon Common Stock. There can be no assurance as to the prices at which
Echelon Common Stock will trade before, on or after the Distribution Date.
Unless and until Echelon Common Stock is fully distributed and an orderly market
develops in Echelon Common Stock, the price at which such stock trades may
fluctuate significantly and may be lower or higher than the price that would be
expected for a fully distributed issue. Prices for Echelon Common Stock will be
determined in the marketplace and may be influenced by many factors, including
(i) the depth and liquidity of the market for Echelon Common Stock, (ii)
developments affecting the businesses of Echelon generally, (iii) investor
perception of Echelon, and (iv) general economic and market conditions. See "The
Distribution--Listing and Trading of Echelon Common Stock."
NEED FOR AND ACCESS TO CAPITAL
Echelon's anticipated increase in its level of real estate development
activities will require a significant amount of capital. Accordingly, the extent
of Echelon's real estate development will depend upon the amount of funds
generated through operating activities, maturity and collection of loans,
planned asset sales and project-based financings. There can be no assurance that
operating activities, maturity and collection of loans, planned asset sales and
project-based financings will generate net proceeds for Echelon in amounts and
at times necessary to enable Echelon to repay its debt obligations or as
otherwise contemplated by Echelon's business plan.
Echelon has historically relied on Florida Progress for various financial
and administrative services, and funding for the Echelon Business has
historically come, in part, from PCH, a direct, wholly owned subsidiary of
Florida Progress that finances the activities of Florida Progress's diversified
operations. PCH has
9
<PAGE> 12
historically funded Echelon through the issuance of commercial paper and
medium-term notes. Except as contemplated by certain of the agreements described
below, after the Distribution, Florida Progress will not provide such financial
and administrative support services. Although, as described below, concurrently
with or prior to the Distribution, Echelon expects to receive third-party loan
proceeds totalling $103 million secured by its owned real estate and
collateralized real estate loans, to the extent that Echelon may need additional
funding to finance its operations and capital expenditures, no assurance can be
given that Echelon will be able to access the capital markets or otherwise
obtain necessary financing in the future, or that any such financing can be
obtained in a timely and commercially acceptable manner. For these reasons,
Echelon may have to defer or otherwise limit certain development projects, which
could adversely affect Echelon's efforts to implement its strategy and its
business generally.
Echelon is and will be subject to the risks normally associated with debt
financing, including the risk that Echelon's cash flow will be insufficient to
meet required payments of principal and interest, the risk that existing
indebtedness on its properties (which in most cases will not have been fully
amortized at maturity) will not be able to be refinanced or that the terms of
such refinancing will not be as favorable as the terms of the existing
indebtedness. There can be no assurance that Echelon will be able to refinance
any indebtedness Echelon may incur or otherwise be able to obtain funds by
selling assets or raising equity to make required payments on maturing
indebtedness. If Echelon is unable to refinance its indebtedness on acceptable
terms, Echelon may be forced to dispose of assets upon disadvantageous terms,
which could result in losses to Echelon and acceleration of tax liabilities.
Moreover, a substantial portion of Echelon's assets are illiquid, and in the
event Echelon were required to sell certain of its assets in the near term or on
an accelerated basis, there can be no assurance that Echelon would be able to
consummate such sales, and any such sales could be consummated at values
substantially below those at which the assets are carried on Echelon's books.
If prevailing interest rates or other factors result in higher interest
rates at a time when Echelon must refinance its indebtedness, Echelon's interest
expense would increase, which would adversely affect Echelon's results of
operations and cash flow. Further, if a property or properties are mortgaged to
secure payment of indebtedness and Echelon is unable to meet mortgage payments,
the property or properties could be foreclosed upon by or otherwise transferred
to the mortgagee with a consequent loss of income and asset value to Echelon. In
addition, even with respect to non-recourse indebtedness, a lender may have the
right to recover deficiencies from Echelon in certain circumstances, including
fraud and environmental liabilities.
NEW OPERATING STRATEGY; RELIANCE ON KEY OFFICERS
Florida Progress had for a number of years operated the Echelon Business
pursuant to a strategy of orderly withdrawal. Echelon's current strategies are
intended to achieve growth and profitability, and therefore represent a
significant departure from the strategy which had guided the operation of the
Echelon Business prior to the Distribution. Echelon has had limited experience
executing its new strategies and in operating certain of its proposed
businesses, including low-income housing developments and investing in
low-income housing tax credits. There can be no assurance that management will
be able to implement such strategies or, if implemented, that such strategies
will enable Echelon to maximize the value of its assets, grow its business and
achieve profitability.
The successful implementation of these strategies by Echelon will depend in
a large part on certain key officers who have managed Echelon's businesses and
participated in the development of Echelon's business plan. Due to the unique
experience of these key officers and their knowledge of Echelon's assets, the
loss of such key officers as a team or the loss of certain individual members of
such team could have a material adverse effect on Echelon. See "Management and
Executive Compensation--Executive Officers."
CERTAIN ANTITAKEOVER PROVISIONS
The Articles of Incorporation and By-laws of Echelon contain provisions
that may have the effect of discouraging an acquisition of control of Echelon
not approved by its Board of Directors. Such provisions may also have the effect
of discouraging third parties from making proposals involving an acquisition or
change of control of Echelon, although such proposals, if made, might be
considered desirable by a majority of the
10
<PAGE> 13
stockholders of Echelon. Such provisions could further have the effect of making
it more difficult for third parties to cause the replacement of the Board of
Directors of Echelon. These provisions have been designed to enable Echelon to
develop its businesses and foster its long-term growth without disruptions
caused by the threat of a takeover not deemed by its Board of Directors to be in
the best interests of Echelon and its stockholders. Certain provisions of the
Distribution Agreement may also have the effect of discouraging third parties
from making proposals involving an acquisition or change of control of Florida
Progress or Echelon. See "Description of Capital Stock" and "Relationship
Between Florida Progress and Echelon After the Distribution -- Distribution
Agreement."
The Board of Directors of Echelon has adopted a stockholder rights
agreement. A stockholder rights agreement is designed to protect stockholders in
the event of an unsolicited offer and other takeover tactics which, in the
opinion of the Board of Directors, could impair its ability to represent
stockholder interests. The provisions of a stockholder rights agreement may
render an unsolicited takeover of Echelon more difficult or less likely to occur
or might prevent such a takeover. See "Description of Capital Stock -- Echelon
Rights Agreement."
Echelon is subject to provisions of Florida corporate law which may
restrict certain business combination transactions. See "Description of Capital
Stock -- Florida Business Corporation Act."
Echelon is also subject to contractual restrictions limiting to 25% the
portion of its voting securities that may be owned by persons who are not
citizens of the United States or resident aliens of the United States. See
"Relationship Between Florida Progress and Echelon After the
Distribution -- Distribution Agreement."
POTENTIAL TAXATION
Florida Progress has received a ruling from the Internal Revenue Service
(the "IRS") to the effect that, among other things, the Distribution will
qualify as a tax-free spinoff under Section 355 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code").
The IRS ruling is based on certain factual representations and assumptions
made by Florida Progress. If such factual representations and assumptions were
incorrect in a material respect, such ruling could become invalid. Florida
Progress is not aware of any facts or circumstances which would cause such
representations and assumptions to be incorrect. Each of Florida Progress and
Echelon has agreed to certain restrictions on its future actions to provide
further assurances that Section 355 of the Internal Revenue Code will apply to
the Distribution. See "Relationship Between Florida Progress and Echelon After
the Distribution."
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, then, in general, a corporate tax (which would be very
substantial) would be payable by the consolidated group, of which Florida
Progress is the common parent. In addition, under the consolidated return rules,
each member of the consolidated group (including Echelon) is jointly and
severally liable for such tax liability. Pursuant to the tax sharing agreement
to be entered into between Florida Progress and Echelon (the "Tax Sharing
Agreement") and the Distribution Agreement, Florida Progress and Echelon will
agree that if the Distribution were not to qualify under Section 355 of the
Internal Revenue Code due to the failure by one party to comply with the terms
of the IRS ruling letter, then such party would bear the entire cost of any
resulting tax liability to the consolidated Florida Progress group. If the
Distribution were not to qualify under Section 355 of the Internal Revenue Code
for a reason other than the failure of a party to comply with the terms of such
ruling letter, then any resulting tax liability would be borne by Florida
Progress. If the Distribution occurred and it were not to qualify under Section
355 of the Internal Revenue Code, the resulting tax liability would have a
material adverse effect on the financial position, results of operations and
cash flows of Echelon, and could have a material adverse effect on the financial
position, results of operations and cash flows of Florida Progress. See "The
Distribution--United States Federal Income Tax Consequences of the
Distribution."
RISKS ASSOCIATED WITH THE REAL ESTATE BUSINESS AND COLLATERALIZED REAL ESTATE
LENDING
General Real Estate Investment Risks. As a real estate development and
management company, Echelon is and will be subject to certain risks incident
generally to the ownership, development and
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management of real property. These risks include the cyclical nature of real
estate markets, governmental regulations, shortages of materials, strikes,
increases in the costs of labor and materials, and competition from other real
estate owners. In particular, a commercial property's revenues and value may be
adversely affected by a number of factors, including construction costs, the
national, state and local economic climate and real estate conditions (such as
oversupply of or reduced demand for space and changes in market rental rates);
the perceptions of prospective tenants of the safety, convenience and
attractiveness of the properties; the ability of the owner to provide adequate
management, maintenance and insurance; the ability to collect on a timely basis
all rent from tenants; the expense of periodically renovating, repairing and
reletting spaces; and increasing operating costs including real estate taxes and
utilities which may not be passed through to tenants. Certain significant
expenditures associated with investments in real estate (such as mortgage
payments, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in rental revenues from the
property. If a property were mortgaged to secure the payment of indebtedness and
if Echelon were unable to meet its mortgage payments, a loss could be sustained
as a result of foreclosure on the property or the exercise of other remedies by
the mortgagee. In addition, real estate values and income from properties are
also affected by such factors as compliance with laws, including tax and
environmental laws, zoning regulations, interest rate levels and the
availability of financing. While Echelon believes that its existing real estate
portfolio of land and buildings, together with its business strategy, will allow
it to manage such risks effectively, no assurance can be given as to the effect
such matters might have on its business, financial condition or results of
operations.
General Risks of Collateralized Commercial Real Estate Lending
Business. The factors listed under "General Real Estate Investment Risks" may
also adversely affect a borrower's ability to meet its obligations to Echelon
with respect to loans extended pursuant to Echelon's commercial real estate
lending business. Where Echelon's commercial real estate loans are not
personally guaranteed by the borrowers, Echelon relies solely on the value of
the underlying property for its security. In such cases, the borrower's ability
to make payments due under a loan and the amount Echelon may realize upon
default, including upon a bankruptcy of such borrower, are dependent in part
upon the economic performance of the property underlying the loan.
Dependence on Florida Real Estate Market Conditions. Currently, all of
Echelon's owned real estate properties are located in the State of Florida,
primarily in the Tampa Bay area, including St. Petersburg and Tampa, and
approximately 80% of Echelon's commercial rental space (measured by square
footage) is located in this area. Due to this lack of geographical
diversification, Echelon is dependent upon the continued demand for office,
industrial and other commercial space in the Tampa Bay area. Echelon may be
adversely affected in the event the demand for office space in St. Petersburg or
Tampa declines or the St. Petersburg or Tampa economy experiences a downturn.
Like other real estate markets, the Florida commercial real estate market has
experienced periodic economic fluctuations.
Regulatory Approvals for Development Projects. Before Echelon can develop
a property, it must obtain a variety of approvals from local and state
governments with respect to such matters as zoning, subdivision, architectural
design and environmental issues. Because of the discretionary nature of these
approvals and concerns which may be raised by various government officials and
public interest groups during both the approval and the development process,
Echelon's ability to develop properties and realize income from its projects
could be delayed, reduced or prevented.
General Risks of Acquisition, Development and Construction
Activities. Echelon intends to develop its existing properties and, eventually,
to acquire and develop additional properties, in each case to the extent that
they can be acquired and/or developed on acceptable terms and meet Echelon's
investment and development criteria. General investment risks associated with
any real estate investment include the risk that the investment will fail to
perform as expected or that estimates of the cost of development or of
improvements to bring an acquired property up to standards established for the
intended market position may prove inaccurate. Specific risks associated with
Echelon's development and construction activities include the risks that Echelon
may abandon development opportunities after expending resources to determine
feasibility; construction costs of a project may exceed original estimates;
occupancy rates and rents at a newly developed property may not be sufficient to
make the property profitable; and construction and lease-up may not be completed
on schedule, resulting in increased debt service expense and construction costs.
In addition, new development
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activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Tenant Defaults. A significant portion of Echelon's revenue is and is
expected in the future to be derived from rental income from real property.
Consequently, Echelon's cash flow and results of operations would be adversely
affected if a significant number of tenants failed to meet their lease
obligations. In the event of a default by a lessee, Echelon may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. Additionally, as a significant number of Echelon's
tenants are in the financial services, legal and accounting businesses,
Echelon's cash flow and results of operations could be adversely affected if
these industries experienced a significant reduction in workforce. At any time,
a tenant of Echelon's properties may also seek protection under the bankruptcy
laws, which could result in rejection and termination of such tenant's lease. If
a tenant rejects its lease in a bankruptcy proceeding, Echelon's claim for
breach of the lease would (absent collateral securing the claim) be treated as a
general unsecured claim. No assurance can be given that Echelon will not
experience significant tenant defaults in the future.
Reliance on Major Tenants. For the 12-month period ended June 30, 1996,
Echelon's largest tenants, Raymond James Financial Inc. ("Raymond James");
Andersen Consulting LLP ("Andersen Consulting"); Barnett Bank; Merrill Lynch,
Pierce, Fenner & Smith, Inc. ("Merrill Lynch"); KPMG Peat Marwick and Florida
Progress, accounted for approximately 54% of Echelon's total rental revenue.
Echelon could be adversely affected in the event of bankruptcy or insolvency of,
or a downturn in the business of, any of such tenants.
Borrower Defaults. In the event of a default by a borrower with respect to
Echelon's collateralized commercial real estate lending business, Echelon may
experience delays in enforcing its rights as mortgagee and may incur substantial
costs associated with protecting its investment. Echelon may be required to
acquire title to a property and thereafter to make substantial improvements or
repairs (and obtain financing for such matters) in order to maximize the
property's investment potential. In addition, in the event of a bankruptcy or
similar proceeding against a borrower, Echelon may not be able to realize on its
investment for an extended period of time. In such a proceeding, a court might
conclude that certain equity enhancements such as contingent interest should not
be treated as a debt of such borrower and Echelon ultimately may not be able to
recover its investment.
Low-Income Housing Tax Credit Risks. As part of Echelon's real estate
development plan, Echelon intends to invest in, develop and operate apartments
entitled to the benefits of federal low-income housing tax credits ("Housing Tax
Credits"). A significant component of the anticipated return on Housing Tax
Credit projects is generally attributable to the dollar-for-dollar tax credits
which are available over a ten year period. However, such credits are subject to
recapture if the rules for qualification for the credit are not sustained during
the required minimum compliance period, which is generally equal to the first 15
years of operations, but could be longer. Although Echelon believes that Housing
Tax Credit development projects could significantly reduce Echelon's taxable
income while creating favorable earnings and returns, Echelon has not previously
invested in Housing Tax Credits or developed Housing Tax Credit projects, and
there can be no assurance that Echelon will be able to obtain Housing Tax
Credits or to successfully identify, acquire or develop projects entitled to the
benefits of any Housing Tax Credits which are obtained. Furthermore, the
applicable regulations are highly complex, and there can be no assurance that
Echelon will be able to operate such projects in compliance with such
regulations or that credits taken in early years will not be subject to
subsequent recapture. The recapture of Housing Tax Credits relating to any
Housing Tax Credit project would adversely affect both the returns on such
project in particular and Echelon's results of operations and cash flows
generally. In addition, a bill which would have substantially limited the future
grants of federal low-income housing tax credits was recently passed by Congress
but vetoed by President Clinton. There can be no assurance that similar
legislation will not be re-introduced and passed in the future. See
"Business -- Other Owned Real Estate; Multi-Family Residential and Commercial
Real Estate Development -- Affordable Housing."
Real Estate Industry Competition. The real estate ownership, development
and management markets are generally regional, and the identity of Echelon's
competitors and the levels of competition vary in each
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area of activity and in each market. While Echelon encounters significant
competition in each area of activity and in each market, Echelon believes that
no one competitor is dominant. In particular, within the Tampa Bay area in which
Echelon's operations are concentrated, there are numerous commercial properties
that compete with Echelon's properties in attracting tenants, numerous companies
that compete with Echelon in selecting land for development and properties for
acquisition (including within the affordable housing market generally and for
Housing Tax Credits in particular) and numerous companies that compete for real
estate management business. Certain of these competitors have significantly
greater financial resources than Echelon and may have greater experience than
Echelon in acquiring, developing and managing real estate.
Uninsured Loss. Echelon carries comprehensive liability, fire, extended
coverage insurance with respect to all of its properties and carries rental loss
insurance with respect to substantially all of its properties, in each case,
with policy specifications, insured limits and deductibles customarily carried
for similar properties. Echelon also requires borrowers in its lending business
to obtain such insurance for properties securing Echelon's mortgage loans. There
are, however, certain types of losses (such as losses arising from acts of war
or relating to pollution) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a loss in
excess of insured limits occur for a property owned by Echelon, Echelon could
lose its capital invested in a property, as well as the anticipated future
revenue from such property and would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss would
adversely affect the business of Echelon and its financial condition and results
of operations. In addition, an uninsured loss for a borrower in Echelon's
collateralized commercial real estate lending business could increase the risk
of default on the borrower's mortgage loan with Echelon.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or petroleum product releases at such property and may be held
liable to a governmental entity or to third parties for damages to property or
natural resources and for investigation and remediation costs incurred by such
parties in connection with the contamination. Such laws typically impose
remediation responsibility and liability without regard to whether the owner
knew of or caused the presence of the contaminations, and the liability under
such laws has been interpreted to be joint and several. The cost of
investigation, remediation or removal of such substances may be substantial and
the owner's liability therefor under such laws is generally not limited and may
exceed the value of the property or the aggregate assets of the owner. In
addition, the presence of such substances, or the failure properly to remediate
the contamination on such property, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances or petroleum products at a disposal or treatment facility also may be
liable for the costs of removal or remediation of a release of hazardous or
toxic substances or petroleum products at such disposal or treatment facility,
whether or not such facility is owned or operated by such person. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
In addition to statutory liability, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, Echelon may be liable for costs and
damages of the types described above. Statutes of limitations applicable to
liabilities arising from releases of hazardous or toxic substances or petroleum
products generally are not based on the time of disposal.
Certain federal, state, and local laws and regulations impose requirements
on the construction and operation of commercial buildings, including
requirements for pre-construction review of environmental impacts, permit
requirements for the discharge of wastewater and the operation of fossil fuel
burning equipment above a certain size, restrictions on the construction and
operation of certain commercial parking facilities, and approval requirements
for the construction and use of structures in certain tidelands and wetlands.
Failure to comply with such requirements could have a material adverse effect on
Echelon's operations of its properties or result in penalties that could have a
material adverse effect on Echelon's business, financial condition or results of
operations.
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Certain federal, state and local laws, regulations and ordinances govern
the removal, encapsulation, disturbance, or release to the environment of
asbestos-containing materials ("ACMs") in the event of construction, remodeling,
renovation or demolition, of a building. Such laws generally allow for
imposition of fines for failure to comply with such requirements, may impose
liability for the release of ACMs and may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with ACMs. The potential for release of, or exposure to, asbestos
from ACMs is greater if ACMs are damaged and "friable." "Friable" ACMs are
generally any ACMs that can be crumbled, pulverized, or reduced to powder by
hand pressure. In connection with the ownership and operation of its properties,
Echelon may be subject to such requirements or potentially liable for such
costs.
Certain federal and state regulations also apply to the generation,
storage, transportation, and disposal of hazardous wastes. Other federal, state,
and local regulations and ordinances set forth requirements applicable to the
construction, operation, licensing, and removal of certain storage tanks and the
storage of flammable liquids. As a result of the ownership and operation of its
properties, Echelon may be subject to such requirements. Failure to comply with
such requirements could have a material adverse effect on Echelon's operations
of its properties or result in penalties that would have a material adverse
effect on Echelon's business, financial condition or results of operations.
Many of Echelon's properties are located in urban areas where current or
historic industrial uses of the areas may have caused site contamination at the
properties. Nonetheless, at this time, Echelon does not anticipate that
regulatory authorities will require remediation of such properties in any manner
that would result in a material adverse effect on Echelon's business, financial
condition or results of operations. See "Business--Governmental and
Environmental Regulation--Real Estate Industry."
RISKS ASSOCIATED WITH AIRCRAFT LEASING AND LENDING
General. Aircraft leasing involves numerous risks, including risks
stemming from the obsolescence or physical deterioration of aircraft and the
possibility of defaults by lessees. In addition, fluctuations in general
business and economic conditions, the adoption of restrictive regulations and
legislation, changes in consumer demand for air travel, fluctuations in fuel
prices and other factors over which lessors of aircraft have no control could be
expected to affect adversely the supply and demand for aircraft or aircraft
leases and may cause cost increases relating to the leasing of aircraft that
cannot be offset by increased leasing revenues. The market for aircraft is
currently characterized by a relatively large supply of most types of aircraft
and relatively weak demand, which adversely affects the marketability and
near-term value of Echelon's portfolio of aircraft lease assets. Certain of the
risks and other factors affecting the aircraft leasing business, as they apply
to Echelon, are described in more detail below.
Risks of Lessee Defaults or Bankruptcy of Lessees. Due to many factors,
including the fluctuating state of the economy, uncertain traffic levels,
intense route and fare competition and the ease of entry of new airlines under
the Airline Deregulation Act of 1978, several commercial airlines in recent
years have been forced to suspend or cease operations due to financial
difficulties. These airlines have filed petitions for reorganization under the
Federal Bankruptcy Code, have merged with other airlines or have been
liquidated. Echelon believes this recent economic uncertainty in the commercial
airline industry is indicative of the periodic fluctuations in the industry's
economic performance. No assurance can be given that weakening financial
condition or bankruptcies of lessees of aircraft from Echelon would not have a
material adverse effect on Echelon's business, results of operations or
financial condition. Moreover, if aircraft are returned by bankrupt carriers,
there can be no assurance that Echelon will be able to sell or re-lease such
aircraft on favorable terms or in a timely manner.
Certain provisions of Echelon's leases may not be enforceable upon a
default by a lessee or in the event of a lessee's bankruptcy. The enforceability
of leases will be subject to certain limitations imposed by federal and
applicable state law and equitable principles. See "Business--Collateral
Financing and Leasing of Aircraft/Equipment--Bankruptcy of Lessees." In
evaluating a potential lessee of an aircraft, Echelon has considered such
factors as creditworthiness of the lessee, the aircraft's potential value and
the anticipated usage and rental value of the aircraft. However, there can be no
assurance as to the extent to which lessees will be able to perform their
financial and other obligations under their leases. Default by a lessee may
result in loss of revenue and litigation costs to Echelon which might not be
recovered from the lessee, and the aircraft
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may be returned without notice, thereby interrupting receipt of lease revenues
by Echelon. To the extent a default or bankruptcy by a lessee required Echelon
to sell the underlying asset, certain tax liabilities of Echelon could be
accelerated. See "Aircraft Remarketing and Sale," below. In addition, upon
default, particularly if the lessee is in bankruptcy, Echelon may be delayed in
or prevented from enforcing certain of its rights under the lease and in
re-leasing or selling the aircraft. See "Business--Collateralized Financing and
Leasing of Aircraft/Equipment--Bankruptcy of Lessees."
Echelon leases three aircraft to USAir Inc. ("USAir"), a subsidiary of
USAir Group, Inc. ("USAir Group"), which reported significant operating losses
in each of the four years ended December 31, 1994 and which also reported
negative stockholders' equity at December 31, 1995, 1994 and 1993. Although for
the year ended December 31, 1995, USAir Group reported positive operating and
net income, USAir Group also reported that USAir's high cost structure makes its
financial condition, results of operations and prospects more susceptible to an
economic downturn and competitive conditions than many of its major competitors
amid the growing low-cost, low fare environment of the domestic airline
industry. If USAir is unable to remain a viable competitor in the industry,
USAir may be unable to meet its obligations to Echelon. Any failure to pay rent
by USAir could have a material adverse effect on Echelon. In particular, should
USAir default on its leases with Echelon, or file for bankruptcy and reject its
aircraft leases with Echelon and other lessors, there could be a material
decrease in the market value of the types of aircraft leased to USAir due to the
sudden increase in the availability of these aircraft for lease or sale. In such
a case, Echelon could suffer significant losses on the ultimate disposal of the
related aircraft or upon the ultimate repossession of the aircraft by the
lenders, as well as significant acceleration of tax liabilities with the
consequent adverse impact on cash flow.
Echelon has an interest in two aircraft and two engines leased to operators
based outside the United States and one aircraft loan to an operator based
outside the United States. These aircraft are not registered in the United
States and it is not possible to file liens thereon with the Federal Aviation
Administration (the "FAA"). Further, in the event of a lessee default or
bankruptcy, repossession and claims will be subjected to laws other than those
of the United States.
Citizenship. Under the Federal Aviation Act, as amended (the "FAA Act"),
the operation of an aircraft not registered with the FAA in the United States is
generally unlawful. Subject to certain limited exceptions, an aircraft may not
be registered under the FAA Act unless it is owned by a "citizen of the United
States" or a "resident alien" of the United States. If Echelon were to cease
being a "citizen of the United States" or a "resident alien" of the United
States, Echelon could be subject to claims based upon the breach of covenants
and representations concerning its status as a citizen of the United States
included in the contracts underlying its leveraged, direct finance and operating
leases. Because Florida Progress will continue to guarantee certain of these
covenants after the Distribution, the Distribution Agreement will require that
the Echelon Chairman, the Echelon President and two-thirds of the Echelon Board
of Directors be United States citizens or resident aliens within the meaning of
the FAA Act for as long as any of such covenants are guaranteed by Florida
Progress.
Leasing Industry Competition. The aircraft leasing industry is highly
competitive, offering users alternatives to the purchase of nearly every type of
aircraft. Competitive conditions vary considerably depending upon the type of
aircraft to be leased and the nature of the prospective lessee. As Echelon's
aircraft leases mature, Echelon will be subject to such competition to the
extent it attempts to re-lease such aircraft. In attempting to obtain
commitments to re-lease aircraft to specific lessees, Echelon may be expected to
compete, directly or indirectly, with aircraft manufacturers, airlines and other
operators, equipment managers, leasing companies, financial institutions and
numerous other parties engaged in leasing, managing, marketing or remarketing
aircraft. Many of these competitors have significantly greater financial
resources than Echelon and may have greater experience than Echelon in managing,
leasing, operating and selling aircraft. Such competitors may offer to lease
aircraft at rates lower than those which Echelon can reasonably offer and may
provide certain benefits, such as maintenance, crews, support services and
trade-in privileges, which Echelon generally cannot provide. In addition, to the
extent troubled airlines seek to re-negotiate the terms of the leases relating
to their aircraft, certain of Echelon's competitors with greater resources may
be able to bring more leverage to bear in avoiding re-negotiation or may be able
to enter into such negotiations and achieve relatively more favorable terms than
Echelon would be able to do.
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Airline Industry Conditions and Competition. Conditions and competition in
the airline industry may weaken the creditworthiness of lessees on Echelon's
aircraft leases and result in losses to Echelon due to, among other things,
lease payment defaults or a reduction of the residual value of the leased
aircraft due to inadequate cash flow to meet lessee's maintenance and other
operating obligations under the Echelon leases. The airline industry is highly
competitive and susceptible to price discounting. Airline profit levels are
highly sensitive to, and have been severely impacted by, adverse changes in fuel
costs, average yield (fare levels) and passenger demand. The emergence in recent
years of several new carriers, typically with low cost structures, has further
increased the competitive pressures on the major airlines in the United States.
In some cases, the new entrants have initiated or triggered price discounting.
Although the domestic airline industry has generally abandoned deeply discounted
pricing structures, and fare levels have generally increased from 1993 levels,
significant industry-wide discounts could be reimplemented at any time, and, in
some markets, have been reimplemented, and the introduction of broadly
available, deeply discounted fares by a major airline in the United States would
result in lower yields for the entire industry and could have a material adverse
effect on operating results for lessees of aircraft from Echelon and,
consequently, on Echelon.
Insurance. The lessees of Echelon's aircraft are responsible for the
maintenance of public liability, property damage and all-risk aircraft hull
insurance on the aircraft to the extent described in the leases with respect to
such aircraft. The failure of any lessee to adequately insure the aircraft, or
the retention of self-insurance amounts, will affect the proceeds which could be
obtained upon an event of loss involving the aircraft and, thus, may affect the
proceeds available to Echelon. The lessees of Echelon's aircraft maintain
casualty insurance in such amounts and covering such risks as Echelon has deemed
advisable. However, there is no assurance that sufficient coverage will continue
to be available, that casualties occurring to Echelon's aircraft will be insured
or that, if insured, the insurance proceeds will be sufficient to cover the
loss.
Section 504 of the FAA Act provides that no lessor of any civil aircraft
under a bona fide lease of 30 days or more will be liable by reason of his
interest as lessor or owner of the aircraft so leased for any injury to or death
of persons, or damage to or loss of property, on the surface of the earth caused
by such aircraft or by the ascent, descent or flight of such aircraft or by the
dropping or falling of an object therefrom, unless such aircraft is in the
actual possession or control of the lessor. Although it is expected that the
provisions of Section 504 will protect Echelon from liability for injury, death,
damage or loss caused by an aircraft or the operation thereof, there are certain
circumstances under which the protections of Section 504 may not apply. For
example, at least one court has held that Section 504 does not preempt state law
which may apply to hold the lessor or owner of an aircraft liable for injuries
suffered inside the aircraft while in flight. Because there is little case law
interpreting Section 504, there can be no assurance that its provisions will
fully protect Echelon from all liabilities in connection with any injury, death,
damage or loss which may be caused by an aircraft. In addition, Section 504 does
not preempt state law with respect to liability for third-party injuries arising
from a lessor's or owner's own negligence.
Regulatory Matters. The maintenance and operation of aircraft are strictly
regulated by the FAA, which oversees such matters as aircraft certification,
inspection and safety, certification of personnel and record keeping. In the
last several years, the FAA has issued a number of administrative directives and
other regulations relating to, among other things, collision avoidance systems,
airborne windshear avoidance systems, noise abatement and increased inspection
requirements, which will require lessees or Echelon to incur additional
expenditures for compliance. See "Business -- Governmental and Environmental
Regulation -- Aircraft Leasing Industry." If a lessee fails to comply with FAA
requirements, the cost of complying with these requirements could have a
substantial adverse effect on Echelon. In addition, future changes in government
laws or regulations, including laws and regulations governing aviation safety,
environmental protection (particularly noise compliance requirements) and fuel
conservation, may increase the costs of operating or maintaining the aircraft
owned by Echelon and may adversely affect the residual values of the aircraft.
See "Business -- Governmental and Environmental Regulation -- Aircraft Leasing
Industry."
Maintenance. The lessees are responsible for the maintenance, service,
repair and overhaul of the leased aircraft, but only to the extent described in
the leases. The failure of any lessee (or any sublessee) to adequately maintain,
service, repair or overhaul an aircraft may adversely affect the value of such
aircraft and thus adversely affect Echelon. Notwithstanding compliance by any
lessee (or any sublessee) with its obligations under any aircraft lease to
adequately maintain, service, repair or overhaul the aircraft subject to
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such lease, the value of the aircraft may deteriorate and may adversely affect
the residual value of the aircraft to Echelon.
Repossession. The leases generally do not contain any general geographic
restriction on the lessee's (or any sublessee's) ability to operate the
aircraft. The lessees are also generally permitted, upon compliance with the
leases, to register the aircraft in foreign jurisdictions and to sublease the
aircraft. While Echelon's rights and remedies in the event of a default under
the leases include the right to terminate the leases and repossess the aircraft
leased thereunder, it may be difficult, expensive and time-consuming to obtain
possession of the aircraft, particularly when an aircraft located outside the
United States has been registered in a foreign jurisdiction or is subleased to a
foreign operator. Any such exercise of the right to repossess the aircraft may
be subject to the limitations and requirements of applicable law, including the
need to obtain consents or approvals for deregistration or reexport of the
aircraft, which may be subject to delays and to political risk. When a
defaulting sublessee or other permitted transferee is the subject of a
bankruptcy, insolvency or similar event, such as protective administration,
additional limitations may apply.
Furthermore, certain jurisdictions may accord higher priority to certain
other liens or other third-party rights over the aircraft. These factors could
limit the benefits of the security interest in the aircraft.
Aircraft Remarketing and Sale. On termination of a lease and return or
repossession of an aircraft to or by Echelon, Echelon would need to remarket the
aircraft to realize its full investment. The remarketing of aircraft may be
through a lease or sale. The terms and conditions of any such transaction cannot
be determined until such time as the transaction is consummated. Whether an
investment in any aircraft initially subject to a leveraged or direct finance
lease will ultimately prove to have been profitable may depend upon the terms on
which such aircraft will be re-leased or sold. No assurance can be given that as
aircraft come off lease, Echelon will be able to re-lease or sell such aircraft
on commercially acceptable terms or in a timely manner. Furthermore, in the
event of a lessee default or bankruptcy requiring Echelon to sell the aircraft
prior to expected maturity of the lease, Echelon would accelerate the incurrence
of tax liabilities, which could be significant, even if the aircraft is sold for
less than its long-term value.
THE DISTRIBUTION
INTRODUCTION
On July 1, 1996, the Board of Directors of Florida Progress approved in
principle a plan to distribute all the issued and outstanding Echelon Common
Stock to all holders of outstanding Florida Progress Common Stock. On
, 1996, the Florida Progress Board of Directors formally approved
the Distribution and declared a dividend payable to each holder of record at the
close of business on the Record Date of one share of Echelon Common Stock for
every 15 shares of Florida Progress Common Stock held by such holder on the
Record Date.
On April 11, 1996, Florida Progress received a ruling from the IRS that the
receipt by Florida Progress stockholders of the Echelon Common Stock in the
Distribution will be generally tax-free to such stockholders and Florida
Progress for United States federal income tax purposes. On or before the
Distribution Date, Florida Progress will deliver all of the outstanding shares
of Echelon Common Stock to the Distribution Agent for transfer and distribution
to the holders of record of Florida Progress Common Stock on the Record Date.
The Distribution will be made on or about , 1996. Echelon's principal
executive offices are located at One Progress Plaza, Suite 2400, St. Petersburg,
Florida, 33701, telephone (813) 824-6767.
Questions relating to the Distribution prior to the Distribution Date or
relating to transfers of Echelon Common Stock after the Distribution Date should
be directed to: [Name and Address of Distribution Agent], telephone ( )
.
REASONS FOR THE DISTRIBUTION
In 1991, after a severe downturn in the airline and real estate industries,
Florida Progress reviewed the results of its lending and leasing and real estate
businesses and assessed the long-term prospects of such businesses and
determined that these businesses were not a strategic fit for Florida Progress.
In part, this was due to the increasing capital needs of the lending and leasing
and real estate businesses and to the competition
18
<PAGE> 21
for capital between such businesses and the other businesses within the
consolidated Florida Progress group. In light of the competing capital needs,
management of Florida Progress was also concerned that if Florida Progress did
not begin to withdraw from such businesses, the cost of capital could increase
for other operations of the Florida Progress group. Consequently, in September
1991, Florida Progress announced its plan to withdraw in an orderly manner from
the lending and leasing and real estate businesses. As a result of Florida
Progress's orderly withdrawal strategy, between September 30, 1991 and December
31, 1995, Echelon decreased its portfolio by approximately $583 million, or 51%
of the September 30, 1991 portfolio. Although Florida Progress's orderly
withdrawal strategy had resulted in a substantial reduction in the size of the
portfolio, the continued weakness in the airline industry and commercial real
estate market had slowed Florida Progress's efforts. As a result, Florida
Progress continued to examine other business options that could accelerate the
process.
After a careful review of available options, on July 1, 1996 the Florida
Progress Board of Directors approved in principle a plan to spin-off the Echelon
Business as a separate public company to Florida Progress stockholders as the
best alternative available for Florida Progress and its stockholders. The Board
of Directors of Florida Progress believes that the separation of Echelon from
Florida Progress will provide each of Florida Progress and Echelon with greater
managerial, operational and financial flexibility to respond to changing market
conditions in their different business environments.
The discussion of the reasons for the Distribution set forth herein
includes forward-looking statements that are based upon numerous assumptions
with respect to the ability of Echelon's management to maximize the value of its
assets, grow the business and achieve profitability and with respect to other
factors which may be beyond the control of Echelon's management. Many of such
factors are discussed above under the caption "Risk Factors."
Strategic and Management Considerations. The Distribution represents an
acceleration of Florida Progress's existing strategy to withdraw from the
lending and leasing and real estate businesses, and is designed to separate
distinct businesses that operate under different market and competitive
conditions. The Distribution will allow the management of each of Florida
Progress and Echelon to focus more intensively on its own businesses and provide
each company flexibility to grow in a manner best suited for its businesses and
markets. The Distribution should be beneficial to each of Florida Progress and
Echelon, because it will enable the management of each to design and advance
corporate policies and strategies that are based primarily on its own business
characteristics and to concentrate its financial resources wholly on its own
operations. The Distribution will also permit Echelon to design incentive
compensation programs that relate more directly to its own business
characteristics and performance.
Future Growth. The Distribution will also provide Echelon management with
the opportunity to pursue a business plan designed to maximize the value of
Echelon's assets, to grow the businesses comprising the Real Estate Business and
to achieve profitability. To facilitate its corporate objectives of growth and
profitability, Echelon is expected to employ three distinct strategies. First
and foremost, Echelon will pursue real estate development opportunities for its
existing undeveloped real estate assets, including office, commercial and
multi-family residential development of the 134 remaining acres owned by Echelon
within Carillon Park. Second, with regard to its existing portfolio of aircraft
assets, commercial real estate loans and income-producing real property, Echelon
will attempt to maximize long-term values and cash flow through active
management, selected asset sales and opportunistic capital redeployment. Third,
concurrent with the management of its existing portfolio, Echelon will pursue
several additional businesses with attractive growth potential. Echelon expects
that these businesses, which include real estate management services and Housing
Tax Credit and other affordable housing development projects, will provide an
additional basis for Echelon's future growth and profitability. See "Business."
Given the different priorities and strategies of Florida Progress, pursuing such
opportunities was not practicable for Echelon prior to the Distribution.
Investor Understanding and Flexibility. Debt and equity investors should
be able to evaluate better the financial performance of each of Florida Progress
and Echelon and their respective strategies, thereby enhancing the likelihood
that each will achieve appropriate market recognition and valuation. The
Distribution
19
<PAGE> 22
will also provide investors with additional flexibility by allowing them to make
separate investment decisions regarding Florida Progress and Echelon.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on the Distribution Date to stockholders of
record of Florida Progress at the close of business on the Record Date. Prior to
the Distribution Date, PCH, which holds all the issued and outstanding shares of
Echelon Common Stock, will declare a dividend of all such Echelon Common Stock
to Florida Progress, and Florida Progress will deliver all such outstanding
shares of Echelon Common Stock to the Distribution Agent for distribution. The
Distribution Agent will mail, on or about the Distribution Date, certificates
representing the shares of Echelon Common Stock to Florida Progress stockholders
of record on the Record Date. Florida Progress stockholders will not be required
to pay for shares of Echelon Common Stock received in the Distribution, or to
surrender or exchange shares of Florida Progress Common Stock in order to
receive shares of Echelon Common Stock. No vote of Florida Progress stockholders
is required or sought in connection with the Distribution.
No certificates or scrip representing fractional shares of Echelon Common
Stock will be issued to Florida Progress stockholders as part of the
Distribution. In lieu of receiving fractional shares of Echelon Common Stock,
each holder of Florida Progress Common Stock who would otherwise be entitled to
receive a fractional share will receive cash for such fractional interests. The
Distribution Agent will, as soon as practicable after the Distribution Date,
aggregate and sell all such fractional interests on the NYSE at then prevailing
market prices and distribute the aggregate proceeds (net of brokerage fees)
ratably to Florida Progress stockholders otherwise entitled to such fractional
interests. See "United States Federal Income Tax Consequences of the
Distribution" below for a discussion of the United States federal income tax
treatment of fractional share interests.
IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF ECHELON COMMON STOCK IN THE
DISTRIBUTION, FLORIDA PROGRESS STOCKHOLDERS MUST BE STOCKHOLDERS AT THE CLOSE OF
BUSINESS ON THE RECORD DATE, , 1996.
The Board of Directors of Echelon has adopted a stockholder rights
agreement. Certificates evidencing shares of Echelon Common Stock issued in the
Distribution will therefore represent the same number of Echelon Rights issued
under the Echelon Rights Agreement. See "Description of Capital Stock -- Echelon
Rights Agreement." Unless the context otherwise requires, references herein to
the Echelon Common Stock include the related Echelon Rights.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Florida Progress has received a ruling letter from the IRS to the effect
that, among other things, the Distribution will qualify as a tax-free spinoff
under Section 355 of the Internal Revenue Code. Under Section 355 of the
Internal Revenue Code, in general:
1. Holders of Florida Progress Common Stock will not recognize any income,
gain or loss as a result of the Distribution except that holders of Florida
Progress Common Stock that receive cash in lieu of fractional shares of Echelon
Common Stock will recognize gain or loss equal to the difference between such
cash and the tax basis allocated to such fractional shares. Any such gain or
loss will constitute capital gain or loss if such fractional shares would have
been held as a capital asset on the Distribution Date.
2. Holders of Florida Progress Common Stock will apportion the tax basis of
their Florida Progress Common Stock between such Florida Progress Common Stock
and any Echelon Common Stock (including fractional shares of Echelon Common
Stock) received by such holder in the Distribution in proportion to the relative
fair market values of such stock on the Distribution Date. Florida Progress will
provide appropriate information to each holder of record of Florida Progress
Common Stock as of the Record Date concerning the basis allocation.
3. The holding period for the Echelon Common Stock received in the
Distribution by holders of Florida Progress Common Stock will include the period
during which such holder held the Florida Progress Common
20
<PAGE> 23
Stock with respect to which the Distribution was made, provided that such
Florida Progress Common Stock is held as a capital asset by such holder on the
Distribution Date.
4. The Distribution will not be treated as a taxable disposition of Echelon
by Florida Progress.
Current Treasury regulations require each holder of Florida Progress Common
Stock who receives Echelon Common Stock pursuant to the Distribution to attach
to his or her United States federal income tax return for the year in which the
Distribution occurs a detailed statement setting forth such data as may be
appropriate in order to show the applicability of Section 355 of the Internal
Revenue Code to the Distribution. Florida Progress will convey the appropriate
information to each holder of record of Florida Progress Common Stock as of the
Record Date.
The IRS ruling is based on certain factual representations and assumptions
made by Florida Progress. If such factual representations and assumptions were
incorrect in a material respect, such ruling could become invalid. Florida
Progress is not aware of any facts or circumstances which would cause such
representations and assumptions to be incorrect. Each of Florida Progress and
Echelon has agreed to certain restrictions on its future actions to provide
further assurances that Section 355 of the Internal Revenue Code will apply to
the Distribution. See "Relationship Between Florida Progress and Echelon After
the Distribution."
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, then, in general, a corporate tax (which, as noted above, would be
very substantial) would be payable by the consolidated group, of which Florida
Progress is the common parent, based upon the difference between (x) the fair
market value of the Echelon Common Stock and (y) the adjusted basis of Florida
Progress in such Echelon Common Stock. In addition, under the consolidated
return rules, each member of the consolidated group (including Echelon) is
jointly and severally liable for such tax liability. Pursuant to the Tax Sharing
and Distribution Agreements, Florida Progress and Echelon will agree that if the
Distribution were not to qualify under Section 355 of the Internal Revenue Code
due to the failure by one party to comply with the terms of the IRS ruling
letter, then such party would bear the entire cost of any resulting tax
liability to the consolidated Florida Progress group. If the Distribution were
not to qualify under Section 355 of the Internal Revenue Code for a reason other
than the failure of a party to comply with the terms of such ruling letter, then
any resulting tax liability would be borne by Florida Progress. If the
Distribution occurred and it were not to qualify under Section 355 of the
Internal Revenue Code, the amount of the resulting tax liability would depend
upon the market value and tax basis of Echelon as of the Distribution Date. Any
such tax liability would have a material adverse effect on the financial
position, results of operations and cash flows of Echelon, and could have a
material adverse effect on the financial position, results of operations and
cash flows of Florida Progress.
Furthermore, if the Distribution were not to qualify as a tax-free spinoff,
each Florida Progress stockholder receiving shares of Echelon Common Stock in
the Distribution would be treated as if such stockholder had received a taxable
distribution in an amount equal to the fair market value of Echelon Common Stock
received, which would result in (y) a dividend to the extent of such
stockholder's pro rata share of Florida Progress's current and accumulated
earnings and profits and (z) a reduction in such stockholder's basis in Florida
Progress Common Stock to the extent the amount received exceeds such
stockholder's share of earnings and profits and a capital gain to the extent the
amount received exceeds the stockholder's basis provided that such Florida
Progress Common Stock is held as a capital asset by such holder on the
Distribution Date.
Florida Progress has also sought and received favorable rulings from the
IRS as to the United States federal income tax consequences of certain
restructurings which were or are to be effected by Florida Progress prior to the
Distribution.
The foregoing summary of certain anticipated material United States federal
income tax consequences of the Distribution is for general information only and
does not purport to cover all United States federal income tax consequences that
might apply to every stockholder. FLORIDA PROGRESS STOCKHOLDERS SHOULD CONSULT
THEIR OWN ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE DISTRIBUTION,
INCLUDING THE APPLICATION AND EFFECT OF APPLICABLE FOREIGN, STATE AND LOCAL TAX
LAWS.
21
<PAGE> 24
LISTING AND TRADING OF ECHELON COMMON STOCK
Prior to the date hereof, there has not been any established trading market
for Echelon Common Stock. Application has been made to list the Echelon Common
Stock on the NYSE under the symbol " ". It is presently anticipated
that Echelon Common Stock will be approved for listing on the NYSE prior to the
Distribution Date, and trading is expected to commence on a "when-issued" basis
at least two days prior to the Record Date. On the first NYSE trading day
following the Distribution Date, "when-issued" trading in respect of the Echelon
Common Stock will end and "regular-way" trading will begin.
There can be no assurance as to the prices at which the Echelon Common
Stock will trade before, on or after the Distribution Date. Unless and until the
Echelon Common Stock is fully distributed and an orderly market develops in the
Echelon Common Stock, the price at which such stock trades may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully distributed issue. Prices for the Echelon Common Stock will be
determined in the marketplace and may be influenced by many factors, including
(i) the depth and liquidity of the market for Echelon Common Stock, (ii)
developments affecting the businesses of Echelon generally, (iii) investor
perception of Echelon, and (iv) general economic and market conditions.
Shares of Echelon Common Stock distributed to Florida Progress stockholders
will be freely transferable, except for shares of Echelon Common Stock received
by persons who may be deemed to be "affiliates" of Echelon under the Securities
Act of 1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of Echelon after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with
Echelon and may include certain officers and directors of Echelon, as well as
principal stockholders of Echelon. Persons who are affiliates of Echelon will be
permitted to sell their shares of Echelon Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemption
afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.
22
<PAGE> 25
RELATIONSHIP BETWEEN FLORIDA PROGRESS AND
ECHELON AFTER THE DISTRIBUTION
Echelon is an indirect, wholly owned subsidiary of Florida Progress, and
the results of operations of Echelon have been included in Florida Progress's
consolidated financial results. After the Distribution, Florida Progress will
not have any ownership interest in Echelon, and Echelon will be an independent
public company. Furthermore, all contractual relationships existing prior to the
Distribution between Florida Progress and Echelon will be terminated except for
the contractual agreements described below and certain commercial relationships
entered into in the ordinary course of business.
Prior to the Distribution, Florida Progress and Echelon will enter into
certain agreements, described below, governing their relationship subsequent to
the Distribution and providing for the allocation of tax, employee benefits and
certain other liabilities and obligations arising from periods prior to the
Distribution. Copies of the forms of such agreements have been filed as exhibits
to the Registration Statement of Echelon in respect of the registration of the
Echelon Common Stock under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In addition, promptly after the declaration of the dividend of
Echelon Common Stock by the Board of Directors of Florida Progress, Florida
Progress will file a Current Report on Form 8-K in connection with the
Distribution, and the agreements will be filed as exhibits to such Report.
The following description summarizes certain terms of such agreements, but
is qualified by reference to the texts of such agreements, which are
incorporated herein by reference.
DISTRIBUTION AGREEMENT
Florida Progress and Echelon will enter into the Distribution Agreement
providing for, among other things, certain corporate transactions required to
effect the Distribution and other arrangements between Florida Progress and
Echelon subsequent to the Distribution. In particular, the Distribution
Agreement defines the assets and liabilities which are being allocated to and
assumed by Echelon. The Distribution Agreement also defines what constitutes the
"Echelon Business."
Pursuant to the Distribution Agreement, Florida Progress is obligated to
transfer or cause to be transferred all right, title and interest in the assets
comprising the Echelon Business to Echelon, and Echelon is obligated to transfer
or cause to be transferred all its right, title and interest in the assets
comprising the Florida Progress business to Florida Progress. All assets are
being transferred without any representation or warranty, "as is-where is," and
the relevant transferee bears the risk that any necessary consent to transfer is
not obtained. Each party also agrees to exercise its respective commercially
reasonable efforts promptly to obtain any necessary consents and approvals and
to take such actions as may be reasonably necessary or desirable to carry out
the purposes of the Distribution Agreement and the other agreements summarized
below.
The Distribution Agreement provides for, among other things, assumptions of
liabilities and cross indemnities designed to allocate generally, effective as
of the Distribution Date, financial responsibility for the liabilities arising
out of or in connection with (i) the businesses currently conducted by the
Echelon Group, including any environmental liabilities arising out of or
relating to any of Echelon's properties, to Echelon and (ii) all other
liabilities to Florida Progress. For a discussion of such businesses, see
"Business." The Distribution Agreement provides for the settlement or payment of
inter-company receivables, payables and loans in accordance with specified
procedures. No party will have any liability to any other party for inaccurate
forecasts or arising out of any pre-Distribution arrangement, course of dealing
or understanding (other than the Distribution Agreement or the other agreements
as described below) unless such arrangement, course of dealing or understanding
is specifically set forth on a schedule to the Distribution Agreement.
The Distribution Agreement also provides for certain transactions between
Florida Progress and Echelon with respect to prior indebtedness of the companies
comprising the Echelon Group to members of the Florida Progress group. In
particular, prior to the Distribution Date, Echelon will be required to repay
certain indebtedness owed to Florida Progress and to deliver a note (as
described in greater detail below, under "PCH Note") to PCH in repayment of
intercompany indebtedness.
23
<PAGE> 26
Under the Distribution Agreement, Echelon agrees that for so long as
Florida Progress or any of its subsidiaries is a guarantor of or obligor for any
Echelon liability, Echelon will not take certain actions, or fail to take
certain actions, which would result in a breach by Echelon of any of the
obligations so guaranteed. Specifically, Echelon agrees to be and remain a
"citizen of the United States" for purposes of the FAA Act and the Shipping Act
of 1916, as amended, for as long as Florida Progress is a guarantor of any of
the covenants Echelon made in its leasing contracts concerning its status as a
citizen of the United States for purposes of such Acts. Echelon also agrees not
to permit the imposition of liens on any asset if the imposition thereof would
constitute a breach under any obligation guaranteed. In addition, Echelon agrees
to take all commercially reasonable efforts to cause such guarantees to be
cancelled, discharged or otherwise terminated as promptly as practicable after
the Distribution.
The Distribution Agreement provides that neither Florida Progress nor
Echelon will take any action that would jeopardize the intended tax consequences
of the Distribution. Each of Florida Progress and Echelon agrees, among other
matters, to maintain its status as a company engaged in the active conduct of a
trade or business, as defined in Section 355(b) of the Internal Revenue Code,
until the second anniversary of the Distribution Date. Neither Florida Progress
nor Echelon expects this limitation to inhibit its financing or other activities
or its ability to respond to unanticipated developments. As part of the request
for a ruling that the Distribution will be tax free for United States federal
income tax purposes, each of Florida Progress and Echelon has represented to the
Internal Revenue Service that, subject to certain exceptions, it has no plan or
intent to liquidate, merge or sell all or substantially all of its assets.
Therefore, the acquisition of control of Florida Progress or Echelon shortly
after the Distribution may cause the ruling to be called into question. As a
result, any such acquisition of control of Florida Progress or Echelon may be
more difficult or less likely to occur because of the potential substantial
damages that could result upon a breach of such provisions of the Distribution
Agreement.
Under the Distribution Agreement, each of Florida Progress and Echelon
agrees to provide to the other party, subject to certain conditions, access to
certain corporate records and information and to provide certain services on
such terms as are set forth in a Transition Services Agreement between such
parties.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs and expenses incurred on or
prior to the Distribution Date in connection with the Distribution will be
charged to and paid by Florida Progress. Except as set forth in the Distribution
Agreement or any related agreement, each party shall bear its own costs and
expenses incurred after the Distribution Date.
TAX SHARING AGREEMENT
Florida Progress and Echelon will enter into a Tax Sharing Agreement to the
effect that Florida Progress and Echelon will each pay its respective share of
the consolidated tax liability for the tax years that Echelon and its
subsidiaries are included in Florida Progress's consolidated United States
federal income tax return, as well as most state and local taxes attributable to
periods prior to the Distribution Date. In general, Florida Progress and Echelon
will pay all taxes attributable to their respective groups after the
Distribution. However, pursuant to the Tax Sharing Agreement and Distribution
Agreement, Florida Progress and Echelon will agree that if the Distribution were
not to qualify under Section 355 of the Internal Revenue Code due to the failure
by one party to comply with the terms of the IRS ruling letter, then such party
would bear the entire cost of any resulting tax liability to the consolidated
Florida Progress group. If the Distribution were not to qualify under Section
355 of the Internal Revenue Code for a reason other than the failure of a party
to comply with the terms of such ruling letter, then any resulting tax liability
would be borne by Florida Progress.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Florida Progress and Echelon will enter into an Employee Benefits
Allocation Agreement (the "Employee Benefits Agreement"), which allocates and
assigns responsibility for certain employee benefits matters in respect of
Florida Progress and Echelon on and after the effective time of the Distribution
Date.
24
<PAGE> 27
With respect to defined benefit plans, the Employee Benefits Agreement
provides that no assets or liabilities with respect to Echelon employees and
their beneficiaries shall be transferred from the Florida Progress Retirement
Plan to any plan or arrangement established or maintained by Echelon for the
benefit of its employees.
With respect to defined contribution plans, the Employee Benefits Agreement
provides that active participation of Echelon employees in the Florida Progress
Savings Plan shall cease immediately after the Distribution Date, although such
employees will have the ability to maintain their existing investments and/or
transfer between funds maintained by Florida Progress.
With respect to welfare plans, the Employee Benefits Agreement provides
that, from and after the Distribution Date Echelon shall sponsor its welfare
plans solely for the benefit of its employees and its employees shall not
continue to participate in the Florida Progress welfare plans.
The Employee Benefits Agreement also provides that Florida Progress will
generally retain all employee benefit litigation liabilities that are asserted
prior to the Distribution Date (but not such liabilities that relate to the
participation of Echelon employees in their retirement plans or savings plans),
and that Florida Progress and Echelon will retain the workers' compensation
liabilities of their respective pre-Distribution employees.
TRANSITION SERVICES AGREEMENT
Florida Progress and Echelon will enter into a Transition Services
Agreement pursuant to which the respective parties have agreed to certain basic
terms governing the provision by one party to another of specified transitional,
administrative or other support services.
PCH NOTE
Immediately prior to the Distribution, in connection with the
recapitalization of Echelon by Florida Progress, Echelon will issue a note to
PCH (the "PCH Note"). The principal amount of the PCH Note will equal the amount
of the advances from Florida Progress which will not have been repaid by
Echelon, which amount is expected to be approximately $41.1 million. Such
principal amount will mature four years after issuance, with required principal
payments due upon disposition by Echelon of certain non-strategic operating and
direct finance leasing interests and other assets. Interest on the PCH Note will
reflect a market rate, and the PCH Note will be secured by the
non-strategic-assets described above. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Cash Flow from Financing Activities."
OTHER
Florida Progress and its affiliates will continue to occupy or utilize
certain premises leased from Echelon. Such leases are on terms which reflect
market rates and conditions and have been entered into by the parties in the
ordinary course of their respective businesses. See "Business -- The Real Estate
Business -- Commercial Real Estate Ownership and Management."
DIVIDEND POLICY
The payment and level of cash dividends by Echelon after the Distribution
will be subject to the discretion of the Board of Directors of Echelon. Echelon
currently intends to retain all future earnings for the development of its
business and does not anticipate paying any cash dividends for the foreseeable
future.
25
<PAGE> 28
CAPITALIZATION
The following table sets forth, as of June 30, 1996, the capitalization of
Echelon and the capitalization of Echelon as adjusted to reflect the issuance of
the PCH Note, the expected incurrence of $103 million in third-party secured
financing, the repayment of outstanding advances from Florida Progress and an
equity contribution by Florida Progress. The information set forth below does
not necessarily reflect the capitalization of Echelon in the future or as it
would have been had the Distribution occurred on June 30, 1996.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Advances from Florida Progress (excluding PCH Note)............. $121.1(a) $ 0.0
Long-term debt, including current portion --
PCH Note...................................................... 0.0(b) 41.1
Third-party financing......................................... 0.0(c) 103.0
Other indebtedness............................................ 24.0 24.0
------ ------
Total debt............................................. 145.1 168.1
Preferred stock................................................. 0.0(d) 0.0
Stockholder's equity............................................ 174.1(e) 192.1
------ ------
Total capitalization................................... $319.2 $ 360.2
====== ======
</TABLE>
- ---------------
(a) Reflects repayment of $37 million of such advances with proceeds generated
from operations, from maturity and collection of loans and from planned
sales of assets, repayment of $43 million of such advances upon receipt of
$103 million in proceeds expected from new, third-party secured financing
and the issuance of the PCH Note.
(b) Reflects the PCH Note to be issued in settlement of certain advances from
Florida Progress. See "Relationship Between Florida Progress and Echelon
After the Distribution -- PCH Note," and Note 1 to the Consolidated
Financial Statements included elsewhere in this Information Statement.
(c) Reflects expected third-party borrowings.
(d) The Board of Directors of Echelon has authorized the issuance of
shares of preferred stock. At June 30, 1996 there were no shares
outstanding.
(e) Reflects $18 million equity contribution to be made by Florida Progress to
Echelon prior to the Distribution to provide cash for payment of expenses
incurred in evaluating and implementing the Distribution and to provide
additional liquidity.
26
<PAGE> 29
SELECTED FINANCIAL DATA
The following consolidated financial data are qualified in its entirety by
the financial statements of Echelon and other information contained elsewhere in
this Information Statement. The financial data as of December 31, 1995 and 1994,
and for the years ended December 31, 1995, 1994 and 1993, have been derived from
the audited financial statements of Echelon contained elsewhere in this
Information Statement. The financial data as of June 30, 1996 and 1995, and
December 31, 1992 and 1991, and for the six months ended June 30, 1996 and 1995,
and for the years ended December 31, 1992 and 1991, are unaudited. Results for
the interim periods are not necessarily indicative of results for the full year.
