As filed with the Securities and Exchange Commission on September 5, 1997
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
LOCKHART CARIBBEAN CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------------
U.S. Virgin Islands 6500 66-0491618
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
No. 44 Estate Thomas
St. Thomas, U.S. Virgin Islands 00802
(340) 776-1900
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
---------------------------
JOHN P. deJONGH, JR.
President and Chief Operating Officer
Lockhart Caribbean Corporation
P.O. Box 7020
St. Thomas, VI 00801
(340) 776-1900
(Name, address, including zip code, and telephone number, including
area code, of Registrant's agent for service)
---------------------------
Please address a copy of all
communications to:
THOMAS C. O'KEEFE, ESQ. JOHN H. POMEROY, ESQ.
Dudley, Topper and Feuerzeig Dow, Lohnes & Albertson, PLLC
No. 1A Frederiksberg Gade 1200 New Hampshire Avenue, N.W.
Charlotte Amalie, St. Thomas Washington, D.C. 20036-6802
U.S. Virgin Islands 00802 (340) 774-4422 (202) 776-2000
---------------------------
Approximate date of commencement of proposed
sale to the public: As soon as practicable after
this Registration Statement becomes effective.
---------------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Per Share Aggregate Offering Price (1) Registration Fee
- ---------------------------------- ------------- ------------------------ ---------------------------- ----------------
Class A Common Stock............... 2,000,000 $6.50 $13,000,000 $3,940
</TABLE>
- ---------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 5, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
LOCKHART CARIBBEAN
CORPORATION
[Lockhart Logo]
Class A Common Stock
(par value $0.01 per share)
----------------------
Lockhart Caribbean Corporation is offering shares of its Class A Common
Stock on a best efforts basis. No shares of Class A Common Stock will be sold
until subscriptions for at least 1,153,846 shares of Class A Common Stock are
received (the "Minimum Offering"). Lockhart may sell up to 2,000,000 shares of
Class A Common Stock (the "Maximum Offering") in this offering. The minimum
purchase is 500 shares of Class A Common Stock, and the maximum purchase is
500,000 shares. The initial public offering price is $6.50 per share. For
factors considered in determining the initial public offering price, see "Plan
of Distribution".
Lockhart is a U.S. Virgin Islands corporation engaged primarily in the
business of owning, acquiring, renovating, developing and managing shopping
centers and other commercial real estate, primarily on the islands of St. Thomas
and St. Croix, and is diversifying its real estate activities with the pending
acquisition of an insurance premium financing company.
Each share of Class A Common Stock entitles its holder to one vote, whereas
each share of Class B Common Stock entitles its holder to ten votes. If the
Maximum Offering is sold, the Class B Stockholders will beneficially own shares
having approximately 97.7% of the outstanding voting power of the Common Stock.
As a result, these stockholders will have the collective ability to elect the
Company's directors and to determine the outcome of corporate actions requiring
stockholder approval. Lockhart's executive officers and directors will
beneficially own shares of Class B Common Stock having approximately 42.5% of
the outstanding voting power of the Common Stock.
See "Risk Factors" beginning on page 12 for certain considerations relevant
to an investment in the Class A Common Stock, including:
o Historical consolidated net losses.
o Concentration of properties in the U.S. Virgin Islands.
o No limit on indebtedness in Lockhart organizational documents.
o Real estate investment and property management risks, such as the need to
renew leases or relet space upon lease expiration.
o Certain losses may exceed insurance coverage.
o There is currently no public market for the Class A Common Stock.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
<TABLE>
<CAPTION>
Initial Public Selling Proceeds to
Offering Price Commissions Company
-------------- ----------- -----------
<S> <C> <C> <C>
Per Share............................. $6.50 $ $
Total Minimum......................... $7,500,000 $ $
Total Maximum......................... $13,000,000 $ $
</TABLE>
----------------------
The date of this Prospectus is , 1997.
<PAGE>
(Cover Page Continued From Previous Page)
_________________________ (collectively, the "Participating Brokers") have
agreed to accept subscriptions and execute orders for the shares of Class A
Common Stock offered by this Prospectus. See "Plan of Distribution". All
subscription funds for shares of Class A Common Stock will be deposited in an
interest-bearing escrow account with The Chase Manhattan Bank (the "Escrow
Agent"), until subscription funds for the Company's shares of Class A Common
Stock total $7,500,000, representing the Minimum Offering. Subscription funds
will be released by the Escrow Agent to Lockhart to be used for company purposes
within approximately 30 days after the Minimum Offering is reached. No Shares
will be sold unless subscriptions for the Minimum Offering ($7,500,000) have
been obtained within one year after the initial date of this Prospectus. In no
event will subscription funds be held in escrow for longer than one year, and
any refunds of subscriptions due to the failure of Lockhart to reach the Minimum
Offering shall be returned without interest. This offering will terminate no
later than _________, 1998 (one year after the initial date of this Prospectus),
unless Lockhart elects to extend it to a date no later than __________, 1999
(two years after the initial date of this Prospectus), in states that permit
such extension.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THE CLASS A COMMON STOCK IS PROHIBITED.
Through and including _________________, 1997 (90 days after the date of
this Prospectus), all dealers effecting transactions in the Class A Common
Stock, whether or not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
----------------------
Lockhart intends to furnish its stockholders with annual reports containing
audited financial statements.
2
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY............................................................5
The Company................................................................5
Risk Factors...............................................................5
Properties.................................................................6
Business and Growth Strategies.............................................7
Ownership..................................................................7
The Offering...............................................................8
RISK FACTORS.................................................................12
History of Losses; Uncertainty of Profitability...........................12
Concentration of Properties in the U.S. Virgin Islands....................12
Inability to Repay or Refinance Indebtedness at Maturity..................12
No Limitation on Debt.....................................................12
Need for Additional Financing.............................................12
Economic Performance and Value of Properties Dependent on Many Factors....13
Dependence on Rental Income from Real Property............................13
Impact of Competition on Occupancy Levels and Rents Charged...............13
Risk of Bankruptcy of Major Tenants.......................................13
Illiquidity of Real Estate Investments....................................13
Risk of Renovation and Development Activities.............................14
Risk of Acquisitions......................................................14
Potential Increases in Certain Taxes and Regulatory Compliance............14
Insurance.................................................................15
Environmental Risks.......................................................15
Concentration of Control; Anti-Takeover Effect of Certain
Charter Provisions....................................................15
Shares Eligible for Future Sale...........................................16
No Public Market; Possible Volatility of Stock Price......................17
Immediate Dilution........................................................17
USE OF PROCEEDS..............................................................18
DISTRIBUTION POLICY..........................................................19
DILUTION.....................................................................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................................24
Overview .................................................................24
Results of Operations.....................................................25
Cash Flow.................................................................27
Liquidity and Capital Resources...........................................27
Forward Looking Statements................................................29
New Accounting Pronouncements.............................................29
THE COMPANY..................................................................30
Overview .................................................................30
Organizational Structure..................................................31
The U.S. Virgin Islands ..................................................32
Properties................................................................32
Acquisition of PFC........................................................41
Business and Growth Strategies............................................42
Investing and Financing Policies..........................................45
Environmental Considerations..............................................47
Employees.................................................................47
Litigation................................................................47
3
<PAGE>
MANAGEMENT...................................................................48
Executive Officers and Directors..........................................48
Executive Compensation....................................................52
Long-Term Incentive Plan..................................................53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................55
PRINCIPAL STOCKHOLDERS.......................................................56
SUMMARY OF THE REINVESTMENT PLAN.............................................57
General .................................................................57
Investment of Distributions...............................................58
Participant Accounts, Fees and Allocation of Shares.......................58
Reports to Participants...................................................59
Federal Income Tax Considerations.........................................60
Amendments and Terminations...............................................60
PLAN OF DISTRIBUTION.........................................................61
DESCRIPTION OF CAPITAL STOCK.................................................63
General .................................................................63
Common Stock..............................................................63
Preferred Stock...........................................................65
Certain Anti-Takeover Provisions..........................................65
SHARES ELIGIBLE FOR FUTURE SALE..............................................66
SUPPLEMENTAL SALES MATERIAL..................................................68
LEGAL MATTERS................................................................68
EXPERTS......................................................................68
ADDITIONAL INFORMATION.......................................................69
INDEX TO FINANCIAL STATEMENTS...............................................F-1
APPENDIX A..................................................................A-1
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus.
The Company
Lockhart Caribbean Corporation (together with its direct and indirect
subsidiaries, "Lockhart" or the "Company") is the largest owner of shopping
centers in the U.S. Virgin Islands and is one of the largest owners of
undeveloped land on the island of St. Thomas. Lockhart owns, operates and
develops shopping centers and other commercial real estate, primarily on the
islands of St. Thomas and St. Croix. The Company currently owns and operates
seven shopping centers and is actively planning or developing seven projects.
Lockhart also owns and operates commercial parks in which it builds the
infrastructure for commercial development (roads and utilities) and leases
designated parcels within the parks under long-term ground leases. In addition,
the Company owns an aggregate of approximately 415 acres of undeveloped real
estate zoned for residential development of varying densities.
Capitalizing on the collective experience of the Company's senior
management in the financial services industry, Lockhart intends to diversify its
operations to provide select financial services. As a first step, the Company is
acquiring Premium Finance Company of the V.I., Inc. ("PFC"). PFC finances
insurance premiums for individuals and businesses primarily in the U.S. Virgin
Islands and the British Virgin Islands. Lockhart has agreed to acquire PFC for
$687,500 and will use a portion of the proceeds from this offering to pay the
PFC purchase price. See "Use of Proceeds".
The Company is a U.S. Virgin Islands corporation, and its principal
executive offices are located at No. 44 Estate Thomas, St. Thomas, U.S. Virgin
Islands 00802.
Risk Factors
o The Company has experienced consolidated net losses for the six months
ended June 30, 1997 as well as in three out of the past five fiscal years,
and there can be no assurance that profitability will be achieved in the
future.
o All of the Company's properties are currently located in the U.S. Virgin
Islands and, therefore, the Company's performance will depend on the
economic conditions in the U.S. Virgin Islands.
o The Company's organizational documents do not limit the amount of debt the
Company can incur, and the Company intends to raise additional funds to
finance its growth; however, the Lockhart Board of Directors has a policy
of incurring debt only when a project is expected to generate cash flow
sufficient to service the related debt.
o Lockhart is subject to real estate investment and property management risks
such as: (i) the need to renew leases or relet space upon lease expirations
and, at times, to pay renovation and reletting costs in connection
therewith; (ii) the effect of economic and other conditions on property
cash flows and values; (iii) the ability of tenants to make lease payments;
(iv) the ability of a property to generate revenue sufficient to meet
operating expenses, including future debt service; and (v) the illiquidity
of real estate investments, all of which may adversely affect the Company's
results of operations.
5
<PAGE>
o Lockhart intends to continue to acquire, renovate and develop real estate
properties and will be subject to the risks associated with such
activities.
o Certain types of losses, such as those resulting from hurricanes, could
exceed the Company's insurance coverage, which currently includes flood,
windstorm and earthquake coverage for all of the Company's operating
properties.
o The Company may incur environmental liabilities in connection with the
ownership or operation of its properties.
o Shares available for future sale may adversely affect the market price of
the Class A Common Stock.
o There is currently no public market for the Class A Common Stock, and there
can be no assurance that a trading market will develop.
o Purchasers in this offering will experience immediate dilution in the net
tangible book value per share of the shares of Class A Common Stock
purchased in this offering.
Properties
The Company currently owns and operates seven shopping centers and one
commercial park, is actively planning or developing seven projects, has leased
an aggregate of approximately seven acres (including tenants at Sugar Estate
Park) of commercial land to others on the basis of long-term ground leases and
owns approximately 415 acres of undeveloped land zoned for residential
development. The following table sets forth certain information for each of the
Company's shopping centers as of June 30, 1997:
Year Built/ Net Rentable Percent
Acquired Square Feet Occupied
-------- ----------- --------
Drakes Passage Shopping Mall 1920 33,000 91%
Fort Mylner Commercial Center 1996 10,800 100%
Fort Mylner Shopping Center 1996 26,200 93%
Grand Hotel Court 1914 23,900(1) 67%
Lockhart Gardens Shopping Center 1972 140,198(2) 75%
Orange Grove Shopping Center 1996 30,600 82%
Red Hook Plaza 1995 32,145 96%
- ------------------------
(1) Approximately 4,500 square feet are being held vacant in preparation for
renovation as part of Grand Hotel Court - Phase II.
(2) Includes a ground lease for 30,000 square feet, or approximately 0.7 acres.
Lockhart also owns a commercial business park, Sugar Estate Park, which
consists of an aggregate of approximately 11.7 acres of land. Approximately 5.7
acres of Sugar Estate Park are currently ground leased to commercial tenants.
The Company collects lease payments and other tenant expense reimbursements
under its ground leases and will own the buildings constructed on the property
upon expiration of the leases. Lockhart also has two development projects
planned for the Park, Sugar Estate
6
<PAGE>
Commercial Centre and Sugar Estate Plaza, which the Company will operate and
manage once these projects are completed.
The following table sets forth certain information for projects actively
being planned or developed by the Company:
Estimated
Estimated Cost Completion Date
-------------- ---------------
Longford Industrial Park $1.3 million 1998
Sugar Estate Commercial Centre $0.9 million 1998
Lockhart Gardens Shopping Center - Garden Mall $0.5 million 1998
Market Square East - Phase I $1.8 million 1998
Lockhart Gardens Shopping Center - Phase II $3.5 million 1999
Grand Hotel Court - Phase II $1.4 million 1999
Sugar Estate Plaza $5.3 million 2001(1)
- -------------------------
(1) Estimated completion date for both Phase I and Phase II development.
Business and Growth Strategies
The Company's primary business objectives are to maximize cash flow, and to
diversify both geographically and into the financial services industry. The
Company believes it can achieve these objectives by continuing to implement its
business strategies to capitalize on external growth opportunities and to
promote internal growth.
The Company's primary business strategies are to: (i) actively manage its
developed real property portfolio to improve cash flow; (ii) complete its
planned projects and develop its land holdings for their highest and best use;
(iii) selectively execute real property acquisitions in strategic submarkets;
and (iv) diversify into the financial services industry.
Lockhart intends to grow externally by acquiring additional developed
commercial properties in the U.S. Virgin Islands and possibly in other Caribbean
markets, and by capitalizing on management's experience in the financial
services industry through diversification into that industry. The Company
pursues internal growth by: (i) maintaining and improving occupancy rates
through proactive tenant management and aggressive leasing; (ii) implementing
fixed contractual base rent increases or increases tied to indices; (iii)
passing through to tenants certain reimbursable expense items; (iv) capitalizing
on economies of scale arising from the size of the Company's operating property
portfolio; (v) developing its commercial real estate holdings; and (vi)
selectively developing residential property inventory.
Ownership
Lockhart is one of the oldest continuous operators of commercial properties
in the U.S. Virgin Islands. The Company was founded by Alfred H. Lockhart in
1884, and was originally incorporated by his son, Herbert E. Lockhart, in 1936.
Immediately after the offering and assuming the Maximum Offering is sold, the
approximately 34 holders of Class B Common Stock (collectively, the "Class B
Stockholders") will beneficially own shares of Class B Common Stock having
approximately 97.7% of the outstanding voting power of the Company's Common
Stock. Class B Stockholders consist of lineal descendants (and their spouses) of
Alfred H. Lockhart and his son Herbert E. Lockhart, as well as current executive
officers and a former employee of the
7
<PAGE>
Company. If only the Minimum Offering is sold, Class B Stockholders will have
approximately 98.7% of the outstanding voting power of the Company's Common
Stock. Lockhart's executive officers and directors will collectively own or
control approximately 3,733,115 shares of Class B Common Stock, or approximately
42.5% and 43.1% of the outstanding voting power of Common Stock based on the
Maximum Offering and the Minimum Offering, respectively. See "Risk
Factors--Concentration of Control; Anti-Takeover Effect of Certain Charter
Provisions" and "Description of Capital Stock".
The Offering
Class A Common Stock offered:
Minimum Offering.................. 1,153,846 shares
=====================
Maximum Offering.................. 2,000,000 shares
=====================
Common Stock outstanding, assuming Minimum Offering:
Class A Common Stock.............. 1,153,846 shares
---------------------
Class B Common Stock.............. 8,663,865 shares(1)
---------------------
Total............ 9,817,711 shares
=====================
Common Stock outstanding, assuming Maximum Offering:
Class A Common Stock.............. 2,000,000 shares(2)
---------------------
Class B Common Stock.............. 8,590,018 shares(1)(3)
---------------------
Total............ 10,590,018 shares
=====================
Voting rights.......... The Class A Common Stock and Class B
Common Stock vote as a single class on all
matters requiring the approval of the Company's
stockholders, except as otherwise required by
law, with each share of Class A Common Stock
entitling its holder to one vote and each share of
Class B Common Stock entitling its holder to ten
votes.
Reinvestment Plan...... The Company has established the Reinvestment
Plan pursuant to which all stockholders may elect
to have their cash distributions from the
Company automatically reinvested in shares of
Class A Common Stock. See "Summary of
Reinvestment Plan," for more specific information
about the Reinvestment Plan. A person who
acquires Class A Common Stock otherwise than
by participating in this offering may purchase
shares through the Reinvestment Plan only after
receipt of a separate prospectus relating solely to
the Reinvestment Plan.
8
<PAGE>
Use of proceeds........ The Company intends to use the net proceeds
from the Minimum Offering to pay the purchase
price for PFC and to repay certain outstanding
indebtedness. If the Maximum Offering is sold,
approximately $480,000 of the last one million
dollars of additional net proceeds will be used to
redeem shares from certain of the Company's
current stockholders and the balance will be
used for other general corporate purposes. See
"Use of Proceeds".
- ---------------
(1) Shares of Class B Common Stock are convertible at any time into Class A
Common Stock on a one-for-one basis and convert automatically into Class A
Common Stock upon a transfer to anyone other than a Class B Stockholder or
certain permitted transferees. See "Description of Capital Stock".
(2) If the Minimum Offering is sold, the Company intends to apply for listing
on the Nasdaq SmallCap Market. However, there can be no assurance that the
Company will be accepted for listing if it applies. See "Plan of
Distribution".
(3) If the Maximum Offering is sold, the Company intends to use a portion of
the last one million dollars realized from the sale to repurchase
approximately 73,847 shares of Class B Common Stock from certain Class B
Stockholders. See "Use of Proceeds" and "Certain Relationships and Related
Transactions".
9
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
LOCKHART CARIBBEAN CORPORATION
The following table sets forth selected financial and operating information
for the Company as of and for the years ended December 31, 1996, 1995, 1994,
1993 and 1992. The information for 1996, 1995 and 1994 is derived from and
should be read in conjunction with the audited financial statements of the
Company, which have been audited by Ernst & Young, LLP, independent public
accountants, whose report thereon appears elsewhere herein; the information for
1993 is derived from the audited financial statements of the Company, which have
been audited by Ernst & Young, LLP, although their report thereon is not
included herein; the information for 1992 is derived from audited financial
statements of the Company, which were audited by other independent public
accountants and were restated by management to reflect the reorganization of the
Company in 1993. In addition, the following tables set forth selected financial
and operating information for the Company as of and for the six months ended
June 30, 1997 and June 30, 1996, respectively, which information is derived from
the unaudited financial statements of the Company. The unaudited pro forma
information reflects the following transactions as part of the Minimum Offering:
(i) the sale of 1,153,846 shares of Class A Common Stock for $6.50 per share,
(ii) the use of a portion of the net proceeds to repay $4.5 million of
outstanding debt, and (iii) the use of a portion of the net proceeds to acquire
PFC. The pro forma operating data for the year ended December 31, 1996 shows the
effect of the June 1996 acquisition of three properties (Fort Mylner Shopping
Center, Fort Mylner Commercial Center and Orange Grove Shopping Center) as if
the acquisitions were made at the beginning of the year. The following selected
financial and operating information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31 June 30,
--------------------------------------------- -------------------------
1996 1996 1995 1994 1993 1992 1997 1997 1996
Pro Pro
Forma Forma
(Unaudited) (in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Rental $ 4,012 $ 3,385 $ 3,028 $ 2,718 $ 2,938 $ 2,840 $ 2,266 $ 2,266 $ 1,519
Tenant reimbursement 283 249 332 281 232 23 91 91 38
Other operating income 629 583 612 77 47 123 163 163 66
Interest & loan service fees(1) 404 184
------ ------- -------- ------- -------- -------- ------ ----- -----
Total revenues 5,328 4,217 3,972 3,076 3,217 2,986 2,703 2,520 1,623
Operating expenses 3,116 2,640 2,757 2,023 2,228 1,914 1,653 1,513 1,074
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income 2,212 1,577 1,215 1,053 989 1,072 1,050 1,007 549
Interest expense (1,796) (1,676) (1,084) (438) (311) (312) (941) (1,109) (640)
Depreciation & amortization (1,434) (1,245) (906) (639) (651) (574) (731) (723) (414)
Insurance proceeds (2) 76 76 5,917
(Loss) gain on disposal of operating
property (3) 86 86 (851) 2 166
Other income & expense (104) (104) (199) (71) 39 38 2 2 177
------- ------- ------- ------ ---- ---- ------- ------- ------
Income (loss) before taxes (959) (1,286) 4,092 (93) 66 390 (619) (823) (328)
Income taxes (4) 360 453 (1,588) 42 (4) (91) 232 309 123
----- ----- ------- ----- ------- ------ ------ ------ -----
Net income (loss) before cumulative
effect of change in accounting
principle (600) (833) 2,504 (51) 62 299 (387) (514) (205)
Cumulative effect of change in
accounting principle (5) (159)
------- ------- ------- ------ ------ ----- ------ ------- ------
Net Income (loss) $ (600) $ (833) $ 2,504 $ (51) $ (97) $ 299 $ (387) $ (514) $ (205)
======= ======= ======= ====== ====== ===== ====== ======= ======
BALANCE SHEET DATA :
Real Estate--before accumulated
depreciation(6) 37,248 37,231 21,542 17,457 15,588 8,537 37,519 37,460 24,760
Total assets 39,342 36,270 25,505 14,896 13,830 12,471 38,762 35,692 25,824
Total long-term debt 20,443 24,943 13,060 7,238 5,980 4,711 20,354 24,854 13,481
Total liabilities 24,271 27,936 16,177 8,032 6,787 5,667 24,332 27,999 16,902
Stockholders' equity 15,071 8,334 9,329 6,863 7,043 6,804 14,430 7,693 8,921
OTHER OPERATING DATA:
EBITDA (7) 2,270 1,635 6,082 984 1,028 1,276 1,052 1,009 726
Funds from operations(8) 834 412 3,410 588 554 873 344 209 209
Cash flows provided by operating
activities 4,445 1,037 730 797 561 229 5,104
Cash flows used in investing activities (15,586) (7,360) (1,994) (1,847) (344) (176) (3,137)
Cash flows provided by (used in) financing
activities 11,607 5,713 1,047 1,852 173 (200) 229
</TABLE>
10
<PAGE>
- -------------------------------
(1) Represents revenues generated by PFC on insurance premium finance lending
activity in the U.S. Virgin Islands, British Virgin Islands and Anguilla.
(2) On September 15, 1995, Hurricane Marilyn caused damage to most of the
Company's properties. In 1995 and 1996, Lockhart collected or booked as a
receivable insurance proceeds on a policy covering physical damage to the
Company's assets.
(3) In 1995, the Company wrote off the net book value of assets damaged by
Hurricane Marilyn.
(4) At December 31, 1996 and December 31, 1995, the Company had available
operating loss carryforwards of approximately $1,029,000 and $346,000
respectively to offset future taxable income through the years 2011 and
2010, respectively.
(5) The Company adopted SFAS 109 (Accounting for Income Taxes) in 1993 and
included the cumulative effect of adopting the new accounting principle in
1993 operations.
(6) The commercial real estate and undeveloped real estate carried on the
financial records of the Company are at book value of historical cost basis
or below-cost and do not reflect market values as established on either an
income valuation or replacement value basis.
(7) EBITDA means income before mortgage and other interest, income taxes,
depreciation and amortization. EBITDA is not intended to represent cash
flows from operations and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company believes that EBITDA is an
appropriate measure of performance because it is predicated on cash flow
analyses. The Company's definition of EBITDA may not be identical to
similarly titled measures of other companies and, therefore, may not
necessarily be an accurate basis of comparison.
(8) Funds from operations means net income (loss) plus depreciation and
amortization. Funds from operations is not intended to represent cash flows
from operations and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company believes that funds from
operations is a standard measure commonly reported and widely used by
analysts, investors and other interested parties in the real estate
industry. Accordingly, this information has been disclosed herein to permit
a more complete comparative analysis of the Company's performance relative
to other companies in the industry. The Company's definition of funds from
operations may not be identical to similarly titled measures of other
companies and, therefore, may not necessarily be an accurate basis of
comparison.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the Class A Common Stock offered by this
Prospectus.
History of Losses; Uncertainty of Profitability
The Company reported consolidated net losses for the years ended December
31, 1996, 1994 and 1993 and for the six months ended June 30, 1997. Although the
Company operated profitably for the years ended December 31, 1995 and 1992,
there can be no assurance that profitability on a quarterly or annual basis will
be achieved in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Concentration of Properties in the U.S. Virgin Islands
Currently, all of the Company's properties are located in the U.S. Virgin
Islands. The Company's revenue and the value of its properties may be affected
by a number of factors, including the local economic climate (which may be
adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics, adverse weather conditions, the health of the local
tourist industry and other factors) and local real estate conditions (such as
oversupply of, or reduced demand for, retail and office space). Therefore, the
Company's performance will likely be dependent, to a large extent, on the
economic conditions in the U.S. Virgin Islands.
Inability to Repay or Refinance Indebtedness at Maturity
The Company will be subject to risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, and the risk that any
indebtedness will not be able to be refinanced or that the terms of any such
refinancing will be less favorable than the terms of the expiring indebtedness.
No Limitation on Debt
The Company currently has a policy of incurring debt only if expected cash
flow from the project is sufficient to service the debt. However, the
organizational documents of the Company do not contain any limitation on the
amount of indebtedness the Company may incur. In the event of a change in the
current practice, the Company could become more highly leveraged, resulting in
an increase in debt service that could adversely affect the Company's cash flow
and an increase in the risk of default on the Company's indebtedness.
Need for Additional Financing
While the Company estimates that the net proceeds from the Maximum Offering
will provide adequate capital to fund the Company's growth and development for
at least the twelve months following the date of this Prospectus, additional
financing likely will be necessary for development of its residential property
inventory, expansion into the financial services industry or selective
acquisitions. In addition, the Company intends to fund certain development
projects with bank financing. Even if proceeds from this offering are sufficient
to fund the Company's activities during the next twelve months, there can be no
assurance that the Company will generate sufficient cash flow after such time to
fund its future growth. In such event, the Company would also have to seek
additional borrowings, effect debt or equity offerings or otherwise raise
capital.
12
<PAGE>
Economic Performance and Value of Properties Dependent on Many Factors
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend in large part on
the amount of income generated and expenses incurred. If the Company's
properties do not generate revenue sufficient to meet operating expenses,
including debt service, tenant improvements, leasing commissions and other
capital expenditures, the Company may have to borrow additional amounts to cover
fixed costs and the Company's cash flow and results of operations will be
adversely affected.
The Company's revenue and the value of its properties may be adversely
affected by a number of factors, including: the national economic climate; the
local economic climate; local real estate conditions; the perception of
prospective tenants of the attractiveness of the property; the ability of the
Company to manage and maintain its properties and secure adequate insurance; and
increased operating costs (including real estate taxes and utilities). In
addition, real estate values and income from properties are affected by such
factors as applicable laws, including tax laws, interest rate levels and the
availability of financing.
Dependence on Rental Income from Real Property
Since substantially all of the Company's total revenue is derived from
rental income from real property, the Company's income and cash flow from
operations would be adversely affected if a significant number of the Company's
tenants were unable to meet their obligations to the Company or if the Company
were unable to lease a significant amount of space in its properties on
economically favorable lease terms. There can be no assurance that any tenant
whose lease expires in the future will renew such lease or that the Company will
be able to re-lease space on economically advantageous terms.
Impact of Competition on Occupancy Levels and Rents Charged
Numerous retail, office and commercial properties compete with the
Company's properties in attracting tenants to lease space. Some of the competing
properties may be newer, better located or owned by parties better capitalized
than the Company. The number of competitive properties in a particular area
could have a material adverse effect on the ability to lease space in the
Company's properties (or at newly acquired or developed properties) as well as
the ability to charge economically favorable rents.
Risk of Bankruptcy of Major Tenants
The bankruptcy or insolvency of a major tenant or a number of smaller
tenants may have an adverse impact on the properties affected and on the income
produced by such properties. Under bankruptcy law, a tenant has the option of
assuming (continuing) or rejecting (terminating) any unexpired lease. If the
tenant assumes its lease with the Company, the tenant must cure all defaults
under the lease and provide the Company with adequate assurance of its future
performance under the lease. If the tenant rejects the lease, the Company's
claim for breach of the lease would (absent collateral securing the claim) be
treated as a general unsecured claim. The amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one year's lease payments or 15% of the remaining
lease payments payable under the lease (but not to exceed the amount of three
years' lease payments).
Illiquidity of Real Estate Investments
Equity real estate investments are relatively illiquid and therefore tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In
13
<PAGE>
addition, mortgage payments and, to the extent the properties are not subject to
triple net leases, certain significant expenditures such as real estate taxes
and maintenance costs, are generally not reduced when circumstances cause a
reduction in income from the investment. Should such economic changes occur, the
Company's income and cash flow from operations could be adversely affected. A
portion of the Company's properties are mortgaged to secure payment of
indebtedness, and if the Company were unable to meet its mortgage payments, a
loss could be sustained as a result of foreclosure on such properties by the
mortgagee.
Risk of Renovation and Development Activities
The Company intends to continue developing properties and acquiring other
real estate and non-real estate businesses. Estimates of renovation costs and
costs of improvements to bring an acquired property up to standards established
for the market position intended for that property may prove inaccurate. In
addition, there are general investment risks associated with any new real estate
and non-real estate investment.
The Company intends to expand and renovate its properties from time to
time. Expansion and renovation projects generally require expenditure of capital
as well as various government and other approvals, the receipt of which cannot
be assured. While development policies with respect to expansion and renovation
activities are intended to limit some of the risks otherwise associated with
such activities, the Company will nevertheless incur certain risks, including
expenditure of funds on, and devotion of management's time to, projects which
may not be completed.
The Company also intends to review from time to time the possibility of
developing other commercial ventures on its own real property holdings in
accordance with the Company's development policies. Risks associated with the
Company's development and construction activities may include: abandonment of
development opportunities; construction costs of a property exceeding original
estimates, possibly making the property uneconomical; and untimely construction,
resulting in increased debt service expense and construction costs. In addition,
new development activities, regardless of whether they would ultimately be
successful, typically require a substantial portion of management's time and
attention. Development activities would also be subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, building,
occupancy, and other required governmental permits and authorizations.
Risk of Acquisitions
Acquisitions entail the risk that investments may fail to perform in
accordance with expectations. While the Company to date has limited its
acquisition activity to the U.S. Virgin Islands, the Company intends to expand
its business to geographic markets outside of the U.S. Virgin Islands. The
Company initially will not possess the same familiarity with new markets as it
has with the U.S. Virgin Islands, which could adversely affect its ability to
acquire, develop or manage any new real estate and non-real estate acquisitions.
Potential Increases in Certain Taxes and Regulatory Compliance
Because increases in income and service or transfer taxes are generally not
passed through to tenants under leases, such increases may adversely affect the
Company's cash flow from operations. The Company's properties also are subject
to various federal, state and local regulatory requirements, such as
requirements of the Americans with Disabilities Act and state and local fire and
life safety requirements. Failure to comply with these requirements could result
in the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that its properties are either currently
in substantial compliance with such regulatory requirements, or the Company has
identified
14
<PAGE>
certain necessary improvements and has begun the process of implementing such
improvements. However, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed which would require
significant unanticipated expenditures by the Company and could have an adverse
effect on the Company's income and cash flow from operations.
Insurance
The Company carries comprehensive liability, fire, flood, windstorm,
earthquake, extended coverage and business interruption insurance covering all
of its properties, with policy specifications and insured limits which the
Company believes are adequate and appropriate under the circumstances. There
are, however, certain types of losses that are not generally insured because it
is not economically feasible to insure against such losses. Should a loss in
excess of insured limits occur, the Company could lose its capital invested in
the property, as well as the anticipated future revenue from the property and,
in the case of debt which is with recourse to the Company, would remain
obligated for any mortgage debt or other financial obligations related to the
property. Any such loss would adversely affect the Company. No assurance can be
given that material losses in excess of insurance proceeds will not occur in the
future.
Environmental Risks
Under various federal, state and local laws, ordinances and regulations,
the Company may be considered an owner or operator of real property and,
therefore, may become liable for the costs of removal or remediation of certain
hazardous substances released on or in its property or disposed of by the
Company, as well as certain other potential costs which could relate to
hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances. See "Business--Environmental Considerations".
Concentration of Control; Anti-Takeover Effect of Certain Charter Provisions
The Company has two classes of authorized voting Common Stock, Class A
Common Stock and Class B Common Stock. The rights of the Class A Common Stock
and the Class B Common Stock are identical, except that (i) holders of the Class
A Common Stock are entitled to one vote per share and holders of the Class B
Common Stock are entitled to ten votes per share, and (ii) Class B Common Stock
may be converted into Class A Common Stock. Both classes will vote together as
one class on all matters generally submitted to a vote of stockholders,
including the election of directors.
The holders of the Class B Common Stock will have approximately 97.8% of
the outstanding voting power of the Company's Common Stock, if the Maximum
Offering is sold, and 98.7% of the outstanding voting power of the Common Stock
if the Minimum Offering is sold. These stockholders will have the collective
ability to elect the Company's directors and to determine the outcome of
corporate actions requiring stockholder approval. Lockhart's executive officers
and directors collectively own or control approximately 3,733,115 shares of
Class B Common Stock, or approximately 42.1% and 42.5% of the voting power of
the Common Stock based on the Maximum Offering and the Minimum Offering,
respectively. This concentration of ownership and the disproportionate voting
rights of the Class A Common Stock and the Class B Common Stock may make the
Company a less attractive target for a takeover than it otherwise might be, or
discourage and render more difficult a merger proposal, tender offer or proxy
contest. See "Principal Stockholders".
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Class A
15
<PAGE>
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock may have the effect of delaying, deterring or
preventing a change of control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of Class A Common Stock. The Company has no present plans to issue shares of
Preferred Stock.
The Company's Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws limit the ability of stockholders to raise matters at a
meeting of stockholders without giving advance notice, which may have the effect
of deterring hostile takeovers or delaying or preventing changes in control or
management of the Company. These provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests or transactions in which stockholders might otherwise receive a
premium for their shares over the prevailing market prices. See "Description of
Capital Stock".
Shares Eligible for Future Sale
If the Maximum Offering is sold, there will be 2,000,000 shares of Class A
Common Stock outstanding (10,590,018 shares assuming the conversion of all
outstanding shares of Class B Common Stock). The shares of Class A Common Stock
sold in this offering will be tradeable without restriction by persons other
than "affiliates" of Lockhart. The shares of Class A Common Stock issuable upon
conversion of Class B Common Stock will be deemed "restricted" securities within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
and, as such, may not be sold in the absence of registration under the
Securities Act or an exemption therefrom, including the exemptions contained in
Rule 144 under the Securities Act. No prediction can be made as to the effect,
if any, that future sales of shares of Class A Common Stock, or the availability
of such shares for future sales, will have on the market price of the shares of
Class A Common Stock prevailing from time to time. Sales of substantial amounts
of Class A Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Class A Common Stock and such
a reduction in the market price of the Class A Common Stock could impair the
ability of the Company to raise additional capital through future public
offerings of its equity securities.
The Class B Stockholders have agreed that, subject to certain limited
exceptions, during the period beginning from the date of this Prospectus and
continuing to and including the date six months after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. In
addition, the Company's executive officers and directors as well as beneficial
owners of 5% or more of the Class B Common Stock have agreed that, subject to
certain limited exceptions, beginning from the date of this Prospectus and
continuing to and including the date two years after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. Following
the six-month and two-year periods, no assurance can be given that a holder of
Class B Common Stock will not decide, based upon then prevailing market and
other conditions, to convert his or her Class B Common Stock to Class A Common
Stock and to dispose of all or a portion of such stock pursuant to the
provisions of Rule 144 under the Securities Act, subject to any applicable
volume limitations of Rule 144.
16
<PAGE>
No Public Market; Possible Volatility of Stock Price
There is no public market for the Company's Class A Common Stock, and there
can be no assurance that an active public market for the Company's Class A
Common Stock will develop or be sustained after the offering. The initial public
offering price was determined by the Company based upon several factors. See
"Plan of Distribution" for a discussion of the factors considered in determining
the initial public offering price. If a trading market develops, the trading
price of the Company's Class A Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results, changes
in financial estimates by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to the Company
and other events or factors. Moreover, in some future quarter the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the market price of the Company's Class A Common Stock
would likely be materially and adversely affected. In addition, the stock market
in general has experienced volatility that often has been unrelated to the
operating performance of particular companies traded on the market. These broad
market and industry fluctuations may adversely affect the trading price of the
Company's Class A Common Stock, regardless of the Company's operating
performance.
Immediate Dilution
The initial public offering price of the Class A Common Stock is higher
than the book value per outstanding share of Class A Common Stock. Accordingly,
purchasers in the offering will suffer an immediate dilution of $4.68 in the net
tangible book value per share of the Class A Common Stock from the initial
public offering price. See "Dilution".
17
<PAGE>
USE OF PROCEEDS
The table set forth below summarizes certain information relating to the
anticipated use of offering proceeds by the Company, assuming that the Minimum
Offering and the Maximum Offering are sold. While the estimated use of proceeds
in the table below is believed to be reasonable, this table should be viewed
only as an estimate of the use of proceeds.
<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
---------------- ----------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Gross Proceeds to the Company........................... $7,500,000 100.0% $13,000,000 100.0%
Less: Selling Commissions..........................
Offering Expenses(1).................. 763,000 ___% 974,000 ____%
------- -------
Net Proceeds to the Company............................. $ $
Less: Acquisition of PFC(2)....................... 687,500 % 687,500 %
Repayment of Indebtedness (3)........... 4,500,000 % 5,000,000 %
Redemption of Common Stock (4)............ --- 0 % 480,000 %
------------ --------
Cash available for general corporate
purposes (5)............................................ $ % $ %
============ ======== ============= =========
</TABLE>
- ------------------------------
(1) The National Capital Bank of Washington has extended the Company a
revolving line of credit of up to $400,000 for a term of one year (the
"Credit Line"). Proceeds from the Credit Line are to be used to pay
expenses related to this offering. The Credit Line bears interest at the
bank's base rate, requires monthly payments of interest on the outstanding
balance, and expires on July 31, 1998.
(2) The Company has entered into a non-binding letter of intent to acquire PFC
for an aggregate purchase price of $687,500 and is proceeding to conclude a
binding agreement for such acquisition. See "Business--Acquisition of PFC".
(3) If the Minimum Offering is sold, the Company intends to use $4.0 million to
reduce the outstanding balance of the Development Loan, and $500,000 to
prepay a portion of the Red Hook Loan. If the Maximum Offering is sold, the
Company intends to use $4.5 million to reduce the outstanding balance of
the Development Loan, and $500,000 to repay a portion of the Red Hook Loan.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
(4) If the Maximum Offering is sold, the Company intends to use $480,000 of the
last $1 million raised in the offering to repurchase up to 73,850 shares of
Class B Common Stock from four of the Company's current stockholders at a
redemption price of $6.50 per share. If less than $12,000,000 is raised in
the offering, no shares of Class B Common Stock will be redeemed. If more
than $12,000,000 but less than $12,480,000 is raised, then such proceeds
will be used to redeem shares of Class B Common Stock on a pro rata basis;
provided, however, that no fractional shares of Class B Common Stock will
be redeemed.
(5) The Company plans to use any remaining net proceeds from the offering for
general corporate and working capital purposes, including funding pending
development projects, expansion of PFC's operations and selective
acquisitions. Except for the PFC acquisition, there currently are no
agreements with respect to any acquisitions. The Company does not believe
it can accurately estimate the amounts to be used for each such purpose at
this time. Pending such uses, the Company intends to invest such funds in
short-term, interest-bearing instruments or accounts.
18
<PAGE>
DISTRIBUTION POLICY
The Company paid cash distributions of $317,898, $324,487 and $330,613 to
its stockholders in the years ended December 31, 1994, 1995 and 1996,
respectively, and such distributions constituted a return of capital in 1994 and
1996. The Company is not a real estate investment trust and, therefore, is not
required to make cash distributions under the U.S. Internal Revenue Code.
However, the Board of Directors of the Company expects to establish an initial
policy of declaring quarterly distributions at the rate of $_____ per share
($______ per share annually) on the Class A Common Stock and the Class B Common
Stock, commencing with the quarter ending December 31, 1997. Each share of Class
A Common Stock and each share of Class B Common Stock will share equally in cash
distributions and other distributions. The amount of distributions payable in
the future will be reviewed periodically by the Board of Directors in light of
the Company's earnings, financial condition, net asset value, market value and
capital and other cash requirements. It is the policy of the Board of Directors
that the Company retain an adequate portion of its earnings to support the
growth of its business. There is no requirement, and there can be no assurance,
that distributions will be paid. In addition, covenants in the Company's Loan
Agreement with Banco Popular de Puerto Rico may, in the future, restrict
Lockhart's ability to pay distributions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
19
<PAGE>
DILUTION
As of June 30, 1997, the net tangible book value of Lockhart was
approximately $7.7 million, or $0.89 per share of Common Stock. Net tangible
book value per share represents the Company's total tangible assets less total
liabilities divided by 8,634,280 total shares of Common Stock outstanding. After
giving effect to the net proceeds received by the Company from the sale of
2,000,000 shares of Class A Common Stock pursuant to the offering at an initial
public offering price of $6.50 per share, the pro forma net tangible book value
of Lockhart as of June 30, 1997, would have been approximately $19.2 million, or
$1.82 per share of Common Stock. Such amount represents an immediate increase in
pro forma net tangible book value of $0.93 per share of Common Stock to the
Company's existing stockholders and an immediate dilution to new investors of
$4.68 per share of Class A Common Stock. The following table illustrates the per
share dilution in pro forma net tangible book value to new investors assuming
that the maximum number of shares of Class A Common Stock are sold in the
offering:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share................................ $6.50
Net tangible book value per share before the offering.............. 0.89
Increase in net tangible book value per share attributable to net..
proceeds of the Maximum Offering................................. 0.93
------
Pro forma net tangible book value per share after the offering......... 1.82
Dilution to new investors.............................................. $4.68
=====
</TABLE>
The following table assumes the Maximum Offering is sold and summarizes, on
a pro forma basis as of June 30, 1997, the number of shares of Common Stock
purchased from Lockhart, the total consideration paid and the average price per
share paid by the Company's existing stockholders and by new investors
purchasing shares of Class A Common Stock in the offering at an initial public
offering price of $6.50 per share:
<TABLE>
<CAPTION>
Shares of Common Stock
Purchased Total Consideration
---------------------- -------------------
Average Price Per Share
Number Percent Amount Percent of Common Stock
------ ------- ------ ------- -----------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (Class B
Common Stock)................. 8,634,280 81% $ 6,774,387 34% $ 0.78
New stockholders (Class A
Common Stock)................. 2,000,000 19% 13,000,000 66% $ 6.50
---------- --- ----------- ---
Total....................... 10,634,280 100% $19,774,387 100%
- --------------
</TABLE>
20
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth unaudited pro forma financial and other
information as well as combined historical financial information for Lockhart
Caribbean Corporation. The information for 1996, 1995 and 1994 is derived from
and should be read in conjunction with the audited financial statements of the
Company, which have been audited by Ernst & Young, LLP, independent public
accountants, whose report thereon appears elsewhere herein; the information for
1993 is derived from the audited financial statements of the Company, which have
been audited by Ernst & Young, LLP, although their report thereon is not
included herein; the information for 1992 is derived from audited financial
statements of the Company, which were audited by other independent public
accountants and were restated by management to reflect the reorganization of the
Company in 1993.
The selected financial data at June 30, 1997 and for the six months ended
June 30, 1997 and June 30, 1996 are derived from unaudited financial statements.
The unaudited financial information includes all adjustments (consisting of
normal recurring adjustments) management considers necessary for fair
presentation of the combined financial position and results of operations for
these periods. Combined operating results for the six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the entire year
ended December 31, 1997.
The unaudited pro forma information reflects the following transactions as
part of the Minimum Offering: (i) the sale of 1,153,846 shares of Class A Common
Stock for $6.50 per share, (ii) the use of a portion of the net proceeds to
repay $4.5 million of outstanding debt, and (iii) the use of a portion of the
net proceeds to acquire PFC. The pro forma balance sheet data shows the effects
of these transactions as if they had occurred at the date of the balance sheets,
and the pro forma operating data shows the effects of these transactions as if
they had occurred at the beginning of the periods. In addition, the pro forma
operating data for the year ended December 31, 1996 shows the effect of the June
1996 acquisition of three properties (Fort Mylner Shopping Center, Fort Mylner
Commercial Center and Orange Grove Shopping Center) as if the acquisitions were
made at the beginning of the year. By necessity, such pro forma operating
information incorporates certain assumptions which are described in the notes to
the Pro Forma Condensed Financial Statements--Minimum Offering included
elsewhere in this Prospectus. The pro forma information does not purport to
represent what the Company's financial position or results of operations would
actually have been if these transactions had occurred on such date or at the
beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
21
<PAGE>
SELECTED FINANCIAL INFORMATION
LOCKHART CARIBBEAN CORPORATION
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31 June 30,
--------------------------------------------- ----------------------------
1996 1996 1995 1994 1993 1992 1997 1997 1996
Pro Pro
Forma Forma
(Unaudited) (in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Rental 4,012 3,385 3,028 2,718 2,938 2,840 2,266 2,266 1,519
Tenant reimbursement 283 249 332 281 232 23 91 91 38
Other operating income 629 583 612 77 47 123 163 163 66
Interest & loan service fees(1) 404 184
------ ------- -------- ------- -------- -------- ------ ----- -----
Total revenues 5,328 4,217 3,972 3,076 3,217 2,986 2,703 2,520 1,623
Operating expenses 3,116 2,640 2,757 2,023 2,228 1,914 1,653 1,513 1,074
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income 2,212 1,577 1,215 1,053 989 1,072 1,050 1,007 549
Interest expense (1,796) (1,676) (1,084) (438) (311) (312) (941) (1,109) (640)
Depreciation & amortization (1,434) (1,245) (906) (639) (651) (574) (731) (723) (414)
Insurance proceeds (2) 76 76 5,917
(Loss) gain on disposal of operating
property (3) 86 86 (851) 2 166
Other income & expense (104) (104) (199) (71) 39 38 2 2 177
------- ------- ------- ------ ------- ---- ------- ------- ------
Income (loss) before taxes (959) (1,286) 4,092 (93) 66 390 (619) (823) (328)
Income taxes (4) 360 453 (1,588) 42 (4) (91) 232 309 123
----- ----- ------- ----- ------- ------ ------ ------ -----
Net income (loss) before cumulative
effect of change in accounting
principle (600) (833) 2,504 (51) 62 299 (387) (514) (205)
Cumulative effect of change in
accounting principle (5) (159)
------- ------- ------- ------ ------ ----- ------ ------- ------
Net Income (loss) (600) (833) 2,504 (51) (97) 299 (387) (514) (205)
======= ======= ======= ====== ====== ===== ====== ======= ======
BALANCE SHEET DATA :
Real Estate--before accumulated
depreciation(6) 37,248 37,231 21,542 17,457 15,588 8,537 37,519 37,460 24,760
Total assets 39,342 36,270 25,505 14,896 13,830 12,471 38,762 35,692 25,824
Total long-term debt 20,443 24,943 13,060 7,238 5,980 4,711 20,354 24,854 13,481
Total liabilities 24,271 27,936 16,177 8,032 6,787 5,667 24,332 27,999 16,902
Stockholders' equity 15,071 8,334 9,329 6,863 7,043 6,804 14,430 7,693 8,921
OTHER OPERATING DATA:
EBITDA (7) 2,270 1,635 6,082 984 1,028 1,276 1,052 1,009 726
Funds from operations(8) 834 412 3,410 588 554 873 344 209 209
Cash flows provided by operating
activities 4,445 1,037 730 797 561 229 5,104
Cash flows used in investing activities (15,586) (7,360) (1,994) (1,847) (344) (176) (3,137)
Cash flows provided by (used in) financing
activities 11,607 5,713 1,047 1,852 173 (200) 229
</TABLE>
22
<PAGE>
- -------------------------------
(1) Represents revenues generated by PFC on insurance premium finance lending
activity in the U.S. Virgin Islands, British Virgin Islands and Anguilla.
(2) On September 15, 1995, Hurricane Marilyn caused damage to most of the
Company's properties. In 1995 and 1996, Lockhart collected or booked as an
account receivable insurance proceeds on a policy covering physical damage
to the Company's assets.
(3) In 1995, the Company wrote off the net book value of assets damaged by
Hurricane Marilyn.
(4) At December 31, 1996 and December 31, 1995, the Company had available
operating loss carryforwards of approximately $1,029,000 and $346,000
respectively to offset future taxable income through the years 2011 and
2010, respectively.
(5) The Company adopted SFAS 109 (Accounting for Income Taxes) in 1993 and
included the cumulative effect of adopting the new accounting principle in
1993 operations.
(6) The commercial real estate and undeveloped real estate carried on the
financial records of the Company are at book value of historical cost basis
or below-cost and do not reflect market values as established on either an
income valuation or replacement value basis.
(7) EBITDA means income before mortgage and other interest, income taxes,
depreciation and amortization. EBITDA is not intended to represent cash
flows from operations and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company believes that EBITDA is an
appropriate measure of performance because it is predicated on cash flow
analyses. The Company's definition of EBITDA may not be identical to
similarly titled measures of other companies and, therefore, may not
necessarily be an accurate basis of comparison.
(8) Funds from operations means net income (loss) plus depreciation and
amortization. Funds from operations is not intended to represent cash flows
from operations and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company believes that funds from
operations is a standard measure commonly reported and widely used by
analysts, investors and other interested parties in the real estate
industry. Accordingly, this information has been disclosed herein to permit
a more complete comparative analysis of the Company's performance relative
to other companies in the industry. The Company's definition of funds from
operations may not be identical to similarly titled measures of other
companies and, therefore, may not necessarily be an accurate basis of
comparison.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion should be read in conjunction with Selected
Financial Data and the Company's consolidated financial statements appearing
elsewhere in this Prospectus. Where appropriate, the following discussion
includes analysis of the effects of the offering.
The Company's revenue currently is derived from the rental of retail and
office space and the long-term ground lease of real property. In 1996 and 1995,
building space rental accounted for 89% of total revenue and ground lease
payments accounted for 11% of total revenue. Revenue growth from 1994
($3,075,709) to 1996 ($4,216,733) is primarily attributable to the acquisition
of operating properties. Since February 1995, the Company has acquired four
shopping centers with an aggregate of approximately 100,000 square feet of
rentable space for a total purchase price of $15.5 million.
Two wholly-owned subsidiaries, H.E. Lockhart Management, Inc. ("HELM") and
Lockhart Realty, Inc. ("LRI") account for 100% of the Company's revenue. HELM
owns and manages the Company's seven shopping centers, serving both the tourist
and local sectors of the economy with a mix of office and retail space. HELM
also owns two parcels which it leases to tenants under long-term ground leases.
LRI owns the Company's undeveloped real estate and operates the Company's
commercial park. In 1996, HELM accounted for 89% of the Company's total revenue,
and LRI accounted for 11%.
LRI is expected to account for a greater portion of total revenue in the
future as it develops the approximately 415 acres of land zoned for residential
use owned by the Company. In addition, LRI currently owns and operates the
Company's commercial business park and is developing a second commercial
business park and a new light-industrial park. See
"Business--Properties--Development Projects".
Revenue from HELM should increase in 1998 as a result of re-leasing in
late-1997 at one of the Company's tourist-oriented shopping centers at rental
rates above previous levels. Following Phase II construction at Lockhart Gardens
Shopping Center and at Grand Hotel Court in 1999, HELM should realize increased
revenues from the additional space available at these properties.
The Company also expects revenue growth through selective acquisition of
commercial real estate and from diversification into the financial services
industry. Acquisition activity and financial services growth include plans for
geographic expansion into other markets, in the near-term certain eastern
Caribbean islands, and eventually to targeted markets in North America. A
portion of the proceeds from this offering will be used to acquire an insurance
premium financing company that has an established and growing business in the
U.S. Virgin Islands and British Virgin Islands and has made inroads into certain
other eastern Caribbean markets.
On September 15, 1995, Hurricane Marilyn caused damage to most of the
Company's operating properties. This event led to a deterioration in total
revenue as certain tenants were unable to resume business even after the damaged
properties were repaired and reconstructed. As of June 30, 1997, the Company has
spent an aggregate of $6.5 million to repair damage at its operating properties
caused by Hurricane Marilyn, of which $5.9 million was reimbursed by the
Company's insurance carrier. Reconstruction of certain portions of the Lockhart
Gardens Shopping Center will be the final phase of rebuilding of properties
damaged by the Hurricane Marilyn. See "Business--Properties--Development
Projects".
24
<PAGE>
Results of Operations
Six Months Ended June 30, 1997 Compared with Six Months Ended June 30, 1996
Total revenue (rental income, tenant expense reimbursement and other
operating income) for the six months ended June 30, 1997 and 1996 was $2,519,837
and $1,622,550 respectively. The $897,287 or 55% increase was principally
attributable to revenue from the two Fort Mylner properties and the Orange Grove
Shopping Center, which the Company acquired in June 1996. Total revenue from the
three acquired properties during the six months ended June 30, 1997 was
$767,334, which represented 86% of the period-to-period increase.
For the six months ended June 30, 1997 and 1996, total operating expenses
were $1,512,515 or 60% of total revenue and $1,073,683 or 66% of total revenue,
respectively. The $438,832 increase in operating expenses was due to the three
properties acquired in June 1996 and a significant increase in property
insurance premiums when coverage was renewed in May 1996. The increase in
insurance premiums was a result of a general market increase following Hurricane
Marilyn.
Interest expense increased by $468,836 or 73% for the six months ended June
30, 1997 compared to the six months ended June 30, 1996. The increase in
interest expenses was due to a $10.4 million increase in debt to fund the
acquisition of the three properties in June 1996.
Depreciation and amortization increased by $309,000 or 75% for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996. The
increase was due primarily to the 1996 acquisitions and the $6 million Phase I
reconstruction of the Lockhart Gardens Shopping Center completed in September
1996.
As a result of the foregoing, the Company showed a net loss of $514,462 for
the six months ended June 30, 1997 compared to a net loss of $205,432 for the
six months ended June 30, 1996.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Total revenue for the years ended December 31, 1996 and 1995 was $4,216,733
and $3,971,800, respectively. The $244,933 or 6% increase resulted principally
from six months of rental income and tenant expense reimbursements from the
three properties that were acquired in June 1996. Total revenue from properties
acquired in June 1996 of $721,902 was partially offset by a decrease of $476,969
in revenue from the other properties, primarily as a result of damages from
Hurricane Marilyn. With the receipt of $453,355 in insurance reimbursements for
business interruption losses, revenue loss at the affected properties was
principally due to vacancies resulting from tenants who were unable to resume
business even after reconstruction was completed at the affected properties and
continued vacancies at the northern section of the Lockhart Gardens Shopping
Center that will not be filled until additional reconstruction work is commenced
by the ground lessee.
For the years ended December 31, 1996 and 1995, total operating expenses
were $2,639,969 or 63% of total revenue and $2,757,284 or 69% of total revenue,
respectively. Operating expenses decreased by $117,315 in 1996 despite the
additional expenses from the three properties acquired in June 1996. Lower
operating expenses in 1996 were primarily attributable to a reduction in
overhead costs and the elimination of certain professional fees incurred as a
result of Hurricane Marilyn in 1995. Adjusting for operating expenses of the
properties acquired in 1996, total operating expenses decreased by $342,411 or
12% in 1996.
25
<PAGE>
Interest expense increased by $591,726 or 55% for the year ended December
31, 1996 compared to the year ended December 31, 1995. The increase in interest
expense was principally due to a $10.4 million increase in debt to fund the
acquisition of three properties in June 1996.
Depreciation and amortization increased by $338,511 or 37% for the year
ended December 31, 1996 compared to the year ended December 31, 1995. The
increase was due primarily to the acquisition of three properties in June 1996
which resulted in an increase in the depreciable asset base, and the write-off
of certain capitalized loan costs related to notes that were liquidated with
proceeds from the Development Loan. See "--Liquidity and Capital Resources".
Insurance proceeds of $75,670 and $5,916,981 for the years ended December
31, 1996 and 1995 represent amounts collected or receivable from insurance
companies for repairs to properties damaged by Hurricane Marilyn. By the end of
1996, the Company had utilized the insurance proceeds as follows: Drakes Passage
$430,592; Grand Hotel Court $89,883; Lockhart Gardens Shopping Center
$5,165,519; and Red Hook Plaza $230,987. With regard to the three shopping
centers acquired in 1996, all hurricane related damage had been repaired prior
to acquisition by the Company.
For the year ended December 31, 1996, there was a gain on the sale of
property of $86,440 as a result of the sale of approximately 1.7 acres of
undeveloped land zoned for residential use. For the year ended December 31,
1995, there was a loss of $850,972 due to a write-off of net book value of
certain properties damaged by Hurricane Marilyn.
As a result of the foregoing, the Company had a net loss of $832,710 for
the year ended December 31, 1996 compared to a net income of $2,503,875 for the
year ended December 31, 1995.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Total revenue for the years ended December 31, 1995 and 1994 was $3,971,800
and $3,075,709, respectively. The $896,091 or 29% increase was due principally
to ten months of revenue from Red Hook Plaza, which was acquired in February
1995. Total revenue from Red Hook Plaza was $718,446, which accounted for 80% of
the revenue increase.
For the years ended December 31, 1995 and 1994, total operating expenses
were $2,757,284 or 69% of total revenue and $2,022,721 or 66% of total revenue,
respectively. The increase in total operating expenses for the year ended
December 31, 1995 was due to the operating and maintenance expenditures of the
property acquired in February 1995, certain overhead costs related to such
acquisition and professional fees incurred as a result of Hurricane Marilyn.
Interest expense increased by $646,345 or 148% for the year ended December
31, 1995 compared to the year ended December 31, 1994. The increase was due to
higher interest rates in 1995 and a $5.9 million increase in debt to fund the
acquisition of Red Hook Plaza.
Depreciation and amortization increased by $267,116 or 42% for the year
ended December 31, 1995 compared to the year ended December 31, 1994. The
increase was due primarily to the February 1995 acquisition.
Insurance proceeds of $5,916,981 for the year ended December 31, 1995
represented funds collected or receivable from insurance companies for repairs
to properties damaged by Hurricane Marilyn.
The write-off of $850,972 for the year ended December 31, 1995 compared to
a gain from the sale of a used vehicle of $1,713 for the previous year. The
26
<PAGE>
loss for the year ended December 31, 1995 was due to a write-off of net book
value for properties damaged by Hurricane Marilyn.
As a result of the foregoing, the Company had a net income of $2,503,875
for the year ended December 31, 1995 compared to a net loss of $51,258 for the
year ended December 31, 1994.
Cash Flow
Net cash flow from operating activities declined by $4.9 million in the six
months ended June 30, 1997 compared to the six months ended June 30, 1996. The
high level of net cash flow from operating activities in the first half of 1996
was due to the collection of $4.62 million in insurance proceeds during the
period. Net cash flows used in investing activities decreased by $2.9 million
for the six months ended June 30, 1997 compared to the six months ended June
30,1996 because the Company was not investing in the reconstruction of
properties in 1997 as it did in the same period of the prior year.
Net cash flow from operating activities increased by $3.4 million for the
year ended December 31, 1996 compared to 1995 as a result of insurance proceeds
collected in 1996 for the reconstruction of operating properties damaged by
Hurricane Marilyn. Net cash flow used in investing activities increased by $8.2
million for the year ended December 31, 1996 compared to the year ended December
31, 1995 due principally to the acquisition of three properties in 1996. Net
cash flow from financing activities increased by $6 million as a result of
increased debt to fund the 1996 acquisitions.
Net cash flow from operating activities increased by $306,201 for the year
ended December 31, 1995 compared to the year ended December 31, 1994 as a result
of insurance proceeds collected in 1995 for the reconstruction of operating
properties damaged by Hurricane Marilyn. Net cash flow used in investing
activities increased by $5.4 million for the year ended December 31, 1995
compared to the year ended December 31, 1994 due principally to the acquisition
of one operating property in 1995. Net cash flow from financing activities
increased by $4.7 million as a result of increased debt to fund the acquisition.
Liquidity and Capital Resources
On October 21, 1996, HELM entered into a Loan Agreement (the "Development
Loan") with Banco Popular de Puerto Rico ("BPPR") to: (i) consolidate certain
pre-existing development loans; (ii) refinance certain acquisition indebtedness;
(iii) reduce the Company's interest costs; and (iv) achieve level debt service
payments. The parent company, Lockhart Caribbean Corporation, and HELM's
subsidiaries have each fully and unconditionally guaranteed the Development
Loan. The Development Loan may, in the future, limit the amount of dividends
HELM can pay to the parent company and, therefore, may limit the funds available
for distribution to the Company's stockholders. Approximately $19.1 million of
proceeds from the Development Loan were drawn down, primarily to retire the
mortgages on certain operating properties, and such amount is secured by
first-priority mortgages on Drakes Passage Shopping Mall, the Fort Mylner
properties, the Grand Hotel Court, Lockhart Gardens Shopping Center and Orange
Grove Shopping Center and a second-priority mortgage on Red Hook Plaza. The
Company is obligated to make monthly principal and interest payments of
approximately $163,500 with respect to the $19.1 million and expects to fund
such payments with cash flow from operations.
The Development Loan also provides for a $1 million line of credit with an
interest rate of 0.5% above the prime rate. As of June 30, 1997, the Company had
$700,000 available under the line of credit, and the interest rate was 9.0%. In
addition, the Development Loan will provide approximately $580,000 to fund the
development of the Garden Mall at Lockhart Gardens Shopping Center. See
"Business--Properties--Development Projects". The entire outstanding balance
under the Development Loan is due and payable on April 1, 2000. However, BPPR
has agreed, subject to certain conditions, including the continued absence of
any material default by the Company under the Development Loan,
27
<PAGE>
to convert the balance into a 15-year installment loan with conditions similar
to those of the Development Loan. The Company does not expect to have adequate
funds available to retire the outstanding balance on April 1, 2000, and intends
to refinance the Development Loan, possibly with BPPR. For additional
information regarding the Development Loan, see Note 3 to the Company's
consolidated financial statements.
In 1991, BPPR has loaned LRI $1,135,000 to finance the development of Sugar
Estate Park, and such loan is secured by seven acres of land at Sugar Estate
Park. BPPR has agreed to extend a $3.8 million line of credit to LRI (the "LRI
Loan"). The amount currently owed to BPPR by LRI will be refinanced with the LRI
Loan, and the remaining balance of the LRI Loan will be available to fund the
development of Sugar Estate Commercial Centre and Market Square East. See
"Business--Properties --Development Projects". The LRI Loan will be secured by
mortgages on Sugar Estate Park, Sugar Estate Commercial Centre and Market Square
East.
In February 1995, the Company acquired Red Hook Plaza for an aggregate
purchase price of $5.5 million from an unaffiliated party. The Company financed
this purchase with a $4.7 million first-priority mortgage payable to the seller
(the "Red Hook Loan") and $1.2 million of additional debt financing. The Red
Hook Loan bears interest at 8.75% per annum and matures in January 2004. The
$1.2 million was refinanced in October 1996 with proceeds from the Development
Loan.
In June 1996, the Company acquired the Fort Mylner Commercial Center, the
Fort Mylner Shopping Center and the Orange Grove Shopping Center for an
aggregate purchase price of $10.1 million from an unaffiliated party. The
Company financed this purchase with mortgage indebtedness that was refinanced in
October 1996 with proceeds from the Development Loan.
The National Capital Bank of Washington has extended to the Company the
Credit Line for up to $400,000 to be used to fund expenses associated with this
offering. Amounts outstanding under the Credit Line will be repaid with proceeds
from this offering. See "Use of Proceeds".
After giving effect to this offering and the application of the net
proceeds therefrom, the Company expects improvements in its financial
performance through changes to its capital structure, principally a significant
reduction in total debt. The Company's total debt is expected to be reduced by
$4.5 million and $5.0 million assuming the Minimum Offering or the Maximum
Offering is sold, respectively. Total debt, excluding payables and accrued and
deferred expenses, is expected to be $20.4 million and $19.9 million, assuming
the Minimum Offering or the Maximum Offering is sold, respectively, compared to
$24.9 million as of June 30, 1997. The Company expects this change to result in
a reduction in mortgage interest expense and, therefore, cash flow from
operations should increase by a corresponding amount. However, this cash flow
increase will be partially offset by an increase in aggregate dividends paid on
a larger equity base following termination of this offering.
The Company expects to meet its short-term liquidity requirements from cash
flow from operations. The Company expects cash provided by operations to
increase over the long-term as a result of (i) a reduction of net operating
funds needed to fund annual debt service, (ii) the acquisition of PFC and (iii)
increased net rentable space from the reconstruction and renovation of two
operating properties. The Company also believes that the foregoing sources of
liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future, including capital maintenance expenditures.
The Company expects to meet certain long-term liquidity requirements such
as acquisitions, scheduled debt maturities, renovations, expansions, commercial
and residential development ventures, and other non-recurring capital
improvements through long-term secured and unsecured debt and the issuance of
additional equity securities.
28
<PAGE>
Forward Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Prospectus contain forward-looking
statements which are subject to various risks and uncertainties. Actual results
could differ materially from those discussed herein. Important factors that
could cause or contribute to such differences include those discussed under
"Risk Factors" as well as those discussed elsewhere in this Prospectus.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share. This pronouncement establishes new standards for computing and presenting
earnings per share and applies to all entities with publicly held common stock
or potential common stock. This Statement is effective for financial statements
issued for periods ending after December 15, 1997 and earlier application is not
permitted. Management believes that the application of this Statement will not
have a material effect on the presentation of the Company's earnings per share.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. While all entities are encouraged to adopt this method of
accounting for all employee stock compensation plans, SFAS No. 123 allows an
entity to continue to measure compensation costs for its plan as prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. Management
believes that application of this Statement will not have a material effect on
the Company's financial statements.
29
<PAGE>
THE COMPANY
Overview
Lockhart is an enterprise predominately owned by lineal descendants (and
their spouses) of Alfred H. Lockhart and his son, Herbert E. Lockhart. The
Company and its predecessors have conducted business in the U.S. Virgin Islands
since 1884, which makes Lockhart one of the oldest continuous operators of
commercial properties in the U.S. Virgin Islands. The enterprise, which started
out as a general goods store, has evolved over the years into the largest owner
of shopping centers in the U.S. Virgin Islands. In 1972, the Company solidified
its position as a leader in commercial real estate development through the
construction of the first shopping center on St. Thomas. This facility, the
Lockhart Gardens Shopping Center, was the first commercial property located on
St. Thomas to host national retailers. Lockhart is also one of the largest
owners of undeveloped land on the island of St. Thomas.
Since 1987 the Company has been under the direction of George H.T. Dudley
and Wesley S. Williams, Jr., two family members who function as Chairman and
Vice-Chairman, respectively. Both are practicing attorneys with specialities in
banking, finance and real estate. Shortly after assuming their roles, they
recruited experienced professionals from outside the family to manage the daily
affairs of the Company. Under this management, Lockhart has experienced a period
of substantial growth through property acquisitions and commercial property
development. Since 1987, the Company has acquired four shopping centers with an
aggregate of approximately 99,750 square feet of rentable space, expanded one
shopping center by approximately 6,000 square feet, developed one commercial
park, commenced and almost completed development of a second commercial park,
completed the first phase of renovation of the Grand Hotel Court, completed the
reconstruction of 85,000 square feet of retail space damaged by Hurricane
Marilyn, and completed a master-plan for the development of the Company's
commercial and residential undeveloped land holdings. In addition, under the
leadership of Messrs. Dudley and Williams, the Lockhart management team has
restructured the Company's finances through the Development Loan and effected a
series of corporate transactions that have positioned the Company for this
offering. The corporate transactions were executed to: (i) enhance the effective
management of the Company's properties; (ii) enable the Company to finance its
real estate and non-real estate endeavors more easily; (iii) adhere to the
dictates of the evolving tax laws; (iv) eliminate and mitigate financial
exposure of Company assets to unrelated liability; and (v) position the
Company for this offering.
Lockhart is engaged primarily in the business of owning, acquiring,
renovating, developing and managing shopping centers and other commercial real
estate in the U.S. Virgin Islands, principally on St. Thomas and St. Croix. The
Company currently owns and operates seven shopping centers and one commercial
business park, is actively planning or developing seven projects, has leased an
aggregate of seven acres (including tenants of the commercial business park) of
commercial property to others under long-term ground leases and has an inventory
of approximately 415 acres of undeveloped land zoned for residential
development. In management's opinion, the Company's properties are covered
adequately by insurance.
The Company's primary business strategies are to: (i) actively manage its
developed real property portfolio to improve cash flow; (ii) complete its
planned projects and develop its land holdings for their highest and best use;
(iii) selectively execute real property acquisitions in strategic submarkets;
and (iv) diversify into the financial services industry. The Company believes
that its operating properties are located in strong retail submarkets for
tourists, local consumers or commercial office tenants. This dispersion among
local submarkets mitigates the Company's dependence on the tourism industry or
any one local market sector. In addition, the Company currently has seven
commercial projects in the advanced planning stage. Lockhart also plans to
develop its inventory of 415 acres of land zoned for residential use.
30
<PAGE>
Capitalizing on the collective experience of the Company's senior
management in the financial services industry, Lockhart intends to diversify its
operations to provide select financial services. As a first step to
diversification into the financial services industry, the Company is acquiring
Premium Finance Company of the V.I., Inc. ("PFC"). PFC provides insurance
premium financing primarily to residents of the U.S. Virgin Islands and the
British Virgin Islands. Lockhart has agreed to acquire PFC for $687,500 and will
use a portion of the proceeds from this offering to complete the PFC
acquisition. See "Use of Proceeds".
