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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO 001-12211
ECHELON INTERNATIONAL COPRORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 59-2554218
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE PROGRESS PLAZA, SUITE 1500 TELEPHONE (813) 803-8200
ST. PETERSBURG, FLORIDA 33701 (REGISTRANT'S TELEPHONE NUMBER)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
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COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK, NEW YORK STOCK EXCHANGE
PAR VALUE $.01 PER SHARE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $143,171,875 as of March 25, 1998 (based upon
the closing sales price for the registrant's stock reported by the New York
Stock Exchange on March 25, 1998 as published in The Wall Street Journal and,
solely for these purposes, considering as non-affiliates all stockholders other
than the registrant's executive officers and directors).
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Common stock, par value $.01 per share, 6,802,484 shares, as of March 25,
1998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed with
the U.S. Securities and Exchange Commission, relating to the 1998 Annual
Meeting of Stockholders, are incorporated by reference in Part III hereof.
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TABLE OF CONTENTS
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PART I.
Item 1. Business .................................................................. 1
Item 2. Properties ................................................................ 16
Item 3. Legal Proceedings ......................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders ....................... 17
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ....................................................... 17
Item 6. Selected Financial Data ................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ................ 27
Item 8. Financial Statements and Supplementary Data ............................... F-1
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................................. III-1
PART III.
Item 10. Directors and Executive Officers of the Registrant ........................ III-1
Item 11. Executive Compensation .................................................... III-1
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ III-1
Item 13. Certain Relationships and Related Transactions ............................ III-1
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... III-1
Signatures .......................................................................... III-3
Financial Statement Schedules ....................................................... S-1
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PART I
ITEM 1. BUSINESS
GENERAL
Echelon International Corporation ("Echelon" or the "Company") is a real
estate company with operations in the development, ownership and management of
commercial and multi-family residential real estate (the "Real Estate
Business"). The Company also owns and manages a portfolio of financial assets
consisting primarily of leased aircraft and other assets and collateralized
financings of commercial real estate and aircraft (the "Leasing and Lending
Business"). Echelon is continuing to withdraw from the real estate and aircraft
lending business to focus on its core real estate operations. The Company's
executive offices are located at One Progress Plaza, Suite 1500, St.
Petersburg, Florida, 33701, telephone (813) 803-8200.
Prior to December 18, 1996, Echelon was a wholly-owned subsidiary of
Florida Progress Corporation ("Florida Progress"). On December 18, 1996,
Florida Progress effected a spin-off of Echelon (the "Distribution") by
distributing all of the issued and outstanding Echelon Common Stock to all
holders of outstanding Florida Progress Common Stock by a tax-free stock
dividend.
The Distribution established Echelon as a publicly held corporation,
listed on the New York Stock Exchange, independent from Florida Progress. The
Company's stock trades under the symbol EIN.
THE REAL ESTATE BUSINESS
COMMERCIAL REAL ESTATE DEVELOPMENT, 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 of Florida. The Company also has an office in
Dallas, Texas with plans to develop, own and manage multi-family residential
communities in the southeast and southwest United States.
Echelon believes the current economic forecasts and demographics of the
southeast and southwest United States will support Echelon's business plan to
maximize the value of its existing commercial real estate assets and to develop
properties in the Company's target markets.
The Company's owned assets currently include 14 major commercial and
multi-family residential real estate properties, consisting of eight office
buildings, one multi-family residential community currently under construction,
and five industrial sites and other properties. The following table summarizes
Echelon's owned commercial and multi-family residential real estate:
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SUMMARY OF OWNED COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE PORTFOLIO
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PROJECT NAME DESCRIPTION LOCATION
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OFFICE BUILDINGS
Barnett Tower/ 26-story Class A St. Petersburg,
NationsBank office tower FL
SouthCore Commercial 2 floors in an 8-story St. Petersburg,
Class A office building FL
and parking garage
McNulty Station 5 multi-tenant, Class A St. Petersburg,
office buildings, historic FL
renovation
3rd & 3rd 3-story Class B office St. Petersburg,
building FL
Bayboro Station 3-story Class A office St. Petersburg,
building FL
100 Carillon 3-story, multi-tenant St. Petersburg,
Class A suburban FL
office building
located in Carillon
Park
Highpoint Center 15-story, multi-tenant Tallahassee,
Class A office building FL
near the state capitol
building
Progress Center 3 multi-tenant, Alachua/
Class A office/research Gainesville,
buildings located in a FL
research park
MULTI-FAMILY RESIDENTIAL
Echelon at Bay Isle 369 unit multi-family St. Petersburg,
Key Apartments residential community FL
on 28 acres of land
INDUSTRIAL AND OTHER PROPERTIES
Bayboro Property Land adjacent to St. Petersburg,
Bayboro Station FL
7th Avenue Industrial warehouse Tampa, FL
5th Avenue Industrial warehouse Tampa, FL
Progress Packaging Industrial warehouse Tampa, FL
Harborage at Bayboro Full service marina St. Petersburg,
includes wet slips FL
and high & dry
boat storage, marine
repairs & service, parts
sales, and marine
supply store
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% OF
RENTABLE
PERCENTAGE SQ. FT.
LEASED LEASED
RENTABLE AS OF BY
SQUARE DEC. 31, MAJOR MAJOR
PROJECT NAME FEET (2) 1997 TENANTS TENANTS
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OFFICE BUILDINGS
Barnett Tower/ 295,200 96% Florida Progress 21%
NationsBank Barnett Bank/
NationsBank 17%
Holland & Knight
Law Firm 9%
Merrill Lynch 7%
Raymond James &
Associates 6%
Carlton Fields Law
Firm 5%
KPMG Peat Marwick 5%
SouthCore Commercial 133,279 100% Florida Power (1) 100%
McNulty Station 93,152 100% Andersen Consulting 81%
AmSouth
Bancorporation 7%
3rd & 3rd 32,607 100% Andersen Consulting 100%
Bayboro Station 80,991 100% Florida Power (1) 100%
100 Carillon 79,749 92% Raymond James
Financial 85%
Highpoint Center 79,552 100% Katz Kutter Law Firm 46%
Huey Guilday
Law Firm 22%
Progress Center 102,386 51% University of Florida
Tissue Bank 22%
Pharmos Corporation 11%
US Biomaterials 9%
MULTI-FAMILY
RESIDENTIAL
Echelon at Bay Isle -- -- Under construction as
Key Apartments of December 31, 1997 N/A
INDUSTRIAL AND OTHER
PROPERTIES
Bayboro Property 277,402(3) 38% Florida Power 38%
7th Avenue 187,500 63% All Points 63%
5th Avenue 16,482 100% Finer Scrap Metal 100%
Progress Packaging 121,844 27% John J. Faour 16%
Nature's Therapy 8%
Harborage at Bayboro 235 wet slips 100% N/A N/A
425 high and 100% N/A
dry slips
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(1) These buildings are being finished to tenant's specifications. Leases will
commence upon delivery between April and June, 1998.
(2) Unless otherwise indicated.
(3) Rentable square footage represents land.
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OFFICE BUILDINGS
Barnett Tower is a 26-story, 295,200 rentable square feet ("rsf") Class A
office building in the center of downtown St. Petersburg and accounts for
approximately 24% of Echelon's more than 1,200,000 rsf of owned commercial real
estate. Completed in 1990, it is the newest office building in downtown St.
Petersburg and is home to several of the area's most prominent companies,
including Florida Progress; Barnett Bank / NationsBank; Holland & Knight Law
Firm, , Merrill Lynch; Raymond James & Associates, Inc.; Carlton Fields Law
Firm; and KPMG Peat Marwick. These principal tenants account for 70% of the
building's occupancy and have leases with remaining terms of at least three
years. As of December 31, 1997, the Barnett Tower was approximately 96% leased.
The SouthCore Commercial property consists of the first two floors
(133,279 rsf) of office space in a Class A office building, which also has six
floors of parking, two owned by Echelon and four by the City of St. Petersburg.
The first two floors have not been occupied since completion of the building in
1990. These floors were originally part of a redevelopment plan between the
City and its selected developer, the Bay Plaza Companies, to revitalize the
downtown area. Echelon acquired these two floors in November 1997 and is in the
process of completing the interior base building and tenant improvements for
100% occupancy by Florida Power Corporation, a wholly-owned subsidiary of
Florida Progress, by June 1, 1998 under a 15-year lease.
McNulty Station is a complex of five office buildings ranging in size from
two to five stories, totaling 93,152 rsf, and is located across the street from
the Barnett Tower. McNulty Station was part of a historic renovation project
completed in 1985. The buildings are all Class A buildings leased to such
tenants as Andersen Consulting and AmSouth Bancorporation. The lease with
Andersen Consulting, for 81% of the McNulty Station properties, is scheduled to
expire in August 2001. As of December 31, 1997, McNulty Station was 100%
leased.
The 3rd & 3rd building is a three-story, 32,607 rsf office building
located two blocks south of the Barnett Tower. Andersen Consulting currently
occupies the entire building until September 1998, with an option to renew for
a period coterminous with Andersen Consulting's McNulty Station lease.
Bayboro Station is a three-story, 80,991 rsf Class A waterfront office
building located near downtown St. Petersburg. Echelon is in the process of
completing the interior base building and tenant improvements for 100%
occupancy by Florida Power Corporation ("Florida Power") under a 10-year lease
that is expected to commence in April 1998 upon completion of the improvements.
Echelon's other commercial building in the St. Petersburg area is 100
Carillon. 100 Carillon, located in the Gateway area of Tampa Bay, is a
three-story, 79,749 rsf office building housed within the 432-acre Carillon
multi-use park (the "Carillon Park"). Raymond James Financial, Inc., a regional
securities brokerage firm with headquarters in a neighboring building, with its
affiliates, occupies 85% of the building under a lease expiring on December 31,
2002. 100 Carillon is a Class A multi-tenant building which, as of December 31,
1997, was 92% leased.
As of December 1997, the office market in downtown St. Petersburg had a
vacancy rate of 11.8% (according to the Maddux Report of January 1998), which
is the lowest vacancy rate in the past 10 years. Echelon's commercial office
buildings located in the downtown St. Petersburg were 97% leased as of December
31, 1997.
Other Florida commercial office properties owned by Echelon include
Highpoint Center, a 15-story, 79,552 rsf Class A office building located in
downtown Tallahassee. The property is situated two blocks from the state
capitol building and courthouse and houses several law firms with significant
state business activities. The law firms of Katz, Kutter and Huey, Guilday
represent the building's two main tenants and represent 68% of the occupancy of
the building with remaining lease terms of three years as of December 31, 1997.
As of December 31, 1997, Highpoint Center was 100% leased. Except for the state
capitol building, Highpoint Center, which was built in 1990, is the tallest
building in downtown Tallahassee.
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Progress Center, located in Alachua/Gainesville, Florida, is a 102,386 rsf
office research facility. The facility includes three buildings, each of which
is comprised of approximately 25% office space and 75% laboratory space.
Progress Center is part of a 200-acre office and research park ("Progress
Park") owned by Echelon and is approximately 51% leased at December 31, 1997,
including 22,500 square feet which is occupied by the University of Florida
Tissue Bank. The three major tenants currently occupy approximately 42% of the
facility. Progress Center 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 and to provide office
space to the area businesses.
During the next five years, the Company expects to hold its core office
buildings and expand its commercial real estate portfolio by developing or
acquiring 750,000 to 1,500,000 square feet of commercial office space. A
substantial amount of this space will be developed on Echelon's existing land
inventory in the Tampa Bay area, with the balance developed or acquired in
other southeast and southwest target markets.
Although the Company plans to hold its core office buildings during this
period, short, medium and long-term exit strategies have been developed for all
currently owned commercial real estate. The Company intends to sell non-core
commercial properties as opportunities arise.
MULTI-FAMILY RESIDENTIAL
The Company is continuing with the construction of Echelon at Bay Isle
Key, a 369-unit multi-family residential community on Company owned land
located on 9th Street in St. Petersburg, Florida. Echelon expects to complete
the construction of the clubhouse and begin leasing in April 1998.
See "General Overview of Strategic Plan" for a discussion of the Company's
multi-family residential development strategic plan.
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 the Bayboro property, the 7th Avenue property, the 5th
Avenue property and Progress Packaging.
Echelon's Bayboro property includes 277,402 rsf of land in St. Petersburg,
104,152 rsf of which is leased to Florida Power. Florida Power leases the land
to house some of its "peaking" units, a system of gas powered backup generators
used to produce power during periods of peak electrical demand. The peaking
units include several turbine engines to power the generators. The lease to
Florida Power can be canceled upon written notice from Florida Power. Most of
the land comprising the Bayboro property was acquired for its development
potential. The Bayboro property is close to downtown St. Petersburg and is
located within a redevelopment zone with a portion of the property bordering
the Tampa Bay waterfront.
Echelon has several properties located in various areas of Tampa. The 7th
Avenue property, constructed in 1987, is a 187,500 rsf warehouse and
distribution facility located on the east side of Tampa. At December 31, 1997,
the property is approximately 63% 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 rsf industrial
building and is 100% leased to a single tenant who has an option to purchase
the building. Progress Packaging, located in West Tampa, is comprised of two
industrial warehouse buildings with a total of 121,844 rsf. The smaller
building is 20,000 rsf and is 100% leased to a tenant who also has an option to
purchase the building. The larger building of approximately 100,000 rsf is 10%
leased at December 31, 1997.
Echelon also owns and operates a marina, the Harborage at Bayboro, 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
December 31, 1997, were 100% leased.
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Echelon's strategy for its industrial and other properties is to
aggressively market the properties to increase occupancy and cash flow in the
short term. As market conditions warrant and based on the Company's ability to
lease these properties, Echelon intends to sell the industrial properties over
the next five years.
REAL ESTATE MANAGEMENT AND BROKERAGE SERVICES
Echelon currently manages its owned commercial office buildings,
industrial and other properties and five properties owned by third parties. The
Company intends to continue to expand its real estate management services by
securing additional third-party management services, managing Echelon's new
multi-family residential developments and managing Housing Tax Credit
developments built both for its own portfolio and for third parties. See
further discussion of Housing Tax Credit developments included at "Affordable
Housing."
OTHER OWNED REAL ESTATE; MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE
DEVELOPMENT
OVERVIEW
Several large parcels of undeveloped land in the Tampa Bay area and other
parts of Florida represent another significant portion of Echelon's real estate
holdings. Substantial infrastructure has already gone into certain of these
properties, including Carillon Park. Echelon's strategy is to accelerate the
development of both multi-family residential communities and commercial office
buildings on these sites and to acquire and develop other sites in the
southeast and southwest United States.
The following table summarizes Echelon's investment in undeveloped real
estate:
SUMMARY OF UNDEVELOPED OWNED COMMERCIAL REAL ESTATE
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DEVELOPMENT POTENTIAL
AS OF DECEMBER 31, 1997
---------------------------
ACRES FOR NUMBER OF
SALE OR MULTI-FAMILY
PROJECT NAME DESCRIPTION LOCATION ZONING DEVELOPMENT UNITS
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Carillon Park Class A, suburban St. Petersburg, FL Phase I (DRI in place)-- 38 N/A
office and residential Zoned business park
park in Gateway area Phase II (DRI in place)--
Zoned business park 46
Multi-family residential 50 1,169
4th Street 15 undeveloped St. Petersburg, FL Zoned multi-family 15 228
acres (Multi-family) residential office park
9th Street 44 undeveloped St. Petersburg, FL Zoned multi-family 44 596
acres (Multi-family) residential
Progress Park Research park Gainesville, FL Zoned research, office 150 N/A
consisting of industrial/commercial
150 acres with
infra-structure
in place
Royal Oaks 35 undeveloped acres Tallahassee, FL Zoned multi-family 35 N/A
adjacent to 131 single residential
family lots previously
developed and sold
Riverside Ranch 2,000-acre operating Lakeland, FL Zoned agricultural 2,000 N/A
----- ------
ranch
TOTAL 2,378 1,993
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Carillon Park is a 432-acre office and multi-family residential 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
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necessary zoning, entitlements, and other development approvals in place.
Echelon believes that the 134 Company-owned acres within Carillon Park will
play a significant role in Echelon's strategic 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) creates an ideal business center
providing access to a large employee pool and convenience to the Tampa
International Airport.
Although new office construction generally has many hurdles to overcome,
the development rights in Carillon Park have become vested pursuant to
Development of Regional Impact ("DRI") orders. Carillon Park's development
plans include master stormwater retention areas, underground utilities that
include fiber optic capability and zoning approvals which allow for a broad
spectrum of uses of the land. For purposes of implementing these plans,
development of the Carillon Park land is divided into two phases ("Phase I" and
"Phase II").
As of December 31, 1997, construction of the infrastructure for Phase I
and Phase II is complete and includes a jogging and fitness trail and
boardwalk. Phase I, which has 38 acres remaining to be developed or sold, is
already the location of offices of companies such as Raymond James Financial,
Allstate, Xerox and Payment Systems for Credit Unions Service Center.
Ninety-six of the original 155 acres of Phase II remain to be developed or
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 multi-family
residential development. Of the 90 acres for office buildings, almost 44 acres
have been sold. This leaves a balance of approximately 46 acres for office
building development in Phase II. Of the 65 acres for multi-family residential
development, 15 acres have been sold leaving approximately 50 acres with the
potential for development of 1,169 multi-family residential units. Echelon
intends to develop most of the unsold Carillon Park land for its own account
and, if and when market conditions warrant, to possibly market the remaining
land to third parties.
Financing for further development of Carillon Park is being sought from a
variety of sources, including project-based financings and internally generated
funds from the collection of loans and non-strategic asset sales, operating
cash flow, and existing cash and marketable securities, which, as of December
31, 1997, approximated $50 million. As of December 31, 1997, the Company has
executed a commitment letter for a $17.5 million construction loan to fund the
development of a multi-family community, Echelon at The Reserve, on
Company-owned land in Carillon Park. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" in Item 7.
Echelon's 15-acre 4th Street site has potential for the development of
approximately 228 multi-family residential units. Echelon currently intends to
use the 4th Street site for the development of affordable housing qualifying
for Housing Tax Credits. Echelon has submitted an application to the State of
Florida Housing Finance Agency to be awarded Housing Tax Credits sufficient to
develop Echelon at Baybridge, a 228 unit multi-family residential community.
Echelon relinquished the Housing Tax Credits awarded on this property in
1996/97 to develop approximately 108 Housing Tax Credit multi-family
residential units to apply for Housing Tax Credits for the entire development
of 228 units on the 4th Street site. See "Affordable Housing Development,"
below.
Echelon's 9th Street site, which is also located in the Gateway area of
Tampa Bay, has a total of 44 undeveloped acres with multi-family residential
development potential of approximately 596 units. As of December 31, 1997,
construction is in progress on a 369-unit multi-family residential development,
Echelon at Bay Isle Key, which is adjacent to the 44 undeveloped acres.The next
construction phase of Echelon at Bay Isle Key, which is expected to begin in
the fourth quarter of 1998, will add an additional 90 multi-family residential
units.
Progress Park has approximately 150 developable acres in
Alachua/Gainesville, Florida. The rural setting and lack of substantial
economic base complicate the development and marketing of this
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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 Progress 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 has recently executed an agreement with the University of
Florida and intends to subdivide the property and to construct new roadway
infrastructure.
Other Echelon properties include approximately 35 acres of undeveloped
land in the Royal Oaks subdivision of Tallahassee, Florida and a fully
operational 2,000 acre ranch located near Lakeland, Florida. Although no
agreements currently exist relating to the sale of such properties, Echelon
intends to sell these properties when practicable.
MULTI-FAMILY RESIDENTIAL DEVELOPMENT
During the next five years, Echelon believes that its most attractive
opportunities for growth and profitability are the development, ownership and
management of multi-family residential communities. The initial multi-family
residential developments are located in the Tampa Bay area. The Company has an
additional pipeline of potential developments which includes sites in the
southeast and southwest United States. Echelon has begun and plans to continue
developing multi-family residential communities on its owned land in St.
Petersburg, including the Carillon Park, 4th Street and 9th Street properties,
and eventually on land that it expects to acquire elsewhere in the southeast
and southwest United States.
Although real estate development has inherent business risks, general
market demographics as well as independent marketing studies sponsored by
Echelon suggest that multi-family residential development in the Gateway area
of Tampa Bay is warranted and could support 500 to 600 units annually for the
next five years. In particular, over 5,100 employees currently work within
Carillon Park, and thousands of additional employees are based in offices in
the immediate vicinity.
AFFORDABLE HOUSING DEVELOPMENT
As part of Echelon's strategy to focus on real estate development, Echelon
has invested in, and intends to invest further in, affordable housing
developments entitled to the benefits of Housing Tax Credits. Housing Tax
Credit projects are affordable housing developments 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. 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 housing and the attractive risk and
return outlook, but also because Echelon expects that its operating, direct
finance and leveraged lease portfolio will create a base of taxable income for
United States federal income tax purposes over the next 10 to 15 years against
which such credits can be applied. Echelon believes that investments in Housing
Tax Credits could significantly reduce such cash outflow while creating
favorable earnings and returns for Echelon. Initially, Echelon has and will
continue through existing commitments to passively invest in Housing Tax Credit
developments by purchasing interests in limited partnerships controlled by
third parties. Echelon's strategy is to develop, own and manage Housing Tax
Credit multi-family residential communities utilizing its owned land, within
the limits of Echelon's tax base. Echelon also eventually plans to develop and
manage Housing Tax Credit properties for other investors as part of its real
estate management services.
Through December 31, 1997, Echelon has invested $13.4 million in five
Housing Tax Credit limited partnerships which call for additional cash
investments by Echelon of $9.5 million in 1998 and $2.9 million in 1999.
COMMERCIAL REAL ESTATE DEVELOPMENT
In addition to multi-family residential development, Echelon plans to take
advantage of the commercial real estate market in the Gateway area, where
occupancy levels are averaging over 91%
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(according to the Maddux Report of January 1998) by developing its
Company-owned land within Carillon Park. Although some regional office
vacancies exist, Echelon believes the current high occupancy levels and the
lack of available commercial space in the Gateway area of Tampa Bay will
support future real estate development. In particular, Echelon's plans include
constructing office buildings in Carillon Park, subject to market and other
conditions. Echelon believes that the construction of an approximate 105,000
square foot multi-tenant building, which will house Echelon's headquarters,
will enhance the value of the remaining acreage and will provide a source of
prospective tenants for the multi-family residential communities expected to be
developed within Carillon Park.
To the extent market and other conditions warrant, Echelon's long-term
plans include potential commercial office building development in the State of
Florida and possibly elsewhere in the southeast and southwest United States.
THE LEASING AND LENDING BUSINESS
COLLATERALIZED COMMERCIAL REAL ESTATE LOAN PORTFOLIO
Echelon will continue to withdraw from the real estate lending business
and has made no new loans since 1993. The Company does not anticipate
originating any new financings of commercial real estate unless such financing
facilitates the sale of an existing asset. Echelon manages its remaining
portfolio of commercial real estate loans secured by properties located
throughout the United States. The aggregate commercial real estate loan
balance, as of December 31, 1997, was $42.1 million. Of this total, three
borrowers, representing four loan transactions, accounted for approximately 92%
of the loan balance, or $38.8 million. The largest single geographic
concentration of loans is in the State of California. Echelon's commercial real
estate loan portfolio consists of loans secured by a single-tenant and multi-
tenant office buildings and an industrial property, as summarized in the
following table:
SUMMARY OF REAL ESTATE LOAN PORTFOLIO
<TABLE>
<CAPTION>
COLLATERAL COLLATERAL
BORROWER/PROJECT LOCATION DESCRIPTION
- - -------------------------- -------------- ---------------------------
<S> <C> <C>
Marquardt Company Van Nuys, CA Industrial office complex
on 54 acres
Vine Street Investors-- Olympia, WA Single tenant (State of
Capitol View I Washington), Class A
office building
Vine Street Investors-- Olympia, WA Single tenant (State of
Capitol View II Washington), Class A
office building
Vine Street Associates-- Olympia, WA Single tenant (State of
Town Square VI Washington), Class A
office building
Madison Building(l) Tampa, FL Multi-tenant, Class C
office building
Total
<CAPTION>
BALANCE
FLOATING AS OF
MATURITY INTEREST DECEMBER 31, 1997
BORROWER/PROJECT DATE RATE BASIS (IN MILLIONS) AMORTIZATION
- - -------------------------- ---------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Marquardt Company Dec-98 Prime plus 2.00% $23.5 None
Vine Street Investors-- Oct-98 Prime plus .75% 5.8 None
Capitol View I
Vine Street Investors-- Dec-99 Prime plus .75% 5.0 None
Capitol View II
Vine Street Associates-- May-01 Prime plus .75% 4.5 None
Town Square VI
Madison Building(l) Nov-98 Prime plus .75% 3.3 30-year
-----
$42.1
=====
</TABLE>
- - ---------------------
(1) Echelon's balance represents an 80% interest in this loan.
The final maturities of the loans comprising Echelon's commercial real
estate loan portfolio range from 1998 to 2001. As is indicated in the preceding
table, all of the loans bear interest at a floating rate based on the prime
rate plus either 0.75% or 2.0%.
At December 31, 1997, Echelon's largest outstanding loan is $23.5 million
to the Marquardt Company ("Marquardt"). Marquardt is owned by Ferranti PLC
("Ferranti"), which is operating under
8
<PAGE>
receivership in the United Kingdom. The Ferranti receiver, Arthur Andersen &
Company, 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 and a 173,764 square foot building on 16 acres of
land leased to Kaiser Marquardt for the manufacturing and testing of aerospace
engines. Echelon has been assigned Marquardt's lease with Kaiser Marquardt.
Currently, this lease generates $2.4 million in annual 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. The Company has extended the maturity on
this loan several times through forbearance. Ferranti has received initial
indication of approval from Los Angeles County to subdivide the property to
enhance its marketability. The borrower has submitted an environmental closure
plan to the California Department of Environmental Protection and anticipates
receiving approval for the plan before the end of 1998.
As is indicated in the preceding table, Echelon has three loans
aggregating $15.3 million as of December 31, 1997 to the two Vine Street
partnerships. Each loan is a stand-alone facility, and each loan is secured by
an office building located in the State of Washington. The 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 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 three buildings
are leased to the State of Washington. A comparison of lease terms to loan
maturities is as follows:
<TABLE>
<CAPTION>
CURRENT CURRENT
LOAN LEASE
PROJECT LOANS MATURITY MATURITY
- - -------------------------------- ---------- -----------
<S> <C> <C>
Capital View I .............. 10/30/98 5/31/99
Capital View II ............. 12/31/99 6/30/00
Town View Square VI ......... 5/31/01 11/30/01
</TABLE>
As of December 31, 1997, Echelon had an 80% participation in a $4.1
million loan to Madison Building, Inc., which matures in November 1998. The
loan is secured by a first mortgage on a 94,680 square foot Class-C office
building located in downtown Tampa, Florida. The borrower has provided
additional collateral for the loan 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 approximately 78% occupied and does not
generate enough cash flow to cover the debt service. Although 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
office building are expected to be substantially less than the principal amount
of the loan. As of December 31, 1997, the Company has an allowance for losses
on leases and loans of $1.6 million for this loan.
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 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 and liquidate the underlying collateral.
Echelon plans to redeploy capital from its commercial real estate loan
portfolio first to repay debt with any excess amounts reinvested in its Real
Estate Business.
9
<PAGE>
COLLATERALIZED LEASING AND FINANCING OF AIRCRAFT AND RELATED EQUIPMENT
GENERAL
Echelon owns and manages a portfolio of leveraged, direct finance and
operating leases of aircraft and related equipment and two 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
recognizes certain tax benefits as the beneficial owner of the aircraft. These
leveraged leases are typically long-term (20 years or more) and at their
termination the owner participant takes possession of the plane, 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 higher 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 predetermined
pricing method which reflects, among other things, the amount of non-recourse
debt, the initial investment and certain tax consequences).
Echelon also owns assets under operating and direct finance leases. 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. 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.
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.
10
<PAGE>
LEVERAGED LEASES
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/SUBLEASES OF DELIVERY DATE ($ IN MILLIONS) (MO./YR.) MATURITY
- - --------------------------------------------- --------------------- -------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
A.I. Leasing II (Airbus)/Philippine Air ..... A300-B4-203 Mar-85 40 Jan-07 21
1985
Airbus A300 Leasing, Inc./American .......... A300-B4-605R Apr-89 54 May-11 22
1989
Air Wisconsin ............................... Bael46-300A Sep-89 23 Mar-10 20
1989
American Airlines, Inc. ..................... DC 9-82 Oct-84 23 Jan-05 20
1984
American Airlines, Inc. ..................... DC 9-82 Oct-84 23 Jan-05 20
1984
America West Airlines, Inc. ................. B757-2G7ER Dec-89 48 Jan-18 28
1989
Delta Air Lines, Inc. (Stage II) ............ B737-232 ADV Apr-84 18 Mar-05 20
1984
Delta Air Lines, Inc. (Stage II) ............ B737-232 ADV Apr-84 18 Mar-05 20
1984
Delta Air Lines, Inc. (Stage II) ............ B737-247 ADV Jul-87 19 Jul-02 15
1987
Delta Air Lines, Inc. (Stage II) ............ B737-247 ADV Jul-87 19 Jul-02 15
1987
Delta Air Lines, Inc. ....................... B767-332 Nov-87 59 Jan-10 22
1987
Delta Air Lines, Inc. ....................... B757-232 Feb-88 43 Aug-10 22
1988
US Airways, Inc. ............................ B737-301 Sep-86 24 Jan-07 20
1986
US Airways, Inc. ............................ B737-301 Sep-86 24 Jan-07 20
1986
US Airways, Inc. ............................ B737-301 Sep-86 24 Jan-07 20
1986
United Technologies, Inc. /Tarom ............ Two spare engines July-87 9 Jan-08 20
Consolidated Rail Co. ....................... 25 GE Mar-85 34 Jan-01 --
C-36-7 locomotives
Union Bank-Real Estate Monterey 420,845 square foot Sep-86 50
Park, CA ................................... building
</TABLE>
Because current disposition of the leveraged lease assets would result in
significant current income tax payments, Echelon generally plans to hold the
leveraged lease assets to maturity or until the market value of a leveraged
lease assets exceeds its termination value. After initial lease maturity, the
average age of the leased aircraft in Echelon's portfolio will be only 20
years. Based on the useful aircraft life of 30 years, this provides Echelon
with the opportunity to maximize the asset value relative to its risk-adjusted
return. Upon lease maturity, 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. The current market values for aircraft and
related equipment have stabilized and in many instances increased, as a result
of the overall recent improvement in the airline industry. If market conditions
warrant, Echelon may also restructure individual leases within the leveraged
lease portfolio.
DIRECT FINANCE AND OPERATING LEASES
Echelon's portfolio includes two direct finance leases. The first is
through the Progress Potomac Capital Ventures ("PPCV") joint venture between
Echelon and Potomac Capital Corporation ("Potomac") and involves two 1973
DC10-30 aircraft that are currently on lease to Continental Airlines
("Continental"). In the early 1990s, due to turmoil in the airline industry,
Continental reduced and/or
11
<PAGE>
renegotiated the rent paid to lessors on many of its leased aircraft. As a
result, PPCV agreed to revised lease terms with Continental. The rent payments
were deferred for 4 months starting in 1992 and 16 months starting in 1995 and
Continental issued deferred rent notes with interest rates of 10.4% and 8.0%,
respectively. The deferred rent note issued in 1992 was paid off in 1997. As
discussed below, the remaining deferred rent note had a principal balance of
$2.6 million as of December 31, 1997 and will mature in 2000. The second direct
finance lease is for a 1984 B737-300 aircraft leased to Southwest Airlines
Company ("Southwest") through June 1, 2004.
As of December 31, 1997, Echelon had two operating leases: a 1981 B727-200
ADV aircraft 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 Airlines, Inc. ("America West"). The two 1986 CFM-56
engines leased to America West were sold in January, 1998 for $5.7 million,
resulting in an after-tax gain of $1.0 million to Echelon.
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 at lease maturity. Re-leasing any asset could take time and could be
delayed due to 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 related equipment, it may be necessary to hold such assets beyond
the terms of their current leases. Echelon also believes that redeploying such
assets under operating leases represents an opportunity which could provide
acceptable returns on a risk-adjusted basis. Operating leases and direct
finance leases will continue to be actively managed, which may result in sales
or other types of liquidations as market conditions warrant.
AIRCRAFT LENDING
Echelon has withdrawn from the aircraft lending business and has two
remaining aircraft loans outstanding which mature by 2000. One aircraft loan
(the 1995 8% deferred rent loan discussed above) is to Continental with an
outstanding balance at December 31, 1997 of $2.6 million. The loan is
collateralized by a 1973 DC10-30 aircraft. The other aircraft loan is to
American Finance Group with an outstanding balance at December 31, 1997 of $.4
million and an interest rate of 7.57%. The loan is collateralized by three
1978-79 B737-2H4 aircraft which are leased to Southwest until December 1999.
BANKRUPTCY OF LESSEES OF AIRCRAFT
Due to many factors, including 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 past economic uncertainty in the commercial
airline industry is indicative of the periodic fluctuations in the industry's
cyclical economic performance. No assurance can be given that a decline in the
health of the airline industry would not have an adverse effect on Echelon's
business or results of operations. 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. Section 1110 of the Bankruptcy Code creates a
category of aircraft lenders and lessors whose rights to repossession upon the
occurrence of a default are substantially enhanced.
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
12
<PAGE>
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 released or sold. No assurance can be
given that as the aircraft leases mature, 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 payments, which could be significant, even if
the aircraft is sold for less than its long-term value.
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 currently concentrated, there
are numerous commercial properties that compete with Echelon in attracting
residents and tenants, numerous companies that compete with Echelon in
selecting land for development and properties for acquisition (including within
the affordable housing market and in particular for Housing Tax Credits) and
numerous companies that compete for real estate management services. Echelon
believes competition is based largely on location, quality of products and
services and financial resources. Although certain of Echelon's competitors may
have significantly greater financial resources than Echelon and may have
greater experience than Echelon in acquiring, developing and managing real
estate, placing them at a competitive advantage in this regard, Echelon
believes that the quality and experience of its management in addition to the
location and quality of its properties places Echelon in a generally favorable
competitive position.
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 renegotiate 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 renegotiations or may be able to enter
into such negotiations and achieve relatively more favorable terms than Echelon
would be able to do.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
REAL ESTATE INDUSTRY
The Company is subject to regulation with respect to the environmental
effects of its operations. Echelon believes that it is in compliance in all
material respects with all material environmental laws and regulations and that
the cost of continued compliance with such laws and regulations will not have a
material adverse effect on the Company. However, many of Echelon's properties
are located in urban
13
<PAGE>
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 the
properties in any manner that would result in a material adverse effect on
Echelon's business, results of operations or financial condition. The Company
may be responsible for environmental cleanup at certain sites. Based on
information currently available to the Company, Echelon estimates that its
share of liability for cleaning up these sites ranges from $.1 million to $1.0
million. See Note 14 to the Consolidated Financial Statements included in Item
8.
AIRCRAFT LEASING INDUSTRY
GENERAL. The ownership and operation of aircraft in the United States are
strictly regulated by the Federal Aviation Administration ("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 the
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.
Compliance with maintenance standards is further regulated by the FAA. 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
defaulting lessee 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.
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 Air Lines,
Inc. A lease extension with Delta Air Lines, Inc. requires the airline to
install hushkits on two of the aircraft. Echelon plans to negotiate with Delta
for the installation of 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
14
<PAGE>
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 continues to guarantee
certain of these covenants after the Distribution, Echelon and Florida Progress
have agreed that the Echelon Chairman, the Echelon President and at least
two-thirds of the Echelon Board of Directors will 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.
EMPLOYEES
At December 31, 1997, Echelon had 92 full-time employees. These employees
work in a variety of capacities, which includes 22 in executive and corporate
functions, 34 in commercial real estate development and management services, 10
in multi-family residential development and management services, and 26 in
marina and other operations. None of Echelon's employees are represented by
labor unions. Echelon believes that 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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Company considers certain statements contained herein regarding
matters that are not historical facts are forward-looking statements, 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, expected sources and 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 commercial 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 expenses and the
expansion of the commercial real estate portfolio through development or
acquisition, (b) with respect to its industrial and other properties to
increase occupancy and cash flow and then decide to sell or hold these
properties, (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 multi-family residential real estate development activities, to develop
commercial and multi-family residential real estate on its currently owned
properties and, on properties to be acquired and, in addition, to sell certain
properties to third parties as market conditions warrant, (e) with respect to
its leasing business, to generally hold leveraged leases to maturity or if
market conditions warrant to re-lease or sell the assets underlying the various
leases to maximize the returns, (f) with respect to its collateralized
commercial real estate loan portfolio, to collect outstanding loan balances
upon maturity or upon foreclosure and sale of the collateral, and (g) to deploy
the proceeds (after repayment of debt) generated by the ultimate disposition of
certain assets to the Real Estate Business. 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.
Echelon wishes to caution readers that in addition to the important
factors described elsewhere in this Form 10-K, the following important factors,
among others, could affect Echelon's actual results and could cause Echelon's
actual consolidated results during 1998, and beyond, to differ materially from
those expressed or implied in any forward-looking statements made by, or on
behalf of Echelon.
/bullet/ 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
15
<PAGE>
of loans, planned asset sales, project-based and other financings and the
capital markets. There can be no assurance that operating activities,
maturity and collection of loans, planned asset sales and project-based
and other financings or the capital markets will generate net proceeds for
Echelon in amounts and at times necessary to enable Echelon to carry out
these development activities.
/bullet/ The successful implementation of Echelon's strategic and business
plans will depend in a large part on certain key officers, including Mr.
Darryl A. LeClair, President and Chief Executive Officer and Mr. W.
Michael Doramus, Executive Vice President, 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, such individuals could not be easily replaced, and the
loss of such key officers could have a material adverse effect on the
Company. Echelon has obtained a key-man life insurance policy for Mr.
LeClair.
/bullet/ As a real estate development and management company, Echelon is
and will be subject to certain risks incident generally to the ownership,
development and management of real estate properties. These risks include
the cyclical nature of real estate markets, governmental regulations and
the need for governmental approvals, general risk of acquisition,
development, and construction, tenant defaults, possible environmental
liabilities, catastrophic property losses, and competition from other real
estate owners and developers.
/bullet/ Currently, all of Echelon's owned real estate properties are
located in the State of Florida, primarily in the Tampa Bay area, and over
85% of Echelon's commercial rental space (measured by rentable square
footage) is located in this area. Due to this current lack of geographical
diversification, Echelon is dependent upon the continued demand for
office, multi-family residential, industrial and other commercial space in
the Tampa Bay area. Echelon may be adversely affected in the event the
demand for office space in the Tampa Bay area declines or the economy
experiences a downturn. Like other real estate markets, the Florida
commercial real estate market has experienced periodic economic
fluctuations.
/bullet/ 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.
No assurance can be given that a decline in the health of the airline
industry would not have an adverse effect on Echelon's business or results
of operations.
ITEM 2. PROPERTIES
Echelon believes that its properties are adequate to conduct its business
as currently operated. Echelon maintains property insurance against loss or
damage by fire or other perils to the extent that such property is typically
insured. A portion of the commercial real estate portfolio is pledged as
collateral for certain loans. (See Notes 2 and 6 of Notes to Consolidated
Financial Statements included in Item 8). Property owned by Echelon and leased
under leveraged leases is subject to liens in favor of secured lenders.
See "The Real Estate Business" and "The Leasing and Lending Business" for
a description of all significant real estate and property owned by Echelon.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against Echelon.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Echelon's security holders during
the fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Echelon's common stock has traded on the New York Stock Exchange since
December 9, 1996. The high and low price per share of Echelon's common stock
for December, 1996 and each quarter in 1997 appears in Note 18 of the Notes to
Consolidated Financial Statements, included in Item 8.
No dividends were paid to stockholders during 1997. Dividends paid to
Echelon's former parent in 1996 and 1995 appear in the Consolidated Statements
of Stockholders' Equity. The payment and level of cash dividends by Echelon are
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.
The approximate number of equity stockholders of Echelon is as follows:
<TABLE>
<CAPTION>
NUMBER OF REGISTERED HOLDERS
TITLE OF CLASS AS OF MARCH 25, 1998
- - ------------------------------------------------- -----------------------------
<S> <C> <C>
Common Stock, par value $.01 per share......... 31,190
</TABLE>
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ----------------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenue ......................................... $ 44.2 $ 63.3 $ 47.6 $ 48.8 $ 66.5
======= ======== ====== ====== ======
Income (loss) before income taxes and
extraordinary item ............................ $ 11.6 $ (44.8)(1) $ (9.9) $ (9.2) $ (5.7)
======= ======== ====== ====== ======
Income (loss) before extraordinary item ......... $ 9.5 $ (29.3)(1) $ (5.0) $ (5.0) $ (5.0)
Extraordinary item-gain (loss) on
extinguishment of debt, net of income
tax expense (benefit) ......................... (1.9) 1.8 -- -- --
------- -------- ------ ------ ------
Net income (loss)(2) ............................ $ 7.6 $ (27.5)(1) $ (5.0) $ (5.0) $ (5.0)
======= ======== ====== ====== ======
Basic and diluted earnings per share data:
Income (loss) before extraordinary item ......... $ 1.40 $ (4.51) $ (.77) $ (.77) $ (.77)
Extraordinary item .............................. (0.28) 0.28 -- -- --
------- -------- ------ ------ ------
Net income (loss) per common share .............. $ 1.12 $ (4.23) $ (.77) $ (.77) $ (.77)
======= ======== ====== ====== ======
Weighted average common shares
outstanding (basic and diluted) ............... 6.8 6.5 6.5 6.5 6.5
======= ======== ====== ====== ======
Dividends paid to former parent ................. $ -- $ .1 $ 3.2 $ -- $ --
======= ======== ====== ====== ======
BALANCE SHEET DATA:
Assets:
Real estate .................................... $ 145.5 $ 146.5 $153.9 $144.5 $148.9
Leasing and lending ............................ 265.2 334.0 400.2 478.3 552.6
Cash and equivalents and
marketable securities ........................ 49.8 63.3 .4 .6 --
------- -------- ------ ------ ------
Total assets ................................. $ 460.5 $ 543.8 $554.5 $623.4 $701.5
======= ======== ====== ====== ======
Deferred income tax liabilities ................. $ 154.2 $ 163.3 $182.3 $224.3 $244.9
======= ======== ====== ====== ======
Capitalization:
Long-term debt ................................. $ 77.1 $ 116.5 $ 33.2 $ 32.7 $ 32.5
Notes and advances from former parent .......... -- 32.9 250.0 283.8 321.2
Common equity .................................. 209.1 201.4 60.8 69.0 77.2
------- -------- ------ ------ ------
Total capitalization ......................... $ 286.2 $ 350.8 $344.0 $385.5 $430.9
======= ======== ====== ====== ======
</TABLE>
- - ---------------------
(1) Reflects $31.4 million pre-tax provision for lease, loan and real estate
losses.
(2) The similarity of net loss for the years ended December 31, 1995, 1994 and
1993 reflects the orderly withdrawal strategy which Echelon operated under
during those years.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Echelon is a real estate company with operations in the development,
ownership, and management of commercial and multi-family residential real
estate (the "Real Estate Business") and leasing of aircraft and other assets
and collateralized financing of commercial real estate and aircraft (the
"Leasing and Lending Business"). Echelon is continuing to withdraw from the
real estate and aircraft lending business to focus on its core real estate
operations.
Prior to December 18, 1996 ("Distribution Date"), the Company operated as
a wholly-owned subsidiary of Florida Progress Corporation ("Florida Progress").
Effective December 18, 1996, (the "Distribution Date"), Florida Progress
distributed the Company's stock to Florida Progress shareholders (one share of
the Company for each fifteen shares of Florida Progress) as a tax-free dividend
(the "Distribution"). The Distribution established the Company as a publicly
held corporation, separate from Florida Progress.
Prior to the Distribution, the Company was operated by Florida Progress
under an orderly plan to withdraw from the real estate and leasing and lending
businesses. In contrast to the orderly liquidation pursued by Florida Progress
prior to the Distribution, the Company is continuing its strategy of growing
the Real Estate Business, maximizing the value of the Leasing Business, and
gradually withdrawing from the Lending Business. Prior to the Distribution, the
Company recorded a provision for losses of $31.4 million, including $21.5
million in 1996, to allow for an accelerated disposal of certain non-strategic
assets that the Company identified as assets to be disposed of within the next
one to two years.
The Company's operations for the fiscal year ended December 31, 1997
include the following nonrecurring events and transactions:
/bullet/ The sale of a loan receivable at par and recognition of a
previously deferred pre-tax gain of $4.1 million.
/bullet/ The sale of the Company's interest in a previously written-off oil
rig lease resulting in a pre-tax gain of $1.3 million.
/bullet/ The receipt of $24.3 million on the disposal of two aircraft loans
receivable and an investment in an unconsolidated affiliate. The net book
value of these assets at time of disposal was $9.3 million. As a result of
this transaction, the Company recorded a pre-tax gain of $15.0 million.
/bullet/ The addition of a short to medium-term exit strategy for certain
commercial real estate properties and an update of the Company's
impairment analysis resulted in a $19.0 million pre-tax provision for
losses to write-down certain real estate assets to fair value.
/bullet/ Complete repayment of debt and advances to the Company's former
parent. The retirement of the debt allowed the Company to retain an
aircraft lease which it previously expected to sell in order to retire the
former parent debt. As a result, the aircraft lease receivable was
reclassified from "Assets Held for Sale" to "Leases and Loans Receivable"
and $4.7 million of previously recorded provision for lease, loan and real
estate losses was reversed, resulting in a $4.7 million pre-tax gain.
/bullet/ The repurchase of 68,519 shares of common stock recorded as
treasury stock, at a cost of $1.5 million, as a result of the Company's
Odd-Lot Buy-Back program, which expired in December 1997.
/bullet/ Refinancing by Northwestern Mutual Life Insurance Company of $45
million of debt held by Salomon Brothers Corp. ("Salomon Brothers"). The
refinancing reduced the floating interest
19
<PAGE>
rate on the $45 million Salomon Brothers loan from LIBOR plus 2.95% per
annum to a fixed rate of 7.09%. At December 31, 1997, the Salomon Brothers
loan had a remaining balance of $13 million.
/bullet/ Recording of $1.9 million after-tax extraordinary loss resulting
from the write-off of debt issuance costs and a prepayment penalty related
to the early extinguishment of debt.
Because of the Company's ongoing execution of targeted strategies,
including dispositions of non-strategic assets and pursuit of additional
strategic initiatives made possible by the earlier than expected repayment of
debt, the results of operations in 1997, 1996 and 1995 are not necessarily
indicative of future results.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, Echelon reported net income of $7.6
million or $1.12 basic and diluted earnings per share compared to a net loss of
$(27.5) million or $(4.23) basic and diluted loss per share for the year ended
December 31, 1996.
REVENUES
Sales and revenues for the year ended December 31, 1997 decreased $19.1
million over 1996 primarily due to a decrease in Carillon Park land sales. Sale
of development properties in 1997 were $.8 million compared to $21.8 million in
1996. The decrease in the sale of development properties was a strategic
decision to remove most of the remaining land in Carillon Park from the market
and to develop the property for the Company's real estate portfolio. Rental,
other operations and marina income for the year ended December 31, 1997
increased $3.5 million over 1996 due primarily to overall increased occupancy
in Echelon's properties and an increase in marina and other operations.
As part of Echelon's strategy to focus on real estate development, Echelon
has invested in, and intends to invest further in, affordable housing
developments entitled to the benefits of Housing Tax Credits. The Company's
overall investment return includes recording losses on this type of investment
since the tax benefits resulting from such losses and the realization of the
Housing Tax Credits are the primary source of value from this type of
investment. Equity in losses of limited partnership investments reduced 1997
revenue by $1.5 million as a result of the Company recording its share of
losses from housing tax credit limited partnerships. The Company recorded a
$1.3 million tax credit for the year ended December 31, 1997 as reduction of
income tax expense.
Earned income on finance and operating leases increased $.6 million in
1997 as compared to 1996 due to the recognition of income on a aircraft lease
in 1997 that was classified as an "Asset Held for Sale" for the majority of the
year ended December 31, 1996.
Interest income from leasing and lending operations for the year ended
December 31, 1997 declined by $9.1 million compared to 1996 as a result of the
sales and payoffs of loans receivable as the Company continues to execute its
strategy to liquidate non-strategic assets and redirect the capital to real
estate acquisition and development.
Equity in earnings of unconsolidated partnerships increased $1.1 million
in 1997 as compared to 1996 due primarily to a $.9 million gain on the sale of
an asset in an unconsolidated partnership in which Echelon had approximately a
26% interest.
Gain on sale of loans of $4.1 million in 1997 is the result of the
recognition of a deferred gain on loans receivable that were sold during the
year.
Investment income increased $3.2 million in 1997 compared to with 1996 as
a result of the Company's investment in marketable securities in 1997.
20
<PAGE>
OPERATING EXPENSES
Operating expenses for the year ended December 31, 1997 decreased by $75.5
million over 1996, primarily due to the decrease of $32.1 million in the
provision for lease, loan and real estate losses and a $20.9 million decrease
in the cost of development properties sold discussed above.
Rental, other operations and marina expenses increased $2.4 million over
1996 primarily due to the increased occupancy in Echelon's properties and an
increase in marina and other operations. Interest expense decreased $9.7
million in 1997 compared to 1996 due to the reduction of debt resulting from
loan receivable sales and payoffs, non-strategic asset sales and equity
contributions from the Company's former parent in connection with the
Distribution.
The provision for (recovery of ) lease, loan and real estate losses
decreased $32.1 million for the year ended December 31, 1997 compared to 1996.
The decrease is the result of a $31.4 million provision recorded in 1996 to
cover losses estimated to be incurred on the accelerated sale of certain
non-strategic assets. In 1997, the Company recorded a $19.0 million provision
to recognize an impairment on certain income producing property. The impairment
was recognized when Echelon revised its strategy with respect to certain
commercial real estate assets to include short to medium-term exit strategies.
The $19.0 million provision was offset by (a) the reversal of a $15.0 million
provision recorded in the prior year as a result of the current year disposal
of two aircraft loans receivable and an investment in an unconsolidated
affiliate and (b) the reversal of a $4.7 million provision recorded in the
prior year related to an aircraft lease that the Company anticipated selling in
order to payoff certain debt. The cash flows generated through the disposal of
the aircraft loans receivable and investment in unconsolidated affiliate
enabled the Company to retire some of its debt and retain the aircraft lease
which the Company had expected to sell in order to retire the debt.
Marketing and administrative expenses, including the allocated
administrative expenses of former parent in 1996, decreased by $2.8 million in
1997 as compared to 1996. The decrease is primarily the result of expenses
incurred in 1996 in connection with the Distribution. Although these expenses
decreased in 1997, management considers the 1997 marketing and administrative
expenses to be higher than the anticipated level of such expenses in 1998, as
the 1997 expenses included a significant amount of nonrecurring costs related
primarily to the formation of the Company's infrastructure as a publicly held
corporation.
Other income of $3.8 million in 1997 primarily resulted from the
following: a $1.3 million gain related to the sale of the Company's interest in
a previously written-off oil rig lease and the reversal of $2.0 million of
liabilities that were expected to be incurred in connection with the
Distribution. Other expenses in 1996 included expenses primarily related to the
Distribution.
EXTRAORDINARY ITEM
The $(1.9) million after-tax extraordinary loss in 1997 is a result of the
write-off of debt issuance costs and a prepayment penalty related to the early
extinguishment of debt.
In 1996, the Company extinguished debt and accrued interest that resulted
in a gain which was partially offset by the write-off of the related debt
issuance costs, resulting in an after-tax extraordinary gain of $1.8 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
For the year ended December 31 1996, Echelon reported a net loss of
($27.5) million, a ($22.5) million increase in losses over the ($5.0) million
loss reported for 1995.
REVENUES
Sales and revenues for the year ended December 31, 1996 increased $15.7
million as compared to 1995 primarily due to sales of 70 acres of land in
Carillon Park for a total of $21.8 million. Rental, other
21
<PAGE>
operations and marina income for the year ended December 31, 1996 increased by
$1.4 million over 1995 due primarily to the acquisition of the remaining 67%
interest in an office building in which Echelon had previously held a 33%
interest. Interest income for the year ended December 31, 1996 declined by $4.7
million compared to 1995 as a result of the sales and payoffs of loans
receivable.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 1996 increased by $50.6
million as compared to 1995, primarily due to the $31.4 million provision
Echelon recorded in 1996 to cover losses expected to be incurred on the
accelerated sale of certain non-strategic assets.
The $20.9 million increase in cost of development properties sold reflects
the cost of the 70 acres of Carillon Park land described above. Rental, other
operations and marina expenses increased $.6 million in 1996 as compared to
1995 primarily due to the previously discussed acquisition of the remaining 67%
interest in an office building in which Echelon had previously held a 33%
interest. Marketing and other administrative expenses, including the allocated
administrative expenses of former parent, increased by $6.7 million primarily
as a result of compensation expenses related to the Distribution. Other
expenses increased $2.6 million due primarily to expenses related to the
Distribution.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF LIQUIDITY
Prior to the Distribution, Echelon's sources of liquidity were derived
from the proceeds of asset sales, maturity and collection of Echelon's loan
portfolio, operating cash flow, and loans and advances from Florida Progress.
Subsequent to the Distribution, the sources of funds have been primarily from
the continued maturity and collection of Echelon's loan portfolio, proceeds
from the sale of certain non-strategic assets, operating cash flow and, with
respect to Echelon's real estate development, from project-based and other
financings. Future sources of funds may also come from the capital markets.
At the Distribution date, Echelon and Florida Progress entered into a
distribution agreement, which, among other things, requires Echelon to maintain
liquidity levels of at least $25.0 million and $17.0 million throughout 1998
and 1999, respectively.
CASH FLOW USED IN OPERATING ACTIVITIES
Cash flow used in operating activities was $11.1 million, $13.2 million,
and $28.7 million for 1997, 1996 and 1995, 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 sales and collections of
leases. Deferred income taxes from leveraged leasing activities, which are
reflected in cash flows from operating activities, are partially offset by
related collections from lessees which are included in cash flows from
investing activities. Echelon generally plans to hold its leveraged lease
assets to maturity, which would spread the remaining deferred tax payments over
a longer term. In 1997, cash used in operating activities was also the result
of a decrease in accounts payable and other liabilities related to the payment
of liabilities in 1997 from the Distribution in December 1996. Net cash flow
from operations in the future is generally expected to be reinvested in the
Real Estate Business.
CASH FLOW FROM INVESTING ACTIVITIES
Echelon's net cash flow from investing activities for 1997, 1996 and 1995
was $29.5 million, $61.5 million, and $75.5 million, respectively. In each
case, the foregoing cash flows reflected the $56.9 million, $45.9 million, and
$75.5 million, respectively, in proceeds received from the sale or collection
of leases and loans. Proceeds from the sale or collection of leases and loans
in 1997 includes $35.2 million from the sale of loans receivable at par and
$10.6 million from the payoff of two real estate loans receivable. Proceeds on
sales of assets held for sale in 1997, primarily consist of $24.3 million from
the payoff of
22
<PAGE>
two aircraft loans and an investment in an unconsolidated affiliate and $4.2
million from the sale of an asset in an unconsolidated partnership. Upon the
maturity and collection of Echelon's loan portfolio, Echelon expects investing
activities to become a net use of funds as Echelon continues to build the Real
Estate Business. Purchases of marketable securities, including debt securities
with maturities greater than three months, were $65.9 million and proceeds from
sales of marketable securities were $26.6 million during the year ended
December 31, 1997.
Capital expenditures for 1997, 1996 and 1995, which are reported as real
estate property additions, were $13.1 million, $9.1 million, and $4.1 million,
respectively. The capital expenditures in 1997 were primarily for the ongoing
construction of Echelon at Bay Isle Key, a multi-family residential community,
office tenant construction improvements and land development infrastructure
improvements such as roads, water and sewer construction. Capital expenditures
in 1996 and 1995 were primarily for office tenant construction improvements and
land development infrastructure. In addition to the ongoing construction of
Echelon at Bay Isle Key and Echelon at The Reserve, capital expenditures in
1998 for tenant improvements, land development, commercial office development
and multi-family residential development are projected to be approximately
$85.0 million to $105.0 million. These expenditures are expected to be funded
through project-based and other financings and from existing cash and
marketable securities.
For the year ended December 31, 1997, contributions to unconsolidated
partnerships and distributions from unconsolidated partnerships were $11.2
million and $7.0 million, respectively.
The Company is currently involved in several real estate developments and
had outstanding construction commitments with contractors totaling $37.7
million at December 31, 1997.
In 1996, the Company received $21.1 million in proceeds from the sale of
real estate properties.
CASH FLOW FROM FINANCING ACTIVITIES
In connection with the Distribution, Echelon became obligated under a
$36.0 million note payable to Progress Capital Holdings, Inc., an affiliate of
Echelon's former parent ( the "PCH Note"). The remaining balance at December
31, 1996 of $32.9 million was repaid during 1997 from proceeds from loans
receivable prepayments and the sale of some of the assets securing the PCH
Note.
On November 5, 1996, Echelon obtained a three-year secured loan from
Salomon Brothers Realty Corp. (the "Salomon Brothers loan") in the principal
amount of $105.0 million. The proceeds of the Salomon Brothers loan were used
to repay $43.0 million of advances from Florida Progress in 1996 and to create
a cash balance for working capital and other investments. The Salomon Brothers
loan is non-recourse to Echelon (except for certain cases of actual fraud and
other wrongful acts), and was originally secured by five of Echelon's
commercial real estate properties (Barnett Tower, McNulty Station, 100
Carillon, Highpoint Center and Progress Center), substantially all of Echelon's
real estate loan portfolio and certain additional collateral.
Repayments of $37.7 million were made on the Salomon Brothers loan
throughout 1997. On December 30, 1997, the portion of the Salomon Brothers loan
collateralized by certain commercial real estate assets was refinanced by a $45
million loan from Northwestern Mutual Life Insurance Company (the "Northwestern
loan").
The Northwestern loan is secured by four of Echelon's commercial real
estate properties (Barnett Tower, 100 Carillon, McNulty Station and Highpoint
Center). The Northwestern loan requires monthly principal and interest payments
at a rate of 7.09% based on an amortization schedule of 25 years, with final
maturity no later than December 1, 2004. Additional principal payments may be
due upon the sale of individual items of collateral.
At December 31, 1997, the Salomon Brothers loan balance was $13.0 million.
The Salomon Brothers loan is secured by specific loans included in Echelon's
real estate loan portfolio. The Salomon
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<PAGE>
Brothers loan requires monthly principal payments based on an amortization
schedule of 25 years or, the scheduled principal payments on real estate loans
actually received, if greater. Additional principal payments may be due upon
the sale of individual items of collateral. Under the loan, monthly payments of
interest at the rate of LIBOR plus 2.95% per annum are due on the unpaid
principal balance. The remaining portion of the Salomon Brothers loan is
expected to be repaid by the end of 2001 based on the current amortization
schedule.
In July 1997, the Company closed on a $16.5 million construction loan at
an interest rate of LIBOR plus 1.60% per annum which will be used to fund the
construction of Echelon at Bay Isle Key, a 369-unit multi-family residential
community on land that the Company owns in St. Petersburg, Florida. As of
December 31, 1997, no amounts were outstanding on this construction loan.