Historical consolidated financial information is not expected to be indicative
of Echelon's future performance as an independent company. The following
financial data should be read in conjunction with the information set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Echelon's Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Information Statement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenue.................................... $ 27.6 $ 23.0 $ 47.6 $ 48.8 $ 66.5 $ 42.4 $ 94.4
Income from operations before depreciation
and provisions for losses(1)............. 3.5 12.5 25.5 29.7 31.7 25.7 63.0
Income (loss) from operations.............. (30.5)(2) 5.8 12.1 13.9 19.7 14.5 35.0
Net income (loss)(3)....................... $(24.5)(2) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ (8.1) $ 4.3
BALANCE SHEET DATA:
Assets:
Lending and leasing........................ $362.5 $429.3 $400.3 $478.8 $552.6 $598.1 $670.3
Real estate................................ 151.7 142.5 154.2 144.6 148.9 187.1 166.8
------ ------ ------ ------ ------ ------ ------
Total assets........................ $514.2 $571.8 $554.5 $623.4 $701.5 $785.2 $837.1
====== ====== ====== ====== ====== ====== ======
Deferred income taxes........................ $167.8 $194.3 $182.3 $224.3 $244.9 $268.3 $291.3
====== ====== ====== ====== ====== ====== ======
Capitalization:
Advances from Florida Progress(3).......... $121.1 $110.3 $110.0 $143.8 $181.2 $201.4 $264.8
Debt....................................... 24.0 25.4 33.2 32.7 32.5 29.4 34.7
Common equity.............................. 174.1 204.8 200.8 209.0 217.2 224.7 269.3
------ ------ ------ ------ ------ ------ ------
Total capitalization................ $319.2 $340.5 $344.0 $385.5 $430.9 $455.5 $568.8
====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Income from operations before depreciation and provisions for losses is not
a defined term under generally accepted accounting principles ("GAAP") and
should not be construed as an alternative to operating income, net income
or cash flows from operating activities as determined by GAAP and should
not be construed as an indication of Echelon's operating performance or as
a measure of liquidity.
(2) Reflects $31.1 million pre-tax write-down of certain assets held for sale
and $8 million of pre-tax costs associated with the Distribution.
(3) Reflects a recapitalization of Echelon pursuant to which Florida Progress
contributed $140 million to the equity of Echelon which has been reflected
retroactively as if it had occurred at the beginning of the earliest period
presented, and which was used to repay advances from Florida Progress. Net
income (loss) reflects the related reduction in interest expense. The
similarity of net income (loss) for the years ended December 31, 1995, 1994
and 1993 reflects, to some degree, the orderly withdrawal strategy pursuant
to which Echelon was being operated during such years. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
27
<PAGE> 30
PRO FORMA FINANCIAL DATA
The unaudited Pro Forma Consolidated Results of Operations for the six
months ended June 30, 1996 and the year ended December 31, 1995 and the Pro
Forma Consolidated Balance Sheet at June 30, 1996 present the consolidated
results of operations and consolidated financial position of Echelon assuming
that certain transactions contemplated by the Distribution had been completed as
of January 1, 1995 and at January 1, 1996, respectively, for purposes of the Pro
Forma Consolidated Results of Operations, and at June 30, 1996 for purposes of
the Pro Forma Consolidated Balance Sheet. The following unaudited pro forma
financial data and notes thereto do not include certain information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, all adjustments
considered necessary for a fair presentation have been included.
The following pro forma consolidated financial data should be read in
conjunction with the audited Consolidated Financial Statements and Notes thereto
for the three year period ended December 31, 1995, included elsewhere in this
Information Statement. The accounting principles used in preparing the pro forma
financial data are the same as those described in such audited statements. The
pro forma consolidated financial data are presented for informational purposes
only and may not necessarily reflect the future results of operations or
financial position of Echelon or what the results of operations or financial
position would have been if Echelon's business had been operated as a separate,
independent company during the periods shown. Historical per share data and
dividends have not been reflected as Echelon was not a publicly-held company
during the periods presented below.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED DECEMBER 31, 1995
---------------------------------- -----------------------------------
PRO PRO
HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ----- ---------- ----------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
SALES AND REVENUES:
Real estate operations --
Rental income.................. $ 5.9 $ 0.0 $ 5.9 $ 10.1 $ 0.0 $ 10.1
Sale of development
properties.................. 6.6 0.0 6.6 0.9 0.0 0.9
Marina and other revenues...... 4.0 0.0 4.0 7.2 0.0 7.2
Lending and leasing operations --
Interest income................ 8.4 0.0 8.4 21.7 0.0 21.7
Earned income on finance
leases...................... 1.4 0.0 1.4 4.8 0.0 4.8
Other.......................... 1.3 0.0 1.3 2.9 0.0 2.9
------ ------ ----- ----- ----- -----
27.6 0.0 27.6 47.6 0.0 47.6
------ ------ ----- ----- ----- -----
OPERATING EXPENSES:
Cost of operations............... 5.9 0.5(a) 6.4 10.5 1.0(a) 11.5
Cost of development property
sold........................... 6.9 0.0 6.9 0.8 0.0 0.8
Depreciation..................... 2.9 0.0 2.9 6.4 0.0 6.4
Provision for lease, loan and
real estate losses............. 31.1 (31.1)(c) 0.0 7.0 0.0 7.0
Marketing and administrative..... 2.4 0.8(a) 3.2 5.2 1.5(a) 6.7
Other operating expenses......... 8.9 (8.0)(c) 0.9 5.6 0.0 5.6
------ ------ ----- ----- ----- -----
58.1 37.8 20.3 35.5 2.5 38.0
------ ------ ----- ----- ----- -----
INCOME (LOSS) FROM OPERATIONS.... (30.5) 37.8 7.3 12.1 (2.5) 9.6
INTEREST EXPENSE................. 7.1 1.0(b) 8.1 13.9 2.3(b) 16.2
------ ------ ----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME
TAXES.......................... (37.6) 36.8 (0.8) (1.8) (4.8) (6.6)
Income taxes (benefit)........... (13.1) 13.7(d) 0.6 (1.8) (1.9)(d) (3.7)
------ ------ ----- ----- ----- -----
NET INCOME (LOSS)................ $(24.5) $ 23.1 $(1.4) $ 0.0 $(2.9) $ (2.9)
====== ====== ===== ===== ===== =====
NET LOSS PER COMMON SHARE........ $(.22)(e) $ (.45)(e)
===== =====
</TABLE>
See the Notes hereto set forth on page 30.
28
<PAGE> 31
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
LEASES, LOANS, REAL ESTATE PROPERTY AND OTHER INVESTMENTS:
Leases and loans receivable, net........................... $256.7 $ 0.0 $ 256.7
Property, net of depreciation.............................. 144.3 0.0 144.3
Investments in unconsolidated affiliates................... 32.3 0.0 32.3
------ ------ ------
433.3 0.0 433.3
------ ------ ------
ASSETS HELD FOR SALE......................................... 33.1 0.0 33.1
------ ------ ------
CURRENT ASSETS:
Cash and equivalents....................................... 0.1 34.7(a)(b) 34.8
Accounts receivable, net................................... 1.4 0.0 1.4
Current portion of leases and loans receivable............. 34.7 0.0 34.7
Income taxes receivable.................................... 3.9 0.0 3.9
Inventories................................................ 2.2 0.0 2.2
Miscellaneous.............................................. 0.7 0.0 0.7
------ ------ ------
43.0 34.7 77.7
------ ------ ------
OTHER NON-CURRENT ASSETS..................................... 4.8 0.0 4.8
------ ------ ------
Total assets.......................................... $514.2 $ 34.7 $ 548.9
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities..................... $ 18.3 $ 0.0 $ 18.3
Income taxes payable....................................... 0.0 0.0 0.0
Current portion of long-term debt.......................... 2.5 0.0 2.5
------ ------ ------
Total current liabilities............................. 20.8 0.0 20.8
DUE TO FLORIDA PROGRESS AND AFFILIATES....................... 127.4 (86.3)(a) 41.1
LONG-TERM DEBT............................................... 21.5 103.0(a) 124.5
DEFERRED INCOME TAXES........................................ 167.8 0.0 167.8
OTHER LIABILITIES............................................ 2.6 0.0 2.6
------ ------ ------
Total liabilities..................................... 340.1 16.7 356.8
------ ------ ------
STOCKHOLDER'S EQUITY:
Preferred stock............................................ 0.0 0.0 0.0
Stockholder paid in capital................................ 251.3 18.0(b) 269.3
Retained deficit........................................... (77.2) 0.0 (77.2)
------ ------ ------
174.1 18.0 192.1
------ ------ ------
$514.2 $ 34.7 $ 548.9
====== ====== ======
</TABLE>
See the Notes hereto set forth on page 30.
29
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The pro forma adjustments to the accompanying unaudited consolidated
statement of operations for the six months ended June 30, 1996 and the audited
consolidated statement of operations for the twelve months ended December 31,
1995 are described below:
(a) To record additional general and administrative expenses which
would have been incurred by Echelon as a separate publicly-held company,
based on estimates by the management of Echelon.
(b) To record additional interest expense related to the incurrence of
$103 million of expected new third-party indebtedness and the issuance of
the PCH Note in the expected amount of approximately $41.1 million (both at
an assumed interest rate of 9.75%), after eliminating interest expense
related to intercompany advances included in historical financial
statements.
(c) To eliminate the provision for loss resulting from Echelon's
change in asset disposition strategy as well as the costs of evaluating and
implementing the Distribution.
(d) To record the estimated income tax benefit associated with pro
forma adjustments (a-c) at an assumed combined federal and state income tax
rate of 38.575%.
(e) Pro forma net loss per share is computed based on 6,466,897 shares
of Echelon being distributed in the Distribution.
(2) The pro forma adjustments to the accompanying unaudited consolidated
balance sheet at June 30, 1996 are described below:
(a) To record the incurrence of expected new third-party secured
indebtedness of $103 million, a portion of which will be used to repay
advances from Florida Progress and to provide cash for operations of
Echelon after the Distribution.
(b) To record a $18 million equity contribution from Florida Progress
to provide cash for payment of expenses incurred in evaluating and
implementing the Distribution and to provide additional liquidity.
30
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations is prepared as if Echelon were a separate entity for all periods
discussed. This discussion should be read in conjunction with Echelon's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Information Statement.
OVERVIEW
In September 1991, Florida Progress announced its plan to withdraw from the
lending and leasing and real estate businesses. As a result of Florida
Progress's orderly withdrawal strategy, between September 30, 1991 and December
31, 1995, Echelon decreased its portfolio by approximately $583 million, or 51%
of the September 30, 1991 portfolio. Although Florida Progress's orderly
withdrawal strategy had resulted in a substantial reduction in the size of the
portfolio, the continued weakness in the airline industry and commercial real
estate market had slowed Florida Progress's efforts. After a careful review of
available options, the Florida Progress Board of Directors concluded that the
Distribution was the best alternative available for Florida Progress and its
stockholders. In contrast to the orderly withdrawal strategy pursued by Echelon
while under the control of Florida Progress, upon the Distribution, Echelon will
be able to pursue a business plan designed to: (1) grow the Real Estate Business
and accelerate the disposal of certain non-strategic assets, (2) maximize the
value of the remaining assets, and (3) achieve profitability.
Prior to the Distribution, Florida Progress contributed $140 million to the
equity of Echelon, which was used by Echelon to repay advances from Florida
Progress. This recapitalization, and the resulting reduction in interest expense
of $8.1 million per year for each of the years ended December 31, 1995, 1994,
and 1993, has been reflected retroactively in the historical Consolidated
Financial Statements of Echelon included elsewhere in this Information Statement
as if such recapitalization had occurred at the beginning of the earliest period
presented. In the absence of such contribution, Echelon would have reported net
losses of approximately $5.0 million in each year of the three-year period ended
December 31, 1995. The similarity of Echelon's results for each of the three
years in such period reflects, to some degree, the orderly withdrawal strategy
pursuant to which Echelon was being operated. In particular, during such period,
one of the goals of Florida Progress was to dispose of certain Echelon assets
without incurring significant losses. Accordingly, Echelon conducted its
operations, selected assets for sale, determined the timing of such asset sales,
and recognized and recorded provisions for losses in a manner which, subject to
applicable accounting rules, was as consistent as possible with such orderly
withdrawal strategy and the desire to avoid significant losses in any given
period.
After giving effect to the recapitalization described above, as of June 30,
1996, Echelon remained obligated to repay $121.1 million of advances from
Florida Progress. Echelon expects that immediately prior to the Distribution,
Echelon's obligation to Florida Progress will have been reduced to $84.1
million, reflecting the repayment of a portion of such advances with proceeds
generated from operations, from maturities and collections on loans and from
planned sales of assets. In addition to the contribution by Florida Progress of
$140 million to the equity of Echelon as part of the recapitalization, Florida
Progress will contribute an additional $18 million to the equity of Echelon
prior to the Distribution to provide cash for the payment of expenses incurred
in evaluating and implementing the Distribution and to provide additional
liquidity. Of the $84.1 million in advances expected to remain unpaid
immediately prior to the Distribution, $43 million will be repaid concurrently
with the Distribution upon receipt of the $103 million in proceeds from new,
third-party secured financing which Echelon expects to obtain, and the expected
remaining amount of $41.1 million will be evidenced by the PCH Note.
Due to the foregoing items and Echelon's intention to abandon the orderly
withdrawal strategy which had previously guided the conduct of its business in
favor of a more growth-oriented business plan, the results of operations
discussed below are not expected to be indicative of future results.
31
<PAGE> 34
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
For the six months ended June 30, 1996, Echelon reported a loss from
operations of $30.5 million, a $36.3 million decline from the $5.8 million in
income from operations reported for the six months ended June 30, 1995, and
interest expense of $7.1 million for each of the six months ended June 30, 1996
and June 30, 1995, resulting in a loss before income taxes of $37.6 million and
a net loss of $24.5 million for the six months ended June 30, 1996 compared to
the $1.3 million loss before income taxes and break-even net income for the six
months ended June 30, 1995.
Revenues. Sales and revenues for the six months ended June 30, 1996
increased $4.6 million over the same period in 1995, primarily due to the sale
in the first half of 1996 of a 27-acre parcel of land in Carillon Park for $6.5
million. The revenues generated by such sale were partially offset by a decrease
in interest income of $2.0 million, primarily reflecting the elimination of
interest income from two real estate loans which were repaid and an aircraft
loan which was sold.
Expenses. Operating expenses for the six months ended June 30, 1996
increased by $40.9 million over the same period in 1995, primarily due to the
$31.1 million provision Echelon recorded in June 1996 in anticipation of the
Distribution to cover losses expected to be incurred on the accelerated sale of
certain non-strategic assets. Operating expenses for the first six months of
1996 also reflected an $8.0 million charge to other expenses to cover
anticipated costs associated with the Distribution. The $6.1 million increase in
cost of development property sold reflected the cost of the 27 acres sold as
described above. Operating expenses also reflected an increase of $1.2 million
in costs of operations attributable to the acquisition of a 67% interest in an
office building in which Echelon had previously held only a 33% interest.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
For the year ended December 31, 1995, Echelon reported $12.1 million in
income from operations, a $1.8 million decline from the $13.9 million reported
for the prior year, and $13.9 million in interest expense, a $1.1 million
decline from the $15.0 million reported for the prior year, resulting in a loss
before income taxes of $1.8 million and break-even net income for 1995.
Revenues. Rental income for the year ended December 31, 1995 increased
$1.8 million over the year ended December 31, 1994, primarily as a result of the
acquisition by Echelon of the remaining 50% interest in an office building in
1995 in which it had previously held only a 50% interest and the consequent
inclusion in its results of 100% of the rental revenues generated thereby.
Marina and other revenues increased $1.7 million due to primarily a more
favorable market for boat sales. Revenues from sales of development properties
decreased $4.1 million in 1995, as fewer properties were sold because of the
smaller inventory of saleable projects compared to 1994. Earned income on
finance leases in 1995 was essentially unchanged over 1994 despite the sale in
1995 of two aircraft leveraged leases and the termination of a third aircraft
leveraged lease upon receipt of insurance proceeds in 1995.
Expenses. The $1.2 million increase in depreciation for the year ended
December 31, 1995 over the year ended December 31, 1994 and the $1.5 million
increase in cost of operations were due primarily to the effects of Echelon's
acquisition of the remaining 50% interest in an office building in 1995, as
discussed above. The cost of development property sold decreased by $4.0 million
due to the decrease in sales of properties in 1995 as discussed above. Marketing
and administrative expenses increased $1.3 million due to an increase in
professional fees in connection with the liquidation of a number of leveraged
lease assets. The $4.2 million increase in other expenses primarily reflected
costs associated with the sale and termination of leveraged leases in 1995 as
discussed above. The $1.1 million decrease in interest expense primarily
reflects the repayment of certain indebtedness that resulted from the cash
proceeds generated through the sale of assets. In 1995, Echelon recorded an
additional provision for losses of $7.0 million compared to $10.6 million in
1994 based on estimated future losses from the continued orderly liquidation of
assets.
32
<PAGE> 35
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
For the year ended December 31, 1994, Echelon reported $13.9 million in
income from operations, a $5.8 million decline from the $19.7 million reported
for the prior year, and $15.0 million in interest expense, a $2.3 million
decline from the $17.3 million reported for the prior year, resulting in a loss
before income taxes of $1.1 million and break-even net income for 1994.
Revenues. Rental income for the year ended December 31, 1994 declined $1.6
million compared to the year ended December 31, 1993, reflecting the loss of
rental revenues from an apartment project which was sold in 1993. Revenues from
sales of development properties declined to $5.0 million for the year ended
December 31, 1994 from $17.5 million for the year ended December 31, 1993 due to
the reduction in inventory of saleable projects as the liquidation of real
estate assets continued. In 1994, Echelon sold three industrial buildings and
approximately 706 acres of undeveloped land for an aggregate of $5.0 million,
whereas in 1993, an apartment project and approximately 1,290 acres of
undeveloped land were sold for an aggregate of $17.5 million.
Earned income on financial leases declined to $4.4 million for the year
ended December 31, 1994 from $7.7 million for the year ended December 31, 1993
as a result of four equipment leveraged leases having been sold in 1993.
Expenses. Cost of operations decreased by $1.0 million for the year ended
December 31, 1994 compared to the prior year, reflecting the absence of costs
associated with an apartment project which was sold in 1993. The $13.7 million
decline in the cost of development property sold in 1994 compared to 1993 is due
primarily to the larger volume of property sales in 1993, as discussed above.
Other expenses in 1994 decreased $1.9 million due to equipment leveraged lease
sales mentioned above. The $2.3 million decrease in interest expense in 1994
compared to 1993 primarily reflects the reduction of debt that resulted from the
use of the cash proceeds generated through the sale of assets. In 1994, Echelon
recorded an additional provision for losses of $10.6 million compared to $6.6
million in 1993 based on estimated future losses from the continued orderly
liquidation of assets.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Historically, Echelon's sources of liquidity have been derived from the
proceeds of asset sales and the maturity and collection of Echelon's loan
portfolio, operating cash flow and advances from Florida Progress.
Prospectively, the sources of funds are expected to come from the continued
maturity and collection of Echelon's loan portfolio and proceeds from the sale
of certain non-strategic assets, operating cash flow and, with respect to
Echelon's future real estate development, from project-based financings. In
connection with the Distribution, Echelon expects to obtain third-party secured
financing of $103 million. The proceeds from this financing will be received on
or prior to the Distribution and will be used to pay down $43 million of
advances from Florida Progress, leaving a balance of $60 million for operations.
Cash Flow Used in and Provided from Operating Activities
Cash flow used in operating activities was $11.1 million for the six months
ended June 30, 1996 compared to $2.4 million of cash flow provided from
operating activities for the six months ended June 30, 1995. In each case, the
primary factor contributing to the level of cash used, in the case of the six
months ended June 30, 1996, and the level of cash provided, in the case of the
six month period ended June 30, 1995, was the timing of tax payments relating to
asset sales.
Cash flow used in operating activities was $17.9 million, $14.7 million,
and $17.1 million for 1995, 1994, and 1993, respectively. The primary use of
cash in each of these years was largely related to previously deferred tax
liabilities becoming due and payable as a result of leveraged lease sales.
Prospectively, Echelon currently plans to hold its leveraged lease assets to
maturity or until their termination values equal their
33
<PAGE> 36
market values, which would spread the remaining deferred tax payments over a
longer term. Net cash flow from operations in the future is generally expected
to be reinvested in the Real Estate Business.
Cash Flow From Investing Activities
For the six months ended June 30, 1996 and 1995, Echelon had net cash flow
from investing activities of $12.0 million and $43.5 million, respectively.
Proceeds from the sale or collection of leases and loans contributed $8.3
million and $44.4 million of the net cash flow for the first six months of 1996
and 1995, respectively.
Echelon's net cash flow from investing activities for 1995, 1994, and 1993
was $69.7 million, $69.0 million, and $71.0 million, respectively. In each case,
the foregoing cash flows reflected the $74.0 million, $65.5 million, and $79.2
million, respectively, in proceeds received from the sale or collection of
leases and loans. Upon the maturity and collection of Echelon's loan portfolio,
Echelon expects investing activities to become a net use of funds as Echelon
attempts to build the Real Estate Business.
Capital expenditures for 1995, 1994, and 1993, which are reported as real
estate property additions, were $4.1 million, $1.3 million, and $1.2 million,
respectively, and were primarily for office tenant construction improvements and
land development infrastructure improvements such as roads, water, and sewer
construction. In 1997, capital expenditures and investments are expected to be
approximately $34.1 million, comprised of approximately $6.2 million for tenant
improvements and land development, approximately $13.9 million for new apartment
development, and approximately $14.0 million for passive investments in Housing
Tax Credits. These expenditures are expected to be funded through project-based
financings and from the initial cash balance of $60 million which is expected to
be available from the proceeds from the expected new, third-party financing of
$103 million after repaying $43 million of advances from Florida Progress.
Cash Flow from Financing Activities
In connection with the Distribution, Echelon expects to obtain third-party
secured financing of $103 million. Proceeds received will be used to repay $43
million of advances from Florida Progress, leaving $60 million as a cash balance
for operations immediately after the Distribution. Approximately $61 million of
the $103 million in debt which is expected to be obtained will be secured by a
collateral pledge of Echelon's portfolio of mortgage loans and is scheduled to
be repaid from proceeds of maturities on the underlying loans. The $42 million
balance of the $103 million in such debt will be secured by first mortgages on
five of Echelon's owned income producing properties. Debt service, including
principal amortization based on a 25-year schedule, is expected to be paid from
operating cash flow from the owned properties. The loan matures in five years
and the balance outstanding at that time is expected to be refinanced under
similar terms.
At the Distribution, Echelon will be obligated under the PCH Note. The PCH
Note will be secured by certain non-strategic assets that will be sold as soon
as practicable. Proceeds from the sales of these assets will be used to repay
the PCH Note.
Echelon expects to use land Echelon currently owns which is not encumbered
by debt to help procure financing for new apartment developments on such land.
By using the land as equity, Echelon expects to be able to obtain non-recourse
construction financing upon favorable terms.
Dividend payments to Florida Progress were $8.2 million, $8.2 million, and
$7.5 million in 1995, 1994, and 1993, respectively. Echelon does not currently
intend to pay dividends for the foreseeable future.
Cash and Cash Equivalents
At the Distribution, Echelon expects to have $60 million in cash and cash
equivalents that will be available for operations.
34
<PAGE> 37
Off-Balance Sheet Financing
Echelon has off-balance sheet risk related to debt of unconsolidated
partnerships. Should a partner in any partnership become unable to meet its
share of the partnership's obligations, the remaining partners would be liable
for all debts of the partnership. Echelon considers these credit risks to be
minimal, based upon the asset values supporting the partnership's liabilities.
(See Note 9 to the Consolidated Financial Statements).
IMPACT OF INFLATION
Echelon believes that inflation will not have a materially adverse effect
on its business or financial condition.
35
<PAGE> 38
BUSINESS
GENERAL
Echelon is a real estate and financial services company with operations in
two business segments: (i) the Real Estate Business and (ii) the Lending and
Leasing Business.
THE REAL ESTATE BUSINESS
COMMERCIAL REAL ESTATE OWNERSHIP AND MANAGEMENT
General
Echelon owns and manages a portfolio of income producing commercial real
estate properties located in Florida. The majority of these properties are
located in the Tampa Bay area including Tampa, St. Petersburg and the Gateway
area in between Tampa, St. Petersburg and Clearwater. With over two million
residents, Tampa Bay ranks among the top 25 metropolitan areas in the United
States in terms of population. The employment base of the Tampa Bay area ranks
second to Miami in Florida's employment markets. According to the Commerce
Department's Bureau of Economic Analysis, Tampa is expected to add at least
300,000 new jobs over the course of the next decade. Echelon believes these
demographics will support Echelon's business plan to maximize the value of its
assets, grow its Real Estate Business and achieve profitability.
Echelon's owned assets include 11 major commercial real estate properties,
consisting of five office buildings and six industrial sites and other
properties. The following table summarizes Echelon's owned commercial real
estate:
Summary of Owned Commercial Real Estate Portfolio
<TABLE>
<CAPTION>
PERCENTAGE
RENTABLE LEASED
SQUARE AS OF MAJOR
PROJECT NAME DESCRIPTION LOCATION FEET(2) JUNE 30, 1996 TENANTS
- ---------------------- -------------------------------- ------------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
OFFICE
Barnett Tower......... 26-story Class A office tower St. Petersburg, FL 288,767 92% Florida Progress
Barnett Bank
KPMG Peat Marwick
Merrill Lynch
Raymond James
Carlton Fields Law
Firm
McNulty Station....... 5 multi-tenant, Class A office St. Petersburg, FL 90,978 95% Andersen
buildings, historic renovation Consulting
AmSouth Bank
First Union
3rd & 3rd............. 3-story Class C office building St. Petersburg, FL 32,607 100% Florida Power(1)
100 Carillon.......... 3-story, multi-tenant Class A St. Petersburg, FL 79,013 100% Raymond James
suburban office building located
in Carillon Park
Highpoint Center...... 15-story, multi-tenant Class A Tallahassee, FL 79,670 96% Katz Kutter Law
office building near the state Firm
capitol building Huey Law Firm
INDUSTRIAL AND OTHER
Progress Center....... 2 multi-tenant, Class A Gainesville, FL 87,630 51% University of
office/research buildings Florida
located in research park Pharmos Corp
Bayboro Property...... Property adjacent to Harborage St. Petersburg, FL 36,685 100% Florida Power
of Bayboro, including land
leased to Florida Power
7th Avenue............ Class A, Industrial warehouse Tampa, FL 188,700 97% All Points
5th Avenue............ Industrial warehouse Tampa, FL 16,482 100% Finer Scrap Metal
Progress Packaging.... Industrial warehouse Tampa, FL 121,860 46% Sports &
Recreation
Harborage of Full service marina includes wet St. Petersburg, FL 235 wet slips 100% n/a
Bayboro............. slips and high & dry boat 425 dry slips
storage, boat sales, marine
repair & service, parts sales,
and marine supply store
</TABLE>
- ---------------
(1) Lease scheduled to expire December 31, 1996; thereafter lease will be on
month-to-month basis.
(2) Unless otherwise indicated.
36
<PAGE> 39
Office Buildings
A significant component of Echelon's total investment in real estate is
represented by its portfolio of commercial office buildings. Three of Echelon's
five office buildings, Barnett Tower, McNulty Station and 3rd & 3rd, are located
in downtown St. Petersburg. Downtown St. Petersburg is home to more than 1,400
businesses which together employ approximately 25,000 workers. St. Petersburg is
also home to the Tampa Bay Devil Rays, major league baseball's newest expansion
team, which will begin playing baseball in downtown St. Petersburg in 1998.
Barnett Tower is a 26-story, 288,767 square foot Class A office building in
the center of St. Petersburg and accounts for 28% of Echelon's more than
1,000,000 square feet of owned commercial real estate. Constructed in 1990, it
is the newest office building in downtown St. Petersburg and is home to several
of the area's most prominent firms, including Florida Progress. Seventy-two
percent of the building is currently occupied by six tenants (including their
affiliates): Barnett Bank; Merrill Lynch; KPMG Peat Marwick; Raymond James &
Associates, Inc.; Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. and
Florida Progress. These principal tenants have leases with remaining terms of at
least three years. As of June 30, 1996 the property was approximately 92%
occupied.
McNulty Station is a complex of five office buildings ranging in size from
two to five stories, totaling 90,978 square feet, and is located across the
street from the Barnett Tower. McNulty Station was originally a train station
and was part of an historic renovation completed in 1985. The buildings are all
Class A buildings leased to such tenants as Andersen Consulting, AmSouth
Bancorporation and First Union Bank Corporation. Echelon recently acquired the
fifth building located on the site in conjunction with the expansion of Andersen
Consulting, which leases 75% of the McNulty Station properties under a lease
scheduled to expire in August 2001. As of June 30, 1996, McNulty Station was 95%
leased.
The 3rd & 3rd building is a three-story, 32,607 square foot office building
located two blocks south of Barnett Tower. Florida Power Corporation currently
occupies the entire building, but will be vacating the building in December
1996. Echelon is currently seeking new tenants for the property.
Echelon's other office property in the St. Petersburg area is 100 Carillon.
100 Carillon, located in the Gateway area of Tampa Bay, is a three-story, 79,013
square foot office building housed within the 432-acre Carillon multi-use
development site (the "Carillon Park"). Raymond James, a regional securities
brokerage firm with headquarters in a neighboring building, with its affiliates
occupies 82% of the building with leases scheduled to expire in the second half
of 1997 after which point such leases are expected to continue on a
month-to-month basis. The property is a Class A multi-tenant building which, as
of June 30, 1996, was 100% leased. Raymond James is planning to construct an
additional building within Carillon Park, with anticipated completion by
mid-1998.
As of April 1996, the office market in downtown St. Petersburg had a
vacancy rate of 22% (according to the Maddux Report of April 1996). Based on
historical absorption rates, the current supply of vacant office space will
hinder increases in market rental rates. This pressure on rental rates also
affects suburban office markets, such as the Gateway area where 100 Carillon is
located. Even though the Gateway area and the directly competing Westshore
(South Tampa) area have occupancy rates exceeding 95% (according to the Maddux
Report of June 1996), Echelon's business plan does not expect significant
increases in rental rates until demand for office space in the downtown St.
Petersburg and Tampa areas increases and existing vacancies in such areas are
absorbed.
Other Florida office properties owned by Echelon include the Highpoint
Center, a 15-story, 79,670 square foot Class A office building located in
downtown Tallahassee that was approximately 96% leased as of June 30, 1996. The
property is situated two blocks from the state capitol building and houses
several law firms with significant state business activities. The law firms
constituting the building's two main tenants occupy 67% of the building with
lease expirations of December 2002 and November 1999, respectively. Except for
the state capitol building, Highpoint Center, which was built in 1990, is the
tallest building in downtown Tallahassee.
Echelon intends to hold its existing portfolio of office properties with a
focus on generating growth in operating cash and net income through leasing to
high quality tenants and controlling operating expenses.
37
<PAGE> 40
Industrial and Other Properties
Although its industrial properties do not represent a significant part of
Echelon's investment in commercial real estate, these properties are generally
located in locations with some potential for growth. Echelon's industrial
properties include Progress Center, the Bayboro Property, the 7th Avenue
property, the 5th Avenue Property and Progress Packaging.
Progress Center, located near Gainesville, Florida, is a 87,630 square foot
office research facility. The facility includes two buildings, each of which is
comprised of approximately 25% office space and 75% laboratory space. The
property is part of a 200-acre research park ("Progress Park") owned by Echelon
and affiliated with nearby University of Florida. The property is approximately
51% leased, including 31,196 square feet which is occupied by university
affiliated tenants. The two major tenants occupy 38% of the facility. The
property is designed to provide a vital link between University of Florida
researchers and private industry to transfer new technologies from the
laboratory to the market place.
Echelon's Bayboro Property is a 104,152 square foot tract of land in St.
Petersburg, a portion of which is leased to Florida Power. Florida Power leases
the land to house some of its "peaking" operations, a system of gas powered
backup generators used to produce power during periods of peak electrical
demand. The system includes several turbine engines to power the generators. The
lease to Florida Power can be cancelled upon written notice from Florida Power.
The property includes a former power plant facility which Echelon is renovating
for commercial office use. Most of the land comprising the Bayboro Property was
acquired for its development potential. The Bayboro area is close to downtown
St. Petersburg and is located within a redevelopment zone.
Echelon has several properties located in various areas of Tampa. The 7th
Avenue property, constructed in 1987, is a 187,500 square foot
warehouse/distribution facility located on the east side of Tampa. The property
is approximately 54% leased. The facility is one of the largest warehouse
properties in a predominantly industrial neighborhood. The 5th Avenue property,
located near the 7th Avenue property, is a 16,482 square foot industrial
building and is 100% leased to a single tenant who has a purchase option which
is expected to be exercised upon completion of environmental clean-up work by
Echelon. Progress Packaging is a 120,549 square foot industrial warehouse
located in West Tampa that is approximately 46% leased.
Echelon's strategy for its industrial properties is to increase cash flow
as market conditions improve and to determine and implement the optimum
operation, sale or development option for each property, as developing cash flow
allows.
Echelon also owns and operates a marina, Harborage of Bayboro, employing
approximately 40 people and located in the Bayboro Harbor area near downtown St.
Petersburg. This full service marina offers 235 wet slips and 425 high and dry
slips, each of which, as of June 30, 1996, were 100% leased. In addition to the
leasing of the slips, the marina provides such services as new and used boat
sales, marine repair and service, parts sales, and a marine supply store. The
wet slips consist of a floating concrete dock system specifically designed for
this harbor location. The system is popular for its stability, durability and
aesthetic qualities and is designed to withstand a 12-foot tidal surge. The dock
system is the largest floating dock system on Florida's west coast. The high and
dry slips are an out-of-water rack storage system for small to medium sized
boats. The submerged land under the wet slips is leased from the City of St.
Petersburg. Although the lease will expire in 2013, Echelon expects to bid for
the right to enter into a new lease at that time.
Real Estate Management
Echelon currently manages its owned office buildings. After the
Distribution, Echelon intends to expand its real estate management services
business by offering to manage office buildings for third-parties, managing
Echelon's new apartment developments and managing Housing Tax Credit projects
built for its own account and for third parties. Echelon expects that these
activities will facilitate its management team's participation in the
marketplace, thereby serving to obtain additional knowledge and opportunities.
Echelon currently utilizes the services of TRS Commercial Real Estate Services,
Inc. ("TRS"), a realty service company, to assist in the management of its
office buildings and the sale of certain of its real estate assets. After the
Distribution,
38
<PAGE> 41
Echelon intends that the current employees of TRS will become employees of
Echelon and join Echelon's current real estate services employees in managing
all the real estate assets of Echelon.
OTHER OWNED REAL ESTATE; MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE
DEVELOPMENT
Overview
Another significant portion of Echelon's real estate holdings is
represented by several large parcels of undeveloped land in the St. Petersburg
area. Substantial infrastructure investment has already gone into certain of
these properties, including Carillon Park. Echelon's strategy is to accelerate
the development of both residential and commercial projects on these sites. The
following table summarizes Echelon's investment in undeveloped land:
Summary of Undeveloped Owned Commercial Real Estate
<TABLE>
<CAPTION>
DEVELOPMENT POTENTIAL
-------------------------
APPROXIMATE
ACRES FOR NUMBER OF
SALE OR APARTMENT
PROJECT NAME DESCRIPTION LOCATION ZONING DEVELOPMENT UNITS
- ----------------- ---------------------------- -------------------- ------------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Carillon Park.... Class A, suburban office and St. Petersburg, FL Phase I 38 N/A
residential park in Gateway Zoned business park, DRI in
area place
Phase II 96 1,170
Zoned multi-family residential
and business park; area wide
DRI in place
4th Street....... 15 undeveloped acres St. Petersburg, FL Zoned residential office park 15 225
(Multi-family)
9th Street....... 72 undeveloped acres St. Petersburg, FL Zoned multi-family residential 72 965
(Multi-family)
Progress Park.... Research park consisting of Gainesville, FL Zoned office 150 N/A
150 acres with industrial/commercial
infrastructure in place
Royal Oaks....... 35 undeveloped acres Tallahassee, FL Zoned multi-family residential 35 N/A
adjacent to 131 single
family lots previously
developed and sold
Riverside 2,000-acre operating ranch Lakeland, FL Zoned agricultural 2,000 N/A
Ranch..........
----- -----
TOTAL.......... 2,406 2,360
</TABLE>
Carillon Park is a 432-acre office park located in the Gateway area of
Tampa Bay and is among the largest tracts of property in the metropolitan Tampa
Bay area with all necessary zoning and other development approvals in place.
Going forward, Echelon believes that the 134 acres within Carillon Park which
are owned by Echelon and held for sale or development will play a central role
in Echelon's business plan. Carillon Park is bordered by a triangle of major
roads serving both Pinellas and Hillsborough counties. Carillon Park's central
location (equidistant from downtown St. Petersburg, downtown Tampa and downtown
Clearwater) provides quick access to residential neighborhoods and Tampa
International Airport. Echelon estimates that Carillon Park has a potential
development capacity of over 6,000,000 square feet of office space, 750 hotel
rooms, over 1,000 multi-family residential units, and a variety of supporting
retail services. The Carillon Park master plan contemplates a child care center,
fitness stations, jogging and walking paths and other amenities which are
intended to help commercial tenants attract and retain the highest quality
employees and to maximize on-the-job productivity.
Although new office construction generally has many hurdles to overcome,
including the building of infrastructure, Carillon Park is completely vested by
Development of Regional Impact orders which provide a certainty of future
development to the corporate user. Carillon Park's development plan includes
stormwater retention areas, underground utilities including fiber optic
capability and zoning approvals which allow for a broad spectrum of uses. For
purposes of implementing such plan, development of the land is divided into two
phases.
39
<PAGE> 42
Phase I has the infrastructure in place and is already the location of
offices of companies such as Raymond James, AllState, Xerox and Public Service
Credit Union Service Centers. Phase I will have 38 acres remaining to be sold
after the completion of the pending sale of 15 additional acres to Raymond
James. Construction of infrastructure for Phase II is currently underway with
completion scheduled for November, 1996.
Ninety-six of the original 155 acres of Phase II remain to be sold. Of the
original 155 acres for sale in Phase II, 90 acres were zoned for office
buildings and retail and 65 acres were zoned for residential apartments. Of the
90 acres for office buildings, almost 16 acres have been sold and of the
remaining 74 acres, Franklin Templeton Inc. has entered into a contract with
Echelon to acquire 28 acres. This will leave a balance of approximately 46 acres
for office building development to be sold in Phase II. Of the 65 acres for
apartments, 15 acres have been sold leaving approximately 50 acres with the
potential for development of approximately 1,170 apartment units. Echelon
intends to develop some of the Carillon Park properties for its own account and,
as and when market conditions warrant, to market land to third parties.
Echelon's 9th Street site, which is also located in the Gateway area of
Tampa Bay, has a total of 72 acres with apartment development potential of
approximately 965 units. The 9th Street site is currently in the initial stage
of its development, with the basic infrastructure to be completed in December
1996 so that the site will be ready for apartment development thereafter.
Echelon's 15-acre 4th Street site has potential for the development of
approximately 225 apartment units. Echelon currently intends to use the 4th
Street site for the development of affordable housing apartments qualifying for
Housing Tax Credits. Echelon has submitted an application to the Florida Housing
Finance Agency to be awarded Housing Tax Credits, and has received preliminary
notice of being awarded the credits necessary to proceed with development of
approximately 108 Housing Tax Credit apartment units on the 4th Street site. See
"Affordable Housing," below.
Progress Park has approximately 150 developable acres near Gainesville,
Florida. The rural setting and lack of substantial economic base complicate the
development and marketing of this property. However, given the park's highway
access and proximity to nearby Interstate 75, as well as its proximity to the
University of Florida, Echelon believes that opportunities for developing the
park may come from two areas: (i) research-related office and laboratory
buildings similar to existing facilities and (ii) back office operational
centers and distribution facilities. Echelon currently intends to subdivide the
property and to add additional curb cuts along the highway frontage to increase
the property's marketability.
Other Echelon properties include undeveloped land in the Royal Oaks
subdivision of Tallahassee and a fully operational 2,000-acre ranch property
located near Lakeland, Florida. Echelon intends to sell these properties as
promptly as practicable, and to apply the proceeds to repay a portion of the PCH
Note.
Apartments
Echelon believes that its most attractive opportunities for growth and
profitability are the development, ownership and operation of rental apartment
units in the Tampa Bay area and, ultimately, in other selected locations in the
southeastern United States. Echelon plans to begin developing apartments on its
owned land in St. Petersburg, including the Carillon Park, 4th Street and 9th
Street properties, and eventually on land to be acquired elsewhere in Florida
and in the southeastern United States. Echelon has previously, by itself or
through a joint venture, developed, owned and operated approximately 2,200
apartment units. Echelon marketed and sold projects representing approximately
1,700 of these units for a price in excess of $84 million, which corresponded to
an average capitalization rate (which is a rate of return calculated by dividing
net income by the sales price of a property) of approximately 7.25%. The
334-unit Promenade at Carillon, Echelon's first apartment project in Carillon
Park, cost $17.5 million to build and was sold prior to completion in October
1994 for a sale price of $20.65 million. In 1990, Echelon sold its interest in a
192-unit apartment complex for a pre-tax gain of approximately $500,000. In
addition to these owned apartments, Echelon constructed a 71 unit affordable
apartment complex known as 701 Mirror Lake in downtown St. Petersburg.
40
<PAGE> 43
Although real estate development has inherent business risks, general
market demographics as well as independent marketing studies sponsored by
Echelon suggest that apartment development in the Gateway area is warranted and
could support 500 to 600 units annually for the next five years. In particular,
there are currently over 3,000 employees based within Carillon Park, and
thousands of additional employees are based in offices in the immediate
vicinity, including the approximately 1,000 persons employed at the nearby
offices of MCI Communications Corp. and the approximately 2,000 persons employed
at The Home Shopping Network, Inc. directly across from Carillon Park. In
addition, based on announced relocations or expansions, Echelon believes that
within two years, an additional 2,500 employees are expected to be working in or
around Carillon Park. Echelon also believes that the current population of over
two million people in the Tampa Bay metropolitan region and projected population
and employment growth rates in such region, the relatively limited supply of
land in the greater Tampa Bay metropolitan area that is currently zoned for
residential apartment development and the current high occupancy rates of
existing developments in the area collectively support Echelon's strategy to
build on its past successful apartment development efforts.
Affordable Housing
As part of Echelon's strategy to focus on real estate development, Echelon
intends to invest in, develop and operate, affordable housing projects,
including projects entitled to the benefits of Housing Tax Credits. Housing Tax
Credit projects are affordable housing projects which meet certain requirements
with respect to maximum limits on tenant income, gross rent restrictions, and
certain other requirements of state tax credit authorities and the Internal
Revenue Service. Structured properly, these projects allow investors in Housing
Tax Credit properties to record dollar-for-dollar tax credits over a 10-year
period against their United States federal income tax liability. Echelon
believes that Housing Tax Credit investments are appropriate investments not
only because of the significant demand for affordable and low-income housing and
attractive risk and return outlook, but also because Echelon expects that its
lease portfolio will create a large base of taxable income for United States
federal income tax purposes over the next 10 to 15 years which is expected to
create a significant cash outflow from Echelon over that period. Echelon
believes that investments in Housing Tax Credits could significantly reduce such
cash outflow while creating favorable earnings and returns for Echelon.
Because Echelon has not previously invested in Housing Tax Credit projects,
Echelon intends to further its knowledge of these projects by initially making
passive investments in Housing Tax Credit projects through limited partnerships
controlled by third parties. Echelon's eventual strategy is to develop, own and
operate Housing Tax Credit apartment projects utilizing its owned land, within
the limits of Echelon's tax base. Echelon also plans eventually to develop and
operate Housing Tax Credit properties for other investors as part of its real
estate management services business.
Commercial Real Estate Development
In addition to residential development, Echelon plans to take advantage of
the commercial real estate market in the Gateway area, where occupancy levels
are averaging over 95% (according to the Maddux Report of June 1996) by
developing its holdings within Carillon Park. Although regional office vacancies
exist, Echelon believes the current high occupancy levels and the lack of
available commercial space in the Gateway area will support future construction.
In particular, Echelon's plans include constructing office buildings in Carillon
Park, subject to market and other conditions, and Echelon believes that
utilization of a five acre tract of land from the land inventory in Carillon
Park for such construction will enhance the value of the remaining acreage.
Echelon also believes that an office project will provide a source of
prospective tenants for the apartments expected to be developed within Carillon
Park.
To the extent market and other conditions warrant, Echelon's long-term
plans include potential further office building development within Carillon Park
and elsewhere.
41
<PAGE> 44
THE LENDING AND LEASING BUSINESS
COLLATERALIZED COMMERCIAL REAL ESTATE LOAN PORTFOLIO
Echelon manages a portfolio of commercial real estate loans secured by
properties located throughout the United States summarized in the chart below.
The aggregate loan balance, as of June 30, 1996, was $97.9 million. Of this
total, four borrowers, representing six loan transactions, accounted for
approximately 82% of the loan balance, or $79.8 million. The largest single
geographic concentration of loans is in the State of Florida. Echelon's real
estate loan portfolio consists of loans secured by a diverse group of
properties, including single tenant and multi-tenant office buildings, life care
facilities, and industrial properties, as summarized in the following table:
Summary of Real Estate Loan Portfolio
<TABLE>
<CAPTION>
MATURITY DATE BALANCE AT
COLLATERAL MATURITY AFTER INTEREST 6/30/96
BORROWER/PROJECT LOCATION COLLATERAL DESCRIPTION DATE EXTENSIONS(4) RATE DATE (MILLIONS) AMORTIZATION
- ---------------------- ----------------- ---------------------- --------- ------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Madison Building(1) Tampa, FL Multi-tenant, Class C Nov-98 N/A Floating $ 3.3 30-year
office building
Continuum Building(2) Austin, TX Single tenant (The Dec-98 N/A Floating 9.1 20-year
Continuum Company,
Inc.), Class A office
building attached
parking garage
Marquardt Van Nuys, CA Industrial office Dec-96 N/A Floating 23.5 None
complex on 54 acres
Plaza Del Rio Bradenton, FL Multi-tenant, Class B Feb-97 N/A Floating 5.3 30-year
office building
Vine Street -- Olympia Olympia, WA Single tenant (State Jan-97 July-01 Floating 5.3 None
(Black Lake Place) of Washington), Class
A office building
Vine Street -- Capitol Olympia, WA Single tenant (State Oct-98 N/A Floating 5.8 None
View I of Washington), Class
A office building
Vine Street -- Capitol Olympia, WA Single tenant (State Dec-99 N/A Floating 5.0 None
View II of Washington), Class
A office building
Vine Street -- Town Olympia, WA Single tenant (State Nov-96 May-01 Floating 4.5 None
Square VI of Washington), Class
A office building
Life Care Port Charlotte & 440-unit Independent Apr-00 N/A Fixed 35.7 Yes,
Leesburg, FL Living Facility Varied(3)
("ILF") with 120 bed
nursing home and
140-unit Assisted
Living Facility
("ALF") located in
Port Charlotte,
Florida and a 400-unit
ILF with 40 bed
nursing home and a
20-unit ALF located in
Leesburg, Florida
MacDill Property Tampa, FL Industrial warehouse Apr-97 N/A Floating 0.4 30-year
-----
Total $ 97.9
========
</TABLE>
- ---------------
(1) Echelon's balance represents an 80% interest in this loan.
(2) Echelon's balance represents a 50% interest in this loan.
(3) Depending on excess cash flow relative to net operating income (as defined
in the loan documents) the borrowers may be required to pay additional
principal payments.
(4) The maturity date of certain loans may be extended upon satisfaction by the
borrowers of certain conditions.
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<PAGE> 45
Certain loans have extension options which allow the borrower, at its
option and subject to prior notification and payment of a fee to Echelon, to
extend the maturity of the loans pursuant to the loan agreement. Echelon has
attempted to encourage its borrowers to refinance or repay loans without
extension. The final maturities of the loans comprising Echelon's real estate
loan portfolio, including all applicable extension options, range from 1996 to
2001.
As is indicated in the preceding table, most of the loans bear interest at
a floating rate. The floating interest rates are at premiums to the prime rate
ranging from 0.75% to 2.0%.
Echelon's largest borrower is the Johnson Ezell Company ("Johnson Ezell")
with three loans totaling $35.7 million as of June 30, 1996. These three loans
are cross-collateralized with cross-default features under one mortgage. The
terms of the loans also include a participation feature, whereby Echelon
receives a variable percentage of the projects' excess cash flow (defined as net
cash flow after scheduled principal payments) that would be applied against the
outstanding loan balance. Johnson Ezell operates life care campuses for the
elderly. Life care campuses, also known as continuing care facilities, consist
of independent living facilities ("ILF"), assisted care living facilities
("ACLF"), and skilled nursing facilities ("SNF"). Johnson Ezell's campuses in
Port Charlotte, Florida, consisting of 440 ILF units, 140 ACLF units and a
120-bed SNF, and Leesburg, Florida, consisting of 400 ILF units, 20 ACLF units,
a 40-bed SNF, and miscellaneous commercial property provide the collateral for
Echelon's loans to Johnson Ezell. In addition, Echelon's loans to Johnson Ezell
are secured by certain personal guarantees.
As is indicated in the preceding table, Echelon has four loans aggregating
$20.6 million as of June 30, 1996 to the two Vine Street partnerships. Each of
such partnerships has as its managing general partner Brent McKinley, a local
real estate developer. Each loan is a stand-alone facility, and each loan is
secured by an office building located in the State of Washington. The several
buildings securing such loans range in size from 43,000 to 76,000 square feet.
The loans are split between two Vine Street partnerships: Vine Street Investors
("VSI") and Vine Street Associates ("VSA"). Each partnership guarantees the
other partnership's loans. VSI is the borrower of the Olympia Building and
Capital View I and II loans, while VSA provides the guarantees. VSA is the
borrower of the Town Square VI loan, while VSI provides the guarantee. The
guarantees are secured with second liens and assignment of leases on the other
partnership's security. All four buildings are leased to the State of
Washington. A comparison of lease terms to loan maturities is as follows:
<TABLE>
<CAPTION>
MAXIMUM
CURRENT ORIGINAL CURRENT EXTENDED MAXIMUM
LOAN LEASE LEASE LOAN LEASE
PROJECT LOANS MATURITY TERM MATURITY MATURITY MATURITY
--------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Capital View I............................... 10/30/98 5 years 5/31/99 10/30/98 5/31/04
Capital View II.............................. 12/31/99 5 years 6/30/00 12/31/99 6/20/05
Town View Square VI.......................... 11/30/96 10 years 11/30/96 5/31/01 11/30/01
Olympia Building............................. 1/31/97 5 years 4/30/97 7/31/01 4/30/02
</TABLE>
Extension options under the Vine Street loans are contingent upon the borrower
receiving lease extensions of no less than five years.
As of June 30, 1996, Echelon had a $23.5 million loan to the Marquardt
Company ("Marquardt"). Marquardt is owned by Ferranti PLC ("Ferranti"), which is
operating under receivership in the United Kingdom. The Ferranti receiver,
Arthur Andersen & Co., is in the process of liquidating Ferranti's assets,
including Marquardt. Echelon's loan is secured by a 54-acre industrial complex
located in California adjacent to the Van Nuys airport. Situated on the property
are several industrial buildings which are predominantly vacant, with the
exception of 173,764 square feet building on 16 acres of land leased to Kaiser
Marquardt for the manufacturing and testing of aerospace engines. In addition,
Echelon has been assigned Marquardt's lease with Kaiser Marquardt. Currently,
this lease generates $2.4 million in rental income, which is sufficient to
service the interest payments on Echelon's loan. Echelon estimates that the
potential fair market value of the industrial complex exceeds the outstanding
loan balance. Echelon has extended the maturity on this loan several times
through forbearance and does not expect full payment until the infrastructure
has been completed and the parcel has been subdivided. Ferranti recently
received initial indication of approval from Los Angeles County to subdivide the
property to enhance its marketability. It is anticipated that the
43
<PAGE> 46
implementation of the subdivision plan could take two years to complete. In
addition, the California Department of Environmental Protection has received the
environmental closure plan that the borrower has submitted and Echelon is
awaiting its approval.
As of June 30, 1996, Echelon had a $9.1 million loan to a partnership made
up of several officers of The Continuum Company, Inc., the Continuum Building's
sole tenant. The $9.1 million loan represents Echelon's portion of a joint
credit shared with Bank Midwest of Kansas City, Missouri, with each lender
equally secured. The loan is secured by a first mortgage on a 199,472 gross
square foot office building located in Austin, Texas. The borrower has provided
additional collateral in the form of an assignment of the lease to the lenders.
As of June 30, 1996, Echelon had a $5.3 million loan to Plaza Del Rio Corp.
The loan is secured by a first mortgage on a 76,587 square foot office building
located in Bradenton, Florida. The borrower's interest in the property is a
leasehold interest subject to a subordinated, long-term ground lease with an
expiration date of October 2083. Currently, the property is 100% leased to eight
tenants. The principals of the borrower have personally guaranteed a portion of
the principal balance. The original maturity of the loan has been extended to
October 1996, with four one-month options available to the borrower to February
1997 upon payment of an extension fee, in order for borrower to refinance the
property.
As of June 30, 1996, Echelon had an 80% participation in a $4.1 million
loan to Madison Building, Inc. The loan is secured by a first mortgage on a
94,680 square foot Class-C office building located in downtown Tampa. The
borrower has provided additional collateral in the form of $250,000 in
marketable securities. The borrower's interest in the property is a leasehold
interest subject to a subordinated, long-term ground lease with an expiration
date of 2062. Currently, the building is less than 61% occupied and does not
generate enough cash flow to cover debt service. Although, in the past, the
borrower has had sufficient resources to cover previous shortfalls, there can be
no assurance that the borrower will be able to continue to make payments.
Echelon has commenced discussions with the borrower and expressed its desire to
be paid off, paid down or adequately secured by additional collateral or
principal payments. If Echelon is forced to foreclose, proceeds from the sale of
the building are expected to be substantially less than the principal amount of
the loan.
In April 1995, Echelon sold the MacDill Property, a 41,373 square foot
industrial property located in Tampa, Florida to Palma Ceia Storage, Inc. for
$765,000 and simultaneously took back a first mortgage in the amount of
$515,000. The loan is for a term of two years. Since the transaction, the
borrower has paid down over $100,000 of the principal. Palma Ceia operates the
property as a climate-controlled storage facility.
Echelon does not anticipate originating any new financings of commercial
real estate unless such financing facilitates a sale of an existing asset.
Echelon's strategy is to collect outstanding loan balances as soon as
practicable, to take the steps necessary to maximize the value of each asset,
and, ultimately, to withdraw from the business of commercial real estate
financing as existing loans mature and are repaid. In the event that certain
borrowers are unable to repay or refinance their loans at final maturity,
Echelon anticipates either negotiating an extension of the maturity of the loan
or taking the necessary legal steps to foreclose on the underlying collateral
and then liquidating the underlying property. Echelon's strategy is to redeploy
capital from its real estate loan portfolio to its Real Estate Business.
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<PAGE> 47
COLLATERALIZED FINANCING AND LEASING OF AIRCRAFT/EQUIPMENT
General
Echelon owns and manages a portfolio of leveraged, direct finance and
operating leases of aircraft and other equipment and a number of collateralized
loans secured by aircraft.
Echelon's portfolio of leveraged leases represent transactions in which
Echelon acts as the equity investor and owner participant. In a typical aircraft
leveraged lease transaction, an airline, which may be unable either to allocate
capital to the purchase of a large commercial aircraft or to utilize effectively
the tax benefits related to the ownership thereof, and an aircraft manufacturer
enter into a transaction in which a third party (called an "owner participant"
or "equity participant") purchases the aircraft, typically through a special
purpose trust (an "owner trust"), from the manufacturer and then leases that
aircraft to the airline or to an affiliate of the manufacturer which then
subleases the aircraft to the airline. The owner trust is the legal owner of the
aircraft. The purchase of the aircraft is generally financed by both the equity
investment by the owner participant and by non-recourse loans borrowed by the
owner trust from a bank or other lender or lenders. The rent payable to the
owner trust pursuant to the leveraged lease generally represents the amount
necessary to service the debt, plus a return on the owner participant's equity
investment. The owner participant also generally reaps certain tax benefits as
the beneficial owner of the aircraft. These leases are typically long-term (20
years or more), and at their termination the owner participant takes possession
of the plane or other asset, which generally still has a useful life of several
years (usually 10 years in the case of aircraft). Upon expiration, the lessee
generally has the right to purchase the asset for the lower of the asset's fair
market value or for some stated percentage of the asset's cost. The lessee may
also generally terminate the lease early by payment of the lease termination
value (a pre-determined pricing method which reflects, among other things, the
amount of non-recourse debt, the initial investment and certain tax
consequences).
Under the terms of these leases, the ultimate user (i.e., the lessee or
sub-lessee) of the aircraft is generally required to bear the direct operating
costs and the risk of physical loss of the aircraft; maintain the aircraft;
indemnify Echelon as lessor against any liability suffered by Echelon as the
result of any act or omission of the lessee or its agents; maintain casualty
insurance in an amount equal to the specific amount set forth in the lease; and
maintain liability insurance naming Echelon as an additional insured with a
minimum coverage which Echelon deems appropriate. In general, substantially all
obligations connected with the ownership and operation of the leased aircraft
are assumed by the lessee, and minimal obligations are imposed upon Echelon.
Default by a lessee, however, may cause Echelon to incur unanticipated expenses.
See "Governmental and Environmental Regulations" below. Moreover, the risk that
the asset will be worth less than originally anticipated, and the risk that it
will not be re-leased or sold upon expiration of the lease, is borne by Echelon
as the owner participant.
Echelon's other lease assets include operating and direct finance leases.
Under the operating leases, Echelon leases an asset to a third party in
circumstances unrelated to the financing of such asset for a term which is
generally shorter than the typical term of a leveraged lease. Direct finance
leases are generally structurally similar to the leveraged lease transactions,
except for the absence of third party debt financing by the owner trust.