Organizational Structure
Lockhart Caribbean Corporation is the holding company of the operating
companies HELM and LRI. HELM owns and operates, directly and through its
subsidiaries, seven shopping centers. Specifically, HELM owns and manages, on
St. Thomas: Drakes Passage Mall; Grand Hotel Court; Fort Mylner Shopping Center;
Fort Mylner Commercial Center; Red Hook Plaza; and Lockhart Gardens Shopping
Center; and on St. Croix: Orange Grove Shopping Center. HELM directly owns
Drakes Passage Mall, Grand Hotel Court and Lockhart Gardens Shopping Center;
Fort Mylner Properties, Inc., a wholly-owned subsidiary of HELM, owns the Fort
Mylner Shopping Center and the Fort Mylner Commercial Center; Golden Orange
Centers, Inc., a wholly-owned subsidiary of HELM, owns the Orange Grove Shopping
Center; and Red Hook Plaza, Inc., a wholly-owned subsidiary of HELM, owns Red
Hook Plaza. In addition, HELM directly owns two parcels, which it leases to
tenants under long-term ground leases. LRI owns the Company's undeveloped real
estate and operates the Company's commercial parks. HELM, LRI and each of their
subsidiaries are U.S. Virgin Islands corporations. The Company intends to
operate PFC as a separate subsidiary.
[GRAPHIC OMITTED]
31
<PAGE>
The U.S. Virgin Islands
The United States Virgin Islands are an unincorporated territory of the
United States. The islands are located approximately 1,100 miles southeast of
Miami and approximately 1,500 miles southeast of New York City. Puerto Rico is
approximately 40 miles west of St. Thomas, and the British Virgin Islands are
less than three miles northeast of St. John. Charlotte Amalie, St. Thomas, is
the capital. English is the official language, and the U.S. dollar is the
currency of the U.S. Virgin Islands.
More than fifty islands make up the U.S. Virgin Islands. The three
principal islands are St. Croix, St. Thomas and St. John. St. Croix (82 square
miles) is the largest of the three islands and is known for its rolling hills
and broad central plain, which separates the dry east end from the more tropical
west end. St. Thomas (32 square miles) is the commercial hub of the U.S. Virgin
Islands and is the second most cosmopolitan island in the Caribbean, after
Puerto Rico. Two-thirds of St. John (20 square miles) is dedicated to the
National Park Service. St. Thomas and St. John are distinguished by a
mountainous topography with numerous sandy beaches and inlets along the
shoreline.
Tourism accounts for a large portion of the U.S. Virgin Islands' economy.
In 1994, 1995 and 1996, visitors spent approximately $919.6 million, $822.3
million, and $687.4 million, respectively, in the U.S. Virgin Islands. The
majority of visitors arrive by cruise ship. In 1994, the U.S. Virgin Islands had
approximately 1,921,400 visitors, of which approximately 1,242,900 were cruise
passengers; in 1995, there were approximately 1,741,300 visitors, of which
approximately 1,171,300 were cruise passengers; and in 1996, there were
approximately 1,774,200 visitors, of which approximately 1,316,400 were cruise
passengers. Tourism related employment accounts for a significant percentage of
the labor force in the U.S. Virgin Islands. Specifically, in 1994, 1995 and
1996, tourism-related employment accounted for 19.2%, 18.8% and 15.5% of the
labor force, respectively. The unemployment rates for the U.S. Virgin Islands in
1994, 1995 and 1996 were 5.6%, 5.7% and 5.2%, respectively. Recent declines in
tourism and tourist-related expenditures and employment can be attributed almost
entirely to Hurricane Marilyn. The Company expects that as damage from Hurricane
Marilyn is repaired, tourism and related activity will recover and eventually
surpass pre-hurricane levels.
Properties
Shopping Centers
The Company's shopping centers range in size from approximately 11,000 to
140,000 square feet, and most properties include both retail and office space.
The Company maintains an ongoing leasing and marketing program to enhance the
cash flow potential of each operating property and to respond to tenant needs.
Lockhart also follows a schedule of regular physical maintenance, renovation and
refurbishment to preserve and increase the value of its properties.
The following table sets forth certain information for each of the
Company's shopping centers as of June 30, 1997:
Year Built/ Net Rentable Percent
Acquired Square Feet Occupied
-------- ----------- --------
Drakes Passage Shopping Mall 1920 33,000 91%
Fort Mylner Commercial Center 1996 10,800 100%
Fort Mylner Shopping Center 1996 26,200 93%
32
<PAGE>
Year Built/ Net Rentable Percent
Acquired Square Feet Occupied
-------- ----------- --------
Grand Hotel Court 1914 23,900(1) 67%
Lockhart Gardens Shopping
Center 1972 140,198(2) 75%
Orange Grove Shopping Center 1996 30,600 82%
Red Hook Plaza 1995 32,145 96%
- --------------------
(1) Approximately 4,500 square feet are being held vacant in preparation for
renovation as part of Grand Hotel Court - Phase II.
(2) Includes a ground lease for 30,000 square feet, or approximately 0.7 acres.
Drakes Passage Shopping Mall ("Drakes Passage") is located in the main
tourist shopping and central business district of downtown Charlotte Amalie and
offers access to pedestrian traffic from both Main Street and the Waterfront.
Drakes Passage contains approximately 33,000 square feet of rentable space
spread over two stories and a mezzanine, and is the only air-conditioned
shopping mall in the downtown area. The first floor has 20,500 square feet of
primarily tourist-oriented retail space and was 91% occupied as of June 30,
1997; the second floor has 12,500 square feet of office space and was 92%
occupied as of June 30, 1997. Retail tenants include Boolchands, Cosmopolitan,
Perfume Palace and Diamond's International.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate(1) 85% 73% 99% 93% 82%
Average Net Effective
Rent per Square Foot $30.01 $31.52 $26.57 $23.45 $27.28
- --------------------
(1) Decreased occupancy rates during 1996 and 1995 were attributable to damage
caused by Hurricane Marilyn.
The Fort Mylner Properties consist of the Fort Mylner Commercial Center
with approximately 10,800 square feet of rentable space on two floors and the
Fort Mylner Shopping Center with approximately 26,200 square feet of rentable
space. The total parking spaces available at both properties is approximately
115. Both properties were acquired by the Company in June 1996 for an aggregate
purchase price of $6.4 million. The Fort Mylner properties are located in the
business district of the Tutu area, one of the most populous residential
communities on St. Thomas.
The Tutu area market consist of approximately 356,000 square feet of
aggregate retail and office square footage that directly competes with the Fort
Mylner properties. As of late 1996, the average quoted market rental rates per
square foot were $27.50 and $21.50 for retail and office space, respectively.
For the year ended December 31, 1996 (representing six months of ownership
and management by the Company) and the six months ended June 30, 1997, utility
expense was approximately $27,395 and $42,032, respectively, and expense for
repairs, maintenance and professional services were approximately $28,311 and
$22,634, respectively.
The Company is currently evaluating the nature, extent and timing of
capital improvements that will be undertaken during the next five years. Major
projects identified consist of realigning the access
33
<PAGE>
points to the properties, installing a generator to service the shopping center
and painting the exterior of the shopping center. Management believes that a
portion of the expenditures associated with painting the shopping center will be
recovered from the tenants, as will the maintenance associated with the
generator.
The Fort Mylner Commercial Center provides office space to three primary
tenants: BPPR occupies approximately 2,700 square feet, with two drive-thru
lanes and an automated teller machine; Vitelcom, a cellular telephone provider,
leases approximately 2,700 square feet; and Globalvest Management Company, L.P.,
a mutual fund investment firm, leases approximately 4,050 square feet. The Fort
Mylner Shopping Center consists of three one-story buildings with 21,600, 2,800
and 1,800 square feet of rentable space. Material lessees at the shopping center
operate a home furnishings store, a convenience store and a furniture store.
Other tenants include CommoLoco, Inc. (a small loan finance company) and
Kentucky Fried Chicken.
Combined Lease Expirations
--------------------------
Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ------------ --------------------
1997 2 4,200 11.3%
1998 1 4,050 10.9%
1999 4 8,700 23.5%
2000 2 1,500 4.0%
2001-6 4 11,250 30.4%
Fort Mylner Commercial Center
-----------------------------
1996
----
Occupancy Rate 100%
Average Net Effective
Rent per Square Foot $21.13
Fort Mylner Shopping Center
---------------------------
1996
----
Occupancy Rate 100%
Average Net Effective
Rent per Square Foot $23.47
The tax basis for the Fort Mylner properties is approximately $3,962,000,
and they have a remaining depreciable life of 30.5 years under the modified
accelerated cost recovery system ("MACRS") depreciation methodology. The realty
tax rate is 1.25% of assessed value.
34
<PAGE>
The Grand Hotel Court (the "Grand Hotel") is located at the beginning of
the main tourist shopping district in downtown St. Thomas and one block from the
municipal parking lot. The Grand Hotel complex consists of four two-story stone
and timber buildings with an aggregate of approximately 24,000 net rentable
square feet of retail and office space, of which 4,500 square feet will be
available upon completion of Phase II. See "--Development Projects". Tenants
include Irmela's Jewel Studio, Island Periodicals and International Voyager
Media; no tenant occupies 10% or more of the rentable space.
The Grand Hotel Court complex was originally built in the early 1800s and
is located in the Charlotte Amalie historic district. Alfred H. Lockhart
acquired the property in 1914. The Company extensively renovated the interiors
and exteriors of three of the Grand Hotel's four buildings in 1994 for an
aggregate cost of $1.9 million. Lockhart intends to invest approximately $1.4
million to complete the second phase of renovations to the Grand Hotel. See
"--Development Projects".
Lease Expirations
-----------------
Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ------------ --------------------
1997 2 1,546 4.7%
1998 4 3,376 10.3%
1999 7 6,763 20.7%
2000 -- -- --
2001-6 1 855 2.6%
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate 67% 69% 31% 76% 70%
Average Net Effective
Rent per Square Foot $35.62 $29.29 $25.25 $20.16 $24.48
The tax basis for the Grand Hotel is approximately $4,390,000, and it has a
remaining depreciable life of 28 years under MACRS. The realty tax rate is 1.25%
of assessed value.
Lockhart Gardens Shopping Center ("Lockhart Gardens") is located on the
eastern edge of Charlotte Amalie and within walking distance of the main cruise
ship dock. Lockhart Gardens consists of approximately 140,200 square feet of net
rentable square feet, which includes a ground lease of approximately 30,000
square feet. Lockhart Gardens has approximately 245 parking spaces. The
Company's major tenant is a department store operated by Woolworth Corp.
("Woolworth"), which leases approximately 60,000 square feet. Other key tenants
include BPPR and Footlocker.
A supermarket was operated pursuant to a ground lease of 30,000 square feet
of land until Hurricane Marilyn destroyed the entire shopping center, including
the supermarket, in September 1995. The supermarket continues to make its lease
payments but has not begun reconstruction of the building, as required under its
lease. Lockhart and the ground lessee are presently in litigation regarding this
matter
35
<PAGE>
and hope to achieve an amicable resolution, which may include assigning the
ground lease to another party willing to reconstruct the facility. The Company
has reconstructed one-half of the shopping complex and intends to complete
reconstruction of the complex upon resolution of the dispute concerning the
supermarket's ground lease. See "--Development Projects".
Woolworth has decided to cease its department store operations throughout
the United States, including the U.S. Virgin Islands, and has advised the
Company that it intends to vacate its space at Lockhart Gardens in December
1997. Woolworth's lease does not expire until 2001, and it is obligated to make
base rental payments and tenant reimbursements until 2001. The Company and
Woolworth are jointly seeking a suitable replacement tenant. Management believes
that the strategic location of Lockhart Gardens and current discussions with
certain parties will attract a suitable replacement tenant. However, there can
be no assurance that such a tenant will be found before November 1997 or that a
new tenant will generate the same level of rental revenue as the department
store.
Lease Expirations
-----------------
Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ------------ --------------------
1997 1 3,500 2.5%
1998 -- -- --
1999 2 35,120(1) 25.0%
2000 -- -- --
2001-6 3 66,060(2) 47.1%
- ---------------
(1) Includes the ground lease of 30,000 square feet.
(2) Includes 60,000 square feet leased by Woolworth.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate 72% 98% 98% 98% 98%
Average Net Effective
Rent per Square Foot $5.91 $9.25 $9.25 $9.34 $9.92
The tax basis for Lockhart Gardens is approximately $4,300,000, and it has
a remaining depreciable life of 21.5 years under MACRS. The realty tax rate is
1.25% of assessed value.
Orange Grove Shopping Center ("Orange Grove") is located just outside of
Christiansted, the largest town on St. Croix, on the main traffic artery leading
westward out of town. The Company acquired Orange Grove in June 1996 for an
aggregate purchase price of $3.6 million. The approximately 30,600 square feet
of net rentable square feet at Orange Grove are used for retail and office
space. The major tenant is BPPR which leases approximately 5,400 square feet.
Other tenants include Kentucky Fried Chicken, PC Paradise (a computer retail and
service company) and the Medical Air Services Association.
The Christiansted area submarket consists of approximately 125,000 square
feet of aggregate retail and office square footage in shopping centers that
directly compete with Orange Grove. As of late
36
<PAGE>
1996, the average quoted market rental rates per square foot were $13.50 and
$10.50 for retail and office space, respectively.
For the year ended December 31, 1996 (representing six months of ownership
and management by the Company) and the six months ended June 30, 1997, utility
expense was approximately $19,931 and $21,863, respectively, and expense for
repairs, maintenance and professional services were approximately $8,778 and
$7,675, respectively.
The Company is currently evaluating the nature, extent and timing of
capital improvements that Orange Grove will require during the next five years.
Major projects identified consist of revising the ingress and egress points and
painting the exterior. Management believes that a portion of the expenditures
associated with painting will be recovered from the tenants.
Lease Expirations
-----------------
Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ------------ --------------------
1997 2 2,800 9.2%
1998 2 2,800 9.2%
1999 1 1,400 4.6%
2000 3 5,600 18.3%
2001-6 1 1,400 4.6%
1996 1995
---- ----
Occupancy Rate 86% 95%
Average Net Effective
Rent per Square Foot $15.35 $15.35
The tax basis for Orange Grove is approximately $3,082,000, and it has a
remaining depreciable life of 30.5 years under MACRS. The realty tax rate is
1.25% of assessed value.
Red Hook Plaza (the "Plaza") is located in the Red Hook area on the eastern
side of St. Thomas. The Company acquired the Plaza in February 1995 for an
aggregate purchase price of $5.5 million. The approximately 36,000 square feet
of net rentable square feet in the Plaza is spread over two buildings; the main
two-story building has both retail and office space and the one-story building
is used as a restaurant. Major tenants at the Plaza are a supermarket with
approximately 4,800 square feet and TrueValue Hardware Store with approximately
4,250 square feet. Other retail tenants include BPPR and Sunrise Pharmacy. The
second floor office space consists primarily of medical suites.
37
<PAGE>
Lease Expirations
-----------------
Number Total Net Rentable Percent of Net
Year of Tenants Square Feet Rentable Square Feet
- ---- ---------- ------------ --------------------
1997 4 7,793 24.2%
1998 2 1,970 6.1%
1999 5 6,689 20.8%
2000 2 1,988 6.1%
2001-6 5 12,269 38.1%
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Occupancy Rate 98% 90% 90% 90% 90%
Average Net Effective
Rent per Square Foot $24.25 $23.64 $22.50 $21.38 $20.35
The tax basis for the Plaza is approximately $5,212,000, and it has a
remaining depreciable life of 29.5 years under MACRS. The realty tax rate is
1.25% of assessed value.
Ground Leases
Sugar Estate Park (the "Park") is a commercial business park developed by
the Company on the eastern edge of Charlotte Amalie, mid-island on St. Thomas.
The Park consists of an aggregate of approximately 11.7 acres of land, which has
been subdivided for lease to tenants under long-term ground leases or
development by the Company.
Lockhart has leased an aggregate of approximately 5.4 acres to four
commercial tenants under long-term ground leases at the Park. In addition, there
are two one-acre parcels available for lease. The Company provides paved roads
and underground utility access at the Park, and tenants construct their own
facilities. Current tenants operate a self-storage facility, a building supply
store, a corporate office and distribution center for a local retail operation
and an electrical supply outlet. Three of these leases expire in 2000, and the
fourth expires in 2001. Each lease is subject to two five-year renewal options.
Upon expiration of each tenant's lease, the Company will obtain ownership of all
improvements on the land.
The Company has reserved approximately 2.5 acres at the Park to develop two
projects. See "--Development Projects--Sugar Estate Commercial Centre" and
"--Sugar Estate Plaza".
The tax basis for the Park is approximately $1,064,000, and the realty tax
rate is 1.25% of assessed value.
Cinema One Building is located in a residential area near the eastern edge
of Charlotte Amalie and sits on approximately one acre of land owned by
Lockhart. The Company has leased the parcel under a triple-net, long-term ground
lease that expires in December 2009, and the tenant has constructed a two-
38
<PAGE>
story building on the property. The property is commonly referred to as the
Cinema One Building because of the multi-screen theater located there. The
building also has office space. Upon expiration of the lease, Lockhart will
obtain ownership of the building and all improvements.
Development Projects
The following table sets forth certain information for each of the
Company's projects under development as of June 30, 1997:
Estimated Cost Estimated Completion Date
-------------- -------------------------
Longford Industrial Park $1.3 million 1998
Sugar Estate Commercial Centre $0.9 million 1998
Lockhart Gardens Shopping Center - $0.5 million 1998
Garden Mall
Market Square East--Phase I $1.8 million 1998
Lockhart Gardens Shopping Center - $3.5 million 1999
Phase II
Grand Hotel Court - Phase II $1.4 million 1999
Sugar Estate Plaza $5.3 million 2001(1)
- -----------------------
(1) Estimated completion date for both Phase I and Phase II development.
Longford Industrial Park ("Longford") is located just off the main highway
that connects Charlotte Amalie to the eastern end of St. Thomas, where the
majority of the island's population resides. Longford will consist of 16
half-acre parcels available for long-term ground lease by light industry and
manufacturers, who will construct their own facilities. The Company has cleared
the site and public water and electrical power are available. Lockhart intends
to construct paved roads, a sewage treatment plant and appropriate drainage and
install electrical power and sewer connections to the subdivided parcels.
Construction of such improvements will begin once suitable tenants are
identified. The Company has invested $100,000 as of June 30, 1997, and estimates
that the total cost of Longford will be $1.3 million.
Sugar Estate Commercial Centre will be located in Sugar Estate Park. The
Company will construct a multiple-use building suitable for tenants seeking
warehouse, retail and showroom space. The approximately 14,500 square feet of
rentable space in the planned building will be divided into eight bays ranging
in size from 1,300 square feet to 4,500 square feet. The scheduled completion
date is early-1998, and the estimated construction cost of $915,000 will be
financed with proceeds from the LRI Loan.
Lockhart Gardens Shopping Center-Garden Mall involves the creation of a
mini-mall area within the existing shopping center with an aggregate of 10,000
square feet of rentable space, consisting of 8 to 10 retail stores ranging in
size from 500 to 1,000 square feet. The area will also include an elevator,
public restrooms and an emergency generator. The estimated completion date is
early 1998, and the estimated construction cost is $500,000. The Company expects
to finance construction of the Garden Mall with proceeds from the Development
Loan.
Market Square East is a commercial park development, which will be located
on the main highway that connects Charlotte Amalie to the eastern end of St.
Thomas. To be developed in multiple phases as
39
<PAGE>
tenant demand requires, Phase I will include long-term ground leases with a
retail and wholesale food discount chain, a movie theater chain (for the
construction of a multi-screen cinema and restaurant complex), and with a
financial services company (for a commercial office building). The Company will
clear the site and construct the required infrastructure, consisting of parking
facilities, utilities, drainage, power and access roads. The scheduled
completion date of Phase I is the latter half of 1998, and the estimated
construction cost to the Company of $1.8 million will be financed with proceeds
from the LRI Loan.
Phase II, currently in the preliminary design stage, will involve the
Company executing long-term ground leases and constructing build-to-suit
facilities for high-quality tenants. The Company will continue to provide the
infrastructure, consisting of parking facilities, utilities, drainage, power and
roads. The scheduled completion date is dependent on the progress of the
Company's leasing program.
Lockhart Gardens Shopping Center-Phase II involves the construction of
approximately 14,000 square feet of rentable space in the northern half of the
shopping center that will connect the reconstructed supermarket at the northern
end with the department store and retail space that comprise the shopping
center's southern half. As a part of that development, the Company has arranged
with the Division of Highway Planning of the Government of the U.S. Virgin
Islands for the installation of signalized access from the main east-west
roadway into the shopping center. The scheduled completion date is mid-1999 for
an estimated cost of $3.5 million.
Grand Hotel Court-Phase II involves the final phase of the renovation
process of the entire property that began in 1994 with the first phase
renovations of three of the four buildings surrounding the courtyard. This final
phase of work is targeted to the fourth (main) building, which has frontage on
the main artery of the tourist shopping district in downtown Charlotte Amalie,
and will create a central atrium space and ground level passage surrounded at
both levels by high-end retail shops and a theme restaurant at the second level.
Approximately 4,500 square feet of additional space will be available for lease
by the Company upon completion. The scheduled completion date is late 1999, at
which time the property will be renamed the "Grand Galleria" and marketed as a
high-end tourist shopping destination. The Company estimates construction costs
of $1.4 million.
Sugar Estate Plaza will also be located in Sugar Estate Park and will be
constructed in two phases. When completed, the two-building, three-story complex
will provide approximately 55,000 square feet of rentable retail and office
space. The Company has had preliminary discussions with certain primary tenants
for the first phase of development. The scheduled completion date for the entire
complex is early 2001, and the estimated construction cost is $5.3 million.
Residential Property
The Company owns approximately 415 acres of undeveloped land on St. Thomas
which are zoned for residential use of differing levels of density. The Company
intends to selectively develop this land with single-family and multi-family
residential developments. In some areas, Lockhart will limit its activity to the
development of the infrastructure (roads, utilities and sewers) and subdivision
of the property for sale as residential lots for individual homeowner
construction. In some projects, Lockhart may joint venture with experienced
residential developers to build homes to be offered for sale.
Where appropriate, the Company may seek zoning changes or variances to
maximize the development potential of its undeveloped real estate inventory. The
re-zoning process is a 6-9 month process that involves both the Executive and
Legislative branches of the Government of the Virgin Islands. The process
commences with the formal filing of an Application to Amend the Official Zoning
Map (the "Application") with the Virgin Islands' Legislature. The Application is
forwarded by the Legislature to the V.I. Government's Department of Planning and
Natural Resources ("DPNR") which undertakes an analysis
40
<PAGE>
of the re-zoning request. An Application file is then created by the DPNR,
outlining the re-zoning request and the intended use of the land, and opened for
public review and public impact assessment. Public hearings are scheduled by
DPNR, with appropriate notification to the general public and adjacent property
owners of the hearing dates. Upon completion of the public hearing, the DPNR
makes a recommendation on the Application to the Virgin Islands' Legislature for
its final consideration and action. A re-zoning request approved by the Virgin
Islands' Legislature constitutes legislation that also requires the approval of
the Governor of the U.S. Virgin Islands prior to amending the Official Zoning
Map. The Company last submitted a re-zoning request in 1986 for 100 acres, which
was approved by the Virgin Islands' Legislature and the Governor in 1987 and
represented the largest single commercial development rezoning in the U.S.
Virgin Islands in the last thirty years.
Competition
Under certain circumstances, the Company may have difficulty in effectively
competing against other parties for acquisition opportunities. In addition,
numerous retail, office and commercial properties currently compete with the
Company's operating properties in attracting and retaining tenants. Further, an
increase in the number of competitive properties in any particular submarket in
which the Company's properties are located could have a material adverse effect
on the Company's ability to lease space and the rents charged at any property
owned by the Company in accordance with the Company's internal growth strategy.
Acquisition of PFC
Lockhart has entered into a non-binding letter of intent to purchase the
outstanding shares of stock from all of the shareholders of PFC. PFC is a U.S.
Virgin Islands corporation, which was formed in 1993, and has its main office
located on St. Croix. The Company plans to purchase the outstanding PFC shares
for $687,500 and to use a portion of the proceeds from this offering to pay the
purchase price. The acquisition of PFC is subject to the execution of a formal
agreement for the purchase of the PFC shares and to the regulatory confirmation
by the Lieutenant Governor of the U.S. Virgin Islands acting in his capacity as
Commissioner of Insurance. Although Lockhart intends to execute the stock
purchase agreement and expects the Lieutenant Governor's approval, the timing of
the process cannot be predicted with any certainty.
PFC is engaged in the business of financing insurance premiums incurred by
individuals and small companies seeking to insure primarily automobiles,
personal residences, commercial buildings, boats and airplanes, as well as
builder's risk or liability. PFC's business is generated through the referrals
from insurance agents and brokers that are the first point of contact for the
consumer in the procuring of insurance coverage. The insured will make an
initial down payment on the insurance premium (20-30%) with the balance financed
by PFC over a nine month period. The amount financed by PFC usually is sent
directly to the insurance carrier or to its local agent. In the event the
insured becomes delinquent, PFC has the right to cancel the policy and to draw
on the unearned premium refunded by the insurance company to repay the balance
owing on the loan. PFC also requires each insurance agent or broker to sign an
agreement that stipulates the basis of the relationship and the flow of
documents and funds with respect to coverage of the insured. The interest rate
and repayment terms of the premium financed depend on whether the borrower is an
individual or business entity, the amount of the down payment and the amount
borrowed.
PFC is the largest independent premium financing company in the U.S. Virgin
Islands and has operations in the U.S. Virgin Islands, the British Virgin
Islands and Anguilla (West Indies). In addition, PFC recently received
government approval to do business in St. Maarten, Netherlands Antilles. Its
primary competitors are smaller premium finance companies and insurance agents
and insurers that will finance premiums for select, primarily larger, clients.
Commercial banks also provide this service to select
41
<PAGE>
customers. In mid-1997, PFC expanded its services to other Caribbean markets to
increase volume and achieve diversification. Through its wholly-owned
subsidiary, Premium Finance Company (E.C.) Limited, an Anguilla (West Indies)
corporation ("PFC-EC"), PFC is currently doing business in Antigua and Barbuda.
PFC has a current network of twenty-two agents in the U.S. Virgin Islands, four
in the British Virgin Islands, four in Anguilla and five in Antigua. Expansion
plans for 1998 include St. Lucia, St. Vincent and Grenada. The Caribbean market
represents a potential aggregate customer base of over ___ million people.
PFC's staff consists of four individuals, with an additional two to be
hired by the end of 1997. It is the Company's intent to retain the services of
PFC's current employees, including its president Richard E.W. Grant. Mr. Grant
is the founder of PFC and a former officer of Barclays Bank PLC, with over 30
years of experience in finance and banking on various Caribbean islands.
In connection with the pending acquisition, the Company has loaned PFC
$75,000, which will be converted into a capital contribution upon consummation
of the acquisition. Lockhart intends to guarantee a line-of-credit of up to
$200,000 for PFC-EC at a local bank. In July 1997, two of the Company's
executive officers, John P. deJongh, Jr. and Cornel Williams, were elected to
the PFC board of directors. See "Management--Executive Officers and Directors".
Business and Growth Strategies
The Company's fundamental business and growth strategies are focused on
developing or acquiring shopping centers and office buildings that either serve
the local community or are located in select tourist destinations, and a
carefully planned diversification into the consumer financial services industry.
The Caribbean market (with an aggregate population base of ___ million)
represents one of the fastest growing economic regions in the world, with
tourism as the driving force behind that growth. The Company believes that as
the island economies of the region grow, there will be a corresponding growth in
the financial well-being of the indigenous population matched by a growth in the
number and size of the businesses catering to increasing consumer demand for
both goods and financial services. Based on this operating paradigm, the
Company's business objectives are to develop the commercial locations out of
which these businesses will operate and to offer select consumer financial
services to serve consumer demand presently not met by the banks and other
existing financial intermediaries of the region.
Lockhart believes that a number of economic factors will enhance its
ability to achieve its business objectives: (i) the continuing improvement in
the economies of the U.S. Virgin Islands and other Caribbean markets following
Hurricane Marilyn and other recent hurricanes in the region; (ii) the Company's
focus on the growing consumer needs of the increasingly affluent resident
populations of the region; (iii) in the U.S. Virgin Islands, the limited
availability of undeveloped property zoned for commercial use and the continuing
need for housing at various price levels; and (iv) apart from the limited
traditional offerings of commercial banks, the general inadequacy of consumer
financial services offered throughout the Caribbean region.
The Company's primary business strategies are to: (i) actively manage its
property portfolio to improve cash flow; (ii) complete its planned projects and
develop its land holdings for their highest and best use; (iii) selectively
execute real property acquisitions in strategic submarkets; and (iv) expand its
diversification into the financial services industry.
External Growth
The Company intends to grow externally by acquiring additional developed
commercial properties in the U.S. Virgin Islands and in other Caribbean markets
that meet the Company's investment criteria, and by diversifying into the
consumer financial services field through the acquisition or development of
42
<PAGE>
businesses offering select consumer financial services. The strengthening of the
U.S. Virgin Islands economy and the continued growth in the various Caribbean
markets as a result primarily of tourism will continue to enhance the economic
well-being of the indigenous population. The Company's business strategy, which
has been successful in the U.S. Virgin Islands, is to focus primarily on the
region's resident population and provide commercial real estate locations that
allow businesses to reach the local consumer. The Company's initiative into
financial services follows the same premise--to serve the growing consumer
financial services needs of the resident population.
Lockhart is one of the oldest continuous operators of commercial properties
in the U.S. Virgin Islands. Through the years, the Company has assembled a
unique collection of commercial properties that cater to tourists and serve the
local community. Lockhart intends to expand and diversify its Virgin Islands
presence by acquiring properties within other submarkets on St. Thomas and St.
Croix. The Company's business strategy and economic model also will result in
consideration of expansion in select tourist and local community submarkets
throughout the eastern Caribbean. The Company believes that its Caribbean base,
its knowledge of the region and its long-standing relationships with tenants,
real estate professionals, financial institutions and other sectors of the U.S.
Virgin Islands community offer significant competitive advantages in seeking
investment opportunities in the U.S. Virgin Islands and elsewhere in the
Caribbean region.
The Company believes that diversification into the financial services
industry is a logical extension of its operations in light of Lockhart's
history, the backgrounds of the members of the Executive Committee, and the
Company's recognition of market opportunities. The founder of the Company,
Alfred H. Lockhart, also founded the first bank in the Virgin Islands (then the
Danish West Indies), and he, his son and his grandson each served on the board
of directors of that bank and its successors until its merger into a federally
chartered U.S. bank. Separately, the Company has established relationships with
financial service providers in the U.S. Virgin Islands and throughout the
Caribbean that has resulted in identification of business opportunities that
remain untapped by existing businesses offering financial services in the
targeted markets. In addition, the members of the Executive Committee (George
H.T. Dudley, Wesley S. Williams, Jr. and John P. deJongh, Jr.) and Richard E.W.
Grant, the president of the soon to be acquired PFC, each have extensive
experience in the financial services industry. See "Management Executive
Officers and Directors". These factors should allow the Company to capitalize on
the growth opportunities in the non-banking, consumer financial services field
in the Caribbean.
For example, the Company believes that significant opportunities exist in
the insurance premium finance business. Insurance premiums in the Caribbean are
significantly higher than premiums charged for comparable coverage in the
continental United States. Homeowners insurance premiums currently average
approximately $2.50 per one hundred dollars of coverage in the U.S. Virgin
Islands, compared to $0.90 per one hundred dollars of coverage in Florida. These
high annual premiums create a demand for short-term financing that banks and
other financial intermediaries generally do not offer. Thus, as a first step in
the Company's expansion into insurance premium financing, the Company is
acquiring PFC and its wholly owned subsidiary. See " Acquisition of PFC".
Lockhart's intent is to proceed aggressively on the Caribbean expansion of PFC
with a focus on individuals and smaller commercial businesses and to build a
Caribbean network and relations with commercial banks.
43
<PAGE>
Internal Growth
The Company believes that significant opportunities exist to increase cash
flow from its existing real property portfolio because they are high quality
properties in desirable submarkets, and that such opportunities will be enhanced
as the U.S. Virgin Islands economy continues to grow. The Company's strategy for
maximizing the benefits from these opportunities include: (i) maintaining and
improving occupancy rates through pro active management and aggressive leasing;
(ii) realizing fixed contractual base rental increases or increases tied to
indices; (iii) passing through to tenants certain reimbursable expense items;
(iv) capitalizing on economies of scale arising from the size of the property
portfolio; (v) selectively developing its commercial real estate holdings; and
(vi) developing its residential property inventory to cater to the continuing
demand for home ownership.
Maintaining and Improving Occupancy Rates. The Company believes that it has
been successful in attracting, expanding and retaining a diverse tenant base by
actively managing its properties with an emphasis on tenant retention and
satisfaction. The Company utilizes its market position and its relationships
with a broad array of real estate professionals and tenants to implement its
leasing efforts and to monitor and understand the current and future space needs
of retail and office tenants in various submarkets. This constant contact with
the local market enables the Company to attract and place tenants throughout its
properties, thereby improving the Company's penetration in the tenant community.
The Company believes that the breadth of its submarket presence provides it with
an advantage to successfully compete for tenants by offering a wide variety of
space and location alternatives both to prospective tenants and to existing
tenants whose facility requirements change over time.
Contractual Base Rental Increase. The Company's standard lease agreement
contains either fixed contractual rental increases in the tenant's base rent or
increases which are tied to indices, such as the Consumer Price Index. Between
January 1, 1995 and December 31, 1996, the contractual annual base rents at the
Company's operating properties increased by an aggregate of approximately
$126,873 due to such increases.
Pass-through of Certain Operating Costs. In the execution of all new lease
agreements, the Company implemented a policy of passing through to tenants
certain common area maintenance charges applicable to the commercial development
in which they rent. The expense charged to each tenant is determined
proportionately based on the percentage of the gross square footage specifically
occupied by the tenant. Approximately 47% of the Company's existing leases
contain such expense pass-through provisions.
Capitalizing on Economies of Scale. The size of the Company's portfolio
permits the Company to enhance its portfolio value by lowering operating costs
and expenses incrementally. The Company seeks to capitalize on economies of
scale resulting from the maintenance of centralized accounting and property
management systems, which spreads administrative costs over all of the operating
properties, thereby reducing the per square foot administrative expense. The
Company also strives to minimize overhead by controlling corporate and
administrative expenses and assigning responsibility for multiple properties to
its centralized maintenance staff. Acquisition, management, leasing, renovation
and development activities are coordinated to enhance responsiveness to market
opportunities and tenant needs. The facilities manager ensures that renovation
and maintenance work is done in a timely manner. The property manager interacts
with the Company's tenants, responds to tenant needs, supervises leasing and
marketing activities, and works closely with the development manager in
identifying and initiating market opportunities on undeveloped properties and
within operating properties. This integrated approach permits the Company to
analyze the economic terms and costs (including tenant build-out and
retrofitting costs) for each lease on a timely and efficient basis. With respect
to the development manager, the Company has the in-house capability to analyze
submarket opportunities to ensure that a property under consideration for
acquisition is fundamentally sound in terms of its structure, access and further
44
<PAGE>
development potential. In the context of the Company's own development
activities, site analysis, preliminary design development and conceptualizing
proposed responses to the specific requests of potential tenants are all handled
in-house by the development manager. With respect to acquisitions, the Company
can analyze quickly the costs of upgrades and lease-up potential. The Company is
able to commit to leasing and acquisition terms quickly, facilitate timely deal
execution and build-out of space for prospective tenants and minimize downtime
between lease rollovers.
Commercial Property Development. The Company is actively planning and
executing the development of its commercial property holdings and has six
projects scheduled to be completed by the end of 1999. See Properties
Development Projects". Several of the Company's projects offer future
development opportunities. For example, the Market Square East Phase I project
is only a five acre first phase of development for the planned commercial park
that ultimately will consist of approximately 50 acres. Although additional
development at Market Square East cannot be assured, the Company already is
seeking suitable tenants for subsequent phases.
Residential Property Development. The Company owns approximately 415 acres
of undeveloped land on St. Thomas which is zoned for residential use at various
density levels. The Company intends to selectively develop its undeveloped
residential property portfolio by working with experienced residential
developers to design and construct single-family and multi-family residential
developments. In some developments, Lockhart will limit its involvement to
providing the infrastructure (such as roads, utilities and sewers) and
subdividing the property for sale as residential lots for construction by
others. Lockhart also may develop neighborhood retail commercial centers to
support such residential communities, when appropriate. See
"--Properties--Undeveloped Property".
Investing and Financing Policies
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time by the Board
of Directors without a vote of the stockholders.
Investment Policies
The Company's investment objectives are to provide quarterly cash
distributions and achieve long-term capital appreciation through increases in
the Company's value. The Company expects to pursue its investment objectives
through ownership of and improvements to its operating properties, by
developing, leasing or selling its undeveloped property to maximize each
parcel's potential and to selectively acquire other real estate properties or
non-real estate businesses. Furthermore, the Company currently intends to invest
in or develop retail, office or commercial properties in the U.S. Virgin
Islands. However, future investment or development activities will not be
limited to any geographic area or product type or to a specified percentage of
the Company's assets. While the Company intends to diversify in terms of
property locations, size and market as well as line-of-business, the Company
does not have any limit on the amount or percentage of its assets that may be
invested in any one property, business or geographic area. In addition, the
Company may purchase or lease income-producing commercial and other types of
properties for long-term investment, expand and improve the real estate
presently owned or other properties purchased, or sell such real estate
properties, in whole or in part, when circumstances warrant.
The Company may also participate with third parties in property development
or ownership, through joint ventures or other types of co-ownership. Such
investments may permit the Company to own interests in larger assets without
unduly restricting diversification and, therefore, add flexibility in
structuring its portfolio.
45
<PAGE>
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness as may be incurred in connection
with acquiring or refinancing these investments. Debt service on such financing
or indebtedness will have a priority over any distributions with respect to the
Common Stock. Investments are also subject to the Company's policy not to be
treated as an investment company under the Investment Company Act of 1940, as
amended.
While the Company's current portfolio consists of equity investments in
commercial real estate, the Company may, in the discretion of the Board of
Directors, invest in mortgages and other types of equity real estate interests.
The Company does not presently intend to invest in mortgages or deeds of trust,
but may invest in participating or convertible mortgages if the Company
concludes that it may benefit from the cash flow or any appreciation in value of
the property. Investments in real estate mortgages run the risk that one or more
borrowers may default under such mortgages and that the collateral securing such
mortgages may not be sufficient to enable the Company to recoup its full
investment.
The Company also may invest in securities of other entities engaged in real
estate activities or securities of other issuers, including for the purpose of
exercising control over such entities.
The Company does not currently intend to dispose of any of the operating
properties, although it reserves the right to do so if, based upon management's
periodic review of the Company's portfolio, the Board of Directors determines
that such action would be in the best interests of the Company. Any decision to
dispose of an operating property will be made by the Company and approved by a
majority of the Board of Directors.
Financing Policies
As a general policy, the Company will incur indebtedness only if the
operating property or project will generate sufficient cash flow to service the
related debt. The Company may from time to time modify its debt policy in light
of current economic conditions, relative costs of debt and equity capital,
market values of its properties, general conditions in the market for debt and
equity securities, growth and acquisition opportunities and other factors. If
the Company's policy with respect to indebtedness were changed, the Company
could become more highly leveraged, resulting in an increased risk of default on
its obligations and a related increase in debt service requirements that could
adversely affect the financial condition and results of operations of the
Company. See "Risk Factors--No Limitations on Debt."
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
Policies With Respect to Other Activities
The Company has authority to offer Common Stock, Preferred Stock or options
to purchase stock in exchange for property and to repurchase or otherwise
acquire its Common Stock or other securities in the open market or otherwise,
and may engage in such activities in the future. The Company has not issued
Common Stock or any other securities in exchange for property or any other
purpose. The Company may issue Preferred Stock from time to time, in one or more
series, as authorized by the Board of Directors without the need for stockholder
approval. See "Description of Capital Stock--Preferred Stock". The Company has
not engaged in trading, underwriting or agency distribution or sale of
securities of other issuers, nor has the Company invested in the securities of
other issuers for the purposes of exercising control. The Company has made loans
to certain stockholders, but does not intend to make loans to its stockholders
in the future. However, the Company may in the future make loans to unaffiliated
third parties, including, without limitation, to joint ventures in which it
participates. The Company intends to make investments in such a way that it will
not be treated as an investment company under the Investment Company Act of
1940. The Company's policies with respect to such activities may be reviewed
46
<PAGE>
and modified or amended from time to time by the Company's Board of Directors
without a vote of the stockholders.
Environmental Considerations
Under various federal and local environmental laws, rules and regulations,
a current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substance or petroleum product
releases on its property and may be liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs incurred by
such parties in connection with the contamination. Such laws typically impose
clean-up responsibility and liability without regard to whether the owner knew
of or caused the presence of the contaminants, and the liability under such laws
has been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for allocation of responsibility. The costs of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's ability to sell
or rent such property or to borrow using such property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs incurred in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such site.
The Fort Mylner properties, acquired by the Company in June 1996, include
land where a gas station had been located. The gas station no longer exists at
the site, and its underground storage tanks have been removed. The seller of the
Fort Mylner properties provided the Company with previously commissioned reports
indicating that any contaminated soil had been removed and no contamination
remained at the site. The Company has no reason to believe that any of the other
properties acquired as part of this acquisition required any environmental
assessment. The Company has not undertaken or been required to undertake any
environmental assessment reports for any of its other properties.
The Company believes that the properties are in compliance in all material
respects with all federal and local laws, rules and regulations regarding
hazardous or toxic substances or petroleum products. The Company has not been
notified by a governmental authority, and is not otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its properties.
Employees
As of June 30, 1997, the Company had a total of 17 employees. PFC currently
has four employees, whom the Company intends to retain. None of the Company's or
PFC's employees are represented by a labor union. The Company considers its
relationships with its employees to be good.
Litigation
There are no legal proceedings to which the Company is a party, other than
routine litigation incidental to the business of the Company, which is not
otherwise material to the business or financial condition of the Company.
47
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George H.T. Dudley........... 47 Chairman of the Board of Directors
Wesley S. Williams, Jr....... 54 Vice Chairman of the Board of Directors
John P. deJongh, Jr.......... 39 President and a Director
Cornel Williams ............. 40 Chief Financial Officer, Secretary and Treasurer
Etienne R. Bertrand.......... 46 Senior Vice President-Development
Marna L. Green............... 45 Vice President-Property Management
Alton L. Adams............... 40 Director
Lisa S. Curreri.............. 57 Director
Kathleen P. Goldberg......... 52 Director
William H. Hastie............ 50 Director
Herbert E. Lockhart, III..... 46 Director
John E. Oxendine............. 54 Director
</TABLE>
George H.T. Dudley, Chairman of the Board of Directors of the Company since
1990, has been a member of the Company's Executive Committee since 1987. A
member of the Virgin Islands and Pennsylvania Bars, and the founder in 1978 and
managing partner of the firm of Dudley, Topper and Feuerzeig (the largest law
firm in the Virgin Islands), Mr. Dudley specializes in financial services, real
estate, finance, and corporate, management, and general commercial law. Mr.
Dudley is a member of the Board of Trustees of the University of the Virgin
Islands (where he serves on its Executive Committee and as chairman of the
Board's Committee on Finance), a member of the American Law Institute (serving
on the Institute's governing Council and its Executive Committee), and a current
member and past Chairman of the Villanova Law School Board of Consultors. Mr.
Dudley received his undergraduate degree from George Washington University and
his J.D. from Villanova University. In 1994, Mr. Dudley received the honorary
title of Chevalier (Knight) from the King of Belgium for his years of service as
Honorary Consul of Belgium. Mr. Dudley served as an Adviser to the Restatement
of the Law, Third, Property (Mortgages), published by the American Law
Institute, and currently serves as an Adviser to the Institute's Restatement of
the Law, Third, Property (Joint Ownership), presently in development.
Wesley S. Williams, Jr., Vice Chairman of the Board of Directors of the
Company since 1990, has been a member of the Company's Executive Committee since
1987. A member of the District of Columbia and New York Bars, and a partner
since 1975 in the firm of Covington & Burling -- which has law offices in
Washington, D.C., London and Brussels, and a correspondent office in Paris --
Mr. W. Williams specializes in financial services, real estate, finance, and
corporate and securities law. Mr. W. Williams is Vice Chairman of the Board of
Managers of Blackstar L.L.C. He is also a member of the Board of Trustees (and
of its Executive Committee) of Penn Mutual Life Insurance Company (sole parent
of, inter alia, Janney Montgomery Scott), of the Board of Directors (and of its
Executive Committee) of CarrAmerica Realty Corporation, and of the Boards of
Directors of the Federal Reserve Bank of Richmond and of Salomon Inc. (sole
parent of Salomon Brothers Inc, Phibro Inc. and Phibro Energy Production, Inc.).
Mr. W. Williams was formerly Chairman of the Boards of Directors of Broadcast
Capital, Inc. and Broadcast Capital Fund, Inc. A member of the American Law
Institute, Mr. W. Williams at one time held a faculty appointment at Columbia
University Law School, and later served as an Adjunct Professor of real estate
finance and financial services law at Georgetown University Law Center. Mr. W.
Williams holds B.A. and
48
<PAGE>
J.D. degrees from Harvard University, an M.A. degree from Tufts University's
Fletcher School (earned as a Woodrow Wilson Fellow), and an LL.M. degree from
Columbia University Law School. Confirmed by the U.S. Senate and House of
Representatives as a member of the Board of Regents of the Smithsonian
Institution, Mr. W. Williams formerly served as a member of the Board of
Overseers (and of its Executive Committee) of Harvard University.
John P. deJongh, Jr. has served as President of the Company and as a member
of its Board of Directors since 1996. Prior to joining Lockhart, Mr. deJongh was
a Senior Managing Consultant with Public Financial Management, Inc. (co-managing
the firm's strategic municipal consulting practice), from 1993 to 1996; and
earlier served as Executive Assistant to the Governor of the U.S. Virgin
Islands, from 1990 to 1992, and as the U.S. Virgin Islands' Commissioner of
Finance, from 1987 to 1990. While holding these government positions, Mr.
deJongh also served as Chairman of the U.S. Virgin Islands Water and Power
Authority (1987 to 1992), as Executive Director of the U.S. Virgin Islands
Public Finance Authority (1988 to 1990), and as Chairman of the U.S. Virgin
Islands Tax Review Board, Secretary of the U.S. Virgin Islands Banking Board,
and a member of the U.S. Virgin Islands Small Business Development Agency (in
each instance, 1987 to 1990). Mr. deJongh has been a Vice President-Country
Consumer Manager (responsible for consumer credit in the U.S. and British Virgin
Islands, and on St. Maarten, Netherlands Antilles), having earlier served as a
Second Vice President-Corporate Lending, in each instance with Chase Manhattan
Bank, N.A., on St. Thomas, U.S. Virgin Islands (1984 to 1987). Mr. deJongh is a
graduate of Antioch College and of Chase Manhattan Bank's Corporate Credit
Development Program. Mr. deJongh serves as President of the Karen Ingeborg
Lockhart Foundation, and is a member of the Boards of Directors of the Community
Foundation of the U.S. Virgin Islands, and of the St. Thomas/St. John Chamber of
Commerce.
Cornel Williams, who is not related to Mr. W. Williams, has served as the
Company's Corporate Secretary and Treasurer (Chief Financial Officer) since
1996. Prior to joining Lockhart, Mr. C. Williams served as Accounting Manager of
the U.S. Virgin Islands Port Authority from 1992 to 1996, as Finance Manager,
Virgin Islands Telephone Corporation, and Assistant Controller, Guyana Telephone
and Telegraph Company Ltd. from 1990 to 1992, as Controller, Cowpet Beach Resort
Development on St. Thomas from 1989 to 1990, as a financial analyst for Ford
Motor Company in Detroit, from 1986 to 1988, and as Financial Manager, Virgin
Islands Maritime Services from 1982 to 1984. Mr. C. Williams received his M.B.A.
(with a concentration in finance) from the University of Illinois, having
earlier received a baccalaureate degree from the University of the Virgin
Islands, where he currently serves as an adjunct instructor in business
administration and finance.
Etienne R. Bertrand has served as the Company's Senior Vice President -
Development since 1990 and as Secretary of the Company from 1991 to 1996. Prior
to joining Lockhart, Mr. Bertrand served as Senior Project Manager--Eastern
Region with the Barker Partrinely Group in Houston and southern Florida from
1986 to 1990, as a Construction Manager with Gerald D. Hines Interests in Miami
and Houston from 1981 to 1986, Project Architect with 3D/International in
Houston from 1979 to 1981, Tenant Construction Manager with Gerald D. Hines CPS
Division in Houston from 1978 to 1979, Project Job Captain with John S. Chase,
FAIA in Houston from 1977 to 1978, and as Technical Production Coordinator with
A.M. Kinney-Wm. J. Rabon & Associates in Cincinnati from 1975 to 1977. A
licensed architect in the U.S. Virgin Islands and Texas, Mr. Bertrand received
his bachelor of architecture degree from the University of Cincinnati.
Marna L. Green has served as the Company's Vice President - Property
Management since 1995, having been the Company's Property Manager from 1992 to
1995. Prior to joining Lockhart, Ms. Green served as Executive Administrator of
Mahogany Run Condominiums on St. Thomas from 1986 to 1992, as Property Manager
at Watergate Villas for Property Management Caribbean, Inc. on St. Thomas from
1982 to 1986, and as Administration and Reservations Assistant, Property
Management Caribbean, Inc. at St. Thomas' Point Pleasant Resort from 1981 to
1982. Ms. Green studied at Michigan State University.
49
<PAGE>
Alton L. Adams was elected to the Company's Board of Directors in 1997.
Since 1996, the Chief Operating Officer of The Faneuil Group in Boston (a
marketing services organization providing database telemarketing and analytical
services in the U.S., Canada and Australia), Mr. Adams previously served as Vice
President - Sales with Equifax Financial Services Group from 1994 to 1996, as
Vice President Marketing with TRW Information Services Group from 1987 to 1994,
and as Manager - Planning and Business Development with Dun & Bradstreet
Corporation from 1985 to 1987. Mr. Adams, who received his bachelor's degree
from Georgetown University and his M.B.A. from the University of Pennsylvania's
Wharton School, has been a guest lecturer in the field of marketing at the
Anderson Graduate School of Business of the University of California at Los
Angeles, and also at Germany's University of Mainz.
Lisa S. Curreri was elected to the Company's Board of Directors in 1997.
Since 1996, Ms. Curreri has been a name principal in the St. Thomas firm of
McLaughlin Arguin Curreri Realtors, the Virgin Islands real estate brokerage
firm where she has worked as a broker since 1989. Ms. Curreri served as a real
estate sales associate with McLaughlin Realtors from 1979 to 1988, and was
earlier employed by St. Thomas' WBNB, Channel 10. A graduate of Foxcroft School
(Middleburg, VA), Ms. Curreri is a member of the National Association of
Realtors. She holds the Certified Residential Specialist and Graduate Realtor
Institute designations.
Kathleen P. Goldberg was elected to the Company's Board of Directors in
1981. A Vice President of Beverly Hills Manuscript and Rare Coins, Inc., and a
Trustee of its Profit and Pension Plan since 1981, Ms. Goldberg is active in
community charities in the Los Angeles area, and previously chaired the 14th
annual Vista Del Mar Child Care Service Fishing and Golfing Invitational. Ms.
Goldberg studied at Cazanovia College and Howard University.
William H. Hastie was elected to the Company's Board of Directors in 1997.
Since 1994, Mr. Hastie has been a partner, Vice Chairman and an Executive
Committee member with the law firm of Arnelle Hastie McGee Willis & Greene, Los
Angeles, California. Previously, Mr. Hastie served as co-founder and managing
partner of the law firm of Arnelle & Hastie, San Francisco, California, from
1985 to 1994, and as Undersecretary and General Counsel of California's State
and Consumer Services Agency, from 1979 to 1983. Mr. Hastie received his
bachelor's degree from Amherst College, a certificate from the University of
Strasbourg, and his J.D. from Boalt Hall School of Law of the University of
California at Berkeley. Mr. Hastie has been a member of the Board of Directors
of the California HealthCare Foundation since 1996, having previously served as
a member of the Board of Directors of Blue Cross of California from 1992 to
1996. He has also served as an Adjunct Professor of Law at the Graduate School
of Public Policy of the University of California at Berkeley.
Herbert E. Lockhart, III was elected to the Company's Board of Directors in
1985. Sole proprietor of a salvage business, Herbie's Big Tow, and a resource
recovery consultant since 1990, Mr. Lockhart previously served as reconstruction
project supervisor for St. Thomas' Mountaintop Condominium Association from 1991
to 1992. Mr. Lockhart was the Company's President from 1986 to 1990, and a Vice
President of the Company from 1981 to 1986. Earlier, Mr. Lockhart served as the
Manager of Operations and Water Technician for St. Thomas' Donoe Water Company
from 1977 to 1980, and as a management trainee with the Hechinger Company in the
Washington, D.C. suburbs. A graduate of Milton College, with further study at
the Computer Institute of Boston, George Mason University, and the University of
the Virgin Islands, Mr. Lockhart is the past President of the Rotary Club of St.
Thomas, and of the Humane Society of the Virgin Islands, and also served as Vice
President of the Boy Scouts of America/Virgin Islands Council, and as Treasurer
of St. Thomas' Masonic Lodge No. 356. Mr. Lockhart has also been active with the
Navy League of the United States' St. Thomas/ St. John Council, and as a charter
member of the Toastmasters Club of the Virgin Islands.
John E. Oxendine was elected to the Company's Board of Directors in 1997.
Since 1987, Mr. Oxendine has served as the founding Chairman and C.E.O. of
Blackstar Communications, Inc., a
50
<PAGE>
television broadcast holding company with stations in Florida, Michigan and
Oregon. Since 1994, he has also served as founding Chairman and C.E.O. of
Blackstar L.L.C., also a television broadcast holding company, with additional
stations in South Dakota and now sole parent of Blackstar Communications, Inc.
Previously, Mr. Oxendine served as President of Broadcast Capital, Inc. and
Broadcast Capital Fund, Inc., a venture capital firm and supporting foundation,
from 1981 to 1995, as Assistant Chief in the Financial Assistance Division of
the Federal Savings & Loan Insurance Corporation from 1979 to 1981, as Assistant
Manager with the Chicago, London, Mexico City, and New York offices of First
National Bank of Chicago from 1974 to 1979, as a Senior Associate with
Korn\Ferry Associates in Los Angeles from 1972 to 1974, as a Management
Consultant with Fry Consultants in San Francisco from 1971 to 1972, and as a
Management Advisor with the Bedford-Stuyvesant Restoration Corporation from 1968
to 1969. Mr. Oxendine received his bachelor's degree from Hunter College, and an
M.B.A. from Harvard University's Graduate School of Business Administration,
where he was a John Hay Whitney Fellow. Mr. Oxendine serves on the Boards of
Directors of HSN, Inc., and of Medlantic Health Care Group.
Committees of the Board of Directors
Executive Committee. The Board of Directors has a standing Executive
Committee composed of, ex officio, the Chairman, George H.T. Dudley, the Vice
Chairman, Wesley S. Williams, Jr., and the President, John P. deJongh, Jr. The
Executive Committee assists the Board of Directors in setting corporate policies
for the Company, and implements certain actions of the Board (e.g., overseeing
the Company's operations from day to day, and serving as the boards of directors
of the Company's several subsidiaries).
Audit and Compliance Committee. The Board of Directors has a standing Audit
and Compliance Committee composed of a chairman, William H. Hastie, and Alton L.
Adams, Lisa S. Curreri, George H.T. Dudley and Wesley S. Williams, Jr. The Audit
and Compliance Committee recommends the independent accountants to the Board of
Directors to audit the financial statements of the Company, and reviews with
such accountants their report thereon, including any questions and
recommendations that may arise relating to such audit and report of the
Company's internal accounting and auditing procedures. The Audit and Compliance
Committee also pursues on behalf of the Board matters having to do with
regulatory and other legal compliance.
Executive Personnel and Compensation Committee. The Board of Directors has
a standing Executive Personnel and Compensation Committee composed of a
chairman, John E. Oxendine, and Kathleen P. Goldberg and Herbert E. Lockhart
III. The Executive Personnel and Compensation Committee recommends to the Board
of Directors the compensation to be paid to the Company's executive officers and
administers the Company's Long-Term Incentive Plan. The Executive Personnel and
Compensation Committee also consults with management and with the Board of
Directors on other executive personnel issues arising from time to time.
Director Compensation
Directors are reimbursed for reasonable expenses incurred in connection
with attendance at meetings of the Company's Board of Directors or committees
thereof. Additionally, each non-employee director currently receives $500 for
attending each meeting of the Board, a subscription to The Virgin Islands Daily
News, and options each year to purchase up to 1,000 shares of Class A Common
Stock at the fair market value at the date of grant. Directors who are employees
of the Company receive no compensation for their service as directors of the
Company.
51
<PAGE>
Executive Compensation
The following table shows compensation paid to, deferred or accrued for the
benefit of each of the Company's executive officers whose salary and bonus for
the year ended December 31, 1996 totaled at least $100,000 in the aggregate (the
"Named Executive Officers") for all services rendered to Lockhart during the
fiscal year ended December 31, 1996.
Summary Compensation Table
1996 Annual Compensation
---------------------------------------------
Other Annual
Name and Principal Position Salary Bonus(1) (2)
- --------------------------- ------ -------- ------------
George H.T. Dudley
Chairman $30,000 $187,749 ----
Wesley S. Williams, Jr.
Vice Chairman $30,000 $187,749 ----
John P. deJongh, Jr.
President and Chief $87,327 $ 60,000 $15,700
Operating
Officer
Etienne R. Bertrand
Senior Vice President,
Development $89,807 $ 61,700 $17,400
- --------
(1) The amount reported as Bonus for each Named Executive Officer consists
of two components: (i) a July 31, 1995 to June 30, 1996 general
performance bonus and (ii) a transaction-based bonus for the same
period. Consistent with the Company's pay-for-performance policy, the
bonuses were paid, as regards the first component, for particular
achievements in the ongoing operations of the Company (including, among
other factors, management of recovery after Hurricane Marilyn in
September 1995), and as regards the second component, for successful
conclusion of an acquisition of three shopping centers. Bonuses were
paid both in cash and in shares of Class B Common Stock as follows:
Dudley Williams deJongh Bertrand
------ -------- ------- --------
Performance-Cash $ 37,500 $ 37,500 $ 22,500 $ 25,000
Performance-Stock 16,700 16,700 --- 8,350
Transaction-Cash 67,000 67,000 37,500 20,000
Transaction-Stock 66,549 66,549 --- 8,350
--------- --------- ---------- ---------
$187,749 $187,749 $ 60,000 $ 61,700
The value of the shares paid as bonuses is based on the fair market
value of the Class B Common Stock on the date of grant, as determined
by the Board of Directors of the Company. Following this offering,
stock bonuses will be paid in shares of Class A Common Stock or
securities convertible into or exchangeable for shares of Class A
Common Stock under the Company's Long-Term Incentive Plan and will no
longer be paid in shares of Class B Common Stock.
(2) The amount reported for Mr. deJongh and Mr. Bertrand include $13,200
and $14,400 for a housing allowance, respectively. The Company has not
included in the Summary Compensation Table the value of incidental
personal perquisites furnished
52
<PAGE>
by the Company to the other Named Executive Officers, since such value
did not exceed the lesser of $50,000 or 10% of the total of annual
salary and bonus reported for such Named Executive Officers.
Long-Term Incentive Plan
Lockhart has adopted The Lockhart Caribbean Corporation Long-Term Incentive
Plan (the "LTIP"). Pursuant to the LTIP, officers, selected employees (including
employees who are also directors) and independent directors of Lockhart who have
been selected as participants are eligible to receive awards of various forms of
equity-based incentive compensation, including stock options, stock appreciation
rights, stock bonuses, restricted stock awards, performance units and phantom
stock, and awards consisting of combinations of such incentives. Lockhart has
reserved 1,000,000 shares of Lockhart Class A Common Stock for issuance under
the LTIP.
Subject to the maximum shares reserved under the LTIP, no individual may
receive a stock option covering more than 100,000 shares of Lockhart Class A
Common Stock in any year or be granted more than 100,000 shares of Lockhart
Class A Common Stock, in any combination of performance awards, restricted stock
or other stock-based awards that are subject to performance criteria in any
year.
The LTIP is to be administered by the Executive Personnel and Compensation
Committee (the "Committee"). Subject to the provisions of the LTIP, the
Committee has sole discretionary authority to interpret the LTIP and to
determine the type of awards to grant, when, if, and to whom awards are granted,
the number of shares covered by each award and the terms and conditions of the
award.
Options granted under the LTIP may be "Incentive Stock Options" ("ISOs"),
within the meaning of Section 422 of the Code, or Nonqualified Stock Options
("NQSOs"). The exercise price of the options will be determined by the Committee
when the options are granted, subject to a minimum price of the Fair Market
Value (as defined in the LTIP) of the Class A Common Stock on the date of grant
in the case of ISOs and a minimum price of 75% of the Fair Market value on the
date of grant in the case of NQSOs. In the discretion of the Committee, the
option exercise price may be paid in cash or in shares of Class A Common Stock
having a Fair Market Value on the date of exercise equal to the option exercise
price, or by delivering to Lockhart a copy of irrevocable instructions to a
stockbroker to deliver promptly to Lockhart an amount of sale or proceeds
sufficient to pay the exercise price. There is no current intention to grant
ISOs to any LTIP participant.
The LTIP permits the Committee to grant Class A Common Stock appreciation
rights ("SARs"). An SAR granted as an alternative or a supplement to a related
stock option will entitle its holder to be paid an amount equal to the Fair
Market Value of the Class A Common Stock subject to the SAR on the date of
exercise of the SAR less the exercise price of the related stock option, or such
other price as the Committee may determine under the LTIP for such stock option.
There is no current intention to grant SARs to any LTIP participant.
The Committee may grant awards of stock as restricted stock, bonus stock or
deferred stock. Shares of Class A Common Stock covered by a restricted stock
award will be issued to the recipient at the time the award is granted but will
be subject to forfeiture in the event continued employment and/or other
conditions established by the Committee at the time the award is granted are not
satisfied. There is no current intention to grant restricted stock awards to any
LTIP participant.
A performance award or a deferred stock award will provide for the future
payment of cash or the issuance of shares of Class A Common Stock to the
recipient if continued employment or other performance objectives established by
the Committee at the time of grant are attained. There is no current intention
to grant performance awards or deferred stock awards to any LTIP participant.
The performance objectives that must be attained to receive any award
subject to performance criteria shall be selected by the Committee and shall be
based on preestablished amounts of annual net income, operating income, cash
flow, return on assets, return on equity, return on capital or total stockholder
return. There are currently no such other written criteria established by the
Committee.
53
<PAGE>
Dividend equivalents may be granted that provide for current or accrued
value of dividends that may be paid in the future. Such dividend equivalents
shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional shares or awards, or otherwise reinvested. There is no
current intention to grant dividend equivalents to any LTIP participant. Stock
bonus awards, restricted stock awards and performance awards may, in the
discretion of the Committee, be settled in cash, on each date on which shares of
Class A Common Stock covered by the awards would otherwise have been delivered
or become unrestricted, in an amount equal to the Fair Market Value of such
shares on such date.
The LTIP may be amended, suspended or terminated by the Lockhart Board in
whole or in part at any time; provided that no such amendment, suspension or
termination of the LTIP may adversely affect the rights of or obligations to the
participants without such participants' consent, and any such amendment,
suspension or termination will be subject to the approval of Lockhart's
stockholders to the extent required by any federal or state law or regulation of
any stock exchange on which Class A Common Stock is listed.
54
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
George H.T. Dudley, who serves as Chairman of the Board of Directors, is a
partner in the law firm Dudley, Topper and Feuerzeig. Dudley, Topper and
Feuerzeig renders legal services to the Company and was paid fees of
approximately $201,000 and $100,000 for such services by the Company during the
fiscal years ended December 31, 1996 and 1995, respectively.
Lisa S. Curreri is a member of the Board of Directors of the Company and a
principal of McLaughlin Arguin Curreri Realtors. McLaughlin Arguin Curreri
Realtors has provided real estate brokerage services to the Company from time to
time, and the Company expects to use such services in the future. All past and
any future brokerage services rendered by McLaughlin Arguin Curreri Realtors to
the Company have been and will be on terms consistent with the industry and
commensurate with those available from unaffiliated parties.
If the Maximum Offering is sold, the Company will use $480,000 of the last
one million dollars raised in this offering to repurchase up to approximately
73,850 shares of Class B Common Stock from certain Class B Stockholders for
$6.50 per share. See "Use of Proceeds". Specifically, the Company has agreed to
repurchase up to 1,539 shares for an aggregate purchase price of approximately
$10,000, 19,231 shares for an aggregate purchase price of approximately
$125,000, 6,923 shares for an aggregate purchase price of approximately $45,000,
and 46,154 shares for an aggregate purchase price of approximately $300,000 from
Ronald S. Lockhart, Kaj H. Petersen, Herbert E. Lockhart III and Kathleen P.
Goldberg, respectively. Herbert Lockhart and Kathleen Goldberg are both members
of the Company's Board of Directors. See "Management --Executive Officers and
Directors". As of June 30, 1997, the Company held an account receivable from
Ronald Lockhart, Kaj Petersen and Herbert Lockhart of approximately $12,500,
$26,500 and $56,000, respectively. Ronald Lockhart, Kaj Petersen and Herbert
Lockhart have each agreed to use a portion of the proceeds received from the
Company for their Class B Common Stock to repay their outstanding indebtedness
to the Company. Following this offering, the Company does not intend to advance
funds to its stockholders, executive officers or directors.
Richard E.W. Grant, President of PFC, may be deemed the beneficial owner of
approximately 29,250 shares of the Company's Class B Common Stock, which
represents less than one percent of such shares outstanding. Approximately
20,500 of such shares are held jointly by Mr. Grant and his wife, and the
remaining shares are held by Mrs. Grant. The Company intends to acquire PFC and
to retain Mr. Grant as an employee of the Company following the acquisition. See
"Business--Acquisition of PFC". As a shareholder of PFC, Mr. Grant and a trust
established by Mr. Grant will receive an aggregate of approximately $187,500
from the Company for their PFC shares.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 31, 1997, and as adjusted to
reflect the sale of shares of Class A Common Stock by Lockhart in the offering
by (i) each person known by Lockhart to be the beneficial owner of more than 5%
of any class of the Company's voting Common Stock, (ii) the Named Executive
Officers, and (iii) all of the Company's directors and executive officers as a
group. Except as otherwise indicated, the address of each holder is the same as
the Company. None of the persons listed in the table beneficially owned any
shares of Class A Common Stock as of July 31, 1997. Unless otherwise noted, each
holder has sole voting and investment power with respect to all shares of stock
listed as owned by such person.
<TABLE>
<CAPTION>
Percent of Vote
Class B of All Classes of
Common Stock Common Stock
--------------------- -----------------------------
Minimum Maximum
Name of Beneficial Owner Number % Offering Offering(6)
------------------------ ------ --- -------- -----------
<S> <C> <C> <C> <C>
George H.T. Dudley (1) 284,560 3.3% 3.2% 3.2%
Wesley S. Williams, Jr. (2) 1,474,254 17.0% 16.8% 16.8%
John P. deJongh, Jr. 7,275 * * *
Etienne R. Bertrand 30,943 * * *
Kathleen P. Goldberg (3) 1,253,531 14.5% 13.8% 13.7%
William H. Hastie(4) 660,939 7.6% 7.5% 7.5%
Herbert E. Lockhart, III 70,325 * * *
Cassandra M. Flipper (4)(5) 488,822 5.6% 5.6% 5.6%
Irma Corinne Lockhart 1,937,139 22.4% 22.1% 22.0%
Gertrude L. Melchior 1,963,139 22.7% 22.4% 22.3%
All Directors and executive
officers as a group (12 persons) 3,781,827 43.7% 43.1% 42.4%
- ---------------
</TABLE>
* Represents less than 1% of the class or vote, as the case may be.
(1) Includes 94,973 shares of Class B Common Stock held in trust. Shares not
held in trust are owned jointly by Mr. Dudley and his wife
(2) Includes 469,761 shares of Class B Common Stock held in trust. Shares not
held in trust are owned jointly by Mr. Williams and his wife.
(3) Includes 133,084 shares of Class B Common Stock held in trust.
(4) Includes 84,875 shares of Class B Common Stock owned jointly by Mr. Hastie
and Ms. Flipper.
(5) Includes 379,299 shares of Class B Common Stock held in trust.
(6) If the Maximum Offering is sold, the Company will use a portion of the net
proceeds to repurchase shares of Class B Common Stock from certain Class B
Stockholders. See "Use of Proceeds" and "Certain Relationships and Related
Transactions". The information in the table for the Maximum Offering
reflects the Company's repurchase of 6,923 and 46,154 shares of Class B
Common Stock from Herbert Lockhart and Kathleen Goldberg, respectively.
56
<PAGE>
SUMMARY OF THE REINVESTMENT PLAN
The Company has adopted the Lockhart Caribbean Corporation Dividend
Reinvestment Plan (the "Reinvestment Plan") pursuant to which holders of Class A
Common Stock and Class B Common Stock may elect to have up to the full amount of
any cash distributions from the Company reinvested in additional shares of Class
A Common Stock of the Company. Each prospective investor who wishes to
participate in the Reinvestment Plan should consult with such investor's own tax
advisor regarding participation in the Reinvestment Plan. The following
discussion summarizes the principal terms of the Reinvestment Plan.
General
An independent agent (the "Reinvestment Agent"), which currently is
______________________, will act on behalf of the participants in the
Reinvestment Plan (the "Participants"). Prior to the time that the offering
terminates, the Reinvestment Agent will invest all cash distributions
attributable to shares of Class A Common Stock or Class B Common Stock owned by
Participants in additional shares of Class A Common Stock of the Company at the
initial public offering price per share. Thereafter, and until the Class A
Common Stock is listed for trading on a national securities exchange or quoted
on an automated quotation system ("Listing"), the price per share of Class A
Common Stock will be determined by quarterly appraisal updates performed by the
Company based on a review of the existing appraisal and lease of each property,
focusing on a re-examination of the capitalization rate applied to the rental
stream to be derived from each such property and a review of the fair market
value of the Company's undeveloped properties. The capitalization rate used by
the Company and, as a result, the price per share of Class A Common Stock paid
by Participants in the Reinvestment Plan prior to Listing will be determined by
the Board of Directors of the Company (the "Board") in its sole discretion. The
factors that the Board will use to determine the capitalization rate include (i)
an examination of the conditions in the market; and (ii) capitalization rates in
use by private appraisers, to the extent that the Board deems such factors
appropriate, as well as any other factors that the Board deems relevant or
appropriate in making its determination. The Company's internal accountants then
convert the most recent quarterly balance sheet of the Company from a "GAAP"
balance sheet to a "fair market value" balance sheet. Based on the "fair market
value" balance sheet, the internal accountants then assume a sale of the
Company's assets and the liquidation of the Company in accordance with its
organization documents and applicable law and compute the appropriate method of
distributing the cash available after payment of reasonable liquidation
expenses, including closing costs typically associated with the sale of assets
and shared by the buyer and seller, and the creation of reasonable reserves to
provide for the payment of any contingent liabilities. In addition, following
consummation of the acquisition of PFC, the fair market value of PFC operations
will be taken into account in determining the price per share of Class A Common
Stock.