Echelon began making construction draws on this loan in January 1998 after the
Company's initial funding of $5.5 million of the construction costs, including
land contribution of $2.0 million. The initial term of the construction loan is
two years, with the ability to extend the loan for an additional five years
from the completion of construction.
Echelon has used land currently owned which is not encumbered by debt to
help procure financing for new multi-family residential developments on such
land. In November 1997, the Company executed a commitment letter for a $17.5
million construction loan to fund the development of a 314-unit multi-family
residential community, Echelon at The Reserve, on land that the Company owns in
Carillon Park in St. Petersburg, Florida. Echelon expects to close on the loan
early in the second quarter of 1998.
As of December 31, 1997, Echelon had a total of ten contingent contracts
or letters of intent, subject to the Company's final due diligence, to acquire
land for the development of an estimated 2,600 multi-family residential units
at an aggregate estimated development cost of $196.0 million. Echelon has also
developed a pipeline of future projects. No assurance can be given that Echelon
will acquire this land or develop the multi-family residential units.
During 1997, the Echelon Board of Directors approved an Odd-Lot Buy-Back
program to repurchase up to $5.0 million of common stock. The Company
repurchased 68,519 shares of common stock during the fourth quarter of 1997,
which resulted in treasury stock, at cost, of approximately $1.5 million. The
Odd-Lot Buy-Back program expired in December 1997.
Dividends paid to Florida Progress were $.1 million in 1996 and $3.2 in
1995. Echelon does not anticipate paying any cash dividends for the foreseeable
future.
OFF-BALANCE SHEET RISK
Through a previous partnership, Echelon remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
such partnership. The contingent liability reduces over time as those who were
residents at the time of the sale of Echelon's partnership interest discontinue
their residency. If the current owners were to fail to perform their
obligations and if the partnership assets, consisting primarily of land and
buildings, were detemined to be worthless, Echelon could be liable for an
additional $26.5 million as of December 31, 1997. Echelon considers the
incurrence of this liability to be remote based on asset values and the
indemnification agreement from the current owners to Echelon.
IMPACT OF INFLATION
Echelon believes that inflation will not have a materially adverse effect
on its business or financial condition.
GENERAL OVERVIEW OF STRATEGIC PLAN
The overriding objective of the Echelon management team, and of all
Echelon's employees, is to create above average long-term value for
stockholders.
24
<PAGE>
To achieve this objective, Echelon will dynamically grow its real estate
assets and operations through the execution of targeted strategies. While these
targeted strategies evidence the Company's best decisions to date, the
strategies are flexible enough to be recast to deal with changing economic
conditions, capital market fluctuations, business cycles and other market
conditions.
MULTI-FAMILY
As previously communicated, multi-family residential development has been
identified as the primary driver of Echelon's growth over the next five years.
During the next five years, Echelon expects to develop or acquire 20 to 40
multi-family residential communities, each containing 150 to 350 units.
Included in these projects are two to five affordable housing projects of 150
to 250 units each. Within the next 12 months, the Company plans to be under
construction on approximately 2400 to 3000 units. In consideration of market
opportunities, the Company intends to integrate its build-and-hold developments
with merchant build and/or build-to-suit developments to maximize stockholder
return.
First, Echelon expects to capitalize on the opportunity provided by its
existing inventory of property in the Tampa Bay area. Construction and leasing
have begun on Phase One of Echelon at Bay Isle Key, a 369 unit multi-family
residential community in the Gateway area of Tampa Bay. Construction will be
completed by the fourth quarter 1998, with stablization projected six months
following construction completion. Phase Two of Echelon at Bay Isle Key, which
will add another 90 units to the community, will begin construction in the
fourth quarter 1998. In Carillon Park, site work has begun on the 314 units of
Phase One of Echelon at The Reserve, with vertical construction projected to
begin in the second quarter of 1998. In total, Carillon Park has capacity for
1169 units. Total capacity for Echelon at Bay Isle Key and Carillon Park is
approximately 2,100 multi-family residential units.
Next, to achieve geographic diversity the Company has established a
pipeline of development sites in other select markets in the southeast and
southwest United States. To accomplish this, initial target markets are
identified using a sophisticated proprietary software tool, rather than by
random market visits. The market research software system delivers a more
objective and pragmatic assessment of markets, while minimizing the time
necessary to screen potential markets. Following initial target market
selection, markets are inspected by experienced Echelon management. This
systematic approach may reduce the market selection cycle time and allow
Echelon developers the opportunity to identify and reach a target market ahead
of competition and site price escalation. Echelon's development program has
produced the current pipeline of ten sites under contract or letter of intent,
subject to the Company's final due diligence, with an additional 25 sites under
evaluation. The Company expects to maintain an active pipeline of ten to twenty
sites in target markets.
The Company also plans to develop and manage affordable housing
communities that are entitled to the benefits of Housing Tax Credits. An
application has been submitted to the State of Florida for Echelon at
BayBridge. Slated for the Company's 4th Street property, the development of
this 228 unit community requires the Company be awarded housing tax credits by
the Florida Housing Finance Agency. Preliminary results of the pending
application are expected during the second quarter of 1998.
The Company continues to evaluate possible acquisitions, which include
other mult-family development companies and/or multi-family assets. Some growth
of the multi-family portfolio is expected to result from strategic
acquisitions.
COMMERCIAL
During the next five years, the Company expects to hold its core office
buildings and expand its commercial real estate portfolio by developing, or
acquiring, 750,000 to 1,500,000 square feet of commercial office space. A
substantial amount of this space will be developed on Echelon's existing land
inventory in the Tampa Bay area, with the balance developed through land
acquisition in other southeast and southwest target markets in the United
States.
25
<PAGE>
The Company has plans for two Class A office buildings in Carillon Park,
700 Carillon and Echelon at Carillon. The 145,000 square foot 700 Carillon will
provide the latest in smart-building technology, along with parking of five
cars per thousand square feet of office space. The design of 700 Carillon is
complete and ready to submit for building permits. Echelon at Carillon is a
105,000 square foot building and will be the location of the Company's
corporate headquarters. The design phase of the building will be completed in
1998.
Although the Company plans to hold its core office buildings during this
planning period, short, medium and long-term exit strategies have been
developed for all currently owned commercial real estate. The Company intends
to sell non-core commercial and industrial properties as opportunities arise.
The Company continues to evaluate the acquisition of other commercial real
estate development companies, real estate based operating companies and/or
commercial real estate assets as opportunities become available. Some growth of
the commercial portfolio is expected to come from strategic acquisitions.
REAL ESTATE MANAGEMENT AND BROKERAGE SERVICES
This business segment is complementary to the Company's multi-family and
commercial real estate operations. Growth is expected to occur primarily as a
result of the growth in the multi-family and commercial real estate operations,
and the growth of third-party revenue associated with leasing and
property/asset management. In addition, the Company continues to evaluate the
acquisition of real estate management and/or brokerage companies as
opportunities become available. Some growth in the real estate management and
brokerage services is expected to come from strategic acquisitions.
INVESTMENTS IN FINANCIAL ASSETS
The Company generally plans to hold its leveraged lease portfolio until
maturity or until market values exceed termination values. Until that point,
the Company will execute a financial strategy that integrates the tax benefits
provided by its investments in affordable housing limited partnerships, with
the deferred tax liability and cash flow of the leveraged lease portfolio in
order to reduce its federal income tax liability. At maturity or when market
conditions warrant, the Company will either sell or re-lease the assets.
Operating leases and direct finance leases in aircraft and related
equipment will continue to be actively managed to maximize their value, which
may be facilitated by the sales or other types of liquidations of the assets.
As communicated previously, Echelon will continue to withdraw from the
real estate and aircraft lending business to focus on its core real estate
operations. The Company will collect the outstanding loan balances as soon as
practical, maximize the value of each asset, and redeploy the capital from the
loan portfolio to repay debt and/or invest in real estate operations. Echelon
expects to liquidate the loan portfolio by 2002.
Echelon expects to obtain sufficient capital from its operations, asset
sales, loan collections, project based and other financings, and the capital
markets sufficient to execute its strategic plan. However, no assurance can be
given that such capital will be available in sufficient amounts to execute this
plan.
YEAR 2000 COMPUTER ISSUE
Many computer systems currently in use were designed and developed using
two digits, rather than four, to identify the year. As a result, such computer
systems will recognize the year 2000 as "00". This could cause many computer
applications to fail completely or to create erroneous results unless
corrective measures are taken.
26
<PAGE>
Echelon has several projects underway to address the Year 2000 issue.
These projects include: 1) identifying and mitigating Year 2000 problems in
Echelon's systems, including equipment used in the Company's properties, such
as the elevators and phone systems that may have date sensitive information
within them, 2) working with the Company's financial institutions, lenders,
lessees of aircraft and vendors to assure that the appropriate steps are being
taken to mitigate the Year 2000 issue in each entity's software systems, and 3)
ensuring that each entity that electronically receives or sends information to
Echelon is aware of the steps that the Company is taking and is taking
appropriate steps of its own to address the Year 2000 issue.
During 1997, the Company incurred costs of $.3 million for the acquisition
and implementation of a real estate property management and general ledger
software that is Year 2000 compliant. These costs were capitalized consistent
with Echelon's accounting policies.
Echelon is currently Year 2000 compliant with some software systems and
expects to be complaint with all other software systems no later than the third
quarter of 1999. Costs related to the maintenance and or modification of
Echelon's software systems have been, and will continue to be, expensed as
incurred. Echelon does not anticipate the costs related to Year 2000 to have a
material impact on its results of operations. While the Company currently
expects that the Year 2000 will not pose significant operational problems,
delays in the modification of software systems or failure to fully identify all
Year 2000 dependencies in the Company's software systems could result in
material adverse consequences, including disruption of operations, loss of
information, and unanticipated increases in costs.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting comprehensive
income. SFAS No. 130 defines comprehensive income as the change in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income are required to be reported in a new financial
statement that is displayed with equal prominence as existing financial
statements. The Company will be required to adopt this standard January 1,
1998. As the standard addresses reporting and presentation issues only, there
will be no impact on earnings from the adoption of this standard.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for additional disclosure about operating segments for interim and annual
financial statements. The standard requires financial and descriptive
information be disclosed for segments whose operating results are reviewed by
the chief operating officer for decisions on resource allocation. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will be required to adopt
this standard for financial statements for the fiscal year ending December 31,
1998. As the standard addresses reporting and disclosure issues only, there
will be no impact on earnings from adoption of this standard.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company will be required to include additional disclosures regarding
certain quantitative and qualitative information about market risk exposures in
the year ending December 31, 1998.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
----
Echelon International Corporation:
Independent Auditors' Report .................................................. F-2
Financial Statements:
Consolidated Balance Sheets
as of December 31, 1997 and 1996 ........................................... F-3
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995 ....................... F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 ....................... F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 ....................... F-6
Notes to Consolidated Financial Statements ................................... F-7
Progress Potomac Capital Ventures:
Independent Auditors' Report .................................................. F-30
Financial Statements:
Balance Sheets as of December 31, 1997 and 1996 .............................. F-31
Statements of Income for the years ended December 31, 1997, 1996, 1995 ....... F-32
Statements of Changes in Joint Venturers' Capital
for the years ended December 31, 1997, 1996 and 1995 ....................... F-33
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-34
Notes to Financial Statements ................................................ F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Echelon International Corporation:
We have audited the accompanying consolidated balance sheets of Echelon
International Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three year period ended December 31,
1997. These financial statements are the responsibility of the management of
Echelon International Corporation. Our responsibility is to express an opinion
on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of Echelon International
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Petersburg, Florida
March 10, 1998
F-2
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
ASSETS
REAL ESTATE, LEASES, LOANS & OTHER INVESTMENTS:
Real estate, net (Note 2) ...................................................... $ 115.1 $ 124.9
Aircraft under operating lease (net of accumulated depreciation
of $8.4 million and $7.3 million in 1997 and 1996, respectively).............. 4.1 5.2
Leases and loans receivable, net (Note 3) ...................................... 196.3 190.6
Investments in and advances to unconsolidated partnerships (Note 11) ........... 47.2 45.3
------- -------
362.7 366.0
------- -------
ASSETS HELD FOR SALE (Note 4) .................................................. 2.5 29.4
------- -------
CURRENT ASSETS:
Cash and equivalents (includes restricted deposits of $1.5 million in 1997)..... 7.8 63.3
Marketable securities (Note 5) ................................................. 42.0 --
Accounts receivable, net ....................................................... 1.2 1.1
Current portion of leases and loans receivable ................................. 39.8 75.9
lnventories, at cost ........................................................... 1.1 3.1
Other .......................................................................... 1.7 .7
------- -------
93.6 144.1
------- -------
OTHER NON-CURRENT ASSETS ....................................................... 1.7 4.3
------- -------
Total assets ................................................................. $ 460.5 $ 543.8
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities ......................................... $ 6.1 $ 15.8
Accounts and interest payable to former parent (Note 7) ........................ 1.3 .8
Current portion of funding for limited partnership investments (Note 11) ....... 9.5 9.9
Current portion of deferred income taxes ....................................... 8.4 7.5
Current portion of long-term debt .............................................. 12.2 75.6
------- -------
Total current liabilities .................................................... 37.5 109.6
LONG-TERM DEBT (Note 6) ........................................................ 64.9 73.8
DEFERRED INCOME TAXES (Note 12) ................................................ 145.8 155.8
OTHER LIABILITIES .............................................................. 3.2 3.2
COMMITMENTS AND CONTINGENCIES (Note 14) ........................................
Total liabilities ............................................................ 251.4 342.4
------- -------
STOCKHOLDERS' EQUITY (Notes 9 and 10)
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued...... -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 6,716,722
issued and 6,648,203 outstanding in 1997 and 6,776,539 issued and
outstanding in 1996 .......................................................... .1 .1
Additional paid in capital ..................................................... 279.5 279.4
Retained deficit ............................................................... (70.5) (78.1)
Unrealized gain on available-for-sale securities, net of tax ................... 1.5 --
Treasury stock, at cost (68,519 common shares) ................................. (1.5) --
------- -------
Total stockholders' equity ................................................... 209.1 201.4
------- -------
Total liabilities and stockholders' equity ................................... $ 460.5 $ 543.8
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ------------ ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
SALES AND REVENUES:
Real estate operations:
Rental, other operations and marina income ............................ $ 22.2 $ 18.7 $ 17.3
Sale of development properties ........................................ .8 21.8 .9
Equity in losses of limited partnership investments ................... (1.5) -- --
Leasing and lending operations .........................................
Earned income on finance and operating leases ......................... 4.9 4.3 6.1
Interest income ....................................................... 6.6 15.7 20.4
Equity in earnings of unconsolidated partnerships ..................... 3.8 2.7 2.9
Gain on sale of loans ................................................. 4.1 -- --
Investment income ...................................................... 3.3 .1 --
------ -------- -------
44.2 63.3 47.6
------ -------- -------
OPERATING EXPENSES:
Rental, other operations and marina expenses ........................... 13.5 11.1 10.5
Cost of development properties sold .................................... .8 21.7 .8
Depreciation ........................................................... 4.7 5.6 6.4
Provision for (recovery of) lease, loan and real estate losses, net..... (.7) 31.4 7.0
Interest expense:
Former parent advances ................................................ -- 14.5 19.9
Long-term debt, net of amounts capitalized ............................ 9.0 4.2 2.6
Allocated administrative expenses of former parent ..................... -- 2.4 1.6
Marketing and other administrative ..................................... 9.1 9.5 3.6
Other (income) expenses, net ........................................... (3.8) 7.7 5.1
------ -------- -------
32.6 108.1 57.5
------ -------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ................................................... 11.6 (44.8) (9.9)
INCOME TAX EXPENSE (BENEFIT) ........................................... 2.1 (15.5) (4.9)
------ -------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ................................ 9.5 (29.3) (5.0)
EXTRAORDINARY ITEM:
Gain (loss) on extinguishment of debt, net of income tax
expense (benefit) of $(1.3) million and $1.3 million,
respectively (Note 15) .............................................. (1.9) 1.8 --
------ -------- -------
NET INCOME (LOSS) ...................................................... $ 7.6 $ (27.5) $ (5.0)
====== ======== =======
Earnings per common share--basic and diluted:
Income (loss) before extraordinary item ............................... $ 1.40 $ (4.51) $ (.77)
Extraordinary item, net of tax ........................................ (.28) .28 --
------ -------- -------
Net income (loss) per common share .................................... $ 1.12 $ (4.23) $ (.77)
====== ======== =======
Weighted average shares of common stock outstanding
(basic and diluted) .................................................. 6.8 6.5 6.5
====== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
AVAILABLE
ADDITIONAL FOR-SALE
COMMON PAID IN RETAINED SECURITIES, TREASURY
STOCK CAPITAL DEFICIT NET OF TAX STOCK TOTAL
-------- ------------ ---------- ------------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ................... $ .1 $111.2 $ (42.3) $ -- $ -- $ 69.0
Net loss ..................................... -- -- (5.0) -- -- (5.0)
Dividends to former parent ................... -- -- (3.2) -- -- (3.2)
---- ------ ------- ---- ----- -------
Balance, December 31, 1995 ................... .1 111.2 (50.5) -- -- 60.8
---- ------ ------- ---- ----- -------
Net loss ..................................... -- -- (27.5) -- -- (27.5)
Non-cash contribution from former parent ..... -- 140.0 -- -- -- 140.0
Cash contributions from former parent ........ -- 23.7 -- -- -- 23.7
Common stock issued--308,801 shares .......... -- 4.5 -- -- -- 4.5
Dividends to former parent ................... -- -- (.1) -- -- (.1)
---- ------ ------- ---- ----- -------
Balance, December 31, 1996 ................... .1 279.4 (78.1) -- -- 201.4
---- ------ ------- ---- ----- -------
Net income ................................... -- -- 7.6 -- -- 7.6
Common stock issued--8,702 shares ............ -- .1 -- -- -- .1
Unrealized gain on available-for-sale
securities, net of tax ..................... -- -- -- 1.5 -- 1.5
Common stock repurchased,
68,519 shares, at cost ..................... -- -- -- -- (1.5) (1.5)
---- ------ ------- ---- ----- -------
Balance, December 31, 1997 ................... $ .1 $279.5 $ (70.5) $1.5 $(1.5) $ 209.1
==== ====== ======= ==== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
ECHELON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ----------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ............................................................. $ 7.6 $ (27.5) $ (5.0)
Adjustment to reconcile net income (loss) to cash used in operating
activities:
Depreciation and amortization of financing costs ............................. 5.7 6.1 6.4
Extraordinary (gain) loss on extinguishment of debt .......................... 3.2 (3.1) --
Deferred income taxes ........................................................ (9.1) (19.0) (42.0)
Amortization related to finance leases ....................................... (3.8) (1.4) (1.7)
Provision for (recovery of) lease, loan and real estate losses ............... (.7) 31.4 7.0
(Gain) loss on sale of assets ................................................ (5.0) -- 4.0
Equity in income of unconsolidated partnerships, net ......................... (1.1) (2.7) (2.8)
Changes in working capital:
Accounts payable and other liabilities ...................................... (9.2) 2.4 4.9
Income taxes receivable/payable ............................................. -- (10.8) 10.5
Other working capital changes ............................................... .9 (.1) (.6)
Other ....................................................................... .4 11.5 (9.4)
-------- -------- -------
(11.1) (13.2) (28.7)
-------- -------- -------
INVESTING ACTIVITIES:
Purchases of marketable securities ............................................ (65.9) -- --
Proceeds from sales of marketable securities .................................. 26.6 -- --
Proceeds from sales and collections of leases and loans ....................... 56.9 45.9 75.5
Proceeds on sales of assets held for sale ..................................... 29.2 -- --
Real estate property additions ................................................ (13.1) (9.1) (4.1)
Proceeds from sales of real estate properties ................................. -- 21.1 .7
Contributions to unconsolidated partnerships .................................. (11.2) (2.4) (1.2)
Distributions from unconsolidated partnerships ................................ 7.0 6.0 4.6
-------- -------- -------
29.5 61.5 75.5
-------- -------- -------
FINANCING ACTIVITIES:
Issuance of long-term debt .................................................... 45.0 136.2 --
Repayment of long-term debt ................................................... (117.3) (25.0) (9.7)
Debt issuance costs ........................................................... (.2) (4.8) --
Decrease in due to former parent .............................................. -- (115.4) (34.1)
Dividends paid to former parent ............................................... -- (.1) (3.2)
Equity contribution from former parent ........................................ -- 23.7 --
Issuance of common stock ...................................................... .1 -- --
Purchase of treasury stock .................................................... (1.5) -- --
-------- -------- -------
(73.9) 14.6 (47.0)
-------- -------- -------
Net increase(decrease) in cash and equivalents ................................. (55.5) 62.9 (.2)
BEGINNING CASH AND EQUIVALENTS ................................................. 63.3 .4 .6
-------- -------- -------
ENDING CASH AND EQUIVALENTS (including restricted cash of $1.5
million in 1997) .............................................................. $ 7.8 $ 63.3 $ .4
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized ......................................... $ 8.5 $ 23.9 $ 22.9
======== ======== =======
Income taxes, net of refunds ................................................. $ 9.4 $ 14.2 $ 26.7
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING &
FINANCING ACTIVITIES:
Distribution of note receivable by unconsolidated partnership ................. $ 3.0 $ -- $ --
======== ======== =======
Change in funding for limited partnership investments ......................... $ (.4) $ 12.8 $ --
======== ======== =======
Unrealized gain on available-for-sale securities, net of tax of $.9 million
in 1997 ...................................................................... $ 1.5 $ -- $ --
======== ======== =======
Equity contribution from former parent ........................................ $ -- $ 140.0 $ --
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SPIN-OFF TRANSACTION AND DESCRIPTION OF BUSINESS
Echelon International Corporation ("Echelon" or the "Company") is a real
estate company with operations in two business segments: (i) the Real Estate
Business and (ii) the Leasing and Lending Business.
Echelon operated as a wholly owned subsidiary of Florida Progress
Corporation ("Florida Progress") until December 18, 1996 (the "Distribution
Date"). Florida Progress distributed Echelon stock to Florida Progress
shareholders (one share of Echelon for each fifteen shares of Florida Progress)
as a tax-free dividend (the "Distribution"). See Note 7. The Distribution
established Echelon as a publicly held corporation separate from Florida
Progress. In connection with the Distribution, Echelon determined that certain
non-strategic assets were to be disposed. See Note 4.
PRINCIPLES OF PRESENTATION
The accompanying consolidated financial statements include the financial
results of the Company and its majority-owned operations. All significant
intercompany balances and transactions have been eliminated. Investments for
which the Company has a 20% to 50% ownership interest and certain limited
partnerships are accounted for using the equity method.
Certain amounts previously reported in the 1996 and 1995 consolidated
financial statements have been reclassified to conform with the 1997
presentation.
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.
REAL ESTATE, AIRCRAFT UNDER OPERATING LEASE AND DEPRECIATION
The Company records real estate 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. Interest and real estate
taxes incurred during construction periods are capitalized on a specific
project identification basis and depreciated on the same basis as the related
assets.
Costs directly related to the acquisition (including costs related to
pre-acquisition due diligence), development or improvement of real estate, and
certain indirect costs related to developments are capitalized. Costs incurred
in connection with the pursuit of unsuccessful acquisitions or developments are
expensed at the time the pursuit is abandoned.
The Company adopted Statement of Financial Accounting Standards ("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
F-7
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the asset. An impairment loss recognized on assets to be held and used is
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets held for sale are reported at the lower of
carrying amount or fair value less cost to sell. There was no impact on
earnings as a result of implementing this standard.
FINANCE LEASES
Finance leases consist of a direct financing lease 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 and deferred investment tax credits in the years in
which the net investment is positive. The investment in a direct finance lease
equals the rental receivable plus the estimated residual value of leased
equipment less unearned income. The 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 and deferred investment tax credit. If the residual
value of leased equipment is determined to be excessive and the decline in the
residual value is judged to be other than temporary, the investment in lease is
recalculated and the difference between the investment in the lease and the
recalculated value is recorded as a charge to income.
ALLOWANCE FOR LEASE AND LOAN LOSSES
Allowance for losses on leases is provided when management has determined
that it is probable that the net investment in a lease will not be recovered
due to lessee credit problems or the lease being terminated or restructured
prior to the expiration date. The allowance is measured by the difference
between net investment in the lease and the market value of the leased asset
less costs to sell, in accordance with SFAS No. 5, "Accounting for
Contingencies" and SFAS No. 13, "Accounting for Leases." Establishing the
allowance for losses relies substantially upon management's judgment utilizing
the best available information at the time of review.
In accordance with SFAS No. 114, "Accounting by Creditors for the
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
the Impairment of Loan--Income Recognition and Disclosure," a loan is
considered impaired when management determines that it is probable that the
Company will not collect all amounts due according to the contractual terms of
the loan. An allowance for loss on an impaired loan is recognized when the
present value of the expected future cash flows, discounted at the loan's
effective rate, is less than the carrying value of the loan. When an impaired
loan is collateral dependent, and foreclosure is probable, the lower of the
carrying amount of the loan, or the fair value of collateral less costs to
sell, is used to measure the amount of allowance for loss to be recognized.
Interest income on impaired loans is recognized on a cash basis as a credit to
interest income.
INVESTMENTS IN AFFORDABLE HOUSING LIMITED PARTNERSHIPS
Echelon invests in limited partnerships which in turn invest in affordable
housing limited partnerships throughout the United States. The affordable
housing limited partnerships develop multi-family residential communities. The
investments in these partnerships include certain tax benefits, including
low-income housing tax credits and tax deductions for the operating losses of
the low-income
F-8
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
housing developments. The Company accounts for these investments using the
equity method, in accordance with the Financial Accounting Standards Board
Emerging Issues Task Force No. 94-1.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and
short-term investments with original maturities of three months or less.
The restricted cash at December 31, 1997 represents a certificate of
deposit held by a bank that requires such deposit in support of a $1.5 million
standby letter of credit.
MARKETABLE SECURITIES
The Company's investments in marketable securities are classified as
available-for-sale, except for debt securities with a maturity of three months
or less, which are classified as cash equivalents. The available-for-sale
marketable securities are available to support current operations or to take
advantage of other investment opportunities. These securities are stated at
fair value based upon market quotes. Dividend and interest income is recognized
when earned. Realized gains and losses are included in earnings and are derived
using the specific identification method for determining the cost of securities
sold. Unrealized gains and losses, net of tax, are included as a separate
component of stockholders' equity.
FINANCING COSTS
Fees and issue costs associated with obtaining debt are recorded as a
deferred charge. All fees and issue costs are amortized to interest expense
over the term of the related debt using the effective interest method.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that included the enactment date. Prior to
the Distribution, the Company was included in the consolidated federal income
tax returns of Florida Progress and the income tax provision was calculated as
if the Company had filed separate returns.
STOCK-BASED COMPENSATION
The Company adopted the disclosure requirements of SFAS No. 123,
"Accounting For Stock-Based Compensation" on January 1, 1996. The Company has
elected to measure and recognize stock-based compensation costs in accordance
with the accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting For Stock Issued To Employees."
F-9
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
REAL ESTATE OPERATIONS
Real estate operations include rent from real estate leasing, marina and
other operations, sales of development properties and equity in losses of
limited partnership investments (See Note 11). Rental revenues, net of any rent
concessions given to lessees, are recognized ratably over the lease period.
Real estate sales transactions are recorded in accordance with SFAS No. 66,
"Accounting for Sales of Real Estate."
LEASING AND LENDING OPERATIONS
Leasing and lending operations include earned income on finance and
operating leases, interest income on loans receivable, equity in earnings of
unconsolidated partnerships and gain on sales of loans (See Note 11).
RENTAL, OTHER OPERATIONS AND MARINA EXPENSES
Rental, other operations and marina expenses shown on the accompanying
Consolidated Statements of Operations include costs of on-site personnel,
utilities, repairs and maintenance, real estate taxes, insurance, marketing,
landscaping, and other on-site administrative costs.
INTEREST EXPENSE, FORMER PARENT ADVANCES
The accompanying consolidated Statements of Operations include an
allocation of interest expense due to Florida Progress prior to the
Distribution, based upon the average outstanding amounts due to Florida
Progress and affiliates. See Note 7. Management believes the allocation method
used was reasonable.
EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" ("EPS"). SFAS No. 128 replaces the standards
for computing EPS under APB No. 15, "Earnings per Share," and makes the
computations comparable to international EPS standards. The Company has adopted
SFAS No. 128 as of December 31, 1997. The adoption of this statement required
the Company to present basic earnings per share and diluted earnings per share
in place of primary earnings per share. There was no effect on earnings (loss)
per share for the restatement of prior years' financial results, as required by
the SFAS, due to the Company's net loss in both 1996 and 1995.
The net income (loss) per common share reflects, for all periods
presented, the weighted average outstanding common shares of Echelon after
giving effect to the changes in the capitalization as discussed in Note 9.
Basic earnings (loss) per common share is calculated as the net income
available to common stockholders divided by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings (loss)
per common share is calculated as the net income available to common
stockholders divided by the weighted average number of shares of common stock
outstanding during the period plus the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued.
COMMITMENTS AND CONTINGENCIES
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," which was adopted by the Company
F-10
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
on January 1, 1997. SOP 96-1 requires, among other things, environmental
remediation liabilities to be accrued when the criteria of SFAS No. 5,
"Accounting for Contingencies," have been met. The SOP also provides guidance
with respect to the measurement of the remediation liabilities. Such accounting
for environmental remediation costs and, therefore, adoption of the SOP did not
have a material impact on the Company's financial position, results of
operations or liquidity.
FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. 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.
The Company currently has no derivative financial instruments, such as
futures, forwards, swaps or options contracts.
(2) REAL ESTATE
During the second quarter of 1997, the Company revised its strategy with
respect to its commercial real estate assets to include short and medium-term
exit strategies, as well as its original plan of long-term exit strategies.
Given the change in strategy, the Company updated its impairment analysis and
determined that certain real estate assets were impaired. In June 1997, the
Company recognized an impairment of $19.0 million on certain income-producing
property in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be Disposed of." The impairment loss
was measured using independent appraisals and is reflected in the provision for
lease, loan, and real estate losses in the Consolidated Statement of
Operations.
During 1996, the Company recognized an impairment of $7.6 million on an
income-producing building and on real estate under development. The impairment
is reflected in the provision for lease, loan and real estate losses in the
Consolidated Statement of Operations. The impairment became necessary when a
tenant gave notice to not extend its lease and management did not anticipate
re-leasing this property without extensive modifications which would not be
recovered. This loss was measured using discounted cash flows. The impairment
loss on real estate under development became necessary when it was determined
that the carrying value of the real estate plus costs to complete development
of the real estate exceeded its fair value.
F-11
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) REAL ESTATE--(CONTINUED)
The depreciable lives and carrying values of the Company's real estate are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
DEPRECIABLE
LIVES (YEARS) 1997 1996
--------------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Real estate held for and under development:
Land and land improvements ............... $ 31.7 $ 29.5
Construction in progress ................. 3.8 --
------ ------
35.5 29.5
------ ------
Income producing:
Land and land improvements ............... 15.2 15.2
Buildings and improvements ............... 5-40 78.0 107.9
Equipment and other ...................... 3-10 2.9 1.6
------
96.1 124.7
------ ------
131.6 154.2
Less: accumulated depreciation ............ 16.5 29.3
------ ------
$115.1 $124.9
====== ======
</TABLE>
At December 31, 1997, the approximate future minimum rental income under
current operating leases that have initial or remaining noncancelable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
--------------
<S> <C>
1998 ............... $12.1
1999 ............... 11.7
2000 ............... 11.6
2001 ............... 10.5
2002 ............... 9.5
Thereafter ......... 38.2
-----
Total .............. $93.6
=====
</TABLE>
No single tenant collectively accounted for more than 10% of the Company's
total revenues for the year ended December 31, 1997.
Capitalized interest during the development of specific projects was $.2
million during the year ended December 31, 1997.
F-12
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LEASES AND LOANS RECEIVABLE
At December 31, 1997 and 1996, investments in leases and loans receivable
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Finance leases:
Rentals receivable .......................... $ 169.2 $ 164.8
Unguaranteed residual values ................ 105.6 105.6
Guaranteed residual values .................. 6.0 --
Unearned income ............................. (56.4) (54.3)
Deferred investment tax credits ............. (13.3) (14.0)
------- -------
Total finance leases ...................... 211.1 202.1
Commercial finance loans receivable ......... 45.1 84.5
Allowance for losses ........................ (20.1) (20.1)
------- -------
236.1 266.5
Less: current portion ....................... 39.8 75.9
------- -------
$ 196.3 $ 190.6
======= =======
</TABLE>
Finance leases consist of a direct finance lease and leveraged leased
investments which are primarily in aircraft. The majority of the aircraft
leases have remaining terms of 8 to 13 years, with a maximum of 21 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, 1997, net contractual maturities of rentals receivable
from finance leases were $7.1 million, $11.5 million, $9.0 million, $19.0
million and $19.2 million for each of the years in the five year period from
1998 through 2002, respectively, and $103.4 million in total thereafter.
The Company's net investment in leveraged leases is composed of the
following elements:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Rentals receivable ................................................ $ 156.5 $ 164.8
Estimated residual value of leased assets ......................... 105.6 105.6
Less: Unearned income and deferred investment tax credits ......... (65.4) (68.3)
Delayed Equity ................................................. (18.5) (20.2)
Deferred taxes arising from leveraged leases ................... (163.6) (179.4)
-------- --------
Net investment in leveraged leases ................................ $ 14.6 $ 2.5
======== ========
</TABLE>
F-13
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LEASES AND LOANS RECEIVABLE--(CONTINUED)
Net income recognized from leveraged leases (after payments to nonrecourse
lenders, but before other borrowing costs) was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ -------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Lease income ................................... $ .4 $ .3 $ 2.0
Income tax effect .............................. -- -- (1.0)
Loss on sale of equipment ...................... -- (.5) (1.1)
Amortization of investment tax credits ......... .7 .7 .3
---- ----- ------
$1.1 $ .5 $ .2
==== ===== ======
</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.
At December 31, 1997, the Company had two loans receivable totaling $26.8
million that were considered to be impaired under the definition of SFAS No.
114. Principal and interest payments on both loans are current as of December
31, 1997.
A $23.5 million loan receivable secured by a first mortgage on certain
real estate is considered to be impaired as a result of the Company's extension
of the original maturity of the loan through forbearance. No valuation
allowance is required for the impaired loan because, in the opinion of
management, the estimated current market value of the underlying real estate 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.
As of December 31, 1997, Echelon had an 80% participation ($3.3 million)
in a $4.1 million loan for an office building that was also considered to be
impaired. The loan is secured by a first mortgage on an office building located
in downtown Tampa, Florida. 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 approximately
78% 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. As of December 31,
1997, the Company had an allowance for losses on leases and loans of $1.6
million for this loan receivable.
The Company's portfolio of leases and loans receivable included $45.2
million and $52.3 million in leases and loans performing under restructured
agreements at December 31, 1997 and 1996, 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.
No amounts were recorded as provision for possible lease and loan losses
in 1997. During 1996 and 1995, the Company recorded $2.3 million and $5.0
million, respectively, for possible lease and loan losses and had write-offs of
$6.7 million in 1995.
F-14
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LEASES AND LOANS RECEIVABLE--(CONTINUED)
At December 31, 1997 and 1996, the Company's portfolio of leases and loans
receivable included investments in airline equipment totaling $198.8 million
and $187.4 million, respectively. Investments in commercial real estate totaled
$57.4 million and $99.2 million at the same dates.
(4) ASSETS HELD FOR SALE
At June 30, 1996, the Company's management adopted a plan to dispose of
certain non-strategic assets. These assets and their respective reserves were
classified as "Assets Held for Sale" at December 31, 1997 and 1996. Management
expects that the disposal of these assets will be completed within one to two
years. Assets held for sale consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
PREVIOUS BALANCE SHEET CLASSIFICATION 1997 1996
- - -------------------------------------------------- ------ ----------
(IN MILLIONS)
<S> <C> <C>
Leases and loans receivable ...................... $ .4 $ 56.8
Real estate, net of depreciation ................. 2.1 2.3
Investments in unconsolidated affiliates ......... -- 6.4
Valuation allowance .............................. -- (36.1)
---- -------
$2.5 $ 29.4
==== =======
</TABLE>
The Company recognized the valuation allowance (including $21.5 million in
1996) on loans receivable in accordance with SFAS No. 114 and No. 118, on
property and investments in unconsolidated affiliates in accordance with SFAS
No. 121 and on leases in accordance with SFAS No. 5 and SFAS No. 13. Assets
held for sale are reflected at the lower of carrying amount or fair value less
cost to dispose.
In June 1997, the Company received $24.3 million on the disposal of two
aircraft loans receivable and an investment in an unconsolidated affiliates.
The net book value of these assets at the time of disposal was $9.3 million. As
a result of this transaction, the Company reversed the valuation allowance
previously established based on the estimated market value of these assets and
recorded a pre-tax gain of $15.0 million.
The proceeds from the disposal of the aircraft loans and an investment in
an unconsolidated affiliates were used to fully repay the remaining debt to the
Company's former parent. The retirement of the debt allowed the Company to
retain a lease receivable, which it had previously expected to sell in order to
retire the debt. In connection with the reclassification of the lease
receivable from "Assets Held for Sale" to "Leases and Loans Receivable", the
Company reversed the $4.7 million valuation allowance recorded in contemplation
of the accelerated sale of the lease receivable.
During 1997, the Company was paid in full for a loan of $.5 million and
sold real estate with a net book value of $.2 million.
At December 31, 1997, the Company's remaining assets held for sale consist
of a $.4 million loan receivable and $2.1 million of owned real estate.
F-15
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) MARKETABLE SECURITIES
The following is a summary of available-for-sale securities as of December
31, 1997:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
----------- ------------ ------------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Certificates of deposit ............. $ 2.0 $ -- $ -- $ 2.0
U.S. government obligations ......... 7.6 .1 -- 7.7
Municipal bonds ..................... 5.6 .1 -- 5.7
Corporate debt securities ........... 8.1 -- -- 8.1
----- ---- ---- -----
Subtotal .......................... 23.3 .2 -- 23.5
Equity securities ................... 16.2 2.5 (.2) 18.5
----- ---- ---- -----
Total ............................. $39.5 $2.7 $(.2) $42.0
===== ==== ==== =====
</TABLE>
Net realized gains on available-for-sale securities were $.3 million for
the year ended December 31, 1997.
The amortized cost and estimated fair value of available-for-sale
certificates of deposit and debt securities as of December 31, 1997, by
expected maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to recall or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORITZED FAIR
COST VALUE
----------- --------
(IN MILLIONS)
<S> <C> <C>
Due after one year through five years ......... $19.0 $19.2
Due after five years .......................... 4.3 4.3
----- -----
Total ....................................... $23.3 $23.5
===== =====
</TABLE>
(6) LONG-TERM DEBT
Long-term debt outstanding at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
INTEREST
RATE 1997 1996
--------------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Northwestern Mutual Life Insurance Company ......... 7.09% $45.0 $ --
Salomon Brothers Realty Corp. ...................... 8.95%(a) 13.0 95.7
Note payable to Former Parent (Note 7) ............. -- -- 32.9
Delayed equity obligation on finance lease ......... 10.0% 18.5 20.2
Other .............................................. 8.25%(a) 0.6 0.6
----- -----
77.1 149.4
Less: current portion of long-term debt ............ 12.2 75.6
----- -----
$64.9 $73.8
===== =====
</TABLE>
- - ---------------------
(a) Interest rate at December 31, 1997.
F-16
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) LONG-TERM DEBT--(CONTINUED)
On November 5, 1996, Echelon obtained a three-year secured loan from
Salomon Brothers Realty Corp. ("Salomon Brothers") in the principal amount of
$105 million. Repayments of $37.7 million were made on the loan throughout
1997. On December 30, 1997, the portion of the Salomon Brothers loan
collateralized by certain commercial real estate assets was refinanced by a $45
million loan from Northwestern Mutual Life Insurance Company ("Northwestern").
At December 31, 1997, a portion of Echelon's real estate loan portfolio
secures the Salomon Brothers loan. The loan requires mandatory monthly
principal payments based on an amortization schedule of 25 years or the
scheduled principal payments on real estate loans actually received, if
greater. Additional principal payments may be due upon the sale of individual
items of collateral. Under the loan, monthly payments of interest at the rate
of LIBOR plus 2.95% per annum are due on the unpaid principal balance. The
remaining portion of the Salomon Brothers loan is expected to be repaid by the
end of 2001 based on the current amortization schedule. The Company also has
certain compliance requirements under the Salomon Brothers loan.
A portion of Echelon's commercial real estate portfolio secures the
Northwestern loan. The loan requires monthly principal and interest payments at
a rate of 7.09% based on an amortization schedule of 25 years, with final
maturity no later than December 1, 2004. Additional principal payments may be
due upon the sale of individual items of collateral. Beginning January 1, 2001,
the Company can pay the loan in full including a prepayment fee. The prepayment
fee shall be the greater of 1% of the outstanding principal loan balance or the
present value of the remaining loan payments at a discount rate defined in the
Northwestern loan agreement.
On December 16, 1996, Echelon obtained a $36 million secured note from its
former parent at an interest rate of LIBOR plus 2.95% per annum. The note was
completely repaid in 1997.
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 $18.5 million and $20.2
million at December 31, 1997 and 1996, respectively, and is included in
long-term debt on the accompanying Consolidated Balance Sheets.
Debt maturities are $12.2 million, $4.1 million, $6.4 million, $1.3
million and $2.3 million for each of the years in the period 1998 through 2002,
respectively, and $50.8 million in total thereafter.
In July 1997, the Company closed on a $16.5 million construction loan at
an interest rate of LIBOR plus 1.60% per annum which will be used to fund
development of a 369-unit multi-family residential community on land that the
Company owns in St. Petersburg, Florida. As of December 31, 1997, no amounts
were outstanding on this construction loan. The initial term of the
construction loan is two years with the ability to extend the loan for an
additional five years from the completion of construction.
In November 1997, the Company executed a commitment letter for a $17.5
million construction loan to fund the development of a 314-unit multi-family
residential project on land that the Company owns in Carillon Park in St.
Petersburg, Florida.
F-17
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) TRANSACTIONS WITH FLORIDA PROGRESS
Financial information prior to the Distribution reflects the results of
operations of the Company as a wholly-owned subsidiary of Florida Progress and
is not necessarily indicative of the results of operations had the Company
operated as a separate, stand-alone entity during such prior periods.
The Company had been utilizing accounting, legal, risk management, human
resource, tax, treasury, management, and facility and office services of
Florida Progress and its affiliates and was billed for these services,
including a portion of the affiliates' overhead. Charges for these services and
overhead were $2.4 million and $1.6 million and in 1996 and 1995, respectively.
These costs were charged to Echelon using the affiliates' actual costs
allocated to each affiliate based on its pro-rata usage of the services.
Florida Progress and its affiliates rent facility and office space in
several of the Company's commercial office buildings for which the Company has
received rental payments of $1.5 million, $2.4 million, and $2.2 million in
1997, 1996, and 1995, respectively. A portion of these amounts was billed to
the Company during 1996 and 1995 in connection with the affiliates' allocations
of facility services.
At the Distribution Date, the Company and Florida Progress entered into a
tax sharing and tax indemnification agreement, which provided for the payment
of taxes and receipt of tax refunds for periods up through the Distribution
Date and provided for various administrative and other matters. As of December
31, 1997, the Company owed $1.3 million to Florida Progress under the tax
sharing agreement for resolution of tax matters related to 1996.
At the Distribution Date, Echelon and Florida Progress entered into a
distribution agreement, which requires Echelon to maintain liquidity levels of
at least $25.0 million and $17.0 million throughout 1998 and 1999,
respectively.
Effective as of September 30, 1996, Florida Progress contributed $140.0
million to the equity of Echelon, which was used by Echelon to repay advances
from Florida Progress. This was a non-cash transaction, which was not reflected
in the Consolidated Statement of Cash Flows.
Amounts due to Florida Progress and its affiliates are included in the
following captions at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------ --------
(IN MILLIONS)
<S> <C> <C>
Accounts and interest payable to former parent ......... $1.3 $ .8
==== =====
Note payable to Former Parent (see Note 6) ............. $ -- $32.9
==== =====
</TABLE>
Interest expense included in the accompanying Consolidated Statements of
Operations related to the intercompany advances from Florida Progress and
represents interest allocated to the Company. The effective interest rate on
the average outstanding intercompany advances for the years ended December 31,
1996 and 1995 was 6.0%.
During the year ended December 31, 1997, the Company paid interest on the
note payable to Florida Progress of $.9 million.
F-18
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) TRANSACTIONS WITH FLORIDA PROGRESS--(CONTINUED)
Florida Progress paid $.4 million to the Company for brokerage commissions
during 1997. During the fourth quarter of 1997, Echelon executed two operating
leases with Florida Power Corporation, a subsidiary of Florida Progress. The
first lease is a 15-year lease for 100% of the first two floors of the
SouthCore Commercial building. The Company is in the process of completing the
interior base building and tenant improvements for occupancy by June 1, 1998.
The second lease is a 10-year lease for 100% of Bayboro Station, which
commences in April 1998. Echelon is also in the process of completing the
interior base building and tenant improvements for occupancy upon completion of
the improvements. Both leases are at the current market rate, with annual rent
increases of approximately 3% over the lease term.
(8) RELATED PARTY TRANSACTIONS
In October 1997, the Company acquired certain assets of Mission
Development Company ("Mission Development"), a Dallas-based multi-family
housing developer for $.4 million and established a southwest regional office
in Dallas, Texas. Mission Development was owned by W. Michael Doramus, the
Company's former Chairman of the Board of Directors. Upon the acquisition of
certain assets of Mission Development, Mr. Doramus resigned as Chairman and was
hired as an Executive Vice President of Echelon. The terms of Mr. Doramus'
employment agreement include an annual base salary of at least $225,000,
eligibility for annual bonuses based upon both the annual results of the
Company's operations and individual performance goals, and the opportunity to
earn shares of common stock and options to purchase common stock based upon the
cumulative results of the Company's operations and satisfaction of individual
performance goals for the three years ending December 31, 1999. Mr. Doramus
continues as a member of the Board of Directors.
(9) COMMON AND PREFERRED STOCK AND SHAREHOLDER RIGHTS
In October 1996, the Echelon Board of Directors adopted Amended and
Restated Articles of Incorporation which increased the number of authorized
common shares from 100 to 25,000,000, changed the par value from $1.00 to
$0.01; and converted each share of $1.00 par value common stock into 64,670.18
shares of $.01 par value Common Stock. The conversion of the common stock and
the effect on loss per share has been reflected in all periods presented.
Additionally, Echelon has authorized 10,000,000 shares of $.01 par value
preferred stock. No shares of preferred stock have been issued or are
outstanding.
In conjunction with the Distribution, the Company executed a Shareholder
Rights Agreement whereby each share of common stock has associated with it one
preferred share purchase right ("Right"). Each Right entitles the holder to
purchase one-hundredth of a share of Series A Junior Participating Preferred
Stock ("Junior Preferred Stock") at a price of $55 per one-hundredth of a share
of Junior Preferred Stock, subject to adjustment. These Rights are only
exercisable in the event of certain attempted business combinations. If
exercised, the Rights would cause substantial dilution of ownership, thus
adversely affecting any attempt to acquire the Company on terms not approved by
the Company's Board of Directors. The Rights have no voting or dividend rights
and expire in November 2006, unless redeemed earlier by the Company.
During 1997, the Echelon Board of Directors approved an Odd-Lot Buy-Back
program, which expired in December 1997, to repurchase up to $5.0 million of
common stock. The Company repurchased 68,519 shares of common stock during the
fourth quarter of 1997, which resulted in treasury stock, at cost, of
approximately $1.5 million.
F-19
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) COMMON AND PREFERRED STOCK AND SHAREHOLDER RIGHTS--(CONTINUED)
The net income (loss) and common shares used to compute basic and diluted
earnings per share is presented in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
BASIC
Weighted average number of shares:
Average common shares outstanding ......................... 6.8 6.5 6.5
=== === ===
Net income (loss) used to compute basic earnings per share:
Net income (loss) ......................................... $ 7.6 $ (27.5) $ (5.0)
----- -------- -------
Basic earnings (loss) per common share ...................... $1.12 $ (4.23) $ (.77)
===== ======== =======
DILUTED
Weighted average number of shares:
Average common shares outstanding ......................... 6.8 6.5 6.5
Dilutive effect for stock options and contingently
issuable common shares ................................. -- -- --
----- -------- -------
Weighted average shares ................................... 6.8 6.5 6.5
===== ======== =======
Net income (loss) used to compute diluted earnings per share:
Net income (loss) ......................................... $ 7.6 $ (27.5) $ (5.0)
----- -------- -------
Diluted earnings (loss) per common share .................... $1.12 $ (4.23) $ (.77)
===== ======== =======
</TABLE>
(10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS
In October 1996, the shareholder and the Echelon Board of Directors
approved several stock based benefit plans, and reserved an aggregate of
1,200,000 shares of Echelon common stock for issuance pursuant to the following
plans.
STOCK PURCHASE PLAN. An aggregate of 75,000 shares of Echelon Common
Stock is reserved for issuance under the plan. Under the Stock Purchase Plan,
all employees will be given the opportunity to purchase shares of Echelon
Common Stock two times a year at a price equal to 85% of the market price of
the stock immediately prior to the beginning of each offering period. The Stock
Purchase Plan provides for two offering periods, the months of April and
September, in each of the years 1997-2006.
ECHELON LONG TERM INCENTIVE PLAN ("LTIP"). An aggregate of 950,000 shares
of Echelon Common Stock is reserved for issuance under the plan. Under the
Echelon LTIP, restricted stock, incentive stock options, nonqualified stock
options and stock appreciation rights or any combination thereof may be granted
to Echelon employees. The committee of the Board of Directors administering the
plan (the "Committee") may condition awards of restricted stock and stock
appreciation rights upon satisfaction of performance criteria or other
conditions. The exercise price of the incentive stock options granted under the
plan will be determined in the discretion of the Committee administering the
plan, which price may not be less than the market price of Echelon common stock
on the date the option is granted. Options will normally vest 20% each year
after issuance over a period of five years and will expire 10 years after the
date of grant. The exercise price and vesting schedule of the nonqualified
stock options granted under the plan will be determined in the discretion of
the Committee administering the plan.
F-20
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS--(CONTINUED)
DIRECTORS' PLAN. An aggregate of 25,000 shares of Echelon Common Stock is
reserved for issuance under the plan. Directors who are not employees of
Echelon ("Non-Employee Directors") will receive an annual retainer fee of
$15,000 paid quarterly in the form of Echelon Common Stock. In addition to the
annual retainer, each year Non-Employee Directors who are elected or are
continuing as Non-Employee Directors as of the conclusion of Echelon's annual
meeting of stockholders will receive options to purchase 1,000 shares of
Echelon Common Stock. The exercise price of the options will be equal to the
market price of Echelon Common Stock on the date the option is granted. Options
will vest fully at the end of one year and will expire five years after the
date of grant.
STOCK OPTION PLAN. A maximum of 150,000 shares of Echelon Common Stock is
reserved for issuance under the plan. Under the Stock Option Plan, incentive
stock options, nonqualified stock options or any combination thereof may be
granted to any employee of Echelon. In general, the committee of the Board of
Directors administering the plan will determine the exercise price of the
options, but such price will not be less than the market price of Echelon
Common Stock on the date the option is granted. Options will normally vest 20%
each year after issuance over a period of five years and will expire 10 years
after the date of grant.
The Company issued 4,480 shares of Common Stock in 1997 under the Stock
Purchase Plan. The Company issued 1,500 shares of restricted Common Stock to
officers and employees under the LTIP. During 1997, Echelon also issued 2,722
shares of Common Stock under the Directors' Plan. Total compensation expense of
$.1 million was recognized for the issuance of the Common Stock. In addition,
the Company recorded $.5 million of compensation expense for the LTIP related
to restricted Common Stock to be issued in accordance with executive employment
contracts.
During 1996, the Company issued 308,801 shares of restricted Common Stock
to officers under the LTIP and recorded compensation expense of $4.5 million.
The Company has granted nonqualified options to purchase common stock
under option plans as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
STOCK AVERAGE REMAINING
OPTION DIRECTORS' OPTION RANGE OF CONTRACTUAL
PLAN LTIP PLAN TOTAL PRICE OPTION PRICE LIFE
--------- --------- ------------ ---------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Authorized ........... 150,000 950,000 25,000 1,125,000
======= ======= ====== =========
Outstanding--
December 31, 1995 .. -- -- -- --
Granted ............. -- 134,840 -- 134,840 $22.25 $ 22.25 8.97 years
------- ------- ------ ---------
Outstanding--
December 31, 1996 .. -- 134,840 -- 134,840 $22.25 $ 22.25 8.97 years
Granted ............. 21,250 128,000 4,000 153,250 $21.76 $19.38-$25.13 9.61 years
------- ------- ------ ---------
Outstanding--
December 31, 1997 .. 21,250 262,840 4,000 288,090 $21.99 $19.38-$25.13 9.31 years
======= ======= ====== =========
</TABLE>
During 1996, the Company granted nonqualified options to purchase 134,840
shares of Common Stock at an exercise price equal to the closing price for
Echelon Common Stock eight months after the
F-21
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS--(CONTINUED)
completion of the Distribution. During 1997, the Company also granted
nonqualified options to purchase 153,250 shares of Echelon's Common Stock. The
exercise price for 64,836 nonqualified stock options is equal to the market
price of the stock on the date of grant. No compensation expense was recorded
for these nonqualified stock options in 1997 or 1996 in accordance with APB No.
25. The remaining 88,414 nonqualified stock options were granted to an
executive officer of the Company at an exercise price per nonqualified option
that was less than the market value on the date of grant. The Company will
record compensation expense totaling $.5 million over the four year vesting
period of the nonqualified stock options.
None of the nonqualified stock options were exercisable at December 31,
1997. No incentive stock options were granted as of December 31, 1997.
The Company applies APB 25 and related Interpretations in accounting for
its stock option and restricted stock plans. If compensation costs for the
Company's stock option plans had been determined based on the fair value at the
grant dates for awards under these plans consistent with the method prescribed
by SFAS No. 123, the Company's net income and both basic and diluted earnings
per share on a proforma basis for the year ended December 31, 1997 would have
been $6.7 million and $.99 per common share, respectively.
Using the Black-Scholes options-valuation model, the estimated weighted
average fair values of options granted during 1997 and 1996 were $8.29 per
option and $.97 per option, respectively. The following assumptions were used
for the year ended December 31, 1997: (1) risk-free interest rate of 5.75%; (2)
volatility of 30%; (3) weighted average expected dividends of $0 and (4)
expected lives of three years. The Black-Scholes model was developed for use in
estimating the fair value of trade options which have no vesting restrictions.
Such models also require the use of subjective assumptions, including expected
stock price volatility. Results can vary materially depending on the
assumptions applied within the model and the resulting compensation expense may
not be representative of compensation expense to be incurred on a proforma
basis in the future.
(11) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS
The Company has a 50% interest in a joint venture, which is engaged in the
business of leasing aircraft equipment. Additionally, the Company has
investments in affordable housing limited partnerships of which no ownership
interest exceeds 12% as of December 31, 1997. The Company accounts for its
investments in the joint venture and limited partnerships by the equity method.
At December 31, 1997 and 1996, investments in unconsolidated partnerships
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
Joint venture for leasing aircraft equipment ................... $22.9 $30.3
Investments in affordable housing limited partnerships ......... 24.3 15.0
----- -----
$47.2 $45.3
===== =====
</TABLE>
The Company includes equity in earnings (losses) from the unconsolidated
partnerships in revenues.
F-22
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS--(CON
Presented below is summarized financial information for the joint venture
for leasing aircraft equipment accounted for under the equity method as of
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and
1995. Amounts reflect 100% of the joint venture's balances and results of its
operations for these periods.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Finance lease receivable ............ $43.5 $57.6
Property and equipment, net ......... 2.5 2.9
Current assets ...................... 1.3 1.3
Other assets, net ................... -- --
----- -----
$47.3 $61.8
===== =====
LIABILITIES AND EQUITY INTEREST
Noncurrent liabilities .............. $ 1.3 $ 1.3
Other partners' equity .............. 23.0 30.3
----- -----
24.3 31.6
----- -----
Company's equity interest ........... 23.0 30.2
----- -----
$47.3 $61.8
===== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES AND EXPENSES
Revenues .................................................. $5.7 $6.0 $6.3
Expenses .................................................. .5 .5 .5
---- ---- ----
Combined net earnings of joint venture .................... $5.2 $5.5 $5.8
==== ==== ====
Company's equity in net earnings of joint venture ......... $2.6 $2.7 $2.9
==== ==== ====
</TABLE>
The Company's limited partnership investments are investments in limited
partnerships, which invest in affordable housing developments within the United
States. The total investments in the limited partnership range between a total
ownership percentage of 7.1% to 11.6% as of December 31, 1997. Echelon recorded
losses of $1.5 million for the year ended December 31, 1997 under the equity
method of accounting related to these investments.
During 1997 and 1996, Echelon signed commitments to provide total capital
contributions of $25.8 million to affordable housing tax credit limited
partnerships. Echelon has funded $13.4 million of these commitments as of
December 31, 1997. The total commitments of $25.8 million are included as
investments in unconsolidated partnerships in the Company's consolidated
financial statements. The remaining commitments to be funded within one year
and thereafter ($9.5 million and $2.9 million as of December 31, 1997 and $9.9
million and $2.9 million as of December 31, 1996) are included in current
portion of funding for limited partnership investments and other long-term
liabilities, respectively.
F-23
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) INCOME TAXES
The components of the Company's income tax expense (benefit) for the years
ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Components of income tax expense (benefit):
Payable currently:
Federal ....................................... $ 8.9 $ 4.2 $ 32.4
State ......................................... 1.0 .6 4.7
------ ------- -------
9.9 4.8 37.1
------ ------- -------
Deferred, net:
Federal ....................................... (7.8) (16.8) (36.3)
State ......................................... (1.3) (2.2) (5.7)
------ ------- -------
(9.1) (19.0) (42.0)
------ ------- -------
.8 (14.2) (4.9)
Less: income tax expense (benefit) included under
extraordinary item .......................... (1.3) 1.3 --
------ ------- -------
$ 2.1 $ (15.5) $ (4.9)
====== ======= =======
</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 the statutory rates and the effective income tax rates are
detailed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
(IN PERCENT)
<S> <C> <C> <C>
Federal statutory income tax rate ........................................ 35.0 35.0 35.0
State income taxes, net of federal tax benefit ........................... 2.0 2.4 6.5
Affordable housing limited partnership tax credits ....................... (11.2) -- --
Rate difference on leveraged lease deferred tax reversals ................ (5.5) .6 9.7
Investment tax credit differences ........................................ (2.5) .1 .1
Non-deductible expenses .................................................. .4 (4.4) --
Other .................................................................... (.1) .3 (1.6)
----- ---- ----
Effective income tax rate before tax effect of extraordinary item ........ 18.1 34.0 49.7
===== ==== ====
</TABLE>
F-24
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) INCOME TAXES--(CONTINUED)
The following summarizes the components of deferred tax liabilities and
assets at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Difference in accounting for leveraged leases ............. $163.6 $179.4
Depreciation .............................................. 14.3 13.0
Joint venture for leasing aircraft equipment .............. 9.4 9.0
Other ..................................................... .3 --
------ ------
Total deferred tax liabilities ........................... 187.6 201.4
------ ------
Deferred tax assets:
Impairment on long-lived assets ........................... 15.1 7.7
Accrued book expenses ..................................... 4.1 3.0
Allowance for losses ...................................... 9.6 21.1
Difference in accounting for direct finance lease ......... 2.1 1.6
Other ..................................................... 2.5 4.7
------ ------
Total deferred tax assets ................................ 33.4 38.1
------ ------
Net deferred tax liabilities ............................... 154.2 163.3
Less: Current portion of deferred income taxes ............. 8.4 7.5
------ ------
Net non-current deferred tax liabilities ................... $145.8 $155.8
====== ======
</TABLE>
The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to allow for the
utilization of deferred tax assets.