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<PAGE> 48
Leveraged Leasing
The following table summarizes Echelon's leveraged lease portfolio:
Summary of Leveraged Lease Portfolio
<TABLE>
<CAPTION>
LEASE
AIRCRAFT/ASSET LEASE TERMINATION AGE OF ASSET
TYPE/YEAR COMMENCEMENT ORIGINAL COST DATE AT LEASE
LEASE/SUB-LEASES OF DELIVERY DATE ($ IN THOUSANDS) (MO./YR.) MATURITY
- --------------------------------------- ------------------- ------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
A.I. Leasing II A300-B4-203 Mar-85 40,000 Jan-07 21
(Airbus)/Philippine Air 1985
Airbus A300 Leasing, Inc./ A300-B4-605R Apr-89 53,813 May-11 22
American 1989
Air Wisconsin Bae146-300A Sep-89 22,954 Mar-10 20
1989
American Airlines, Inc. DC 9-82 Oct-84 22,900 Jan-05 20
1984
American Airlines, Inc. DC 9-82 Oct-84 22,900 Jan-05 20
1984
America West Airlines, Inc. B757-2G7ER Dec-89 48,223 Jan-18 28
1989
Delta Air Lines, Inc. B737-232 ADV Apr-84 18,165 Mar-05 20
(Stage II) 1984
Delta Air Lines, Inc. B737-232 ADV Apr-84 17,976 Mar-05 20
(Stage II) 1984
Delta Air Lines, Inc. B737-247 ADV Jul-87 18,800 Jul-02 15
(Stage II) 1987
Delta Air Lines, Inc. B737-247 ADV Jul-87 18,800 Jul-02 15
(Stage II) 1987
Delta Air Lines, Inc. B767-332 ADV Nov-87 58,650 Jan-10 22
1987
Delta Air Lines, Inc. B757-232 Feb-88 43,306 Aug-10 22
1988
USAir, Inc. B737-301 Aug-86 24,303 Jan-07 20
1986
USAir, Inc. B737-301 Aug-86 24,401 Jan-07 20
1986
USAir, Inc. B737-301 Aug-86 24,257 Jan-07 20
1986
United Technologies, Inc./ two spare engines Jul-87 9,022 Jan-08 20
Tarom
Consolidated Rail Co. 25 GE Mar-85 32,469 Jan-01 --
C-36-7 locomotives
Union Bank-Real Estate 410,000 square foot Sep-86 50,100 Dec-11 --
Monterey Park, CA building
Reading & Bates(1) oil rig -- -- -- --
</TABLE>
(1) Reading & Bates encountered financial difficulties in 1987 and restructured
the lease. Echelon anticipates that the underlying asset could be subject
to foreclosure, which would trigger a tax liability payable by Echelon of
approximately $7.9 million. The Echelon Consolidated Balance Sheet at June
30, 1996, which is included elsewhere in this Information Statement,
reflects a reserve for such amount.
Because current disposition of the leveraged lease assets would result in
significant current income tax liabilities, Echelon plans to hold the leveraged
lease assets to maturity or until the termination value of a leveraged leasing
asset equals its market value. At that time, Echelon will either sell or hold
and re-lease the underlying aircraft or other asset, depending upon which option
is determined to provide the highest return. Current market values for aircraft
are relatively low due to the excess supply for most types of aircraft relative
to current market demands. After initial lease maturity, the average age of the
leased aircraft in Echelon's portfolio will be only 20 years. Based on a
standard useful aircraft life of 30 years, Echelon will have an average of ten
years to attempt to recoup the value of the leased assets through re-leasing and
to achieve an overall favorable return on its investment in such assets.
46
<PAGE> 49
Direct Finance and Operating Leases
Echelon's portfolio includes two direct finance lease transactions. The
first is through the Progress Potomac Capital Ventures ("PPCV") joint venture
between Echelon and Potomac Capital Corporation ("Potomac") and involves two
1973 DC10-30s that are currently on lease to Continental Airlines
("Continental"). Continental reduced and/or renegotiated the rent paid to
lessors on many of its leased aircraft. As a result, Echelon and Potomac agreed
to revised terms with Continental pursuant to which the rent payable was
deferred for 16 months, retroactive to February 1995, and Continental issued a
deferred-rent note with respect thereto. The principal amount of such note as of
June 30, 1996 was $3.5 million. The note earns interest at 8% annually, requires
interest only for the first six months, and is fully amortized over the
remaining three years of its term. The second direct finance lease covers a 1984
B737-300 leased to Southwest Airlines through June 1, 2004.
Echelon currently has two operating leases: a 1981 B727-200 Advance on
lease to Air Micronesia, (a subsidiary of Continental) which has a lease
expiration of December 1998, and two 1986 CFM-56 engines leased through PPCV to
America West.
Although operating leases are generally for relatively higher rental rates
than longer term direct finance or leveraged leases and the lessee enjoys
relatively greater flexibility through the shorter term, the lessor under an
operating lease may be at relatively greater risk because the asset must be
re-leased on maturity. Re-leasing any such asset could take time and could be
delayed due to future market weakness and could be impacted by potentially lower
future rental rates.
Echelon believes that to maximize the long-term values of its existing
aircraft and equipment assets, it may be necessary to hold such assets beyond
the terms of their current leases. Echelon also believes that re-deploying such
assets under operating leases represents an opportunity which could provide
acceptable returns on a risk-adjusted basis.
Aircraft Lending
The following table summarizes Echelon's aircraft loan portfolio:
Summary of Aircraft Loan Portfolio
<TABLE>
<CAPTION>
AIRCRAFT LOAN
YEAR/ BALANCE AT 6/30/96
BORROWER/LESSEE ASSET TYPE ($ MILLIONS) LEASE MATURITY LOAN MATURITY INTEREST RATE BASIS
- -------------------------------- ------------- ------------------ -------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Pegasus/TWA..................... 1974 L1011-50 $ 10.5 Dec-99 Jun-96 Floating
Pegasus/ChallengAir............. 1973 DC10-30 25.1 Dec-97 Jun-96 Floating
Pegasus/Continental............. 1986 MD-82 10.7 Jan-03 Jan-03 Fixed
------------------
Total................... $ 46.3
==================
</TABLE>
All of Echelon's aircraft loans are to Pegasus Capital Corporation
("Pegasus"), an aircraft leasing company. Pegasus leases over 50 planes to the
airline industry worldwide through itself and its two affiliates. As indicated
by the table above, as of June 30, 1996, the three loans to Pegasus consisted of
a $10.5 million loan secured by a 1974 L1011-50 aircraft leased by Pegasus to
TWA, a $25.1 million loan secured by a 1973 DC 10-30 aircraft leased by Pegasus
to ChallengAir (a charter air company based in Brussels, Belgium) and a $10.7
million loan secured by a 1986 MD-82 leased by Pegasus to Continental.
Echelon plans to withdraw from the aircraft lending business and intends to
work with Pegasus to negotiate the sale or refinancing of its loans as promptly
as practicable. If neither action proves feasible, Echelon will foreclose and
attempt to sell the assets. The proceeds from any such sale or refinancing would
be used to repay the PCH Note issued to PCH. In light of the credit quality of
Pegasus's lessees and the current low market value of the aircraft securing
Echelon's loans to Pegasus, Echelon has also created a provision in its
financial statements equal to the losses anticipated upon the sale or
refinancing of such loans or the sale of the collateral upon foreclosure.
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<PAGE> 50
Bankruptcy of Lessees of Aircraft
Due to many factors, including the fluctuating state of the economy,
uncertain traffic levels, intense route and fare competition and the ease of
entry of new airlines under the Airline Deregulation Act of 1978, several
commercial airlines in recent years have been forced to suspend or cease
operations due to financial difficulties. These airlines have filed petitions
for reorganization under the Federal Bankruptcy Code, have merged with other
airlines or have been liquidated. Echelon believes this recent economic
uncertainty in the commercial airline industry is indicative of the periodic
fluctuations in the industry's economic performance. No assurance can be given
that the weakening financial condition or bankruptcies of lessees of aircraft
from Echelon would not have a material adverse effect on Echelon's business,
results of operations or financial condition. Moreover, if aircraft are returned
by bankrupt carriers, there can be no assurance that Echelon will be able to
sell or re-lease such aircraft on favorable terms or in a timely manner.
In order to encourage equipment financing to the commercial airline
industry, federal bankruptcy laws traditionally have afforded special treatment
to certain lenders or lessors who have provided such financing. Section 1110 of
the Bankruptcy Code implements this policy by creating a category of aircraft
lenders and lessors whose rights to repossession upon the occurrence of a
default are substantially enhanced.
In reorganizations of airlines under chapter 11 of the Bankruptcy Code,
Section 1110 provides that the airline debtor cannot prevent a lessor, such as
Echelon, or, with respect to transactions entered into prior to October 1994, a
secured party who holds a purchase-money security interest, from taking action
in accordance with its security documents or lease to repossess the aircraft in
the event of a default, unless, within 60 days after the date of the order
granting the debtor relief under the Bankruptcy Code, the airline cures all
defaults under the lease or secured loan (other than those arising solely from
the bankruptcy, insolvency or financial condition of the debtor) and agrees to
perform all future obligations under the lease or secured loan.
Section 1110 only protects a financing party's rights in respect of
aircraft leased to an air carrier operating under an air carrier operating
certificate issued by the Secretary of Transportation for aircraft capable of
carrying ten or more individuals or 6,000 pounds of cargo. Airlines based
outside the United States are not covered by such certificates and accordingly
leases of aircraft to such parties are not entitled to Section 1110 protection
in a bankruptcy or other insolvency proceeding involving such airline. Echelon
currently has two leases to airlines based outside the United States. In the
event of a default by such foreign lessees or a foreign insolvency proceeding
involving such lessees, Echelon's legal rights, including the right of
repossession, may be subjected to legal treatment different from what is
provided in the United States. Similarly, because Section 1110 is intended to
protect parties offering financing to airline operators, it is unlikely that
leases to manufacturers would be entitled to the protections of such Section.
However, because subleases of assets by such manufacturers to airline operators
would generally be entitled to such protections, the benefits thereof could be
indirectly available to the original owner/lessor. Echelon currently has two
leases to affiliates of Airbus Industrie G.I.E. and one lease to United
Technologies, Inc., each of which is a manufacturer which has sub-leased the
relevant assets to airline operators.
When Echelon entered into lease transactions with domestic airlines,
Echelon generally received opinions of counsel that it was entitled to the
protections of Section 1110. However, there can be no assurance that, in the
event of a bankruptcy of an airline to which Echelon leased an aircraft, a court
would determine that a lease to such airline was entitled to Section 1110
protection. If an aircraft lease were not subject to Section 1110, payments
thereunder may be interrupted without the ability to repossess the aircraft or
exercise other remedies thereunder. Further, Section 1110 does not prevent a
lessee from rejecting a lease or demanding a renegotiation of the lease as a
condition to continuing to perform under the lease. In the event Echelon were to
repossess an aircraft after default by an airline, it may not be able to
re-lease such aircraft at comparable rates.
Aircraft Remarketing and Sale
On termination of a lease and return or repossession of an aircraft to or
by Echelon, Echelon would need to remarket the aircraft to realize its full
investment. The remarketing of aircraft may be through a lease or sale. The
terms and conditions of any such transaction cannot be determined until such
time as the transaction
48
<PAGE> 51
is consummated. Whether an investment in any aircraft initially subject to a
leveraged or direct finance lease will ultimately prove to have been profitable
may depend upon the terms on which such aircraft will be re-leased or sold. No
assurance can be given that as aircraft come off lease, Echelon will be able to
re-lease or sell such aircraft on commercially acceptable terms or in a timely
manner. Furthermore, in the event of a lessee default or bankruptcy requiring
Echelon to sell the aircraft prior to expected maturity of the lease, Echelon
would accelerate the incurrence of tax liabilities, which could be significant,
even if the aircraft is sold for less than its long-term value.
EMPLOYEES
At June 30, 1996, Echelon had approximately 75 full-time employees. None of
Echelon's employees are represented by labor unions. Echelon believes that,
generally, labor relations are satisfactory and have been maintained in a normal
and customary manner. From time to time, Echelon engages third party contractors
on development projects for infrastructure management and building construction,
these contractors' employees include persons represented by various building and
trade unions.
COMPETITION
Real Estate Industry
The real estate ownership, development and management markets are generally
regional, and the identity of Echelon's competitors and the levels of
competition vary in each area of activity and in each market. While Echelon
encounters significant competition in each area of activity and in each market,
Echelon believes that no one competitor is dominant. In particular, within the
Tampa Bay area in which Echelon's operations are concentrated, there are
numerous commercial properties that compete with Echelon in attracting tenants,
numerous companies that compete with Echelon in selecting land for development
and properties for acquisition (including within the affordable housing market
generally and for Housing Tax Credits in particular) and numerous companies that
compete for real estate management business. Certain of these competitors have
significantly greater financial resources than Echelon and may have greater
experience than Echelon in acquiring, developing and managing real estate.
Aircraft Leasing Industry
The aircraft leasing industry is highly competitive, offering users
alternatives to the purchase of nearly every type of aircraft. Competitive
conditions vary considerably depending upon the type of aircraft to be leased
and the nature of the prospective lessee. As Echelon's aircraft leases mature,
Echelon will be subject to such competition to the extent it attempts to
re-lease such aircraft. In attempting to obtain commitments to lease aircraft to
specific lessees, Echelon may be expected to compete, directly or indirectly,
with aircraft manufacturers, airlines and other operators, equipment managers,
leasing companies, financial institutions and numerous other parties engaged in
leasing, managing, marketing or remarketing aircraft. Many of these competitors
have significantly greater financial resources than Echelon and may have greater
experience than Echelon in managing, leasing, operating and selling aircraft.
Such competitors may offer to lease aircraft at rates lower than those which
Echelon can reasonably offer and may provide certain benefits, such as
maintenance, crews, support services and trade-in privileges, which Echelon
generally cannot provide. In addition, to the extent troubled airlines seek to
re-negotiate the terms of the leases relating to their aircraft, certain of
Echelon's competitors with greater resources may be in better bargaining
positions to avoid renegotiation or may be able to enter into such negotiations
and achieve relatively more favorable terms than Echelon would be able to do.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against Echelon.
49
<PAGE> 52
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Real Estate Industry
Echelon believes that it is in compliance in all material respects with all
material environmental laws or regulations and that the cost of continued
compliance with such laws and regulations will not have a material adverse
effect on Echelon. However, many of the properties are located in urban areas
where fill or current or historic industrial uses of the areas may have caused
site contamination at the properties. Nonetheless, at this time, Echelon does
not anticipate that regulatory authorities will require remediation of the
properties in any manner that would result in a material adverse effect on
Echelon's business, financial condition or results of operations.
Aircraft Leasing Industry
General. The ownership and operation of aircraft in the United States are
strictly regulated by the FAA, which imposes certain minimum restrictions and
economic burdens upon the use, maintenance and ownership of aircraft. The FAA
Act and FAA regulations contain strict provisions governing various aspects of
aircraft ownership and operation, including aircraft inspection and
certification, maintenance, equipment requirements, general operating and flight
rules, noise levels, certification of personnel, and record keeping in
connection with aircraft maintenance. In the last several years, the FAA has
issued a number of administrative directives and other regulations relating to,
among other things, collision avoidance systems, airborne windshear avoidance
systems, noise abatement and increased inspection requirements, which will
require lessees or Echelon to incur additional expenditures for compliance. FAA
policy has given high priority to aviation safety, and a primary objective of
FAA regulations is that an aircraft be maintained properly during its service
life. FAA regulations establish standards for repairs, periodic overhauls and
alterations and require that the owner or operator of an aircraft establish an
airworthiness inspection program to be carried out by certified mechanics
qualified to perform aircraft repairs. Each aircraft in operation is required to
have a Standard Airworthiness Certificate issued by the FAA.
Maintenance and Aircraft Aging. Echelon, as the beneficial owner of
aircraft, bears the ultimate responsibility for compliance with certain federal
regulations. However, under all of its aircraft leases, the lessee has the
primary obligation to ensure that at all times, the use, operation, maintenance
and repair of the aircraft are in compliance with all applicable governmental
rules and regulations and that Echelon is indemnified from loss by the lessee
for breach of any of these lessee responsibilities. Changes in government
regulations may increase the cost to, and other burdens on, Echelon of complying
with such regulations.
Maintenance is further regulated by the FAA which also monitors compliance.
At lease termination, the lessees are required to return the aircraft in good
operating condition. Echelon may incur unanticipated maintenance expenses if a
lessee were to default under a lease and Echelon were to take possession of the
leased aircraft without such maintenance having been performed. If the lessee
defaulting is in bankruptcy, Echelon will file a proof of claim for the required
maintenance expenses in the lessee's bankruptcy proceedings and attempt to
negotiate payment and reimbursement of a portion of these expenses. The
bankruptcy of a lessee could adversely impact Echelon's ability to recover
maintenance expense.
As a result of investigations into the causes of several incidents,
including rapid in-flight aircraft decompression and fatigue cracks in critical
parts, the aircraft manufacturers issued service bulletins and the FAA has also
issued airworthiness directives ("ADs"). These bulletins and directives provide
instructions to aircraft operators in the maintenance of aircraft and are
intended to prevent the occurrence of similar incidents. Compliance with ADs is
mandatory.
On March 6, 1989, the FAA ordered extensive repairs of all older commercial
aircraft which it implemented through several 1990 ADs. These ADs were issued to
ensure that the oldest portion of the nation's transport aircraft fleet remains
airworthy. The FAA is requiring that these aircraft undergo extensive structural
modifications. These modifications are required upon accumulation of 20 years'
time in service, prior to the accumulation of a designated number of
flight-cycles or prior to 1994 deadlines established by the various ADs,
whichever occurs later. Echelon has interests in three aircraft that have over
20 years' time in
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<PAGE> 53
service. A formal program to control corrosion in all aircraft has also been
added to the FAA mandatory requirements for maintenance for each type of
aircraft. These FAA rules and proposed rules evidence the current approach to
aircraft maintenance developed by the manufacturers and supported by the FAA in
conjunction with an aircraft industry group. Echelon may be required to pay for
these FAA requirements if a lessee defaults or if necessary to release or sell
the aircraft.
There are more than 12,000 jet aircraft in the western fleets of the
principal airlines of the world. On average these aircraft are less than 13
years old. Several hundred have been in service for 20 years or more and that
number is growing. See "Summary of Leveraged Lease Asset Portfolio" above for a
table showing the lease date, manufacture and the date of lease termination of
Echelon aircraft.
Aircraft Noise. The FAA, through regulations, has categorized certain
aircraft types as Stage I, Stage II and Stage III according to the noise level
as measured at three designated points. Stage I aircraft create the highest
measured noise levels. Aircraft which exceed Stage I noise maximums are no
longer allowed to operate from civil airports in the United States.
The Aviation Safety and Capacity Act of 1990 bans the operation of Stage II
aircraft after December 31, 1999. All of Echelon's leased aircraft have Stage
III noise certification, except four B737-200s leased to Delta. A lease
extension with Delta Airlines requires the airline to install hushkits on two of
such aircraft, while Echelon plans to install hushkits on the other two aircraft
in order to qualify for Stage III noise certification. The cost of the hushkits
is currently approximately $2.5 million per aircraft.
Registration of Aircraft; United States Person. Under the FAA Act, the
operation of an aircraft not registered with the FAA in the United States is
generally unlawful. Subject to certain limited exceptions, an aircraft may not
be registered under the FAA Act unless it is owned by a "citizen of the United
States" or a "resident alien" of the United States. If Echelon were to cease
being a "citizen of the United States" or a "resident alien" of the United
States, it may be subject to claims based upon its breach of covenants and
representations concerning its status as a citizen of the United States included
in the contracts underlying its leveraged, direct finance and operating leases.
Because Florida Progress will continue to guarantee certain of these covenants
after the Distribution, the Distribution Agreement will require that the Echelon
Chairman, the Echelon President and two-thirds of the Echelon Board of Directors
be United States citizens or resident aliens within the meaning of the FAA Act
for as long as any of such covenants are guaranteed by Florida Progress.
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<PAGE> 54
MANAGEMENT AND EXECUTIVE COMPENSATION
BOARD OF DIRECTORS
Immediately after the Distribution, Echelon expects to have a board
composed of five directors, one of whom is an executive officer of Florida
Progress. The Echelon Board of Directors will be divided into three classes.
Directors for each class will be elected at the annual meeting of stockholders
held in the year in which the term for such class expires and will serve
thereafter for three years.
The following sets forth the names, in alphabetical order, and certain
information about the persons who are expected to serve as directors of Echelon
following the Distribution. [One additional director to be selected and added]
W. Michael Doramus, age 46, will be a director and the Chairman of the
Board of Echelon, with a term to expire at the annual meeting of stockholders to
be held in 1999. Mr. Doramus brings more than two decades of executive
experience in all phases of multi-family residential real estate operations,
including project planning, acquisition, development, financing, management and
disposition. Mr. Doramus founded Mission Development Company, Dallas, Texas, a
real estate consulting services, real estate development, systems development,
technology and market research company in January of 1996 and serves as its
President. He served as Executive Vice President and National Partner of JPI
Development Partners, Inc., Dallas, Texas from 1992 to 1995. Mr. Doramus served
as President of Rosewood Management and Acquisition Group, Inc., from 1990 to
1992. Prior to 1992, he served as President of various companies including
Doramus Ventures, Inc., from 1988 to 1989 and two Trammel Crow companies,
Brentwood Properties and Trammell Crow Advisory Services, Inc. from 1977 to
1987.
Darryl A. LeClair, age 37, will be a director and the President and Chief
Executive Officer of Echelon. His term as director will expire at the annual
meeting of stockholders to be held in 1999. Prior to the Distribution, Mr.
LeClair had been employed by Florida Progress or its affiliates for more than 14
years, serving in a variety of executive positions, particularly those regarding
real estate development, management and finance and regarding aircraft leasing
and finance. He served as the President of PCC since 1992, as Vice President of
Mergers, Acquisitions and Divestitures of Florida Progress since 1991, and as
the President of Talquin since 1993. He served also as President of Progress
Leasing and PLC Leasing since 1992. From 1988 to 1992 he was Vice President of
Talquin, heading up operations, including the real estate group.
Thomas W. Mahr, age 38, will be a director of Echelon with a term to expire
at the annual meeting of stockholders in 1998. Mr. Mahr has more than 12 years
of experience in the aircraft leasing and finance and airline industries,
including service in the treasury and financial planning functions for regional
and national airlines and more recently in executive positions of business
focusing solely on aircraft financing operations. Mr. Mahr is currently a
Managing Director of the Seabury Group, a firm specializing in aviation
investment banking located in Greenwich, Connecticut. Mr. Mahr was a Principal
with Fieldstone Private Capital Group, New York, New York from 1991 to 1996.
From 1989 to 1991, he served as Vice President of Marketing for Chrysler Capital
Corporation, Greenwich, Connecticut, responsible for all aviation investments.
He served as Vice President and Chief Financial Officer of Rocky Mountain
Airways, Denver, Colorado, from 1988 to 1989 and as Director of Finance of Texas
Air Corporation, Houston, Texas, from 1986 to 1988. From 1983 to 1985, Mr. Mahr
served as Manager of Finance for New York Air, Flushing, New York.
Joseph H. Richardson, age 47, will continue as a director of Echelon with a
term to expire at the annual meeting of stockholders in 1997. Mr. Richardson has
been employed by Florida Progress or its affiliates for more than 20 years. He
joined Florida Power Corporation in 1976 as Assistant Counsel, was promoted to
Corporate Counsel in 1977 and became Assistant General Counsel of Florida
Progress in 1983. In 1986 he joined Talquin Corporation as Vice President and
was promoted to President and Chief Executive Officer in 1990. While at Talquin
Corporation, he also served as Group Vice President and Senior Vice President of
the Development Group of Florida Progress. In 1993 Mr. Richardson became Senior
Vice President of Legal Administrative Services at Florida Power and in 1995
became Senior Vice President of Energy Distribution. In April 1996, he became a
member of the Board of Directors and was promoted to President and Chief
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<PAGE> 55
Operating Officer of Florida Power and continues to serve as a Group Vice
President of the Utility Group of Florida Progress.
DIRECTORS' COMPENSATION
It is expected that directors who are not employees of Echelon
("Non-employee directors") will receive an annual retainer fee of $15,000 to be
paid quarterly, in arrears, in the form of Echelon Common Stock in accordance
with an Echelon Stock Plan for Non-employee directors to be approved by
Echelon's stockholder prior to the Distribution. In addition, Non-employee
directors will receive $1,000 for each meeting of the Board of Directors
attended and $500 for each meeting of a Committee of the Board of Directors
attended. Non-employee directors that serve as Chairman of a Committee of the
Board of Directors will receive an additional $750 for each meeting chaired.
In addition to the annual retainer fee and meeting fees described above, W.
Michael Doramus will receive an additional $100,000 per year as Chairman of the
Board.
COMMITTEES OF THE BOARD OF DIRECTORS
It is expected that Echelon's Board of Directors will establish the
following standing committees in addition to an Executive Committee to act
between regular meetings of the Board of Directors:
Audit Committee. The Audit Committee will be comprised solely of at least
two Non-employee directors. Its function will include the recommendation of the
independent auditors to be engaged by Echelon and the review of Echelon's
general policies and procedures with respect to audits and accounting and
financial controls.
Compensation Committee. The Compensation Committee will be comprised
solely of at least two Non-employee directors. Its function will include the
establishment of compensation policies for the executive officers of Echelon and
administration of any stock-based compensation plans.
Nominating Committee. The Nominating Committee will be comprised of at
least two Non-employee directors. Its function will include the consideration of
recommendations for nominees for election to the Board of Directors submitted by
stockholders.
EXECUTIVE OFFICERS
Listed below is certain information about the persons who will be Echelon's
executive officers after the Distribution.
Darryl A. LeClair, age 37, will be the President and Chief Executive
Officer of Echelon. See biographical information above under "Board of
Directors."
Larry J. Newsome, age 48, will be the Senior Vice President, Chief
Financial Officer and Secretary of Echelon. Mr. Newsome has been employed by
Florida Progress or its affiliates for more than 25 years, serving in a variety
of tax, financial and managerial positions. He served as Vice President of Tax
Administration at Florida Progress since 1992 and held the same position at
Florida Power Corporation, its subsidiary, since 1994. He was the Director of
Tax Administration at Florida Progress from 1983 to 1992. Until 1993, Mr.
Newsome also served Progress Leasing as a Director from 1983 and as Assistant
Treasurer from 1984 and served PLC Leasing as a Director and Assistant Treasurer
from 1985. He joined Florida Power Corporation in 1971 and served in various
capacities including Manager and Supervisor of Tax Accounting, Senior Accountant
and Accountant.
Thomas D. Wilson, age 49, will be a Vice President of Echelon. Mr. Wilson
has been employed by Florida Progress or its affiliates for more than seven
years, having served as Vice President of PCC since 1989, as Director and Vice
President of Progress Leasing and PLC Leasing since 1991 and as Vice President
of Talquin since 1993. He joined Florida Progress in 1989 as the Director of
Real Estate, Lending and Leasing.
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Raymond F. Higgins, age 45, will be the Vice President of Administration of
Echelon. Mr. Higgins has been employed by Florida Progress or its affiliates for
more than 14 years, having served as the Director of Financial Reporting &
Planning for Florida Power Corporation, a subsidiary of Florida Progress since
1992 and was Director of Financial Reporting & Planning for Florida Progress
from 1986 to 1992. He joined Florida Power Corporation in 1982 and held various
financial positions including, Manager of Financial Reporting, Senior Accountant
and Accountant.
James R. Hobbs, Jr., C.P.A., age 44, will be the Vice President and
Controller of Echelon. Mr. Hobbs has been employed by Florida Progress or its
affiliates for more than 14 years, having served as Controller and Assistant
Treasurer of PCC since 1995, Controller and Assistant Treasurer of Talquin since
1993 and Controller and Assistant Treasurer of Progress Leasing and PLC Leasing
since 1995. He was Manager of Accounting for Talquin from 1987 to 1993, and
Supervisor of Accounting for Talquin Corporation from 1985 to 1987. He joined
Florida Power Corporation in 1982 and held the positions of Operational Auditor
and Senior Operational Auditor until 1985.
Michael S. Talmadge, age 37, will be the Vice President of Leasing and Real
Estate Services of Echelon. Mr. Talmadge has more than 11 years of experience in
managing commercial real estate projects, the last 5 years being in the Tampa
Bay area. He has served as the President of TRS Commercial Real Estate Services,
Inc., a leasing and property management company in Tampa, Florida from 1993
until the [Distribution Date]. He joined TRS Commercial Real Estate Services,
Inc. as Director of Marketing in 1991. Mr. Talmadge served as a Principal for
Trammell Crow Company in Denver and Colorado Springs, Colorado from 1989 to
1991. He served as General Manager of Phase One Development for San Diego Gas &
Electric from 1988 to 1989, after joining the company as Marketing Executive in
1987.
COMPENSATION OF ECHELON'S EXECUTIVE OFFICERS
The information set forth in the following table reflects compensation
earned based on services rendered to Florida Progress and its affiliates in 1995
by Echelon's Chief Executive Officer and the other two executive officers of
Echelon whose total annual salary and bonus exceeded $100,000 (collectively the
"Named Executive Officers"). The services rendered to Florida Progress, in some
respects, were in capacities not equivalent to those to be provided to Echelon,
and the prior compensation may not be indicative of the compensation to be paid
to the Named Executive Officers of Echelon in the future.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
PAYOUTS
ANNUAL COMPENSATION(1) ------------
-------------------------
(A) (H) (I)
NAME AND PRINCIPAL (B) (C) (D) LTIP ALL OTHER
POSITION(S) WITH ECHELON YEAR SALARY BONUS PAYOUTS COMPENSATION(2)
- --------------------------------------------- ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Darryl A. LeClair............................ 1995 $211,947 $87,500 N/A $ 6,645
President and Chief Executive Officer
Larry J. Newsome............................. 1995 $133,450 $44,000 N/A $ 2,004
Senior Vice President, Chief
Financial Officer and Secretary
Thomas D. Wilson............................. 1995 $ 98,055 $19,500 N/A $ 2,221
Vice President
</TABLE>
- ---------------
(1) All other annual compensation paid to the Named Executive Officers during
1995, other than salary and annual incentive compensation, does not exceed
the minimum amounts required to be reported pursuant to Securities and
Exchange Commission rules.
(2) Florida Progress matching contributions to its Savings Plan and/or its
Executive Optional Deferred Compensation Plan on behalf of the Named
Executive Officers.
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<PAGE> 57
The following table provides information with respect to performance shares
awarded in 1995 to the Named Executive Officers of Echelon for the 1995-1997
performance cycle of the Florida Progress Long-Term Incentive Plan ("LTIP"):
LONG-TERM INCENTIVE PLAN(1)
AWARDS IN 1995
<TABLE>
<CAPTION>
ESTIMATED PAYOUT AT
NUMBER OF PERFORMANCE END OF PERIOD(3)
PERFORMANCE PERIOD ---------------------------
NAME SHARES(2) COVERED THRESHOLD TARGET MAXIMUM
- ---------------------------------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Darryl A. LeClair................. 1,483 1995-1997 742 shares 1,483 shares 2,225 shares
Larry J. Newsome.................. 625 1995-1997 313 shares 625 shares 938 shares
</TABLE>
- ---------------
(1) The LTIP is an incentive plan to reward participants for long-term growth
and performance of Florida Progress.
(2) Performance shares awarded under the LTIP which, upon achievement of
performance criteria, would result in the payout of shares of common stock
of Florida Progress, two-thirds of which would be restricted for certain
periods of time. Payouts of shares of common stock are made for achieving
returns on equity equal to or exceeding the thresholds determined by the
Compensation Committee of the Florida Progress Board of Directors.
(3) Awards are earned upon achievement of Florida Progress and/or subsidiary
return on equity goals for the three-year performance cycle.
PENSION PLAN TABLE
The table below illustrates the estimated annual benefits (computed as a
straight life annuity beginning at retirement at age 65) payable under Florida
Progress Corporation's Retirement Plan and Nondiscrimination Plan for specified
final average compensation and years of service levels. It is not expected that
Echelon will have a retirement plan.
ESTIMATED ANNUAL RETIREMENT BENEFITS PAYABLE UNDER
THE RETIREMENT PLAN AND NONDISCRIMINATION PLAN
<TABLE>
<CAPTION>
AVERAGE SERVICE YEARS
ANNUAL --------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35 OR MORE
- ------------ ------- ------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 9,000 $18,000 $ 27,000 $ 36,000 $ 45,000 $ 54,000 $ 63,000
200,000 18,000 36,000 54,000 72,000 90,000 108,000 126,000
300,000 27,000 54,000 81,000 108,000 135,000 162,000 189,000
400,000 36,000 72,000 108,000 144,000 180,000 216,000 252,000
500,000 45,000 90,000 135,000 180,000 225,000 270,000 315,000
</TABLE>
Under the Retirement Plan and the Nondiscrimination Plan, the compensation
taken into account in calculating benefits is salary only. The years of credited
service that would be used in calculating benefits under the Retirement Plan and
the Nondiscrimination Plan for the Named Executive Officers in the summary
compensation table are as follows: Darryl A. LeClair, 14 years of service; Larry
J. Newsome, 25 years of service; Thomas D. Wilson, 7 years of service. The
benefits under the Retirement Plan and the Nondiscrimination Plan are subject to
offset by an amount equal to 1/7% of a participant's primary Social Security
benefit for each year of service (with a maximum offset of 40%).
MANAGEMENT OWNERSHIP OF SECURITIES
The following table sets forth information with respect to the number of
shares of Echelon Common Stock that are expected to be owned beneficially
immediately after the Distribution by each director and each of the Named
Executive Officers of Echelon and by all directors and executive officers of
Echelon as a group. The information presented in this table is based on the
number of shares of Florida Progress Common Stock owned beneficially by each
director and executive officer on August 31, 1996 and one share of Echelon
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<PAGE> 58
Common Stock being distributed in the Distribution for every 15 shares of
Florida Progress Common Stock. Unless otherwise indicated, the person indicated
below will have sole voting and investment power with respect to the Echelon
Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED CLASS(1)
- ----------------------------------------------------------------- --------------------- ----------
<S> <C> <C>
W. Michael Doramus............................................... 0
Darryl A. LeClair................................................ 175
Thomas W. Mahr................................................... 0
Joseph H. Richardson............................................. 663
Larry J. Newsome................................................. 49
Thomas D. Wilson................................................. 5
All 9 directors, Named Executive Officers and executive officers
as a group (9 persons), including those named above............ 901
</TABLE>
- ---------------
(1) Unless otherwise noted, less than 1%.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning each person known to
Florida Progress who would be the beneficial owner of more than 5% of the
Echelon Common Stock upon completion of the Distribution if such person
continued to own beneficially on the Record Date the same number of shares of
Florida Progress Common Stock believed by Florida Progress to be owned
beneficially by such person on June 30, 1996 (and assuming no change in the
number of outstanding shares of Florida Progress Common Stock from such date to
the Record Date.) Such information has been obtained from Florida Progress's
records and a review of statements filed with the SEC pursuant to Sections 13(d)
and 13(g) of the Securities Exchange Act with respect to Florida Progress Common
Stock and received by Florida Progress prior to August 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED(1) OF CLASS
- ------------------------------------------------------------------- --------------------- --------
<S> <C> <C>
Franklin Resources, Inc. .......................................... 361,978 5.6%
777 Mariners Island Blvd.
San Mateo, California 94404
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1996, Talquin entered into a Consulting Agreement with Mission
Development Company, a company which is wholly owned by Mr. Doramus. Mr. Doramus
will be Chairman of the Board of Echelon. Talquin agreed to pay Mission
Development Company a total of $400,000 for real estate consulting services to
be provided through March 31, 1997. These services, and the compensation
therefore, are independent of Mr. Doramus's services as Chairman and the
compensation paid to him as a director and Chairman.
Mr. Richardson, who will continue to serve as a director of Echelon
following the Distribution, is an executive officer of both Florida Progress and
Florida Power. During 1996, Florida Progress has entered into various agreements
with Echelon including the Distribution Agreement, Tax Sharing Agreement,
Employee Benefits Allocation Agreement and Transition Services Agreement. See
"Relationship Between Florida Progress and Echelon After the Distribution." In
addition, Florida Progress and Florida Power have ongoing lease agreements with
Echelon. See "Business -- Commercial Real Estate Ownership and Management."
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that Echelon has
authority to issue under its Articles of Incorporation is shares, of
which shares represent shares of Echelon Common Stock and shares
represent shares of Preferred Stock (the "Echelon Preferred Stock"). Based on
shares of Florida Progress Common Stock outstanding as of ,
1996, and a distribution ratio of one share of Echelon Common Stock for every 15
shares of Florida Progress Common Stock, it is anticipated that approximately
shares of Echelon Common Stock will be distributed to holders of Florida
Progress Common Stock on the Distribution Date.
ECHELON COMMON STOCK
Each outstanding share of Echelon Common Stock is entitled to one vote on
all matters submitted to a vote of stockholders.
Subject to any preferential rights of any Echelon Preferred Stock created
by the Board of Directors of Echelon, each outstanding share of Echelon Common
Stock is entitled to such dividends, if any, as may be declared from time to
time by the Board of Directors of Echelon. See "Dividend Policy".
In the event of liquidation, dissolution or winding up of Echelon, holders
of Echelon Common Stock are entitled to receive on a pro rata basis any assets
remaining after provision for payment of creditors and after payment of any
liquidation preferences to holders of Echelon Preferred Stock.
ECHELON PREFERRED STOCK
The authorized Echelon Preferred Stock is available for issuance from time
to time in one or more series at the discretion of the Echelon Board of
Directors without stockholder approval. The Echelon Board of Directors has the
authority to prescribe for each series of Echelon Preferred Stock it establishes
the number of shares, the voting rights (if any) to which such shares are
entitled, the consideration for such shares, the designations, powers,
preferences and relative, participating, optional or other special rights,
dividend, redemption and sinking fund provisions (if any), and any
qualifications, limitations or restrictions of the shares in that series.
Depending upon the rights of such Preferred Stock, the issuance of Echelon
Preferred Stock could have an adverse effect on holders of Echelon Common Stock
by delaying or preventing a change in control of Echelon, making removal of the
present management of Echelon more difficult or resulting in restrictions upon
the payment of dividends and other distributions to the holders of Echelon
Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Florida law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the Echelon Common Stock remained listed on the NYSE, require
stockholder approval of certain issuances equal to or exceeding 20% of the then
outstanding voting power or then outstanding number of shares of Echelon Common
Stock. Authorized but currently unissued shares, if issued, may be used for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions. Echelon currently
has no plans to issue additional shares of Echelon Common Stock or Echelon
Preferred Stock other than in connection with employee compensation plans. See
"Management and Executive Compensation."
One of the effects of the existence of unissued and unreserved Echelon
Common Stock and Echelon Preferred Stock may be to enable the Board of Directors
of Echelon to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of Echelon by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of Echelon's management and possibly deprive the
stockholders of opportunities to sell their shares of Echelon Common Stock at
prices higher than prevailing market prices. Such additional shares also could
be used to
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<PAGE> 60
dilute the stock ownership of persons seeking to obtain control of Echelon
pursuant to the operation of the Stockholder Rights Agreement, which is
discussed below.
ECHELON RIGHTS AGREEMENT
Pursuant to a Stockholder Rights Agreement dated , 1996 (as the
same may be amended from time to time, the "Echelon Rights Agreement") between
Echelon and (the "Echelon Rights Agent"), on , 1996 the
Board of Directors of Echelon declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of Echelon Common Stock.
The dividend was payable on , 1996 (the "Record Date") to Florida
Progress, which was the sole stockholder of record on the record date therefore.
Each Right entitles the registered holder to purchase from Echelon one-hundredth
of a share of Series A Junior Participating Echelon Preferred Stock, par value
$.01 per share (the "Echelon Preferred Stock"), of Echelon at a price of
$ per one-hundredth of a share of Echelon Preferred Stock (as the same
may be adjusted, the "Purchase Price"), subject to adjustment.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 15% or more of the outstanding
shares of Echelon Common Stock or (ii) 10 business days (or such later date as
may be determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding shares of
Echelon Common Stock (the earlier of such dates, the "Rights Distribution
Date"), the Rights will be evidenced by such Echelon Common Stock certificate.
The Echelon Rights Agreement provides that, until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Echelon Common Stock. Until the Rights
Distribution Date (or earlier redemption or expiration of the Rights), Echelon
Common Stock will be issued with Rights, and certificates will contain a
notation incorporating the Echelon Rights Agreement by reference. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
the surrender for transfer of any certificates for shares of Echelon Common
Stock will also constitute the transfer of the Rights associated with the shares
of Echelon Common Stock represented by such certificates. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Rights ("Right Certificates") will be mailed to holders of record of the Echelon
Common Stock as of the close of business on the Rights Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on , 2006 (the "Final Expiration Date"), unless
the Final Expiration Date is advanced or extended or unless the Rights are
earlier redeemed or exchanged by Echelon, in each case as described below.
The Purchase Price payable, and the number of shares of Echelon Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Echelon Preferred Stock, (ii) upon the grant to holders of the Echelon Preferred
Stock of certain rights or warrants to subscribe for or purchase Echelon
Preferred Stock at a price, or securities convertible into Echelon Preferred
Stock with a conversion price, less than the then-current market price of the
Echelon Preferred Stock or (iii) upon the distribution to holders of the Echelon
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends or dividends payable in Echelon Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The number of Rights are also subject to adjustment in the event of a stock
dividend on the Echelon Common Stock payable in shares of Echelon Common Stock
or subdivisions, consolidations or combinations of the Echelon Common Stock
occurring, in any such case, prior to the Distribution Date.
Shares of Echelon Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Echelon Preferred Stock will be entitled,
when, as and if declared, to a minimum preferential
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<PAGE> 61
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per share of Echelon Common Stock.
In the event of liquidation, dissolution or winding up of Echelon, the holders
of the Echelon Preferred Stock will be entitled to a minimum preferential
liquidation payment of $10 per share (plus any accrued but unpaid dividends) but
will be entitled to an aggregate payment of 100 times the payment made per share
of Echelon Common Stock. Each share of Echelon Preferred Stock will have 100
votes, voting together with the Echelon Common Stock. Finally, in the event of
any merger, consolidation or other transaction in which shares of Echelon Common
Stock are converted or exchanged, each share of Echelon Preferred Stock will be
entitled to receive 100 times the amount received per share of Echelon Common
Stock. These rights are protected by customary antidilution provisions in the
Echelon Rights Agreement.
Because of the nature of the Echelon Preferred Stock's dividend,
liquidation and voting rights, the value of the one-hundredth interest in a
share of Echelon Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Echelon Common Stock.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, each holder of a Right, other than Rights beneficially owned
by the Acquiring Person (which will thereupon become void), will thereafter have
the right to receive upon exercise of a Right and payment of the Purchase Price,
that number of shares of Echelon Common Stock having a market value equal to two
times the Purchase Price.
If, after a person or group has become an Acquiring Person, Echelon is
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power are sold, proper provision will be made
so that each holder of a Right (other than Rights beneficially owned by an
Acquiring Person which will have become void) will thereafter have the right to
receive, upon the exercise thereof and payment of the Purchase Price, that
number of shares of common stock of the person with whom Echelon has engaged in
the foregoing transaction (or its parent), which number of shares at the time of
such transaction will have a market value equal to two times the Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Echelon Common Stock or the occurrence of an event described in the
prior paragraph, the Board of Directors of Echelon may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one share of Echelon Common Stock,
or a fractional share of Echelon Preferred Stock (or of a share of a class or
series of Echelon's preferred stock having similar rights, preferences and
privileges), of equivalent value per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Echelon Preferred Stock will be
issued (other than fractions which are integral multiples of one-one-hundredth
of a share of Echelon Preferred Stock, which may, at the election of Echelon, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Echelon Preferred Stock on the
last trading day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of Echelon may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (hereinafter referred to in this description of the
Rights as the "Redemption Price"). The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
For so long as the Rights are then redeemable, the Echelon Board of
Directors may, except with respect to the redemption price, amend the Rights in
any manner. After the Rights are no longer redeemable, the Echelon Board of
Directors may, except with respect to the redemption price, amend the Rights in
any manner that does not adversely affect the interests of holders of the
Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Echelon, including, without limitation, the right to
vote or to receive dividends.
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<PAGE> 62
A copy of the Echelon Rights Agreement has been filed as an Exhibit to the
Registration Statement on Form 10 of Echelon in respect of the registration of
the Echelon Common Stock under the Exchange Act. A copy of the Echelon Rights
Agreement is available free of charge from Echelon. The summary description of
the Rights set forth above does not purport to be complete and is qualified in
its entirety by reference to the Echelon Rights Agreement, as the same may be
amended from time to time, which is hereby incorporated herein by reference.
CERTAIN EFFECTS OF THE ECHELON RIGHTS AGREEMENT
The Echelon Rights Agreement is designed to protect stockholders of Echelon
in the event of unsolicited offers to acquire Echelon and other coercive
takeover tactics which, in the opinion of the Board of Directors of Echelon,
could impair its ability to represent stockholder interests. The provisions of
the Echelon Rights Agreement may render an unsolicited takeover of Echelon more
difficult or less likely to occur or might prevent such a takeover, even though
such takeover may offer Echelon's stockholders the opportunity to sell their
stock at a price above the prevailing market price and may be favored by a
majority of the stockholders of Echelon.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of Echelon authorized at the time of the
Distribution will have any preemptive right to subscribe for any securities of
Echelon of any kind or class.
TRANSFER AGENT AND REGISTRAR
has been appointed as transfer agent and registrar for the
Echelon Common Stock.
FLORIDA BUSINESS CORPORATION ACT
Echelon is subject to several anti-takeover provisions under Florida law
that apply to a public corporation organized under Florida law unless the
corporation has elected to opt out of such provisions in its Articles of
Incorporation or (depending on the provision in question) its By-laws. Echelon
has not elected to opt out of these provisions. The Florida Business Corporation
Act (the "Florida Act") contains a provision that prohibits the voting of shares
in a publicly-held Florida corporation which are acquired in a "control share
acquisition" unless the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors or
the acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition. A control share acquisition is
defined as an acquisition that immediately thereafter entitles the acquiring
party to vote in the election of directors within each of the following ranges
of voting power: (i) one-fifth or more but less than one third of such voting
power, (ii) one third or more but less than a majority of such voting power and
(iii) more than a majority of such voting power.
The Act also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
stockholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested stockholder,
(ii) the interested stockholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years, or (iii) the interested
stockholder is the beneficial owner of at least 90% of the corporation's
outstanding voting shares, exclusive of those shares acquired by the interested
stockholder directly from the corporation in a transaction approved by a
majority of the disinterested directors. An interested stockholder is defined as
a person who together with affiliates and associates beneficially owns more than
10% of the corporation's outstanding voting shares.
PROVISIONS OF ECHELON ARTICLES OF INCORPORATION AND BY-LAWS AFFECTING CHANGES IN
CONTROL
Certain provisions of the Echelon Articles of Incorporation and By-laws may
delay or make more difficult unsolicited acquisitions or changes of control of
Echelon. Such provisions may enable Echelon to develop its business in a manner
that will foster its long-term growth without disruption caused by the threat of
a takeover
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<PAGE> 63
not deemed by its Board of Directors to be in the best interests of Echelon and
its stockholders. Such provisions could have the effect of discouraging third
parties from making proposals involving an unsolicited acquisition or change of
control of Echelon, although such proposals, if made, might be considered
desirable by a majority of Echelon's stockholders. Such provisions may also have
the effect of making it more difficult for third parties to cause the
replacement of the current Board of Directors of Echelon. These provisions
include (i) the availability of capital stock for issuance from time to time at
the discretion of the Board of Directors (see "Authorized but Unissued Capital
Stock," above), (ii) a classified Board of Directors, (iii) prohibition against
stockholders acting by written consent in lieu of a meeting, (iv) limitations on
the ability of stockholders to call a special meeting of stockholders, (v)
requirements for advance notice for raising business or making nominations at
stockholders' meetings, and (vi) the ability of the Board of Directors to
increase the size of the Board of Directors and to appoint directors to newly
created directorships. These provisions are present in the Articles of
Incorporation or By-laws of Echelon.
Classified Board of Directors
The Echelon Articles of Incorporation provide for Echelon's Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one third of Echelon's Board of
Directors will be elected each year. See "Management and Executive
Compensation--Board of Directors."
Echelon believes that a classified Board of Directors will help to assure
the continuity and stability of its Board of Directors, and its business
strategies and policies as determined by its Board of Directors, because a
majority of the directors at any given time will have prior experiences as
directors of Echelon. This provision should also help to ensure that Echelon's
Board of Directors, if confronted with an unsolicited proposal from a third
party that has acquired a block of Echelon's voting stock, will have sufficient
time to review the proposal and appropriate alternatives and to seek the best
available result for all stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of Echelon's Board of
Directors until the second annual meeting of stockholders following the date the
acquiror obtained the controlling stock interest, could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of Echelon's and thus could increase the likelihood
that incumbent directors will retain their positions.
No Stockholder Action by Written Consent; Special Meetings
The Echelon Articles of Incorporation and By-laws provide that stockholder
action can be taken only at an annual or special meeting and cannot be taken by
written consent in lieu of a meeting. The Echelon Articles of Incorporation and
By-laws also provide that special meetings of the stockholders may be called
only by (i) the Chief Executive Officer or President of Echelon, (ii) a vote of
the majority of the Board of Directors or (iii) upon the written demand of the
holders of not less than 33 1/3% of Echelon's outstanding voting power.
Advance Notice for Raising Business or Making Nominations at Meetings
The By-laws of Echelon establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders and
for nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors, or by a stockholder of Echelon who is entitled to vote at the
meeting who has given to the Secretary of Echelon timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. The chairman of such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of, the
Chairman of the Board of Directors, or who are nominated by a stockholder who
has given timely written notice, in proper form, to the Secretary prior to a
meeting at which directors are to be elected will be eligible for election as
directors of Echelon.
61
<PAGE> 64
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of Echelon at the principal
executive offices of Echelon not less than 70 days nor more than 90 days prior
to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of Echelon at
the principal executive offices of Echelon not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of Echelon held by the
stockholder who intends to make the nomination and the beneficial owner, if any,
on whose behalf the nomination is being made; the name and address of the person
or persons to be nominated; a representation that the stockholder is a holder of
record of stock of Echelon entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; such other information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC had each nominee
been nominated, or intended to be nominated, by the Board of Directors; and the
consent of each nominee to serve as a director if so elected.
Number of Directors; Filling of Vacancies; Removal
The Echelon Articles of Incorporation and By-laws provide that newly
created directorships resulting from any increase in the authorized number of
directors (or any vacancy) may be filled by a vote of a majority of directors
then in office. Accordingly, the Board of Directors of Echelon may be able to
prevent any stockholder from obtaining majority representation on the Board of
Directors by increasing the size of the Board of Directors and filling the newly
created directorships with its own nominees. Directors may be removed only for
cause.
Amendments to the Articles of Incorporation
The Echelon Articles of Incorporation require the affirmative vote of the
holders of at least 66 2/3% in voting power of all the shares of Echelon
entitled to vote generally in the election of directors, voting together as a
single class, to alter, amend or repeal provisions of the Articles of
Incorporation relating to (i) the amendment of the Articles of Incorporation
and/or the By-laws, (ii) all provisions concerning directors, including those
dealing with the number of directors, the classified Board of Directors,
procedure for nominations for director, removal of directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders.
Indemnification and Limitation of Liability for Directors and Officers
The Echelon By-laws provide that Echelon shall have the power but not the
obligation to indemnify directors and officers to the fullest extent permitted
by the laws of the State of Florida. Echelon has entered into indemnification
agreements with all of its executive officers and directors creating certain
indemnification obligations on Echelon's part in favor of the directors and
executive officers and, as permitted by applicable
62
<PAGE> 65
law. These indemnification agreements clarify and expand the circumstances under
which a director or executive officer will be indemnified.
The indemnification rights conferred by the By-laws and indemnification
agreements are not exclusive of any other right, under the Florida Act or
otherwise, to which a person seeking indemnification may otherwise be entitled.
Echelon will also provide liability insurance for the directors and officers for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers.
The effect of such indemnification arrangements may be to exempt or limit
the liability of such executive officers and directors to Echelon or its
stockholders for monetary damages for breach of fiduciary duty to Echelon,
except to the extent such exemption or limitation is not permitted under the
Florida Act as the same exists or may hereafter be amended.
AVAILABLE INFORMATION
Echelon has filed with the SEC a Registration Statement on Form 10 with
respect to the shares of Echelon Common Stock to be received by the stockholders
of Florida Progress in the Distribution. This Information Statement does not
contain all of the information set forth in the Form 10 Registration Statement
and the exhibits thereto, to which reference is hereby made. Statements made in
this Information Statement as to the contents of any contract, agreement or
other document referred to herein are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Regional Offices of the SEC at Seven World Trade Center, Suite
1300, New York, New York 10048 and in the Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and may be obtained through the SEC
Internet address at http://www.sec.gov.
REPORTS OF ECHELON
After the Distribution, Echelon will be required to comply with the
reporting requirements of the Exchange Act and, in accordance therewith, to file
reports, proxy statements and other information with the SEC.
After the Distribution, such reports, proxy statements and other
information may be inspected and copied at the public reference facilities of
the SEC listed above and obtained by mail from the SEC as described above.
Application has been made to list the shares of Echelon Common Stock on the NYSE
and, if and when such shares of Echelon Common Stock commence trading on the
NYSE, such reports, proxy statements and other information will be available for
inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
Additionally, Echelon intends to provide annual reports, containing audited
financial statements, to its stockholders in connection with its annual meetings
of stockholders.
No person is authorized to give any information or to make any
representations other than those contained in this Information Statement, and,
if given or made, such information or representations must not be relied upon as
having been authorized.
63
<PAGE> 66
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements:
Consolidated Statements of Operations and Deficit for the Six Months Ended June 30,
1996 and 1995 (unaudited) and each of the years in the three year period ended
December 31, 1995................................................................ F-3
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995
and 1994......................................................................... F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and
1995 (unaudited) and each of the years in the three year period ended December
31, 1995......................................................................... F-5
Notes to Consolidated Financial Statements.......................................... F-6
</TABLE>
F-1
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Echelon International Corporation:
We have audited the accompanying consolidated balance sheets of Echelon
International Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations and deficit and cash flows for
each of the years in the three year period ended December 31, 1995, as listed in
the Index to Financial Statements herein. These consolidated financial
statements are the responsibility of Echelon International Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Echelon
International Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
St. Petersburg, Florida
September 18, 1996
F-2
<PAGE> 68
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SALES AND REVENUES:
Real estate operations --
Rental income.................................... $ 5.9 $ 5.0 $ 10.1 $ 8.3 $ 9.9
Sale of development properties................... 6.6 0.9 0.9 5.0 17.5
Marina and other revenues........................ 4.0 3.2 7.2 5.5 4.5
Lending and leasing operations --
Interest income.................................. 8.4 10.4 21.7 22.4 22.6
Earned income on finance leases.................. 1.4 2.0 4.8 4.4 7.7
Other............................................ 1.3 1.5 2.9 3.2 4.3
------ ----- ----- ----- -----
27.6 23.0 47.6 48.8 66.5
------ ----- ----- ----- -----
OPERATING EXPENSES:
Cost of operations.................................. 5.9 4.7 10.5 9.0 10.0
Cost of development properties sold................. 6.9 0.8 0.8 4.8 18.5
Depreciation........................................ 2.9 2.8 6.4 5.2 5.4
Provision for lease, loan and real estate losses.... 31.1 3.9 7.0 10.6 6.6
Marketing and administrative........................ 2.4 3.0 5.2 3.9 3.0
Other expenses...................................... 8.9 2.0 5.6 1.4 3.3
------ ----- ----- ----- -----
58.1 17.2 35.5 34.9 46.8
------ ----- ----- ----- -----
INCOME (LOSS) FROM OPERATIONS......................... (30.5) 5.8 12.1 13.9 19.7
INTEREST EXPENSE...................................... 7.1 7.1 13.9 15.0 17.3
------ ----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES..................... (37.6) (1.3) (1.8) (1.1) 2.4
INCOME TAXES (BENEFIT)................................ (13.1) (1.3) (1.8) (1.1) 2.4
------ ----- ----- ----- -----
NET LOSS.............................................. (24.5) 0.0 0.0 0.0 0.0
Retained deficit at beginning of period............. (50.5) (42.3) (42.3) (34.1) (26.6)
Dividends paid to Florida Progress.................. (2.2) (4.2) (8.2) (8.2) (7.5)
------ ----- ----- ----- -----
Retained deficit at end of period................... $(77.2) $(46.5) $(50.5) $(42.3) $(34.1)
====== ===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 69
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
JUNE 30, ---------------
1996 1995 1994
--------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
LEASES, LOANS, PROPERTY & OTHER INVESTMENTS:
Leases and loans receivable, net.................................. $ 256.7 $309.3 $408.9
Property, net of accumulated depreciation of $33.9 million in
1996, $32.6 million in 1995 and $24.7 million in 1994.......... 144.3 153.6 146.7
Investments in and advances to unconsolidated affiliates.......... 32.3 39.9 43.9
------ ------ ------
433.3 502.8 599.5
------ ------ ------
ASSETS HELD FOR SALE................................................ 33.1 0.0 0.0
------ ------ ------
CURRENT ASSETS:
Cash and equivalents.............................................. 0.1 0.4 0.6
Accounts receivable, net.......................................... 1.4 2.0 2.4
Current portion of leases and loans receivable.................... 34.7 42.4 14.8
Income taxes receivable........................................... 3.9 0.0 0.9
Inventories....................................................... 2.2 2.2 1.5
Miscellaneous..................................................... 0.7 0.6 0.3
------ ------ ------
43.0 47.6 20.5
------ ------ ------
OTHER NON-CURRENT ASSETS............................................ 4.8 4.1 3.4
------ ------ ------
Total assets................................................... $ 514.2 $554.5 $623.4
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities............................ $ 18.3 $ 10.0 $ 5.1
Income taxes payable.............................................. 0.0 9.6 0.0
Current portion of long-term debt................................. 2.5 10.2 8.3
------ ------ ------
Total current liabilities...................................... 20.8 29.8 13.4
DUE TO FLORIDA PROGRESS AND AFFILIATES.............................. 127.4 116.2 150.3
LONG-TERM DEBT...................................................... 21.5 23.0 24.4
DEFERRED INCOME TAXES............................................... 167.8 182.3 224.3
OTHER LIABILITIES................................................... 2.6 2.4 2.0
------ ------ ------
Total Liabilities.............................................. 340.1 353.7 414.4
STOCKHOLDER'S EQUITY:
Stockholder paid in capital....................................... 251.3 251.3 251.3
Retained deficit.................................................. (77.2) (50.5) (42.3)
------ ------ ------
174.1 200.8 209.0
------ ------ ------
Total liabilities and stockholder's equity..................... $ 514.2 $554.5 $623.4
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 70
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................................. $(24.5) $ 0.0 $ 0.0 $ 0.0 $ 0.0
Adjustment for noncash items:
Depreciation........................................ 2.9 2.8 6.4 5.2 5.4
Deferred income taxes............................... (14.5) (30.1) (42.0) (20.5) (24.3)
Amortization of investment tax credits.............. (0.3) (3.5) (0.3) (1.5) (1.4)
Provision for lease, loan and real estate losses.... 31.1 3.9 7.0 10.6 6.6
(Gain) loss on sale of assets....................... 0.0 4.5 4.0 (0.2) (1.0)
Equity in losses of unconsolidated affiliates,
net.............................................. 0.9 0.8 1.5 4.1 4.2
Changes in working capital:
Accounts payable and other liabilities........... 8.3 2.1 4.9 (0.9) (3.0)
Income taxes receivable/payable.................. (13.5) 22.2 10.5 (12.7) (4.0)
Other working capital changes.................... 0.5 (0.2) (0.6) 0.5 3.0
Other operating activities....................... (2.0) (0.1) (9.3) 0.7 (2.6)
------ ------ ------ ------ ------
(11.1) 2.4 (17.9) (14.7) (17.1)
------ ------ ------ ------ ------
INVESTING ACTIVITIES:
Purchase of leases and loans.......................... 0.0 0.0 0.0 (5.7) (42.6)
Proceeds from sale or collection of leases and
loans............................................... 8.3 44.4 74.0 65.5 79.2
Real estate property additions........................ (2.9) (1.2) (4.1) (1.3) (1.2)
Proceeds from sale of real estate properties.......... 6.3 0.3 0.7 4.9 16.7
Proceeds from sale of businesses...................... 0.0 0.0 0.0 2.1 10.5
Distributions from unconsolidated affiliates, net of
investments ........................................ 0.3 0.0 (0.9) 3.5 8.4
------ ------ ------ ------ ------
12.0 43.5 69.7 69.0 71.0
------ ------ ------ ------ ------
FINANCING ACTIVITIES:
Repayment of long-term debt........................... (10.2) (8.4) (9.7) (8.2) (25.9)
Increase (decrease) due to Florida Progress and
affiliates.......................................... 11.2 (33.7) (34.1) (37.4) (21.4)
Dividends paid to Florida Progress.................... (2.2) (4.2) (8.2) (8.2) (7.5)
------ ------ ------ ------ ------
(1.2) (46.3) (52.0) (53.8) (54.8)
------ ------ ------ ------ ------
Net increase(decrease) in cash and equivalents........ (0.3) (0.4) (0.2) 0.5 (0.9)
Beginning cash and equivalents........................ 0.4 0.6 0.6 0.1 1.0
------ ------ ------ ------ ------
Ending cash and equivalents........................... $ 0.1 $ 0.2 $ 0.4 $ 0.6 $ 0.1
====== ====== ====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest to outside debtors......................... $ 2.6 $ 3.5 $ 14.3 $ 14.8 $ 19.5
Income taxes (net of refunds)....................... 16.5 8.0 29.8 32.2 30.8
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 71
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SPIN-OFF TRANSACTION
On July 1, 1996 the Board of Directors of Florida Progress Corporation
("Florida Progress") approved in principle a plan to spin-off Echelon
International Corporation (the "Company"). Echelon is the successor to Progress
Credit Corporation ("PCC") and its subsidiaries. PCC is a wholly owned
subsidiary of Florida Progress. The spin-off will be effected by distributing
(the "Distribution") to the holders of Florida Progress's common stock one share
of the Company's common stock for each 15 shares of Florida Progress common
stock. Following the Distribution, which is expected to occur during the fourth
quarter of 1996, the Company will operate as an independent company whose shares
of common stock will be publicly traded; financial support previously provided
by Florida Progress will be discontinued. In accordance with the plan of
Distribution, Florida Progress made a capital contribution of $140 million to
the Company by converting intercompany indebtedness to equity. This
recapitalization has been reflected in the accompanying consolidated financial
statements as if it had occurred at the beginning of the earliest period
presented. See Note 7.