All shares of Class A Common Stock available for purchase under the
Reinvestment Plan either are registered pursuant to this Prospectus or will be
registered under the Securities Act of 1933 through a separate prospectus
relating solely to the Reinvestment Plan. Until this offering has terminated,
shares of Class A Common Stock will be available for purchase out of the shares
registered with the Securities and Exchange Commission (the "SEC") in connection
with this offering. See "Plan of Distribution". After the offering has
terminated, the Company will file a registration statement containing a
prospectus related solely to the Reinvestment Plan, and shares of Class A Common
Stock will be available from any additional shares which the Company so
registers.
Prior to commencement of this offering, 18 holders of Class B Common Stock
have elected to participate in the Reinvestment Plan. Stockholders who receive a
copy of this Prospectus and purchase shares of Class A Common Stock in this
offering can elect to participate in and purchase shares of Class A Common Stock
through the Reinvestment Plan at any time and would not need to receive a
separate prospectus relating solely to the Reinvestment Plan. Holders of Class B
Common Stock who have not
57
<PAGE>
elected to participate in the Reinvestment Plan as well as any person who
becomes a holder of Class A Common Stock otherwise than by participating in this
offering may purchase shares of Class A Common Stock through the Reinvestment
Plan only after receipt of a separate prospectus relating solely to the
Reinvestment Plan.
After the termination of the offering, the price per share of Class A
Common Stock purchased pursuant to the Reinvestment Plan shall be the fair
market value of the shares of Class A Common Stock based partly on quarterly
appraisal updates of the Company's assets until such time, if any, as Listing
occurs. Upon Listing, the shares of Class A Common Stock to be acquired for the
Reinvestment Plan may be acquired either through such market or directly from
the Company pursuant to a registration statement relating to the Reinvestment
Plan, in either case at a per-share price equal to the then-prevailing market
price on the national securities exchange or over-the-counter market on which
the shares of Class A Common Stock are listed at the date of purchase. There can
be no assurance that the Class A Common Stock will qualify for Listing, and the
Company is unable to predict the effect which such a proposed listing would have
on the price of the shares of Class A Common Stock acquired through the
Reinvestment Plan. See "Plan of Distribution".
Investment of Distributions
Distributions will be used by the Reinvestment Agent, promptly following
the payment date with respect to such distributions, to purchase shares of Class
A Common Stock on behalf of the Participants from the Company. All such
distributions shall be invested in shares and fractional shares of Class A
Common Stock within 30 days after such payment date. Any distributions not so
invested will be returned to Participants.
Participants will have the option to make voluntary contributions to the
Reinvestment Plan to purchase shares of Class A Common Stock in excess of the
amount of shares of Class A Common Stock that can be purchased with their
distributions. Such voluntary contributions are limited to $10,000 for each
Participant in any fiscal quarter.
At this time, the Reinvestment Plan does not allow for reinvestment
purchases at a discount from the fair market value or the market price, as the
case may be. The Board reserves the right, however, to amend the Reinvestment
Plan in the future to permit such discounts.
Participant Accounts, Fees and Allocation of Shares
For each Participant, the Reinvestment Agent will maintain a record which
shall reflect for each fiscal quarter the distributions received by the
Reinvestment Agent on behalf of such Participant. At this time, the Company will
be responsible for all administrative charges and expenses charged by the
Reinvestment Agent. However, the Board reserves the right to amend the
Reinvestment Plan in the future to provide that Participants shall be
responsible for administrative charges and expenses related to their account.
Any interest earned on such distributions will be paid to the Company to defray
certain costs relating to the Reinvestment Plan. The administrative charge for
each fiscal quarter will be the lesser of ____% of the amount reinvested for the
Participant or $__________, with a minimum charge of $__________. The maximum
annual charge is $______.
The Reinvestment Agent will use the aggregate amount of distributions to
all Participants for each fiscal quarter to purchase shares of Class A Common
Stock for the Participants. If the aggregate amount of distributions to
Participants exceeds the amount required to purchase all shares of Class A
Common Stock then available for purchase, the Reinvestment Agent will purchase
all available shares and will return all remaining distributions to the
Participants within 30 days after the date such distributions are made. The
purchased shares of Class A Common Stock will be allocated among the
Participants based on the
58
<PAGE>
portion of the aggregate distributions received by the Reinvestment Agent on
behalf of each Participant, as reflected in the records maintained by the
Reinvestment Agent. The ownership of the shares of Class A Common Stock
purchased pursuant to the Reinvestment Plan shall be reflected on the books of
the Company.
Shares of Class A Common Stock acquired pursuant to the Reinvestment Plan
will entitle the Participant to the same rights and to be treated in the same
manner as those purchased by the participants in this offering. Accordingly, the
Company will pay the Participating Broker Selling Commissions of __%.
The allocation of shares of Class A Common Stock among Participants may
result in the ownership of fractional shares of Class A Common Stock, which may
be computed to four decimal places.
Reports to Participants and Administrative Charges
Within 60 days after the end of each fiscal quarter, the Reinvestment Agent
will mail to each Participant a statement of account describing, as to such
Participant, the distributions received during the quarter, any optional cash
contributions made during the quarter, the number of shares of Class A Common
Stock purchased during the quarter, the per share purchase price for such shares
of Class A Common Stock, and the total number of shares of Class A Common Stock
purchased on behalf of the Participant pursuant to the Reinvestment Plan. Until
such time, if any, as Listing occurs, the statement of account also will report
the most recent fair market value of the shares of Class A Common Stock,
determined as described above. The Company shall be responsible for all
administrative charges and expenses charged by the Reinvestment Agent, provided
that the Board reserves its right, in its sole discretion, to amend the
Reinvestment Plan to impose an administrative charge on the Participants, if the
Board deems it necessary or appropriate. See "General".
Tax information for income earned under the Reinvestment Plan for the
calendar year will be sent to each Participant by the Company or the
Reinvestment Agent.
Election to Participate or Terminate Participation
Stockholders of the Company who purchase shares of Class A Common Stock in
this offering may become Participants in the Reinvestment Plan by making a
written election to participate on their Subscription Agreements at the time
they subscribe for shares of Class A Common Stock. Any other stockholder who
receives a copy of this Prospectus or a separate prospectus relating solely to
the Reinvestment Plan and who has not previously elected to participate in the
Reinvestment Plan may so elect at any time by written notice to the Board of
such stockholder's desire to participate in the Reinvestment Plan. Participation
in the Reinvestment Plan will commence with the next distribution made after
receipt of the Participant's notice, provided it is received at least ten days
prior to the record date for such distribution. Subject to the preceding
sentence, the election to participate in the Reinvestment Plan will apply to all
distributions attributable to the fiscal quarter in which the stockholder made
such written election to participate in the Reinvestment Plan and to all fiscal
quarters thereafter, whether made (i) upon subscription or subsequently for
stockholders who participate in this offering, or (ii) upon receipt of a
separate prospectus relating solely to the Reinvestment Plan at any time for
stockholders who do not participate in this offering. Participants will be able
to terminate their participation in the Reinvestment Plan without penalty by
delivering written notice to the Board. A Participant's termination notice must
specify a date for termination and be delivered to the Board at least ten days
prior to the specified termination date; provided, however, that termination
will not be effective with respect to any distribution with a record date prior
to the specified termination date.
A Participant who chooses to terminate participation in the Reinvestment
Plan must terminate his or her entire participation in the Reinvestment Plan and
will not be allowed to terminate in part. If a Participant terminates his or her
participation, the Reinvestment Agent will send him or her a check in payment
for any fractional shares of Class A Common Stock in his or her account based on
the then
59
<PAGE>
market price of the shares of Class A Common Stock and the record books of the
Company will be revised to reflect the ownership of records of his or her whole
shares. There are no fees associated with a Participant's terminating his or her
interest in the Reinvestment Plan. A Participant in the Reinvestment Plan who
terminates his or her interest in the Reinvestment Plan will be allowed to
participate in the Reinvestment Plan again by notifying the Reinvestment Agent
and completing any required forms.
Federal Income Tax Considerations
Stockholders subject to federal taxation who elect to participate in the
Reinvestment Plan may incur a tax liability for distributions allocated to them
even though they have elected not to receive their distributions in cash but
rather to have their distributions held pursuant to the Reinvestment Plan.
Specifically, stockholders will be treated as if they have received the
distribution from the Company and then applied such distribution to purchase
shares of Class A Common Stock in the Reinvestment Plan. A stockholder
designating a distribution for reinvestment will be taxed on the amount of such
distribution as ordinary income.
Amendments and Terminations
The Company reserves the right to amend, modify, supplement or suspend the
terms and conditions of the Reinvestment Plan, provided, however, that any such
amendment must be approved by a majority of the independent directors of the
Board. Such amendment or supplement shall be deemed conclusively accepted by
each Participant, except those Participants from whom the Company receives
written notice of termination prior to the effective date thereof.
60
<PAGE>
PLAN OF DISTRIBUTION
The Company is offering up to 2,000,000 shares of Class A Common Stock at a
purchase price of $6.50 per share. The shares will be sold on a "best efforts,
all or none" basis with respect to the Minimum Offering and on a "best efforts"
basis as to the remaining 846,154 shares. The Minimum Offering must be sold, if
any shares are to be sold, within one year (or two years if extended by the
Company) from the date of this Prospectus. Shares of Class A Common Stock sold
through the Reinvestment Plan will be applied towards the Minimum Offering and
Maximum Offering. See "Summary of Reinvestment Plan".
It is the intention of the Company to offer and sell the shares by
contacting prospective investors through appropriate newspaper and magazine
advertisements and electronically delivering copies of this Prospectus to
prospective investors through the Internet. Copies of this Prospectus, including
appendices, are available on the Company's World Wide Web site at
http://____________, and can also be obtained by contacting ____________.
The Company has entered into arrangements with the Participating Brokers
pursuant to which the Participating Brokers will facilitate the distribution of
the shares of Class A Common Stock by responding to persons indicating an
interest in purchasing shares of Class A Common Stock and processing executed
Subscription Agreements for the shares. The Participating Brokers may also
assist in the offering of shares of Class A Common Stock by soliciting
indications of interest from potential investors by delivering a copy of this
Prospectus. Participating Brokers will receive selling commissions equal to
_____% of the initial public offering price per share of Class A Common Stock.
No securities are to be offered for the account of any existing security
holder.
Shares of Class A Common Stock may be offered by the Company's officers or
directors on a selective basis. Persons interested in purchasing shares of Class
A Common Stock in the offering will be required to contact a representative of
one of the Participating Brokers.
Subscribers must execute a Subscription Agreement, which is attached hereto
as Appendix A. The Company reserves the right to reject any subscription for
shares of Class A Common Stock in its entirety or to allocate shares among
prospective purchasers. If any subscription is rejected, funds received by the
Company for each rejected subscription will be returned to the applicable
prospective purchaser without interest or deduction.
Residents of __________, ___________, ___________ and ___________ must also
complete a Suitability Questionnaire, a form of which also is attached as
Appendix B to this Prospectus. All funds received by the Company with respect to
the Minimum Offering, promptly following receipt, will be deposited in an escrow
account with the Escrow Agent pursuant to the terms of an escrow agreement
entered into between the Company and the Escrow Agent. In the event that the
Minimum Offering is not sold within the permitted time period, then all funds
received by the Escrow Agent will be refunded promptly to the subscribers, in
full, without interest or deduction therefrom.
Certificates representing shares of Class A Common Stock purchased will be
issued to purchasers only if the proceeds from the sale of the Minimum Offering
are released from escrow. Until the certificates are delivered to the purchasers
thereof, such purchasers, if any, will be deemed subscribers only, and not
stockholders. The funds in escrow will be held for the benefit of those
subscribers until released to the Company. All funds received by the Company
after the Minimum Offering is sold will not be placed in escrow, but will be
placed directly into the Company's operating account for immediate use by the
Company.
61
<PAGE>
Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price was determined by the Company.
In determining the initial public offering price for the Class A Common Stock,
the Company calculated the net asset value of Lockhart on a per share basis
using the most recent appraisals available for each operating property and for
its inventory of undeveloped land. As part of this calculation, the Company
adjusted its capital structure for the Maximum Offering.
The Company considered adjusted net asset value per share in relation to
the market valuation of publicly-held companies in similar businesses. Unlike
such companies, whose market value commonly exceeds net asset value based on
their property holdings, Lockhart in this, its initial public offering, believed
it prudent to approach the pricing of its securities more conservatively.
Accordingly, the Company has set the offering price for the Class A Common Stock
based solely on the net asset value of its real estate, with no upward
adjustment for other common indicia of value, such as (i) estimates of future
business potential and earnings prospects -- in this case, based on the
Company's historic businesses together with that of PFC after achieving the
Minimum Offering -- (ii) the increasing value of the Company's real estate based
on development projects in progress, and (iii) Lockhart's more than century-long
existence.
Although it is the Company's intention to develop a public market for its
Class A Common Stock by soliciting broker-dealers who are members of the
National Association of Securities Dealers (the "NASD") to make a market in the
Company's Class A Common Stock, to date the Company has not entered into any
arrangements, commitments or understandings with any persons with respect to the
creation of a public market for its Class A Common Stock. The Company plans to
seek the support of NASD member firms which are recognized market makers,
including the Participating Brokers, with the intention of obtaining their
assistance with the creation of a viable market in the Company's securities for
the benefit of its stockholders. If the Minimum Offering is sold, the Company
intends to apply for listing on the Nasdaq SmallCap Market. However, there can
be no assurance that the Company will be accepted for listing if it applies.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The Company has the authority to issue 49,000,000 shares of common stock,
par value $0.01 per share, of which 40,000,000 shares are designated Class A
Common Stock (the "Class A Common Stock") and 9,000,000 shares are designated
Class B Common Stock, par value $0.01 per share (the "Class B Common Stock").
The Class A Common Stock and the Class B Common Stock are sometimes referred to
collectively as the "Common Stock". The Company is also authorized to issue
1,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred
Stock").
Common Stock
Except as otherwise set forth below or as otherwise required by law, the
rights and privileges of each class of the Common Stock are identical in all
respects, including the right to participate ratably in dividends and
liquidation distributions and the right of the members of a class of Common
Stock to participate ratably in offers by the Company to repurchase shares of
Common Stock that are directed to all of the holders of any other class of the
Common Stock. No class of Common Stock has preemptive rights.
Voting Rights
Each outstanding share of Class A Common Stock is entitled to vote on each
matter on which the stockholders of the Company are entitled to vote, and each
holder of Class A Common Stock is entitled to one vote for each share of such
stock held by such holder. Each outstanding share of Class B Common Stock is
entitled to vote on each matter on which the stockholders of the Company are
entitled to vote, and each holder of Class B Common Stock is entitled to ten
votes for each share of such stock held by such holder; provided, however, that
if the aggregate number of shares of Class B Common Stock issued and outstanding
no longer represent at least 75% of the combined voting power of the total
issued and outstanding shares of Common Stock, then each holder of Class B
Common Stock shall be entitled to one vote for each share of Class B Common
Stock. The holders of the Common Stock entitled to vote on any matter vote
together as a single class on all such matters. The stockholders of the Company
are not entitled to cumulate their votes in any election of the directors of the
Company.
Distributions
The Board of Directors of the Company may cause distributions to be paid to
holders of shares of Common Stock out of funds legally available for the payment
of distributions. See "Distribution Policy". Any distribution on the Common
Stock shall be payable on shares of Class A Common Stock and Class B Common
Stock share and share alike; provided that in the case of distributions payable
in shares of Common Stock of the Company, or options, warrants or rights to
acquire shares of such Common Stock or securities convertible into or
exchangeable for shares of such Common Stock, the shares, options, warrants,
rights or securities so payable shall be payable in shares of, or options,
warrants or rights to acquire or securities convertible into or exchangeable
for, Class A Common Stock.
Liquidation Rights
In the event of any dissolution, liquidation or winding up of the affairs
of the Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company, the remaining assets
and funds of the Company, if any, shall be divided among and paid ratably to the
holders of Class A Common Stock and the holders of Class B Common Stock. A
merger or
63
<PAGE>
consolidation of the Company with or into any other corporation or a sale or
conveyance of all or any part of the assets of the Company (which shall not in
fact result in the liquidation of the Company and the distribution of assets to
stockholders) shall not be deemed to be a voluntary or involuntary liquidation
or dissolution or winding up of the Company.
Conversion Rights
Each and every share of Class B Common Stock is convertible into Class A
Common Stock at any time at the option of the holder. Such conversion shall be
on a share-for-share basis, one share of Class A Common Stock for each share of
Class B Common Stock so converted. Shares of Class A Common Stock are not
convertible.
Each share of Class B Common Stock shall convert automatically into one
fully paid and non-assessable share of Class A Common Stock upon its sale,
assignment, gift or other transfer to a party or entity other than a Permitted
Transferee. A "Permitted Transferee" of a Class B Stockholder shall be: (i) any
lineal descendant of Herbert E. Lockhart and Karen Ingeborg Lockhart (including
any adopted child); (ii) any individual designated as a Permitted Transferee by
a vote of the Board of Directors upon the recommendation of the Executive
Committee of the Board of Directors; (iii) any lineal descendant (including any
adopted child) of a previously admitted Class B Stockholder (the individuals
described in (i), (ii) and (iii) hereafter are individually referred to as a
"Founding Family Member" and collectively the "Founding Family Members"); (iv)
any trust established and maintained principally for the benefit of one or more
Founding Family Members and where one or more Founding Family Members has a
general or special testamentary power of appointment or general or special
non-testamentary power of appointment limited to any Permitted Transferee or
Permitted Transferees thereof; (v) any corporation, partnership, limited
liability company, limited liability partnership, private foundation or other
entity where (A) the majority of the board of directors or other managing body
are comprised of Founding Family Members or (B) all the beneficial ownership, or
ownership of equity securities of such entity representing voting control over
such entity, is held by Founding Family Members and/or any Permitted Transferee
or Permitted Transferees thereof; provided, however, that if (x) the majority of
the board of the directors of other managing body of such entity are not
comprised of Founding Family Members and (y) the Class B stockholder who made
such transfer, and Permitted Transferees thereof, cease, for whatever reason, to
hold all of the beneficial ownership, or ownership of equity securities
representing voting control, of such corporation, partnership, limited liability
company, limited liability partnership, private foundation or other entity, then
any and all shares of Class B Common Stock owned by such corporation,
partnership, limited liability company, limited liability partnership, private
foundation or other entity shall be converted automatically, without further
action by or on behalf of any person, into shares of Class A Common Stock and
such corporation, partnership, limited liability company, limited liability
partnership, private foundation or other entity shall no longer be a Class B
Stockholder.
Any Class B Stockholder may pledge shares of Class B Common Stock owned by
such person to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee, provided that such
shares may not be transferred to or registered in the name of the pledgee unless
such pledgee is a Permitted Transferee. In the event of foreclosure or other
similar action by the pledgee (other than a pledgee who is a Permitted
Transferee), such pledged shares of Class B Common Stock shall be converted
automatically, without further action by or on behalf of any person, into shares
of Class A Common Stock upon such foreclosure; provided, however, that if within
ten business days after such foreclosure or similar event such converted shares
are returned to the pledgor or transferred to a Permitted Transferee of the
pledgor, such shares shall be converted automatically, without any act or deed
on the part of the Company or any other person, into the same number of shares
of Class B Common Stock. The foregoing automatic conversion provisions shall not
be applicable to any transfer of shares of Class B Common Stock by operation of
law upon incompetence, death, dissolution or bankruptcy of any
64
<PAGE>
Class B Stockholder to an executor, guardian or trustee, respectively, of such
Class B Stockholder but only if the beneficial ownership of such shares
continues to be held by one or more Permitted Transferees.
Mergers and Consolidations
In the event of a merger, consolidation or other business combination of
the Company with or into another entity (whether or not the Company is the
surviving entity), or in the event of the dissolution of the Company, provision
shall be made so that the holders of each class of Common Stock will be entitled
to receive the same amount and form of consideration per share as the per share
consideration, if any, received by holders of the other classes of Common Stock
in such merger, consolidation, combination or dissolution; provided, however,
that in connection with any such merger, consolidation or business combination
in which shares of capital stock are distributed, such shares may differ as to
voting rights to the extent and only to the extent that the voting rights of the
Class A Common Stock and Class B Common Stock differ as currently provided; and
provided further, however, that if such shares differ as to voting rights, the
shares having superior voting rights shall be subject to conversion provisions
that are no more or less favorable to the holders of such shares than those
provided with respect to the Class B Common Stock.
Preferred Stock
None of the Company's 1,000,000 shares of authorized Preferred Stock is
outstanding. The Company's Amended and Restated Articles of Incorporation
authorize the Board of Directors, without any further action by the
stockholders, to issue the Preferred Stock in one or more series, to establish
from time to time the number of shares to be included in each series and to fix
the designations, powers, preferences and rights of the shares of each series
and the qualifications, limitations or restrictions thereof. Although the
ability of the Board of Directors to designate and issue shares of the Preferred
Stock provides desirable flexibility, including the ability to engage in future
public offerings to raise additional capital, the issuance of shares of the
Preferred Stock may have adverse effects on the holders of Common Stock,
including restrictions on dividends on the Common Stock if dividends on shares
of the Preferred Stock have not been paid; dilution of voting power of the
Common Stock to the extent the shares of the Preferred Stock have voting rights;
or deferral of participation in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to holders of shares of the
Preferred Stock. In addition, issuance of shares of the Preferred Stock could
make it more difficult for a third party to acquire a majority of the
outstanding voting stock and accordingly may be used as an "anti-takeover"
device. The Board of Directors, however, currently does not contemplate the
issuance of any shares of the Preferred Stock.
Certain Anti-Takeover Provisions
Special meetings of stockholders may be called by the Company's Board of
Directors or the Executive Committee. Except as otherwise required by law,
stockholders, in their capacity as such, are not entitled to request or call a
special meeting of stockholders. In addition, stockholders of the Company are
required to provide advance notice of nominations of directors to be made at,
and of business proposed to be brought before, a meeting of stockholders. The
failure to deliver proper notice within the periods specified in the Company's
Amended and Restated Bylaws will result in the denial to the stockholder of the
right to make such nominations or propose such action at the meeting.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the offering, Lockhart will have 2,000,000 shares of
Class A Common Stock outstanding (assuming the Maximum Offering is sold and
assuming further that, prior to such time, there is no conversion of Class B
Common Stock into shares of Class A Common Stock) and 8,590,018 shares of Class
B Common Stock outstanding (assuming that no shares of Class B Common Stock are
converted into Class A Common Stock prior to the offering and assuming further
that 73,847 shares of Class B Common Stock are redeemed by the Company with a
portion of the proceeds from the offering). All of the shares of Class A Common
Stock sold in the offering will be freely transferable and tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an "affiliate," as defined below, of Lockhart, which will be
subject to the resale limitations of Rule 144 adopted under the Securities Act.
The shares of Class B Common Stock held by Lockhart's existing stockholders are
"restricted" securities within the meaning of Rule 144 and may only be sold in
the public market pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from registration,
including Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares of an issuer for at least one year, including an
"affiliate," is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding number of
shares of such class or the average trading volume in composite trading in all
national securities exchanges during the four calendar weeks preceding the
filing of the required notice of such sale, provided that such issuer has been a
reporting Company for at least 90 days. A person (or persons whose shares are
required to be aggregated) who is not deemed an affiliate of an issuer and who
has beneficially owned shares for at least two years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
Affiliates continue to be subject to such limitations. As defined in Rule 144,
an "affiliate" of an issuer is a person that directly or indirectly, through one
or more intermediaries, controls or is controlled by, or is under common control
with, such issuer.
The shares of the Company's Class B Common Stock are convertible into
shares of Class A Common Stock and, following the conversion of such shares,
approximately 8,457,061 of the aggregate shares of Class A Common Stock owned by
the Class B Stockholders upon conversion of their shares of Class B Common Stock
would be eligible for sale pursuant to the provisions of Rule 144 under the
Securities Act. The Class B Stockholders have agreed that, subject to certain
limited exceptions, during the period beginning from the date of this Prospectus
and continuing to and including the date six months after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. In
addition, the Company's executive officers and directors as well as beneficial
owners of 5% or more of the Class B Common Stock have agreed that, subject to
certain limited exceptions, beginning from the date of this Prospectus and
continuing to and including the date two years after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any securities of the Company which are substantially similar to the shares of
Class A Common Stock or which are convertible or exchangeable into securities
which are substantially similar to the shares of Class A Common Stock. Following
the six-month and two-year periods, no assurance can be given that a Class B
Stockholder will not decide, based upon then prevailing market and other
conditions, to convert his or her Class B Common Stock to Class A Common Stock
and to dispose of all or a portion of such stock pursuant to the provisions of
Rule 144 under the Securities Act, subject to any applicable volume limitations
of Rule 144.
66
<PAGE>
Prior to the offering, there has been no established market for the Class A
Common Stock, and no predictions can be made about the effect, if any, that
market sales of shares of Class A Common Stock or the availability of such
shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of Class A Common Stock in the public
market may have an adverse impact on the market for the shares of Class A Common
Stock offered hereby.
67
<PAGE>
SUPPLEMENTAL SALES MATERIAL
Shares of the Company's Class A Common Stock are being offered only through
this Prospectus. In addition to this Prospectus, the Company or Participating
Brokers may use certain sales materials in connection with this offering,
although only when accompanied or preceded by this Prospectus. No sales material
may be used unless it has first been approved in writing by the Company. As of
the date of this Prospectus, the Company does not plan to use additional sales
material, and any such materials will be used only by Participating Brokers who
are registered broker-dealers and members of the NASD. The Company also may
respond to specific questions from Participating Brokers and prospective
investors. Additional materials relating to the offering may be made available
to Participating Brokers for their internal use.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Dudley, Topper and Feuerzeig.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing. The
statements of revenues and certain expenses for Red Hook Plaza, Inc. for the
years ended December 31, 1996, 1995 and 1994, and for Fort Mylner Properties,
Inc. and Golden Orange Centers, Inc. for the twelve months ended June 30, 1997,
appearing in this Prospectus and Registration Statement, have also been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Premium Finance Company of the V.I., Inc., as
of December 31, 1996 and 1995 and for the years ended December 31, 1996 and
1995, and for the seven months ended December 31, 1994 have been audited by
Francisco E. Depusoir, CPA, independent auditor, as set forth in his report
thereon appearing elsewhere herein and is included in reliance upon such report
given upon his authority as an expert in accounting and auditing.
68
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement, of which this
Prospectus constitutes a part, under the Securities Act with respect to the
shares of Class A Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the Class A Common Stock offered
hereby. Statements contained herein concerning the provisions of any documents
are not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Registration
Statement, including exhibits and schedules filed therewith, may be inspected
without charge at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at Room 1228, 75 Park Place, New York, New
York 10007 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois, at prescribed rates. The SEC also
maintains a Web site at http://www.sec.gov which contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Lockhart Caribbean Corporation and Subsidiaries
Pro Forma Condensed Financial Statements-Minimum Offering
(Unaudited)..................................................F-4
Pro Forma Condensed Balance Sheet as of June 30, 1997..................F-5
Pro Forma Condensed Balance Sheet as of December 31, 1996..............F-6
Notes to Pro Forma Condensed Balance Sheets............................F-7
Pro Forma Condensed Statement of Operations for the
Six Months Ended June 30, 1997...............................F-8
Pro Forma Condensed Statement of Operations for the Year Ended
December 31, 1996............................................F-9
Notes to Pro Forma Condensed Statements of Operations..................F-10
Pro Forma Condensed Financial Statements--Maximum Offering
(Unaudited).................................................. F-12
Pro Forma Condensed Balance Sheet as of June 30, 1997..................F-13
Pro Forma Condensed Balance Sheet as of December 31, 1996..............F-14
Notes to Pro Forma Condensed Balance Sheets............................F-15
Pro Forma Condensed Statement of Operations for the
Six Months Ended June 30, 1997................................F-16
Pro Forma Condensed Statement of Operations for the Year Ended
December 31, 1996.............................................F-17
Notes to Pro Forma Condensed Statements of Operations..................F-18
Consolidated Interim Financial Statements (Unaudited)......................F-20
Consolidated Balance Sheets as of June 30, 1997 and 1996...............F-21
Consolidated Statements of Operations for the Six Months Ended
June 30, 1997 and 1996........................................F-23
Consolidated Statement of Shareholders' Equity.........................F-24
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996........................................F-25
F-1
<PAGE>
Page
----
Notes to Consolidated Interim Financial Statements.....................F-26
Audited Consolidated Financial Statements and Other Financial
Information
Report of the Independent Auditors.....................................F-32
Consolidated Balance Sheets as of December 31, 1996
and 1995......................................................F-33
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994..............................F-35
Consolidated Statement of Shareholders' Equity.........................F-36
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994..............................F-37
Notes to Consolidated Financial Statements.............................F-38
Schedule V - Property, Plant and Equipment.............................F-46
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment.................F-47
Schedule VIII - Valuation and Qualifying Accounts......................F-48
Schedule XI - Real Estate and Accumulated Depreciation.................F-49
Schedule XII - Mortgage Loans on Real Estate...........................F-54
Premium Finance Company of the V.I., Inc.
Report of the Independent Auditors.....................................F-56
Balance Sheets as of December 31, 1996, 1995 and 1994..................F-57
Statement of Income and Deficit for the Years Ended December 31
1996 and 1995 and the Seven Months Ended December 31, 1994....F-58
Statement of Cash Flows for the Years Ended December 31, 1996
and 1995 and the Seven Months Ended December 31, 1994.........F-59
Notes to Financial Statements..........................................F-60
F-2
<PAGE>
Page
----
Red Hook Plaza, Inc.
Report of the Independent Auditors.....................................F-63
Statement of Revenues and Certain Expenses for the Years
Ended December 31, 1996, 1995 and 1994........................F-64
Notes to Statement of Revenues and Certain Expenses....................F-65
Fort Mylner Properties Inc.
Report of Independent Auditors.........................................F-67
Statement of Revenues and Certain Expenses for the Twelve
Months Ended June 30, 1997....................................F-68
Notes to Statement of Revenues and Certain Expenses....................F-69
Golden Orange Centers, Inc.
Report of Independent Auditors.........................................F-71
Statement of Revenues and Certain Expenses for the Twelve
Months Ended June 30, 1997....................................F-72
Notes to Statement of Revenues and Certain Expenses....................F-73
F-3
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED FINANCIAL STATEMENTS
MINIMUM OFFERING
(Unaudited)
The following unaudited pro forma condensed financial statements of
Lockhart Caribbean Corporation reflect the following transactions: (i) the sale
of 1,153,846 shares of Class A Common Stock for $6.50 per share (the "Minimum
Offering"), (ii) the use of a portion of the net proceeds to repay $4.5 million
of outstanding debt, and (iii) the use of a portion of the net proceeds to
acquire Premium Finance Company of the V.I., Inc., a company that finances
insurance premiums in the U.S. Virgin Islands and other Caribbean islands. The
pro forma balance sheets as of June 30, 1997 and December 31, 1996 show the
effects of these transactions as if they had occurred at the date of the balance
sheets. The unaudited pro forma condensed statements of operations for the six
months ended June 30, 1997, and for the year ended December 31, 1996, show the
effects of these transactions as if they had occurred at the beginning of the
period. Additionally, the statement of operations for the year ended December
31, 1996 shows the effect of the June 27, 1996 acquisition of three properties
(Fort Mylner Shopping Center, Fort Mylner Commercial Center and Orange Grove
Shopping Center) as if the acquisitions were made at the beginning of the year.
The pro forma condensed financial statements were prepared by the
management of the Company. These pro forma condensed financial statements may
not be indicative of the results that actually would have occurred if the
transactions had been effected on the dates indicated or which may obtain in the
future. The pro forma condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
Lockhart Caribbean Corporation and the financial statements and the notes
thereto of Premium Finance Company of the Virgin Islands, Inc. included
elsewhere in this Prospectus.
F-4
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Balance Sheet (Unaudited)
As of June 30, 1997
Minimum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
- ------
Operating property, net of accumulated ........................... $32,877,507 $ 59,546(1) $32,937,053
depreciation
Cash and cash equivalents ........................................ 783,115 1,592,730(1)(2) 2,375,845
Accounts and note receivable ..................................... 609,655 1,151,288(1) 1,760,943
Prepaid expenses ................................................. 574,260 4,697(1) 578,957
Deferred financing costs ......................................... 495,163 495,163
Other assets ..................................................... 352,413 261,528(1)(3) 613,941
----------- ----------- -----------
Total assets ..................................................... $35,692,113 $ 3,069,789 $38,761,902
=========== =========== ===========
Liabilities & Stockholders' Equity
- ----------------------------------
Liabilities:
Notes payable ............................................... $24,853,682 ($4,500,000)(4) $20,353,682
Short-term bank debt ............................................. 780,343 (1) 780,343
Property taxes ................................................... 981,687 981,687
Tenant security deposits ......................................... 329,277 329,277
Unearned interest ................................................ 50,645(1) 50,645
Accounts payable and other accrued expenses ...................... 721,162 1,801(1) 722,963
Deferred income taxes ............................................ 1,113,373 1,113,373
----------- ----------- -----------
Total liabilities ................................................ 27,999,181 (3,667,211) 24,331,970
Stockholder's Equity:
Preferred stock, par value $.01:
Authorized shares 1,000,000, none issued Class A common
stock, par value $.01:
Authorized shares 40,000,000,
Issued and Outstanding 1,153,846--after
Offering ................................................ 11,538 (5) 11,538
Class B common stock, par value $.01:
Authorized shares 9,000,000
Issued and outstanding--8,634,280 ....................... 86,343 86,343
Additional paid-in capital .................................. 6,688,044 6,725,462(5)(6) 13,413,506
Retained earnings ....................................... 918,545 918,545
----------- ----------- -----------
Total shareholders' equity .................................. 7,692,932 6,737,000 14,429,932
----------- ----------- -----------
Total liabilities and stockholders' equity .................. $35,692,113 $ 3,069,789 $38,761,902
=========== =========== ===========
</TABLE>
F-5
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Balance Sheet (Unaudited)
As of December 31, 1996
Minimum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
Operating property, net of accumulated ......... $33,228,411 $ 17,488(1) $33,245,899
depreciation
Cash and cash equivalents ...................... 930,163 1,659,897(1)(2) 2,590,060
Accounts and note receivable ................... 753,773 1,128,383(1) 1,882,156
Prepaid expenses ............................... 325,879 8,382(1) 334,261
Deferred financing costs ....................... 508,189 508,189
Other assets ................................... 523,446 257,941(1)(3) 781,387
----------- ----------- -----------
Total assets ................................... $36,269,861 $ 3,072,091 $39,341,952
=========== =========== ===========
Liabilities & Stockholders' Equity
Liabilities:
Notes payable ............................. $24,943,492 ($4,500,000)(4) $20,443,492
Short-term bank debt ........................... 785,495 (1) 785,495
Property taxes ................................. 778,137 778,137
Tenant security deposits ....................... 314,035 314,035
Unearned interest .............................. 44,209 (1) 44,209
Accounts payable and other accrued expenses .... 478,177 5,387 (1) 483,564
Deferred income taxes .......................... 1,422,050 1,422,050
----------- ----------- -----------
Total liabilities .............................. 27,935,891 (3,664,909) 24,270,982
Stockholder's Equity:
Preferred stock, par value $.01:
Authorized shares 1,000,000, none issued
Class A common stock, par value $.01:
Authorized shares 40,000,000,
Issued and outstanding 1,153,846--after
Offering .............................. 11,538(5) 11,538
Class B common stock, par value $.01:
Authorized shares 9,000,000
Issued and outstanding--8,622,155 ..... 86,222 86,222
Additional paid-in capital ................ 6,669,379 6,725,462(5)(6) 13,394,841
Retained earnings ..................... 1,578,369 1,578,369
----------- ----------- -----------
Total shareholders' equity ................ 8,333,970 6,737,000 15,070,970
----------- ----------- -----------
Total liabilities and stockholders' equity $36,269,861 $ 3,072,091 $39,341,952
=========== =========== ===========
</TABLE>
F-6
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Balance Sheets
Minimum Offering
(Unaudited)
For purposes of determining the effect of the Minimum Offering on the
Company's Condensed Balance Sheet as of June 30, 1997 and as of December 31,
1996, the following pro forma adjustments have been made. The pro forma
condensed balance sheets show the effect of the acquisition of Premium Finance
Company of the V.I., Inc. and the repayment of $4.5 million in debt from the net
proceeds of the Minimum Offering as if the transactions had occurred on the
dates the balance sheets are presented.
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
(1) Additional assets and liabilities from acquisition of PFC:
Operating property, net of accumulated
depreciation $ 17,488 $ 59,546
Cash and cash equivalents 110,397 43,230
Accounts and note receivable 1,128,383 1,151,288
Prepaid expenses 8,382 4,697
Other assets 27,363 25,839
Short-term bank debt 785,495 780,343
Unearned interest 44,209 50,645
Accounts payable and other accrued expenses 5,387 1,801
(2) Net cash proceeds from the Minimum Offering of $7.5 million
less $763,000 in issuance costs, $4.5 million debt retirement,
and $687,500 for acquisition of PFC 1,549,500 1,549,500
(3) Excess of purchase price for PFC stock over book
value of PFC's equity 230,578 235,689
(4) Retirement of bank debt from proceeds of the Minimum Offering (4,500,000) (4,500,000)
(5) Minimum offering of 1,153,846 Class A shares at par
value of $.01 11,538 11,538
(6) Additional paid-in capital:
Sale of 1,153,846 shares of Class A common at $6.50 per share
less $763,000 in issuance cost
and $11,538 par value 6,725,462 6,725,462
</TABLE>
F-7
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations (Unaudited)
For The Six Months Ended June 30, 1997
Minimum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental $ 2,265,569 $ 2,265,569
Tenant reimbursement 91,287 91,287
Other operating income 162,981 162,981
Interest and loan service fees 183,599(2) 183,599
----------- ----------- -----------
Total revenue 2,519,837 183,599 2,703,436
Operating expenses 1,512,515 140,958(4) 1,653,473
----------- ----------- -----------
Operating income 1,007,322 42,641 1,049,963
Interest expense (1,109,111) 168,264(5)(7) (940,847)
Depreciation & amortization (723,324) (7,259)(8) (730,583)
Loss (gain) on disposal of property
Other income & expense 1,974 1,974
----------- ----------- -----------
Income (loss) before taxes (823,139) 203,646 (619,493)
Income taxes 308,677 (76,367)(9) 232,310
----------- ----------- -----------
Net income ($ 514,462) $ 127,279 ($ 387,183)
=========== =========== ===========
EBITDA (10) $ 1,009,296 $ 1,051,937
Net (loss) income per share ($0.06) $0.02 ($0.05)
Weighted average number of common
shares outstanding 8,621,331 8,621,331 8,621,331
</TABLE>
F-8
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations (Unaudited)
For the Year Ended December 31, 1996
Minimum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental $ 3,385,002 $ 627,191(1) $ 4,012,193
Tenant reimbursement 248,898 34,310(1) 283,208
Other operating income 582,833 46,247(1) 629,080
Interest and loan service fees 403,784(2) 403,784
----------- ----------- -----------
Total revenue 4,216,733 1,111,532 5,328,265
Operating expenses 2,639,969 476,160(3)(4) 3,116,129
----------- ----------- -----------
Operating income 1,576,764 635,372 2,212,136
Interest expense (1,675,930) (119,680)(5)(6)(7) (1,795,610)
Depreciation & amortization (1,244,774) (189,533)(8) (1,434,307)
Insurance proceeds 75,670 75,670
Loss (gain) on disposal of property 86,440 86,440
Other income & expense (103,775) (103,775)
----------- ----------- -----------
Income (loss) before taxes (1,285,605) 326,159 (959,446)
Income taxes 452,895 (93,103)(9) 359,792
----------- ----------- -----------
Net income ($ 832,710) $ 233,056 ($ 599,654)
=========== =========== ===========
EBITDA (10) $ 1,635,099 $2,270,471
Net (loss) income per share ($0.10) $0.03 ($0.07)
Weighted average number of common
shares outstanding 8,562,048 8,562,048 8,562,048
</TABLE>
F-9
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Statements of Operations
Minimum Offering
(Unaudited)
For purposes of determining the effect of the Minimum Offering on the
Company's Condensed Statements of Operations for the six months ended June 30,
1997 and for the year ended December 31, 1996, the following pro forma
adjustments have been made. The pro forma condensed financial statements show:
(i) the effect of a full year of operations from the three properties (Fort
Mylner Shopping Center, Fort Mylner Commercial Center and Orange Grove Shopping
Center) acquired on June 27, 1996; (ii) the acquisition of Premium Finance
Company of the V.I., Inc. ("PFC"); and (iii) the repayment of $4.5 million in
outstanding debt. The full six months of operations of Fort Mylner Shopping
Center, Fort Mylner Commercial Center and Orange Grove Shopping Center are
included in the financial statements for the six months ended June 30, 1997.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
(1) The full year impact on operating revenue
from the acquisition of three properties
on June 27, 1996:
Rental $ 627,191
Tenant reimbursement 34,310
Other operating income 46,247
(2) Additional revenue from the acquisition of PFC 403,784 $ 183,599
(3) The full year impact on operating expenses from
the three properties acquired on June 27, 1996 225,096
(4) Additional operating expenses from the acquisition
of PFC 251,064 140,958
(5) Interest expense reduction from the retirement of
$4.5 million in outstanding debt 393,118 200,352
(6) The full year impact on interest expense from the
acquisition of three properties on June 27, 1996 (440,456)
(7) Additional interest expense - PFC's existing loans (72,342) (32,088)
(8) Additional depreciation & amortization:
Full year impact from the acquisition of three
properties on June 27, 1996 (175,015)
Acquisition of PFC (14,518) (7,259)
(9) Income tax on cumulative effect of adjustments (93,103) (76,367)
(37.5%)
(10) EBITDA means income before mortgage and other interest, income taxes,
depreciation and amortization. EBITDA is not intended to represent cash
flows from operations and should not be considered as an alternative to
net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. The Company believes that EBITDA is
a standard measure commonly reported and widely used by analysts,
investors and other interested parties in
</TABLE>
F-10
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Statements of Operations
Minimum Offering
(Unaudited)
the real estate industry. Accordingly, this information has been disclosed
herein to permit a more complete comparative analysis of the Company's
performance relative to other companies in the industry. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies and, therefore, may not necessarily be an accurate basis
of comparison.
F-11
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED FINANCIAL STATEMENTS
MAXIMUM OFFERING
(Unaudited)
The following unaudited pro forma condensed financial statements of
Lockhart Caribbean Corporation reflect the following transactions: (i) the sale
of 2,000,000 shares of Class A Common Stock for $6.50 per share (the "Maximum
Offering"), (ii) the use of a portion of the net proceeds to repay $5.0 million
of outstanding debt, (iii) the use of a portion of the net proceeds to acquire
Premium Finance Company of the V.I., Inc., a company that finances insurance
premiums in the U.S. Virgin Islands and other Caribbean islands, (iv) the use of
a portion of the net proceeds to repurchase 73,847 shares of outstanding Class B
Common Stock for $6.50 per share, and (v) the repayment of all outstanding
receivables from stockholders. The pro forma balance sheets as of June 30, 1997
and December 31, 1996 show the effects of these transactions as if they had
occurred at the date of the balance sheets. The unaudited pro forma condensed
statements of operations for the six months ended June 30, 1997, and for the
year ended December 31, 1996, show the effects of these transactions as if they
had occurred at the beginning of the period. Additionally, the statements of
operations for the year ended December 31, 1996 show the effect of the June 27,
1996 acquisition of three properties (Fort Mylner Shopping Center, Fort Mylner
Commercial Center and Orange Grove Shopping Center) as if the acquisitions were
made at the beginning of the year.
The pro forma condensed financial statements were prepared by the
management of the Company. These pro forma condensed financial statements may
not be indicative of the results that actually would have occurred if the
transactions had been effected on the dates indicated or which may obtain in the
future. The pro forma condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
Lockhart Caribbean Corporation and the financial statements and the notes
thereto of Premium Finance Company of the Virgin Islands, Inc. included
elsewhere in this Prospectus.
F-12
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Balance Sheet (Unaudited)
As of June 30, 1997
Maximum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
- ------
Operating property, net of accumulated $32,877,507 $ 59,546(1) $32,937,053
depreciation
Cash and cash equivalents 783,115 5,996,993(1)(2)(7) 6,780,108
Accounts and note receivable 609,655 1,056,085(1)(7) 1,665,740
Prepaid expenses 574,260 4,697(1) 578,957
Deferred financing costs 495,163 495,163
Other assets 352,413 261,528(1)(3) 613,941
----------- ------------ -----------
Total assets $35,692,113 $ 7,378,849 $43,070,962
=========== ============ ===========
Liabilities & Stockholders' Equity
- ----------------------------------
Liabilities:
Notes payable $24,853,682 ($ 5,000,000)(4) $19,853,682
Short-term bank debt 780,343(1) 780,343
Property taxes 981,687 981,687
Tenant security deposits 329,277 329,277
Unearned interest 50,645(1) 50,645
Accounts payable and other accrued expenses 721,162 1,801(1) 722,963
Deferred income taxes 1,113,373 1,113,373
----------- ------------ -----------
Total liabilities 27,999,181 (4,167,211) 23,831,970
Stockholder's Equity:
Preferred stock, par value $.01:
Authorized shares 1,000,000,
none issued
Class A common stock, par value $.01:
Authorized shares 40,000,000,
Issued and Outstanding 2,000,000--after
Offering 20,000(6) 20,000
Class B common stock, par value $.01:
Authorized shares 9,000,000
Issued and outstanding--8,634,280 and
8,560,433 after offering 86,343 (738)(5) 85,605
Additional paid-in capital 6,688,044 11,526,798(5)(6) 18,214,842
Retained earnings 918,545 918,545
----------- ------------ -----------
Total shareholders' equity 7,692,932 11,546,060 19,238,992
----------- ------------ -----------
Total liabilities and stockholders' equity $35,692,113 $ 7,378,849 $43,070,962
=========== ============ ===========
</TABLE>
F-13
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Balance Sheet (Unaudited)
As of December 31, 1996
Maximum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
- ------
Operating property, net of accumulated $33,228,411 $ 17,488(1) $33,245,899
depreciation
Cash and cash equivalents 930,163 6,066,525(1)(2)(7) 6,996,688
Accounts and note receivable 753,773 1,030,815(1)(7) 1,784,588
Prepaid expenses 325,879 8,382(1) 334,261
Deferred financing costs 508,189 508,189
Other assets 523,446 257,941(1)(3) 781,387
----------- ------------ -----------
Total assets $36,269,861 $ 7,381,151 $43,651,012
=========== ============ ===========
Liabilities & Stockholders' Equity
- ----------------------------------
Liabilities:
Notes payable $24,943,492 ($ 5,000,000)(4) $19,943,492
Short-term bank debt 785,495(1) 785,495
Property taxes 778,137 778,137
Tenant security deposits 314,035 314,035
Unearned interest 44,209(1) 44,209
Accounts payable and other accrued expenses 478,177 5,387(1) 483,564
Deferred income taxes 1,422,050 1,422,050
----------- ------------ -----------
Total liabilities 27,935,891 (4,164,909) 23,770,982
Stockholder's Equity:
Preferred stock, par value $.01:
Authorized shares 1,000,000, none issued
Class A common stock, par value $.01:
Authorized shares 40,000,000,
Issued and Outstanding 2,000,000--after
Offering 20,000(6) 20,000
Class B common stock, par value $.01:
Authorized shares 9,000,000
Issued and outstanding--8,622,155 and
8,548,308 after the offering 86,222 (738)(5) 85,484
Additional paid-in capital 6,669,379 11,526,798(5)(6) 18,196,177
Retained earnings 1,578,369 1,578,369
----------- ------------ -----------
Total shareholders' equity 8,333,970 11,546,060 19,880,030
----------- ------------ -----------
Total liabilities and stockholders' equity $36,269,861 $ 7,381,151 $43,651,012
=========== ============ ===========
</TABLE>
F-14
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Balance Sheets
Maximum Offering
(Unaudited)
For purposes of determining the effect of the Maximum Offering on the
Company's Condensed Balance Sheet as of June 30, 1997 and as of December 31,
1996, the following pro forma adjustments have been made. The pro forma
condensed balance sheets show the effect of the acquisition of Premium Finance
Company of the V.I., Inc. and the repayment of $5 million in debt from the net
proceeds of the Maximum Offering as if the transactions had occurred on the
dates the balance sheets are presented.
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
(1) Additional assets and liabilities from acquisition of PFC:
Operating property, net of accumulated
depreciation $ 17,488 $ 59,546
Cash and cash equivalents 110,397 43,230
Accounts and note receivable 1,128,383 1,151,288
Prepaid expenses 8,382 4,697
Other assets 27,363 25,839
Short-term bank debt 785,495 780,343
Unearned interest 44,209 50,645
Accounts payable and other accrued expenses 5,387 1,801
(2) Net cash proceeds from the Maximum Offering of
$13 million less $973,940 in issuance costs,
$5 million debt retirement, $687,500 for
acquisition of PFC, and repurchase of 73,847 Class B
shares for $480,000 5,858,560 5,858,560
(3) Excess of purchase price for PFC stock over book
value of PFC's equity 230,578 235,689
(4) Retirement of bank debt from proceeds of the Maximum Offering (5,000,000) (5,000,000)
(5) Repurchase of 73,847 Class B shares from proceeds of
Maximum Offering:
Class B common stock, par value (738) (738)
Additional paid-in-capital (479,262) (479,262)
(6) Maximum Offering of 2,000,000 Class A Shares
Class A common stock, par value $0.01 20,000 20,000
Additional paid-in capital
2,000,000 shares of Class A common at $6.50
less $973,940 in issuance cost
and $20,000 par value 12,006,060 12,006,060
(7) Repayment of loans to stockholders
Accounts and note recievable (97,568) (95,203)
Cash 97,568 95,203
</TABLE>
F-15
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations (Unaudited)
For The Six Months Ended June 30, 1997
Maximum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental $ 2,265,569 $ 2,265,569
Tenant reimbursement 91,287 91,287
Other operating income 162,981 162,981
Interest and loan service fees 183,599(2) 183,599
----------- ----------- ----------
Total revenue 2,519,837 183,599 2,703,436
Operating expenses 1,512,515 140,958(4) 1,653,473
----------- ----------- ----------
Operating income 1,007,322 42,641 1,049,963
Interest expense (1,109,111) 189,975(5)(7) (919,136)
Depreciation & amortization (723,324) (7,259)(8) (730,583)
Loss (gain) on disposal of property
Other income & expense 1,974 1,974
----------- ----------- ----------
Income (loss) before taxes (823,139) 225,357 (597,782)
Income taxes 308,677 (84,509)(9) 224,168
----------- ----------- ----------
Net income ($ 514,462) 140,848 (373,614)
=========== =========== ==========
EBITDA(10) $ 1,009,296 1,051,937
Net (loss) income per share ($0.06) $0.02 ($0.04)
Weighted average number of common
shares outstanding 8,621,331 8,621,331 8,621,331
</TABLE>
F-16
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Statement of Operations (Unaudited)
For the Year Ended December 31, 1996
Maximum Offering
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental $ 3,385,002 $ 627,191(1) $ 4,012,193
Tenant reimbursement 248,898 34,310(1) 283,208
Other operating income 582,833 46,247(1) 629,080
Interest and loan service fees 403,784(2) 403,784
----------- ----------- -----------
Total revenue 4,216,733 1,111,532 5,328,265
Operating expenses 2,639,969 476,160(3)(4) 3,116,129
----------- ----------- -----------
Operating income 1,576,764 635,372 2,212,136
Interest expense (1,675,930) (76,026)(5)(6)(7) (1,751,956)
Depreciation & amortization (1,244,774) (189,533)(8) (1,434,307)
Insurance proceeds 75,670 75,670
Loss (gain) on disposal of property 86,440 86,440
Other income & expense (103,775) (103,775)
----------- ----------- -----------
Income (loss) before taxes (1,285,605) 369,813 (915,792)
Income taxes 452,895 (109,473)(9) 343,422
----------- ----------- -----------
Net income ($ 832,710) $ 260,340 ($ 572,370)
=========== =========== ===========
EBITDA(10) $ 1,635,099 $ 2,270,471
Net (loss) income per share ($0.10) $0.03 ($0.07)
Weighted average number of common
shares outstanding 8,562,048 8,562,048 8,562,048
</TABLE>
F-17
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Statements of Operations
Maximum Offering
(Unaudited)
For purposes of determining the effect of the Maximum Offering on the
Company's Condensed Statements of Operations for the six months ended June 30,
1997 and for the year ended December 31, 1996, the following pro forma
adjustments have been made. The pro forma condensed financial statements show
the effect of a full year of operations from the three properties (Fort Mylner
Shopping Center, Fort Mylner Commercial Center and Orange Grove Shopping Center)
acquired on June 27, 1996; the acquisition of Premium Finance Company of the
V.I., Inc.; and the retirement of $5 million in outstanding debt. The full six
months of operations of Fort Mylner Shopping Center, Fort Mylner Commercial
Center and Orange Grove Shopping Center are included in the financial statements
for the six months ended June 30, 1997.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
(1) The full year impact on operating revenue from the
acquisition of three properties on June 27, 1996:
Rental $ 627,191
Tenant reimbursement 34,310
Other operating income 46,247
(2) Additional revenue from the acquisition of PFC 403,784 $ 183,599
(3) The full year impact on operating expenses from
the three properties acquired on June 27, 1996 225,096
(4) Additional operating expenses from the acquisition
of PFC 251,064 140,958
(5) Interest expense reduction:
retirement of $4.5 million in debt from financial
institution 393,118 200,352
payment of $0.5 million in outstanding principal
on note to seller 43,654 21,711
(6) The full year impact on interest expense from the
acquisition of three properties on June 27, 1996 (440,456)
(7) Additional interest expense - PFC's existing loans (72,342) (32,088)
(8) Additional depreciation & amortization:
Full year impact from the acquisition
of three properties on June 27, 1996 (175,015)
Acquisition of PFC (14,518) (7,259)
(9) Income tax on cumulative effect of adjustments
(37.5%) (109,473) (84,509)
(10) EBITDA means earnings before mortgage and other interest, income taxes,
depreciation and amortization. EBITDA is not intended to represent cash
flows from operations and should not be
</TABLE>
F-18
<PAGE>
LOCKHART CARIBBEAN CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Statements of Operations
Maximum Offering
(Unaudited)
considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of
liquidity. The Company believes that EBITDA is a standard measure commonly
reported and widely used by analysts and other interested parties in the
real estate industry. Accordingly, this information has been disclosed
herein to permit a more complete comparative analysis of the Company's
performance relative to other companies in the industry. The Company's
definition of EBITDA may not be identical to similarly titled measures of
other companies and, therefore, may not necessarily be an accurate basis
of comparison.
F-19
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Interim Financial Statements
(Unaudited)
F-20
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30
1997 1996
----------------------------
Assets
Operating property:
Land and improvements $ 10,012,224 $ 7,030,326
Buildings and improvements 25,135,288 15,655,882
Equipment 440,053 406,275
Prepaid lease 1,460,657 1,460,657
Construction in-progress 411,398 206,990
---------- ----------
Total operating property 37,459,620 24,760,130
Accumulated depreciation and amortization (4,582,113) (3,474,869)
---------- ----------
32,877,507 21,285,261
Cash and cash equivalents 783,115 1,125,646
Restricted cash -- 1,701,449
---------- ---------
783,115 2,827,095
Accounts note receivable:
Tenants 467,712 237,035
Note -- 101,000
Interest -- 73,259
Shareholders 95,203 94,678
Insurance proceeds -- 459,095
Other 46,740 41,244
------------ ------------
609,655 1,006,311
Prepaid expenses 574,260 567,613
Deferred financing costs 495,163 126,285
Other assets 352,413 11,283
------------ ------------
Total assets $ 35,692,113 $ 25,823,848
============ ============
See accompanying notes.
F-21
<PAGE>
June 30
1997 1996
-------------------------
Liabilities and shareholders' equity
Liabilities:
Notes payable
Mortgage notes $24,788,900 $13,134,500
Installment note -- 287,269
Lease 64,782 59,000
----------- -----------
Total notes payable 24,853,682 13,480,769
Property taxes 981,687 728,592
Tenant security deposits 329,277 229,723
Accounts payable 430,465 336,728
Accrued expenses and other liabilities 290,697 373,715
Deferred income taxes 1,113,373 1,752,981
----------- -----------
Total liabilities 27,999,181 16,902,508
Shareholders' equity Preferred stock, par value $.01:
Authorized shares--1,000,000, none issued
Class A common stock, par value $.01:
Authorized shares--40,000,000, none issued
Class B common stock, par value $.01:
Authorized shares--9,000,000
Issued and outstanding shares--8,634,280
in 1997 and 8,496,540 in 1996 86,343 84,965
Additional paid-in capital 6,688,044 6,441,177
Retained earnings 918,545 2,395,198
--------- ---------
Total shareholders' equity 7,692,932 8,921,340
----------- -----------
Total liabilities and shareholders' equity $35,692,113 $25,823,848
=========== ===========
See accompanying notes.
F-22
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
June 30
1997 1996
---- ----
<S> <C> <C>
Income:
Rental Income $2,265,569 $1,518,499
Tenant expense reimbursement 91,287 37,896
Other operating income 162,981 66,155
--------- ----------
Total Income 2,519,837 1,622,550
Operating expenses:
Operating and maintenance 162,886 79,706
Salaries and employee benefits 419,612 353,903
Directors' fees 39,000 39,000
Utilities 139,318 53,523
Insurance 283,609 144,519
Other taxes 308,671 239,216
Professional fees 116,386 117,943
Other general and administrative 43,033 45,873
---------- ----------
Total Operating expenses 1,512,515 1,073,683
--------- ---------
Operating income 1,007,322 548,867
Other income (expense):
Interest expense (1,109,111) (640,275)
Depreciation and amortization (723,324) (414,324)
Gain/(loss) on disposal of operating property -- 80,505
Other income 1,974 96,536
----------- ----------
Total other income (expense) (1,830,461) (877,558)
----------- ----------
Loss before income taxes (823,139) (328,691)
Deferred income tax benefit 308,677 123,259
----------- ----------
Net loss ($514,462) ($205,432)
=========== ==========
Net loss per common share ($0.06) ($0.02)
=========== ==========
Weighted average number of common shares used in
computation of net loss per share 8,623,271 8,512,982
=========== ==========
</TABLE>
See accompanying notes.
F-23
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid-in Capital Earnings Total
----- --------------- -------- -----
<S> <C> <C> <C> <C>
Balance at July 1, 1996 84,965 6,441,177 2,395,198 8,921,340
Issuance of common stock 1,378 246,867 -- 248,245
Net loss -- -- (1,146,181) (1,146,181)
Cash dividends -- -- (330,472) (330,472)
-------- ----------- --------- ---------
Balance at June 30, 1997 86,343 6,688,044 918,545 7,692,932
====== ========= ========= =========
</TABLE>
See accompanying notes.
F-24
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
June 30
1997 1996
------------------------
Operating activities
<S> <C> <C>
Net loss ($514,462) ($ 205,432)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 723,324 414,324
Deferred income taxes (308,677) (123,259)
(Gain) loss on disposal of operating property -- (80,505)
Changes in operating assets and liabilities:
Accounts and note receivable 164,261 5,047,079
Prepaid expenses (171,653) (320,653)
Other assets (75,000)
Tenant security deposits 15,242 4,086
Accounts payable and accrued expenses 435,308 405,210
-------- ----------
Net cash provided by operating activities 268,343 5,140,850
Investing activities
Acquisition of land
Sale of land 80,505
Acquisition of buildings and improvements (162,986) (3,120,615)
Acquisition of equipment (13,393) (97,323)
--------- -----------
Net cash used in investing activities (176,379) (3,137,433)
Financing activities
Principal payments on notes (89,798) (289,386)
Proceeds from issuance of notes -- 674,206
Proceeds from issuance of common stock 36,823 32,916
Repurchase of common stock (18,036) (61,022)
Loan issuance costs (2,685) --
Cash dividends (165,316) (163,239)
--------- -----------
Net cash (used in) provided by financing activities (239,012) 193,475
--------- -----------
Net (decrease) increase in cash and cash equivalents (147,048) 2,196,892
Cash and cash equivalents at January 1 930,163 630,203
--------- -----------
Cash and cash equivalents at June 30 $ 783,115 $ 2,827,095
========= ===========
</TABLE>
See accompanying notes.
F-25
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
1. Summary of Significant Accounting Policies
Description of Business
Lockhart Caribbean Corporation ("LCC") is organized as a United States Virgin
Islands corporation engaged in owning, developing and leasing commercial real
estate. LCC leases developed land, and retail and office space to customers
under month-to-month and long-term leases. The accompanying consolidated
financial statements include the accounts of LCC and its wholly-owned
subsidiaries H.E. Lockhart Management, Inc. ("HELM") and Lockhart Realty, Inc.
("LRI"). Significant intercompany balances and transactions have been eliminated
in consolidation.
Uses of Estimates
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments with maturity
of three months or less when purchased. Cash equivalents amounted to $379,910
and $196,422 at June 30, 1997 and 1996, respectively, and consisted primarily of
money market instruments.
Construction-in-Progress
Construction-in-progress consists primarily of costs (including applicable
property taxes and interest) incurred relating to certain renovation and
rebuilding projects. These costs are included in operating property when the
projects are completed.
Operating Property
Operating property is stated on the basis of cost. LCC provides for depreciation
of operating property using the straight line and accelerated methods for
financial reporting purposes and the modified accelerated cost recovery system
for income tax purposes over their estimated useful lives, which range from 5 to
31.5 years. Expenditures for maintenance and general repairs are charged to
expenses as incurred, whereas major improvements are classified as additions to
operating property.
Net Income (Loss) Per Share
Net income (loss) per share is computed based upon the weighted average number
of common shares outstanding during the periods.
F-26
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
Capitalized Interest
Interest is capitalized as a component of the cost of property, plant and
equipment constructed. No interest was capitalized in the periods ended June 30,
1997 and June 30, 1996.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
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". The Company adopted SFAS No. 121 in 1995, which had no material effect on
the Company's financial statements. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair market value and carrying value
of the asset.
Deferred Financing Costs
Deferred financing costs represents costs incurred related to the issuance of
debt and are amortized over the term of the related debt.
Fair Values of Financial Instruments
The following methods and assumptions were used by LCC in estimating its fair
value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
Note receivable: The carrying amount reported in the balance sheet approximates
fair value due to the underlying collateral on the note.
Notes payable: The carrying amounts of the mortgage notes, which bear interest
based on the financial institution's prime rate, approximate fair value due to
the periodic repricing of the interest rates. The carrying amounts of the fixed
rate mortgage and the installment note approximate fair value based on
discounted cash flow analyses.
2. Note Receivable
In 1989, HELM sold a parcel of land and received a promissory note for $101,000,
secured by a first priority mortgage on the property. No interest was accrued
for the six months ended June 30, 1997 and 1996. The note was settled on March
14, 1997 for $169,000. Accrued interest as of March 14, 1997 amounted to
$73,259.
3. Notes Payable
Mortgage notes payable consisted of the following:
F-27
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
<TABLE>
<CAPTION>
June 30
1997 1996
-------------------------
<S> <C> <C>
First and second mortgage note payable to financial
institution at prime plus .5% (9% at June 30, 1997) $14,568,702 $ --
First mortgage note payable to a financial institution
at prime plus .5% (9% at June 30, 1997) 4,490,354 --
First mortgage payable to a financial institution
at prime plus 1.5% (10% and 9.75% at June 30, 1997
and 1996, respectively) 775,558 851,230
First mortgage not payable to seller at 8.75% 4,654,286 4,689,065
Non-revolving line of credit promissory note to a financial
institution at prime plus .5% (9% at June 30, 1997) 300,000 --
First mortgage note payable to a financial institution at
prime plus 1.25% (9.75% at June 30, 1996) -- 3,735,552
First mortgage note payable to a financial institution at
prime plus 1.25% (9.75% at June 30, 1996) -- 1,925,118
First mortgage note payable to a financial institution at
prime plus 1% (9.5% at June 30, 1996) -- 1,318,329
Non revolving line of credit promissory note to a financial
institution at prime plus 1% (9.5% at June 30, 1996) -- 615,206
----------- -----------
$24,788,900 $13,134,500
=========== ===========
</TABLE>
The $14.5 million mortgage note is payable in monthly installments of $125,032
commencing in May 1997 after a six month interest-only payment period. A final
balloon payment of $14.1 million is due when the note matures in April 2000.
Proceeds of the note were used to retire mortgage and installment notes on
Drakes Passage; and to retire mortgage notes issued for the renovation of Grand
Hotel, acquisition of Red Hook Plaza, and an interim loan of $10.4 million
issued to acquire Orange rove Shopping Center, Fort Mylner Commercial Center,
and Forty Mylner Shopping Center.
The $4.5 million mortgage note is payable in monthly installments of $38,537
commencing May 1997 after an initial interest-only payment period. A final
balloon payment of approximately $4.3 million is payable when the note matures
in April 2000. The proceeds of the note were used to liquidate the mortgage note
issued for the renovation of Lockhart Gardens Shopping Center (which had an
outstanding balance of $3,735,552 at liquidation).
The $775,558 mortgage note is payable in monthly installments of $6,306 plus
interest through May 1999 and a final balloon payment of $630,520 in June 1999.
F-28
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
Proceeds of the $4.7 million mortgage note to seller were used to finance the
acquisition of Red Hook Plaza Shopping Center. The note is payable in monthly
installments of $34,971 commencing February 1996. A final installment comprised
of the principal sum then outstanding together with any unpaid interest is
payable when the note matures in January 2004. The note is secured by a first
priority mortgage on properties at Red Hook Plaza Shopping Center, an
conditional assignment of leases and rents, and a guarantee of LCC up to a
maximum amount of $750,000.
HELM, a subsidiary, obtained a $1 million non-revolving line of credit from a
financial institution. A total of $300,000 has been drawn on the line of credit
as June 30, 1997. The balance outstanding under the line of credit is due and
payable on April 2000. Interest accrues at .5% above the institution's prime
rate and is payable monthly.
The mortgage notes of $3,735,552, $1,941,467, and $1,381,675 on June 30, 1996
were all retired in October 1996 when two new mortgage notes of $14.6 million
and $4.5 million, respectively were issued.
Substantially all operating property is pledged as collateral on the mortgage
notes.
Installment Note
In 1990, HELM purchased a lease on its Drakes Passage property through an
installment note payable. The note was schedule to mature in 1997. The
acquisition of the lease was recorded as a capitalized asset at the present
value of the acquisition cost. The capitalized asset and discount were being
amortized over the seven year term of the installment note.
At June 30, 1996, the balance of the installment note was $287,269 (net of
unamortized discount of $97,741). The note was liquidated in October 1996 with
the proceeds of the $14.6 million mortgage note.
At July 1996, HELM purchased a vehicle for $59,000 through an installment note
payable which matures on June 1, 2001. In February, 1997, HELM financed the
purchase of another vehicle through an installment note payable of $13,800 which
matures on January 1, 2002.
4. Income Taxes
At June 30, 1997, LCC had operating loss carryforwards of approximately
$1,029,000 available to offset future taxable income through the year 2011.
F-29
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
At June 30, 1996 and 1997, net deferred income taxes (liabilities) had balances
of $1,113,373 and $1,752,981, respectively.
5. Leases
The Company, through its subsidiaries, leases retail and office space under
noncancellable leases which expire at various dates. Five-year renewal options
are available with most leases. The leases provide for minimum rental payments
plus adjustments, if applicable for certain additional costs incurred by the
lessor and/or a percentage of gross sales. No rent attributable to a percentage
of tenants' gross sales are included in the periods ended June 30, 1997 and June
30, 1996.
At June 30, 1997, the approximate future minimum rental income under the lease
agreements were as follows:
1998 $ 4,635,000
1999 4,805,000
2000 4,918,000
2001 5,061,000
Thereafter 5,237,000
-----------
$24,656,000
===========
6. Transaction with Related Parties
The amounts due from shareholders are interest bearing and have no specific
repayment terms.
A shareholder of LCC and member of the board of directors is also a partner of a
law firm which renders legal services of LCC. During the six months ended June
30, 1997 and 1996, fees paid to the law firm amounted to $78,749 and $59,649
respectively.
7. Subsequent Events
On June 6, 1997 the Company executed a letter of intent to purchase all the
outstanding common stock of Premium Finance Company of the V.I., Inc. ("PFC")
for $687,500. PFC finances insurance premiums for individual and businesses
primarily in the U.S. Virgin Islands, the British Virgin Islands and Anguilla.
The acquisition is dependent upon receiving regulatory approval and approval of
PFC's shareholders. In addition, the Company has agreed to guarantee a bank loan
to a wholly-owned subsidiary of PFC amounting to $200,000.
On July 5, 1997, the shareholders of The Lockhart Companies Incorporated ("LCI")
voted to restructure the company and to offer common stock to the public in an
initial public offering to be registered with the Securities and Exchange
Commission. In connection with the restructuring, LCI changed its name Lockhart
Caribbean Corporation ("LCC") on August 22, 1997. On the same date, the
shareholders of LCI exchanged each of their common shares of LCI stock for 9.7
shares of Class B common stock of LCC. The transaction has been accounted for as
a pooling-of-interest and, accordingly, the financial statements for the periods
ended June 30, 1997 and June 30, 1996 have been restated to give retroactive
recognition to the transaction.
F-30
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
On August 1, 1997 the Company obtained an additional line of credit from a
financial institution in the amount of $400,000. Advances under the line of
credit will bear interest at the institution's base rate. The line of credit
expires on July 31, 1998.
One of the Company's major tenants advised the Company that it intends to vacate
the premises in December 1997. The tenant's lease does not expire until 2001,
and it is obligated to make base rental payments until 2001. The Company and the
tenant are jointly seeking a suitable replacement tenant. The tenant's annual
base rent is approximately $240,000 per year.
F-31
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Lockhart Caribbean Corporation
We have audited the accompanying consolidated balance sheets of Lockhart
Caribbean Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedules listed in the Index.