As of December 31, 1997, income taxes receivable were $1.0 million and are
included in other current assets on the Consolidated Balance Sheet. As of
December 31, 1996, income taxes payable were $.1 million and are included in
accounts payable and other liabilities on the Consolidated Balance Sheet.
(13) BUSINESS SEGMENTS
The Company's principal business segments are "Real Estate" and "Leasing
and Lending". Real Estate includes the development, ownership, and management
of commercial office buildings, multi-family residential, and industrial
properties, sale of development properties and marina and other operations.
Leasing and Lending includes leveraged leases, an operating lease, a direct
finance lease, and commercial finance loans. The airline industry is the
primary industry included in Leasing and Lending.
The Company is subject to the risks inherent in the development, ownership
and management of commercial and multi-family residential real estate. These
include, among others, the risks normally associated with changes in the
general economic climate, trends in the business industry, including
creditworthiness of tenants, competition for tenants, changes in tax laws,
interest rate levels, the availability of financing, and potential liability
under environmental and other laws.
F-25
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) BUSINESS SEGMENTS--(CONTINUED)
Business segment information for the years ended December 31, 1997, 1996
and 1995 is summarized below. No single customer accounted for more than 10% of
the Company's revenues during the years ended December 31, 1997, 1996 or 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues:
Real estate ............................................ $ 21.5 $ 40.5 $ 18.2
Leasing & lending ...................................... 19.4 22.7 29.4
Investment income ...................................... 3.3 .1 --
------- ------- -------
$ 44.2 $ 63.3 $ 47.6
======= ======= =======
Income (loss) before income taxes and extraordinary item:
Real estate ............................................ $ (22.1) $ (14.2) $ (12.0)
Leasing & lending ...................................... 33.7 (30.6) 2.1
------- ------- -------
$ 11.6 $ (44.8) $ (9.9)
======= ======= =======
Identifiable assets:
Real estate ............................................ $ 145.5 $ 146.5 $ 153.9
Leasing & lending ...................................... 265.2 334.0 400.2
Cash and equivalents and marketable securities ......... 49.8 63.3 .4
------- ------- -------
$ 460.5 $ 543.8 $ 554.5
======= ======= =======
Depreciation:
Real estate ............................................ $ 3.6 $ 4.5 $ 5.0
Leasing & lending ...................................... 1.1 1.1 1.4
------- ------- -------
$ 4.7 $ 5.6 $ 6.4
======= ======= =======
Additions to leases, loans and real estate:
Real estate ............................................ $ 13.1 $ 9.1 $ 4.1
Leasing & lending ...................................... -- -- --
------- ------- -------
$ 13.1 $ 9.1 $ 4.1
======= ======= =======
</TABLE>
(14) COMMITMENTS AND CONTINGENCIES
The Company is currently involved in several developments and had
outstanding construction commitments with contractors totaling $37.7 million at
December 31, 1997.
As of December 31, 1997, Echelon had a total of 10 contingent contracts or
letters of intent, subject to the Company's final due diligence, to acquire
land for the development of an estimated 2,600 multi-family residential units
at an aggregate estimated development cost of $196.0 million.
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
F-26
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
compel responsible parties to clean up certain abandoned or uncontrolled
hazardous waste sites. The Company may be responsible for environmental cleanup
at certain sites. Based on information currently available to the Company,
Echelon estimates that its share of liability for cleaning up these sites
ranges from $.1 million to $1.0 million, and it has reserved $.3 million for
potential costs that management estimates to be probable. Management currently
believes that the ultimate outcome of these matters will not have a material
adverse effect upon the Company's results of operations, financial condition or
liquidity.
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 those
who were residents at the time of the sale of the Company's interest
discontinue their residency. If the current owners fail to perform their
obligations and if the partnership assets, consisting primarily of land and
buildings, were determined to be worthless, the Company could be liable for an
additional $26.5 million as of December 31, 1997. 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.
As of December 31, 1997, the Company's cash balance included restricted
cash of $1.5 million in support of a $1.5 million standby letter of credit.
(15) EXTRAORDINARY ITEM
On December 30, 1997, Echelon refinanced a significant portion of the
Company's debt (see note 6). The Company wrote off the related debt issuance
costs of approximately $1.3 million and paid a prepayment penalty of $.4
million, resulting in an after tax extraordinary loss of $1.0 million. In
addition, during 1997 the Company also wrote off debt issuance costs of
approximately $1.5 million related to the early payment of principal on
long-term debt, resulting in an after tax extraordinary loss of $.9 million.
On September 30, 1996, Echelon extinguished debt and accrued interest that
resulted in an after-tax extraordinary gain of $2.1 million. This gain was
offset by a write-off of debt issuance costs of approximately $.4 million
related to the early payment of principal on long-term debt, resulting in an
after-tax extraordinary loss of $.3 million.
(16) RETIREMENT PLAN
As of January 1, 1997, the Company implemented the Echelon International
Employee Savings Plan ("Savings Plan") under Section 401(k) of the Internal
Revenue Service Code (the "Code"), to which participants may contribute a
percentage of their pay up to limits established by the Code. The Company may
make discretionary contributions to the Savings Plan. Echelon did not
contribute to the Savings Plan for the year ended December 31, 1997.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value of financial instruments
were determined by management using available market information and
appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair value.
F-27
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize on disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
CASH AND EQUIVALENTS, ACCOUNTS RECEIVABLE, INVENTORIES, OTHER CURRENT
ASSETS, ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES--The carrying amounts
approximate fair value due to the short maturity of these instruments.
MARKETABLE SECURITIES--The fair value of marketable securities is
estimated based on quoted market prices.
LOANS RECEIVABLE--The fair value of loans receivable is estimated using
discounted cash flows using rates at which similar loans would be made to
borrowers with similar credit ratings.
LONG-TERM DEBT AND COMMITMENTS FOR RECEIPT OF LONG-TERM DEBT
OBLIGATIONS--The fair value of long-term debt and commitments for receipt of
long-term debt obligations is estimated based on quoted market prices for
similar issues, giving consideration to quality, interest rates, maturity and
other significant characteristics. Certain prepayment penalties associated with
the early repayment of long-term debt are not taken into consideration in
determining fair value.
In the opinion of management, the estimated fair value of financial
instruments at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Marketable securities ............................... $42.0 $ -- $42.0 $ --
Real Estate Loans ................................... 42.1 83.8 40.5 85.4
Aircraft Loans ...................................... 3.0 .7 3.0 .7
Long-term Debt ...................................... 77.1 149.4 77.1 149.4
Off-Balance Sheet Instruments
Commitments for receipt of long-term debt ......... -- -- 34.0 --
</TABLE>
Disclosure of the fair value of financial instruments is based on
pertinent information available to management as of December 31, 1997. Although
management is not aware of any factors that would significantly affect the
reasonable fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and current
estimates of fair value may differ significantly from the amounts presented
herein.
F-28
<PAGE>
ECHELON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(18) QUARTERLY DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- --------- -------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Revenue .................................. $ 15.1 $ 9.4 $ 10.5 $ 9.2
Income before extraordinary item ......... 4.7 1.4 1.4 2.0
Net income ............................... 3.9 1.4 1.3 1.0
Basic and diluted earnings per common
share .................................... .57 .21 .19 .15
Common stock price per share:
High .................................... 19.50 23.00 24.75 25.13
Low ..................................... 14.75 18.25 20.56 20.81
- - ------------------------------------------ ------ ------- ------ ------
1996
Revenue .................................. $ 9.7 $ 17.9 $ 21.0 $ 14.7
Loss before extraordinary item ........... (.8) (19.4) (3.6) (5.5)
Net loss ................................. (.8) (19.4) (1.5) (5.8)
Loss per common share .................... (.12) (2.99) (.23) (.89)
Common stock price per share:
(trading began on December 9, 1996)
High .................................... -- -- -- 16.38
Low ..................................... -- -- -- 13
- - ------------------------------------------ ------ ------- ------ ------
</TABLE>
Revenues include a $4.1 million gain related to the sale of a loan
receivable in the quarter ended March 31, 1997. Revenues also include
investment income of $.7 million, $.9 million, $.8 million and $.9 million for
the quarters ended March 31, June 30, September 30 and December 31, 1997,
respectively.
Revenues include real estate sales of $6.6 million, $11.6 million and $3.6
million for the quarters ended June 30, September 30 and December 31, 1996,
respectively. The net loss for the three months ended June 30, 1996 included a
provision of $29.2 million for losses anticipated to be incurred on the sale of
non-strategic assets in order to pay the remaining debt to the Company's former
parent. The net loss for the three months ended December 31, 1996 included
$10.2 million for expenses to complete the spin-off from Echelon's former
parent.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Venturers of
Progress Potomac Capital Ventures:
We have audited the accompanying balance sheets of Progress Potomac
Capital Ventures as of December 31, 1997 and 1996, and the related statements
of income, changes in joint venturers' capital and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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
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 financial statements referred to above present fairly,
in all material respects, the financial position of Progress Potomac Capital
Ventures as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Petersburg, Florida
March 10, 1998
F-30
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash ............................................................. $ 1,462 $ 49,816
Jet engines, net of accumulated depreciation of $2,703,948 in 1997
and $2,259,948 in 1996.......................................... 2,496,052 2,940,052
Direct financing lease--Continental Airlines ..................... 43,487,086 50,473,410
Restricted cash .................................................. 1,312,764 1,286,502
Notes receivable from Continental Airlines ....................... -- 7,103,922
----------- -----------
Total Assets .................................................. $47,297,364 $61,853,702
=========== ===========
LIABILITIES AND JOINT VENTURERS' CAPITAL
Accrued expenses ................................................. $ 15,000 $ 15,000
Maintenance deposits ............................................. 1,312,764 1,286,502
----------- -----------
Total Liabilities ............................................. 1,327,764 1,301,502
Joint Venturers' Capital:
Echelon ........................................................ 22,984,800 30,276,100
Potomac ........................................................ 22,984,800 30,276,100
----------- -----------
Total Joint Venturers' Capital ................................ 45,969,600 60,552,200
----------- -----------
Total Liabilities and Joint Venturers' Capital ................ $47,297,364 $61,853,702
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-31
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Finance lease revenue ......... $4,220,780 $4,826,177 $5,379,114
Rental income ................. 795,144 795,144 741,046
Interest income ............... 719,013 430,673 219,650
---------- ---------- ----------
5,734,937 6,051,994 6,339,810
EXPENSES:
Administration fee ............ 60,000 60,000 60,000
Depreciation .................. 444,000 444,000 444,000
Other ......................... 3,007 3,000 3,000
---------- ---------- ----------
507,007 507,000 507,000
---------- ---------- ----------
NET INCOME ..................... $5,227,930 $5,544,994 $5,832,810
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-32
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
STATEMENTS OF CHANGES IN JOINT VENTURERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ECHELON INTERNATIONAL POTAMAC CAPITAL
CORPORATION CORPORATION
CAPITAL ACCOUNT CAPITAL ACCOUNT TOTAL
----------------------- ----------------- ---------------
<S> <C> <C> <C>
Balance December 31, 1994 ............ $ 34,529,589 $ 34,529,589 $ 69,059,178
Net income ......................... 2,916,405 2,916,405 5,832,810
Cash distributions ................. (4,266,872) (4,266,872) (8,533,744)
------------ ------------ -------------
Balance December 31, 1995 ............ 33,179,122 33,179,122 66,358,244
Net income ......................... 2,772,497 2,772,497 5,544,994
Cash distributions ................. (5,675,519) (5,675,519) (11,351,038)
------------ ------------ -------------
Balance December 31, 1996 ............ 30,276,100 30,276,100 60,552,200
Net income ......................... 2,613,965 2,613,965 5,227,930
Cash distributions ................. (6,917,813) (6,917,813) (13,835,626)
Non-cash dividend .................. (2,987,452) (2,987,452) (5,974,904)
------------ ------------ -------------
Balance at December 31, 1997 ......... $ 22,984,800 $ 22,984,800 $ 45,969,600
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-33
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 5,227,930 $ 5,544,994 $ 5,832,810
Adjustments to reconcile noncash items:
Depreciation ..................................... 444,000 444,000 444,000
Amortization of unearned lease income, net ....... (4,220,780) (4,826,177) (5,379,114)
Changes in assets and liabilities:
Restricted cash ................................. (26,262) (28,188) (430,689)
Other receivable ................................ -- 222,660 284,743
Unearned income ................................. -- (198,786) 13,525
Maintenance deposits ............................ 26,262 28,188 430,689
------------- ------------- ------------
Net cash provided by operating activities....... 1,451,150 1,186,691 1,195,964
Cash flows from investing activities:
Proceeds from collections of leases ............... 11,207,104 9,066,104 6,496,905
Proceeds from collections of notes receivable ..... 1,129,018 947,816 854,408
------------- ------------- ------------
Net cash provided by investing activities....... 12,336,122 10,013,920 7,351,313
Cash flows from financing activities:
Distributions to Venturers ........................ (13,835,626) (11,351,038) (8,533,744)
------------- ------------- ------------
Net increase (decrease) in cash ................ (48,354) (150,427) 13,533
Cash at beginning of year .......................... 49,816 200,243 186,710
------------- ------------- ------------
Cash at end of year ................................ $ 1,462 $ 49,816 $ 200,243
============= ============= ============
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In 1997, the venture distributed a total of $5,974,904 of notes receivable
to Potomac Capital Corporation and Echelon International Corporation. Each
venturers' portion of the distribution equaled $2,987,452.
The accompanying notes are an integral part of these financial
statements.
F-34
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND PRINCIPLES OF PRESENTATION
Progress Potomac Capital Ventures ("PPCV") is a joint venture, formed in
February 1988, between Echelon International Corporation ("Echelon"), successor
to Progress Credit Corporation, and Potomac Capital Corporation ("Potomac").
The purpose of the formation of the joint venture is to purchase, lease, and
finance aircraft and aircraft equipment. The joint venture is controlled 50/50
and the venturers must unanimously agree to all decisions. The income or loss
generated in each fiscal year is distributed annually based upon the pro-rata
share of each venturer's capital accounts as of the end of the respective
fiscal year. The joint venture will be dissolved in 2027, unless all assets
owned by the joint venture are sold or disposed of prior to this date or by
agreement by the venturers.
PPCV's operations consist of a direct finance lease and an operating
lease. The direct finance lease involves two DC10-30s that are currently on
lease to Continental Airlines ("Continental"). The lease was initiated in
February of 1990 and expires in February of 2002. In 1992, Echelon and Potomac
agreed to revise the terms with Continental pursuant to which Continental
issued a deferred rent note for 4 months of deferred rent (including interest)
to be paid back over 48 months. This note earned interest at 10.42% annually.
Again in 1995, both parties agreed to revise the terms of the Continental lease
by deferring a portion of the rent payable for 16 months, retroactive to
February 1995, and issuing another deferred rent note specific to the 1995
deferment. This note earns interest at 8% annually and required monthly
payments of principal and interest. Both of these notes were either repaid or
distributed to the venturers in 1997 (see note 3).
The operating lease involves two CFM-56 jet engines leased to America
West. The lease expired on December 31, 1997 (see note 4). As part of the
leasing arrangement with America West, America West is required to make
payments to PPCV in order to provide a maintenance and repair reserve for the
engines. The funds deposited are recorded as restricted cash as PPCV can only
use the funds for maintenance and repair. The funds are also recorded by PPCV
as an other liability as any excess funds will be returned to America West upon
termination of the lease.
Aircraft and aircraft equipment leasing involves numerous risks, including
risks stemming from the obsolescence or physical deterioration of aircraft or
equipment 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 the lessors of
aircraft have no control could be expected to adversely affect the supply and
demand of the aircraft or aircraft leases and may cause cost increases related
to the leasing of aircraft that cannot be offset by increased revenues. The
current market values for aircraft and related equipment have stabilized and in
many instances increased, as a result of the overall recent improvement in the
airline industry.
The preparation of the 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.
EARNED INCOME ON DIRECT FINANCING LEASE
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.
F-35
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
DEPRECIATION
The jet engines are depreciated on a straight-line basis over sixteen
years.
INCOME TAXES
The joint venture is not a taxable entity. The taxable income is passed
through to each of the venturers as income allocated according to the joint
venture agreement.
LOANS RECEIVABLE
The joint venture accounts for loans receivable in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for the 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 joint venture to compute present values for
impaired loans when determining the allowance for credit losses.
IMPAIRED ASSETS
The joint venture adopted SFAS No. 121, "Accounting for the Impairment of
the Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
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 upon adoption of SFAS No. 121.
(2) DIRECT FINANCING LEASE
The following lists the components of the net investment in the direct
financing lease as of December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Minimum lease payments receivable ....................... $ 46,542,435 $ 57,749,539
Initial direct cost ..................................... 622,428 841,261
Estimated residual value of the leased property ......... 7,800,000 7,800,000
Less unearned income .................................... (11,477,777) (15,917,390)
------------- -------------
Net investment in direct finance lease .................. $ 43,487,086 $ 50,473,410
============= =============
</TABLE>
F-36
<PAGE>
PROGRESS POTOMAC CAPITAL VENTURES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) DIRECT FINANCING LEASE--(CONTINUED)
At December 31, 1997, the future minimum lease receipts for each of the
succeeding five years and thereafter are as follows:
<TABLE>
<S> <C>
1998 ............... $11,207,104
1999 ............... 11,207,104
2000 ............... 11,207,104
2001 ............... 11,207,104
2002 ............... 1,646,644
Thereafter ......... 67,375
-----------
Total .............. $46,542,435
===========
</TABLE>
(3) NOTES RECEIVABLE
In March 1997, Continental paid off the deferred rent note related to
1992. In September 1997, the deferred rent note relating to 1995 was
distributed to each of the venturers. The balance at the time of distribution
was $5,974,904, which included $401,483 of accrued interest. Continental
subsequently paid to Potomac Capital Corporation their portion of the note,
which equaled $2,987,452, and issued a new note to Echelon International
Corporation for the balance.
(4) SUBSEQUENT EVENT
In January 1998, PPCV sold to Willis Lease Finance Corporation the two
CFM-56 jet engines on operating lease with America West for $5,700,000 cash, at
a gain of $3,203,948.
F-37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors, nominees for directors and executive
officers of Echelon is included under the headings "Management" in Echelon's
Proxy Statement and is incorporated herein by reference. Information concerning
compliance by Echelon's directors and officers, and persons who own more than
10% of Echelon's common stock, with the reporting requirements of Section 16(a)
of the Securities Exchange Act of 1934 is set forth under the heading
"Compliance with Section 16(a) of the Securities Exchange Act" in Echelon's
Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included under the headings
"Compensation of Directors," "Compensation Committee Interlocks and Insider
Participation," "Executive Compensation" and "Employment Agreements" in
Echelon's Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is included under the heading "Security
Ownership" in Echelon's Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included under the heading "Certain
Relationships and Related Transactions" in Echelon's Proxy Statement and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
1. Financial statements, notes to Financial Statements and report thereon
of KPMG Peat Marwick LLP are found in Item 8 "Financial Statements and
Supplementary Data," herein.
Echelon International Corporation
Progress Potomac Capital Ventures
2. The following Financial Statement Schedules are included herein:
II--Valuation and Qualifying Accounts for the years ended December 31,
1997, 1996 and 1995
III--Real Estate and Accumulated Depreciation as of December 31, 1997
IV--Mortgage Loans on Real Estate as of December 31, 1997
III-1
<PAGE>
3. The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------- ------------------------------------------------------------------------------------------
<S> <C>
Documents executed in consideration of the $45.0 million Northwestern Mutual Life Insurance
Company loan, dated December 30, 1997:
4.1 Note Severance (Splitter Agreement) (Loan No. C-332156);
4.2 Promissory Note (A1) (Loan No. C-332156);
4.3 Promissory Note (A2) (Loan No. C-332156);
4.4 Amendment, Renewal and Restatement of Note (Loan No. C-332156);
4.5 Restatement of Mortgage and Security Agreement (Loan No. C-332156) ;
4.6 Absolute Assignment of Leases and Rents (Loan No. C-332156);
4.7 Statement of Loan Closing Costs and Payments (Loan No. C-332156);
4.8 Side Letter dated December 29, 1997 regarding construction of leases (Loan No. C-332156);
4.9 Environmental Indemnity Agreement (Loan No. C-332156);
Other Exhibits:
10 Employment Agreement for Julio A. Maggi dated January 5, 1998
11.1 Indemnification Agreement for Board Member--Jonathan Blum
11.2 Indemnification Agreement for Board Member--W. Michael Doramus
11.3 Indemnification Agreement for Board Member--L. Raymond Eastin
11.4 Indemnification Agreement for Board Member--Darryl A. LeClair
11.5 Indemnification Agreement for Board Member--Thomas W. Mahr
11.6 Indemnification Agreement for Board Member--Joseph H. Richardson
23 Consent of Independent Auditors to the incorporation by reference of their report on the
consolidated financial statements into the following registration statements of Echelon
International Corporation; Form S-8 (No. 333-18171) Form S-8 (No. 333-18175), Form S-8
(No. 333-18177) and Form S-8 (No. 333-18179), relating to the Long-Term Incentive Plan,
Non-Employee Directors' Plan, 1996 Employee Stock Purchase Plan and the 1996 Stock
Option Plan
27 Financial Data Schedule of Echelon
</TABLE>
(b) Reports on Form 8-K:
During the fourth quarter of the year ended December 31, 1997, Echelon
International Corporation filed the following report on Form 8-K:
Form 8-K dated October 1, 1997, reporting under Item 5 "Other Events"
related to W. Michael Doramus joining Echelon as Executive Vice President. Mr.
Darryl A. LeClair, Echelon's President and Chief Executive Officer, assumed the
position as Chairman. Mr. Doramus remains on the Board.
III-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ECHELON INTERNATIONAL CORPORATION
By: /s/ DARRYL A. LECLAIR
Darryl A. LeClair
President
March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
- - ----------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ DARRYL A. LECLAIR President, Chief Executive March 31, 1998
Officer and Chairman of
Darryl A. LeClair
the Board
Principal Executive Officer
/s/ LARRY J. NEWSOME Senior Vice President, Chief March 31, 1998
Financial Officer, Secretary
Larry J. Newsome
and Treasurer
Principal Financial Officer
/s/ JAMES R. HOBBS, JR. Vice President and Controller March 31, 1998
James R. Hobbs, Jr.
Principal Accounting Officer
/s/ JONATHAN BLUM Director March 31, 1998
Jonathan Blum
/s/ W. MICHAEL DORAMUS Director March 31, 1998
W. Michael Doramus
/s/ L. RAYMOND EASTIN Director March 31, 1998
L. Raymond Eastin
/s/ THOMAS W. MAHR Director March 31, 1998
Thomas Mahr
/s/ JOSEPH H. RICHARDSON Director March 31, 1998
Joseph H. Richardson
</TABLE>
III-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Echelon International Corporation:
Under the date of March 10, 1998, we reported on the consolidated balance
sheets of Echelon International Corporation as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997, which are included in the Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules in the Form 10-K. 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.
KPMG Peat Marwick LLP
St. Petersburg, Florida
March 10, 1998
S-1
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
(CREDITED
BALANCE AT AGAINST) DEDUCTIONS BALANCE AT
BEGINNING COSTS AND FROM END OF
OF PERIOD EXPENSES RESERVES OTHER (A) PERIOD
------------ --------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Allowance for losses on loans and leases ......... $ 20.1 $ -- $ -- $ -- $ 20.1
Allowance for assets held for sale ............... 36.1 -- ( 36.1)(b) -- --
Allowance for doubtful accounts .................. .3 -- ( .2) -- .1
Year Ended December 31, 1996:
Allowance for losses on loans and leases ......... $ 32.0 $ 2.3(b) $ -- $(14.2) $ 20.1
Allowance for assets held for sale ............... -- 21.5 (b) -- 14.6 36.1
Allowance for doubtful accounts .................. 1.0 -- ( .7) -- .3
Year Ended December 31, 1995:
Allowance for losses on loans and leases ......... $ 33.7 $ 5.0 $ (6.7) $ -- $ 32.0
Allowance for losses on real estate .............. 16.8 1.2 (b) ( 18.0)(c) -- --
Allowance for doubtful accounts .................. .9 .1 -- -- 1.0
</TABLE>
- - ---------------------
(a) Represents a balance sheet transfer between the allowance for losses on
loans and leases and the allowance for losses on assets held for sale of
$14.6 million and a $.4 million transfer from investment in unconsolidated
partnerships.
(b) Reconciliation of provision for losses charged to operations:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Amounts charged to (deducted from)
allowance account ......................... $ (36.1) $ 23.8 $ 1.2
Amount charged directly to real estate asset
account due to impairment ................. 19.0 7.6 .8
------- ------- ------
Net book value of assets held for sale at
date of disposal .......................... 16.4 -- --
Total provision (recovery) charged
to operations .......................... $ (.7) $ 31.4 $ 2.0
======= ======= ======
</TABLE>
(c) Reserve was eliminated through the writedown of assets due to impairment.
S-2
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
GROSS CARRYING VALUE
INITIAL COSTS AT DECEMBER 31, 1997
------------------------- COSTS ------------------------------------
CAPLITALIZED
BUILDINGS & SUBSEQUENT TO IMPAIRMENT BUILDINGS &
REAL ESTATE LAND IMPROVEMENTS ACQUISITION WRITE-DOWN LAND IMPROVEMENTS TOTAL
- - -------------------------------- ---------- -------------- -------------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE HELD FOR AND UNDER
DEVELOPMENT (A)
St. Petersburg, Florida:
Ninth Street Property ......... $ 5.4 $ -- $ 5.6 $ (2.8) $ 5.4 $ 2.8 $ 8.2
4th Street Property ........... 2.5 -- 1.0 ( 1.9) 1.6 -- 1.6
Carillon Park ................. 15.6 -- 11.1 ( 2.8) 23.9 -- 23.9
McNulty Station ............... -- -- .3 -- -- .3 .3
Bayboro Station ............... -- -- .7 -- -- .7 .7
Gainesville, Florida:
Progress Center Land .......... .6 -- 2.9 ( 3.3) .2 -- .2
Miscellaneous .................. -- -- .6 -- .6 -- .6
------- ----- ------- ------- ------- ------ -------
Sub-Total ...................... 24.1 -- 22.2 (10.8) 31.7 3.8 35.5
------- ----- ------- ------- ------- ------ -------
INCOME PRODUCING
Office and Industrial Buildings
St. Petersburg, Florida:
Barnett Tower ................. 3.6 -- 47.8 (14.0) 3.6 33.8 37.4
SouthCore Commercial .......... -- 2.4 -- -- -- 2.4 2.4
McNulty Station ............... 1.6 1.5 7.0 ( 2.3) 2.0 5.8 7.8
Bayboro Station ............... 2.8 .9 2.1 ( 1.2) 2.6 2.0 4.6
3rd & 3rd ..................... .3 -- 2.3 -- .8 1.8 2.6
100 Carillon .................. 1.5 -- 6.6 -- 1.5 6.6 8.1
Tampa, Florida:
7th Avenue .................... 1.4 -- 4.2 ( .9) 1.4 3.3 4.7
Progress Packaging ............ .4 1.2 -- -- .4 1.2 1.6
Tallahassee, Florida:
Highpoint Center .............. .8 -- 13.3 -- .8 13.3 14.1
Gainesville, Florida:
Progress Center ............... .3 -- 8.3 ( 4.5) .3 3.8 4.1
Miscellaneous .................. .1 .2 .8 -- .1 1.0 1.1
------- ------ ------- ------- ------- ------ -------
Sub-Total ...................... 12.8 6.2 92.4 (22.9) 13.5 75.0 88.5
------- ------ ------- ------- ------- ------ -------
DOCKAGE AND MARINE SERVICES
St. Petersburg, Florida:
Harborage Marina .............. 1.7 4.4 10.6 ( 9.1) 1.7 5.9 7.6
------- ------ ------- ------- ------- ------ -------
Grand Total .................... $ 38.6 $ 10.6 $ 125.2 $ (42.8) $ 46.9 $ 84.7 $ 131.6
======= ====== ======= ======= ======= ====== =======
</TABLE>
- - ---------------------
(A) See "Notes to Schedule III--Real Estate and Accumulated Depreciation."
S-3
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED CONSTRUCTION YEAR
REAL ESTATE DEPRECIATION YEAR ACQUIRED
- - ------------------------------------------ -------------- -------------- ----------
<S> <C> <C> <C>
REAL ESTATE HELD FOR AND UNDER DEVELOPMENT
St. Petersburg, Florida:
Ninth Street Property ................... $ -- n/a 1991
4th Street Property ..................... -- n/a 1993
Carillon Park ........................... -- n/a 1990
Gainesville, Florida:
Progress Center Land .................... -- n/a 1984
Miscellaneous ............................ -- n/a n/a
------
Sub-Total ................................ --
------
INCOME PRODUCING
Office and Industrial Buildings
St. Petersburg, Florida:
Barnett Tower ........................... ( 1.5) 1990 1986
McNulty Station ......................... ( .3) 1984-1988 1983-1996
Bayboro Properties ...................... ( 1.6) n/a 1984-1985
3rd & 3rd ............................... ( .6) 1984 1993
100 Carillon ............................ ( 1.7) 1987 1994
Tampa, Florida:
7th Avenue .............................. ( 1.3) 1986 1986
Progress Packaging ...................... ( .5) 1993 1993
Tallahassee, Florida:
Highpoint Center ........................ ( 4.1) 1990 1995
Gainesville, Florida:
Progress Center ......................... ( .2) 1984-1988 1984
Miscellaneous ........................... ( .1) n/a n/a
------
Sub-Total ................................ (11.9)
------
DOCKAGE AND MARINE SERVICES
St. Petersburg, Florida:
Harborage Marina ........................ ( 4.6) 1984-1988 1984
------
Grand Total .............................. $(16.5)
======
</TABLE>
S-4
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1997
(IN MILLIONS)
(A) Impairment writedown is based on management's estimate of fair value of
assets determined to be impaired.
(B) The aggregate cost for Federal income tax purposes is $ 157.2 million at
December 31, 1997.
(C) Reconciliation:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REAL ESTATE
Balance at beginning of period ......................... $ 154.2 $ 173.6 $ 158.3
Additions:
Acquisitions and Improvements ........................ 13.1 4.7 17.0
Deductions:
Cost of Real Estate Sold ............................. -- ( 20.8) ( 1.7)
Writedown of Assets Due to Impairment and
Disposal of Assets ................................. ( 35.7) -- --
Transfer to Assets Held for Sale ..................... -- ( 3.3) --
-------- -------- --------
Balance at end of period ............................... $ 131.6 $ 154.2 $ 173.6
======== ======== ========
ACCUMULATED DEPRECIATION
Balance at beginning of period ......................... $ 29.3 $ 26.2 $ 19.4
Additions:
Depreciation ......................................... 3.6 4.1 4.8
Other ................................................ -- -- 3.1
Deductions:
Accumulated Depreciation of Real Estate Sold ......... -- -- ( 1.1)
Transfer to Assets Held for Sale ..................... -- ( 1.0) --
Accumulated Depreciation Write-down Due to
Impairment and Disposal of Assets .................. ( 16.4) -- --
-------- -------- --------
Balance at end of period ............................... $ 16.5 $ 29.3 $ 26.2
======== ======== ========
</TABLE>
S-5
<PAGE>
ECHELON INTERNATIONAL CORPORATION
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1997
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FINAL TOTAL FACE CARRYING
MATURITY PERIODIC PRIOR AMOUNT OF AMOUNT OF
DESCRIPTION INTEREST RATE DATE PAYMENT TERMS LIENS MORTGAGES MORTGAGES
- - ---------------------------- --------------- ----------- ------------------ ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
First Mortgage Loans--
Office Buildings:
Madison Building .......... Prime + .75% Nov. 1998 Varying amounts $ -- $ 4.1 $ 3.3
with $3.1 balloon
Vine Street Investors--
Capital View I .......... Prime + .75% Oct. 1998 $5.8 balloon -- 5.8 5.8
Vine Street Investors--
Capital View II ......... Prime + .75% Dec. 1999 $5.0 balloon -- 5.0 5.0
Vine Street Associates--
Town Square VI .......... Prime + .75% May 2001 $4.5 balloon -- 4.5 4.5
-----
-- 19.4 18.6
----- ------ ------
Industrial Property:
Marquardt Company ......... Prime + 2% Dec. 1998 $23.5 balloon -- 35.0 23.5
----- ------ ------
$ -- $ 54.4 $ 42.1
===== ====== ======
</TABLE>
- - ---------------------
(A) At December 31, 1997 and 1996, 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>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Beginning balance ................ $ 87.9 $ 110.9 $ 122.5
New mortgage loans ............... -- -- --
Collections of principal ......... (45.8) ( 23.0) ( 11.6)
------- -------- --------
Ending balance .................. $ 42.1 $ 87.9 $ 110.9
======= ======== ========
</TABLE>
Total amount of mortgages extended as of December 31, 1997 is $23.5 million.
(C) The aggregate cost for Federal income tax purposes is $48.8 million at
December 31, 1997.
S-6
EXHIBIT 4.1
NOTE SEVERANCE (SPLITTER) AGREEMENT
THIS NOTE SEVERANCE (SPLITTER) AGREEMENT (the "AGREEMENT") is made as
of December 30, 1997 (the "SEVERANCE DATE"), between ECHELON INTERNATIONAL
CORPORATION, a Florida corporation having an address at One Progress Plaza, St.
Petersburg, Florida 33701 ("BORROWER"), and SALOMON BROTHERS REALTY CORP., a New
York corporation having an address at Seven World Trade Center, New York, New
York 10048 ("LENDER").
RECITALS
Borrower, Lender and LaSalle National Bank, as collateral agent and
custodian, are parties to a Loan Agreement, dated as of November 5, 1996 (as it
may heretofore have been, or hereafter be, amended, supplemented or otherwise
modified, the "LOAN AGREEMENT"; capitalized terms used but not defined herein
shall have the meaning ascribed thereto in the Loan Agreement), pursuant to
which Lender made a Loan in the original principal amount of One Hundred Five
Million Dollars ($105,000,000) to Borrower.
In evidence of the Loan, Borrower executed and delivered to Lender a
promissory note, dated November 5, 1996 in the stated maximum principal amount
of One Hundred Five Million Dollars ($105,000,000) payable to the order of
Lender and any subsequent holders of such note (the "Original Note").
As of the date hereof, the amount of principal indebtedness outstanding
under the Original Note is Fifty-Eight Million Thirty-Nine Thousand Eight
Hundred Fourteen and 28/100 Dollars ($58,039,814.28) (the "CURRENT PRINCIPAL
INDEBTEDNESS AMOUNT").
Borrower and Lender desire to modify the indebtedness currently
evidenced by the Original Note so that, instead of being evidenced by the
Original Note, such indebtedness shall continue in full force and effect but
instead be split and severed into two notes.
In connection therewith Borrower is executing and delivering to Lender
the following documents simultaneously with the execution of this Agreement:
(i) A restated promissory note ("NOTE A1") a copy of which is
attached as EXHIBIT "A" and made a part hereof, in a principal amount equal to
Forty-Five Million and NO/100 Dollars ($45,000,000), which Note A1 Borrower is
simultaneously herewith delivering to Lender; and
(ii) A restated promissory note ("NOTE A2") a copy of which is
attached as EXHIBIT "B" and made a part hereof, in a principal amount equal to
Thirteen Million Thirty-Nine Thousand Eight Hundred Fourteen and 28/100 Dollars
($13,039,814.28), which Note A2 Borrower is simultaneously herewith delivering
to Lender; and
Simultaneously herewith, the Original Note is not being marked "Paid"
or being returned to Borrower, but is being endorsed to indicate that it has
been reduced and split into two separate notes (Note A1 and Note A2) pursuant to
this Agreement.
NOW, THEREFORE, in consideration of the promises and agreements
contained in this Agreement, the parties covenant and agree as follows:
<PAGE>
1. MODIFICATION OF THE INDEBTEDNESS. Upon execution of this Agreement,
the outstanding principal indebtedness evidenced by the Original Note shall
continue in full force and effect but shall no longer be evidenced by the
Original Note, but instead shall be evidenced by Note A1 and Note A2, the
aggregate amount of which is equal to the Current Principal Indebtedness Amount.
Such indebtedness constitutes the same current outstanding principal
indebtedness evidenced by the Original Note.
2. DELIVERY OF NOTES. Borrower is executing and delivering Note A1 and
Note A2 to Lender simultaneously with this Agreement, to evidence and continue
the same indebtedness previously evidenced by the Original Note.
3. EFFECT OF SUBSTITUTE NOTES. The same current outstanding principal
indebtedness evidenced by the Original Note has now been continued and split
between Note A1 and Note A2. Note A1 and Note A2 are not intended to create any
greater oustanding principal amount of indebtedness than the Current Principal
Indebtedness Amount.
4. AMOUNT OF INDEBTEDNESS AND PRIORITY OF LIEN. Nothing contained in
this Agreement, Note A1 or Note A2 shall be deemed to impair the priority of or
to extinguish or impair any of the following: (a) the indebtedness secured by
the Borrower Mortgage or any of the other Loan Documents creating a security
interest in favor of Lender (collectively, the "SECURITY DOCUMENTS"); or (b) the
lien of the Security Documents, except that the lien of the Security Documents
shall now secure the indebtedness under Note A1 and Note A2.
5. RELATIVE PRIORITIES. Notwithstanding anything to the contrary in
this Agreement, the indebtedness evidenced by the Note A1 is intended to and
shall be pari passu with and equal in priority to Note A2.
6. CROSS DEFAULT. Any default under either of Note A1 or Note A2 beyond
the expiration of any applicable notice and cure period shall be deemed and
construed to be an Event of Default or a default beyond any applicable notice
and cure period under Note A2 or Note A1 or each of Note A1 and Note A2, as the
case may be.
7. NO WAIVERS. Neither the splitting and severance of the Original
Note, nor Lender's execution and delivery of this Agreement nor its acceptance
of Note A1 or Note A2 shall operate to waive, modify (as expressly set forth
herein), impair, release or in any manner affect Borrower's liability under the
Original Note, the Security Documents or any of the other Loan Documents, nor
shall the foregoing operate to waive any breach, violation or default which has
heretofore occurred or any future breach, violation or default which may
hereafter occur with respect to Borrower's obligations under any of the Loan
Documents or any rights of Lender against any person, firm, association,
corporation or other entity liable for the performance of any for the
provisions, covenants, agreements, terms or conditions contained in any of the
Loan Documents.
8. CROSS REFERENCES. From and after the Severance Date, all references
to the Original Note in the Loan Documents shall be deemed to be references to
Note A1 and Note A2, collectively.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties as
of the Severance Date.
SALOMON BROTHERS REALTY CORP.,
a New York corporation
By: __________________________________
Peter B. Levine
Authorized Agent
ECHELON INTERNATIONAL CORPORATION
a Florida corporation,
By: __________________________________
Larry J. Newsome
Senior Vice President
Attachments:
Acknowledgments
Exhibit A = Note A1
Exhibit B = Note A2
3
<PAGE>
ACKNOWLEDGMENTS
STATE OF _______________ )
) SS
COUNTY OF _____________ )
On the __ day of December __, 1997, before me personally came LARRY J.
NEWSOME, to me known, who, being duly sworn by me, did depose and say that he
resides at _______________________________________________________________; that
he is a Senior Vice President of ECHELON INTERNATIONAL CORPORATION; that he had
the authority to sign the foregoing instrument by order of the board of
directors of said corporation; and that he did duly acknowledge to me that he
executed the same as the act and deed of ECHELON INTERNATIONAL CORPORATION for
the uses and purposes mentioned therein.
_______________________________
Notary Public
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On the __ day of December, 1997, before me personally came PETER B.
LEVINE, to me known, who, being duly sworn by me, did depose and say that he
resides at ________________________________________________________; that he is
an Authorized Agent of SALOMON BROTHERS REALTY CORP.; that he had the authority
to sign the foregoing instrument by order of the board of directors of said
corporation; and that he did duly acknowledge to me that he executed the same as
the act and deed of SALOMON BROTHERS REALTY CORP. for the uses and purposes
mentioned therein.
___________________________
Notary Public
4
<PAGE>
EXHIBIT A
NOTE A-1
(see attached)
5
<PAGE>
EXHIBIT B
NOTE A-2
(see attached)
6
EXHIBIT 4.2
PROMISSORY NOTE
(A1)
$45,000,000 New York, New York
as of December 30, 1997
FOR VALUE RECEIVED, the undersigned, ECHELON INTERNATIONAL CORPORATION,
a Florida corporation (the "MAKER"), promises to pay to the order of Salomon
Brothers Realty Corp., a New York corporation (together with any subsequent
holder of this Note, the "HOLDER") at its office located at Seven World Trade
Center, New York, New York 10048, or at such other address as the Holder may
from time to time designate in writing, the principal sum of Forty-Five Million
and NO/100 Dollars ($45,000,000), or so much thereof as may be advanced from
time to time, together with interest thereon, and all other amounts payable
under the Loan Documents, such principal, interest and other amounts to be
payable as provided in the Loan Agreement.
This Note is the Note referred to in that certain Loan Agreement, dated
as of November 5, 1996, among the Maker, as borrower, the Holder, as lender, and
LaSalle National Bank, as collateral agent (as modified and supplemented and in
effect from time to time, the "LOAN AGREEMENT"). Reference to the Loan Agreement
is hereby made for a statement of the rights of the Holder and the duties and
obligations of the Maker, but neither this reference to the Loan Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Maker to pay the principal, interest and other amounts, if
any, payable with respect to this Note when due. Capitalized terms used herein
without definition shall have the meanings ascribed to such terms in the Loan
Agreement. The outstanding principal amount shall bear interest at the rates
provided for in the Loan Agreement.
This Note is secured by the Borrower Mortgage and the certain other
Loan Documents and Liens described in the Loan Agreement.
The principal sum evidenced by this Note, together with accrued
interest and other sums or amounts due hereunder, shall become immediately due
and payable at the option of the Holder upon the occurrence of any Event of
Default in accordance with the provisions of the Loan Agreement.
With respect to the amounts due pursuant to this Note, the Maker waives
the following: (1) all rights of exemption of property from levy or sale under
execution or other process for the collection of debts under the Constitution or
laws of the United States or any state thereof; (2) demand, presentment,
protest, notice of dishonor, notice of nonpayment, suit against any party,
diligence in collection of this Note, and all other requirements necessary to
enforce this Note, except for notices required by Governmental Authorities and
notices required by the Loan Agreement; and (3) any further receipt by or
acknowledgment of any Collateral now or hereafter deposited as security for the
Loan.
In no event shall the amount of interest (and any other sums or amounts
that are deemed to constitute interest under applicable Legal Requirements) due
or payable hereunder (including interest calculated at the Default Rate) exceed
the maximum rate of interest designated by applicable Legal Requirements (the
"MAXIMUM AMOUNT"), and in the event such payment is inadvertently paid by the
Maker or inadvertently received by the Holder, then such excess sum shall be
credited as a payment of principal, and if in excess of such balance, shall be
immediately returned to the Maker upon such determination. It is the express
intent hereof that the Maker not pay and the Holder not receive, directly or
indirectly, interest in excess of the Maximum Amount.
<PAGE>
The Holder shall not by any act, delay, omission or otherwise be deemed
to have modified, amended, waived, extended, discharged or terminated any of its
rights or remedies, and no modification, amendment, waiver, extension, discharge
or termination of any kind shall be valid unless in writing and signed by the
Holder. All rights and remedies of the Holder under the terms of this Note and
applicable statutes or rules of law shall be cumulative, and may be exercised
successively or concurrently. The Maker agrees that there are no defenses,
equities or setoffs with respect to the obligations set forth herein, and to the
extent any such defenses, equities, or setoffs may exist, the same are hereby
expressly released, forgiven, waived and forever discharged.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable Legal Requirements,
but if any provision of this Note shall be prohibited by or invalid under
applicable Legal Requirements, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note.
The Holder may, at its option, release any Collateral given to secure
the indebtedness evidenced hereby, and no such release shall impair the
obligations of the Maker to the Holder.
This Note was negotiated in New York, and made by the Maker and
accepted by the Holder in the State of New York, and the proceeds of this Note
were disbursed from New York, which State the parties agree has a substantial
relationship to the parties and to the underlying transaction embodied hereby,
and in all respects (including, without limitation, matters of construction,
validity and performance), this Note and the obligations arising hereunder shall
be governed by, and construed in accordance with, the laws of the State of New
York applicable to contracts made and performed in such State and any applicable
law of the United States of America.
The provisions of this Note shall be subject to the non-recourse
provisions of Section 8.24 of the Loan Agreement, which provisions are
incorporated by reference as if herein set forth in full.
THE MAKER, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING, WITHOUT LIMITATION, ANY
TORT ACTION), BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER
LOAN DOCUMENTS. THE MAKER AGREES THAT THE HOLDER MAY FILE A COPY OF THIS WAIVER
WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED
AGREEMENT OF THE MAKER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND
THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR
CONTROVERSY WHATSOEVER BETWEEN THE MAKER AND THE HOLDER SHALL INSTEAD BE TRIED
IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
2
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be properly
executed on the date of the notarial acknowledgments below, and has authorized
this Note to be dated as of the day and year first above written.
ECHELON INTERNATIONAL CORPORATION,
a Florida corporation
By:_______________________________
Name: Larry J. Newsome
Title: Senior Vice President
This Note is given in renewal and replacement of a portion of the principal
indebtedness heretofore evidcnced by that certain promissory note dated as of
November 5, 1996 made by Borrower and payable to the order of Lender in the
original principal amount of $105,000,000 (the "PRIOR NOTE"). All applicable
State of Florida documentary stamp and intangibles tax with respect to the Prior
Note and this Note have been paid and evidence of such payment noted on the
Borrower Mortgage as recorded in O.R. Book 8343, page 1973 of the Public Records
of Hillsborough County, Florida, as reflected on the Prior Note.
3
<PAGE>
STATE OF NEW YORK )
): ss.
COUNTY OF NEW YORK )
On the ____ day of __________________, 1997, before me personally came
Larry J. Newsome to me known, who, being by me duly sworn, did depose,
acknowledge and say that he resides at _______________________________________;
that he is the Senior Vice President of ECHELON INTERNATIONAL CORPORATION, the
corporation described in and which executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of said
corporation.
----------------------------------
Notary Public
My commission expires:
-----------------------
4
<PAGE>
ALLONGE TO PROMISSORY NOTE (A1)
ENDORSEMENT TO PROMISSORY NOTE (A1)
DATED AS OF DECEMBER 30, 1997
MADE BY ECHELON INTERNATIONAL CORPORATION
TO
SALOMON BROTHERS REALTY CORP.
PAY TO THE ORDER OF THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, WITHOUT
RECOURSE.
SALOMON BROTHERS REALTY CORP.,
a New York corporation
By:____________________________
Name:
Title:
EXHIBIT 4.3
PROMISSORY NOTE
(A2)
$13,039,814.28 New York, New York
as of December 30, 1997
FOR VALUE RECEIVED, the undersigned, ECHELON INTERNATIONAL CORPORATION, a
Florida corporation (the "MAKER"), promises to pay to the order of Salomon
Brothers Realty Corp., a New York corporation (together with any subsequent
holder of this Note, the "HOLDER") at its office located at Seven World Trade
Center, New York, New York 10048, or at such other address as the Holder may
from time to time designate in writing, the principal sum of Thirteen Million
Thirty-Nine Thousand Eight Hundred Fourteen and 28/100 Dollars ($13,039,814.28),
or so much thereof as may be advanced from time to time, together with interest
thereon, and all other amounts payable under the Loan Documents, such principal,
interest and other amounts to be payable as provided in the Loan Agreement.
This Note is the Note referred to in that certain Loan Agreement, dated as
of November 5, 1996, among the Maker, as borrower, the Holder, as lender, and
LaSalle National Bank, as collateral agent (as modified and supplemented and in
effect from time to time, the "LOAN AGREEMENT"). Reference to the Loan Agreement
is hereby made for a statement of the rights of the Holder and the duties and
obligations of the Maker, but neither this reference to the Loan Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of the Maker to pay the principal, interest and other amounts, if
any, payable with respect to this Note when due. Capitalized terms used herein
without definition shall have the meanings ascribed to such terms in the Loan
Agreement. The outstanding principal amount shall bear interest at the rates
provided for in the Loan Agreement.
This Note is secured by the Borrower Mortgage and the certain other Loan
Documents and Liens described in the Loan Agreement.
The principal sum evidenced by this Note, together with accrued interest
and other sums or amounts due hereunder, shall become immediately due and
payable at the option of the Holder upon the occurrence of any Event of Default
in accordance with the provisions of the Loan Agreement.
With respect to the amounts due pursuant to this Note, the Maker waives the
following: (1) all rights of exemption of property from levy or sale under
execution or other process for the collection of debts under the Constitution or
laws of the United States or any state thereof; (2) demand, presentment,
protest, notice of dishonor, notice of nonpayment, suit against any party,
diligence in collection of this Note, and all other requirements necessary to
enforce this Note, except for notices required by Governmental Authorities and
notices required by the Loan Agreement; and (3) any further receipt by or
acknowledgment of any Collateral now or hereafter deposited as security for the
Loan.
In no event shall the amount of interest (and any other sums or amounts
that are deemed to constitute interest under applicable Legal Requirements) due
or payable hereunder (including interest calculated at the Default Rate) exceed
the maximum rate of interest designated by applicable Legal Requirements (the
"MAXIMUM AMOUNT"), and in the event such payment is inadvertently paid by the
Maker or inadvertently received by the Holder, then such excess sum shall be
credited as a payment of principal, and if in excess of such balance, shall be
immediately returned to the Maker upon such determination. It is the express
intent hereof that the Maker not pay and the Holder not receive, directly or
indirectly, interest in excess of the Maximum Amount.
<PAGE>
The Holder shall not by any act, delay, omission or otherwise be deemed to
have modified, amended, waived, extended, discharged or terminated any of its
rights or remedies, and no modification, amendment, waiver, extension, discharge
or termination of any kind shall be valid unless in writing and signed by the
Holder. All rights and remedies of the Holder under the terms of this Note and
applicable statutes or rules of law shall be cumulative, and may be exercised
successively or concurrently. The Maker agrees that there are no defenses,
equities or setoffs with respect to the obligations set forth herein, and to the
extent any such defenses, equities, or setoffs may exist, the same are hereby
expressly released, forgiven, waived and forever discharged.
Wherever possible, each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable Legal Requirements, but if
any provision of this Note shall be prohibited by or invalid under applicable
Legal Requirements, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.
The Holder may, at its option, release any Collateral given to secure the
indebtedness evidenced hereby, and no such release shall impair the obligations
of the Maker to the Holder.
This Note was negotiated in New York, and made by the Maker and accepted by
the Holder in the State of New York, and the proceeds of this Note were
disbursed from New York, which State the parties agree has a substantial
relationship to the parties and to the underlying transaction embodied hereby,
and in all respects (including, without limitation, matters of construction,
validity and performance), this Note and the obligations arising hereunder shall
be governed by, and construed in accordance with, the laws of the State of New
York applicable to contracts made and performed in such State and any applicable
law of the United States of America.
The provisions of this Note shall be subject to the non-recourse provisions
of Section 8.24 of the Loan Agreement, which provisions are incorporated by
reference as if herein set forth in full.
THE MAKER, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING, WITHOUT LIMITATION, ANY
TORT ACTION), BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER
LOAN DOCUMENTS. THE MAKER AGREES THAT THE HOLDER MAY FILE A COPY OF THIS WAIVER
WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED
AGREEMENT OF THE MAKER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND
THAT, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR
CONTROVERSY WHATSOEVER BETWEEN THE MAKER AND THE HOLDER SHALL INSTEAD BE TRIED
IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
2
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be properly
executed on the date of the notarial acknowledgments below, and has authorized
this Note to be dated as of the day and year first above written.
ECHELON INTERNATIONAL CORPORATION,
a Florida corporation
By:__________________________
Name: Larry J. Newsome
Title: Senior Vice President
This Note is given in renewal and replacement of a portion of the principal
indebtedness heretofore evidcnced by that certain promissory note dated as of
November 5, 1996 made by Borrower and payable to the order of Lender in the
original principal amount of $105,000,000 (the "PRIOR NOTE"). All applicable
State of Florida documentary stamp and intangibles tax with respect to the Prior
Note and this Note have been paid and evidence of such payment noted on the
Borrower Mortgage as recorded in O.R. Book 8343, page 1973 of the Public Records
of Hillsborough County, Florida, as reflected on the Prior Note.
3
<PAGE>
STATE OF NEW YORK )
): ss.
COUNTY OF NEW YORK )
On the ____ day of __________________, 1997, before me personally came
Larry J. Newsome to me known, who, being by me duly sworn, did depose,
acknowledge and say that he resides at ______________________________________;
that he is the Senior Vice President of ECHELON INTERNATIONAL CORPORATION, the
corporation described in and which executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of said
corporation.
--------------------------
Notary Public
My commission expires:
-----------------------
4
EXHIBIT 4.4
FLORIDA
LOAN NO. C-332156
AMENDMENT, RENEWAL AND RESTATEMENT OF NOTE
$45,000,000.00 Dated as of December 30, 1997
(Date)
This Amendment, Renewal and Restatement of Note (the "Note") made by
ECHELON INTERNATIONAL CORPORATION, a Florida corporation, whose address is One
Progress Plaza, Suite 1500, St. Petersburg, Florida 33701, herein called
"Borrower", for the benefit of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a
Wisconsin corporation, hereinafter referred to as "Lender", amends renews and
restates that certain Promissory Note executed by Borrower and payable to the
order of Salomon Brothers Realty Corporation in the original sum of
$45,000,000.00 dated of even date herewith (the "Existing Note").
The terms, covenants, agreements and provisions of the Existing Note are
hereby modified, amended and restated in their entirety so that henceforth the
terms, provisions, covenants and agreements thereof shall be as set forth
herein, and in the event of any conflict in the terms, provisions, covenants or
agreements with this note, this note shall prevail.
NOW, THEREFORE, FOR VALUE RECEIVED, Borrower promises to pay to the order
of Lender at the address of Lender set forth above (or at such other place as
Lender shall designate in writing), in coin or currency which, at the time or
times of payment, is legal tender for public and private debts in the United
States, the principal sum of FORTY-FIVE MILLION DOLLARS or so much thereof as
shall have been advanced from time to time plus interest on the outstanding
principal balance at the rate and payable as follows:
Interest shall accrue from the date of advance until maturity at
the rate of seven and nine hundredths percent (7.09%) per annum (the
"Interest Rate").
- - -------------------------------------------------------------------------------
This Note is given in renewal and replacement of the principal indebtedness
heretofore evidenced by that certain Promissory Note dated as of even date
herewith, made by Borrower and payable to the order of Salomon Brothers Realty
Corp. in the original principal amount of $45,000,000.00 (the "PRIOR NOTE"). All
applicable State of Florida documentary stamp and intangibles tax with respect
to the Prior Note and this Note have been paid and evidence of such payment is
noted on the Mortgage recorded in O.R. Book 8343 at page 1973 of the Public
Records of Hillsbourough County, Florida.
1
<PAGE>
Accrued interest only on the amount advanced shall be paid on the
first day of the month following the date of advance ("Amortization Period
Commencement Date"). On the first day of the following month and on the
first day of each month thereafter until maturity, installments of
principal and interest shall be paid in the amount of $320,638.91. All
installments shall be applied first in payment of interest, calculated
monthly on the unpaid principal balance, and the remainder of each
installment shall be applied in payment of principal. The entire unpaid
principal balance plus accrued interest thereon shall be due and payable on
December 1, 2004 (the "Maturity Date").
Borrower shall have the right, upon thirty (30) days advance written
notice, beginning January 1, 2001 of paying this note in full with a prepayment
fee. This fee represents consideration to Lender for loss of yield and
reinvestment costs. The fee shall be the greater of Modified Yield Maintenance
or 1% of the outstanding principal balance of this note.
As used herein, "Modified Yield Maintenance" means the amount, if any, by which
(i) the present value of the Then Remaining Payments (as
hereinafter defined) calculated using a periodic discount
rate (corresponding to the payment frequency under this
note) which, when compounded for such number of payment
periods in a year, equals the sum of the Applicable
Percentage and the per annum effective yield of the Most
Recently Auctioned United States Treasury Obligation having
a maturity date equal to the Maturity Date (or, if there is
no such equal maturity date, then the linearly interpolated
per annum effective yield of the two Most Recently Auctioned
United States Treasury Obligations having maturity dates
most nearly equivalent to the Maturity Date) as reported by
THE WALL STREET JOURNAL five business days prior to the date
of prepayment; exceeds
(ii) the outstanding principal balance of this note (exclusive of
all accrued interest).
If such United States Treasury obligation yields shall not be reported as
of such time or the yields reported as of such time shall not be ascertainable,
then the periodic discount rate shall be equal to the sum of the Applicable
Percentage and the Treasury Constant Maturity Series yields reported, for the
latest day for which such yields shall have been so reported, as of five
business days preceding the prepayment date, in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
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United States Treasury obligations having a constant maturity most nearly
equivalent to the Maturity Date.
As used herein, "Then Remaining Payments" means payments in such amounts
and at such times as would have been payable subsequent to the date of such
prepayment in accordance with the terms of this note.
As used herein, "Applicable Percentage" means .50%.
As used herein, "Most Recently Auctioned United States Treasury
Obligations" means the U.S. Treasury bonds, notes and bills with maturities of
30 years, 10 years, 5 years, 3 years, 2 years and 1 year which, as of the date
the prepayment fee is calculated, were most recently auctioned by the United
States Treasury.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument) followed by the acceleration of the whole indebtedness evidenced by
this note, or a condemnation or sale under threat of condemnation of all or
substantially all of the Property, the payment of such indebtedness will
constitute an evasion of the prepayment terms hereunder and be deemed to be a
voluntary prepayment hereof and such payment will, therefore, to the extent not
prohibited by law, include the prepayment fee required under the prepayment in
full privilege recited above or, if such prepayment occurs prior to January 1,
2001 and results from an Event of Default followed by an acceleration of the
whole indebtedness, then such payment will, to the extent not prohibited by law,
include a prepayment fee equal to the greater of Yield Maintenance or 6% of the
outstanding principal balance of this note. If such prepayment occurs prior to
January 1, 2001 and results from a condemnation or sale under threat of
condemnation of all or substantially all of the Property, the prepayment fee
shall be the greater of Modified Yield Maintenance or 2% of the outstanding
principal balance of this note.