Prior to the Distribution, the Company expects to obtain third-party
secured financing of $103 million to provide liquidity to the Company to execute
its business plan and to repay in part advances from Florida Progress. The
remaining debt to be owed to Florida Progress is expected to be approximately
$41.1 million and will be evidenced by a secured interest bearing note issued to
Progress Capital Holdings, Inc., a wholly owned subsidiary of Florida Progress.
The note will mature in four years and will require specified principal payments
upon the disposition by the Company of certain non-strategic operating and
direct finance leasing interest and other assets.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been a separate, stand-alone entity during the periods reported. It
is expected that after the Distribution, the Company will incur additional
administrative expenses. See the Unaudited Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1995 for a presentation of the
effects of such anticipated additional expenses.
DESCRIPTION OF BUSINESS AND PRINCIPLES OF PRESENTATION
The accompanying consolidated financial statements include the financial
results of the Company and its majority owned operations. The common stock of
the Company will be distributed by Florida Progress to its stockholders as of a
date to be established.
The Company is a real estate and financial services company. Prior to July
1, 1996, pursuant to a strategy adopted by Florida Progress, the Company has
been operating under a strategy of orderly liquidation of all of its businesses
and assets. The strategy of the Company after the Distribution will primarily be
the development, ownership and management of commercial and multi-family
residential real estate and to maximize the value of its commercial lending and
leasing assets.
All significant intercompany balances and transactions have been
eliminated. Investments in 20% to 50% owned joint ventures and partnerships are
accounted for using the equity method.
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 reported
period. Actual results could differ from those estimates.
F-6
<PAGE> 72
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
The unaudited interim financial statements reflect all adjustments, which
are in the opinion of management, necessary for a fair statement of the results
for the interim periods presented.
EARNED INCOME ON FINANCE LEASES
Finance leases consist of direct financing leases and leveraged leases.
Income on direct financing leases is recognized by a method which produces a
constant periodic rate of return on the outstanding investment in the lease.
Income on leveraged leases is recognized by a method which produces a constant
rate of return on the outstanding investment in the lease net of the related
deferred tax liability in the years in which the net investment is positive. The
net investment in leveraged leases is the aggregate of rentals receivable (net
of principal and interest on the related nonrecourse third party debt) and
estimated residual value of the equipment less the unearned income.
FINANCIAL INSTRUMENTS
Estimated fair value amounts have been determined by the Company using
available market information and discounted cash flow analysis. Judgment is
required in interpreting market data to develop estimates of fair value.
Accordingly, the estimates may be materially different from the amounts that the
Company could realize in a current market transaction. Estimating fair values
for loans associated with the airline industry is difficult due to the limited
number of transactions. Management, therefore, has estimated a range of values
for these loans.
The Company currently has no derivative financial instruments, such as
futures, forwards, swaps or options contracts.
ALLOWANCE FOR LEASE AND LOAN LOSSES
The allowance for lease and loan losses is maintained at a level which
provides for estimated future losses that may arise in the existing investment
portfolio based on management's evaluation of credit risk, industry trends,
underlying collateral value, adverse situations that may affect the lessees' and
borrowers' ability to repay and current and prospective general economic
conditions. Establishing the allowance for losses relies substantially upon
management judgment utilizing the best available information at the time of
review. The statement of operations for the six month period ended June 30,
1996, includes a provision of $31.1 million for losses anticipated to be
incurred on the sale of certain non-strategic assets.
PROPERTY AND DEPRECIATION
The Company records property at cost adjusted for any impairment and
provides for depreciation primarily on a straight-line basis over the estimated
service lives or lease terms of the related assets.
REAL ESTATE TRANSACTIONS
Real estate revenues include rent from leasing operations and sales of real
estate. Rental revenues, net of any rent concessions given to leasees, are
recognized ratably over the lease period. Profit from the sale of real estate is
recognized only upon the closing of a sale, the transfer of ownership rights to
the purchaser and receipt of an adequate cash down payment. If the cash down
payment is not adequate, profits are deferred using the installment method of
accounting.
INTEREST EXPENSE
The accompanying consolidated statements of operations and deficit include
an allocation of Florida Progress's interest expense based upon the average
outstanding amounts due to Florida Progress and affiliates.
F-7
<PAGE> 73
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
See Note 7 for a more detailed description of the allocation procedures.
Management believes the allocation method used is reasonable.
INCOME TAXES
Taxable income of the Company has been included in the consolidated income
tax returns of Florida Progress. Florida Progress's "tax allocation policy" is
to allocate current income taxes to each subsidiary in an amount equal to its
stand-alone tax liability. Benefits of losses are allocated to the subsidiary
generating the loss upon utilization in the consolidated tax return. At the time
of the Distribution, the Florida Progress and the Company will execute a tax
sharing agreement which allocates all pre and post distribution tax liabilities
between the Company and Florida Progress.
Deferred taxes are provided on all significant temporary differences
between the financial and tax basis of assets and liabilities using presently
enacted tax rates in accordance with Financial Accounting Standard (SFAS) No.
109, "Accounting for Income Taxes," which was implemented in 1993. The effect of
implementing SFAS No. 109 was immaterial.
RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure." These
standards require the Company to compute present values for impaired loans when
determining the allowance for credit losses. There was no impact on earnings as
a result of implementing these standards.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," on January 1,
1996. This standard requires that long-lived assets and certain intangible
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable through
future cash flows from the use and disposition of the asset. There was no impact
on earnings as a result of implementing this standard.
(2) LEASES AND LOANS RECEIVABLE
At June 30, 1996, and at December 31, 1995 and 1994, investments in leases
and loans receivable were as follows:
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
JUNE 30, ---------------
1996 1995 1994
--------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Finance leases:
Rentals receivable........................................ $ 167.2 $197.6 $226.3
Unguaranteed residual values.............................. 105.7 109.7 153.5
Unearned income........................................... (55.5) (62.5) (78.7)
Deferred investment tax credits........................... (14.4) (14.7) (20.5)
------ ------ ------
Total finance leases.............................. 203.0 230.1 280.6
Commercial finance loans receivable......................... 106.5 153.6 176.8
Allowance for losses........................................ (18.1) (32.0) (33.7)
------ ------ ------
291.4 351.7 423.7
Less: current portion....................................... 34.7 42.4 14.8
------ ------ ------
$ 256.7 $309.3 $408.9
====== ====== ======
</TABLE>
F-8
<PAGE> 74
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
Finance leases consist primarily of leveraged investments in aircraft as
described below. The majority of the aircraft leases have remaining terms of 10
to 15 years, with a maximum of 23 years. Rentals receivable from finance leases
represent unpaid rentals less principal and interest on nonrecourse third-party
debt. The Company's share of rentals receivable is subordinate to the debt
holders who have security interests in the leased assets.
At December 31, 1995, net contractual maturities of rentals receivable
under the contracts were $11.9 million, $10.4 million, $9.6 million, $12.9
million and $12.2 million for each of the years in the five year period from
1996 through 2000, respectively, and $140.5 million in total thereafter.
Net income recognized from leveraged leases (after payments to nonrecourse
lenders, but before other borrowing costs) was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- -----
(IN MILLIONS)
<S> <C> <C> <C>
Lease income..................................................... $ 2.0 $0.5 $ 2.7
Income tax effect................................................ (1.0) (0.1) (1.3)
Effect of change in tax rate on deferred assets/liabilities...... 0.0 0.0 (2.9)
Gain (loss) on sale of equipment................................. (1.1) 0.2 3.8
Amortization of investment tax credits........................... 0.3 1.5 1.4
----- ---- -----
$ 0.2 $2.1 $ 3.7
===== ==== =====
</TABLE>
The Company's commercial finance loans are secured by first mortgage liens
on the related commercial real estate or by security interests in aircraft,
aircraft engines or spare parts. These loans are further collateralized, where
applicable, by an assignment to the Company of the borrowers' lease agreements,
and, in some cases, third party guaranties.
In the opinion of management, the fair value of commercial finance loans
receivable at June 30, 1996, and at December 31, 1995 and 1994 was estimated to
be $106.5 million, $120.6 million to $150.6 million and $131.1 million to $160.1
million, respectively.
(3) CONCENTRATION OF CREDIT RISK FOR LEASES AND LOANS RECEIVABLE
At June 30, 1996, and at December 31, 1995 and 1994, the Company's
portfolio included investments in the airline industry totaling $245.8 million,
$294.6 million and $357.6 million, respectively. Investments in the commercial
real estate industry totaled $126.8 million, $122.2 million and $134.6 million
at the same dates.
At December 31, 1995, $58.6 million of loans receivable were impaired under
the definition of SFAS 114. The Company had assigned approximately $5 million of
the $18.1 million total of allowances for loan losses to these loans. In
anticipation of the Distribution, management of the Company has accelerated its
plans for the liquidation of selected loans. As of June 30, 1996, $35.1 million
of the these loans have been reclassified to "Assets Held for Sale" and written
down to $11.9 million which in the opinion of management approximates their
aggregate estimated realizable value. At June 30, 1996, the Company has
determined that the remaining loan of $23.5 million is considered impaired in
accordance with SFAS 114. No valuation allowance is required because, in the
opinion of management, the estimated current market value of the underlying
property is in excess of the $23.5 million loan balance and cash flow from
leases on this property, which have been assigned to the Company, supports the
current recorded value of this loan.
The Company's portfolio included $66.2 million, $90.2 million and $61.0
million in loans and leases performing under restructured agreements at June 30,
1996, and December 31, 1995 and 1994, respectively. All restructured assets are
performing in accordance with their new terms and the restructurings are not
anticipated to materially reduce the Company's future annual revenue.
F-9
<PAGE> 75
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
During 1995, 1994 and 1993, the Company recorded $5.0 million, $9.9 million
and $5.9 million, respectively, for possible loan and lease losses and had
write-offs totaling $6.7 million, $.7 million and $4.3 million, respectively.
Leases and loans generally are placed on nonaccrual status when management
believes the collectibility of interest or principal is unlikely. There were no
assets on nonaccrual status at June 30, 1996, or at December 31, 1995 or 1994.
(4) PROPERTY
The Company established provisions for losses of $2.0 million, $.7 million
and $.7 million in 1995, 1994 and 1993, respectively, for real estate
properties. These provisions were applied as a write down of property cost when
SFAS 121 was adopted on January 1, 1996. The Company recognized an additional
$1.0 million impairment during the six months ended June 30, 1996.
The depreciable lives and carrying values are as follows:
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
DEPRECIABLE JUNE 30, ---------------
LIVES (YEARS) 1996 1995 1994
------------- --------- ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C>
Real estate development projects:
For sale and under development................ $ 49.9 $ 51.9 $ 52.8
Income producing:
Land....................................... 17.6 15.2 18.8
Buildings and improvements................. 5-40 96.7 104.5 84.8
Equipment and other........................ 3-10 1.5 2.0 1.9
------ ------ ------
165.7 173.6 158.3
Other property:
Aircraft on operating lease................... 10 12.5 12.5 12.5
Equipment, furniture and vehicles............. 2-25 0.0 0.1 0.6
------ ------ ------
178.2 186.2 171.4
Less: accumulated depreciation.................. 33.9 32.6 24.7
------ ------ ------
$ 144.3 $153.6 $146.7
====== ====== ======
</TABLE>
(5) ASSETS HELD FOR SALE
In anticipation of the Distribution, the Company's management adopted a
plan to dispose of certain non-strategic assets and has classified these assets
and their respective reserves as "Assets Held for Sale" as follows:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30,
PREVIOUS BALANCE SHEET CLASSIFICATION 1996
------------------------------------- -------------
(IN MILLIONS)
<S> <C>
Leases and loans receivable.............................................. $27.5
Property, net of depreciation............................................ 2.3
Investments in unconsolidated affiliates................................. 3.3
-----
$33.1
=====
</TABLE>
F-10
<PAGE> 76
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
(6) LONG-TERM DEBT
Long-term debt outstanding is as follows:
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
INTEREST JUNE 30, -------------
RATE 1996 1995 1994
-------- --------- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
First mortgages..................................... 8.0%(a) $ 0.7 $ 8.6 $ 6.8
Delayed equity obligation on finance lease.......... 10.0% 20.5 21.9 23.3
Other............................................... 7.5% 2.8 2.7 2.6
----- ----- -----
24.0 33.2 32.7
Less: current portion of long-term debt............. 2.5 10.2 8.3
----- ----- -----
$21.5 $23.0 $24.4
===== ===== =====
</TABLE>
- ---------------
(a) Weighted average interest rate at December 31, 1995.
In connection with an aircraft lease restructured in 1992, the Company
agreed to provide additional equity over the next eleven years. The equity
contributions will be paid to the nonrecourse debt holders by the Company and
collected from the lessee over the remaining lease term. The present value of
the additional equity using a 10% discount rate was $21.9 million and $23.3
million at December 31, 1995 and 1994, respectively, and is included in
long-term debt on the accompanying Balance Sheets.
Debt maturities are $10.2 million, $1.8 million, $1.6 million, $1.7 million
and $7.1 million for each of the years in the period 1996 through 2000,
respectively.
In the opinion of management, the fair value of debt instruments
approximates the book carrying value of debt.
(7) RELATED PARTY TRANSACTIONS
The Company utilized certain corporate, facility and office services of
Florida Progress and its affiliates and is billed for these services, including
a portion of the affiliates' overhead. Charges for these services and overhead
were $8.3 million, $7.1 million and $6.1 million in 1995, 1994 and 1993,
respectively. Florida Progress and its affiliates rent facility and office space
in several of the Company's office buildings for which the Company has received
payments of $2.2 million, $2.5 million and $2.1 million in 1995, 1994 and 1993,
respectively. A portion of these amounts were billed to the Company in
connection with the affiliates' allocations of facility services.
Florida Progress managed the cash and financing requirements of the Company
for the periods presented. Advances and payables between the Company and Florida
Progress, and its affiliates, consisted of the following at June 30, 1996 and at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
JUNE 30, -----------------
1996 1995 1994
--------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Accounts and interest payable............................. $ 6.3 $ 6.2 $ 6.5
Advances from Florida Progress............................ 261.1 250.0 283.8
Effect of recapitalization................................ (140.0) (140.0) (140.0)
------ ------ ------
Due to Florida Progress and affiliates.................... $ 127.4 $ 116.2 $ 150.3
====== ====== ======
</TABLE>
F-11
<PAGE> 77
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
Interest expense reflected in the accompanying consolidated financial
statements related to the intercompany advances from Florida Progress represents
interest previously allocated to the Company, reduced by interest on the $140
million of intercompany advances which were converted to equity (the amount of
such interest reduction was determined on the basis of the 5.8% commercial paper
borrowing rate of Florida Progress). The resulting effective interest rate on
the average outstanding intercompany advances for the years ended December 31,
1995, 1994 and 1993 and for the six month period ended June 30, 1996 was 9.5%,
7.2%, 6.1% and 9.8%, respectively.
(8) RETIREMENT BENEFIT PLANS
Pension Benefits. Florida Progress has a noncontributory defined benefit
pension plan covering its employees and those of certain subsidiaries, including
the Company. The benefits are based on length of service, compensation and
social security benefits. The participating companies make annual contributions
to the plan based on an actuarial determination and consideration of tax
regulations and funding requirements under federal law. Employees of the Company
will terminate employment with Florida Progress and employees vested with
Florida Progress will remain in Florida Progress's defined benefit pension plan
on the effective date of the Distribution. This liability will continue to be
reflected in Florida Progress's defined benefit pension plan after the
Distribution.
Based on actuarial calculations and the funded status of the pension plan,
the Company was not required to record an expense or contribute to the plan in
1995, 1994 or 1993. Net assets and accumulated benefits are not determined
separately for the participating subsidiaries of the Florida Progress.
Other Postretirement Benefits. The Company, through the Florida Progress,
provides certain health care and life insurance benefits for retired employees.
Employees become eligible for these benefits when they reach normal retirement
age. The Company accrues the employer's obligation for postretirement benefits
by the date employees attain full eligibility to receive such benefits.
Accumulated benefits are not determined separately for the participating
subsidiaries of the Florida Progress. The Company's costs to date have been
negligible.
(9) INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND OFF-BALANCE SHEET RISK
At June 30, 1996 and at December 31, 1995 and 1994, investments in and
advances to unconsolidated affiliates were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------
1996 1995 1994
-------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
General partnership interests.................................. $ 32.3 $33.2 $36.9
Limited partnership interests, corporate joint ventures and
unregistered stock investments
Accounted for using the equity method........................ 0.0 3.6 3.9
Accounted for using the cost method.......................... 0.0 3.1 3.1
----- ----- -----
$ 32.3 $39.9 $43.9
===== ===== =====
</TABLE>
The unconsolidated entities in which the Company's subsidiaries have
general partnership interests are engaged in the leasing of aircraft equipment.
The related investment and income or loss from these entities is accounted for
using the equity method. The Company includes equity earnings from
unconsolidated entities in other revenues. Presented below is combined
summarized unaudited financial information for entities accounted for under the
equity method as of June 30, 1996 and as of December 31, 1995 and 1994 and for
the
F-12
<PAGE> 78
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
years ended December 31, 1995, 1994 and 1993. Amounts reflect 100% of these
entities' balances and results of their operations for these periods.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------
1996 1995 1994
-------- ------------- ------
UNAUDITED
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Finance lease receivable......................................... $ 61.3 $ 63.0 $ 65.3
Property and equipment, net...................................... 3.2 3.4 13.1
Current assets................................................... 1.3 1.3 1.2
Other assets, net................................................ 0.0 12.8 14.5
----- ----- -----
$ 65.8 $ 80.5 $ 94.1
===== ===== =====
LIABILITIES AND EQUITY INTEREST
Long-term debt................................................... $ 0.0 $ 0.0 $ 8.1
Other noncurrent liabilities..................................... 1.3 10.5 0.8
Other partners' equity........................................... 32.2 33.2 44.3
----- ----- -----
33.5 43.7 53.2
----- ----- -----
Company investment:
Advances....................................................... 0.0 0.0 2.7
Equity interest................................................ 32.3 36.8 38.2
----- ----- -----
32.3 36.8 40.9
----- ----- -----
$ 65.8 $ 80.5 $ 94.1
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------
1996 1995 1994 1993
---------- ---- ---- ----
UNAUDITED
(IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES AND EXPENSES
Revenues......................................................... $2.9 $8.2 $9.8 $9.0
Expenses......................................................... 0.3 2.8 4.0 2.3
---- ---- ---- ----
Combined net earnings of unconsolidated partnerships............. $2.6 $5.4 $5.8 $6.7
---- ---- ---- ----
Company's equity in net earnings of unconsolidated
partnerships................................................... $1.3 $2.8 $3.0 $3.4
==== ==== ==== ====
</TABLE>
F-13
<PAGE> 79
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
(10) INCOME TAXES
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Components of income tax expense (benefit):
Payable currently:
Federal......................................................... $ 35.1 $ 17.9 $ 23.9
State........................................................... 5.1 1.5 2.8
------ ------ ------
40.2 19.4 26.7
------ ------ ------
Deferred, net:
Federal......................................................... (36.3) (18.6) (21.7)
State........................................................... (5.7) (1.9) (2.6)
------ ------ ------
(42.0) (20.5) (24.3)
------ ------ ------
$ (1.8) $ (1.1) $ 2.4
====== ====== ======
</TABLE>
The provision for income taxes differs from income taxes computed at the
statutory federal income tax rate for each of the above years. The primary
differences between income taxes computed at statutory rates and the actual
income tax expense are detailed below:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Taxes computed at federal statutory income tax rate............. $(0.6) $(0.4) $ 0.8
Effect of change in tax rate on deferred assets/liabilities..... 0.0 0.0 3.7
Rate difference on leveraged lease deferred tax reversals....... (0.9) (0.8) (1.8)
Amortization of investment tax credits.......................... (0.3) (1.5) (1.4)
Investment tax credit basis difference.......................... 0.1 1.1 0.8
Other........................................................... (0.1) 0.5 0.3
----- ----- -----
$(1.8) $(1.1) $ 2.4
===== ===== =====
</TABLE>
The following summarizes the components of deferred tax liabilities and
assets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------ ------
(IN MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Difference in tax basis of property................................ $ 8.7 $ 13.2
Difference in accounting for leveraged leases...................... 184.3 226.6
Other.............................................................. 11.4 10.5
----- -----
Total deferred tax liabilities:............................ 204.4 250.3
----- -----
Deferred tax assets:
Accrued book expenses.............................................. 18.5 22.2
Other.............................................................. 3.6 3.8
----- -----
Total deferred tax assets.................................. 22.1 26.0
----- -----
Net non-current deferred tax liabilities................... $182.3 $224.3
===== =====
</TABLE>
The Company expects the results of future operations will generate
sufficient taxable income to allow the utilization of deferred tax assets.
F-14
<PAGE> 80
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
(11) BUSINESS SEGMENTS
The Company's principle business segments are "Lending and Leasing" and
"Real Estate." Lending and Leasing includes leveraged leases, operating leases
and commercial finance loans. The airline industry is the primary industry
included in Lending and Leasing. See Note 3 for information regarding
concentration of risk. Real Estate includes office, commercial and industrial
leasing, land sales and marina operations.
Business segment information for the six months ended June 30, 1996 and for
the years ended December 31, 1995, 1994 and 1993 is summarized below. No single
customer accounted for 10% or more of unaffiliated revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
UNAUDITED -------------------------------
SIX MONTHS 1995
ENDED -------------
JUNE 30,
1996 (IN MILLIONS) 1994 1993
---------- ------ ------
<S> <C> <C> <C> <C>
Revenues:
Lending and Leasing................................... $ 11.1 $ 29.4 $ 30.0 $ 34.6
Real Estate........................................... 16.5 18.2 18.8 31.9
----- ----- ----- -----
$ 27.6 $ 47.6 $ 48.8 $ 66.5
===== ===== ===== =====
Income from operations:
Lending and Leasing................................... $ 9.4 $ 25.8 $ 26.9 $ 32.7
Real Estate........................................... (0.6) (2.0) (2.1) (4.1)
----- ----- ----- -----
8.8 23.8 24.8 28.6
Non-operating expenses.................................. 48.4 25.6 25.9 26.2
----- ----- ----- -----
Income before income taxes.............................. $(39.6) $ (1.8) $ (1.1) $ 2.4
===== ===== ===== =====
Identifiable assets:
Lending and Leasing................................... $364.0 $ 400.3 $478.8 $552.6
Real Estate........................................... 151.7 154.2 144.6 148.9
----- ----- ----- -----
$515.7 $ 554.5 $623.4 $701.5
===== ===== ===== =====
Depreciation:
Lending and Leasing................................... $ 0.6 $ 1.4 $ 1.6 $ 1.2
Real Estate........................................... 2.3 5.0 3.6 4.2
----- ----- ----- -----
$ 2.9 $ 6.4 $ 5.2 $ 5.4
===== ===== ===== =====
Additions to leases, loans and property:
Lending and Leasing................................... $ 0.0 $ 0.0 $ 5.7 $ 42.6
Real Estate........................................... 2.9 4.1 1.3 1.2
----- ----- ----- -----
$ 2.9 $ 4.1 $ 7.0 $ 43.8
===== ===== ===== =====
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
The Company is subject to regulation with respect to the environmental
effects of its operations. The Company's disposal of hazardous waste through
third party vendors may result in costs to clean up facilities found to be
contaminated. Federal and state statutes authorize governmental agencies to
compel responsible parties to clean up certain abandoned or uncontrolled
hazardous waste sites. The Company has been notified
F-15
<PAGE> 81
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REFERENCES TO PERIODS ENDED JUNE 30 ARE UNAUDITED
that former subsidiaries, whose properties were sold in prior years, are
potentially responsible parties (PRPs) at two sites. Liability for cleanup costs
of these sites is joint and several. The costs of cleaning up one site have been
settled and the Company made a settlement payment to the Environmental
Protection Agency in September 1995, bringing this matter to a final conclusion.
Based upon information currently available, the Company believes that its
liability for cleanup of the other site will not be material and does not
believe that it will be required to pay a significantly disproportionate share
of the total cleanup costs. In addition to the sites where it has been named a
PRP, the Company may also be responsible for additional environmental cleanup at
other sites. Based on information currently available to the Company, the
Company estimates that its proportionate share of liability for cleaning up all
sites ranges from $0.1 million to $1.0 million, and it has reserved $0.5 million
against these potential costs.
Through a previous partnership, the Company remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
the former partnership. The contingent liability reduces over time as the
resident population, at the time of the sale of partnership interest,
discontinues their residency. If the current owners fail to perform their
obligations and if the partnership assets, consisting primarily of land and
buildings, were worthless, the Company could be liable for an additional $32.2
million as of December 31, 1995. The Company considers the incurrence of this
liability to be remote based on asset values and the indemnification agreement
from the current owners to the Company.
(13) QUARTERLY DATA (UNAUDITED)
Summarized quarterly data for 1995 and 1994:
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1995
Revenue...................................... $ 10.7 $ 12.3 $ 10.7 $13.9
Net income................................... 0.0 0.0 0.0 0.0
1994
Revenue...................................... $ 9.5 $ 15.1 $ 11.9 $12.3
Net income................................... 0.0 0.0 0.0 0.0
</TABLE>
F-16
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ECHELON INTERNATIONAL CORPORATION
ARTICLE I
NAME
The name of this Corporation shall be:
ECHELON INTERNATIONAL CORPORATION
ARTICLE II
TERM OF EXISTENCE
This Corporation is to exist perpetually.
ARTICLE III
GENERAL PURPOSE
The general purpose for which this Corporation is organized is the
transaction of any and all lawful business for which corporations may be
incorporated under the Business Corporation Act of the State of Florida, and
any amendments or successor thereto, and in connection therewith, this
Corporation shall have and may exercise any and all powers conferred from time
to time by law upon corporations formed under such Act.
ARTICLE IV
CAPITAL STOCK
1. AUTHORIZED CAPITALIZATION.
(a) The total number of shares of capital stock authorized to
be issued by this Corporation shall be:
____________ shares of preferred stock, par value $0.01 per
share (the "Preferred Stock").
____________ shares of common stock, par value $0.01 per share
(the "Common Stock"); and
<PAGE> 2
ECHELON INTERNATIONAL CORPORATION
ARTICLES OF INCORPORATION PAGE 2
(b) The designation, relative rights, preferences and
liabilities of each class of stock, itemized by class, shall be as follows:
(i) Preferred. Shares of the Preferred Stock may be
issued from time to time in one or more series. The board of
directors of this Corporation (hereafter the "Board of Directors" or
"Board") by resolution shall establish each series of Preferred Stock
and fix and determine the number of shares and the designations,
preferences, limitations and relative rights of each such series,
provided that all shares of the Preferred Stock shall be identical
except as to the following relative rights and preferences, as to
which there may be variations fixed and determined by the Board of
Directors between different series:
(A) The rate or manner of payment of
dividends.
(B) Whether shares may be redeemed and, if
so, the redemption price and the terms and conditions of
redemption.
(C) The amount payable upon shares in the
event of voluntary and involuntary liquidation.
(D) Sinking fund provisions, if any, for the
redemption or purchase of shares.
(E) The terms and conditions, if any, on
which the shares may be converted.
(F) Voting rights, if any.
(G) Any other rights or preferences now or
hereafter permitted by the laws of the State of Florida as
variations between different series of preferred stock.
(ii) Common. Each share of Common Stock shall be
entitled to one vote on all matters submitted to a vote of
stockholders, except matters required to be voted on exclusively by
holders of Preferred Stock or of any series of Preferred Stock. The
holders of Common Stock shall be entitled to such dividends as may be
declared by the Board of Directors from time to time, provided that
required dividends, if any, on the Preferred Stock have been paid or
provided for. In the event of the liquidation, dissolution, or
winding up, whether voluntary or involuntary, of this Corporation, the
assets and funds of this Corporation available for distribution to
stockholders, and remaining after the payment to holders of Preferred
Stock of the amounts to which they are entitled, shall be divided and
paid to the holders of the Common Stock according to their respective
shares.
2. NO PREEMPTIVE RIGHTS.
(a) Preferred Stock. Unless otherwise specifically provided
in the terms of the Preferred Stock, the holders of any class of Preferred
Stock of this Corporation shall have no preemptive right to subscribe for and
purchase their proportionate share of any additional Preferred
<PAGE> 3
ECHELON INTERNATIONAL CORPORATION
ARTICLES OF INCORPORATION PAGE 3
Stock (of the same class or otherwise) or Common Stock issued by this
Corporation, from and after the issuance of the shares originally subscribed
for by the stockholders of this Corporation, whether such additional shares be
issued for cash, property, services or any other consideration and whether or
not such shares be presently authorized or be authorized by subsequent
amendment to these Articles of Incorporation.
(b) Common Stock. The holders of Common Stock of this
Corporation shall have no preemptive right to subscribe for and purchase their
proportionate share of any additional Preferred Stock or Common Stock issued by
this Corporation, from and after the issuance of the shares originally
subscribed for by the stockholders of this Corporation, whether such additional
shares be issued for cash, property, services or any other consideration and
whether or not such shares be presently authorized or be authorized by
subsequent amendment to these Articles of Incorporation.
3. PAYMENT FOR STOCK. The consideration for the issuance of shares
of capital stock may be paid, in whole or in part, in cash, in promissory
notes, in other property (tangible or intangible), in labor or services
actually performed for this Corporation, in promises to perform services in the
future evidenced by a written contract, or in other benefits to this
Corporation at a fair valuation to be fixed by the Board of Directors. When
issued, all shares of stock shall be fully paid and nonassessable.
4. TREASURY STOCK. The Board of Directors of this Corporation shall
have the authority to acquire by purchase and hold from time to time any shares
of its issued and outstanding capital stock for such consideration and upon
such terms and conditions as the Board of Directors in its discretion shall
deem proper and reasonable in the interest of this Corporation.
ARTICLE V
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of this Corporation shall be located at
__________________________, Florida 33______ and the registered agent of this
Corporation at such office shall be __________________. This Corporation shall
have the right to change such registered office and such registered agent from
time to time, as provided by law.
ARTICLE VI
DIRECTORS
1. NUMBER. The Board of Directors of this Corporation shall consist
of not less than three (3) nor more than nine (9) members, the exact numbers of
directors to be fixed from time to time as provided in the bylaws of this
Corporation.
2. CLASSIFICATION. The Board of Directors shall be divided into
three classes, Class I, Class II and Class III, as nearly equal in number as
possible. As soon as reasonably practicable after the
<PAGE> 4
ECHELON INTERNATIONAL CORPORATION
ARTICLES OF INCORPORATION PAGE 4
effectiveness of this provision, directors of the first class (Class I) shall
be elected to hold office for a term expiring at the 1997 annual meeting of
stockholders; directors of the second class (Class II) shall be elected to hold
office for a term expiring at the 1998 annual meeting of stockholders; and
directors of the third class (Class III) shall be elected to hold office for a
term expiring at the 1999 annual meeting of stockholders. Subject to
adjustment as contemplated by the following paragraph, at each annual meeting
of stockholders after 1996, the successors to the class of directors whose
terms then shall expire shall be identified as being the same class as the
directors they succeed and elected to hold office for a term expiring at the
third succeeding annual meeting of stockholders.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional directors of any
class elected by stockholders to fill a vacancy shall hold office for a term
that shall coincide with the remaining term of that class, but in no case will
a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year
in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
Notwithstanding the foregoing, if and whenever the holders of any one
or more classes or series of Preferred Stock issued by this Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of these Articles of Incorporation or the resolution or
resolutions adopted by the Board of Directors pursuant to Article IV hereof,
and such directors so elected shall not be divided into classes pursuant to
this Article VI unless expressly provided by such terms.
3. POWERS. The business and affairs of this Corporation shall be
managed by the Board of Directors, which may exercise all such powers of this
Corporation and do all such lawful acts and things as are not by law directed
or required to be exercised or done by the stockholders.
4. QUORUM. A quorum for the transaction of business at all meetings
of the Board of Directors shall be a majority of the number of directors
determined from time to time to comprise the Board of Directors, and the act of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the directors.
5. REMOVAL. Subject to the rights, if any, of the holders of shares
of Preferred Stock then outstanding, any or all of the directors of this
Corporation may be removed from office at any annual or special meeting of
stockholders by the affirmative vote of at least a majority of the then
outstanding shares of Common Stock of this Corporation. Notice of any such
annual or special meeting of stockholders shall state that the removal of a
director or directors is among the purposes of the meeting and shall state the
grounds therefor. Directors may not be removed by the stockholders without
cause.
6. VACANCIES. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors.
<PAGE> 5
ECHELON INTERNATIONAL CORPORATION
ARTICLES OF INCORPORATION PAGE 5
Any director elected in accordance with the preceding sentence shall hold office
until the next stockholders' meeting at which directors are elected (or, if
permitted under applicable law, until the expiration of the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred) and until such director's successor is duly elected and
qualifies, unless such director sooner dies, resigns or is removed by the
stockholders at any annual or special meeting. A director elected by
stockholders to fill a vacancy shall be elected for the unexpired term of such
director's predecessor in office.
7. NOMINATIONS AND ELECTIONS. Subject to the rights, if any, of the
holders of shares of Preferred Stock then outstanding, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors at meetings of stockholders.
Nominations of persons for election to the Board of Directors of this
Corporation may be made at a meeting of stockholders by or at the direction of:
(a) the Board of Directors; (b) by any nominating committee or person appointed
by the Board; (c) or by any stockholder of this Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Article VI, Section 7.
Nominations by stockholders shall be made pursuant to timely notice in
writing to the Secretary of this Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of this Corporation not less than 60 days prior to the date of the
meeting at which the director(s) are to be elected, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the scheduled meeting is given or made, notice by the
stockholder, to be timely, must be so delivered or received not later than the
close of business on the tenth day following the earlier of the day on which
notice was given or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as
a director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of this Corporation which are
beneficially owned by the person and (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Schedule 14A under the Securities Exchange
Act of 1934, as amended; and (b) as to the stockholder giving the notice (i)
the name and address, as they appear on this Corporation's books, of the
stockholder and (ii) the class and number of shares of this Corporation's stock
which are beneficially owned by the stockholder on the date of such stockholder
notice. This Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by this Corporation to
determine the eligibility of such proposed nominee to serve as a director of
this Corporation.
The presiding officer of the meeting shall determine and declare at
the meeting whether the nomination was made in accordance with the terms of
this Article VI, Section 7. If the presiding officer determines that a
nomination was not made in accordance with the terms of this Article VI,
Section 7, he or she shall so declare at the meeting and any such defective
nomination shall be disregarded.
<PAGE> 6
ECHELON INTERNATIONAL CORPORATION
ARTICLES OF INCORPORATION PAGE 6
ARTICLE VII
ADDRESS
The address of the principal office and mailing address of this
Corporation shall be:
_____________________________________
___________________, Florida 33_____
ARTICLE VIII
STOCKHOLDER MEETINGS
1. ANNUAL MEETINGS. At an annual meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been brought before the annual meeting (a) by, or at the direction
of, the Board of Directors, or (b) by any stockholder of this Corporation who
complies with the notice procedures set forth in this Article VIII, Section 1
and the requirements of Rule 14a-8 under the Securities Exchange Act of 1934.
For a proposal to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of this Corporation. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive
offices of this Corporation not less than 60 days prior to the scheduled annual
meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if less than 70 days' notice
or prior public disclosure of the date of the scheduled annual meeting is given
or made, notice by the stockholder, to be timely, must be so delivered or
received not later than the close of business on the tenth day following the
earlier of the day on which such notice of the date of the scheduled annual
meeting was given or the day on which such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting, in addition
to any other information as may be required by law, (a) a brief description of
the proposal desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address,
as they appear on this Corporation's books, of the stockholder proposing such
business and any other stockholders known by such stockholder to be supporting
such proposal, (c) the class and number of shares of this Corporation's stock
which are beneficially owned by the stockholder on the date of such stockholder
notice and by any other stockholders known by such stockholder to be supporting
such proposal on the date of such stockholder notice, and (d) any financial
interest of the stockholder in such proposal.
The presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the stockholder proposal was made in
accordance with the terms of this Article VIII, Section 1. If the presiding
officer determines that a stockholder proposal was not made in accordance with
<PAGE> 7
ECHELON INTERNATIONAL CORPORATION
ARTICLES OF INCORPORATION PAGE 7
the terms of this Article VIII, Section 1, he or she shall so declare at the
annual meeting and any such proposal shall not be acted upon at the annual
meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed
and received as herein provided.
2. SPECIAL MEETINGS. Special meetings of the stockholders of this
Corporation for any purpose or purposes may be called at any time by (a) the
Board of Directors; (b) the Chairman of the Board of Directors (if one is so
appointed); (c) the President of this Corporation; or (d) by holders of not
less than 33-1/3% of all the votes entitled to be cast on any issue proposed to
be considered at the proposed special meeting, if such stockholders sign, date
and deliver to this Corporation's secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held. Special
meetings of the stockholders of this Corporation may not be called by any other
person or persons.
At any special meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been set
forth in the notice of such special meeting.
3. WRITTEN CONSENTS. Any action required or permitted to be taken at
any annual or special meeting of stockholders of this Corporation may be taken
only upon the vote of such stockholders at an annual or special meeting duly
called in accordance with the terms of this Article VIII, Section 1 and 2, and
may not be taken by written consent of such stockholders.
ARTICLE IX
AMENDMENTS
This Corporation reserves the right to amend, alter, change or repeal
any provisions contained in these Articles of Incorporation in the manner now
or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are subject to this reservation. Notwithstanding anything
contained in these Articles of Incorporation to the contrary, the affirmative
vote of at least 66-2/3% of the outstanding shares of Common Stock of this
Corporation shall be required to amend or repeal this Article IX, Article VI or
Article VIII of these Articles of Incorporation or to adopt any provision
inconsistent therewith.
ARTICLE X
BYLAWS
1. ADOPTION, AMENDMENT, ETC. The power to adopt the bylaws of this
Corporation, to alter, amend or repeal the bylaws, or to adopt new bylaws,
shall be vested in the Board of Directors of this Corporation; provided,
however, that any bylaw or amendment thereto as adopted by the
<PAGE> 8
ECHELON INTERNATIONAL CORPORATION
ARTICLES OF INCORPORATION PAGE 8
Board of Directors may be altered, amended, or repealed in accordance with the
bylaws of this Corporation by vote of the stockholders entitled to vote
thereon, or a new bylaw in lieu thereof may be adopted by the stockholders, and
the stockholders may prescribe in any bylaw made by them that such bylaw shall
not be altered, amended or repealed by the Board of Directors.
2. SCOPE. The bylaws of this Corporation shall be for the government
of this Corporation and may contain any provisions or requirements for the
management or conduct of the affairs and business of this Corporation, provided
the same are not inconsistent with the provisions of these Articles of
Incorporation, or contrary to the laws of the State of Florida or of the United
States.
IN WITNESS WHEREOF, ECHELON INTERNATIONAL CORPORATION has caused these
Amended and Restated Articles of Incorporation to be executed and acknowledged
by its President and Secretary this _____ day of __________________, 1996.
ATTEST: ECHELON INTERNATIONAL
CORPORATION
(CORPORATE SEAL)
By:
- ------------------------------------ -------------------------------------
, Secretary , President
<PAGE> 1
BYLAWS
OF
ECHELON INTERNATIONAL CORPORATION
<PAGE> 2
BYLAWS
OF
ECHELON INTERNATIONAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title Page
- ----- ----
<S> <C>
ARTICLE I
OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Principal Office. . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Annual Meeting. . . . . . . . . . . . . . . . . . . . 1
Section 2. Special Meetings. . . . . . . . . . . . . . . . . . . 1
Section 3. Place of Meeting. . . . . . . . . . . . . . . . . . . 1
Section 4. Notice of Meeting. . . . . . . . . . . . . . . . . . 2
Section 5. Notice of Adjourned Meeting. . . . . . . . . . . . . 2
Section 6. Waiver of Call and Notice of Meeting. . . . . . . . . 2
Section 7. Quorum. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Adjournment: Quorum for Adjourned Meeting . . . . . 2
Section 9. Voting on Matters Other Than Election of Directors . 3
Section 10. Voting for Directors. . . . . . . . . . . . . . . . . 3
Section 11. Voting Lists. . . . . . . . . . . . . . . . . . . . . 3
Section 12. Voting of Shares. . . . . . . . . . . . . . . . . . . 3
Section 13. Proxies. . . . . . . . . . . . . . . . . . . . . . . 3
Section 14. Inspectors. . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1. General Powers. . . . . . . . . . . . . . . . . . . . 4
Section 2. Number, Tenure and Qualifications. . . . . . . . . . 4
Section 3. Annual Meeting. . . . . . . . . . . . . . . . . . . . 4
Section 4. Regular Meetings. . . . . . . . . . . . . . . . . . . 4
Section 5. Special Meetings. . . . . . . . . . . . . . . . . . . 4
Section 6. Notice. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 7. Quorum. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 8. Adjournment: Quorum for Adjourned Meeting . . . . . 5
Section 9. Manner of Acting. . . . . . . . . . . . . . . . . . . 5
Section 10. Removal. . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Vacancies. . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 12. Compensation. . . . . . . . . . . . . . . . . . . . . 6
Section 13. Presumption of Assent. . . . . . . . . . . . . . . . 6
Section 14. Informal Action by Board. . . . . . . . . . . . . . . 6
Section 15. Meeting by Telephone, Etc. . . . . . . . . . . . . . 6
ARTICLE IV
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. Number. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2. Appointment and Term of Office. . . . . . . . . . . . 6
Section 3. Resignation . . . . . . . . . . . . . . . . . . . . . 7
Section 4. Removal. . . . . . . . . . . . . . . . . . . . . . . 7
Section 5. Vacancies. . . . . . . . . . . . . . . . . . . . . . 7
Section 6. Duties of Officers. . . . . . . . . . . . . . . . . . 7
Section 7. Salaries. . . . . . . . . . . . . . . . . . . . . . . 7
Section 8. Delegation of Duties. . . . . . . . . . . . . . . . . 7
Section 9. Disaster Emergency Powers of Acting Officers. . . . . 7
ARTICLE V
EXECUTIVE AND OTHER COMMITTEES . . . . . . . . . . . . . . . . . . . . . . 8
Section 1. Creation of Committees. . . . . . . . . . . . . . . . 8
Section 2. Executive Committee. . . . . . . . . . . . . . . . . 8
Section 3. Other Committees. . . . . . . . . . . . . . . . . . . 8
Section 4. Removal or Dissolution. . . . . . . . . . . . . . . . 8
Section 5. Vacancies on Committees. . . . . . . . . . . . . . . 8
Section 6. Meetings of Committees. . . . . . . . . . . . . . . . 9
Section 7. Absence of Committee Members. . . . . . . . . . . . . 9
Section 8. Quorum of Committees. . . . . . . . . . . . . . . . . 9
Section 9. Manner of Acting of Committees. . . . . . . . . . . . 9
Section 10. Minutes of Committees. . . . . . . . . . . . . . . . 9
Section 11. Compensation. . . . . . . . . . . . . . . . . . . . . 9
Section 12. Informal Action. . . . . . . . . . . . . . . . . . . 9
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . 9
Section 1. General . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2. Actions by or in the Right of this Corporation . . 10
Section 3. Obligation to Indemnify . . . . . . . . . . . . . . 10
Section 4. Determination that Indemnification is Proper . . . 10
Section 5. Evaluation and Authorization . . . . . . . . . . . 11
Section 6. Prepayment of Expenses . . . . . . . . . . . . . . 11
Section 7. Nonexclusivity and Limitations . . . . . . . . . . 11
Section 8. Continuation of Indemnification Right . . . . . . . 11
Section 9. Insurance . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII
INTERESTED PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. General. . . . . . . . . . . . . . . . . . . . . . . 12
Section 2. Determination of Quorum. . . . . . . . . . . . . . . 12
Section 3. Approval by Stockholders . . . . . . . . . . . . . . 12
ARTICLE VIII
CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. Certificates for Shares. . . . . . . . . . . . . . . 13
Section 2. Signatures of Past Officers. . . . . . . . . . . . . 13
Section 3. Transfer Agents and Registrars. . . . . . . . . . . . 13
Section 4. Transfer of Shares. . . . . . . . . . . . . . . . . . 14
Section 5. Lost Certificates. . . . . . . . . . . . . . . . . . 14
ARTICLE IX
RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1. Record Date for Stockholder Actions . . . . . . . . . 14
Section 2. Record Date for Dividend and Other Distributions . . 15
ARTICLE X
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XI
FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XII
SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XIII
STOCK IN OTHER CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XIV
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE XV
EMERGENCY BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1. Scope of Emergency Bylaws . . . . . . . . . . . . . . 16
Section 2. Call and Notice of Meeting . . . . . . . . . . . . . 16
Section 3. Quorum and Voting . . . . . . . . . . . . . . . . . . 16
Section 4. Appointment of Temporary Directors . . . . . . . . . 16
Section 5. Modification of Lines of Succession . . . . . . . . . 17
Section 6. Change of Principal Office . . . . . . . . . . . . . 17
Section 7. Limitation of Liability . . . . . . . . . . . . . . . 17
Section 8. Amendment or Repeal . . . . . . . . . . . . . . . . . 17
ARTICLE XVI
PRECEDENCE OF LAW AND ARTICLES OF INCORPORATION . . . . . . . . . . . . . . 17
</TABLE>
iii
<PAGE> 5
Exhibit 3.2
BYLAWS
OF
ECHELON INTERNATIONAL CORPORATION
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of ECHELON
INTERNATIONAL CORPORATION (this "Corporation") shall be at such place within or
without the State of Florida as the Board of Directors of this Corporation (the
"Board of Directors" or the "Board") or the officers of this Corporation acting
within their authority shall from time to time determine.
Section 2. Other Offices. This Corporation may also have
offices at such other places both within and without the State of Florida as
the Board of Directors or the officers of this Corporation acting within their
authority may from time to time determine or the business of this Corporation
may require.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the
stockholders shall be held between January 1 and December 31, inclusive, in
each year for the purpose of electing directors and for the transaction of such
other proper business as may come before the meeting, the exact date to be
established by the Board of Directors from time to time.
Section 2. Special Meetings. Special meetings of the
stockholders may be called, for any purpose or purposes, by the Board of
Directors, the Chairman of the Board (if one is so appointed) or the President
and shall be called by the President or the Secretary if the holders of not
less than 33-1/3% percent of all the votes entitled to be cast on any issue
proposed to be considered at such special meeting sign, date and deliver to
this Corporation's Secretary one or more written demands for a special meeting,
describing the purpose(s) for which it is to be held. Special meetings of the
stockholders of this Corporation may not be called by any other person or
persons. Notice and call of any such special meeting shall state the purpose
or purposes of the proposed meeting, and business transacted at any special
meeting of the stockholders shall be limited to the purposes stated in the
notice thereof.
Section 3. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Florida, as the
place of meeting for any annual or special meeting of
1
<PAGE> 6
the stockholders. If no designation is made, the place of meeting shall be the
principal executive office of this Corporation.
Section 4. Notice of Meeting. Written notice stating the place,
day and hour of an annual or special meeting and the purpose or purposes for
which it is called shall be given no fewer than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder entitled to vote
at such meeting, except that no notice of a meeting need be given to any
stockholder for which notice is not required to be given under law. Notice may
be delivered personally, via United States mail, telegraph, teletype, facsimile
or other electronic transmission, or by private mail carriers handling
nationwide mail services, by or at the direction of the President, the
Secretary, the Board of Directors, or the person(s) calling the meeting. If
mailed via United States mail, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at the
stockholder's address as it appears on the stock transfer books of this
Corporation, with postage thereon prepaid. If the notice is mailed at least 30
days before the date of the meeting, the mailing may be done by a class of
United States mail other than first class.
Section 5. Notice of Adjourned Meeting. If an annual or special
stockholders' meeting is adjourned to a different date, time, or place, notice
need not be given of the new date, time or place if the new date, time or place
is announced at the meeting before an adjournment is taken, and any business
may be transacted at the adjourned meeting that might have been transacted on
the original date of the meeting. If, however, a new record date for the
adjourned meeting is or must be fixed under law, notice of the adjourned
meeting must be given to persons who are stockholders as of the new record date
and who are otherwise entitled to notice of such meeting.
Section 6. Waiver of Call and Notice of Meeting. Call and
notice of any stockholders' meeting may be waived by any stockholder before or
after the date and time stated in the notice. Such waiver must be in writing
signed by the stockholder and delivered to this Corporation. Neither the
business to be transacted at nor the purpose of any special or annual meeting
need be specified in such waiver. A stockholder's attendance at a meeting (a)
waives such stockholder's ability to object to lack of notice or defective
notice of the meeting, unless the stockholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting; and (b)
waives such stockholder's ability to object to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the stockholder objects to considering the matter
when it is presented.
Section 7. Quorum. Except as otherwise provided in these Bylaws
or in the Articles of Incorporation of this Corporation, as amended from time
to time (the "Articles of Incorporation"), a majority of the outstanding shares
of this Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of the stockholders. Once a share is
represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting, unless a new record date is or must be set for that adjourned meeting,
and the withdrawal of stockholders after a quorum has been established at a
meeting shall not effect the validity of any action taken at the meeting or any
adjournment thereof.
Section 8. Adjournment: Quorum for Adjourned Meeting. If less
than a majority of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn
2
<PAGE> 7
the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented or deemed to be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.
Section 9. Voting on Matters Other Than Election of Directors.
At any meeting at which a quorum is present, action on any matter other than
the election of directors shall be approved if the votes cast by the holders of
shares represented at the meeting and entitled to vote on the subject matter
favoring the action exceed the votes cast opposing the action, unless a greater
number of affirmative votes or voting by classes is required by law, the
Articles of Incorporation or these Bylaws.
Section 10. Voting for Directors. Directors shall be elected by
a plurality of the votes cast by the shares entitled to vote at a meeting at
which a quorum is present.
Section 11. Voting Lists. At least ten (10) days prior to each
meeting of stockholders, the officer or agent having charge of the stock
transfer books for shares of this Corporation shall make a complete list of the
stockholders entitled to vote at such meeting, or any adjournment thereof, with
the address and the number, class and series (if any) of shares held by each,
which list shall be subject to inspection by any stockholder during normal
business hours for at least ten (10) days prior to the meeting. The list also
shall be available at the meeting and shall be subject to inspection by any
stockholder at any time during the meeting or its adjournment. The
stockholders list shall be prima facie evidence as to who are the stockholders
entitled to examine such list or the transfer books and to vote at any meeting
of the stockholders.
Section 12. Voting of Shares. Except as otherwise provided by
law or in the Articles of Incorporation, each stockholder entitled to vote
shall be entitled at every meeting of the stockholders to one vote in person or
by proxy on each matter for each share of voting stock held by such
stockholder. Such right to vote shall be subject to the right of the Board of
Directors to close the transfer books or to fix a record date for voting
stockholders as hereinafter provided. Treasury shares, and shares of stock of
this Corporation owned directly or indirectly by another corporation the
majority of the voting stock of which is owned or controlled by this
Corporation, shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares.
Section 13. Proxies. At all meetings of stockholders, a
stockholder may vote by proxy, executed in writing and delivered to this
Corporation in the original or transmitted via telegram, or as a photographic,
photostatic or equivalent reproduction of a written proxy by the stockholder or
by the stockholder's duly authorized attorney-in-fact; but, no proxy shall be
valid after eleven (11) months from its date, unless the proxy provides for a
longer period. Each proxy shall be filed with the Secretary of this
Corporation before or at the time of the meeting. In the event that a proxy
shall designate two or more persons to act as proxies, a majority of such
persons present at the meeting, or, if only one is present, that one, shall
have all of the powers conferred by the proxy upon all the persons so
designated, unless the instrument shall provide otherwise.
Section 14. Inspectors. For each meeting of the stockholders,
the Board of Directors or the President may appoint one or more inspectors to
supervise the voting; and, if one or more inspectors are so appointed, all
questions respecting the qualification of any vote, the validity of any
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proxy, and the acceptance or rejection of any vote shall be decided by such
inspector(s). Before acting at any meeting, the inspector(s) shall take an
oath to execute their duties with strict impartiality and according to the best
of their ability. If any inspector shall fail to be present or shall decline
to act, the President shall appoint another inspector to act in his or her
place. In case of a tie vote by the inspectors on any question, the presiding
officer shall decide the issue.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of this
Corporation shall be managed by its Board of Directors, which may exercise all
such powers of this Corporation and do all such lawful acts and things as are
not by law, the Articles of Incorporation or these Bylaws directed or required
to be exercised or done only by the stockholders.
Section 2. Number, Tenure and Qualifications. The number of
directors of the Corporation shall be not less than three (3) nor more than
nine (9), the number of the same to be fixed by resolution adopted by a vote of
a majority of the then authorized number of directors; provided that no
decrease in the number of directors shall have the effect of shortening the
term of any then incumbent director. Each director shall hold office until
his or her term of office expires and until such director's successor is duly
elected and qualifies, unless such director sooner dies, resigns or is removed
by the stockholders at any annual or special meeting. It shall not be
necessary for directors to be stockholders. All directors shall be natural
persons who are 18 years of age or older.
Section 3. Annual Meeting. The Board of Directors shall hold an
annual meeting for the purpose of the election of officers and the transaction
of such other business as may come before the meeting. If no other date, place
and/or time is set by the Board for such meeting, the same shall be held at the
same place as and immediately following the annual meeting of stockholders;
and, if a majority of the directors are present at such place and time, no
prior notice of such meeting shall be required to be given to the directors.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice from time to time on such date(s), at such
time(s) and at such place(s) as shall have been determined in advance in
accordance with a schedule, resolution or other action duly adopted or taken by
the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if there be one, or the
President. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meetings of the
Board of Directors called by such person or persons, as the case may be. If no
such designation is made, the place of meeting shall be the principal executive
office of this Corporation. Notice of any special meeting of the Board shall
be given, unless waived, in accordance with Section 6 of this Article.
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Section 6. Notice. Whenever notice of a meeting is required,
written notice stating the place, day and hour of the meeting shall be
delivered at least two (2) days prior thereto to each director, either
personally, or by United States mail, telegraph, teletype, facsimile or other
form of electronic communication, or by private mail carriers handling
nationwide mail services, to the director's business address. If notice is
given by United States mail, such notice shall be deemed to be delivered five
(5) days after deposited in the United States mail so addressed with postage
thereon prepaid or when received, if such date is earlier. If notice is given
by telegraph, teletype, facsimile transmission or other form of electronic
communication or by private mail carriers handling nationwide mail services,
such notice shall be deemed to be delivered when received by the director. Any
director may waive notice of any meeting, either before, at or after such
meeting. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened and so states at the beginning of
the meeting or promptly upon arrival at the meeting.
Section 7. Quorum. A majority of the total number of directors
as determined from time to time to comprise the Board of Directors shall
constitute a quorum.
Section 8. Adjournment: Quorum for Adjourned Meeting. If less
than a majority of the total number of directors are present at a meeting, a
majority of the directors so present may adjourn the meeting from time to time
without further notice. At any adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally noticed.
Section 9. Manner of Acting. If a quorum is present when a vote
is taken, the act of a majority of the directors present at the meeting shall
be the act of the Board of Directors unless otherwise provided in the Articles
of Incorporation.
Section 10. Removal. Subject to the rights, if any, of the
holders of shares of Preferred Stock then outstanding, any or all of the
directors of this Corporation may be removed from office at any annual or
special meeting of stockholders by the affirmative vote of at least a majority
of the then outstanding shares of Common Stock of this Corporation. Notice of
any such annual or special meeting of stockholders shall state that the removal
of a director or directors is among the purposes of the meeting and shall state
the grounds therefor. Directors may not be removed by the stockholders without
cause.
Section 11. Vacancies. Any vacancy occurring in the Board of
Directors, including any vacancy created by reason of an increase in the number
of directors, may be filled by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
until the next stockholders' meeting at which directors are elected (or, if
permitted under applicable law, until the expiration of the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred)and until such director's successor is duly elected and
qualifies, unless such director sooner dies, resigns or is removed by the
stockholders at any annual or special meeting. A director elected by
stockholders to fill a vacancy shall be elected for the unexpired term of such
director's predecessor in office.
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Section 12. Compensation. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors, and may be paid compensation for
attendance at each meeting of the Board of Directors or for serving as
directors. No payment shall preclude any director from serving this
Corporation in any other capacity and receiving compensation therefor.
Section 13. Presumption of Assent. A director of this
Corporation who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless such director objects at the beginning of the meeting
(or promptly upon his or her arrival) to the holding of the meeting or the
transacting of specified business at the meeting or such director votes against
such action or abstains from voting in respect of such matter.
Section 14. Informal Action by Board. Any action required or
permitted to be taken by any provisions of law, the Articles of Incorporation
or these Bylaws at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if each and every member of the Board or
of such committee, as the case may be, signs a written consent thereto and such
written consent is filed in the minutes of the proceedings of the Board or such
committee, as the case may be. Action taken under this section is effective
when the last director signs the consent, unless the consent specifies a
different effective date, in which case it is effective on the date so
specified.
Section 15. Meeting by Telephone, Etc. Directors or the members
of any committee thereof shall be deemed present at a meeting of the Board of
Directors or of any such committee, as the case may be, if the meeting is
conducted using a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of this Corporation shall
consist of a Chief Executive Officer, a President, a Secretary and a Treasurer,
each of whom shall be appointed by the Board of Directors. The Board of
Directors may also appoint a Chairman of the Board, who may be an officer of
this Corporation if the Board so determines, one or more Vice Presidents, one
or more Assistant Secretaries and Assistant Treasurers and such other officers
as the Board of Directors shall deem appropriate. The same individual may
simultaneously hold more than one office in this Corporation.