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 consolidated financial position of Lockhart Caribbean
Corporation and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
March 7, 1997, except for Note 7 as to
which the date is August 22, 1997
F-32
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
----------------------------
<S> <C> <C>
Assets
Operating property:
Land and improvements $ 10,009,236 $ 7,030,326
Buildings and improvements 25,068,409 11,548,709
Equipment 426,660 308,952
Prepaid lease 1,460,657 1,460,657
Construction-in-progress 265,706 1,193,549
--------------------------
Total operating property 37,230,668 21,542,193
Accumulated depreciation and amortization (4,002,257) (3,098,146)
--------------------------
33,228,411 18,444,047
Cash and cash equivalents 930,163 463,909
Restricted cash -- 166,294
--------------------------
930,163 630,203
Accounts and note receivable, net allowance
for doubtful accounts of $97,800 in 1996 and
$66,000 in 1995:
Tenants 374,266 347,935
Note and related accrued interest 174,259 174,259
Shareholders 97,568 97,043
Insurance proceeds -- 5,316,169
Other 107,680 106,679
--------------------------
753,773 6,042,085
Prepaid expenses 325,879 250,098
Deferred financing costs, less accumulated amortization
of $26,061 in 1996 and $17,600 in 1995 508,189 113,957
Other assets 523,446 24,990
--------------------------
Total assets $ 36,269,861 $ 25,505,380
==========================
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
December 31
1996 1995
--------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Liabilities:
Notes payable:
Mortgage notes $24,885,459 $12,641,454
Installment note -- 391,642
Capital lease 58,033 27,244
------------------------
Total notes payable 24,943,492 13,060,340
Property taxes 778,137 498,195
Tenant security deposits 314,035 225,637
Accounts payable 127,431 117,137
Accrued expenses and other liabilities 350,746 398,975
Deferred income taxes 1,422,050 1,876,240
------------------------
Total liabilities 27,935,891 16,176,524
Shareholders' equity:
Preferred stock, par value $.01:
Authorized shares - - 1,000,000, none issued
Class A common stock, par value $.01:
Authorized shares 40,000,000, none issued
Class B common stock, par value $.01
Authorized shares 9,000,000
Issued and outstanding shares 8,622,155
in 1996 and 8,525,543 in 1995 86,222 85,255
Additional paid-in capital 6,669,379 6,501,909
Retained earnings 1,578,369 2,741,692
-----------------------
Total shareholders' equity 8,333,970 9,328,856
-----------------------
Total liabilities and shareholders' equity $36,269,861 $25,505,380
=========================
</TABLE>
See accompanying notes.
F-34
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Rental income $ 3,385,002 $ 3,028,074 $ 2,717,594
Tenant expense reimbursements 248,898 332,159 281,196
Other operating income 582,833 611,567 76,919
-----------------------------------------
Total income 4,216,733 3,971,800 3,075,709
Operating expenses:
Operating and maintenance 243,817 189,112 125,511
Salaries and employee benefits 834,697 906,289 728,745
Directors fees 195,500 325,255 171,520
Utilities 162,418 94,293 85,501
Insurance 454,670 338,879 345,156
Other taxes 475,836 499,863 423,992
Professional fees 203,157 355,427 103,849
Other general and administrative 69,874 48,166 38,447
------------------------------------------
Total operating expenses 2,639,969 2,757,284 2,022,721
------------------------------------------
Operating income 1,576,764 1,214,516 1,052,988
Other income (expense):
Interest expense (1,675,930) (1,084,204) (437,859)
Depreciation and amortization (1,244,774) (906,263) (639,147)
Other expenses (105,415) (199,863) (74,151)
Gain (loss) on disposal of operating property 86,440 (850,972) 1,713
Other income 1,640 1,535 3,030
Insurance proceeds 75,670 5,916,981 --
----------------------------------------
Total other income (expense) (2,862,369) 2,877,214 (1,146,414)
----------------------------------------
(Loss) income before income taxes (1,285,605) 4,091,730 (93,426)
Provision (benefit) for income taxes:
Current 1,295 (218,558) 37,877
Deferred (454,190) 1,806,413 (80,045)
----------------------------------------
(452,895) 1,587,855 (42,168)
----------------------------------------
Net (loss) income $ (832,710) $ 2,503,875 $ (51,258)
========================================
Net (loss) income per common share $ (0.10) $ 0.30 $ (0.01)
=========================================
Weighted average number of common
shares used in computation of net (loss)
income per share 8,562,048 8,462,016 8,291,903
========================================
</TABLE>
See accompanying notes.
F-35
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Class A Additional
Number of Common Paid-In Retained
Shares Stock Capital Earnings Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 8,196,745 $81,967 $6,030,043 $ 931,460 $7,043,470
Issuance of common stock 137,902 1,379 187,676 189,055
Net loss (51,258) (51,258)
Cash dividends (317,898) (317,898)
-----------------------------------------------------------------------------------------
Balance at December 31, 1994 8,334,647 83,346 6,217,719 562,304 6,863,369
Net issuance of common stock 190,896 1,909 284,190 286,099
Net income 2,503,875 2,503,875
Cash dividends (324,487) (324,487)
-----------------------------------------------------------------------------------------
Balance at December 31, 1995 8,525,543 85,255 6,501,909 2,741,692 9,328,856
Net issuance of common stock 96,612 967 167,470 168,437
Net loss (832,710) (832,710)
Cash dividends (330,613) (330,613)
-----------------------------------------------------------------------------------------
Balance at December 31, 1996 8,622,155 $86,222 $6,669,379 $1,578,369 $8,333,970
=========================================================================================
</TABLE>
See accompanying notes.
F-36
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Operating activities
Net (loss) income $ (832,710) $ 2,503,875 $ (51,258)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 1,244,774 906,263 639,147
Deferred income taxes (454,190) 1,806,413 (80,045)
(Gain) loss on disposal of operating property (86,440) 850,972 (1,713)
Changes in operating assets and liabilities:
Restricted Cash 166,294 (166,294) --
Accounts and note receivable 5,331,427 (5,296,594) 144,256
Prepaid expenses (75,781) (31,582) 27,966
Other assets (1,179,207) (47,354) (31)
Tenant security deposits 88,398 67,016 16,318
Accounts payable and accrued expenses 242,007 443,956 47,700
Income taxes payable -- -- (11,870)
-----------------------------------------
Net cash provided by operating activities 4,444,572 1,036,671 730,470
Investing activities
Acquisition of land (2,986,417) (1,013,862) (912)
Proceeds from sale of land 80,405 -- --
Proceeds from sale of operating property -- -- 35,929
Acquisition of buildings and improvements (12,547,702) (6,275,945) (84,958)
Acquisition of other operating property (73,728) (22,110) (1,868,688)
Acquisition of equipment (58,692) (48,483) (74,977)
-----------------------------------------
Net cash used in investing activities (15,586,134) (7,360,400) (1,993,606)
Financing activities
Principal payments on mortgage notes payable (17,555,996) (290,840) (212,340)
Proceeds from issuance of mortgage notes payable 29,800,000 6,334,260 1,688,870
Proceeds from issuance of common stock 256,513 286,099 189,055
Repurchase of common stock (88,076) -- --
Principal payments on installment note payable (391,642) (279,996) (279,996)
Principal payments on lease payable (28,226) (11,956) (9,990)
Loan issuance costs (54,144) -- (10,505)
Cash dividends (330,613) (324,487) (317,898)
-----------------------------------------
Net cash provided by financing activities 11,607,816 5,713,080 1,047,196
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 466,254 (610,649) (215,940)
Cash and cash equivalents at beginning of year 463,909 1,074,558 1,290,498
-----------------------------------------
Cash and cash equivalents at end of year $ 930,163 $ 463,909 $ 1,074,558
=========================================
Supplemental cash flow information:
Interest paid, net of interest capitalized $ 1,626,963 $ 823,863 $ 535,090
=========================================
</TABLE>
See accompanying notes.
F-37
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Description of Business
Lockhart Caribbean Corporation ("LCC") is organized as a United States Virgin
Islands corporation engaged in owning, developing and leasing commercial real
estate. LCC leases developed land, and retail and office space to customers
under month-to-month and long-term leases. The accompanying consolidated
financial statements include the accounts of LCC and its wholly-owned
subsidiaries H.E. Lockhart Management, Inc. ("HELM") and Lockhart Realty, Inc.
("LRI"). Significant intercompany balances and transactions have been eliminated
in consolidation.
Use of Estimates
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments with a
maturity of three months or less when purchased. Cash equivalents amounted to
$313,439 and $84,405 at December 31, 1996 and 1995, respectively, and consisted
primarily of money market instruments.
Construction-in-Progress
Construction-in-progress consists primarily of costs (including applicable
property taxes and interest) incurred relating to certain renovation and
rebuilding projects. These costs are included in operating property when the
projects are completed.
Operating Property
Operating property is stated on the basis of cost. LCC provides for depreciation
of operating property using the straight-line method for financial reporting
purposes and the modified accelerated cost recovery system for income tax
purposes over their estimated useful lives, which range from 5 to 31.5 years.
Expenditures for maintenance and general repairs are charged to expense as
incurred, whereas major improvements are classified as additions to operating
property.
Net Income (Loss) Per Share
Net income (loss) per share is computed based upon the weighted average number
of common shares outstanding during the periods.
F-38
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Capitalized Interest
Interest is capitalized as a component of the cost of property, plant and
equipment constructed. In 1995 interest amounting to $97,606 was capitalized. No
interest was capitalized in 1996 or 1994.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
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. The
Company adopted SFAS No. 121 in 1995, which had no material effect on the
Company's financial statements. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying value of the asset.
Deferred Financing Costs
Deferred financing costs represent costs incurred related to the issuance of
debt and are amortized over the term of the related debt.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
Note receivable: The carrying amount reported in the balance sheet approximates
fair value due to the underlying collateral on the note.
Notes payable: The carrying amounts of the mortgage notes, which bear interest
based on the financial institution's prime rate, approximate fair value due to
the periodic repricing of the interest rates. The carrying amounts of the fixed
rate mortgage and the installment note approximate fair value based on
discounted cash flow analyses.
2. Note Receivable
In 1989, HELM sold a parcel of land and received a promissory note for $101,000,
secured by a first priority mortgage on the property. LCC has taken legal action
to foreclose on the mortgage and the mortgagor was defending such action. No
interest was accrued for the years ended December 31, 1996, 1995 and 1994.
Accrued interest as of December 31, 1996 and 1995 amounted to $73,300. The note
was settled on March 14, 1997 for $169,000.
F-39
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Notes Payable
Mortgage notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31
1996 1995
-------------------------
<S> <C> <C>
First and second mortgage note payable to a
financial institution at prime plus .5%
(8.75% at December 31, 1996) $14,600,000 $ --
First mortgage note payable to a
financial institution at prime plus .5%
(8.75% at December 31, 1996) 4,500,000 --
First mortgage note payable to a financial
institution at prime plus 1.5% (9.75% and 10%
at December 31, 1996 and 1995, respectively) 813,394 882,760
First mortgage note payable to seller at 8.75% 4,672,065 4,700,000
Non-revolving line of credit promissory note to a
financial institution at prime plus .5% (8.75%
at December 31, 1996) 300,000 --
First mortgage note payable to a financial institution
at prime plus 1.25% (9.75% at December 31, 1995) -- 3,735,552
First mortgage note payable to a financial institution
at prime plus 1.25% (9.75% at December 31, 1995) -- 1,941,467
Second mortgage note payable to a financial institution
at prime plus 1% (9.5% at December 31, 1995) -- 1,381,675
-------------------------
$24,885,459 $12,641,454
=========================
</TABLE>
The $14.6 million mortgage note is payable in monthly installments of $125,032
commencing in May 1997 after a six month interest-only payment period. A final
balloon payment of $14.1 million is due when the note matures in April 2000.
However, if there are no events of default, the financial institution has agreed
to convert the balance outstanding on April 1, 2000 to a term loan payable in 15
years and bearing interest at prime plus .5%. Proceeds of the note were used to
retire mortgage and installment notes issued for the renovation of the Grand
Hotel and acquisition of Red Hook Plaza Shopping Center and Drakes Passage
properties (which had outstanding balances of $1,941,467, $1,381,675 and
$391,642, respectively, at December 31, 1995), and to retire an interim loan of
$10.4 million, used to acquire the Orange Grove Shopping Center and Fort Mylner
properties, obtained during 1996.
F-40
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Notes Payable (continued)
The $4.5 million mortgage note is payable in monthly installments of $38,537
commencing in May, 1997 after an initial interest-only payment period. A final
balloon payment of approximately $4.3 million is payable when the note matures
in April 2000. However, if there are no events of default, the financial
institution has agreed to convert the balance outstanding on April 1, 2000 to a
term loan payable in 15 years and bearing interest at prime plus .5%. The
proceeds of the note were used to liquidate the mortgage note issued for the
renovation of Lockhart Gardens Shopping Center (which had an outstanding balance
of $3,735,552 at December 31, 1995).
The mortgage note with an outstanding balance of $813,394 at December 31, 1996
is payable in monthly installments of $6,306 plus interest through May, 1999 and
a final payment of $630,520 due in June, 1999.
Proceeds of the $4.7 million mortgage note were used to finance the acquisition
of Red Hook Plaza Shopping Center. The note is payable in monthly installments
of $34,971 commencing in February 1996. A final installment comprised of the
principal sum then outstanding together with any unpaid interest is payable when
the note matures in January 2004. The note is secured by a first priority
mortgage on properties at the Red Hook Plaza Shopping Center, a conditional
assignment of leases and rents, and a guarantee of LCC up to a maximum amount of
$750,000.
HELM obtained a $1 million non-revolving line of credit from a financial
institution. $300,000 has been drawn on the line of credit as of December 31,
1996. The balance outstanding under the line of credit is due and payable in
April 2000. However, if there are no events of default, the financial
institution has agreed to convert the balance outstanding on April 1, 2000 to a
term loan payable in 15 years and bearing interest at prime plus .5%. Interest
is accrued on the unpaid balance at .5% above the institution's prime rate and
is payable monthly.
The financial institution granted a moratorium on principal payments of the
three mortgage notes due to the effects of Hurricane Marilyn. The moratorium
period was from November 1995 to July 1996 for the $3.7 million mortgage, and
from November 1995 to January 1996 for the $1.9 million mortgage and the
$883,000 mortgage. The principal payments during the moratorium period were
added to the balloon payments due when the notes were scheduled to mature.
Installment Note
In 1990, HELM purchased a lease on its Drake's Passage property through an
installment note payable. The note was scheduled to mature in 1997. The
acquisition of the lease was recorded as a capitalized asset at the present
value of the acquisition cost. The capitalized asset and discount are being
amortized over the seven year term of the installment note.
At December 31, 1995, the balance of the installment note was $391,642 (net of
unamortized discount of $133,351). The note was liquidated in 1996 with the
proceeds of the $14.6 million mortgage note.
F-41
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Notes Payable (continued)
Capital Lease Obligations
In August 1992, HELM leased a vehicle for $60,000 under a capital lease which
expired in August, 1996. The lease required monthly installments of $1,508 and
bore interest at 13%.
In July, 1996, HELM purchased a vehicle for $59,000 through an installment note
payable. The note matures on June 1, 2001 and is payable in monthly principal
installments of $983.
Principal payments of notes payable (including unamortized discount) for the
five years subsequent to December 31,1996, and in the aggregate, are as follows:
1997 $ 225,434
1998 309,040
1999 916,783
2000 18,826,117
2001 16,024
Thereafter 4,650,094
----------------
$24,943,492
================
4. Income Taxes
At December 31, 1996 the Company has operating loss carryforwards of
approximately $1,029,000 and $346,000 available to offset future taxable income
through the years 2011 and 2010, respectively.
At December 31, 1996 and 1995 net deferred income taxes (liabilities) consisted
of the following:
1996 1995
--------------------------
Depreciation $ 632,004 $ 704,879
Provision for doubtful accounts receivable 38,676 24,684
Basis of operating property (2,788,285) (2,754,990)
Contributions carry-forward 25,295 19,738
Operating loss carry-forward 670,260 129,449
--------------------------
$(1,422,050) $(1,876,240)
==========================
F-42
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
The differences between income taxes at the statutory rate of 37.4% and the
income tax provision (benefit) in the accompanying statements of operations
amount to $28,021, $20,148 and $(7,227) for the years ended December 3, 1996,
1995 and 1994, respectively, and are due to nondeductible expenses and
miscellaneous items.
5. Leases
The Companies lease retail and office space to tenants under noncancelable
leases which expire at various dates. Five year renewal options are available
with most leases. The leases provide for minimum annual rental payments plus
adjustments, if applicable, for certain additional costs incurred by the lessor
and/or a percentage of gross sales. Included in rental income for the years
ended December 31, 1996, 1995 and 1994 are $77,000, $100,000 and $221,000,
respectively, of rent attributable to a percentage of tenants' gross sales.
At December 31, 1996, the approximate future minimum rental income under the
lease agreements were as follows:
1997 $ 4,484,000
1998 4,786,000
1999 4,824,000
2000 5,012,000
2001 5,109,000
Thereafter 5,237,000
-----------
Aggregate future minimum rental income $29,452,000
===========
6. Transactions with Related Parties
The amounts due from shareholders bear interest at 9% and have no specific
repayment terms.
A shareholder of LCC and member of the board of directors is also a partner of a
law firm which renders legal services to LCC. During the years ended December
31, 1996, 1995 and 1994 fees paid to the law firm amounted to approximately
$201,000, $100,000 and $58,000, respectively.
F-43
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Subsequent Events
On June 6, 1997, the Company executed a letter of intent to purchase all the
outstanding common stock of Premium Finance Company of the V.I., Inc. ("PFC")
for $687,500. PFC finances insurance premiums for individual and businesses
primarily in the U. S. Virgin Islands, the British Virgin Islands and Anguilla.
The acquisition is dependent upon receiving regulatory approval and approval of
PFC's shareholders. In addition, the Company has agreed to guarantee a bank loan
to a wholly-owned subsidiary of PFC amounting to $200,000.
On July 5, 1997 the shareholders of The Lockhart Companies Incorporated ("LCI")
voted to restructure and recapitalize the Company and to offer common stock to
the public in an initial public offering to be registered with the Securities
and Exchange Commission. In connection with the restructuring and
recapitalization, LCI changed its name to Lockhart Caribbean Corporation ("LCC")
on August 22, 1997. On the same date, the shareholders of LCI exchanged each of
their shares for 9.7 shares of Class B common stock of LCC. The transaction has
been accounted for in a manner similar to a pooling-of-interests and,
accordingly, the financial statements as of and for the years ended December 31,
1996, 1995 and 1994 have been restated to give retroactive recognition to this
transaction.
On August 1, 1997, the Company obtained an additional line of credit from a
financial institution in the amount of $400,000. Advances under the line of
credit will bear interest at the institutions prime rate. The line of credit
expires on July 31, 1998.
One of the Company's major tenants advised the Company that it intends to vacate
the premises in December 1997. The tenant's lease does not expire until 2001,
and it is obligated to make base rental payments until 2001. The Company and the
tenant are negotiating an amicable settlement and seeking a suitable replacement
tenant. The tenants annual base rent is approximately $240,000 per year.
F-44
<PAGE>
Other Financial Information
F-45
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule V - Property, Plant and Equipment
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------------------------------------------------------------------------
Balance at Additions Other
Beginning of at Charges Balance at
year Cost Retirements Add (Deduct) End of year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Land and improvements $ 7,030,326 $ 2,986,417 $ (7,507) $ -- $10,009,236
Buildings and improvements 11,548,709 12,547,702 -- 971,998 25,068,409
Equipment 308,952 58,692 -- 59,016 426,660
Prepaid lease 1,460,657 -- -- -- 1,460,657
Construction-in-progress 1,193,549 73,728 (29,573) (971,998) 265,706
------------------------------------------------------------------------
$21,542,193 $ 15,666,539 $ (37,080) $ (39,016) $37,230,668
========================================================================
Year ended December 31, 1995:
Land and improvements $ 6,016,464 $ 1,013,862 $ -- $ -- $ 7,030,326
Buildings and improvements 7,104,296 6,275,945 (3,106,099) 1,274,567 11,548,709
Equipment 429,510 48,483 (5,280) (163,761) 308,952
Prepaid lease 1,460,657 -- -- -- 1,460,657
Construction-in-progress 2,446,006 22,110 -- (1,274,567) 1,193,549
------------------------------------------------------------------------
$17,456,933 $ 7,360,400 $(3,111,379) $ (163,761) $21,542,193
========================================================================
Year ended December 31, 1994:
Land and improvements $ 6,015,552 $ 912 $ -- $ -- $ 6,016,464
Buildings and improvements 7,080,481 84,958 (61,143) -- 7,104,296
Equipment 454,167 74,977 (99,634) -- 429,510
Prepaid lease 1,460,657 -- -- -- 1,460,657
Construction-in-progress 577,318 1,868,688 -- -- 2,446,006
------------------------------------------------------------------------
$15,588,175 $ 2,029,535 $ (160,777) $ -- $17,456,933
========================================================================
</TABLE>
F-46
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------------------------------------------------------------------
Balance at Additions Other Balance at
Beginning of at Charges End of
year Cost Retirements Add (Deduct) Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Land improvements $ 165,273 $ 33,818 $ -- $ -- $ 199,091
Buildings and improvements 1,649,789 608,413 -- -- 2,258,202
Equipment 213,855 53,212 -- -- 267,067
Prepaid lease 1,069,229 208,668 -- -- 1,277,897
------------------------------------------------------------------
$3,098,146 $ 904,111 $ -- $ -- $4,002,257
==================================================================
Year ended December 31, 1995:
Land improvements $ 136,500 $ 28,773 $ -- $ -- $ 165,273
Buildings and improvements 3,438,589 464,927 (507,375) (1,746,352) 1,649,789
Equipment 255,620 55,538 (18,281) (79,022) 213,855
Prepaid lease 860,561 208,668 -- -- 1,069,229
------------------------------------------------------------------
$4,691,270 $ 757,906 $ (525,656) $(1,825,374) $3,098,146
==================================================================
Year ended December 31, 1994:
Land improvements $ 102,210 $ 34,290 $ -- $ -- $ 136,500
Buildings and improvements 3,185,470 292,734 (26,927) (12,688) 3,438,589
Equipment 324,196 32,854 (101,430) -- 255,620
Prepaid lease 651,893 208,668 -- -- 860,561
------------------------------------------------------------------
$4,263,769 $ 568,546 $ (128,357) $ (12,688) $4,691,270
==================================================================
</TABLE>
F-47
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule VIII - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Charged
beginning costs and to other Balance at
Description of year expenses expenses Deductions end of year
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $66,000 $31,800 $ -- $ -- $97,800
------------------------------------------------
Total ......................... $66,000 $31,800 $ -- $ -- $97,800
================================================
Year ended December 31, 1995:
Allowance for doubtful accounts $ -- $66,000 $ -- $ -- $66,000
------------------------------------------------
$ -- $66,000 $ -- $ -- $66,000
================================================
Year ended December 31, 1995:
Allowance for doubtful accounts $ -- $ -- $ -- $ -- $ --
------------------------------------------------
Total ......................... $ -- $ -- $ -- $ -- $ --
================================================
</TABLE>
F-48
<PAGE>
Lockhart Caribbean Corporation And Subsidiaries
Schedule XI - Real Estate And Accumulated Depreciation
December 31, 1996
<TABLE>
<CAPTION>
Cost Capitalized Gross amount at
Initial Cost to Company subsequent to acquisition December 31, 1996
----------------------------- ------------------------- ----------------------------
Land and Land Buildings and Carrying Land Buildings and
Description Encumbrances Improvements Improvements Improvements Costs Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Drakes Passage
Charlotte Amalie ......... Mortgage lien
St. Thomas ............... $ 5,000 $ 40,000 $ 614,498 -- $ 5,000 $ 654,498
Retail/office complex
Grand Hotel
Charlotte Amalie,
St. Thomas
Retail/office complex .... Mortgage lien 264,743 65,000 4,479,522 -- 264,743 4,511,028
Lockhart Gardens Shopping
Center, Estate Thomas,
St. Thomas
Shopping Center .......... Mortgage lien 33,887 497,380 10,003,692 -- 33,887 7,410,391
Sugar Estate Park
Estate Thomas,
St. Thomas
Business Park ............ Mortgage lien 277,172 -- 1,099,750 -- 1,376,922 --
Cinema One Building
Estate Thomas,
St. Thomas ............... 5,000 -- -- -- 5,000
Red Hook Shopping Center
Red Hook, St. Thomas ..... Mortgage lien
Shopping Center .......... 1,013,862 4,971,608 239,943 -- 1,013,862 5,211,551
Fort Mylner Commercial
Center
Estate Tutu, St. Thomas .. Mortgage lien
Office Building .......... 646,910 1,218,220 -- -- 646,910 1,218,220
</TABLE>
<TABLE>
<CAPTION>
Accumulated Date of Date Useful
Description Total Description Construction Acquired Life
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Drakes Passage
Charlotte Amalie
St. Thomas ............ $ 659,498 $ 55,500 1920 31.5
Retail/office complex
Grand Hotel
Charlotte Amalie,
St. Thomas
Retail/office complex.. 4,775,771 750,873 1914 31.5
Lockhart Gardens Shopping
Center, Estate Thomas,
St. Thomas
Shopping Center ....... 7,444,276 981,695 1972 31.5
Sugar Estate Park
Estate Thomas,
St. Thomas
Business Park ......... 1,376,922 199,718 1991 31.5
Cinema One Building
Estate Thomas,
St. Thomas ............ 5,000 --
Red Hook Shopping Center
Red Hook, St. Thomas ..
Shopping Center ....... 6,225,413 315,780 1995 31.5
Fort Mylner Commercial
Center
Estate Tutu, St. Thomas
Office Building ....... 1,865,130 19,427 1996 31.5
</TABLE>
F-49
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized Gross amount at
Initial Cost to Company subsequent to acquisition December 31, 1996
----------------------------- ------------------------- ----------------------------
Land and Land Buildings and Carrying Land Buildings and
Description Encumbrances Improvements Improvements Improvements Costs Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fort Mylner Shopping
Center
Estate Tutu, St. Thomas Mortgage lien
Shopping Center ....... 1,825,144 2,743,426 -- -- 1,825,144 2,743,426
Orange Grove Shopping
Center
Orange Grove, St. Croix Mortgage lien
Shopping Center ....... 501,997 3,082,428 -- -- 501,997 3,082,428
Corporate Office Building
Estate Thomas, Mortgage lien
St. Thomas ............ -- 202,295 34,573 -- -- 236,867
Undeveloped Land ............ 4,335,771 -- -- -- 4,335,771 --
----------- ----------- ----------- ------ ----------- -----------
$ 8,909,486 $12,820,357 $16,471,978 $10,009,236 $25,068,409
=========== =========== =========== ====== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Date of Date Useful
Description Total Description Construction Acquired Life
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fort Mylner Shopping
Center
Estate Tutu, St. Thomas
Shopping Center ....... 4,568,570 43,456 1996 31.5
Orange Grove Shopping
Center
Orange Grove, St. Croix
Shopping Center ....... 3,584,425 48,927 1996 31.5
Corporate Office Building
Estate Thomas,
St. Thomas ............ 236,867 41,917 1990 31.5
Undeveloped Land ............ 4,335,771 --
----------- ----------
$35,077,643 $2,457,293
=========== ==========
</TABLE>
F-50
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule XI - Real Estate and
Accumulated Depreciation (Continued)
Reconciliation - Land and Land Improvements
Year ended December 31
---------------------------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year . $ 7,030,326 $6,016,464 $6,015,552
Additions during the year:
Acquisitions ........... 2,974,051 1,013,862 --
Improvements ........... 12,366 -- 912
---------------------------------------
Total additions .............. 2,986,417 1,013,862 912
Deductions during the year:
Cost of real estate sold (7,507) -- --
---------------------------------------
Balance at end of year ....... $ 10,009,236 $7,030,326 $6,016,464
=======================================
F-51
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule XI - Real Estate and
Accumulated Depreciation (Continued)
Reconciliation - Buildings and Improvements
Year ended December 31
------------------------------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year ...... $11,548,709 $ 7,104,296 $ 7,080,481
Additions during the year:
Acquisitions ................ 7,044,074 4,955,148 --
Improvements ................ 6,475,626 2,595,364 84,958
------------------------------------------
Total additions ................... 13,519,700 7,550,512 84,958
Deductions during the year:
Write-offs - full depreciated -- (507,375) --
Write-offs - damaged (1) .... -- (2,598,724) (61,143)
------------------------------------------
Total deductions .................. -- (3,106,099) (61,143)
------------------------------------------
Balance at end of year ............ $25,068,409 $ 11,548,709 $ 7,104,296
==========================================
Notes:
(1) Properties damaged by Hurricane Marilyn in September 1995 were written off
in that year.
F-52
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule XI - Real Estate and
Accumulated Depreciation (Continued)
Reconciliation - Accumulated Depreciation
Year ended December 31
----------------------------------------
1996 1995 1994
---- ---- ----
Balance at beginning of year ........ $1,815,062 $ 3,575,089 $ 3,287,680
Additions during the year:
Depreciation expense .......... 642,231 493,700 327,024
----------------------------------------
Total additions ..................... 642,231 493,700 327,024
Deductions during the year:
Retirements - fully depreciated -- (507,375) --
Retirements - damaged ......... -- (1,746,352) (39,615)
----------------------------------------
Total deductions .................... -- (2,253,727) (39,615)
----------------------------------------
Balance at end of year .............. $2,457,293 $ 1,815,062 $ 3,575,089
========================================
F-53
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule XII - Mortgage Loans on Real Estate
December 31, 1996
<TABLE>
<CAPTION>
Principal
amount
of loans
Carrying subject to
Periodic Face amount delinquent
Interest Final maturity payment Prior amount of of principal or
Description rate date terms liens mortgages mortgages interest
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First and second mortgage 8.75% April 1, 2000 Principal and interest $14,600,000 $14,600,000
note payable to a financial payments of $125,032 per month
Institution. Interest is after interest only period of
prime plus 0.5% six months. Final balloon
payment of approximately $14.1
million.
First mortgage note payable 8.75% April 1, 2000 Principal and interest payments $ 4,500,000 $ 4,500,000
to a financial institution. of $38,537 per month after
Interest is prime plus 0.5% interest only period of
six months. Final balloon
payment of approximately $4.3
million.
First mortgage note payable 9.75% June 1, 1999 Note is payable in monthly $ 1,135,000 $ 813,394
to a financial institution. principal installments of
Interest is prime plus 1.5% $6,306 plus interest on
outstanding balance. Final
balloon payment of $630,520.
First mortgage note payable 8.75% March 1, 2004 Principal and interest payments $ 4,700,000 $ 4,672,065
to seller. Interest is of $36,975. Final balloon
at 8.75% payment of approximately $4.3
million.
Non-revolving line of credit 8.75% April 1, 2000 Monthly interest payments $ 1,000,000 $ 300,000
promissory note to a financial at prime plus 0.5% on
institution. Interest is outstanding balance. Balance
prime plus 0.5% outstanding due and payable
on April 1, 2000. At no time
amount outstanding to exceed $1
million.
------------------------
$25,935,000 $24,885,459
========================
</TABLE>
F-54
<PAGE>
Lockhart Caribbean Corporation and Subsidiaries
Schedule XII - Mortgage Loans on Real Estate (Continued)
Reconciliation - Mortgage Notes
Year ended December 31
1996 1995 1994
-------------------------------------------
Balance at beginning of year $ 12,641,454 $ 6,598,034 $ 5,121,492
Additions during the year:
New mortgage loans 29,800,000 6,334,260 1,688,870
-------------------------------------------
Total additions 29,800,000 6,334,260 1,688,870
Deductions during the year:
Principal payments (17,555,995) (290,840) (212,328)
-------------------------------------------
Total deduction (17,555,995) (290,840) (212,328)
-------------------------------------------
Balance at end of year $ 24,885,459 $ 12,641,454 $ 6,598,034
===========================================
Notes:
(1) In 1996 H.E. Lockhart Management, Inc. (HELM) a wholly owned subsidiary of
the Company, negotiated the following new mortgage notes:
- mortgage note for $14.6 million
- mortgage note for $4.5 million
- non-revolving line of credit for $1 million; $300,000 was drawn on
line
- a bridge loan for $10.4 million to facilitate purchase of three
properties
In 1996 HELM retired the following notes:
- bridge loan for $10.4 million
- mortgage note for $3.7 million
- mortgage note for $1.9 million
- mortgage note for $1.3 million
F-55
<PAGE>
Report of Independent Auditors
Board of Directors
Premium Finance Company of the V.I., Inc.
St. Croix, U.S. Virgin Islands
I have audited the accompanying balance sheet of Premium Finance Company of the
V.I., Inc. as of December 31, 1996, 1995 and 1994 and the related statement of
income and deficit and cash flows for the twelve months ended December 31, 1996
and 1995 and the seven months ended December 31, 1994. These financial
statements are the responsibility of the company's management. My responsibility
is to express an opinion on these financial statements based on the audit.
I conducted the audit in accordance with generally accepted auditing standards.
These standards require that I 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 presentation. I believe
that the audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Premium Finance Company of the
V.I., Inc. as of December 31, 1996, 1995 and 1994 and the results of its
operations and its cash flows for the twelve months ended December 31, 1996 and
1995 and the seven months ended December 31, 1994 in conformity with generally
accepted accounting principles.
Respectfully submitted,
Francisco E. Depusoir
Certified Public Accountant
St. Croix, U.S. Virgin Islands
March 21, 1997
F-56
<PAGE>
PREMIUM FINANCE COMPANY OF THE V.I., INC.
BALANCE SHEET
DECEMBER 31,
1996 1995 1994
ASSETS
Current Assets:
Cash $ 110,397 $ 93,499 $144,696
Accounts receivable 1,124,643 708,203 255,853
Other receivables 3,740 771 --
Prepaid expenses 8,382 4,366 3,140
---------- -------- --------
Total current assets 1,247,162 806,839 403,689
Fixed Assets:
Property and equipment (net of
accumulated depreciation of
$25,037 - 1996; $16,960 - 1995 and
$4,505 - 1994) - Note 1 (a) 17,488 23,396 35,851
Other Assets:
Organization cost - net - Note 1 (b) 19,096 24,364 27,409
Deposits 8,267 2,267 2,266
---------- -------- --------
Total assets $1,292,013 $856,866 $469,215
========== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Operating line of credit - Note 5 $ 550,000 $300,000 $ --
Bank overdraft 235,495 112,299 --
Accrued expenses 5,387 1,472 3,086
Unearned interest 44,209 23,612 5,486
Due to Island National Insurance
Company - Note 2 -- 525 847
---------- -------- --------
Total current liabilities 835,091 437,908 9,419
---------- -------- --------
STOCKHOLDERS' EQUITY
Capital stock - Note 3 500,000 500,000 500,000
Deficit - Per Page 5 < 43,078> < 81,042> < 40,204>
---------- -------- --------
Total stockholders' equity 456,922 418,958 459,796
---------- -------- --------
Total liabilities and
stockholders' equity $1,292,013 $856,866 $469,215
========== ======== ========
The accompany notes are an integral part of this report
F-57
<PAGE>
PREMIUM FINANCE COMPANY OF THE V.I., INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
12 Months 12 Months 7 Months
--------- --------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income <Loss> $ 37,964 $<40,838> $< 40,204>
Adjustment to reconcile net income
<loss> to net cash used <provided)
by operating activities:
Depreciation and amortization 14,518 18,661 8,125
--------- -------- ----------
52,482 < 22,177> < 32,079>
Changes in Operating Assets and
Liabilities providing <using> cash:
Increase in other receivables < 2,969> < 771> ---
Increase in due to Island
National Insurance Company < 525> < 322> 847
Increase in prepaid expenses < 4,016> < 1,226> < 3,140>
Increase in accounts receivable <416,440> < 452,350> < 255,853>
Increase in unearned interest 20,597 18,126 5,486
<Decrease> increase in accrued
expenses 3,915 < 1,614> 3,086
Increase in bank overdraft 123,196 112,299 ---
Increase in line of credit 250,000 300,000 ---
---------- -------- ---------
Net cash provided <used> in
operating activities 26,240 < 48,035> < 281,653>
---------- -------- --------
Cash Flows from Investing Activities:
Purchase of property & equipment < 2,169> --- < 40,356>
Organization costs < 1,173> < 3,161> < 31,029>
Deposits < 6,000> < 1> < 2,266>
---------- -------- --------
Net cash provided <used> in
investing activities < 9,342> < 3,162> < 73,651>
---------- -------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of shares --- --- 500,000
---------- -------- --------
Net cash provided by
financing activities --- --- 500,000
---------- -------- --------
Increase <decrease> in cash and
cash equivalents 16,898 < 51,197> 144,696
Cash & cash equivalents, January 1 93,499 144,696 ---
---------- -------- --------
Cash & cash equivalents, December 31 $110,397 $ 93,499 $144,696
========= ======== ========
</TABLE>
The accompanying notes are an integral part of this report
F-58
<PAGE>
PREMIUM FINANCE COMPANY OF THE V.I., INC.
STATEMENT OF INCOME AND DEFICIT
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
AND THE SEVEN MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
REVENUES:
1996 1995 1994
12 Months 12 Months 7 Months
--------- --------- --------
<S> <C> <C> <C>
Interest Income $299,206 $123,876 $27,453
Service Income 104,578 61,541 14,967
Miscellaneous Income -- -- 10
-------- -------- -------
Total revenues 403,784 185,417 42,430
-------- -------- -------
EXPENSES:
Salaries and wages 83,848 64,672 34,254
Interest 72,342 17,418 --
Service charges 54,672 32,511 6,491
Travel and entertainment 24,852 12,188 3,123
Insurance 17,048 13,073 3,012
Gross receipts taxes 15,700 7,115 --
Stationery and supplies 15,285 10,120 6,588
Telephone 8,937 6,178 3,402
Depreciation 8,078 12,455 4,505
Rent 7,725 7,463 4,200
Payroll taxes 7,472 7,594 2,473
Amortization 6,440 6,206 3,620
Professional fees 6,217 113 2,500
Advertising 5,560 9,970 --
Marketing 5,147 5,096 --
Office expenses 4,633 2,527 1,468
Leases 3,767 2,734 1,570
Repairs and maintenance 3,702 3,528 1,764
Utilities 2,970 1,641 --
Licenses and taxes 1,970 1,835 857
Miscellaneous 9,455 1,818 2,807
Total expenses 365,820 226,255 82,634
-------- -------- -------
Net Income <Loss> 37,964 < 40,838> <40,204>
Deficit - January 1 < 81,042> < 40,204> --
-------- -------- -------
Deficit - December 31 $<43,078> $<81,042> $<40,204>
======== ======== =======
</TABLE>
The accompanying notes are an integral part of this report
F-59
<PAGE>
PREMIUM FINANCE COMPANY OF THE V.I., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
The Company was incorporated on December 10, 1993 in the U.S. Virgin Islands and
began doing business on June 1, 1994. Its primary activity is to acquire premium
finance agreements with insureds and from other premium finance companies.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a) Property and Equipment
Property and equipment are purchased by the company and recorded
at cost. Assets are depreciated over their useful lives using
the straight line method.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property is sold
or otherwise disposed of, the asset account and related
depreciation are reduced and any gain or loss is included in
operations. Depreciation expense for the years ended December
31, 1996, 1995 and 1994 was $8,078, $12,455 and $4,505,
respectively.
Property and equipment consist of the following:
Accumulated Net Book
Description Cost Depreciation Value
----------- ---- ------------ -----
Computer
equipment $20,844 $12,174 $ 8,670
Air conditioning 2,500 1,572 928
Furniture and
fixtures 6,110 3,073 3,037
Miscellaneous
equipment 650 409 241
Leasehold
improvement 12,421 7,809 4,612
------- ------- -------
$42,525 $25,037 $17,488
======= ======= =======
F-60
<PAGE>
PREMIUM FINANCE COMPANY OF THE V.I., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
---------------------------------------------------
b) Organization Costs
------------------
Organization costs represent expenses associated with the
incorporation and setting up of the Corporation. Organization
costs are amortized over five years using the straight line
method.
c) Revenues and Expenses Recognition
---------------------------------
Revenues are recognized when earned and expenses when incurred.
d) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
e) Compensated Absences
--------------------
Employees of the company are entitled to paid vacations, sick
days and personal days off, depending on the length of service
and other factors. It is impracticable to estimate the amount of
compensation for future absences and, accordingly, no liability
has been recorded in the accompanying statement of financial
position. The company's policy is to recognize the costs of
compensated absences when actually paid.
NOTE 2 - RELATED PARTY TRANSACTIONS
--------------------------
The Company is related through common stock ownership to Carib
National Group, Inc., Island National Insurance Company, Fraser and
Company - Virgin Islands and Fraser and Company - Florida.
Entity 1996 1995 1994
------ ---- ---- ----
Due to Island National
Insurance Company $ --- $525 $847
---- ---- ----
Total $ --- $525 $847
==== ==== ====
F-61
<PAGE>
PREMIUM FINANCE COMPANY OF THE V.I., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - CAPITAL STOCK
-------------
The Company is authorized to issue 500,000 shares of common stock at $1
par value. At the balance sheet date, 500,000 shares have been issued and
fully paid.
NOTE 4 - COMMITMENT
----------
The Company has a three year lease contract (with a three year renewal
option) in the Village Mall Shopping Center. The monthly rent is $600 and
the lease terminates on January 31, 1997. Rent expense for the years ended
December 31, 1996, 1995 and 1994 was $7,725, $7,463 and $4,200,
respectively.
NOTE 5 - OPERATING LINE OF CREDIT
------------------------
The Company has a line of credit available in the amount of $750,000 from
the Bank of Nova Scotia. At the end of the year, the company had a balance
due to the Bank of Nova Scotia of $550,000.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash paid for interest for the years ended December 31, 1996, 1995 and
1994 was $72,342, $17,418 and $-0-, respectively.
NOTE 7 - INCOME TAXES
------------
The Company is part of a group that files a consolidated tax return. The
corporation had no current or deferred income taxes during the current
year. Prior years net operating losses are available to offset future
taxable income for the combined group.
NOTE 8 - CONCENTRATION OF CREDIT RISK
----------------------------
The Company grants financing to customers seeking insurance financing. The
Company places its cash with high credit quality institutions. At time
such investments may be in excess of FDIC insurance limits.
F-62
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Lockhart Caribbean Corporation
We have audited the accompanying statement of revenues and certain expenses (the
"Statements") of Red Hook Plaza, Inc., for the years ended December 31, 1996,
1995, and 1994. The Statements are the responsibility of the Property's
management. Our responsibility is to express an opinion on this Statement based
on our audit.
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 Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall Statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying Statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Registration Statement on Form S-11 of Lockhart Caribbean Corporation,
previously known as The Lockhart Companies Incorporated) as described in Note 2
to the Statements and is not intended to be a complete presentation of the
revenues and expenses of Red Hook Plaza, Inc.
In our opinion, the Statements referred to above present fairly, in all material
respects, the revenues and certain expenses of Red Hook Plaza, Inc., for the
years ended December 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
June 16, 1997
F-63
<PAGE>
Red Hook Plaza, Inc.
Statements of Revenues and Certain Expenses
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rental income $693,929 $678,544 $599,926
Other income 120,456 78,185 71,683
-----------------------------------------------------------------
814,385 756,729 671,609
-----------------------------------------------------------------
Certain expenses:
Property operating and maintenance 205,792 203,191 166,317
Real estate taxes 39,071 34,187 32,705
Management fees 33,617 -- --
-----------------------------------------------------------------
278,480 237,378 199,022
-----------------------------------------------------------------
Revenues in excess of certain
expenses $535,905 $519,351 $472,587
=================================================================
</TABLE>
See accompanying notes.
F-64
<PAGE>
Red Hook Plaza, Inc.
Notes to Statements of Revenues and Certain Expenses
Years ended December 31, 1996, 1995 and 1994
1. Organization
Red Hook Plaza, Inc. (the "Plaza"), consists of approximately 36,000 leasable
square feet located in the eastern side of St. Thomas, U.S. Virgin Islands. Red
Hook Plaza, Inc. is a wholly-owned subsidiary of H. E. Lockhart Management, Inc.
The Plaza is located in two buildings. The first building has both retail and
office space; the second building is used as a restaurant.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statements of revenues and certain expenses related to the
operations of the Plaza for the years ended December 31, 1996, 1995 and 1994,
have been prepared for the purposes of complying with the rules and regulations
of the Securities and Exchange Commission (for inclusion in a registration
Statement on Form S-11 of Lockhart Caribbean Corporation, previously known as
The Lockhart Companies Incorporated). Expenses that are dependent on the
particular Plaza owner and the carrying value of the Plaza have been excluded
from the accompanying Statements. The excluded expenses consist primarily of
depreciation, amortization, mortgage interest and professional fees not directly
related to the future operations of the Plaza. Accordingly, the statements of
revenues and certain expenses are not intended to be a complete presentation of
the revenues and expenses of the Plaza.
Revenue Recognition
The Plaza is leased to tenants under lease terms that are greater than one year
and are accounted for as operating leases. Expenditures that are recoverable
from tenants are recognized as income in the period the related costs are
accrued.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred. Major replacements
and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
F-65
<PAGE>
Red Hook Plaza, Inc.
Notes to Statements of Revenues and Certain Expenses (continued)
3. Management Fees
Commencing in June 1996, Red Hook Plaza, Inc. is subject to a management
agreement with H.E. Lockhart Management, Inc., to maintain and manage the
operations of the property. The management fees are based on 8% of total
collected rental income, as defined, of the Plaza.
4. Future Minimum Lease Payments
The property is leased to tenants under operating leases expiring at various
dates through 2002. These leases contain provisions for rent increases based on
cost-of-living indices and certain leases contain renewal options. The minimum
future lease payments to be received under the terms of these operating leases
for each of the next five years and thereafter are as follows:
1997 $ 875,000
1998 920,000
1999 960,000
2000 1,000,000
2001 1,040,000
Thereafter 1,080,000
---------
Total future minimum lease payments $5,875,000
=========
F-66
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Lockhart Caribbean Corporation
We have audited the accompanying statement of revenues and certain expenses (the
"Statement") of Fort Mylner Properties, Inc., for the twelve months ended June
30, 1997. The Statement is the responsibility of the Property's management. Our
responsibility is to express an opinion on this Statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Registration Statement on Form S-11 of Lockhart Caribbean Corporation,
previously known as The Lockhart Companies Incorporated) as described in Note 2
to the Statement and is not intended to be a complete presentation of the
revenues and expenses of Fort Mylner Properties, Inc.
In our opinion, the Statement referred to above presents fairly, in all material
respects, the revenues and certain expenses of Fort Mylner Properties, Inc., for
the twelve months ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 1, 1997
F-67
<PAGE>
Fort Mylner Properties, Inc.
Statement of Revenues and Certain Expenses
Twelve Months Ended June 30, 1997
Revenues:
Rental income $ 823,915
Other income 100,099
-------------------
924,014
-------------------
Certain expenses:
Property operating and maintenance 225,936
Real estate taxes 51,487
-------------------
277,423
-------------------
Revenue in excess of certain expenses $ 646,591
===================
See accompanying notes.
F-68
<PAGE>
Fort Mylner Properties, Inc.
Notes to Statement of Revenues and Certain Expenses
Twelve Months Ended June 30, 1997
1. Organization
Fort Mylner Properties, Inc., ("Fort Mylner") a wholly-owned subsidiary of H.E.
Lockhart Management, Inc., consists of the Fort Mylner Commercial Center with
approximately 10,800 square feet of rentable office space and the Fort Mylner
Shopping Center with approximately 26,200 square feet of rentable office and
retail space. Fort Mylner is located in the commercial district of the Tutu
area, one of the most populous areas in St. Thomas, U.S. Virgin Islands.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses relates to the
operations of Fort Mylner for the twelve months ended June 30, 1997, and has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in a registration Statement on
Form S- 11 of Lockhart Caribbean Corporation, previously known as the Lockhart
Companies Incorporated). Expenses that are dependent on the particular Fort
Mylner owner and the carrying value of Fort Mylner have been excluded from the
accompanying Statement. The excluded expenses consist primarily of depreciation,
amortization, mortgage interest and professional fees not directly related to
the future operations of Fort Mylner. Accordingly, the statement of revenues and
certain expenses is not intended to be a complete presentation of the revenues
and expenses of Fort Mylner.
Revenue Recognition
The properties are leased to tenants under lease terms that are greater than one
year and are accounted for as operating leases. Expenditures that are
recoverable from tenants are recognized as income in the period the related
costs are accrued.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred. Major replacements
and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
F-69
<PAGE>
Fort Mylner Properties, Inc.
Notes to Statement of Revenues and Certain Expenses (continued)
3. Future Minimum Lease Payments
Fort Mylner is leased to tenants under operating leases expiring at various
dates through 2005. These leases contain provisions for rent increases based on
cost-of-living indices and certain leases contain renewal options. The minimum
future lease payments to be received under the terms of these operating leases
for each of the next five years and thereafter are as follows:
1998 $ 951,600
1999 981,800
2000 1,014,800
2001 1,045,700
2002 1,077,900
Thereafter 3,435,100
---------
Total future minimum lease payments $8,506,900
=========
F-70
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Lockhart Caribbean Corporation
We have audited the accompanying statement of revenues and certain expenses (the
"Statement") of Golden Orange Centers, Inc., for the twelve months ended June
30, 1997. The Statement is the responsibility of the Property's management. Our
responsibility is to express an opinion on this Statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Registration Statement on Form S-11 of Lockhart Caribbean Corporation,
previously known as The Lockhart Companies Incorporated) as described in Note 2
to the Statement and is not intended to be a complete presentation of the
revenues and expenses of Golden Orange Centers, Inc.
In our opinion, the Statement referred to above presents fairly, in all material
respects, the revenues and certain expenses of Golden Orange Centers, Inc., for
the twelve months ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 1, 1997
F-71
<PAGE>
Golden Orange Centers, Inc.
Statement of Revenues and Certain Expenses
Twelve Months Ended June 30, 1997
Revenues:
Rental income $ 439,457
Other income 81,639
---------------
521,096
---------------
Certain expenses:
Property operating and maintenance 135,851
Real estate taxes 26,883
---------------
162,734
---------------
Revenue in excess of certain expenses $ 358,362
===============
See accompanying notes.
F-72
<PAGE>
Golden Orange Centers, Inc.
Notes to Statement of Revenue and Certain Expenses
Twelve Months Ended June 30, 1997
1. Organization
Golden Orange Centers, Inc., ("the Property"), a wholly owned subsidiary of H.
E. Lockhart Management, Inc., consists of approximately 36,000 leasable square
feet located outside Christiansted, in St. Croix, U.S. Virgin Islands. The
Company leases both office and retail space.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses relates to the
operations of the Property for the twelve months ended June 30, 1997, and has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in a registration Statement on
Form S-11 of Lockhart Caribbean Corporation, previously known as the Lockhart
Companies Incorporated). Expenses that are dependent on the particular Property
owner and the carrying value of the Property have been excluded from the
accompanying Statement. The excluded expenses consist primarily of depreciation,
amortization, mortgage interest and professional fees not directly related to
the future operations of the Property. Accordingly, the statement of revenues
and certain expenses is not intended to be a complete presentation of the
revenues and expenses of the Property.
Revenue Recognition
The Property is leased to tenants under lease terms that are greater than one
year and are accounted for as operating leases. Expenditures that are
recoverable from tenants are recognized as income in the period the related
costs are accrued.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred. Major replacements
and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
F-73
<PAGE>
Golden Orange Centers, Inc.
Notes to Statement of Revenues and Certain Expenses (continued)
3. Future Minimum Lease Payments
The Property is leased to tenants under operating leases expiring at various
dates through 2005. These leases contain provisions for rent increases based on
cost-of-living indices and certain leases contain renewal options. The minimum
future lease payments to be received under the terms of these operating leases
for each of the next five years and thereafter are as follows:
1998 $ 531,600
1999 550,600
2000 567,800
2001 579,800
2002 604,700
Thereafter 1,897,100
---------
Total future minimum lease payments $4,731,600
=========
F-74
<PAGE>
<PAGE>
APPENDIX A
SUBSCRIPTION AGREEMENT
LOCKHART CARIBBEAN CORPORATION
OFFERING OF CLASS A COMMON STOCK
A-1
<PAGE>
LOCKHART CARIBBEAN CORPORATION
INSTRUCTIONS TO PURCHASERS
Lockhart Caribbean Corporation (the "Company") is offering up to 2,000,000
shares of its Class A Common Stock, par value $0.01 per share, on a best efforts
basis. No shares of Class A Common Stock will be sold until subscriptions for at
least 1,153,846 shares of Class A Common Stock are received. The minimum
purchase is 500 shares of Class A Common Stock, and the maximum purchase is
500,000 shares. The initial public offering price is $6.50 per share.
The Company has filed a Registration Statement with the Securities and Exchange
Commission with respect to the shares of Class A Common Stock. The Registration
Statement includes a Prospectus that describes the Company and the terms of this
offering. Offers and sales of the Company's Class A Common Stock in this
offering can only be made by means of the Prospectus. Subscribers should
carefully read the Prospectus prior to making an investment decision and should
pay particular attention to the considerations discussed under "Risk Factors" in
the Prospectus.
[Participating Broker] has agreed to accept subscriptions and execute orders for
the shares of Class A Common Stock offered by the Prospectus. All subscription
funds for shares of Class A Common Stock will be deposited in an
interest-bearing escrow account with The Chase Manhattan Bank, until
subscriptions for 1,153,846 shares of the Company's shares of Class A Common
Stock are received.
The Company has set up several methods of payment, including Mailed Check, Money
Order and Wire Transfer. Our web site will provide electronic forms to
accomplish whichever of these methods you choose, but in all cases, purchases
will be transacted through a [Participating Broker]. If you do not have access
to the Internet, you may call ( ) __-____ and [Participating Broker] will send
you a Prospectus containing the forms and directions necessary to purchase
stock.
Subscription Agreement Form
All stock purchasers must fill out AND SIGN the Subscription Agreement attached
to the Prospectus or available to print from the web site. We cannot process
your payment nor can we issue your stock certificate unless and until we receive
this completed and signed Subscription Agreement. If you do not have a printer
or cannot download the Subscription Agreement from our web site, you can receive
a printed copy of the Prospectus by calling ( ) ___-____, and a Prospectus and a
Subscription Agreement will be sent to you. If you have a hard copy of the
Prospectus, use the Subscription Agreement form attached as Appendix A to the
Prospectus. To speed the process we suggest you fax a copy of the signed
Subscription Agreement to ( ) ___-____ prior to mailing. Once the payment and
signature are received, your stock purchase will be processed promptly.
Suitability Questionnaire for [_______________].
These states require the Company to obtain a completed Suitability Questionnaire
from those State residents intending to purchase stock. The completed form is
maintained in our offices. If you are a legal resident of one of these states,
please fill out the Suitability Questionnaire either on-line on our web site
A-2
<PAGE>
or on hard copy sent to you as Appendix B to the Prospectus. This form must be
submitted to [Participating Broker] along with the completed and signed
Subscription Agreement. To speed the process we suggest you fax a copy of the
signed and completed Suitability Questionnaire to ( ) ___- ____ prior to
mailing. Once the payment and signed documents are received, your stock purchase
will be processed promptly. If you do not have a printer or cannot download from
our web site, call ( ) ___- ____ and a Prospectus containing the Suitability
Questionnaire will be sent to you.
PAYMENT ALTERNATIVES
Mailed Check
1. Make your check payable to "The Chase Manhattan Bank, Escrow Agent", and
along with the completed Subscription Agreement, and if necessary, the
Suitability Questionnaire, mail to: [Name and address of Participating
Broker].
Money Order
2. Make your money order payable to "The Chase Manhattan Bank, Escrow Agent",
and mail to: [Name and address of Participating Broker]. You must also
complete the Subscription Agreement, and if necessary, the Suitability
Questionnaire. To speed up your purchase, fax a copy of the Subscription
Agreement, and if necessary, the Suitability Questionnaire to [Participating
Broker]. Your signature will allow us to process your purchase immediately.
Select: Wire Transfer
3. You may have your local financial institution wire the funds to
[Participating Broker] with the appropriate wire transfer instructions. You
must first complete the Subscription Agreement, and if necessary, the
Suitability Questionnaire. To speed up your purchase, fax a copy of the
Subscription Agreement and, if required, the Suitability Questionnaire to
( ) ___-____. Your signature will allow us to process your purchase
immediately. Once we have received the necessary forms, we will contact you
and provide the wire transfer instructions.
A-3
<PAGE>
LOCKHART CARIBBEAN CORPORATION
SUBSCRIPTION AGREEMENT FORM
Class A Common Stock
(par value $0.01 per share)
Up to 2,000,000 Shares -- $6.50 per Share
Minimum Purchase -- 500 Shares ($3,250.00)
(Minimum purchase may be higher in certain states)
PLEASE READ CAREFULLY this Subscription Agreement Form and the Notices (at the
end of the Agreement) before completing this document. TO SUBSCRIBE FOR SHARES,
complete and sign, where appropriate, and deliver the Subscription Agreement,
along with your payment, to [Participating Broker].
YOUR CHECK SHOULD BE MADE PAYABLE TO:
The Chase Manhattan Bank, Escrow Agent
ALL ITEMS ON THE SUBSCRIPTION AGREEMENT FORM MUST BE COMPLETED IN ORDER FOR YOUR
SUBSCRIPTION TO BE PROCESSED.
A-4
<PAGE>
LOCKHART CARIBBEAN CORPORATION
- --------------------------------------------------------------------------------
1. INVESTMENT
This subscription is in the amount of $_________ for the purchase of _______
shares of Class A Common Stock (at a purchase price of $6.50 per share). The
minimum initial subscription is 500 shares ($3,250.00, except in states with
higher minimum purchase requirements).
|_| PURCHASE OF SHARES |_| REINVESTMENT PLAN - Investor elects to participate
in Plan (See Prospectus for details.)
2. SUBSCRIBER INFORMATION
Full Name (1st)________________ Date of Birth (MM/DD/YY)_______________
Full Name (2nd)________________ Date of Birth (MM/DD/YY)_______________
Address________________________ City______________ State______ Zip Code_________
Custodian Account No.__________ Daytime Phone # (_______________)
|_| U.S. Citizen |_| Resident Alien |_| Foreign Resident Country__________
|_| Check if Subscriber is a U.S. citizen residing outside the U.S.
Income Tax Filing State_______________ ALL SUBSCRIBERS: State of Legal
Residence of Subscriber/Plan beneficiary (required)__________________
Taxpayer Identification Number: For most individual taxpayers, it is their
Social Security number. Note: If the purchase is in more than one name, the
number should be that of the first person listed.
Taxpayer ID#_____-________ Social Security #____-___-_____
3. NAME ON CERTIFICATE
Leave the following section blank if the same as Subscriber.
Name(s) on Certificate__________________________________________________________
Address_________________________________________________________________________
City__________________________ State___________________ Zip Code________________
A-5
<PAGE>
4. DIRECT DEPOSIT ADDRESS
Investors requesting direct deposit of distribution checks to another financial
institution or mutual fund, please complete below. In no event will the Company
be responsible for any adverse consequences of direct deposit.
Company_________________________________________________________________________
Address_________________________________________________________________________
City_______________________________ State_______________ Zip Code_______________
Account No.___________________________________ Daytime Phone # (_______________)
5. FORM OF OWNERSHIP
(Select only one)
|_| INDIVIDUAL - one signature required
|_| HUSBAND AND WIFE, AS COMMUNITY PROPERTY - two signatures required
|_| TENANTS BY THE ENTIRETY - two signatures required
|_| CORPORATIONS
|_| S-Corporation
|_| C-Corporation
|_| TAXABLE TRUST
|_| TAX-EXEMPT TRUST
|_| IRREVOCABLE TRUST - trustee signature required
|_| JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign
|_| A MARRIED PERSON/SEPARATE PROPERTY - one signature required
|_| CUSTODIAN - custodian signature required
|_| PARTNERSHIP
|_| NON-PROFIT ORGANIZATION
|_| CUSTODIAN UGMA-STATE of ________________ - custodian signature required
|_| CUSTODIAN UTMA-STATE of ________________ - custodian signature required
|_| ESTATE - Personal Representative signature required
|_| REVOCABLE GRANTOR TRUST - grantor signature required
6. SUBSCRIBER SIGNATURES
If the Subscriber is executing the Subscriber Signature Page, the Subscriber
understands that, BY EXECUTING THIS AGREEMENT A SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW:
X___________________________ _________ X___________________________ _________
Signature of 1st Subscriber Date Signature of 2nd Subscriber Date
A-6
<PAGE>
7. BROKER/DEALER INFORMATION
Broker/Dealer NASD Firm Name____________________________________________________
Registered Representative_______________________________________________________
Branch Mail Address_____________________________________________________________
City______________________________ State__________________ Zip Code_________ |_|
Please check if new address
Phone # (_______________)_______________________________ Fax # (_______________)
Shipping Address_______________________ City__________________ State____________
Zip Code____________
|_| Telephonic Subscriptions (check here): If the Registered Representative and
Branch Manager are executing the signature page on behalf of the Subscriber,
both must sign below. Registered Representatives and Branch Managers may not
sign on behalf of residents of Florida, Iowa, Maine, Michigan, Minnesota,
Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Ohio, Oregon,
South Dakota, Tennessee or Washington. NOTE: Not to be executed until
Subscriber(s) has (have) acknowledged receipt of final Prospectus.
Telephonic subscriptions may not be completed for IRA accounts.
|_| Registered Investment Advisor (check here): If an owner or principal or any
member of the RIA firm is an NASD licensed Registered Representative
affiliated with a Broker/Dealer, the transaction should be conducted through
that Broker/Dealer, not through the RIA.
PLEASE READ CAREFULLY THE ATTACHED TEXT OF THIS SIGNATURE PAGE AND SUBSCRIPTION
AGREEMENT BEFORE COMPLETING
X__________________________________ ____ ____________________________________
Principal, Branch Manager or Other Date Print or Type Name of Person Signing
Authorized Signature
X____________________________________ ____ ____________________________________
Registered Representative/Investment Date Print or Type Name of Person Signing
Advisor Signature
Make check payable to: The Chase Manhattan Bank, Escrow Agent
Please remit check and Subscription Agreement to:
[
]
For Office Use Only
A-7
<PAGE>
Sub. #_______________________
Admit Date___________________
Amount_______________________
Region_______________________
RSV__________________________
NOTICE TO ALL INVESTORS:
(a) The purchase of Shares for an IRA or Keogh plan does not itself create
the plan.
(b) The Company, in its sole and absolute discretion, may accept or reject
the Subscriber's subscription which if rejected will be promptly returned to the
Subscriber, without interest. Non-U.S. Stockholders (as defined in the
Prospectus) will be admitted as stockholders with the approval of the Advisor.
(c) THE SALE OF SHARES SUBSCRIBED FOR HEREUNDER MAY NOT BE COMPLETED UNTIL
AT LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES A FINAL
PROSPECTUS. EXCEPT AS PROVIDED IN THIS NOTICE, THE NOTICE BELOW, AND THE
PROSPECTUS, THE SUBSCRIBER WILL NOT BE ENTITLED TO REVOKE OR WITHDRAW HIS
SUBSCRIPTION.
BROKER/DEALER AND FINANCIAL REPRESENTATIVE:
By signing this Subscription Agreement, the signers certify that they recognize
and have complied with their obligations under the NASD's Rules of Fair
Practice, and hereby certify as follows: (i) a copy of the Prospectus, including
the Subscription Agreement attached thereto as Appendix A, as amended and/or
supplemented to date, has been delivered to the Subscriber; (ii) they have
discussed such investor's prospective purchase of Shares with such investor and
have advised such investor of all pertinent facts with regard to the liquidity
and marketability of the shares of Class A Common Stock; and (iii) they have
reasonable grounds to believe that the purchase of shares of Class A Common
Stock is a suitable investment for such investor, that such investor meets the
suitability standards applicable to such investor set forth in the Prospectus
and related supplements, if any, and that such investor is in a financial
position to enable such investor to realize the benefits of such an investment
and to suffer any loss that may occur with respect thereto and will maintain
documentation on which the determination was based for a period of not less than
six years; and (iv) under penalties of perjury, (a) the information provided in
this Subscription Agreement to the best of our knowledge and belief is true,
correct and complete, including, but not limited to, the number shown above as
the Subscriber's taxpayer identification number; (b) to the best of our
knowledge and belief, the Subscriber is not subject to backup withholding either
because the Subscriber has not been notified that the Subscriber is subject to
backup withholding as a result of failure to report all interest or dividends or
the Internal Revenue Service has notified the Subscriber that the Subscriber is
no longer subject to backup withholding under Section 3406(a)(1)(C) of the
Internal Revenue Code of 1986, as amended; and (c) to the best of our knowledge
and belief, the Subscriber is not a nonresident alien, foreign corporation,
foreign trust or foreign estate for U.S. tax purposes, and we hereby agree to
notify the Company if it comes to the attention of either of us that the
Subscriber becomes such a person within sixty (60) days of any event giving rise
to the Subscriber becoming such a person.
A-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale of the shares of Class A Common Stock being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee. All of these fees are being paid by the Company.
Registration Fee $3,940
NASD Filing Fee *
Blue Sky Fees and Expenses *
Printing and Engraving Fees *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Transfer Agent and Registration Fees *
Miscellaneous *
=======
Total $ *
- --------
* To be supplied by amendment.
ITEM 31. See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
The Lockhart Companies Incorporated issued and sold an aggregate of 4,600,
4,360 and 3,930 shares of common stock in the years ended December 31, 1996,
1995 and 1994, respectively, to its stockholders pursuant to a dividend
reinvestment plan (the "DRIP"). Approximately 18, 18 and 12 holders of the
Company's common stock participated in the DRIP in 1996, 1995 and 1994,
respectively. The issuance and sale of the Company's common stock under the DRIP
was exempt from registration under Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 67a of the General Corporation Law of the Virgin Islands (the
"GCLVI"), in general, a corporation has the power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful.
No indemnification shall be made, however, in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case such person is fairly
and reasonably
II-1
<PAGE>
entitled to indemnity for such expenses which the court shall deem proper.
Article IV of the Amended and Restated Bylaws of Lockhart Caribbean Corporation
gives Lockhart the power to indemnify its officers, directors, employees and
agents to the full extent permitted by the GCLVI.
Under the [Agreement with Participating Brokers], [the Participating Brokers
are] obligated, under certain circumstances, to indemnify directors and officers
of the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the [Agreement with Participating Brokers] filed as Exhibit 1 hereto.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statement Schedules
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule XI - Real Estate and Accumulated Depreciation
Schedule XII - Mortgage Loans on Real Estate
(b) Exhibits
Exhibit List
------------
*1 Form of Agreement with Participating Brokers
2.1 Plan of Recapitalization
3.1 Form of Amended and Restated Articles of Incorporation of Lockhart
Caribbean Corporation
3.2 Form of Amended and Restated Bylaws of Lockhart Caribbean Corporation
4.1 Reference is made to Exhibits 3.1 and 3.2
*4.2 Specimen Class A Common Stock Certificate
*5 Opinion of Dudley, Topper and Feuerzeig (including consent)
10.1 Loan Agreement between H.E. Lockhart Management, Inc. and Banco Popular
de Puerto Rico dated October 21, 1996
10.2 Form of Stock Purchase Agreement by and between Carib National Group
Inc., Richard E.W. Grant, The Grant Trust, Zenon Development Corporation
and Leslie and Cathy-Mae Sitaram and The Lockhart Companies Incorporated
10.3 Purchase and Sale Agreement between Red Hook Holding and Jedmacks, Inc.
and H.E. Lockhart Management, Inc. dated as of January 6, 1995
10.4 Red Hook Plaza, Inc. Installment Note dated February 15, 1995
10.5 Purchase and Sale Agreement between Miller Properties, Inc. and Fort
Mylner Properties, Inc. dated as of June 14, 1996
10.6 Purchase and Sale Agreement between Miller Properties, Inc. and Golden
Orange Centers, Inc. dated as of June 14, 1996
10.7 Lockhart Caribbean Corporation Long Term Incentive Plan
10.8 Form of Lockhart Caribbean Corporation Dividend Reinvestment Plan
11 Statement re computation of per share earnings
21 Subsidiaries of Lockhart Caribbean Corporation
23.1 Consent of Ernst & Young, L.L.P.
23.2 Consent of Francisco E. Depusoir, CPA
*23.3 Consent of Dudley, Topper and Feuerzeig (contained in their opinion filed
as Exhibit 5)
24 Power of Attorney
II-2
<PAGE>
27 Financial Data Schedule
- -------------------------------
*To be filed by amendment.
ITEM 36. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing, certificates in such denominations and registered in such names
as required to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-3
<PAGE>
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed part of this registration statement as
of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at such time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Lockhart Caribbean Corporation has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Charlotte
Amalie, St. Thomas, United States Virgin Islands, on September 5, 1997.
LOCKHART CARIBBEAN CORPORATION
(f.k.a. The Lockhart Companies Incorporated)
By: /s/ JOHN P. DEJONGH, JR.
-----------------------------------------
John P. deJongh, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOHN P. DEJONGH, JR President, and a Director September 5, 1997
- ---------------------------------------
John P. deJongh, Jr. (Principal Executive Officer)
/s/ CORNEL WILLIAMS Chief Financial Officer (Principal September 5, 1997
- ---------------------------------------
Cornel Williams Financial Officer and Principal
Accounting Officer)
/s/ GEORGE H.T. DUDLEY Chairman of the Board of Directors September 5, 1997
- ---------------------------------------
George H.T. Dudley
/s/ WESLEY S. WILLIAMS, JR. Vice Chairman of the Board of September 5, 1997
- ---------------------------------------
Wesley S. Williams, Jr. Directors
* Director September 5, 1997
- ---------------------------------------
Alton L. Adams
* Director September 5, 1997
- ---------------------------------------
Lisa S. Curreri
* Director September 5, 1997
- ---------------------------------------
Kathleen P. Goldberg
* Director September 5, 1997
- ---------------------------------------
William H. Hastie
* Director September 5, 1997
- ---------------------------------------
Herbert E. Lockhart, III
* Director September 5, 1997
- ---------------------------------------
John E. Oxendine
</TABLE>
II-5
<PAGE>
*POWER OF ATTORNEY
Wesley S. Williams, Jr., by signing his name hereto, does sign this
document on behalf of each of the persons indicated above for whom he is
attorney-in-fact pursuant to a power of attorney duly executed by such person
and filed with the Securities and Exchange Commission.
By: /s/ Wesley S. Williams, Jr.
----------------------------------
(Wesley S. Williams, Jr.
Attorney-In-Fact)
II-6
<PAGE>
Exhibit Index
-------------
*1 Form of Agreement with Participating Brokers
2.1 Plan of Recapitalization
3.1 Form of Amended and Restated Articles of Incorporation of Lockhart
Caribbean Corporation
3.2 Form of Amended and Restated Bylaws of Lockhart Caribbean Corporation
4.1 Reference is made to Exhibits 3.1 and 3.2
*4.2 Specimen Class A Common Stock Certificate
*5 Opinion of Dudley, Topper and Feuerzeig (including consent)
10.1 Loan Agreement between H.E. Lockhart Management, Inc. and Banco Popular
de Puerto Rico dated October 21, 1996
10.2 Form of Stock Purchase Agreement by and between Carib National Group
Inc., Richard E.W. Grant, The Grant Trust, Zenon Development Corporation
and Leslie and Cathy-Mae Sitaram and The Lockhart Companies Incorporated
10.3 Purchase and Sale Agreement between Red Hook Holding and Jedmacks, Inc.
and H.E. Lockhart Management, Inc. dated as of January 6, 1995
10.4 Red Hook Plaza, Inc. Installment Note dated February 15, 1995
10.5 Purchase and Sale Agreement between Miller Properties, Inc. and Fort
Mylner Properties, Inc. dated as of June 14, 1996
10.6 Purchase and Sale Agreement between Miller Properties, Inc. and Golden
Orange Centers, Inc. dated as of June 14, 1996
10.7 Lockhart Caribbean Corporation Long Term Incentive Plan
10.8 Form of Lockhart Caribbean Corporation Dividend Reinvestment Plan
11 Statement re computation of per share earnings
21 Subsidiaries of Lockhart Caribbean Corporation
23.1 Consent of Ernst & Young, L.L.P.
23.2 Consent of Francisco E. Depusoir, CPA
*23.3 Consent of Dudley, Topper and Feuerzeig (contained in their opinion filed
as Exhibit 5)
24 Power of Attorney
27 Financial Data Schedule
- -------------------------------
*To be filed by amendment.