As used herein, "Yield Maintenance" shall be calculated in the same manner
as Modified Yield Maintenance, except that the Applicable Percentage shall be
0.0% in the case of Yield Maintenance.
Notwithstanding the above and provided Borrower is not in default under any
provision contained in the Loan Documents (as defined in the Lien Instrument),
this note may be prepaid in full at any time, without a prepayment fee, during
the last sixty (60) days of the term of this note.
Borrower acknowledges and agrees that the Interest Rate hereunder shall be
increased if certain financial statements and other reports are not furnished to
Lender, all as described in more detail in the provision of the Lien Instrument
entitled "FINANCIAL STATEMENTS".
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This note is secured by certain properties (collectively the "Property") in
the City of St. Petersburg, Pinellas County, Florida and in the City of
Tallahassee, Leon County, Florida described in a Restated Mortgage and Security
Agreement (the "Lien Instrument") of even date herewith executed by ECHELON
INTERNATIONAL CORPORATION, a Florida corporation to THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument), the whole unpaid principal hereof and accrued interest shall, at
the option of Lender, to be exercised at any time thereafter, become due and
payable at once without notice, notice of the exercise of, and the intent to
exercise, such option being hereby expressly waived.
All parties at any time liable, whether primarily or secondarily, for
payment of indebtedness evidenced hereby, for themselves, their heirs, legal
representatives, successors and assigns, respectively, expressly waive
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection; consent to the extension by Lender of the time of said
payments or any part thereof; further consent that the real or collateral
security or any part thereof may be released by Lender, without in any way
modifying, altering, releasing, affecting, or limiting their respective
liability or the lien of the Lien Instrument; and agree to pay reasonable
attorneys' fees and expenses of collection in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.
Any principal, interest or other amounts payable under any of the Loan
Documents (as defined in the Lien Instrument), not paid when due (without regard
to any notice and/or cure provisions contained in any of the Loan Documents),
including principal becoming due by reason of acceleration by Lender of the
entire unpaid balance of this note, shall bear interest from the due date
thereof until paid at the Default Rate. As used herein, "Default Rate" means the
lower of a rate equal to the interest rate in effect at the time of the default
as herein provided plus 5% per annum or the maximum rate permitted by law.
No provision of this note shall require the payment or permit the
collection of interest, including any fees paid which are construed under
applicable law to be interest, in excess of the maximum permitted by law. If any
such excess interest is collected or herein provided for, or shall be
adjudicated to have been collected or be so provided for herein, the provisions
of this paragraph shall govern, and Borrower shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. Any such excess collected shall, at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.
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Notwithstanding any provision contained herein or in the Lien Instrument to
the contrary, if Lender shall take action to enforce the collection of the
indebtedness evidenced hereby or secured by the Lien Instrument (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the Property or the proceeds from the sale of the Property and the proceeds
realized by Lender in exercising its rights and remedies (i) under the Absolute
Assignment (as defined in the Lien Instrument), (ii) under any of the other Loan
Documents (as defined in the Lien Instrument) and (iii) in any other collateral
securing the Indebtedness. If such proceeds are insufficient to pay the
Indebtedness, Lender will never institute any action, suit, claim or demand in
law or in equity against Borrower for or on account of such deficiency;
provided, however, that the provisions contained in this paragraph
(i) shall not in any way affect or impair the validity or
enforceability of the Indebtedness or the Lien Instrument; and
(ii) shall not prevent Lender from seeking and obtaining a judgment
against Borrower, and Borrower shall be personally liable, for
the Recourse Obligations;
(iii) shall not be applicable in the event of a violation of any of
the provisions of the Lien Instrument following the caption
entitled "PROHIBITION ON TRANSFER/ONE-TIME TRANSFER" (i.e.
Borrower shall be personally liable for all of the
Indebtedness in the event of such violation).
As used herein, the term "Recourse Obligations" means
(a) rents and other income from the Property from and after the date of any
default under the Loan Documents remaining uncured on the date of the
foreclosure sale of the Property pursuant to the Lien Instrument or the
conveyance of the Property to Lender in lieu of foreclosure, which rents
and other income have not been applied to the payment of principal and
interest on this note or to reasonable operating expenses of the Property,
(b) amounts necessary to repair any damage to the Property caused by the
intentional acts or omissions of Borrower or its agents,
(c) insurance loss and condemnation award proceeds released to Borrower but
not applied in accordance with any agreement between Borrower and Lender as
to their application,
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(d) the amount of insurance loss proceeds which would have been available
with respect to a casualty on the Property, but were not available due to
the default by Borrower in carrying all insurance required by Lender,
(e) damages suffered by Lender as a result of fraud or misrepresentation in
connection with the Indebtedness by Borrower or any other person or entity
acting on behalf of Borrower, and
(f) amounts necessary to pay real estate taxes, special assessments and
insurance premiums with respect to the Property either paid by Lender and
not reimbursed prior to, or remaining due or delinquent on, either (i) the
later of (A) the date on which title vests in the purchaser at the
foreclosure sale of the Property pursuant to the Lien Instrument or (B) the
date on which Borrower's statutory right of redemption shall expire or be
waived or (ii) the date of the conveyance of the Property to Lender in lieu
of foreclosure,
(g) all outstanding amounts due hereunder, including principal, interest
and other charges, if: (i) Borrower shall file a voluntary petition for
relief under the federal bankruptcy code; (ii) an involuntary petition in
bankruptcy filed against Borrower shall remain undismissed for a period of
ninety (90) days, or (iii) Borrower shall become the subject of any
liquidation, receivership or other similar proceedings.
This note, the interpretation hereof and the rights, obligations, duties
and liabilities hereunder shall be governed and controlled by the laws of
Florida.
ECHELON INTERNATIONAL
CORPORATION, a Florida corporation
By:_________________________________
By:_________________________________
(corporate seal)
6
EXHIBIT 4.5
LOAN NO. C-332156
RECORDING REQUESTED BY
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Kathleen A. Evanson
SPACE ABOVE THIS LINE FOR RECORDER'S USE
- - -------------------------------------------------------------------------------
This instrument was prepared by Paul E. McElwee, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
RESTATEMENT OF MORTGAGE AND SECURITY AGREEMENT
THIS RESTATEMENT OF MORTGAGE and SECURITY AGREEMENT, Made as of the 30th day of
December, 1997 between ECHELON INTERNATIONAL CORPORATION, a Florida corporation,
One Progress Plaza, Suite 1500, St. Petersburg, Florida 33701 herein (whether
one or more in number) called "Mortgagor", and THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, a Wisconsin corporation, 720 E. Wisconsin Avenue, Milwaukee,
WI 53202, herein called "Mortgagee".
NOTE TO RECORDING CLERK: Multiple originals of the Mortgage, Assignment Of
Leases and Rents, Security Agreement and Fixture Filing modified hereby (the
"Mortgage") are recorded in the Public Records of (i) Hillsborough County,
Florida, in O.R. Book 8343 at page 1973, (ii) Pinellas County, Florida, in O.R.
Book 9516 at page 1493, (iii) Leon County, Florida, in O.R. Book 1957 at page
564, and (iv) Alachua County, Florida, in O.R. Book 2086 at page 2826. On the
date hereof, the Mortgage has been amended pursuant to a Mortgage Modification
Agreement and Partial Release recorded contemporaneously herewith in the Public
Records of Hillsborough County, Florida, Pinellas County, Florida and Leon
County Florida. Prior to the execution and delivery of this Agreement, the
Mortgage secured payment of a Promissory Note dated as of even date herewith in
the principal amount of $45,000,000.00 (the "Prior Note"); and all Florida
documentary stamp and intangible taxes payable with respect to the indebtedness
evidenced by the Prior Note were paid, an evidence of such payment noted, on the
Mortgage at the time of its recordation in Hillsborough County, Florida. As of
the date hereof, the outstanding principal balance of the Prior Note is
$45,000,000.00.
On the date hereof, Mortgagor has executed an Amendment, Renewal and Restatement
of Note in the principal amount of $45,000,000.00 (the "Renewal Note"), in
renewal of the outstanding principal indebtedness previously evidenced by the
Prior Note. Pursuant to ss.ss.201.09 and 199.145, Florida Statutes, no
additional tax is due in connection with the execution and delivery of the
Renewal Note or this Agreement.
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A. Mortgagor has previously executed and delivered to Salomon Brothers
Realty Corp., a New York corporation ("Salomon") that certain Promissory Note in
the original sum of $45,000,000.00 of even date herewith (the "First Note").
B. The First Note is secured by that certain Mortgage, Assignment of
Leases and Rents, Security Agreement and Fixture Filing from Mortgagor to
Salomon, dated November 5, 1996 from Borrower to Salomon, multiple originals of
which are recorded in the Public Records of (i) Hillsborough County, Florida, in
O.R. Book 8343 at page 1973, (ii) Pinellas County, Florida, in O.R. Book 9516 at
page 1493, (iii) Leon County, Florida, in O.R. Book 1957 at page 564, and (iv)
Alachua County, Florida, in O.R. Book 2086 at page 2826 AS MODIFIED BY a certain
Mortgage Modification Agreement and Partial Release dated of even date herewith
between Mortgagor and Salomon, multiple originals of which have been recorded in
the Public Records of Hillsborough County, Florida, Pinellas County, Florida and
Leon County Florida. (collectively the "First Mortgage").
C. The First Note and the First Mortgage and other loan documents were
assigned to Mortgagee by an Agreement and Assignment of Loan Documents executed
of even date herewith by Salomon and Mortgagor in favor of Mortgagee, which is
being recorded contemporaneously herewith in the Public Records of Pinellas
County, Florida, and Leon County, Florida.
D. Mortgagor and Mortgagee hereby desire to modify, amend and restate
the First Mortgage as hereinafter set forth and to reflect that the Note (as
hereinafter defined) is secured hereby.
NOW, THEREFORE, for and in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Mortgagor and Mortgagee hereby
agree as follows:
1. The foregoing recitals are true and correct and constitute a
material part of this Mortgage.
2. The lien of the First Mortgage as modified, amended and restated
shall secure the entire indebtedness evidenced by the Note.
3. The First Mortgage is hereby modified, amended and restated in its
entirety to read as follows:
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WITNESSETH:
WITNESSETH, That Mortgagor, in consideration of the indebtedness herein
mentioned, does hereby grant, convey, mortgage and warrant unto Mortgagee
forever, with power of sale and right of entry and possession, the following
property (herein referred to as the "Property"):
A. The land in the City of St. Petersburg, Pinellas County, Florida,
and the land in the City of Tallahassee, Leon County, Florida
described in Exhibit "A" attached hereto and incorporated herein
(the "Land") and all appurtenances thereto; and
B. All buildings and improvements now existing or hereafter erected
thereon, all waters and water rights, all engines, boilers,
elevators and machinery, all heating apparatus, electrical
equipment, air-conditioning and ventilating equipment, water and
gas fixtures, all furniture and easily removable equipment and all
other fixtures of every description belonging to Mortgagor which
are or may be placed or used upon the Land or attached to the
buildings or improvements, all of which, to the extent permitted
by applicable law, shall be deemed an accession to the freehold
and a part of the realty as between the parties hereto.
C. Mortgagor's leasehold interest in a parking structure and related
improvements and the rents and profits therefrom, created by the
terms of that certain Parking Lease Agreement dated March 7, 1989
and recorded in O.R. Book 9516 at page 1458 of the Public Records
of Pinellas County, Florida, as described on Exhibit "B" attached
hereto
D. Mortgagor's right, title and interest in and to those certain
Parking Leases dated May 6, 1993 and July 8, 1996, respectively.
Mortgagor agrees not to sell, transfer, assign or remove anything described in B
above now or hereafter located on the Land without prior written consent from
Mortgagee unless (i) such action does not constitute a sale or removal of any
buildings or improvements or the sale or transfer of waters or water rights and
(ii) such action results in the substitution or replacement with similar items
of equal value.
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Without limiting the foregoing grants, Mortgagor hereby pledges to Mortgagee,
and grants to Mortgagee a security interest in, all of Mortgagor's present and
hereafter acquired right, title and interest in and to the Property and any and
all
E. cash and other funds now or at any time hereafter deposited by or
for Mortgagor on account of tax, special assessment, replacement
or other reserves required to be maintained pursuant to the Loan
Documents (as hereinafter defined) with Mortgagee or a third
party, or otherwise deposited with, or in the possession of,
Mortgagee pursuant to the Loan Documents; and
F. surveys, soils reports, environmental reports, architect's
contracts, construction contracts, drawings and specifications,
applications, permits, surety bonds and other contracts relating
to the acquisition, design, development, construction and
operation of the Property; and
G. present and future rights to condemnation awards, insurance
proceeds or other proceeds at any time payable to or received by
Mortgagor on account of the Property or any of the foregoing
personal property.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
If any of the Property is of a nature that a security interest therein can be
perfected under the Uniform Commercial Code, this instrument shall constitute a
security agreement and financing statement if permitted by applicable law and
Mortgagor agrees to join with Mortgagee in the execution of any financing
statements and to execute any other instruments that may be required for the
perfection or renewal of such security interest under the Uniform Commercial
Code.
TO HAVE AND TO HOLD the same unto Mortgagee for the purpose of securing:
(a) Payment to the order of Mortgagee of the indebtedness evidenced by
an amendment, renewal and restatement of note of even date herewith (and any
restatement, extension or renewal thereof and any amendments thereto) executed
by Mortgagor for the principal sum of FORTY-FIVE MILLION DOLLARS, with final
maturity no later than December 1, 2004 and with interest as therein expressed
(which note, as such instrument may be amended, restated, renewed and extended,
is hereinafter referred to as the "Note"),
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<PAGE>
it being recognized that the funds may not have been fully advanced as of the
date hereof but may be advanced in the future in accordance with the terms of a
written contract; and
(b) Payment of all sums that may become due Mortgagee under the
provisions of, and the performance of each agreement of Mortgagor contained in,
the Loan Documents; and
(c) Payment of any additional loan or advance made by Mortgagee to
Mortgagor at any time within 20 years from the date hereof, with interest
thereon at the rate agreed upon, which shall be equally secured with and have
the same priority as the original indebtedness and subject to all of the terms
and provisions of this mortgage, if such additional loan or advance is evidenced
by a promissory note of Mortgagor that is identified by a recital that it is
secured by this mortgage; provided that the aggregate amount of outstanding
principal at any one time shall not exceed an amount equal to one hundred fifty
percent (150%) of the principal amount originally secured hereby. It is
understood and agreed that this future advance provision shall not be construed
to obligate the holder of the Note to make any such additional loans or
advances. Any additional note or notes delivered under this future advance
provision shall be included in "the Note" wherever it appears in the context of
this mortgage.
As used herein, "Loan Documents" means this instrument, the Note, that certain
Absolute Assignment of Leases and Rents of even date herewith between Mortgagor
and Mortgagee (the "Absolute Assignment"), that certain Certification of
Borrower of even date herewith and any other agreement entered into by Mortgagor
and delivered to Mortgagee in connection with the indebtedness evidenced by the
Note, except for any separate environmental indemnity agreement, as any of the
foregoing may be amended from time to time.
TO PROTECT THE SECURITY OF THIS MORTGAGE, MORTGAGOR COVENANTS AND AGREES:
MORTGAGE WAIVER. Mortgagor acknowledges and agrees that Mortgagee is relying on
the agreements of Mortgagor contained herein in connection with the purchase by
assignment of the First Note and the First Mortgage (the "Original Loan
Documents"), which purchase is being done by Mortgagee as an accommodation to,
and at the request of Mortgagor.
Mortgagor hereby fully and forever releases, discharges, and waives all
liabilities, claims, demands, causes of action, or defenses of any kind or
character whatsoever, whether known or unknown, and whether arising by statute,
in contract, in tort, or otherwise at law or equity, that Mortgagor may have
against Mortgagee with respect to any statements, representations, discussions,
negotiations, actions, or failures to act of the Mortgagee
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<PAGE>
occurring on or before the date hereof relating to: (i) any of the Original Loan
Documents or any other document or instrument executed in connection therewith
or in connection with the loan transaction to which they relate, (ii) the
performance by Mortgagee of any of the obligations thereunder or related
thereto, or (iii) any other transaction contemplated by, relating to, or in
connection with any of the Original Loan Documents or any other document or
instrument executed in connection therewith or in connection with the loan
transaction to which they relate.
Mortgagor hereby represents and warrants to Mortgagee that (a) there are no
defenses, counterclaims or offsets with respect to any of the Original Loan
Documents which would, in any manner, reduce or diminish Mortgagor's obligation
to Mortgagee to repay the principal sum evidenced by the Note, accrued but
unpaid interest thereon, and all other obligations of Mortgagor to Mortgagee
under the Note, this instrument or any of the Loan Documents, (b) at no time did
the Original Loan Documents require, nor were any payments made which would
constitute, the payment of interest or other charges which in the aggregate
would have resulted in usury, and (c) all deposits and escrow amounts, if any,
paid under the Original Loan Documents have been returned to Mortgagor. It is
the intent of Mortgagor and Mortgagee that the agreements and obligations of
Mortgagor and Mortgagee shall be governed by the restatement of the Note and the
Mortgage and any other document entered into between Mortgagor and Mortgagee or
by Mortgagor for the benefit of Mortgagee.
PAYMENT OF DEBT. Mortgagor agrees to pay the indebtedness hereby secured (the
"Indebtedness") promptly and in full compliance with the terms of the Loan
Documents.
OWNERSHIP. Mortgagor represents that it owns the Property and has good and
lawful right to convey the same and that the Property is free and clear from any
and all encumbrances whatsoever, except as appears in the title evidence
accepted by Mortgagee. Mortgagor does hereby forever warrant and shall forever
defend the title and possession thereof against the lawful claims of any and all
persons whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Mortgagor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and repair; not to commit or suffer any waste; to comply with all
laws, rules and regulations affecting the Property; and to permit Mortgagee to
enter at all reasonable times for the purpose of inspection and of conducting,
in a reasonable and proper manner, such tests as Mortgagee determines to be
necessary in order to monitor Mortgagor's compliance with applicable laws and
regulations regarding hazardous materials affecting the Property.
ASBESTOS. In the event any asbestos or asbestos containing materials ("A/ACM")
are found to be present on the Property, Mortgagor agrees that it will: (i)
immediately notify Mortgagee that such A/ACM have
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been discovered and provide to Mortgagee all information which Mortgagor then
has or, when available, subsequently obtains regarding the A/ACM, including,
without limitation, the extent and condition of the A/ACM, and (ii) within 60
days after such A/ACM has been discovered: (a) commence and diligently proceed
with, until completion, a removal and disposal plan in accordance with
applicable law which removes the A/ACM identified in the plan, or (b) for all
A/ACM which is not to be removed pursuant to (a) above, adopt and deliver to
Mortgagee an operations and maintenance plan satisfactory to Mortgagee which
identifies such A/ACM and sets forth policies and procedures to comply with
applicable law and avoid health hazards which may arise from such A/ACM.
INSURANCE. Mortgagor agrees to keep the Property insured for the protection of
Mortgagee in such manner, in such amounts and in such companies as Mortgagee may
from time to time approve, and to keep the policies therefor, properly endorsed,
on deposit with Mortgagee; that insurance loss proceeds from all property
insurance policies, whether or not required by Mortgagee, (less expenses of
collection) shall, at Mortgagee's option, be applied on the Indebtedness,
whether due or not, or to the restoration of the Property, or be released to
Mortgagor, but such application or release shall not cure or waive any default
under any of the Loan Documents. If Mortgagee elects to apply the insurance loss
proceeds on the Indebtedness, no prepayment privilege fee shall be due thereon.
Notwithstanding the foregoing provision, Mortgagee agrees that if the casualty
occurs prior to the last twelve months of the term of the Note, then the
insurance loss proceeds (less expenses of collection) shall be made available,
if requested by Mortgagor, but only for the restoration of the Property to its
condition prior to the casualty, subject to satisfaction of the following
conditions:
(a) There is no existing Event of Default at the time of casualty, and
if there shall occur any Event of Default after the date of the
casualty, Mortgagee shall have no further obligation to release
insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of
insurance loss proceeds as a result of any act, neglect, use or
occupancy of the Property by Mortgagor or any tenant of the
Property.
(c) Mortgagee shall be satisfied that all insurance loss proceeds so
held, together with supplemental funds received from Mortgagor,
shall be sufficient to complete the restoration of the Property.
Any remaining
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<PAGE>
insurance loss proceeds may, at the option of Mortgagee, be
applied on the Indebtedness, whether or not due, or be released to
Mortgagor.
(d) If required by Mortgagee, Mortgagee shall be furnished a
satisfactory report addressed to Mortgagee from an environmental
engineer or other qualified professional satisfactory to Mortgagee
to the effect that no adverse environmental impact to the Property
resulted from the casualty.
(e) Mortgagee shall release casualty insurance proceeds as restoration
of the Property progresses provided that Mortgagee is furnished
satisfactory evidence of the costs of restoration and if, at the
time of such release, there shall exist no default under the Loan
Documents with respect to which Mortgagee shall have given
Mortgagor notice pursuant to the NOTICE OF DEFAULT provision
herein. If the estimated cost of restoration exceeds $250,000.00,
(i) the drawings and specifications for the restoration shall be
approved by Mortgagee in writing prior to commencement of the
restoration, and (ii) Mortgagee shall receive an administration
fee equal to 1% of the cost of restoration.
(f) Prior to each release of funds, Mortgagor shall obtain for the
benefit of Mortgagee an endorsement to Mortgagee's title insurance
policy insuring Mortgagee's lien as a first and valid lien on the
Property subject only to liens and encumbrances therefore approved
by Mortgagee.
(g) Mortgagor shall pay all reasonable costs and expenses incurred by
Mortgagee, including, but not limited to, outside legal fees,
title insurance costs, third-party disbursement fees, third-party
engineering reports and inspections deemed necessary by Mortgagee.
(h) All reciprocal easement and operating agreements, if any, shall
remain in full force and effect between the parties thereto on and
after restoration of the Property.
(i) Mortgagee shall be satisfied that Projected Debt Service Coverage
of at least 1.30 will be produced from the leasing of not more
than 500,000 square feet of space to former tenants or approved
new tenants with leases satisfactory to Mortgagee for terms of at
least five (5) years to commence not later than (30) days
following completion of such restoration ("Approved Leases").
(j) All leases in effect at the time of the casualty with tenants who
have entered into Mortgagee's form of Non-Disturbance and
Attornment Agreement or
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similar agreement shall remain in full force and each tenant
thereunder shall be obligated, or shall elect, to continue the
lease term at full rental (subject only to abatement, if any,
during any period in which the Property or a portion thereof shall
not be used and occupied by such tenant as a result of the
casualty).
As used herein, "Projected Debt Service Coverage" means a number calculated by
dividing Projected Operating Income Available for Debt Service for the first
fiscal year following restoration of the Property by the debt service during the
same fiscal year under all indebtedness secured by any portion of the Property.
For purposes of the preceding sentence, "debt service" means the greater of (x)
debt service due under all such indebtedness during the first fiscal year
following completion of the restoration of the Property or (y) debt service that
would be due and payable during such fiscal year if all such indebtedness were
amortized over 25 years (whether or not amortization is actually required) and
if interest on such indebtedness were due as it accrues at the face rate shown
on the notes therefor (whether or not interest payments based on such face rates
are required).
"Projected Operating Income Available for Debt Service" means projected gross
annual rent from the Approved Leases for the first full fiscal year following
completion of the restoration of the Property less: (A) the operating expenses
of the Property for the last fiscal year preceding the casualty and (B) the
following: (i) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.95 per square foot
per annum; (ii) the amount, if any, by which actual gross income during such
fiscal period exceeds that which would be earned from the rental of 93% of the
gross leasable area in the Property; (iii) the amount, if any, by which the
actual management fee is less than 3.75% of gross revenue during such fiscal
period.
All projections referenced above shall be calculated in a manner satisfactory to
Mortgagee.
Nothwithstanding the above, if (i) the casualty occurs during the last 12 months
of the term of the Note, (ii) there is then no existing default under any of the
Loan Documents, and (iii) the insurance loss proceeds are less than $100,000.00,
then the Mortgagee will release the proceeds to Mortgagor upon completion of the
restoration.
CONDEMNATION. Mortgagor hereby assigns to Mortgagee (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property in connection with condemnation proceedings or the exercise of any
power of eminent domain and (ii) the proceeds from any sale or transfer in lieu
thereof; and grants Mortgagee the right, at its option, to apply such award and
other proceeds (less expenses of collection) on the Indebtedness (including any
prepayment privilege fee), whether due or not, or to the
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restoration of the Property or to release all or any portion thereof to
Mortgagor, but such application or release shall not cure or waive any default
under any of the Loan Documents.
APPLICATION OF CONDEMNATION PROCEEDS. All condemnation awards and any other
proceeds ("Condemnation Proceeds") resulting from damage to, the taking of, or
any sale or transfer in lieu of a taking of, all or any portion of the Property
in connection with condemnation proceedings, the exercise of any power of
eminent domain or the threat thereof (a "Taking"), shall, at Mortgagee's option
be applied on the Indebtedness, whether or not due, or to the restoration of the
Property.
Notwithstanding the foregoing, Mortgagee agrees that, if the Condemnation
Proceeds are less than the unpaid principal balance of the Indebtedness and are
received prior to the last twelve (12) months of the term of the Note, the
Condemnation Proceeds (less expenses of collection) shall be applied to
restoration of the Property to its condition, or the functional equivalent of
its condition, prior to the Taking, subject to satisfaction of the requirements
pursuant to the provision entitled "INSURANCE" and subject to the further
requirement that restoration or replacement of the improvements to their
functional and economic utility prior to such damage or Taking be possible.
Notwithstanding the above, if: (i) the casualty occurs during the last twelve
(12) months of the term of the Note, (ii) there is then no default in the terms
and conditions of any Loan Document, and (iii) the condemnation proceeds are
less than $100,000.00, then Mortgagee will release the proceeds to Mortgagor
upon completion of the restoration.
TAXES AND SPECIAL ASSESSMENTS. Mortgagor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Mortgagee in the Property, this instrument, the Note or the
Indebtedness, and to procure and deliver to Mortgagee the official receipt of
the proper officer showing timely payment of all such taxes and assessments;
provided, however, that Mortgagor shall not be required to pay any such taxes or
special assessments if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings and funds
sufficient to satisfy the contested amount have been deposited in an escrow
satisfactory to Mortgagee.
PERSONAL PROPERTY. With respect to the Personal Property, Mortgagor hereby
represents, warrants and covenants as follows:
(a) Except for the security interest granted hereby, Mortgagor is, and
as to portions of the Personal Property to be acquired after the date hereof
will be, the sole owner of the Personal Property, free from any lien, security
interest, encumbrance or adverse claim thereon of any kind whatsoever. Mortgagor
shall notify Mortgagee of, and shall indemnify and defend Mortgagee and the
Personal Property against, all claims and demands of all
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persons at any time claiming the Personal Property or any part thereof or any
interest therein.
(b) Except as otherwise provided above, Mortgagor shall not lease,
sell, convey or in any manner transfer the Personal Property without the prior
consent of Mortgagee.
(c) Mortgagor maintains a place of business at the address set forth
above in this instrument, and Mortgagor shall immediately notify Mortgagee in
writing of any change in its place of business.
(d) At the request of Mortgagee, Mortgagor shall join Mortgagee in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code of the jurisdiction in which the
Property is located in form satisfactory to Mortgagee, and Mortgagor shall pay
the cost of filing the same in all public offices wherever filing is deemed by
Mortgagee to be necessary or desirable.
OTHER LIENS. Mortgagor agrees to keep the Property free from all other mortgage
liens (other than the financing allowed under the "POST CLOSING
TRANSFER/FINANCING") and from all liens prior to the lien created hereby. The
creation of any other mortgage lien (other than the financing allowed under the
"POST CLOSING TRANSFER/FINANCING"), whether or not prior to the lien created
hereby, the creation of any prior lien or the assignment or pledge by Mortgagor
of its revocable license to collect, use and enjoy rents and profits from the
Property shall constitute a default under the terms of this instrument. The term
"mortgage" includes a mortgage, deed of trust, deed to secure debt or any other
security interest in the Property.
LEASES. Mortgagor represents and warrants that there is no assignment or pledge
of any leases of, or rentals or income from, the Property now in effect; and
covenants that, until the Indebtedness is fully paid, it (i) shall not make any
such assignment or pledge to anyone other than Mortgagee; and (ii) shall not,
unless expressly permitted under another provision in this instrument, make any
assignment or pledge to anyone of its hereinafter described revocable license to
collect, use and enjoy the rents and profits, and (iii) shall not, without prior
written approval of Mortgagee, consent to a cancellation or surrender of any
lease in violation of section 3.04(g) of the Absolute Assignment.
In consideration of the Indebtedness, Mortgagor, pursuant to the Absolute
Assignment, has assigned to Mortgagee all of Mortgagor's right, title and
interest in said leases, including Mortgagor's right to collect, use and enjoy
the rents and profits therefrom. Mortgagee has, in the Absolute Assignment,
granted to Mortgagor a license to collect, use and enjoy said rents and profits.
Such license is revocable by Mortgagee pursuant to the terms of the Absolute
Assignment.
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LEASEHOLD PROPERTY. With respect to the portion of the Property which is a
leasehold estate:
(a) The term "Security Leases" is defined as any portion of the
Property that constitutes a leasehold estate held by Mortgagor, and "Demised
Premises" is defined as the real estate that is subject to said Security Leases.
(b) This instrument expressly includes the grant, bargain, sale, and
conveyance of all of Mortgagor's right, title and interest in and to all
improvements on the Demised Premises and all additional title, estate, interest
or right which may at any time be acquired by Mortgagor. It is expressly agreed
that this instrument shall constitute a lien upon the fee simple title or any
other interest acquired by Mortgagor in any of the Demised Premises.
(c) Mortgagor agrees to fully perform and comply with all agreements,
covenants and conditions imposed upon or assumed by the lessee under the
security leases, and upon failure to do so, Mortgagee may (but shall not be
obligated to) take any action deemed necessary or desirable to prevent or to
cure any default. Upon receipt of any written notice of default under a Security
Lease from any person or corporation authorized to enforce performance thereof,
Mortgagee may rely thereon and take any action deemed necessary to cure such
default, even though the existence of the default or the notice thereof be
questioned or denied by Mortgagor or any party on behalf of Mortgagor.
Mortgagee, in its sole discretion, may expend such sums of money as it deems
necessary for such purpose, and Mortgagor hereby agrees to pay Mortgagee,
immediately and without demand, all such sums so expended with interest thereon
from the date of each such expenditure at the Default Rate (as defined in the
Note). All sums so expended by Mortgagee and the interest thereon shall be added
to the Indebtedness and be secured by the lien of this instrument.
(d) Mortgagor hereby constitutes Mortgagee, or an agent or employee
designated by Mortgagee, as Mortgagor's Attorney in Fact to take possession of
the Demised Premises at any time after an Event of Default to collect the rents,
issues and profits therefrom and to sublease the same in the name of Mortgagor
and to make application of the net proceeds after payment of the reasonable
expenses of subleasing and collection, to payments required by any security
lease, repairs and replacements to the Demised Premises and repayment of the
Indebtedness, as Mortgagee may see fit. This power of attorney shall be
irrevocable by Mortgagor until the Indebtedness is paid in full, and the powers
herein granted may be exercised at any time that an Event of Default shall have
occurred under the Note or this instrument.
(e) Until the Indebtedness has been paid in full, Mortgagor will not
surrender or terminate any Security Lease that would have a material adverse
impact on the Property without the written consent of Mortgagee. Any such
termination or surrender of any
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Security Lease without the prior written consent of Mortgagee shall be a default
under this instrument.
(f) No release or forbearance of any of the Mortgagor's obligations
under any Security Lease shall release Mortgagor from any of its obligations
under the Note or this instrument.
(g) Unless Mortgagee shall otherwise consent in writing, the fee title
to the Demised Premises and the leasehold estate hereunder shall not merge but
shall remain separate and distinct, notwithstanding the union of said estates in
the lessor or the lessee or a third party, by purchase or otherwise.
(h) Mortgagor warrants that there is no present default under the terms
and conditions of any Security Lease and there are no claims or offsets,
counterclaims or other matters that may ripen into a default. If a default shall
occur in the future, Mortgagor covenants that written notice thereof shall be
promptly served on Mortgagee. A default by lessee under any Security Lease shall
constitute a default under this instrument.
COSTS, FEES AND EXPENSES. Mortgagor agrees to appear in and defend any action or
proceeding purporting to affect the security hereof or the rights or powers of
Mortgagee hereunder; to pay all costs and expenses, including the cost of
obtaining evidence of title and reasonable attorney's fees, incurred in
connection with any such action or proceeding; and to pay any and all attorney's
fees and expenses of collection and enforcement in the event the Note is placed
in the hands of an attorney for collection, enforcement of any of the Loan
Documents is undertaken or suit is brought thereon.
FAILURE OF MORTGAGOR TO ACT. If Mortgagor fails to make any payment or do any
act as herein provided, Mortgagee may, without obligation so to do, without
notice to or demand upon Mortgagor and without releasing Mortgagor from any
obligation hereof: (i) make or do the same in such manner and to such extent as
Mortgagee may deem necessary to protect the security hereof, Mortgagee being
authorized to enter upon the Property for such purpose; (ii) appear in and
defend any action or proceeding purporting to affect the security hereof, or the
rights or powers of Mortgagee; (iii) pay, purchase, contest or compromise any
encumbrance, charge or lien which in the judgment of Mortgagee appears to be
prior or superior hereto; and (iv), in exercising any such powers, pay necessary
expenses, employ counsel and pay its reasonable fees. Sums so expended shall be
payable by Mortgagor immediately upon demand with interest from date of
expenditure at the Default Rate (as defined in the Note). All sums so expended
by Mortgagee and the interest thereon shall be included in the Indebtedness and
secured by the lien of this instrument.
EVENT OF DEFAULT. Any default by Mortgagor in making any required payment of the
Indebtedness or any default in any provision, covenant, agreement or warranty
contained in
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any of the Loan Documents shall, except as provided in the two immediately
succeeding paragraphs, constitute an "Event of Default".
NOTICE OF DEFAULT. A default in any payment required in the Note or any other
Loan Document, whether or not payable to Mortgagee, (a "Monetary Default") shall
not constitute an Event of Default unless Mortgagee shall have given a written
notice of such Monetary Default to Mortgagor and Mortgagor shall not have cured
such Monetary Default by payment of all amounts in default (including payment of
interest at the Default Rate, as defined in the Note, from the date of default
to the date of cure on amounts owed to Mortgagee) within five (5) business days
after the date on which Mortgagee shall have given such notice to Mortgagor.
Any other default under the Note or under any other Loan Document (a
"Non-Monetary Default") shall not constitute an Event of Default unless
Mortgagee shall have given a written notice of such Non-Monetary Default to
Mortgagor and Mortgagor shall not have cured such Non-Monetary Default within
thirty (30) days after the date on which Mortgagee shall have given such notice
of default to Mortgagor (or, if the Non-Monetary Default is not curable within
such 30-day period, Mortgagor shall not have (i) diligently undertaken and
continued to pursue the curing of such Non-Monetary Default and (ii) deposited
an amount sufficient to cure such Non-Monetary Default in an escrow account
satisfactory to Mortgagee).
For purposes of this provision, written notice may be delivered personally or
sent by certified mail or reputable courier service with charges prepaid, by
telecopier or by such other method whereby the receipt thereof may be confirmed.
Notice shall be deemed given on the date received. Any notice which is rejected,
the acceptance of which is refused or which is incapable of being delivered for
any reason shall be deemed received as of the date of attempted delivery.
In no event shall the notice and cure period provisions recited above constitute
a grace period for the purposes of commencing interest at the Default Rate (as
defined in the Note).
APPOINTMENT OF RECEIVER. Upon commencement of any proceeding to enforce any
right under this instrument, including foreclosure thereof, Mortgagee (without
limitation or restriction by any present or future law, without regard to the
solvency or insolvency at that time of any party liable for the payment of the
Indebtedness, without regard to the then value of the Property, whether or not
there exists a threat of imminent harm, waste or loss to the Property and or
whether the same shall then be occupied by the owner of the equity of redemption
as a homestead) shall have the absolute right to the appointment of a receiver
of the Property and of the revenues, rents, profits and other income therefrom,
and said receiver shall have (in addition to such other powers as the court
making such appointment
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may confer) full power to collect all such income and, after paying all
necessary expenses of such receivership and of operation, maintenance and repair
of said Property, to apply the balance to the payment of any of the Indebtedness
then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Mortgagee, become immediately due and
payable for all purposes without any notice or demand, except as required by
law, (ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO
EXERCISE SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Mortgagee may, in
addition to exercising any rights it may have with respect to the Personal
Property under the Uniform Commercial Code of the jurisdiction in which the
Property is located, institute proceedings in any court of competent
jurisdiction to foreclose this instrument as a mortgage, or to enforce any of
the covenants hereof, or Mortgagee may, either personally or by agent or
attorney in fact, enter upon and take possession of the Property and may manage,
rent or lease the Property or any portion thereof upon such terms as Mortgagee
may deem expedient, and collect, receive and receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter provided in case
of sale. Mortgagee is hereby further authorized and empowered, as agent or
attorney in fact, either after or without such entry, to sell and dispose of the
Property en masse or in separate parcels (as Mortgagee may think best), and all
the right, title and interest of Mortgagor therein, by advertisement or in any
manner provided by the laws of the jurisdiction in which the Property is
located, (MORTGAGOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO A HEARING PRIOR TO SUCH
SALE), and to issue, execute and deliver a deed of conveyance, all as then may
be provided by law; and Mortgagee shall, out of the proceeds or avails of such
sale, after first paying and retaining all fees, charges, costs of advertising
the Property and of making said sale, and attorneys' fees as herein provided,
apply such proceeds to the Indebtedness, including all sums advanced or expended
by Mortgagee or the legal holder of the Indebtedness, with interest from date of
advance or expenditure at the Default Rate (as defined in the Note), rendering
the excess, if any, as provided by law; such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against
Mortgagor, the heirs, successors and assigns of Mortgagor, and all other persons
claiming the Property aforesaid, or any part thereof, by, from, through or under
Mortgagor. The legal holder of the Indebtedness may purchase the Property or any
part thereof, and it shall not be obligatory upon any purchaser at any such sale
to see to the application of the purchase money.
PROHIBITION ON TRANSFER/ONE-TIME TRANSFER. The present ownership and management
of the Property is a material consideration to Mortgagee in making the loan
secured by this instrument, and Mortgagor shall not (i) convey title to all or
any part of the Property, (ii) enter into any contract to convey (land
contract/installment sales contract/contract for deed), title to all or any part
of the Property which gives a purchaser possession of, or income from, the
Property prior to a transfer of title to all or any part of the Property
("Contract to Convey") or (iii) cause or permit a change in the proportionate
ownership of
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Mortgagor, unless Mortgagor is Echelon International Corporation. Any such
conveyance, entering into a Contract to Convey or change in the proportionate
ownership of Mortgagor shall constitute a default under the terms of this
instrument.
For purposes of this instrument, a "change in the proportionate ownership of
Mortgagor" means in the case of a corporation other than Echelon International
Corporation, a change in the ownership of the voting stock of such corporation;
in the case of a trust, a change in the beneficial ownership of such trust; in
the case of a joint venture, a change in the ownership of the joint venture
interests of such joint venture; in the case of a limited liability company, a
change in the members of the limited liability company; in the case of a
partnership, a change in the ownership of the general partnership interests of
such partnership.
Notwithstanding the above, beginning July 1, 1998, provided there is then no
default in the terms and conditions of any Loan Document and upon prior written
request from Mortgagor, Mortgagee shall not withhold its consent to a one-time
transfer of all, but not less than all of the Property, provided (i) the
Property shall have achieved Debt Service Coverage of at least 1.30 for the last
full fiscal year and there are no junior liens on the Property; (ii) the
transferee or an owner of the transferee (in either case, the "Creditworthy
Party") has a net worth, determined in accordance with generally accepted
accounting principles, of at least $100,000,000.00 with cash and cash
equivalents of at least $7,500,000.00 after funding the equity needed to close
the purchase and a minimum overall real estate portfolio debt service coverage
ratio of 1.30 for the prior twelve (12) month period; (iii) the transferee or
the Creditworthy Party is experienced in the ownership and management of at
least one (1) million square feet of office buildings; (iv) neither the
transferee nor the Creditworthy Party is subject to any bankruptcy,
reorganization or insolvency proceeding or any criminal charges or proceedings
and is not a current or past litigant, plaintiff or defendant in any suit
brought against or by Mortgagee; (v) the Creditworthy Party assumes or
guarantees in writing all of the obligations and liabilities of Mortgagor under
the Loan Documents and, Mortgagee receives a satisfactory enforceability opinion
with respect thereto from counsel approved by Mortgagee and Mortgagor shall
remain liable under the Loan Documents as provided in clause viii below; (vi)
the Creditworthy Party executes Mortgagee's then current forms of Guarantee of
Recourse Obligations and Environmental Indemnity Agreement and Mortgagee
receives a satisfactory enforceability opinion with respect thereto from counsel
approved by Mortgagee; (vii) an environmental report on the Property no older
than 90 days prior to the date of transfer which meets Mortgagee's then current
requirements is provided to Mortgagee at least 30 days prior to the date of
transfer and said report shall be satisfactory to Mortgagee at the time of
transfer; (viii) Mortgagor shall remain liable under the Environmental Indemnity
Agreement dated of even date herewith, except for acts or occurrences after the
date of the transfer of the Property; and ix) the outstanding balance of the
Note at the time of the transfer is not more than sixty-five
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percent (65%) of the purchase price of the Property. If Mortgagor shall make a
one-time transfer to an approved purchaser, Mortgagee shall be paid a fee equal
to one percent (1%) of the then outstanding balance of the Note at the time of
transfer. The fee shall be paid on or before the closing date of such one-time
transfer. At the time of such transfer, no modification of the interest rate or
repayment terms of the Note will be required.
No subsequent transfers of the Property or changes in the proportionate
ownership of purchaser shall be allowed.
For purposes of this provision, "Debt Service Coverage" means a number
calculated by dividing Net Income Available for Debt Service for a fiscal period
by the debt service during the same fiscal period under all indebtedness
(including the Indebtedness) secured by any portion of the Property. For
purposes of the preceding sentence, "debt service" means the greater of (x)
actual debt service due under all indebtedness secured by any portion of the
Property or (y) debt service that would have been due and payable if all
indebtedness secured by any portion of the Property were amortized over 25 years
(whether or not amortization is actually required) and if interest on such
indebtedness were due monthly as it accrues (regardless of the face rate shown
on the notes therefor and whether or not interest payments based on such face
rates are required).
For purposes of this provision, "Net Income Available for Debt Service" means
net income (prior to giving effect to any capital gains or losses and any
extraordinary items) from the Property, determined in accordance with generally
accepted accounting principles, for a fiscal period plus (to the extent deducted
in determining net income from the Property) the following:
A) interest on indebtedness secured by any portion of the Property
for such fiscal period;
B) depreciation, if any, of fixed assets at or constituting the
Property for such fiscal period;
C) amortization, if any, of standard tenant finish expenditures at
the Property (but specifically EXCLUDING the amortization of
tenant finish expenditures by Mortgagor in excess of $15 per
square foot (i.e., above standard tenant finishes), free rent and
rent concessions); and
D) amortization of costs incurred in connection with any indebtedness
secured by any portion of the Property and leasing commissions
which have been prepaid and
less the following:
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E) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.95 per
square foot per annum;
F) the amount, if any, by which actual gross income during such
fiscal period exceeds that which would have been earned from the
rental of 93% of the gross leasable area in the Property; and
G) the amount, if any, by which the actual management fee is less
than 3.75% of gross revenue during such fiscal period.
All adjustments to net income referenced above shall be calculated in a manner
satisfactory to Mortgagee.
POST CLOSING TRANSFER/FINANCING. Notwithstanding the provision entitled
"PROHIBITION ON TRANSFER/ONE-TIME TRANSFER", and in addition to any transfer
permitted thereunder, Mortgagor may transfer the Property and place a second
lien on the Property which satisfies the following conditions: (i) the transfer
shall be competed on or prior to June 30, 1998; (ii) the transferee shall be,
and, in order to avoid a default under the provision entitled "PROHIBITION ON
TRANSFER/ONE-TIME TRANSFER", continues to be, owned, directly or indirectly by:
(a) Echelon International Corporation in an amount not less than 49% of all
ownership interests, and (b) not more than three (3) other owners, each of which
is a sophisticated investor in commercial real estate; (iii) in connection with
the transfer, a second mortgage may be placed against the Property which
satisfies the following conditions: (a) Echelon International Corporation shall,
directly or indirectly, be the sole owner of the mortgage debt secured thereby,
(b) Echelon International Corporation shall enter into an intercreditor
agreement satisfactory to Mortgagee providing that no enforcement action shall
be taken with respect to the second lien, including without limitation,
foreclosure, and that no action shall be taken with respect to rents from the
Property without the express written consent of Mortgagee.
AUDITED FINANCIAL STATEMENTS. Mortgagor agrees to furnish to Mortgagee, at
Mortgagor's expense and within 90 days after the close of each fiscal year
("Financial Statements Due Date"), annual audited financial statements on the
Property or an entity whose principal assets are the Property (the "Statements")
including the following:
(a) a balance sheet; and
(b) a statement of cash flows; and
(c) a statement of operations with a detailed line item breakdown of
all operating expenses for the Property, including a separate
supplemental
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schedule listing the capitalized costs associated with tenant
improvements, lease commissions and capital improvements
(collectively referred to herein as the "Statements").
Mortgagor also agrees to provide Mortgagee a current rent roll (the "Rent Roll")
by the Financial Statements Due Date. In addition, Mortgagor shall furnish to
Mortgagee 10K and 10Q reports within five (5) days after the date on which they
are submitted to the Securities and Exchange Commission.
The Statements shall be prepared in accordance with generally accepted
accounting principles and audited by a nationally recognized accounting firm.
Mortgagor acknowledges that Mortgagee requires such Statements and Rent Roll in
order to record accurately the value of the Property for financial and
regulatory reporting. If Mortgagor does not furnish, or cause to be furnished,
the Statements and Rent Roll to Mortgagee by the Financial Statements Due Date,
and such failure continues for 30 days after Mortgagee shall have given written
notice to Mortgagor that the Statements and Rent Roll have not been received as
required,
(x) interest on the unpaid principal balance of the Indebtedness shall
as of the Financial Statements Due Date, accrue and become payable at a
rate equal to the sum of the Interest Rate (as defined in the Note)
plus one percent (1%) per annum (the "Increased Rate"); and
(y) Mortgagee may elect to obtain an independent appraisal and audit of
the Property at Mortgagor's expense, and Mortgagor agrees that it will,
upon request, promptly make Mortgagor's books and records regarding the
Property available to Mortgagee and the person(s) performing the
appraisal and audit (which obligation Mortgagor agrees can be
specifically enforced by Mortgagee).
The amount of the payments due under the Note during the time in which the
Increased Rate shall be in effect shall be changed to an amount which is
sufficient to amortize the then unpaid principal balance at the Increased Rate
during the then remaining portion of a period of 25 years commencing with the
Amortization Period Commencement Date (as defined in the Note). Interest shall
continue to accrue and be due and payable monthly at the Increased Rate until
the Statements and Rent Roll shall be furnished to Mortgagee as required.
Commencing on the date on which the Statements and Rent Roll are received by
Mortgagee, interest on the unpaid principal balance shall again accrue at the
Interest Rate and the payments due during the remainder of the term of the Note
shall be changed to an amount which is sufficient to amortize the then unpaid
principal balance at the Interest Rate during the then remaining portion of a
period of 25 years commencing with the Amortization Period Commencement Date.
Notwithstanding the foregoing,
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Mortgagee shall have the right to conduct an independent audit at its own
expense at any time.
PARTIAL RELEASES. Notwithstanding the provision entitled "PROHIBITION ON
TRANSFER/ONE-TIME TRANSFER" beginning January 1, 2001, upon Mortgagor's written
request, provided there is then no default in any of the Loan Documents,
Mortgagor has the one-time right to transfer one of the office projects in the
Property. The transferred office project shall be released from lien of this
instrument subject to the following:
a) Payment of 85% of the sales price of the office project to be
released shall be applied to the outstanding principal balance of
the Note;
b) The remaining security that comprises the Property shall have Debt
Service Coverage of at least 1.30 following the payment in (a)
above;
c) Payment of a prepayment fee on the amount paid in (a) above. The
fee shall be the greater of Modified Yield Maintenance (as defined
in the Note) or 1% of the amount paid in (a) above, calculated in
the same manner as provided in the Note.
SUBSTITUTION OF SECURITY. Notwithstanding the provision entitled "PROHIBITION ON
TRANSFER/ONE-TIME TRANSFER", provided there is then no default in the terms and
conditions of any Loan Document and upon prior written request from Mortgagor,
Mortgagee shall not withhold its consent to a one-time substitution of one of
the office projects that are security for the Indebtedness provided: (i) the
substituted security is of equal or higher value than the office project being
released; (ii) the Mortgagor has the same ownership interest in the substituted
security or Mortgagor (or, if pursuant to the provision hereof entitled "POST
CLOSING TRANSFER/FINANCING" Mortgagor is not then Echelon International
Corporation, then Mortgagor and/or Echelon International Corporation) owns at
least 51% of the ownership interests of the owner and the owner and the owner
consists of not more than three equity owners other than Mortgagor; (or, if
pursuant to the provision hereof entitled "POST CLOSING TRANSFER/FINANCING"
Mortgagor is not then Echelon International Corporation, then Mortgagor and/or
Echelon International Corporation) (iii) the substituted security satisfies all
applicable conditions of the Application for Echelon Office Portfolio dated
November 14, 1997 executed by Echelon International Corporation and accepted by
The Northwestern Mutual Life Insurance Company on December 17, 1997 (the
"Commitment") which would have been satisfied if the substituted security was
part of the original security; (iv) the substituted security is at least 90%
leased with Net Income Available for Debt Service equal to or greater than the
Net Income Available for Debt Service of the office project being withdrawn; (v)
the Property will have Debt Service Coverage of at least 1.30 following the
substitution; and (vi) the request for the substitution is made prior to the
last eighteen (18) months of the term of the Note. . If Mortgagor shall
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makes a substitution, Mortgagee shall be paid a fee equal to seventy-five
hundredths percent (.75%) of the value of the office project being withdrawn as
reasonably estimated by Mortgagee. The fee shall be paid on or before the
closing date of the substitution. At the time of such transfer, no modification
of the interest rate or repayment terms of the Note will be required.
MCNULTY STATION FINANCING/RELEASE: If prior to the last twenty-four (24) months
of the term of the Note, Mortgagor or any affiliate of Mortgagor proposes to
obtain a loan from any lending institution (other than Mortgagee) and to use all
or part of the proceeds of such loan to finance the construction of a parking
structure or to provide permanent financing of a parking structure, on Lots 1,
2, 3, 16, 17, 18, 19 & 20 of Block 36 of McNulty Station Property (as
hereinafter defined) and secure payment of such loan by granting the other
lender a mortgage on the above referenced lots, either alone or in combination
with one or more other properties selected by Mortgagor (any such loan being
hereafter called a "Refinancing Loan"), then Mortgagor shall provide to
Mortgagee, in writing, the material terms provided by the other lender of such
Refinancing Loan.
Mortgagee shall have ten (10) calendar days from the receipt of such terms to
offer to Mortgagor a loan on the same material terms as the terms provided by
the other lender. If Mortgagee shall offer to Mortgagor a loan with the same
material terms as the terms provided by Mortgagor to Mortgagee, Mortgagor shall
accept, and enter into, such Refinancing Loan from Mortgagee.
If Mortgagee declines to offer a loan on the same material terms and Mortgagor
obtains the Refinancing Loan from the other lender, then Mortgagee will release
the real property described on Exhibit "A- 1" (the "McNulty Station Property")
from the lien of the this instrument subject to satisfaction of the following
conditions:
i) The lien will be released concurrent with the closing and
first advance of funds of the Refinancing Loan;
ii) Mortgagor will pay Mortgagee a release price equal to
$5,500,000 to be applied to the outstanding principal balance
of the Note;
iii) Mortgagor will pay Mortgagee a non-refundable servicing fee
of $27,500;
iv) Clause (b) of the section entitled "PARTIAL RELEASES" will be
modified to read as follows:
The remaining security that comprises the Property shall have
Debt Service Coverage of at least 1.35 following the payment
in (a) above;
and,
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v) Such release shall not constitute Mortgagor's one time right
to a partial release pursuant to the provision entitled
"PARTIAL RELEASES".
If Mortgagee declines to offer a loan on the same material terms, and Mortgagor
subsequently either proposes to obtain a Refinancing Loan with terms materially
less advantageous to Mortgagor than those previously offered to Mortgagee, or
does not consummate a commitment with the other lender for a Refinancing Loan,
as provided above, on the same material terms within sixty (60) days of
Mortgagee declining to offer a loan on the same material terms, then Mortgagor
shall provide Mortgagee the right to match the then existing offer or any future
Refinancing Loan under the aforementioned matching process.
DEPOSITS BY MORTGAGOR. To assure the timely payment of real estate taxes and
special assessments, following the occurrence of an Event of Default, Mortgagee
shall have the option to require Mortgagor to deposit funds with Mortgagee, in
monthly or other periodic installments in amounts estimated by Mortgagee from
time to time sufficient to pay real estate taxes and special assessments as they
become due. If at any time the funds so held by Mortgagee, or in such other
account, shall be insufficient to pay any of said expenses, Mortgagor shall,
upon receipt of notice thereof, immediately deposit such additional funds as may
be necessary to remove the deficiency. All funds so deposited shall be
irrevocably appropriated to Mortgagee to be applied to the payment of such real
estate taxes and special assessments and, at the option of Mortgagee after
default, the Indebtedness.
LIENS DISCHARGED BY PROCEEDS. Mortgagee shall be subrogated to the lien of any
and all prior encumbrances, liens or charges paid and discharged from the
proceeds of the Note, and even though said prior liens have been released of
record, the repayment of the Note shall be secured by such liens on the portion
of the Property affected thereby to the extent of such payments, respectively.
MODIFICATION OF TERMS. Without affecting the liability of Mortgagor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for performance of any obligation contained herein and without
affecting the rights of Mortgagee with respect to any security not expressly
released in writing, Mortgagee may, at any time and from time to time, either
before or after the maturity of the Note, without notice or consent: (i) release
any person liable for payment of all or any part of the Indebtedness or for
performance of any obligation; (ii) make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (iii) exercise or refrain from
exercising or waive any right Mortgagee may have; (iv) accept additional
security of any kind; (v) release or otherwise
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deal with any property, real or personal, securing the Indebtedness, including
all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Note or
any of the other Loan Documents, Mortgagee is given any option, such option may
be exercised when the right accrues or at any time thereafter, and no acceptance
by Mortgagee of payment of Indebtedness in default shall constitute a waiver of
any default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the heirs, executors, administrators, successors, grantees, and assigns of the
parties hereto, respectively, and the term "Mortgagee" shall include the owner
and holder of the Note.
LEGAL ENFORCEABILITY. No provision of this instrument, the Note or any other
Loan Documents shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Documents or shall be adjudicated to be so provided, the
provisions of this paragraph shall govern and Mortgagor shall not be obligated
to pay the amount of such interest or other obligation to the extent that it is
in excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the personal liability of Mortgagor shall be limited as provided in
the Note.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
MULTIPLE ORIGINALS. This instrument may be executed in any number of multiple
originals, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
GOVERNING LAW. This instrument, the interpretation hereof and the rights,
obligations, duties and liabilities hereunder shall be governed and controlled
by the laws of the state in which the Property is located.
(CONTINUED ON FOLLOWING PAGE)
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<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
IN WITNESS WHEREOF, this instrument has been executed by the Mortgagor as of the
day and year first above written.
ECHELON INTERNATIONAL
Signed in presence of: CORPORATION, a Florida corporation
______________________________ By:________________________________
______________________________ ________________________________
Name Type or Printed
________________________________
________________________________
By:
______________________________ ________________________________
______________________________ ________________________________
Name Type or Printed
________________________________
________________________________
(corporate seal)
24
<PAGE>
STATE OF )
)ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ___ day of December,
1997, by ___________________ and __________________ , as ____________ President
and ________________ Secretary, of ECHELON INTERNATIONAL CORPORATION, a Florida
corporation, on behalf of the corporation. They are personally known to me or
have produced _________________ as identification and did take an oath.
NOTARY PUBLIC:
SIGNATURE ______________________________
________________________________________
Name (typed or printed)
State of _________________ at Large
My Commission Expires:
25
EXHIBIT 4.6
RECORDING REQUESTED BY
______________________
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Kathleen A. Evanson
LOAN NO. C-332156 SPACE ABOVE THIS LINE FOR RECORDER'S USE
- - -------------------------------------------------------------------------------
This instrument was prepared by Paul E. McElwee, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
ABSOLUTE ASSIGNMENT OF LEASES AND RENTS
(With License Back)
THIS Absolute Assignment of Leases and Rents (this "Assignment") is
made as of the 30th day of December, 1997, by and between ECHELON INTERNATIONAL
CORPORATION, a Florida corporation, whose mailing address is One Progress Plaza,
Suite 1500, St. Petersburg, Florida 33701, (herein called "Borrower") and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, whose
mailing address is c/o Real Estate Department, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, (herein called "Lender").
W I T N E S S E T H
FOR AND IN CONSIDERATION of the indebtedness hereinafter described,
Borrower has granted, bargained, sold and conveyed, and by these presents does
grant, bargain, sell and convey, unto Lender, its successors and assigns
forever, all and singular the property hereinafter described (collectively, the
"Security"), to wit:
(a) All rents, issues and profits arising from or related to the
land, situated in the Counties of Pinellas and Leon, in the State of
Florida and described in Exhibit "A" attached hereto and fully
incorporated herein by reference for all purposes and all improvements
and any other property, whether real, personal or mixed, located
thereon (which land, improvements and other property are hereinafter
collectively called the "Property");
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(b) All of Borrower's rights, titles, interests and privileges, as
lessor, in the leases now existing or hereafter made affecting the
Property, whether or not made by Borrower and as the same may have
been, or may from time to time hereafter be, modified, extended and
renewed (hereinafter collectively called the "Leases").
(c) All tenant security deposits and other amounts due and
becoming due under the Leases;
(d) All guarantees of the Leases, including guarantees of tenant
performance;
(e) All insurance proceeds, including rental loss coverage and
business interruption coverage with respect to the Leases; and
(f) All judgments and settlements of claims in favor of Borrower
(including condemnation proceeds, if any) and all rights, claims and
causes of action under any court proceeding, including without
limitation any bankruptcy, reorganization or insolvency proceeding, or
otherwise arising from the Leases.
TO HAVE AND TO HOLD the Security unto Lender, its successors and
assigns forever, and Borrower does hereby bind itself, its heirs, legal
representatives, successors and assigns, to warrant and forever defend the
Security unto Lender, its successors and assigns forever against the claim or
claims of all persons whomsoever claiming the same or any part thereof.