Section 2. Appointment and Term of Office. The officers of this
Corporation shall be appointed annually by the Board of Directors at its annual
meeting. If the appointment of officers shall not be made at such meeting,
such appointment shall be made as soon thereafter as is convenient. Each
officer shall hold office until such officer's successor is duly appointed and
qualifies, unless such officer sooner dies, resigns or is removed by the Board.
The appointment of an officer does not itself create contract rights.
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Section 3. Resignation. An officer may resign at any time by
delivering notice to this Corporation. A resignation shall be effective when
the notice is delivered unless the notice specifies a later effective date. An
officer's resignation shall not affect this Corporation's contract rights, if
any, with the officer.
Section 4. Removal. The Board of Directors may remove any
officer at any time with or without cause. An officer's removal shall not
affect the officer's contract rights, if any, with this Corporation.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 6. Duties of Officers. The Chairman of the Board of
this Corporation, or the President if there shall not be a Chairman of the
Board, shall preside at all meetings of the Board of Directors and of the
stockholders. The Chief Executive Officer shall be the chief executive officer
of this Corporation. The Secretary shall be responsible for preparing minutes
of the directors' and stockholders' meetings and for authenticating records of
this Corporation. Subject to the foregoing, the officers of this Corporation
shall have such powers and duties as ordinarily pertain to their respective
offices and such additional powers and duties specifically conferred by law,
the Articles of Incorporation and these Bylaws, or as may be assigned to them
from time to time by the Board of Directors or an officer authorized by the
Board of Directors to prescribe the duties of other officers.
Section 7. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors, by any duly appointed
committee thereof, or otherwise as approved by the Board, and no officer shall
be prevented from receiving a salary or other compensation by reason of the
fact that the officer is also a director of this Corporation.
Section 8. Delegation of Duties. In the absence or disability
of any officer of this Corporation, or for any other reason deemed sufficient
by the Board of Directors, the Board may delegate the powers or duties of such
officer to any other officer or to any other director for the time being.
Section 9. Disaster Emergency Powers of Acting Officers. Unless
otherwise expressly prescribed by action of the Board of Directors taken
pursuant to Article XV of these Bylaws, if, as a result of some catastrophic
event, a quorum of this Corporation's directors cannot readily be assembled and
the Chief Executive Officer is unable to perform the duties of the office of
Chief Executive Officer and/or other officers are unable to perform their
duties, (a) the powers and duties of Chief Executive Officer shall be held and
performed by that officer of this Corporation highest on the list of successors
(adopted by the Board of Directors for such purpose) who shall be available and
capable of holding and performing such powers and duties; and, absent any such
prior designation, by the President; or, if the President is not available and
capable of holding and performing such powers and duties, then by that Vice
President who shall be available and capable of holding and performing such
powers and duties whose surname commences with the earliest letter of the
alphabet among all such Vice Presidents; or, if no Vice President is available
and capable of holding and performing such powers and duties, then by the
Secretary; or, if the Secretary is likewise unavailable,
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by the Treasurer; (b) the officer so selected to hold and perform such powers
and duties shall serve as Acting Chief Executive Officer until the Chief
Executive Officer again becomes capable of holding and performing the powers
and duties of Chief Executive Officer, or until the Board of Directors shall
have elected a new Chief Executive Officer or designated another individual as
Acting Chief Executive Officer; (c) such officer (or the Chief Executive
Officer, if such person is still serving) shall have the power, in addition to
all other powers granted to the Chief Executive Officer by law, the Articles of
Incorporation, these Bylaws and the Board of Directors, to appoint acting
officers to fill vacancies that may have occurred, either permanently or
temporarily, by reason of such disaster or emergency, each of such acting
appointees to serve in such capacity until the officer for whom the acting
appointee is acting is capable of performing the duties of such office, or
until the Board of Directors shall have designated another individual to
perform such duties or shall have elected or appointed another person to fill
such office; (d) each acting officer so appointed shall be entitled to exercise
all powers invested by law, the Articles of Incorporation, these Bylaws and the
Board of Directors in the office in which such person is serving; and (e)
anyone transacting business with this Corporation may rely upon a certificate
signed by any two officers of this Corporation that a specified individual has
succeeded to the powers and duties of the Chief Executive Officer or such other
specified office. Any person, firm, corporation or other entity to which such
certificate has been delivered by such officers may continue to rely upon it
until notified of a change by means of a writing signed by two officers of this
corporation.
ARTICLE V
EXECUTIVE AND OTHER COMMITTEES
Section 1. Creation of Committees. The Board of Directors may
designate an Executive Committee and one or more other committees, each to
consist of two (2) or more of the directors of this Corporation.
Section 2. Executive Committee. The Executive Committee, if
there shall be one, shall consult with and advise the officers of this
Corporation in the management of its business, and shall have, and may
exercise, except to the extent otherwise provided in the resolution of the
Board of Directors creating such Executive Committee, such powers of the Board
of Directors as can be lawfully delegated by the Board.
Section 3. Other Committees. Such other committees, to the
extent provided in the resolution or resolutions creating them, shall have such
functions and may exercise such powers of the Board of Directors as can be
lawfully delegated.
Section 4. Removal or Dissolution. Any Committee of the Board
of Directors may be dissolved by the Board at any meeting; and any member of
such committee may be removed by the Board of Directors with or without cause.
Such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 5. Vacancies on Committees. Vacancies on any committee
of the Board of Directors shall be filled by the Board of Directors at any
regular or special meeting.
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Section 6. Meetings of Committees. Regular meetings of any
committee of the Board of Directors may be held without notice from time to
time on such date(s), at such time(s) and at such place(s) as shall have been
determined in advance in accordance with a schedule, resolution or other action
duly adopted or taken by such committee and special meetings of any such
committee may be called by any member thereof upon two (2) days notice of the
date, time and place of the meeting given to each of the other members of such
committee, or on such shorter notice as may be agreed to in writing by each of
the other members of such committee, given either personally or in the manner
provided in Section 6 of Article III of these Bylaws (pertaining to notice for
directors' meetings).
Section 7. Absence of Committee Members. The Board of Directors
may designate one or more directors as alternate members of any committee of
the Board of Directors, who may replace at any meeting of such committee, any
member not able to attend.
Section 8. Quorum of Committees. At all meetings of committees
of the Board of Directors, a majority of the total number of members of the
committee as determined from time to time shall constitute a quorum for the
transaction of business.
Section 9. Manner of Acting of Committees. If a quorum is
present when a vote is taken, the act of a majority of the members of any
committee of the Board of Directors present at the meeting shall be the act of
such committee.
Section 10. Minutes of Committees. Each committee of the Board
of Directors shall keep regular minutes of its proceedings and report the same
to the Board of Directors when required.
Section 11. Compensation. Members of any committee of the Board
of Directors may be paid compensation in accordance with the provisions of
Section 12 of Article III of these Bylaws (pertaining to compensation of
directors).
Section 12. Informal Action. Any committee of the Board of
Directors may take such informal action and hold such informal meetings as
allowed by the provisions of Sections 14 and 15 of Article III of these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. General. To the fullest extent permitted by law,
this Corporation shall be entitled but not obligated to indemnify any person
who is or was a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or other type of proceeding (other than an
action by or in the right of this Corporation), whether civil, criminal,
administrative, investigative or otherwise, and whether formal or informal, by
reason of the fact that such person is or was a director or officer of this
Corporation or is or was serving at the request of this Corporation as a
director, officer, employee, agent, trustee or fiduciary of another
corporation, partnership, joint venture, trust (including, without limitation,
an employee benefit trust) or other enterprise, against
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judgments, amounts paid in settlement, penalties, fines (including an excise
tax assessed with respect to any employee benefit plan) and expenses (including
attorneys' fees, paralegals' fees and court costs) actually and reasonably
incurred in connection with any such action, suit or other proceeding,
including any appeal thereof, if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of this Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any such action, suit or other proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner that such person reasonably believed to
be in, or not opposed to, the best interests of this Corporation or, with
respect to any criminal action or proceeding, had reasonable cause to believe
that such person's conduct was unlawful.
Section 2. Actions by or in the Right of this Corporation. To
the fullest extent permitted by law, whenever indemnification is proper as
determined below, this Corporation shall be obligated to indemnify any person
who is or was a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or other type of proceeding (as further
described in Section 1 of this Article VI) by or in the right of this
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director or officer of this Corporation or is or was serving
at the request of this Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees, paralegals' fees and court costs)
and amounts paid in settlement not exceeding, in the judgment of the Board of
Directors, the estimated expenses of litigating the action, suit or other
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such action, suit or other proceeding, including
any appeal thereof, if such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, the best interests of
this Corporation, except that no indemnification shall be made under this
Section 2 in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable unless, and only to the extent that, the
court in which such action, suit or other proceeding was brought, or any other
court of competent jurisdiction, shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnification for such
expenses that such court shall deem proper.
Section 3. Obligation to Indemnify. To the extent that a
director or officer has been successful on the merits or otherwise in defense
of any action, suit or other proceeding referred to in Section 1 or Section 2
of this Article VI, or in the defense of any claim, issue or matter therein,
such person shall, upon application, be indemnified against expenses (including
attorneys' fees, paralegals' fees and court costs) actually and reasonably
incurred by such person in connection therewith.
Section 4. Determination that Indemnification is Proper.
Indemnification pursuant to Section 1 or Section 2 of this Article VI, unless
made under the provisions of Section 3 of this Article VI or unless otherwise
made pursuant to a determination by a court, shall be made by this Corporation
only as authorized in the specific case upon a determination that the
indemnification is proper in the circumstances because the indemnified person
has met the applicable standard of conduct set forth in Section 1 or Section 2
of this Article VI. Such determination shall be made either
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(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the action, suit or other proceeding to which
the indemnification relates; (2) if such a quorum is not obtainable or, even if
obtainable, by majority vote of a committee duly designated by the Board of
Directors (the designation being one in which directors who are parties may
participate) consisting solely of two or more directors not at the time parties
to such action, suit or other proceeding; (3) by independent legal counsel (i)
selected by the Board of Directors in accordance with the requirements of
subsection (1) or by a committee designated under subsection (2) or (ii) if a
quorum of the directors cannot be obtained and a committee cannot be
designated, selected by majority vote of the full Board of Directors (the vote
being one in which directors who are parties may participate); or (4) by the
stockholders by a majority vote of a quorum consisting of stockholders who were
not parties to such action, suit or other proceeding or, if no such quorum is
obtainable, by a majority vote of stockholders who were not parties to such
action, suit or other proceeding.
Section 5. Evaluation and Authorization. Evaluation of the
reasonableness of expenses and authorization of indemnification shall be made
in the same manner as is prescribed in Section 4 of this Article VI for the
determination that indemnification is permissible; provided, however, that if
the determination as to whether indemnification is permissible is made by
independent legal counsel, the persons who selected such independent legal
counsel shall be responsible for evaluating the reasonableness of expenses and
may authorize indemnification.
Section 6. Prepayment of Expenses. Expenses (including
attorneys' fees, paralegals' fees and court costs) incurred by a director or
officer in defending a civil or criminal action, suit or other proceeding
referred to in Section 1 or Section 2 of this Article VI may, in the discretion
of the Board of Directors, be paid by this Corporation in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if such person is ultimately found not
to be entitled to indemnification by this Corporation pursuant to this Article
VI.
Section 7. Nonexclusivity and Limitations. The indemnification
and advancement of expenses provided pursuant to this Article VI shall not be
deemed exclusive of any other rights to which a person may be entitled under
any law, Bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in such person's official capacity and as to
action in any other capacity while holding office with this Corporation, and
shall continue as to any person who has ceased to be a director or officer and
shall inure to the benefit of such person's heirs and personal representatives.
The Board of Directors may, at any time, approve indemnification of or
advancement of expenses to any other person that this Corporation has the power
by law to indemnify, including, without limitation, employees and agents of
this Corporation. In all cases not specifically provided for in this Article
VI, indemnification or advancement of expenses shall not be made to the extent
that such indemnification or advancement of expenses is expressly prohibited by
law.
Section 8. Continuation of Indemnification Right. Unless
expressly otherwise provided when authorized or ratified by this corporation,
indemnification and advancement of expenses as provided for in this Article VI
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person. For purposes of this Article VI, the term
"corporation" includes, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a
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consolidation or merger, so that any person who is or was a director or officer
of a constituent corporation, or is or was serving at the request of a
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, is in the
same position under this Article VI with respect to the resulting or surviving
corporation as such person would have been with respect to such constituent
corporation if its separate existence had continued.
Section 9. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of this Corporation, or who is or was serving at the request of this
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity
or arising out of such person's status as such, whether or not this Corporation
would have the power to indemnify such person against the liability under
Section 1 or Section 2 of this Article VI.
ARTICLE VII
INTERESTED PARTIES
Section 1. General. No contract or other transaction between
this Corporation and any one or more of its directors or any other corporation,
firm, association or entity in which one or more of its directors are directors
or officers or are financially interested shall be either void or voidable
because of such relationship or interest, because such director or directors
were present at the meeting of the Board of Directors or of a committee thereof
that authorizes, approves or ratifies such contract or transaction or because
such director's or directors' votes are counted for such purpose if: (a) the
fact of such relationship or interest is disclosed or known to the Board of
Directors or committee that authorizes, approves or ratifies the contract or
transaction by a vote or consent sufficient for the purpose without counting
the votes or consents of such interested directors; (b) the fact of such
relationship or interest is disclosed or known to the stockholders entitled to
vote on the matter, and they authorize, approve or ratify such contract or
transaction by vote or written consent; or (c) the contract or transaction is
fair and reasonable as to this Corporation at the time it is authorized by the
Board of Directors, a committee thereof or the stockholders.
Section 2. Determination of Quorum. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or a committee thereof that authorizes, approves or
ratifies a contract or transaction referred to in Section 1 of this Article VII.
Section 3. Approval by Stockholders. For purposes of Section
1(b) of this Article VII, a conflict of interest transaction shall be
authorized, approved or ratified if it receives the vote of a majority of the
shares entitled to be counted under this Section 3. Shares owned by or voted
under the control of a director who has a relationship or interest in the
transaction described in Section 1 of this Article VII may not be counted in a
vote of stockholders to determine whether to authorize, approve or ratify a
conflict of interest transaction under Section 1(b) of this Article VII. The
vote of the shares owned by or voted under the control of a director who has a
relationship or interest in
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the transaction described in Section 1 of this Article VII, shall be counted,
however, in determining whether the transaction is approved under other
sections of this Corporation's Bylaws and law. A majority of those shares that
would be entitled, if present, to be counted in a vote on the transaction under
this Section 3 shall constitute a quorum for the purpose of taking action under
this Section 3.
ARTICLE VIII
CERTIFICATES OF STOCK
Section 1. Certificates for Shares. Shares may but need not be
represented by certificates. The rights and obligations of stockholders shall
be identical whether or not their shares are represented by certificates. If
shares are represented by certificates, each certificate shall be in such form
as the Board of Directors may from time to time prescribe, signed (either
manually or in facsimile) by the President or a Vice President (and may be
signed (either manually or in facsimile) by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal
of this Corporation or its facsimile), exhibiting the holder's name, certifying
the number of shares owned and stating such other matters as may be required by
law. The certificates shall be numbered and entered on the books of this
Corporation as they are issued. If shares are not represented by certificates,
then, within a reasonable time after issue or transfer of shares without
certificates, this Corporation shall send the stockholder a written statement
in such form as the Board of Directors may from time to time prescribe,
certifying as to the number of shares owned by the stockholder and as to such
other information as would have been required to be on certificates for such
shares.
If and to the extent this Corporation is authorized to issue shares of
more than one class or more than one series of any class, every certificate
representing shares shall set forth or fairly summarize upon the face or back
of the certificate, or shall state that the Corporation will furnish to any
stockholder upon request and without charge a full statement of:
(a) the designations, relative rights, preferences and limitations
of the shares of each class or series authorized to be issued;
(b) the variations in rights, preferences and limitations between
the shares of each such series, if this Corporation is authorized to issue any
preferred or special class in series insofar as the same have been fixed and
determined; and
(c) the authority of the Board of Directors to fix and determine
the variations, relative rights and preferences of future series.
Section 2. Signatures of Past Officers. If the person who
signed (either manually or in facsimile) a share certificate no longer holds
office when the certificate is issued, the certificate shall nevertheless be
valid.
Section 3. Transfer Agents and Registrars. The Board of
Directors may, in its discretion, appoint responsible banks or trust companies
in such city or cities as the Board may deem advisable
13
<PAGE> 18
from time to time to act as transfer agents and registrars of the stock of this
Corporation; and, when such appointments shall have been made, no stock
certificate shall be valid until countersigned by one of such transfer agents
and registered by one of such registrars.
Section 4. Transfer of Shares. Transfers of shares of this
Corporation shall be made upon its books by the holder of the shares in person
or by the holder's lawfully constituted representative, upon surrender of the
certificate of stock for cancellation if such shares are represented by a
certificate of stock or by delivery to this Corporation of such evidence of
transfer as may be required by this Corporation if such shares are not
represented by certificates. The person in whose name shares stand on the
books of this Corporation shall be deemed by this Corporation to be the owner
thereof for all purposes and this Corporation shall not be bound to recognize
any equitable or other claim to or interest in such share on the part of any
other person, whether or not it shall have express or other notice thereof,
save as expressly provided by the laws of the State of Florida.
Section 5. Lost Certificates. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by this Corporation and alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost or destroyed certificate or certificates, or the owner's
legal representative, to pay a reasonable charge for issuing the new
certificate, to advertise the matter in such manner as it shall require and/or
to give this Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against this Corporation with respect to the
certificate alleged to have been lost or destroyed.
ARTICLE IX
RECORD DATE
Section 1. Record Date for Stockholder Actions. The Board of
Directors is authorized from time to time to fix in advance a date, not more
than seventy (70) nor less than ten (10) days before the date of any meeting of
the stockholders, a date in connection with the obtaining of the consent of
stockholders for any purpose, or the date of any other action requiring a
determination of the stockholders, as the record date for the determination of
the stockholders entitled to notice of and to vote at any such meeting and any
adjournment thereof, or of the stockholders entitled to give such consent or
take such action, as the case may be. In no event may a record date so fixed
by the Board of Directors precede the date on which the resolution establishing
such record date is adopted by the Board of Directors. Only those stockholders
listed as stockholders of record as of the close of business on the date so
fixed as the record date shall be entitled to notice of and to vote at such
meeting and any adjournment thereof, or to exercise such rights or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of this Corporation after any such record date fixed as aforesaid. If
the Board of Directors fails to establish a record date as provided herein, the
record date shall be deemed to be the date ten (10) days prior to the date of
the stockholders' meeting.
14
<PAGE> 19
Section 2. Record Date for Dividend and Other Distributions.
The Board of Directors is authorized from time to time to fix in advance a date
as the record date for the determination of the stockholders entitled to
receive a dividend or other distribution. Only those stockholders listed as
stockholders of record as of the close of business on the date so fixed as the
record date shall be entitled to receive the dividend or other distribution, as
the case may be, notwithstanding any transfer of any stock on the books of this
Corporation after any such record date fixed as aforesaid. If the Board of
Directors fails to establish a record date as provided herein, the record date
shall be deemed to be the date of authorization of the dividend or other
distribution.
ARTICLE X
DIVIDENDS
The Board of Directors may from time to time declare, and this
Corporation may pay, dividends on its outstanding shares of capital stock in
the manner and upon the terms and conditions provided by the Articles of
Incorporation and by law. Subject to the provisions of the Articles of
Incorporation and to law, dividends may be paid in cash or property, including
shares of stock or other securities of this Corporation.
ARTICLE XI
FISCAL YEAR
The fiscal year of this Corporation shall be the period selected by
the Board of Directors as the fiscal year.
ARTICLE XII
SEAL
A corporate seal, if adopted by the Board, shall have the name of this
Corporation, the word "SEAL" and the year of incorporation inscribed thereon,
or be in such other form as the Board may determine, and may be a facsimile,
engraved, printed or impression seal.
ARTICLE XIII
STOCK IN OTHER CORPORATIONS
Shares of stock in other corporations held by this Corporation shall
be voted by the President or such other officer or officers or other agent or
agents of this Corporation as the Board of Directors shall from time to time
designate for the purpose or by a proxy thereunto duly authorized by the Board
or the President.
15
<PAGE> 20
ARTICLE XIV
AMENDMENTS
Except as may be contrary to law of the Articles of Incorporation of
this Corporation, these Bylaws may be altered, amended or repealed in any
respect and one or more new Bylaws may be adopted by the Board of Directors;
provided that any Bylaw or amendment thereto as adopted by the Board of
Directors may be altered, amended or repealed by vote of the stockholders
entitled to vote thereon, or a new Bylaw in lieu thereof may be adopted by the
stockholders, and the stockholders may prescribe in any Bylaw made by them that
such Bylaw shall not be altered, amended or repealed by the Board of Directors.
ARTICLE XV
EMERGENCY BYLAWS
Section 1. Scope of Emergency Bylaws. The emergency Bylaws
provided in this Article XV shall be operative during any emergency,
notwithstanding any different provision set forth in the preceding Articles
hereof; provided, however, that to the extent not inconsistent with the
provisions of this Article XV and the emergency Bylaws, the Bylaws provided in
the preceding Articles shall remain in effect during such emergency. For
purposes of the emergency Bylaw provisions of this Article XV, an emergency
shall exist if a quorum of this Corporation's directors cannot readily be
assembled because of some catastrophic event. Upon termination of the
emergency, these emergency Bylaws shall cease to be operative.
Section 2. Call and Notice of Meeting. During any emergency, a
meeting of the Board of Directors may be called by any officer or director of
this Corporation. Notice of the date, time and place of the meeting shall be
given by the person calling the meeting to such of the directors as it may be
feasible to reach by any available means of communication. Such notice shall
be given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
Section 3. Quorum and Voting. At any such meeting of the Board
of Directors, a quorum shall consist of any one or more directors, and the act
of the majority of the directors present at such meeting shall be the act of
this Corporation.
Section 4. Appointment of Temporary Directors.
(a) The director or directors who are able to be
assembled at a meeting of directors during an emergency may assemble for the
purpose of appointing, if such directors deem it necessary, one or more
temporary directors (the "Temporary Directors") to serve as directors of this
Corporation during the term of any emergency.
(b) If no directors are able to attend a meeting of directors
during an emergency, then such stockholders as may reasonably be assembled
shall have the right, by majority vote of those
16
<PAGE> 21
assembled, to appoint Temporary Directors to serve on the Board of Directors
until the termination of the emergency.
(c) If no stockholders can reasonably be assembled in order
to conduct a vote for Temporary Directors, then the President or his or her
successor, as determined pursuant to Section 9 of Article IV herein, shall be
deemed a Temporary Director of this Corporation, and such President or his or
her successor, as the case may be, shall have the right to appoint additional
Temporary Directors to serve with him or her on the Board of Directors of this
Corporation during the term of the emergency.
(d) Temporary Directors shall have all of the rights,
duties and obligations of directors appointed pursuant to Article III hereof,
provided, however, that a Temporary Director may be removed from the Board of
Directors at any time by the person or persons responsible for appointing such
Temporary Director, or by vote of the majority of the stockholders present at
any meeting of the stockholders during an emergency, and, in any event, the
Temporary Director shall automatically be deemed to have resigned from the
Board of Directors upon the termination of the emergency in connection with
which the Temporary Director was appointed.
Section 5. Modification of Lines of Succession. Either before
or during any emergency, the Board of Directors may provide, and from time to
time modify, lines of succession different from that provided in Section 9 of
Article IV in the event that during such an emergency any or all officers or
agents of this Corporation shall for any reason be rendered incapable of
discharging their duties.
Section 6. Change of Principal Office. The Board of Directors
may, either before or during any such emergency, and effective during such
emergency, change the principal office of this Corporation or designate several
alternative head offices or regional offices, or authorize the officers of this
Corporation to do so.
Section 7. Limitation of Liability. No officer, director or
employee acting in accordance with these emergency Bylaws during an emergency
shall be liable except for willful misconduct.
Section 8. Amendment or Repeal. These emergency Bylaws shall be
subject to amendment or repeal by further action of the Board of Directors or
by action of the stockholders, but no such amendment or repeal shall affect the
validity of any action taken prior to the time of such amendment or repeal. Any
amendment of these emergency Bylaws may make any further or different provision
that may be practical or necessary under the circumstances of the emergency.
ARTICLE XVI
PRECEDENCE OF LAW AND ARTICLES OF INCORPORATION
Any provision of the Articles of Incorporation of this Corporation
shall, subject to law, control and take precedence over any provision of these
Bylaws inconsistent therewith.
17
<PAGE> 1
Exhibit 4.1
[GRAPHIC]
COMMON STOCK COMMON STOCK
NUMBER INCORPORATED UNDER THE LAWS SHARES
X 65957 OF THE STATE OF FLORIDA
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 341109 10
ECHELON INTERNATIONAL CORPORATION
THIS IS TO CERTIFY THAT
SPECIMEN
--------
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
WITH THE PAR VALUE OF $.01 PER SHARE, OF
Echelon International Corporation transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney upon surrender of
this certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
restated Articles of Incorporation, as amended, of the Corporation. To all of
which the holder by acceptance hereof presents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON (MASSACHUSETTS)
TRANSFER AGENT
AND REGISTRAR
BY
[SEAL] VICE PRESIDENT AND TREASURER CHIEF EXECUTIVE OFFICER
AUTHORIZED OFFICER
<PAGE> 2
This certificate __________ __________ and __________ the holder of
this certificate to certain rights as set forth in the Shareholder Rights
Agreements ("Rights Agreement") between Echelon International Corporation ("the
Company") and The First National Bank of Boston (Massachusetts) (the "Rights
Agent") dated as of __________, 1996. The "Rights Agreement" __________
__________ of which are hereby Incorporated herein by reference and a copy of
which is on file at the principal office of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
__________ by __________ certificates and will no longer be evidenced by this
certificate. The Company will __________ to the holder of the certificates a
copy of the Rights Agreement, as is __________ on the date of mailing, without
charge __________ after __________ written request thereafter. Under certain
circumstances __________ __________ __________ Rights Agreement Rights issued
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Tax Rights shall not be exercised, and shall be made so long as held by
the holder in any jurisdictions where the requisite qualifications to the
__________ be such holder, or exercised by such holder, or the Rights in such
jurisdiction shall __________________________________________________________
_____________________________________________________________________________ .
ECHELON INTERNATIONAL CORPORATION
THE PROVISIONS OF THE CORPORATION'S RESTATED ARTICLES OF INCORPORATION,
AS AMENDED, SHOWING THE CLASSES AND SERIES OF STOCK AUTHORIZED TO BE ISSUED BY
THE CORPORATION AND THE DISTINGUISHING CHARACTERISTICS THEREOF ARE HEREBY
INCORPORATED BY REFERENCE TO THE SAME EXTENT AS IF HEREIN SET FORTH AT LENGTH;
A COPY OF SAID PROVISIONS, CERTIFIED BY AN OFFICER OF THE CORPORATION, WILL BE
FURNISHED BY THE CORPORATION OR BY ITS TRANSFER AGENT, WITHOUT COST, TO AND
UPON THE REQUEST OF THE HOLDER OF THIS CERTIFICATE. REQUESTS MAY BE ADDRESSED TO
THE SECRETARY OF ECHELON INTERNATIONAL CORPORATION, ST. PETERSBURG, FLORIDA, OR
TO THE CORPORATION'S TRANSFER AGENT.
The following abbreviations, when used in the description on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNTE GIFT MIN ACT -- .......... Custodian .........
(Cust) (Minor)
under Uniform Gifts to Minors
Act .........................
(State)
Additional abbreviations may also be used though not in the above list.
For value received ______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER The signature to this assignment
IDENTIFYING NUMBER OF ASSIGNEE must correspond with the name
______________________________________ which is written upon the
face of the certificate in
every particular, and show
alterations or enlargement
______________________________________ or any change whatever.
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the written Certificate, and do hereby
irrevocably constitute and appoint ___________________________________, Attorney
to transfer the said stock on the books of the written named transformation
with full powers of substitution in the premises.
Dated ___________________________
________________________________________
<PAGE> 1
EXHIBIT 10.1
DISTRIBUTION AGREEMENT
by and between
FLORIDA PROGRESS CORPORATION,
a Florida corporation,
and
ECHELON INTERNATIONAL CORPORATION,
a Florida corporation,
Dated _______, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS....................................... 2
1.1 General............................................... 2
1.2 References to Time.................................... 10
1.3 References; Interpretation............................ 10
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION DATE............... 10
2.1 Transfer of Assets.................................... 10
2.2 Articles of Incorporation; By-laws; Rights
Agreement............................................. 10
2.3 Issuance of Stock..................................... 10
2.4 Registration and Listing.............................. 11
2.5 Echelon Board......................................... 11
2.6 Notices to Third Parties.............................. 11
2.7 Licenses and Permits.................................. 11
2.8 Settlement of Intercompany Accounts................... 12
2.9 Indebtedness and Capital Structure.................... 12
2.10 Resignations.......................................... 12
2.11 Ancillary Agreements.................................. 13
2.12 No Representations or Warranties...................... 13
2.13 Certain Contingent Liabilities........................ 13
ARTICLE III
THE DISTRIBUTION................................... 14
3.1 Record Date and Distribution Date..................... 14
3.2 The Agent............................................. 14
3.3 Delivery of Share Certificates to Agent............... 14
ARTICLE IV
INDEMNIFICATION..................................... 15
4.1 Indemnification....................................... 15
4.2 Procedures for Indemnification for Third-Party
Claims................................................ 15
4.3 Remedies Cumulative................................... 17
4.4 Indemnification Payments.............................. 17
ARTICLE V
CERTAIN ADDITIONAL COVENANTS........................... 18
5.1 Assumption and Satisfaction of Liabilities............ 18
5.2 Intercompany Agreements............................... 18
5.3 Guarantees............................................ 19
5.4 Further Assurances.................................... 21
5.5 Witness Services...................................... 21
<PAGE> 3
TABLE OF CONTENTS (CONTINUED)
Page
5.6 Certain Post-Distribution Transactions................ 21
5.7 Certain Agreements of Echelon......................... 22
5.8 Corporate Names....................................... 22
5.9 Transfers Not Effected Prior to the
Distribution; Transfers Deemed Effective as of
the Distribution Date................................. 23
ARTICLE VI
ACCESS TO INFORMATION................................ 24
6.1 Provision of Corporate Records........................ 24
6.2 Access to Information................................. 24
6.3 Reimbursement; Other Matters.......................... 25
6.4 Retention of Records.................................. 25
6.5 Confidentiality....................................... 25
6.6 Privileged Matters.................................... 26
6.7 Ownership of Information.............................. 28
6.8 Limitation of Liability............................... 28
6.9 Other Agreements Providing for Exchange of
Information........................................... 28
ARTICLE VII
ADMINISTRATIVE SERVICES............................... 28
7.1 Performance of Services............................... 28
7.2 Independence.......................................... 28
ARTICLE VIII
DISPUTE RESOLUTION................................... 29
8.1 Negotiation........................................... 29
8.2 Arbitration........................................... 29
8.3 Continuity of Service and Performance................. 30
ARTICLE IX
INSURANCE......................................... 30
ARTICLE X
MISCELLANEOUS...................................... 31
10.1 Complete Agreement; Construction...................... 31
10.2 Ancillary Agreements.................................. 31
10.3 Counterparts.......................................... 31
10.4 Survival of Agreements................................ 31
10.5 Expenses.............................................. 31
10.6 Notices............................................... 32
10.7 Waivers............................................... 32
10.8 Amendments............................................ 32
10.9 Assignment............................................ 32
ii
<PAGE> 4
TABLE OF CONTENTS (continued)
Page
10.10 Successors and Assigns..................................... 33
10.11 Termination................................................ 33
10.12 Subsidiaries............................................... 33
10.13 Third Party Beneficiaries.................................. 33
10.14 Title and Headings......................................... 33
10.15 Exhibits and Schedules..................................... 33
10.16 GOVERNING LAW.............................................. 34
10.17 Consent to Jurisdiction.................................... 34
10.18 Severability............................................... 34
EXHIBITS AND SCHEDULES
EXHIBIT A Form of PCH Note
Schedule 1.1(a) Retained Assets of the Florida Progress Group,
if any
Schedule 1.1(b) Retained Liabilities of the Florida Progress,
Group, if any
Schedule 2.8 Settlement of Intercompany Accounts
Schedule 5.2(a) Intercompany Agreements which are not to be
Cancelled
Schedule 5.2(b) Intercompany Agreements which are not to be
Cancelled
Schedule 5.3(a) Guarantees by the Florida Progress Group
iii
<PAGE> 5
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT, dated ______ __, 1996, by and
between FLORIDA PROGRESS CORPORATION, a Florida corporation ("Florida
Progress"), and ECHELON INTERNATIONAL CORPORATION, a Florida corporation and an
indirect wholly owned subsidiary of Florida Progress ("Echelon").
W I T N E S S E T H:
WHEREAS, prior to entering into this Agreement, the Echelon
Group consisted of (i) Progress Credit Corporation ("PCC"), a Florida
corporation and a direct, wholly owned subsidiary of Progress Capital Holdings,
Inc. ("PCH"), (ii) Talquin Development Company ("Talquin"), a Florida
corporation and a direct, wholly owned subsidiary of PCC, (iii) Progress Leasing
Corporation ("Progress Leasing"), a Florida corporation and a direct, wholly
owned subsidiary of PCC, (iv) Echelon, formerly known as PLC Leasing Corporation
("PLC Leasing") and a direct, wholly owned subsidiary of Progress Leasing and
(v) their respective Subsidiaries;
WHEREAS, prior to entering into this Agreement, (i) Talquin,
merged with and into PCC, (ii) PCC, merged with and into Progress Leasing and
(iii) Progress Leasing, merged with and into Echelon, which, as a result of such
merger, became the successor to Talquin, PCC and Progress Leasing (collectively,
the "Pre-Distribution Mergers");
WHEREAS, it has been proposed that Florida Progress distribute
the shares of Echelon Common Stock (and Echelon Rights) to Florida Progress
stockholders and enter into this Agreement and effect the Distribution and the
other transactions contemplated hereby, subject to the terms and conditions set
forth herein and in the Ancillary Agreements;
WHEREAS, the respective Boards of Directors of Florida
Progress, PCH and Echelon have duly considered the foregoing, have determined
the Distribution and the other transactions contemplated hereby to be desirable
and in the best interests of Florida Progress, PCH and Echelon, respectively;
WHEREAS, the Distribution is intended to qualify as a
tax-free spin-off under Section 355 of the Code; and
WHEREAS, the parties hereto have determined that it is
necessary and desirable to set forth their agreements that will govern certain
matters prior to and following the Distribution;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and intending to be legally bound thereby, the
parties hereto agree as follows:
<PAGE> 6
2
ARTICLE I
DEFINITIONS
1.1 General. As used in this Agreement, the following
terms shall have the following meanings:
Action: any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency, body or commission or any arbitration tribunal.
Affiliate: with respect to any specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person; provided,
however, that for purposes of this Agreement, no member of either Group shall be
deemed to be an Affiliate of any member of the other Group.
Agent: , as the distribution agent appointed by
Florida Progress to distribute the shares of Echelon Common Stock pursuant to
the Distribution.
Agreement: this Agreement, as the same may be amended,
supplemented, or otherwise modified from time to time in accordance with the
terms hereof, together with all Schedules and Exhibits attached hereto or
delivered simultaneously herewith.
Agreement Disputes: as defined in Section 8.1 hereof.
Aircraft: as defined in Section 5.3 hereof.
Ancillary Agreements: all of the written agreements,
instruments, assignments or other arrangements (other than this Agreement)
entered into in connection with the transactions contemplated hereby, including,
without limitation, the Employee Benefits Allocation Agreement, the PCH Note,
the Tax Sharing Agreement and the Transition Services Agreement, and any
exhibit, schedule or appendix to any of the foregoing.
Assets: assets, properties and rights (including goodwill),
wherever located, whether real, personal or mixed, tangible, intangible or
contingent, in each case whether or not recorded or reflected or required to be
recorded or reflected on the books and records or financial statements of any
Person, including, without limitation, the following:
(i) all accounting and other books, records and files
whether in paper, microfilm, microfiche, computer
tape or disc, magnetic tape or any other form;
<PAGE> 7
3
(ii) all apparatus, computers and other electronic data
processing equipment, fixtures, machinery, equipment,
furniture, office equipment, automobiles, trucks,
aircraft and other transportation equipment, special
and general tools, test devices, prototypes and
models and other tangible personal property;
(iii) all inventories of materials, parts, raw materials,
supplies, work-in-process and finished goods and
products;
(iv) all interests in real property of whatever nature,
including easements, whether as owner, mortgagee or
holder of a Security Interest in real property,
lessor, sublessor, lessee, sublessee or otherwise;
(v) all interests in any capital stock or other equity
interests of any Subsidiary or any other Person, all
bonds, notes, debentures or other securities issued
by any Subsidiary or any other Person, all loans,
advances or other extensions of credit or capital
contributions to any Subsidiary or any other Person
and all other investments in securities of any
Person;
(vi) all license agreements, leases of personal property,
open purchase orders for raw materials, supplies,
parts or services, unfilled orders for the
manufacture and sale of products and other contracts,
agreements or commitments;
(vii) all deposits, letters of credit and performance and
surety bonds;
(viii) all written technical information, data,
specifications, research and development information,
engineering drawings, operating and maintenance
manuals, and materials and analyses prepared by
consultants and other third parties;
(ix) all intellectual property, including patents,
copyrights, trade names, trademarks, service marks
and registrations and applications for any of the
foregoing, mask works, trade secrets, inventions,
data bases, other proprietary information and
licenses from third Persons granting the right to use
any of the foregoing;
(x) all computer applications, programs and other
software, including operating software, network
software, firmware, middleware, design software,
design tools, systems documentation and instructions;
<PAGE> 8
4
(xi) all cost information, sales and pricing data,
customer prospect lists, supplier records, customer
and supplier lists, customer and vendor data,
correspondence and lists, product literature,
artwork, design, development and manufacturing files,
vendor and customer drawings, formulations and
specifications, quality records and reports and other
books, records, studies, surveys, reports, plans and
documents;
(xii) the right to receive mail and other communications;
(xiii) all prepaid expenses, trade accounts and other
accounts and notes receivables;
(xiv) all rights under leveraged leases, direct finance
leases, operating or other equipment leases or other
contracts or agreements, all claims or rights against
any Person arising from the ownership of any asset,
all rights in connection with any bids or offers and
all claims, chooses in action or similar rights,
whether accrued or contingent;
(xv) all rights under insurance policies and all rights in
the nature of insurance, indemnification or
contribution;
(xvi) all licenses (including radio and similar licenses),
permits, approvals and authorizations which have been
issued by any governmental authority;
(xvii) cash or cash equivalents, bank accounts, lock boxes
and other deposit arrangements; and
(xviii) interest rate, currency, commodity or other swap,
collar, cap or other hedging or similar agreements or
arrangements.
Business Plan: the Echelon business plan set forth in the
Progress Credit Corporation Ten-Year Financial Projections and Assumptions
1997-2006.
Code: the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder, including any successor
legislation.
Distribution: the distribution on the Distribution Date to
holders of record of shares of Florida Progress Common Stock as of the Record
Date of the Echelon Common Stock owned by Florida Progress on the basis of one
share of Echelon Common
<PAGE> 9
5
Stock for each 15 outstanding shares of Florida Progress Common Stock.
Distribution Date: the date fixed by the Board of Directors of
Florida Progress as the date on which the Distribution is to be effected.
Echelon: as defined in the recitals to this Agreement.
Echelon Assets: collectively, all of the rights and Assets
(excluding Tax and employee-related Assets) of the parties hereto or any of
their respective Subsidiaries primarily relating to the Echelon Business,
including (i) all rights and Assets of Echelon under this Agreement or any
Ancillary Agreement (or any exhibit, schedule or appendix hereto or thereto) and
(ii) the Assets included on the PCC Balance Sheet or the accounting records
supporting such balance sheet and any Assets acquired by any member of the
Florida Progress Group or the Echelon Group primarily relating to the Echelon
Business after the date of the PCC Balance Sheet, but excluding (x) any Assets
included on the PCC Balance Sheet which have been disposed of after the date of
the PCC Balance Sheet, and (y) any Assets identified or set forth on Schedule
1.1(a) hereto.
Echelon Business: all of the businesses and operations
conducted directly or indirectly at any time by any member of the Echelon Group
which relate to real estate development, real estate management, or real estate,
aircraft or other equipment finance, lending and/or leasing, and all of the
businesses and operations conducted by any member of the Echelon Group directly
or indirectly on or after the Distribution Date, including, in each case, any
investment managed by any such Person.
Echelon Common Stock: the common stock, par value $.01 per
share, of Echelon, together with the Echelon Rights.
Echelon Group: Echelon, as successor to the group of companies
consisting of PCC, Talquin, Progress Leasing, and PLC Leasing Corporation, the
Subsidiaries thereof, and any Persons which may hereafter be organized or
acquired directly or indirectly as Echelon Subsidiaries.
Echelon Indemnitees: each member of the group of companies
which formerly comprised the Echelon Group, each of their respective directors,
officers, employees and agents and each of the heirs, executors, successors and
assigns of any of the foregoing.
Echelon Investments: any corporation, partnership or other
business entity, in which any member of the Echelon Group has owned or will own
any equity interest or other investment and which relates to the business and
operations conducted by Echelon or any Echelon Subsidiary, other than a member
of the Florida Progress Group.
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Echelon Liabilities: collectively, all Liabilities (other than
Tax and employee-related Liabilities, which shall be the subject of the Tax
Sharing Agreement and Employee Benefits Allocation Agreement, respectively) of
the parties hereto or any of their respective Subsidiaries(whenever arising,
whether prior to, at or after the Effective Time) primarily arising out of or in
connection with or otherwise relating to the management or conduct, before or
after the Effective Time, of the Echelon Business, or the Echelon Assets, and
including, (i) all the Liabilities of Echelon under this Agreement or any
Ancillary Agreement (or any exhibit, schedule or appendix hereto or thereto),
(ii) Liabilities reflected on the PCC Balance Sheet or the accounting records
supporting such balance sheet and any Liabilities assumed or incurred by any
member of the Florida Progress Group or the Echelon Group primarily arising out
of or in connection with or otherwise relating to the Echelon Business after the
date of the PCC Balance Sheet, and (iii) all Liabilities relating to or
involving the Echelon Business or the current, former or future Assets or
operations of any member of the Echelon Group which arise under, relate to or
are based upon any law, statute, regulation, rule, judgment, decree, rule of
common law or any similar requirement relating to hazardous or toxic substances
or materials or to the protection of human health or the environment; provided,
however, that any Liabilities set forth or identified on Schedule 1.1(b) hereto
shall not be Echelon Liabilities and shall instead be deemed hereunder to
constitute Florida Progress Liabilities.
Echelon Rights: the preferred stock purchase rights of Echelon
issued pursuant to the Rights Agreement dated as of ____________________
_______, 1996 by and between Echelon and ___________, as Rights Agent.
Echelon Subsidiaries: all Subsidiaries of Echelon and all
Echelon Investments.
Effective Time: 12:01 a.m., St. Petersburg, Florida time, on
the Distribution Date.
Employee Benefits Allocation Agreement: the Employee
Benefits Agreement dated as of __________ ____, 1996, between Florida
Progress and Echelon.
Employee Benefit Plan: has the meaning set forth in
Section 1.1 of the Employee Benefits Allocation Agreement.
Exchange Act: the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated
thereunder.
Florida Progress: as defined in the recitals to this
Agreement.
<PAGE> 11
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Florida Progress Assets: collectively, all of the rights and
Assets of Florida Progress or any direct or indirect Subsidiary of Florida
Progress, including any Assets acquired under this Agreement or any Ancillary
Agreement, but excluding the Echelon Assets.
Florida Progress Business: all of the businesses and
operations conducted at any time, whether prior to, on or after the Distribution
Date, by any direct or indirect Subsidiary of Florida Progress, other than the
Echelon Business.
Florida Progress Common Stock: the common stock, without par
value, of Florida Progress.
Florida Progress Group: Florida Progress and the Florida
Progress Subsidiaries, other than Echelon and other members of the Echelon
Group.
Florida Progress Indemnitees: each member of the Florida
Progress Group, each of their respective directors, officers, employees and
agents and each of the heirs, executors, successors and assigns of any of the
foregoing.
Florida Progress Liabilities: collectively, all obligations
and Liabilities of Florida Progress or any direct or indirect Subsidiary of
Florida Progress, including all Liabilities incurred under this Agreement or any
Ancillary Agreement, but excluding the Echelon Liabilities.
Florida Progress Subsidiaries: all Subsidiaries of Florida
Progress, other than Echelon and the other members of the Echelon Group
(including the Echelon Investments).
Group: the Florida Progress Group or the Echelon Group.
Indemnifiable Losses: any and all losses, Liabilities, claims,
damages, demands, costs or expenses (including, without limitation, reasonable
attorneys' fees and any and all out-of-pocket expenses) reasonably incurred in
investigating, preparing for or defending against any Actions or potential
Actions or in settling any Action or potential Action or in satisfying any
judgment, fine or penalty rendered in or resulting from any Action.
Indemnifying Party: as defined in Section 4.2 hereof.
Indemnitee: as defined in Section 4.2 hereof.
Information Statement: the information statement to be
included in the Registration Statement and sent to Florida
Progress stockholders in connection with the Distribution,
including any amendment or supplement thereto.
<PAGE> 12
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Liabilities: any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, sums of money, accounts, reckonings, bonds, specialties,
indemnities and similar obligations, exonerations, covenants, contracts,
controversies, agreements, promises, doings, omissions, variances, guarantees,
make whole agreements and similar obligations, and other liabilities, including
all contractual obligations, whether absolute or contingent, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever arising, and including those arising under any law, rule, regulation,
Action, threatened or contemplated Action (including the costs and expenses of
demands, assessments, judgments, settlements and compromises relating thereto
and attorneys' fees and any and all costs and expenses (including allocated
costs of in-house counsel and other personnel), whatsoever reasonably incurred
in investigating, preparing or defending against any such Actions or threatened
or contemplated Actions), order or consent decree of any governmental or other
regulatory or administrative agency, body or commission or any award of any
arbitrator or mediator of any kind, and those arising under any contract,
commitment or undertaking, including those arising under this Agreement or any
Ancillary Agreement, in each case, whether or not recorded or reflected or
required to be recorded or reflected on the books and records or financial
statements of any Person.
NYSE: the New York Stock Exchange.
PCC: as defined in the recitals to this Agreement.
PCC Balance Sheet: the [combined] balance sheet of
PCC, Talquin, Progress Leasing and PLC Leasing, including the
notes thereto, as of _____________ ____, 1996, set forth in the
Information Statement.
PCH: as defined in the recitals to this Agreement.
PCH Note: the note to be issued by Echelon to PCH upon
the Distribution in substantially the form of Exhibit A hereto.
Person: any natural person, corporation, business
trust, joint venture, association, company, limited liability
company, partnership or government, or any agency or political
subdivision thereof.
PLC Leasing: as defined in the recitals to this
Agreement.
Pre-Distribution Mergers: as defined in the recitals
to this Agreement.
Progress Leasing: as defined in the recitals to this
<PAGE> 13
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Agreement.
Record Date: [__________, 1996].
Records: as defined in Section 6.1 hereof.
Registration Statement: the registration statement on
Form 10 to effect the registration of the Echelon Common Stock
pursuant to the Exchange Act.
Rules: as defined in Section 8.2 hereof.
SEC: the Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as
amended, together with the rules and regulations promulgated
thereunder.
Security Interest: any mortgage, security interest, pledge,
lien, charge, claim, option, right to acquire, voting or other restriction,
right-of-way, covenant, condition, easement, encroachment, restriction on
transfer, or other encumbrance of any nature whatsoever.
Subsidiary: with respect to any specified Person, any
corporation, partnership or other legal entity of which such Person or any of
its Subsidiaries controls or owns, directly or indirectly, more than 50% of the
stock or other equity interest entitled to vote on the election of members to
the board of directors or similar governing body; provided, however, that,
except for the definitions of "Florida Progress Assets," "Florida Progress
Liabilities" and "Florida Progress Business," for purposes of this Agreement,
Echelon and the Echelon Subsidiaries shall not be deemed to be Subsidiaries of
Florida Progress or any of the Florida Progress Subsidiaries.
Talquin: as defined in the recitals to this Agreement.
Tax: as defined in the Tax Sharing Agreement.
Tax Sharing Agreement: the Tax Sharing Agreement dated
as of ___________ ____, 1996, between Florida Progress and Echelon.
Third-Party Claim: as defined in Section 4.2 hereof.
Transfer Agent: as defined in Section 2.3 hereof.
Transition Services Agreement: the Transition Services
Agreement dated as of ___________ ____, 1996, between Florida Progress
and Echelon.
1.2 References to Time. All references in this
Agreement to times of the day shall be to St. Petersburg, Florida
time.
<PAGE> 14
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1.3 References; Interpretation. References in this Agreement
to any gender include references to all genders, and references to the singular
include references to the plural and vice versa. The words "include," "includes"
and "including" when used in this Agreement shall be deemed to be followed by
the phrase "without limitation." Unless the context otherwise requires,
references in this Agreement to Articles, Sections, Exhibits and Schedules shall
be deemed references to Articles and Sections of, and Exhibits and Schedules to,
such Agreement. Unless the context otherwise requires, the words "hereof,"
"hereby" and "herein" and words of similar meaning when used in this Agreement
refer to this Agreement in its entirety and not to any particular Article,
Section or provision of this Agreement.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION DATE
2.1 Transfer of Assets. Except as otherwise specifically set
forth in this Agreement [or any Schedule hereto] or in any Ancillary Agreement,
on or prior to the Distribution Date:
(a) Florida Progress shall, on behalf of itself and the
Florida Progress Subsidiaries, transfer or cause to be transferred to Echelon
all of Florida Progress' and the Florida Progress Subsidiaries' right, title and
interest in the Echelon Assets, and
(b) Echelon shall, on behalf of itself and the Echelon
Subsidiaries, transfer to Florida Progress or another member of the Florida
Progress Group all of Echelon's and the Echelon Subsidiaries' right, title and
interest in the Florida Progress Assets.]
2.2 Articles of Incorporation; By-laws; Rights Agreement.
Prior to the Distribution Date, Florida Progress and Echelon shall take all
action necessary so that, at the Distribution Date, the Articles of
Incorporation, By-laws and Rights Agreement of Echelon shall be in the forms
attached as exhibits to the Registration Statement.
2.3 Issuance of Stock. (a) Echelon shall issue to PCH, a
direct, wholly owned subsidiary of Florida Progress, as a stock dividend, such
number of shares of Echelon Common Stock as will be required to effect the
Distribution, as certified by Florida Progress' stock transfer agent (the
"Transfer Agent"). In connection therewith Florida Progress shall cause PCH to
deliver to Echelon for cancellation the share certificate currently held by PCH
representing shares of Echelon Common Stock, and PCH shall receive a new
certificate representing the total number of shares of Echelon Common Stock to
be owned by PCH after giving effect to such stock dividend.
<PAGE> 15
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(b) Florida Progress shall cause PCH to issue to Florida
Progress as a stock dividend all of the shares of Echelon Common Stock owned by
PCH after receipt of the dividend contemplated by the preceding paragraph (a).
2.4 Registration and Listing. Prior to the Distribution Date:
(a) The parties hereto shall use reasonable efforts to take
all such action as may be necessary or appropriate under state securities and
blue sky laws in connection with the transactions contemplated by this Agreement
or any Ancillary Agreement.
(b) Echelon shall prepare, file and seek to make effective, an
application for the listing of the Echelon Common Stock on the NYSE, subject to
official notice of issuance.
(c) The parties hereto shall cooperate in preparing, filing
with the SEC and causing to become effective any registration statements or
amendments thereto, including any amendments to the Registration Statement,
which are necessary or appropriate in order to effect the transactions
contemplated hereby [or to reflect the establishment of, or amendments to, any
Employee Benefit Plans contemplated hereby or by the Employee Benefits
Allocation Agreement requiring registration under the Securities Act].
2.5 Echelon Board. Prior to the Distribution Date, the parties
hereto shall take all steps necessary so that, effective immediately after the
Distribution, the Board of Directors of Echelon shall be comprised of those
individuals so named in the Information Statement.
2.6 Notices to Third Parties. In addition to the actions
described in Section 2.7 hereof, Echelon shall, and the members of the Florida
Progress Group shall cooperate with the efforts of Echelon to, make all other
filings and give notice to and obtain consents from all third parties that may
reasonably be required to consummate the transactions contemplated by this
Agreement and the Ancillary Agreements.
2.7 Licenses and Permits. On or prior to the Distribution
Date, or as soon thereafter as is practicable, Echelon shall prepare and file
with the appropriate licensing and permitting authorities applications for the
transfer or issuance to Echelon of all material governmental licenses and
permits required for Echelon to operate the Echelon Business after the
Distribution. The members of the Florida Progress Group and Echelon shall
cooperate and use all commercially reasonable efforts to secure the transfer or
issuance of the licenses and permits.
<PAGE> 16
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2.8 Settlement of Intercompany Accounts. Without limiting the
terms of Section 2.9 hereof, as of the Effective Time, all intercompany
receivables, payables and loans (other than receivables, payables and loans
otherwise specifically provided for in any of the Ancillary Agreements or
hereunder), including, without limitation, in respect of any cash balances, any
cash balances representing deposited checks or drafts for which only a
provisional credit has been allowed or any cash held in any centralized cash
management system, between Echelon, on the one hand, and any member of the
Florida Progress Group, on the other hand, shall be settled, capitalized or
converted into ordinary trade accounts, in each case as set forth on Schedule
2.8 hereto.
2.9 Indebtedness and Capital Structure. On or prior to the
Distribution Date, Florida Progress and Echelon shall take, or shall cause to be
taken, the following actions:
(a) Echelon shall deliver to PCH the PCH Note in substantially
the form of Exhibit A hereto in the principal amount of $[41.1] million;
(b) Echelon shall deliver to Florida Progress $[43] million in
repayment of intercompany advances; and
(c) Florida Progress shall (i) [if not done prior to the date
of this Agreement] contribute $[140] million to the equity of Echelon which
Echelon shall use to repay $[140] million of advances from Florida Progress, and
(ii) contribute an [additional] $10 million to the equity of Echelon to provide
cash for the payment of expenses incurred in evaluating and implementing the
Distribution and to provide additional liquidity.
2.10 Resignations. Subject to Section 2.5 hereof, Florida
Progress shall cause all its employees to resign, effective as of the Effective
Time, from all positions as officers or directors of Echelon in which they
serve. Echelon shall cause all its employees to resign, effective as of the
Distribution Date, from all positions as officers or directors of any member of
the Florida Progress Group in which they serve.
2.11 Ancillary Agreements. Prior to the Distribution Date,
each of Florida Progress and Echelon shall enter into the Ancillary Agreements
and any other agreements in respect of the Distribution reasonably necessary or
appropriate in connection with the transactions contemplated hereby and thereby.
If there shall be a conflict between the provisions of this Agreement and the
provisions of the Ancillary Agreements, the provisions of the Ancillary
Agreements shall control. Notwithstanding the
<PAGE> 17
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foregoing, the effectiveness of the Ancillary Agreements shall be
conditioned upon the Distribution.
2.12 No Representations or Warranties. Each of the parties
hereto agrees that neither party hereto is, in this Agreement or in any other
agreement or document contemplated by this Agreement or otherwise, making any
representation or warranty whatsoever, as to title or value of Assets being
transferred. It is also agreed that all Assets either transferred to or retained
by the parties, as the case may be, shall be "as is, where is" and that (subject
to Section 5.4 hereof) the party to which such Assets are to be transferred
hereunder shall bear the economic and legal risk that such party's title to any
such Assets shall be other than good and marketable and free from encumbrances.
Similarly, each party hereto agrees that neither party hereto is representing or
warranting in any way that the obtaining of any consents or approvals, the
execution and delivery of any amendatory agreements and the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the requirements of any or all
applicable laws or judgments, it being agreed that the party to which any Assets
are transferred shall bear the economic and legal risk that any necessary
consents or approvals are not obtained or that any requirements of laws or
judgments are not complied with.
2.13 Certain Contingent Liabilities. (a) Each of the parties
hereto agrees that any Liability arising out of or in relation to any
litigation, claims or proceedings brought by a third party or governmental
agency who or which contends that its consent, authorization or approval was
required in order to effectuate the Pre-Distribution Mergers or the Distribution
shall be the responsibility of Echelon, and shall be deemed to be Echelon
Liabilities accordingly.
(b) Echelon, on behalf of itself and the members of the
Echelon Group, hereby waives any right which Echelon or any such Person may have
at any time to seek contribution or any other recovery from or against any
member of the Florida Progress Group for any and all Liabilities, other than
Florida Progress Liabilities, relating to or involving the Echelon Business or
the current, former or future Assets, or operations of any member of the Echelon
Group which arise under, relate to or are based upon any law, statute,
regulation, rule, judgment, decree, rule of common law or any similar
requirement relating to hazardous or toxic substances or materials or to the
protection of human health or the environment.
(c) Echelon and Florida Progress agree that each party shall
assume liability for 50% of the total amount of any Liabilities arising out of,
relating to or based upon any misstatements or omissions, or alleged
misstatements or omissions, in the Registration Statement; provided, however,
that
<PAGE> 18
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until any Third-Party Claim giving rise to any such Liabilities has been the
subject of a final non-appealable judgment or otherwise definitively settled,
solely for purposes of determining the procedures for responding to such
Third-Party Claim and the rights of the parties under Section 4.2 hereof, such
Liabilities shall be deemed to be Florida Progress Liabilities, and 50% of the
total amount of such Liabilities shall become Echelon Liabilities only after
such Liabilities have become the subject of such a final non-appealable judgment
or otherwise definitively settled.
ARTICLE III
THE DISTRIBUTION
3.1 Record Date and Distribution Date. The Board of Directors
of Florida Progress, in its sole discretion, shall have established the Record
Date and the Distribution Date and shall establish any appropriate procedures in
connection with the Distribution.
3.2 The Agent. Prior to the Distribution Date, Florida
Progress shall enter into an agreement with the Agent providing for, among other
things, the payment of the Distribution, including the payment of cash in lieu
of fractional shares, to the holders of Florida Progress Common Stock in
accordance with this Article III.
3.3 Delivery of Share Certificates to Agent. Florida Progress
shall deliver to the Agent share certificates representing the outstanding
shares of Echelon Common Stock delivered to Florida Progress by PCH pursuant to
Section 2.3(b) hereof and shall instruct the Agent to distribute, on or as soon
as practicable following the Distribution Date, such common shares to holders of
record of shares of Florida Progress Common Stock on the Record Date as further
contemplated by the Information Statement and herein. Echelon shall provide all
share certificates that the Agent shall require in order to effect the
Distribution.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification. (a) Except as specifically otherwise
provided in any provision of this Agreement or of any Ancillary Agreement,
Florida Progress shall, subject to this Article IV, indemnify, defend and hold
harmless the Echelon Indemnitees from and against any and all Indemnifiable
Losses of the Echelon Indemnitees arising out of, by reason of or otherwise in
connection with the Florida Progress Liabilities or alleged Florida Progress
Liabilities, including any breach by Florida
<PAGE> 19
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Progress of any provision of this Agreement or any Ancillary Agreement.