II-7
Exhibit 2.1
Plan of Recapitalization for
The Lockhart Companies Incorporated
(to be known as Lockhart Caribbean Corporation)
Present Capitalization
As of June 30, 1997, the authorized capitalization of The Lockhart
Companies Incorporated (the "Corporation") consists of 1,500,000 shares of
common stock with no par value (the "Old Common Stock"). Of these shares,
888,882 shares of the common stock are issued, fully paid, nonassessable and
outstanding.
The proposed Plan of Recapitalization
1. The Corporation proposed to increase the authorized capital stock of the
Company to 50,000,000 shares consisting of "Class A Stock"), 9,000,000 shares of
Class B common stock, $0.01 par value (the "Class B Stock") and 1,000,000 shares
of Preferred Stock, $0.01 par value (the "Preferred Stock").
2. The Corporation proposes to amend the Articles of Incorporation and the
Bylaws of the Corporation to provide for the Class A Stock and Class B Stock in
lieu of the Old Common Stock and to effect certain modifications intended to
reduce the chances that the Corporation may become the object of unsolicited
takeover bids, including changes to the ability of stockholders to bring up
matters at both annual and special meetings and the indemnification of directors
and officers, all as set forth in the Amended and Restated Bylaws of the
Corporation, a copy of which is attached as Exhibit II.
3. If the stockholders approve the foregoing Plan of Recapitalization, the
Amended and Restated Articles of Incorporation, and the Amended and Restated
Bylaws, when the Plan of Recapitalization becomes effective, all rights
appertaining to the Old Common Stock, or accruing by virtue of the ownership
thereof, shall immediately cease and terminate, and the holders thereof shall
surrender the certificates therefor to the Corporation for cancellation, and
receive and accept in lieu thereof certificates of Class B Stock in exchange
for, and in substitution of, the Old Common Stock as above provided. For every
share of Old Common Stock, the shareholder shall receive 9.7 shares of Class B
stock.
<PAGE>
Method of Carrying Out the Plan
Under this Plan of Recapitalization, when the reclassification described
herein has become effective, the appropriate shares of Class B Stock shall be
issued and the Old Common Stock shall be canceled.
Conditions Upon Which the Plan Will Become Effective
This Plan of Recapitalization shall become effective (a) after it has been
duly adopted by the Board of Directors of the Corporation and duly approved by
the stockholders of the Corporation and (b) upon, and simultaneously with, the
Amended and Restated Articles of Incorporation of the Corporation becoming
effective.
IN WITNESS WHEREOF, The Lockhart Companies incorporated, pursuant to
the authority duly given it by the Board of Directors, has caused this Plan of
Recapitalization to be duly executed by John P. de Jongh, Jr., its President,
and attested by Cornel A. Williams, its Secretary, this day of July, 1997.
LOCKHART CARIBBEAN CORPORATION
By: /s/ ------------------------
John P. de Jongh, Jr.
President
[SEAL]
Attest: /s/ ------------------------
Cornel A. Williams
Secretary
Exhibit 3.1
CERTIFICATE
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LOCKHART CARIBBEAN CORPORATION
We, the undersigned, hereby certify as follows:
1. The name of the Corporation is LOCKHART CARIBBEAN CORPORATION.
2. Lockhart Caribbean Corporation (the "Corporation") was originally
incorporated under the name The Lockhart Companies Incorporated, and the
original Certificate of Incorporation of the Corporation was filed with the
Office of the Lieutenant Governor of the U.S. Virgin Islands, Division of
Corporations and Trademarks on December 18, 1992 and a Certificate of
Incorporation was issued by the Lieutenant Governor on February 9, 1993
authorizing said corporation to conduct business in the Virgin Islands.
3. This Certificate of Amended and Restated Articles of Incorporation (the
"Certificate") upon recommendation of the Corporation's Board of Directors was
duly adopted in accordance with the provisions of Section 222 of the General
Corporation Law of the Virgin Islands by the unanimous vote of the Corporation's
stockholders, at a meeting duly held after written notice being provided to all
stockholders in accordance with Section 222(d) of such law. This Certificate
restates, integrates, amends and supersedes the provisions of the Articles of
Incorporation of this Corporation as heretofore amended, restated and
supplemented.
4. The Capital of the Corporation will not be reduced under or by reason of
the Amended and Restated Articles of Incorporation.
5. The text of the Articles of Incorporation as heretofore amended,
restated and supplemented is hereby restated and further amended to read in its
entirety as follows:
ARTICLE ONE
NAME
The name of the corporation is LOCKHART CARIBBEAN CORPORATION. The
corporation is referred to herein as the "Corporation".
<PAGE>
- 2 -
ARTICLE TWO
PRINCIPAL OFFICE AND RESIDENT AGENT
The principal office of the Corporation in the Virgin Islands is located at
Parcel No. 44 Estate Thomas, St. Thomas, U.S. Virgin Islands, and the name of
the resident agent of the Corporation is GEORGE H. T. DUDLEY, whose address is
Dudley, Topper and Feuerzeig, Law House, 1A Frederiksberg Gade, Emancipation
Garden Station, P.O. Box 756, St. Thomas, U.S. Virgin Islands 00804-0756.
ARTICLE THREE
PURPOSE
Without limiting in any manner the scope and generality of the allowable
functions of the Corporation, it is hereby provided that the Corporation shall
have the following purposes, objects and powers:
3.1 To purchase, subscribe for, or otherwise acquire and own, hold, use,
sell, assign, transfer, mortgage, pledge, exchange, or otherwise dispose of real
and personal property of every kind including interests in general or limited
partnerships, interests in limited liability companies and limited liability
partnerships, shares of stock, bonds, debentures, notes, evidences of
indebtedness, and other securities, contracts, or obligations of any corporation
or corporations, association or associations, partnership or partnerships,
limited liability company or companies, limited liability partnerships, domestic
or foreign, and to pay in whole or in part in cash or by exchanging stocks,
bonds, or other evidences of indebtedness or securities of this or any other
corporation, and while the owner or holder of any real or personal property,
stocks, bonds, debentures, notes, evidences of indebtedness or other securities,
contracts, or obligations, to receive, collect, and dispose of the interest,
dividends and income arising from the property and to possess and exercise in
respect of the same, all the rights, powers and privileges of ownership,
including all voting powers on any stocks, limited liability company or
partnership interests so owned.
3.2 To engage in any commercial, financial, industrial, agricultural,
marketing, transportation, or service activity calculated or designed to be
profitable to the Corporation.
3.3 To design, develop, manufacture, construct, assemble, install, repair,
maintain, prepare and compound and to buy, sell, import, export, and otherwise
deal in commercial, industrial, agricultural, or other instruments, appliances,
tools, machinery, equipment, parts, supplies, accessories, devices,
preparations, compounds, and articles and goods, wares and merchandise of every
kind; to maintain and operate laboratories and testing facilities of every kind
and to carry on the business of analysts, testers, examiners, advisors and
technical
<PAGE>
- 3 -
consultants with respect to materials, equipment and processes of every kind and
to carry on research and experiments with respect thereto.
3.4 To acquire, hold, maintain, and operate such plants, workshops,
offices, stores, buildings, equipment, vehicles and vessels as may be desirable
for the proper conduct of the business herein referred to, and to do and perform
every other act that may be legally performed by a corporation engaged in such
business.
3.5 To apply for, acquire, register, use, hold, sell, assign, or otherwise
dispose of (either absolutely or by way of lease, mortgage, pledge, or license),
to grant licenses with respect to and otherwise turn to account any letters
patent of the United States or of any foreign country, or pending applications
therefor, and any inventions, improvements, devices, trade secrets, formulae,
processes, trademarks, trade names, brands, labels, copyrights and privileges
and any right, title or interest therein.
3.6 To purchase or otherwise acquire, hold, own, mortgage, pledge, sell,
enjoy or otherwise turn to account, assign and transfer and to invest, trade and
deal in goods, wares and merchandise, and real and personal property of every
kind.
3.7 To acquire all or any part of the good will, rights, property and
business of any person, firm, association, partnership, limited liability
company, limited liability partnership or corporation and to pay for the same in
cash or in stocks or bonds of this Corporation or otherwise and to hold or in
any manner dispose of the whole or any part of the property so purchased, and to
assume in connection therewith any liabilities of any such person, firm,
association, partnership, limited liability company, limited liability
partnership or corporation, and to conduct in any lawful manner, in any place
the whole or any part of the business thus acquired.
3.8 To borrow or raise money to any amount permitted by law by the sale or
issue of stock, bonds, notes, debentures or other obligations of any kind, at
such rates of interest and on such terms as the Corporation may determine, and
to make contracts of guaranty and suretyship on behalf of or to the benefit of
any person, firm, association, partnership, limited liability company, limited
liability partnership or corporation, which the Corporation's Board of Directors
deems to be necessary or convenient to the conduct, promotion or attainment of
the business of the Corporation or otherwise in the Corporation's interest and
to secure any of its obligations by mortgage, pledge, lien or other encumbrance
of all or any of its property, franchises and income.
3.9 To enter into and carry out any contracts for or in relation to any of
the foregoing with any person, firm, association, partnership, limited liability
company, limited liability partnership, corporation, or government or
governmental agency.
<PAGE>
- 4 -
3.10 To conduct its business in the Virgin Islands and elsewhere in the
United States and foreign countries and to have offices within or outside the
Virgin Islands and to hold, purchase, mortgage and convey real and personal
property within or outside the Virgin Islands.
3.11 To indemnify as may be provided in the Bylaws any and all of the
Corporation's directors, officers, agents or employees or former directors,
officers, agents or employees or any person who may have served at its request
as a director, officer, agent or employee of another corporation of which it
owns shares of capital stock or of which it is a creditor, against expenses
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they, or any of them, are made parties, or a
party, by reason of being or having been directors, officers, agents or
employees of the Corporation, or of such other corporation, except in relation
to matters described in Title 13 Virgin Islands Code ss. 2(b)(4)(A) or (B) (as
the same hereafter may be amended) or as to which any such director, officer,
agent or employee or former director, officer, agent or employee or person shall
be adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of duty.
3.12 To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes or the attainment of any of the objects or
the exercise of any of the powers herein set forth, either alone or in
connection with other firms, individuals, associations, limited liability
companies, limited liability partnerships or corporations in the Virgin Islands
and elsewhere in the United States and foreign countries, and to do any other
acts or things incidental or appurtenant to or growing out of or connected with
the said business, purposes, objects and powers of any part thereof not
inconsistent with the laws of the Virgin Islands, and to exercise any and all
powers now or hereafter conferred by law on business corporations whether
expressly enumerated herein or not.
The purposes, objects and powers specified in this Article shall not be
limited or restricted by reference to the terms of any other subdivision or of
any other Article of these Amended and Restated Articles of Incorporation.
ARTICLE FOUR
CAPITAL STRUCTURE
The aggregate number of shares of capital stock which the Corporation shall
have the authority to issue is 50,000,000 shares, classified into three classes
of capital stock, as follows:
<PAGE>
- 5 -
40,000,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock");
9,000,000 shares of Class B Common Stock, par value $0.01 per share
(the "Class B Common Stock"); and
1,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock").
The Class A Common Stock and the Class B Common Stock collectively are
sometimes referred to as the "Common Stock".
The minimum amount of Capital with which the Corporation will commence will
be $500,000.00.
ARTICLE FIVE
COMMON STOCK
5.1 Identical Rights. Except as otherwise set forth in this Article Five or
as otherwise required by law, the rights and privileges of each class of the
Common Stock shall be identical in all respects, including without limitation
the right to participate ratably in dividends and liquidation distributions and
the right of the members of a class of Common Stock to participate ratably in
offers by the Corporation to repurchase shares of Common Stock that are directed
to all of the holders of any other class of the Common Stock.
5.2 Voting Rights.
(a) Class A Common Stock. Except as otherwise required by law, each
outstanding share of Class A Common Stock shall be entitled to vote on each
matter on which the stockholders of the Corporation shall be entitled to vote,
and each holder of Class A Common Stock shall be entitled to one (1) vote for
each share of such stock held by such holder.
(b) Class B Common Stock. Except as otherwise required by law, each
outstanding share of Class B Common Stock shall be entitled to vote on each
matter on which the stockholders of the Corporation shall be entitled to vote,
and each holder of Class B Common Stock shall be entitled to ten (10) votes for
each share of such stock held by such holder; provided, however, that if the
aggregate number of shares of Class B Common Stock issued and outstanding no
longer represent at least seventy-five percent (75%) of the combined voting
power of the total issued and outstanding shares of both classes of Common
Stock, then
<PAGE>
- 6 -
each holder of Class B Common Stock shall be entitled to one (1) vote for each
share of such stock held by such holder.
(c) All Classes To Vote As A Single Class. Except as otherwise
required by law, the holders of the Common Stock entitled to vote on any matter
shall vote together as a single class on all such matters. The stockholders of
the Corporation shall not be entitled to cumulate their votes in any election of
the directors of the Corporation or with respect to any other matter.
5.3 Dividends. The Board of Directors of the Corporation may cause
dividends to be paid to holders of Common Stock out of funds legally available
for the payment of dividends. Any dividend or distribution on the Common Stock
shall be payable on shares of Class A Common Stock and Class B Common Stock
share and share alike; provided that in the case of dividends payable in shares
of Common Stock of the Corporation, or options, warrants or rights to acquire
shares of such Common Stock or securities convertible into or exchangeable for
shares of such Common Stock, the shares, options, warrants, rights or securities
so payable shall be payable in shares of, or options, warrants or rights to
acquire or securities convertible into or exchangeable for Class A Common Stock.
5.4 Liquidation Rights. In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Corporation, the remaining assets and fund of the Corporation, if any, shall be
divided among and paid ratably to the holders of Class A Common Stock and the
holders of Class B Common Stock share and share alike. A merger or consolidation
of the Corporation with or into any other corporation or a sale or conveyance of
all or any part of the assets of the Corporation (which shall not in fact result
in the liquidation of the Corporation and the distribution of assets to
stockholders) shall not be deemed to be a voluntary or involuntary liquidation
or dissolution or winding up of the Corporation within the meaning of this
Section 5.4.
5.5 Preemptive Rights. No stockholder of the Corporation shall by reason of
holding any equity or voting share of any class of Common Stock, have any
preemptive or preferential right to purchase or subscribe to any shares of any
class of Common Stock, now or hereafter to be authorized, or any shares or other
securities convertible into or carrying rights or options to purchase any shares
of any class of Common Stock, now or hereafter to be authorized, whether or not
the issuance of any such shares or other securities would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the Board of Directors of the Corporation in its discretion from time to time
may grant and at such price as the Board of Directors in its discretion may fix;
and the Board of Directors may issue shares of any class of Common Stock or
other securities convertible into or carrying rights or options to purchase any
shares of any class of the Corporation, without offering any such
<PAGE>
- 7 -
shares or securities, either in whole or in part, to the existing stockholders
of any class of Common Stock.
5.6 Conversion Rights.
(a) Class B Voluntary Conversion. Each and every share of Class B
Common Stock is convertible into Class A Common Stock at any time at the option
of the holder thereof. Such conversion shall be on a share-for-share basis, one
share of Class A Common Stock for each share of Class B Common Stock so
converted.
(b) Class B Automatic Conversion. Each share of Class B Common Stock
shall convert automatically into one fully paid and non-assessable share of
Class A Common Stock upon its sale, assignment, gift or any other transfer to a
party or entity other than a Permitted Transferee. For purposes of this Section
5.6(b), a "Permitted Transferee" of a holder of Class B Common Stock (a "Class B
Stockholder") shall be (i) any lineal descendant of Herbert E. Lockhart and
Karen Ingeborg Lockhart (including any adopted child); (ii) any individual
heretofore or hereafter designated as a Permitted Transferee by a vote of the
Board of Directors upon the recommendation of the Executive Committee of the
Board of Directors; (iii) any lineal descendant (including any adopted chid) of
a previously admitted Class B Stockholder (for convenience the individuals
described in (i), (ii) and (iii) hereafter are individually referred to as a
"Founding Family Member" and collectively the "Founding Family Members"); (iv)
any trust established and maintained principally for the benefit of one or more
Founding Family Members and where one or more Founding Family Members has a
general or special testamentary power of appointment or general or special
non-testamentary power of appointment limited to any Permitted Transferee or
Permitted Transferees thereof; (v) any corporation, partnership, limited
liability company, limited liability partnership, private foundation or other
entity where (A) the majority of the board of directors or other managing body
are comprised of Founding Family Members or (B) all the beneficial ownership, or
ownership of equity securities of such entity representing voting control over
such entity, is held by Founding Family Members and/or any Permitted Transferee
or Permitted Transferees thereof; provided, however, that if (x) the majority of
the board of directors or other managing body of such entity are not comprised
of Founding Family Members and (y) the Class B stockholder who made such
transfer, and Permitted Transferees thereof, cease, for whatever reason, to hold
all of the beneficial ownership, or ownership of equity securities representing
voting control, of such corporation, partnership, limited liability company,
limited liability partnership, private foundation or other entity, then any and
all shares of Class B Common Stock owned by such corporation, partnership,
limited liability company, limited liability partnership, private foundation or
other entity shall be converted automatically, without further action by or on
behalf of any person, into shares of Class A Common Stock as provided by Section
5.6(b) above and such corporation, partnership, limited
<PAGE>
- 8 -
liability company, limited liability partnership, private foundation or other
equity shall no longer be a Class B Stockholder.
Notwithstanding anything to the contrary set forth herein, any Class B
Stockholder may pledge his shares of Class B Common Stock to a pledgee pursuant
to a bona fide pledge of such shares as collateral security for indebtedness due
to the pledgee, provided that such shares may not be transferred to or
registered in the name of the pledgee unless such pledgee is a Permitted
Transferee. In the event of foreclosure or other similar action by the pledgee
(other than a pledgee who is a Permitted Transferee), such pledged shares of
Class B Common Stock shall be converted automatically, without further action by
or on behalf of any person, into shares of Class A Common Stock as provided in
this Section 5.6(b) upon such foreclosure; provided, however, that if within ten
(10) business days after such foreclosure or similar event such converted shares
are returned to the pledgor or transferred to a Permitted Transferee of the
pledgor, such shares shall be converted automatically, without any act or deed
on the part of the Corporation or any other person, into the same number of
shares of Class B Common Stock.
Notwithstanding anything to the contrary set forth herein, the foregoing
automatic conversion provisions of this Section 5.6(b) shall not be applicable
to any transfer of shares of Class B Common Stock by operation of law upon
incompetence, death, dissolution or bankruptcy of any Class B Stockholder to an
executor, guardian or trustee, respectively, of such Class B Stockholder
provided that the beneficial ownership of such shares continues to be held by
one or more Founding Family Members or Permitted Transferees thereof.
(c) Class B Conversion Procedure.
(1) Each conversion of shares pursuant to this Section 5.6 shall
be effected by the surrender of the certificate or certificates representing the
shares to be converted (hereinafter called the "Converting Shares") at the
principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by written notice to the holders of
Common Stock) at any time during its usual business hours, together with written
notice by the holder of such Converting Shares, stating that such holder desires
to convert the Converting Shares, or a stated number of the shares of Class B
Common Stock represented by such certificate or certificates into an equal
number of shares of Class A Common Stock (hereinafter called the "Converted
Shares"), as appropriate in accordance with this Section 5.6. Such notice shall
also state the name or names (with addresses) and denominations in which the
certificate or certificates for Converted Shares are to be issued and shall
include instructions for the delivery thereof. Promptly after such surrender and
the receipt of such written notice, the Corporation will issue and deliver in
accordance with the surrendering holder's instructions the certificate or
certificates evidencing the Converted Shares issuable upon such conversion, and
the Corporation will deliver to the
<PAGE>
- 9 -
converting holder a certificate (which may contain such legends as appropriate)
representing any shares of Class B Common Stock which were represented by the
certificate or certificates that were delivered to the Corporation in connection
with such conversion, but which were not converted.
(2) In the event of the automatic conversion of shares of Class B
Common Stock into shares of Class A Common Stock, the holder of such shares
shall surrender the certificate or certificates representing the Converting
Shares in accordance with, and the parties to the transfer and the Corporation
shall otherwise comply with, the procedures set forth in Section 5.6(c)(1)
hereof; provided, however, that, notwithstanding that any certificates for
Converting Shares shall not have been surrendered for cancellation, all such
Converting Shares shall no longer be deemed outstanding on and after the
effective date of conversion as set forth in Section 5.6(a) or 5.6(b), as the
case may be, and all rights with respect to such Converting Shares shall
forthwith on the effective date of such transfer cease and terminate, except
only the right of the holder or holders thereof to receive the same number of
shares of Converted Shares on the conversion thereof.
(3) Upon the issuance of shares in accordance with this Section
5.6(c), such shares shall be deemed to be duly authorized, validly issued, fully
paid and non-assessable.
(d) Reservation. The Corporation hereby reserves and shall at all
times reserve and keep available, out of its authorized and unissued shares of
Class A Common Stock for the purpose of effecting conversions, such number of
duly authorized shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Common
Stock. The Corporation covenants that all the shares of Class A Common Stock so
issuable shall, when so issued, be duly and validly issued, fully paid and
non-assessable, and free from liens and charges with respect to the issue. The
Corporation shall take all such action as may be necessary to assure that all
such shares of Class A Common Stock or Class B Common Stock may be so issued
without violation of any applicable law or regulation. The Corporation will not
take any action that results in any adjustment of the conversion ratio if the
total number of shares of Class A Common Stock issued and issuable after such
action upon conversion of the shares of Class B Common Stock would exceed the
total number of shares of Class A Common Stock then authorized by the
Corporation's Articles of Incorporation, as the same may have been amended or
restated.
(e) No Dividends. If a share of Class B Common Stock shall be
converted subsequent to the record date for the payment of a dividend or other
distribution on Class B Common Stock, but prior to such payment, the registered
holder of such share at the close of business on such record date shall be
entitled to receive the dividend or other distribution payable on such share on
the date set for payment of such dividend or other distribution
<PAGE>
- 10 -
notwithstanding the conversion thereof hereunder or the Corporation's default in
payment of the dividend on such due date.
5.7 Change in Class. No shares of Common Stock may be subdivided,
consolidated, reclassified or otherwise changed unless concurrently the share of
the other class of Common Stock are subdivided, consolidated, reclassified or
otherwise changed in the same proportion and the same manner.
5.8 Mergers and Consolidations. In the event of a merger, consolidation or
other business combination of the Corporation with or into another entity
(whether or not the Corporation is the surviving entity), or in the event of the
dissolution of the Corporation, provision shall be made so that the holders of
each class of Common Stock will be entitled to receive the same amount and form
of consideration per share as the per share consideration, if any, received by
holders of the other classes of Common Stock in such merger, consolidation,
combination or dissolution; provided, however, that in connection with any such
merger, consolidation or business combination in which shares of capital stock
are distributed, such shares may differ as to voting rights to the extent and
only to the extent that the voting rights of the Class A Common Stock and Class
B Common Stock differ as provided herein; and provided further, however, that if
such shares differ as to voting rights, the shares having superior voting rights
shall be subject to conversion provisions that are no more or less favorable to
the holders of such shares than those provided in ARTICLE FIVE hereof with
respect to the Class B Common Stock.
ARTICLE SIX
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by the Board of Directors of the
Corporation, each of said series to be distinctly designated. All shares of any
one series of Preferred Stock shall be alike in every particular, except that
there may be different dates from which dividends, if any, thereon shall be
cumulative, if made cumulative. The voting powers and the preferences and
relative, participating, optional and other special rights of each such series,
and the qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding. The Board of
Directors of the Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of a
particular series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including, but
without limiting the generality of the foregoing, the following:
(a) The distinctive designation of, and the number of shares of
Preferred Stock, which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding)
from time to time by like action of the Board of Directors;
(b) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall be paid,
the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes, of stock of the Corporation and whether such dividends shall
be cumulative or non-cumulative;
(c) The right, if any, of the holders of Preferred Stock of such
series to convert the same into, or exchange the same for, shares of any
other class or classes, or of any series of the same or any other class or
classes, of stock of the Corporation and the terms and conditions of such
conversion or exchange;
(d) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times at
which, and the terms and conditions on which, Preferred Stock of such
series may be redeemed;
<PAGE>
- 11 -
(e) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or winding up of
the Corporation;
(f) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Preferred Stock of such series; and
(g) The voting powers, if any, of the holders of such series of
Preferred Stock, which may, without limiting the generality of the
foregoing, include the right, voting as a series by itself or together with
other series of Preferred Stock or all series of Preferred Stock as a
class, to elect one or more directors of the Corporation.
ARTICLE SEVEN
PERPETUAL EXISTENCE
The Corporation shall have perpetual existence.
ARTICLE EIGHT
BOARD OF DIRECTORS
For the management of the business and for the conduct of the affairs of
the Corporation, and in further creation, definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided:
8.1 The number of directors of the Corporation shall be fixed by, or in the
manner provided in, the Bylaws, but in no case shall the number be less than
three (3). The directors need not be stockholders.
8.2 In furtherance and not in limitation of the powers conferred by the
laws of the Virgin Islands, and subject at all times to the provisions thereof,
the Board of Directors is expressly authorized and empowered:
(a) To make and adopt the Bylaws of the Corporation, subject to the
powers of the stockholders to alter, repeal or modify the Bylaws adopted by the
Board of Directors.
(b) To authorize and issue obligations of the Corporation, secured and
unsecured, to include therein such provisions as to redeemability,
convertibility or otherwise, as the Board of Directors in its sole discretion
may determine, and to authorize the mortgaging or pledging of, and to authorize
and cause to be executed mortgages and liens upon any property of the
Corporation, real or personal, including after acquired property.
<PAGE>
- 12 -
(c) To determine whether any and, if any, what part of the net profits
of the Corporation or of its net assets in excess of its capital shall be
declared in dividends and paid to the stockholders, and to direct and determine
the use and disposition thereof.
(d) To set apart a reserve or reserves, and to abolish such reserve or
reserves, or to make such other provisions, if any, as the Board of Directors
may deem necessary or advisable for working capital, for additions, improvements
and betterments to plant and equipment, for expansion of the business of the
Corporation (including the acquisition of real and personal property for this
purpose) and for any other purpose of the Corporation.
(e) To establish bonus, profit sharing, pension, thrift and other
types of incentive, compensation or retirement plans for the officers and
employees (including officers and employees who are also directors) of the
Corporation, and to fix the amount of profits to be distributed or shared or
contributed and the amounts of the Corporation's funds or otherwise to be
devoted thereto, and to determine the persons to participate in any such plans
and the amounts of their respective participations.
(f) To issue or grant options for the purchase of shares of stock of
the Corporation to officers and employees (including officers and employees who
are also directors) of the Corporation and on such terms and conditions as the
Board of Directors may time to time determine.
(g) To enter into contracts for the management of the business of the
Corporation for terms not exceeding five (5) years.
(h) To exercise all the powers of the Corporation, except such as are
conferred by law, or by these Articles of Incorporation or by the Bylaws of the
Corporation upon the stockholders.
(i) To issue such classes of stock and series within any class of
stock with such value and voting powers with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof as is stated in the resolution or
resolutions providing for the issue of such stock adopted by the Board of
Directors and duly filed with the Office of the Lt. Governor of the Virgin
Islands in Accordance with 13 V.I.C. ss.91 and 13 V.I.C. ss.97; as the same may
be amended from time to time.
ARTICLE NINE
SPECIAL MEETINGS OF STOCKHOLDERS
Except as otherwise required by law, special meetings of stockholders may
be called only by the Board of Directors of the Corporation pursuant to a
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors or by the Executive Committee of the Board.
<PAGE>
- 13 -
Except as otherwise required by law, stockholders of the Corporation, in their
capacity as such, shall not be entitled to request or call a special meeting of
the stockholders.
ARTICLE TEN
MEETINGS; BOOKKEEPING
The stockholders and directors shall have the power to hold their meetings
and keep the books, documents, and papers of the corporation within or outside
the Virgin Islands and at such place or places as may be from time to time
designated by the Bylaws of by the resolution of the stockholders or directors,
except as otherwise required by the laws of the Virgin Islands.
ARTICLE ELEVEN
AMENDMENTS
The Corporation reserves the right to amend, alter or repeal any of the
provisions of these Articles of Incorporation and to add or insert other
provisions authorized by the laws of the Virgin Islands at the time in force in
the manner and at the time prescribed by said laws, and all rights at any time
conferred upon the Board of Directors and the stockholders by these Articles of
Incorporation are granted subject to the provisions of this Article.
ARTICLE TWELVE
CONSTRUCTION OF TERMS
The objects, purposes and powers specified in any clause or paragraph of
these Articles shall be in no way limited or restricted by reference to or
inference from the terms of any other clause or paragraph of these Articles. The
objects, purposes and powers in each of the clauses and paragraphs of these
Articles shall be regarded as independent objects, purposes and powers. The
objects, purposes and powers specified in these Articles are in furtherance and
not in limitation of the objects, purposes and powers conferred by statute.
IN WITNESS WHEREOF, Lockhart Caribbean Corporation has caused its corporate
seal to be affixed hereto and this Certificate of Amended and Restated Articles
of Incorporation to be executed by the undersigned officers of said Corporation
this 22 day of August 1997.
LOCKHART CARIBBEAN CORPORATION
By: /s/John P. deJongh
--------------------------
John P. deJongh, President
[SEAL]
Attest: /s/Cornel A. Williams
-----------------------------
Cornel A. Williams, Secretary
<PAGE>
- 14 -
TERRITORY OF THE VIRGIN ISLANDS )
) SS.:
JUDICIAL DIVISION OF ST. THOMAS AND ST. JOHN )
The foregoing instrument was acknowledged before me this 22nd day of August
1997 by John P. deJongh, Jr., President of Lockhart Caribbean Corporation, a
U.S. Virgin Islands corporation, on behalf of the corporation.
[illegible] J. Richards
-----------------------
Notary Public
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS OF
LOCKHART CARIBBEAN CORPORATION
(a U.S. Virgin Islands corporation)
ARTICLE I
STOCKHOLDERS
Section 1.1. CERTIFICATES REPRESENTING STOCK. Certificates representing
stock in Lockhart Caribbean Corporation (the "Corporation") shall be signed by,
or in the name of, the Corporation by the President or a Vice-President and by
the Secretary or an Assistant Secretary of the Corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar who has signed or whose facisimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of issue.
Whenever the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law of the U.S. Virgin Islands (the "GCL"). Any restrictions
on the transfer or registration of transfer of any shares of stock of any class
or series shall be noted conspicuously on the certificate representing such
shares.
The Corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of the lost, stolen,
or destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft, or destruction of any such
certificate or the issuance of any such new certificate.
Section 1.2. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall not
be required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate)
<PAGE>
which shall entitle the holder to receive a full share upon the surrender of
such scrip or warrants aggregating a full share. A certificate for a fractional
share shall, but scrip or warrants shall not unless otherwise provided therein,
entitle the holder to exercise voting rights, to receive dividends thereon, and
to participate in any of the assets of the Corporation in the event of
liquidation. The Board of Directors may cause scrip or warrants to be issued
subject to the conditions that they shall become void if not exchanged for
certificates representing the full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the Corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
Section 1.3. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the Corporation shall be made
only on the stock ledger of the Corporation by the registered holder thereof, or
by the holder's attorney thereunto authorized by power of attorney duly executed
and filed with the Secretary of the Corporation, or in the Secretary's absence,
an Assistant Secretary, or with a transfer agent or a registrar, if any, and, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes, if any, due thereon.
Section 1.4. RECORD DATE FOR STOCKHOLDERS. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than fifty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting. In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting pursuant to
Section 1.6(J)(v) of this Article, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors, the record date for determining the
stockholders entitled to consent to corporate action in writing
<PAGE>
without a meeting pursuant to Section 1.6(J)(v) of this Article, when no prior
action by the Board of Directors is required by the GCL, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its principal office in
the U.S. Virgin Islands, its principal place of business, or an officer or agent
of the Corporation having custody of the book(s) in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
principal office shall be by hand or by certified or registered mail return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by the GCL, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action. In order
that the Corporation may determine the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 50 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 1.5. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock" or
"shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the Corporation is authorized to issue only one class of
shares of stock, and said reference is also intended to include any outstanding
share or shares of stock and any holder or holders of record of outstanding
shares of stock of any class upon which or upon whom the certificate of
incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom the GCL confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
<PAGE>
Section 1.6. STOCKHOLDER MEETINGS.
(A) Place of Meetings. All meetings of the stockholders of the
Corporation shall be held at the executive offices of the Corporation or at such
other places, within or without the U.S. Virgin Islands, as may from time to
time be fixed by the Board of Directors.
(B) Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time
as the Board of Directors may from time to time determine.
(C) Special Meetings. Except as otherwise required by law or the
Certificate of Amended and Restated Articles of Incorporation of the Corporation
(the "Certificate"), special meetings of the stockholders for any purpose or
purposes may be called only by (i) the Board of Directors pursuant to a
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors or (ii) the Executive Committee. Only such business as is specified in
the notice of any special meeting of the stockholders shall come before such
meeting.
(D) Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of the stockholders, whether annual or special, shall be
given, either by personal delivery or by mail, not less than 10 nor more than 50
days before the date of the meeting to each stockholder of record entitled to
notice of the meeting. If mailed, such notice shall be deemed given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy without protesting, prior to
or at the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall sign a written waiver of notice thereof, whether
before or after such meeting. Notice of adjournment of a meeting of stockholders
need not be given if the time and place to which it is adjourned are announced
at such meeting, unless the adjournment is for more than 30 days or, after
adjournment, a new record date is fixed for the adjourned meeting.
(E) Quorum. Except as otherwise provided by law or by the Certificate,
the holders of a majority of the votes entitled to be cast by the stockholders
entitled to vote at the meeting of stockholders, present in person or by proxy,
shall constitute a quorum for the transaction of business at any such meeting of
the stockholders; provided, however, that in the case of any vote required by
law or the Certificate to be taken by classes, the holders of a majority of the
votes entitled to be cast by the
<PAGE>
stockholders of a particular class shall constitute a quorum for the transaction
of business by such class. When a quorum is once present it is not broken by the
subsequent withdrawal of any stockholder.
(F) Adjournments. The chairperson of the meeting or the holders of a
majority of the votes entitled to be cast by the stockholders who are present in
person or by proxy may adjourn the meeting from time to time whether or not a
quorum is present. In the event that a quorum does not exist with respect to any
vote to be taken by a particular class, the chairperson of the meeting or the
holders of a majority of the votes entitled to be cast by the stockholders of
such class who are present in person or by proxy may adjourn the meeting with
respect to the vote(s) to be taken by such class. At such adjourned meeting at
which a quorum may be present, any business may be transacted which might have
been transacted at the meeting as originally called.
(G) Order of Business. At each meeting of the stockholders, the
Chairperson of the Board of Directors of the Corporation or, in the absence of
the Chairperson, the Vice- Chairperson or in the Vice-Chairperson's absence such
person as shall be selected by the Board shall act as chairperson of the
meeting. The order of business at each such meeting shall be as determined by
the chairperson of the meeting. The chairperson of the meeting shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts and things as are necessary or desirable for the proper conduct
of the meeting, including, without limitation, the establishment of procedures
for the maintenance of order and safety, limitations on the time allotted to
questions or comments on the affairs of the Corporation, restrictions on entry
to such meeting after the time prescribed for the commencement thereof, and the
opening and closing of the voting polls.
(H) Notice of Stockholder Business and Nominations.
(i) Annual Meetings of Stockholders.
(A) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (1) pursuant
to the Corporation's notice of meeting prepared as directed by the Executive
Committee, (2) by or at the direction of the Board of Directors or (3) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in subparagraphs (i)(B) and (i)(C) of this Section
1.6(H).
(B) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (3) of subparagraph
(i)(A) of this Section 1.6(H), the stockholder must have given timely notice
thereof in
<PAGE>
writing to the Secretary of the Corporation and, in the case of business other
than nominations, such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the 70th day nor earlier
than the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than twenty (20) days before or more than
seventy (70) days after such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the 90th
day prior to such annual meeting and not later than the close of business on the
later of the 70th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (1) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (2) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (3) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(a) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, (b) the class and number of
shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, and (c) whether the proponent intends or
is part of a group which intends to solicit proxies from other stockholders in
support of such proposal or nomination.
(C) Notwithstanding anything in the second sentence of
subparagraph (i)(B) of this Section 1.6(H) to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the increased
Board of Directors at least eighty (80) days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section 1.6(H) shall also
<PAGE>
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
(ii) Special Meetings of Stockholders. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant to
the Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or the Executive Committee or (b) provided that the Board of Directors
or the Executive Committee has determined that directors shall be elected at
such meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving notice, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
1.6(H). In the event the Corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the Board of Directors, any
such stockholder may nominate a person or persons (as the case may be) for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice (of the substance required by paragraph
(i)(B) of this Section 1.6(H)) shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not earlier
than the close of business on the 90th day prior to such special meeting and not
later than the close of business on the later of the 70th day prior to such
special meeting, or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(iii) General.
(A) Only such persons who are nominated in accordance with
the procedures set forth in this Section 1.6(H) shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.6(H). Except as otherwise provided by law, the
chairperson of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 1.6(H) and, if any proposed nomination or business is not in
compliance with this Section 1.6(H), to
<PAGE>
declare that such defective nomination shall be disregarded or that such
proposed business shall not be transacted.
(B) For purposes of this Section 1.6(H), "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(C) Notwithstanding the foregoing provisions of this Section
1.6(H), a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.6(H). Nothing in this Section 1.6(H) shall
be deemed to affect any rights (a) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (b) of the holders of any series of preferred stock to elect
directors under specified circumstances.
(I) List of Stockholders. It shall be the duty of the Secretary or
other officer who has charge of the stock ledger to prepare and make, at least
10 days before each meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
such stockholder's name. Such list shall be produced and kept available at the
times and places required by law.
(J) Voting. (i) Except as otherwise provided by law or by the
Certificate, each stockholder of record of any class or series of capital stock
of the Corporation shall be entitled at each meeting of stockholders to such
number of votes for each share of such stock as may be fixed in the Certificate
or (in the case of preferred stock) in the resolution or resolutions adopted by
the Board providing for the issuance of such stock, registered in such
stockholder's name on the books of the Corporation:
(1) on the date fixed pursuant to Section 1.4 of Article I of
these Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice of
such meeting is given, or, if the notice is waived, at the close of
business on the day next preceding the day on which the meeting is
held.
(ii) Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or
<PAGE>
persons to act for such stockholder by proxy. Any such proxy shall be delivered
to the Secretary at or prior to the time designated for holding such meeting. No
such proxy shall be voted or acted upon after one year from its date, unless the
proxy provides for a longer period.
(iii) At each meeting of the stockholders, all corporate
actions to be taken by vote of the stockholders (except as otherwise required by
law and except as otherwise provided in the Certificate or these Bylaws) shall
be authorized by a majority of the votes cast affirmatively or negatively by the
stockholders, and where a separate vote by class is required by law or by the
Certificate, a majority of the votes cast affirmatively or negatively by the
stockholders of such class shall be the act of such class.
(iv) Unless required by law or determined by the chairperson
of the meeting to be advisable, the vote on any matter, including the election
of directors, need not be by written ballot. In the case of a vote by written
ballot, each ballot shall be signed by the stockholder voting, or by such
stockholder's proxy.
(K) Inspectors. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspectors at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, and the validity and effect of proxies, and shall
receive votes, ballots, or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots, or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question or matter
determined by him or them and execute a certificate of any fact found by him or
them.
ARTICLE II
DIRECTORS
Section 2.1. FUNCTIONS AND DEFINITION. The business and affairs of the
Corporation shall be managed by or under the
<PAGE>
direction of the Board of Directors of the Corporation. The Board of Directors
shall have the authority to fix the compensation of the members thereof;
provided, however, that no compensation shall be paid to salaried directors for
their services, but the Board may by resolution authorize the payment to
non-salaried directors of an annual fee for serving as directors and/or a fixed
fee for each meeting attended, or such other compensation as may be determined
by the Board. Nothing herein contained shall be construed to preclude any
director from serving the Corporation as an officer, an employee or in any other
capacity and receiving compensation therefor. The use of the phrase "whole
board" herein refers to the total number of directors which the Corporation
would have if there were no vacancies.
Section 2.2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the U.S. Virgin
Islands. The initial Board of Directors shall consist of nine persons.
Thereafter the number of directors constituting the whole board shall be at
least three. Subject to the foregoing limitation and except for the first Board
of Directors, such number may be increased or decreased from time to time by
action of the stockholders or of the directors.
Section 2.3. ELECTION AND TERM. Any director may resign at any time upon
written notice to the Corporation. Thereafter, directors who are elected at an
annual meeting of stockholders, and directors who are elected in the interim to
fill vacancies and newly created directorships, shall hold office until the next
annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Except as the GCL may
otherwise require, in the interim between annual meetings of stockholders or
special meetings of stockholders called for the election of directors and/or for
the removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies resulting from the
removal of directors for cause or without cause, may be filled by the vote of a
majority of the remaining directors then in office, although less than a quorum,
by the sole remaining director or by vote of the holders of the Corporation's
capital stock representing at least a majority of the combined voting power of
the Corporation's voting capital stock.
Section 2.4. MEETINGS.
(A) Time. Meetings of the Board shall be held at such time as the
Board shall fix, except that the first meeting of a newly elected Board shall be
held as soon after its election as the directors may conveniently assemble.
(B) Place. Meetings shall be held at such place within or without the
U.S. Virgin Islands as shall be fixed by the board.
<PAGE>
(C) Call. No call shall be required for regular meetings of the Board
for which the time and place have been fixed. Special meetings of the Board may
be called by or at the direction of the Executive Committee or a majority of the
directors in office.
(D) Notice or Actual or Constructive Waiver. No notice shall be
required for regular meetings of the Board for which the time and place have
been fixed. Written, oral or any other mode of notice of the time and place
shall be given for special meetings of the Board in sufficient time for the
convenient assembly of the directors thereat. Notice need not be given to any
director or to any member of a committee of directors who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of any such person at a meeting shall constitute a waiver of notice
of such meeting, except when he attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
(E) Quorum and Action. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the GCL, the vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board. The quorum and voting provisions herein stated shall not be construed
as conflicting with any provisions of the GCL and these Bylaws which govern a
meeting of directors held to fill vacancies and newly created directorships in
the Board or action of disinterested directors.
Any member or members of the Board of Directors, or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
(F) Chairperson of the Meeting. The Chairperson of the Board, if any, and
if present and acting, shall preside at all meetings, otherwise the
Vice-Chairperson of the Board, if any and if present and acting shall preside at
any meeting at which the Chairperson is absent; provided, however, that the
power to preside at any such meeting may in the absence of both the
<PAGE>
Chairperson and Vice-Chairperson be delegated to any other director by the
Chairperson. Otherwise any other director chosen by the Board shall preside.
Section 2.5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by
the GCL, any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the combined voting power of the
Corporation's voting capital stock then entitled to vote at an election of
directors.
Section 2.6. COMMITTEES.
(A) Creation and Authority. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation with the exception of
any authority the delegation of which is prohibited by the GCL, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it.
(B) Executive Committee. The Executive Committee of the Board shall be
composed of the Chairperson and Vice Chairperson of the Board and the President,
shall be responsible for the day to day management of the Corporation and shall
have such other authority and responsibility as shall be delegated to it by the
whole as is otherwise provided in the Certificate or in these Bylaws. The
Executive Committee shall serve as the board of directors of any subsidiary
corporation, limited liability company or other business entity owned or
controlled by the Corporation except to the extent otherwise required by law.
Section 2.8. WRITTEN ACTION. Any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
<PAGE>
ARTICLE III
OFFICERS
Section 3.1. NUMBER. The officers of the Corporation shall consist of the
Chairperson of the Board, the Vice-Chairperson of the Board, a President, a
Secretary and a Treasurer and, if deemed necessary, expedient, or desirable by
the Board of Directors, one or more Executive Vice Presidents, Senior Vice
Presidents or Vice-Presidents, one or more other Presidents or Vice Presidents
of units or divisions of the Corporation's business, a Chief Financial Officer,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers with such titles as the resolution of the Board of Directors
choosing them shall designate. The Chairperson and Vice-Chairperson of the Board
shall be the Co-Chief Executive Officers of the Corporation and the President
shall be the Chief Operating Officer of the Corporation. Except as may otherwise
be provided in the resolution of the Board of Directors Choosing the officer, no
officers other than the Chairperson and Vice- Chairperson of the Board, and the
President, need be directors. Any number of offices, excluding the offices of
President and Secretary, may be held by the same person, as the directors may
determine.
Section 3.2. TERM. Unless otherwise provided in the resolution choosing the
officer, each officer shall be chosen for a term which shall continue until the
meeting of the Board of Directors following the next annual meeting of
stockholders and until the officer's successor shall have been chosen and
qualified.
Section 3.3. POWERS AND DUTIES. All officers of the Corporation shall have
such authority and perform such duties in the management and operation of the
Corporation as shall be prescribed in the resolutions of the Board of Directors
designating and choosing such officers and prescribing their authority and
duties, and shall have such additional authority and duties as are incident to
their office except to the extent that such resolutions may be inconsistent
therewith. The Secretary or an Assistant Secretary of the Corporation shall
record all of the proceedings of all meetings and actions in writing of
stockholders, directors, and committees of directors, and shall exercise such
additional authority and perform such additional duties as the Board shall
assign to him or her.
Section 3.4. REMOVAL. Any officer may be removed, with or without cause,
by the Board of Directors.
Section 3.5. RESIGNATION. Any officer may resign at any time by giving
notice to the Board or the President. Any such resignation shall take effect at
the date of receipt of such notice or at any date specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3.6. VACANCIES. Any vacancy in any office may be filled by the
Board of Directors.
<PAGE>
Section 3.7. REMUNERATION. The Board, or an authorized committee thereof,
shall have the right to fix the compensation of all executive officers of the
Corporation and such other officers as it may determine. No officer shall be
disqualified from receiving a salary by reason of also being a director of the
Corporation.
ARTICLE IV
INDEMNIFICATION
Section 4.1. DAMAGES AND EXPENSES.
(A) Actions, Suits or Proceedings Other Than by or in the Right of
the Corporation. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was or has agreed to become a director or
officer of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as a director or officer of another corporation,
partnership, limited liability company, limited liability partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity. In addition, pursuant to a determination
by the Board of Directors, the Corporation may, but shall not be required to,
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was or has
agreed to become an employee or agent of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as an employee or agent
of another corporation, partnership, limited liability company, limited
liability partnership, joint venture, trust or other enterprise, or by reason of
any action alleged to have been taken or omitted in such capacity. The
indemnification shall be against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation and, in the case of an employee or agent, if he acted in a manner
that he reasonably believed to be within the scope of his employment or agency,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not meet the standards of conduct set forth in this Section
4.1(A). Notwithstanding any other provision of this Section 4.1(A),
<PAGE>
except as otherwise provided in Section 4.1(C), the Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
commenced by such person only if the commencement of such proceeding (or part
thereof) by such person was authorized by the Board of Directors of the
Corporation.
(B) Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was or has agreed to become a director or officer of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director or officer of another corporation, partnership,
limited liability company, limited liability partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity. In addition, pursuant to a determination by the Board
of Directors, the Corporation may, but shall not be required to, indemnify any
person who was or is party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was or has agreed to become an employee or agent of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as an
employee or agent of another corporation, partnership, limited liability
company, limited liability partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity. The indemnification shall be against expenses (including
attorneys' fees) actually and reasonably incurred by such person or on his
behalf in connection with the defense or settlement of such action or suit and
any appeal therefrom, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation and,
in the case of an employee or agent, if he acted in a manner that he reasonably
believed to be within the scope of his employment or agency, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for gross negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Territorial Court of the Virgin Islands or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of such liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
costs, charges and expenses which the Territorial Court or such other court
shall deem proper.
(C) Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Bylaw Article IV, to the extent that a director or
officer of the Corporation has been successful on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice, in
<PAGE>
defense of any action, suit or proceeding referred to in Sections 4.1(A) and (B)
of this Bylaw Article IV, or in the defense of any claim, issue or matter
therein, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith.
(D) Determination of Right to Indemnification. Any indemnification
under Sections 4.1(A) and (B) of this Bylaw Article IV (unless ordered by a
court) shall be paid by the Corporation unless a determination is made (1) by
the Board of Directors by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, or (2) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (3) by the stockholders, that
indemnification of the director, officer, employee or agent is not proper in the
circumstances because he or she has not met the applicable standards of conduct
set forth in Sections 4.1(A) and (B) of this Bylaw Article IV.
(E) Advance of Expenses. Expenses (including attorneys' fees) incurred
by a director or officer (and, if authorized by the Board of Directors, by an
employee or agent) referred to in Sections 4.1(A) and (B) of this Bylaw Article
IV in defending a civil or criminal action, suit or proceeding (including
investigations by any government agency and all costs, charges and expenses
incurred in preparing for any threatened action, suit or proceeding) shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding; provided, however, that the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer in advance
of the final disposition of such action, suit or proceeding shall be made only
upon receipt by the Corporation of an undertaking by or on behalf of the
director or officer to repay all amounts so advanced in the event that it shall
ultimately be determined that such director or officer is not entitled to be
indemnified by the Corporation as authorized in this Bylaw Article IV. No
security shall be required for such undertaking and such undertaking shall be
accepted without reference to the recipient's financial ability to make
repayment. The repayment of such expenses incurred by other employees and agents
of the Corporation which are paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as permitted by this Section
4.1(E) may be required upon such terms and conditions, if any, as the Board of
Directors deems appropriate, which may include, without limitation, receipt by
the Corporation of an undertaking by or on behalf of an employee or agent to
repay all amounts so advanced in the event that it shall ultimately be
determined that such employee or agent is not entitled to be indemnified by the
Corporation as authorized in this Bylaw Article IV. The Board of Directors may,
in the manner set forth above, and subject to the approval of such director,
officer, employee or agent of the Corporation, authorize the Corporation's
counsel to represent such person, in
<PAGE>
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
(F) Procedure for Indemnification. Any indemnification under Sections
4.1(A), (B) or (C) or advance of expenses under Section 4.1(E) of this Bylaw
Article IV shall be made promptly, and in any event within 60 days, upon the
written request of the director or officer (or, if applicable, the employee or
agent) directed to the Secretary of the Corporation. The right to
indemnification or advances as granted by this Bylaw Article IV shall be
enforceable by the director or officer in any court of competent jurisdiction if
the Corporation denies such request, in whole or in part, or if no disposition
thereof is made within 60 days. Such person's expenses incurred in connection
with successfully establishing his or her right to indemnification or advances,
in whole or in part, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of expenses under Section 4.1(E) of
this Bylaw Article IV where the required undertaking, if any, has been received
by the Corporation) that the claimant has not met the standard of conduct set
forth in Sections (A) or (B) of this Bylaw Article IV, but the burden of proving
that such standard of conduct has not been met shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the claimant has met the applicable standard
of conduct set forth in Sections 4.1(A) and (B) of this Bylaw Article IV, nor
the fact that there has been an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(G) Other Rights; Continuation of Right to Indemnification. The
indemnification provided by this Bylaw Article IV shall not be deemed exclusive
of any other rights to which a person seeking indemnification may be entitled
under any law (common or statutory), agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding office or
while employed by or acting as agent for the Corporation, and shall continue as
to a person who has ceased to be a director or officer, employee or agent and
shall inure to the benefit of the estate, heirs, executors and administrators of
such person. All rights to indemnification under this Bylaw Article IV shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
Bylaw Article IV is in effect. Unless otherwise provided by law, no amendment or
repeal of this Bylaw Article IV or of any
<PAGE>
relevant provisions of the GCL or any other applicable laws shall adversely
affect or deny to any director or officer any rights to indemnification which
such person may have, or change or release any obligations of the Corporation,
under this Bylaw Article IV with respect to any expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement which arise out of an
action, suit or proceeding based in whole or substantial part on any act or
failure to act, actual or alleged, which takes place before or while this Bylaw
Article IV is in effect. The provisions of this Section 4.1(G) shall apply to
any such action, suit or proceeding whenever commenced, including any such
action, suit or proceeding commenced after any amendment or repeal of this Bylaw
Article IV (but only to the extent that it relates to a cause of action that
arose prior to such amendment or repeal).
Section 4.2. DEFINITIONS. For purposes of this Bylaw Article IV:
(A) the "Corporation" shall include any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnity its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, limited liability company, limited liability partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Bylaw Article IV with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued;
(B) "other enterprises" shall include employee benefit plans,
including but not limited to any employee benefit plan of the Corporation;
(C) "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, a director, officer, employee, or
agent of the Corporation with respect to an employee benefit plan, its
participants, or beneficiaries, including acting as a fiduciary thereof;
(D) "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan;
(E) A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the Corporation" as referred to in Sections 4.1(A) and (B)
of this Bylaw Article IV;
<PAGE>
(F) Service as a partner, trustee or member of management or similar
committee of a partnership or joint venture, or as a director, officer, employee
or agent of a corporation which is a partner, trustee or joint venturer, shall
be considered service as a director, officer, employee or agent of the
partnership, joint venture, trust or other enterprise.
Section 4.3. SAVINGS CLAUSE. If this Bylaw Article IV or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director, officer, employee
and agent of the Corporation as to expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Bylaw Article IV that shall not have
been invalidated and to the full extent permitted by applicable law.
Section 4.4. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of any person who is or has agreed to become a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him or on his behalf in any such capacity,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of Bylaw
Article IV, provided that such insurance is available on acceptable terms as
determined by a vote of a majority of the entire Board of Directors.
ARTICLE V
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BYLAWS
Subject to the provisions of the Certificate and the provisions of the GCL,
the power to amend, alter, or repeal these Bylaws and to adopt new Bylaws may be
exercised by the Board of Directors or by the stockholders.
Exhibit 10.1
BANCO POPULAR DE PUERTO RICO dc02/42521
LOAN AGREEMENT
THIS AGREEMENT is made this 21st day of October 1996 between H.E.LOCKHART
MANAGEMENT, INC., a Virgin Islands corporation qualified to do business in the
U.S. Virgin Islands, with its mailing address at P.O. Box 7020, St. Thomas, U.S.
Virgin Islands 00801 and a physical address at No. 44 Estate Thomas, St. Thomas,
U.S. Virgin Islands (hereinafter referred to as the "Borrower") and BANCO
POPULAR DE PUERTO RICO, a commercial banking institution whose mailing address
is P.O. Box 8580, Charlotte Amalie, St. Thomas, U.S. Virgin Islands 00801
(hereinafter referred to as the "Bank"). RED HOOK PLAZA, INC. (hereinafter
referred to as "RHP")), GOLDEN ORANGE CENTERS, INC. ("GOC"), FORT MYLNER
PROPERTIES, INC. ("FMP") and THE LOCKHART COMPANIES INCORPORATED ("LCI") each
with a mailing address at P.O. Box 7020, St. Thomas, U.S. Virgin Islands 00801,
and a physical address at No. 44 Estate Thomas, St. Thomas, U.S. Virgin Islands
are hereinafter individually referred to as a "Guarantor" and collectively
referred to as the"Guarantors." Each of the Guarantors joins in this Agreement
for the purposes set forth on page 40 hereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES.
A. The Borrower represents, covenant and warrants that:
1.1 Existence and Power. Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the U.S. Virgin Islands,
is duly licensed and authorized to do business in the U.S. Virgin Islands, and
has the full authority and legal right to develop, lease, own and operate the
Borrower Property (as defined herein). The Borrower has the power to own its
property and assets and is authorized to carry on its business as it is now
being conducted in any jurisdiction where its business is being conducted.
1.2 Corporate Authority. The making and performance by Borrower of
this Agreement has been duly authorized by all necessary action and will not
violate any provision of law or its Articles of Incorporation or By-Laws, as
amended, or result in
<PAGE>
the breach of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of the Borrower pursuant
to any indenture or bank loan or credit agreement, or other agreement or
instrument to which the Borrower is a party or by which the Borrower or its
property may be bound or affected. The Borrower has the power to enter into and
carry out each Loan Document to which it is or may become a party and to
borrower hereunder and has taken all necessary action to authorize the borrowing
of the Loans upon the terms of this Agreement and to authorize the execution,
delivery and performance of each Loan Document to which it is or may become a
party. This Agreement, the Notes and those of the Loan Documents to which the
Borrower is presently a party constitute, and the other such Loan Documents yet
to be executed by Borrower will, upon execution, constitute valid and legally
binding obligations of the Borrower, generally enforceable against the Borrower.
The making and performance of this Agreement, the Notes and the Loan Documents
to which the borrower is or may become a party do not and will not violate in
any respect or result in a breach of any provision of (1) any applicable law or
regulation or any order or decree of any government authority, agency or court
or (2) the laws and documents incorporation and/or constituting the Borrower or
(3) any mortgage, contract or other undertaking or instrument to which the
Borrower is a party or which is binding upon the Borrower or any of its assets.
1.3 Financial Condition. The most recent balance sheet of the Borrower, the
statements of income and loss and surplus of the Borrower for the period ending
on those dates and other related information heretofore furnished to the Bank
are complete and correct and fairly present the financial condition of the
Borrower as at the dates of said balance sheet and the results of operations for
the period ending on said dates and as of the date(s) such other financial
information was provided. To the best of the Borrower's knowledge and belief,
the Borrower has no contingent obligations, liabilities for taxes, or unusual
forward or long term commitments, except as herein specifically mentioned, not
disclosed by, or reserved against, in said balance sheet, and, at the present
time, there are no material unrealized or anticipated losses from any
unfavorable commitments of the Borrower. Said financial statements have been
prepared in accordance with generally accepted accounting principles and
practices consistently maintained by the Borrower throughout the period
involved. Since the dates of such financial statements, and since the date of
the other financial information provided to the Bank, there have been no
material adverse changes in the financial condition of the Borrower from that
set forth in said balance sheet or in said other financial information as at the
date thereof.
1.4 Titles; Liens. The Borrower has good and marketable title to each
of the fixed properties and assets reflected in its balance sheet and the
property encumbered by Borrower as security for the Loans is free and clear of
all mortgages, liens and encumbrances, except:
i) liens, if any, for current taxes, assessments and governmental
charges not delinquent or whose validity is being contested at the time in good
faith and by appropriate proceedings, and covenants, restrictions, rights,
easements, liens, encumbrances and minor irregularities in title which, in its
opinion, do not and will not interfere with the occupation, use and enjoyment of
<PAGE>
such properties and assets in the normal course of business as presently
conducted or planned or materially impair the value of such properties and
assets for the purpose of such business;
ii) mortgages, liens and encumbrances in favor of the Bank; and
iii) leases described on Schedule "A" hereto.
1.5 The Borrower Property. The Borrower has exclusive good and
marketable fee simple interest in the real property described on Schedule "B"
hereto (the "Borrower Property") and there are no encumbrances, restrictions or
covenants of record which would prevent or otherwise affect the development,
leasing, occupancy an operation of the Borrower Property.
1.6 Litigation. Except as heretofore disclosed by the Borrower to the
Bank in writing, there are no actions, suits, or proceedings pending or to the
knowledge of the Borrower threatened against or affecting the Borrower before
any court or any governmental department or agency which may result in any
material adverse change in the business or condition of the Borrower or the
Borrower Property; to the best of Borrower's knowledge, after diligent inquiry
and investigation, Borrower has complied with all applicable statutes and
regulations of all governmental authorities having jurisdiction over the
Borrower's property (including the Borrower Property) and the Borrower is not in
default with respect to any order, writ, injunction, or decree of any court or
governmental agency except for immaterial claims arising in the ordinary course
of business.
1.7 Business Licenses and Governmental Permits. The Borrower possesses
all licenses, franchises, and permits necessary for the conduct of Borrower's
business as now conducted, and for the development, operation and leasing of the
Borrower Property without substantial known conflict with the rights of others.
1.8 Use of Loan Proceeds. The proceeds of each of the Loans to be made
by the Bank to the Borrower pursuant to the provisions of Section 2 hereof shall
be applied solely for the purposes allowed for each of such Loans, said purposes
being more fully described in Sections 2.6, 2.13, 2.20 and 2.28 hereof,
respectively.
1.9 Environmental Compliance. To the best of the Borrower's knowledge
and belief, after diligent inquiry and investigation, the Borrower has duly
complied with, and the Borrower Property and Borrower's business operations,
assets, equipment, property, leaseholds or other facilities are in compliance
with the provisions of all federal and territorial environmental, health, and
safety laws, codes and ordinances, and all rules and regulations promulgated
<PAGE>
thereunder. To the best of Borrower's knowledge and belief, after diligent
inquiry and investigation, the Borrower has been issued and will maintain all
required federal and territorial permits, licenses, certificates, and approvals
relating to (1) air emissions, (2) discharges to surface water or groundwater,
(3) noise emissions, (4) solid or liquid waste disposal, (5) the use,
generation, storage, transportation or disposal of toxic or hazardous substances
or wastes (intended hereby and hereafter to include any and all such material
listed in any federal or territorial law, code or ordinance, and all rules and
regulations promulgated thereunder, as hazardous or potentially hazardous), or
(6) other environmental, health, or safety matters. The Borrower has received no
notice of, and neither knows of nor suspects, facts which might constitute any
violations of any federal or territorial environmental, health, or safety laws,
codes or ordinances, and any rules or regulations promulgated thereunder with
respect to the Borrower Property or Borrower's business, operations, assets,
equipment, property, leaseholds, or other facilities. To the best of Borrower's
knowledge and belief,after diligent inquiry and investigation, except in
accordance with a valid governmental permit, license, certificate or approval,
there has been no emission, spill, release, or discharge into or upon (1) the
air, (2) soils or any improvements located thereon, (3) surface water or
groundwater, or (4) the sewer, septic system or waste treatment, storage or
disposal system servicing the Borrower Property, of any toxic or hazardous
substances or wastes at or from the Borrower Property; and accordingly, except
for inventory of raw materials, supplies, work in progress and finished, that
are to be used or sold in the ordinary course of business, the Borrower Property
is free of all such toxic or hazardous substances or wastes. there has been no
complaint, order, directive, claim, citation, or notice by any governmental
authority or any person or entity with respect to (1) air emissions, (2) spills,
releases, or discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or disposal
systems servicing the Borrower Property, (3) noise emissions, (4) solid or
liquid waste disposal, (5) the use, generation, storage, transportation, or
disposal of toxic or hazardous substances or waste, or (6) other environmental,
health, or safety matters affecting the Borrower, the Borrower Property or
Borrower's business, operations, assets, equipment, property, leaseholds, or
other facilities. The Borrower has no indebtedness, obligation or liability,
absolute or contingent, matured or not matured, with respect to the storage,
treatment, cleanup, or disposal of any solid wastes, hazardous wastes, or other
toxic or hazardous substances (including without limitation any such
indebtedness, obligation or liability with respect to any current regulation,
law or statute regarding such storage, treatment, cleanup, or disposal) which
has not been previously disclosed to the Bank in writing.
<PAGE>
B. The Borrower and RHP represent, covenant and warrant that:
1.10 Existence and Power. RHP is a corporation duly organized, validly
existing and in good standing under the laws of the U.S. Virgin Islands, is duly
licensed and authorized to do business in the U.S. Virgin Islands, and has the
full authority and legal right to develop, lease, own and operate the RHP
Property (as defined herein). RHP has the power to own its property and assets
and is authorized to carry on its business as it is now being conducted in any
jurisdiction where its business is being conducted.
1.11 Corporate Authority. The making and performance by RHP of its
obligations under this Agreement has been duly authorized by all necessary
action and will not violate any provision of law or its Articles of
Incorporation or By-Laws, as amended, or result in the breach of, or constitute
a default under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of RHP pursuant to any indenture or bank loan or
credit agreement, or other agreement or instrument to which RHP is a party or by
which RHP or its property may be bound or affected. RHP has the power to enter
into and carry out each Loan Document to which it is or may become a party and
has taken all necessary action to authorize the guaranteeing of the Loans upon
the terms of this Agreement and to authorize the execution, delivery and
performance of each Loan Document to which it is or may become a party. This
Agreement and those of the Loan Documents to which RHP is presently a party
constitute, and the other such Loan Documents yet to be executed by RHP will,
upon execution, constitute valid and legally binding obligations of RHP,
generally enforceable against RHP. The making and performance of this Agreement
and those of the Loan Documents to which RHP is or may become a party do not and
will not violate in any respect or result in a breach of any provision of (1)
any applicable law or regulation or any order or decree of any government
authority, agency or court or (2) the laws and documents incorporating and/or
constituting RHP or (3) any mortgage, contract or other undertaking or
instrument to which the Borrower is a party or which is binding upon RHP or any
of its assets.
1.12 Financial Condition. The most recent balance sheet of RAP, the
statements of income and loss and surplus of RHP for the period ending on these
dates and other related information heretofore furnished to the Bank are
complete and correct and fairly present the financial condition of RHP as at the
dates of said balance sheet and the results of operations for the period ending
on said dates and as of the date(s) such other financial information was
provided. To the best of the Borrower's and RHP's knowledge and belief, RHP has
no contingent obligations, liabilities for taxes, or unusual forward or long
term commitments, except as herein specifically mentioned, not disclosed by, or
reserved against, in said balance sheet, and, at the present time, there are no
materia unrealized or anticipated losses from any unfavorable commitments of
RHP. Said financial statements have been prepared in accordance with generally
accepted accounting principles and practices consistently
<PAGE>
maintained by RHP throughout the period involved. Since the dates of such
financial statements, and since the date of the other financial information
provided to the Bank, there have been no material adverse changes in the
financial condition of RHP from that set forth in said balance sheet or in said
other financial information as at the date thereof.
1.13 Titles; Liens. RHP has good and marketable title to each of the
fixed properties and assets reflected in its balance sheet and the property
encumbered by RHP as security for the Loans is free and clear of all mortgage,
liens and encumbrances, except:
i) liens, if any, for current taxes, assessments and governmental
charges not delinquent or whose validity is being contested at the time in good
faith and by appropriate proceedings, and covenants, restrictions, rights,
easements, liens, encumbrances and minor irregularities in title which, in its
opinion, do not and will not interfere with the occupation, use and enjoyment of
such properties and assets in the normal course of business as presently
conducted or planned or materially impair the value of such properties and
assets for the purpose of such business;
ii) mortgages, liens and encumbrances in favor of the Bank;
iii) leases described on Schedule "C" hereto; and
iv) encumbrances in favor of Sanford Grishman and Marilyn
Grishman ("Grishman") more fully described on Schedule "D" hereto (the "Grishman
Mortgage").
1.14. The RHP Property. RHP has exclusive good and marketable fee
simple interest in the real property described on Schedule "E" hereto (the "RHP
Property") and there are no encumbrances, restrictions or covenants of record
which would prevent or otherwise affect the development, leasing, occupancy and
operation of the RHP Property.
1.15. Litigation. Except as heretofore disclosed by the Borrower or
RHP to the Bank in writing, there are no actions, suits, or proceedings pending
or to the knowledge of the Borrower or RHP threatened against or affecting RHP
before any court or any governmental department or agency which may result in
any
<PAGE>
material adverse change in the business or condition or FHP; to the best of
Borrower's and RHP's knowledge, after diligent inquiry and investigation, RHP
has complied with all applicable statues and regulations of all governmental
authorities having jurisdiction over RHP's property and RHP is not in default
with respect to any order, writ, injunction, or decree of any court or
governmental agency except for immaterial claims arising in the ordinary course
of business.
1.16 Business Licenses and Governmental Permits. RHP possesses or is
in the process of obtaining all licenses, franchises, and permits necessary for
the conduct of RHP's business as now conducted, and for the development,
operation and leasing of the RHP Property without substantial known conflict
with the rights of others.
1.17. Environmental Compliance. To the best of the Borrower's and
RHP's knowledge and belief, after diligent inquiry and investigation by each,
RHP has duly complied with, and the RHP Property and RHP's business operations,
assets, equipment, property, leaseholds or other facilities are in compliance
with the provisions of all federal and territorial environmental, health, and
safety laws, codes and ordinances, and all rules and regulations promulgated
thereunder. To the best of the Borrower's and RHP's knowledge and belief, after
diligent inquiry and investigation by each, RHP has been issued and will
maintain all required federal and territorial permits, licenses, certificates,
and approvals relating to (1) air emissions, (2) discharges to surface water or
groundwater, (3) noise emissions, (4) solid or liquid waste disposal, (5) the
use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (intended hereby and hereafter to include any and all such
materials listed in any federal or territorial law, code or ordinance, and all
rules and regulations promulgated thereunder, as hazardous or potentially
hazardous), or (6) other environmental, health, or safety matters. RHP has
received no notice of, and neither knows of nor suspects, facts which might
constitute any violations of any federal or territorial environmental, health,
or safety laws, codes or ordinances, and any rules or regulations promulgated
thereunder with respect to the RHP Property or THP's business, operations,
assets, equipment, property, leaseholds, or other facilities. To the best of the
Borrower's and RHP's knowledge and belief, after diligent inquiry and
investigation by each, except in accordance with a valid governmental permit,
license, certificate or
<PAGE>
approval, there has been no emission, spill, release, or discharge into or upon
(1) the air, (2) soils or any improvements located thereon, (3) surface water or
groundwater, or (4) the sewer, septic system or waste treatment, storage or
disposal system servicing the RHP Property, of any toxic or hazardous substances
or wastes at or from the RHP Property; and accordingly, except for inventory of
raw materials, supplies, work in progress and finished, that are to be used or
sold in the ordinary course of business, the RHP Property is free of all such
toxic or hazardous substances or wastes. there has been no complaint, order,
directive, claim, citation, or notice by any governmental authority or any
person or entity with respect to (1) air emissions, (2) spills, releases, or
discharges to soils or improvements located thereon, surface water, groundwater
or the sewer, septic system or waste treatment, storage or disposal systems
servicing the RHP Property, (3) noise emissions, (4) solid or liquid waste
disposal, (5) the use, generation, storage, transportation, or disposal of toxic
or hazardous substances or waste, or (6) other environmental, health, or safety
matters affecting RHP, the RHP Property or RHP's business, operations, assets,
equipment, property, leaseholds, or other facilities. RHP has no indebtedness,
obligation or liability, absolute or contingent, matured or not matured, with
respect to the storage, treatment, cleanup, or disposal of any solid wastes,
hazardous wastes, or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup,
or disposal) which has not been previously disclosed to the Bank in writing.
C. The Borrower and GOC represent, covenant and warrant that:
1.18 Existence and Power. GOC is a corporation duly organized, validly
existing and in good standing under the laws of the U.S. Virgin Islands, is duly
licensed and authorized to do business in the U.S. Virgin Islands, and has the
full authority and legal right to develop, lease, own and operate the GOC
Property (as defined herein). GOC has the power to own its property and assets
and is authorized to carry on its business as it is now being conducted in any
jurisdiction where its business is being conducted.