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Assignment, the terms
"Borrower", "Leases", "Lender", "Property", and "Security" shall have the
respective meanings indicated above.
1.02 CERTAIN DEFINITIONS. The following terms shall have the meanings
assigned to them below whenever they are used in this Assignment, unless the
context clearly otherwise requires. Except where the context otherwise requires,
words in the singular form shall include the plural and vice versa.
"EVENT OF DEFAULT" shall mean any Event of Default as defined in
the Lien Instrument.
"LIEN INSTRUMENT" shall mean that certain Restatement of Mortgage
and Security Agreement of even date herewith, executed by Borrower and
granting
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a lien on the Property to Lender, as such instrument may be amended and
restated from time to time.
"LOAN DOCUMENTS" shall mean the Note, the Lien Instrument and all
other instruments and documents (as the same may be amended from time
to time) executed by Borrower and delivered to Lender in connection
with, or as security for, the indebtedness evidenced by the Note,
except any separate environmental indemnity agreement.
"NOTE" shall mean that certain Amendment, Renewal and Restatement
of Note of even date herewith, in the original principal amount of
$45,000,000.00, executed by Borrower and payable to the order of
Lender, as such instrument may be amended, renewed and restated from
time to time.
"OBLIGATIONS" shall mean the following:
(a) The indebtedness evidenced by the Note and all interest
thereon;
(b) The performance of all covenants and agreements of
Borrower contained in the Loan Documents;
(c) All funds hereafter advanced by Lender to or for the
benefit of Borrower as contemplated by any covenant or provision
contained in any Loan Document and all interest thereon;
(d) All renewals, extensions, rearrangements and
modifications of any of the Obligations described hereinabove; and
(e) Any and all attorneys' fees and expenses of collection
payable under the terms of any Loan Document.
ARTICLE II
ASSIGNMENT
2.01 ABSOLUTE ASSIGNMENT. This Assignment is, and is intended to be, an
absolute and present assignment of the Security from Borrower to Lender with a
concurrent license back to the Borrower (which license is subject to revocation
upon the occurrence of an Event of Default as herein provided) and is not
intended as merely the granting of a security interest relating to the
Obligations.
2.02 LICENSE. Borrower is hereby granted the license to manage and
control the Security and to collect at the time of, but not prior to, the date
provided for the payment
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thereof, all rents, issues and profits from the Property and to retain, use and
enjoy the same. The license created and granted hereby shall be revocable upon
the terms and conditions contained herein.
2.03 REVOCATION OF LICENSE. Immediately upon the occurrence of an Event
of Default and at any time thereafter, Lender may, at its option and without
regard to the adequacy of the security for the Obligations, either by an
authorized representative or agent, with or without bringing or instituting any
judicial or other action or proceeding, or by a receiver appointed by a court,
immediately revoke the license granted in Section 2.02, as evidenced by a
written notice to said effect given to Borrower, and further, at Lender's option
(without any obligation to do so), take possession of the Property and the
Security and have, hold, manage, lease and operate the Property and the Security
on such terms and for such period of time as Lender may deem proper, and, in
addition, either with or without taking possession of the Property, demand, sue
for or otherwise collect and receive all rents, issues and profits from the
Property, including those past due and unpaid, with full power to make, from
time to time, all alterations, renovations, repairs or replacements thereto or
thereof as may seem proper to the Lender in its sole discretion, and to apply
(in such order and priority as Lender shall determine in its sole discretion)
such rents, issues and profits to the payment of:
(a) all expenses of (i) managing the Property, including without
implied limitation, the salaries, fees and wages of a managing agent
and such other employees as Lender may in its sole discretion deem
necessary or desirable, (ii) operating and maintaining the Property,
including without implied limitation, all taxes, charges, claims,
assessments, water rents, sewer rents and any other liens, and premiums
for all insurance which Lender may in its sole discretion deem
necessary or desirable, (iii) the cost of any and all alterations,
renovations, repairs or replacements of or to the Property, and (iv)
any and all expenses incident to taking and retaining possession of the
Property and the Security; and
(b) the Obligations.
The exercise by Lender of the rights granted it in this Section 2.03, and the
collection and receipt of rents, issues and profits and the application thereof
as herein provided, shall not be considered a waiver of any Event of Default.
2.04 TRUST FUNDS. All monies or funds covered by this Assignment paid
to, or for the benefit of, Borrower after an Event of Default are hereby
declared, and shall be deemed to be, trust funds in the hands of Borrower for
the sole benefit of Lender, until all Events of Default have been cured or
waived or the Obligations have been paid and performed in full. Borrower, or any
officer, director, representative or agent thereof receiving such trust funds or
having control or direction of same, is hereby made and shall
4
<PAGE>
be construed to be a trustee of such trust funds so received or under its
control and direction, and such person shall be under a strict obligation and
duty should such persons receive or constructively receive trust funds to (1)
remit any and all such trust funds to Lender within twenty-four (24) hours of
receipt, upon demand therefor by Lender or (2) to apply such trust funds only to
Obligations then due or the operating expenses of the Property.
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES
3.01 LIABILITY. Lender shall not be liable for any loss sustained by
Borrower resulting from Lender's failure to let the Property after an Event of
Default or from any other act or omission of Lender in managing the Property or
the Security after an Event of Default, except for acts constituting gross
negligence or willful misconduct. Lender shall not be obligated to perform or
discharge, nor does Lender hereby undertake to perform or discharge, any
obligation, duty or liability under any Lease, and Borrower shall and does
hereby indemnify Lender for, and save and hold Lender harmless from, any and all
liability, loss or damages, except so much thereof as shall result from the
gross negligence or willful misconduct of Lender, which may or might be incurred
under any Lease or under or by reason of this Assignment and from any and all
claims and demands whatsoever which may be asserted against Lender by reason of
any alleged obligation or undertaking on its part to perform or discharge any of
the terms, covenants or agreements contained in any Lease, including without
implied limitation, any claims by any tenants of credit for rents for any period
paid to and received by Borrower but not delivered to Lender. Should Lender
incur any such liability under any Lease in defense of any such claim or demand,
the amount thereof, including without implied limitation all costs, expenses and
attorneys' fees, shall be added to the principal of the Note and Borrower shall
reimburse Lender therefor immediately upon demand. This Assignment shall not
operate to place responsibility upon Lender for the control, care, upkeep,
management, operation or repair of the Property and the Security or for the
carrying out of any of the terms and conditions of any Lease; nor shall this
Assignment operate to make Lender responsible or liable for any waste committed
on the Property by the tenants or any other party, for any dangerous or
defective condition of the Property or for any negligence in the control, care,
upkeep, operation, management or repair of the Property resulting in loss or
injury or death to any tenant, licensee, employee, stranger or other person
whatsoever.
3.02 TERMINATION. Upon payment and performance of the Obligations in
full, this Assignment shall become null and void and of no further legal force
or effect, but the affidavit, certificate, letter or statement of any officer,
agent, authorized representative or attorney of Lender showing any part of the
Obligations remaining unpaid or unperformed shall be and constitute conclusive
evidence of the validity, effectiveness and continuing
5
<PAGE>
force of this Assignment upon which any person may, and is hereby authorized to,
rely. Borrower hereby authorizes and directs all tenants under the Leases, all
guarantors of Leases, all insurers providing rental loss or business
interruption insurance with respect to the Property, all governmental
authorities and all other occupants of the Property, upon receipt from Lender of
written notice to the effect that Lender is then the holder of the Note and that
an Event of Default exists, to pay over to Lender all rents and other amounts
due and to become due under the Leases and under guaranties of the Leases and
all other issues and profits from the Property and to continue so to do until
otherwise notified in writing by Lender. This right may be exercised without
Lender taking actual or constructive possession of the Property or any part
thereof.
3.03 SECURITY. Lender may take or release any security for the payment
or performance of the Obligations, may release any party primarily or
secondarily liable therefor and may apply any security held by it to the
satisfaction of all or any portion of the Obligations, without prejudice to any
of its rights under this Assignment, the other Loan Documents or otherwise
available at law or in equity.
3.04 COVENANTS. Borrower covenants with Lender (a) to observe and
perform all material obligations imposed upon the lessor under all Leases and
not to do or permit to be done anything to impair the same without Lender's
prior written consent, provided, however, this subsection (a) shall only apply
to leases of 20,000 or more square feet unless Borrower has acted or failed to
act in such a way as to cause a breach of the lessor's obligations in 25% or
more of the Leases (by number of leases then in effect and not by square
footage) then in effect at any Property in which case, Borrower shall be in
default under this subsection (a);(b) not to collect any of the rent or other
amounts due under any Lease or other issues or profits from the Properties in
any manner in advance of the time when the same shall become due (save and
except only for collecting two months' rent in advance plus the security
deposit, if any, at the time of execution of a Lease); (c) not to execute any
other assignment of rents, issues or profits arising or accruing from the Leases
or from the Properties; (d) with respect to leases of 20,000 or more square
feet, not to enter into any lease agreement affecting the Properties, except
those leases entered into in the ordinary course of business and consistent with
then-prevailing market terms and conditions, without the prior written consent
of Lender, which consent or denial will be given by Lender within five (5)
business days of receipt of said Lease for consideration by Lender; (e) to
execute and deliver, at the request of Lender, all such further assurances and
acknowledgments of the assignment contained herein and the other provisions
hereof, with respect to specific Leases or otherwise, as Lender shall from time
to time require; (f) to use reasonable efforts to obtain from any tenant at the
Properties, from time to time as requested by Lender, estoppel certificates, in
form and substance satisfactory to Lender, confirming the terms of such tenant's
Lease and the absence of default thereunder; and (g) with respect to leases of
20,000 or more square feet, not to cancel, surrender or terminate any Lease,
exercise any option which
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<PAGE>
might lead to such termination or consent to any change, modification, or
alteration thereof, to the release of any party liable thereunder or to the
assignment of the lessee's interest therein, except as is consistent with the
usual and customary operation of the Properties, without the prior written
consent of Lender, which consent or denial will be given by Lender within five
(5) business days of receipt of said Lease for consideration by Lender, and any
of said acts, if done without the prior written consent of Lender, shall be null
and void. Lender's consent shall be deemed to have been given if Lender fails to
reject or consent to a proposal within five (5) business days after receipt
thereof.
3.05 AUTHORITY TO ASSIGN. Borrower represents and warrants that (a)
Borrower has full right and authority to execute this Assignment and has no
knowledge of any existing defaults under any of the existing Leases, (b) all
conditions precedent to the effectiveness of said existing Leases have been
satisfied, (c) Borrower has not executed or granted any modification of the
existing Leases, either orally or in writing, (d) the existing Leases are in
full force and effect according to the terms set forth in the lease instruments
heretofore submitted to Lender and (e) Borrower has not executed any other
instrument which might prevent Lender from operating under any of the terms and
conditions of this Assignment, including any other assignment of the Leases or
the rents, issues and profits from the Property.
3.06 CROSS-DEFAULT. Violation or default under any of the covenants,
representations, warranties and provisions contained in this Assignment by
Borrower shall be deemed a default hereunder as well as under the terms of the
other Loan Documents, and any default thereunder shall likewise be a default
under this Assignment. Any default by Borrower (beyond any applicable grace or
curative period) under any of the terms of any Lease shall be deemed a default
hereunder and under the terms of the other Loan Documents if such default
entitles the tenant to terminate the Lease or to a set off against the rentals
payable thereunder and any expenditures made by Lender in curing such default on
Borrower's behalf, with interest thereon at the Default Rate (as defined in the
Note), shall become part of the Obligations.
3.07 NO MORTGAGEE IN POSSESSION. The acceptance by Lender of this
Assignment, with all of the rights, powers, privileges and authority created
hereby, shall not, prior to entry upon and taking possession of the Property by
Lender, be deemed or construed to constitute Lender a "mortgagee in possession",
or hereafter or at any time or in any event obligate Lender to appear in or
defend any action or proceeding relating to any Lease, the Property or the
Security, to take any action hereunder, to expend any money, incur any expense,
perform or discharge any obligation, duty or liability under any Lease, or to
assume any obligation or responsibility for any security deposits or other
deposits delivered to Borrower by any tenant and not actually delivered to
Lender. Lender shall not be liable in any way for any injury or damage to any
person or property sustained in or about the Property.
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ARTICLE IV
GENERAL
4.01 REMEDIES. The rights and remedies provided Lender in this
Assignment and the other Loan Documents are cumulative. Nothing contained in
this Assignment, and no act done or omitted by Lender pursuant hereto, including
without implied limitation the collection of any rents, shall be deemed to be a
waiver by Lender of any of its rights and remedies under the other Loan
Documents or applicable law or a waiver of any default under the other Loan
Documents, and this Assignment is made and accepted without prejudice to any of
the rights and remedies provided Lender by the other Loan Documents. The right
of Lender to collect the principal sum and interest due on the Note and to
enforce the other Loan Documents may be exercised by Lender either prior to,
simultaneously with, or subsequent to any action taken by it hereunder.
4.02 NOTICES. Any notice or demand hereunder shall be in writing, may
be delivered personally or sent by certified mail with postage prepaid, by
reputable courier service with charges prepaid, by telecopier or by such other
method whereby the receipt thereof may be confirmed. Any notice or demand sent
to Borrower by certified mail or reputable courier service shall be addressed to
Borrower at the address set forth above or such other address in the United
States of America as Borrower shall designate in a notice to Lender given in the
manner described herein. Any notice sent to Borrower by telecopier shall be
telecopied to (813) 824-6750 or to such other telecopier number in the United
States of America as shall be designated in a notice given to Lender in the
manner described herein. Any notice sent to Lender shall be addressed to the
attention of the Real Estate Investment Department at 720 East Wisconsin Avenue,
Milwaukee, WI 53202 and shall refer to the Loan No. set forth above and, if
telecopied, shall be telecopied to 414/299-1557 or at such other address or
telecopier number as Lender shall designate in a notice given in the manner
described herein. Any notice or demand sent hereunder by telecopier shall also
be sent by certified mail or reputable courier service. Any notice or demand
hereunder shall be deemed given when received. Any notice or demand which is
rejected, the acceptance of delivery of which is refused or which is incapable
of being delivered for any reason whatsoever at the address or telecopier number
specified herein or such other address or telecopier number designated pursuant
hereto shall be deemed received as of the date of attempted delivery.
4.03 CAPTIONS. The titles and headings of the various Articles and
Sections hereof are intended solely for reference and are not intended to
modify, explain or affect the meaning of the provisions of this Assignment.
4.04 SEVERABILITY. If any of the provisions of this Assignment or the
application thereof to any persons or circumstances shall to any extent be
invalid or unenforceable,
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the remainder of this Assignment, and the application of such provision or
provisions to persons or circumstances other than those as to whom or which it
is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Assignment shall be valid and enforceable to the fullest
extent permitted by law.
4.05 ATTORNEYS' FEES. In the event of any controversy, claim, dispute,
or litigation between the parties hereto to enforce any provision of this
Assignment or any right of Lender hereunder, Borrower agrees to pay to Lender
all costs and expenses, including reasonable attorneys' fees incurred therein by
Lender, whether in preparation for or during any trial, as a result of an appeal
from a judgment entered in such litigation or otherwise.
4.06 AMENDMENTS. This Assignment may not be modified, amended or
otherwise changed in any manner unless done so by a writing executed by the
parties hereto.
4.07 BENEFITS. This Assignment and all the covenants, terms and
provisions contained herein shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
4.08 ASSIGNMENT. Borrower shall have no right to assign or transfer the
revocable license granted herein. Any such assignment or transfer shall
constitute a default.
4.09 TIME OF ESSENCE. Time is of the essence of this Assignment.
4.10 GOVERNING LAW. The laws of the State of Florida shall govern and
control the interpretation of this Assignment and the rights, obligations,
duties and liabilities of the parties hereto.
4.11 LIMITATION OF LIABILITY. Notwithstanding any provision contained
in this Assignment, the personal liability of Borrower shall be limited as
provided in the Note.
(CONTINUED ON NEXT PAGE)
9
<PAGE>
IN WITNESS WHEREOF, this Assignment has been entered into as of the day
and year first-above written.
BORROWER:
ECHELON INTERNATIONAL
Signed in presence of: CORPORATION, a Florida corporation
_____________________________ By:____________________________________
_____________________________ ____________________________________
Name Type or Printed
____________________________________
____________________________________
_____________________________ By:____________________________________
_____________________________ ____________________________________
Name Type or Printed
____________________________________
____________________________________
(corporate seal)
LENDER:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, a Wisconsin
Signed in presence of: corporation
_____________________________ By:____________________________________
Beth N. Larsen Carson D. Keyes, Vice President
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
_____________________________ Attest:________________________________
Rosemary Poetzel Warren L. Smith, Jr., Ass't Secretary
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(corporate seal)
10
<PAGE>
STATE OF )
)ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this______ day of_______ ,
1997, by _______________ and _______________ , as ________________ President and
______________ Secretary, of ECHELON INTERNATIONAL CORPORATION, a Florida
corporation, on behalf of the corporation. They are personally known to me or
have produced _______________ as identification and did take an oath.
NOTARY PUBLIC:
Signature ____________________________
______________________________________
Name (typed or printed)
State of ______________ at Large
My Commission Expires:
STATE OF WISCONSIN )
)ss.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this 29th day of December,
1997, by Carson D. Keyes and Warren L. Smith, Jr., as Vice President and
Assistant Secretary, of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a
Wisconsin corporation, on behalf of the corporation.
NOTARY PUBLIC:
Signature ____________________________
BETH N.LARSEN
Name (typed or printed)
State of Wisconsin
My Commission Expires: November 28,
1999
11
EXHIBIT 4.7
STATEMENT OF LOAN CLOSING COSTS AND PAYMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BORROWER: Echelon International Corporation, a Florida corporation
LENDER: Northwestern Mutual Life Insurance Company, a Wisconsin
corporation
LOAN AMOUNT: $45,000,000.00
CLOSING DATE: December 30, 1997
- - -------------------------------------------------------------------------------
<S> <C> <C>
TOTAL LOAN AMOUNT: 45,000,000.00
1. Recording Fees:
a. Mortgage Modification and
Partial Release (three counties) $99.00
b. Agreement and Assignment (three counties) 85.50
c. UCC-3 Termination:
i. State 28.00
ii. County (three counties) 31.50
d. Amended and Restated Mortgage
(two counties) 255.00
e. Assignment of Rents and Leases
(two counties) 111.00
f. UCC-1 Financing Statement:
i. County (two counties) 30.00
ii. State 31.00
g. Corrective Waiver of Right of First Refusal 6.00
h. Notices of Termination (five) 97.50
2. Title Insurance Premium 110,825.00
Search Fees 2,000.00
Survey Endorsements (4) 400.00
Form 9 Endorsement 11,082.50
Reinsurance Costs 3,850.00
3. Survey P.O.C.
4. Environmental Audits P.O.C.
5. Attorneys' Fees and Costs
a. Latham & Watkins 5,000.00
b. Carlton, Fields
Fees 7,000.00
Costs 500.00
c. Trenam, Kemker
Fees through 12/30/97 $66,500.00
Costs through 12/23/97 $2,096.43
6. Paydown of Salomon Loan Principal $45,000,000.00
Accrued Interest (through 12/30/97) 234,937.50
Repayment Fee 450,000.00
--------------
$45,894,965.93
TOTAL COSTS AND FEES $45,894,965.93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISBURSEMENT STATEMENT
- - --------------------------------------------------------------------------------
BORROWER: Echelon International Corporation, a Florida corporation
LENDER: Northwestern Mutual Life Insurance Company, a Wisconsin
corporation
LOAN AMOUNT: $45,000,000.00
CLOSING DATE: December 30, 1997
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL LOAN AMOUNT $45,000,000.00
REFUND OF DEPOSIT (LESS $2,500.00 Fee) 897,500.00
I. Pinellas County Clerk of Court $426.00
a. Mortgage Modification (Salomon) $66.00
b. Agreement & Assignment of
Loan Documents 57.00
c. Amended and Restated Mortgage 127.50
d. Assignment of Leases and Rents 55.50
e. UCC-1 Financing 15.00
f. UCC-3 Termination 21.00
g. Corrective Waiver 6.00
h. Notice of Termination 78.00
II. Leon County Clerk of Court $289.50
a. Mortgage Modification (Salomon) $33.00
b. Agreement and Assignment of
Loan Documents 28.50
c. Amended and Restated Mortgage 127.50
d. Assignment of Leases and Rents 55.50
e. UCC-1 Financing 15.00
f. UCC-3 Termination 10.50
g. Notice of Termination 19.50
III. Florida Secretary of State $59.00
a. UCC-1 Financing Statement $31.00
b. UCC-3 Financing Statement 28.00
IV. Salomon Brothers $45,689,937.50
Wiring Instructions:
Bank Name: Mellon Bank
Account Name: Salomon Brothers Realty Corp.
Account Number: 1177107
ABA Number: 043000261
Salomon Contact: Mike Dempsey (813) 558-7148
V. Lawyer's Title Insurance Corporation $128,157.50
VI. Trenam, Kemker, Scharf, Barkin, Frye, $68,596.43
VII. Carlton, Fields $7,500.00
VIII. Echelon International Corporation 2,534.07
-------------- --------------
$45,897,500.00 $45,897,500.00
</TABLE>
ECHELON INTERNATIONAL CORPORATION,
a Florida corporation
By: --------------------------------------
Larry J. Newsome, Senior Vice President
EXHIBIT 4.8
December 29, 1997
Mr. Larry J. Newsome
Senior Vice President and CFO
Echelon International
One Progress Plaza, Suite 1500
St. Petersburg, Florida 33701
Re: Construction Issues for Echelon Office Portfolio Loan
NML Loan No.C-332156 (the "Loan")
Dear Mr. Newsome:
Construction repair issues were raised by Newbanks, Inc. in the following
reports in regards to the Echelon Office Portfolio which is security for the
Loan:
BUILDING AND DATE OF REPORT
Barnett Tower - December 4, 1997
100 Carillon - December 5, 1997
McNulty Station - December 4, 1997
Highpoint Center - December 4, 1997
Each of the reports listed above contain itemized lists of necessary repairs for
the buildings that are located in Sections 7.1 of all the reports with the
exception of the McNulty Station report, in which the list is located on page 20
of the report. As a condition to closing the Loan, Echelon agrees to complete
all of the repairs noted in each of the reports. The repairs will be completed
within 120 days of the closing of the Loan. If the repairs are not completed
within 120 days, Northwestern has the right to retain third parties to
accomplish the repairs. Northwestern will be allowed access to the buildings to
conduct the repairs. All costs paid by Northwestern for such repairs shall
constitute an advance of loan proceeds under the Loan and the provisions of the
Restatement of Mortgage and Security Agreement dated as of December 30, 1997,
contained in the section captioned "Failure of Mortgagor to Act," shall apply to
such costs paid by Northwestern.
Sincerely,
The Northwestern Mutual Life Insurance Company
_______________________________________________
By: Carson D. Keyes, Vice President
The undersigned hereby agrees to the above.
Executed this ____day of December, 1997
BY: Echelon International Corporation, a Florida corporation
By: ___________________________________________
Larry J. Newsome, Senior Vice President & Chief Financial Officer
Attest: _______________________________________
EXHIBIT 4.9
LOAN NO. 332156
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is entered into as of December 30, 1997 by the
undersigned (the "Indemnitor") in favor of The Northwestern Mutual Life
Insurance Company ("Northwestern") and the other Indemnified Parties referred to
herein.
RECITALS
A. Northwestern is contemporaneously herewith making a loan (the
"Loan") to Echelon International Corporation (the "Borrower") secured or to be
secured by a Mortgage, Deed to Secure a Debt or Deed of Trust and Security
Agreement from Borrower to Northwestern (the "Mortgage") on the fee title and/or
leasehold interest in the property described in Exhibit "A" attached hereto.
B. In order to induce Northwestern to make the Loan, the Indemnitor has
agreed to execute and deliver this Indemnity Agreement.
C. Indemnitor has a substantial direct or indirect interest in the
Property, financial or otherwise.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Indemnitor hereby agrees and covenants for the benefit of
Northwestern and the other Indemnified Parties as follows:
1. The following definitions shall apply to this Indemnity Agreement:
(a) "Environmental Activity or Condition" means the presence, use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or transportation of any Hazardous Substance on, onto, in,
under, over or from the Property or the violation of any Environmental Law
because of the condition of, or activity on, the Property.
(b) "Environmental Law" means all law relating to hazardous waste,
chemical substances or mixtures or hazardous, toxic, dangerous or unhealthy
substances or conditions or relating to the interaction of the use or ownership
of property and the environment, whether such law is: (i) criminal or civil,
(ii) federal, state or local, (iii)
1
<PAGE>
statutory, common law or administrative regulation, (iv) currently in effect or
enacted in the future.
(c) "Hazardous Substance" means any substance which (i) is designated
as hazardous, toxic or dangerous or similarly designated under any Environmental
Law, (ii) is regulated under any Environmental Law or by any governmental or
quasi-governmental agency, or (iii) could be a hazard to health, safety or
property values. Without limiting the foregoing, Hazardous Substances shall
include underground storage tanks, asbestos, urea formaldehyde insulation,
polychlorinated biphenyls, dioxins and petroleum products.
(d) "Property" means the property described in Exhibit "A" attached
hereto, including the soil, surface water, ground water, air and improvements
on, beneath or above such property.
2. The Indemnitor hereby agrees to indemnify, defend and hold
Northwestern and its trustees, officers, policyholders, employees and agents
(collectively, the "Indemnified Parties") harmless from and against any and all
damages, liabilities, losses, costs and expenses, including reasonable
attorneys' fees, (collectively, "Damages") suffered or incurred by any of the
Indemnified Parties as a result of any Environmental Activity or Condition which
would not have been suffered or incurred if Northwestern had not made the Loan.
The liability of Indemnitor as set forth in the preceding sentence includes,
without limitation, the following:
(a) Any costs of, or liability for, investigation, cleanup or
remediation of environmental damage;
(b) Any damages resulting from the diminution in value or
unmarketability of the Property or any other property;
(c) Any consequential or punitive damages suffered or incurred by any
of the Indemnified Parties;
(d) Any fines, penalties, assessments, judgments or other liabilities
resulting from any claim, judgment or finding concerning the violation
of any Environmental Law;
(e) Any amounts expended by any of the Indemnified Parties in good
faith to settle or compromise any claim or allegation of liability
covered by this Agreement.
2
<PAGE>
The liability of the Indemnitor hereunder shall continue, without reduction or
change, upon and subsequent to Northwestern becoming owner of the Property
through foreclosure, deed-in-lieu of foreclosure or otherwise, excepting only
Damages resulting from actions taken either by Northwestern, by successive
owners of the Property or by those contracting with Northwestern or any
successive owner subsequent to Northwestern becoming owner of the Property;
provided, however, that the Indemnitor shall nonetheless be responsible for the
actions of any party investigating or cleaning up Hazardous Substances, whether
or not contracted for by Northwestern, if the Indemnitor is otherwise liable
hereunder or otherwise for such investigation or clean up. The liability of the
Indemnitor hereunder shall not be reduced or otherwise affected by any
Environmental Activity or Condition occurring or existing prior to Northwestern
becoming owner of the Property even if caused in whole or part by a predecessor
in title, tenant, trespasser or other third person, whether on or off of the
Property. As between the Indemnitor and the Indemnified Parties, the agreements
by the Indemnitor hereunder shall override and be in lieu of any statutory,
regulatory or common law prescriptions for liability, contribution or cost
sharing.
3. The liability of the Indemnitor under this Indemnity Agreement (i)
shall not be subject to any limitations on liability set forth in any of the
documents evidencing the Loan and (ii) shall be an unsecured obligation of
Indemnitor to each of the Indemnified Parties, notwithstanding the terms of the
Mortgage or any other agreement.
4. Except as provided in paragraph 2 hereof, without limitation, the
obligations and liability of any Indemnitor under this Indemnity Agreement shall
in no way be waived, released, discharged, reduced, mitigated or otherwise
affected by:
(a) The repayment of the Loan and/or the satisfaction or release
of the Mortgage; or
(b) Any neglect, delay or forbearance of Northwestern in
demanding, requiring or enforcing payment of the indemnity due hereunder; or
(c) The receivership, bankruptcy, insolvency or dissolution of
Indemnitor or any affiliate thereof; or
(d) Any sale or refinancing of, or other transactions related to,
the Property by Borrower or Northwestern; or
(e) Indemnitor transferring or divesting any or all of its estate,
right, title or interest in or to the Property or any interest in any entity.
3
<PAGE>
5. Without limiting the other provisions hereof, in the event any claim
(whether or not a judicial or administrative action is involved) is asserted
against any of the Indemnified Parties with respect to any Environmental
Activity or Condition, Northwestern shall have the right to select the
engineers, other consultants and attorneys for the defense of the Indemnified
Parties, to determine the appropriate legal strategy for such defense and to
compromise or settle such claim, all in Northwestern's discretion, and the
Indemnitor shall be liable to Northwestern in accordance with the terms hereof
for all Damages suffered or incurred by Northwestern in this regard.
6. Without limiting the other provisions hereof, if Northwestern
acquires legal possession and/or title to the Property and Northwestern becomes
aware of any Environmental Activity or Condition for which Indemnitor may have
liability in accordance with the other provisions of this Indemnity Agreement,
whether or not a claim is asserted against Northwestern or any of the other
Indemnified Parties, Northwestern shall have the right to take such action as
Northwestern shall deem reasonably necessary, in Northwestern's discretion, to
protect health, safety and property values and to minimize the probability or
extent of liability to Northwestern and the other Indemnified Parties,
including, without limitation, investigation and/or cleanup, and the Indemnitor
shall be liable to Northwestern in accordance with the terms hereof for all
Damages suffered or incurred by Northwestern in this regard.
7. No action or proceeding brought or instituted under this Indemnity
Agreement and no recovery made as a result thereon shall be a bar or defense to
any further action or proceeding under this Indemnity Agreement.
8. The covenants, agreements, indemnities, terms and conditions
contained in this Indemnity Agreement shall extend to, and be binding upon, the
Indemnitor, its heirs, executors, administrators, successors and assigns, and
shall inure to the benefit of, and may be enforced by, Northwestern or any of
the other Indemnified Parties and its and their successors and assigns.
9. Each provision of this Indemnity Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Indemnity Agreement shall be prohibited, invalid or
ineffective under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the remainder
of such provision or the remaining provisions of this Indemnity Agreement.
10. Indemnitor shall reimburse Northwestern and the other Indemnified
Parties for all reasonable attorneys' fees and expenses incurred in connection
with the enforcement of the Indemnified Parties' rights under this Indemnity
Agreement, including those
4
<PAGE>
incurred in any case, action, proceeding, claim under the Federal Bankruptcy
Code or any successor statute.
11. As additional assurance for the timely performance of the
obligations of the Indemnitor hereunder, Indemnitor hereby assigns to
Northwestern any rights such Indemnitor may have against any other person or
entity (including, without limitation, any present, future or former owners,
tenants or other occupants or users of the Property or any portion thereof)
relating to the matters covered by this Indemnity Agreement.
12. No consent by any Indemnitor shall be required for any assignment
or reassignment of the rights of Northwestern hereunder to one or more
purchasers of the Loan or the Property or any portion of either.
IN WITNESS WHEREOF, the undersigned Indemnitor has executed this
Indemnity Agreement as of the day and year first above written.
ECHELON INTERNATIONAL
CORPORATION, a Florida corporation
By:_______________________________
By:_______________________________
(corporate seal)
5
EXHIBIT 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 3rd day of
November, 1997, but is effective for all purposes as of January 05, 1998, by and
between ECHELON INTERNATIONAL CORPORATION, a Florida corporation (the
"Company"), and JULIO A. MAGGI, residing at 659 Randy Lane, Winter Park, FL
32789 (the "Executive").
W I T N E S S E T H:
1. EMPLOYMENT
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, upon the terms and subject to the conditions set forth
in this Agreement.
2. TERM
Subject to the provisions for termination as hereinafter provided, the
term of employment under this Agreement shall begin as of January 05, 1998 and
shall continue through December 31, 2000 (the "Employment Term"), provided,
however, that this Employment Agreement shall thereafter automatically be
renewed for successive one year terms of employment unless either party gives
the other written notice of termination at least one hundred twenty (120) days
prior to the end of any such term.
3. COMPENSATION
(a) BASE SALARY. Effective as of the Employment Date, the Company shall
pay to the Executive as basic compensation for all services rendered by the
Executive during the term of this Agreement a basic annualized salary of
$150,000 per year, or such other sum in excess of that amount as the parties may
agree on from time to time or as provided in the next sentence (as in effect
from time to time, the "Base Salary"), payable monthly or in other more frequent
installments, as determined by the Company. The Board of Directors shall have no
authority to reduce the Executive's Base Salary in effect from time to time. In
addition, the Board of Directors, in its discretion, may award a bonus or
bonuses to the Executive in addition to the bonuses provided for in Section
3(b).
(b) BONUSES. In addition to the Base Salary to be paid pursuant to
Section 3(a), for and after the close of each fiscal year of the Company ending
on December 31, 1998, 1999 and 2000, provided that the Executive is then
employed by the Company under this Agreement, the Company shall pay as incentive
compensation the Management Incentive Compensation Plan ("MICP") bonuses, to the
extent earned, specified on Exhibit A to this Agreement. For each fiscal year
ending after December 31, 2000, provided the Executive continues to be employed
by the Company under this Agreement, the Executive shall be eligible for
incentive compensation annual bonus plan(s)
<PAGE>
adopted by the Board of Directors of the Company from time to time in accordance
with the terms of such plans.
(c) CERTAIN PLANS; INITIAL AND PERIODIC AWARDS. (i) The Company has
adopted certain incentive compensation plans including a long term incentive
plan (the "LTIP") providing for annual or other periodic awards to key employees
of, among other things, restricted stock and stock options (collectively, the
"Plans").
(ii) The Company hereby agrees to issue to the Executive under the
LTIP, effective upon the Employment Date, seven thousand five hundred (7,500)
shares of the Company's common stock (the "Restricted Stock"), which Restricted
Stock shall be subject to risk of forfeiture, which risk will lapse as to
one-fifth of the shares of the Restricted Stock on the first anniversary of the
Employment Date and as to an additional one-fifth of the Restricted Stock on
each of the then following four anniversaries of the Employment Date.
(iii) In addition to the Restricted Stock, the Company hereby
agrees to grant to the Executive under the LTIP, (1) effective as of the
Employment Date, options to purchase ten thousand (10,000) shares of the
Company's common stock (the "Initial Options"), and (2) for and after the close
of the fiscal year of the Company ending on December 31, 2000, provided that the
Executive is then employed by the Company under this Agreement, to the extent
earned, options to purchase a number of shares of the Company's common stock
specified on Exhibit A to this Agreement ("Periodic Options"). Initial Options
shall be exercisable as to one-fifth of the shares of common stock covered by
such options on the first anniversary of the date of grant thereof (the "Grant
Date") and as to an additional one-fifth of such shares on each of the then
following four anniversaries of the applicable Grant Date; Periodic Options
shall be immediately exercisable as to all shares of common stock covered
thereby. All Initial Options and Periodic Options shall expire ten (10) years
after the applicable Grant Date. The exercise price for each such option shall
be the closing price on the New York Stock Exchange (or such other market on
which the Company's stock trades if it is not listed on the New York Stock
Exchange) on the applicable Grant Date or, if such Grant Date is not a trading
day, the first trading day thereafter.
(iv) Any and all risks of forfeiture shall lapse as to all of the
Restricted Stock and the Initial Options shall be fully vested and shall be
exercisable as to all of the shares of common stock covered by the Initial
Options upon (i) the death of the Executive or termination of employment upon
the "Permanent Disability" (as that term is defined in Section 7(b)(ii) of this
Agreement) of the Executive, (ii) the termination of employment of the Executive
by the Company "Without Good Cause" (as that term is defined in Section 8(b)(ii)
of this Agreement) or (iii) the exercise by the Executive of his rights to
terminate his employment under Section 8(d)(ii) following a "Change of Control"
(as that term is defined in Section 8(d)(i) of this Agreement). Except as
provided in the preceding sentence, elsewhere in this Agreement, in an
applicable Plan or, as to any stock option, in the applicable certificate or
award agreement therefor, upon termination of the Executive's employment with
the Company, any shares of Restricted Stock as to which risk of forfeiture shall
not have lapsed shall be forfeited to the Company and canceled, and the Initial
Options, but only if and to the extent then not fully vested, shall not
thereafter become further vested.
<PAGE>
(d) REIMBURSEMENT. The Company shall reimburse the Executive, in
accordance with the Company's policies and practices for senior management, for
all reasonable expenses incurred by the Executive in the performance of the
Executive's duties under this Agreement, provided, however, that the Executive
must furnish to the Company an itemized account, satisfactory to the Company, in
substantiation of such expenditures.
(e) CERTAIN BENEFITS. Effective as of the effective date of this
Agreement, the Executive shall be entitled to such medical and other health
benefits as may be provided from to time to time to other senior officers of the
Company. Effective as of the Employment Date the Executive shall be entitled, in
addition to medical and other health benefits, to such fringe benefits
including, but not limited to, life insurance benefits and other benefits as may
be provided from time to time by the Company to other senior officers of the
Company. In addition, without restricting the foregoing, effective as of the
Employment Date the Company shall provide the Executive at the Company's sole
cost and expense with (i) a policy or policies of term life insurance (the
"Basic Life Insurance") providing, among other things, basic death benefits of
not less than two times the Base Salary in effect from time to time, (ii)
directors and officers liability insurance with coverage, terms and limits
suitable for a vice president of a New York Stock Exchange listed company
comparable in financial size and wherewithal to that of the Company, and (iii) a
monthly allowance of $500 cash to reimburse the Executive for the use and
maintenance of his automobile in furtherance of the business and affairs of the
Company, provided that the Executive shall at all times insure the Executive and
the Company in such amounts as may be reasonably requested by the Company
against claims for bodily injury, death and property damages occurring as a
result of its use. The Company shall use its reasonable best efforts to make
available to the Executive in connection with providing and paying for the Basic
Life Insurance the opportunity to purchase at the Executive's sole cost and
expense additional life insurance with a basic death benefit (the "Optional Life
Insurance") equal to two times the Executive's Base Salary in effect from time
to time (affording the Executive the opportunity to have basic death benefit
life insurance coverage equal to four times such Base Salary). The Company shall
use its reasonable best efforts to effect the transfer of the ownership to the
Executive of the policy or policies for the Basic Life Insurance and the
Optional Life Insurance, if any, upon the termination of the Executive's
employment by the Company. After the Executive's termination, payment of any
premiums would be the obligation of the Executive.
(f) OTHER INCENTIVE AND BENEFIT PLANS. Effective as of the Employment
Date the Executive shall be eligible to participate, in accordance with the
terms of such plans as they may be adopted, amended and administered from time
to time, in incentive, bonus, benefit or similar plans, including without
limitation, any stock option, bonus or other equity ownership plan, any short,
mid or long term incentive plan and any other bonus, pension or profit sharing
plans established by the Company from time to time.
3.
<PAGE>
4. DUTIES
(a) GENERAL. The Executive is engaged as a Vice President of the
Company. In addition, at the request of the Board of Directors, the Executive
shall serve in any positions in any wholly owned subsidiary of the Company,
without any additional compensation. The Executive shall have such duties and
hold such other offices as may from time to time be reasonably assigned to him
by the Board of Directors of the Company.
(b) INDEMNIFICATION. To the fullest extent permitted by law, the
Company shall indemnify and hold harmless the Executive for all liabilities,
costs, expenses and damages arising out of or in connection with the Executive's
employment by or service to the Company under this Agreement. In furtherance of
this indemnity, the Company shall enter into an indemnification agreement, in
form and substance reasonably satisfactory to the Executive and the Company. In
addition, the indemnity provided hereunder shall extend to service by the
Executive as an officer or director, or service in a similar capacity, for any
civic, community or charitable organization, provided such service is undertaken
at the request of or with the knowledge and acquiescence of the Company. The
foregoing indemnification shall be in addition to any rights or benefits the
Executive may have under statute, the Bylaws or Articles of Incorporation of the
Company, under a policy of insurance, or otherwise.
5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF
(a) EXTENT OF SERVICES. Effective as of the Employment Date, except
during customary vacation periods and periods of illness, the Executive shall
devote full-time energy and attention during regular business hours to the
benefit and business of the Company as may be reasonably necessary in performing
the Executive's duties pursuant to this Agreement.
(b) VACATIONS. Effective as of the Employment Date the Executive shall
be entitled to vacations with pay and to such personal and sick leave with pay
in accordance with the policy of the Company as may be established from time to
time by the Company and applied to other senior officers of the Company.
However, in no event shall the Executive be entitled to less than three weeks
vacation with pay per year during the first two years of employment and four
weeks of vacation with pay per year after two years of employment. Unused
vacation days may be carried over from one year to the next for a period of up
to two years. Any vacation days which remain unused on the second anniversary of
the end of the fiscal year to which they originally related shall expire and
shall thereafter no longer be useable by the Executive.
6. FACILITIES
The Company shall provide the Executive with a fully furnished office,
and the facilities of the Company shall be generally available to the Executive
in the performance of the Executive's duties pursuant to this Agreement, it
being understood and contemplated by the parties that all
4.
<PAGE>
equipment, supplies and office personnel required in the performance of the
Executive's duties under this Agreement shall be supplied by and at the sole
expense of the Company.
7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC.
(a) DEATH. If after the Employment Date the Executive dies during the
term of the Executive's employment, the Company shall pay to the estate of the
Executive within 30 days after the date of death such Base Salary and any cash
bonus compensation earned pursuant to the provisions of any incentive
compensation plan then in effect but not yet paid, as would otherwise have been
payable to the Executive up to the end of the month in which the Executive's
death occurs. After receiving the payments provided in this Section 7(a) the
Executive and the Executive's estate shall have no further rights under this
Agreement (other than those rights already accrued).
(b) DISABILITY. (i) During any period of disability, illness or
incapacity after the Employment Date and during the term of this Agreement which
renders the Executive temporarily unable to perform the services required under
this Agreement, the Executive shall receive the Base Salary payable under
Section 3(a) of this Agreement plus any cash bonus compensation earned pursuant
to the provisions of any incentive compensation plan then in effect but not yet
paid, less any cash benefits received by him under any disability insurance
carried by or provided by the Company. Upon the Executive's "Permanent
Disability" (as defined below),the Executive shall receive the Base Salary
payable under Section 3(a) of this Agreement plus any cash bonus compensation
earned pursuant to the provisions of any incentive compensation plan then in
effect but not yet paid, as would otherwise have been payable to the Executive
up to the end of the month in which the Executive's Permanent Disability occurs.
Upon "Permanent Disability" (as that term is defined in Section 7(b)(ii) below)
of the Executive, except as provided in this Section 7(b), all rights of the
Executive under this Agreement (other than rights already accrued) shall
terminate.
(ii) The term "Permanent Disability" as used in this Agreement
shall mean, in the event a disability insurance policy is maintained by the
Company covering the Executive at such time and is in full force and effect, the
definition of permanent disability set forth in such policy. In the event no
disability insurance policy is maintained at such time and in full force and
effect, "Permanent Disability" shall mean the inability of the Executive, as
determined by the Board of Directors of the Company, by reason of physical or
mental disability to perform the duties required of him under this Agreement for
a period of one hundred and eighty (180) days in any one-year period. Successive
periods of disability, illness or incapacity will be considered separate periods
unless the later period of disability, illness or incapacity is due to the same
or related cause and commences less than six months from the ending of the
previous period of disability. Upon such determination, the Board of Directors
may terminate the Executive's employment under this Agreement upon ten (10)
days' prior written notice. If any determination of the Board of Directors with
respect to permanent disability is disputed by the Executive, the parties hereto
agree to abide by the decision of a panel of three physicians. The Executive and
Company shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The
5.
<PAGE>
Executive agrees to make herself
available for and submit to examinations by such physicians as may be directed
by the Company. Failure to submit to any such examination shall constitute a
breach of a material part of this Agreement.
8. OTHER TERMINATIONS
(a) BY THE EXECUTIVE. (i) The Executive may terminate the Executive's
employment hereunder upon giving at least ninety (90) days' prior written
notice. In addition, the Executive shall have the right to terminate the
Executive's employment hereunder on the conditions and at the times provided for
in Section 8(d) of this Agreement.
(ii) If the Executive gives notice pursuant to Section 8(a)(i)
above, the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing.
In any such event, the Executive shall be entitled to receive only the Base
Salary not yet paid, as would otherwise have been payable to the Executive up to
the end of the month specified as the month of termination in the termination
notice. In the event the Executive gives notice pursuant to Section 8(a)(i)
above but specifies a termination date in excess of ninety (90) days from the
date of such notice, the Company shall have the right (but not the obligation)
to accelerate the termination date to any date prior to the date specified in
the notice that is in excess of ninety (90) days from the date of the notice,
and the Company shall have the right (but not the obligation) to relieve the
Executive, in whole or in part, of the Executive's duties under this Agreement,
or direct the Executive to no longer perform such duties, or direct that the
Executive should no longer report to work, or any combination of the foregoing;
provided, however, that in any such event the Executive shall be entitled to
receive the Base Salary, as would otherwise have been payable to the Executive
up to the end of the month of the termination date properly selected by the
Company. Upon receiving the payments provided for under this Section 8(a), all
rights of the Executive under this Agreement (other than rights already accrued)
shall terminate.
(b) TERMINATION FOR "GOOD CAUSE". (i) Except as otherwise provided in
this Agreement, the Company may terminate the employment of the Executive
hereunder only for "good cause," which shall mean: (A) the Executive's
conviction of either a felony involving moral turpitude or any crime in
connection with the Executive's employment by the Company which causes the
Company a substantial detriment, but specifically shall not include traffic
offenses; (B) the Executive's taking action as an executive officer of the
Company which, at the time such action is taken, the Executive knows or
reasonably should know to be contrary to the best interests of the Company; (C)
the Executive's willful failure to take actions not prohibited by law and
necessary to implement policies of the Company's Board of Directors which
actions the Board of Directors has communicated to him in writing, provided that
minutes of a Board of Directors meeting attended in its entirety by the
Executive shall be deemed communicated to the Executive; (D) the Executive's
continued failure to attend to the Executive's duties as an executive officer of
the Company; or (E) the Executive's use of or substantial dependence on alcohol
or any narcotic drug
6.
<PAGE>
or other controlled or illegal substance, if such use or dependence renders the
Executive unable to perform his duties under this Agreement with or without
reasonable accommodation, or any illegal use of such substance during working
hours or while performing services under this Agreement. If any determination of
substantial dependence is disputed by the Executive, the parties hereto agree to
abide by the decision of a panel of three physicians appointed in the manner and
subject to the same penalties for noncompliance as specified in Section 7(b)(ii)
of this Agreement.
(ii) Notwithstanding the foregoing, each of the foregoing
bases for termination specified in (A) through (E) of Subsection 8(b)(i) shall
constitute "Good Cause" only if (1) the Executive has been provided with written
notice of any assertion that there is a basis for termination for good cause
which notice shall specify in reasonable detail specific facts regarding any
such assertion and the Executive has been given a reasonable period of time
within which to remedy or cure the problem or complaint, (2) such notice is
provided to the Executive a reasonable time before the Board of Directors meets
to consider any possible termination for cause, (3) at or prior to the meeting
of the Board of Directors to consider the matters described in the written
notice, an opportunity is provided to the Executive and his counsel to be heard
by the Board of Directors with respect to the matters described in the written
notice, before it acts with respect to such matter, (4) any resolution or other
action by the Board of Directors with respect to any deliberation regarding or
decision to terminate the Executive for good cause is duly adopted by a vote of
a majority of the entire Board of Directors of the Company at a meeting of the
Board duly called and held and (5) the Executive is promptly provided with a
copy of the resolution or other corporate action taken with respect to such
termination.
(iii) If the employment of the Executive is terminated for
good cause under Section 8(b)(i) of this Agreement, the Company shall pay to the
Executive any Base Salary earned prior to the effective date of termination but
not yet paid and any cash bonus compensation earned pursuant to the provisions
of any incentive compensation plan then in effect but not paid to the Executive
prior to the effective date of such termination. Under such circumstances, such
payments shall be in full and complete discharge of any and all liabilities or
obligations of the Company to the Executive hereunder, and the Executive shall
be entitled to no further benefits under this Agreement (other than rights
already accrued).
(iv) Termination of the employment of the Executive other than
as expressly specified above in this Section 8(b) for good cause shall be deemed
to be a termination of employment "Without Good Cause."
(c) TERMINATION WITHOUT GOOD CAUSE. (i) Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate the
Executive's employment Without Good Cause pursuant to the provisions of this
Section 8(c). If after the Employment Date the Company shall terminate the
employment of the Executive Without Good Cause effective on a date earlier than
the termination date provided for in Section 2 (with the effective date of
termination as so identified by the Company being referred to herein as the
"Accelerated Termination Date"), the Executive, until the end of the term of
this Agreement then in effect as provided for in Section 2 or until the date
which is 24 months after the Accelerated Termination Date, whichever is greater,
shall continue to receive, paid in the same monthly or other periodic
installments or at the otherwise same
7.
<PAGE>
applicable times as in effect prior to the Accelerated Termination Date, (1) the
Base Salary, (2) an amount equal to the target level of the annual MICP cash
bonus payable to the Executive as described on Exhibit A or any similar bonus or
incentive plans or programs then in effect (the "MICP Target Amount") in respect
of the year during which the Executive's employment terminates or, if greater,
the MICP Target Amount multiplied times the number of years (or fractions
thereof) remaining in the then unexpired term of this Agreement, and (3) any
other cash or other bonus compensation earned prior to the date of such
termination pursuant to the terms of all incentive compensation plans then in
effect other than under the MICP as described on Exhibit A or any similar bonus
or incentive plans or programs then in effect; provided that, notwithstanding
such termination of employment, the Executive's covenants set forth in Section
10 and Section 11 are intended to and shall remain in full force and effect and
provided further that in the event of such termination, the Company shall have
the right (but not the obligation) to relieve the Executive, in whole or in
part, of the Executive's duties under this Agreement, or direct the Executive to
no longer perform such duties, or direct that the Executive no longer be
required to report to work, or any combination of the foregoing.
(ii) The parties agree that, because there can be no exact
measure of the damage that would occur to the Executive as a result of a
termination by the Company of the Executive's employment Without Good Cause, the
payments and benefits paid and provided pursuant to this Section 8(c) shall be
deemed to constitute liquidated damages and not a penalty for the Company's
termination of the Executive's employment Without Good Cause.
(d) CHANGE OF CONTROL. (i) For purposes of this Agreement, a "Change in
Control" shall mean the first to occur of:
(1) a change in control of the Company of a nature that
is required, pursuant to the Securities Exchange Act
of 1934 (the "1934 Act"), to be reported in response
to Item 1(a) of a Current Report on Form 8-K or Item
6(e) of Schedule 14A under the 1934 Act (in each case
under this Agreement, references to provisions of the
1934 Act and the rules and regulations promulgated
thereunder being understood to refer to such law,
rules and regulations as the same are in effect on
November 1, 1996); or
(2) the acquisition of "Beneficial Ownership" (as defined
in Rule 13d-3 under the 1934 Act) of the Company's
securities comprising 35% or more of the combined
voting power of the Company's outstanding securities
by any "person" (as that term is used in Sections
13(d) and 14(d)(2) of the 1934 Act and the rules and
regulations promulgated thereunder, but not including
any trustee or fiduciary acting in that capacity for
an employee benefit plan sponsored by the Company)
and such person's "affiliates" and "associates" (as
those terms are defined under the 1934 Act), but
excluding any ownership by the Executive and his
affiliates and associates; or
8.
<PAGE>
(3) the failure of the "Incumbent Directors" (as defined
below) to constitute at least a majority of all
directors of the Company (for these purposes,
"Incumbent Directors" means individuals who were the
directors of the Company on November 1, 1996, and,
after his or her election, any individual becoming a
director subsequent to November 1, 1996, whose
election, or nomination for election by the Company's
stockholders, is approved by a vote of at least
two-thirds of the directors then comprising the
Incumbent Directors, except that no individual shall
be considered an Incumbent Director who is not
recommended by management and whose initial
assumption of office as a director is in connection
with an actual or threatened "election contest"
relating to the "election of directors" of the
Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the 1934 Act); or
(4) the closing of a sale of all or substantially all of
the assets of the Company;
(5) the Company's adoption of a plan of dissolution or
liquidation; or
(6) the closing of a merger or consolidation involving
the Company in which the Company is not the surviving
corporation or if, immediately following such merger
or consolidation, less than seventy-five percent
(75%) of the surviving corporation's outstanding
voting stock is held or is anticipated to be held by
persons who are stockholders of the Company
immediately prior to such merger or consolidation.
(ii) If after the Employment Date a Change in Control of the
Company occurs, the Executive shall have the right, exercisable for a period of
one year thereafter by delivering a written statement to that effect to the
Company, to immediately terminate this Agreement and upon such a determination
the Executive shall have the right to receive and the Company shall be obligated
to pay to Executive in cash a lump sum payment in an amount equal to the sum of
(1) two times the annual Base Salary then in effect, (2) two times the MICP
Target Amount (as that term is defined in Section (8)(c)) in the year in which
employment terminates and (3) the additional payments necessary to discharge
certain tax liabilities (the "Gross Up") as that term is defined in Section 13
of this Agreement (the sum of the foregoing amounts other than the Gross Up
being referred to as the "Change in Control Payment"). If the Executive fails to
exercise his rights under this Section 8(d) within one year following a Change
in Control, such rights shall expire and be of no further force or effect.
(e) INTENTIONS REGARDING CERTAIN STOCK AND BENEFIT PLANS. Except as
otherwise provided herein, upon any termination of the Executive's employment
upon the Without Good Cause or upon the exercise by the Executive of his rights
to terminate his employment following a Change of Control, it is the intention
of the parties that any and all vesting or performance requirements or
conditions affecting any outstanding restricted stock, performance stock, stock
option, stock appreciation right, bonus, award, right, grant or any other
incentive compensation under any of the
9.
<PAGE>
Plans, under this Agreement, or otherwise received, shall be deemed to be fully
satisfied and any risk of forfeiture with respect thereto shall be deemed to
have lapsed.
(f) CERTAIN RIGHTS MUTUALLY EXCLUSIVE. The provisions of Section 8(c)
and Section 8(d) are mutually exclusive, provided, however, that if within one
year following commencement of an 8(c) payout there shall be a Change in Control
as defined in Section 8(d)(i), then the Executive shall be entitled to the
amount payable to the Executive under Section 8(d)(ii) reduced by the amount
that the Executive has received under Section 8(c) up to the date of the change
in control. The triggering of the lump sum payment requirement of Section 8(d)
shall cause the provisions of Section 8(c) to become inoperative.
9. DISCLOSURE
The Executive agrees that during the term of the Executive's employment
by the Company, and except as otherwise required by law, the Executive will
disclose and disclose only to the Company all ideas, methods, plans,
developments or improvements known by him which relate directly or indirectly to
the business of the Company, whether acquired by the Executive before or during
the Executive's employment by the Company. Nothing in this Section 9 shall be
construed as requiring any such communication where the idea, plan, method or
development is lawfully protected from disclosure as a trade secret of a third
party or by any other lawful prohibition against such communication. The
covenants of this Section 9 shall not be violated by ordinary and customary
communications with reporters, bankers and securities analysts and other members
of the investment community.
10. CONFIDENTIALITY
Except as otherwise required by law, the Executive agrees to keep in
strict secrecy and confidence any and all information the Executive assimilates
or to which the Executive has access during the Executive's employment by the
Company and which has not been publicly disclosed and is not a matter of common
knowledge in the fields of work of the Company. The Executive agrees that both
during and after the term of the Executive's employment by the Company, the
Executive will not, without the prior written consent of the Company, disclose
any such confidential information to any third person, partnership, joint
venture, company, corporation or other organization. The foregoing covenants
shall not be breached to the extent that any such confidential information
becomes a matter of general knowledge other than through a breach by the
Executive of the Executive's obligations under this Section 10.
10.
<PAGE>
11. NONCOMPETITION AND NONSOLICITATION
(a) GENERAL. The Executive hereby acknowledges that, during and solely
as a result of the Executive's employment by the Company, the Executive has
received and shall continue to receive: (1) special training and education with
respect to the operations of the Company's real estate development and
management businesses and its leasing, lending and financing activities, and
other related matters, and (2) access to confidential information and business
and professional contacts. In consideration of the special and unique
opportunities afforded to the Executive by the Company as a result of the
Executive's employment, as outlined in the previous sentence, the Executive
hereby agrees to the restrictive covenants in this Section 11.
(b) NONCOMPETITION. During the term of the Executive's employment,
whether pursuant to this Agreement, any automatic or other renewal hereof or
otherwise, and, except as may be otherwise herein provided, for a period of two
(2) years after the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive shall not, directly
or indirectly, enter into, engage in, be employed by or consult with any
business which competes with the Company's real estate lending, leasing,
development or management businesses in Florida. Notwithstanding the foregoing,
however, if the Executive's employment by the Company terminates on account of
the giving by the Company of notice of termination pursuant to Section 2 of this
Agreement, then (i) the two (2) year period referred to in the preceding
sentence shall be shortened to one (1) year, and (ii) the geographic region
referred to in the preceding sentence shall be reduced from Florida to the
greater Tampa Bay area (Hillsborough, Pinellas, Pasco, Manatee and Sarasota
Counties) and the greater Orlando area (Orange, Seminole, Osceola and Lake
Counties). The Executive shall not engage in such prohibited activities, either
as an individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, or representative or
salesman for any person, firm, partnership, corporation or other entity so
competing with the Company. The restrictions of this Section 11 shall not be
violated by (i) the ownership of no more than 2% of the outstanding securities
of any company whose stock is listed, traded or quoted on a national securities
exchange or any market maintained or operated by the National Association of
Securities Dealers, or (ii) other outside business investments that do not in
any manner conflict with the services to be rendered by the Executive for the
Company and that do not diminish or detract from the Executive's ability to
render the Executive's required attention to the business of the Company.
(c) NONSOLICITATION. During the Executive's employment with the Company
and, except as may be otherwise herein provided, for a period of two (2) years
following the termination of the Executive's employment with the Company,
regardless of the reason for such termination, the Executive agrees the
Executive will refrain from and will not, directly or indirectly, as an
individual, partner, officer, director, stockholder, employee, advisor,
independent contractor, joint venturer, consultant, agent, representative,
salesman or otherwise solicit any of the employees of the Company to terminate
their employment.
11.
<PAGE>
(d) TERM EXTENDED OR SUSPENDED. The period of time during which the
Executive is prohibited from engaging in certain business practices pursuant to
Sections 11(b) or (c) shall be extended by any length of time during which the
Executive is in breach of such covenants.
(e) ESSENTIAL ELEMENT. It is understood by and between the parties
hereto that the foregoing restrictive covenants set forth in Sections 11(a)
through (c) are essential elements of this Agreement, and that, but for the
agreement of the Executive to comply with such covenants, the Company would not
have agreed to enter into this Agreement. Such covenants by the Executive shall
be construed as agreements independent of any other provision in this Agreement.
The existence of any claim or cause of action of the Executive against the
Company, whether predicated on this Agreement, or otherwise, shall not
constitute a defense to the enforcement by the Company of such covenants.