(b) Except as specifically otherwise provided in any provision
of this Agreement or of any Ancillary Agreement, Echelon shall, subject to this
Article IV, indemnify, defend and hold harmless the Florida Progress Indemnitees
from and against any and all Indemnifiable Losses of the Florida Progress
Indemnitees arising out of, by reason of or otherwise in connection with the
Echelon Liabilities or alleged Echelon Liabilities including any breach by
Echelon of any provision of this Agreement or any Ancillary Agreement.
4.2 Procedures for Indemnification for Third-Party Claims. (a)
If a claim or demand is made against a Florida Progress Indemnitee or an Echelon
Indemnitee (each, an "Indemnitee") by any Person who is not a party to this
Agreement (a "Third-Party Claim") as to which such Indemnitee is entitled to
indemnification pursuant to this Agreement, such Indemnitee shall notify the
party which is or may be required pursuant to Section 4.1 hereof to make such
indemnification (the "Indemnifying Party") in writing, and in reasonable detail,
of the Third-Party Claim promptly (and in any event within [15] business days)
after receipt by such Indemnitee of written notice of the Third-Party Claim;
provided, however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually prejudiced as a result of such failure (except that the
Indemnifying Party shall not be liable for any expenses incurred during the
period in which the Indemnitee failed to give such notice). Thereafter, the
Indemnitee shall deliver to the Indemnifying Party, promptly (and in any event
within five business days) after the Indemnitee's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnitee
relating to the Third-Party Claim.
If a Third-Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges in writing its obligation to indemnify the
Indemnitee therefor, to assume the defense thereof with counsel selected by the
Indemnifying Party; provided that such counsel is not reasonably objected to by
the Indemnitee. Should the Indemnifying Party so elect to assume the defense of
a Third-Party Claim, the Indemnifying Party shall, within [30] days (or sooner
if the nature of the Third- Party Claim so requires), notify the Indemnitee of
its intent to do so, and the Indemnifying Party shall thereafter not be liable
to the Indemnitee for legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof; provided, that such
Indemnitee shall have the right to employ counsel to represent such Indemnitee
if, in such Indemnitee's reasonable judgment, a conflict of interest between
such Indemnitee and such Indemnifying Party exists in respect of such claim
which would make representation of both such parties
<PAGE> 20
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by one counsel inappropriate, and in such event the fees and expenses of such
separate counsel shall be paid by such Indemnifying Party. Where there is more
than one Indemnitee and the Indemnifying Party is responsible for the fees and
expenses of separate counsel on behalf of such Indemnitees, the Indemnifying
Party shall be responsible for the fees and expenses of only one such separate
counsel unless, in the reasonable opinion of such counsel, the interests of the
Indemnitees are such that representation by a single counsel would or could
create a conflict of interest or otherwise be inappropriate, in which event the
several Indemnitees may employ separate counsel to the extent necessary to avoid
such conflict or as otherwise may be reasonably appropriate, and the fees and
expenses of each such separate counsel shall be paid by such Indemnifying Party.
If the Indemnifying Party assumes such defense, the Indemnitee shall have the
right to participate in the defense thereof and to employ counsel, subject to
the proviso of the preceding sentence, at its own expense, separate from the
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party shall control such defense. The Indemnifying Party shall be
liable for the fees and expenses of counsel employed by the Indemnitee for any
period during which the Indemnifying Party has failed to assume the defense
thereof (other than during the period prior to the time the Indemnitee shall
have given notice of the Third-Party Claim as provided above). If the
Indemnifying Party so elects to assume the defense of any Third-Party Claim, all
of the Indemnitees shall cooperate with the Indemnifying Party in the defense or
prosecution thereof, including by providing or causing to be provided, Records
and witnesses as soon as reasonably practicable after receiving any request
therefor from or on behalf of the Indemnifying Party.
If the Indemnifying Party acknowledges in writing
responsibility for a Third-Party Claim, then in no event will the Indemnitee
admit any liability with respect to, or settle, compromise or discharge, any
Third-Party Claim without the Indemnifying Party's prior written consent;
provided, however, that the Indemnitee shall have the right to settle,
compromise or discharge such Third-Party Claim without the consent of the
Indemnifying Party if the Indemnitee releases (in writing) the Indemnifying
Party from its indemnification obligation hereunder with respect to such
Third-Party Claim and such settlement, compromise or discharge would not
otherwise adversely affect the Indemnifying Party. If the Indemnifying Party
acknowledges in writing liability for a Third-Party Claim, the Indemnitee will
agree to any settlement, compromise or discharge of a Third-Party Claim that the
Indemnifying Party may recommend and that by its terms obligates the
Indemnifying Party to pay the full amount of the liability in connection with
such Third-Party Claim and releases the Indemnitee completely in connection with
such Third- Party Claim and that would not otherwise adversely affect the
Indemnitee; provided, however, that the Indemnitee may refuse to agree to any
such settlement, compromise or discharge if the Indemnitee agrees that the
Indemnifying Party's indemnification
<PAGE> 21
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obligation with respect to such Third-Party Claim shall not exceed the amount
that would be required to be paid by or on behalf of the Indemnifying Party in
connection with such settlement, compromise or discharge. If an Indemnifying
Party elects not to assume the defense of a Third-Party Claim, or fails to
notify an Indemnitee of its election to do so as provided herein, such
Indemnitee may compromise, settle or defend such Third-Party Claim.
Notwithstanding the foregoing, the Indemnifying Party shall
not be entitled to assume the defense of any Third-Party Claim (and shall be
liable for the fees and expenses of counsel incurred by the Indemnitee in
defending such Third-Party Claim) if the Third-Party Claim seeks an order,
injunction or other equitable relief or relief for other than money damages
against the Indemnitee which the Indemnitee reasonably determines, after
conferring with its counsel, cannot be separated from any related claim for
money damages. If such equitable relief or other relief portion of the
Third-Party Claim can be so separated from that for money damages, the
Indemnifying Party shall be entitled to assume the defense of the portion
relating to money damages.
(b) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
4.3 Remedies Cumulative. The remedies provided in this Article
IV shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
4.4 Indemnification Payments. Indemnification required by this
Article IV shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or loss,
liability, claim, damage or expense is incurred.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.1 Assumption and Satisfaction of Liabilities. Except as
otherwise specifically set forth in any Ancillary Agreement, and subject to
Section 2.8 hereof, from and after the Distribution Date, (i) Florida Progress
shall, and shall cause each member of the Florida Progress Group to, assume,
pay,
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perform and discharge all Florida Progress Liabilities and (ii) Echelon shall
assume, pay, perform and discharge all Echelon Liabilities. To the extent
reasonably requested to do so by the other party hereto, each party hereto
agrees to sign such documents, in a form reasonably satisfactory to such party,
as may be reasonably necessary to evidence the assumption of any Liabilities
hereunder.
5.2 Intercompany Agreements. (a) Except for this Agreement and
the Ancillary Agreements, all contracts, licenses, agreements, commitments or
other arrangements, formal or informal, between any member of the Florida
Progress Group, on the one hand, and any member of the Echelon Group (or any
predecessor thereof), on the other, in existence as of the Distribution Date,
pursuant to which any member of the Florida Progress Group provides to any
member of the Echelon Group any services (including, without limitation,
management, administrative, legal, financial, accounting, data processing,
insurance, or technical support), or the use of any Florida Progress Assets, or
the secondment of any employee, or pursuant to which rights, privileges or
benefits are accorded to any member of the Echelon Group or the Echelon Business
as a unit of the Florida Progress Group, shall terminate as of the close of
business on the day prior to the Distribution Date, except as specifically
provided herein or on Schedule 5.2(a) hereto or in any Ancillary Agreement.
From and after the Distribution Date, no member of the Echelon Group shall have
any rights under any such contract, license, agreement, commitment or
arrangement with any member of the Florida Progress Group, except as
specifically provided herein or on Schedule 5.2(a) hereto or in any Ancillary
Agreement.
(b) Except for this Agreement and the Ancillary Agreements,
all contracts, licenses, agreements, commitments or other arrangements, formal
or informal, between any member of the Echelon Group, on the one hand, and any
member of the Florida Progress Group, on the other, in existence as of the
Distribution Date, pursuant to which any member of the Echelon Group provides to
any member of the Florida Progress Group any services (including, without
limitation, management, administrative, legal, financial, accounting, data
processing, insurance, or technical support), or the use of any Echelon Assets,
or the secondment of any employee, or pursuant to which rights, privileges or
benefits are accorded to any member of the Florida Progress Group or the Florida
Progress Business as a unit of the Echelon Group, shall terminate as of the
close of business on the day prior to the Distribution Date, except as
specifically
<PAGE> 23
19
provided herein or on Schedule 5.2(b) hereto or in any Ancillary Agreement.
From and after the Distribution Date, no member of the Florida Progress Group
shall have any rights under any such contract, license, agreement, commitment or
arrangement with any member of the Echelon Group, except as specifically
provided herein or on Schedule 5.2(b) hereto or in any Ancillary Agreement.
5.3 Guarantees. (a) Except as otherwise specified in any
Ancillary Agreement, Florida Progress and Echelon shall use their commercially
reasonable efforts to have, on or prior to the Distribution Date, or as soon as
practicable thereafter, any member of the Florida Progress Group removed as
guarantor of or obligor for any Echelon Liability, including, without
limitation, in respect of those guarantees set forth on Schedule 5.3(a) hereto.
(b) If Florida Progress or Echelon is unable to obtain, or to
cause to be obtained, any such required removal as set forth in clause (a) of
this Section 5.3, then the applicable guarantor or obligor shall continue to be
bound as such and, unless not permitted by law or the terms thereof, Echelon
shall, as agent or subcontractor for such guarantor or obligor, pay, perform and
discharge fully all the obligations or other liabilities of such guarantor or
obligor thereunder from and after the date hereof, and such obligations shall be
Echelon Liabilities.
(c) Without the prior written consent of the Chief Financial
Officer or Treasurer of Florida Progress, from and after the Distribution Date,
Echelon shall not renew or extend the term of, increase its obligations under,
or transfer to a third party, by sale, assignment, merger or operation of law or
otherwise any loan, lease, contract or other obligation of Echelon for which any
member of the Florida Progress Group is or may be liable unless all obligations
of the Florida Progress Group with respect thereto are thereupon terminated by
documentation reasonably satisfactory in form and substance to the Chief
Financial Officer or Treasurer of Florida Progress.
(d) For so long as Florida Progress or any member of the
Florida Progress Group is a guarantor of or obligor for any agreement by Echelon
to be and remain a "citizen of the United States" as defined in 49 U.S.C.
Section 40102 or in 46 U.S.C. Section 802, Echelon agrees (i) that it shall be
and remain a "citizen of the United States" as so defined and, in particular,
that it will have a president, a chairman and persons comprising at least
two-thirds of its board of directors who are citizens of the United States and
(ii) that in the event its status as a "citizen of the
<PAGE> 24
20
United States" as defined in 49 U.S.C. Section 40102 changes, or it makes public
disclosure of circumstances as a result of which it believes that such status is
likely to change, it will notify Florida Progress and any member of the Florida
Progress Group who is a guarantor of or obligor for any such Echelon Liability
of such change in its status promptly after obtaining knowledge thereof or such
belief as soon as practicable after such public disclosure but in any event
within ten business days after such public disclosure. If at any time when
Florida Progress or any member of the Florida Progress Group is a guarantor of
or obligor for any such Echelon Liability, Echelon ceases to be a "citizen of
the United States" as defined in 49 U.S.C. Section 40102, and (A) any aircraft
owned or controlled by Echelon (the "Aircraft") is then registered in the United
States and the Aircraft shall be or would thereupon become ineligible for
registration in the name of the relevant owner trustee under the Federal
Aviation Act (the "FAA Act") as in effect at such time as a result of such lack
of citizenship (without regard to the "based and primarily used" provisions
thereof) and the regulations then applicable thereunder, or (B) (1) the Aircraft
is then registered in a jurisdiction other than the United States, (2) a lessee,
sublessee or sub-sublessee has given notice that it proposes to register the
Aircraft within 120 days in the United States and (3) at the time such
registration in the United States is proposed to occur, the Aircraft would be
ineligible for registration in the name of the relevant owner trustee under the
FAA Act as in effect at such time as a result of such lack of citizenship
(without regard to the "based and primarily used" provisions thereof) and the
regulations then applicable thereunder, then Echelon shall forthwith (x)
transfer all (but not less than all) of its right, title and interest in and to
the Aircraft or (y) take such other action, including, without limitation, the
establishment of a voting trust or voting powers agreement (in which case
Echelon shall remain the beneficial owner of the Aircraft), as may be necessary
to prevent the deregistration of the Aircraft under the FAA Act or to maintain
such registration of the Aircraft or to make possible such registration of the
Aircraft in the United States and to prevent Florida Progress from being
adversely affected as a result thereof. Any voting powers or voting trust
arrangement utilized by Echelon (or any transferee of Echelon) shall be approved
by the Federal Aviation Administration (to the extent required by the FAA Act or
the Federal Aviation Administration).
(e) In addition to and not in limitation of the provisions of
paragraph (d) above, Echelon agrees (i) not to permit the imposition or
continuance of any lien or other Security Interest on any asset which would
result in the breach of any obligation guaranteed by Florida Progress or any
member of the Florida Progress Group, (ii) not to do or take any other action,
or fail to do or take any action, which would result in the breach of any other
obligation guaranteed by Florida Progress or any member of the Florida Progress
Group, and (iii) to do and take any and all actions necessary to cause any
guarantee of any
<PAGE> 25
21
Echelon Liability by Florida Progress or of any member of the Florida Progress
Group to be cancelled, discharged or otherwise terminated as promptly as
practicable.
5.4 Further Assurances. In case at any time after the
Effective Time any further action is reasonably necessary or desirable to carry
out the purposes of this Agreement and the Ancillary Agreements, the proper
officers of each party to this Agreement shall take all such necessary action.
Without limiting the foregoing, Florida Progress and Echelon shall use their
commercially reasonable efforts promptly to obtain all consents and approvals,
to enter into all amendatory agreements and to make all filings and applications
that may be required for the consummation of the transactions contemplated by
this Agreement and the Ancillary Agreements, including, without limitation, all
applicable governmental and regulatory filings.
5.5 Witness Services. At all times from and after the
Distribution Date, each of Florida Progress and Echelon shall use their
commercially reasonable efforts to make available to the other, upon reasonable
written request, its and its Subsidiaries' officers, directors, employees and
agents as witnesses to the extent that (i) such persons may reasonably be
required in connection with the prosecution or defense of any Action or
threatened Action in which the requesting party may from time to time be
involved and (ii) there is no conflict in the Action or threatened Action
between the requesting party and the party receiving the request. A party
providing witness services to the other party under this Section shall be
entitled to receive from the recipient of such services, upon the presentation
of invoices therefor, payments for such amounts, relating to disbursements and
other out-of-pocket expenses (which shall be deemed to exclude the costs of
salaries and benefits of employees who are witnesses), as may be reasonably
incurred in providing such witness services.
5.6 Certain Post-Distribution Transactions. (a)(i) Florida
Progress shall comply, and shall cause each member of the Florida Progress Group
to comply, with and otherwise not take action inconsistent with each
representation and statement made with respect to Florida Progress or any other
member of the Florida Progress Group to the Internal Revenue Service in
connection with the request by Florida Progress for a ruling letter in respect
of the Distribution as to certain tax aspects of the Distribution and (ii) until
two years after the Distribution Date, Florida Progress will maintain its status
as a company engaged in the active conduct of a trade or business, as defined in
Section 355(b) of the Code.
(b)(i) Echelon shall comply with and otherwise not take action
inconsistent with each representation and statement made with respect to Echelon
to the Internal Revenue Service in connection with the request by Florida
Progress for a ruling letter in respect of the Distribution as to certain tax
aspects
<PAGE> 26
22
of the Distribution and (ii) until two years after the Distribution Date,
Echelon will maintain its status as a company engaged in the active conduct of a
trade or business, as defined in Section 355(b) of the Code.
5.7 Certain Agreements of Echelon. Echelon hereby agrees that
it is Echelon's plan and intention to use its reasonable best efforts to
implement the Business Plan. Echelon acknowledges that, as provided for in the
Business Plan, Florida Progress has provided Echelon with capitalization and
liquidity which the parties believe is sufficient to allow Echelon to carry out
the Business Plan, including liquidity reserves which the parties believe are
sufficient to address unforeseen business risks or events. Echelon agrees to
maintain at all times a liquidity reserve of at least $27 million during the
first 12 months following the Distribution Date, a liquidity reserve of at least
$25 million during the period beginning on the first day of the second year
following the Distribution Date and ending on the last day of the second year
following the Distribution Date, and a liquidity reserve of at least $17 million
during the period beginning on the first day of the third year following the
Distribution Date and ending on the last day of such third year.
5.8 Corporate Names. (a) Except as otherwise specifically
provided in any Ancillary Agreement:
(i) as soon as reasonably practicable after the Distribution
Date but in any event within two months thereafter, Echelon will, at
its own expense, remove (or, if necessary, on an interim basis, cover
up) any and all exterior signs and other identifiers located on any of
its property or premises which refer or pertain to Florida Progress or
which include the Florida Progress name, logo or other trademark or
other Florida Progress intellectual property; and
(ii) as soon as is reasonably practicable after the
Distribution Date but in any event within six weeks thereafter, Echelon
will remove from all letterhead, envelopes, invoices and other
communications media of any kind, all references to Florida Progress,
including the "Florida Progress" or "Progress" name, logo and any other
trademark or other Florida Progress intellectual property, and Echelon
shall not use or display the "Florida Progress" or "Progress" name,
logo or other trademark or Florida Progress intellectual property
without the prior written consent of Florida Progress.
(b) Except as otherwise specifically provided in any
Ancillary Agreement:
(i) as soon as reasonably practicable after the Distribution
Date but in any event within two months thereafter, Florida Progress
will, at its own expense,
<PAGE> 27
23
remove (or, if necessary, on an interim basis, cover up) any and all
exterior signs and other identifiers located on any of its property or
premises owned or used by it or other members of the Florida Progress
Group which refer or pertain to Echelon or which include the "Echelon,"
"Talquin," "Progress Credit," "Progress Leasing" or "PLC Leasing" name,
logo or other trademark or other Echelon intellectual property; and
(ii) as soon as is reasonably practicable after the
Distribution Date but in any event within six weeks thereafter, Florida
Progress will, and will cause the other members of the Florida Progress
Group to, remove from all letterhead, envelopes, invoices and other
communications media of any kind, all references to Echelon, including
the "Talquin," "Progress Credit," "Progress Leasing" or "PLC Leasing"
name, logo and any other trademark or other Echelon intellectual
property, and Florida Progress and the other members of the Florida
Progress Group shall not use or display the "Talquin," "Progress
Credit," "Progress Leasing" or "PLC Leasing" name, logo or other
trademark or Echelon intellectual property without the prior written
consent of Echelon.
5.9 Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date. To the extent that any
transfers contemplated by Article II and V shall not have been consummated on or
prior to the Distribution Date, the parties shall cooperate to effect such
transfers as promptly following the Distribution Date as shall be practicable.
Nothing herein shall be deemed to require the transfer of any Assets or the
assumption of any Liabilities which by their terms or operation of law cannot be
transferred; provided, however, that the parties hereto and their respective
Subsidiaries shall cooperate to seek to obtain any necessary consents or
approvals for the transfer of all Assets and Liabilities contemplated to be
transferred pursuant to Article II and V. In the event that any such transfer of
Assets or Liabilities has not been consummated, from and after the Distribution
Date the party retaining such Asset or Liability shall hold such Asset in trust
for the use and benefit of the party entitled thereto (at the expense of the
party entitled thereto) or retain such Liability for the account of the party by
whom such Liability is to be assumed pursuant hereto, as the case may be, and
take such other action as may be reasonably requested by the party to whom such
Asset is to be transferred, or by whom such Liability is to be assumed, as the
case may be, in order to place such party, insofar as is reasonably possible, in
the same position as would have existed had such Asset or Liability been
transferred as contemplated hereby. As and when any such Asset or Liability
becomes transferable, such transfer shall be effected forthwith. The parties
agree that, as of the Distribution Date, each party hereto shall be deemed to
have acquired complete and sole beneficial ownership over all of the Assets,
together with all
<PAGE> 28
24
rights, powers and privileges incident thereto, and shall be deemed to have
assumed in accordance with the terms of this Agreement all of the Liabilities,
and all duties, obligations and responsibilities incident thereto, which such
party is entitled to acquire or required to assume pursuant to the terms of this
Agreement.
ARTICLE VI
ACCESS TO INFORMATION
6.1 Provision of Corporate Records. Prior to or as promptly as
practicable after the Distribution Date, Florida Progress shall deliver to
Echelon all corporate books, records and files (collectively, "Records") of
Echelon in its possession and copies of the relevant portions of all Records of
the Florida Progress Group relating directly and primarily to the Echelon
Assets, the Echelon Business, or the Liabilities of Echelon, including, in each
case, all active agreements, active litigation files and government filings.
From and after the Distribution Date, all Records so delivered shall be the
property of Echelon.
6.2 Access to Information. Other than in circumstances in
which indemnification is sought pursuant to Article IV (in which event the
provisions of such Article will govern), from and after the Distribution Date,
each of Florida Progress and Echelon shall afford to the other and its
authorized accountants, counsel and other designated representatives reasonable
access during normal business hours, subject to appropriate restrictions for
classified, privileged or confidential information, to the personnel,
properties, books and records of such party and its Subsidiaries insofar as such
access is reasonable required by the other party and relates to (x) such other
party or the conduct of its business prior to the Effective Time or (y) any
Ancillary Agreement to which the party requesting such access and the party
requested to grant such access are parties.
6.3 Reimbursement; Other Matters. Except to the extent
otherwise contemplated by any Ancillary Agreement, a party providing Records or
access to information to the other party under this Article VI shall be entitled
to receive from the recipient, upon the presentation of invoices therefor,
payments for such amounts, relating to supplies, disbursements and other
out-of-pocket expenses, as may be reasonably incurred in providing such Records
or access to information.
<PAGE> 29
25
6.4 Retention of Records. Except as otherwise agreed in
writing, or as otherwise provided in the Ancillary Agreements, each of Florida
Progress and Echelon shall, and shall cause any members of its Group to, retain
all information in such party's possession or under its control relating
directly and primarily to the pre-Distribution Business, Assets or Liabilities
of the other party that is less than ten years old until such information is at
least ten years old except that if, prior to the expiration of such period,
information in the possession or control of either party is to be destroyed or
disposed of, and such information is at least three years old, prior to
destroying or disposing of any such information, (1) the party that is proposing
to dispose of or destroy any such information shall provide no less than 30
days' prior written notice to the other party, specifying the information
proposed to be destroyed or disposed of, and (2) if, prior to the scheduled date
for such destruction or disposal, the other party requests in writing that any
of the information proposed to be destroyed or disposed of be delivered to such
other party, the party that is proposing to dispose of or destroy such
information promptly shall arrange for the delivery of the requested information
to a location specified by, and at the expense of, the requesting party.
6.5 Confidentiality. Each of (i) Florida Progress and the
Florida Progress Subsidiaries and (ii) Echelon and the Echelon Subsidiaries
shall not use or permit the use of (without the prior written consent of the
other) and shall keep, and shall cause its consultants and advisors to keep,
confidential all information concerning the other party in its possession or
under its control (except to the extent that (A) such information has been in
the public domain through no fault of such party, (B) such information has been
later lawfully acquired from other sources by such party or (C) this Agreement
or any other Ancillary Agreement or any other agreement entered into pursuant
hereto permits the use or disclosure of such information) to the extent such
information (x) relates to the period up to the Effective Time, (y) relates to
any Ancillary Agreement or (z) is obtained in the course of performing services
for the other party pursuant to any Ancillary Agreement, and neither party shall
(without the prior written consent of the other) otherwise release or disclose
such information to any other Person, except such party's auditors and
attorneys, unless compelled to disclose such information by judicial or
administrative process or unless such disclosure is required by law and such
party has used commercially reasonable efforts to consult with the other party
prior to such disclosure.
6.6 Privileged Matters. The parties hereto recognize that
legal and other professional services that have been and will be provided prior
to the Distribution Date have been and will be rendered for the benefit of each
of the members of the Florida Progress Group and the members of the Echelon
Group, and that each of the members of the Florida Progress Group and the
members of the Echelon Group should be deemed to be the client
<PAGE> 30
26
for the purposes of asserting all privileges which may be asserted under
applicable law. To allocate the interests of each party in the information as to
which any party is entitled to assert a privilege, the parties agree as follows:
(a) Florida Progress shall be entitled, in perpetuity, to
control the assertion or waiver of all privileges in connection with privileged
information which relates solely to the Florida Progress Business, whether or
not the privileged information is in the possession of or under the control of
Florida Progress or Echelon. Florida Progress shall also be entitled, in
perpetuity, to control the assertion or waiver of all privileges in connection
with privileged information that relates solely to the subject matter of any
claims constituting Florida Progress Liabilities, now pending or which may be
asserted in the future, in any lawsuits or other proceedings initiated against
or by Florida Progress, whether or not the privileged information is in the
possession of or under the control of Florida Progress or Echelon.
(b) Echelon shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged information
which relates solely to the Echelon Business, whether or not the privileged
information is in the possession of or under the control of Florida Progress or
Echelon. Echelon shall also be entitled, in perpetuity, to control the assertion
or waiver of all privileges in connection with privileged information which
relates solely to the subject matter of any claims constituting Echelon
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by Echelon, whether or not the
privileged information is in the possession of Echelon or under the control of
Florida Progress or Echelon.
(c) The parties hereto agree that they shall have a shared
privilege, with equal right to assert or waive, subject to the restrictions in
this Section 6.6, with respect to all privileges not allocated pursuant to the
terms of Sections 6.6(a) and (b) hereto. All privileges relating to any claims,
proceedings, litigation, disputes, or other matters which involve both Florida
Progress and Echelon in respect of which both Florida Progress and Echelon
retain any responsibility or liability under this Agreement shall be subject to
a shared privilege between them.
(d) No party hereto may waive any privilege which could be
asserted under any applicable law, and in which the other party hereto has a
shared privilege, without the consent of the other party, except to the extent
reasonably required in connection with any litigation with third parties or as
provided in subsection (e) below. Consent shall be in writing, or shall be
deemed to be granted unless written objection is made within 20 days after
notice upon the other party requesting such consent.
<PAGE> 31
27
(e) In the event of any litigation or dispute between the
parties hereto, a party and a Subsidiary of the other party hereto, or a
Subsidiary of one party hereto and a Subsidiary of other party hereto, either
such party may waive a privilege in which the other party has a shared
privilege, without obtaining the consent of the other party, provided that such
waiver of a shared privilege shall be effective only as to the use of
information with respect to the litigation or dispute between the parties and/or
their Subsidiaries, and shall not operate as a waiver of the shared privilege
with respect to third parties.
(f) If a dispute arises between the parties hereto or their
respective Subsidiaries regarding whether a privilege should be waived to
protect or advance the interest of either party, each party agrees that it shall
negotiate in good faith, shall endeavor to minimize any prejudice to the rights
of the other party, and shall not unreasonably withhold consent to any request
for waiver by the other party. Each party hereto specifically agrees that it
will not withhold consent to waiver for any purpose except to protect its own
legitimate interests.
(g) Upon receipt by either party hereto or by any Subsidiary
thereof of any subpoena, discovery or other request which arguably calls for the
production or disclosure of information subject to a shared privilege or as to
which the other party has the sole right hereunder to assert a privilege, or if
either party obtains knowledge that any of its or any of its Subsidiaries'
current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such privileged information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the information and to assert any rights it may
have under this Section 6.6 or otherwise to prevent the production or disclosure
of such privileged information.
(h) The transfer of all Records and other information pursuant
to this Agreement is made in reliance on the agreement of Florida Progress and
Echelon, as set forth in Sections 6.5 and 6.6, to maintain the confidentiality
of privileged information and to assert and maintain all applicable privileges.
The access to information being granted pursuant to Sections 6.1 and 6.2 hereof,
the agreement to provide witnesses and individuals pursuant to Sections 4.2 and
5.5 hereof, the furnishing of notices and documents and other cooperative
efforts contemplated by Section 4.2 hereof, and the transfer of privileged
information between the parties and their respective Subsidiaries pursuant to
this Agreement shall not be deemed a waiver of any privilege that has been or
may be asserted under this Agreement or otherwise.
6.7 Ownership of Information. Any information owned by one
party or any of its Subsidiaries that is provided to a requesting party pursuant
to Article IV or this Article VI shall
<PAGE> 32
28
be deemed to remain the property of the providing party. Unless specifically set
forth herein, nothing contained in this Agreement shall be construed as granting
or conferring rights of license or otherwise in any such information.
6.8 Limitation of Liability. Neither party shall have any
liability to the other party in the event that any information exchanged or
provided pursuant to this Agreement which is an estimate or forecast, or which
is based on an estimate or forecast, is found to be inaccurate.
6.9 Other Agreements Providing for Exchange of Information.
The rights and obligations granted under this Article VI are subject to any
specific limitations, qualifications or additional provisions on the sharing,
exchange or confidential treatment of information set forth in any Ancillary
Agreement.
ARTICLE VII
ADMINISTRATIVE SERVICES
7.1 Performance of Services. Beginning on the Distribution
Date, Florida Progress will provide, or cause one or more of its Subsidiaries to
provide, to Echelon such services on such terms as may be set forth in the
Transition Services Agreement.
7.2 Independence. Unless otherwise agreed in writing, all
employees and representatives of Florida Progress providing the scheduled
services to Echelon will be deemed for purposes of all compensation and employee
benefits matters to be employees or representatives of Florida Progress and not
employees or representatives of Echelon. In performing such services, such
employees and representatives will be under the direction, control and
supervision of Florida Progress (and not Echelon) and Florida Progress will have
the sole right to exercise all authority with respect to the employment
(including, without limitation, termination of employment), assignment and
compensation of such employees and representatives.
ARTICLE VIII
DISPUTE RESOLUTION
8.1 Negotiation. In the event of a controversy, dispute or
claim arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement or otherwise
arising out of, or in any way related to this Agreement or the transactions
contemplated hereby, including, without limitation, any claim based on contract,
tort, statute or constitution (collectively,
<PAGE> 33
29
"Agreement Disputes"), the general counsels of the parties (or, such other
senior officer appointed by the Chief Executive Officer of the relevant party)
shall negotiate in good faith for a reasonable period of time to settle such
Agreement Dispute, provided such reasonable period shall not, unless otherwise
agreed by the parties in writing, exceed [30] days from the time the parties
began such negotiations; provided further that in the event of any arbitration
in accordance with Section 8.2 hereof, the parties shall not assert the defenses
of statute of limitations and laches arising for the period beginning after the
date the parties began negotiations hereunder, and any contractual time period
or deadline under this Agreement or any Ancillary Agreement to which such
Agreement Dispute relates shall not be deemed to have passed until such
Agreement Dispute has been resolved.
8.2 Arbitration. If after such reasonable period such general
counsels (or other appointed officers) are unable to settle such Agreement
Dispute (and in any event, unless otherwise agreed in writing by the parties,
after [60] days have elapsed from the time the parties began such negotiations),
such Agreement Dispute shall be determined, at the request of either party, by
arbitration conducted in St. Petersburg, before and in accordance with the
then-existing International Arbitration Rules of the American Arbitration
Association (the "Rules"). In any dispute between the parties hereto, the number
of arbitrators shall be one. Any judgment or award rendered by the arbitrator
shall be final, binding and nonappealable (except upon grounds specified in 9
U.S.C. Section 10(a) as in effect on the date hereof). If the parties are unable
to agree on an arbitrator, the arbitrator shall be selected in accordance with
the Rules. Any controversy concerning whether an Agreement Dispute is an
arbitrable Agreement Dispute, whether arbitration has been waived, whether an
assignee of this Agreement is bound to arbitrate, or as to the interpretation of
enforceability of this Article VIII shall be determined by the arbitrator. In
resolving any dispute, the parties intend that the arbitrator applies the
substantive laws of the [State of New York], without regard to the choice of law
principles thereof. The parties intend that the provisions to arbitrate set
forth herein be valid, enforceable and irrevocable. The parties agree to comply
with any award made in any such arbitration proceedings that has become final in
accordance with the Rules and agree to enforcement of or entry of judgment upon
such award, by any court of competent jurisdiction, including (a) the Circuit
Court of the State of Florida, Pinellas County, or (b) the United States
District Court for the Middle District of Florida, in accordance with Section
10.16 hereof. The arbitrator shall be entitled, if appropriate, to award any
remedy in such proceedings, including, without limitation, monetary damages,
specific performance and all other forms of legal and equitable relief;
provided, however, the arbitrator shall not be entitled to award punitive
damages. Without limiting the provisions of the Rules, unless otherwise agreed
in writing by the parties or permitted by this Agreement,
<PAGE> 34
30
the parties shall keep confidential all matters relating to the arbitration or
the award, provided such matters may be disclosed (i) to the extent reasonably
necessary in any proceeding brought to enforce the award or for entry of a
judgment upon the award and (ii) to the extent otherwise required by law.
Notwithstanding Article 32 of the Rules, the party which is not the prevailing
party in the arbitration shall be responsible for all of the costs of the
arbitration, including legal fees and other costs specified by such Article 32.
Nothing contained herein is intended to or shall be construed to prevent either
party, in accordance with Article 22(3) of the Rules or otherwise, from applying
to any court of competent jurisdiction for interim measures or other provisional
relief in connection with the subject matter of any Agreement Disputes.
8.3 Continuity of Service and Performance. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement and each Ancillary Agreement during the
course of dispute resolution pursuant to the provisions of this Article VIII
with respect to all matters not subject to such dispute, controversy or claim.
ARTICLE IX
INSURANCE
On or before the Distribution Date, Florida Progress and
Echelon will take such actions with respect to insurance coverage of the Echelon
Assets and the Echelon Business as Florida Progress and Echelon shall reasonably
deem appropriate to permit Echelon to implement a smooth transition to being an
independent company upon the Distribution.
ARTICLE X
MISCELLANEOUS
10.1 Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules, and the Ancillary Agreements shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter. In the event of any inconsistency
between this Agreement and any Exhibit or Schedule hereto, the Exhibit or
Schedule shall prevail. Other than Section 2.12 and Article VIII, which shall
prevail over any inconsistent or conflicting provisions in any Ancillary
Agreement, notwithstanding any other provisions in this Agreement to the
contrary, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement and the provisions of any Ancillary Agreement,
such Ancillary Agreement shall control.
<PAGE> 35
31
10.2 Ancillary Agreements. Subject to the last sentence of
Section 10.1 hereof, this Agreement is not intended to address, and should not
be interpreted to address, the matters specifically and expressly covered by the
Ancillary Agreements.
10.3 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each party and delivered to the other party.
10.4 Survival of Agreements. Except as otherwise contemplated
by this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
10.5 Expenses. Except as otherwise set forth in this Agreement
or any Ancillary Agreement, all costs and expenses incurred on or prior to the
Distribution Date (whether or not paid on or prior to the Distribution Date) in
connection with the preparation, execution, delivery and implementation of this
Agreement and any Ancillary Agreement, the Registration Statement, the
Information Statement, and the Distribution and the consummation of the
transactions contemplated thereby shall be charged to and paid by Florida
Progress to the extent such costs and expenses exceed % of the amount
contributed by Florida Progress to Echelon pursuant to Section 2.9(c)(ii).
Except as otherwise set forth in this Agreement or any Ancillary Agreement, each
party shall bear its own costs and expenses incurred after the Distribution
Date. Any amount or expense to be paid or reimbursed by one party hereto to the
other party hereto shall be so paid or reimbursed promptly after the existence
and amount of such obligation is determined and demand therefore is made.
10.6 Notices. All notices and other communications hereunder
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the parties at
the following addresses (or at such other addresses for a party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To Florida Progress Corporation:
3201 34th Street South
St. Petersburg, Florida 33711
Telephone: (813) 866-5153
Telecopy: (813) 866-4881
Attn: General Counsel
<PAGE> 36
32
To Echelon International Corporation:
One Progress Plaza
Suite 2400
St. Petersburg, Florida 33701
Telephone: (813) 824-6768
Telecopy: (813) 824-6536
Attn: Chief Executive Officer
10.7 Waivers. The failure of either party to require strict
performance by the other party of any provision in this Agreement will not waive
or diminish such party's right to demand strict performance thereafter of that
or any other provision hereof.
10.8 Amendments. Subject to the terms of Section 10.11 hereof,
this Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
10.9 Assignment. (a) This Agreement shall not be assignable,
in whole or in part, directly or indirectly, by either party hereto without the
prior written consent of the other party hereto, and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall be
void.
(b) Echelon will not distribute to its stockholders any
interest in any Echelon Subsidiary, by way of a spin-off distribution, split-off
or other exchange of interests in a Echelon Subsidiary for any interest in
Echelon held by Echelon stockholders, or any similar transaction or
transactions, unless the distributed Echelon Subsidiary undertakes to Florida
Progress to be jointly and severally liable for all Echelon Liabilities
hereunder.
10.10 Successors and Assigns. The provisions to this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
10.11 Termination. This Agreement (including, without
limitation, Article IV hereof) may be terminated and the Distribution may be
amended, modified or abandoned at any time prior to the Distribution by and in
the sole discretion of Florida Progress without the approval of Echelon or the
stockholders of Florida Progress. In the event of such termination, no party
shall have any liability of any kind to the other party or any other Person.
After the Distribution, this Agreement may not be terminated except by an
agreement in writing signed by the parties; provided, however, that Article IV
shall not be terminated or amended after the Distribution in respect of
<PAGE> 37
33
the third party beneficiaries thereto without the consent of such
Persons.
10.12 Subsidiaries. Florida Progress shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Florida Progress Subsidiary.
If Echelon subsequently organizes or acquires any Subsidiary, Echelon shall not
permit such Subsidiary to take or fail to take any action, if taking or failing
to take such action would result in a breach of this Agreement if taken or
failed to be taken, as the case may be, by Echelon. Echelon shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Echelon Subsidiary.
10.13 Third Party Beneficiaries. Except as provided in Article
IV relating to Indemnitees, this Agreement is solely for the benefit of the
parties hereto and their respective Subsidiaries and Affiliates and should not
be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
10.14 Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
10.15 Exhibits and Schedules. The Exhibits [and Schedules]
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
10.16 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF FLORIDA.
10.17 Consent to Jurisdiction. Without limiting the provisions
of Article VIII hereof, each of the parties irrevocably submits to the exclusive
jurisdiction of (a) the Circuit Court of the State of Florida, Pinellas County,
and (b) the United States District Court for the Middle District of Florida, for
the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of the parties agrees to
commence any action, suit or proceeding relating hereto either in the United
States District Court for the Middle District of Florida or if such suit, action
or other proceeding may not be brought in such court for jurisdictional reasons,
in the Circuit Court of the State of Florida, Pinellas County. Each of the
parties further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth
<PAGE> 38
34
above shall be effective service of process for any action, suit or proceeding
in Florida with respect to any matters to which it has submitted to jurisdiction
in this Section 10.17. Each of the parties irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in (i) the
Circuit Court of the State of Florida, Pinellas County, or (ii) the United
States District Court for the Middle District of Florida, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
10.18 Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in 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 provisions.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
FLORIDA PROGRESS CORPORATION,
a Florida corporation
By:________________________
ECHELON INTERNATIONAL
CORPORATION,
a Florida corporation
By:________________________
<PAGE> 1
EXHIBIT 10.2
TAX SHARING AGREEMENT
BY AND BETWEEN
FLORIDA PROGRESS CORPORATION,
A FLORIDA CORPORATION,
AND
ECHELON INTERNATIONAL CORPORATION,
A FLORIDA CORPORATION,
DATED _______, 1996
<PAGE> 2
i
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C> <C>
DEFINITIONS.......................................... 2
1.1 General............................................................................. 2
1.2 References; Interpretation.......................................................... 6
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS............................ 6
2.1 Manner of Preparation............................................................... 6
2.2 Predistribution Tax Returns......................................................... 8
2.3 Post-Distribution Tax Returns....................................................... 8
ARTICLE III
PAYMENT OF TAXES........................................ 8
3.1 Predistribution Taxes............................................................... 8
3.2 Post-Distribution Taxes............................................................. 9
3.3 Reorganization Taxes................................................................ 9
3.4 Indemnification..................................................................... 9
ARTICLE IV
TAX ATTRIBUTES AND TIMING ADJUSTMENTS ............................ 10
4.1 Carrybacks.......................................................................... 10
4.2 Deductions or Credits............................................................... 11
4.3 Timing Adjustments.................................................................. 11
ARTICLE V
TAX AUDITS, TRANSACTIONS AND OTHER MATTERS............................. 13
5.1 Tax Audits and Controversies........................................................ 13
5.2 Prior Agreements.................................................................... 13
5.3 Cooperation......................................................................... 14
5.4 Retention of Records; Access........................................................ 14
5.5 Dispute Resolution.................................................................. 14
5.6 Confidentiality; Ownership of Information; Privileged Information................... 14
ARTICLE VI
MISCELLANEOUS......................................... 15
6.1 Complete Agreement; Construction.................................................... 15
6.2 Counterparts........................................................................ 15
6.3 Survival of Agreements.............................................................. 15
6.4 Expenses............................................................................ 15
6.5 Notices............................................................................. 15
6.6 Waivers............................................................................. 16
6.7 Amendments.......................................................................... 16
6.8 Assignment.......................................................................... 16
6.9 Successors and Assigns.............................................................. 16
</TABLE>
<PAGE> 3
ii
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
6.10 Termination...................................................................... 17
6.11 Subsidiaries..................................................................... 17
6.12 Third Party Beneficiaries........................................................ 17
6.13 Title and Headings............................................................... 17
6.14 Schedules........................................................................ 17
6.15 GOVERNING LAW.................................................................... 17
6.16 Consent to Jurisdiction.......................................................... 17
6.17 Severability..................................................................... 18
</TABLE>
<PAGE> 4
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT, dated ______ __, 1996, by and
between FLORIDA PROGRESS CORPORATION, a Florida corporation ("Florida
Progress"), and ECHELON INTERNATIONAL CORPORATION, a Florida corporation and an
indirect wholly owned subsidiary of Florida Progress ("Echelon").
W I T N E S S E T H:
WHEREAS, as of the date hereof, Florida Progress is the common
parent of an affiliated group of domestic corporations within the meaning of
Section 1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
including the members of the Echelon Group (as defined below), and the members
of the affiliated group have heretofore joined in filing consolidated federal
income tax returns;
WHEREAS, as of the date hereof, Florida Progress is the common
parent of an affiliated group of domestic corporations within the meaning of
Section 220.131(1) of the Florida Income Tax Code, including the members of the
Echelon Group (as defined below), and the members of the affiliated group have
heretofore joined in filing consolidated state income tax returns;
WHEREAS, prior to entering into this Agreement, the Echelon
Group consisted of (i) Progress Credit Corporation ("PCC"), a Florida
corporation and a direct, wholly owned subsidiary of Progress Capital Holdings,
Inc. ("PCH"), (ii) Talquin Development Company ("Talquin"), a Florida
corporation and a direct, wholly owned subsidiary of PCC, (iii) Progress Leasing
Corporation ("Progress Leasing"), a Florida corporation and a direct, wholly
owned subsidiary of PCC, (iv) Echelon, formerly known as PLC Leasing Corporation
("PLC Leasing") and a direct, wholly owned subsidiary of Progress Leasing and
(v) their respective Subsidiaries;
WHEREAS, prior to entering into this Agreement, (i) Talquin,
merged with and into PCC, (ii) PCC, merged with and into Progress Leasing and
(iii) Progress Leasing, merged with and into Echelon, which, as a result of such
merger, became the successor to Talquin, PCC and Progress Leasing;
WHEREAS, it has been proposed that (i) PCH, a wholly owned
subsidiary of Florida Progress, distribute the shares of Echelon Common Stock
(and Echelon Rights) to Florida Progress and (ii) Florida Progress distribute
the shares of Echelon Common Stock (and Echelon Rights) to Florida Progress
stockholders (the "Distribution") and, as a result of the Distribution, the
Echelon Group will not be included in the consolidated Federal income tax return
of Florida Progress for the portion of the year following the Distribution or in
future years;
<PAGE> 5
2
WHEREAS, the Distribution is intended to qualify as a tax-free
spin-off under Section 355 of the Code;
WHEREAS, Florida Progress and Echelon have entered into an
agreement (the "Distribution Agreement") to, among other things, allocate
certain assets and to allocate and assign responsibility for certain liabilities
of the present Florida Progress and its present and former subsidiaries; and
WHEREAS, Florida Progress and Echelon desire to allocate the
tax burdens and benefits of transactions which occurred on or prior to the
Distribution Date and to provide for certain other tax matters, including the
assignment of responsibility for the preparation and filing of tax returns, the
payment of taxes, and the prosecution and defense of any tax controversies;
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
(a) "Ancillary Agreements" shall mean all of the written
agreements, instruments, assignments or other arrangements (other than this
Agreement) entered into in connection with the transactions contemplated hereby,
including, without limitation, the Distribution Agreement, the Employee Benefits
Allocation Agreement, the Transition Services Agreement, the PCH Note (as
defined below), and any exhibit, schedule or appendix to any of the foregoing.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the Treasury regulations promulgated thereunder, including any
successor legislation.
(c) "Consolidated Return" shall mean any consolidated federal
or state income tax return of Florida Progress for the period commencing on
January 1, 1996, and including members of the Echelon Group through the
Distribution Date.
(d) "Distribution" shall mean the distribution on the
Distribution Date to holders of record of shares of Florida Progress Common
Stock as of the Record Date of the Echelon Common Stock owned by Florida
Progress on the basis of one Echelon
<PAGE> 6
3
Common Stock for each 15 outstanding shares of Florida Progress Common Stock.
(e) "Distribution Agreement" is defined in the recitals
hereto.
(f) "Distribution Date" shall mean the date on which the
Distribution is effected.
(g) "Echelon" is defined in the recitals hereto.
(h) "Echelon Common Stock" shall mean the common stock, par
value $.01 per share, of Echelon, together with the Echelon Rights.
(i) "Echelon Group" shall mean Echelon and the group of
companies which become part of Echelon as a result of the Reorganizations
(including PCC, Talquin, and Progress Leasing) as well as any Person which may
hereafter be organized or acquired directly or indirectly as an Echelon
Subsidiary.
(j) "Echelon Investments" means any corporation, partnership
or other business entity, in which any member of the Echelon Group has owned or
will own any equity interest or other investment and which relates to the
business and operations conducted by Echelon or any Echelon Subsidiary, other
than a member of the Florida Progress Group.
(k) "Echelon Rights" shall mean the preferred stock purchase
rights of Echelon issued pursuant to the Rights Agreement dated as of
__________ , 1996 by and between Echelon and __________ , as Rights Agent.
(l) "Echelon Subsidiaries" shall mean all Subsidiaries of
Echelon and all Echelon Investments.
(m) "Effective Time" shall mean 12:01 a.m., St. Petersburg,
Florida time, on the Distribution Date.
(n) "Final Determination" shall mean the final resolution of
liability for any Tax for any taxable period, including any related interest or
penalties, by or as a result of: (i) a final and unappealable decision,
judgment, decree or other order by any court of competent jurisdiction; (ii) a
closing agreement or accepted offer in compromise under Section 7121 or 7122 of
the Code, or comparable agreement under the laws of other jurisdictions which
resolves the entire tax liability for any taxable period; (iii) any allowance of
a refund or credit in respect of an overpayment of tax, but only after the
expiration of all periods during which such refund may be recovered (including
by way of offset) by the jurisdiction imposing the Tax; or (iv) any other final
disposition, including by reason of the expiration of the applicable statute of
limitations.
<PAGE> 7
4
(o) "Florida Progress" is defined in the recitals hereto.
(p) "Florida Progress Common Stock" shall mean the shares of
common stock, without par value, of Florida Progress.
(q) "Florida Progress Group" shall mean Florida Progress and
all of the direct and indirect Subsidiaries of Florida Progress as of the
Distribution Date that have joined in or are eligible to join a Consolidated
Return or any Prior Period Consolidated Return, other than any member of the
Echelon Group.
(r) "Governmental Authority" shall mean any federal, state,
local, foreign or international court, government, department, commission,
board, bureau, agency, official or other regulatory, administrative or
governmental authority.
(s) "Group" shall mean the Florida Progress Group and the
Echelon Group, as the context may require.
(t) "Included Party" is defined in Section 2.1.
(u) "Income Taxes" shall mean any federal, state or local
Taxes determined by reference to income.
(v) "Indemnifying Party" is defined in Section 3.4.
(w) "Indemnitee" is defined in Section 3.4.
(x) "IRS" shall mean the Internal Revenue Service.
(y) "Note Balance" shall mean the outstanding balance of the
PCH Note plus any accrued but unpaid interest.
(z) "Old Florida Progress Consolidated Group" shall mean
Florida Progress and all of the direct and indirect Subsidiaries of Florida
Progress prior to the Distribution Date that joined in or were eligible to join
a Consolidated Return or any Prior Period Consolidated Return.
(aa) "Other Taxes" shall mean any federal, state or local
Taxes determined without regard to income.
(ab) "PCH Note" shall mean the note dated ___________ to be
issued in connection with the Distribution by Echelon to PCH.
(ac) "person" shall mean any natural person, corporation,
business trust, joint venture, association, company, limited liability company,
partnership or government, or any agency or political subdivision thereof.
<PAGE> 8
5
(ad) "Policy Statement" shall mean the policy statement that
clarifies the existing tax allocation practices of the Old Florida Progress
Consolidated Group.
(ae) "Preparing Party" shall have the meaning as defined in
Section 2.1.
(af) "Prior Period Consolidated Return" shall mean any
consolidated income tax return (federal or state) of Florida Progress filed, or
to be filed, for years prior to the Consolidated Return year.
(ag) "Record Date" shall mean such date as is hereafter
determined by Florida Progress's Board of Directors as the record date for the
Distribution.
(ah) "Reorganizations" shall mean the series of transactions
that will occur immediately prior to the Distribution pursuant to which Echelon
will become a first-tier subsidiary of PCH and the assets of PCC, Talquin and
Progress Leasing will become a part of Echelon.
(ai) "Subsidiary" shall mean any corporation of which another
entity's ownership satisfies the 80-percent voting and value test of Section
1504(a)(2) of the Code.
(aj) "Tax" or "Taxes" whether used in the form of a noun or
adjective, shall mean taxes on or measured by income, franchise, gross receipts,
sales, use, excise, payroll, personal property, real property, ad-valorem,
value-added, leasing, leasing use or other taxes, levies, imposts, duties,
charges or withholdings of any nature. Whenever the term "Tax" or "Taxes" is
used (including, without limitation, regarding any duty to reimburse another
party for indemnified taxes or refunds or credits of taxes) it shall include
penalties, fines, additions to tax and interest thereon.
(ak) "Tax Benefit" shall mean the sum of the amount by which
the tax liability (after giving effect to any alternative minimum or similar
tax) of a corporation or group of affiliated corporations to the appropriate
taxing authority is reduced (including, without limitation, by deduction,
entitlement to refund, credit or otherwise) plus any interest from such
government or jurisdiction relating to such tax liability.
(al) "Tax Detriment" shall mean the sum of the amount by which
the tax liability (after giving effect to any alternative minimum or similar
tax) of a corporation or group of affiliated corporations to the appropriate
taxing authority is increased (including, without limitation, by the inclusion
of income or gain or by the denial of a deduction, entitlement to refund, loss
or credit) plus any interest owed to such government or jurisdiction relating to
such tax liability.
<PAGE> 9
6
(am) "Tax Item" shall mean any item of income, capital gain,
net operating loss, capital loss, deduction, credit or other tax attribute
relevant to the calculation of a Tax liability.
(an) "Tax Returns" shall mean all reports or returns
(including information returns) required to be filed or that may be filed for
any period with any taxing authority (whether domestic or foreign) in connection
with any Tax or Taxes (whether domestic or foreign).
(ao) "Timing Adjustment" shall mean any adjustment which (i)
(x) decreases deductions, losses or credits or increases income, gains or
recapture of tax credits for the period in question, and (y) will permit Echelon
or any of its Subsidiaries to increase deductions, losses or tax credits or
decrease income, gains or recapture of tax credits for any taxable period or
periods beginning after the Distribution Date, or (ii) (x) increases deductions,
losses or credits or decreases income, gains or recapture of tax credits for the
period in question, and (y) will require Echelon or any of its Subsidiaries to
decrease deductions, losses or tax credits or increase income, gains or
recapture of tax credits for any taxable period or periods beginning after the
Distribution Date.
1.2 References; Interpretation. References in this Agreement
to any gender include references to all genders, and references to the singular
include references to the plural and vice versa. The words "include", "includes"
and "including" when used in this Agreement shall be deemed to be followed by
the phrase "without limitation". Unless the context otherwise requires,
references in this Agreement to Articles, Sections, Exhibits and Schedules shall
be deemed references to Articles and Sections of, and Exhibits and Schedules to,
such Agreement. Unless the context otherwise requires, the words "hereof",
"hereby" and "herein" and words of similar meaning when used in this Agreement
refer to this Agreement in its entirety and not to any particular Article,
Section or provision of this Agreement.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
2.1 Manner of Preparation.
(a) All Tax Returns filed after the Distribution Date shall be
prepared on a basis that is consistent with the rulings obtained from the IRS or
any other Governmental Authority in connection with the Reorganizations or
Distribution (in the absence of a controlling change in law or circumstances)
and shall be filed on a timely basis (including pursuant to extensions) by the
party responsible for such filing under this Agreement. In the absence of a
controlling change in law or
<PAGE> 10
7
circumstances and unless deviation from past practice would have no adverse
effect on any of the parties, all Tax Returns filed after the date of this
Agreement shall be prepared on a basis consistent with the elections, accounting
methods, conventions, and principles of taxation used for the most recent
taxable periods for which Tax Returns involving similar Tax Items have been
filed. Subject to the provisions of this Agreement, all decisions relating to
the preparation of Tax Returns shall be made in the sole discretion of the party
responsible under this Agreement for its preparation; provided, however, that to
the extent a party (or any of its Subsidiaries) is included in a Tax Return
prepared by another party (the "Preparing Party"), the party not responsible for
preparing the Tax Return (the "Included Party") shall have the right to review
and comment on such Tax Return prior to the filing thereof in the following
manner:
(i) The Preparing Party shall submit any part of such Tax
Return relating to the Included Party to the Included Party at least 21 days
prior to the date on which such Tax Return is due (including extensions). The
Included Party shall submit its comments to the Preparing Party within 10 days
of receipt of the relevant portions of such Tax Return. The Preparing Party
shall alter such Tax Return to reflect the comments of the Included Party unless
the Preparing Party reasonably believes that such alteration is not required by
law and would have an adverse impact upon the Preparing Party. Notwithstanding
the foregoing, at least 30 days prior to the date on which such Tax Return is
due (including extensions), the Preparing Party shall use its best efforts to
notify the Included Party of and to discuss with the Included Party any
substantive issue that may adversely affect the Included Party.
(b) Unless otherwise required by the IRS, any Governmental
Authority or a court, the parties hereby agree to file all Tax Returns, and to
take all other actions, in a manner consistent with the position that the last
day on which the Echelon Group and each of its members are included in the Old
Florida Progress Consolidated Group is the Distribution Date. For any period
that includes but does not end on the Distribution Date, to the extent permitted
by law or administrative practice, the taxable year of each member of the Old
Florida Progress Consolidated Group and any group of such members shall be
treated as closing on the Distribution Date. If a taxable year of any member of
the Old Florida Progress Consolidated Group or any group or other combination of
such members that begins on or before and ends after the Distribution Date is
not treated under the previous sentence as closing on the Distribution Date, it
will be treated for purposes of this Agreement as if the member or group had a
taxable year that ended on the Distribution Date, except that Tax Items that are
calculated on an annual basis shall be apportioned on a time basis.
<PAGE> 11
8
2.2 Predistribution Tax Returns.
(a) All consolidated federal income Tax Returns of the Old
Florida Progress Consolidated Group that are required to be filed for periods
beginning before the Distribution Date shall be prepared and filed by Florida
Progress.
(b) All state and local income Tax Returns of any member of
the Old Florida Progress Consolidated Group that may be or are required to be
filed for periods beginning before the Distribution Date shall be prepared and
filed by Florida Progress.
(c) All Tax Returns for Other Taxes of any member of the Old
Florida Progress Consolidated Group that may be or are required to be filed for
any period beginning before the Distribution Date shall be prepared and filed by
the entity that filed the corresponding Tax Return for the most recent period
for which such a Tax Return has been filed, or, if no such corresponding Tax
Return has been filed, by the appropriate entity in accordance with local law or
custom. See Schedule 2.2(c) for a listing of these Tax Returns for Other Taxes
whose preparation and filing will be the responsibility of Echelon.
2.3 Post-Distribution Tax Returns. The filing of all Tax
Returns for periods beginning on or after the Distribution Date shall be the
responsibility of Florida Progress if they relate to the Florida Progress Group
or any Subsidiary of Florida Progress and shall be the responsibility of Echelon
if they relate to the Echelon Group or any Subsidiary of Echelon.
ARTICLE III
PAYMENT OF TAXES
3.1 Predistribution Taxes.
(a) Except to the extent provided for in Section 5.2, Florida
Progress shall be liable for and shall pay all Taxes due (and receive all
refunds) in connection with the filing of the Old Florida Progress Consolidated
Group's consolidated federal income Tax Returns, as well as any separate federal
income Taxes of any member of the Old Florida Progress Consolidated Group, for
all taxable periods beginning before the Distribution Date.
(b) Except to the extent provided for in Section 5.2 and in
subsection (i) below, Florida Progress shall be liable for and shall pay to the
relevant taxing authority all state and local Income Taxes for any taxable
periods for which Florida Progress has filing responsibility under Section
2.2(b) of this Agreement.
<PAGE> 12
9
(i) In the case of any such taxable period that does not end
on or before the Distribution Date, Echelon shall provide Florida Progress, at
least 90 days prior to the due date (including extensions) of the relevant Tax
Return, with a true and correct accounting of all relevant Tax Items and
corresponding Taxes of Echelon and each Subsidiary of Echelon as if the taxable
period for such entity began immediately after the Distribution Date (using the
principles provided in Section 2.1(b) of this Agreement) and Echelon shall be
liable for and shall pay to Florida Progress any such Taxes attributable to such
period, including any audit adjustments to such Taxes.
(c) Except to the extent that a liability for such Taxes has
been accrued on the balance sheet of a member of the Echelon Group on or prior
to the Distribution Date, Florida Progress shall be liable for and shall pay to
the relevant taxing authority all Other Taxes for any taxable periods described
in Section 2.2(c) of this Agreement. See Schedule 3.1(c) for a listing of those
entities (other than Florida Progress) which have accrued a liability for Other
Taxes for any taxable periods described in Section 2.2(c) of this Agreement.
3.2 Post-Distribution Taxes. Unless otherwise provided in this
Agreement:
(a) Florida Progress shall pay all Taxes and shall be entitled
to receive and retain all refunds of Taxes with respect to periods beginning on
or after the Distribution Date that are attributable to the Florida Progress
Group or any Subsidiary of Florida Progress;
(b) Echelon shall pay all Taxes and shall be entitled to
receive and retain all refunds of Taxes with respect to periods beginning on or
after the Distribution Date that are attributable to the Echelon Group or any
Subsidiary of Echelon.