1.19 Corporate Authority. The making and performance by GOC of its
obligations under this Agreement has been duly
<PAGE>
authorized by all necessary action and will not violate any provision of law or
its Articles of Incorporation or By-Laws, as amended or result in the breach of,
or constitute a default under, or result in the creation of any lien, charge or
encumbrance upon any property or assets of GOC pursuant to any indenture or bank
loan or credit agreement, or other agreement or instrument to which GOC is a
party or by which GOC or its property may be bound or affected. GOC has the
power to enter into and carry out each Loan Document to which it is or may
become a party and has taken all necessary action to authorize the guaranteeing
of the Loans upon the terms of this Agreement and to authorize the execution,
delivery and performance of each Loan Document to which it is or a become a
party. This Agreement and those of the Loan Documents to which GOC is presently
a party constitute, and the other such Loan Documents yet to be executed by GOC
will, upon execution, constitute valid and legally binding obligations of GOC,
generally enforceable against GOC. The making and performance of this Agreement
and those of the Loan Documents to which GOC is or may become a party do not and
will not violate in any respect or result in a breach of any provision of (1)
any applicable law or regulation or any order or decree of any governmental
authority, agency or court or (2) the laws and documents incorporating and/or
constituting GOC or (3) any mortgage, contract or other undertaking or
instrument to which the Borrower is a party or which is binding upon GOC or any
of its assets.
1.20 Financial Condition. The most recent balance sheet of GOC, the
statements of income and loss and surplus of GOC for the period ending on those
dates and other related information heretofore furnished to the Bank are
complete and correct and fairly present the financial condition of GOC as at the
dates of said balance sheet and the results of operations for the period ending
on said dates and as of the date(s) such other financial information was
provided. To the best of the Borrower's and GOC's knowledge and belief, GOC has
no contingent obligations, liabilities for taxes, or unusual forward or long
term commitments, except as herein specifically mentioned, not disclosed by, or
reserved against, in said balance sheet, and, at the present time, there are no
material unrealized or anticipated losses from any unfavorable commitments of
GOC. Said financial statements have been prepared in accordance with generally
accepted accounting principles and practices consistently maintained by GOC
throughout the period involved. Since the dates of financial statements, and
since the date of the other
<PAGE>
financial information provided to the Bank, there have been no material adverse
changes in the financial condition of GOC from that set forth in said balance
sheet or in said other financial information as at the date thereof.
1.21 Titles; Liens. GOC has good and marketable title to each of the
fixed properties and assets reflected in its balance sheet and the property
encumbered by GOC as security for the Loans is free and clear of all mortgages,
liens and encumbrances, except:
i) liens, if any, for current taxes, assessments and governmental
charges not delinquent or whose validity is being contested at the time in good
faith and by appropriate proceedings, and covenants, restrictions, rights,
easements, liens, encumbrances and minor irregularities in title which, in its
opinion, do not and will not interfere with the occupation, use and enjoyment of
such properties and assets in the normal course of business as presently
conducted or planned or materially impair the value of such properties and
assets for the purpose of such business;
ii) mortgages, liens and encumbrances in favor of the Bank; and
iii) leases described on Schedule "F" hereto.
1.22 The GOC Property. GOC has exclusive good an marketable fee simple
interest in the real property described on Schedule "G" hereto (the "'GOC
Property") and there are no encumbrances, restrictions or covenants of record
which would prevent or otherwise affect the development, leasing, occupancy and
operation of the GOC Property.
1.23 Litigation. Except as heretofore disclosed by the Borrower or GOC
to the Bank in writing, there are no actions, suits, or proceedings pending or
to the knowledge of the Borrower or GOC threatened against or affecting GOC
before any court or any governmental department or agency which may result in
any material adverse change in the business or condition of GOC; to the best of
Borrower's and GOC's knowledge, after diligent inquiry and investigation by
each, GOC has complied with all applicable statutes and regulations of all
governmental authorities having jurisdiction over GOC's property and GOC is not
in default with respect to any order, writ, injunction, or
<PAGE>
decree of any court or governmental agency except for immaterial claims arising
in the ordinary course of business.
1.24. Business Licenses and Governmental Permits. GOC possesses or is
in the process of obtaining all licenses, franchises, and permits necessary for
the conduct of GOC's business as now conducted, and for the development,
operation and leasing of the GOC Property without substantial known conflict
with the rights of others.
1.25 Environmental Compliance. To the best of the Borrower's and GOC's
knowledge and belief, after diligent inquiry and investigation by each, GOC has
duly complied with, and the GOC Property and GOC's business operations, assets,
equipment, property, leaseholds or other facilities are in compliance with the
provisions of all federal and territorial environmental, health, and safety
laws, codes and ordinances, and all rules and regulations promulgated
thereunder. To the best of the Borrower's and GOC's knowledge and belief, after
diligent inquiry and investigation by each, GOC has been issued and will
maintain all required federal and territorial permits, licenses, certificates,
and approvals relating to (1) air emissions, (2) discharges to surface water or
groundwater, (3) noise emissions, (4) solid or liquid waste disposal, (5) the
use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (intended hereby and hereafter to include any and all such
materials listed in any federal or territorial law, code or ordinance, and all
rules and regulations promulgated thereunder, as hazardous or potentially
hazardous), or (6) other environmental, health, or safety matters. GOC has
received no notice of, and neither knows of nor suspects, facts which might
constitute any violations of any federal or territorial environmental, health,
or safety laws. codes or ordinances, and any rules or regulations promulgated
thereunder with respect to the GOC Property or GOC's business, operations,
assets, equipment, property, leaseholds, or other facilities. To the best of the
Borrower's and GOC's knowledge and belief, after diligent inquiry and
investigation by each, except in accordance with a valid governmental permit,
license, certificate or approval, there has been no emission, spill, release, or
discharge into or upon (1) the air (2) soils or any improvements located
thereon,)3) surface water or groundwater, or (4) the sewer, septic system or
waste treatment, storage or disposal system servicing the GOC Property, of any
toxic or hazardous
<PAGE>
substances or wastes at or from the GOC Property; and accordingly, except for
inventory of raw materials, supplies, work in progress and finished, that are to
be used or sold in the ordinary course of business, the GOC Property is free of
all such toxic or hazardous substances or wastes. There has been no complaint,
order, directive, claim, citation, or notice by any governmental authority or
any person or entity with respect to (1) air emissions, (2) spills, releases, or
discharges to soils or improvements located thereon, surface water, groundwater
or the sewer, septic system or waste treatment, storage or disposal systems
servicing the GOC Property, (30 noise emissions, (4) solid or liquid waste
disposal, (5) the use, generation, storage, transportation, or disposal of toxic
or hazardous substances or waste, or (6) other environmental, health, or safety
matters affecting GOC, the GOC Property or GOC's business, operations, assets,
equipment, property, leaseholds, or other facilities. GOC has no indebtedness,
obligation or liability, absolute or contingent, matured or not matured, with
respect to the storage, treatment, cleanup, or disposal of any solid wastes,
hazardous wastes, or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup,
or disposal) which has not been previously disclosed to the Bank in writing.
D. The Borrower and FMP represent, covenant and warrant that:
1.26 Existence and Power. FMP is a corporation duly organized, validly
existing and in good standing under the laws of the U.S. Virgin Islands, is duly
licensed and authorized to do business in the U.S. Virgin Islands, and has the
full authority and legal right to develop, lease, own and operate the FMP
Property (as defined herein). The FMP has the power to own its property and
assets and is authorized to carry on its business as it is now being conducted
in any jurisdiction where its business is being conducted.
1.27 Corporate Authority. The making and performance by FMP of its
obligations under this Agreement has been duly authorized by all necessary
action and will not violate any provision of law or its Articles of
Incorporation or By-Laws, as amended, or result in the breach of, or constitute
a default under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of FMP pursuant to any
<PAGE>
indenture or bank loan or credit agreement, or other agreement or instrument to
which FMP is a party or by which FMP or its property may be bound or affected.
FMP has the power to enter into and carry out each Loan Document to which it is
or may become a party and has taken all necessary action to authorize the
guaranteeing of the Loans upon the terms of this Agreement and to authorize the
execution, delivery and performance of each Loan Document to which it is or may
become a party. This Agreement and those of the Loan Documents to which FMP is
presently a party constitute, and the other such Loan Documents yet to be
executed by FMP will upon execution, constitute valid and legally binding
obligations of FMP, generally enforceable against FMP. The making and
performance of this Agreement and those of the Loan Documents to which FMP is or
may become a party do not and will not violate in any respect o result in a
breach of any provision of (1) any applicable law or regulation or any order or
decree of any government authority, agency or court or (2) the laws and
documents incorporating and/or constituting FMP or (3) any mortgage, contract or
other undertaking or instrument to which the Borrower is a party or which is
binding upon FMP or any of its assets.
1.28 Financial Condition. The most recent balance sheet of FMP, the
statements of income and loss and surplus of FMP for the period ending on those
dates and other related information heretofore furnished to the Bank are
complete and correct and fairly present the financial condition of FMP as at the
dates of said balance sheet and the results of operations for the period ending
on said dates and as of the date(s) such other financial information was
provided. To the best of the Borrower's and FMP's knowledge and belief, FMP has
no contingent obligations liabilities for taxes or unusual forward or long term
commitments, except as herein specifically mentioned, not disclosed by, or
reserved against, ins aid balance sheet, and, at the present time, there are no
material unrealized or anticipated losses from any unfavorable commitments of
FMP. Said financial statements have been prepared in accordance with generally
accepted accounting principles and practices consistently maintained by FMP
throughout the period involved. Since the dates of such financial statements,
and since the date of the other financial information provided to the Bank,
there have been no material adverse changes in the financial condition of FMP
from that set forth in said balance sheet or in said other financial information
as at the date thereof.
<PAGE>
1.29 Titles; Liens. FMP has good and marketable title to each of the
fixed properties and assets reflected in its balance sheet and the property
encumbered by FMP as security for the Loans is free and clear of all mortgages,
liens and encumbrances, except:
i) liens, if any, for current taxes, assessments, and
governmental charges not delinquent or whose validity is being contested at the
time in good faith and by appropriate proceedings, and covenants, restrictions,
rights, easements, liens, encumbrances and minor irregularities in title which,
in its opinion, do not and will not interfere with the occupation, use and
enjoyment of such properties and assets in the normal course of business as
presently conducted or planned or materially impair the value of such properties
and assets for the purpose of such business;
ii) mortgages, liens and encumbrances in favor of the Bank; and
iii) leases described on Schedule"H" hereto.
1.30 The FMP property. FMP has exclusive good and marketable fee
simple interest in the real property described on Schedule "I" hereto (the "FMP
Property") and there are no encumbrances, restrictions or covenants of record
which would prevent or otherwise affect the development, leasing, occupancy and
operation of the FMP Property.
1.31 Litigation. Except as heretofore disclosed by the Borrower or FMP
to the Bank in writing, there are no actions, suits, or proceedings pending or
to the knowledge of the Borrower or FMP threatened against or affecting FMP
before any court or any governmental department or agency which may result in
any material adverse change in the business or condition of FMP; to the best of
Borrower's and FMP's knowledge, after diligent inquiry and investigation by
each, FMP has complied with all applicable statutes and regulations of all
governmental authorities having jurisdiction over FMP's property and FMP is not
in default with respect to any order, writ, injunction, or decree of any court
of governmental agency except for immaterial claims arising in the ordinary
course of business.
1.32 Business Licenses and Governmental Permits. FMP possesses all
licenses, franchises, and permits necessary for the
<PAGE>
conduct of FMP's business as not conducted, and for the development, operation
and leasing of the FMP Property without substantial known conflict with the
rights of others.
1.33 Environmental Compliance. To the best of the Borrower's and FMP's
knowledge and belief, after diligent inquiry and investigation by each, FMP has
duly complied with, and the FMP Property and FMP's business operations, assets,
equipment, property, leaseholds or other facilities are in compliance with the
provisions of all federal and territorial environmental, health, and safety
laws, codes and ordinances, and all rules and regulations promulgated
thereunder. To the best of the Borrower's and FMP's knowledge and belief, after
diligent inquiry and investigation by each, FMP has been issued and will
maintain all required federal and territorial permits, licenses, certificates,
and approvals relating to (1) air emissions, (2) discharges to surface water or
groundwater, (3) noise emissions, (4) solid or liquid waste disposal, (5) the
use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (intended hereby and hereafter to include any and all such
materials listed in any federal or territorial law, code or ordinance, and all
rules and regulations promulgated thereunder, as hazardous or potentially
hazardous), or (6) other environmental, health, or safety matters. FMP has
received no notice of, and neither knows of nor suspects, facts which might
constitute any violations of any federal or territorial environmental, health,
or safety laws. codes or ordinances, and any rules or regulations promulgated
thereunder with respect to the FMP Property or FMP's business, operations,
assets, equipment, property, leaseholds, or other facilities. To the best of the
Borrower's and FMP's knowledge and belief, after diligent inquiry and
investigation by each, except in accordance with a valid governmental permit,
license, certificate or approval, there has been no emission, spill, release, or
discharge into or upon (1) the air (2) soils or any improvements located
thereon, (3) surface water or groundwater, or (4) the sewer, septic system or
waste treatment, storage or disposal system servicing the FMP Property, of any
toxic or hazardous substances or wastes at or from the FMP Property; and
accordingly, except for inventory of raw materials, supplies, work in progress
and finished, that are to be used or sold in the ordinary course of business,
the FMP Property is free of all such toxic or hazardous substances or wastes.
There has been no complaint, order, directive, claim, citation, or notice by any
governmental authority or any person or entity with respect to
<PAGE>
(1) air emissions, (2) spills, releases, or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the FMP Property, (30 noise
emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation, or disposal of toxic or hazardous substances or waste, or (6)
other environmental, health, or safety matters affecting FMP, the FMP Property
or FMP's business, operations, assets, equipment, property, leaseholds, or other
facilities. FMP has no indebtedness, obligation or liability, absolute or
contingent, matured or not matured, with respect to the storage, treatment,
cleanup, or disposal of any solid wastes, hazardous wastes, or other toxic or
hazardous substances (including without limitation any such indebtedness,
obligation or liability with respect to any current regulation, law or statute
regarding such storage, treatment, cleanup, or disposal) which has not been
previously disclosed to the Bank in writing.
E. The Borrower and LCI represent, covenant and warrant that:
1.34 Existence and Power. LCI is a corporation duly organized, validly
existing and in good standing under the laws of the U.S. Virgin Islands and is
duly licensed and authorized to do business in the U.S. Virgin Islands. The
Borrower has the power to own its property and assets and is authorized to carry
on its business as it is now being conducted in any jurisdiction where its
business is being conducted.
1.35 Corporate Authority. The making and performance by LCI of its
obligations under this Agreement has been duly authorized by all necessary
action and will not violate any provision of law or its Articles of
Incorporation of By-Laws, as amended, or result in the breach of, or constitute
a default under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of LCI pursuant to any indenture or bank loan or
credit agreement, or other agreement or instrument to which LCI is a party or by
which LCI or its property may be bound or affected. LCI has the power to enter
into and carry out each Loan Document to which it is or may become a party and
has taken all necessary action to authorize the guaranteeing of the Loans upon
the terms of this Agreement and to authorize the execution, delivery and
performance of each Loan Document to which it is or may become a party. This
Agreement and those of the Loan Documents to which LCI is
<PAGE>
presently a party constitute, and the other such Loan Documents yet to be
executed by LCI will, upon execution, constitute valid and legally binding
obligations of LCI, generally enforceable against LCI. The making and
performance of this Agreement and those of the Loan Documents to which LCI is or
may become a party do not and will not violate in any respect or result in a
breach of any provision of (1) any applicable law or regulation or any order or
decree of any government authority, agency or court of (2) the laws and
documents incorporating and/or constituting LCI or (3) any mortgage, contract or
other undertaking or instrument to which LCI is a party or which is binding upon
LCI or any of its assets.
1.36 Financial Condition. The most recent balance sheet of LCI, the
statements of income and loss and surplus of LCI for the period ending on those
dates and other related information heretofore furnished to the Bank are
complete and correct and fairly present the financial condition of LCI as at the
dates of said balance sheet and the results of operations for the period ending
on said dates and as of the date(s) such other financial information was
provided. To the best of LCI's knowledge and belief, LCI has no contingent
obligations, liabilities for taxes, or unusual forward or long term commitments,
except as herein specifically mentioned, not disclosed by, or reserved against,
in said balance sheet, and, at the present time, there are no material
unrealized or anticipated losses from any unfavorable commitments of LCI. Said
financial statements have been prepared in accordance with generally accepted
accounting principles and practices consistently maintained by LCI throughout
the period involved. Since the dates of such financial statements, and since the
date of the other financial information provided to the Bank, there have been no
material adverse changes in the financial condition of LCI from that set forth
in said balance sheet or in said other financial information as at the date
thereof.
1.37 Titles: Liens. LCI has good and marketable title to each of the
fixed properties and assets reflected in its balance sheet and the Mortgage
Property encumbered by Borrower and the other Guarantors as security for the
Loans is free and clear of all mortgages, liens and encumbrances except as
expressly set forth or permitted herein.
1.38 Litigation. Except as heretofore disclosed by the Borrower of LCI
to the Bank in writing, there are no actions,
<PAGE>
suits, or proceedings pending or to the knowledge of LCI threatened against or
affecting the Borrower before any court or any governmental department or agency
which may result in any material adverse change in the business or condition of
LCI; to the best of Borrower's and LCI's knowledge after diligent inquiry and
investigation, LCI has complied with all applicable statutes and regulations of
all governmental authorities having jurisdiction over LCI's property and LCI is
not in default with respect to any order, writ, injunction, or decree of any
court or governmental agency except for immaterial claims arising in the
ordinary course of business.
1.39 Business Licenses and Governmental Permits. LCI possesses all
licenses, franchises, and permits necessary for the conduct of LCI's business as
now conducted without substantial known conflict with the right of others.
1.40 Environmental Compliance. To the best of LCI's knowledge and
belief, after diligent inquiry and investigation, the representations set forth
in Sections 1.17,1.25 and 1.33 hereof are true and correct in all material
respects.
F. Survival. The representations and warranties of the Borrower and the
Guarantors in this Section 1 shall survive the entering into of this Agreement
and the making of the Loans and shall be deemed to be repeated at all times so
long as any of the Notes or the Loan Documents are in force or any amount
outstanding under any of the Notes or the Loan Documents is unpaid as if made at
and as of each such time with reference to the facts and circumstances then
subsisting.
2. THE AGREEMENT TO LEND; THE LOAN. The Bank agrees, on the terms and
conditions set forth in this Agreement, to extend to the Borrower four (4)
loans, in the aggregate principal sum of TWENTY-FIVE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($25,500,000.00) (hereinafter collectively the "Loans"), as
follows:
INSTALLMENT LOAN
2.1 Amount. The Bank agrees, on the terms and conditions of this
Agreement, to extend to Borrower a loan in the principal sum not to exceed
FOURTEEN MILLION SIX HUNDRED THOUSAND DOLLARS ($14,600,000.00) (the "Installment
Loan"), which the Borrower hereby accepts.
<PAGE>
2.2 Type. The Installment Loan shall be in the form of a three(3) year
installment loan based upon a twenty-five (25) year amortization schedule
payable in consecutive monthly installments commencing after an initial
interest-only payment period as set forth hereinbelow.
2.3 Interest Rate. The Installment Loan shall bear interest on the
principal sum advanced and outstanding at a per annum rate equal to one-half of
one percent (0.5%) above the prime rate as it varies (any change in interest
resulting from the change in the prime rate is to be effective at the beginning
of the day on which each such change in the prime rate is announced), calculated
daily on a three hundred sixty (360) day basis. The term "prime rate" as used
herein means that rate of interest from time to time announced by The Chase
Manhattan Bank, N.A. ("Chase") at its principal offices in New York, New York as
its commercial loan prime rate. The prime rate is not necessarily the lowest
rate of interest charged by Chase or the Bank with respect to extension of
credit, commercial or otherwise. There shall be a past due interest rate of two
percent (2.0%) over prime as it varies on all principal and interest not paid
within ten (10) days of the date when due, interest to accrue from the due date
in the event of a failure to pay within such ten (10) day period.
2.4 Repayment.
i) Interest only, calculated in the manner and at the rate set
forth in Section 2.3 above, shall be payable by the Borrower monthly commencing
on November 1, 1996 and continuing on the same day of each month thereafter
through April 1, 1997. Thereafter, and subject to the right of the Bank to
adjust the monthly installment amount as provided in Section 2.4(ii) below, the
Borrower shall repay the Installment Loan in thirty-six (36) consecutive monthly
installments of principal and interest commencing May 1, 1997 and continuing on
the same date of each month thereafter as follows: thirty-five (35) consecutive
monthly installments of One Hundred Twenty-Five Thousand Thirty-One and & 75/100
Dollars ($125,031.75) and thirty-sixth (36th) and final installment of the
principal sum then outstanding, together with all interest to the date of said
final payment. The monthly installment payment set forth above is based upon
amortization of a loan of $14,600,000.00 bearing interest at the fixed rate of
nine and one-quarter percent (9.25%) per annum in three hundred (300) equal
monthly
<PAGE>
installments, notwithstanding the thirty-sic (36) month term for repayment of
the Installment Loan which commences May 1, 1997. A copy of the amortization
schedule for the Installment Loan is attached hereto as Schedule "J". As the
Installment Loan bears a variable interest rate, allocations to principal and
interest from each monthly installment payment will vary depending upon actual
interest rate calculations for the month and will affect the amount of the final
installment due on April 1, 2000. The Borrower expressly acknowledges that a
substantial principal amount will remain due on the Loan and shall be payable on
the thirty-sixth (36th) installment payment date (April 1, 2000). The Borrower
further acknowledges that the Bank's obligation to either refinance the balloon
payment due on the thirty-sixth (36th) installment payment date or to extend the
due date of the balloon payment is subject to the terms set forth in Section
2.41 hereof.
ii) Right of the Bank to Adjust Installment Amount. The amount of
the monthly installments described in Section 2.4(i) above shall be adjusted by
the Bank from time to time to avoid negative amortization. The Bank shall notify
the borrower of the adjusted monthly installment amount by written notice to the
Borrower (the "Adjustment Notice"). The adjusted monthly installment amount
shall be calculated by the Bank to increase the monthly payment to an amount
equal to monthly interest accrued on the outstanding principal amount of the
Installment Loan as of the Adjustment Date at an assumed fixed rate of interest
equal to the interest rate then in effect (calculated as set forth in Section
2.3 above). The adjusted monthly installment amount shall be payable commencing
on the first (1st) day of the first (1st) full month following the date of the
Adjustment Notice (the "Adjustment Date"), notwithstanding Borrower's later
receipt of such notice, and shall remain in effect until subsequently adjusted
by the Bank.
2.5 Place of Payment. The said principal and interest shall be payable
at the office of the Bank in Charlotte Amalie, St. Thomas, U.S. Virgin Islands,
or at such other place as the holder may from time to time designate in writing.
2.6 Purpose. The purpose of the Installment Loan is as follows:
i) Approximately Ten Million One Hundred Thousand Dollars
($10,100,000.00) is to be used to partially liquidate
<PAGE>
BANCO POPULAR DE PUERTO RICO Loan No. 0790559-2001, the proceeds of which were
advanced to Borrower to capitalize GOC and FMP to assist in funding FMP's and
GOC's acquisition of the GOC Property and FMP Property on or about June 27,
1996; and
ii) Approximately One Million Six Hundred Sixty-Two Thousand
Dollars ($1,662,000.00) is to be utilized to liquidate BANCO POPULAR DE PUERTO
RICO Loan No(s). 0790559-1001 and 0799559-9003, which loan(s) were advanced to
Borrower to fund costs of Borrower's ownership and operation of the project
commonly known as Drake's Passage; and
iii) Approximately Four Hundred Thousand Dollars ($400,000.00) is
to be utilized for liquidation of Borrower's mortgage obligations to Drake's
Passage Limited Partnership under instruments dated November 16, 1990; and
(iv) Approximately One Million Eight Hundred Ninety-Five Thousand
($1,895,000.00) is to be utilized to liquidate BANCO POPULAR DE PUERTO RICO Loan
No. 0790559-0001, which loan was advanced to Borrower to fund costs of
Borrower's ownership, development and operation of the project commonly known as
Grand Hotel; and
(v) Approximately Five Hundred Forty-Three Thousand Dollars
($543,000.00) is to be utilized by Borrower to fund closing costs associated
with the Loans.
2.7 The Installment Note. The Installment Loan shall be evidenced by
the mortgage note of the Borrower (the "Installment Note"), dated the date
hereof, due and payable to the order of the Bank as therein set forth.
TERM LOAN
2.8 Amount. The Bank agrees, on the terms and conditions of this
Agreement, to extend to Borrower a loan in the principal sum not to exceed FOUR
MILLION FIVE HUNDRED THOUSAND DOLLARS ($4,500,000.00) (the "Term Loan"), which
the Borrower hereby accepts.
2.9 Type. The Term Loan shall be in the form of a three(3) year
installment loan based upon a twenty-give (25) year amortization schedule
payable in consecutive monthly installments
<PAGE>
commencing after an initial interest-only payment period as set forth
hereinbelow.
2.10 Interest Rate. The Term Loan shall bear interest on the principal
sum advanced and outstanding at a per annum rate equal to one-half of one
percent (0.5%) above the prime rate as it varies (any change in interest
resulting from the change in the prime rate is to be effective at the beginning
of the day on which each such change in the prime rate is announced), calculated
daily on a three hundred sixty (360) day basis. The term "prime rate" as used
herein means that rate of interest from time to time announced by The Chase
Manhattan Bank, N.A. ("Chase") at its principal offices in New York, New York as
its commercial loan prime rate. The prime rate is not necessarily the lowest
rate of interest charged by Chase or the Bank with respect to extension of
credit, commercial or otherwise. There shall be a past due interest rate of two
percent (2.0%) over prime as it varies on all principal and interest not paid
within ten (10) days of the date when due, interest to accrue from the due date
in the event of a failure to pay within such ten (10) day period.
2.11 Repayment.
i) Interest only, calculated in the manner and at the rate set
forth in Section 2.10 above, shall be payable by the Borrower monthly commencing
on November 1, 1996 and continuing on the same day of each month thereafter
through April 1, 1997. Thereafter, and subject to the right of the Bank to
adjust the monthly installment amount as provided in Section 2.11(ii) below, the
Borrower shall repay the Term Loan in thirty-six (36) consecutive monthly
installments of principal and interest commencing May 1, 1997 and continuing on
the same date of each month thereafter as follows: thirty-five (35) consecutive
monthly installments of Thirty-Eight Thousand Five Hundred Thirty-Seven and
18/100 Dollars ($38,537.18) and a thirty-sixth (36th) and final installment of
the principal sum then outstanding, together with all interest to the date of
said final payment. The monthly installment payment set forth above is based
upon amortization of a Lola of $4,500,000.00 bearing interest at the fixed rate
of nine and one-quarter percent (9.25%) per annum in three hundred (300) equal
monthly installments, notwithstanding the thirty-six (36) month term for
repayment of the Term Loan which commences May 1, 1997. A copy of the
amortization schedule for the term Loan is attached hereto
<PAGE>
as Schedule "K". As the Term Loan bears a variable interest rate, allocations to
principal and interest from each monthly installment payment will vary depending
upon actual interest rate calculations for the month and will affect the amount
of the final installment due on April 1, 2000. The Borrower expressly
acknowledges that a substantial principal amount will remain due on the Loan and
shall be payable on the thirty-sixth (36th) installment payment date (April 1,
200). The Borrower further acknowledges that the Bank's obligation to either
refinance the balloon payment due on the thirty-sixth (36th) installment payment
date or to extend the due date of the balloon payment is subject to the terms
set forth in Section 2.41 hereof.
ii) Right of the Bank to Adjust Installment Amount. The amount of
the monthly installments described in Section 2.11(i) above shall be adjusted by
the Bank from time to time to avoid negative amortization. The Bank shall notify
the Borrower of the adjusted monthly installment amount by written notice to the
Borrower (the "Adjustment Notice"). The adjusted monthly installment amount
shall be calculated by the Bank to increase the monthly payment to an amount
equal to monthly interest accrued on the outstanding principal amount of the
Term Loan as of the Adjustment Date at an assumed fixed rate of interest equal
to the interest rate then in effect (calculated as set forth in Section 2.10
above). The adjusted monthly installment amount shall be payable commencing on
the first (1st) day of the first (1st) full month following the date of the
Adjustment Notice (the "Adjustment Date"), notwithstanding Borrower's later
receipt of such notice, and shall remain in effect until subsequently adjusted
by the Bank.
2.12 Place of Payment. The said principal and interest shall be
payable at the office of the Bank in Charlotte Amalie, St. Thomas, U.S. Virgin
Islands, or at such other place as the holder may from time to time designate in
writing.
2.13 Purpose. The purpose of the Term Loan is as follows: i)
Approximately Three Million Seven Hundred Thirty-Five Thousand Dollars
($3,735,000.00) is to be utilized to liquidate BANCO POPULAR DE PUERTO RICO Loan
No. 0790559-9001, which loan was advanced to Borrower t fund costs of Borrower's
ownership, development and operation of the project commonly known as Lockhart
Gardens Shopping Center; and ii) Approximately Seven Hundred Sixty-Five Thousand
Dollars ($765,000.00) is to be utilized by Borrower to fund costs of
<PAGE>
design upgrades at the property commonly known as Lockhart Gardens Shopping
Center incurred by Borrower to meet reconstruction standards required under the
Uniform Building Code which were not otherwise covered by Borrower's Hurricane
Marilyn insurance claim payments.
2.14 The Term Note. The Term Loan shall be evidenced by the mortgage
note of the Borrower (the "Term Note"), dated the date hereof, due and payable
to the order of the Bank as therein set forth.
LINE OF CREDIT
2.15 Amount. The Bank agrees, on the terms and conditions of this
Agreement, to extend the Borrower a non-revolving loan in a principal sum not to
exceed On Million Dollars ($1,000,000.00) (herein the "Line of Credit"), which
the Borrower hereby accepts.
2.16 Type. The Line of credit shall be in the form of a One Million
Dollars ($1,000,000.00) line of credit facility with the outstanding balance of
principal due and payable on April 1, 2000. During the term of the Line of
Credit, the Borrower, subject to the terms and provisions stated herein, shall
have the right to repay all or any part of the principal balance outstanding
from time to time. However, at no time during the term of the Line of Credit
shall the principal sum outstanding on the Line of Credit exceed One Million
Dollars ($1,000,000.00) nor shall principal payments made by Borrower be subject
to re borrowing. The maturity date of the Line of Credit shall not be extended
unless such extension is agreed to in writing by Bank, except as provided in
subject to the provisions of Section 2.41 hereof. All payments shall be applied
first to interest accrued on the Line of Credit and the remainder of the
outstanding principal balance.
2.17 Interest. The Line of Credit shall bear interest on the principal
sum advanced and outstanding at a per annum rate equal to on-half of one percent
(0.5%) above the prime rate as it varies (any change in interest resulting from
the change in the prime rate is to be effective at the beginning of the day on
which each such change in the prime rate is announced), calculated daily on a
three hundred sixty (360) day basis. The term "prime rate" as used herein means
that rate of interest from time to time announced by The Chase Manhattan Bank,
N.A.
<PAGE>
("Chase") as it principal offers in New York, New York as it commercial loan
prim rate. The prime rate is not necessarily the lowest rate of interest charged
by Chase or the Bank with respect to extension of credit, commercial or
otherwise. There shall be a past du interest rate of two percent (2.0%) over
prime as it varies on all principal and interest not paid within ten (10) days
of the date when due, interest to accrue from the due date in the event of a
failure to pay within such ten (10) day period.
2.18 Repayment. The entire principal balance of the Line of Credit
outstanding on April 1, 2000 shall be due and payable in full on such date,
together with all interest accrued to date of such payment subject, however, to
and with the benefit of all provisions set forth in Section 2.41 hereof.
2.19 Place of Payment. The said principal and interest shall be
payable at the office of Bank in Charlotte Amalie, St. Thomas, U.S. Virgin
Islands, or at such other place as the holder may from time to time designate in
writing.
2.20 Purpose. The purpose of the Line of Credit is to provide funds to
meet Borrower's working capital requirements and to liquidate the outstanding
balance f BANCO POPULAR DE PUERTO RICO Loan No. 0790559-2001 not otherwise paid
pursuant to Section 2.6(i) hereof.
2.21 Obligation to Disburse. Notwithstanding anything to the contrary
herein, the Bank shall have no obligation to disburse any portion of the Line of
Credit hereunder if at the time of any request for such disbursement any
material default shall exist under this Agreement or any of the Notes or the
Loan Documents or if any circumstances shall exist at such time which with the
passage of time, giving of notice, or both, would constitute a material default
under this Agreement or any of the Notes or the Loan Documents. This
determination by the Bank as to the existence of a material default shall be
conclusive, notwithstanding any assertion by Borrower or any Guarantor that such
default does not constitute a "material" default.
2.22 The Line of Credit Note. The Line of Credit shall be evidenced by
a non-revolving line of credit promissory note of the Borrower (herein called
the "Line of Credit Note"), dated the date hereof, and payable to the order of
the Bank as therein set forth.
<PAGE>
CONSTRUCTION/PERMANENT LOAN
2.23 Amount. The Bank agrees, on the terms and conditions of this
Agreement, to extend to Borrower a loan in the principal sum not to exceed FIVE
MILLION FOUR HUNDRED THOUSAND DOLLARS ($5,400,000.00) (the "Construction Loan"),
which the Borrower hereby accepts.
2.24 Type. The Construction Loan shall be in the form of an eighteen
(18) month installment loan based upon a twenty-five (25) year amortization
schedule payable in consecutive monthly installments commencing after an initial
interest-only payment period as set hereinbelow.
2.25 Interest Rate. The Construction Loan shall bear interest on the
principal sum advanced an outstanding at a per annum rate equal to one-half of
one percent (0.5%) above the prime rate as it varies (any change in interest
resulting from the change in the prime rate is to effective at the beginning of
the day on which each such change in the prime rate is announced), calculated
daily on a three hundred sixty (60) day basis. The term "prime rate" as used
herein means that rate of interest from time to time announced by The Chase
Manhattan Bank, N.A. ("Chase") at its principal offices in New York, New York as
its commercial loan prime rate. The prime rate is not necessarily the lowest
rate of interest charged by Chase or the Bank with respect to extension of
credit, commercial or otherwise. There shall be a past due interest rate of two
percent (2.0%) over prime as it varies on all principal and interest not paid
within ten (10) days of the date when due, interest to accrue from the due date
in the event of a failure to pay within such ten (10) day period.
2.26 Repayment.
i) Interest only on the principal sum outstanding, calculated in
the manner and at the rate set forth in Section 2.25 above, shall be payable by
the Borrower monthly commencing on November 1, 1996 and continuing on the sate
day of each month thereafter through October 1, 1998. Thereafter, and subject to
the right of the Bank to adjust the monthly installment amount as provided in
Section 2.6(ii) below, the Borrower shall repay the Construction Loan in
eighteen (18) consecutive monthly installments of principal and interest
commencing November 1, 1998 and continuing on the same date of
<PAGE>
each month thereafter as follows: seventeen (17) consecutive monthly
installments of Forty-Six Thousand Two Hundred Forty-Four and 62/100 Dollars
(46,244.62) and an eighteenth (18) and final installment of the principal sum
then outstanding, together with all interest to the date of said final payment.
The monthly installment payment set forth above is based upon amortization of a
loan of 5,400,000.00 bearing interest at the fixed rate of nine and one-quarter
percent (9.25%) per annum in three hundred (300) equal monthly installments,
notwithstanding the eighteen (18) moth term for repayment of the Construction
Loan which commences November 1, 1998. A copy of the amortization schedule for
the Construction Loan is attached hereto a Schedule "L". As the Construction
Loan bears a variable interest rate, allocations to principal and interest from
each monthly installment payment will vary depending upon actual interest rate
calculations for the month and will affect the amount of the final installment
due on April 1, 2000. The Borrower expressly acknowledges that a substantial
principal amount will remain due on the Loan and shall be payable on the
eighteenth (18th) installment payment date (April 1, 2000). The Borrower further
acknowledges that the Bank's obligation to either refinance the balloon payment
due on the eighteenth (18th) installment payment date or to extend the due date
of the balloon payment is subject to the terms set forth in Section 2.41 hereof.
ii) Right of the Bank to Adjust Installment Amount. The amount of
the monthly installments described in Section 2.26(i) above shall be adjusted by
the Bank from time to time to avoid negative amortization. The Bank shall notify
the Borrower of the adjusted monthly installment amount by written notice to the
Borrower (the "Adjustment Notice"). The adjusted monthly installment amount
shall be calculated by the Bank to increase the monthly payment to an amount
equal to monthly interest accrued on the outstanding principal amount on the
Construction Loan as the Adjustment Date at an assumed fixed rate of interest
equal to the interest rate then in effect (calculated as set forth in Section
2.25 above). The adjusted monthly installment amount shall be payable commencing
on the first (1st) day of the first (1st) full month following the date of the
Adjustment Notice (the "Adjustment Date"), notwithstanding Borrower's late
receipt of such notice, and a shall remain in effect until subsequently adjusted
by the Bank.
2.27 Place of Payment. The said principal and interest shall be
payable at the office of the Bank of Charlotte
<PAGE>
Amalie, St. Thomas, U.S. Virgin Islands, or at such other place as the holder
may from time to time designate in writing.
2.28 Purpose. The purpose of the Construction Loan is as follows:
i) An amount not to exceed Four Million Dollars ($4,000,000.00)
to fund the cost of construction of Phase II of Lockhart Gardens (the "Lockhart
Gardens Phase II Project"). The Lockhart Gardens Phase II Project consists of
the reconstruction and reconfiguration of the improvements located on Parcel No.
1 Estate Thomas, 10th Street Subdivision; and
ii) Approximate One Million Four Hundred Thousand Dollars
($1,400,000.00) of fund the cost of construction of Phase II of the Grand Hotel
(the "Grand Hotel Phase II Project"). The Grand Hotel Phase II Project consists
of the rehabilitation of western portion of the Grand Hotel consistent with the
rehabilitation of the eastern portion of The Grand Hotel which was Phase I.
The Lockhart Gardens Phase II Project and the Grand Hotel Phase II Project are
collectively referred to herein as the "Projects" and each is referred to as a
"Project".
2.29 The Construction Note. The Construction Loan shall be evidenced
by the mortgage note of the Borrower (the "Construction Note"), dated the date
hereof, due and payable to the order of the Bank as therein set forth.
2.30 Allocation of Construction Loan Proceeds. Notwithstanding
anything to the contrary ser forth therein, the maximum amount of proceeds of
the Construction Loan which the Bank shall be obligated to disburse under any
circumstances for each of the Projects described in Section 2.28 hereof shall be
as follows:
i) Lockhart Gardens Phase II Project - $4,000,000.00; and
ii) Grand Hotel Phase II Project - $1,400,000.00.
The bank's obligation to advance any proceeds of the Construction Loan to the
Borrower is subject to all terms and conditions set forth in this Agreement.
<PAGE>
2.31 Conditions Precedent to the Making of the First Advance of
Construction Loan Proceeds for Each Project. The Bank shall make the first
advance on the Construction Loan and under the Construction Note upon request by
the Borrower, subject to the fulfillment to the satisfaction of the Bank of the
following conditions, each of which shall apply with equal force and
independently to the initial advance of Construction Loan proceeds for each of
the Projects:
2.31.1 Conditions of Lending. The Borrower shall have fulfilled all
Conditions of Lending set forth in Section 4 of this Agreement.
2.31.2 Title Insurance. The Bank shall have received an endorsement to
the applicable title insurance policy referred to in Section 4.7, which
endorsement shall indicate that the title company has continued its title
examination to the date of the contemplated advance and that such examination
has disclosed no lien, encumbrance or other exception to the title other than
those previously reported to and approved by the Bank and shall insure the
contemplated advance. The title company shall require any addition or updating
of any survey referred to in Section 4.8, such addition or updating shall be
furnished by the Borrower.
2.31.3 Plans and Specifications. The Bank shall have received all
plans and specifications for the Project (the "Plans and Specifications")
together with any and all changes to said Plans and Specifications made to the
date of the advance, each such change to have the written approval of the
Borrower and the Bank.
2.31.4 Supervisory Architect's Review and Report. The Supervisory
Architect appointed by the Bank as provided in Section 10 hereof shall review
all Plans and Specifications, and any other relevant material related to the
Project prior to the making of the first advance related to such Project. The
Bank shall have received the written opinion of the Supervisory Architect with
regard to:
i) general completeness of the Plans and Specifications,
ii) review of the design criteria,
<PAGE>
iii) compliance with all applicable Building Codes, Zoning
Regulations and other laws requiring governmental permits for the development or
construction of the Project, Systems for the Project,
iv) adequacy of the Structural, Electrical and Mechanical
v) adequacy of the Construction Agreement(s) with the contractor
for the construction of the Project, and of the agreements for architects and/or
engineers of record on the Project,
vi) review and approval of the final budget submitted by Borrower
with respect to the costs of the Project,
vii) review of the adequacy of the insurance policies relating to
the Project obtained by the Borrower, as further described in Sections 4. 12 and
7. 11 hereof,
viii) review and approval of the survey, plot plan, and soil
report provided by or on behalf of Borrower along with the Plans and
Specifications; and
ix) his satisfaction that: (i) the projected construction costs
(both 'hard' and "soft") are in line with market conditions, (ii) the general
economic viability of the Project is positive, and (iii) the projected fair
market value of the Project upon completion of the construction will support
payoff of the portion of the Construction Loan allocated to such Project and
other sums secured by the Mortgage encumbering the real property upon which the
Project is located.
2.31.5 Assignment of Construction Documents. The Bank shall have
received, as security for the Construction Loan, an Assignment of all permits,
contracts, Plans and Specifications and other documentation related in any
manner to the construction of the Project (the "Construction Documents"), duly
executed by the Borrower, acknowledged by each contractor, architect and other
professionals providing services in connection with the Project as the Bank
shall require and otherwise in form and substance satisfactory to the Bank and
its counsel and the Supervisory Architect.
2.31.6 Work in Place. The Bank shall have received a report from its
Supervisory Architect as to the value of the Project work in place. The Bank
<PAGE>
shall have received from the Borrower and the Borrower's Architect (who shall
have first been approved by the Bank) a certificate covering those matters set
forth in Section 2.32.4 hereof.
2.31.7 Taxes and Permits. The Bank shall have received copies of all
building and similar permits required in connection with the construction of the
Project together with evidence that all fees for such permits have been paid.
The Bank shall have received such written evidence as it may require that all
applicable taxes, including but not limited to real property taxes, due or past
due have been paid, subject to the rights of Borrower under Section 1.4(i)
hereof.
2.31.8 Cost Breakdown - Construction Schedule. The Bank shall have
received from Borrower a projected development and construction cost breakdown
of the Project, satisfactory to the Bank, itemizing projected amounts payable
for each category of expense to be incurred or work to be performed and
materiels to be supplied for the construction or marketing of the Project (the
"Cash Flow Schedule"), along with a projected schedule for the progress of such
construction (the "Construction Schedule").
2.31.9 Third Party Approvals. The Bank shall have received such
written approvals from such governmental agencies or other third parties as
shall be necessary to effectuate an assignment of government permits and
assignments of the construction documents described in Section 2.31.5 hereof,
binding on said governmental agencies and other third parties.
2.31.10 Draw Schedule. The Bank shall have received from the Borrower
a construction draw schedule for the Project satisfactory to the Bank. The
Borrower shall be entitled to request monthly installments not less than
$25,000.00 in accordance with a draw schedule approved by the Bank based upon
the Cash Flow Schedule. All construction advances shall be subject to
verification as to the value of work completed on the Project and such advances
shall be made at the reasonable discretion of the Bank.
2.31.11 Materialmen. The Bank shall have received a list of the names
of all contractors, trade contractors and materialmen intended by the Borrower
to perform work or supply
<PAGE>
materials in connection with the development and construction of the Project,
together with conformed copies all contracts and subcontracts for such work and
material, all of the foregoing to be in form and substance satisfactory to the
Bank and its counsel.
2.31.12 No Event of Default. No material default shall exist under
this Agreement or any of the Notes or any of the Loan Documents and no
circumstances shall exist which, with the passage of time or the giving of
notice, or both, would constitute a material default under this Agreement or any
of the Notes or any of the Loan Documents. The determination by the Bank as to
the existence of a material default shall be conclusive, notwithstanding any
assertion by Borrower or any Guarantor that such default does not constitute a
"material" default.
2.31.13 Other Materials. The Bank shall have received all such other
documents, instruments, certifications, authorizations and other materials as
the Bank may reasonably require relating to the Project and the Project work.
2.31.14 Specific Lease. Litigation and Bonding Requirements. The Bank
shall have no obligation to make the initial advance of the Construction Loan
Proceeds for the identified Project until the following additional conditions
have been fulfilled by Borrower in a manner satisfactory to the Bank:
i) The Bank shall have received evidence of the final and
non-appealable resolution of all litigation relating to the use and occupancy of
portions of Lockhart Gardens Shopping Center leased by Grand Union pursuant to a
lease agreement noted in the applicable title policy delivered by Borrower
pursuant to Section 4.7 hereof (the "Grand Union Lease") prior to any advance
for the Lockhart Gardens Phase II Project;
ii) The Borrower and Woolworth's shall have entered into a lease
or tentative agreement on terms and conditions satisfactory to the Bank
extending the term of the existing lease governing Woolworth's occupancy of
space located at Lockhart Gardens Shopping Center beyond December 31, 2001 prior
to any advance for the Lockhart Gardens Phase II Project;
iii) The Borrower shall have entered into a lease of space or
tentative agreement within the Lockhart Gardens Phase
<PAGE>
II Project with a reputable tenant acceptable to the Bank for the operation of a
supermarket on terms and conditions, including but not limited to lease term,
rental rate and leasable area, satisfactory to the Bank prior to any advance for
the Lockhart Gardens Phase II Project;
iv) The Bank shall have received a one hundred percent (100%)
payment and performance bond for each Project, with appropriate dual obligee
riders, issued by a bonding company or company acceptable to the Bank, and
otherwise in form, substance and amounts acceptable to the Bank prior to any
advance for such Project; and
v) The Borrower shall have entered into a lease or tentative
agreement of space on the second floor of the Grand Hotel Phase II Project with
a tenant acceptable to the Bank for the operation of a restaurant on terms and
conditions, including but not limited to lease term, rental rate and lea-table
area, satisfactory to the Bank prior to any advance for the Grand Hotel Phase II
Project.
2.32 Conditions of Additional Construction Loan Advances for Each
Project. The Bank shall make additional advances on the Construction Loan and
under the Construction Note upon request by the Borrower, subject to the
fulfillment to the satisfaction of the Bank of the following conditions, each of
which shall apply with equal force and independently to each additional advance
of Construction Loan Proceeds for each of the Projects:
2.32.1 In General. The Bank shall make subsequent advances of the
proceeds of the Construction Loan for each Project upon not less than five (5)
business days prior written notice to the Bank, not more frequently than twice
monthly, in accordance with requisitions submitted to and approved by the Bank
of standard A.I.A. application for payment forms signed by the Borrower for
advances on account of non-construction expenses and by the Borrower and the
contractor for construction expenses as construction work is completed and in
place.
2.32.2 Construction Items. In the case of advances of Construction
Loan proceeds with respect to construction items, said advances shall be for
amounts of not less than Twenty-Five Thousand Dollars ($25,000.00) and comprised
as the total sum of:
<PAGE>
i) the aggregate value of the class of work (including labor)
completed, to the reasonable satisfaction of the Bank; plus
ii) the aggregate value of the materials and equipment
incorporated into the work to the reasonable satisfaction of the Bank, or
ordered, with deposits placed, or stored on the Project premises and insured;
less
iii) a sum equal to five percent (5%) of the items described in
(i) and (ii) of this subparagraph, which sums shall be held by the Bank until
the work is substantially completed; less
iv) any sum previously advanced; for purposes of subparagraphs
(i) and (ii) above, "value" shall be computed substantially in accordance with
the amounts assigned thereto in the Cash Flow Schedule as shall be approved by
the Borrower and the Bank, provided however, that if such information is not
provided in the Cash Flow Schedule agreed upon and approved by the Bank, said
values shall be determined by the Bank in its discretion.
2.32.3 Non-Construction Expenses. Reimbursement for non-construction
expenditures ("soft-costs") shall not exceed the amounts reserved therefor on
the Cash Flow Schedule based upon requisitions for expenditures as approved by
the Bank's Supervisory Architect.
2.32.4 Borrower's Certificate of Costs. The Bank shall have received a
certificate satisfactory in substance and form to the Bank, dated as of the date
of each advance, signed by the Borrower and certifying to the following with
respect to the Project for which an advance is requested:
i) Plans and Specifications. There have been no changes in,
amendments to or deletions from the Plans and Specifications since the date of
the last advance under the Construction Loan for the Project, except those which
shall have been approved by the Bank in advance in writing.
ii) Work in Compliance. All work to the date of the advance
complies with the Plans and Specifications as they may have been amended in
compliance with this Agreement, all such work has been done in
<PAGE>
good and workmanlike manner and all materials, supplies and fixtures usually
furnished and installed at such stage of the Project have been furnished or
installed.
iii) Building: No Violations. Borrower has not received and has
no knowledge of any notice or other record of violation of any permit issued in
connection with the development of the Project, or of any zoning, building or
other statute, ordinance, regulation or restriction concerning the Project
premises or the use thereof from any governmental authority having jurisdiction.
All such building permits, certificates and licenses from each governmental
authority having jurisdiction as have been necessary to the date of the advance
to allow construction of the Project to be carried on to the date of the advance
in accordance with the Plans and Specifications (as they may have been amended
in compliance with this Agreement) and to permit the use of the Project upon
completion have been obtained and are in full force and effect and have been
furnished to the Bank for copying.
2.32.5 Certificate From Supervisory Architect. On the date of any
advance, and in no event less than once each month, the Bank shall have received
a written report from its Supervisory Architect that the work completed as of
such date complies with the Plans and Specifications, as they may have been
amended in compliance with this Agreement, and that such work has been done in a
good and workmanlike manner, and that all materials, supplies and fixtures
usually furnished and installed at such state of the Project have been furnished
or installed and are of appropriate quality and that the Construction Schedule
has been adhered to, and any other pertinent aspects of the Project which, in
his opinion, should be known to the Bank. Borrower shall reimburse the Bank for
all fees paid for each inspection trip performed by the Supervisory Architect.
2.32.6 Title Insurance. The Bank shall have received an endorsement to
the applicable title insurance policy referred to in Section 4.7, which
endorsement shall indicate that the title company has continued its title
examination to the date of the contemplated advance and that such examination
has disclosed no lien, encumbrance or other exception to the title other than
those previously reported to and approved by the Bank, shall insure to the
extent of all previous advances under the
<PAGE>
Construction Note and shall insure the contemplated advance. If the title
company shall require any addition or updating of any survey referred to in
Section 4.8, such addition or updating shall be furnished by the Borrower.
2.32.7 Evidence of Payments. With each subsequent request for an
advance for a particular Project, the Borrower shall have submitted to the Bank
a detailed, itemized breakdown giving evidence satisfactory in form and
substance to the Bank (including appropriate acknowledgments of payment,
releases of liens and rights to claim liens, or waivers of construction liens)
of the payment of all bills for all work, labor and material (including
equipment and fixtures of all kinds) done, performed or furnished in connection
with that portion of the particular Project work covered by the prior advance,
down to the date of the last preceding advance and concurrently with the last
advance.
2.32.8 Surveyor's Certificate. The Bank shall have been furnished with
two copies of a certificate prepared by a licensed land surveyor (satisfactory
to the Bank and the title company and authorized to engage in his profession in
the U. S. Virgin Islands), certifying that the location of the improvements to
date are within the applicable boundaries of the Mortgaged Property and
established building setback lines, if any, as shown in the survey provided in
connection with the first advance, and disclosing no other state of facts which,
in the opinion of the Bank's counsel, would render title to the property where
the Project is located unmarketable; provided, however, that after the
construction of the foundations of all buildings to be erected on the property
where the Project is located has been completed, an updated survey shall have
been furnished showing the "as built" location of the foundations of the
buildings, and thereafter the condition set forth in this subsection shall be
satisfied if the Bank shall have been furnished with a certificate of the
licensed surveyor who shall have prepared such survey or such other licensed
surveyor satisfactory to the Bank and the title company, stating that there have
been no changes in the exterior lines of the improvements as shown on the "as
built" foundation survey and that there is no encroachment over the property
where the Project is located or by any part of the improvements over the
boundary lines or any established building setback line of the property where
the Project is located.
2.32.9 No Event of Default. No default shall exist under this
Agreement or any of the Notes or any of the Loan Documents and no circumstances
shall exist which, with the passage of time or the giving of notice, or both,
<PAGE>
would constitute a default under this Agreement or any of the Notes or any of
the Loan Documents.
2.32.10 Other Materials. The Bank shall have received all such other
documents, instruments, certifications, authorizations and other materials as
the Bank may reasonably require relating to the Project and the Project work.
2.33 Conditions Precedent to Final Advance. The Bank shall not be
obligated to make the final advance of Construction Loan Proceeds allocated to
such Project unless the following additional conditions have been satisfied with
respect to such Project:
i) The Bank has determined that all such Project construction has
been satisfactorily completed in a good and workmanlike manner;
ii) The Bank has received evidence satisfactory to it that all
such Project work requiring inspection by governmental or regulatory authorities
having or claiming jurisdiction has been duly inspected and approved by such
authorities and by a rating or inspection organization, bureau, association or
office having or claiming jurisdiction;
iii) To the extent any such certificate is a condition of the
lawful use and occupancy of such Project improvements, the Bank has received
evidence satisfactory to it that requisite certificates of occupancy have been
validly issued; and
iv) The Bank shall have received a currently updated appraisal of
each of the Project premises which shall address the completion of construction
of the Projects, the current leasing of the Projects, including but not limited
to the leases referred to at subsections (ii), (iii) and (v) of Section 2.31.14
hereof, indicating a completed and current dollar value of the Projects
satisfactory to the Bank.
2.34 Vouchers and Receipts. The Borrower shall furnish to Bank,
promptly on demand, any contracts, bills of sale, statements, receipted vouchers
or agreements pursuant to
<PAGE>
which the Borrower has any claim of title to any materials, furniture, fixtures
or other articles delivered or to be delivered to or incorporated or to be
incorporated into the Project. The Borrower shall furnish to the Bank, promptly
on demand, a verified written statement, in such form and detail as the Bank may
require, showing all amounts paid and unpaid with respect to the Project for
labor and materials and all items of labor and materials to be furnished for
which payment has not been made and the amount to be paid therefor.
2.35 Payments for Labor and Materials. The Borrower shall pay when due
all bills for materials supplied (including furniture and fixtures) and for
services of labor performed in connection with construction of the Project.
2.36 No Construction Liens. The Borrower warrants that the Mortgaged
Property upon which the Projects are or will be located is and shall be free and
clear of any mechanic's lien or other similar encumbrances in respect to work
performed by any contractor, subcontractor or workman of any sort or any other
such obligation as would preclude the Bank from obtaining recognition by the
title insurance company of its valid First Priority Mortgage (and Construction
Security Interest).
2.37 Additional Sums. The Borrower agrees that upon the Bank's
request, any sum or sums required for the completion of construction of each
Project over and above the undisbursed proceeds of the Construction Loan
allocated for such Project shall be deposited by the Borrower with the Bank for
that purpose and advanced by the Bank to the Borrower prior to the advance of
any or further proceeds of the Construction Loan for such Project.
Alternatively, at the Bank's exclusive option, if at any time it shall appear to
the Bank that the undisbursed balance of the Construction Loan made hereunder
together with the individually owned funds of the Borrower allocated to the cost
of completion of such Project is less than the balance required by this
subparagraph, the Bank may give written notice to the Borrower specifying the
amount of the deficiency and the Borrower shall continue construction of such
Project from its own funds until the undisbursed balance of the Construction
Loan allocated to such Project hereunder is equal to or greater than the balance
required by this subparagraph.
2.38 Inspection. The Borrower shall permit any authorized
representative designated by the Bank to inspect the
<PAGE>
Borrower's books and records pertaining to each Project, and to make extracts
therefrom and to discuss the affairs, finances and accounts of the Borrower, all
at such reasonable times and as often as may reasonably be requested and at the
Borrower's expense. The Bank or its representative shall be permitted, at all
reasonable times, to enter upon the Project property, inspect the Project and
the construction thereof and all materials, fixtures and articles used or to be
used, and to examine all detailed plans, shop drawings, specifications,
construction agreements and documents. The Borrower shall furnish to the Bank or
its authorized representative, when requested, copies of such plans, drawings,
specifications, construction agreements and documents.
2.39 Schedule for Completion. The Borrower shall commence each of the
Projects on or before such commencement date as shall allow the Borrower, in the
reasonable determination of the Bank, to complete each of such Projects on or
before September 1, 1998.
2.40 Mandatory Prepayment of Loans. The Borrower shall prepay the
Loans on an annual basis in an amount equal to the Annual Mandatory Prepayment
Amount (as calculated below). The Annual Mandatory Prepayment Amount shall be
paid to the Bank each year on the date on which Borrower and Guarantor are
obligated to deliver their respective financial statements to the Bank pursuant
to Section 7.5 hereof, or on April 2 of each year hereafter, whichever is
earlier (the "Mandatory Prepayment Date"). The Annual Mandatory Prepayment
Amount payable on each Mandatory Prepayment date shall be calculated as follows:
Fifty percent (50%) of excess cash for the most recent fiscal year ending on
December 31st preceding the Mandatory Prepayment Date (the "Applicable Fiscal
Year") after a 1.5 debt service ratio is achieved from operation of all
properties of Borrower, FMP, GOC and RXP. For the purpose of determining excess
cash, neither depreciation expense nor interest expense shall be deducted from
income as an expense, but otherwise such determination shall be made in
accordance with GAAP (as defined in Section 18(i) hereof). The Annual Mandatory
Prepayment Amount, when received by the Bank, shall not be applied to reduce the
outstanding balance on the Line of Credit. The Annual Mandatory Prepayment
Amount, when received by the Bank, shall be applied as a prepayment of the sums
evidenced by the Installment Note, the Term Note and the Construction Note, or
any one or more of them, in such order and amount as the Bank shall determine in
its sole
<PAGE>
discretion, and shall be subject to the prepayment provisions set forth in the
Note or Notes to which the Annual Mandatory Prepayment Amount is applied by the
Bank.
RENEWAL
2.41 Renewal.
2.41.1 Refinancing of Outstanding Balances. So long as no material
default shall have occurred under this Agreement, any of the Notes or any of the
Loan Documents which default was not cured within the time allowed for cure
under this Agreement or is in the process of being cured to the satisfaction of
the Bank in accordance with this Agreement, and provided further that no
material default shall be existing under this Agreement, any of the Notes or any
of the Loan Documents as of April 1, 2000 unless such material default is in the
process of being cured to the satisfaction of the Bank at such time in
accordance with the terms of this Agreement, the Bank agrees to refinance the
principal balance of the Loans outstanding as of April 1, 2000 (the "Refinanced
Loan") subject to the following terms and conditions:
i) The determination by the Bank as to the existence of a
material default shall be conclusive, notwithstanding any assertion by Borrower
or any Guarantor that such default does not constitute a "material" default or
has been cured.
ii) The Refinanced Loan shall be in the form of a fifteen (15)
year installment loan based upon a fifteen (15) year amortization schedule
payable in consecutive monthly installments as set forth hereinbelow.
iii) The Refinanced Loan shall bear interest on the principal sum
outstanding at a per annum rate equal to one-half of one percent (0.5%) above
the prime rate as it varies (any change in interest resulting from the change in
the prime rate is to be effective at the beginning of the day on which each such
change in the prime rate is announced), calculated daily on a three hundred
sixty (360) day basis. The term "prime rate" as used herein means that rate of
interest from time to time announced by The Chase Manhattan Bank, N.A. ("Chase")
at its principal offices in New York, New York as its commercial loan prime
rate. The prime rate is not necessarily the lowest rate of
<PAGE>
interest charged by Chase or the Bank with respect to extension of credit,
commercial or otherwise. There shall be a past due interest rate of two percent
(2.0%) over prime as it varies on all principal and interest not paid within ten
(10) days of the date when due.
iv) Subject to the right of the Bank to adjust the monthly
installment amount as provided in subsection (v)(b) below, the Borrower shall
repay the Refinanced Loan in one hundred eighty (180) consecutive monthly
installments of principal and interest commencing May 1, 2000 and continuing on
the same date of each month thereafter. The monthly installment payment set
forth above shall be based upon amortization of a loan in the amount of the
Refinanced Loan bearing interest at an assumed per annum fixed interest rate
equal to one percent (1.0%) over the prime rate then in effect in one hundred
eighty (180) equal monthly installments. As the Refinanced Loan will bear a
variable interest rate, allocations to principal and interest from each monthly
installment payment will vary depending upon actual interest rate calculations
for the month.
v) (a) On or before April 1, 2000, the Bank and the Borrower
shall approve the initial amortization schedule for the Refinanced Loan prepared
in accordance with subsection (iv) (the "Initial Amortization Schedule").
(b) The amount of the monthly installments described in
subsection (iv) above shall be further adjusted by the Bank from time to time to
maintain principal reductions on the Refinanced Loan at the rate and in the
amounts set forth in the Initial Amortization Schedule (or such successor
schedule issued by the Bank with any Adjustment Notice). The Bank shall notify
the Borrower of the adjusted monthly installment amount by written notice to the
Borrower (the "Adjustment Notice"). The adjusted monthly installment amount
shall be calculated by the Bank by amortizing the principal balance scheduled on
the Initial Amortization Schedule (or such successor schedule issued by the Bank
with any C Adjustment Notice) to be outstanding on the Refinanced Loan as of the
Adjustment Date at an assumed fixed rate of interest equal to the interest rate
then in effect (calculated as set forth in subsection 2.41.1(iii) above), over
the number of months then remaining on the original Refinanced Loan amortization
period of 180 months. The adjusted monthly installment amount shall be payable
commencing on the first (1st) day of the first (1st) full month following the
date
<PAGE>
of the Adjustment Notice (the "Adjustment Date"), notwithstanding Borrower's
later receipt of such notice, and shall remain in effect until subsequently
adjusted by the Bank. In addition to the monthly installment amount established
pursuant to this subsection (v)(b), on each Adjustment Date the Borrower shall
pay to the Bank all such other sums necessary to reduce the outstanding balance
of the Refinanced Loan to the outstanding balance scheduled as of the Adjustment
Date on the Initial Amortization Schedule (or such successor schedule issued by
the Bank with any Adjustment Notice).
2.41.2 General Conditions. If extended by the Bank to the Borrower,
the Refinanced Loan shall be subject to all terms and conditions applicable
hereunder to the Loans, as the same may be modified to expressly refer to the
Refinanced Loan. The parties hereto recognize that certain circumstances may
exist as of April 1, 2000 which, in the opinion of the Bank, may render it
prudent to impose additional or different terms and conditions to the extension
of the Refinanced Loan and expressly agree that the Bank shall have the right to
impose all such additional tams and conditions as the Bank shall determine
appropriate under the circumstances then existing, provided, however, that such
additional terms and conditions shall not include any increase in the interest
rate or any changes to the amortization period or maturity date. The Bank shall
not require additional security for the Refinanced Loan unless the Bank
determines that the then-current appraised value of the Mortgaged Property is
less than Thirty-One Million Four Hundred Thousand Dollars ($31,400,000.00). The
Bank agrees not to impose a commitment or similar fee in excess of Fifteen
Thousand Dollars ($15,000.00) with respect to the Refinanced Loan, but shall be
entitled to require payment by the Borrower of all other loan expenses of the
nature generally described in Section 13 hereof which may be incurred or charged
by the Bank in connection with the Refinanced Loan. The previous waiver by the
Bank of any right or remedy of the Bank or any requirement imposed on the
Borrower or any of the Guarantors hereunder or under the Loan Documents with
respect to the Loans shall not constitute a waiver by the Bank of such right,
remedy or requirement with respect to the Refinanced Loan.
3. SECURITY. Repayment of the Loans shall be secured under the terms of the
following agreements (collectively referred to herein as the "Loan Documents"):
<PAGE>
3.1 Mortgages.
(i) A First Priority Construction Security Interest Mortgage
dated June 27, 1996, as modified by First Amendment of First Priority Mortgage,
satisfactory in form and substance to the Bank and its counsel, in the amount of
Four Million Six Hundred Eighty Thousand Dollars ($4,680,000.00), granting the
Bank a first priority mortgage over the GOC Property; and
(ii) A First Priority Mortgage dated June 27, 1996, as modified
by First Amendment of First Priority Mortgage, satisfactory in form and
substance to the Bank and its counsel, in the amount of Twenty-Five Million Five
Hundred Thousand Dollars ($25,500,000.00), granting the Bank (a) a first
priority mortgage over all Mortgaged Property except for the GOC Property and
the RHP Property; (b) a second priority mortgage over the RHP Property subject
only to the Grishman Mortgage more fully described in Schedule "D" hereto; and
(c) constituting a construction security interest over the Grand Hotel Property
and the Lockhart Gardens Shopping Center Property (as defined in Schedule "B.
hereto). The Mortgages described in (I) and (ii) above are herein referred to
collectively as the "Mortgages" and individually as a "Mortgage".
3.2 Assignments of Leases and Rents. Conditional Assignments of Leases
and Rents of the Mortgaged Property (the "Lease Assignments"), satisfactory in
form and substance to the Bank and its counsel, which shall assign to the Bank
all existing and future leases to all or any part of the Mortgaged Property and
all rental income, revenue and rights derived or to be derived from said leases,
subject only to the rights reserved under the Grishman Mortgage more fully
described in Schedule "D" hereto insofar as the same relates to the RHP
Property.
3.3 Security Agreements. Security Agreements in favor of the Bank (the
"Security Agreements") in form and substance satisfactory to the Bank and its
counsel, granting to the Bank a first priority security interest in all assets
of the Borrower and each of the Guarantors (except LCI), used, useful or
acquired for use in the development, operation and leasing of the Mortgaged
Property or any part thereof, howsoever held, now owned or hereafter acquired,
including but not limited to: all inventory, furniture, fittings, fixtures,
machinery, equipment, contract rights, chattel paper, leases, rents, revenues
and
<PAGE>
accounts receivable, all other tangible and intangible personal property, and
the proceeds, products and accessions of and to any and all of the foregoing,
subject only to the Grishman Mortgage. The lien of said Security Agreements
shall be perfected by corresponding UCC-1 Financing Statements to be executed of
even date herewith by the Borrower or each Guarantor (except LCI), as the case
may be, and the Bank and filed with the Corporate Division of the Office of the
Lieutenant Governor of the U.S. Virgin Islands as a first priority lien over
said assets.
3.4 Guarantees. The unlimited and unconditional guarantee of GOC, FMP
and RHP and the limited and unconditional guarantee of LCI, all in form and
substance satisfactory to the Bank and its counsel, jointly and severally
guaranteeing the Notes, this Agreement and the Loan Documents securing the same
(each a "Guarantee: and collectively the "Guarantees").
3.5 This section is intentionally left blank.
3.6 Assignment of Construction Documents. The Assignment of
Construction Documents more fully described in Section 2.31.5 hereof, each of
which is to be executed and delivered to the Bank prior to the initial advance
of proceeds of the Construction Loan for each of the Projects.
4. CONDITIONS OF LENDING. The obligation of the Bank to make the Loan is
subject to the following conditions precedent:
4.1 Bank Approval. All legal matters incident to the transactions
hereby contemplated shall be satisfactory to and approved by counsel for the
Bank.
4.2 Corporate Documents. The Bank shall have received a certified copy
of the Articles of Incorporation, By-Laws and Certificate of Incorporation of
the Borrower and of each of the Guarantors.
4.3 Certificate of Good Standing. The Bank shall have received a
Certificate of Good Standing for each of the Borrower and the Guarantors issued
by the appropriate government official(s) of the place of incorporation of the
Borrower and each Guarantor.
4.4 Corporate Resolutions. The Bank shall have received certified
copies of all corporate actions and other
<PAGE>
authorizations and resolutions of the Borrower and each Guarantor taken to
authorize execution and delivery of this Agreement, the Notes and each of the
Loan Documents to which each is a party and such other papers as the Bank shall
reasonably request.
4.5 Incumbency Certificate. The Bank shall have received certified
copies of the Incumbency Certificate and all other documents evidencing
authorization of any person executing this Agreement, the Notes and any Loan
Document on behalf of the Borrower or any Guarantor and any other governmental,
corporate or other authorizations, approvals, consents, licenses and exemptions
required to authorize the execution, delivery, negotiation, performance,
validity and enforceability of the this Agreement, the Notes and the Loan
Documents.
4.6 Lien Searches. The Bank shall have received a lien search showing
that the personal property of Borrower and each Guarantor described in Sections
3.2 and 3.3 is free and clear of any type of liens or encumbrances, conditional
bill of sale, security interest or other title retention document of
encumbrances, except for the lien of the Grishman Mortgage.
4.7 Title Insurance. The Bank shall have received commitments for
title insurance policies issued by a tile company satisfactory to the Bank,
dated the date of this Agreement and satisfactory in substance and form to the
Bank and its counsel, stating that:
a) title to the Mortgaged Property is vested in the Borrower or a
Guarantor, as the case may be, in fee simple; and
b) providing coverage for amounts not less than the full amount
of the Loans (allocated as set forth in the Mortgages); and
c) insuring the interest of the Bank upon filing of the Mortgages
as a holder of first priority liens on the Mortgaged Property with no exceptions
other than: (I) liens for real estate taxes not yet due and payable, (ii) the
Permitted Exceptions, if any, as defined in the Mortgages, and obliging the
title company to insure all advances pursuant to this Agreement, without
exception for mechanics' or materialmen's liens, and (iii) the lien of the
Grishman Mortgage over the RHP Property.
<PAGE>
4.8 Survey. The Bank shall have received two (2) copies of the
as-built survey of each parcel or tract of land comprising the Mortgaged
Property, together with an A.L.T.A. certification and Surveyor's Report for each
such survey, satisfactory in substance and form to the Bank and the title
insurer, showing the improvements on the Mortgaged Property and all easements
encroachments, rights-of-way, roads, alleyways, paths, and setbacks, and such
other matters as are revealed by inspection and survey of the Mortgaged
Property, and shall clearly indicate all monuments and other control relied upon
by the surveyor. All of the foregoing shall be sufficient to delete the standard
survey exceptions in the commitments or title insurance provided for in Section
4.7.
4.9 Notes and Loan Documents. The Bank shall have received the Notes
and the Loan Documents fully executed by the Borrower and each Guarantor, as
appropriate, in accordance with the Articles of Incorporation and By-Laws of the
Borrower or such Guarantor.
4.10 Leases. The Bank shall have received true and correct summaries
of all leases and occupancy agreements currently in effect with respect to the
Mortgaged Property or any portion thereof (including all amendments and
modifications thereto).