(f) SEVERABILITY. It is agreed by the Company and Executive that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Company and Executive agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area
applicable to this Section 11 to be invalid, unreasonable, arbitrary or against
public policy, a lesser time period or geographical area which is determined to
be reasonable, non-arbitrary and not against public policy may be enforced
against the Executive. The Company and the Executive agree that the foregoing
covenants are appropriate and reasonable when considered in light of the nature
and extent of the business conducted by the Company.
12. SPECIFIC PERFORMANCE
The Executive agrees that damages at law will be an insufficient remedy
to the Company if the Executive violates the terms of Sections 9, 10 or 11 of
this Agreement and that the Company would suffer irreparable damage as a result
of such violation. Accordingly, it is agreed that the Company shall be entitled,
upon application to a court of competent jurisdiction, to obtain injunctive
relief to enforce the provisions of such Sections, which injunctive relief shall
be in addition to any other rights or remedies available to the Company. The
Executive agrees to pay to the Company all reasonable costs and expenses
incurred by the Company relating to the enforcement of the terms of Sections 9,
10 or 11 of this Agreement, including reasonable fees and reasonable
disbursements of counsel selected by the Company (during investigation and
before and at trial and in appellate proceedings).
12.
<PAGE>
13. PAYMENT OF EXCISE TAXES
(a) PAYMENT OF EXCISE TAXES. If the Executive is to receive any Change
of Control Payment under Section 8(d), or any benefit or payment under the Plans
as a result of a Change of Control, following the death or Permanent Disability
of the Executive or following the termination of employment hereunder Without
Good Cause (such sections being referred to as the "Covered Sections" and the
benefits and payments to be received thereunder being referred to as the
"Covered Payments", the Executive shall be entitled to receive the amount
described below to the extent applicable. If any Covered Payment(s) under any of
the Covered Sections or by the Company under another plan or agreement
(collectively, the "Payments") are subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986 (as amended from time to time, the
"Code"), or any successor or similar provision of the Code (the "Excise Tax"),
the Company shall pay the Executive an additional amount (the "Gross Up") such
that the net amount retained by the Executive after deduction of any Excise Tax
on the Payments and the federal income tax on any amounts paid under this
Section 13 shall be equal to the Payments.
(b) CERTAIN ADJUSTMENT PAYMENTS. For purposes of determining the Gross
Up, the Executive shall be deemed to pay the federal income tax at the highest
marginal rate of taxation (currently 39.5%) in the calendar year in which the
payment to which the Gross Up applies is to be made. The determination of
whether such Excise Tax is payable and the amount thereof shall be made upon the
opinion of tax counsel selected by the Company and reasonably acceptable to the
Executive. The Gross Up, if any, that is due as a result of such determination
shall be paid to the Executive in cash in a lump sum within thirty (30) days of
such computation. If such opinion is not finally accepted by the Internal
Revenue Service upon audit or otherwise, then appropriate adjustments shall be
computed (without interest but with Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax so determined; any additional
amount due the Executive as a result of such adjustment shall be paid to the
Executive by his or her Company in cash in a lump sum within thirty (30) days of
such computation, or any amount due the Executive's Company as a result of such
adjustment shall be paid to the Company by the Executive in cash in a lump sum
within thirty (30) days of such computation.
14. MISCELLANEOUS
(a) WAIVER OF BREACH. The waiver by either party to this Agreement of a
breach of any of the provisions of this Agreement by the other party shall not
be construed as a waiver of any subsequent breach by such other party.
(b) NO RIGHT TO CONTINUED EMPLOYMENT. Notwithstanding the fact that
certain provisions of this Agreement and/or Exhibit A reference a three year
cycle or provide for benefits upon a third year of employment, this Agreement
shall have a two year term with annual one year renewal terms subject to the
termination provisions contained herein.
13.
<PAGE>
(c) COMPLIANCE WITH OTHER AGREEMENTS. The Executive represents and
warrants that the execution of this Agreement by him and the Executive's
performance of the Executive's obligations hereunder will not conflict with,
result in the breach of any provision of or the termination of or constitute a
default under any Agreement to which the Executive is a party or by which the
Executive is or may be bound.
(d) BINDING EFFECT; ASSIGNMENT. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company. This Agreement is a personal
employment contract and the rights, obligations and interests of the Executive
hereunder may not be sold, assigned, transferred, pledged or hypothecated.
(e) ENTIRE AGREEMENT. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
(f) NO DUTY TO MITIGATE. The Executive shall be under no duty to
mitigate any loss of income as result of the termination of his employment
hereunder and any payments due the Executive upon termination of employment
shall not be reduced in respect of any other employment compensation received by
the Executive following such termination.
(g) FLORIDA LAW. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (except that any
provision of Florida law shall not apply if the law of a state or jurisdiction
other than Florida would otherwise apply).
(h) VENUE; PROCESS. The parties to this Agreement agree that
jurisdiction and venue in any action brought pursuant to this Agreement to
enforce its terms or otherwise with respect to the relationships between the
parties shall properly lie in and only in the Circuit Court of the Sixth
Judicial Circuit of the State of Florida in and for Pinellas County (the
"Circuit Court") and the parties agree that jurisdiction shall not properly lie
in any other jurisdiction provided, however, if jurisdiction does not properly
lie with the Circuit Court, the parties agree that jurisdiction and venue shall
properly lie in and only in the United States District Court for the Middle
District of Florida, Tampa Division. The parties hereby waive any objections
which they may now or hereafter have based on venue and/or forum non conveniens
and irrevocably submit to the jurisdiction of any such court in any legal suit,
action or proceeding arising out of or relating to this Agreement. The parties
further agree that the mailing by certified or registered mail, return receipt
requested, of any process required by any such court shall constitute valid and
lawful service of process against them, without the necessity for service by any
other means provided by statute or rule of court.
(i) HEADINGS. The headings of the various sections in this Agreement
are inserted for the convenience of the parties and shall not affect the
meaning, construction or interpretation of this Agreement.
(j) SEVERABILITY. Any provision of this Agreement which is determined
by a court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall,
14.
<PAGE>
as to such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction. In any such case, such determination shall
not affect any other provision of this Agreement, and the remaining provisions
of this Agreement shall remain in full force and effect. If any provision or
term of this Agreement is susceptible to two or more constructions or
interpretations, one or more of which would render the provision or term void or
unenforceable, the parties agree that a construction or interpretation which
renders the term or provision valid shall be favored.
(k) DEDUCTION FOR TAX PURPOSES. The Company's obligations to make
payments under this Agreement are independent of whether any or all of such
payments are deductible expenses of the Company for federal income tax purposes.
(l) ENFORCEMENT. If, within 10 days after demand to comply with the
obligations of one of the parties to this Agreement served in writing on the
other, compliance or reasonable assurance of compliance is not forthcoming, and
the party demanding compliance engages the services of an attorney to enforce
rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses of enforcement (including
reasonable attorneys' fees and reasonable expenses during investigation, before
and at trial and in appellate proceedings). In addition, each of the parties
agrees to indemnify the other in respect of any and all claims, losses, costs,
liabilities and expenses, including reasonable fees and reasonable disbursements
of counsel (during investigation prior to initiation of litigation and at trial
and in appellate proceedings if litigation ensues), directly or indirectly
resulting from or arising out of a breach by the other party of their respective
obligations hereunder. The parties' costs of enforcing this Agreement shall
include prejudgment interest. Additionally, if any party incurs any
out-of-pocket expenses in connection with the enforcement of this Agreement, all
such amounts shall accrue interest at 18% per annum (or such lower rate as may
be required to avoid any limit imposed by applicable law) commencing 30 days
after any such expenses are incurred.
(m) NOTICES. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy or
similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and three days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent to:
To the Company: Echelon International Corporation
One Progress Plaza, Suite 1500
St. Petersburg, FL 33701
Attn: Chairman of the Board
Telecopy:(813) 824-6750
To the Executive at the Executive's address herein first above written,
or to such other address as either party may specify by written notice to the
other.
15.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATTEST: ECHELON INTERNATIONAL
CORPORATION
(Corporate Seal)
By:
--------------------------------- -------------------------------
Secretary President
Witnesses: EXECUTIVE
--------------------------------- -------------------------------
JULIO A. MAGGI
---------------------------------
As to Executive
16.
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT WITH JULIO MAGGI
MICP
For and after the close of each fiscal year of the Company ending on
December 31, 1998, 1999 and 2000, provided that the Executive is then employed
by the Company under this Agreement, the MICP will provide for a cash bonus, if
and to the extent earned, based upon satisfaction by the Executive of specific
threshold, target and maximum individual goals ("Executive Performance Goals")
and upon achievement by the Company of specific threshold, target and maximum
net income goals ("Company Net Income Goals"). To the extent applicable,
Executive Performance Goals and Company Net Income Goals will be determined each
year by the Board of Directors or the Compensation Committee and shall be set
forth in writing and attached as a schedule hereto no later than January 31 of
the applicable fiscal year. For each such fiscal year, a portion of the
applicable MICP bonus amount shall be based upon satisfaction of the applicable
Executive Performance Goals (the "Executive-Based MICP Award") and a portion of
the applicable MICP bonus amount shall be based upon satisfaction of the
applicable Company Net Income Goals (the "Company-Based MICP Award"). All MICP
bonuses shall be paid only in cash.
For each fiscal year covered by the MICP as provided on this Exhibit A,
(i) if the threshold Executive Performance Goal is not achieved, no
Executive-Based MICP Award will be paid, (ii) if actual Executive performance
exceeds the threshold Executive Performance Goal but is less than the target
Executive Performance Goal, or if actual Executive performance exceeds the
target Executive Performance Goal but is less than the maximum Executive
Performance Goal, the Executive-Based MICP Award shall be proportionately
increased above the applicable threshold or target Executive-Based MICP Award,
as the case may be, and (iii) if actual Executive performance equals or exceeds
the maximum Executive Performance Goal, the maximum Executive-Based MICP Award
will be paid, but no additional Executive-Based MICP Award will be payable for
such fiscal year regardless of the amount by which actual Executive performance
for such fiscal year exceeds the maximum Executive Performance Goal.
For each fiscal year covered by the MICP as provided on this Exhibit A,
(i) if the threshold Company Net Income Goal is not achieved, no Company-Based
MICP Award will be paid, (ii) if actual net income exceeds the threshold Company
Net Income Goal but is less than the target Company Net Income Goal, or if
actual net income exceeds the target Company Net Income Goal but is less than
the maximum Company Net Income Goal, the Company-Based MICP Award shall be
proportionately increased above the applicable threshold or target Company-Based
MICP Award, as the case may be, and (iii) if actual net income equals or exceeds
the maximum Company Net Income Goal, the maximum Company-Based MICP Award will
be paid, but no additional Company-Based MICP Award will be payable for such
fiscal year regardless of the amount by which actual net income for such fiscal
year exceeds the maximum Company Net Income Goal.
17.
<PAGE>
For each fiscal year ending after December 31, 2000, provided the
Executive continues to be employed by the Company under this Agreement, the
Executive shall be eligible for incentive compensation annual cash bonus plan(s)
adopted by the Board of Directors of the Company and applicable to the Executive
from time to time in accordance with the terms of such plans, which may include
annual cash bonuses under the MICP as set forth on this Exhibit A.
The following table sets forth information regarding the MICP cash
bonuses to be paid for each year covered by the MICP as provided on this Exhibit
A, upon satisfaction of threshold, target and maximum levels of Executive
Performance Goals and Company Net Income Goals and subject to adjustment as
provided above, in each case expressed as a percentage of Base Salary in effect
as of the end of the applicable fiscal year.
INDIVIDUAL- COMPANY- TOTAL
BASED MICP BASED MICP MICP
PERFORMANCE AWARD AWARD AWARD
LEVEL (60%) (40%) (100%)
----------- ------------ ---------- ------
THRESHOLD 10.5% 7.0% 17.5%
TARGET 21.0% 14.0% 35.0%
MAXIMUM 31.5% 21.0% 52.5%
18.
<PAGE>
LTIP
All LTIP awards of Periodic Options pursuant to this Agreement shall be
based on three year cycles (each an "LTIP Cycle"), with each LTIP Cycle ending
as of the last day of each fiscal year ending on or after December 31, 2000. For
each LTIP Cycle, any award of Periodic Options shall be determined based upon
the Executive's cumulative performance for the three fiscal years in such LTIP
Cycle ("Executive Cycle Performance") as compared to the sums of the threshold,
target and maximum Executive Performance Goals for the three fiscal years in
such LTIP Cycle ("Executive Cycle Goals"), and the Company's cumulative net
income for the three fiscal years in such LTIP Cycle ("Company Cycle Net
Income") as compared to the sum of the Company Net Income Goals for the three
fiscal years in such LTIP Cycle ("Company Cycle Net Income Goals").
For and after the close of the three fiscal year period ending December
31, 2000 (the "Initial LTIP Cycle"), provided that the Executive is then
employed by the Company under this Agreement, the LTIP will provide for an award
of Periodic Options, if and to the extent earned, based upon satisfaction by the
Executive of the Executive Performance Goals and upon achievement by the Company
of the Company Net Income Goals. For such period, a portion of the number of
shares covered by the applicable Periodic Options shall be based upon
satisfaction of the applicable Executive Performance Goals (the "Executive-Based
LTIP Award") and a portion of the number of shares covered by the applicable
Periodic Options shall be based upon satisfaction of the applicable Company Net
Income Goals (the "Company-Based LTIP Award").
For each LTIP Cycle covered by the LTIP as provided on this Exhibit A,
(i) if the threshold Executive Cycle Goal is not achieved, no Executive-Based
LTIP Award will be paid, (ii) if Executive Cycle Performance exceeds the
threshold Executive Cycle Goal but is less than the target Executive Cycle Goal,
or if actual Executive Cycle Performance exceeds the target Executive Cycle Goal
but is less than the maximum Executive Cycle Goal, the Executive-Based LTIP
Award shall be proportionately increased above the applicable threshold
Executive-Based LTIP Award or target Executive-Based LTIP Award, as the case may
be, and (iii) if actual Executive Cycle Performance equals or exceeds the
maximum Executive Performance Goal, the maximum Executive-Based LTIP Award will
be paid, but no additional amount of Executive-Based LTIP Award will be granted
under the LTIP regardless of the amount by which actual Executive Cycle
Performance for such LTIP Cycle exceeds the maximum Executive Cycle Goal.
For each LTIP Cycle covered by the LTIP as provided on this Exhibit A,
(i) if the threshold Company Cycle Net Income Goal is not achieved, no
Company-Based LTIP Award will be paid, (ii) if actual Company Cycle Net Income
exceeds the threshold Company Cycle Net Income Goal but is less than the target
Company Cycle Net Income Goal, or if actual Company Cycle Net Income exceeds the
target Company Cycle Net Income Goal but is less than the maximum Company Cycle
Net Income Goal, the Company-Based LTIP Award shall be proportionately increased
above the applicable threshold Company-Based LTIP Award or target Company-Based
LTIP Award, as the case may be, and (iii) if actual Company Cycle Net Income
equals or exceeds the maximum Company Cycle Net Income Goal, the maximum
Company-Based LTIP Award will be paid, but no additional amount of Company-Based
LTIP Award will be granted under the LTIP regardless of the
19.
<PAGE>
amount by which actual Company Cycle Net Income for such LTIP Cycle exceeds the
maximum Company Cycle Net Income Goal.
For fiscal years ending after December 31, 2000, provided the Executive
continues to be employed by the Company under this Agreement, the Executive
shall be eligible for incentive compensation periodic stock option plan(s)
adopted by the Board of Directors of the Company from time to time in accordance
with the terms of such plans, which may include annual grants of Periodic
Options under the LTIP as set forth on this Exhibit A.
The following tables set forth information regarding the threshold,
target and maximum levels of Executive Performance Goals and Company Net Income
Goals and the number of shares of the Company's common stock to be covered by
Periodic Options issued under the LTIP for each LTIP Cycle covered by the LTIP
for LTIP Cycles beyond the Initial LTIP Cycle as provided on this Exhibit A upon
satisfaction of such goals and subject to adjustment as provided above.
INITIAL LTIP CYCLE
THREE-YEAR CYCLE ENDING 12/31/2000
----------------------------------------------------------------
INDIVIDUAL- COMPANY- TOTAL
BASED LTIP BASED LTIP LTIP
PERFORMANCE AWARD AWARD AWARD
LEVEL (60%) (40%) (100%)
----------- ------------ ------------ ------------
THRESHOLD 1,800 shares 1,200 shares 3,000 shares
TARGET 3,600 shares 2,400 shares 6,000 shares
MAXIMUM 5,400 shares 3,600 shares 9,000 shares
SUBSEQUENT LTIP CYCLES (IF APPLICABLE)
THREE-YEAR CYCLES ENDING EACH FISCAL YEAR 12/31/2001 AND THEREAFTER
-------------------------------------------------------------------
INDIVIDUAL- COMPANY- TOTAL
BASED LTIP BASED LTIP LTIP
PERFORMANCE AWARD AWARD AWARD
LEVEL (60%) (40%) (100%)
------------- ------------ ------------ ------------
THRESHOLD 600 shares 400 shares 1,000 shares
TARGET 1,200 shares 800 shares 2,000 shares
MAXIMUM 1,800 shares 1,200 shares 3,000 shares
20.
EXHIBIT 11.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into EFFECTIVE as of the 28th day of October, 1997, by and between JONATHAN BLUM
(the "Indemnitee"), and ECHELON INTERNATIONAL CORPORATION., a Florida
corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as
Directors, officers and key employees the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance is severely
limited; and
WHEREAS, in addition, the indemnification provisions of the Florida
Business Corporation Act (the "FBCA," as further defined below) expressly
provide that such provisions are non-exclusive; and
WHEREAS, the Indemnitee does not regard the protection available under
the Articles of Incorporation and Bylaws of the Corporation and insurance, if
any, as adequate in the present circumstances, and considers it necessary to
condition the Indemnitee's agreement to serve as a Director and/or officer of
the Corporation to have appropriate contractual rights to indemnification from
the Corporation, and the Corporation desires the Indemnitee to serve in such
capacity or capacities and to have such rights as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, it is hereby agreed as
follows:
1. DEFINITIONS.
For the purposes of this Agreement, the terms below shall have the
indicated meanings except where the context in which such a term is used in this
Agreement clearly indicates otherwise:
1. AFFILIATE means, as to any Person (the "first Person"), any other
Person that, either directly or indirectly, controls, is controlled by
or is under common control with the first Person.
2. AGREEMENT OF INDEMNITY means the agreement provided for by Section
3(e)(i) of this Agreement.
3. ASSOCIATE of a Person means a director, officer, employee, agent,
consultant, independent contractor, stockholder or partner of such
Person.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 2
4. BOARD means the Board of Directors of the Corporation.
5. EVALUATION DATE means, as to any Indemnification Notice, the date
thirty (30) calendar days after the date of receipt by the Board of
such Indemnification Notice.
6. EXPENSE means any cost or expense (other than a Liability),
including but not limited to Legal Fees, and including interest on any
of the foregoing, reasonably paid or required to be paid by the
Indemnitee on account of or in connection with any Proceeding.
7. EXPENSE ADVANCE REQUEST means the request provided for by Section
3(d)(ii) of this Agreement.
8. FBCA means a the Florida Business Corporation Act, Chapter 607,
Florida Statutes, and any successor statute.
9. INDEMNIFICATION NOTICE means the notice provided for by Section 3(a)
of this Agreement.
10. LEGAL FEES means the fees and disbursements of legal counsel, legal
assistants, experts, accountants, consultants and investigators, before
and at trial, in appellate or bankruptcy proceedings and otherwise.
11. LIABILITY means any amount (other than an Expense), including any
assessment, fine, penalty, excise or other tax, and including interest
on any of the foregoing, paid or required to be paid by the Indemnitee
on account of or in connection with any Proceeding.
12. NONINDEMNIFIABLE CONDUCT means any act or omission to act of the
Indemnitee material to a Proceeding as to which indemnification under
this Agreement is sought, which act or omission is determined to
involve:
1. a violation of criminal law, unless the Indemnitee had
reasonable cause to believe such conduct was lawful or had no
reasonable cause to believe such conduct was unlawful;
2. a transaction from which the Indemnitee derived an improper
personal benefit;
3. willful misconduct or a conscious disregard for the best
interests of the Corporation (when indemnification is sought in a
Proceeding by or in the right of the
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 3
Corporation to procure a judgment in favor of the Corporation or
when indemnification is sought in a Proceeding by or in the right
of a stockholder); or 1.
4. conduct as to which then applicable law prohibits
indemnification.
13. PERSON means any natural person or individual, or any artificial
person, including any corporation, association, unincorporated
organization, partnership, joint venture, firm, company, business,
trust, business trust, limited liability company, government, public
body or authority, governmental agency or department, and any other
entity.
14. PROCEEDING means any threatened, pending or completed claim,
demand, inquiry, investigation, action, suit or proceeding, regarding
any matter (including but not limited to matters arising under or
relating to federal or state securities laws, laws relating to the
protection of the environment, the Employee Retirement Income Security
Act of 1974 ("ERISA") or other laws for the benefit or protection of
employees, federal or state tax laws, laws relating to discrimination
against persons or groups, or any other civil or criminal law), whether
formal or informal, or whether brought by or in the right of the
Corporation, whether brought by a governmental body, agency or
representative or by any other Person, and whether of a civil,
criminal, administrative or investigative nature, and includes any
Third Party Proceeding.
15. THIRD PARTY PROCEEDING means any Proceeding against the Indemnitee
by, or any Proceeding by the Indemnitee against, any third party.
2. GRANT OF INDEMNITY.
The Corporation shall indemnify and hold harmless the Indemnitee in respect of:
1. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with
prosecuting, defending, settling or investigating any Proceeding in
which the Indemnitee may be or may have been involved as a party or
otherwise, arising out of the fact that the Indemnitee is or was an
Associate of the Corporation or any of its Affiliates, or served as an
Associate in or for any Person at the request of the Corporation
(including without limitation service as a trustee or in any fiduciary
or similar capacity for or in connection with any employee benefit plan
maintained by the Corporation or for the benefit of any of the
employees of the Corporation or any of its Affiliates, or service on
any trade association, civic, religious, educational or charitable
boards or committees);
2. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
attempt (regardless of its success) by any
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 4
Person to charge or cause the Indemnitee to be charged with wrongdoing
or with financial responsibility for damages arising out of or incurred
in connection with the matters indemnified against in this Agreement;
and
3. any and all Expenses that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
matter referred to in the preceding two paragraphs.
3. CLAIMS FOR INDEMNIFICATION; PROCEDURES
1. SUBMISSION OF CLAIMS. Whenever any Proceeding shall occur as to
which indemnification under this Agreement may be sought by the
Indemnitee, the Indemnitee shall give the Corporation written notice
thereof as promptly as reasonably practicable after the Indemnitee has
actual knowledge of such Proceeding (an "Indemnification Notice"). The
Indemnification Notice shall specify in reasonable detail the facts
known to the Indemnitee giving rise to such Proceeding, the positions
and allegations of the parties to such Proceeding and the factual bases
therefor, and the amount or an estimate of the amount of Liabilities
and Expenses reasonably expected to arise therefrom. A delay by the
Indemnitee in providing such notice shall not relieve the Corporation
from its obligations under this Agreement unless and only to the extent
that the Corporation is materially and adversely affected by the delay.
If the Indemnitee desires to personally retain the services of an
attorney in connection with any Proceeding, the Indemnitee shall notify
the Corporation of such desire in Indemnification Notice relating
thereto, and such notice shall identify the counsel to be retained.
2. PRESUMPTION OF RIGHT TO INDEMNIFICATION. Upon submission of an
Indemnification Notice to the Corporation, the Board shall review such
Notice and endeavor to determine whether the Indemnitee is entitled to
indemnification under this Agreement with respect to the matters
described therein. As of the Evaluation Date, unless the Board has
reasonably determined that the Indemnitee is not entitled to
indemnification under this Agreement with respect to the matters
described in such Indemnification Notice, there shall be created a
presumption that the Indemnitee is entitled to such indemnification.
Such presumption shall continue, and indemnification and payment shall
be provided under this Agreement, unless and such time as the Board
shall reasonably determine that the Indemnitee is not entitled to
indemnification under this Agreement. This paragraph is procedural only
and shall not affect the right of the Indemnitee to indemnification
under this Agreement. Any determination by the Board that the
Indemnitee is not entitled to indemnification under this Agreement and
any failure to make any payments requested in an Indemnification Notice
or otherwise shall be subject to judicial review.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 5
3. LIMITATION ON ADVERSE DETERMINATIONS BY THE BOARD. Subject to
applicable law, no determination by the Board that the Indemnitee is
not entitled to indemnification or payment under this Agreement shall
be given effect under this Agreement unless (i) such determination is
based upon clear and convincing evidence, (ii) such determination is
made by a vote of a majority of the Corporation's Directors at a
meeting at which a quorum is present, and (iii) the Indemnitee is given
written notice of such meeting at least ten days in advance of such
meeting and given a meaningful opportunity to present at such meeting
information in support of the claim for indemnification or payment.
4. EXPENSES.
1. With respect to any Proceeding as to which the Indemnitee is
entitled (or presumed entitled) to indemnification under this
Agreement, Expenses incurred or required to be incurred by the
Indemnitee in connection with such Proceeding, but prior to the
final disposition of such Proceeding, shall be paid or caused to
be paid by the Corporation to or on behalf of the Indemnitee
notwithstanding that there has been no final disposition of such
Proceeding, to the extent provided in the following paragraph.
2. For purposes of determining whether to authorize advancement of
Expenses pursuant to the preceding paragraph, the Indemnitee shall
from time to time submit to the Board a statement requesting
advancement of Expenses (an "Expense Advance Request." Each
Expense Advance Request shall set forth (i) in reasonable detail,
all Expenses already incurred or required to be incurred by the
Indemnitee and the reason therefor, and (ii) an undertaking by the
Indemnitee, in form and substance reasonably satisfactory to the
Corporation, to repay all the Expenses set forth therein if it
shall ultimately be determined that the Indemnitee is not entitled
to be indemnified with respect to such Proceeding by the
Corporation under this Agreement or otherwise. Upon receipt of an
Expense Advance Request satisfying the foregoing requirements, as
to each Expense set forth therein, unless the Board reasonably
determines that the Indemnitee is not entitled to payment of such
Expense, the Corporation shall, within 10 business days thereafter
(or, if later as to any Expense yet to be incurred by the
Indemnitee, on or before the date three business days prior to the
date such Expense is required to be paid by the Indemnitee), pay
or cause to be paid by the Corporation the amount of such Expense
to or on behalf of the Indemnitee. No security shall be required
in connection with any Expense Advance Request, and the ability or
inability of the Indemnitee to make repayment shall not be
considered in any evaluation of an Expense Advance Request.
5. RIGHTS TO DEFEND OR SETTLE; THIRD PARTY PROCEEDINGS, ETC.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 6
1. If the Corporation at any time provides the Indemnitee with an
agreement in writing, in form and substance reasonably
satisfactory to the Indemnitee and the Indemnitee's counsel,
agreeing to indemnify, defend or prosecute and hold the Indemnitee
harmless from all Liabilities and Expenses arising from any Third
Party Proceeding (an "Agreement of Indemnity"), and demonstrating
to the reasonable satisfaction of the Indemnitee the Corporation's
financial wherewithal to accomplish such indemnification, the
Corporation may thereafter at its own expense undertake full
responsibility for and control of the defense or prosecution of
such Third Party Proceeding. The Corporation may contest or settle
any such Third Party Proceeding for money damages on such terms
and conditions as it deems appropriate but shall be obligated to
consult in good faith with the Indemnitee and not to contest or
settle any Third Party Proceeding involving injunctive or
equitable relief against or affecting the Indemnitee or the
Indemnitee's properties or assets without the prior written
consent of the Indemnitee, such consent not to be unreasonably
withheld. The Indemnitee may participate at the Indemnitee's own
expense and with the Indemnitee's own counsel in defense or
prosecution of a Third Party Proceeding controlled by the
Corporation. Such participation shall not relieve the Corporation
of its obligation to indemnify the Indemnitee with respect to such
Third Party Proceeding under this Agreement.
2. If, as of ten (10) business days after the receipt by the Board
of an Indemnification Notice, the Corporation has not delivered to
the Indemnitee a reasonably satisfactory Agreement of Indemnity
and evidence of financial wherewithal as contemplated by the
preceding paragraph, the Indemnitee may contest or settle the
Third Party Proceeding on such terms as it sees fit but shall not
reach a settlement with respect to the payment of money damages
without consulting in good faith with the Corporation. As to any
Third Party Proceeding as to which the Indemnitee is entitled (or
presumed entitled) to indemnification under this Agreement, unless
and until such time as the Corporation at its own expense
undertakes full responsibility for and control of the defense or
prosecution of such Third Party Proceeding, the Indemnitee shall
be entitled to indemnification under this Agreement with respect
any Expenses of the Indemnitee, including Legal Fees, relating to
such Third Party Proceeding. Notwithstanding the foregoing, the
Corporation may at any time deliver to the Indemnitee a reasonably
satisfactory Agreement of Indemnity and evidence of financial
wherewithal as contemplated by the preceding paragraph, and
thereafter at its own expense undertake full responsibility for
and control of the defense or prosecution of such Third Party
Proceeding.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 7
3. All Expenses incurred in defending or prosecuting any Third
Party Proceeding shall be paid in accordance with the procedure
set forth in Section 3(d) of this Agreement.
4. If, by reason of any Third Party Proceeding as to which the
Indemnitee is entitled (or presumed entitled) to indemnification
under this Agreement, a lien, attachment, garnishment or execution
is placed upon any of the property or assets of the Indemnitee,
the Corporation shall promptly furnish a reasonably satisfactory
indemnity bond to obtain the prompt release of such lien,
attachment, garnishment or execution.
5. The Corporation may participate at its own expense and with its
own counsel in defense or prosecution of any Third Party
Proceeding, but any such participation shall not relieve the
Corporation of its obligations to indemnify the Indemnitee under
this Agreement. Any election by the Corporation to at its own
expense undertake full responsibility for and control of the
defense or prosecution of a Third Party Proceeding shall not
affect the entitlement of the Indemnitee to indemnification under
this Agreement.
6. The Indemnitee shall cooperate in the defense or prosecution of
any Third Party Proceeding controlled by the Corporation.
7. The parties shall cooperate in good faith and use reasonable
efforts to mitigate and minimize any Expense or Liability.
6. CHOICE OF COUNSEL. In all matters as to which indemnification is or
may be available to the Indemnitee under this Agreement, the Indemnitee
shall be free to choose and retain counsel of the Indemnitee's choice,
provided that the Indemnitee shall secure the prior written consent of
the Corporation as to such selection, which consent shall not be
unreasonably withheld.
7. REPAYMENT. Notwithstanding anything to the contrary, if the
Corporation has paid or advanced any Liability or Expense under this
Agreement (including pursuant to an Expense Advance Request) to, on
behalf of or for the benefit of the Indemnitee and it is determined by
a court of competent jurisdiction, in a decision which the Indemnitee
does not properly appeal or which decision is affirmed on appeal, that
the Indemnitee's actions or omissions constitute Nonindemnifiable
Conduct or that the Indemnitee otherwise is not or was not entitled to
such payment or advance or that the Indemnitee is required to reimburse
or repay the Corporation for the amount thereof, the Indemnitee shall
and does hereby undertake in such circumstances to reimburse and repay
the Corporation for any and all such
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 8
amounts paid, which thereupon shall be deemed and shall be and become
the legal, valid and enforceable debt and obligation of the Indemnitee
to the Corporation.
8. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION.
1. AUTHORITY. The Corporation represents, covenants and agrees
that it has the corporate power and authority to enter into this
Agreement and to carry out its obligations under this Agreement.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly authorized by the Board. This Agreement is a valid
and binding obligation of the Corporation and is enforceable
against the Corporation in accordance with its terms.
2. NONCONTESTABILITY. The Corporation represents, covenants and
agrees that it will not initiate, and will use its best efforts to
cause each of its Affiliates not to initiate, any action, suit or
proceeding challenging the validity or enforceability of this
Agreement.
3. GOOD FAITH JUDGMENT. The Corporation represents, covenants and
agrees that it will exercise good faith and its best reasonable
judgment in determining the entitlement of the Indemnitee to
indemnification under this Agreement.
4. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES.
1. NONEXCLUSIVITY.
1. This Agreement and all rights granted to the Indemnitee under
this Agreement are in addition to and are not deemed to be
exclusive with or of any other rights that may be available to the
Indemnitee under any Articles of Incorporation, bylaw, statute,
agreement, or otherwise.
2. The rights, duties and obligations of the Corporation and the
Indemnitee under this Agreement do not limit, diminish or
supersede the rights, duties and obligations of the Corporation
and the Indemnitee with respect to the indemnification afforded to
the Indemnitee under any liability insurance, the FBCA, or under
the Bylaws or the Articles of Incorporation of the Corporation. In
addition, the Indemnitee's rights under this Agreement will not be
limited or diminished in any respect by any amendment to the
Bylaws or the Articles of Incorporation of the Corporation.
2. AVAILABILITY, CONTRIBUTION, ETC.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 9
1. The availability or nonavailability of indemnification by way
of insurance policy, Articles of Incorporation, bylaw, vote of
stockholders, or otherwise from the Corporation to the Indemnitee
shall not affect the right of the Indemnitee to indemnification
under this Agreement, provided that all rights under this
Agreement shall be subject to applicable statutory provisions in
effect from time to time.
2. Any funds actually received by the Indemnitee by way of
indemnification or payment from any source other than from the
Corporation under this Agreement shall reduce any amount otherwise
payable to the Indemnitee under this Agreement.
3. If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Corporation for some
Liabilities or Expenses but not as to others, or for some or a
portion thereof actually incurred by the Indemnitee or amounts
actually paid in settlement by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding for
which indemnification is sought under this Agreement but not for
the total amount thereof, the Corporation shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is
entitled.
4. If for any it is determined by a court of competent
jurisdiction, in a decision which neither party to this Agreement
properly appeals or which decision is affirmed on appeal, that the
indemnity provided under this Agreement is unavailable, or if for
any reason the indemnity under this Agreement is insufficient to
hold the Indemnitee harmless as provided in this Agreement, then,
in any such event, the Corporation shall contribute to the amounts
paid or payable by the Indemnitee in such proportion as equitably
reflects the relative benefits received by, and fault of, the
Indemnitee and the Corporation and its Affiliates and its and
their respective Associates.
3. COORDINATION WITH INSURANCE. The obligation of the Corporation under
this Agreement is not conditioned in any way on any attempt, whether or
not successful, by the Indemnitee or the Corporation to collect from an
insurer any amount under any insurance policy.
4. NO EFFECT ON SEPARATE OBLIGATIONS OF INDEMNITEE. Notwithstanding
anything to the contrary, nothing in this Agreement shall (i) relieve
the Indemnitee from, or otherwise affect, any liability or obligation
that the Indemnitee may have to or for the benefit of the Corporation
under any written or oral employment or other agreement that may now or
in the future exist between the Indemnitee and the Corporation
(collectively, "Other Corporation/Indemnitee Agreements"), (ii) cause
or require the Corporation to indemnify or make any payment or
reimbursement to, for or on behalf of or for the benefit of the
Indemnitee, or hold the Indemnitee harmless, for, from or with respect
to any breach or
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 10
violation by the Indemnitee of any representation, warranty or
agreement of the Indemnitee in or under any Other
Corporation/Indemnitee Agreement, or (iii) cause or require the
Corporation to indemnify or make any payment or reimbursement to, for
or on behalf of or for the benefit of the Indemnitee, or hold the
Indemnitee harmless, for, from or with respect to any matter with
respect to which the Indemnitee is required by, under, pursuant to or
in accordance with any Other Corporation/Indemnitee Agreement or
applicable law to indemnify or make any payment or reimbursement to,
for or on behalf of or for the benefit of the Corporation or hold the
Corporation harmless.
5. LIMITATIONS.
In no case shall any indemnification or payment be provided or made under this
Agreement to or on behalf of or for the direct or indirect benefit of the
Indemnitee by the Corporation:
1. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by or in the name or interest of the Indemnitee
against the Corporation;
2. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by the Corporation against the Indemnitee, which
action is initiated at the direction of the Board; or
3. for any Nonindemnifiable Conduct.
6. MISCELLANEOUS.
1. COOPERATION. The parties to this Agreement shall execute such powers
of attorney as may be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may be reasonably
related to any such claim or action, shall provide to the counsel,
accountants and other representatives of each party access during
normal business hours to all properties, personnel, books, records,
contracts, commitments and all other business records of such other
party and will furnish to such other party copies of all such documents
as may be reasonably requested (certified, if requested).
2. FURTHER ASSURANCES. The parties to this Agreement will execute and
deliver, or cause to be executed and delivered, such additional or
further documents, agreements or instruments and shall cooperate with
one another in all respects for the purpose of carrying out the
transactions contemplated by this Agreement.
3. NOTICES. Any notice, request, demand or other communication required
or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been duly given: upon receipt if
personally delivered; upon successful completion of
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 11
transmission if transmitted by telecopy, electronic telephone line
facsimile transmission or other similar electronic or digital
transmission method; at the close of business on the next business day
after it is sent, if sent by recognized overnight delivery service with
all fees payable by the sender; or at the close of business on the
fifth business day after it is sent, if mailed, first class mail,
postage prepaid. In each case such notice, request, demand or other
communication shall be sent to:
if to the Indemnitee:
At the Indemnitee's address on file with the Corporation.
if to the Corporation:
At the Corporation's principal executive offices.
or to such other address as either party may have specified in writing
to the other using the procedures specified above in this Section 6(c).
4. GOVERNING LAW. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (but any
provision of Florida law shall not apply if the application of such
provision would result in the application of the law of a state or
jurisdiction other than Florida).
5. SEVERABILITY. Any provision of this Agreement that is determined by
a court of competent jurisdiction to be prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof
or affecting the validity, enforceability or legality of such provision
in any other jurisdiction. In any such case, such determination shall
not affect any other provision of this Agreement, and the remaining
provisions of this Agreement shall remain in full force and effect. If
any provision or term of this Agreement is susceptible to two or more
constructions or interpretations, one or more of which would render the
provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision
valid shall be favored.
6. SPECIFIC ENFORCEMENT; PRESUMPTION.
1. The parties agree and acknowledge that, in the event of a
breach by the Corporation of its obligation promptly to indemnify
the Indemnitee as provided in
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 12
this Agreement, or breach of any other material provision of this
Agreement, damages at law will be an insufficient remedy to the
Indemnitee. Accordingly, the parties agree that, in addition to
any other remedies or rights that may be available to the
Indemnitee, the Indemnitee shall also be entitled, upon
application to a court of competent jurisdiction, to obtain
temporary or permanent injunctions to compel specific performance
of the obligations of the Corporation under this Agreement.
2. There shall exist in any action to enforce the rights of the
Indemnitee under this Agreement a rebuttable presumption that the
Indemnitee has met the applicable standard(s) of conduct and is
therefore entitled to indemnification pursuant to this Agreement,
and the burden of proving that the relevant standards have not
been met by the Indemnitee shall be on the Corporation. Neither
the failure of the Corporation (including the Board or independent
legal counsel) prior to the commencement of such action to have
made a determination that indemnification is proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the
Corporation (including the Board or independent legal counsel)
that the Indemnitee has not met such applicable standard of
conduct, shall (X) constitute a defense to the action, (Y) create
a presumption that the Indemnitee has not met the applicable
standard of conduct, or (Z) otherwise alter the presumption in
favor of the Indemnitee referred to in the preceding sentence.
7. COST OF ENFORCEMENT; INTEREST.
1. If either party to this Agreement engages the services of an
attorney or any other third party or in any way initiates legal
action to enforce the party's rights under this Agreement,
including but not limited to the collection of monies due, the
prevailing party in such action shall be entitled to recover all
Expenses incurred in connection therewith. Should the Indemnitee
prevail, such Expenses shall be in addition to monies otherwise
due the Indemnitee under this Agreement.
2. If any amount shall be due or payable under this Agreement
(including under an Expense Advance Request) and shall not be paid
within 30 days from the date as of which the obligation to make
such payment arises, interest shall accrue on such unpaid amount
from the date when due until it is paid in full at the rate of 2%
per annum in excess of the prime rate published from time to time
in THE WALL STREET JOURNAL in its "Money Rates" column or any
similar or successor column or feature, or such lower rate as may
be required to comply with applicable law.
8. NO ASSIGNMENT. Any claim, right, title, benefit, remedy or interest
of the Indemnitee in, to or under or arising out of or in connection
with this Agreement is personal and may not be sold, assigned,
transferred, pledged or hypothecated, but the provisions of this
Agreement
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 13
shall survive the death, disability or incapacity of the Indemnitee or
the termination of the Indemnitee's service as a Director or officer of
the Corporation and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. This Agreement shall inure to the
benefit of and shall be binding upon the successors in interest and
assigns of the Corporation, including any successor corporation
resulting from a merger, consolidation, recapitalization,
reorganization, sale of all or substantially all of the assets of the
Corporation, or any other transaction resulting in the successor
corporation assuming the liabilities of the Corporation under this
Agreement (by operation of law or otherwise).
9. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
benefit or entered into for the benefit of any third parties and, other
than as set forth in the preceding paragraph as to heirs, assignees and
successors, nothing in this Agreement, whether express or implied, is
intended or should be construed to confer upon, or to grant to, any
person, except the Corporation and the Indemnitee, any claim, right,
benefit or remedy under or because of this Agreement or any provision
set forth in this Agreement.
10. CONSTRUCTION. As used in this Agreement, (1) the word "including"
is always without limitation, and (2) words in the singular number
include words of the plural number and vice versa.
11. VENUE; PROCESS. The parties to this Agreement agree that
jurisdiction and venue in any action brought pursuant to this Agreement
to enforce its terms or otherwise with respect to the relationships
between the parties shall properly lie in and only in the Circuit Court
of the Sixth Judicial Circuit of the State of Florida in and for
Pinellas County (the "Circuit Court") and the parties agree that
jurisdiction shall not properly lie in any other jurisdiction provided,
however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and
only in the United States District Court for the Middle District of
Florida, Tampa Division. The parties hereby waive any objections which
they may now or hereafter have based on venue and/or forum non
conveniens and irrevocably submit to the jurisdiction of any such court
in any legal suit, action or proceeding arising out of or relating to
this Agreement. The parties further agree that the mailing by certified
or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process
against them, without the necessity for service by any other means
provided by statute or rule of court.
12. WAIVER AND DELAY. No waiver or delay in enforcing the terms of this
Agreement or in taking any action with respect to any breach of this
Agreement shall be construed as a waiver of any subsequent breach. No
action taken by the Indemnitee shall constitute a waiver of the
Indemnitee's rights under this Agreement.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 14
13. MODIFICATION. This Agreement contains the entire agreement of the
parties, and supersedes any prior written or oral agreement of the
parties, with respect to the subject matter hereof. This Agreement may
be modified only by an instrument in writing signed by both parties
hereto.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same instrument.
15. HEADINGS. The headings of the various sections in this Agreement
are inserted for the convenience of the parties and shall not affect
the meaning, construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement EFFECTIVE
as of the date first above written.
INDEMNITEE
/s/ JONATHAN BLUM 10/29/97
- - --------------------------------
Signature Date
Jonathan Blum
ECHELON INTERNATIONAL CORPORATION
By:/s/ ILLEGIBLE 10/28/97
------------------------------
Date
EXHIBIT 11.2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into EFFECTIVE as of the 18th day of December, 1996, by and between W. MICHAEL
DORAMUS (the "Indemnitee"), and ECHELON INTERNATIONAL CORPORATION., a Florida
corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as
Directors, officers and key employees the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance is severely
limited; and
WHEREAS, in addition, the indemnification provisions of the Florida
Business Corporation Act (the "FBCA," as further defined below) expressly
provide that such provisions are non-exclusive; and
WHEREAS, the Indemnitee does not regard the protection available under
the Articles of Incorporation and Bylaws of the Corporation and insurance, if
any, as adequate in the present circumstances, and considers it necessary to
condition the Indemnitee's agreement to serve as a Director and/or officer of
the Corporation to have appropriate contractual rights to indemnification from
the Corporation, and the Corporation desires the Indemnitee to serve in such
capacity or capacities and to have such rights as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, it is hereby agreed as
follows:
1. DEFINITIONS.
For the purposes of this Agreement, the terms below shall have the
indicated meanings except where the context in which such a term is used in this
Agreement clearly indicates otherwise:
1. AFFILIATE means, as to any Person (the "first Person"), any other
Person that, either directly or indirectly, controls, is controlled by
or is under common control with the first Person.
2. AGREEMENT OF INDEMNITY means the agreement provided for by Section
3(e)(i) of this Agreement.
3. ASSOCIATE of a Person means a director, officer, employee, agent,
consultant, independent contractor, stockholder or partner of such
Person.
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INDEMNIFICATION AGREEMENT
PAGE 2
4. BOARD means the Board of Directors of the Corporation.
5. EVALUATION DATE means, as to any Indemnification Notice, the date
thirty (30) calendar days after the date of receipt by the Board of
such Indemnification Notice.
6. EXPENSE means any cost or expense (other than a Liability),
including but not limited to Legal Fees, and including interest on any
of the foregoing, reasonably paid or required to be paid by the
Indemnitee on account of or in connection with any Proceeding.
7. EXPENSE ADVANCE REQUEST means the request provided for by Section
3(d)(ii) of this Agreement.
8. FBCA means a the Florida Business Corporation Act, Chapter 607,
Florida Statutes, and any successor statute.
9. INDEMNIFICATION NOTICE means the notice provided for by Section 3(a)
of this Agreement.
10. LEGAL FEES means the fees and disbursements of legal counsel, legal
assistants, experts, accountants, consultants and investigators, before
and at trial, in appellate or bankruptcy proceedings and otherwise.
11. LIABILITY means any amount (other than an Expense), including any
assessment, fine, penalty, excise or other tax, and including interest
on any of the foregoing, paid or required to be paid by the Indemnitee
on account of or in connection with any Proceeding.
12. NONINDEMNIFIABLE CONDUCT means any act or omission to act of the
Indemnitee material to a Proceeding as to which indemnification under
this Agreement is sought, which act or omission is determined to
involve:
1. a violation of criminal law, unless the Indemnitee had
reasonable cause to believe such conduct was lawful or had no
reasonable cause to believe such conduct was unlawful;
2. a transaction from which the Indemnitee derived an improper
personal benefit;
3. willful misconduct or a conscious disregard for the best
interests of the Corporation (when indemnification is sought in a
Proceeding by or in the right of the
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 3
Corporation to procure a judgment in favor of the Corporation or
when indemnification is sought in a Proceeding by or in the right
of a stockholder); or 1.
4. conduct as to which then applicable law prohibits
indemnification.
13. PERSON means any natural person or individual, or any artificial
person, including any corporation, association, unincorporated
organization, partnership, joint venture, firm, company, business,
trust, business trust, limited liability company, government, public
body or authority, governmental agency or department, and any other
entity.
14. PROCEEDING means any threatened, pending or completed claim,
demand, inquiry, investigation, action, suit or proceeding, regarding
any matter (including but not limited to matters arising under or
relating to federal or state securities laws, laws relating to the
protection of the environment, the Employee Retirement Income Security
Act of 1974 ("ERISA") or other laws for the benefit or protection of
employees, federal or state tax laws, laws relating to discrimination
against persons or groups, or any other civil or criminal law), whether
formal or informal, or whether brought by or in the right of the
Corporation, whether brought by a governmental body, agency or
representative or by any other Person, and whether of a civil,
criminal, administrative or investigative nature, and includes any
Third Party Proceeding.
15. THIRD PARTY PROCEEDING means any Proceeding against the Indemnitee
by, or any Proceeding by the Indemnitee against, any third party.
2. GRANT OF INDEMNITY.
The Corporation shall indemnify and hold harmless the Indemnitee in respect of:
1. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with
prosecuting, defending, settling or investigating any Proceeding in
which the Indemnitee may be or may have been involved as a party or
otherwise, arising out of the fact that the Indemnitee is or was an
Associate of the Corporation or any of its Affiliates, or served as an
Associate in or for any Person at the request of the Corporation
(including without limitation service as a trustee or in any fiduciary
or similar capacity for or in connection with any employee benefit plan
maintained by the Corporation or for the benefit of any of the
employees of the Corporation or any of its Affiliates, or service on
any trade association, civic, religious, educational or charitable
boards or committees);
2. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
attempt (regardless of its success) by any
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 4
Person to charge or cause the Indemnitee to be charged with wrongdoing
or with financial responsibility for damages arising out of or incurred
in connection with the matters indemnified against in this Agreement;
and 1.
3. any and all Expenses that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
matter referred to in the preceding two paragraphs.
3. CLAIMS FOR INDEMNIFICATION; PROCEDURES
1. SUBMISSION OF CLAIMS. Whenever any Proceeding shall occur as to
which indemnification under this Agreement may be sought by the
Indemnitee, the Indemnitee shall give the Corporation written notice
thereof as promptly as reasonably practicable after the Indemnitee has
actual knowledge of such Proceeding (an "Indemnification Notice"). The
Indemnification Notice shall specify in reasonable detail the facts
known to the Indemnitee giving rise to such Proceeding, the positions
and allegations of the parties to such Proceeding and the factual bases
therefor, and the amount or an estimate of the amount of Liabilities
and Expenses reasonably expected to arise therefrom. A delay by the
Indemnitee in providing such notice shall not relieve the Corporation
from its obligations under this Agreement unless and only to the extent
that the Corporation is materially and adversely affected by the delay.
If the Indemnitee desires to personally retain the services of an
attorney in connection with any Proceeding, the Indemnitee shall notify
the Corporation of such desire in Indemnification Notice relating
thereto, and such notice shall identify the counsel to be retained.
2. PRESUMPTION OF RIGHT TO INDEMNIFICATION. Upon submission of an
Indemnification Notice to the Corporation, the Board shall review such
Notice and endeavor to determine whether the Indemnitee is entitled to
indemnification under this Agreement with respect to the matters
described therein. As of the Evaluation Date, unless the Board has
reasonably determined that the Indemnitee is not entitled to
indemnification under this Agreement with respect to the matters
described in such Indemnification Notice, there shall be created a
presumption that the Indemnitee is entitled to such indemnification.
Such presumption shall continue, and indemnification and payment shall
be provided under this Agreement, unless and such time as the Board
shall reasonably determine that the Indemnitee is not entitled to
indemnification under this Agreement. This paragraph is procedural only
and shall not affect the right of the Indemnitee to indemnification
under this Agreement. Any determination by the Board that the
Indemnitee is not entitled to indemnification under this Agreement and
any failure to make any payments requested in an Indemnification Notice
or otherwise shall be subject to judicial review.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 5
3. LIMITATION ON ADVERSE DETERMINATIONS BY THE BOARD. Subject to
applicable law, no determination by the Board that the Indemnitee is
not entitled to indemnification or payment under this Agreement shall
be given effect under this Agreement unless (i) such determination is
based upon clear and convincing evidence, (ii) such determination is
made by a vote of a majority of the Corporation's Directors at a
meeting at which a quorum is present, and (iii) the Indemnitee is given
written notice of such meeting at least ten days in advance of such
meeting and given a meaningful opportunity to present at such meeting
information in support of the claim for indemnification or payment.
4. EXPENSES.
1. With respect to any Proceeding as to which the Indemnitee is
entitled (or presumed entitled) to indemnification under this
Agreement, Expenses incurred or required to be incurred by the
Indemnitee in connection with such Proceeding, but prior to the
final disposition of such Proceeding, shall be paid or caused to
be paid by the Corporation to or on behalf of the Indemnitee
notwithstanding that there has been no final disposition of such
Proceeding, to the extent provided in the following paragraph.
2. For purposes of determining whether to authorize advancement of
Expenses pursuant to the preceding paragraph, the Indemnitee shall
from time to time submit to the Board a statement requesting
advancement of Expenses (an "Expense Advance Request." Each
Expense Advance Request shall set forth (i) in reasonable detail,
all Expenses already incurred or required to be incurred by the
Indemnitee and the reason therefor, and (ii) an undertaking by the
Indemnitee, in form and substance reasonably satisfactory to the
Corporation, to repay all the Expenses set forth therein if it
shall ultimately be determined that the Indemnitee is not entitled
to be indemnified with respect to such Proceeding by the
Corporation under this Agreement or otherwise. Upon receipt of an
Expense Advance Request satisfying the foregoing requirements, as
to each Expense set forth therein, unless the Board reasonably
determines that the Indemnitee is not entitled to payment of such
Expense, the Corporation shall, within 10 business days thereafter
(or, if later as to any Expense yet to be incurred by the
Indemnitee, on or before the date three business days prior to the
date such Expense is required to be paid by the Indemnitee), pay
or cause to be paid by the Corporation the amount of such Expense
to or on behalf of the Indemnitee. No security shall be required
in connection with any Expense Advance Request, and the ability or
inability of the Indemnitee to make repayment shall not be
considered in any evaluation of an Expense Advance Request.
5. RIGHTS TO DEFEND OR SETTLE; THIRD PARTY PROCEEDINGS, ETC.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 6
1. If the Corporation at any time provides the Indemnitee with an
agreement in writing, in form and substance reasonably
satisfactory to the Indemnitee and the Indemnitee's counsel,
agreeing to indemnify, defend or prosecute and hold the Indemnitee
harmless from all Liabilities and Expenses arising from any Third
Party Proceeding (an "Agreement of Indemnity"), and demonstrating
to the reasonable satisfaction of the Indemnitee the Corporation's
financial wherewithal to accomplish such indemnification, the
Corporation may thereafter at its own expense undertake full
responsibility for and control of the defense or prosecution of
such Third Party Proceeding. The Corporation may contest or settle
any such Third Party Proceeding for money damages on such terms
and conditions as it deems appropriate but shall be obligated to
consult in good faith with the Indemnitee and not to contest or
settle any Third Party Proceeding involving injunctive or
equitable relief against or affecting the Indemnitee or the
Indemnitee's properties or assets without the prior written
consent of the Indemnitee, such consent not to be unreasonably
withheld. The Indemnitee may participate at the Indemnitee's own
expense and with the Indemnitee's own counsel in defense or
prosecution of a Third Party Proceeding controlled by the
Corporation. Such participation shall not relieve the Corporation
of its obligation to indemnify the Indemnitee with respect to such
Third Party Proceeding under this Agreement.
2. If, as of ten (10) business days after the receipt by the Board
of an Indemnification Notice, the Corporation has not delivered to
the Indemnitee a reasonably satisfactory Agreement of Indemnity
and evidence of financial wherewithal as contemplated by the
preceding paragraph, the Indemnitee may contest or settle the
Third Party Proceeding on such terms as it sees fit but shall not
reach a settlement with respect to the payment of money damages
without consulting in good faith with the Corporation. As to any
Third Party Proceeding as to which the Indemnitee is entitled (or
presumed entitled) to indemnification under this Agreement, unless
and until such time as the Corporation at its own expense
undertakes full responsibility for and control of the defense or
prosecution of such Third Party Proceeding, the Indemnitee shall
be entitled to indemnification under this Agreement with respect
any Expenses of the Indemnitee, including Legal Fees, relating to
such Third Party Proceeding. Notwithstanding the foregoing, the
Corporation may at any time deliver to the Indemnitee a reasonably
satisfactory Agreement of Indemnity and evidence of financial
wherewithal as contemplated by the preceding paragraph, and
thereafter at its own expense undertake full responsibility for
and control of the defense or prosecution of such Third Party
Proceeding.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 7
3. All Expenses incurred in defending or prosecuting any Third
Party Proceeding shall be paid in accordance with the procedure
set forth in Section 3(d) of this Agreement.
4. If, by reason of any Third Party Proceeding as to which the
Indemnitee is entitled (or presumed entitled) to indemnification
under this Agreement, a lien, attachment, garnishment or execution
is placed upon any of the property or assets of the Indemnitee,
the Corporation shall promptly furnish a reasonably satisfactory
indemnity bond to obtain the prompt release of such lien,
attachment, garnishment or execution.
5. The Corporation may participate at its own expense and with its
own counsel in defense or prosecution of any Third Party
Proceeding, but any such participation shall not relieve the
Corporation of its obligations to indemnify the Indemnitee under
this Agreement. Any election by the Corporation to at its own
expense undertake full responsibility for and control of the
defense or prosecution of a Third Party Proceeding shall not
affect the entitlement of the Indemnitee to indemnification under
this Agreement.
6. The Indemnitee shall cooperate in the defense or prosecution of
any Third Party Proceeding controlled by the Corporation.
7. The parties shall cooperate in good faith and use reasonable
efforts to mitigate and minimize any Expense or Liability.
6. CHOICE OF COUNSEL. In all matters as to which indemnification is or
may be available to the Indemnitee under this Agreement, the Indemnitee
shall be free to choose and retain counsel of the Indemnitee's choice,
provided that the Indemnitee shall secure the prior written consent of
the Corporation as to such selection, which consent shall not be
unreasonably withheld.
7. REPAYMENT. Notwithstanding anything to the contrary, if the
Corporation has paid or advanced any Liability or Expense under this
Agreement (including pursuant to an Expense Advance Request) to, on
behalf of or for the benefit of the Indemnitee and it is determined by
a court of competent jurisdiction, in a decision which the Indemnitee
does not properly appeal or which decision is affirmed on appeal, that
the Indemnitee's actions or omissions constitute Nonindemnifiable
Conduct or that the Indemnitee otherwise is not or was not entitled to
such payment or advance or that the Indemnitee is required to reimburse
or repay the Corporation for the amount thereof, the Indemnitee shall
and does hereby undertake in such circumstances to reimburse and repay
the Corporation for any and all such
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 8
amounts paid, which thereupon shall be deemed and shall be and become
the legal, valid and enforceable debt and obligation of the Indemnitee
to the Corporation.
8. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION.
1. AUTHORITY. The Corporation represents, covenants and agrees
that it has the corporate power and authority to enter into this
Agreement and to carry out its obligations under this Agreement.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly authorized by the Board. This Agreement is a valid
and binding obligation of the Corporation and is enforceable
against the Corporation in accordance with its terms.
2. NONCONTESTABILITY. The Corporation represents, covenants and
agrees that it will not initiate, and will use its best efforts to
cause each of its Affiliates not to initiate, any action, suit or
proceeding challenging the validity or enforceability of this
Agreement.
3. GOOD FAITH JUDGMENT. The Corporation represents, covenants and
agrees that it will exercise good faith and its best reasonable
judgment in determining the entitlement of the Indemnitee to
indemnification under this Agreement.
4. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES.
1. NONEXCLUSIVITY.
1. This Agreement and all rights granted to the Indemnitee under
this Agreement are in addition to and are not deemed to be
exclusive with or of any other rights that may be available to the
Indemnitee under any Articles of Incorporation, bylaw, statute,
agreement, or otherwise.
2. The rights, duties and obligations of the Corporation and the
Indemnitee under this Agreement do not limit, diminish or
supersede the rights, duties and obligations of the Corporation
and the Indemnitee with respect to the indemnification afforded to
the Indemnitee under any liability insurance, the FBCA, or under
the Bylaws or the Articles of Incorporation of the Corporation. In
addition, the Indemnitee's rights under this Agreement will not be
limited or diminished in any respect by any amendment to the
Bylaws or the Articles of Incorporation of the Corporation.