3.3 Reorganization Taxes. Notwithstanding any statement to the
contrary in this Agreement, and except as otherwise provided in the Distribution
Agreement, to the extent that any Taxes are found to arise out of the
Reorganizations or as a result of the Distribution not qualifying as a tax-free
spin-off under Section 355 of the Code, then any such Tax liability (including
interest and penalties) incurred by the parties (or any Subsidiaries) shall be
the responsibility of Florida Progress.
3.4 Indemnification.
(a) Any and all Tax liabilities allocated to Florida Progress
by this Agreement shall be "Florida Progress Liabilities" within the meaning of
the Distribution Agreement and Section 4.1 thereof.
<PAGE> 13
10
(b) Any and all Tax liabilities allocated to Echelon by this
Agreement shall be "Echelon Liabilities" within the meaning of the Distribution
Agreement and Section 4.1 thereof.
(c) (i) Notwithstanding the provisions of Section 4.4 of the
Distribution Agreement, to the extent that one party (the "Indemnifying Party")
owes money to another party (the "Indemnitee") pursuant to this Section 3.4, the
Indemnitee shall, within 14 days after receiving the Indemnifying Party's
calculations, submit to the Indemnifying Party the Indemnitee's calculations of
the amount required to be paid pursuant to this Section 3.4, showing such
calculations in sufficient detail so as to permit the Indemnifying Party to
understand the calculations. The Indemnifying Party shall pay the Indemnitee, no
later than 30 days prior to the due date (including extensions) of the relevant
Tax Returns or 14 days after the Indemnifying Party receives the Indemnitee's
calculations, the amount for which the Indemnifying Party is required to pay or
indemnify the Indemnitee under this Section 3.4. The Indemnifying Party shall
have the right to disagree with the Indemnitee's calculations. Any dispute
regarding such calculations shall be resolved in accordance with Section 5.5 of
this Agreement.
(ii) All indemnity payments shall be calculated on a pre-tax
basis and shall be treated as contributions to capital and/or dividends
immediately prior to the Distribution.
(d) Florida Progress shall indemnify Echelon for any Income
Taxes or franchise taxes for any taxable period (or portion of a taxable period)
ending before or including the Distribution Date for which Echelon may be liable
solely as a result of the operation of United States Treasury regulation
sections 1.1502-6 and 1.1502-77 or any state counterpart statute or regulation.
ARTICLE IV
TAX ATTRIBUTES AND TIMING ADJUSTMENTS
4.1 Carrybacks.
(a) In the event of the realization of any Tax Item by Echelon
or any of its Subsidiaries for any taxable period beginning on or after the
Distribution Date which, under the applicable tax law, Echelon or any of its
Subsidiaries is permitted or required to carry back to a Consolidated Return or
a Prior Period Consolidated Return and the carry back of such Tax Item will
result in a Tax Benefit, Echelon shall inform Florida Progress of the existence
of such Tax Item and take any reasonable steps necessary to allow Florida
Progress to carry back such Tax Item to a Consolidated Return or a Prior Period
Consolidated Return. The amount of any Tax Benefit that results from the carry
back of any Tax Item pursuant to this paragraph
<PAGE> 14
11
shall be applied against the Note Balance at the time such Tax Benefit is
realized (as defined in Section 4.3(b)). To the extent the amount of the Tax
Benefit exceeds the Note Balance as of the date such Tax Benefit is realized (as
defined in Section 4.3(b)), Florida Progress shall remit any refund it receives
with respect to the carry back of such Tax Item to Echelon within 30 days of the
date such Tax Benefit is realized. In the event that two or more carrybacks of
Tax Items are available for use in a Consolidated Return or in any Prior Period
Consolidated Return, their order of use will be determined by the Code. Where
two or more carrybacks of Tax Items have equal priority and can not be used in
full, each such carryback shall be used in proportion to the total of such
carrybacks.
(b) In the event that the Note Balance is reduced and/or an
amount is paid to Echelon under Section 4.1(a) and the Tax Benefit that led to
such reduction and/or payment is subsequently modified (whether as the result of
an IRS adjustment or any other reason), then the amount of the reduction or
payment (plus any interest) relating to such Tax Benefit shall be added to the
Note Balance to the extent such Tax Benefit reduced the Note Balance and, to the
extent not applied against the Note Balance, repaid to Florida Progress within
30 days of a Final Determination that the claimed Tax Benefit has been denied.
4.2 Deductions or Credits. Except as provided in Section 4.3,
none of the parties shall be obligated to make a payment to another party as a
result of utilizing a net operating loss or similar tax attribute arising in a
period beginning prior to the Distribution Date.
4.3 Timing Adjustments.
(a) If an audit or other examination of any federal, state or
local Tax Return for any period beginning prior to the Distribution Date shall
result (by settlement or otherwise) in a Timing Adjustment in favor of Echelon
or any of its Subsidiaries, then:
(i) Florida Progress shall notify Echelon and shall provide
Echelon with adequate information so that it can reflect on the appropriate Tax
Returns any resulting increases in deductions, losses or tax credits or
decreases in income, gains or recapture of tax credits; and
(ii) Echelon shall pay Florida Progress the amount of any Tax
Benefit that results from such Timing Adjustment within 30 days of the date such
Tax Benefits are realized.
(b) If an audit or other examination of any federal, state or
local Tax Return for any period beginning prior to the Distribution Date shall
result (by settlement or otherwise) in a
<PAGE> 15
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Timing Adjustment to the detriment of Echelon or any of its Subsidiaries, then:
(i) Florida Progress shall notify Echelon and shall provide
Echelon with adequate information so that it can reflect on the appropriate Tax
Returns any resulting decreases in deductions, losses or tax credits or
increases in income, gains or recapture of tax credits; and
(ii) Florida Progress shall pay Echelon the amount of any Tax
Detriment that results from such Timing Adjustment within 30 days of the date
such Tax Detriment is realized, provided, however, that the amount of any
payment made by Florida Progress pursuant to this Section 4.3(b)(ii) shall not
exceed the Tax Benefit realized by Florida Progress as a result of such Timing
Adjustment.
(c) For purposes of this Section 4.3, a Tax Benefit shall be
deemed to have been realized at the time any refund of Taxes is received or
applied against other Taxes due, or at the time of filing of a Tax Return
(including any Tax Return relating to estimated Taxes) on which a loss,
deduction or credit is applied in reduction of Taxes which would otherwise be
payable; provided, however, that where a party has other losses, deductions,
credits or similar items available to it, such deductions, credits or similar
items of such party may be applied prior to the use of any Timing Adjustment.
For purposes of this Section 4.3, a Tax Detriment shall be deemed to have been
realized at the time any refund of Taxes is received or applied against other
Taxes due provided that such refund was reduced as a result of the Tax
Detriment, or at the time of filing of a Tax Return (including any Tax Return
relating to estimated Taxes) provided the Tax Detriment caused an increase in
income, gain or recapture of a tax credit with respect to such Tax Return. In
the event of a Tax Benefit, Echelon may, at its election, pay the amount of any
Tax Benefit to Florida Progress rather than filing amended returns or otherwise
reflecting adjustments or taking positions on its Tax Returns. If such an
election is made, Echelon will be treated as having realized a Tax Benefit at
the time it would have realized a Tax Benefit had it chosen to file amended
returns or otherwise to reflect adjustments or to take positions on its Tax
Returns. If any Tax Benefit realized pursuant to Section 4.3 is subsequently
denied, then Florida Progress shall refund the amount of any payment for such
benefit within 30 days of its notification by Echelon that a Final Determination
has been reached denying the claimed Tax Benefit. In the event of a Tax
Detriment, Florida Progress will not be obligated to make any payment under
(b)(ii) above unless Echelon either files amended returns or otherwise reflects
the Tax Detriment on its Tax Returns. If any Tax Detriment realized pursuant to
Section 4.3 is subsequently reversed, then Echelon shall refund the amount of
any payment for such detriment within 30 days of its notification that a Final
Determination has been reached reversing the Tax Detriment.
<PAGE> 16
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ARTICLE V
TAX AUDITS, TRANSACTIONS AND OTHER MATTERS
5.1 Tax Audits and Controversies. In the case of any audit,
examination or other proceeding ("Proceeding") with respect to Taxes of the Old
Florida Progress Consolidated Group or any member thereof for any taxable period
for which Florida Progress is or may be liable for such Taxes pursuant to this
Agreement, Echelon shall promptly inform Florida Progress and shall execute or
cause to be executed any powers of attorney or other documents necessary to
enable Florida Progress to take all actions desired by Florida Progress with
respect to such Proceeding to the extent such Proceeding may affect the amount
of Taxes for which Florida Progress is liable pursuant to this Agreement;
Florida Progress shall have the right to control any such Proceedings and to
initiate any claim for refund, file any amended return or take any other action
which it deems appropriate with respect to such taxable periods, provided,
however, that Florida Progress shall consult with Echelon with respect to any
Proceeding that may adversely affect the Echelon Group. In addition, Florida
Progress shall not enter into any final settlement or closing agreement with
respect to a matter that adversely affects Echelon without the consent of
Echelon, which consent may not be unreasonably withheld. Where Echelon withholds
its consent to any final settlement or closing agreement, Echelon shall continue
or initiate further proceedings with respect to such matter, at its own expense,
and the liability of Florida Progress shall not exceed the liability that would
have resulted from the proposed final settlement or closing agreement (including
interest, additions to tax and penalties which have accrued at that time).
Echelon shall have the right to control and to initiate any claim for refund,
file any amended return or take any other action which it deems appropriate with
respect to a Proceeding relating to Taxes for any taxable period beginning after
the Distribution Date provided such Proceeding does not involve any Taxes
attributable to any member of the Florida Progress Group.
5.2 Prior Agreements. Immediately prior to the Distribution,
Echelon shall pay to Florida Progress, on behalf of the Echelon Group, an amount
that represents Echelon Group's share of (i) Taxes due in connection with the
filing of the Old Florida Progress Consolidated Group's consolidated federal and
state income Tax Returns for all taxable periods beginning before the
Distribution Date, (ii) all state and local Income Taxes attributable to taxable
periods beginning before the Distribution Date and (iii) Other Taxes
attributable to taxable periods beginning before the Distribution Date. The
amount of this payment shall be determined under the Policy Statement. At the
time such payment is made, any member of the Echelon Group shall be deemed to
have satisfied all of its obligations under the Policy Statement.
Notwithstanding the foregoing, in consideration of the mutual indemnities and
other obligations of
<PAGE> 17
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this Agreement, any and all prior tax sharing agreements or practices between
any member of the Florida Progress Group and any member of the Echelon Group,
including the Policy Statement, shall be terminated with respect to the Echelon
Group as of the date of the Distribution.
5.3 Cooperation. Florida Progress and Echelon shall cooperate
with each other in the filing of any Tax Returns and the conduct of any audit or
other proceeding and each shall execute and deliver such powers of attorney and
other documents and make available such information and documents as are
necessary to carry out the intent of this Agreement. To the extent such
cooperation requires the services of officers, directors, employees, or agents
of a party, such services shall be made available in accordance with Section 7.1
of the Distribution Agreement. Each party agrees to notify the other parties of
any audit adjustment that does not result in Tax liability but can reasonably be
expected to affect Tax Returns of the other parties or any of their
Subsidiaries.
5.4 Retention of Records; Access. Beginning on the
Distribution Date, Florida Progress and Echelon shall, and shall cause each of
their Subsidiaries to:
(a) retain adequate records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns required to be filed by any member of the Old Florida
Progress Consolidated Group or any combination of such members and for any
audits and litigation relating to such Tax Returns or to any Taxes payable by
any member of the Old Florida Progress Consolidated Group or any combination of
such members; and
(b) give to the other parties reasonable access to such
records, documents, accounting data and other information (including computer
data) and to its personnel and premises, for the purpose of the review or audit
of such reports or returns to the extent relevant to an obligation or liability
of a party under this Agreement and in accordance with the procedures provided
in Article VI of the Distribution Agreement. The obligations set forth in these
paragraphs 5.4(a) and 5.4(b) shall continue until the final conclusion of any
litigation to which the records and information relate or until expiration of
all applicable statutes of limitations, whichever is longer.
5.5 Dispute Resolution. Any dispute or claim arising out of,
in connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, shall be resolved in the manner set
forth in Article VIII of the Distribution Agreement.
5.6 Confidentiality; Ownership of Information; Privileged
Information. The provisions of Section 6.5 of the
<PAGE> 18
15
Distribution Agreement relating to confidentiality of information, ownership of
information, privileged information and related matters shall apply with equal
force to any records and information prepared and/or shared by and among the
parties in carrying out the intent of this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Complete Agreement; Construction. This Agreement,
including the Schedules, and the Ancillary Agreements shall constitute the
entire agreement between the parties with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments and writings with
respect to such subject matter. In the event of any inconsistency between this
Agreement and any Schedule hereto, the Schedule shall prevail. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the provisions of any Ancillary Agreement, this Agreement shall control.
6.2 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each party and delivered to the other party.
6.3 Survival of Agreements. Except as otherwise contemplated
by this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
6.4 Expenses. Except as otherwise set forth in this Agreement,
all costs and expenses incurred on or prior to the Distribution Date (whether or
not paid on or prior to the Distribution Date) in connection with the
preparation, execution, delivery and implementation of this Agreement, the
Distribution and the Reorganizations shall be charged to and paid by Florida
Progress. Except as otherwise set forth in this Agreement, each party shall bear
its own costs and expenses incurred after the Distribution Date. Except as
otherwise set forth in the Distribution Agreement or any Ancillary Agreement,
any amount or expense to be paid or reimbursed by any party hereto to the other
party hereto shall be so paid or reimbursed promptly after the existence and
amount of such obligation is determined and demand therefore is made.
6.5 Notices. All notices and other communications hereunder
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery
<PAGE> 19
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confirmed (by voice or otherwise) to the parties at the following addresses (or
at such other addresses for a party as shall be specified by like notice) and
will be deemed given on the date on which such notice is received:
To Florida Progress Corporation:
3201 34th Street South
St. Petersburg, Florida 33711
Telephone: (813) 866-5153
Telecopy: (813) 866-4881
Attn: General Counsel
To Echelon International Corporation:
One Progress Plaza
Suite 2400
St. Petersburg, Florida 33701
Telephone: (813) 824-6768
Telecopy: (813) 824-6536
Attn: Chief Executive Officer
6.6 Waivers. The failure of either party to require strict
performance by the other party of any provision in this Agreement will not waive
or diminish such party's right to demand strict performance thereafter of that
or any other provision hereof.
6.7 Amendments. Subject to the terms of Section 6.10 hereof,
this Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
6.8 Assignment. (a) This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by either party hereto without the
prior written consent of the other party hereto, and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall be
void.
(b) Echelon will not distribute to its stockholders any
interest in any Echelon Subsidiary, by way of a spin-off distribution, split-off
or other exchange of interests in a Echelon Subsidiary for any interest in
Echelon held by Echelon stockholders, or any similar transaction or
transactions, unless the distributed Echelon Subsidiary undertakes to Florida
Progress to be jointly and severally liable for all Echelon Liabilities
hereunder.
6.9 Successors and Assigns. The provisions to this Agreement
shall be binding upon, inure to the benefit of and be
<PAGE> 20
17
enforceable by the parties and their respective successors and permitted
assigns.
6.10 Termination. This Agreement may be terminated, amended,
modified or abandoned at any time prior to the Distribution by and in the sole
discretion of Florida Progress without the approval of Echelon or the
stockholders of Florida Progress. In the event of such termination, no party
shall have any liability of any kind to any other party or any other person.
After the Distribution, this Agreement may not be terminated except by an
agreement in writing signed by the parties.
6.11 Subsidiaries. Each of the parties hereto shall cause to
be performed, and hereby guarantees the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such party
or by any entity that is contemplated to be a Subsidiary of such party on and
after the Distribution Date.
6.12 Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties hereto and their respective Subsidiaries and should
not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
6.13 Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
6.14 Schedules. The Schedules shall be construed with and as
an integral part of this Agreement to the same extent as if the same had been
set forth verbatim herein.
6.15 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF FLORIDA.
6.16 Consent to Jurisdiction. Without limiting the provisions
of Section 5.5 hereof, each of the parties irrevocably submits to the exclusive
jurisdiction of (a) the Circuit Court of the State of Florida, Pinellas County,
and (b) the United States District Court for the Middle District of Florida, for
the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of the parties agrees to
commence any action, suit or proceeding relating hereto either in the United
States District Court for the Middle District of Florida or if such suit, action
or other proceeding may not be brought in such court for jurisdictional reasons,
in the Circuit Court of the State of Florida, Pinellas County. Each of the
parties further agrees that service of any process, summons, notice or document
by U.S. registered mail to
<PAGE> 21
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such party's respective address set forth above shall be effective service of
process for any action, suit or proceeding in Florida with respect to any
matters to which it has submitted to jurisdiction in this Section 6.16. Each of
the parties irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Circuit Court of the State of
Florida, Pinellas County, or (ii) the United States District Court for the
Middle District of Florida, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
6.17 Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in 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 provisions.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
FLORIDA PROGRESS CORPORATION,
a Florida corporation
By:________________________
ECHELON INTERNATIONAL
CORPORATION,
a Florida corporation
By:________________________
<PAGE> 1
EXHIBIT 10.3
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
This EMPLOYEE BENEFITS ALLOCATION AGREEMENT is dated ________ __,
1996 (the "Agreement"), by and between FLORIDA PROGRESS CORPORATION, a Florida
corporation ("Florida Progress") and ECHELON INTERNATIONAL CORPORATION, a
Florida corporation and an indirect wholly owned subsidiary of Florida Progress,
("Echelon").
W I T N E S S E T H:
WHEREAS, prior to entering into this Agreement, the Echelon Group
consisted of (i) Progress Credit Corporation ("PCC"), a Florida corporation and
a direct, wholly owned subsidiary of Progress Capital Holdings, Inc. ("PCH"),
(ii) Talquin Development Company ("Talquin"), a Florida corporation and a
direct, wholly owned subsidiary of PCC, (iii) Progress Leasing Corporation
("Progress Leasing"), a Florida corporation and a direct, wholly owned
subsidiary of PCC, (iv) Echelon, formerly known as PLC Leasing Corporation ("PLC
Leasing") and a direct, wholly owned subsidiary of Progress Leasing and (v)
their respective Subsidiaries;
WHEREAS, prior to entering into this Agreement, (i) Talquin, merged
with and into PCC, (ii) PCC, merged with and into Progress Leasing and (iii)
Progress Leasing, merged with and into Echelon, which, as a result of such
merger, became the successor to Talquin, PCC and Progress Leasing;
WHEREAS, it has been proposed that Florida Progress distribute the
shares of Echelon Common Stock (and Echelon Rights) to Florida Progress
stockholders;
WHEREAS, Florida Progress and Echelon have entered into an agreement
the ("Distribution Agreement") to, among other things, allocate assets and to
allocate and assign responsibility for liabilities to each of Florida Progress
and Echelon;
WHEREAS, Florida Progress and Echelon have determined that it is
necessary and desirable to clarify, and to allocate and assign responsibility
for certain employee benefit matters in respect of such entities on and after
the Effective Time (as defined herein).
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein and intending to be legally bound thereby, Florida
Progress and Echelon agree as follows:
<PAGE> 2
2
ARTICLE I.
DEFINITIONS
SECTION A. Definitions. Capitalized terms used in
this Agreement shall have the following meanings:
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
"Affiliate" shall mean, with respect to any specified person, a
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
person; provided, however, that for purposes of this Agreement, no member of
either Group shall be deemed to be an Affiliate of any member of the other
Group.
"Ancillary Agreements" shall mean all of the written agreements,
instruments, assignments or other arrangements (other than this Agreement and
the Distribution Agreement) entered into in connection with the transactions
contemplated by this Agreement and the Distribution Agreement, including,
without limitation, the PCH Note, the Tax Sharing Agreement and the Transition
Services Agreement, and any exhibit, schedule or appendix to any of the
foregoing.
"Assets" shall have the meaning set forth in Section
1.1 of the Distribution Agreement.
"Board of Directors" shall mean, when used with respect to a
specified corporation, the board of directors of the corporation so specified.
"Business Entity" shall mean any corporation, partnership, limited
liability company or other entity which may legally hold title to Assets.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and the regulations promulgated thereunder, including
any successor legislation.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the Treasury regulations promulgated thereunder, including any successor
legislation.
"Distribution" shall mean the distribution on the Distribution Date
to holders of record of shares of Florida Progress Common Stock as of the Record
Date of the Echelon Common stock owned by Florida Progress on the basis of one
share of Echelon Common Stock for 15 outstanding shares of Florida Progress
Common Stock.
<PAGE> 3
3
"Distribution Agreement" shall mean the Distribution
Agreement between Florida Progress and Echelon.
"Distribution Date" shall mean the date fixed by the Board of
Directors of Florida Progress as the date on which the Distribution is to be
effected.
"Echelon" shall have the meaning set forth in the recitals hereto.
"Echelon Common Stock" shall mean the common stock, par value $.01
per share, of Echelon, together with the Echelon Rights.
"Echelon Employees" shall mean persons who, immediately after the
Effective Time, are employed by the Echelon Group.
"Echelon Group" shall mean Echelon, as successor to the group of
companies consisting of PCC, Talquin, Progress Leasing, and PLC Leasing
Corporation, the Subsidiaries thereof, and any Persons which may hereafter be
organized or acquired directly or indirectly as Echelon Subsidiaries.
"Echelon Investments" shall mean any corporation, partnership or
other business entity, in which any member of the Echelon Group has owned or
will own any equity interest or other investment and which relates to the
business and operations conducted by Echelon or any Echelon Subsidiary, other
than a member of the Florida Progress Group.
"Echelon Rights" shall mean the preferred stock purchase rights of
Echelon issued pursuant to the Rights Agreement dated as of , 1996 by and
between Echelon and , as Rights Agent.
"Echelon Subsidiaries" shall mean all Subsidiaries of Echelon and
all Echelon Investments.
"Effective Time" shall mean 12:01 a.m., St. Petersburg, Florida, on
the Distribution Date.
"Employee Benefit Dispute" shall include any controversy, dispute or
claim arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement or otherwise
arising out of, or in any way related to this Agreement or the transactions
contemplated hereby, including, without limitation, any claim based on contract,
tort, statute or constitution.
"Employee Benefit Litigation Liability" shall mean, with respect to
a Business Entity, a Liability relating to a controversy, dispute or claim
arising out of, in connection with or in relation the interpretation,
performance, nonperformance, validity or breach of an Employee Benefit Plan of
such Business
<PAGE> 4
4
Entity or otherwise arising out of, or in any way related to such Employee
Benefit Plan, including, without limitation, any claim based on contract, tort,
statute or constitution.
"Employee Benefit Plans" shall mean, with respect to a Business
Entity, all "employee benefit plans" (within the meaning of Section 3(3) of
ERISA), "multiemployer plans" (within the meaning of Section 3(37) of ERISA),
retirement, pension, savings, welfare, employment, fringe benefit, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements (including any funding
mechanisms therefor), whether or not subject to ERISA, whether formal or
informal, oral or written, legally binding or not, under which (i) any past,
present or future employee of the Business Entity or its Subsidiaries has a
right to benefits and (ii) the Business Entity or its Subsidiaries has any
Liability.
"Employee Benefit Records" shall mean all agreements, documents,
books, records or files relating to the Employee Benefit Plans of Florida
Progress and Echelon.
"Employee Benefit Welfare Plans" shall mean, with respect to a
Business Entity, all Employee Benefit Plans that are "welfare plans" within the
meaning of Section 3(1) of ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder, including any
successor legislation.
"Florida Progress" shall have the meaning set forth in the recitals
hereto.
"Florida Progress Common Stock" shall have the meaning set forth in
the recitals hereto.
"Florida Progress Group" shall mean Florida Progress and the Florida
Progress Subsidiaries other than Echelon and other members of the Echelon Group.
"Florida Progress Retirement Plan" shall mean the Employees'
Retirement Plan of Florida Progress Corporation, as amended and restated
effective January 1, 1989, and including later amendments through April 1, 1995.
"Florida Progress Savings Plan" shall mean the Savings Plan for
Employees of Florida Progress Corporation, as in effect on January 1, 1995.
"Florida Progress Subsidiaries" shall mean all Subsidiaries of
Florida Progress, other than Echelon and the other members of the Echelon Group
(including the Echelon Investments).
<PAGE> 5
5
"Group" shall mean the Florida Progress Group or the Echelon Group.
"Liabilities" shall mean any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, sums of money, accounts, reckonings, bonds, specialties,
indemnities and similar obligations, exonerations, covenants, contracts,
controversies, agreements, promises, doings, omissions, variances, guarantees,
make whole agreements and similar obligations, and other liabilities, including
all contractual obligations, whether absolute or contingent, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever arising, and including those arising under any law, rule, regulation,
Action, threatened or contemplated Action (including the costs and expenses of
demands, assessments, judgments, settlements and compromises relating thereto
and attorneys' fees and any and all costs and expenses (including allocated
costs of in-house counsel and other personnel), whatsoever reasonably incurred
in investigating, preparing or defending against any such Actions or threatened
or contemplated Actions), order or consent decree of any governmental or other
regulatory or administrative agency, body or commission or any award of any
arbitrator or mediator of any kind, and those arising under any contract,
commitment or undertaking, including those arising under this Agreement, the
Distribution Agreement or any Ancillary Agreement, in each case, whether or not
recorded or reflected or required to be recorded or reflected on the books and
records or financial statements of any person.
"PCC" shall have the meaning set forth in the recitals hereto.
"PCH" shall have the meaning set forth in the recitals hereto.
"person" shall mean any natural person, corporation, business trust,
joint venture, association, company, limited liability company partnership or
government, or any agency or political subdivision thereof.
"PLC Leasing" shall have the meaning set forth in the recitals
hereto.
"Record Date" shall mean ___________, 1996.
"Subsidiary" shall mean with respect to any specified Person, any
corporation, partnership or other legal entity of which such Person or any of
its Subsidiaries controls or owns, directly or indirectly, more than 50% of the
stock or other equity interest entitled to vote on the election of members to
the board of directors or similar governing body; provided, however, that for
purposes of this Agreement, Echelon and the
<PAGE> 6
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Echelon Subsidiaries shall not be deemed to be Subsidiaries of Florida Progress
or any of the Florida Progress Subsidiaries.
"Talquin" shall have the meaning set forth in the recitals hereto.
"TRS" shall mean TRS Commercial Real Estate Services, Inc.
"TRS Employees" shall mean persons who were, at any time, employed
by TRS.
ARTICLE II.
DEFINED BENEFIT PLAN
SECTION A. Florida Progress Retirement Plan. No assets or
liabilities with respect to Echelon Employees and their beneficiaries shall be
transferred as a result of this Agreement from the Florida Progress Retirement
Plan to any plan or arrangement established or maintained by the Echelon Group
for the benefit of Echelon Employees and their beneficiaries. After the
Effective Time, no further benefit shall accrue under the Florida Progress
Retirement Plan with respect to Echelon Employees. Benefits payable to Echelon
Employees under the Florida Progress Retirement Plan shall be payable to such
Echelon Employees pursuant to the terms of, and at the time and in the amounts
provided under, the Florida Progress Retirement Plan based upon each such
Echelon Employee's years of service with Florida Progress or its Affiliates
(including periods of employment with any employer which are taken into account
under the Florida Progress Retirement Plan), and compensation received from
Florida Progress or its Affiliates through the Effective Time.
ARTICLE III.
DEFINED CONTRIBUTION PLANS
SECTION A. Florida Progress Savings Plan. Active participation of
Echelon Employees in the Florida Progress Savings Plan shall cease immediately
after the Effective Time. The time and manner in which amounts will be
distributed to Echelon Employees shall be determined pursuant to the terms of
the Florida Progress Savings Plan.
SECTION B. Outstanding Loans. All Echelon Employees who have
outstanding loans from the Florida Progress Savings Plan may repay their loans
directly to the Florida Progress Savings Plan in accordance with the existing
terms thereof. For those Echelon Employees who wish to repay their loans to the
Florida Progress Savings Plan, Echelon shall loan those Echelon Employees a
sufficient sum to pay off their loans. The Echelon loans shall be at the lowest
permissible interest rate to avoid imputed interest to the employee under the
Code. Those Echelon Employees who have borrowed money from Echelon to pay off
their outstanding
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7
loans from the Florida Progress Savings Plan shall be permitted to repay such
loans by way of regular deductions from their paychecks.
SECTION C. Matching Contributions. Florida Progress shall make its
regular monthly matching contributions to the Florida Progress Savings Plan
accounts of Echelon Employees for all periods of service on or prior to the
Effective Time.
ARTICLE IV.
WELFARE PLANS
SECTION A. Employee Benefit Welfare Plans. Except as provided in
Section 4.2 below, from and after the Effective Time, Echelon shall sponsor its
Employee Benefit Welfare Plans solely for the benefit of Echelon Employees, and
Echelon Employees shall not continue to participate in any Florida Progress
Employee Benefit Welfare Plans. Notwithstanding the foregoing, neither Florida
Progress nor Echelon shall have any obligation to sponsor any Employee Benefit
Welfare Plan from or after the Effective Time.
SECTION B. Allocation of Liabilities. 1. The Florida Progress Group
shall retain responsibility for and continue to pay all expenses and benefits
relating to the Florida Progress Employee Benefit Welfare Plans with respect to
claims incurred prior to the Effective Time by Echelon Employees and their
covered dependents. The Echelon Group shall be responsible for and pay expenses
and benefits relating to all Employee Benefit Welfare Plan claims incurred by
Echelon Employees and their covered dependents from and after the Effective
Time. For purposes of this paragraph, a claim is deemed incurred when the
services that are the subject of the claim are performed; in the case of life
insurance, when the death occurs; in the case of long-term disability, when the
disability occurs; and, in the case of a hospital stay, when the employee first
enters the hospital.
2. The Florida Progress Group shall be responsible for all COBRA
coverage for any person who was a Florida Progress employee prior to the
Effective Time and his or her covered dependents who participated in a Florida
Progress Employee Benefit Welfare Plan and who had or have a loss of health care
coverage due to a qualifying event occurring prior to the Effective Time. The
Florida Progress Group shall also be responsible for all COBRA coverage for any
employee of the Echelon Group and his or her covered dependents who participated
in a Florida Progress Employee Benefit Welfare Plan and who had or have a loss
of health care coverage due to a qualifying event occurring prior to the
Effective Time.
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ARTICLE V.
OTHER EMPLOYEE BENEFIT ISSUES
SECTION A. Employee Benefit Litigation Liabilities. Except as
otherwise expressly provided in this agreement or with respect to Articles II
and III, the Florida Progress Group shall retain all Employee Benefit Litigation
Liabilities that are asserted by Echelon Employees in respect of periods prior
to the Effective Time.
SECTION B. Workers' Compensation. The Florida Progress Group shall
retain all Liabilities relating to workers' compensation claims that were
incurred (a) prior to the Effective Time with respect to Florida Progress
employees who were employed by the Florida Progress Group and (b) on and after
the Effective Time with respect to Florida Progress employees who continued to
be employed by Florida Progress after the Effective Time. The Echelon Group
shall retain all Liabilities relating to workers' compensation claims that were
incurred (a) prior to the Effective Time with respect to Florida Progress
employees who were employed by the Echelon Group, (b) prior to the Effective
Time with respect to TRS Employees who, on or after the Effective Time, are
Echelon Employees and (c) on and after the Effective Time with respect to
Echelon Employees. For purposes of this paragraph, a claim is deemed incurred
when the injury that is the subject of the claim occurs.
SECTION C. Florida Progress Corporation Retirement Benefit
Nondiscriminating Plan for Excess Benefits. The Echelon Group shall assume any
and all liabilities with respect to Echelon Employees under the Florida
Progress Corporation Retirement Benefit Nondiscriminatory Plan for Excess
Benefits.
ARTICLE VI.
ACCESS TO INFORMATION
SECTION A. Access to Information. Article VI of the Distribution
Agreement shall govern the rights of the Florida Progress Group and the Echelon
Group with respect to access to information. The term "Records" in that Article
shall be read to include all Employee Benefit Records.
ARTICLE VII.
INDEMNIFICATION
SECTION A. Indemnification. Article IV of the Distribution Agreement
shall govern the rights of the Florida Progress Group and the Echelon Group with
respect to indemnification. The term "Florida Progress Liabilities" in that
Article shall be read to include all Liabilities assumed by the Florida Progress
Group pursuant to this Agreement. The term "Echelon Liabilities" in that Article
shall be read to include all Liabilities assumed by the Echelon Group pursuant
to this Agreement.
<PAGE> 9
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ARTICLE VIII.
DISPUTE RESOLUTION
SECTION A. Dispute Resolution. Article VIII of the Distribution
Agreement shall govern the rights of the Florida Progress Group and the Echelon
Group with respect to dispute resolution. The term "Agreement Dispute" in that
Article shall be read to include all Employee Benefit Disputes.
ARTICLE IX.
MISCELLANEOUS
SECTION A. Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules (if any), and the Distribution Agreement
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter. In the event of any
inconsistency between this Agreement and any Exhibit or Schedule hereto, the
Exhibit or Schedule shall prevail. Other than Section 2.12 and Article VIII of
the Distribution Agreement, which shall prevail over any inconsistent or
conflicting provisions in this Agreement, notwithstanding any other provisions
in this Agreement to the contrary, in the event and to the extent that there
shall be a conflict between the provisions of this Agreement and the provisions
of the Distribution Agreement, this Agreement shall control.
SECTION B. Ancillary Agreements. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically and
expressly covered by the Ancillary Agreements.
SECTION C. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the parties and delivered to the other parties.
SECTION D. Survival of Agreements. Except as otherwise contemplated
by this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
SECTION E. Expenses. Except as otherwise set forth in this
Agreement, the Distribution Agreement or any Ancillary Agreement, all costs and
expenses incurred on or prior to the Distribution Date (whether or not paid on
or prior to the Distribution Date) in connection with the preparation,
execution, delivery and implementation of this Agreement, the Distribution
Agreement, any Ancillary Agreement and the Distribution and the consummation of
the transactions contemplated thereby shall be charged to and paid by Florida
Progress. Except as otherwise set
<PAGE> 10
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forth in this Agreement, the Distribution Agreement or any Ancillary Agreement,
each party shall bear its own costs and expenses incurred after the Distribution
Date. Any amount or expense to be paid or reimbursed by one party hereto to the
other party hereto shall be so paid or reimbursed promptly after the existence
and amount of such obligation is determined and demand therefor is made.
SECTION F. Notices. All notices and other communications hereunder
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the parties at
the following addresses (or at such other addresses for a party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To the Florida Progress Corporation:
3201 34th Street South
St. Petersburg, Florida 33711
Telephone: (813) 866-5153
Telecopy: (813) 866-4881
Attn: General Counsel
To Echelon International Corporation:
One Progress Plaza
Suite 2400
St. Petersburg, Florida 33701
Telephone: (813) 824-6768
Telecopy: (813) 824-6536
Attn: Chief Executive Officer
SECTION G. Waivers. The failure of either party to require strict
performance by the other party of any provision in this Agreement will not waive
or diminish such party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION H. Amendments. Subject to the terms of Section 9.11 hereof,
this Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
SECTION I. Assignment. This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by either party hereto without the
prior written consent of the other party hereto, and any attempt to assign any
rights or
<PAGE> 11
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obligations arising under this Agreement without such consent shall be void.
SECTION J. Successors and Assigns. The provisions to this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
SECTION K. Termination. This Agreement (including, without
limitation, Article VII hereof) may be terminated and may be amended, modified
or abandoned at any time prior to the Distribution by and in the sole discretion
of Florida Progress without the approval of Echelon or the shareholders of
Florida Progress. In the event of such termination, no party shall have any
liability of any kind to any other party or any other person. After the
Distribution, this Agreement may not be terminated except by an agreement in
writing signed by the parties.
SECTION L. Subsidiaries. Florida Progress shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Florida Progress Subsidiary.
If Echelon subsequently organizes or acquires any Subsidiary, Echelon shall not
permit such Subsidiary to take or fail to take any action, if taking or failing
to take such action would result in a breach of this Agreement if taken or
failed to be taken, as the case may be, by Echelon. Echelon shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Echelon Subsidiary.
SECTION M. Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties hereto and their respective Subsidiaries and
Affiliates and should not be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
SECTION N. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
SECTION O. Exhibits and Schedules. The Exhibits and Schedules, if
any, shall be construed with and as an integral part of this Agreement to the
same extent as if the same had been set forth verbatim herein.
SECTION P. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF FLORIDA.
<PAGE> 12
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SECTION Q. Consent to Jurisdiction. Without limiting the provisions
of Article VIII hereof, each of the parties irrevocably submits to the exclusive
jurisdiction of (a) the Circuit Court of the State of Florida, Pinellas County,
and (b) the United States District Court for the Middle District of Florida, for
the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of the parties agrees to
commence any action, suit or proceeding relating hereto either in the United
States District Court for the Middle District of Florida or if such suit, action
or other proceeding may not be brought in such court for jurisdictional reasons,
in the Circuit Court of the State of Florida, Pinellas County. Each of the
parties further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth above shall
be effective service of process for any action, suit or proceeding in Florida
with respect to any matters to which it has submitted to jurisdiction in this
Section 9.17. Each of the parties irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in (i) the Circuit
Court of the State of Florida, Pinellas County, or (ii) the United States
District Court for the Middle District of Florida, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
SECTION R. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in 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 provisions.
SECTION S. Governmental Notices; Cooperation. Notwithstanding
anything in this Agreement to the contrary, all actions contemplated herein with
respect to Employee Benefit Plans which are to be consummated pursuant to this
Agreement shall be subject to such notices to, and/or approvals by, the Internal
Revenue Service or the Pension Benefit Guaranty Corporation (or any other
governmental agency or entity) as are required or deemed appropriate by such
Employee Benefit Plan's sponsor. Florida Progress and Echelon agree to use their
commercially reasonable efforts to cause all such notices and/or approvals to be
filed or obtained, as the case may be. Each party hereto shall reasonably
cooperate with the other party with respect to any government filings, employee
notices or any other actions reasonably necessary to maintain and implement the
Employee Benefit Plans covered by this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the day and year first above written.
FLORIDA PROGRESS CORPORATION
by
_______________________
Name:
Title:
ECHELON INTERNATIONAL CORPORATION
by
_______________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
FORM OF TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT is dated as of___________ __,
1996, between FLORIDA PROGRESS CORPORATION, a Florida corporation ("Florida
Progress") and ECHELON INTERNATIONAL CORPORATION, a Florida corporation
("Echelon").
W I T N E S S E T H
WHEREAS, Florida Progress and Echelon have entered into a
Distribution Agreement dated as of the date hereof (the "Distribution
Agreement") pursuant to which, among other matters, Florida Progress has agreed
to provide, or cause one or more of its Subsidiaries to provide, to Echelon
certain transitional, administrative and support services on the terms set forth
in this Agreement and the Appendices hereto. Florida Progress shall sometimes
hereinafter be referred to as "Provider", and Echelon shall sometimes
hereinafter be referred to as "Recipient".
NOW, THEREFORE, subject to the terms, conditions, covenants and
provisions of this Agreement, each of Florida Progress and Echelon mutually
covenant and agree as follows:
ARTICLE I
SERVICES PROVIDED
1.1 Transition Services. Upon the terms and subject to the
conditions set forth in this Agreement, with respect to each of those services
set forth in an Appendix hereto, each of which Appendices is made a part of this
Agreement, Provider will provide to Recipient the services indicated in such
Appendix (hereinafter referred to individually as a "Transition Service", and
collectively as the "Transition Services") during the time period for each such
Transition Service set forth in such Appendix (hereinafter referred to as the
"Time Periods" for all of the Transition Services, and the "Time Period" for
each Transition Service).
1.2 Personnel. In providing the Transition Services, Provider as it
deems necessary or appropriate in its sole discretion, may (i) use the personnel
of Provider or its Affiliates, and (ii) employ the services of third parties to
the extent such third party services are routinely utilized to provide similar
services to other businesses of Provider or are reasonably necessary for the
efficient performance of any of such Transition Services. Recipient may retain
at its own expense its own consultants and other professional advisers.
1.3 Representatives. Florida Progress and Echelon
shall each nominate a representative to act as its primary
<PAGE> 2
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contact person for the provision of all of the Transition Services (the "Primary
Coordinators"). The initial Primary Coordinators shall be _____________ for
Provider and ________ for Recipient. The initial coordinators for each specific
Transition Service shall be the individuals named in the Appendix relating to
such Transition Service (the "Service Coordinators"). Each party may treat an
act of a Primary Coordinator or a Service Coordinator of the other party, as
being authorized by such other party without inquiring behind such act or
ascertaining whether such Primary Coordinator or such Service Coordinator, as
the case may be, had authority to so act. Provider and Recipient shall advise
each other in writing of any change in their respective Primary Coordinator or
in any Service Coordinator, setting forth the name of the Primary Coordinator or
Service Coordinator, as the case may be, to be replaced and the name of the
replacement, and certifying that the replacement Primary Coordinator or Service
Coordinator is authorized to act for such party in all matters relating to this
Agreement. Each of Provider and Recipient agree that all communications relating
to the provision of the Transition Services shall be directed to the Primary
Coordinators.
1.4 Level of Transition Services. (a) Provider shall perform the
Transition Services following commonly accepted standards of care in the
industry and exercising the same degree of care as it exercises in performing
the same or similar services for its own account as of the date of this
Agreement, with priority equal to that provided to its own businesses or those
of any of its Affiliates, Subsidiaries or divisions. Nothing in this Agreement
shall require Provider to favor the businesses of Recipient over its own
businesses or those of any of its Affiliates, Subsidiaries or divisions.
(b) Provider shall not be required to provide Recipient with
extraordinary levels of Transition Services, special studies, training, or the
like or the advantage of systems, equipment, facilities, training, or
improvements procured, obtained or made after the Distribution Date by Provider.
(c) In addition to being subject to the terms and conditions of this
Agreement for the provision of the Transition Services, Recipient agrees that
the Transition Services provided by third parties shall be subject to the terms
and conditions of any agreements between Provider and such third parties.
1.5 Limitation of Liability. In the absence of gross negligence or
willful misconduct on the part of Provider, and whether or not Provider is
negligent, Provider shall not be liable for any claims, liabilities, damages,
losses, costs, expenses (including, but not limited to, settlements, judgments,
court costs and reasonable attorneys' fees), fines and penalties, arising out of
any actual or alleged injury, loss or damage of any nature whatsoever in
providing or failing to provide
<PAGE> 3
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Transition Services to Recipient. Notwithstanding anything to the contrary
contained herein, in the event Provider commits an error with respect to or
incorrectly performs or fails to perform any Transition Service, at Recipient's
request, Provider shall use reasonable efforts and good faith to correct such
error, re-perform or perform such Transition Service at no additional cost to
Recipient; provided, that Provider shall have no obligation to recreate any lost
or destroyed data to the extent the same cannot be cured by the re-performance
of the Transition Service in question.
1.6 Force Majeure. Any failure or omission by a party in the
performance of any obligation under this Agreement shall not be deemed a breach
of this Agreement or create any liability, if the same arises from any cause or
causes beyond the control of such party, including, but not limited to, the
following, which, for purposes of this Agreement shall be regarded as beyond the
control of each party hereto: acts of God, fire, storm, flood, earthquake,
governmental regulation or direction, acts of the public enemy, war, rebellion,
insurrection, riot, invasion, strike or lockout; provided, however, that such
party shall resume the performance whenever such causes are removed.
Notwithstanding the foregoing, if such party cannot perform under this Agreement
for a period of forty-five (45) days due to such cause or causes, the affected
party may terminate the Agreement with the defaulting party by providing written
notice thereto.
1.7 Modification of Procedures. Provider may make changes from time
to time in its standards and procedures for performing the Transition Services.
Notwithstanding the foregoing sentence, unless required by law, Provider shall
not implement any substantial changes affecting Recipient unless:
(a) Provider has furnished Recipient notice thereof;
(b) Provider changes such procedures for its own businesses at the
same time; and
(c) Provider gives Recipient a reasonable period of time for
Recipient (i) to adapt its operations to accommodate such changes or (ii) to
reject the proposed changes. In the event Recipient fails to accept or reject a
proposed change on or before a date specified in such notice of change,
Recipient shall be deemed to have accepted such change. In the event Recipient
rejects a proposed change but does not terminate this Agreement, Recipient
agrees to pay any charges resulting from Provider's need to maintain different
versions of the same systems, procedures, technologies, or services or resulting
from requirements of third party vendors or suppliers.
1.8 No Obligation to Continue to Use Services. Recipient shall not
have any obligation to continue to use any of the Transition Services and may
delete any Transition Service by giving Provider notice thereof in accordance
with the notice
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provisions herein and in the Appendix relating to such Transition Service.
1.9 Provider Access. To the extent reasonably required for personnel
of Provider to perform the Transition Services, Recipient shall provide
personnel of Provider with access to its data, equipment, office space, plants,
telecommunications and computer equipment and systems, and any other areas and
equipment.
ARTICLE II
COMPENSATION
2.1 Consideration. As consideration for the Transition Services,
Recipient shall pay to Provider the amount specified for each such Transition
Service as set forth in the Appendix relating to such Transition Service.
2.2 Invoices. After the end of each [month] [quarter], Provider,
together with its Affiliates or Subsidiaries providing Transition Services will
submit one invoice to Recipient for all Transition Services provided to
Recipient by Provider during such [month] [quarter]. Such invoices shall be
issued no later than the fifteenth day after the end of the invoice period. Each
invoice shall include a summary list of the previously agreed upon Transition
Services for which there are fixed dollar fees, together with documentation
supporting each of the invoiced amounts that are not covered by the fixed fee
agreements. The total amount set forth on such summary list and such supporting
detail shall equal the invoice total. All invoices shall be sent to Recipient at
the following address or to such other address as Recipient shall have specified
by notice in writing to Provider referenced on each such invoice:
Echelon International Corporation
[address]
Attention:
Fax: (___) ___-____
2.3 Payment of Invoices. (a) Payment of all invoices in respect of a
Transition Service shall be made by check or electronic funds transmission in
U.S. Dollars, without any offset or deduction of any nature whatsoever, within
thirty (30) days of the invoice date unless otherwise specified in the Appendix
relating to such Transition Service. All payments shall be made to the account
set forth below with written confirmation of payment sent by facsimile to the
person set forth below.
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Account:
Florida Progress Corporation
[City and State]
Account No.
ABA Routing No.
Written Confirmation:
Florida Progress Corporation
[address]
Attention:
Fax: (___) ___-____
(b) If any payment is not paid when due, Provider shall have the
right, without any liability to Recipient, or anyone claiming by or through
Recipient, to immediately cease providing any or all of the Transition Services
provided by Provider to Recipient, which right may be exercised by Provider in
its sole and absolute discretion.
ARTICLE III
CONFIDENTIALITY
3.1 Obligation. Each of (i) Florida Progress and the Florida
Progress Subsidiaries and (ii) Echelon shall not use or permit the use of
(without the prior written consent of the other) and shall keep, and shall cause
its consultants and advisors to keep, confidential all information concerning
the other party received pursuant to or in connection with this Agreement.
3.2 Care and Inadvertent Disclosure. With respect to any
confidential information, each party agrees as follows:
(a) it shall use the same degree of care in safeguarding said
information as it uses to safeguard its own information which must be held
in confidence; and
(b) upon the discovery of any inadvertent disclosure or
unauthorized use of said information, or upon obtaining notice of such a
disclosure or use from the other party, it shall take all necessary
actions to prevent any further inadvertent disclosure or unauthorized use,
and, subject to the provisions of Section 1.5 above, the other party shall
be entitled to pursue any other remedy which may be available to it.
<PAGE> 6
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ARTICLE IV
TERM AND TERMINATION
4.1 Term. This Agreement shall become effective on the Distribution
Date and shall remain in force until the expiration of the longest Time Period
specified in any Appendix hereto, including any extension thereof, unless all of
the Transition Services are deleted by Recipient in accordance with Section 1.8
above, or this Agreement is terminated under Section 1.6 above or Sections 4.3
or 6.16 below prior to the end of such Time Period.
4.2 Extension. Subject to the earlier termination of this Agreement
in accordance with Section 1.6 above or Sections 4.3 or 6.16 below, Recipient
may extend each Time Period for a Transition Service for the time period, if
any, set forth in the relevant Appendix by giving Provider the period of prior
written notice set forth in such Appendix prior to the end of the Time Period in
question.
4.3 Termination. If either party (hereafter called the "Defaulting
Party") shall fail to perform or default in the performance of any of its
obligations under this Agreement (other than a payment default), the other party
(hereinafter referred to as a "Non-Defaulting Party") may give written notice to
the Defaulting Party specifying the nature of such failure or default and
stating that the Non-Defaulting Party intends to terminate this Agreement with
respect to the Defaulting Party if such failure or default is not cured within
[15] days of such written notice. If any failure or default so specified is not
cured within such [15] day period, the Non-Defaulting Party may elect to
immediately terminate this Agreement with respect to the Defaulting Party;
provided, however, that if the failure or default relates to a dispute contested
in good faith by the Defaulting Party, the Non-Defaulting Party may not
terminate this Agreement pending the resolution of such dispute in accordance
with Article V hereof. Such termination shall be effective upon giving a written
notice of termination from the Non-Defaulting Party to the Defaulting Party and
shall be without prejudice to any other remedy which may be available to the
Non-Defaulting Party against the Defaulting Party. Nothing in this Section 4.3
shall limit Provider's rights under Section 2.3(b).
4.4 Termination of Obligations. Recipient specifically agrees and
acknowledges that all obligations of Provider to provide each Transition Service
shall immediately cease upon the expiration of the Time Period (and any
extension thereof in accordance with Section 4.2) for such Transition Service,
and Provider's obligations to provide all of the Transition Services shall
immediately cease upon the termination of this Agreement. Upon the cessation of
Provider's obligation to provide any Transition Service, Recipient shall
immediately cease using, directly or indirectly, such Transition Service
(including, without limitation, any and all software of Provider or third
<PAGE> 7
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party software provided through Provider, telecommunications services or
equipment, or computer systems or equipment).
4.5 Survival of Certain Obligations. Without prejudice to the
survival of the other agreements of the parties, the following obligations shall
survive the termination of this Agreement: (a) the obligations of each party
under Article III, and (b) Provider's right to receive the compensation for the
Transition Services provided by it hereunder provided in Section 2.1 above
incurred prior to the effective date of termination.
ARTICLE V
DISPUTE RESOLUTION
5.1 Dispute Resolution. Any disputes arising out of or in connection
with this Agreement shall be settled in accordance with the dispute resolution
mechanisms set forth in Article VIII of the Distribution Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Complete Agreement; Construction. This Agreement, including the
Appendices hereto, shall constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter. In
the event of any inconsistency between this Agreement and any Appendix hereto,
the Appendix shall prevail. In the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of any
other Ancillary Agreement, this Agreement shall control.
6.2 Other Ancillary Agreements. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically and
expressly covered by the other Ancillary Agreements.
6.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each party and delivered to the other party.
6.4 Survival of Agreements. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
6.5 Notices. All notices and other communications hereunder shall be
in writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent
<PAGE> 8
8
by any means of electronic message transmission with delivery confirmed (by
voice or otherwise) to the parties at the following addresses (or at such other
addresses for a party as shall be specified by like notice) and will be deemed
given on the date on which such notice is received:
To Florida Progress Corporation:
One Progress Plaza
St. Petersburg, Florida 33701
Attn: General Counsel
To Echelon International Corporation
________________________________
________________________________
Attn: Chief Executive Officer
6.6 Waivers. The failure of any party to require strict performance
by the other party of any provision in this Agreement will not waive or diminish
that party's right to demand strict performance thereafter of that or any other
provision hereof.
6.7 Amendments. Subject to the terms of Section 4.2 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
6.8 Assignment. This Agreement shall not be assignable, in whole or
in part, directly or indirectly, by either party hereto without the prior
written consent of the other party hereto, and any attempt to assign any rights
or obligations arising under this Agreement without such consent shall be void.
6.9 Successors and Assigns. The provisions to this Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
6.10 Subsidiaries. Provider shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein or in any Appendix hereto to be performed by any Florida Progress
Subsidiary.
6.11 Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and their respective Subsidiaries and Affiliates
and should not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement.
6.12 Title and Headings. Titles and headings to sections herein are
inserted for the convenience of reference
<PAGE> 9
9
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
6.13 Appendices. The Appendices shall be construed with and as an
integral part of this Agreement to the same extent as if the same had been set
forth verbatim herein. In the event of any inconsistency between the terms of
any Appendix and the terms set forth in the main body of this Agreement, the
terms of the Appendix shall govern.
6.14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF FLORIDA.
6.15 Consent to Jurisdiction. Without limiting the provisions of
Article V hereof, each of the parties irrevocably submits to the exclusive
jurisdiction of (a) the Circuit Court of the State of Florida, Pinellas County,
and (b) the United States District Court for the Middle District of Florida, for
the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of the parties agrees to
commence any action, suit or proceeding relating hereto either in the United
States District Court for the Middle District of Florida or if such suit, action
or other proceeding may not be brought in such court for jurisdictional reasons,
in the Circuit Court of the State of Florida, Pinellas County. Each of the
parties further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth above shall
be effective service of process for any action, suit or proceeding in Florida
with respect to any matters to which it has submitted to jurisdiction in this
Section 6.15. Each of the parties irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in (i) the Circuit
Court of the State of Florida, Pinellas County, or (ii) the United States
District Court for the Middle District of Florida, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
6.16 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in 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 provisions.
<PAGE> 10
10
6.17 Laws and Government Regulations. Recipient, shall be
responsible for (i) compliance with all laws and governmental regulations
affecting its businesses and (ii) any use Recipient may make of the Transition
Services to assist it in complying with such laws and governmental regulations.
6.18 Relationship of Parties. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship of buyer and seller of services nor be
deemed to vest any rights, interests or claims in any third parties. The parties
do not intend to waive any privileges or rights to which they may be entitled.
6.19 Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the
Distribution Agreement.
<PAGE> 11
11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the day and year first above written.
FLORIDA PROGRESS CORPORATION, a
Florida corporation
By:___________________________
Name:
Title:
ECHELON INTERNATIONAL CORPORATION,
a Florida Corporation
By:___________________________
Name:
Title:
<PAGE> 12
[FORM OF APPENDIX TO TRANSITION SERVICES AGREEMENT]
Description of Transition Service:
[Technical Support]
Payment:
Time Period (including terms of extension, if any):
Service Coordinator for Provider:
Service Coordinator for Recipient:
Notice Period for Deletion of Transition Services:
Any Other Terms:
<PAGE> 13
[FORM OF APPENDIX TO TRANSITION SERVICES AGREEMENT]
Description of Transition Service:
[Tax Services]
Payment:
Time Period (including terms of extension, if any):
Service Coordinator for Provider:
Service Coordinator for Recipient:
Notice Period for Deletion of Transition Services:
Any Other Terms:
<PAGE> 14
[FORM OF APPENDIX TO TRANSITION SERVICES AGREEMENT]
Description of Transition Service:
[Human Resources]
Payment:
Time Period (including terms of extension, if any):
Service Coordinator for Provider:
Service Coordinator for Recipient:
Notice Period for Deletion of Transition Services:
Any Other Terms:
<PAGE> 15
[FORM OF APPENDIX TO TRANSITION SERVICES AGREEMENT]
Description of Transition Service:
[Corporate Secretarial]
Payment:
Time Period (including terms of extension, if any):
Service Coordinator for Provider:
Service Coordinator for Recipient:
Notice Period for Deletion of Transition Services:
Any Other Terms:
<PAGE> 1
EXHIBIT 10.5
NOTE
$[41,100,000.00] St. Petersburg, Florida
_________ __, 1996
FOR VALUE RECEIVED, the undersigned, ECHELON INTERNATIONAL
CORPORATION, a Florida corporation (the "Borrower"), hereby unconditionally
promises to pay on __________ __, 2000 (the "Maturity Date") to the order of
PROGRESS CAPITAL HOLDINGS, INC., a Florida corporation (the "Lender"), in lawful
money of the United States of America and in immediately available funds, the
principal amount of [FORTY ONE MILLION ONE HUNDRED THOUSAND AND 00/100 DOLLARS
($41,100,000.00)], or, if less, the unpaid principal amount of the loan made by
the Lender pursuant to this Note.
The Borrower may, at any time and from time to time, prepay this
Note, in whole or in part, without premium or penalty, upon at least four
business days' irrevocable notice to the Lender, specifying the date and amount
of prepayment. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein, together with accrued
and unpaid interest to such date on the amount prepaid. Amounts prepaid may not
be reborrowed.
The Borrower agrees that immediately upon the sale or other transfer
or disposition of any asset listed on Schedule 1 attached hereto and the receipt
of the proceeds by the Borrower, the Borrower shall make a mandatory prepayment
of the principal amount of this Note. The amount which the Borrower is required
to pay to the Lender pursuant to this paragraph upon such sale or other transfer
or disposition is the lesser of (a) the then outstanding principal amount of
this Note or (b):
(i) Where the Borrower's sale or other transfer or disposition of
any asset listed on Schedule 1 attached hereto results in a taxable gain,
the cash received by the Borrower from such sale, other transfer or
disposition minus the Borrower's current taxes due on such sale, transfer,
or disposition; and
(ii) Where the Borrower's sale or other transfer or disposition of
any asset listed on Schedule 1 attached hereto results in a taxable loss,
the cash received by the Borrower from such sale, other transfer or
disposition plus the current tax benefit the Borrower receives from the
aforementioned tax loss (as received by the Borrower through the filing of
a tax return or the reduction of estimated tax payments).
So long as any principal amount remains outstanding under this Note,
the Borrower shall, within 30 days following the end of each fiscal quarter of
the Borrower, provide Lender with a certificate of the chief executive officer
of Borrower describing in reasonable detail any third party proposals to
purchase any of the assets described on Schedule 1 hereto and the identity of
any proposed third party purchasers. The Lender agrees to take all necessary
actions to release its security interest (i) in any asset listed on Schedule 1
concurrent with the sale, transfer or other disposition of such asset and (ii)
in all assets listed on Schedule 1 upon payment by the Borrower of all amounts
outstanding under this Note.
The Borrower also agrees that immediately upon the occurrence of a
Change in Control, the Borrower shall be required to repay this Note at a price
equal to 100% of the then outstanding principal amount, together with accrued
and unpaid interest, if any, to the date of repayment. A Change in Control shall
be deemed to have occurred if (a) any person or "group" (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) (i)
<PAGE> 2
2
shall have acquired beneficial ownership of 20% or more of any outstanding class
of capital stock having ordinary voting power in the election of directors of
the Borrower or (ii) shall obtain the power (whether or not exercised) to elect
a majority of the Borrower's directors, (b) the Board of Directors of the
Borrower shall not consist of a majority of Continuing Directors or (c) a
"Change of Control" (however denominated) under any other indebtedness of the
Borrower shall occur. For purposes of this provision, "Continuing Directors"
shall mean the directors of the Borrower on the date hereof and each other
director, if such other director's nomination for election to the Board of
Directors of the Borrower is recommended by a majority of the then Continuing
Directors.
The Borrower further agrees to pay interest in like money on the
unpaid principal amount hereof from time to time outstanding until paid in full
(both before and after judgment). Such interest shall be payable semi-annually
in arrears, and shall be compounded monthly and calculated on the basis of a
360-day year for actual days elapsed. This Note shall bear interest for each day
during an Interest Period at a rate per annum equal to the LIBOR Rate determined
for such day plus 3.25% until maturity (whether as stated, by acceleration or
otherwise), and after maturity at the rate which is 2.00% above such contractual
rate until such principal is paid in full (both before and after judgment).