4.11 Grishman Mortgage. The Bank shall have received copies, certified
as true and correct in a manner acceptable to the Bank, of the Grishman Mortgage
and any modifications or amendments thereto, and any other instruments securing
any indebtedness or obligation of RHP described in the GRISHMAN Mortgage.
4.12 Insurance. The Bank shall have received from the Borrower and
each Guarantor policies of insurance providing coverage over the Mortgaged
Property:
i) against the risk of fire, flood, earthquake, windstorm and
other hazards embraced by the broad form extended coverage endorsements, which
policies shall be in form, at limits and with companies satisfactory to the
Bank;
ii) public liability and property damage insurance in form, at
limits and with companies satisfactory to the Bank; and
<PAGE>
iii) such other insurance against such other hazards as required
by the Mortgages or this Agreement and issued by the insurance companies
satisfactory to the Bank, with evidence of full payment of all premiums then due
thereon. All of said policies shall be non-cancelable except after not less than
thirty (30) days written notice to the Bank and shall provide that loss, if any,
shall be payable to the Bank as Mortgagee, without contribution. All policies of
insurance required to be provided and maintained by Borrower and each Guarantor
pursuant to this Section or Section 7.11 hereof except to the extent the same
may be provided by the local government, shall be written by companies or
through agencies licensed to do business in the U.S. Virgin Islands, and which
companies shall be financially sound and reputable companies satisfactory to the
Bank.
4.13 Appraisal. The Bank shall have received an appraisal dated not
earlier than six (6) months prior to the date of this Agreement, prepared by a
qualified professional approved by the Bank, and otherwise in form and substance
satisfactory to the Bank, indicating that the Mortgaged Property, inclusive of
improvements thereon, has a fair market value of not less than $31,400,000.00.
4.14 Opinions of Counsel for the Borrower and each Guarantor. The Bank
shall have received from counsel for the Borrower a favorable opinion dated the
same date hereof addressed to the Bank and satisfactory in scope and form to the
Bank and its counsel, covering the following matters:
i) Borrower. The Borrower is a corporation validly organized and
existing under the laws of the U.S. Virgin Islands, is authorized to do business
in the U.S. Virgin Islands, has the legal capacity and authority to own real and
other property to the extent required to properly and adequately conduct its
business and to carry out the transaction contemplated hereby, that no part of
this transaction violates any restriction, term, condition, or provision of the
Borrower's Articles of Incorporation and By-Laws, and that the Borrower
possesses all licenses, franchises and permits necessary for the development,
occupancy and leasing of all of the Mortgaged Property owned by Borrower as
herein provided.
ii) Guarantors. Each of the Guarantors is a corporation validly
organized and existing under the laws of the
<PAGE>
U.S. Virgin Islands, is authorized to do business in the U.S. Virgin Islands,
has the legal capacity and authority to own real and other property and to carry
out the transaction contemplated hereby, that no part of this transaction
violates any restriction, term, condition, or provision of such Guarantor's
Article of Incorporation and By-Laws, and that such Guarantor possesses all
license, franchises and permits necessary for the development, occupancy and
leasing of all of the Mortgaged Property owned by such Guarantor.
iii) Loan Agreement. This Loan Agreement has been duly
authorized, executed and delivered by the Borrower and the Guarantors and
constitute a legal, valid and binding obligation as may be limited by
bankruptcy, insolvency, moratorium, reorganization and similar laws generally
affecting the rights of creditors.
iv) Notes. The Notes have been duly authorized, executed and
delivered by the Borrower and constitute legal, valid and binding instruments,
enforceable in accordance with their respective terms except as may be limited
by bankruptcy, insolvency, moratorium, reorganization and other laws generally
affecting the rights of creditors.
v) Loan Documents. Each of the Loan Documents to which the
Borrower and any Guarantor is a party has been duly authorized, executed and
delivered by the Borrower and such Guarantor, and they constitute legal, valid
and binding instruments, enforceable in accordance with their terms, except as
may be affected by bankruptcy, insolvency, moratorium, reorganization and other
laws generally affecting the rights of creditors.
vi) Governmental Licenses. The Borrower and each Guarantor has
received and is in possession of or is in the process of obtaining all necessary
licenses required for the leasing and operation of the Mortgaged Property as
contemplated by this Agreement.
4.15 Loan Fees. The Bank shall have received from the Borrower the
Origination/Commitment Fee in the amount of Four Hundred Forty-Six Thousand Two
Hundred Fifty Dollars ($446,250.00) and the Application Fee in the amount of One
Hundred Fifty Dollars ($150.00).
<PAGE>
4.16 Taxes. The Bank shall have received such written evidence as it
may require that all applicable taxes, including but not limited to real
property taxes, assessments and governmental charges lawfully levied and
assessed against the Mortgaged Property, due or past due, have been paid.
4.17 Estoppel Certificates and Subordination Agreements. The Bank
shall have received landlord estoppel certificates and subordination agreements
from each of the tenants under any lease described in any Schedule hereto or,
alternatively, the title insurer issuing the mortgagee title insurance policy
described in Section 4.7 hereof shall insure that all such leases are
subordinate to the lien of the Bank under the Mortgages. The Bank acknowledge
that the Woolworth's lease and the Grand Union lease at the Lockhart Garden
Shopping Center are not subordinated to the lien of the Bank under the Mortgages
and the subordination requirements of this Section 4.17 shall not apply to these
two leases.
5. INSPECTION. The Borrower and each Guarantor shall permit any authorized
representative designated by the Bank to inspect the Borrower's and each
Guarantor's books and records pertaining to the Mortgaged Property or any part
thereof, the Leases, the Borrower or such Guarantor, and to make extracts
therefrom and to discuss the affairs, finances and accounts of the Borrower and
such Guarantor, all at such reasonable times and as often as may reasonably be
requested and at the Borrower's expense. The Bank or its representative shall be
permitted, at all reasonable times after reasonable notice, to enter upon and
inspect the Mortgaged Property and all parts thereof. For the purposes of this
Section 5, the requirement of reasonable notice shall be met if such written
notice is provided to the Borrower or such Guarantor at least four (4) days
before the date on which the Bank has scheduled the inspection described in the
notice.
6. MODIFICATION AND PARTIAL RELEASE OF NOTES OR MORTGAGES. The Bank may
extend the time for payment of the sums owing under the Notes or release or
cause the release of portions of the Mortgaged Property from the terms of the
Mortgages or release or cause the release of any other security held for one or
more of the Loans and any such extension or release shall be deemed to be in
pursuance to this Agreement and not in modification hereof.
7. AFFIRMATIVE COVENANTS. The Borrower and each Guarantor agree that so
long as credit shall remain available hereunder to
<PAGE>
Borrower and until payment in full of all of the Notes, and performance of all
of the Borrower's and each Guarantor's covenants and other obligations under
this Agreement are satisfied, unless the Bank shall otherwise consent in
writing:
7.1 Payment of Taxes. The Borrower and each Guarantor shall pay and
discharge, or cause to be paid and discharged, all taxes, assessments and
governmental charges or liens imposed upon the Borrower and each Guarantor or
upon the income or profits of the Borrower and each Guarantor, or upon any
property belonging to the Borrower or any Guarantor prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might become a
lien or charge upon the property of the Borrower or any Guarantor; provided that
the Borrower or such Guarantor shall not be required to pay any such tax,
assessment, charge, levy or claim the payment of which is being contested in
good faith and by proper proceedings and so long as Borrower or such Guarantor
furnishes the Bank, immediately upon such tax, assessment, charge, levy or claim
becoming overdue, notice of that which Borrower or such Guarantor intends to
contest.
7.2 Notice of Litigation. The Borrower and each Guarantor shall
promptly give notice in writing to the Bank of any material contingent liability
of the Borrower or any Guarantor and of all litigation and of all proceedings by
or before any governmental regulatory agency, against or affecting the Borrower
or any Guarantor, which involve an amount of potential liability in excess of
One Hundred Thousand Dollars ($100,000.00), and, if adversely determined, would
otherwise have a material adverse effect on the financial condition or business
of the Borrower or such Guarantor, as the case may be.
7.3 Loan Proceeds. The Borrower shall apply proceeds of each of the
Loans only for the specific purposes provided for herein with respect to each
such Loan.
7.4 Conduct of Business. The Borrower and each Guarantor shall conduct
the business of the Borrower and such Guarantor at all times in accordance with
the laws and regulations of the U.S. Virgin Islands, and continue the Borrower
and each Guarantor as a valid corporation and a going concern and in good
standing under the laws of the U.S. Virgin Islands.
7.5 Financial Statements. The Borrower and each Guarantor shall
furnish the Bank within ninety (90) days after
<PAGE>
the end of each respective fiscal year or other annual period of accounting of
the Borrower and each Guarantor, financial statements of the Borrower and such
Guarantor prepared by independent certified public accountants approved by the
Bank which, if unaudited, must be at least a review (in form and substance)
reflecting aggregate financial worth satisfactory to the Bank, and promptly
provide such additional financial and other information regarding the financial
condition and business affairs of the Borrower and each such Guarantor at such
times, in such manner, in such form and prepared by such persons as the Bank may
require.
7.6 Deposits. The Borrower and each Guarantor shall maintain all
direct and indirect deposit accounts of the Borrower and each Guarantor with the
Bank.
7.7 Books and Records. The Borrower and each Guarantor shall keep
their respective books of accounts and prepare all financial statements to be
delivered hereunder in accordance with generally accepted accounting principles
and practices consistently applied.
7.8 Environmental Compliance. The Borrower and each Guarantor shall be
and remain in compliance with the provisions of all federal, state, and local
environmental, health, and safety laws, codes and ordinances, and all rules and
regulations issued thereunder; notify the Bank immediately of any notice of a
hazardous discharge or environmental complaint received from any governmental
agency or any other party; notify the Bank immediately of any hazardous
discharge from or affecting its premises; immediately contain and remove the
same, in compliance with all applicable laws; promptly pay any fine or penalty
assessed in connection therewith; and at the Bank's request, and at the
Borrower's or such Guarantor's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form and content to the Bank, and
such other and further assurances reasonably satisfactory to the Bank that the
condition has been corrected.
7.9 Subordination. The Borrower shall subordinate all existing and
future loans and advances to Borrower by Borrower's stockholders to repayment of
the Loan; provided that the Borrower may make routine installment payments under
such loans so long as (1) the Borrower is not in default under its obligations
to the Bank hereunder and (2) interest on any such loans does not exceed the
interest rate charged on the Loans.
<PAGE>
7.10 Real Property Taxes. The Borrower and each Guarantor shall pay or
cause to be paid all real property taxes on the Mortgaged Property and submit to
the Bank evidence of such payments.
7.11 Insurance. The Borrower and each Guarantor shall:
a) Maintain, or cause to be maintained, with a financially sound
and reputable insurance company doing business in the U.S. Virgin Islands and
acceptable to the Bank, comprehensive general liability insurance, satisfactory
in form and substance to the Bank and its counsel, covering the Borrower and
each Guarantor against the risks of third party property damage and personal
injury liability with a limit satisfactory to the Bank, which limit may be
adjusted by the Bank in its discretion.
b) Maintain, or cause to be maintained, with a financially sound
and reputable insurance company acceptable to the Bank, fire and extended
coverage, casualty, vandalism and malicious mischief insurance on all of the
Borrower's and Guarantors' property, real and personal, including without
limitation the Mortgaged Property, in such amounts as are acceptable to the
Bank, but in any event not less than eighty percent (80%) of the full
replacement cost of all improvements, inventory, furniture, fixtures, machinery
and equipment located in or on any of the Borrower's or Guarantors' business
premises.
c) Maintain, or cause to be maintained, with a financially sound
and reputable insurance company acceptable to the Bank, comprehensive "Builder's
Risk" property insurance over those portions of the Mortgaged Property upon
which any material construction activity, including without limitation the
Projects, is being conducted, with the Bank named as mortgagee, with fire,
earthquake, windstorm and the hazards covered by extended coverage endorsements,
in such amounts as are acceptable to the Bank.
d) Insurance coverage must be provided by an insurance company
acceptable to the Bank: (minimum A.M. Best & Co. rating of A5) and all such
policies of insurance shall contain an endorsement, satisfactory in form and
substance to the
<PAGE>
Bank and its counsel, providing for payment to the Bank as mortgagee/loss payee,
and such policies shall also provide that they may not be canceled, or the
amount(s) of coverage provided reduced, for any reasons, until not less than ten
(10) days' written notice shall have been given to the Bank of the insurance
company's intention to cancel or reduce the amount(s) of coverage provided under
such policies.
e) If it is determined from the National Flood Insurance Report
that the Mortgaged Property or any portion thereof is located in a designated
flood-prone area, the Borrower or the Guarantor, as the case may be, shall
maintain or cause to be maintained Federal Flood Insurance or its equivalent up
to the lesser of the maximum amount available or the amount of the Loans
covering such premises, and furnish the Bank with evidence of such insurance
naming the Bank as mortgagee/loss payee.
f) All insurance proceeds received by the Bank on account of any
damage to or destruction of the Mortgaged Property or any part thereof (less the
cost, fees and expenses incurred by the Borrower or the Guarantor in the
collection thereof, including without limitation all adjuster's fees and
expenses and attorney's fees and expenses) shall, in the event the Bank shall
demand that such Borrower or Guarantor commence restoration, be disbursed to the
Borrower or the Guarantor, as the case may be, or as such Borrower or Guarantor
may direct, from time to time as restoration progresses, to pay (or reimburse
the Borrower or the Guarantor, as the case may be) the cost of restoration, upon
written request of the Borrower or such Guarantor to the Bank, which request
shall be accompanied by (i) a certificate of a supervising architect or engineer
approved by the Bank describing in reasonable detail the world and materiels in
question and the cost thereof, stating that the same were necessary or
appropriate to the restoration and constitute a completed part thereof, and that
no part of the cost thereof has theretofore been reimbursed, and specifying the
additional amount, if any, necessary to complete the restoration; and (ii) a
title insurance endorsement satisfactory to the Bank that there exist no
construction, mechanics' or similar liens for labor or materials supplied except
such as are to be discharged by the application of the amount requested;
provided that the balance of such net proceeds so held by the Bank shall not be
reduced below the amount specified in such certificate as necessary to complete
the restoration. Upon receipt by the Bank of evidence of a character required by
the foregoing clauses (i) and (ii) that restoration
<PAGE>
has been completed and the cost thereof paid in full, and that there are no
construction, mechanics' or similar liens for labor or materials supplied in
connection therewith, any balance of such restoration funds shall, unless the
Borrower or any Guarantor is in default hereunder, be paid to the Borrower or
the Guarantor, as the case may be. Notwithstanding anything to the contrary set
forth herein, should any default exist hereunder which has not been cured within
the time for cure allowed herein, the Bank shall have the right to apply all
insurance proceeds and restoration funds to reduction of the Loans in such order
as the Bank shall determine.
7.12 Subordination of Leases. The Borrower and each Guarantor shall
subordinate or cause to be subordinated all Leases as follows:
i) All Leases now or hereafter existing shall be subordinated in
all respects to the liens of the Bank's Mortgages pursuant to subordination,
nondisturbance and attornment agreements (or by virtue of lease provisions of
similar effect), in form and substance satisfactory to the Bank and its counsel.
The Bank shall agree to honor and not to disturb any lease agreement with a
tenant who is not in default thereunder, provided such tenant has executed and
delivered to the Bank a subordination. nondisturbance and attornment agreement
in form and substance satisfactory to the Bank and its counsel;
ii) Upon request, the Bank is to receive true and correct copies
of any Lease currently in effect with respect to any part of the Mortgaged
Property, together with all amendments and modifications thereto; and
iii) All Leases now or hereafter executed with respect to any
part of the Mortgaged Property must comply with the provisions of Section 15 of
this Agreement.
By not later than April 15, 1997, the Borrower and the Guarantors shall cause to
be delivered to the Bank subordination, nondisturbance and attornment
agreements, in form and substance satisfactory to the Bank and its counsel,
covering not less than eighty percent (80%) of all tenants occupying any portion
of the Mortgaged Property under any lease or occupancy agreement with a term
(inclusive of any renewal term) extending beyond April 15, 1999. All
subordination, nondisturbance and attornment agreements to be delivered to the
Bank pursuant to this Section
<PAGE>
7.12 hereof shall first be duly and validly executed by an individual authorized
to bind the tenant to the agreements set forth therein. The provisions of this
Section 7.12 shall not apply to the Grand Union lease and the Woolworth's lease
described in Section 4.17 hereof. The Bank reserves the right to require a
conditional assignment of the Woolworth's lease in the form provided for in such
lease.
7.13 Intentionally left blank
7.14 Lease Reports. The Borrower and each Guarantor shall furnish the
Bank with reports for each of the properties comprising the Mortgaged Property
(each a "Lease Report") on or before August 15 of each year covering the six (6)
month period commencing January 1 and ending June 30 of each such year and on or
before February 15 of each year for the six (6) month period commencing July 1
and ending December 31 of the preceding year. East Lease Report shall be
prepared in the form and contain all such information as may be reasonably
required by the Bank. Each Lease Report shall be certified to the Bank by
appropriate officers of the owner of that portion of the Mortgaged Property
referred to in the Lease Report as complete, true and correct in all material
respects.
7.15 Maximized Leasing and Rent Revenue. The Borrower and each
Guarantor shall utilize their respective best efforts to maximize the continuous
leasing of and rent revenue generated by each portion of the Mortgaged Property
owned by such Borrower or Guarantor.
8. NEGATIVE COVENANTS. The Borrower and each Guarantor agree that so long
as credit shall remain available hereunder to Borrower and until payment in full
of all of the Notes and performance of all of the Borrower's and each
Guarantor's covenants and other obligations under this Agreement are satisfied,
without the prior written consent of the Bank, the Borrower and each Guarantor
will not:
8.1 Limitation of Liens. Mortgage, pledge, hypothecate, assign,
transfer, suffer to exist, or voluntarily subject to any lien or encumbrance to
secure any indebtedness, any of the property or assets of the Borrower or any
Guarantor encumbered as security for any of the Loans, now owned or hereafter
acquired; excluding, however, from the operation of this covenant, liens,
mortgages or encumbrances in favor of the
<PAGE>
Bank; leasehold mortgages granted by tenants pursuant to the terms of the leases
described in Section 15 hereof; the Grishman Mortgage; and routine financing of
insurance premiums for policies of insurance described in Section 4.12 hereof.
8.2 Disposition of Assets. Sell, lease, transfer or otherwise dispose
of any of their respective assets (other than obsolete or worn-out property no
longer used or useful in its business), whether now owned or hereafter acquired,
encumbered as security for any of the Loans or otherwise directly related to the
leasing, occupancy or operation of the Mortgaged Property or any part thereof,
except in the ordinary and regular course of Borrower's or Guarantor's business.
8.3 Other Obligations. Assume, guarantee, endorse or otherwise become
liable upon the obligations of any person, firm or corporation except by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
8.4 Capital Expenditures. Make any expenditures for fixed or capital
assets in any fiscal year in excess of $300,000.00. This negative covenant shall
not apply to LCI.
8.5 Payment of Dividends. Declare or pay dividends or authorize or
make any other distribution of any profits or other revenues of the Borrower to
any shareholder or third person in excess of $360,000.00 aggregate per annum,
except as may be required to service shareholder loans which have been first
approved by the Bank or to fund dividends on common stock and then only for so
long as such payments are made out of surplus revenues and the Borrower is not
in default under the terms of this Agreement.
8.6 Other Indebtedness. Create or incur any indebtedness or obligation
for borrowed money except (1) indebtedness to the Bank, (2) indebtedness under
subordinated loans to the Borrower by its shareholders or any of the Guarantors,
provided such loans have been first approved by the Bank in writing or (3)
development financing of the Borrower with respect to properties owned by the
Borrower or any Guarantor other than the Mortgaged Property provided that with
respect to such development financing the Bank shall have the right of first
refusal to provide such financing. The foregoing negative
<PAGE>
covenant shall not apply to LCI provided, however, that LCI shall not create or
incur any obligation or indebtedness without the prior written consent of the
Bank, unless the amount of such obligation or indebtedness, when aggregated with
the outstanding balance of the Loans, shall satisfy a debt service ratio equal
to 1.2.
8.7 Transfer of Stock.
i) Purchase, acquire, redeem or retire or make any commitment to
purchase, acquire redeem or retire, any of the capital stock of the Borrower or
any Guarantor, whether now or hereafter outstanding.
ii) Permit or consent to the issuance of any further capital
stock of the Borrower or any Guarantor or the sale of any treasury stock, except
pursuant to a dividend reinvestment program first approved by the Bank in
writing. This subsection (ii) shall not apply to LCI.
iii) Effect, cause or permit any change in the ownership of
Borrower or any Guarantor or in the beneficial or legal ownership of any of
Borrower's or any Guarantor's shareholders' ownership, except by descent or
demise or through a dividend reinvestment plan first approved by the Bank in
writing. This subsection (iii) shall not apply to LCI.
8.8 Consolidation or Merger. Merge into or consolidate with or into
any firm, corporation or partnership. For the purposes of this Section 8.8, the
acquisition or sale by the Borrower or any Guarantor of all or substantially all
of the assets, together with the assumption or transfer of all or substantially
all of the obligations and liabilities, of or to any firm, corporation or
partnership shall be deemed to be a consolidation of such firm, corporation or
partnership with the Borrower or such Guarantor.
8.9 Change of Business. Effect, cause or permit any change which is
substantially different in kind from the business now conducted by the Borrower
or each Guarantor. This negative covenant shall not apply to LCI.
8.10 Amendment of Corporate Documents. Amend any of their respective
Articles of Incorporation or By-Laws.
<PAGE>
8.11 Amendment of Leases. Amend or modify any of the Leases relating
to the Mortgaged Property or any portion thereof except as expressly allowed in
Section 15 hereof. Terminate, surrender or cause, permit or suffer to be
terminated or surrendered any of the Leases relating to the Mortgaged Property
or any portion thereof except in the ordinary and regular course of the
Borrower's or such Guarantor's business. Any such termination and surrender
shall be subject to the obligations of Borrower and each Guarantor arising
pursuant to Section 7.15 hereof.
8.12 Change of Fiscal Year. Change the fiscal year-end of any Borrower
or Guarantor from December 31.
8.13 Prepayment of Grishman Mortgage. Prepay any of the indebtedness
secured by the Grishman Mortgage.
9. DEFAULT.
9.1 The occurrence of any of the following events shall constitute a
default under this Agreement:
a) Any representation or warranty made by the Borrower or any
Guarantor to the Bank in connection with the Loans proves to have been incorrect
in any material respect as of the date of this Agreement or as of the date on
which it is made, or any statement, certificate or data furnished by the
Borrower or any Guarantor proves to have been incorrect in any material respect
as of the date when the facts therein set forth were stated or certified; or
b) Default in the due payment of the principal of any of the
Notes, or default in the payment of interest on any of the Notes, or of any
other indebtedness owing by the Borrower to the Bank, now existing or hereafter
incurred, which shall remain unremedied for a period of ten (10) days after
written notice thereof shall have been given by the Bank to the Borrower; or
c) Default by the Borrower or any Guarantor in the performance of
any covenant or agreement herein, or in any Loan Document to which the Borrower
or such Guarantor is a party, which shall remain unremedied for thirty (30) days
after written notice thereof shall have been given by the Bank. The provisions
of this Section 9(c) shall not apply to any default under the Notes or any of
them;
<PAGE>
d) Default by RHP under the Grishman Mortgage which shall not be
cured prior to the expiration of any cure period provided therein with respect
to such default;
e) A judgment for the payment of money shall be rendered against
the Borrower or any Guarantor and any such judgment shall remain unsatisfied and
in effect for any period of sixty (60) consecutive days without a stay of
execution; or
f) If the Borrower or any Guarantor shall: (i) apply for or
consent to the appointment of a receiver, trustee or liquidator of the Borrower
or such Guarantor, or all or a substantial part of the assets of the Borrower or
such Guarantor; (ii) be unable, or admit in writing its inability, to pay its
debts and they mature; (iii) make a general assignment for the benefit of
creditors; (iv) be adjudicated a bankrupt or become insolvent; or (v) file a
voluntary petition in bankruptcy or a petition or an answer seeking a
reorganization or an arrangement with creditors or to take advantage. of any
bankruptcy, insolvency, readjustment of debt, allegations of, or consent to, or
default in answering, a petition filed against it in any proceeding under any
such law or statute; or
g) If an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or a Guarantor by any court of
competent jurisdiction, approving a petition seeking reorganization of the
Borrower or a Guarantor, or appointing a receiver, trustee or liquidator of the
Borrower or any Guarantor, or all or a substantial part of the assets of the
Borrower or any Guarantor, and such order, judgment or decree shall continue
unstayed and in effect for any period of one hundred eighty (180) consecutive
days; or
h) If the Bank shall not approve of any requested advance of the
proceeds of the Construction Loan because of any lien or encumbrance (other than
a construction lien, notice of which has been filed or which is being contested
pursuant to the Mortgages, and any permitted exceptions provided for in the
Mortgages) which might have priority over any advances made or to be made
hereunder or because of any structural or other defect with respect to the
Projects which materially impairs the value of the security for the advances of
the Construction Loan proceeds made or to be made hereunder; or
i) If the financial condition of the Borrower or LCI shall
adversely change in any material respect from the condition of any of the
<PAGE>
foregoing represented in the information and documentation submitted by the
Borrower in support of its application for the Loans; or
j) If the Borrower does not construct the Projects in a good and
workmanlike manner in accordance with the Plans and Specifications as they may
have been modified or changed in compliance with this Agreement; or fails to
comply promptly with, or diligently proceed with compliance with, any
requirement, note or notice of violation of law issued by or filed in any
department of any governmental authority having jurisdiction, against the
Mortgaged Property or against the Borrower by reason of any material matter in
or about such construction, or fails to furnish to the Bank, when requested,
copies of official inquiries made by governmental authorities having
jurisdiction; or
k) If either of the Projects be at any time discontinued for a
period of more than thirty (30) consecutive days, or not carried on with
reasonable dispatch, except for Enforced Delays (the term "Enforced Delays"
meaning delays in the performance of Borrower's obligations due to unforeseeable
causa beyond its control and without its fault or negligence, including, without
limitation, Acts of God, acts of the public enemy, acts of the federal, state,
or local government, fires, floods, strikes and unusually severe weather or
delays of trade contractors due to such causes, but excluding delays caused by
the Borrower's lack of funds to continue or complete such Project); or
1) If the Borrower executes any conditional bill of sale, chattel
mortgage, or other security agreement, except the Mortgages, Security Agreements
and the Financing Statements, covering any materials, fixtures or articles used
in the Projects, or articles of personal property placed therein, or if any of
such materials, fixtures or articles be not purchased so that the ownership
thereof will vest unconditionally in the Borrower, free from encumbrance, on
delivery at the premises, or if the Borrower does not produce to the Bank
promptly after demand the contracts, bills of sale, statements, receipt vouchers
or agreements, or any of them, under which the Borrower claims title to such
materials, fixtures and articles; or
m) If Borrower assigns this Agreement or any of the advances or
any interest herein, or Borrower's right to receive
<PAGE>
any advance or portion thereof, or if the Mortgaged Property be transferred or
encumbered in any way without the consent of the Bank (except as expressly
permitted herein), or if the Borrower or any Guarantor by operation of law shall
be deprived of their respective rights hereunder or in any of the Mortgaged
Property; or
n) If any improvements or any portion thereof shall materially
encroach over the boundary lines or any established building setback lines of
the plots comprising the Mortgaged Property or violate the requirement of any
governmental authority having jurisdiction, or if any structure on adjoining
property shall encroach upon the Mortgaged Property. An encroachment shall not
be deemed material if the title insurer issuing the policies described in
Section 4.7 hereof shall issue an endorsement to the applicable policy in form
and substance satisfactory to the Bank insuring the Bank against any loss or
damage, including attorney's fees, arising out of or related to such
encroachment). This subsection (n) shall not apply to the existing
encroachment(s) reflected on the surveys of the Mortgaged Property insured under
the policies described in Section 4.7 delivered by the Borrower to the Bank; or
o) If the improvements now or hereafter initiated on the
Mortgaged Property, or any part thereof, in the judgment of the Bank, be
materially injured or destroyed by fire or other cause and not have been
promptly repaired or restored; or
p) If the Bank or the Bank's representative be not permitted, at
all reasonable times after reasonable notice, to enter upon the Mortgaged
Property, to inspect the improvements and the construction thereof and all
materials, supplies, chattels, fixtures, machinery and equipment used or to be
used in the construction of the Projects and to examine all detailed plans, shop
drawings, and specification which are or may be kept at the site of the
improvements, or if the Borrower shall fail to furnish to the Bank or the Bank's
authorized representative, when requested, copies of such detailed plans, shop
drawings and specifications (for the purposes of this subsection (p), the
requirement of reasonable notice shall be met if such written notice is provided
to the Borrower or such Guarantor at least four (4) days before the date on
which the Bank has scheduled the inspection described in the notice); or
q) If any of the materials, supplies, chattels, fixtures,
machinery or equipment used in the construction of the improvements or
appurtenances thereto or to be used in the operation thereof be not in
<PAGE>
accordance with the Plans and Specifications as approved by the Supervisory
Architect and the Bank, unless any substitutions therefor or variations therein
have been waived or approved in writing by said parties; or
r) If the Projects not be substantially completed on or before the
date fixed for substantial completion as set out in Section 2.39 hereof.
9.2 Remedies.
9.2.1 Remedies After Written Notice and Opportunity to Cure. Upon the
occurrence of an event specified in Section 9.1, and after ten (10) days written
notice thereof from the Bank to the Borrower and/or a Guarantor, as the case may
be, with respect to monetary defaults and thirty (30) days written notice with
respect to non-monetary defaults or such longer cure period as is provided in
Section 9.1 above, the Bank shall have, in addition to any rights otherwise
existing, the following rights and remedies: all sums theretofore advanced under
the Notes with all accrued interest thereon shall at the option of the Bank
become immediately due and payable, or, without waiving the Bank's rights at any
time thereafter to elect to declare all sums advanced with all accrued interest
to be due and payable, the Bank may undertake to perform any and all work and
labor necessary to complete the Projects in accordance with the Plans and
Specifications as they may have been amended in compliance with this agreement
and make such payments as may be required by the Mortgage. All sums so expended
by the Bank, including any amount in excess of the principal amount of the Note,
shall be deemed to have been paid to the Borrower and to be secured by the
Mortgage. For this purpose, the Borrower hereby constitutes and appoints the
Bank its true and lawful attorney-in-fact with full power of substitution to
complete the work in the name of the Borrower, and hereby empowers such attorney
(i) to use any funds of the Borrower, including any funds which may remain
unadvanced under the Construction Note and hereunder for the purpose of
continuing the Project in the manner called for by the Plans and Specifications,
as they may have been amended in compliance with this agreement, or paying,
settling or compromising all existing bills and claims which are or may be liens
against the Mortgaged Property on which the Projects are to be constructed, or
as may be necessary or desirable for the continuation of the work, or
<PAGE>
for the clearance of title, or paying, for the account of the Borrower, any
amounts payable by the Borrower under the Mortgage; (ii) to make such additions
and changes and corrections in the Plans and Specifications as may be necessary
or desirable to complete the Projects; (iii) to employ such contractors,
subcontractors, agents, architects and inspectors as shall be required for such
purpose; and (iv) to execute all applications and certificates in the name of
the Borrower which may be required by any of the contract documents and to do
any and every act which the Borrower might do in its own behalf. Such
appointment shall be deemed to be coupled with an interest which cannot be
revoked. Such attorney-in-fact shall also have power to prosecute and defend all
actions or proceedings in connection with the Mortgaged Property and to take
such action and require such performance as it deems necessary. The Borrower
hereby assigns and quit claims to the Bank all sums to be advanced under the
Construction Note and Mortgage and hereunder (together with any interest in
respect thereof), conditioned upon the use of such sums as provided in this
section, such assignment to become effective, however, only in case of the
Borrower's default.
9.2.2 Forbearance of Remedies Upon Default. The Bank will not exercise
any right, power or remedy with respect to any default hereunder until the
expiration of any grace period provided with respect thereto. The Bank will not
exercise any right, power or remedy in subsection 9.2.1 hereof, if the Bank
shall have been provided with information or evidence satisfactory to the Bank
(i) that the default has been cured and adequate compensation has been made for
all damages occasioned by the default; or (ii) that the Borrower or the
Guarantor, as the case may be, intends to cure any non-monetary default, so that
the same can be and will be cured expeditiously and in no event more than thirty
(30) days after the date of such default or the date of the occurrence which
ripened into a default by passage of time, whichever shall first occur, or such
longer cure period as may be provided under Section 9.1, and that adequate
provision has been made for any damage which might be occasioned by the default.
(The undertaking of a "Permitted Contest" as defined in and pursuant to the
terms of the Mortgage by the Borrower or a Guarantor shall be deemed by the Bank
as satisfactory evidence that the Borrower or such Guarantor intends to cure any
such default.)
9.2.3 No Duplication of Notice or Cure Periods. Notwithstanding
anything to the contrary set forth in Sections
<PAGE>
9.2.1 and 9.2.2 above, the parties hereto expressly agree that any written
notice delivered by the Bank pursuant to and in accordance with the provisions
of Section 9.1 hereof shall satisfy the notice requirement set forth in Section
9.2.1 above and that no provision of Section 9.2.1 above shall increase or
extend the period for cure of any default established in Section 9.1 hereof.
9.2.4 Appointment of a Receiver. If an event of default shall have
occurred hereunder and be continuing beyond the period, if any, allowed herein
or in the applicable Loan Document for cure of such default, the Bank shall, as
a matter of right, be entitled to the appointment of a receiver or receivers for
all or any part of the Mortgaged Property as the Bank shall determine
appropriate, whether such receivership is incidental to a proposed sale of the
Mortgaged Property or any part thereof or otherwise, and Borrower and each
Guarantor hereby consent to the appointment of such receiver(s) and shall not
oppose any such appointment. It is expressly agreed and acknowledged by the
Borrower and each Guarantor that, with respect to the issue of the Bank's
entitlement to appointment of a receiver or receivers for the Mortgaged Property
or any part thereof, the Bank's determinations as to the existence of an event
of default hereunder and as to the timeliness of cure of any such default shall
be conclusive against Borrower and each Guarantor, notwithstanding any dispute
thereof by the Borrower or any Guarantor. It is the express intention of the
Bank, the Borrower and each Guarantor that the receiver(s) be appointed by the
Court promptly upon application of the Bank and exercise all duties incident to
such appointment pending resolution of the dispute, if any, between the Bank,
the Borrower and/or any Guarantor as to the existence of an event of default
hereunder, the timeliness of cure of any such default, or the exercise by the
Bank of the rights and remedies reserved to the Bank hereunder and under the
Loan Documents. Any application by the Bank seeking appointment of a receiver
for any or all of the Mortgaged Property shall be filed only in conjunction with
the filing of an action for debt and foreclosure against Borrower, Guarantor, or
any of them, but such application shall be determined by the Court independently
of such debt and foreclosure action.
10. SUPERVISORY ARCHITECT. The Borrower agrees that the Bank shall have
the right to appoint an individual with professional qualifications acceptable
to the Bank licensed in
<PAGE>
the U.S. Virgin Islands to act as the Bank's Supervisory Architect for the
purpose of providing to the Bank the services relegated to the Supervisory
Architect under this Agreement. In order to enable the Supervisory Architect and
his representatives conveniently to perform their duties to the Bank, the
Borrower agrees to cooperate with him and to cause the Borrower's architect and
contractor, and the employees or subcontractors of each of them, to cooperate
with the Supervisory Architect, and, upon his request, to furnish him whatever
he may consider necessary or useful in connection with the performance of his
duties aforesaid including, without limiting the generality of the foregoing,
true copies of working detains, shop drawings and the Plans and Specifications
and details thereof, samples of materials, licenses, permits, relevant
certificates of public authorities, applicable zoning ordinances and building
codes. If the Supervisory Architect shall be, or for any reason become,
disqualified or unable to continue to act as such, or if his services are
terminated, the Bank may appoint a successor Supervisory Architect and any such
successor shall have the same duties to the Bank and shall be entitled to the
same cooperation as if it had originally been named herein as Supervisory
Architect. The Borrower acknowledges that the duties of the Supervisory
Architect run solely to the Bank, and that in such capacity the Supervisory
Architect shall have no obligations or responsibilities whatsoever to the
Borrower or to any of the Borrower's agents, employees or contractors.
11. RELATIONSHIP OF PARTIES, INDEMNIFICATION. It is agreed between the
parties hereto that Borrower has selected or will select all architects,
engineers, contractors, subcontractors, materialmen, as well as all others
furnishing services or materials for the construction of the Projects and the
Bank has, and shall have, no responsibility whatsoever for them or for the
quality of their materials or workmanship, it being understood, that the Bank's
sole function is that of lender and the only consideration passing from the Bank
to Borrower is the Construction Loan proceeds in accordance with and subject to
the terms of this Agreement. It is also agreed that Borrower shall have no right
to rely on any procedures required by the Bank herein, such procedures being for
the sole protection of the Bank as lender and no one else. Borrower and each
Guarantor hereby agree to hold and save the Bank harmless and indemnify it
against and from claims of any kind of any persons, including, but without
limiting the generality of the foregoing, employees of Borrower or any
Guarantor, the contractor, and subcontractors
<PAGE>
constructing the Projects and any of their respective employees, any tenant of
Borrower or any Guarantor, any subtenant or concessionaire of any such tenant,
the employees and business invitees of any such tenant, subtenant or
concessionaire, and any federal or territorial governmental authority or agency,
arising from or out of the construction, use, occupancy, or possession of the
Mortgaged Property. The obligations of the Borrower and each Guarantor under
this Section shall survive payment and cancellation of the Notes and
satisfaction and release of the Loan Documents.
12. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been property served if hand delivered or
mailed by United States registered mail, postage prepaid, addressed to the
Borrower or a Guarantor at its respective address set forth in the beginning of
this Agreement, or at such other address as such party shall have furnished to
the Bank in writing.
13. LOAN EXPENSES. The Borrower agrees to pay all expenses arising in
connection with the closing of the Loans and the making of advances hereunder
and under the Notes, the Mortgages or other Loan Documents, including, without
limitation, title insurance company charges, Bank's attorney's fees, appraisal
fees, survey charges, inspection fees, recording charges and taxes and any
brokerage commissions, as well as all expenses (including reasonable legal
expenses and attorney's fees) of every kind of or incidental to the collection
or enforcement of this Agreement, the Notes and the Loan Documents; and the
Borrower and each Guarantor shall indemnify the Bank against all reasonable
claims for such fees, charges and commissions arising in connection with the
transaction contemplated by this Agreement.
14. SUBORDINATE FINANCING. Neither the Borrower nor any Guarantor shall be
permitted to obtain subordinate financing secured by any part of the Mortgaged
Property without the express written consent of the Bank except as permitted
pursuant to Section 8.1 hereof.
15. GRANTING OF LEASEHOLD INTERESTS. Notwithstanding the provisions of
Section 8 hereof or the provisions of any agreement described in Subsection (b)
below now or hereafter executed, and so long as no event of default shall exist
hereunder of which the Borrower or any Guarantor has been given written notice,
the
<PAGE>
Borrower or any Guarantor may from time to time grant leasehold interests in or
modify any lease now or hereafter entered into affecting any portion of the
Mortgaged Property without the prior written approval of the Bank, subject to
compliance with the following conditions:
a) The terms, rental rates and landlord concessions set forth in
the lease agreement as modified shall reflect market conditions prevailing at
the time of commencement of the lease term or at the time of modification, as
the case may be; and
b) The tenant shall execute a subordination, nondisturbance and
attornment agreement in form and substance satisfactory to the Bank and its
counsel or the lease agreement with such tenant shall contain self-effectuating
subordination, nondisturbance and attornment provisions first approved by the
Bank and its counsel.
16. NO WAIVER; REMEDIES CUMULATIVE. No failure to exercise and no delay in
exercising any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are not exclusive of any other remedies set forth in
the Notes and the Loan Documents or otherwise provided by law.
17. ASSIGNMENTS.
a) This Agreement shall be binding upon and inure to the benefit
of the Borrower and the Bank and their respective successors and assigns, except
that neither the Borrower nor any Guarantor may assign or transfer all or any
part of their rights or obligations hereunder without the prior written consent
of the Bank. The Bank may assign or otherwise transfer all or any part of its
rights hereunder, and the Bank expressly reserves the right to seek
participation in the Loans on such terms and conditions as are more fully
described in Section 1 of the Commitment Letter issued by the Bank and accepted
by the Borrower on June 27, 1996 (the "Commitment Letter") and such other terms
and conditions as the Bank shall deem appropriate or advisable in its sole
discretion.
b) For the purposes of this Agreement, the term "Bank" shall,
where the context so admits, include the successors and assigns of the Bank.
<PAGE>
18. FURTHER ASSURANCES. Borrower and each Guarantor will execute,
acknowledge and deliver all such instruments and take all such actions as the
Bank from time to time may reasonably request for the better assurance to the
Bank of the Mortgaged Property and each part thereof and all rights now or
hereafter granted or intended to be granted to the Bank hereunder or under any
of the Notes or Loan Documents.
19. MISCELLANEOUS.
a) This Agreement shall be construed and enforced in accordance
with and governed by the laws of the United States Virgin Islands.
b) This Agreement may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
c) This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and permitted assigns of the
parties hereto.
d) Except where specified otherwise herein the terms and symbols
"DOLLARS", "Dollars" or "$" shall mean lawful currency of the United States of
America.
e) The term "Leases" as used in this Agreement means each and
every existing lease and occupancy agreement described on Schedules "A","C", "F"
and "H" hereto or otherwise relating to any part of the Mortgaged Property, any
and all lease and occupancy agreements hereafter entered into by the Borrower or
any Guarantor relating to any part of the Mortgaged Property, and all
modifications and amendments thereto, extensions thereof and substitutions
therefor.
f) The term "Loans" as used in this Agreement means the
installment Loan, the Term Loan, the Line of Credit and the Construction Loan.
g) The term "Mortgaged Property" as used in this Agreement means
all and every part of the "Borrower Property", the "RHP Property", the "GOC
Property", the "FMP Property", and
<PAGE>
all real property rights and interests appurtenant thereto and any other real or
personal property encumbered as security for the Loans.
h) The term "Notes" as used in this Agreement means the
installment Loan Note, the Term Note, the Line of Credit Note and the
Construction Loan Note.
i) All accounting required of or by the Borrower shall be in
accordance with the Generally Accepted Accounting Principles (GAP) applied on a
consistent basis throughout the period of account.
j) The headings in this Agreement are for purposes of reference
only and shall not limit or define the meaning hereof.
k) Any conflict, inconsistency, or ambiguity in any of the Loan
Documents or in the Commitment Letter from the Bank to the Borrower dated June
27, 1996, as revised, with this Agreement, other than the Notes, shall be
resolved or interpreted in accordance with the provisions of this Agreement. The
Notes shall each be interpreted and enforced strictly in accordance with their
respective terms.
1) The Bank, at its option, may announce and publicize the source
of the Loans contemplated by this Agreement in such manner as the Bank may from
time to time elect, including without limitation the placement of signs for
display upon the Mortgaged Property or any part thereof upon which any of the
Projects are located. All such signs shall be provided at the expense of the
Bank and the Borrower and the Guarantors agree to cause such sign(s) to be
displayed in a prominent and suitable location upon the portion of the Mortgaged
Property designated by the Bank upon any of which the Projects are located. All
signage provided by the Bank shall be subject to approval of the Historic
Preservation Commission to the extent such Commission has jurisdiction over the
location designated by the Bank for display of such signage. Upon repayment of
the Loans, the Borrower's and the Guarantors' obligations under this Section
18(1) shall terminate.
<PAGE>
IN WITNESS WHEREOF, the parties have caused these presents to be executed
as of the date first above written.
IN WITNESS: H.E. LOCKHART
MANAGEMENT, INC.
......................... By:......................
John P. de Jongh, Jr.
President
.........................
A T T E S T: [S E A L]
By:......................
Cornel A. Williams
Secretary
IN WITNESS BANCO POPULAR DE PUERTO
RICO
......................... By:......................
Valentino I. McBean
Sr. VP & Regional
Administrator
......................... P.O. Box 8580
St. Thomas, VI 00801
<PAGE>
JOINDER
The undersigned Guarantors join in this Agreement for the purpose of
certifying to the Bank the accuracy of each representation and warranty of such
Guarantor set forth in Section 1 of this Agreement and do hereby acknowledge,
consent to and agree to be bound by each and every term, provision and condition
of this Agreement insofar as the same is applicable to such Guarantor.
IN WITNESS: RED HOOK PLAZA, INC.
......................... By:......................
John P. de Jongh, Jr.
President
.........................
A T T E S T: [S E A L]
By:......................
Cornel A. Williams
Secretary
IN WITNESS GOLDEN ORANGE CENTERS, INC.
......................... By:......................
John P. de Jongh, Jr.
President
A T T E S T: [S E A L]
By:......................
Cornel A. Williams
Secretary
IN WITNESS GOLDEN ORANGE CENTERS, INC.
......................... By:......................
John P. de Jongh, Jr.
President
A T T E S T: [S E A L]
By:......................
Cornel A. Williams
Secretary
<PAGE>
IN WITNESS THE LOCKHART COMPANIES
INCORPORATED
......................... By:......................
John P. de Jongh, Jr.
President
A T T E S T: [S E A L]
By:......................
Cornel A. Williams
Secretary
Schedule "A": Borrower Lease Schedule
Schedule "B": Description of Borrower Property
Schedule "C": RHP Lease Schedule
Schedule "D": Description of Grishman Encumbrance
Schedule "E": Description of RHP Property
Schedule "F": GOC Lease Schedule
Schedule "G": Description of GOC Property
Schedule "H": FMP Lease Schedule
Schedule "I": Description of FMP Property
Schedule "J": Amortization Schedule - Installent Loan
Schedule "K": Amortization Schedule - Term Loan
Schedule "L": Amortization Schedule - Construction Loan
DRAFT: 9/3/97 EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT dated as of August ___, 1997 by and between
CARIB NATIONAL GROUP, INC. ("Carib"), RICHARD E.W. GRANT, THE GRANT TRUST, ZENON
DEVELOPMENT CORPORATION and LESLIE SITARAM and CATHY-MAE SITARAM (collectively
hereinafter referred to as "Sellers") and THE LOCKHART COMPANIES INCORPORATED
(hereinafter referred to as "Buyer").
WITNESSETH:
IN CONSIDERATION of the promises and mutual covenants herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. SUPERSEDING EFFECT
This Stock Purchase Agreement (the "Agreement") supersedes all oral or
written agreements, if any, between the parties and constitutes the entire
agreement between the parties, except for paragraphs 5, 6 and 7 of a Letter of
Intent dated June 6, 1997 between the parties hereto respecting this transaction
(the "Letter of Intent").
2. STOCK TO BE PURCHASED
A. The Buyer shall purchase from the Sellers Five Hundred Fifty Thousand
(550,00) shares of common stock, representing all the issued and outstanding
capital stock of Premium Finance Company of the V.I., Inc., a U.S. Virgin
Islands Corporation engaged in the insurance premium financing business
(hereinafter referred to as the "Corporation").
B. The number of shares to be sold by each Seller is set forth below
opposite their names:
Name of Seller Number of Shares
-------------- ----------------
(1) Carib National Group, Inc. 330,000
(2) The Grant Trust 100,000
(3) Richard E. W. Grant 50,000
(4) Zenon Development Corporation 50,000
(5) Leslie Sitaram and Cathy-Mae Sitaram 20,000
-------
Total Capital Stock 550,000
=======
- 1 -
<PAGE>
3. PURCHASE PRICE
A. The total purchase price of the stock is Six Hundred Eighty Seven
Thousand Five Hundred ($687,500) Dollars.
B. The per share purchase price is $1.25 for each share.
C. The purchase price to be paid to each Seller is as follows:
Name of Seller Purchase Price
-------------- --------------
(1) Carib National Group, Inc. $ 412,500
(2) The Grant Trust $ 125,000
(3) Richard E. W. Grant $ 62,500
(4) Zenon Development Corporation $ 62,500
(5) Leslie Sitaram and Cathy-Mae Sitaram $ 25,000
---------
Total Purchase Price $ 687,500
=========
4. PAYMENT
A. On the date of closing Buyer shall pay the Sellers the following amounts
by certified check or other immediately available funds or wire transfer:
Name of Seller Payment
-------------- -------
(1) Carib National Group, Inc. $ 330,000
(2) The Grant Trust $ 100,000
(3) Richard E. W. Grant $ 50,000
(4) Zenon Development Corporation $ 50,000
(5) Leslie Sitaram and Cathy-Mae Sitaram $ 20,000
---------
$ 550,000
=========
- 2 -
<PAGE>
B. The $0.25 per share balance due Sellers shall be paid as follows, six
(6) months after closing, assuming all other terms and conditions of this
transaction are met and Sellers are not otherwise in default under this
Agreement.
Name of Seller Payment
-------------- -------
(1) Carib National Group, Inc. $ 82,500
(2) The Grant Trust $ 25,000
(3) Richard E. W. Grant $ 12,500
(4) Zenon Development Corporation $ 12,500
(5) Leslie Sitaram and Cathy-Mae Sitaram $ 5,000
--------
$137,500
========
5. CLOSING
A. Place
The closing shall take place at the offices of Dudley, Topper and
Feuerzeig, 1A Frederiksberg Gade, St. Thomas, U.S. Virgin Islands. The closing
date will be scheduled within sixty (60) days from receipt by Buyer of
regulatory consents or other specific approval of this transaction satisfactory
to Buyer by the Office of the Lieutenant Governor of the U.S. Virgin Islands,
Division of Banking and Insurance and completion of due diligence to the
satisfaction of the Buyer.
B. Delivery of Stock Certificates
At the closing each Seller shall deliver to the Buyer, free and clear of
all encumbrances, certificates for the stock to be sold by each Seller in
negotiable form. Certificates shall have any requisite stock transfer stamps
attached.
- 3 -
<PAGE>
C. Memorandum of Closing
On the day of the closing, the parties shall execute a memorandum of
closing which shall state the events that occurred at the closing. All
transactions at the closing shall be considered to take place simultaneously. No
delivery shall be considered to be made until all transactions are completed.
6. DOCUMENTS TO BE DELIVERED BY SELLERS AT CLOSING
The documents set forth below shall be delivered by the Sellers to Buyer at
the closing except for items B, C, H, L and M which shall be provided at least
five (5) business days before the closing:
A. Stock certificates required by 5.B above.
B. The Corporation's License(s) to do business in the jurisdictions in
which it or its subsidiaries operate.
C. Broker - Agent Agreements.
D. Schedule of Insureds covered by premium financing with amount of loans
and insurance companies receiving premiums as of the most recent month end.
E. The Corporation's Lease at The Village Mall, St. Croix, U.S. Virgin
Islands and any other spaces leased by the Corporation.
F. Contracts requiring performance after the date of closing and contracts
with warranties which shall remain effect after the date of closing.
G. Warranties on the Corporation's assets.
H. Opinion letter of the Corporation's counsel, as described in Section 11
hereof.
I. Certificate of good standing of the Corporation (and of any subsidiaries
thereof) certified by the Office of the Lieutenant Governor of the Virgin
Islands and any other appropriate official, as of a date recent to the date of
closing.
J. Resignations of all present directors and officers of the Corporation
effective on the date of closing.
K. Minute book(s), stock transfer book(s), stock certificate book and
corporate seal(s) of the Corporation.
- 4 -
<PAGE>
L. Noncompetition Agreements as described in paragraph 4(b) of the Letter
of Intent.
M. Any other instruments and documents which are required to fulfill the
obligations of the Sellers under this Contract.
N. Reports filed by the Corporation under 22 V.I.C. ss. 1630(b) and results
of any examination of the Corporation conducted under 22 V.I.C. ss. 1628(b).
O. Documentation that the Corporation's premium finance agreement forms
have been filed and approved pursuant to 22 V.I.C. ss. 1632.
7. REPRESENTATIONS OF SELLERS
The Sellers warrant and represent as follows, which representations shall
survive the Closing for three (3) years except those dealing with taxes that
will survive for the applicable statute of limitations period:
A. Right to Sell
Sellers have the full power and right to execute this Contract and to sell
the Corporation's stock. Carib and Zenon, as corporate sellers, will present
unanimous directors and shareholders resolutions approving the sale of its
stock, a certificate of good standing, certificate of incumbency, certificate of
shareholder ownership and any other corporate documentation reasonably requested
by Buyer, including Articles of Incorporation and Bylaws of Carib and Zenon.
B. Stock Ownership
Sellers are the owners, free and clear of any lien or encumbrance, of the
number of shares of the Corporation's common stock set opposite their names in
Article 2.B. above. Neither the Corporation nor the Sellers have issued or
granted any options or other rights to purchase the Corporation's stock.
C. Capitalization
The Corporation's entire authorized capital stock consists of Five Hundred
Fifty Thousand (550,000) shares of common stock, 550,000 of which are issued and
presently outstanding.
D. Subsidiaries, Cross-Guarantees and Inter-Company Transfers
The Corporation does not have any subsidiaries except Premium Finance
Company (E.C.) Limited, a company organized under the laws of Anguilla
("PFC-EC"). The
- 5 -
<PAGE>
Corporation has not guaranteed any debts of Carib or any other affiliate of the
Carib National Group, Inc. or any debt of the Grant Trust, Richard E.W. Grant,
Carlos Zenon, Zenon Development Corporation, or Leslie Sitaram, Cathy-Mae
Sitaram or of any officer, director or employee of any of the above-mentioned
entities. There are no accounts receivables or inter-company transfers between
and among affiliates of the Carib National Group and the Corporation that are
being questioned from an accounting standpoint or by any regulatory body.
E. Organization and Standing of the Corporation
The Corporation is a corporation duly organized, validly existing and in
good standing under the laws of the U.S. Virgin Islands. The copies of the
Corporation's Articles of Incorporation and all amendments thereto as of the
date of this Agreement and of the Corporation's By-Laws and all amendments
thereto as of the date of this Agreement, which have been certified by the
Corporation's Secretary and delivered by Sellers to Buyer, are complete and
correct as of the date of this Agreement. The Corporation is qualified to do
business and is doing business in the British Virgin Islands, Antigua and
Anguilla and is qualified to operate and is in good standing in each such
jurisdiction.
F. Title
The Corporation is the owner of and has good and marketable title to all
assets of the Corporation set forth in Exhibit "A", entitled "Assets of the
Corporation", dated August ___, 1997.
G. Financial Statements
The financial statements referenced in (G) (1) and (2) below which have
been delivered to Buyer by Sellers and attached hereto as Exhibit "B",
accurately set forth the results of operations of the Corporation for the
applicable periods, and such balance sheets present a true and complete
statement of the financial condition, assets and liabilities of the Corporation
for the applicable periods.
(1) Statements of profit and loss of the Corporation for the calendar
years 1994 through 1996, inclusive, and balance sheets for the Corporation
as of December 31 for each of said three (3) years. Said statements and
balance sheets were certified by Francisco Depusoir, a certified public
accountant; and
(2) A statement of profit and loss of the Corporation for the period
ending July 30, 1997, unaudited and verified by Richard E.W. Grant,
President.
- 6 -
<PAGE>
H. Compliance with Laws
The Corporation has complied with all federal, state, city and other local
laws, rules and regulations applicable in the jurisdictions in which it operates
and has the following licenses: License No. __________ issued by the Lieutenant
Governor of the Virgin Islands with an expiration date of ___________
authorizing the Corporation to engage in the business of an insurance premium
finance company pursuant to 22 V.I.C. ss. 1623; ______.
I. Contracts to Sell or Mortgages Stock
Sellers have not entered into any other contract to sell, assign, pledge or
mortgage all or any part of their stock.
J. Contracts to Sell or Mortgage Assets
Other than the $75,000 loan to the Corporation by Buyer as evidenced by a
Promissory Note and Loan Agreement dated __________, the Corporation has not
entered into any contract to sell, assign, pledge or mortgage all or any part of
the Corporation's assets, except to the Bank of Nova Scotia, pursuant to a
financing agreement that is subject to review by Buyer in the course of due
diligence.
K. Contracts
The Corporation has not entered into any contracts, leases or other
agreements in an amount exceeding Five Hundred ($500) Dollars other than those
set forth in Exhibit "C", entitled, "Contracts of the Corporation", dated August
___, 1997.
L. Taxes
The Corporation is not and shall not on the date of closing be in default
for payment of federal, state, city or other local taxes including withholding,
insurance premium tax, gross receipts tax, personal property, sales, use, social
security and unemployment.
M. Litigation
(1) There are no suits, claims or other proceedings in law or equity
pending, nor are there regulatory proceedings of any kind pending, or to
Sellers' knowledge threatened against the Sellers respecting the Stock to
be purchased by Buyer or against the Corporation generally.
(2) There are no suits, claims or other proceedings in law or equity
pending or contemplated in which the Sellers or the Corporation are
plaintiffs, petitioners or a party respecting the Stock to be purchased by
Buyer.
- 7 -
<PAGE>
N. Judgments
There is not now nor shall there be at the time of closing any judgments,
liens or other encumbrances outstanding against the Sellers respecting the Stock
to be purchased or against the Corporation generally.
O. Investigations
There have been no federal, state, city or local investigations with
respect to the Corporation generally or the Sellers respecting the Stock to be
purchased, including investigations by regulatory officials.
P. Power of Attorney
Sellers and the Corporation do not have a power of attorney outstanding
with respect to Sellers stock or the Corporation's business.
Q. Directors, Officers and Bank Accounts
The Sellers have delivered to the Buyer a true and complete list, as of the
date of this Contract, certified by an authorized officer of the Corporation,
setting forth the following:
(1) The names and addresses of all the Corporation's directors and
officers.
(2) The name, address and account number of each bank in which the
Corporation has an account or safe deposit box and the names and addresses
of all persons authorized to draw thereon or to have access thereto.
R. Government and Other Consents
Other than the approval of the Lieutenant Governor of the U.S. Virgin
Islands, no consent, authorization, license, permit, registration or approval
of, or exemption or other action by, any governmental or public body, commission
or authority is required in connection with (a) the execution, delivery and
performance by the Corporation or Sellers of this Agreement, and (b) the sale
and delivery of the stock.
S. No Rebates or Inducements in Violation of 22 V.I.C. ss. 1631.
The Corporation and Sellers confirm that no officer, director, or employee
has offered to pay or allowed in any manner to any person, either as inducement
to the financing of any insurance policy with the premium finance company or
after any such policy has been financed, any rebate or other valuable
consideration or inducement of any kind, directly or indirectly.
- 8 -
<PAGE>
8. REPRESENTATIONS OF BUYER
The Buyer warrants and represents as follows:
A. As of the closing, Buyer will have inspected the leased premises of the
Corporation at The Village Mall, St. Croix, U.S. Virgin Islands and the physical
condition of all the assets listed in Exhibit "A".
B. The Buyer is purchasing the stock voluntarily on Buyer's own judgment,
and does not rely on any representations of anyone as to past, present, or
prospective profits or volume of the Corporation except for that financial data
of the Seller referenced in Article 7.G entitled, "Financial Statements" and
representations as to the status of accounts receivables and inter-company
transfers referenced in Article 7.D hereof.
C. Buyer intends to retain the Corporation's existing employees, subject to
the provisions of Section 17 hereof.
9. COVENANT NOT TO COMPETE
A. For a period of five (5) years from closing in the case of Keith A.
Forbes and three (3) years from closing in the case of Winston P. Forbes, Peter
J.C. Thwaites and David A. Williams, the aforementioned officers, directors and
stockholders of Carib or the Corporation, as the case may be, shall not,
directly or indirectly, either as an employee, partner, stockholder, officer,
director, proprietor, owner or otherwise, engage or become interested
financially or otherwise in any business, trade, or occupation similar to or in
competition with the Corporation within the U.S. Virgin Islands and British
Virgin Islands.
B. If the Buyer sells the Corporation, its stock or all its assets, the
Buyer shall have the right to assign the covenant set forth above. The Seller
shall remain bound by the terms of said covenant to any and all subsequent
purchasers of the Corporation, its stock or all its assets.
10. DAMAGE OR DESTRUCTION OF CORPORATION'S ASSETS
A. The Sellers shall maintain the Corporation's assets in the condition as
they existed at the time of Buyer's inspection, ordinary wear and tear excepted.
B. However, if the Corporation's assets are damaged or destroyed, to the
extent of Twenty Percent (20%) or more of the value of such assets as listed in
Exhibit "A", or the Corporation loses insurance premium financing accounts to
the extent of Fifty Percent (50%) or more of such accounts prior to closing,
Buyer's sole remedy shall be to terminate this Contract without any liability on
either Buyer or Sellers.
- 9 -
<PAGE>
11. OPINION OF CORPORATION'S COUNSEL
On the closing date the Corporation shall deliver an opinion of the
Corporation's counsel dated the closing date that:
A. The Corporation's existence, good standing and authorized and issued
stock are as stated in Article 7.
B. The Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company.
C. The Corporation has good and marketable title to all its property and
assets set forth in Exhibit "A".
D. Counsel does not know or have reasonable cause to know of any claims,
litigation, proceeding or governmental investigation pending or threatened
against the Corporation or its assets.
12. INDEMNIFICATION BY SELLERS AND RESCISSION
The Sellers, both individually and collectively, hereby undertake and
agree, jointly and severally, for the four-year period following the closing, to
indemnify and hold the Buyer and its officers, directors and affiliates harmless
from and against and in respect of (a) any damage or loss to the Buyer or its
officers, directors and affiliates resulting from the inaccuracy on the date
hereof or on the closing of any of the representations and warranties contained
herein, (b) any liability (absolute or contingent), which is not shown on the
Financial Statements, which should be shown thereon in accordance with generally
accepted accounting principles, (c) any obligations or liability arising from
the failure of the Corporation to discharge any duty or perform any obligation
required of them or because of any default by the Company or the Sellers under
any agreement, lease, contract, commitment, instrument or obligation to which
they are a party, in any case arising from or based on actions or failures to
act by the Corporation or Sellers occurring on or before the closing, or (d) any
liability arising from violations by the Corporation of any federal, state or
local law, ordinance, regulation, rule or order on or before the closing.
13. INDEMNIFICATION PROCEDURE
A. If any claim in law, equity or of a regulatory or administrative nature
(the "Claim") is made against the Corporation which Buyer believes is an
obligation of the Sellers, Buyer shall immediately advise the Sellers of their
indemnification obligations in writing. Such advice shall contain all details
known to the Buyer. Within ten (10) days after receipt of such notice, Sellers
shall advise Buyer of their intention to settle or defend such claim, such
settlement or defense to be at the sole expense of the Sellers. If Sellers
defend such claim and
- 10 -
<PAGE>
a decision is rendered against the Buyer, Buyer shall so notify Sellers and the
Sellers shall promptly satisfy the claim from Sellers' funds or otherwise comply
with the decision, provided Sellers have not advised Buyer in writing of their
intention to appeal such decision.
B. If the Sellers fail to defend such claim, the Buyer is hereby authorized
to defend or settle the claim, with costs of defense or settlement and
satisfaction of claims to be paid by Sellers upon demand.
C. Sellers shall reimburse Buyer, on demand, for any payment by buyer at
any time in respect of any liability or claim to which the foregoing indemnity
applies.
D. Indemnification of Buyer by Sellers under this Agreement is on a joint
and several basis.
14. ADDITIONAL DOCUMENTS
Buyer and Sellers shall execute any and all documents, prior to and after
the closing date, that are required to implement the terms and intent of this
Agreement.
15. DEFAULT BY A SELLER
If any Seller shall fail, refuse or be incapable of delivering any of the
stock to be sold hereunder, such failure, refusal or incapability shall not
relieve the other Seller of any obligation under this Agreement. In such event,
the Buyer, at its option, may either purchase the remaining stock which it is
entitled to purchase hereunder, or refuse to make such purchase and terminate
all its obligations under this Agreement.
16. CONDUCT OF THE CORPORATION'S BUSINESS PENDING
The Sellers warrant and represent that, until the time of closing:
A. The business shall be conducted in its ordinary course.
B. The Corporation shall not enter into any contract except in the ordinary
course of business and the liability of the Corporation under such contract in
the ordinary course of business shall not exceed One Thousand ($ 1,000) Dollars.
C. The Sellers shall use their best efforts to keep and retain the
Corporation as a going concern.
D. The Sellers shall have the Corporation comply with all laws, rules and
regulations of Federal, State, City, and Local Governments and any other
jurisdiction in which it operates.
- 11 -
<PAGE>
E. The Sellers shall not allow the Corporation to violate the terms of any
lease or contract connected with the business of the Corporation.
F. The Sellers shall not allow the Corporation to encumber the business
assets of the Corporation in any way whatsoever.
G. The Sellers shall not remove or have removed any of the business assets
except those consumed in the regular conduct of the business.
H. The Sellers shall not allow the Corporation to increase the compensation
payable to any of the officers, directors or employees or consultants of the
business.
I. The Sellers shall not allow the Corporation to hire additional permanent
employees for use in the business or discharge any present employees of the
business without prior written notification to the Buyer.
J. The Sellers shall have the Corporation preserve the goodwill of the
Corporation's customers and accounts and others having business relations with
the Corporation.
K. There shall be no modifications in the financial condition of the
Corporation as set forth in the financial statements set forth in Exhibit "B"
except as will occur in the ordinary and regular conduct of the Corporation's
business.
L. There will not be any changes in the legal structure of the Corporation,
or its directors and officers, or its Articles of Incorporation, or its By-Laws.
M. No dividends be declared or paid on the stock of the Corporation.
17. EMPLOYEES OF THE CORPORATION
A. The Sellers warrant and represent that:
(1) The employees of the Corporation do not have any interest in any
of the Corporation's property, real or personal or tangible or intangible.
(2) The attached Exhibit "D", entitled, "Employees of the
Corporation", dated August _____, 1997 sets forth all employees of the
Corporation, their compensation, vacations, holidays and other fringe
benefits.
B. Although Buyer currently plans to retain all the Corporation's current
employees, Buyer shall not be obligated to do so for any specified period and no
representations have been made to the contrary to any employees by the
Corporation or Sellers.
- 12 -
<PAGE>
18. DUE DILIGENCE AND INSPECTION OF RECORDS
The Buyer has the right to inspect, or have inspected by a Certified Public
Accountant appointed by the Buyer and at Buyer's expense, the books and records
of the Corporation and the operations of the Corporation, including the
operations and affairs of the Corporation in other Caribbean islands, including
PFC-EC and any other affiliates. Sellers and the Corporation will make available
to Buyer, Buyer's counsel, accountants, and other representatives access to such
information and documents regarding the Corporation's business operations and
financial records as Buyer may reasonably request including a review of all
accounts, material contracts, licenses, bonds, reports to the Division of
Banking and Insurance and any audit or other review of the Corporation's
financial records.
19. LABOR RELATIONS
The Sellers warrant and represent that there is no wrongful discharge or
other employment complaint or litigation pending and no work stoppage pending or
threatened with respect to the business, and no applications for certification
as a collective bargaining agent with respect to the Corporation are pending or
anticipated.
20. INSURANCE COVERAGE
The Sellers warrant and represent that as of the date of closing and for
the three (3) year period prior to the date of closing, the Corporation has
maintained adequate insurance for the business with respect to risks normally
insured against by similar businesses.
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Buyer and Sellers herein shall
survive the closing of the Contract.
22. BINDING ON SUCCESSORS
This Contract shall be binding upon the heirs, executors, administrators,
successors and assigns of the Buyer and Sellers.
23. BROKERS AND EXPENSES
A. Buyer and Sellers warrant and represent to each other that neither has
employed any broker, finder or other person or entity in connection with matters
contemplated by this Agreement.
B. Buyer and Sellers shall indemnify each other from any claim and any
costs associated therewith by any such broker, finder, person or entity.
- 13 -
<PAGE>
C. Each of the parties hereto shall pay all expenses and disbursements
incurred by it, its officers, employees, attorneys, accountants, financial
advisers and other agents and representatives in connection with Agreement and
the performance of its obligations hereunder.
24. CHANGES TO SELLERS' WARRANTIES AND REPRESENTATIONS
If there are any changes to the Sellers' warranties or representations set
forth in this Contract, the Seller shall notify the Buyer immediately in writing
of such changes by certified or registered mail, return receipt requested or by
delivery to Buyer in person of such writing.
25. ARTICLE HEADINGS
The heading or subheadings of articles contained herein are used for
convenience and ease of reference and shall not limit the scope or intent of the
article
26. ARBITRATION AND APPLICABLE LAW
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof, shall be settled by arbitration to be held in St. Thomas,
U.S. Virgin Islands in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. This
Agreement shall be governed by the law of the U.S. Virgin Islands.
27. DOCUMENTS INCORPORATED BY REFERENCE
The following documents are hereby incorporated by reference:
A. Exhibit "A" entitled, "Assets of the Corporation", dated August ____,
1997.
B. Exhibit "B" entitled, "Financial Statements", dated August ____, 1997.
C. Exhibit "C" entitled, "Contracts of the Corporation", dated August ____,
1997.
D. Exhibit "D" entitled, "Employees of the Corporation", dated August ____,
1997.
- 14 -
<PAGE>
28. NOTICES AND CORRESPONDENCE
All notices and correspondence shall be sent by either party to the other
in all matters dealing with this Agreement to the following addresses:
(a) To the Sellers: Keith A. Forbes, President
CARIB NATIONAL GROUP, INC.
Rural Route 02
Villa La Reine Center
Kingshill, St. Croix
U.S. Virgin Islands 00850
The Grant Trust
c/o Rita Dudley Grant, Trustee
322 Judith's Fancy
St. Croix, U.S. Virgin Islands
Richard E.W. Grant
322 Judith's Fancy
St. Croix, U.S. Virgin Islands
Zenon Development Corporation
106 Hermon Hill
St. Croix, U.S. Virgin Islands
Leslie Sitaram and Cathy-Mae Sitaram
369 Humbug
St. Croix, U.S. Virgin Islands
(b) To the Buyer: John P. de Jongh, Jr., President
THE LOCKHART COMPANIES
INCORPORATED
No. 44 Estate Thomas
P.O. Box 7020
Charlotte Amalie St. Thomas
U.S. Virgin Islands 00801
or any other address provided prior written notice is given to the other party.
- 15 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement which
is effective as of August ____, 1997.
Sellers:
WITNESSES: CARIB NATIONAL GROUP, INC.