2. AVAILABILITY, CONTRIBUTION, ETC.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 9
1. The availability or nonavailability of indemnification by way
of insurance policy, Articles of Incorporation, bylaw, vote of
stockholders, or otherwise from the Corporation to the Indemnitee
shall not affect the right of the Indemnitee to indemnification
under this Agreement, provided that all rights under this
Agreement shall be subject to applicable statutory provisions in
effect from time to time.
2. Any funds actually received by the Indemnitee by way of
indemnification or payment from any source other than from the
Corporation under this Agreement shall reduce any amount otherwise
payable to the Indemnitee under this Agreement.
3. If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Corporation for some
Liabilities or Expenses but not as to others, or for some or a
portion thereof actually incurred by the Indemnitee or amounts
actually paid in settlement by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding for
which indemnification is sought under this Agreement but not for
the total amount thereof, the Corporation shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is
entitled.
4. If for any it is determined by a court of competent
jurisdiction, in a decision which neither party to this Agreement
properly appeals or which decision is affirmed on appeal, that the
indemnity provided under this Agreement is unavailable, or if for
any reason the indemnity under this Agreement is insufficient to
hold the Indemnitee harmless as provided in this Agreement, then,
in any such event, the Corporation shall contribute to the amounts
paid or payable by the Indemnitee in such proportion as equitably
reflects the relative benefits received by, and fault of, the
Indemnitee and the Corporation and its Affiliates and its and
their respective Associates.
3. COORDINATION WITH INSURANCE. The obligation of the Corporation under
this Agreement is not conditioned in any way on any attempt, whether or
not successful, by the Indemnitee or the Corporation to collect from an
insurer any amount under any insurance policy.
4. NO EFFECT ON SEPARATE OBLIGATIONS OF INDEMNITEE. Notwithstanding
anything to the contrary, nothing in this Agreement shall (i) relieve
the Indemnitee from, or otherwise affect, any liability or obligation
that the Indemnitee may have to or for the benefit of the Corporation
under any written or oral employment or other agreement that may now or
in the future exist between the Indemnitee and the Corporation
(collectively, "Other Corporation/Indemnitee Agreements"), (ii) cause
or require the Corporation to indemnify or make any payment or
reimbursement to, for or on behalf of or for the benefit of the
Indemnitee, or hold the Indemnitee harmless, for, from or with respect
to any breach or
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 10
violation by the Indemnitee of any representation, warranty or
agreement of the Indemnitee in or under any Other
Corporation/Indemnitee Agreement, or (iii) cause or require the
Corporation to indemnify or make any payment or reimbursement to, for
or on behalf of or for the benefit of the Indemnitee, or hold the
Indemnitee harmless, for, from or with respect to any matter with
respect to which the Indemnitee is required by, under, pursuant to or
in accordance with any Other Corporation/Indemnitee Agreement or
applicable law to indemnify or make any payment or reimbursement to,
for or on behalf of or for the benefit of the Corporation or hold the
Corporation harmless.
5. LIMITATIONS.
In no case shall any indemnification or payment be provided or made under this
Agreement to or on behalf of or for the direct or indirect benefit of the
Indemnitee by the Corporation:
1. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by or in the name or interest of the Indemnitee
against the Corporation;
2. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by the Corporation against the Indemnitee, which
action is initiated at the direction of the Board; or
3. for any Nonindemnifiable Conduct.
6. MISCELLANEOUS.
1. COOPERATION. The parties to this Agreement shall execute such powers
of attorney as may be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may be reasonably
related to any such claim or action, shall provide to the counsel,
accountants and other representatives of each party access during
normal business hours to all properties, personnel, books, records,
contracts, commitments and all other business records of such other
party and will furnish to such other party copies of all such documents
as may be reasonably requested (certified, if requested).
2. FURTHER ASSURANCES. The parties to this Agreement will execute and
deliver, or cause to be executed and delivered, such additional or
further documents, agreements or instruments and shall cooperate with
one another in all respects for the purpose of carrying out the
transactions contemplated by this Agreement.
3. NOTICES. Any notice, request, demand or other communication required
or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been duly given: upon receipt if
personally delivered; upon successful completion of
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 11
transmission if transmitted by telecopy, electronic telephone line
facsimile transmission or other similar electronic or digital
transmission method; at the close of business on the next business day
after it is sent, if sent by recognized overnight delivery service with
all fees payable by the sender; or at the close of business on the
fifth business day after it is sent, if mailed, first class mail,
postage prepaid. In each case such notice, request, demand or other
communication shall be sent to:
if to the Indemnitee:
At the Indemnitee's address on file with the Corporation.
if to the Corporation:
At the Corporation's principal executive offices.
or to such other address as either party may have specified in writing
to the other using the procedures specified above in this Section 6(c).
4. GOVERNING LAW. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (but any
provision of Florida law shall not apply if the application of such
provision would result in the application of the law of a state or
jurisdiction other than Florida).
5. SEVERABILITY. Any provision of this Agreement that is determined by
a court of competent jurisdiction to be prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof
or affecting the validity, enforceability or legality of such provision
in any other jurisdiction. In any such case, such determination shall
not affect any other provision of this Agreement, and the remaining
provisions of this Agreement shall remain in full force and effect. If
any provision or term of this Agreement is susceptible to two or more
constructions or interpretations, one or more of which would render the
provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision
valid shall be favored.
6. SPECIFIC ENFORCEMENT; PRESUMPTION.
1. The parties agree and acknowledge that, in the event of a
breach by the Corporation of its obligation promptly to indemnify
the Indemnitee as provided in
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE
12
this Agreement, or breach of any other material provision of this
Agreement, damages at law will be an insufficient remedy to the
Indemnitee. Accordingly, the parties agree that, in addition to
any other remedies or rights that may be available to the
Indemnitee, the Indemnitee shall also be entitled, upon
application to a court of competent jurisdiction, to obtain
temporary or permanent injunctions to compel specific performance
of the obligations of the Corporation under this Agreement.
2. There shall exist in any action to enforce the rights of the
Indemnitee under this Agreement a rebuttable presumption that the
Indemnitee has met the applicable standard(s) of conduct and is
therefore entitled to indemnification pursuant to this Agreement,
and the burden of proving that the relevant standards have not
been met by the Indemnitee shall be on the Corporation. Neither
the failure of the Corporation (including the Board or independent
legal counsel) prior to the commencement of such action to have
made a determination that indemnification is proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the
Corporation (including the Board or independent legal counsel)
that the Indemnitee has not met such applicable standard of
conduct, shall (X) constitute a defense to the action, (Y) create
a presumption that the Indemnitee has not met the applicable
standard of conduct, or (Z) otherwise alter the presumption in
favor of the Indemnitee referred to in the preceding sentence.
7. COST OF ENFORCEMENT; INTEREST.
1. If either party to this Agreement engages the services of an
attorney or any other third party or in any way initiates legal
action to enforce the party's rights under this Agreement,
including but not limited to the collection of monies due, the
prevailing party in such action shall be entitled to recover all
Expenses incurred in connection therewith. Should the Indemnitee
prevail, such Expenses shall be in addition to monies otherwise
due the Indemnitee under this Agreement.
2. If any amount shall be due or payable under this Agreement
(including under an Expense Advance Request) and shall not be paid
within 30 days from the date as of which the obligation to make
such payment arises, interest shall accrue on such unpaid amount
from the date when due until it is paid in full at the rate of 2%
per annum in excess of the prime rate published from time to time
in THE WALL STREET JOURNAL in its "Money Rates" column or any
similar or successor column or feature, or such lower rate as may
be required to comply with applicable law.
8. NO ASSIGNMENT. Any claim, right, title, benefit, remedy or interest
of the Indemnitee in, to or under or arising out of or in connection
with this Agreement is personal and may not be sold, assigned,
transferred, pledged or hypothecated, but the provisions of this
Agreement
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 13
shall survive the death, disability or incapacity of the Indemnitee or
the termination of the Indemnitee's service as a Director or officer of
the Corporation and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. This Agreement shall inure to the
benefit of and shall be binding upon the successors in interest and
assigns of the Corporation, including any successor corporation
resulting from a merger, consolidation, recapitalization,
reorganization, sale of all or substantially all of the assets of the
Corporation, or any other transaction resulting in the successor
corporation assuming the liabilities of the Corporation under this
Agreement (by operation of law or otherwise).
9. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
benefit or entered into for the benefit of any third parties and, other
than as set forth in the preceding paragraph as to heirs, assignees and
successors, nothing in this Agreement, whether express or implied, is
intended or should be construed to confer upon, or to grant to, any
person, except the Corporation and the Indemnitee, any claim, right,
benefit or remedy under or because of this Agreement or any provision
set forth in this Agreement.
10. CONSTRUCTION. As used in this Agreement, (1) the word "including"
is always without limitation, and (2) words in the singular number
include words of the plural number and vice versa.
11. VENUE; PROCESS. The parties to this Agreement agree that
jurisdiction and venue in any action brought pursuant to this Agreement
to enforce its terms or otherwise with respect to the relationships
between the parties shall properly lie in and only in the Circuit Court
of the Sixth Judicial Circuit of the State of Florida in and for
Pinellas County (the "Circuit Court") and the parties agree that
jurisdiction shall not properly lie in any other jurisdiction provided,
however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and
only in the United States District Court for the Middle District of
Florida, Tampa Division. The parties hereby waive any objections which
they may now or hereafter have based on venue and/or forum non
conveniens and irrevocably submit to the jurisdiction of any such court
in any legal suit, action or proceeding arising out of or relating to
this Agreement. The parties further agree that the mailing by certified
or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process
against them, without the necessity for service by any other means
provided by statute or rule of court.
12. WAIVER AND DELAY. No waiver or delay in enforcing the terms of this
Agreement or in taking any action with respect to any breach of this
Agreement shall be construed as a waiver of any subsequent breach. No
action taken by the Indemnitee shall constitute a waiver of the
Indemnitee's rights under this Agreement.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 14
13. MODIFICATION. This Agreement contains the entire agreement of the
parties, and supersedes any prior written or oral agreement of the
parties, with respect to the subject matter hereof. This Agreement may
be modified only by an instrument in writing signed by both parties
hereto.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same instrument.
15. HEADINGS. The headings of the various sections in this Agreement
are inserted for the convenience of the parties and shall not affect
the meaning, construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement EFFECTIVE
as of the date first above written.
INDEMNITEE
/s/ W. MICHAEL DORAMUS 11/12/97
- - ------------------------------------
Signature Date
W. Michael Doramus
ECHELON INTERNATIONAL CORPORATION
By: /s/ ILLEGIBLE 11/04/97
----------------------------------
Date
EXHIBIT 11.3
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into EFFECTIVE as of the 4TH day of FEBRUARY, 1998, by and between L.
RAYMOND EASTIN (the "Indemnitee"), and ECHELON INTERNATIONAL CORPORATION.,
a Florida corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as
Directors, officers and key employees the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance is severely
limited; and
WHEREAS, in addition, the indemnification provisions of the Florida
Business Corporation Act (the "FBCA," as further defined below) expressly
provide that such provisions are non-exclusive; and
WHEREAS, the Indemnitee does not regard the protection available under the
Articles of Incorporation and Bylaws of the Corporation and insurance, if any,
as adequate in the present circumstances, and considers it necessary to
condition the Indemnitee's agreement to serve as a Director and/or officer of
the Corporation to have appropriate contractual rights to indemnification from
the Corporation, and the Corporation desires the Indemnitee to serve in such
capacity or capacities and to have such rights as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained in this Agreement, it is hereby agreed as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the terms below shall have the
indicated meanings except where the context in which such a term is used in this
Agreement clearly indicates otherwise:
1. AFFILIATE means, as to any Person (the "first Person"), any other Person
that, either directly or indirectly, controls, is controlled by or is under
common control with the first Person.
2. AGREEMENT OF INDEMNITY means the agreement provided for by Section
3(e)(i) of this Agreement.
<PAGE>
3. ASSOCIATE of a Person means a director, officer, employee, agent,
consultant, independent contractor, stockholder or partner of such Person.
4. BOARD means the Board of Directors of the Corporation.
5. EVALUATION DATE means, as to any Indemnification Notice, the date thirty
(30) calendar days after the date of receipt by the Board of such
Indemnification Notice.
6. EXPENSE means any cost or expense (other than a Liability), including
but not limited to Legal Fees, and including interest on any of the
foregoing, reasonably paid or required to be paid by the Indemnitee on
account of or in connection with any Proceeding.
7. EXPENSE ADVANCE REQUEST means the request provided for by Section
3(d)(ii) of this Agreement.
8. FBCA means a the Florida Business Corporation Act, Chapter 607, Florida
Statutes, and any successor statute.
9. INDEMNIFICATION NOTICE means the notice provided for by Section 3(a) of
this Agreement.
10. LEGAL FEES means the fees and disbursements of legal counsel, legal
assistants, experts, accountants, consultants and investigators, before and
at trial, in appellate or bankruptcy proceedings and otherwise.
11. LIABILITY means any amount (other than an Expense), including any
assessment, fine, penalty, excise or other tax, and including interest on
any of the foregoing, paid or required to be paid by the Indemnitee on
account of or in connection with any Proceeding.
12. NONINDEMNIFIABLE CONDUCT means any act or omission to act of the
Indemnitee material to a Proceeding as to which indemnification under this
Agreement is sought, which act or omission is determined to involve:
1. a violation of criminal law, unless the Indemnitee had reasonable
cause to believe such conduct was lawful or had no reasonable cause to
believe such conduct was unlawful;
2. a transaction from which the Indemnitee derived an improper
personal benefit;
3. willful misconduct or a conscious disregard for the best interests
of the Corporation (when indemnification is sought in a Proceeding by
or in the right of the Corporation to procure a judgment in favor of
the Corporation or when indemnification is sought in a Proceeding by
or in the right of a stockholder); or
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 3
- - --------------------------------------------------------------------------------
4. conduct as to which then applicable law prohibits indemnification.
13. PERSON means any natural person or individual, or any artificial
person, including any corporation, association, unincorporated
organization, partnership, joint venture, firm, company, business, trust,
business trust, limited liability company, government, public body or
authority, governmental agency or department, and any other entity.
14. PROCEEDING means any threatened, pending or completed claim, demand,
inquiry, investigation, action, suit or proceeding, regarding any matter
(including but not limited to matters arising under or relating to federal
or state securities laws, laws relating to the protection of the
environment, the Employee Retirement Income Security Act of 1974 ("ERISA")
or other laws for the benefit or protection of employees, federal or state
tax laws, laws relating to discrimination against persons or groups, or any
other civil or criminal law), whether formal or informal, or whether
brought by or in the right of the Corporation, whether brought by a
governmental body, agency or representative or by any other Person, and
whether of a civil, criminal, administrative or investigative nature, and
includes any Third Party Proceeding.
15. THIRD PARTY PROCEEDING means any Proceeding against the Indemnitee by,
or any Proceeding by the Indemnitee against, any third party.
2. GRANT OF INDEMNITY.
The Corporation shall indemnify and hold harmless the Indemnitee in respect of:
1. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with
prosecuting, defending, settling or investigating any Proceeding in which
the Indemnitee may be or may have been involved as a party or otherwise,
arising out of the fact that the Indemnitee is or was an Associate of the
Corporation or any of its Affiliates, or served as an Associate in or for
any Person at the request of the Corporation (including without limitation
service as a trustee or in any fiduciary or similar capacity for or in
connection with any employee benefit plan maintained by the Corporation or
for the benefit of any of the employees of the Corporation or any of its
Affiliates, or service on any trade association, civic, religious,
educational or charitable boards or committees);
2. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
attempt (regardless of its success) by any Person to charge or cause the
Indemnitee to be charged with wrongdoing or with financial responsibility
for damages arising out of or incurred in connection with the matters
indemnified against in this Agreement; and
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INDEMNIFICATION AGREEMENT
PAGE 4
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3. any and all Expenses that may be incurred or suffered by the Indemnitee
as a result of or arising out of or in connection with any matter referred
to in the preceding two paragraphs.
3. CLAIMS FOR INDEMNIFICATION; PROCEDURES
1. SUBMISSION OF CLAIMS. Whenever any Proceeding shall occur as to which
indemnification under this Agreement may be sought by the Indemnitee, the
Indemnitee shall give the Corporation written notice thereof as promptly as
reasonably practicable after the Indemnitee has actual knowledge of such
Proceeding (an "Indemnification Notice"). The Indemnification Notice shall
specify in reasonable detail the facts known to the Indemnitee giving rise
to such Proceeding, the positions and allegations of the parties to such
Proceeding and the factual bases therefor, and the amount or an estimate of
the amount of Liabilities and Expenses reasonably expected to arise
therefrom. A delay by the Indemnitee in providing such notice shall not
relieve the Corporation from its obligations under this Agreement unless
and only to the extent that the Corporation is materially and adversely
affected by the delay. If the Indemnitee desires to personally retain the
services of an attorney in connection with any Proceeding, the Indemnitee
shall notify the Corporation of such desire in Indemnification Notice
relating thereto, and such notice shall identify the counsel to be
retained.
2. PRESUMPTION OF RIGHT TO INDEMNIFICATION. Upon submission of an
Indemnification Notice to the Corporation, the Board shall review such
Notice and endeavor to determine whether the Indemnitee is entitled to
indemnification under this Agreement with respect to the matters described
therein. As of the Evaluation Date, unless the Board has reasonably
determined that the Indemnitee is not entitled to indemnification under
this Agreement with respect to the matters described in such
Indemnification Notice, there shall be created a presumption that the
Indemnitee is entitled to such indemnification. Such presumption shall
continue, and indemnification and payment shall be provided under this
Agreement, unless and such time as the Board shall reasonably determine
that the Indemnitee is not entitled to indemnification under this
Agreement. This paragraph is procedural only and shall not affect the right
of the Indemnitee to indemnification under this Agreement. Any
determination by the Board that the Indemnitee is not entitled to
indemnification under this Agreement and any failure to make any payments
requested in an Indemnification Notice or otherwise shall be subject to
judicial review.
3. LIMITATION ON ADVERSE DETERMINATIONS BY THE BOARD. Subject to applicable
law, no determination by the Board that the Indemnitee is not entitled to
indemnification or payment under this Agreement shall be given effect under
this Agreement unless (i) such determination is based upon clear and
convincing evidence, (ii) such determination is made
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 5
- - --------------------------------------------------------------------------------
by a vote of a majority of the Corporation's Directors at a meeting at
which a quorum is present, and (iii) the Indemnitee is given written notice
of such meeting at least ten days in advance of such meeting and given a
meaningful opportunity to present at such meeting information in support of
the claim for indemnification or payment.
4. EXPENSES.
1. With respect to any Proceeding as to which the Indemnitee is
entitled (or presumed entitled) to indemnification under this
Agreement, Expenses incurred or required to be incurred by the
Indemnitee in connection with such Proceeding, but prior to the final
disposition of such Proceeding, shall be paid or caused to be paid by
the Corporation to or on behalf of the Indemnitee notwithstanding that
there has been no final disposition of such Proceeding, to the extent
provided in the following paragraph.
2. For purposes of determining whether to authorize advancement of
Expenses pursuant to the preceding paragraph, the Indemnitee shall
from time to time submit to the Board a statement requesting
advancement of Expenses (an "Expense Advance Request." Each Expense
Advance Request shall set forth (i) in reasonable detail, all Expenses
already incurred or required to be incurred by the Indemnitee and the
reason therefor, and (ii) an undertaking by the Indemnitee, in form
and substance reasonably satisfactory to the Corporation, to repay all
the Expenses set forth therein if it shall ultimately be determined
that the Indemnitee is not entitled to be indemnified with respect to
such Proceeding by the Corporation under this Agreement or otherwise.
Upon receipt of an Expense Advance Request satisfying the foregoing
requirements, as to each Expense set forth therein, unless the Board
reasonably determines that the Indemnitee is not entitled to payment
of such Expense, the Corporation shall, within 10 business days
thereafter (or, if later as to any Expense yet to be incurred by the
Indemnitee, on or before the date three business days prior to the
date such Expense is required to be paid by the Indemnitee), pay or
cause to be paid by the Corporation the amount of such Expense to or
on behalf of the Indemnitee. No security shall be required in
connection with any Expense Advance Request, and the ability or
inability of the Indemnitee to make repayment shall not be considered
in any evaluation of an Expense Advance Request.
5. RIGHTS TO DEFEND OR SETTLE; THIRD PARTY PROCEEDINGS, ETC.
1. If the Corporation at any time provides the Indemnitee with an
agreement in writing, in form and substance reasonably satisfactory to
the Indemnitee and the Indemnitee's counsel, agreeing to indemnify,
defend or prosecute and hold the Indemnitee harmless from all
Liabilities and Expenses arising from any Third Party
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 6
- - --------------------------------------------------------------------------------
Proceeding (an "Agreement of Indemnity"), and demonstrating to the
reasonable satisfaction of the Indemnitee the Corporation's financial
wherewithal to accomplish such indemnification, the Corporation may
thereafter at its own expense undertake full responsibility for and
control of the defense or prosecution of such Third Party Proceeding.
The Corporation may contest or settle any such Third Party Proceeding
for money damages on such terms and conditions as it deems appropriate
but shall be obligated to consult in good faith with the Indemnitee
and not to contest or settle any Third Party Proceeding involving
injunctive or equitable relief against or affecting the Indemnitee or
the Indemnitee's properties or assets without the prior written
consent of the Indemnitee, such consent not to be unreasonably
withheld. The Indemnitee may participate at the Indemnitee's own
expense and with the Indemnitee's own counsel in defense or
prosecution of a Third Party Proceeding controlled by the Corporation.
Such participation shall not relieve the Corporation of its obligation
to indemnify the Indemnitee with respect to such Third Party
Proceeding under this Agreement.
2. If, as of ten (10) business days after the receipt by the Board of
an Indemnification Notice, the Corporation has not delivered to the
Indemnitee a reasonably satisfactory Agreement of Indemnity and
evidence of financial wherewithal as contemplated by the preceding
paragraph, the Indemnitee may contest or settle the Third Party
Proceeding on such terms as it sees fit but shall not reach a
settlement with respect to the payment of money damages without
consulting in good faith with the Corporation. As to any Third Party
Proceeding as to which the Indemnitee is entitled (or presumed
entitled) to indemnification under this Agreement, unless and until
such time as the Corporation at its own expense undertakes full
responsibility for and control of the defense or prosecution of such
Third Party Proceeding, the Indemnitee shall be entitled to
indemnification under this Agreement with respect any Expenses of the
Indemnitee, including Legal Fees, relating to such Third Party
Proceeding. Notwithstanding the foregoing, the Corporation may at any
time deliver to the Indemnitee a reasonably satisfactory Agreement of
Indemnity and evidence of financial wherewithal as contemplated by the
preceding paragraph, and thereafter at its own expense undertake full
responsibility for and control of the defense or prosecution of such
Third Party Proceeding.
3. All Expenses incurred in defending or prosecuting any Third Party
Proceeding shall be paid in accordance with the procedure set forth in
Section 3(d) of this Agreement.
4. If, by reason of any Third Party Proceeding as to which the
Indemnitee is entitled (or presumed entitled) to indemnification under
this Agreement, a lien,
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INDEMNIFICATION AGREEMENT
PAGE 7
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attachment, garnishment or execution is placed upon any of the
property or assets of the Indemnitee, the Corporation shall promptly
furnish a reasonably satisfactory indemnity bond to obtain the prompt
release of such lien, attachment, garnishment or execution.
5. The Corporation may participate at its own expense and with its own
counsel in defense or prosecution of any Third Party Proceeding, but
any such participation shall not relieve the Corporation of its
obligations to indemnify the Indemnitee under this Agreement. Any
election by the Corporation to at its own expense undertake full
responsibility for and control of the defense or prosecution of a
Third Party Proceeding shall not affect the entitlement of the
Indemnitee to indemnification under this Agreement.
6. The Indemnitee shall cooperate in the defense or prosecution of any
Third Party Proceeding controlled by the Corporation.
7. The parties shall cooperate in good faith and use reasonable
efforts to mitigate and minimize any Expense or Liability.
6. CHOICE OF COUNSEL. In all matters as to which indemnification is or may
be available to the Indemnitee under this Agreement, the Indemnitee shall
be free to choose and retain counsel of the Indemnitee's choice, provided
that the Indemnitee shall secure the prior written consent of the
Corporation as to such selection, which consent shall not be unreasonably
withheld.
7. REPAYMENT. Notwithstanding anything to the contrary, if the Corporation
has paid or advanced any Liability or Expense under this Agreement
(including pursuant to an Expense Advance Request) to, on behalf of or for
the benefit of the Indemnitee and it is determined by a court of competent
jurisdiction, in a decision which the Indemnitee does not properly appeal
or which decision is affirmed on appeal, that the Indemnitee's actions or
omissions constitute Nonindemnifiable Conduct or that the Indemnitee
otherwise is not or was not entitled to such payment or advance or that the
Indemnitee is required to reimburse or repay the Corporation for the amount
thereof, the Indemnitee shall and does hereby undertake in such
circumstances to reimburse and repay the Corporation for any and all such
amounts paid, which thereupon shall be deemed and shall be and become the
legal, valid and enforceable debt and obligation of the Indemnitee to the
Corporation.
8. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION.
1. AUTHORITY. The Corporation represents, covenants and agrees that it
has the corporate power and authority to enter into this Agreement and
to carry out its
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INDEMNIFICATION AGREEMENT
PAGE 8
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obligations under this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by the Board.
This Agreement is a valid and binding obligation of the Corporation
and is enforceable against the Corporation in accordance with its
terms.
2. NONCONTESTABILITY. The Corporation represents, covenants and agrees
that it will not initiate, and will use its best efforts to cause each
of its Affiliates not to initiate, any action, suit or proceeding
challenging the validity or enforceability of this Agreement.
3. GOOD FAITH JUDGMENT. The Corporation represents, covenants and
agrees that it will exercise good faith and its best reasonable
judgment in determining the entitlement of the Indemnitee to
indemnification under this Agreement.
4. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES.
1. NONEXCLUSIVITY.
1. This Agreement and all rights granted to the Indemnitee under this
Agreement are in addition to and are not deemed to be exclusive with
or of any other rights that may be available to the Indemnitee under
any Articles of Incorporation, bylaw, statute, agreement, or
otherwise.
2. The rights, duties and obligations of the Corporation and the
Indemnitee under this Agreement do not limit, diminish or supersede
the rights, duties and obligations of the Corporation and the
Indemnitee with respect to the indemnification afforded to the
Indemnitee under any liability insurance, the FBCA, or under the
Bylaws or the Articles of Incorporation of the Corporation. In
addition, the Indemnitee's rights under this Agreement will not be
limited or diminished in any respect by any amendment to the Bylaws or
the Articles of Incorporation of the Corporation.
2. AVAILABILITY, CONTRIBUTION, ETC.
1. The availability or nonavailability of indemnification by way of
insurance policy, Articles of Incorporation, bylaw, vote of
stockholders, or otherwise from the Corporation to the Indemnitee
shall not affect the right of the Indemnitee to indemnification under
this Agreement, provided that all rights under this Agreement shall be
subject to applicable statutory provisions in effect from time to
time.
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INDEMNIFICATION AGREEMENT
PAGE 9
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2. Any funds actually received by the Indemnitee by way of
indemnification or payment from any source other than from the
Corporation under this Agreement shall reduce any amount otherwise
payable to the Indemnitee under this Agreement.
3. If the Indemnitee is entitled under any provision of this Agreement
to indemnification by the Corporation for some Liabilities or Expenses
but not as to others, or for some or a portion thereof actually
incurred by the Indemnitee or amounts actually paid in settlement by
the Indemnitee in the investigation, defense, appeal or settlement of
any Proceeding for which indemnification is sought under this
Agreement but not for the total amount thereof, the Corporation shall
indemnify the Indemnitee for the portion thereof to which the
Indemnitee is entitled.
4. If for any it is determined by a court of competent jurisdiction,
in a decision which neither party to this Agreement properly appeals
or which decision is affirmed on appeal, that the indemnity provided
under this Agreement is unavailable, or if for any reason the
indemnity under this Agreement is insufficient to hold the Indemnitee
harmless as provided in this Agreement, then, in any such event, the
Corporation shall contribute to the amounts paid or payable by the
Indemnitee in such proportion as equitably reflects the relative
benefits received by, and fault of, the Indemnitee and the Corporation
and its Affiliates and its and their respective Associates.
3. COORDINATION WITH INSURANCE. The obligation of the Corporation under
this Agreement is not conditioned in any way on any attempt, whether or not
successful, by the Indemnitee or the Corporation to collect from an insurer
any amount under any insurance policy.
4. NO EFFECT ON SEPARATE OBLIGATIONS OF INDEMNITEE. Notwithstanding
anything to the contrary, nothing in this Agreement shall (i) relieve the
Indemnitee from, or otherwise affect, any liability or obligation that the
Indemnitee may have to or for the benefit of the Corporation under any
written or oral employment or other agreement that may now or in the future
exist between the Indemnitee and the Corporation (collectively, "Other
Corporation/Indemnitee Agreements"), (ii) cause or require the Corporation
to indemnify or make any payment or reimbursement to, for or on behalf of
or for the benefit of the Indemnitee, or hold the Indemnitee harmless, for,
from or with respect to any breach or violation by the Indemnitee of any
representation, warranty or agreement of the Indemnitee in or under any
Other Corporation/Indemnitee Agreement, or (iii) cause or require the
Corporation to indemnify or make any payment or reimbursement to, for or on
behalf of or for the benefit of the Indemnitee, or hold the Indemnitee
harmless, for, from or with respect to any matter with respect to which the
Indemnitee is required by, under, pursuant to or in accordance with any
Other Corporation/Indemnitee Agreement or applicable law to
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INDEMNIFICATION AGREEMENT
PAGE 10
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indemnify or make any payment or reimbursement to, for or on behalf of or
for the benefit of the Corporation or hold the Corporation harmless.
5. LIMITATIONS.
In no case shall any indemnification or payment be provided or made under this
Agreement to or on behalf of or for the direct or indirect benefit of the
Indemnitee by the Corporation:
1. except as set forth in Section 6(g) of this Agreement, in any Proceeding
brought by or in the name or interest of the Indemnitee against the
Corporation;
2. except as set forth in Section 6(g) of this Agreement, in any Proceeding
brought by the Corporation against the Indemnitee, which action is
initiated at the direction of the Board; or
3. for any Nonindemnifiable Conduct.
6. MISCELLANEOUS.
1. COOPERATION. The parties to this Agreement shall execute such powers of
attorney as may be necessary or appropriate to permit participation of
counsel selected by any party hereto and, as may be reasonably related to
any such claim or action, shall provide to the counsel, accountants and
other representatives of each party access during normal business hours to
all properties, personnel, books, records, contracts, commitments and all
other business records of such other party and will furnish to such other
party copies of all such documents as may be reasonably requested
(certified, if requested).
2. FURTHER ASSURANCES. The parties to this Agreement will execute and
deliver, or cause to be executed and delivered, such additional or further
documents, agreements or instruments and shall cooperate with one another
in all respects for the purpose of carrying out the transactions
contemplated by this Agreement.
3. NOTICES. Any notice, request, demand or other communication required or
permitted to be given or made under this Agreement shall be in writing and
shall be deemed to have been duly given: upon receipt if personally
delivered; upon successful completion of transmission if transmitted by
telecopy, electronic telephone line facsimile transmission or other similar
electronic or digital transmission method; at the close of business on the
next business day after it is sent, if sent by recognized overnight
delivery service with all fees payable by the sender; or at the close of
business on the fifth business day after it is sent, if mailed, first class
mail, postage prepaid. In each case such notice, request, demand or other
communication shall be sent to:
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INDEMNIFICATION AGREEMENT
PAGE 11
- - --------------------------------------------------------------------------------
if to the Indemnitee:
At the Indemnitee's address on file with the Corporation.
if to the Corporation
At the Corporation's principal executive offices.
or to such other address as either party may have specified in writing to
the other using the procedures specified above in this Section 6(c).
4. GOVERNING LAW. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (but any provision
of Florida law shall not apply if the application of such provision would
result in the application of the law of a state or jurisdiction other than
Florida).
5. SEVERABILITY. Any provision of this Agreement that is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction. In any such case, such determination shall not affect
any other provision of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect. If any provision or term
of this Agreement is susceptible to two or more constructions or
interpretations, one or more of which would render the provision or term
void or unenforceable, the parties agree that a construction or
interpretation which renders the term or provision valid shall be favored.
6. SPECIFIC ENFORCEMENT; PRESUMPTION.
1. The parties agree and acknowledge that, in the event of a breach by
the Corporation of its obligation promptly to indemnify the Indemnitee
as provided in this Agreement, or breach of any other material
provision of this Agreement, damages at law will be an insufficient
remedy to the Indemnitee. Accordingly, the parties agree that, in
addition to any other remedies or rights that may be available to the
Indemnitee, the Indemnitee shall also be entitled, upon application to
a court of competent jurisdiction, to obtain temporary or permanent
injunctions to compel specific performance of the obligations of the
Corporation under this Agreement.
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INDEMNIFICATION AGREEMENT
PAGE 12
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2. There shall exist in any action to enforce the rights of the
Indemnitee under this Agreement a rebuttable presumption that the
Indemnitee has met the applicable standard(s) of conduct and is
therefore entitled to indemnification pursuant to this Agreement, and
the burden of proving that the relevant standards have not been met by
the Indemnitee shall be on the Corporation. Neither the failure of the
Corporation (including the Board or independent legal counsel) prior
to the commencement of such action to have made a determination that
indemnification is proper in the circumstances because the Indemnitee
has met the applicable standard of conduct, nor an actual
determination by the Corporation (including the Board or independent
legal counsel) that the Indemnitee has not met such applicable
standard of conduct, shall (X) constitute a defense to the action, (Y)
create a presumption that the Indemnitee has not met the applicable
standard of conduct, or (Z) otherwise alter the presumption in favor
of the Indemnitee referred to in the preceding sentence.
7. COST OF ENFORCEMENT; INTEREST.
1. If either party to this Agreement engages the services of an
attorney or any other third party or in any way initiates legal action
to enforce the party's rights under this Agreement, including but not
limited to the collection of monies due, the prevailing party in such
action shall be entitled to recover all Expenses incurred in
connection therewith. Should the Indemnitee prevail, such Expenses
shall be in addition to monies otherwise due the Indemnitee under this
Agreement.
2. If any amount shall be due or payable under this Agreement
(including under an Expense Advance Request) and shall not be paid
within 30 days from the date as of which the obligation to make such
payment arises, interest shall accrue on such unpaid amount from the
date when due until it is paid in full at the rate of 2% per annum in
excess of the prime rate published from time to time in THE WALL
STREET JOURNAL in its "Money Rates" column or any similar or successor
column or feature, or such lower rate as may be required to comply
with applicable law.
8. NO ASSIGNMENT. Any claim, right, title, benefit, remedy or interest of
the Indemnitee in, to or under or arising out of or in connection with this
Agreement is personal and may not be sold, assigned, transferred, pledged
or hypothecated, but the provisions of this Agreement shall survive the
death, disability or incapacity of the Indemnitee or the termination of the
Indemnitee's service as a Director or officer of the Corporation and shall
inure to the benefit of the Indemnitee's heirs, executors and
administrators. This Agreement shall inure to the benefit of and shall be
binding upon the successors in interest and assigns of the Corporation,
including any successor corporation resulting from a merger, consolidation,
recapitalization, reorganization, sale of all or substantially all of the
assets of the Corporation, or any other
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INDEMNIFICATION AGREEMENT
PAGE 13
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transaction resulting in the successor corporation assuming the liabilities
of the Corporation under this Agreement (by operation of law or otherwise).
9. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to benefit
or entered into for the benefit of any third parties and, other than as set
forth in the preceding paragraph as to heirs, assignees and successors,
nothing in this Agreement, whether express or implied, is intended or
should be construed to confer upon, or to grant to, any person, except the
Corporation and the Indemnitee, any claim, right, benefit or remedy under
or because of this Agreement or any provision set forth in this Agreement.
10. CONSTRUCTION. As used in this Agreement, (1) the word "including" is
always without limitation, and (2) words in the singular number include
words of the plural number and vice versa.
11. VENUE; PROCESS. The parties to this Agreement agree that jurisdiction
and venue in any action brought pursuant to this Agreement to enforce its
terms or otherwise with respect to the relationships between the parties
shall properly lie in and only in the Circuit Court of the Sixth Judicial
Circuit of the State of Florida in and for Pinellas County (the "Circuit
Court") and the parties agree that jurisdiction shall not properly lie in
any other jurisdiction provided, however, if jurisdiction does not properly
lie with the Circuit Court, the parties agree that jurisdiction and venue
shall properly lie in and only in the United States District Court for the
Middle District of Florida, Tampa Division. The parties hereby waive any
objections which they may now or hereafter have based on venue and/or forum
non conveniens and irrevocably submit to the jurisdiction of any such court
in any legal suit, action or proceeding arising out of or relating to this
Agreement. The parties further agree that the mailing by certified or
registered mail, return receipt requested, of any process required by any
such court shall constitute valid and lawful service of process against
them, without the necessity for service by any other means provided by
statute or rule of court.
12. WAIVER AND DELAY. No waiver or delay in enforcing the terms of this
Agreement or in taking any action with respect to any breach of this
Agreement shall be construed as a waiver of any subsequent breach. No
action taken by the Indemnitee shall constitute a waiver of the
Indemnitee's rights under this Agreement.
13. MODIFICATION. This Agreement contains the entire agreement of the
parties, and supersedes any prior written or oral agreement of the parties,
with respect to the subject matter hereof. This Agreement may be modified
only by an instrument in writing signed by both parties hereto.
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INDEMNIFICATION AGREEMENT
PAGE 14
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14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same instrument.
15. HEADINGS. The headings of the various sections in this Agreement are
inserted for the convenience of the parties and shall not affect the
meaning, construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement EFFECTIVE as
of the date first above written.
INDEMNITEE
__________________________________
Signature Date
ECHELON INTERNATIONAL CORPORATION
By:______________________________
Date
EXHIBIT 11.4
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into EFFECTIVE as of the 18 day of December, 1996, by and between DARRYL LECLAIR
(the "Indemnitee"), and ECHELON INTERNATIONAL CORPORATION, a Florida corporation
(the "Corporation").
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as
Directors, officers and key employees the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance is severely
limited; and
WHEREAS, in addition, the indemnification provisions of the Florida
Business Corporation Act (the "FBCA," as further defined below) expressly
provide that such provisions are non-exclusive; and
WHEREAS, the Indemnitee does not regard the protection available under
the Articles of Incorporation and Bylaws of the Corporation and insurance, if
any, as adequate in the present circumstances, and considers it necessary to
condition the Indemnitee's agreement to serve as a Director and/or officer of
the Corporation to have appropriate contractual rights to indemnification from
the Corporation, and the Corporation desires the Indemnitee to serve in such
capacity or capacities and to have such rights as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, it is hereby agreed as
follows:
1. DEFINITIONS.
For the purposes of this Agreement, the terms below shall have the
indicated meanings except where the context in which such a term is used in this
Agreement clearly indicates otherwise:
1. AFFILIATE means, as to any Person (the "first Person"), any other
Person that, either directly or indirectly, controls, is controlled by
or is under common control with the first Person.
2. AGREEMENT OF INDEMNITY means the agreement provided for by Section
3(e)(i) of this Agreement.
3. ASSOCIATE of a Person means a director, officer, employee, agent,
consultant, independent contractor, stockholder or partner of such
Person.
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INDEMNIFICATION AGREEMENT
PAGE 2
4. BOARD means the Board of Directors of the Corporation.
5. EVALUATION DATE means, as to any Indemnification Notice, the date
thirty (30) calendar days after the date of receipt by the Board of
such Indemnification Notice.
6. EXPENSE means any cost or expense (other than a Liability),
including but not limited to Legal Fees, and including interest on any
of the foregoing, reasonably paid or required to be paid by the
Indemnitee on account of or in connection with any Proceeding.
7. EXPENSE ADVANCE REQUEST means the request provided for by Section
3(d)(ii) of this Agreement.
8. FBCA means a the Florida Business Corporation Act, Chapter 607,
Florida Statutes, and any successor statute.
9. INDEMNIFICATION NOTICE means the notice provided for by Section 3(a)
of this Agreement.
10. LEGAL FEES means the fees and disbursements of legal counsel, legal
assistants, experts, accountants, consultants and investigators, before
and at trial, in appellate or bankruptcy proceedings and otherwise.
11. LIABILITY means any amount (other than an Expense), including any
assessment, fine, penalty, excise or other tax, and including interest
on any of the foregoing, paid or required to be paid by the Indemnitee
on account of or in connection with any Proceeding.
12. NONINDEMNIFIABLE CONDUCT means any act or omission to act of the
Indemnitee material to a Proceeding as to which indemnification under
this Agreement is sought, which act or omission is determined to
involve:
1. a violation of criminal law, unless the Indemnitee had
reasonable cause to believe such conduct was lawful or had no
reasonable cause to believe such conduct was unlawful;
2. a transaction from which the Indemnitee derived an improper
personal benefit;
3. willful misconduct or a conscious disregard for the best
interests of the Corporation (when indemnification is sought in a
Proceeding by or in the right of the
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INDEMNIFICATION AGREEMENT
PAGE 3
Corporation to procure a judgment in favor of the Corporation or
when indemnification is sought in a Proceeding by or in the right
of a stockholder); or
4. conduct as to which then applicable law prohibits
indemnification.
13. PERSON means any natural person or individual, or any artificial
person, including any corporation, association, unincorporated
organization, partnership, joint venture, firm, company, business,
trust, business trust, limited liability company, government, public
body or authority, governmental agency or department, and any other
entity.
14. PROCEEDING means any threatened, pending or completed claim,
demand, inquiry, investigation, action, suit or proceeding, regarding
any matter (including but not limited to matters arising under or
relating to federal or state securities laws, laws relating to the
protection of the environment, the Employee Retirement Income Security
Act of 1974 ("ERISA") or other laws for the benefit or protection of
employees, federal or state tax laws, laws relating to discrimination
against persons or groups, or any other civil or criminal law), whether
formal or informal, or whether brought by or in the right of the
Corporation, whether brought by a governmental body, agency or
representative or by any other Person, and whether of a civil,
criminal, administrative or investigative nature, and includes any
Third Party Proceeding.
15. THIRD PARTY PROCEEDING means any Proceeding against the Indemnitee
by, or any Proceeding by the Indemnitee against, any third party.
2. GRANT OF INDEMNITY.
The Corporation shall indemnify and hold harmless the Indemnitee in respect of:
1. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with
prosecuting, defending, settling or investigating any Proceeding in
which the Indemnitee may be or may have been involved as a party or
otherwise, arising out of the fact that the Indemnitee is or was an
Associate of the Corporation or any of its Affiliates, or served as an
Associate in or for any Person at the request of the Corporation
(including without limitation service as a trustee or in any fiduciary
or similar capacity for or in connection with any employee benefit plan
maintained by the Corporation or for the benefit of any of the
employees of the Corporation or any of its Affiliates, or service on
any trade association, civic, religious, educational or charitable
boards or committees);
2. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
attempt (regardless of its success) by any
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 4
Person to charge or cause the Indemnitee to be charged with wrongdoing
or with financial responsibility for damages arising out of or incurred
in connection with the matters indemnified against in this Agreement;
and
3. any and all Expenses that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
matter referred to in the preceding two paragraphs.
3. CLAIMS FOR INDEMNIFICATION; PROCEDURES
1. SUBMISSION OF CLAIMS. Whenever any Proceeding shall occur as to
which indemnification under this Agreement may be sought by the
Indemnitee, the Indemnitee shall give the Corporation written notice
thereof as promptly as reasonably practicable after the Indemnitee has
actual knowledge of such Proceeding (an "Indemnification Notice"). The
Indemnification Notice shall specify in reasonable detail the facts
known to the Indemnitee giving rise to such Proceeding, the positions
and allegations of the parties to such Proceeding and the factual bases
therefor, and the amount or an estimate of the amount of Liabilities
and Expenses reasonably expected to arise therefrom. A delay by the
Indemnitee in providing such notice shall not relieve the Corporation
from its obligations under this Agreement unless and only to the extent
that the Corporation is materially and adversely affected by the delay.
If the Indemnitee desires to personally retain the services of an
attorney in connection with any Proceeding, the Indemnitee shall notify
the Corporation of such desire in Indemnification Notice relating
thereto, and such notice shall identify the counsel to be retained.
2. PRESUMPTION OF RIGHT TO INDEMNIFICATION. Upon submission of an
Indemnification Notice to the Corporation, the Board shall review such
Notice and endeavor to determine whether the Indemnitee is entitled to
indemnification under this Agreement with respect to the matters
described therein. As of the Evaluation Date, unless the Board has
reasonably determined that the Indemnitee is not entitled to
indemnification under this Agreement with respect to the matters
described in such Indemnification Notice, there shall be created a
presumption that the Indemnitee is entitled to such indemnification.
Such presumption shall continue, and indemnification and payment shall
be provided under this Agreement, unless and such time as the Board
shall reasonably determine that the Indemnitee is not entitled to
indemnification under this Agreement. This paragraph is procedural only
and shall not affect the right of the Indemnitee to indemnification
under this Agreement. Any determination by the Board that the
Indemnitee is not entitled to indemnification under this Agreement and
any failure to make any payments requested in an Indemnification Notice
or otherwise shall be subject to judicial review.
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INDEMNIFICATION AGREEMENT
PAGE 5
3. LIMITATION ON ADVERSE DETERMINATIONS BY THE BOARD. Subject to
applicable law, no determination by the Board that the Indemnitee is
not entitled to indemnification or payment under this Agreement shall
be given effect under this Agreement unless (i) such determination is
based upon clear and convincing evidence, (ii) such determination is
made by a vote of a majority of the Corporation's Directors at a
meeting at which a quorum is present, and (iii) the Indemnitee is given
written notice of such meeting at least ten days in advance of such
meeting and given a meaningful opportunity to present at such meeting
information in support of the claim for indemnification or payment.
4. EXPENSES.
1. With respect to any Proceeding as to which the Indemnitee is
entitled (or presumed entitled) to indemnification under this
Agreement, Expenses incurred or required to be incurred by the
Indemnitee in connection with such Proceeding, but prior to the
final disposition of such Proceeding, shall be paid or caused to
be paid by the Corporation to or on behalf of the Indemnitee
notwithstanding that there has been no final disposition of such
Proceeding, to the extent provided in the following paragraph.
2. For purposes of determining whether to authorize advancement of
Expenses pursuant to the preceding paragraph, the Indemnitee shall
from time to time submit to the Board a statement requesting
advancement of Expenses (an "Expense Advance Request." Each
Expense Advance Request shall set forth (i) in reasonable detail,
all Expenses already incurred or required to be incurred by the
Indemnitee and the reason therefor, and (ii) an undertaking by the
Indemnitee, in form and substance reasonably satisfactory to the
Corporation, to repay all the Expenses set forth therein if it
shall ultimately be determined that the Indemnitee is not entitled
to be indemnified with respect to such Proceeding by the
Corporation under this Agreement or otherwise. Upon receipt of an
Expense Advance Request satisfying the foregoing requirements, as
to each Expense set forth therein, unless the Board reasonably
determines that the Indemnitee is not entitled to payment of such
Expense, the Corporation shall, within 10 business days thereafter
(or, if later as to any Expense yet to be incurred by the
Indemnitee, on or before the date three business days prior to the
date such Expense is required to be paid by the Indemnitee), pay
or cause to be paid by the Corporation the amount of such Expense
to or on behalf of the Indemnitee. No security shall be required
in connection with any Expense Advance Request, and the ability or
inability of the Indemnitee to make repayment shall not be
considered in any evaluation of an Expense Advance Request.
5. RIGHTS TO DEFEND OR SETTLE; THIRD PARTY PROCEEDINGS, ETC.
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INDEMNIFICATION AGREEMENT
PAGE 6
1. If the Corporation at any time provides the Indemnitee with an
agreement in writing, in form and substance reasonably
satisfactory to the Indemnitee and the Indemnitee's counsel,
agreeing to indemnify, defend or prosecute and hold the Indemnitee
harmless from all Liabilities and Expenses arising from any Third
Party Proceeding (an "Agreement of Indemnity"), and demonstrating
to the reasonable satisfaction of the Indemnitee the Corporation's
financial wherewithal to accomplish such indemnification, the
Corporation may thereafter at its own expense undertake full
responsibility for and control of the defense or prosecution of
such Third Party Proceeding. The Corporation may contest or settle
any such Third Party Proceeding for money damages on such terms
and conditions as it deems appropriate but shall be obligated to
consult in good faith with the Indemnitee and not to contest or
settle any Third Party Proceeding involving injunctive or
equitable relief against or affecting the Indemnitee or the
Indemnitee's properties or assets without the prior written
consent of the Indemnitee, such consent not to be unreasonably
withheld. The Indemnitee may participate at the Indemnitee's own
expense and with the Indemnitee's own counsel in defense or
prosecution of a Third Party Proceeding controlled by the
Corporation. Such participation shall not relieve the Corporation
of its obligation to indemnify the Indemnitee with respect to such
Third Party Proceeding under this Agreement.
2. If, as of ten (10) business days after the receipt by the Board
of an Indemnification Notice, the Corporation has not delivered to
the Indemnitee a reasonably satisfactory Agreement of Indemnity
and evidence of financial wherewithal as contemplated by the
preceding paragraph, the Indemnitee may contest or settle the
Third Party Proceeding on such terms as it sees fit but shall not
reach a settlement with respect to the payment of money damages
without consulting in good faith with the Corporation. As to any
Third Party Proceeding as to which the Indemnitee is entitled (or
presumed entitled) to indemnification under this Agreement, unless
and until such time as the Corporation at its own expense
undertakes full responsibility for and control of the defense or
prosecution of such Third Party Proceeding, the Indemnitee shall
be entitled to indemnification under this Agreement with respect
any Expenses of the Indemnitee, including Legal Fees, relating to
such Third Party Proceeding. Notwithstanding the foregoing, the
Corporation may at any time deliver to the Indemnitee a reasonably
satisfactory Agreement of Indemnity and evidence of financial
wherewithal as contemplated by the preceding paragraph, and
thereafter at its own expense undertake full responsibility for
and control of the defense or prosecution of such Third Party
Proceeding.
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INDEMNIFICATION AGREEMENT
PAGE 7
3. All Expenses incurred in defending or prosecuting any Third
Party Proceeding shall be paid in accordance with the procedure
set forth in Section 3(d) of this Agreement.
4. If, by reason of any Third Party Proceeding as to which the
Indemnitee is entitled (or presumed entitled) to indemnification
under this Agreement, a lien, attachment, garnishment or execution
is placed upon any of the property or assets of the Indemnitee,
the Corporation shall promptly furnish a reasonably satisfactory
indemnity bond to obtain the prompt release of such lien,
attachment, garnishment or execution.
5. The Corporation may participate at its own expense and with its
own counsel in defense or prosecution of any Third Party
Proceeding, but any such participation shall not relieve the
Corporation of its obligations to indemnify the Indemnitee under
this Agreement. Any election by the Corporation to at its own
expense undertake full responsibility for and control of the
defense or prosecution of a Third Party Proceeding shall not
affect the entitlement of the Indemnitee to indemnification under
this Agreement.
6. The Indemnitee shall cooperate in the defense or prosecution of
any Third Party Proceeding controlled by the Corporation.
7. The parties shall cooperate in good faith and use reasonable
efforts to mitigate and minimize any Expense or Liability.
6. CHOICE OF COUNSEL. In all matters as to which indemnification is or
may be available to the Indemnitee under this Agreement, the Indemnitee
shall be free to choose and retain counsel of the Indemnitee's choice,
provided that the Indemnitee shall secure the prior written consent of
the Corporation as to such selection, which consent shall not be
unreasonably withheld.
7. REPAYMENT. Notwithstanding anything to the contrary, if the
Corporation has paid or advanced any Liability or Expense under this
Agreement (including pursuant to an Expense Advance Request) to, on
behalf of or for the benefit of the Indemnitee and it is determined by
a court of competent jurisdiction, in a decision which the Indemnitee
does not properly appeal or which decision is affirmed on appeal, that
the Indemnitee's actions or omissions constitute Nonindemnifiable
Conduct or that the Indemnitee otherwise is not or was not entitled to
such payment or advance or that the Indemnitee is required to reimburse
or repay the Corporation for the amount thereof, the Indemnitee shall
and does hereby undertake in such circumstances to reimburse and repay
the Corporation for any and all such
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 8
amounts paid, which thereupon shall be deemed and shall be and become
the legal, valid and enforceable debt and obligation of the Indemnitee
to the Corporation.
8. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION.
1. AUTHORITY. The Corporation represents, covenants and agrees
that it has the corporate power and authority to enter into this
Agreement and to carry out its obligations under this Agreement.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly authorized by the Board. This Agreement is a valid
and binding obligation of the Corporation and is enforceable
against the Corporation in accordance with its terms.
2. NONCONTESTABILITY. The Corporation represents, covenants and
agrees that it will not initiate, and will use its best efforts to
cause each of its Affiliates not to initiate, any action, suit or
proceeding challenging the validity or enforceability of this
Agreement.
3. GOOD FAITH JUDGMENT. The Corporation represents, covenants and
agrees that it will exercise good faith and its best reasonable
judgment in determining the entitlement of the Indemnitee to
indemnification under this Agreement.
4. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES.
1. NONEXCLUSIVITY.
1. This Agreement and all rights granted to the Indemnitee under
this Agreement are in addition to and are not deemed to be
exclusive with or of any other rights that may be available to the
Indemnitee under any Articles of Incorporation, bylaw, statute,
agreement, or otherwise.
2. The rights, duties and obligations of the Corporation and the
Indemnitee under this Agreement do not limit, diminish or
supersede the rights, duties and obligations of the Corporation
and the Indemnitee with respect to the indemnification afforded to
the Indemnitee under any liability insurance, the FBCA, or under
the Bylaws or the Articles of Incorporation of the Corporation. In
addition, the Indemnitee's rights under this Agreement will not be
limited or diminished in any respect by any amendment to the
Bylaws or the Articles of Incorporation of the Corporation.
2. AVAILABILITY, CONTRIBUTION, ETC.
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INDEMNIFICATION AGREEMENT
PAGE 9
1. The availability or nonavailability of indemnification by way
of insurance policy, Articles of Incorporation, bylaw, vote of
stockholders, or otherwise from the Corporation to the Indemnitee
shall not affect the right of the Indemnitee to indemnification
under this Agreement, provided that all rights under this
Agreement shall be subject to applicable statutory provisions in
effect from time to time.
2. Any funds actually received by the Indemnitee by way of
indemnification or payment from any source other than from the
Corporation under this Agreement shall reduce any amount otherwise
payable to the Indemnitee under this Agreement.
3. If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Corporation for some
Liabilities or Expenses but not as to others, or for some or a
portion thereof actually incurred by the Indemnitee or amounts
actually paid in settlement by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding for
which indemnification is sought under this Agreement but not for
the total amount thereof, the Corporation shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is
entitled.
4. If for any it is determined by a court of competent
jurisdiction, in a decision which neither party to this Agreement
properly appeals or which decision is affirmed on appeal, that the
indemnity provided under this Agreement is unavailable, or if for
any reason the indemnity under this Agreement is insufficient to
hold the Indemnitee harmless as provided in this Agreement, then,
in any such event, the Corporation shall contribute to the amounts
paid or payable by the Indemnitee in such proportion as equitably
reflects the relative benefits received by, and fault of, the
Indemnitee and the Corporation and its Affiliates and its and
their respective Associates.
3. COORDINATION WITH INSURANCE. The obligation of the Corporation under
this Agreement is not conditioned in any way on any attempt, whether or
not successful, by the Indemnitee or the Corporation to collect from an
insurer any amount under any insurance policy.
4. NO EFFECT ON SEPARATE OBLIGATIONS OF INDEMNITEE. Notwithstanding
anything to the contrary, nothing in this Agreement shall (i) relieve
the Indemnitee from, or otherwise affect, any liability or obligation
that the Indemnitee may have to or for the benefit of the Corporation
under any written or oral employment or other agreement that may now or
in the future exist between the Indemnitee and the Corporation
(collectively, "Other Corporation/Indemnitee Agreements"), (ii) cause
or require the Corporation to indemnify or make any payment or
reimbursement to, for or on behalf of or for the benefit of the
Indemnitee, or hold the Indemnitee harmless, for, from or with respect
to any breach or
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 10
violation by the Indemnitee of any representation, warranty or
agreement of the Indemnitee in or under any Other
Corporation/Indemnitee Agreement, or (iii) cause or require the
Corporation to indemnify or make any payment or reimbursement to, for
or on behalf of or for the benefit of the Indemnitee, or hold the
Indemnitee harmless, for, from or with respect to any matter with
respect to which the Indemnitee is required by, under, pursuant to or
in accordance with any Other Corporation/Indemnitee Agreement or
applicable law to indemnify or make any payment or reimbursement to,
for or on behalf of or for the benefit of the Corporation or hold the
Corporation harmless.
5. LIMITATIONS.
In no case shall any indemnification or payment be provided or made under this
Agreement to or on behalf of or for the direct or indirect benefit of the
Indemnitee by the Corporation:
1. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by or in the name or interest of the Indemnitee
against the Corporation;
2. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by the Corporation against the Indemnitee, which
action is initiated at the direction of the Board; or
3. for any Nonindemnifiable Conduct.
6. MISCELLANEOUS.
1. COOPERATION. The parties to this Agreement shall execute such powers
of attorney as may be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may be reasonably
related to any such claim or action, shall provide to the counsel,
accountants and other representatives of each party access during
normal business hours to all properties, personnel, books, records,
contracts, commitments and all other business records of such other
party and will furnish to such other party copies of all such documents
as may be reasonably requested (certified, if requested).
2. FURTHER ASSURANCES. The parties to this Agreement will execute and
deliver, or cause to be executed and delivered, such additional or
further documents, agreements or instruments and shall cooperate with
one another in all respects for the purpose of carrying out the
transactions contemplated by this Agreement.
3. NOTICES. Any notice, request, demand or other communication required
or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been duly given: upon receipt if
personally delivered; upon successful completion of
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 11
transmission if transmitted by telecopy, electronic telephone line
facsimile transmission or other similar electronic or digital
transmission method; at the close of business on the next business day
after it is sent, if sent by recognized overnight delivery service with
all fees payable by the sender; or at the close of business on the
fifth business day after it is sent, if mailed, first class mail,
postage prepaid. In each case such notice, request, demand or other
communication shall be sent to:
if to the Indemnitee:
At the Indemnitee's address on file with the Corporation.
if to the Corporation:
At the Corporation's principal executive offices.
or to such other address as either party may have specified in writing
to the other using the procedures specified above in this Section 6(c).
4. GOVERNING LAW. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (but any
provision of Florida law shall not apply if the application of such
provision would result in the application of the law of a state or
jurisdiction other than Florida).
5. SEVERABILITY. Any provision of this Agreement that is determined by
a court of competent jurisdiction to be prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof
or affecting the validity, enforceability or legality of such provision
in any other jurisdiction. In any such case, such determination shall
not affect any other provision of this Agreement, and the remaining
provisions of this Agreement shall remain in full force and effect. If
any provision or term of this Agreement is susceptible to two or more
constructions or interpretations, one or more of which would render the
provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision
valid shall be favored.