"LIBOR Rate" means, with respect to each day during each Interest
Period, the rate per annum equal to the rate at which The Chase Manhattan Bank,
N.A. is offered dollar deposits at or about 10:00 A.M., New York City time, two
business days prior to the beginning of such Interest Period in the interbank
eurodollar market where its eurodollar and foreign currency and exchange
operations are then being conducted, for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of the principal amount of this Note to be outstanding
during such Interest Period.
"Interest Period" means, (a) initially, the period commencing on the date
hereof and ending 30 days thereafter, and (b) thereafter, each period commencing
on the last day of the next preceding Interest Period and ending thirty days
thereafter; provided that, (i) if any Interest Period would otherwise end on a
day that is not a business day, such Interest Period shall be extended to the
next succeeding business day; and (ii) any Interest Period that would otherwise
extend beyond the Maturity Date or beyond the date final payment is due on this
Note shall end on the Maturity Date or such date of final payment, as the case
may be.
If any payment on this Note becomes due and payable on a Saturday,
Sunday or other day on which commercial banks in the State of Florida are
authorized or required by law to close, the maturity thereof shall be extended
to the next succeeding day which is not a Saturday, Sunday or other day on which
commercial banks in the State of Florida are authorized or required by law to
close, and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
This Note is secured as provided in each of the
____________________, each dated as of _______, 1996 (collectively, as amended,
supplemented or otherwise modified from time to time, the "Mortgages"), by the
Borrower for the benefit of the Lender. Reference is hereby made to the
Mortgages for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security, the terms and
conditions upon which the security interest has granted and the rights of the
Lenders in respect thereof.
<PAGE> 3
3
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay the principal hereof when due in
accordance with the terms hereof; or the Borrower shall fail to pay any
interest hereon, or any other amount payable hereunder, within five days
after any such interest or other amount becomes due in accordance with the
terms hereof, and in each such case such default shall continue unremedied
for five days after receipt by the Borrower of notice of such default from
the Lender; or
(b) (i) the Borrower shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief
of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) the Borrower shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of
the acts set forth in clause (i), (ii), or (iii) above; or (v) the
Borrower shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(c) (i) for any reason any Mortgage ceases to be or is not in full
force and effect (except in accordance with its terms) in any material
respect and such default shall continue unremedied for 30 days after the
earlier of receipt by the Borrower of notice of such default from the
Lender or actual knowledge of such default by a senior officer of the
Borrower, (ii) the Borrower shall assert in writing that any such Mortgage
has ceased to be or is not in full force and effect (except in accordance
with its terms) or (iii) the lien created by such Mortgage shall cease to
be enforceable and of the same effect and priority purported to be created
thereby; or
(d) the Borrower shall (i) default in any payment of principal of or
interest of indebtedness under the Credit Agreement, dated as of
_______________ __, 1996, between the Borrower and [Bank] (the "Credit
Agreement") beyond the period of grace (not to exceed 30 days), if any,
provided in the Credit Agreement; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, with the
giving of notice if required, such indebtedness to become due prior to its
stated maturity;
<PAGE> 4
4
then, and in any such event, (A) in the case of any event specified in clause
(i) or (ii) of paragraph (b) above, automatically all principal owing hereunder
(with accrued interest thereon) and all other amounts owing under this Note
shall immediately become due and payable, and (B) in the case of any other event
specified in paragraphs (a), (b), (c) or (d) above, the Lender may, by notice to
the Borrower, declare the principal amount owing hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
The Borrower hereby represents and warrants to the Lender that this
Note has been duly authorized, executed and delivered by the Borrower and
constitutes the legal, valid and binding obligation of the Borrower, enforceable
against it in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
The Borrower hereby waives the requirements of demand, presentment,
protest and notice of dishonor and all other demands or notices of any kind in
connection with the delivery, acceptance, performance, default, dishonor or
enforcement of this Note.
Any provision of this Note which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
No failure to exercise and no delay in exercising, on the part of
the Lender, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
For so long as this Note or any obligation hereunder remains
outstanding, the Borrower hereby irrevocably waives and agrees not to assert all
rights of set-off, counterclaim or defense to payment, whether now existing or
hereafter arising, that the Borrower may have against the Lender.
Neither this Note, nor any terms hereof, may be amended,
supplemented or modified except by written amendment executed by the Borrower.
The Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Note, or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive general jurisdiction
of the courts of the State of Florida, the courts of the United States of
America for the Middle District of Florida, and appellate courts from any
thereof;
(b) to the extent permitted by applicable law, consents that any
such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such
action or proceeding in any such court or that such
<PAGE> 5
5
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at Echelon International Corporation, One Progress Plaza, Suite
2400, St. Petersburg, Florida 33701, Attention: President, or at such
other address provided to the Lender by the Borrower;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this paragraph any special, exemplary, punitive or consequential
damages.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF FLORIDA.
THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE AND FOR ANY
COUNTERCLAIM THEREIN.
Echelon International Corporation
By: _________________________________
Name:
Title:
<PAGE> 1
Exhibit 99.1
==========================
STOCKHOLDER RIGHTS AGREEMENT
==========================
ECHELON INTERNATIONAL CORPORATION
AND
[RIGHTS AGENT]
AS RIGHTS AGENT
==========================
DATED AS OF , 1996
---------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Issue of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4. Form of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . . . . . . 7
Section 8. Cancellation and Destruction of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 9. Availability of Shares of Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. Preferred Stock Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 11. Adjustment of Purchase Price, Number of Shares and Number of Rights . . . . . . . . . . . . . . . . . . . 10
Section 12. Certificate of Adjusted Purchase Price or Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 17
Section 13. Consolidation, Merger, Share Exchange or Sale or Transfer of Assets
or Earnings Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 16. Agreement of Right Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 17. Right Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 22. Issuance of New Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
i.
<PAGE> 3
<TABLE>
<PAGE>
Page
----
<S> <C>
Section 23. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 29. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 30. Determinations And Actions by The Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 31. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
ii.
<PAGE> 4
STOCKHOLDER RIGHTS AGREEMENT
THIS STOCKHOLDER RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of the _____________ day of ______________, 1996 by and between ECHELON
INTERNATIONAL CORPORATION, a Florida corporation (the "Company" or "Echelon"),
and ________________________ a ________________________________ (the "Rights
Agent").
The Board of Directors of the Company (the "Board of Directors") has
authorized and declared a dividend of one preferred share purchase right (a
"Right") for each share of Common Stock (as hereinafter defined) of the Company
outstanding as of the close of business (as defined below) on _______________,
1996 (the "Record Date") each Right representing the right to purchase
one-hundredth (subject to adjustment) of a share of Preferred Stock (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and the Board of Directors has further authorized and directed the
issuance of one Right (subject to adjustment as provided herein) with respect
to each share of Common Stock that shall become outstanding between the Record
Date and the earliest of the Distribution Date, the Redemption Date and the
Final Expiration Date (as such terms are hereinafter defined); provided,
however, that Rights may be issued with respect to shares of Common Stock that
shall become outstanding after the Distribution Date and prior to the
Redemption Date and the Final Expiration Date in accordance with Section 22
hereof.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the meaning
indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which shall at any time be the Beneficial Owner (as such term
is hereinafter defined) of 15% or more of the shares of Common Stock then
outstanding, but shall not include a Person who is at such time an Exempt
Person (as such term is hereinafter defined); provided, however, that if the
Board of Directors determines in good faith that a Person who would otherwise
be an Acquiring Person has become such inadvertently (including, without
limitation, because (i) such Person was unaware that it Beneficially Owned a
percentage of Common Stock that would otherwise cause such Person to be a
Acquiring Person or (ii) such Person was aware of the extent of its Beneficial
Ownership of Common Stock but had no actual knowledge of the consequences of
such Beneficial Ownership under this Stockholder Rights Agreement) and without
any intention of changing or influencing control of the Company, and such
Person, as promptly as practicable after being advised of such determination
divested or divests himself or itself of Beneficial Ownership of a sufficient
number of shares of Common Stock so that such Person would no longer be an
Acquiring Person, then such Person shall not be deemed to be or to have become
an Acquiring Person for any purposes of this Agreement. Notwithstanding the
foregoing, (i) the sole stockholder of the Company at the time of the adoption
of this Agreement will not be deemed an Acquiring Person for any purpose of
thisAgreement prior to the distribution by such Person of the Company's
outstanding Common Stock to the stockholders of such Person, (ii) if a Person
would be deemed an Acquiring Person upon the adoption of this Agreement because
of ownership of 15% or more but less than 20% of the shares
<PAGE> 5
of stock on such date, such Person will not be deemed an Acquiring Person for
any purposes of this Agreement unless and until such Person acquires Beneficial
Ownership of any additional shares of Common Stock (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding Common
Stock in shares of Common Stock or pursuant to a split or subdivision of the
outstanding Common Stock), after the adoption of this Agreement unless upon the
consummation of the acquisition of such additional shares of Common Stock such
Person does not own 15% or more of the shares of Common Stock then outstanding
and (iii) no Person shall become an Acquiring Person as the result of an
acquisition of shares of Common Stock by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of shares
Beneficially Owned by such Person to 15% or more of the shares of Common Stock
then outstanding, provided, however, that if a Person shall become the
Beneficial Owner of 15% or more of the shares of Common Stock then outstanding
by reason of such share acquisitions by the Company and thereafter become the
Beneficial Owner of any additional shares of Common Stock (other than pursuant
to a dividend or distribution paid or made by the Company on the outstanding
Common Stock in shares of Common Stock or pursuant to a split or subdivision of
the outstanding Common Stock), then such Person shall be deemed to be an
Acquiring Person unless upon the consummation of the acquisition of such
additional shares of Common Stock such Person does not own 15% or more of the
shares of Common Stock then outstanding. For all purposes of this Agreement,
any calculation of the number of shares of Common Stock outstanding at any
particular time, including for purposes of determining the particular
percentage of such outstanding shares of Common Stock of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date
hereof.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be deemed
to have "Beneficial Ownership" of and shall be deemed to "Beneficially Own" any
securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to Beneficially Own, directly or indirectly within the
meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date of this Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, (x)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (y) securities which such Person
has a right to acquire on the exercise of Rights at any time prior to the time
a Person becomes an Acquiring Person or (z) securities issuable upon exercise
of Rights from and after the time a Person becomes an Acquiring Person if such
Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the
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<PAGE> 6
Distribution Date or pursuant to Section 3(a) or Section 22 hereof ("Original
Rights") or pursuant to Section 11(i) or Section 11(n) hereof with respect to
an adjustment to Original Rights; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to Beneficially Own, any security by
reason of such agreement, arrangement or understanding if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy
or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are Beneficially Owned, directly or indirectly, by
any other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso to
Section 1(c)(ii)(B) hereof) or disposing of any securities of the Company.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in the State of Florida or the
State in which the principal office of the Rights Agent is located, are
authorized or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., St.
Petersburg, Florida time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., St. Petersburg, Florida time on the
next succeeding Business Day.
(f) "Common Stock" when used with reference to the Company shall
mean the common stock, par value $.01 per share, of the Company. "Common Stock"
when used with reference to any Person other than the Company shall mean the
capital stock (or, in the case of an unincorporated entity, the equivalent
equity interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons
which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
(h) "Equivalent Preferred Shares" shall have the meaning set forth
in Section 11(b) hereof.
(i) "Exempt Person" shall mean the Company, any Subsidiary (as such
term is hereinafter defined) of the Company, in each case including, without
limitation, in its fiduciary capacity, or, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity or trustee holding
Common Stock for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees of
the Company or of any Subsidiary of the Company.
(j) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(k) "New York Stock Exchange" shall mean the New York Stock
Exchange, Inc.
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<PAGE> 7
(l) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
(m) "Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the Form of Articles of Amendment attached to this
Agreement as Exhibit A.
(n) "Record Date" shall have the meaning set forth in the preamble
to this Agreement.
(o) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(p) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(q) "Stock Acquisition Date" shall mean the first date of public
announcement (which for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such or
such earlier date as a majority of the Board of Directors shall become aware of
the existence of an Acquiring Person.
(r) "Subsidiary" of any Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary voting
power sufficient to elect a majority of the board of directors or other persons
performing similar functions are Beneficially Owned, directly or indirectly, by
such Person, and any corporation or other entity that is otherwise controlled
by such Person.
SECTION 2. APPOINTMENT OF RIGHTS AGENT.
The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with Section 3
hereof, shall prior to the Distribution Date also be the holders of Common
Stock) in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES.
(a) Until the earlier of (i) the tenth day after the Stock Acquisition
Date or (ii) the tenth business day (or such later date as may be determined by
action of the Board of Directors prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person (other than
an Exempt Person) of, or of the first public announcement of the intention of
such Person (other than an Exempt Person) to commence, a tender or exchange
offer the consummation of which would result in any Person (other than an
Exempt Person) becoming the Beneficial Owner of shares of Common Stock
aggregating 15% or more of the Common Stock then outstanding (including any
such date which is after the date of this Agreement and prior to the issuance
of the Rights), the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Stock
registered in the names of the holders thereof and not by separate Right
Certificates, and (y)
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<PAGE> 8
the Rights will be transferable only in connection with the transfer of Common
Stock. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the
address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right (subject to adjustment as provided herein)
for each share of Common Stock so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Shares of Preferred Stock,
in substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Stock as of
the close of business on the Record Date (other than any Acquiring Person or
any Associate or Affiliate of any Acquiring Person), at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Stock outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of
the holders thereof together with the Summary of Rights. Until the Distribution
Date (or the earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Common Stock outstanding on the
Record Date, with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Common Stock
represented thereby.
(c) Certificates issued for Common Stock (including, without limitation,
upon transfer of outstanding Common Stock, disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Stockholder Rights Agreement between
Echelon International Corporation (the "Company") and _______ dated
as of _______, 1996 as the same may be amended from time to time (the
"Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal
executive offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate
a copy of the Rights Agreement without charge after receipt of a
written request therefor. Under certain circumstances, as set forth
in the Rights Agreement, Rights owned by or transferred to any Person
who becomes an Acquiring Person (as defined in the Rights Agreement)
and certain transferees thereof will become null and void and will no
longer be transferable.
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<PAGE> 9
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be deemed
cancelled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Stock which are no longer outstanding.
Notwithstanding this Section 3(c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
SECTION 4. FORM OF RIGHT CERTIFICATES.
The Right Certificates (and the forms of election to purchase shares and
of assignment to be printed on the reverse thereof) shall be substantially in
the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of the New York Stock Exchange or of any other stock
exchange or automated quotation system on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Sections
11, 13 and 22 hereof, the Right Certificates shall entitle the holders thereof
to purchase such number of one one-hundredths of a share of Preferred Stock as
shall be set forth therein at the price per one one-hundredth of a share of
Preferred Stock set forth therein (the "Purchase Price"), but the number of
such one one-hundredths of a share of Preferred Stock and the Purchase Price
shall be subject to adjustment as provided herein.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Right Certificates shall be executed on behalf of the Company by
the Chairman of the Board of Directors, the President, any of the Vice
Presidents, the Treasurer or the Controller of the Company, either manually or
by facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the Person who signed such
Right Certificates had not ceased to be such officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any Person who, at
the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right
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<PAGE> 10
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights
evidenced on its face by each of the Right Certificates and the date of each of
the Right Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Sections 7(e), 11(a)(ii) and 14 hereof,
at any time after the close of business on the Distribution Date, and prior to
the close of business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number
of one one-hundredths of a share of Preferred Stock as the Right Certificate or
Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the office
or agency of the Rights Agent designated for such purpose. Thereupon the Rights
Agent shall countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, at any time
after the Distribution Date and prior to the close of business on the earlier
of the Redemption Date or the Final Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS, PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the Purchase Price for each one one-hundredth of a share of
Preferred Stock as to which the Rights are exercised, at any time which is both
after the Distribution Date and prior to the earliest of (i) the close of
business on ____________, 2006 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the "Redemption
Date") or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
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<PAGE> 11
(b) The Purchase Price shall be initially $__________ for each one
one-hundredth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-hundredths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with Section 7(c) hereof.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock certificates for the number of shares of Preferred Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing interests in such number of one one-hundredths
of a share of Preferred Stock as are to be purchased (in which case
certificates for the Preferred Stock represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, in case the registered holder of
any Right Certificate shall exercise less than all the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent to
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action
with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or election to purchase set
forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.
All Right Certificates surrendered for the purpose of exercise, transfer,
split up, combination or exchange shall, if surrendered to the Company or to
any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Right Certificates shall be issued in lieu thereof except as
expressly permitted by any of
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<PAGE> 12
the provisions of this Agreement. The Company shall deliver to the Rights Agent
for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Right Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
SECTION 9. AVAILABILITY OF SHARES OF PREFERRED STOCK.
(a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued shares of Preferred Stock
or any shares of Preferred Stock held in its treasury, the number of shares of
Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the time
that a Person becomes an Acquiring Person, shares of Common Stock and other
securities) issuable upon the exercise of Rights may be listed or admitted to
trading on the New York Stock Exchange or listed on any other national
securities exchange or quotation system, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on the New York
Stock Exchange or listed on any other exchange or quotation system upon
official notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
shares of Preferred Stock (and following the time that a Person first becomes
an Acquiring Person, shares of Common Stock and other securities) upon the
exercise of Rights, to register and qualify such shares of Preferred Stock (and
following the time that a Person first becomes an Acquiring Person, shares of
Common Stock and other securities) under the Securities Act and any applicable
state securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Final Expiration Date.
The Company may temporarily suspend, for a period of time not to exceed 90
days, the exercisability of the Rights in order to prepare and file a
registration statement under the Securities Act and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is
no longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act (if required) shall have been
declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all shares of Preferred Stock (and, following
the time that a Person becomes an Acquiring Person, shares of Common Stock and
other securities) delivered upon exercise of Rights shall, at the time of
delivery of the certificates therefor (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
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<PAGE> 13
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates or
of any shares of Preferred Stock (or shares of Common Stock or other
securities) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Stock (or shares of Common Stock or other securities) in a name other than that
of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or deliver any certificates or depositary
receipts for Preferred Stock (or shares of Common Stock or other securities)
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by that holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
SECTION 10. PREFERRED STOCK RECORD DATE.
Each Person in whose name any certificate for Preferred Stock is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares of Preferred Stock represented thereby on, and
such certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock transfer
books of the Company are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any rights
of a holder of Preferred Stock for which the Rights shall be exercisable,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES AND NUMBER OF
RIGHTS.
The Purchase Price, the number of shares of Preferred Stock or other
securities or property purchasable upon exercise of each Right and the number
of Rights outstanding are subject to adjustment from time to time as provided
in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in shares
of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine
the outstanding Preferred Stock into a smaller number of Preferred Stock or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in
effect at the time of the Record Date for such dividend or of the effective
date of such subdivision, combination or reclassification, and the number and
kind of shares of capital stock issuable on such date, shall be proportionately
adjusted so that the holder of any Right exercised after such time shall be
entitled to receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date and at a
time when the
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Preferred Stock transfer books of the Company were open, the holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification.
(ii) Subject to Section 24 hereof, in the event that any Person
becomes an Acquiring Person, then (A) the Purchase Price shall be adjusted to
be the Purchase Price in effect immediately prior to such Person becoming an
Acquiring Person multiplied by the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
Person becoming an Acquiring Person, whether or not such Right was then
exercisable, and (B) each holder of a Right, except as otherwise provided in
this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have the
right to receive, upon exercise at a price equal to the Purchase Price (as so
adjusted), in accordance with the terms of this Agreement and in lieu of shares
of Preferred Stock, such number of shares of Common Stock (or at the option of
the Company, such number of one one-hundredths of shares of Preferred Stock) as
shall equal the result obtained by (x) multiplying the then current Purchase
Price by the number of one one-hundredths of a share of Preferred Stock for
which a Right is then exercisable and dividing that product by (y) 50% of the
then Current Per Share Market Price of the Company's Common Stock (determined
pursuant to Section 11(d) hereof) on the date such Person became an Acquiring
Person; provided, however, that the Purchase Price and the number of shares of
Common Stock so receivable upon exercise of a Right shall thereafter be subject
to further adjustment as appropriate in accordance with Section 11(f) hereof.
Notwithstanding anything in this Agreement to the contrary, however, from and
after the time (the "Invalidation Time") when any Person first becomes an
Acquiring Person, any Rights that are Beneficially Owned by (x) any Acquiring
Person (or any Affiliate or Associate of any Acquiring Person), (y) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the Invalidation Time or (z) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee
prior to or concurrently with the Invalidation Time pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity securities or to
any Person with whom it has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (II) a transfer which the
Board of Directors has determined is part of a plan, arrangement or
understanding which has the purpose or effect of avoiding the provisions of
this Section 11(a)(ii), and subsequent transferees of such Persons, shall be
void without any further action and any holder of such Rights shall thereafter
have no rights whatsoever with respect to such Rights under any provision of
this Agreement. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 11(a)(ii) are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of
its failure to make any determinations with respect to an Acquiring Person or
its Affiliates, Associates or transferees hereunder. From and after the
Invalidation Time, no Right Certificate shall be issued pursuant to Section 3
or Section 6 hereof that represents Rights that are or have become void
pursuant to the provisions of this Section 11(a)(ii), and any Right Certificate
delivered to the Rights Agent that represents Rights that are or have become
void pursuant to the provisions of this Section 11(a)(ii) shall be cancelled.
From and after the occurrence of an event specified in Section 13(a) hereof,
any Rights that theretofore have not been exercised pursuant to this Section
11(a)(ii) shall thereafter be exercisable only in accordance with Section 13
and not pursuant to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with Section
11(a)(ii) hereof such number or fractions of shares of Preferred Stock having
an aggregate current market value equal to the Current
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<PAGE> 15
Per Share Market Price of a share of Common Stock. In the event that there
shall not be sufficient shares of Common Stock issued but not outstanding or
authorized but unissued to permit the exercise in full of the Rights in
accordance with Section 11(a)(ii) hereof, the Board of Directors shall, to the
extent permitted by applicable law and any material agreements then in effect
to which the Company is a party (A) determine the excess of (1) the value of
the shares of Common Stock issuable upon the exercise of a Right in accordance
with Section 11(a)(ii) hereof (the "Current Value") over (2) the then current
Purchase Price multiplied by the number of one one-hundredths of shares of
Preferred Stock for which a Right was exercisable immediately prior to the time
that the Acquiring Person became such (such excess, the "Spread"), and (B) with
respect to each Right (other than Rights which have become void pursuant to
Section 11(a)(ii) hereof), make adequate provision to substitute for the shares
of Common Stock issuable in accordance with Section 11(a)(ii) hereof upon
exercise of the Right and payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the Purchase Price, (3) shares of Preferred Stock or other
equity securities of the Company (including, without limitation, shares or
fractions of shares of preferred stock which, by virtue of having dividend,
voting and liquidation rights substantially comparable to those of the shares
of Common Stock, are deemed in good faith by the Board of Directors to have
substantially the same value as the shares of Common Stock (such shares of
preferred stock and shares or fractions of shares of preferred stock are
hereinafter referred to as "Common Stock Equivalents"), (4) debt securities of
the Company, (5) other assets, or (6) any combination of the foregoing, having
a value which, when added to the value of the shares of Common Stock actually
issued upon exercise of such Right, shall have an aggregate value equal to the
Current Value (less the amount of any reduction in the Purchase Price), where
such aggregate value has been determined by the Board of Directors upon the
advice of a nationally recognized investment banking firm selected in good
faith by the Board of Directors; provided, however, if the Company shall not
make adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the date that the Acquiring Person became such (the
"Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to
deliver, to the extent permitted by applicable law and any material agreements
then in effect to which the Company is a party, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, shares of
Common Stock (to the extent available), and then, if necessary, such number or
fractions of shares of Preferred Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to the
Spread. If, upon the date any Person becomes an Acquiring Person, the Board of
Directors shall determine in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance upon
exercise in full of the Rights, then, if the Board of Directors so elects, the
thirty (30) day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in
order that the Company may seek stockholder approval for the authorization of
such additional shares (such thirty (30) day period, as it may be extended, is
herein called the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the second and/or third
sentence of this Section 11(a)(iii), the Company (x) shall provide, subject to
Section 11(a)(ii) hereof and the last sentence of this Section 11(a)(iii)
hereof, that such action shall apply uniformly to all outstanding Rights and
(y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such second sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iii), the value of the shares of Common Stock
shall be the Current Per Share Market Price (as
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<PAGE> 16
determined pursuant to Section 11(d)(i) hereof) on the Section 11(a)(ii)
Trigger Date and the per share or fractional value of any "Common Stock
Equivalent" shall be deemed to equal the Current Per Share Market Price of the
Common Stock. The Board of Directors may, but shall not be required to,
establish procedures to allocate the right to receive shares of Common Stock
upon the exercise of the Rights among holders of Rights pursuant to this
Section 11(a)(iii).
(b) In case the Company shall fix a Record Date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within 45 calendar days after such Record Date) to
subscribe for or purchase Preferred Stock (or shares having the same rights,
privileges and preferences as the Preferred Stock ("Equivalent Preferred
Shares")) or securities convertible into Preferred Stock or Equivalent
Preferred Shares at a price per share of Preferred Stock or Equivalent
Preferred Shares (or having a conversion price per share, if a security
convertible into shares of Preferred Stock or Equivalent Preferred Shares) less
than the then Current Per Share Market Price of the Preferred Stock (determined
pursuant to Section 11(d) hereof) on such Record Date, the Purchase Price to be
in effect after such Record Date shall be determined by multiplying the
Purchase Price in effect immediately prior to such Record Date by a fraction,
the numerator of which shall be the number of shares of Preferred Stock and
Equivalent Preferred Shares outstanding on such Record Date plus the number of
shares of Preferred Stock and Equivalent Preferred Shares which the aggregate
offering price of the total number of shares of Preferred Stock and/or
Equivalent Preferred Shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock and Equivalent Preferred Shares outstanding on
such Record Date plus the number of additional shares of Preferred Stock and/or
Equivalent Preferred Shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible).
In case such subscription price may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such consideration shall
be as determined in good faith by the Board of Directors, whose determination
shall be described in a statement filed with the Rights Agent. Shares of
Preferred Stock and Equivalent Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
Record Date is fixed; and in the event that such rights, options or warrants
are not so issued, the Purchase Price shall be adjusted to be the Purchase
Price which would then be in effect if such Record Date had not been fixed.
(c) In case the Company shall fix a Record Date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such Record Date shall be determined by multiplying the
Purchase Price in effect immediately prior to such Record Date by a fraction,
the numerator of which shall be the then Current Per Share Market Price of the
Preferred Stock (determined pursuant to Section 11(d) hereof) on such Record
Date, less the fair market value (as determined in good faith by the Board of
Directors whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to one
share of Preferred Stock, and the denominator of which shall be such Current
Per Share Market Price (determined pursuant to Section 11(d) hereof)
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<PAGE> 17
of the Preferred Stock. Such adjustments shall be made successively whenever
such a Record Date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such Record Date had not been fixed.
(d) (i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "Current Per Share Market Price" of any security (a
"Security" for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event that the
Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the
Record Date for such subdivision, combination or reclassification, then, and in
each such case, the Current Per Share Market Price shall be appropriately
adjusted to reflect the current market price per share equivalent of such
Security. The closing price for any day shall be (X) the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported by
(1) the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange, or (2)
if the Security is not listed or admitted to trading on the New York Stock
Exchange, the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Security is listed or admitted to trading, or (Y) if the Security is not listed
or admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices,
as reported by any market operated by The Nasdaq Stock Market, Inc. ("Nasdaq")
or any successor organization, or (Z) if prices for the Security are not
reported by any such market or organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Security and selected by the Board of Directors. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, if the Preferred
Stock is publicly traded, the Current Per Share Market Price of the Preferred
Stock shall be determined in accordance with the method set forth in Section
11(d)(i) hereof. If the Preferred Stock is not publicly traded but the Common
Stock is publicly traded, the Current Per Share Market Price of the Preferred
Stock shall be conclusively deemed to be the Current Per Share Market Price of
the Common Stock as determined pursuant to Section 11(d)(i) hereof multiplied
by one hundred (appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof). If neither
the Common Stock nor the Preferred Stock is publicly traded, Current Per Share
Market Price shall mean the fair value per share as determined in good faith by
the Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried for-
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<PAGE> 18
ward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest one
ten-thousandth of a share of Preferred Stock or share of Common Stock or other
share or security as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the date of the expiration of the right
to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than the Preferred
Stock, thereafter the Purchase Price and the number of such other shares so
receivable upon exercise of a Right shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a),
11(b), 11(c), 11(e), 11(h), 11(i) and 11(m) hereof and the provisions of
Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i) hereof, upon each adjustment of the Purchase Price as a result of
the calculations made in Sections 11(b) and (c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one
one-hundredths of a share of Preferred Stock (calculated to the nearest one
ten- thousandth of a share of Preferred Stock) obtained by (i) multiplying (x)
the number of one one-hundredths of a share covered by a Right immediately
prior to such adjustment by (y) the Purchase Price in effect immediately prior
to such adjustment of the Purchase Price and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment of
the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the Record Date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This Record Date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least 10 days
later than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company may, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such Record Date Right Certificates
evidencing, subject to Section
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<PAGE> 19
14 hereof, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the Record Date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-hundredths of a share of Preferred Stock which were expressed in the
initial Right Certificates issued hereunder.
(k) The Company may take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock or other such
shares at the Purchase Price (including as adjusted from time to time in
accordance with the terms of this Agreement).
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a Record Date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such Record Date of the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any shares of Preferred Stock at less than the current
market price, issuance wholly for cash or Preferred Stock or securities which
by their terms are convertible into or exchangeable for Preferred Stock,
dividends on Preferred Stock payable in shares of Preferred Stock or issuance
of rights, options or warrants referred to in Section 11(b) hereof, hereafter
made by the Company to holders of its Preferred Stock shall not be taxable to
such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a subdivision, combination
or consolidation of the Common Stock (by reclassification or otherwise than by
payment of a dividend payable in Common Stock) into a greater or lesser number
of Common Stock, then in any such case, the number of Rights associated with
each share of Common Stock then outstanding, or issued or delivered thereafter,
shall be proportionately adjusted so that the number of Rights
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<PAGE> 20
thereafter associated with each share of Common Stock following any such event
shall equal the result obtained by multiplying the number of Rights associated
with each share of Common Stock immediately prior to such event by a fraction
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution Date
or the Stock Acquisition Date, it will not, except as permitted by Sections 23,
24 or 27 hereof, take (or permit any Subsidiary to take) any action if at the
time such action is taken it is reasonably foreseeable that such action will
diminish substantially or eliminate the benefits intended to be afforded by the
Rights.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file
with the Rights Agent and with each transfer agent for the Common Stock or the
Preferred Stock a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof (if
so required under Section 25 hereof). The Rights Agent shall be fully protected
in relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of any such adjustment unless and until
it shall have received such certificate.
SECTION 13. CONSOLIDATION, MERGER, SHARE EXCHANGE OR SALE OR TRANSFER OF ASSETS
OR EARNINGS POWER.
(a) In the event, directly or indirectly, at any time after any Person
has become an Acquiring Person, (i) the Company shall merge with and into any
other Person, (ii) any Person shall consolidate with the Company, or any Person
shall merge with and into the Company and the Company shall be the continuing
or surviving corporation of such merger and, in connection with such merger,
all or part of the Common Stock shall be changed into or exchanged for stock or
other securities of any other Person (or of the Company) or cash or any other
property, (iii) the Company shall effect a statutory share exchange with the
outstanding Common Stock of the Company being exchanged for stock or other
securities of any other Person, or for money or other property, or (iv) the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person (other than
the Company or one or more of its wholly-owned Subsidiaries), then upon the
first occurrence of such event, proper provision shall be made so that: (A)
each holder of record of a Right (other than Rights which have become void
pursuant to Section 11(a)(ii) hereof) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable (whether or not such Right
was then exercisable) immediately prior to the time that any Person first
became an Acquiring Person (each as subsequently adjusted thereafter pursuant
to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m) hereof), in
accordance with the terms of this Agreement and in lieu of Preferred Stock,
such number of validly issued, fully paid and non-assessable and freely
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<PAGE> 21
tradeable shares of Common Stock of the Principal Party (as defined herein) not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable immediately prior to the time
that any Person first became an Acquiring Person (as subsequently adjusted
thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)
hereof) and (2) dividing that product by 50% of the then Current Per Share
Market Price of the Common Stock of such Principal Party (determined pursuant
to Section 11(d)(i) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; provided that the Purchase Price and the number of
shares of Common Stock of such Principal Party issuable upon exercise of each
Right shall be further adjusted as provided in Section 11(f) hereof to reflect
any events occurring in respect of such Principal Party after the date of the
such consolidation, merger, sale or transfer; (B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed
to refer to such Principal Party; and (D) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its shares of Common Stock in accordance with Section 9 hereof) in connection
with such consummation of any such transaction as may be necessary to assure
that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with
the terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (i) or (ii) of the
first sentence of Section 13(a) hereof: (A) the Person that is the issuer of
the securities into which the shares of Common Stock are converted in such
merger or consolidation, or, if there is more than one such issuer, the issuer
the shares of Common Stock of which have the greatest aggregate market value of
shares outstanding, or (B) if no securities are so issued, (x) the Person that
is the other party to the merger, if such Person survives said merger, or, if
there is more than one such Person, the Person the shares of Common Stock of
which have the greatest aggregate market value of shares outstanding or (y) if
the Person that is the other party to the merger does not survive the merger,
the Person that does survive the merger (including the Company if it survives)
or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the first
sentence in Section 13(a) hereof, the Person that is the issuer of any
securities for which shares of Common Stock of the Company are exchanged, and
if no securities are so exchanged, the Person that is the other party to such
share exchange; and
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(iii) in the case of any transaction described in (iv) of the
first sentence in Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons as is
the issuer of Common Stock having the greatest aggregate market value of shares
outstanding; provided, however, that in any such case described in the
foregoing clause (b)(i), (b)(ii) or b(iii), if the Common Stock of such Person
is not at such time or has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, then (1) if such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, the term "Principal Party" shall refer to such
other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of
more than one Person, and the Common Stocks of all of such persons have been so
registered, the term "Principal Party" shall refer to whichever of such Persons
is the issuer of Common Stock having the greatest aggregate market value of
shares outstanding, or (3) if such Person is owned, directly or indirectly, by
a joint venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2)
above shall apply to each of the owners having an interest in the venture as if
the Person owned by the joint venture was a Subsidiary of both or all of such
joint venturers, and the Principal Party in each such case shall bear the
obligations set forth in this Section 13 in the same ratio as its interest in
such Person bears to the total of such interests.
(c) The Company shall not consummate any consolidation, merger, sale or
transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections
13(a) and (b) hereof shall promptly be performed in accordance with their terms
and that such consolidation, merger, sale or transfer of assets shall not
result in a default by the Principal Party under this Agreement as the same
shall have been assumed by the Principal Party pursuant to Sections 13(a) and
(b) hereof and providing that, as soon as practicable after executing such
agreement pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Securities
Act, if necessary, with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, use its best efforts to
cause such registration statement to become effective as soon as practicable
after such filing and use its best efforts to cause such registration statement
to remain effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Final Expiration Date, and similarly comply with
applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the Principal Party
shall be listed or admitted to trading on the New York Stock Exchange or on
another national securities exchange, to list or admit to trading (or continue
the listing of) the Rights and the securities purchasable upon exercise of the
Rights on the New York Stock Exchange or such securities exchange, or, if the
Common Stock of the Principal Party shall not be listed or admitted to trading
on the New York Stock Exchange or a national securities exchange, to cause the
Rights and the securities receivable upon exercise of the Rights to be reported
by such other system then in use;
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(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Stock of the Principal Party subject to
purchase upon exercise of outstanding Rights.
(d) In case the Principal Party has provision in any of its authorized
securities or in its articles or certificate of incorporation or by-laws or
other instrument governing its corporate affairs, which provision would have
the effect of (i) causing such Principal Party to issue (other than to holders
of Rights pursuant to this Section 13), in connection with, or as a consequence
of, the consummation of a transaction referred to in this Section 13, shares of
Common Stock of such Principal Party at less than the then current market price
per share thereof (determined pursuant to Section 11(d) hereof) or securities
exercisable for, or convertible into, Common Stock of such Principal Party at
less than such then current market price, or (ii) providing for any special
payment, tax or similar provision in connection with the issuance of the Common
Stock of such Principal Party pursuant to the provisions of Section 13 hereof,
then, in such event, the Company hereby agrees with each holder of Rights that
it shall not consummate any such transaction unless prior thereto the Company
and such Principal Party shall have executed and delivered to the Rights Agent
a supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time after
a Person first becomes an Acquiring Person enter into any transaction of the
type contemplated by (i) - (iv) of Section 13(a) hereof if (x) at the time of
or immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer of other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (z) the form or nature of
organization of the Principal Party would preclude or limit the exercisability
of the Rights.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights (except prior to
the Distribution Date in accordance with Section 11(n) hereof). In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be (W) the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices,
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regular way, in either case as reported by (1) the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange, or (2) if the Rights are not listed or
admitted to trading on the New York Stock Exchange, the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted to
trading, or (X) if the Rights are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices, as reported by any market
operated by Nasdaq or any successor organization, or (Y) if prices for the
Rights are not reported by any such market or organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Rights and selected by the Board of Directors, or (Z) if no
such market maker is making a market in the Rights, the fair value of the
Rights on such date as determined in good faith by the Board of Directors.
(b) The Company shall not be required to issue fractions of Preferred
Stock (other than fractions which are integral multiples of one one-hundredth
of a share of Preferred Stock) upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Preferred Stock (other than
fractions which are integral multiples of one one-hundredth of a share of
Preferred Stock). Interests in fractions of Preferred Stock in integral
multiples of one one-hundredth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they
are entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one one-hundredth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of one share of Preferred Stock. For
the purposes of this Section 14(b), the current market value of a share of
Preferred Stock shall be the closing price of a share of Preferred Stock (as
determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional shares
of Common Stock would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole share of Common Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION.
All rights of action in respect of this Agreement, excepting the rights of
action given to the Rights Agent under Section 18 hereof, are vested in the
respective registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Stock); and
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<PAGE> 25
any registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Stock), without the consent of the Rights Agent or of the
holder of any other Right Certificate (or, prior to the Distribution Date, of
the Common Stock), on his own behalf and for his own benefit, may enforce, and
may institute and maintain any suit, action or proceeding against the Company
to enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate (or, prior to the Distribution Date, such
Common Stock) in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations
of any Person subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS.
Every holder of a Right, by accepting the same, consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office or
agency of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
Common Stock certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent shall be affected by any notice to
the contrary.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of
any Right Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in this Agreement), or to
receive dividends or subscription rights, or otherwise, until the Rights
evidenced by such Right Certificate shall have been exercised in accordance
with the provisions hereof.
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SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Agreement
and the exercise and performance of its duties hereunder. The Company also
agrees to indemnify the Rights Agent for, and to hold it harmless against, any
loss, liability or expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible
for appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but
not delivered the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in
its changed name and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
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SECTION 20. DUTIES OF RIGHTS AGENT.
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Right Certificates, by their acceptance thereof, shall be
bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board of
Directors, the President, any Vice President, the Treasurer, the Controller or
the Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including
the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23 and 24 hereof, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate furnished pursuant to Section 12
hereof, describing such change or adjustment); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock or other
securities to be issued pursuant to this Agreement or any Right Certificate or
as to whether any shares of Preferred Stock or other securities will, when
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments
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and assurances as may reasonably be required by the Rights Agent for the
carrying out or performing by the Rights Agent of the provisions of this
Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the Chairman of the
Board of Directors, the President, the Chief Financial Officer or the Secretary
of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such
officer or for any delay in acting while waiting for those instructions. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Agreement and the date on
and/or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any
such application on or after the date specified in such application (which date
shall not be less than five Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
default, neglect or misconduct, provided reasonable care was exercised in the
selection and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has not been completed to certify the holder is
not an Acquiring Person (or an Affiliate or Associate thereof), the Rights
Agent shall not take any further action with respect to such requested exercise
or transfer without first consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT.
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon 30 days' notice in writing
mailed to the Company and to each transfer agent of the Common Stock or
Preferred Stock by registered or certified mail, and, following the
Distribution Date, to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days' notice in writing, mailed to
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the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock or Preferred Stock by registered or
certified mail, and, following the Distribution Date, to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by
the Company), then the registered holder of any Right Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a corporation organized and doing business under the laws of
the United States or any State thereof, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock
or Preferred Stock, and, following the Distribution Date, mail a notice thereof
in writing to the registered holders of the Right Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES.
Notwithstanding any of the provisions of this Agreement or of the Rights
to the contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such forms as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind
or class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of Common Stock following the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date, the Company may with respect to shares of Common Stock so
issued or sold pursuant to (i) the exercise of stock options, (ii) under any
employee plan or arrangement, (iii) upon the exercise, conversion or exchange
of securities, notes or debentures issued by the Company or (iv) a contractual
obligation of the Company in each case existing prior to the Distribution Date,
issue Rights Certificates representing the appropriate number of Rights in
connection with such issuance or sale.
SECTION 23. REDEMPTION.
(a) The Board of Directors may, at any time prior to such time as any
Person first becomes an Acquiring Person, redeem all but not less than all the
then outstanding Rights at a redemption price of $.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (the redemption price being hereinafter
referred
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to as the "Redemption Price"). The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. The Company may, at its option,
pay the Redemption Price in cash, shares of Common Stock (based on the current
market price of the Common Stock at the time of redemption) or any other form
of consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to Section 23(a) hereof (or at such later
time as the Board of Directors may establish for the effectiveness of such
redemption), and without any further action and without any notice, the right
to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the
validity of such redemption. Within 10 days after such action of the Board of
Directors ordering the redemption of the Rights (or such later time as the
Board of Directors may establish for the effectiveness of such redemption), the
Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption shall state the method by
which the payment of the Redemption Price will be made.
SECTION 24. EXCHANGE.
(a) The Board of Directors may, at its option, at any time after any
Person first becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
not become effective or that have become void pursuant to the provisions of
Section 11(a)(ii) hereof) for shares of Common Stock at an exchange ratio of
one share of Common Stock per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such amount per Right being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time (1) after any Person (other than
an Exempt Person), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of shares of Common Stock aggregating 50% or more
of the shares of Common Stock then outstanding. From and after the occurrence
of an event specified in Section 13(a) hereof, any Rights that theretofore have
not been exchanged pursuant to this Section 24(a) shall thereafter be
exercisable only in accordance with Section 13 hereof and may not be exchanged
pursuant to this Section 24(a). The exchange of the Rights by the Board of
Directors may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors ordering the exchange of any Rights pursuant to Section 24(a) hereof
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of shares of Common Stock equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall promptly mail a notice
of any such exchange to all of the holders of the Rights so exchanged at their
last addresses
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as they appear upon the registry books of the Rights Agent. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the shares of Common Stock for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) The Company may at its option and, in the event that there shall not
be sufficient shares of Common Stock issued but not outstanding or authorized
but unissued to permit an exchange of Rights as contemplated in accordance with
this Section 24, the Company shall substitute to the extent of such
insufficiency, for each share of Common Stock that would otherwise be issuable
upon exchange of a Right, a number of shares of Preferred Stock or fraction
thereof (or Equivalent Preferred Shares as such term is defined in Section
11(b) hereof) such that the Current Per Share Market Price (determined pursuant
to Section 11(d) hereof) of one share of Preferred Stock (or Equivalent
Preferred Share) multiplied by such number or fraction is equal to the Current
Per Share Market Price of one share of Common Stock (determined pursuant to
Section 11(d) hereof) as of the date of such exchange).
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall at any time after the earlier of the
Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Stock or to make
any other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision or combination of
outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or
winding up of the Company, or (v) to declare or pay any dividend on the Common
Stock payable in Common Stock or to effect a subdivision, combination or
consolidation of the Common Stock (by reclassification or otherwise than by
payment of dividends in Common Stock), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the Record Date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such liquidation, dissolution or winding up is to take
place and the date of participation therein by the holders of the Common Stock
and/or Preferred Stock, if any such date is to be fixed, and such notice shall
be so given in the case of any action covered by clause (i) or (ii) above at
least 10 days prior to the Record Date for determining holders of the Preferred
Stock for purposes of such action, and in the case of any such other action, at
least 10 days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the Common Stock and/or
Preferred Stock, whichever shall be the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13 hereof
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Stock) in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
28
<PAGE> 32
and the consequences of such event to holders of Rights under Section 11(a)(ii)
and Section 13 hereof.
SECTION 26. NOTICES.
Notices or demands authorized by this Agreement to be given or made by the
Rights Agent or by the holder of any Right Certificate to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Echelon International Corporation
________________________________
________________________________
Attention:______________________
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
________________________________
________________________________
________________________________
Attention:______________________
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS.
Except as otherwise provided in this Section 27, for so long as the Rights
are then redeemable, the Company may in its sole and absolute discretion, and
the Rights Agent shall if the Company so directs, supplement or amend any
provision of this Agreement in any respect without the approval of any holders
of the Rights. At any time when the Rights are no longer redeemable, except as
otherwise provided in this Section 27, the Company may, and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without
the approval of any holders of Rights Certificates in order to (i) cure any
ambiguity, (ii) correct or supplement any provision contained herein which may
be defective or inconsistent with any other provisions herein, (iii) shorten or
lengthen any time period hereunder, or (iv) change or supplement the provisions
hereunder in any
29
<PAGE> 33
manner which the Company may deem necessary or desirable; provided that no such
supplement or amendment shall adversely affect the interests of the holders of
Rights as such (other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person), and no such amendment may cause the rights again to
become redeemable or cause the Agreement again to become amendable other than
in accordance with this sentence. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made which
decreases the Redemption Price. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment.
SECTION 28. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the benefit
of the Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
SECTION 29. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any Person other
than the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Stock) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock).
SECTION 30. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS.
The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise the rights and powers specifically
granted to the Board of Directors or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend this Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the foregoing)
that are done or made by the Board of Directors in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights, as such, and all other parties, and (y) not subject the Board of
Directors to any liability to the holders of the Rights.
SECTION 31. SEVERABILITY.
If any term, provision, covenant or restriction of this Agreement or
applicable to this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
30
<PAGE> 34
SECTION 32. GOVERNING LAW.
This Agreement and each Right Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Florida and for all
purposes shall be governed by and construed in accordance with the laws of such
State applicable to contracts to be made and performed entirely within such
State.
SECTION 33. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
SECTION 34. DESCRIPTIVE HEADINGS.
Descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: ECHELON INTERNATIONAL
CORPORATION
By:_______________________________ By: ______________________________
Secretary President
ATTEST: [RIGHTS AGENT]
By:_______________________________ By:_______________________________
Title:____________________________ Title:____________________________
</TABLE>
31
<PAGE> 35
Exhibit A
FORM
OF
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
PROVIDING FOR
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
ECHELON INTERNATIONAL CORPORATION
(Pursuant to Section 607.0602 of the
Florida Business Corporation Act)
____________________________
ECHELON INTERNATIONAL CORPORATION, a corporation organized and
existing under the laws of State of Florida (this "Corporation"), in order to
amend and restate its Articles of Incorporation in accordance with the
requirements of Chapter 607.0602, Florida Statutes, does hereby certify as
follows:
1. The name of this Corporation is ECHELON INTERNATIONAL
CORPORATION.
2. The amendment effected hereby was duly adopted by the Board of
Directors of this Corporation on ______________ 1996, and shall become
effective upon filing hereof with the Florida Department of State.
3. The amendment effected hereby is as follows:
Pursuant to the authority granted to and vested in the Board of
Directors (hereinafter called the "Board of Directors" or the "Board") in
accordance with the provisions of the Company's Articles of Incorporation, as
amended to date (hereinafter called the "Articles of Incorporation"), the Board
of Directors hereby creates a series of Preferred Stock, par value $.01 per
share, of the Company and hereby states the designation and number of shares,
and fixes the relative rights, powers and preferences thereof, and the
limitations thereof, as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be __________________________. Such number of shares may be
Exhibit A - 1
<PAGE> 36
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities issued by the
Company convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of
any series of Preferred Stock of the Company (the "Preferred Stock") (or any
similar stock) ranking prior and superior to the Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock, par value $_______per share, of the
Company (the "Common Stock") and of any other stock of the Company ranking
junior to the Series A Preferred Stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the last day of January,
April, July, and October in each year (each such date being referred to herein
as a "Dividend Payment Date"), commencing on the first Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock, declared on the Common Stock since the immediately
preceding Dividend Payment Date or, with respect to the first Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Company shall at any time after
________________, 1996 declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(b) The Company shall declare a dividend or distribution
on the Series A Preferred Stock as provided in Section 2(a) immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Dividend Payment Date and the next subsequent Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall
nevertheless be payable, when, as and if declared, on such subsequent Dividend
Payment Date.
(c) Dividends shall begin to accrue and be cumulative,
whether or not earned or declared, on outstanding shares of Series A Preferred
Stock from the Dividend Payment Date next preceding the date of issue of such
shares, unless the date of issue of such shares is prior to the Record Date for
the first Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Dividend Payment Date or is a date after the Record Date for the
determination of holders of shares of Series A Preferred
Exhibit A - 2
<PAGE> 37
Stock entitled to receive a quarterly dividend and before such Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
Record Date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which Record Date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights;
(a) Subject to the provision for adjustment hereinafter
set forth and except as otherwise provided in the Articles of Incorporation or
required by law, each share of Series A Preferred Stock shall entitle the
holder thereof to 100 votes on all matters upon which the holders of the Common
Stock of the Company are entitled to vote. In the event the Company shall at
any time after _______________, 1996 declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided in the Articles of
Incorporation, as hereby or otherwise hereafter amended, and except as
otherwise required by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital stock of the
Company having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Company.
(c) Except as set forth herein, or as otherwise provided
by law, holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not earned or declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Company shall
not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (as to dividends)
to the Series A Preferred Stock;
Exhibit A - 3
<PAGE> 38
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (as to
dividends) with the Series A Preferred Stock, except dividends paid
ratably on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Company may at any time
redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Company ranking junior (as
to dividends and upon dissolution, liquidation or winding up) to the
Series A Preferred Stock or rights, warrants or options to acquire
such junior stock;
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
in accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Company shall not permit any Subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under Section 4(a), purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall
be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject
to any conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned
or declared, to the date of such payment, provided that the holders of shares
of Series A Preferred Stock shall be entitled to receive an aggregate amount
per share, subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount to be distributed per share to holders of
shares of Common Stock, or (B) to the holders of shares of stock ranking on a
parity upon liquidation, dissolution or winding up with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred Stock and
all such parity stock in proportion to the total amounts to which the holders
of all such shares are entitled upon such liquidation, dissolution or winding
up. In the event, however, that there are not sufficient assets available to
permit payment in full of the Series A liquidation preference and
Exhibit A - 4
<PAGE> 39
the liquidation preferences of all other classes and series of stock of the
Company, if any, that rank on a parity with the Series A Preferred Stock in
respect thereof, then the assets available for such distribution shall be
distributed ratably to the holders of the Series A Preferred Stock and the
holders of such parity shares in the proportion to their respective liquidation
preferences. In the event the Company shall at any time after ________________,
1996 declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (A) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are converted into, exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly converted
into, exchanged for or changed into an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is converted, exchanged or converted. In the event the Company shall at
any time after _______________, 1996 declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the conversion,
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Company, junior to all other series of
Preferred Stock and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to the Articles of
Incorporation (including as amended by these Articles of Amendment) would
alter, change or repeal any of the preferences, powers or special rights given
to the Series A Preferred Stock so as to affect the Series A Preferred Stock
adversely, then the holders of the Series A Preferred Stock shall be entitled
to vote separately as a class upon such amendment, and the affirmative vote of
two-thirds of the outstanding shares of the Series A Preferred Stock, voting
separately as a class, shall be necessary for the adoption thereof, in addition
to such other vote as may be required by the laws of the State of Florida.
Exhibit A - 5
<PAGE> 40
Section 11. Fractional Shares. Series A Preferred Stock may be issued
in fractions of a share that shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
_________________________________
IN WITNESS WHEREOF, these Articles of Amendment are executed on behalf
of the Company by its President and attested by its Secretary this ____ day of
_____________, 1996.
ATTEST: ECHELON INTERNATIONAL
CORPORATION
By: _________________________________ By: ___________________________
Secretary President
Exhibit A - 6
<PAGE> 41
Exhibit B
FORM OF RIGHT CERTIFICATE
Certificate No. R- ______________ _______Rights
NOT EXERCISABLE AFTER _____________, 2006, OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE STOCKHOLDER RIGHTS
AGREEMENT (THE "RIGHTS AGREEMENT"). UNDER CERTAIN CIRCUMSTANCES, AS
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO
ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID
AND WILL NO LONGER BE TRANSFERABLE.
Right Certificate
ECHELON INTERNATIONAL CORPORATION
This certifies that __________________________ or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Stockholder Rights Agreement, dated as of ______________ , 1996 as the same
may be amended from time to time (the "Rights Agreement"), between Echelon
International Corporation, a Florida corporation (the "Company"), and (the
"Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior
to 5:00 P.M., St. Petersburg, Florida time, on _______________________, 2006 at
the office or agency of the Rights Agent designated for such purpose, or of its
successor as Rights Agent, one one-hundredth of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, par value $.01 per
share (the "Preferred Stock"), of the Company, at a purchase price of $_____
per one one-hundredth of a share of Preferred Stock (the "Purchase Price"),
upon presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed. The number of Rights evidenced by this
Rights Certificate (and the number of one one-hundredths of a share of
Preferred Stock which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
_________________, 1996 based on the Preferred Stock as constituted at such
date. As provided in the Rights Agreement, the Purchase Price, the number of
one one-hundredths of a share of Preferred Stock (or other securities or
property) which may be purchased upon the exercise of the Rights and the number
of Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
Exhibit B - 1
<PAGE> 42
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates
of like tenor and date evidencing Rights entitling the holder to purchase a
like aggregate number of shares of Preferred Stock as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled
such holder to purchase. If this Right Certificate shall be exercised in part,
the holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for shares of Preferred Stock or shares of the Company's Common Stock, par
value $______ per share.
No fractional shares of Preferred Stock or Common Stock will be issued
upon the exercise or exchange of any Right or Rights evidenced hereby (other
than fractions of Preferred Stock which are integral multiples of one one-
hundredth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of ______________.
ATTEST: ECHELON INTERNATIONAL CORPORATION
By:____________________________ By: _____________________________
Secretary President
Exhibit B - 2
<PAGE> 43
Countersigned:
[RIGHTS AGENT]
By:__________________________________
Title:_______________________________
Authorized Signature
Exhibit B - 3
<PAGE> 44
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED ______________________________ hereby sells, assigns
and transfer unto
___________________________________________
(Please print name and address of transferee)
Rights represented by this Right Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and
appoint_____________ Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated: __________________________________
________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank, trust company, broker,
dealer or other eligible institution participating in a recognized signature
guarantee medallion program
________________________________________________________________________________
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not Beneficially Owned by, were not acquired by the
undersigned from, and are not being assigned to, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
____________________________________________
Signature
Exhibit B - 1
<PAGE> 45
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To Echelon International Corporation:
The undersigned hereby irrevocably elects to exercise
_______________ Rights represented by this Right Certificate to purchase the
shares of Preferred Stock (or other securities or property) issuable upon the
exercise of such Rights and requests that certificates for such shares of
Preferred Stock (or such other securities) be issued in the name of:
_______________________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivery to:
_______________________________________________________________
(Please print name and address)
Please insert social security
or other identifying number:_______________________________
Dated: _____________________________________
____________________________________________
Signature
(Signature must conform to holder's name as specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by bank, trust company, broker, dealer
or other eligible institution participating in a recognized signature guarantee
medallion program.
Exhibit B - 2
<PAGE> 46
________________________________________________________________________________
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not Beneficially Owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement)
_____________________________________
Signature
________________________________________________________________________________
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.
Exhibit B - 3
<PAGE> 47
Exhibit C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE STOCKHOLDER RIGHTS
AGREEMENT (THE "RIGHTS AGREEMENT"), RIGHTS OWNED BY OR TRANSFERRED
TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE
RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL
AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
Shares of Preferred Stock
On ______________ , 1996 the Board of Directors of Echelon
International Corporation (the "Company") declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of common stock,
par value $_____________ per share of the Company (the "Common Stock"). The
dividend is payable on ____________, 1996 (the "Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred Stock")
of the Company at a price of $_______ per one one-hundredth of a share of
Preferred Stock (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Stockholder Rights Agreement dated
as of ___________ , 1996 as the same may be amended from time to time (the
"Rights Agreement"), between the Company and ________________, as Rights Agent
(the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions an Acquiring Person) have acquired beneficial ownership of
15% or more of the outstanding shares of Common Stock or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding shares of Common Stock (the earlier of such dates being called
the "Distribution Date"), the Rights will be evidenced, with respect to any of
the Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate together with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuances of Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for shares of Common Stock
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
Exhibit C - 1
<PAGE> 48
The Rights are not exercisable until the Distribution Date. The Rights
will expire on ________________, 2006 (the "Final Expiration Date"), unless the
Final Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for or purchase Preferred Stock at a
price, or securities convertible into Preferred Stock with a conversion price,
less than the then-current market price of the Preferred Stock or (iii) upon
the distribution to holders of the Preferred Stock of evidences of indebtedness
or assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights are also subject to adjustment in the
event of a stock split of the Common Stock or a stock dividend on the Common
Stock payable in shares of Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Each share of Preferred Stock will be entitled, when, as and
if declared, to a minimum preferential quarterly dividend payment of $1 per
share but will be entitled to an aggregate dividend of 100 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to a minimum preferential liquidation payment of $100 per share (plus any
accrued but unpaid dividends) but will be entitled to an aggregate payment of
100 times the payment made per share of Common Stock. Each share of Preferred
Stock will have 100 votes, voting together with the Common Stock. Finally, in
the event of any merger, consolidation or other transaction in which shares of
Common Stock are converted or exchanged, each share of Preferred Stock will be
entitled to receive 100 times the amount received per share of Common Stock.
These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
Beneficially Owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right at the then
current exercise price of the Right, that number of shares of Common Stock
having a market value of two times the exercise price of the Right.
In the event that, after a person or group has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a Right (other than
Rights Beneficially Owned by an Acquiring Person which will have become void)
will thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of shares of common stock
of the person with whom the Company has engaged in the
Exhibit C - 2
<PAGE> 49
foregoing transaction (or its parent), which number of shares at the time of
such transaction will have a market value of two times the exercise price of
the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock or the occurrence of an event described in
the prior paragraph, the Board of Directors may exchange the Rights (other than
Rights owned by such person or group which will have become void), in whole or
in part, at an exchange ratio of one share of Common Stock, or one
one-hundredth of a share of Preferred Stock (or of a share of a class or series
of the Company's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock will be issued
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Stock on the last
trading day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the
Board of Directors may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption
Price.
For so long as the Rights are then redeemable, the Company may, except
with respect to the redemption price, amend the Rights in any manner. After the
Rights are no longer redeemable, the Company may, except with respect to the
redemption price, amend the Rights in any manner that does not adversely affect
the interests of holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 10 dated
____________, 1996. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
as the same may be amended from time to time, which is hereby incorporated
herein by reference.
Exhibit C - 3