6. SPECIFIC ENFORCEMENT; PRESUMPTION.
1. The parties agree and acknowledge that, in the event of a
breach by the Corporation of its obligation promptly to indemnify
the Indemnitee as provided in
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 12
this Agreement, or breach of any other material provision of this
Agreement, damages at law will be an insufficient remedy to the
Indemnitee. Accordingly, the parties agree that, in addition to
any other remedies or rights that may be available to the
Indemnitee, the Indemnitee shall also be entitled, upon
application to a court of competent jurisdiction, to obtain
temporary or permanent injunctions to compel specific performance
of the obligations of the Corporation under this Agreement.
2. There shall exist in any action to enforce the rights of the
Indemnitee under this Agreement a rebuttable presumption that the
Indemnitee has met the applicable standard(s) of conduct and is
therefore entitled to indemnification pursuant to this Agreement,
and the burden of proving that the relevant standards have not
been met by the Indemnitee shall be on the Corporation. Neither
the failure of the Corporation (including the Board or independent
legal counsel) prior to the commencement of such action to have
made a determination that indemnification is proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the
Corporation (including the Board or independent legal counsel)
that the Indemnitee has not met such applicable standard of
conduct, shall (X) constitute a defense to the action, (Y) create
a presumption that the Indemnitee has not met the applicable
standard of conduct, or (Z) otherwise alter the presumption in
favor of the Indemnitee referred to in the preceding sentence.
7. COST OF ENFORCEMENT; INTEREST.
1. If either party to this Agreement engages the services of an
attorney or any other third party or in any way initiates legal
action to enforce the party's rights under this Agreement,
including but not limited to the collection of monies due, the
prevailing party in such action shall be entitled to recover all
Expenses incurred in connection therewith. Should the Indemnitee
prevail, such Expenses shall be in addition to monies otherwise
due the Indemnitee under this Agreement.
2. If any amount shall be due or payable under this Agreement
(including under an Expense Advance Request) and shall not be paid
within 30 days from the date as of which the obligation to make
such payment arises, interest shall accrue on such unpaid amount
from the date when due until it is paid in full at the rate of 2%
per annum in excess of the prime rate published from time to time
in THE WALL STREET JOURNAL in its "Money Rates" column or any
similar or successor column or feature, or such lower rate as may
be required to comply with applicable law.
8. NO ASSIGNMENT. Any claim, right, title, benefit, remedy or interest
of the Indemnitee in, to or under or arising out of or in connection
with this Agreement is personal and may not be sold, assigned,
transferred, pledged or hypothecated, but the provisions of this
Agreement
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 13
shall survive the death, disability or incapacity of the Indemnitee or
the termination of the Indemnitee's service as a Director or officer of
the Corporation and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. This Agreement shall inure to the
benefit of and shall be binding upon the successors in interest and
assigns of the Corporation, including any successor corporation
resulting from a merger, consolidation, recapitalization,
reorganization, sale of all or substantially all of the assets of the
Corporation, or any other transaction resulting in the successor
corporation assuming the liabilities of the Corporation under this
Agreement (by operation of law or otherwise).
9. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
benefit or entered into for the benefit of any third parties and, other
than as set forth in the preceding paragraph as to heirs, assignees and
successors, nothing in this Agreement, whether express or implied, is
intended or should be construed to confer upon, or to grant to, any
person, except the Corporation and the Indemnitee, any claim, right,
benefit or remedy under or because of this Agreement or any provision
set forth in this Agreement.
10. CONSTRUCTION. As used in this Agreement, (1) the word "including"
is always without limitation, and (2) words in the singular number
include words of the plural number and vice versa.
11. VENUE; PROCESS. The parties to this Agreement agree that
jurisdiction and venue in any action brought pursuant to this Agreement
to enforce its terms or otherwise with respect to the relationships
between the parties shall properly lie in and only in the Circuit Court
of the Sixth Judicial Circuit of the State of Florida in and for
Pinellas County (the "Circuit Court") and the parties agree that
jurisdiction shall not properly lie in any other jurisdiction provided,
however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and
only in the United States District Court for the Middle District of
Florida, Tampa Division. The parties hereby waive any objections which
they may now or hereafter have based on venue and/or forum non
conveniens and irrevocably submit to the jurisdiction of any such court
in any legal suit, action or proceeding arising out of or relating to
this Agreement. The parties further agree that the mailing by certified
or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process
against them, without the necessity for service by any other means
provided by statute or rule of court.
12. WAIVER AND DELAY. No waiver or delay in enforcing the terms of this
Agreement or in taking any action with respect to any breach of this
Agreement shall be construed as a waiver of any subsequent breach. No
action taken by the Indemnitee shall constitute a waiver of the
Indemnitee's rights under this Agreement.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 14
13. MODIFICATION. This Agreement contains the entire agreement of the
parties, and supersedes any prior written or oral agreement of the
parties, with respect to the subject matter hereof. This Agreement may
be modified only by an instrument in writing signed by both parties
hereto.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same instrument.
15. HEADINGS. The headings of the various sections in this Agreement
are inserted for the convenience of the parties and shall not affect
the meaning, construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement EFFECTIVE
as of the date first above written.
INDEMNITEE
/s/ DARRYL A. LECLAIR
- - ----------------------------------------
Signature Date
EXHIBIT 11.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into EFFECTIVE as of the 28th day of October, 1997, by and between THOMAS W.
MAHR (the "Indemnitee"), and ECHELON INTERNATIONAL CORPORATION., a Florida
corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as
Directors, officers and key employees the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance is severely
limited; and
WHEREAS, in addition, the indemnification provisions of the Florida
Business Corporation Act (the "FBCA," as further defined below) expressly
provide that such provisions are non-exclusive; and
WHEREAS, the Indemnitee does not regard the protection available under
the Articles of Incorporation and Bylaws of the Corporation and insurance, if
any, as adequate in the present circumstances, and considers it necessary to
condition the Indemnitee's agreement to serve as a Director and/or officer of
the Corporation to have appropriate contractual rights to indemnification from
the Corporation, and the Corporation desires the Indemnitee to serve in such
capacity or capacities and to have such rights as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, it is hereby agreed as
follows:
1. DEFINITIONS.
For the purposes of this Agreement, the terms below shall have the
indicated meanings except where the context in which such a term is used in this
Agreement clearly indicates otherwise:
1. AFFILIATE means, as to any Person (the "first Person"), any other
Person that, either directly or indirectly, controls, is controlled by
or is under common control with the first Person.
2. AGREEMENT OF INDEMNITY means the agreement provided for by Section
3(e)(i) of this Agreement.
3. ASSOCIATE of a Person means a director, officer, employee, agent,
consultant, independent contractor, stockholder or partner of such
Person. 1.
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INDEMNIFICATION AGREEMENT
PAGE 2
4. BOARD means the Board of Directors of the Corporation.
5. EVALUATION DATE means, as to any Indemnification Notice, the date
thirty (30) calendar days after the date of receipt by the Board of
such Indemnification Notice.
6. EXPENSE means any cost or expense (other than a Liability),
including but not limited to Legal Fees, and including interest on any
of the foregoing, reasonably paid or required to be paid by the
Indemnitee on account of or in connection with any Proceeding.
7. EXPENSE ADVANCE REQUEST means the request provided for by Section
3(d)(ii) of this Agreement.
8. FBCA means a the Florida Business Corporation Act, Chapter 607,
Florida Statutes, and any successor statute.
9. INDEMNIFICATION NOTICE means the notice provided for by Section 3(a)
of this Agreement.
10. LEGAL FEES means the fees and disbursements of legal counsel, legal
assistants, experts, accountants, consultants and investigators, before
and at trial, in appellate or bankruptcy proceedings and otherwise.
11. LIABILITY means any amount (other than an Expense), including any
assessment, fine, penalty, excise or other tax, and including interest
on any of the foregoing, paid or required to be paid by the Indemnitee
on account of or in connection with any Proceeding.
12. NONINDEMNIFIABLE CONDUCT means any act or omission to act of the
Indemnitee material to a Proceeding as to which indemnification under
this Agreement is sought, which act or omission is determined to
involve:
1. a violation of criminal law, unless the Indemnitee had
reasonable cause to believe such conduct was lawful or had no
reasonable cause to believe such conduct was unlawful;
2. a transaction from which the Indemnitee derived an improper
personal benefit;
3. willful misconduct or a conscious disregard for the best
interests of the Corporation (when indemnification is sought in a
Proceeding by or in the right of the
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 3
Corporation to procure a judgment in favor of the Corporation or
when indemnification is sought in a Proceeding by or in the right
of a stockholder); or 1.
4. conduct as to which then applicable law prohibits
indemnification.
13. PERSON means any natural person or individual, or any artificial
person, including any corporation, association, unincorporated
organization, partnership, joint venture, firm, company, business,
trust, business trust, limited liability company, government, public
body or authority, governmental agency or department, and any other
entity.
14. PROCEEDING means any threatened, pending or completed claim,
demand, inquiry, investigation, action, suit or proceeding, regarding
any matter (including but not limited to matters arising under or
relating to federal or state securities laws, laws relating to the
protection of the environment, the Employee Retirement Income Security
Act of 1974 ("ERISA") or other laws for the benefit or protection of
employees, federal or state tax laws, laws relating to discrimination
against persons or groups, or any other civil or criminal law), whether
formal or informal, or whether brought by or in the right of the
Corporation, whether brought by a governmental body, agency or
representative or by any other Person, and whether of a civil,
criminal, administrative or investigative nature, and includes any
Third Party Proceeding.
15. THIRD PARTY PROCEEDING means any Proceeding against the Indemnitee
by, or any Proceeding by the Indemnitee against, any third party.
2. GRANT OF INDEMNITY.
The Corporation shall indemnify and hold harmless the Indemnitee in respect of:
1. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with
prosecuting, defending, settling or investigating any Proceeding in
which the Indemnitee may be or may have been involved as a party or
otherwise, arising out of the fact that the Indemnitee is or was an
Associate of the Corporation or any of its Affiliates, or served as an
Associate in or for any Person at the request of the Corporation
(including without limitation service as a trustee or in any fiduciary
or similar capacity for or in connection with any employee benefit plan
maintained by the Corporation or for the benefit of any of the
employees of the Corporation or any of its Affiliates, or service on
any trade association, civic, religious, educational or charitable
boards or committees);
2. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
attempt (regardless of its success) by any
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 4
Person to charge or cause the Indemnitee to be charged with wrongdoing
or with financial responsibility for damages arising out of or incurred
in connection with the matters indemnified against in this Agreement;
and 1.
3. any and all Expenses that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
matter referred to in the preceding two paragraphs.
3. CLAIMS FOR INDEMNIFICATION; PROCEDURES
1. SUBMISSION OF CLAIMS. Whenever any Proceeding shall occur as to
which indemnification under this Agreement may be sought by the
Indemnitee, the Indemnitee shall give the Corporation written notice
thereof as promptly as reasonably practicable after the Indemnitee has
actual knowledge of such Proceeding (an "Indemnification Notice"). The
Indemnification Notice shall specify in reasonable detail the facts
known to the Indemnitee giving rise to such Proceeding, the positions
and allegations of the parties to such Proceeding and the factual bases
therefor, and the amount or an estimate of the amount of Liabilities
and Expenses reasonably expected to arise therefrom. A delay by the
Indemnitee in providing such notice shall not relieve the Corporation
from its obligations under this Agreement unless and only to the extent
that the Corporation is materially and adversely affected by the delay.
If the Indemnitee desires to personally retain the services of an
attorney in connection with any Proceeding, the Indemnitee shall notify
the Corporation of such desire in Indemnification Notice relating
thereto, and such notice shall identify the counsel to be retained.
2. PRESUMPTION OF RIGHT TO INDEMNIFICATION. Upon submission of an
Indemnification Notice to the Corporation, the Board shall review such
Notice and endeavor to determine whether the Indemnitee is entitled to
indemnification under this Agreement with respect to the matters
described therein. As of the Evaluation Date, unless the Board has
reasonably determined that the Indemnitee is not entitled to
indemnification under this Agreement with respect to the matters
described in such Indemnification Notice, there shall be created a
presumption that the Indemnitee is entitled to such indemnification.
Such presumption shall continue, and indemnification and payment shall
be provided under this Agreement, unless and such time as the Board
shall reasonably determine that the Indemnitee is not entitled to
indemnification under this Agreement. This paragraph is procedural only
and shall not affect the right of the Indemnitee to indemnification
under this Agreement. Any determination by the Board that the
Indemnitee is not entitled to indemnification under this Agreement and
any failure to make any payments requested in an Indemnification Notice
or otherwise shall be subject to judicial review.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 5
3. LIMITATION ON ADVERSE DETERMINATIONS BY THE BOARD. Subject to
applicable law, no determination by the Board that the Indemnitee is
not entitled to indemnification or payment under this Agreement shall
be given effect under this Agreement unless (i) such determination is
based upon clear and convincing evidence, (ii) such determination is
made by a vote of a majority of the Corporation's Directors at a
meeting at which a quorum is present, and (iii) the Indemnitee is given
written notice of such meeting at least ten days in advance of such
meeting and given a meaningful opportunity to present at such meeting
information in support of the claim for indemnification or payment.
4. EXPENSES.
1. With respect to any Proceeding as to which the Indemnitee is
entitled (or presumed entitled) to indemnification under this
Agreement, Expenses incurred or required to be incurred by the
Indemnitee in connection with such Proceeding, but prior to the
final disposition of such Proceeding, shall be paid or caused to
be paid by the Corporation to or on behalf of the Indemnitee
notwithstanding that there has been no final disposition of such
Proceeding, to the extent provided in the following paragraph.
2. For purposes of determining whether to authorize advancement of
Expenses pursuant to the preceding paragraph, the Indemnitee shall
from time to time submit to the Board a statement requesting
advancement of Expenses (an "Expense Advance Request." Each
Expense Advance Request shall set forth (i) in reasonable detail,
all Expenses already incurred or required to be incurred by the
Indemnitee and the reason therefor, and (ii) an undertaking by the
Indemnitee, in form and substance reasonably satisfactory to the
Corporation, to repay all the Expenses set forth therein if it
shall ultimately be determined that the Indemnitee is not entitled
to be indemnified with respect to such Proceeding by the
Corporation under this Agreement or otherwise. Upon receipt of an
Expense Advance Request satisfying the foregoing requirements, as
to each Expense set forth therein, unless the Board reasonably
determines that the Indemnitee is not entitled to payment of such
Expense, the Corporation shall, within 10 business days thereafter
(or, if later as to any Expense yet to be incurred by the
Indemnitee, on or before the date three business days prior to the
date such Expense is required to be paid by the Indemnitee), pay
or cause to be paid by the Corporation the amount of such Expense
to or on behalf of the Indemnitee. No security shall be required
in connection with any Expense Advance Request, and the ability or
inability of the Indemnitee to make repayment shall not be
considered in any evaluation of an Expense Advance Request.
5. RIGHTS TO DEFEND OR SETTLE; THIRD PARTY PROCEEDINGS, ETC.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 6
1. If the Corporation at any time provides the Indemnitee with an
agreement in writing, in form and substance reasonably
satisfactory to the Indemnitee and the Indemnitee's counsel,
agreeing to indemnify, defend or prosecute and hold the Indemnitee
harmless from all Liabilities and Expenses arising from any Third
Party Proceeding (an "Agreement of Indemnity"), and demonstrating
to the reasonable satisfaction of the Indemnitee the Corporation's
financial wherewithal to accomplish such indemnification, the
Corporation may thereafter at its own expense undertake full
responsibility for and control of the defense or prosecution of
such Third Party Proceeding. The Corporation may contest or settle
any such Third Party Proceeding for money damages on such terms
and conditions as it deems appropriate but shall be obligated to
consult in good faith with the Indemnitee and not to contest or
settle any Third Party Proceeding involving injunctive or
equitable relief against or affecting the Indemnitee or the
Indemnitee's properties or assets without the prior written
consent of the Indemnitee, such consent not to be unreasonably
withheld. The Indemnitee may participate at the Indemnitee's own
expense and with the Indemnitee's own counsel in defense or
prosecution of a Third Party Proceeding controlled by the
Corporation. Such participation shall not relieve the Corporation
of its obligation to indemnify the Indemnitee with respect to such
Third Party Proceeding under this Agreement.
2. If, as of ten (10) business days after the receipt by the Board
of an Indemnification Notice, the Corporation has not delivered to
the Indemnitee a reasonably satisfactory Agreement of Indemnity
and evidence of financial wherewithal as contemplated by the
preceding paragraph, the Indemnitee may contest or settle the
Third Party Proceeding on such terms as it sees fit but shall not
reach a settlement with respect to the payment of money damages
without consulting in good faith with the Corporation. As to any
Third Party Proceeding as to which the Indemnitee is entitled (or
presumed entitled) to indemnification under this Agreement, unless
and until such time as the Corporation at its own expense
undertakes full responsibility for and control of the defense or
prosecution of such Third Party Proceeding, the Indemnitee shall
be entitled to indemnification under this Agreement with respect
any Expenses of the Indemnitee, including Legal Fees, relating to
such Third Party Proceeding. Notwithstanding the foregoing, the
Corporation may at any time deliver to the Indemnitee a reasonably
satisfactory Agreement of Indemnity and evidence of financial
wherewithal as contemplated by the preceding paragraph, and
thereafter at its own expense undertake full responsibility for
and control of the defense or prosecution of such Third Party
Proceeding.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 7
3. All Expenses incurred in defending or prosecuting any Third
Party Proceeding shall be paid in accordance with the procedure
set forth in Section 3(d) of this Agreement.
4. If, by reason of any Third Party Proceeding as to which the
Indemnitee is entitled (or presumed entitled) to indemnification
under this Agreement, a lien, attachment, garnishment or execution
is placed upon any of the property or assets of the Indemnitee,
the Corporation shall promptly furnish a reasonably satisfactory
indemnity bond to obtain the prompt release of such lien,
attachment, garnishment or execution.
5. The Corporation may participate at its own expense and with its
own counsel in defense or prosecution of any Third Party
Proceeding, but any such participation shall not relieve the
Corporation of its obligations to indemnify the Indemnitee under
this Agreement. Any election by the Corporation to at its own
expense undertake full responsibility for and control of the
defense or prosecution of a Third Party Proceeding shall not
affect the entitlement of the Indemnitee to indemnification under
this Agreement.
6. The Indemnitee shall cooperate in the defense or prosecution of
any Third Party Proceeding controlled by the Corporation.
7. The parties shall cooperate in good faith and use reasonable
efforts to mitigate and minimize any Expense or Liability.
6. CHOICE OF COUNSEL. In all matters as to which indemnification is or
may be available to the Indemnitee under this Agreement, the Indemnitee
shall be free to choose and retain counsel of the Indemnitee's choice,
provided that the Indemnitee shall secure the prior written consent of
the Corporation as to such selection, which consent shall not be
unreasonably withheld.
7. REPAYMENT. Notwithstanding anything to the contrary, if the
Corporation has paid or advanced any Liability or Expense under this
Agreement (including pursuant to an Expense Advance Request) to, on
behalf of or for the benefit of the Indemnitee and it is determined by
a court of competent jurisdiction, in a decision which the Indemnitee
does not properly appeal or which decision is affirmed on appeal, that
the Indemnitee's actions or omissions constitute Nonindemnifiable
Conduct or that the Indemnitee otherwise is not or was not entitled to
such payment or advance or that the Indemnitee is required to reimburse
or repay the Corporation for the amount thereof, the Indemnitee shall
and does hereby undertake in such circumstances to reimburse and repay
the Corporation for any and all such
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 8
amounts paid, which thereupon shall be deemed and shall be and become
the legal, valid and enforceable debt and obligation of the Indemnitee
to the Corporation.
8. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION.
1. AUTHORITY. The Corporation represents, covenants and agrees
that it has the corporate power and authority to enter into this
Agreement and to carry out its obligations under this Agreement.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly authorized by the Board. This Agreement is a valid
and binding obligation of the Corporation and is enforceable
against the Corporation in accordance with its terms.
2. NONCONTESTABILITY. The Corporation represents, covenants and
agrees that it will not initiate, and will use its best efforts to
cause each of its Affiliates not to initiate, any action, suit or
proceeding challenging the validity or enforceability of this
Agreement.
3. GOOD FAITH JUDGMENT. The Corporation represents, covenants and
agrees that it will exercise good faith and its best reasonable
judgment in determining the entitlement of the Indemnitee to
indemnification under this Agreement.
4. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES.
1. NONEXCLUSIVITY.
1. This Agreement and all rights granted to the Indemnitee under
this Agreement are in addition to and are not deemed to be
exclusive with or of any other rights that may be available to the
Indemnitee under any Articles of Incorporation, bylaw, statute,
agreement, or otherwise.
2. The rights, duties and obligations of the Corporation and the
Indemnitee under this Agreement do not limit, diminish or
supersede the rights, duties and obligations of the Corporation
and the Indemnitee with respect to the indemnification afforded to
the Indemnitee under any liability insurance, the FBCA, or under
the Bylaws or the Articles of Incorporation of the Corporation. In
addition, the Indemnitee's rights under this Agreement will not be
limited or diminished in any respect by any amendment to the
Bylaws or the Articles of Incorporation of the Corporation.
2. AVAILABILITY, CONTRIBUTION, ETC.
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INDEMNIFICATION AGREEMENT
PAGE 9
1. The availability or nonavailability of indemnification by way
of insurance policy, Articles of Incorporation, bylaw, vote of
stockholders, or otherwise from the Corporation to the Indemnitee
shall not affect the right of the Indemnitee to indemnification
under this Agreement, provided that all rights under this
Agreement shall be subject to applicable statutory provisions in
effect from time to time.
2. Any funds actually received by the Indemnitee by way of
indemnification or payment from any source other than from the
Corporation under this Agreement shall reduce any amount otherwise
payable to the Indemnitee under this Agreement.
3. If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Corporation for some
Liabilities or Expenses but not as to others, or for some or a
portion thereof actually incurred by the Indemnitee or amounts
actually paid in settlement by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding for
which indemnification is sought under this Agreement but not for
the total amount thereof, the Corporation shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is
entitled.
4. If for any it is determined by a court of competent
jurisdiction, in a decision which neither party to this Agreement
properly appeals or which decision is affirmed on appeal, that the
indemnity provided under this Agreement is unavailable, or if for
any reason the indemnity under this Agreement is insufficient to
hold the Indemnitee harmless as provided in this Agreement, then,
in any such event, the Corporation shall contribute to the amounts
paid or payable by the Indemnitee in such proportion as equitably
reflects the relative benefits received by, and fault of, the
Indemnitee and the Corporation and its Affiliates and its and
their respective Associates.
3. COORDINATION WITH INSURANCE. The obligation of the Corporation under
this Agreement is not conditioned in any way on any attempt, whether or
not successful, by the Indemnitee or the Corporation to collect from an
insurer any amount under any insurance policy.
4. NO EFFECT ON SEPARATE OBLIGATIONS OF INDEMNITEE. Notwithstanding
anything to the contrary, nothing in this Agreement shall (i) relieve
the Indemnitee from, or otherwise affect, any liability or obligation
that the Indemnitee may have to or for the benefit of the Corporation
under any written or oral employment or other agreement that may now or
in the future exist between the Indemnitee and the Corporation
(collectively, "Other Corporation/Indemnitee Agreements"), (ii) cause
or require the Corporation to indemnify or make any payment or
reimbursement to, for or on behalf of or for the benefit of the
Indemnitee, or hold the Indemnitee harmless, for, from or with respect
to any breach or
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 10
violation by the Indemnitee of any representation, warranty or
agreement of the Indemnitee in or under any Other
Corporation/Indemnitee Agreement, or (iii) cause or require the
Corporation to indemnify or make any payment or reimbursement to, for
or on behalf of or for the benefit of the Indemnitee, or hold the
Indemnitee harmless, for, from or with respect to any matter with
respect to which the Indemnitee is required by, under, pursuant to or
in accordance with any Other Corporation/Indemnitee Agreement or
applicable law to indemnify or make any payment or reimbursement to,
for or on behalf of or for the benefit of the Corporation or hold the
Corporation harmless.
5. LIMITATIONS.
In no case shall any indemnification or payment be provided or made under this
Agreement to or on behalf of or for the direct or indirect benefit of the
Indemnitee by the Corporation:
1. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by or in the name or interest of the Indemnitee
against the Corporation;
2. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by the Corporation against the Indemnitee, which
action is initiated at the direction of the Board; or
3. for any Nonindemnifiable Conduct.
6. MISCELLANEOUS.
1. COOPERATION. The parties to this Agreement shall execute such powers
of attorney as may be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may be reasonably
related to any such claim or action, shall provide to the counsel,
accountants and other representatives of each party access during
normal business hours to all properties, personnel, books, records,
contracts, commitments and all other business records of such other
party and will furnish to such other party copies of all such documents
as may be reasonably requested (certified, if requested).
2. FURTHER ASSURANCES. The parties to this Agreement will execute and
deliver, or cause to be executed and delivered, such additional or
further documents, agreements or instruments and shall cooperate with
one another in all respects for the purpose of carrying out the
transactions contemplated by this Agreement.
3. NOTICES. Any notice, request, demand or other communication required
or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been duly given: upon receipt if
personally delivered; upon successful completion of
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 11
transmission if transmitted by telecopy, electronic telephone line
facsimile transmission or other similar electronic or digital
transmission method; at the close of business on the next business day
after it is sent, if sent by recognized overnight delivery service with
all fees payable by the sender; or at the close of business on the
fifth business day after it is sent, if mailed, first class mail,
postage prepaid. In each case such notice, request, demand or other
communication shall be sent to:
if to the Indemnitee:
At the Indemnitee's address on file with the Corporation.
if to the Corporation:
At the Corporation's principal executive offices.
or to such other address as either party may have specified in writing
to the other using the procedures specified above in this Section 6(c).
4. GOVERNING LAW. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (but any
provision of Florida law shall not apply if the application of such
provision would result in the application of the law of a state or
jurisdiction other than Florida).
5. SEVERABILITY. Any provision of this Agreement that is determined by
a court of competent jurisdiction to be prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof
or affecting the validity, enforceability or legality of such provision
in any other jurisdiction. In any such case, such determination shall
not affect any other provision of this Agreement, and the remaining
provisions of this Agreement shall remain in full force and effect. If
any provision or term of this Agreement is susceptible to two or more
constructions or interpretations, one or more of which would render the
provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision
valid shall be favored.
6. SPECIFIC ENFORCEMENT; PRESUMPTION.
1. The parties agree and acknowledge that, in the event of a
breach by the Corporation of its obligation promptly to indemnify
the Indemnitee as provided in
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE
12
this Agreement, or breach of any other material provision of this
Agreement, damages at law will be an insufficient remedy to the
Indemnitee. Accordingly, the parties agree that, in addition to
any other remedies or rights that may be available to the
Indemnitee, the Indemnitee shall also be entitled, upon
application to a court of competent jurisdiction, to obtain
temporary or permanent injunctions to compel specific performance
of the obligations of the Corporation under this Agreement.
2. There shall exist in any action to enforce the rights of the
Indemnitee under this Agreement a rebuttable presumption that the
Indemnitee has met the applicable standard(s) of conduct and is
therefore entitled to indemnification pursuant to this Agreement,
and the burden of proving that the relevant standards have not
been met by the Indemnitee shall be on the Corporation. Neither
the failure of the Corporation (including the Board or independent
legal counsel) prior to the commencement of such action to have
made a determination that indemnification is proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the
Corporation (including the Board or independent legal counsel)
that the Indemnitee has not met such applicable standard of
conduct, shall (X) constitute a defense to the action, (Y) create
a presumption that the Indemnitee has not met the applicable
standard of conduct, or (Z) otherwise alter the presumption in
favor of the Indemnitee referred to in the preceding sentence.
7. COST OF ENFORCEMENT; INTEREST.
1. If either party to this Agreement engages the services of an
attorney or any other third party or in any way initiates legal
action to enforce the party's rights under this Agreement,
including but not limited to the collection of monies due, the
prevailing party in such action shall be entitled to recover all
Expenses incurred in connection therewith. Should the Indemnitee
prevail, such Expenses shall be in addition to monies otherwise
due the Indemnitee under this Agreement.
2. If any amount shall be due or payable under this Agreement
(including under an Expense Advance Request) and shall not be paid
within 30 days from the date as of which the obligation to make
such payment arises, interest shall accrue on such unpaid amount
from the date when due until it is paid in full at the rate of 2%
per annum in excess of the prime rate published from time to time
in THE WALL STREET JOURNAL in its "Money Rates" column or any
similar or successor column or feature, or such lower rate as may
be required to comply with applicable law.
8. NO ASSIGNMENT. Any claim, right, title, benefit, remedy or interest
of the Indemnitee in, to or under or arising out of or in connection
with this Agreement is personal and may not be sold, assigned,
transferred, pledged or hypothecated, but the provisions of this
Agreement
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 13
shall survive the death, disability or incapacity of the Indemnitee or
the termination of the Indemnitee's service as a Director or officer of
the Corporation and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. This Agreement shall inure to the
benefit of and shall be binding upon the successors in interest and
assigns of the Corporation, including any successor corporation
resulting from a merger, consolidation, recapitalization,
reorganization, sale of all or substantially all of the assets of the
Corporation, or any other transaction resulting in the successor
corporation assuming the liabilities of the Corporation under this
Agreement (by operation of law or otherwise).
9. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
benefit or entered into for the benefit of any third parties and, other
than as set forth in the preceding paragraph as to heirs, assignees and
successors, nothing in this Agreement, whether express or implied, is
intended or should be construed to confer upon, or to grant to, any
person, except the Corporation and the Indemnitee, any claim, right,
benefit or remedy under or because of this Agreement or any provision
set forth in this Agreement.
10. CONSTRUCTION. As used in this Agreement, (1) the word "including"
is always without limitation, and (2) words in the singular number
include words of the plural number and vice versa.
11. VENUE; PROCESS. The parties to this Agreement agree that
jurisdiction and venue in any action brought pursuant to this Agreement
to enforce its terms or otherwise with respect to the relationships
between the parties shall properly lie in and only in the Circuit Court
of the Sixth Judicial Circuit of the State of Florida in and for
Pinellas County (the "Circuit Court") and the parties agree that
jurisdiction shall not properly lie in any other jurisdiction provided,
however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and
only in the United States District Court for the Middle District of
Florida, Tampa Division. The parties hereby waive any objections which
they may now or hereafter have based on venue and/or forum non
conveniens and irrevocably submit to the jurisdiction of any such court
in any legal suit, action or proceeding arising out of or relating to
this Agreement. The parties further agree that the mailing by certified
or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process
against them, without the necessity for service by any other means
provided by statute or rule of court.
12. WAIVER AND DELAY. No waiver or delay in enforcing the terms of this
Agreement or in taking any action with respect to any breach of this
Agreement shall be construed as a waiver of any subsequent breach. No
action taken by the Indemnitee shall constitute a waiver of the
Indemnitee's rights under this Agreement.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 14
13. MODIFICATION. This Agreement contains the entire agreement of the
parties, and supersedes any prior written or oral agreement of the
parties, with respect to the subject matter hereof. This Agreement may
be modified only by an instrument in writing signed by both parties
hereto.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same instrument.
15. HEADINGS. The headings of the various sections in this Agreement
are inserted for the convenience of the parties and shall not affect
the meaning, construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement EFFECTIVE
as of the date first above written.
INDEMNITEE
/s/ THOMAS W. MAHR 10/30/97
- - ------------------------------------
Signature Date
Thomas W. Mahr
ECHELON INTERNATIONAL CORPORATION
By: /s/ DARRYL A. LECLAIR 10/28/97
----------------------------------
Darryl A. LeClair Date
ECHELON INTERNATIONAL CORPORATION
by: /s/ ILLEGIBLE 11-04-97
--------------------------------------
Vice President Date
EXHIBIT 11.6
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into EFFECTIVE as of the 28th day of October, 1997, by and between JOSEPH H.
RICHARDSON (the "Indemnitee"), and ECHELON INTERNATIONAL CORPORATION., a Florida
corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, it is essential to the Corporation to retain and attract as
Directors, officers and key employees the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance is severely
limited; and
WHEREAS, in addition, the indemnification provisions of the Florida
Business Corporation Act (the "FBCA," as further defined below) expressly
provide that such provisions are non-exclusive; and
WHEREAS, the Indemnitee does not regard the protection available under
the Articles of Incorporation and Bylaws of the Corporation and insurance, if
any, as adequate in the present circumstances, and considers it necessary to
condition the Indemnitee's agreement to serve as a Director and/or officer of
the Corporation to have appropriate contractual rights to indemnification from
the Corporation, and the Corporation desires the Indemnitee to serve in such
capacity or capacities and to have such rights as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, it is hereby agreed as
follows:
1. DEFINITIONS.
For the purposes of this Agreement, the terms below shall have the
indicated meanings except where the context in which such a term is used in this
Agreement clearly indicates otherwise:
1. AFFILIATE means, as to any Person (the "first Person"), any other
Person that, either directly or indirectly, controls, is controlled by
or is under common control with the first Person.
2. AGREEMENT OF INDEMNITY means the agreement provided for by Section
3(e)(i) of this Agreement.
3. ASSOCIATE of a Person means a director, officer, employee, agent,
consultant, independent contractor, stockholder or partner of such
Person. 1.
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INDEMNIFICATION AGREEMENT
PAGE 2
4. BOARD means the Board of Directors of the Corporation.
5. EVALUATION DATE means, as to any Indemnification Notice, the date
thirty (30) calendar days after the date of receipt by the Board of
such Indemnification Notice.
6. EXPENSE means any cost or expense (other than a Liability),
including but not limited to Legal Fees, and including interest on any
of the foregoing, reasonably paid or required to be paid by the
Indemnitee on account of or in connection with any Proceeding.
7. EXPENSE ADVANCE REQUEST means the request provided for by Section
3(d)(ii) of this Agreement.
8. FBCA means a the Florida Business Corporation Act, Chapter 607,
Florida Statutes, and any successor statute.
9. INDEMNIFICATION NOTICE means the notice provided for by Section 3(a)
of this Agreement.
10. LEGAL FEES means the fees and disbursements of legal counsel, legal
assistants, experts, accountants, consultants and investigators, before
and at trial, in appellate or bankruptcy proceedings and otherwise.
11. LIABILITY means any amount (other than an Expense), including any
assessment, fine, penalty, excise or other tax, and including interest
on any of the foregoing, paid or required to be paid by the Indemnitee
on account of or in connection with any Proceeding.
12. NONINDEMNIFIABLE CONDUCT means any act or omission to act of the
Indemnitee material to a Proceeding as to which indemnification under
this Agreement is sought, which act or omission is determined to
involve:
1. a violation of criminal law, unless the Indemnitee had
reasonable cause to believe such conduct was lawful or had no
reasonable cause to believe such conduct was unlawful;
2. a transaction from which the Indemnitee derived an improper
personal benefit;
3. willful misconduct or a conscious disregard for the best
interests of the Corporation (when indemnification is sought in a
Proceeding by or in the right of the
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 3
Corporation to procure a judgment in favor of the Corporation or
when indemnification is sought in a Proceeding by or in the right
of a stockholder); or
4. conduct as to which then applicable law prohibits
indemnification.
13. PERSON means any natural person or individual, or any artificial
person, including any corporation, association, unincorporated
organization, partnership, joint venture, firm, company, business,
trust, business trust, limited liability company, government, public
body or authority, governmental agency or department, and any other
entity.
14. PROCEEDING means any threatened, pending or completed claim,
demand, inquiry, investigation, action, suit or proceeding, regarding
any matter (including but not limited to matters arising under or
relating to federal or state securities laws, laws relating to the
protection of the environment, the Employee Retirement Income Security
Act of 1974 ("ERISA") or other laws for the benefit or protection of
employees, federal or state tax laws, laws relating to discrimination
against persons or groups, or any other civil or criminal law), whether
formal or informal, or whether brought by or in the right of the
Corporation, whether brought by a governmental body, agency or
representative or by any other Person, and whether of a civil,
criminal, administrative or investigative nature, and includes any
Third Party Proceeding.
15. THIRD PARTY PROCEEDING means any Proceeding against the Indemnitee
by, or any Proceeding by the Indemnitee against, any third party.
2. GRANT OF INDEMNITY.
The Corporation shall indemnify and hold harmless the Indemnitee in respect of:
1. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with
prosecuting, defending, settling or investigating any Proceeding in
which the Indemnitee may be or may have been involved as a party or
otherwise, arising out of the fact that the Indemnitee is or was an
Associate of the Corporation or any of its Affiliates, or served as an
Associate in or for any Person at the request of the Corporation
(including without limitation service as a trustee or in any fiduciary
or similar capacity for or in connection with any employee benefit plan
maintained by the Corporation or for the benefit of any of the
employees of the Corporation or any of its Affiliates, or service on
any trade association, civic, religious, educational or charitable
boards or committees);
2. any and all Liabilities that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
attempt (regardless of its success) by any
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 4
Person to charge or cause the Indemnitee to be charged with wrongdoing
or with financial responsibility for damages arising out of or incurred
in connection with the matters indemnified against in this Agreement;
and 1.
3. any and all Expenses that may be incurred or suffered by the
Indemnitee as a result of or arising out of or in connection with any
matter referred to in the preceding two paragraphs.
3. CLAIMS FOR INDEMNIFICATION; PROCEDURES
1. SUBMISSION OF CLAIMS. Whenever any Proceeding shall occur as to
which indemnification under this Agreement may be sought by the
Indemnitee, the Indemnitee shall give the Corporation written notice
thereof as promptly as reasonably practicable after the Indemnitee has
actual knowledge of such Proceeding (an "Indemnification Notice"). The
Indemnification Notice shall specify in reasonable detail the facts
known to the Indemnitee giving rise to such Proceeding, the positions
and allegations of the parties to such Proceeding and the factual bases
therefor, and the amount or an estimate of the amount of Liabilities
and Expenses reasonably expected to arise therefrom. A delay by the
Indemnitee in providing such notice shall not relieve the Corporation
from its obligations under this Agreement unless and only to the extent
that the Corporation is materially and adversely affected by the delay.
If the Indemnitee desires to personally retain the services of an
attorney in connection with any Proceeding, the Indemnitee shall notify
the Corporation of such desire in Indemnification Notice relating
thereto, and such notice shall identify the counsel to be retained.
2. PRESUMPTION OF RIGHT TO INDEMNIFICATION. Upon submission of an
Indemnification Notice to the Corporation, the Board shall review such
Notice and endeavor to determine whether the Indemnitee is entitled to
indemnification under this Agreement with respect to the matters
described therein. As of the Evaluation Date, unless the Board has
reasonably determined that the Indemnitee is not entitled to
indemnification under this Agreement with respect to the matters
described in such Indemnification Notice, there shall be created a
presumption that the Indemnitee is entitled to such indemnification.
Such presumption shall continue, and indemnification and payment shall
be provided under this Agreement, unless and such time as the Board
shall reasonably determine that the Indemnitee is not entitled to
indemnification under this Agreement. This paragraph is procedural only
and shall not affect the right of the Indemnitee to indemnification
under this Agreement. Any determination by the Board that the
Indemnitee is not entitled to indemnification under this Agreement and
any failure to make any payments requested in an Indemnification Notice
or otherwise shall be subject to judicial review.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 5
3. LIMITATION ON ADVERSE DETERMINATIONS BY THE BOARD. Subject to
applicable law, no determination by the Board that the Indemnitee is
not entitled to indemnification or payment under this Agreement shall
be given effect under this Agreement unless (i) such determination is
based upon clear and convincing evidence, (ii) such determination is
made by a vote of a majority of the Corporation's Directors at a
meeting at which a quorum is present, and (iii) the Indemnitee is given
written notice of such meeting at least ten days in advance of such
meeting and given a meaningful opportunity to present at such meeting
information in support of the claim for indemnification or payment.
4. EXPENSES.
1. With respect to any Proceeding as to which the Indemnitee is
entitled (or presumed entitled) to indemnification under this
Agreement, Expenses incurred or required to be incurred by the
Indemnitee in connection with such Proceeding, but prior to the
final disposition of such Proceeding, shall be paid or caused to
be paid by the Corporation to or on behalf of the Indemnitee
notwithstanding that there has been no final disposition of such
Proceeding, to the extent provided in the following paragraph.
2. For purposes of determining whether to authorize advancement of
Expenses pursuant to the preceding paragraph, the Indemnitee shall
from time to time submit to the Board a statement requesting
advancement of Expenses (an "Expense Advance Request." Each
Expense Advance Request shall set forth (i) in reasonable detail,
all Expenses already incurred or required to be incurred by the
Indemnitee and the reason therefor, and (ii) an undertaking by the
Indemnitee, in form and substance reasonably satisfactory to the
Corporation, to repay all the Expenses set forth therein if it
shall ultimately be determined that the Indemnitee is not entitled
to be indemnified with respect to such Proceeding by the
Corporation under this Agreement or otherwise. Upon receipt of an
Expense Advance Request satisfying the foregoing requirements, as
to each Expense set forth therein, unless the Board reasonably
determines that the Indemnitee is not entitled to payment of such
Expense, the Corporation shall, within 10 business days thereafter
(or, if later as to any Expense yet to be incurred by the
Indemnitee, on or before the date three business days prior to the
date such Expense is required to be paid by the Indemnitee), pay
or cause to be paid by the Corporation the amount of such Expense
to or on behalf of the Indemnitee. No security shall be required
in connection with any Expense Advance Request, and the ability or
inability of the Indemnitee to make repayment shall not be
considered in any evaluation of an Expense Advance Request.
5. RIGHTS TO DEFEND OR SETTLE; THIRD PARTY PROCEEDINGS, ETC.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 6
1. If the Corporation at any time provides the Indemnitee with an
agreement in writing, in form and substance reasonably
satisfactory to the Indemnitee and the Indemnitee's counsel,
agreeing to indemnify, defend or prosecute and hold the Indemnitee
harmless from all Liabilities and Expenses arising from any Third
Party Proceeding (an "Agreement of Indemnity"), and demonstrating
to the reasonable satisfaction of the Indemnitee the Corporation's
financial wherewithal to accomplish such indemnification, the
Corporation may thereafter at its own expense undertake full
responsibility for and control of the defense or prosecution of
such Third Party Proceeding. The Corporation may contest or settle
any such Third Party Proceeding for money damages on such terms
and conditions as it deems appropriate but shall be obligated to
consult in good faith with the Indemnitee and not to contest or
settle any Third Party Proceeding involving injunctive or
equitable relief against or affecting the Indemnitee or the
Indemnitee's properties or assets without the prior written
consent of the Indemnitee, such consent not to be unreasonably
withheld. The Indemnitee may participate at the Indemnitee's own
expense and with the Indemnitee's own counsel in defense or
prosecution of a Third Party Proceeding controlled by the
Corporation. Such participation shall not relieve the Corporation
of its obligation to indemnify the Indemnitee with respect to such
Third Party Proceeding under this Agreement.
2. If, as of ten (10) business days after the receipt by the Board
of an Indemnification Notice, the Corporation has not delivered to
the Indemnitee a reasonably satisfactory Agreement of Indemnity
and evidence of financial wherewithal as contemplated by the
preceding paragraph, the Indemnitee may contest or settle the
Third Party Proceeding on such terms as it sees fit but shall not
reach a settlement with respect to the payment of money damages
without consulting in good faith with the Corporation. As to any
Third Party Proceeding as to which the Indemnitee is entitled (or
presumed entitled) to indemnification under this Agreement, unless
and until such time as the Corporation at its own expense
undertakes full responsibility for and control of the defense or
prosecution of such Third Party Proceeding, the Indemnitee shall
be entitled to indemnification under this Agreement with respect
any Expenses of the Indemnitee, including Legal Fees, relating to
such Third Party Proceeding. Notwithstanding the foregoing, the
Corporation may at any time deliver to the Indemnitee a reasonably
satisfactory Agreement of Indemnity and evidence of financial
wherewithal as contemplated by the preceding paragraph, and
thereafter at its own expense undertake full responsibility for
and control of the defense or prosecution of such Third Party
Proceeding.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 7
3. All Expenses incurred in defending or prosecuting any Third
Party Proceeding shall be paid in accordance with the procedure
set forth in Section 3(d) of this Agreement.
4. If, by reason of any Third Party Proceeding as to which the
Indemnitee is entitled (or presumed entitled) to indemnification
under this Agreement, a lien, attachment, garnishment or execution
is placed upon any of the property or assets of the Indemnitee,
the Corporation shall promptly furnish a reasonably satisfactory
indemnity bond to obtain the prompt release of such lien,
attachment, garnishment or execution.
5. The Corporation may participate at its own expense and with its
own counsel in defense or prosecution of any Third Party
Proceeding, but any such participation shall not relieve the
Corporation of its obligations to indemnify the Indemnitee under
this Agreement. Any election by the Corporation to at its own
expense undertake full responsibility for and control of the
defense or prosecution of a Third Party Proceeding shall not
affect the entitlement of the Indemnitee to indemnification under
this Agreement.
6. The Indemnitee shall cooperate in the defense or prosecution of
any Third Party Proceeding controlled by the Corporation.
7. The parties shall cooperate in good faith and use reasonable
efforts to mitigate and minimize any Expense or Liability.
6. CHOICE OF COUNSEL. In all matters as to which indemnification is or
may be available to the Indemnitee under this Agreement, the Indemnitee
shall be free to choose and retain counsel of the Indemnitee's choice,
provided that the Indemnitee shall secure the prior written consent of
the Corporation as to such selection, which consent shall not be
unreasonably withheld.
7. REPAYMENT. Notwithstanding anything to the contrary, if the
Corporation has paid or advanced any Liability or Expense under this
Agreement (including pursuant to an Expense Advance Request) to, on
behalf of or for the benefit of the Indemnitee and it is determined by
a court of competent jurisdiction, in a decision which the Indemnitee
does not properly appeal or which decision is affirmed on appeal, that
the Indemnitee's actions or omissions constitute Nonindemnifiable
Conduct or that the Indemnitee otherwise is not or was not entitled to
such payment or advance or that the Indemnitee is required to reimburse
or repay the Corporation for the amount thereof, the Indemnitee shall
and does hereby undertake in such circumstances to reimburse and repay
the Corporation for any and all such
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 8
amounts paid, which thereupon shall be deemed and shall be and become
the legal, valid and enforceable debt and obligation of the Indemnitee
to the Corporation.
8. REPRESENTATIONS AND AGREEMENTS OF THE CORPORATION.
1. AUTHORITY. The Corporation represents, covenants and agrees
that it has the corporate power and authority to enter into this
Agreement and to carry out its obligations under this Agreement.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly authorized by the Board. This Agreement is a valid
and binding obligation of the Corporation and is enforceable
against the Corporation in accordance with its terms.
2. NONCONTESTABILITY. The Corporation represents, covenants and
agrees that it will not initiate, and will use its best efforts to
cause each of its Affiliates not to initiate, any action, suit or
proceeding challenging the validity or enforceability of this
Agreement.
3. GOOD FAITH JUDGMENT. The Corporation represents, covenants and
agrees that it will exercise good faith and its best reasonable
judgment in determining the entitlement of the Indemnitee to
indemnification under this Agreement.
4. RELATIONSHIP OF THIS AGREEMENT TO OTHER INDEMNITIES.
1. NONEXCLUSIVITY.
1. This Agreement and all rights granted to the Indemnitee under
this Agreement are in addition to and are not deemed to be
exclusive with or of any other rights that may be available to the
Indemnitee under any Articles of Incorporation, bylaw, statute,
agreement, or otherwise.
2. The rights, duties and obligations of the Corporation and the
Indemnitee under this Agreement do not limit, diminish or
supersede the rights, duties and obligations of the Corporation
and the Indemnitee with respect to the indemnification afforded to
the Indemnitee under any liability insurance, the FBCA, or under
the Bylaws or the Articles of Incorporation of the Corporation. In
addition, the Indemnitee's rights under this Agreement will not be
limited or diminished in any respect by any amendment to the
Bylaws or the Articles of Incorporation of the Corporation.
2. AVAILABILITY, CONTRIBUTION, ETC.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 9
1. The availability or nonavailability of indemnification by way
of insurance policy, Articles of Incorporation, bylaw, vote of
stockholders, or otherwise from the Corporation to the Indemnitee
shall not affect the right of the Indemnitee to indemnification
under this Agreement, provided that all rights under this
Agreement shall be subject to applicable statutory provisions in
effect from time to time.
2. Any funds actually received by the Indemnitee by way of
indemnification or payment from any source other than from the
Corporation under this Agreement shall reduce any amount otherwise
payable to the Indemnitee under this Agreement.
3. If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Corporation for some
Liabilities or Expenses but not as to others, or for some or a
portion thereof actually incurred by the Indemnitee or amounts
actually paid in settlement by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding for
which indemnification is sought under this Agreement but not for
the total amount thereof, the Corporation shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is
entitled.
4. If for any it is determined by a court of competent
jurisdiction, in a decision which neither party to this Agreement
properly appeals or which decision is affirmed on appeal, that the
indemnity provided under this Agreement is unavailable, or if for
any reason the indemnity under this Agreement is insufficient to
hold the Indemnitee harmless as provided in this Agreement, then,
in any such event, the Corporation shall contribute to the amounts
paid or payable by the Indemnitee in such proportion as equitably
reflects the relative benefits received by, and fault of, the
Indemnitee and the Corporation and its Affiliates and its and
their respective Associates.
3. COORDINATION WITH INSURANCE. The obligation of the Corporation under
this Agreement is not conditioned in any way on any attempt, whether or
not successful, by the Indemnitee or the Corporation to collect from an
insurer any amount under any insurance policy.
4. NO EFFECT ON SEPARATE OBLIGATIONS OF INDEMNITEE. Notwithstanding
anything to the contrary, nothing in this Agreement shall (i) relieve
the Indemnitee from, or otherwise affect, any liability or obligation
that the Indemnitee may have to or for the benefit of the Corporation
under any written or oral employment or other agreement that may now or
in the future exist between the Indemnitee and the Corporation
(collectively, "Other Corporation/Indemnitee Agreements"), (ii) cause
or require the Corporation to indemnify or make any payment or
reimbursement to, for or on behalf of or for the benefit of the
Indemnitee, or hold the Indemnitee harmless, for, from or with respect
to any breach or
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 10
violation by the Indemnitee of any representation, warranty or
agreement of the Indemnitee in or under any Other
Corporation/Indemnitee Agreement, or (iii) cause or require the
Corporation to indemnify or make any payment or reimbursement to, for
or on behalf of or for the benefit of the Indemnitee, or hold the
Indemnitee harmless, for, from or with respect to any matter with
respect to which the Indemnitee is required by, under, pursuant to or
in accordance with any Other Corporation/Indemnitee Agreement or
applicable law to indemnify or make any payment or reimbursement to,
for or on behalf of or for the benefit of the Corporation or hold the
Corporation harmless.
5. LIMITATIONS.
In no case shall any indemnification or payment be provided or made under this
Agreement to or on behalf of or for the direct or indirect benefit of the
Indemnitee by the Corporation:
1. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by or in the name or interest of the Indemnitee
against the Corporation;
2. except as set forth in Section 6(g) of this Agreement, in any
Proceeding brought by the Corporation against the Indemnitee, which
action is initiated at the direction of the Board; or
3. for any Nonindemnifiable Conduct.
6. MISCELLANEOUS.
1. COOPERATION. The parties to this Agreement shall execute such powers
of attorney as may be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may be reasonably
related to any such claim or action, shall provide to the counsel,
accountants and other representatives of each party access during
normal business hours to all properties, personnel, books, records,
contracts, commitments and all other business records of such other
party and will furnish to such other party copies of all such documents
as may be reasonably requested (certified, if requested).
2. FURTHER ASSURANCES. The parties to this Agreement will execute and
deliver, or cause to be executed and delivered, such additional or
further documents, agreements or instruments and shall cooperate with
one another in all respects for the purpose of carrying out the
transactions contemplated by this Agreement.
3. NOTICES. Any notice, request, demand or other communication required
or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been duly given: upon receipt if
personally delivered; upon successful completion of
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 11
transmission if transmitted by telecopy, electronic telephone line
facsimile transmission or other similar electronic or digital
transmission method; at the close of business on the next business day
after it is sent, if sent by recognized overnight delivery service with
all fees payable by the sender; or at the close of business on the
fifth business day after it is sent, if mailed, first class mail,
postage prepaid. In each case such notice, request, demand or other
communication shall be sent to:
if to the Indemnitee:
At the Indemnitee's address on file with the Corporation.
if to the Corporation:
At the Corporation's principal executive offices.
or to such other address as either party may have specified in writing
to the other using the procedures specified above in this Section 6(c).
4. GOVERNING LAW. This Agreement shall be construed pursuant to and
governed by the substantive laws of the State of Florida (but any
provision of Florida law shall not apply if the application of such
provision would result in the application of the law of a state or
jurisdiction other than Florida).
5. SEVERABILITY. Any provision of this Agreement that is determined by
a court of competent jurisdiction to be prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof
or affecting the validity, enforceability or legality of such provision
in any other jurisdiction. In any such case, such determination shall
not affect any other provision of this Agreement, and the remaining
provisions of this Agreement shall remain in full force and effect. If
any provision or term of this Agreement is susceptible to two or more
constructions or interpretations, one or more of which would render the
provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision
valid shall be favored.
6. SPECIFIC ENFORCEMENT; PRESUMPTION.
1. The parties agree and acknowledge that, in the event of a
breach by the Corporation of its obligation promptly to indemnify
the Indemnitee as provided in
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 12
this Agreement, or breach of any other material provision of this
Agreement, damages at law will be an insufficient remedy to the
Indemnitee. Accordingly, the parties agree that, in addition to
any other remedies or rights that may be available to the
Indemnitee, the Indemnitee shall also be entitled, upon
application to a court of competent jurisdiction, to obtain
temporary or permanent injunctions to compel specific performance
of the obligations of the Corporation under this Agreement.
2. There shall exist in any action to enforce the rights of the
Indemnitee under this Agreement a rebuttable presumption that the
Indemnitee has met the applicable standard(s) of conduct and is
therefore entitled to indemnification pursuant to this Agreement,
and the burden of proving that the relevant standards have not
been met by the Indemnitee shall be on the Corporation. Neither
the failure of the Corporation (including the Board or independent
legal counsel) prior to the commencement of such action to have
made a determination that indemnification is proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the
Corporation (including the Board or independent legal counsel)
that the Indemnitee has not met such applicable standard of
conduct, shall (X) constitute a defense to the action, (Y) create
a presumption that the Indemnitee has not met the applicable
standard of conduct, or (Z) otherwise alter the presumption in
favor of the Indemnitee referred to in the preceding sentence.
7. COST OF ENFORCEMENT; INTEREST.
1. If either party to this Agreement engages the services of an
attorney or any other third party or in any way initiates legal
action to enforce the party's rights under this Agreement,
including but not limited to the collection of monies due, the
prevailing party in such action shall be entitled to recover all
Expenses incurred in connection therewith. Should the Indemnitee
prevail, such Expenses shall be in addition to monies otherwise
due the Indemnitee under this Agreement.
2. If any amount shall be due or payable under this Agreement
(including under an Expense Advance Request) and shall not be paid
within 30 days from the date as of which the obligation to make
such payment arises, interest shall accrue on such unpaid amount
from the date when due until it is paid in full at the rate of 2%
per annum in excess of the prime rate published from time to time
in THE WALL STREET JOURNAL in its "Money Rates" column or any
similar or successor column or feature, or such lower rate as may
be required to comply with applicable law.
8. NO ASSIGNMENT. Any claim, right, title, benefit, remedy or interest
of the Indemnitee in, to or under or arising out of or in connection
with this Agreement is personal and may not be sold, assigned,
transferred, pledged or hypothecated, but the provisions of this
Agreement
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 13
shall survive the death, disability or incapacity of the Indemnitee or
the termination of the Indemnitee's service as a Director or officer of
the Corporation and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators. This Agreement shall inure to the
benefit of and shall be binding upon the successors in interest and
assigns of the Corporation, including any successor corporation
resulting from a merger, consolidation, recapitalization,
reorganization, sale of all or substantially all of the assets of the
Corporation, or any other transaction resulting in the successor
corporation assuming the liabilities of the Corporation under this
Agreement (by operation of law or otherwise).
9. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
benefit or entered into for the benefit of any third parties and, other
than as set forth in the preceding paragraph as to heirs, assignees and
successors, nothing in this Agreement, whether express or implied, is
intended or should be construed to confer upon, or to grant to, any
person, except the Corporation and the Indemnitee, any claim, right,
benefit or remedy under or because of this Agreement or any provision
set forth in this Agreement.
10. CONSTRUCTION. As used in this Agreement, (1) the word "including"
is always without limitation, and (2) words in the singular number
include words of the plural number and vice versa.
11. VENUE; PROCESS. The parties to this Agreement agree that
jurisdiction and venue in any action brought pursuant to this Agreement
to enforce its terms or otherwise with respect to the relationships
between the parties shall properly lie in and only in the Circuit Court
of the Sixth Judicial Circuit of the State of Florida in and for
Pinellas County (the "Circuit Court") and the parties agree that
jurisdiction shall not properly lie in any other jurisdiction provided,
however, if jurisdiction does not properly lie with the Circuit Court,
the parties agree that jurisdiction and venue shall properly lie in and
only in the United States District Court for the Middle District of
Florida, Tampa Division. The parties hereby waive any objections which
they may now or hereafter have based on venue and/or forum non
conveniens and irrevocably submit to the jurisdiction of any such court
in any legal suit, action or proceeding arising out of or relating to
this Agreement. The parties further agree that the mailing by certified
or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process
against them, without the necessity for service by any other means
provided by statute or rule of court.
12. WAIVER AND DELAY. No waiver or delay in enforcing the terms of this
Agreement or in taking any action with respect to any breach of this
Agreement shall be construed as a waiver of any subsequent breach. No
action taken by the Indemnitee shall constitute a waiver of the
Indemnitee's rights under this Agreement.
<PAGE>
INDEMNIFICATION AGREEMENT
PAGE 14
13. MODIFICATION. This Agreement contains the entire agreement of the
parties, and supersedes any prior written or oral agreement of the
parties, with respect to the subject matter hereof. This Agreement may
be modified only by an instrument in writing signed by both parties
hereto.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original, but all of
which together shall constitute one and the same instrument.
15. HEADINGS. The headings of the various sections in this Agreement
are inserted for the convenience of the parties and shall not affect
the meaning, construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement EFFECTIVE
as of the date first above written.
INDEMNITEE
/s/ JOSEPH H. RICHARDSON 10/30/97
- - --------------------------------------
Signature Date
ECHELON INTERNATIONAL CORPORATION
By: /s/ ILLEGIBLE 10/28/97
- - ---------------------------------------
Date
EXHIBIT 23
To the Board of Directors
Echelon International Corporation:
We consent to incorporation by reference in the registration statements on
Forms S-8 (No. 333-18171), (No. 333-18175), (No. 333-18177) and (No. 333-18179),
of Echelon International Corporation of our reports dated March 10, 1998,
relating to the consolidated balance sheets of Echelon International Corporation
and subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997, and all related
schedules, which reports appear in the December 31, 1997 annual report on Form
10-K of Echelon International Corporation.
KPMG PEAT MARWICK LLP
St. Petersburg, FL
March 30, 1998
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