_____________________ By: ___________________________________
KEITH A. FORBES, President
_____________________ [Seal]
Attest: ___________________________________
, Secretary
ZENON DEVELOPMENT CORPORATION
_____________________ By: ___________________________________
Carlos Zenon, President
_____________________ [Seal]
Attest: ___________________________________
, Secretary
_____________________ By: ___________________________________
LESLIE SITARAM, Selling Shareholder
_____________________
_____________________ By: ___________________________________
CATHY-MAE SITARAM Selling Shareholder
_____________________ [Seal]
THE GRANT TRUST, Selling Shareholder
- 16 -
<PAGE>
_____________________ By: _______________________________________
RITA DUDLEY GRANT, Trustee
_____________________
_____________________ _______________________________________
RICHARD E.W. GRANT, Selling Shareholder
_____________________
Buyer:
THE LOCKHART COMPANIES
INCORPORATED
_____________________ By: _______________________________________
JOHN P. de JONGH, JR., President
_____________________ [Seal]
Attest: _______________________________________
Cornel A. Williams, Secretary
- 17 -
Exhibit 10.3
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") dated as of January 6,
1995 is made and entered into by and between Sanford Grishman and Marilyn
Grishman d/b/a RED HOOK HOLDING and JEDMACKS, INC., a U.S. Virgin Islands
corporation, with a mailing address of 6225 Estate Nazareth 8-31, St. Thomas,
U.S. Virgin Islands 00802 (collectively, the "Seller") and H.E. LOCKHART
MANAGEMENT, INC., a U.S. Virgin Islands corporation, with a mailing address of
Parcel No. 44 Estate Thomas, P.O. Box 7020, St. Thomas, U.S. Virgin Islands
00801 ("Buyer").
NOW, THEREFORE, for and in consideration of the premises hereof, the
sums of money to be paid hereunder, the mutual covenants herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Premises. Seller agrees to SELL and Buyer agrees to BUY, upon the terms
hereinafter set forth, the premises known as THE RED HOOK PLAZA SHOPPING CENTER,
St. Thomas, U.S. Virgin Islands more particularly described in Exhibit A
attached hereto.
Together with the buildings and improvements located thereon and the
fixtures attached or appurtenant to or used in connection with said premises,
all of which Seller warrants (a) are owned by Seller free from all liens and
encumbrances except as herein stated, and (b) are included in this sale,
including without limitation, if any, all maintenance equipment, elevator
equipment, cleaning equipment and supplies, security equipment, lobby
decorations, venetian blinds, window shades, screens, screen doors, storm
windows and doors, awnings, shutters, furnaces, heaters, stoves, ranges,
generators, storage trailers, trucks and the contents thereof, the trade name
"Red Hook Plaza", oil and gas burners and fixtures appurtenant thereto, hot
water heaters, plumbing and bathroom fixtures, electric and other lighting
fixtures, wall-to-wall carpeting, mantels, television cables and antennas,
fences, gates, trees, shrubs, plants, air conditioning equipment, ventilators,
garbage disposers, dishwashers, washing machines, and driers. (The aforesaid
premises and property are herein collectively called the "Premises").
2. Title. The Premises are to be sold, transferred and conveyed by the
transfer documents identified in Section 21.a(ii)
<PAGE>
and warranty deeds (the "Deed") in the forms attached hereto as Exhibits B1 and
B2, duly attested with the required Certificates of Real Property Tax Status
attached, running to Buyer or to such grantee as Buyer may designate by notice
to Seller at least seven (7) days before the Deed is to be delivered as herein
provided, and the Deed shall convey a good and clear record and marketable title
thereto, sufficient to entitle Buyer to title thereto free from encumbrances and
encroachments from or on the Premises, except:
(a) Applicable laws and regulations of any governmental authority in effect
on the date hereof, provided (i) that the Premises may be used as of right,
without special permit, removal permit or variance, for commercial purposes in
accordance with zoning classification "C".
(b) Such taxes for the then current tax period as are not due and payable
on the date of the delivery of the Deed;
(c) The tenancies listed on Exhibit C (collectively, the "Permitted
Exceptions").
At Closing, Buyer shall be able to purchase from a Title Insurance company
of its choice (in such capacity, "Title Company"), at Buyer's sole cost and
expense, an ALTA 1990-Form B owner's title insurance policy in the amount of the
Purchase Price ("Title Policy"), showing title to the Premises in Buyer subject
only to the Permitted Exceptions. If Buyer shall be unable to procure the Title
Policy subject only to the Permitted Exceptions, Buyer may elect to accept such
title as Seller conveys or to terminate this Agreement, as its sole and
exclusive remedies, in which latter event Buyer shall receive a refund of all
deposits made pursuant to this agreement and both parties shall be relieved of
all obligations and liabilities hereunder.
3. Plans. If the Deed refers to a plan necessary for correct metes and
bounds of the Premises. Seller shall deliver a copy of such plan to Buyer upon
the execution hereof by Seller and Buyer. Seller shall, also provide an ALTA
certified As-Built Survey of the Premises prior to January 31, 1995, together
with a Surveyor's Report.
<PAGE>
4. Price. The agreed purchase price for the Premises is Five Million Eight
Hundred Thirty-One Thousand Dollars ($5,831,000.00) (the "Purchase Price"), of
which
(a) $ 50,000.00 have been paid as a deposit
this day
(b) $5,781,000.00 are to be paid at the time of
delivery of the Deed as
follows: (i) $1,081,000 in
cash or by certified or bank
check or checks subject to
adjustments set forth herein,
and (ii) $4,700,000 by delivery
by delivery of an Installment
Note and by granting or
providing to Seller the First
Mortgage, Conditional
Assignment and Limited
Guarantee, as defined in
paragraph 5 hereof.
(c) $5,831,000.00 Total
5. Seller Financing. The Seller hereby covenants and agrees to participate
in the financing of the sale by taking back a purchase money note (the
"Installment Note") secured by a first priority mortgage over the Premises (the
"First Mortgage") and a Conditional Assignment of Leases and Rents relating to
the Premises (the "Conditional Assignment") from the Buyer and a Limited
Guarantee in the maximum sum of $750,000.00 from The Lockhart Companies
Incorporated (the "Limited Guarantee"). The Installment Note shall be in the
form of Exhibit D and shall (i) be in the principal amount of $4,700,000.00,
(ii) bear interest at the rate of 8.75%, (iii) shall be due and payable in
monthly installments of interest only on the principal sum outstanding for the
first year, (iv) commencing on the first anniversary of the Closing, shall be
payable in ninety-five (95) monthly installments of principal and interest based
on a thirty year amortization schedule in the amount of $36,974.92 and (v) shall
be due and payable in full on the 96th installment of principal and interest.
The First Mortgage shall be in the form of Exhibit E and shall grant to the
Seller a first priority mortgage over the Premises as security for repayment of
the Note. The Conditional Assignment shall be in the form of Exhibit F. The
Limited Guarantee shall be in the form of Exhibit G attached hereto and made a
part hereof and shall provide the Seller with the guarantee of The Lockhart
Companies Incorporated up to the maximum sum of $750,000.00.
<PAGE>
6. FIRPTA Affidavit. At Closing, Seller agrees to provide a Foreign
Investment in Real Property Tax Act Affidavit in the form attached hereto as
Exhibit H (the "FIRPTA Affidavit") certifying that Seller is not a foreign
person as that term is interpreted under the Internal Revenue Code of 1986, as
amended and applied in the U.S. Virgin Islands. Seller acknowledges that failure
or inability to provide such Affidavit will require Buyer to withhold 10% of the
Purchase Price and pay it over to the Virgin Islands Bureau of Internal Revenue.
7. Closing. The sale and purchase transaction contemplated in this
Agreement shall take place on February 28, 1995 (or, if Seller and Buyer both
agree prior to February 28, 1995) (the "Time of Closing") at the offices of
Dudley, Topper and Feuerzeig. All documents required to be provided by Buyer and
Seller pursuant to this Agreement and otherwise appropriate to consummate the
sale and purchase transaction contemplated by this Agreement, and the cash due
from Buyer, shall be delivered by the parties hereto at closing.
(a) Buyer shall pay (1) the cost of recording the Deed and Assignment of
Leases, Rents and General Revenues, (2) the cost of the Tax Stamps to be affixed
to the Deed, (3) the recording fee for the First Mortgage and Conditional
Assignment, (4) the premium for an owner's title policy relating to the
Premises, and (5) the Buyer document preparation fees.
(b) The Seller shall pay (1) the cost to have the Deed attested, (2) the
cost to discharge any liens against the Premises, and (3) any Seller document
preparation fees.
(c) Buyer and Seller shall bear the cost of their respective attorneys'
fees.
8. Possession and Condition of Premises. Full possession of the Premises
free of all tenants and occupants except those listed on Exhibit C is to be
delivered at the Time of Closing, the Premises to be then (i) in the same
condition as they now are, reasonable use and wear thereof excepted, (ii) not in
violation of any applicable law or regulation of any governmental authority or
of any encumbrance referred to in Paragraph 2 above, and (iii) broom-clean.
Access to and egress from the Premises shall then be provided by public way; the
Premises shall then be served by storm sewer and sanitary sewer, and by
telephone, cable and electric services of public utilities, all provided to the
<PAGE>
Premises directly from a public way; such access and egress and all such
services and facilities shall be in accordance with all applicable governmental
requirements and adequate for the purposes set forth in Paragraph 2(a) above and
all permits and approvals necessary in order for the Premises to be served by
the same shall have been validly granted; and there shall then be installed in
the Premises such smoke detectors as may be required by local law.
9. Extension. If Seller shall be unable to give title or to make conveyance
or to deliver possession of the Premises all as herein stipulated, or if at the
Time of Closing the Premises do not conform with the provisions hereof, then, at
Buyer's election, Seller shall remove all encumbrances, if any, which secure the
payment of money including, but not limited to, attachments, liens, and
mortgages, and use reasonable efforts to remove all other defects in title, and
to deliver possession as provided herein, and to make the Premises conform to
the provisions hereof, as the case may be, and the Time of Closing shall be
extended for a period of up to 30 days.
If at the expiration of the extended time Seller shall have failed so to
remove any defects in title, deliver possession, or to make the Premises
conform, as the case may be, all as herein agreed, then, at Buyer's option, any
payments made under this agreement shall be forthwith refunded and all other
obligations of all parties hereto shall cease and this agreement shall be void
and without recourse to the parties hereto, provided that Buyer shall have the
election, at either the original or extended Time of Closing, to accept such
title as the Seller can deliver to the Premises in their then condition and to
pay therefor the purchase price reduced by an amount equal to the sum required
to remove all encumbrances which secure the payment of money and which have not
been removed by Seller, in which case Seller shall convey such title.
10. Merger. The acceptance of the Deed by Buyer or the grantee designated
by Buyer, as the case may be, shall be deemed to be a full performance and
discharge of every agreement and obligation herein contained or expressed,
except the warranties contained in Paragraphs 1, 2 and 19 hereof, and the
provisions of Paragraphs 13 and 14 hereof, all of which shall survive the
Closing.
11. Use of Purchase Money. To enable Seller to make conveyance as herein
provided, Seller may, at the Time of Closing use the purchase money or any
portion thereof to clear the title of any or all encumbrances or interests,
<PAGE>
provided that all instruments so procured are recorded simultaneously with the
delivery of the Deed.
12. Insurance, Damage to the Premises and Condemnation. Until the Time of
Closing, Seller shall maintain insurance on the Premises against fire and
hazards covered by "All"-Risk insurance coverage in the amount of $2,000,000.00,
plus $25,000.00 on the Three Virgins Restaurant.
Buyer shall have the election, exercisable by notice given to Seller at
least fourteen (14) days before the Time of Closing to take an assignment of
such insurance. If such election is so exercised, Seller shall assign such
insurance and deliver binders therefor in proper form to Buyer at the Time of
Closing, unless the insurer shall have refused to issue the same and Seller
shall have given notice of such refusal at least seven (7) days prior to the
Time of Closing.
Seller agrees to give Buyer prompt notice of any fire or other casualty
affecting the Premises between the date hereof and the Time of Closing or of any
actual or threatened taking or condemnation of all or any portion of the
Premises. If prior to the Time of Closing there shall occur:
(a) damage to the Premises caused by fire or other casualty which would
cost $50,000.00 or more to repair, or
(b) the commencement of a taking or condemnation of all or any portion of
the Premises, then in any such event Buyer may at its option terminate this
Agreement by notice to Seller within twenty (20) days after Buyer has received
the notice referred to above or at the Time of Closing, whichever is earlier. If
Buyer does not so elect to terminate this Agreement, then the closing shall take
place as provided herein without abatement of the purchase price, and there
shall be assigned to Buyer at the Time of Closing all of Seller's interest in
and to all insurance proceeds or condemnation award and further, if same be
insufficient to pay the actual loss, and further, if same be insufficient to pay
the actual loss, Seller will pay such deficiency to Buyer on demand. If prior to
the Time of Closing there shall occur damage to the
<PAGE>
Premises caused by fire or other casualty which would cost less than $50,000.00
to repair, then, in any such event, Buyer shall have no right to terminate its
obligations under this Agreement, but there shall be assigned to Buyer at Time
of Closing all interest of Seller in and to any insurance proceeds which may be
payable to Seller on account of any such occurrence; provided, however, Seller
shall reimburse Buyer for the excess, if any, of the cost of bona fide repairs
over the insurance proceeds actually received by Buyer.
13. Adjustments. Collected rents, security deposits, operating expenses,
prepaid premiums on insurance if assigned as herein provided, water and sewer
use charges, and taxes for the then current tax period, shall be apportioned in
accordance with generally accepted accounting practices and fuel value shall be
adjusted as of the Time of Closing and the net amount thereof shall be added to
or be deducted from, as the case may be, the Purchase Price payable by Buyer at
the Time of Closing. Uncollected rents for the current rental period shall be
apportioned as if collected by Seller on the date due.
If the amount of said taxes has not been determined at the Time of Closing,
they shall be apportioned on the basis of the taxes assessed for the preceding
year, with a reapportionment as soon as the new tax rate and valuation can be
ascertained; and, if the taxes which are to be apportioned shall thereafter be
reduced by abatement, the amount of such abatement less the reasonable cost of
obtaining same, shall be apportioned between the parties, provided that neither
party shall be obligated to institute or prosecute proceedings for an abatement
unless otherwise agreed. If such proceedings are commenced, the party commencing
the same shall give the other party notice thereof and shall prosecute such
proceedings and not discontinue the same without first giving to the other party
notice of its intention so to do and reasonable opportunity to be substituted in
such proceedings; and the other party agrees to cooperate in such proceedings
without being obligated to incur any expense in connection therewith. It is
understood that the term "cooperate" as used in the last preceding sentence
shall in the case of Seller include the signing of any and all applications or
petitions for such proceedings which are required to be brought in the name of
Seller.
<PAGE>
14. Brokerage - Agency Disclosure.
Seller and Buyer hereby acknowledge that no broker or finder has been
employed by them in connection with the execution of this Agreement or the
consummation of the transaction contemplated hereby. Each of Seller and Buyer
warrants to the other that no commissions are payable or due to any broker or
finder in connection with this Agreement or the transactions contemplated
herein. Each of Seller and Buyer agrees to indemnify, defend and hold the other
harmless from and against any commissions or fees or claims for commissions or
fees asserted by any party with whom the indemnifying party has dealt. The
provisions of this Paragraph 14 shall survive the termination of this Agreement
or the closing.
15. Deposit. All deposits made hereunder shall be held by Dudley, Topper
and Feuerzeig pursuant to an escrow agreement in the form attached hereto as
Exhibit I, as earnest money for the proper performance of this agreement on the
part of Buyer subject to the terms of this agreement shall be duly accounted for
at the Time of Closing. No interest shall accrue on the deposit.
The parties acknowledge that Seller has no adequate remedy at law in the
event of Buyer's failure to fulfill its obligations hereunder because it is
impossible to compute exactly the damages which would accrue to the Seller in
such event. The parties have therefore taken these facts into account in setting
the amount of Buyer's deposit hereunder and hereby agree that: (i) the deposit
is the best pre-estimate of such damages which would accrue to Seller; and (ii)
said deposit represents damages and not any penalty against Buyer; and (iii) if
Buyer shall fail to fulfill Buyer's obligations hereunder, said deposit made
hereunder by Buyer shall be retained by Seller as its full and liquidated
damages in lieu of all other rights and remedies which Seller may have against
Buyer at law or in equity for such failure.
16. Recording. Neither Buyer nor Seller shall record this Agreement without
the written consent of the other.
17. Notices. All notices required or permitted to be given hereunder shall
be in writing and delivered by hand or mailed postage prepaid, by or certified
mail, addressed in the case of Seller as set forth in Section 1 above and in the
case of Buyer as set forth in Section 1 above, with a copy to A. James Casner
III, Esq., Dudley, Topper and Feuerzeig, P.O. Box 756, St. Thomas, U.S. Virgin
Islands 00804, or in the case of either party to such other address as shall be
designated by written
<PAGE>
notice given to the other party. Any such notice shall be deemed given when so
delivered by hand or, if so mailed, five (5) days after deposit with the U.S.
Postal Service.
18. No Offer. The submission of a draft of this agreement or a summary of
some or all of its provisions does not constitute an offer to buy or to sell the
Premises, it being understood and agreed that neither Buyer nor Seller shall be
legally obligated with respect to a purchase or sale of the Premises unless and
until this agreement has been executed by both Buyer and Seller and a fully
executed copy has been delivered.
19. Warranties. Knowing that Buyer will rely hereon in entering into the
agreement and purchasing the Premises, Seller represents and warrants as
follows:
(a) Attached hereto as Exhibit C is a list of all tenants on the Premises,
such list giving the name of the tenant, location and size of space leased, date
of lease or statement that the lease is oral, monthly rent, termination date and
renewal, if any, or a statement that the tenant is a tenant at will, and the
security deposit held by Seller. Seller represents and warrants that such
written leases and such list of tenants constitute all of the tenancies
affecting the Premises. Within ten (10) days of the execution hereof, Seller
shall deliver to Buyer accurate and complete copies of all written leases
affecting the Premises. Seller represents and warrants that such written and
oral leases are in effect, unmodified, current through the date hereof with no
defaults, and that such written leases and the information on such list of
tenants is true, accurate and complete. Seller covenants to maintain such leases
on that basis and not to renew, modify or terminate any such leases nor to enter
into any new lease, written or oral, express or implied, prior to the Time of
Closing, except with Buyer's prior written consent.
Seller represents and warrants that there have been no advance payments for
rent except for the current month and covenants that at the Time of Closing,
there shall be no advance payments of rent except for the then current month.
Seller shall provide Buyer at the Time of Closing with estoppel certificates
from each tenant in a form substantially that of Exhibit J attached hereto.
<PAGE>
If any of Seller's representations in this Paragraph 19 or if an estoppel
certificate with respect to a tenant provided by Seller is in fact inaccurate,
and Buyer in reliance thereon suffers damages, or if Seller fails to notify
Buyer of a tenant and Buyer as a result suffers damages (except the failure of a
tenant to pay rent accruing after transfer of title to the Premises), Seller
hereby agrees to indemnify Buyer against all such damages, including
consequential damages.
(b) Attached hereto as Exhibit K is an operating statement for the calendar
years 1991 through 1993 and, for the first nine (9) months of 1994, all of which
Seller represents and warrants are true, accurate and complete.
(c) Attached hereto as Exhibit L are copies of contracts relating to the
maintenance and repair of the Premises, including contracts for maintenance,
trash disposal, cistern testing (together with the results of such tests during
the previous 12 month period) and sprinklers, which copies Seller represents and
warrants are true, accurate and complete and which contracts seller represents
and warrants are in full force and effect. Seller covenants to maintain such
contracts on that basis and not to renew, modify or terminate any such contracts
nor enter into any new contract with respect to the maintenance and repair of
the Premises, written or oral, express or implied, prior to the Time of Closing,
except with Buyer's prior written consent.
(d) Seller represents and warrants to Buyer that Seller has and at the Time
of Closing will have full power and legal right and authority to enter into and
perform its obligations under this Agreement and the consummation of the sale
and purchase transaction contemplated herein will not result in the breach of or
constitute a default under any agreement or instrument to which Seller is bound
in such manner as to affect Seller's ability to sell and convey the Subject
Property as contemplated herein.
(e) To the best of the Seller's knowledge and belief, the Seller has duly
complied with, and the Premises and the Seller are in compliance with the
provisions of all federal and territorial environmental, health, and safety
laws, codes and ordinances, and all rules and regulations promulgated
thereunder. To the best of the Seller's knowledge and belief, the Seller has not
been issued any federal and territorial permits, licenses, certificates, and
approvals relating to (1) air emissions, (2)
<PAGE>
discharges to surface water or groundwater, (3) noise emissions, (4) solid or
liquid waste disposal, (5) the use, generation, storage, transportation or
disposal of toxic or hazardous substances or wastes (intended hereby and
hereafter to include any and all such materials listed in any federal or
territorial law, code or ordinance, and all rules and regulations promulgated
thereunder, as hazardous or potentially hazardous), or (6) other environmental,
health, or safety matters, none being required. The Seller has received no
notice of, and neither knows of nor suspects, facts which might constitute any
violations of any federal or territorial environmental, health, or safety laws,
codes or ordinances, and any rules or regulations promulgated thereunder with
respect to the Premises. Except in accordance with a valid governmental permit,
license, certificate or approval, there has been, to the best of the Seller's
knowledge and belief, no emission, spill, release, or discharge into or upon (1)
the air, (2) soils or any improvements located thereon, (3) surface water or
groundwater, or (4) the sewer, septic system or waste treatment, storage or
disposal system servicing the Premises, of any toxic or hazardous substances or
wastes at or from the Premises; and accordingly, except for inventory of raw
materials, supplies, work in progress and finished, that are to be used or sold
in the ordinary course of business, the Premises are free of all such toxic or
hazardous substances or wastes, to the best of the Seller's knowledge and
belief. There has been no complaint, order, directive, claim, citation, or
notice by any governmental authority or any person or entity with respect to (1)
air emissions, (2) spills, releases, or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the Premises, (3) noise
emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation, or disposal of toxic or hazardous substances or waste, (6) the
quality or condition of cisterns or cistern water, or (7) other environmental,
health, or safety matters affecting the Premises. The Seller has no known
indebtedness, obligation or liability, absolute or contingent, matured or not
matured, with respect to the storage, treatment, cleanup, or disposal of any
solid wastes, hazardous wastes, or other toxic or hazardous substances
(including without limitation any such indebtedness, obligation or liability
with respect to any current regulation, law or statute regarding such storage,
treatment, cleanup, or disposal) relating to the Premises which has not been
previously disclosed to the Buyer in writing.
<PAGE>
(f) The provisions of subparagraph l9(a), 19(b), l9(c), l9(d) and l9(e)
shall survive the Closing or the termination of this Agreement.
20. Representations and Warranties of Buyer. Buyer represents and warrants
to Seller that Buyer has and at the time of Closing will have full power and
legal right and authority to enter into and perform its obligations under this
Agreement and the consummation of the sale and purchase transaction contemplated
herein will not result in the breach of or constitute a default under any
agreement or instrument to which Buyer is bound in such manner as to affect
Buyer's ability to purchase the Property as contemplated herein.
21. Closing Requirements.
(a) Seller agrees to the following closing requirements:
(i) At the time of Closing hereunder the representations and
warranties of the Seller described in Paragraph 19 hereof shall be true and
correct in all material respects and there shall have been no material breach or
breaches of the same by Seller.
(ii) Seller shall deliver the following closing documents at the
Time of Closing (unless the delivery thereof shall have been waived by Buyer in
writing):
(A) the Deed;
(B) a Bill of Sale for all personally constituting a part of
the Premises in the form attached hereto as Exhibit M;
(C) an Assignment of Leases, Rents and General Revenues in the
form attached hereto as Exhibit N.
(D) the FIRPTA Affidavit; and
(E) an Assignment of Trade Name; and
(F) where appropriate, resolutions of Seller, properly
executed and approved in accordance with the Bylaws of Seller, authorizing the
transactions contemplated by this
<PAGE>
Agreement, including, without limitation, execution and delivery of the Warranty
Deed to the Buyer; and
(G) an opinion of counsel for the Seller favorably opining as
to the due execution and enforceability of all documents executed by the Seller
in connection with the transaction hereby contemplated and to the validity of
the corporate and good standing of JEDMACKS, INC.; and
(H) such other documents, instruments and certificates as may
be reasonably required by the Title Company to fully effect and consummate the
transactions contemplated hereby.
(b) Buyer agrees to the following closing requirements:
(i) At the time of Closing hereunder the representations and
warranties of the Buyer described in paragraph 20 hereof shall be true and
correct in all material respects and there shall have been no material breach or
breaches of the same by Buyer.
(ii) Buyer shall deliver the following items at the Time of
Closing (unless the delivery thereof shall have been waived by Seller in
writing):
(A) Subject to adjustments set forth herein, that portion of
the Purchase Price provided to be paid at the Closing pursuant to Paragraph 4
(b)(i) hereof, together with duly executed originals of the First Mortgage,
Installment Note and Conditional Assignment of Leases and Rents;
(B) if appropriate, resolutions of Buyer, properly executed
and approved in accordance with the by-laws of Buyer, authorizing the
transactions contemplated by this Agreement, including without limitation
execution and delivery of the Installment Note, First Mortgage and Conditional
Assignment; and
(C) an opinion of counsel for the Buyer favorably opining as
to the due execution and enforceability of all documents executed by the Buyer
and The Lockhart Companies Incorporated in connection with the transaction
hereby contemplated, to the validity of the corporate organization and good
standing of the Buyer and The Lockhart Companies Incorporated; and
<PAGE>
(D) such other documents, instruments and certificates as may
be reasonably required by Seller or the Title Company to fully effect and
consummate the transactions contemplated hereby;
(c) Buyer and Seller shall jointly deliver three (3) copies of a closing
statement at the Time of Closing.
22. Conditions. Buyer's performance of its obligations hereunder subject to
the conditions precedent that at or before 5 p.m. on January 31, 1995
("Condition Date") all of the following conditions shall have been satisfied or
waived in writing by Buyer, to wit:
(a) From and after the date of this agreement, Seller agrees to permit
Buyer and its designees reasonable access at reasonable times to the Premises
for the purposes of making measurements, inspections, and the like. In the event
that any such inspection reveals material deficiencies in the mechanical,
structural or utility systems included in, or serving, the Premises, or in the
condition of the Premises, or if the presence of termites or other wood-boring
insects is indicated or evidence of damage or infestation is found, Buyer may
terminate this agreement by notice in writing to Seller not given later than the
Condition Date; whereupon all payments made hereunder by Buyer shall forthwith
be refunded and all obligations of the parties hereto shall cease and this
agreement shall be void and without recourse to the parties hereto.
(b) Buyer shall review title to and the As-Built Survey of the Property to
determine compliance with the provisions of Paragraph 2 of this agreement. If
matters other than the Permitted Exceptions affect title to the Property, Buyer
shall, by notice in writing to the Seller delivered on or before the Condition
Date, advise Seller of such title defects which Seller shall cure or discharge
at or prior to the Time of Closing. If Seller shall fail to cure or discharge
such title defects at or prior to the Time of Closing, the provisions of
Paragraph 9 shall control.
If all said conditions are not so satisfied or waived by the Condition
Date, then all deposits made hereunder shall, at Buyer's option, be returned to
Buyer within three business days
<PAGE>
after the Condition Date and upon such return this Agreement shall terminate and
be of no further force or effect.
23. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Seller and Buyer, and their respective heirs, personal
representatives, successors and assigns. Except for assignments to an affiliated
corporation, which Buyer is permitted without Seller's consent, Buyer may not
assign its rights hereunder without the written consent of the Seller (which
consent Seller may withhold in its sole discretion) and upon acceptance of any
such assignment by the assignee and the assumption of Buyer's obligations
hereunder, Buyer shall be relieved of all duties and obligations hereunder.
Except as expressly provided herein, nothing in this Agreement is intended to
confer on any person, other than the parties hereto and their respective heirs,
personal representatives, successors and assigns, any rights or remedies under
or by reason of this Agreement.
24. Further Acts. In addition to the acts recited in this Agreement to be
performed by Seller and Buyer, Seller and Buyer agree to perform or cause to be
performed at the Closing or after the Closing any and all such further acts as
may be reasonably necessary to consummate the transactions contemplated hereby.
25. Invalid Provisions. If any one or more of the provisions of this
Agreement, or the applicability of any such provision to a specific situation,
shall be held invalid or unenforceable, such provision to a specific situation,
shall be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Agreement
and all other applications of any such provision shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in a manner and form sufficient to bind them as of the date first above
written.
WITNESSES/ATTEST: SELLERS:
[illegible] /s/ Sanford Grishman
--------------------------------
Sanford Grishman
<PAGE>
/s/ Marilyn Grishman
--------------------------------
Marilyn Grishman
JEDMACKS, INC.
By:[illegible]
Attest: /s/ Marilyn Grishman
--------------------------------
SELLER'S ADDRESS:
6225 Estate Nazareth 8-31
St. Thomas, Virgin Islands 00802
with a copy to:
SELLER'S ATTORNEY: Arthur Pomerantz, Esq.
2nd Floor International Plaza
P.O. Box 1623
St. Thomas,
Virgin Islands 00804
Telephone No.: (809) 776-7650
Telecopy No.: (809) 774-2729
WITNESSES/ATTEST: H.E. LOCKHART MANAGEMENT, INC.
[illegible] a U.S. Virgin Islands corporation
By: /s/ Larry Edler
-----------------------------------
Larry Edler, President
Attest:/s/ Etienne R. Bertrand
----------------------------------
Etienne R. Bertrand, Secretary
BUYER'S ADDRESS
<PAGE>
Parcel No. 44 Estate Thomas
P.O. Box 7020
St. Thomas, Virgin Islands 00801
Telephone No.: 776-1900
Telecopy No.: 776-1940
BUYER'S ATTORNEY:
A. James Casner III
Dudley, Topper & Feuerzeig
1A Frederiksberg Gade
P.O. Box 756
St. Thomas, V.I. 00804
Telephone No.: 774-4422
Telecopy No.: 776-3860
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT A
PARCEL NOS. 18-9, 18-11, 18-12, AND 18-13
ESTATE SMITH BAY
NOS. 1, 2 AND 3 EAST END QUARTER
ST. THOMAS, U.S. VIRGIN ISLANDS
AS SHOWN ON P.W.D. DRAWING NO. B9-479-T76 DATED MARCH 25, 1976
AND
PARCEL NO. 18-10-A ESTATE SMITH BAY
NOS. 1, 2 AND 3 EAST END QUARTER
ST. THOMAS, U.S. VIRGIN ISLANDS
AS SHOWN ON P.W.D. DRAWING NO. D9-2924-T85 DATED JANUARY 25, 1985
SUBJECT, HOWEVER, to an easement (the "Easement") hereby reserved by the
Grantor over a twenty foot wide portion of the premises hereby conveyed running
along the northerly edge of the premises, but inside the retaining wall
currently located along the northerly edge of the premises, for vehicular access
to and egress from Parcel No. 18-7 Estate Smith Bay to and from the public way,
said Parcel being shown on P.W.D. Drawing No. B9- 479-T76 (the "Parcel"), which
Easement shall be appurtenant to and run with said Parcel and shall benefit only
the Parcel.
The Grantor agrees that the Easement shall be used solely during the normal
operating hours of the premises known as the Red Hook Plaza Shopping Center and
only for uses consistent with the zoning category applicable to the Parcel.
Prior to commencing use of the Easement hereby reserved, the Grantor agrees
to obtain and maintain at all times public liability insurance in an amount not
less than $1,000,000.00 naming the Grantee, its successors and assigns, as
additional insureds and the Grantor agrees to provide annually to the Grantee a
Certificate from its insurance carrier showing that the Grantee is a named
insured and that all premiums required to keep the liability insurance policy in
full force and effect have been paid.
To the extent that any portion of the Easement hereby reserved is not
improved, the Grantor agrees that prior to commencing any use of the Easement,
the Grantor shall submit plans and specifications to the Grantee for its
approval, which approval shall not be unreasonably withheld, and upon such
<PAGE>
approval by the Grantee, the Grantor shall construct, maintain and repair said
Easement area, either with concrete or asphalt covering, in such a manner so as
to not unreasonably interfere with the Grantee's use of the premises hereby
conveyed and consistent with good engineering and construction practice.
The Grantor hereby grants to the Grantee the right to relocate the Easement
in the event that the Grantee elects to expand improvements on the premises
hereby conveyed; provided, however that the Grantee shall not permanently block
access over the premises hereby conveyed so as to prevent the Grantor from the
Easement benefits hereby reserved as appurtenant to the Parcel. Any costs and
expenses of such relocation of the Easement shall be for the account of the
Grantee.
The Grantor acknowledges that the Easement hereby reserved is an access
easement only and the Easement area shall not be used by the Grantor for any
other purpose, including without limitation, any utilities conduit or wire
necessary to service the Parcel, all such utility services to access the
Premises along the estate roadway as shown on P.W.D. Drawing No. B9-479- T76.
<PAGE>
EXHIBIT A
PARCEL NO. 18-10-B ESTATE SMITH BAY
NOS. 1, 2 AND 3 EAST END QUARTER
ST. THOMAS, U.S. VIRGIN ISLANDS
AS SHOWN ON P.W.D. DRAWING NO. D9-2924-T85 DATED JANUARY 25, 1985
SUBJECT, HOWEVER, to an easement (the "Easement") hereby reserved by the
Grantor over a twenty foot wide portion of the premises hereby conveyed running
along the northerly edge of the premises, but inside the retaining wall
currently located along the northerly edge of the premises, for vehicular access
to and egress from Parcel No. 18-7 Estate Smith Bay to and from the public way,
said Parcel being shown on P.W.D. Drawing No. B9-479- T76 t the "Parcel"), which
Easement shall be appurtenant to and run with said Parcel and shall benefit only
the Parcel.
The Grantor agrees that the Easement shall be used solely during the normal
operating hours of the premises known as the Red Hook Plaza Shopping Center and
only for uses consistent with the zoning category applicable to the Parcel.
Prior to commencing use of the Easement hereby reserved, the Grantor agrees
to obtain and maintain at all times public liability insurance in an amount not
less than $1,000,000.00 naming the Grantee, its successors and assigns, as
additional insureds and the Grantor agrees to provide annually to the Grantee a
Certificate from its insurance carrier showing that the Grantee is a named
insured and that all premiums required to keep the liability insurance policy in
full force and effect have been paid.
To the extent that any portion of the Easement hereby reserved is not
improved, the Grantor agrees that prior to commencing any use of the Easement,
the Grantor shall submit plans and specifications to the Grantee for its
approval, which approval shall not be unreasonably withheld, and upon such
approval by the Grantee, the Grantor shall construct, maintain and repair said
Easement area, either with concrete or asphalt covering, in such a manner so as
to not unreasonably interfere with the Grantee's use of the premises hereby
conveyed and consistent with good engineering and construction practice.
The Grantor hereby grants to the Grantee the right to relocate the Easement
in the event that the Grantee elects to expand improvements on the premises
hereby conveyed; provided, however that the Grantee shall not permanently block
access over the premises hereby conveyed so as to prevent the Grantor from the
Easement benefits hereby reserved as appurtenant to the Parcel. Any costs and
expenses of such relocation of the Easement shall be for the account of the
Grantee.
The Grantor acknowledges that the Easement hereby reserved is an access
easement only and the Easement area shall not be used by the Grantor for any
other purpose, including without limitation, any utilities conduit or wire
necessary to service the Parcel, all such utility services to access the
Premises along the estate roadway as shown on P.W.D. Drawing No. B9-479- T76.
Exhibit 10.4
INSTALLMENT NOTE
$4,700,000.00 St. Thomas, U.S.V.I.
February 15, 1997
FOR VALUE RECEIVED, RED HOOK PLAZA, INC., a U.S. Virgin Islands corporation
(the "undersigned") promises to pay to SANFORD GRISHMAN AND MARILYN GRISHMAN,
jointly and with full rights of survivorship (the "Lender"), or ORDER, the
principal sum of FOUR MILLION SEVEN HUNDRED THOUSAND DOLLARS ($4,700,000.00),
lawful money of the United States of America, with interest from the date hereof
at a rate per annum equal to eight and three quarters percent (8.75%) calculated
on a three hundred sixty (360) day basis. The said principal shall be payable at
the office of the Lender in St. Thomas, U.S. Virgin Islands, or at such other
place as the holder may, from time to time, designate in writing, in ninety-six
(96) consecutive monthly installments of principal and interest, commencing one
(1) year from the date hereof as follows: (1) ninety-five (95) consecutive
monthly installments of THIRTY SIX THOUSAND NINE HUNDRED SEVENTY FOUR AND 92/100
DOLLARS ($36,974.92) each; and (ii) a ninety-sixth (96th), final installment
comprised of the principal sum then outstanding together with all interest
accrued but unpaid to the date of said final payment.
The undersigned acknowledges that the monthly installments of principal and
interest to be made hereunder are designed to amortize the principal sum of this
Note, bearing interest at the fixed rate of eight and three quarters percent
(8.75%) per annum in three hundred sixty (360) consecutive equal monthly
installments. Therefore, a substantial principal balance will remain due and
shall be payable on the ninety-sixth (96th) final installment payment of
principal and interest. Interest only on the principal sum outstanding shall be
due and payable monthly commencing thirty (30) days from the date hereof and
continuing until payments of principal and interest commence as hereinabove set
forth.
AND IT IS HEREBY EXPRESSLY AGREED that the entire principal sum from time
to time outstanding hereunder and all accrued and unpaid interest thereon shall
become due and payable, at the option of the Lender or the Note holder, in the
event of a default in the payment of any sum for thirty (30) days after written
notice it is due hereunder, and any monthly payment not received by the Lender
or the note holder within fifteen (15) days after the payment is due shall be
assessed a late charge of three percent (3%) of the payment.
This Note may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any change, waiver, modification
or discharge is sought.
<PAGE>
In case recourse to the courts by the holder of this Note becomes necessary
in order to collect the whole or any unpaid part thereof together with all
accrued interest thereon, the undersigned agrees to pay any and all court
expenses, disbursements, and attorneys' fees that may be incurred.
Presentment for acceptance or payment, notice of dishonor, protest and
notice of protest are hereby waived.
This Note is subject to and secured by a First Priority Mortgage of even
date herewith from the undersigned to the Lender, and any default by the
undersigned under the First Priority Mortgage shall constitute a default under
this Note.
This Note may be prepaid at any time and from time to time, either in whole
or in part. Any prepayments made pursuant hereto shall be applied first toward
interest then accrued on this Note, and then toward installments of principal
due, in the inverse order of their maturity.
The Lender shall not enforce the liability and obligation of the
undersigned to perform and observe the obligations contained in this Note or the
First Priority Mortgage by any action or proceeding wherein a money judgment
shall be sought against the undersigned, except that the Lender may bring a
foreclosure action, action for specific performance or other appropriate action
or proceeding to enable the Lender to enforce and realize upon the Mortgage, the
other security instruments, and the interest in the mortgaged property, the
Rents and any other collateral given to the Lender created by the Mortgage and
the other security instruments; provided, however, that any judgment in any such
action or proceeding shall be enforceable against the undersigned only to the
extent of the undersigned's interest in the mortgaged property, in the Rents and
in any other collateral given to the Lender. The Lender, by accepting this Note
and the First Priority Mortgage agrees that it shall not sue for, seek or demand
any deficiency judgment against the undersigned in any such action or
proceeding, under or by reason of or under or in connection with the Note, the
First Priority Mortgage or the other security instruments. The provisions of
this paragraph shall not, however (i) constitute a waiver, release or impairment
of any obligation evidenced or secured by the Note, including, without
limitation, any rights of set-off set forth herein, in the Mortgage or the other
security instruments; (ii) impair the right of the Lender to name the
undersigned as a party defendant in any action or suit for judicial foreclosure
and sale under the Mortgage or the other security instruments; (iii) impair the
right of the Lender under the Mortgage to obtain the appointment of a receiver;
or (iv) impair the enforcement of the other security instruments executed in
connection with this Note.
<PAGE>
Executed as a sealed instrument as of the date set forth above.
RED HOOK PLAZA, INC.
a U.S.Virgin Islands corporation
By: LARRY EDLER
--------------------------------
LARRY EDLER, President
[SEAL]
Attest: /s/ ETIENNE R. BERTRAND
------------------------------
ETIENNE R. BERTRAND, Secretary
Exhibit 10.5
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is executed effective June 14, 1996,
between MILLER PROPERTIES, INC., a U.S. Virgin Islands corporation ("Seller")
and FORT MYLNER PROPERTIES, INC., a U.S. Virgin Islands corporation and a wholly
owned subsidiary of H.E. Lockhart Management, Inc. ("Purchaser").
W I T N E S S E T H:
A. Seller is the owner of all the real and personal property described as
follows:
All the real property and improvements located thereon known as the
Fort Mylner Shopping Center located in St. Thomas, United States
Virgin Islands (the "Shopping Center"), the Fort Mylner Commercial
center located in St. Thomas, United States Virgin Islands (the
"Commercial Center"), which properties are more particularly described
in Exhibit "A" attached hereto and made a part hereof, together with
all tenements, hereditaments, and appurtenances thereunto belonging
(collectively, "Land");
Together with all tangible personal property of every kind and nature
owned by Seller which is installed, located or situated on the Land
and used in the operation, use and enjoyment of the Land
(collectively, "Personal Property") including without limitation, all
fixtures, furniture, equipment and all inventories of supplies on hand
as of the date of Closing;
Together with all of Seller's rights, title and interest in and to the
trade names "Fort Mylner Shopping Center" and "Fort Mylner Commercial
Center" (collectively, "Trade Names");
All of Seller's rights, title and interest in and to all leases for
any portion of the Land and all guarantees of such leases
(individually, "Lease" or collectively "Leases") in effect on the Date
of this Agreement. The Land, Personal Property, Trade Names and Leases
are hereinafter collectively sometimes referred to as the "Property".
B. Seller desires to sell the Property to Purchaser and Purchaser desires
to buy the Property from Seller pursuant to the provisions contained in this
Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1.0 Sale and Purchase of Property. Subject to and on the terms and
conditions provided herein, Purchaser shall buy from Seller, and Seller shall
sell to Purchaser, the Property.
2.0 Purchase Price.
2.01 The purchase price for the Property shall be SIX MILLION FOUR
HUNDRED THIRTY THREE THOUSAND SEVEN HUNDRED DOLLARS ($6,433,700.00) (the
"Purchase Price") allocated between the Shopping Center and the Commercial
Center as follows: (a) $4,503,590.00 for the Shopping Center; and (b)
$1,930,110.00 for the Commercial Center. The Purchase Price, after deducting the
Earnest Money, and subject to such other credits, prorations and adjustments as
are provided herein, shall be paid at Closing by cashier's check or other funds
acceptable to Seller.
2.02 Contemporaneously with the execution of this Agreement, Purchaser
shall pay to Logan & Logan, as escrow agent ("Escrow Agent") the sum of
$10,000.00 as earnest money ("Earnest Money") under this Agreement and that
certain Purchase Agreement of even date herewith by and between the Seller and
Orange Grove Centers, Inc. (the "Orange Grove Agreement"). Escrow Agent shall
hold the Earnest Money pursuant to the provisions of this Agreement and the
Orange Grove Agreement. Escrow Agent acknowledges receipt of the Earnest Money.
If the closing is consummated, then the Earnest Money shall be paid to Seller
and credited towards the Purchase Price at the Closing. If the closing is not
consummated, then the Earnest Money shall be paid to Seller or Purchaser as
provided in Sections 12.0 and 13.0 hereof.
2.03 At Closing, Purchaser shall assume in writing all the maintenance
contracts, service contracts and other agreements described in Exhibit "B"
attached hereto and made a part hereof (collectively "Contracts"). If there are
any such contracts which the Purchaser does not desire to assume, then it shall
notify the Seller at least thirty (30) days in advance of the Closing, and
Seller will cause such contract(s) to be canceled at or prior to the Closing.
2.04 Purchaser shall not hereby, or in connection herewith, whether by
implication or otherwise, assume or become obligated or liable for any
liability, indebtedness or other obligations of Seller of any nature whatsoever,
whether now or hereafter existing, due or to become due, absolute or contingent,
or otherwise, whether or not any such liability, indebtedness or other
obligation was disclosed to Purchaser, including, without limitation, any
contracts, mortgages, liens, charges, or encumbrances affecting the Seller or
the Property; except the
<PAGE>
Leases and the Contracts. The provisions of this Section 2.04 shall survive the
Closing.
2.05 Seller represents and warrants that all information and
documentation previously provided by Seller to Purchaser concerning the Leases
encumbering the Property, the title to the Property, the financial operating
history of the Property (including, without limitation, all bookkeeping records,
income and expense reports, and any other financial reports affiliated with the
Property), the physical condition of the Property and its structural components
and any other matters relative to the Property are materially true, accurate and
complete to the best of its actual knowledge. Purchaser has examined and found
satisfactory such Leases, the financial operating history of the Property
(including, without limitation, all bookkeeping records, income and expense
reports and other financial reports furnished by the Seller), the physical
condition of the Property and its structural components and all other matters
relative to the Property. Purchaser has satisfied itself with respect to market
conditions affecting the Property, including, without limitation, effective
market rental rates, space availability and absorption in markets competitive
with the Property, insurance premiums, insurance coverage, land values,
replacement costs, interest rates, discount rates, and other similar market
factors. Purchaser has conducted a physical inspection of the Property. Seller
and Purchaser agree that Seller shall perform, at its expense, the repairs
listed on Exhibit "C" attached hereto and made a part hereof in a good and
workmanlike manner consistent with the existing improvements and in accordance
with all applicable territorial laws, rules and regulations. The obligation of
Seller to perform the repairs listed in Exhibit "C" shall survive the Closing.
In the event that the Seller has not completed the repairs prior to Closing,
Seller shall coordinate all post Closing repairs with Purchaser, and Seller
shall proceed with such repairs as expeditiously as possible and shall complete
the same not later than 180 days from the Closing Date. Except for the repairs
set forth on Exhibit "C" attached hereto, and except as otherwise set forth in
this Agreement, Purchaser agrees that the Property is being conveyed to it "As
IS" without any express or implied warranties of any type concerning the
physical condition of the Property, including without limitation, implied
warranties of merchantability and fitness for a particular purpose.
2.06 From and after the date of this agreement, Seller agrees to
permit Buyer and its designees reasonable access at reasonable times to the
Property for the purposes of making measurements, inspections, and the like.
3.0 Seller's Representations and Warranties. Seller hereby represents and
warrants to Purchaser as follows:
3.01 Seller is a corporation duly organized, validly existing and in
good standing under the laws of the Territory of
<PAGE>
the United States Virgin Islands. The execution, delivery and performance of
this Agreement and the transactions contemplated herein by the Seller are within
the corporate powers of Seller and have been duly authorized by all necessary
corporate action by the Seller. Upon execution and delivery, this Agreement and
the documents contemplated herein shall be legally binding obligations of Seller
enforceable in accordance with their provisions.
3.02 There are no actions, suits or proceedings threatened or pending
against by or affecting Seller or the Property, which question the validity of
this Agreement or question or impair Seller's title to the Property or of any
action to be taken by Seller pursuant to or in connection with this Agreement or
for any other reason, in any court or before any governmental agency.
3.03 Up to and including the Closing Date, no one will modify or
remove any of the Personal Property, except that supplies will be used and
replaced in the ordinary course of business; unless such personal property is
replaced with personal property of similar character and value.
3.04 Seller will not execute any new lease, service contract or enter
into any other agreement concerning the Property without Purchaser's prior
written consent, which consent shall not be unreasonably withheld, unless such
lease, service contract, or agreement shall terminate prior to the effective
date of the Closing.
3.05 Seller shall continue to operate the Property in the Seller's
normal manner.
3.06 Seller will not modify, amend, cancel or terminate any of its
existing Leases or Contracts without Purchaser's prior written consent, which
consent shall not be unreasonably withheld.
3.07 Seller owns good, marketable, and insurable fee simple record
title to the Land, free and clear of all encumbrances; except the rights of the
tenants under the Leases, all zoning, environmental, building and all other
laws, rules and regulations affecting the use or occupancy of the Property; all
matters shown by As-Built surveys of the Land and the improvements located
thereon, copies of which are attached hereto as Exhibit "D" and ad valorem real
property taxes for the year 1995 and all years thereafter; and those
encumbrances set forth in the documents attached as Exhibit "E" hereto and made
a part hereof (collectively, the "Title Exceptions"). Seller owns good and
marketable title to the Personal Property and the Trade Name free and clear of
all encumbrances, except the loans from Banco Popular de Puerto Rico to Seller
listed on Exhibit "F" attached hereto and made a part hereof.
<PAGE>
The parties agree that if there is any conflict between the representations
and warranties of Seller contained in this Agreement which are specifically
designated and intended to survive the Closing and the warranties of title
contained in the Warranty Deed, then the representations and warranties
contained in this Agreement which are specifically designated and intended to
survive the Closing shall control.
3.08 A complete and correct list of all Leases (including current
rents, Additional Rents as defined in Section 8.05(c) hereof and security
deposits) is attached hereto as Exhibit "G" and made a part hereof. There are no
Leases, tenancies, licenses or other rights of occupancy or use for any portion
of the Property except as set forth in Exhibit "G". To the best of Seller's
actual knowledge, the Leases which the Seller shall deliver on or before the
execution of this Agreement are true and complete, are in full force and effect
and there are no defaults in the payment of rent (i.e., rents which are more
than thirty (30) days past due) under the Leases except as described on Exhibit
"G" attached hereto. To the best of Seller's actual knowledge and belief, Seller
is not in default under any of the terms and conditions of the Leases and shall
not be in default under the terms and conditions of the Leases at the time of
Closing.
3.09 To the best of Seller's actual knowledge and belief without any
independent investigation or inquiry, Seller has not caused or allowed any
unpermitted disposal or release of hazardous substances onto the Property, into
the air from the Property, or into any surface water or ground water from the
Property, or into any sewer, septic system or waste treatment, storage or other
disposal system servicing the Property. To the best of Seller's actual knowledge
and belief without any independent investigation or inquiry, no tenant of the
Property has caused or allowed any unpermitted disposal or other release of
hazardous substances onto the Property, into the air, or into any ground water,
or into any sewer, septic system or waste treatment, storage or disposal system
servicing the property. To the best of Seller's actual knowledge and belief and
without any independent investigation or inquiry, except for inventory of raw
materials or goods to be sold, supplies work in progress and finished, that are
to be used or sold in the ordinary course of business, Seller has not caused or
allowed the storage of any hazardous substances at the Property. As used in this
Agreement, the term "hazardous substances" is defined in Section 101(14) of the
Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA") as amended by the Superfund Amendments and Reauthorization Act
("SARA").
Except as described below, Seller has received no legal complaint, order,
directive, claim, citation, or written notice by any governmental authority or
any person or entity with respect to violations of law relating to: (1) air
emissions; (2) spills, releases, or discharges to the soil or improvements
<PAGE>
located thereon, surface water, ground water, or the sewer, septic system or
waste treatment, storage or disposal systems servicing the Property; (3) noise
emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage,
transportation, or disposal of hazardous substances; or (6) other environmental,
health or safety laws, rules or regulations affecting the Property. To the best
of Seller's actual knowledge and belief without any independent investigation or
inquiry, Seller has no indebtedness, obligation or liability, absolute or
contingent, matured or not matured with respect to the storage, treatment, clean
up, or disposal of any hazardous substances (including without limitation any
such indebtedness, obligation or liability with respect to any current
regulation, law or statute regarding such storage, treatment, clean up or
disposal).
Concerning the former gas station located at Fort Mylner Shopping Center at
the corner of Rhymer Highway and Turpentine Run Road (now the site of Kentucky
Fried Chicken) Seller caused the removal of three (3) underground gasoline
storage tanks in 1990. The EPA requested that monitoring wells be installed at
the site to provide future monitoring of ground water at the site, which was
done.
Seller was contacted by the engineering firm of Geraghty & Miller
representing the Tutu Environmental Investigation Committee in May 1994 who
requested permission to test one well on the site to determine whether or not
the contamination from other sites has reached the property. Seller gave the
requested permission and the test performed. Seller also elected to have a test
performed independent of the test taken by Geraghty & Miller. Seller has not
been contacted by Geraghty & Miller since that time. Seller was contacted by
Attorney Douglas Capdeville in February of 1995, who advised he represented Esso
VI. Attorney Capdeville requested permission to install a monitoring well on the
property (Parcel 10-2), the site of the Banco Popular de Puerto Rico Building
which was then under construction, for the purpose of determining whether or not
the contamination plume had reached the property. Seller declined for the
reasons stated in the letter to Mr. Capdeville dated February 15, 1995. No
further contact has been made by Mr. Capdeville with the Seller. It should be
noted that from newspaper accounts Seller is aware that the entire aquifer
located in Tutu Valley reportedly has been contaminated from petroleum products,
cleaning solvents and other materials. To the best of Seller's actual knowledge
and belief, without any independent investigation and inquiry, Seller states
that there are no wells located on the property being conveyed other than the
monitoring wells located at Kentucky Fried Chicken and those wells are not being
used by Seller.
A copy of the reports and letters referred to in the preceding two
paragraphs have been provided by Seller to
<PAGE>
Purchaser. A schedule of the reports, letters and other documentation dealing
with environmental issues pertaining to the Property that has been provided by
Seller to Purchaser is contained in Exhibit "H" attached hereto and made a part
hereof.
Notwithstanding any other provisions contained herein or in the Warranty
Deed, the provisions of this Section 3.09 shall survive Closing for a period of
one year after the Closing Date.
3.10 The improvements comprising the Fort Mylner Shopping Center
include a sewage treatment plant. To the best of Seller's actual knowledge and
belief without any independent investigation or inquiry other than conversations
with Kent Neilson of Omega Consulting (the company that constructed the sewage
treatment plant: (1) the sewage treatment plant is a closed loop system, (2) a
permit to construct the sewage treatment plant was obtained from the Department
of Planning and Natural Resources and copy of the permit has been provided to
the Purchaser, (3) upon completion of construction, a final inspection of the
sewage treatment plant was performed by Phillis Brin of the Department of
Environmental Protection of the Department of Planning and Natural Resources,
(4) Seller does not have any permits other than the permit to construct the
sewage treatment plant, (5) the sewage treatment plant has been periodically
inspected by Kent Neilson or employees of Seller to confirm the quality of the
grey water being disposed of onto the land, however, there are no written
inspection reports except that Mr. Neilson inspected the sewage treatment plant
on May 29, 1996 and a copy of the written report has been provided to Purchaser,
and (6) no written inspections or other tests have been filed with the
Department of Environmental Protection or the Environmental Protection Agency.
The provisions of this Section 3.10 shall survive the Closing for a period of
one (1) year.
As part of the transaction contemplated by this Agreement, the parties
hereby agree to enter into an easement agreement at Closing for the benefit of
Seller relating to the use by Seller of the sewage treatment plant, said
easement to be in the form attached hereto as Exhibit "H-1".
3.11 Seller shall not take any action, omit to take any action, or
permit the taking or omission of any action which would make any of the
foregoing representations or warranties untrue in any material respect on and as
of the Closing Date.
<PAGE>
4.0 Conditions Precedent To Purchaser's Obligations. The obligations of
Purchaser hereunder are subject to the satisfaction at or prior to the Closing,
of the foregoing conditions:
4.01 All representations and warranties made by Seller shall be
materially true and correct as of Closing Date as though they were made again on
such date.
4.02 Seller shall have complied with all its obligations under this
Agreement.
4.03 There is no material adverse change in the physical condition of
the Property between the effective date of this Agreement and the Closing. A
"material adverse change" means damage or other destruction to a portion of the
improvements comprising the Land and the Personal Property which will cost in
excess of $10,000.00 to repair, replace or restore.
5.0 Purchaser's Representations and Warranties. Purchaser represents and
warrants to Seller as follows:
5.01 Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the Territory of the United States Virgin
Islands. The execution, delivery and performance of this Agreement and the
transactions contemplated herein by the Purchaser are within the corporate
powers of Purchaser and have been duly authorized by all necessary corporate
action by the Purchaser. Upon execution and delivery, this Agreement and the
documents contemplated herein shall be legally binding obligations of Purchaser
enforceable in accordance with their provisions.
5.02 There are no actions, suits or proceedings threatened or pending
against, by or affecting Purchaser, which question or impair Purchaser's ability
to enter into this Agreement and to perform its obligations hereunder before any
court or governmental agency.
6.0 Conditions Precedent to Seller's Obligations. The obligations of Seller
hereunder are subject to the satisfaction, at or prior to the closing, of the
following conditions:
6.01 All representations and warranties made by Purchaser shall be
materially true and correct as of the Closing Date.
6.02 Purchaser shall have complied with all its obligations under this
Agreement.
<PAGE>
6.03 Seller and Banco Popular de Puerto Rico shall have reached an
agreement acceptable to Seller to release the Property from the existing loans
from Banco Popular de Puerto Rico to Seller encumbering the Property. Seller
agrees to seek such an agreement in good faith.
7.0 Title, Zoning, Survey, Access and Permits Examination. Purchaser's
performance of its obligations hereunder is subject to the conditions precedent
that at or before 5 p.m. on June 12, 1996 ("Condition Date") all of the
following conditions shall have been satisfied or waived in writing by
Purchaser, to wit:
7.01 Purchaser shall have until the Condition Date to examine the
title to the Property and to notify Seller of any valid title objections
Purchaser may find, including the Title Exceptions. Seller shall then have until
the Closing to cure any title objections raised by Purchaser. Seller shall, at
or prior to Closing, pay all taxes and assessments which constitute a lien upon
the Property (other than those not then due and payable) and shall cause the
Banco Popular de Puerto Rico loans encumbering the Property to be released. If
Seller fails or is unable to cure such title objections, then Purchaser shall
have only the following alternatives: (1) to waive such title objections and to
close the transaction contemplated thereby without any deduction in the Purchase
Price unless such title objection is a monetary lien in which case Seller shall
arrange for payment of same and delivery of a discharge of the lien at Closing
and the Seller hereby authorizes the Purchaser to pay such amount as is
necessary to discharge the lien by deducting the necessary funds from the
Purchase Price; (2) to terminate this Agreement in accordance with the
Subsection 12.02 hereof, or (3) to extend the date of Closing for an additional
thirty (30) days to allow Seller to try to cure such objections. Purchaser shall
have five (5) days from the date of notice by Seller that Seller is unable to
cure any such title objections in which to elect one of the options set forth
above in this Section 7.0 and Purchaser may extend the time for Closing to the
extent necessary to provide such five (5) day period. If Purchaser elects option
(3) above and if at the end of the such thirty (30) day period Seller has not
cured such objections, then Purchaser shall have the right to elect one of
options (1) through (2) above. Any liens or encumbrances filed against the
Property after the Condition Date, but prior to the Closing, shall, also, be
subject to the terms of this Section 7.01.
7.02 Purchaser shall have satisfied itself that the proposed rerouting
of the Turpentine Run Road and the widening of the Weymouth Rhymer Highway will
not have a material adverse effect on Purchaser's anticipated use of the
Shopping Center and Commercial Center. Purchaser agrees to use diligent efforts
to obtain whatever assurances it
<PAGE>
believes it needs to satisfy itself with respect to such rerouting, widening and
access related issues and Seller agrees to cooperate in good faith with
Purchaser to obtain such assurances. If Purchaser has not satisfied itself by
the Condition Date, Purchaser may terminate this Agreement by notice in writing
to Seller not given later than the Condition Date; whereupon all payments made
hereunder by Purchaser shall forthwith be refunded and all obligations of the
parties hereto shall cease and this agreement shall be void and without recourse
to the parties hereto.
7.03 Purchaser shall have until the Condition Date to review zoning,
environmental and other laws applicable to the Property and its operation and
the As-Built Surveys of the Property to determine compliance with U.S. Virgin
Islands zoning, environmental and other applicable laws and to analyze the As
Built surveys for encroachments and zoning compliance. If encroachments, zoning
violations or other matters adversely affect the Property, Purchaser shall, by
notice in writing to the Seller delivered on or before the Condition Date,
advise Seller of such matters Purchaser considers to be material which Seller
shall cure at or prior to the Time of Closing. At or prior to the execution of
this Agreement, Seller shall provide to Purchaser copies of all permits it has
relating to the operation of the Property, including without limitation, permits
relating to the standby electrical generators and sewage treatment facilities.
If Seller shall fail to cure or discharge such material matters affecting the
Property at or prior to the Time of Closing, Sections 12 and 13 of this
Agreement shall control.
If all said conditions are not so satisfied or waived by the Condition
Date, then all deposits made hereunder shall, at Buyer's option, be returned to
Buyer within three business days after the Condition Date and upon such return
this Agreement shall terminate and be of no further force or effect.
If there are any adverse changes to the zoning of the Property or if any
permits now held by Seller are revoked or otherwise challenged by the
appropriate governmental agency between the Condition Date and the Closing Date,
then the Purchaser shall the right to terminate this Agreement, receive a refund
of the Earnest Money, and no party shall have any further rights, obligations or
liabilities under, arising out of, or resulting from this Agreement.
8.0 Closing. The closing ("Closing") of the transaction contemplated herein
shall occur on or before June 27, 1996, on a date and time acceptable to Seller
and Purchaser ("Closing Date") and shall be held at the law offices of Dudley,
Topper and Feuerzeig, 1A Frederiksberg Gade, St. Thomas, VI 00804. If Purchaser
and Seller are unable to agree upon a time and date for Closing, then such
Closing
<PAGE>
shall be held on June 27, 1996, at 10:00 a.m., Atlantic Standard Time; provided,
however, that in the event that Purchaser's lender (Banco Popular de Puerto
Rico) is unable to close on or before such date, Purchaser may extend the
Closing Date for up to 33 days (not beyond July 31, 1996), subject to the
obligation of Purchaser set forth below. In the event that Purchaser requires an
extension of the Closing Date pursuant to the terms and provisions of this
Section, the Purchaser shall obtain and maintain all risk property insurance and
comprehensive liability insurance in amounts approved by Seller and Seller's
Mortgagee (but not more than Seller currently holds) over the Shopping Center
and the Commercial Center (the "Insurance"), said insurance to name the Seller
and Seller's Mortgagee as additional insureds until Closing. In return, Seller
hereby agrees to give Purchaser a per diem credit at Closing for each day beyond
June 27, 1996 that the Shopping Center and the Commercial Center are still owned
by Seller. The per diem rate shall be based on a fraction, the numerator of
which will be the number of days during which Seller still holds title and the
denominator of which shall be 365. If the Closing does not take place for any
reason whatsoever, Purchaser shall have the right to cancel the Insurance not
sooner than 30 days from the date of termination of this Agreement and Seller
shall pay the per diem rate to Purchaser in addition to any other sums due and
owing to Purchaser pursuant to the default provisions of this Agreement. Seller
hereby agrees to assist Purchaser in its efforts to obtain the Insurance
contemplated by this Section and to provide and deliver such documents and
information as Purchaser's insurance agents or companies may reasonably require
or request. Purchaser agrees to assist Seller in any efforts Seller may make to
try to transfer the Insurance to Seller after termination of this Agreement,
without any liability on Purchaser's part for Seller's inability to obtain a
commitment from Purchaser's insurance carrier(s) to transfer the Insurance.
8.01 At the closing Seller shall deliver or cause to be delivered the
following documents:
(a) General warranty deeds in recordable form, duly attested with
Certificates of Real Property Tax Status attached in the form attached hereto as
Exhibit "I" conveying to Purchaser good, marketable and insurance fee simple
title to the Property, subject to Title Exceptions accepted or waived by
Purchaser prior to the Condition Date as provided in Section 7.0 above
(excluding the loans from Banco Popular de Puerto Rico to Seller) and those
standard exceptions contained in an owner's title insurance policy which are not
deleted upon receipt of the customary Seller's affidavit.
(b) Bills of sale conveying the Personal Property to the
Purchaser, together with a warranty of title and a certificate that there are no
liens or other encumbrances against the Property, in the form attached hereto as
Exhibit "J".
<PAGE>
(c) An assignment and assumption agreement for the Contracts,
containing the provisions described in Subsection 8.8 below and in the form
attached hereto as Exhibit "K".
(d) An assignment and assumption agreement for the Leases,
containing the provisions described in Subsection 8.7 below and in the form
attached hereto as Exhibit "L".
(e) A FIRPTA Affidavit in the form attached hereto as Exhibit "M"
(f) A corporate resolution authorizing the transactions
contemplated herein from the directors of Seller, a valid and current
certificate of good standing from the Office of the Lieutenant Governor,
Government of the United States Virgin Islands pertaining to Seller post dating
the June 30 filing deadline for maintaining the Seller's good standing if the
Closing takes place after June 30, 1996, and a certificate of incumbency
certifying the identity of the officers and directors of Seller.
(g) A Closing Statement.
(h) A termination of the Trade Names and Consent of the Seller
for the Purchaser to use the Trade Names in the form attached hereto as Exhibit
"N".
(i) Releases of the Property from any and all monetary liens,
including, without limitation, those held by Banco Popular de Puerto Rico.
(j) Certified originals of all Contracts and Leases, payment
records for the tenants under the Leases and ad valorem real property tax bills
assessed against the Property for the last 4 years (including 1995 if the tax
bills have been issued), permits and certificate of use and occupancy.
(k) Any other documents necessary and requested by Purchaser to
consummate the transaction contemplated herein.
8.02 At the Closing, Purchaser shall deliver or cause to be delivered
the following items:
(a) The assignment and assumption agreement for the Leases;
(b) The assignment and assumption agreement for the Contracts:
<PAGE>
(c) A Closing Statement;
(d) A corporate resolution authorizing the transactions
contemplated herein from the directors of Purchaser, a certificate of good
standing from the Office of the Lieutenant Governor, Government of the United
States Virgin Islands pertaining to Purchaser post dating the June 30 filing
deadline for maintaining the Purchaser's good standing if the Closing takes
place after June 30, 1996 and a certificate of incumbency certifying the
identity of the officers and directors of Purchaser.
(e) Any other documents necessary and reasonably requested by
Seller to consummate the transaction contemplated herein.
8.03 Possession of the Property shall be delivered to the Purchaser at
Closing. Seller shall retain all risk of loss, and shall maintain all insurance
coverage with respect to the Property until conclusion of the Closing.
8.04 Seller shall pay the cost of the recording fees for any documents
needed to provide clear title to the Property as required under this Agreement.
Purchaser shall pay the costs for any title examination and owner's policy,
updated surveys and appraisals obtained by Purchaser, and for obtaining the
Banco Loan. Each party shall pay its own attorney's fees. Seller shall pay the
transfer stamp tax due for the deed.
8.05 All rents, Additional Rents as defined below, amounts payable
under any of the Contracts, utilities, and all other costs, expenses and income
of every kind which in any manner relates to the operations of the Property
(except real property ad valorem taxes) shall be prorated as of midnight of the
Closing Date. Seller shall be entitled to all accrued and unpaid rentals and
other receivables with respect to the Property through midnight of the Closing
Date, and if such funds are received after the Closing then Purchaser shall
promptly remit to Seller the funds received as set forth below. Purchaser shall
use commercially reasonable efforts to assist Seller in collecting such unpaid
rent and other income, but Purchaser shall not be obligated to expend any money
on Seller's behalf to collect such unpaid rent and other income.
(a) If any tenant is in arrears in the payment of rent on the
Closing Date, then rents and Additional Rents as defined below received by
either Seller or Purchaser from such tenant after the Closing shall be applied
in the following order of priority: (i) first to the month in which the Closing
occurs and the rent shall be immediately prorated between Seller and Purchaser;
(ii) then to the current month during which the rent is received; (iii) then to
the months
<PAGE>
preceding the month or months following the month in which the Closing occurred,
and (iv) then to any month or months following the month in which the Closing
occurred.
(b) If rents, Additional Rents as defined below or any portion
thereof received by Seller or Purchaser after the Closing are payable to the
other party by reason of this allocation, then the appropriate amount, less a
proportionate share of any attorneys' fees and costs of collection, incurred by
such party in collecting such amounts, shall be promptly paid to the other
party.
(c) If any tenants are required to pay percentage rent, common
area maintenance charges, operating expenses, escalation charges for real estate
taxes or insurance or other charges of a similar nature (collectively
"Additional Rents") that are attributable in whole or in part to any period
prior to the Closing, then whichever party receives such Additional Rents shall
promptly pay to the other its proportionate share of such amounts, less any
attorneys' fees and costs of collection incurred by either party in collecting
such amounts. Such amounts shall promptly be paid to the party entitled. The
provisions of this Section 8.5 shall survive the Closing.
8.06 Each of the real property ad valorem taxes for the year 1995
shall be paid by Seller at or prior to the Closing if the tax bill has been
issued. If one or more of the 1995 tax bills have not been issued prior to the
Closing Date, then Seller shall pay each tax bill within thirty (30) days after
the date Seller receives such tax bill. Upon receipt of each 1996 real property
tax bill assessed against the Property, the party receiving such tax bill shall
promptly send a copy of the bill to the other party. The parties shall prorate
each 1996 tax bill assessed against a portion of the Property based upon the
Closing Date. Each party shall pay its prorate share of such tax bill prior to
the due date for such tax bill. The provisions of this Section 8.6 shall survive
the Closing.
8.07 The assignment of the Leases shall be in recordable form and
shall contain an indemnification by Seller with respect to the landlord's
obligations under such Leases arising on or prior to the Closing Date. Purchaser
shall assume and agree to perform all the obligations of landlord arising after
the Closing Date under all the Leases. The Assignment shall also contain an
indemnification in favor of Seller with respect to the Landlord's obligations
under the Leases arising from and after the Closing Date. Purchaser and Seller
shall execute a form notice of assignment to be delivered to each tenant. Such
<PAGE>
notice shall notify the Tenant that the Lease has been assigned to the Purchaser
and shall state that all future rent shall be paid to Purchaser. All security
deposits shall be transferred to Purchaser by bank or certified check on the
Closing Date.
8.08 To the extent that the Contracts are assignable, Seller shall
assign to Purchaser such Contracts, without warranty or recourse. Purchaser
shall also assume and agree to perform all obligations of Seller under such
Contracts from and after the Closing Date. The assignment of the Contracts shall
contain the same cross indemnification provisions described above for the
Leases. It is hereby agreed that the Seller shall be obligated to pay and shall
pay for any work performed prior to the Closing Date whether or not payment is
due prior to the Closing Date. The provisions of this Section 8.8 shall survive
the Closing.
9.0 Real Estate Brokers. Seller and Purchaser hereby acknowledge that no
broker or finder has been employed by them in connection with the execution of
this Agreement or the consummation of the transaction contemplated hereby. Each
of Seller and Purchaser warrants to the other that no commissions are payable or
due to any broker or finder in connection with this Agreement or the
transactions contemplated herein. Each of Seller and Purchaser agrees to
indemnify, defend and hold the other harmless from and against any commissions
or fees or claims for commissions or fees asserted by any party with whom the
indemnifying party has dealt. The provisions of this Section 9.0 shall survive
the termination of this Agreement or the Closing.
10.0 Casualty. If, prior to the Closing, the Personal Property or any
improvements located on the Land are destroyed or damaged by fire or other
casualty and such repairs or replacements have not been completed by Seller at
Seller's expense prior to the Closing to Purchaser's reasonable satisfaction,
then Purchaser shall have the right and option to terminate this Agreement in
accordance with Subsection 12.2 hereof. If Purchaser does not terminate this
Agreement, then all insurance money payable as a result of such casualty shall
be paid to Purchaser for the purpose of making the required repairs or
replacements. The provisions of this Section 10.0 shall survive the Closing.
11.0 Condemnation. If any action or proceeding is filed (or notice of such
action or proceeding given) under which all or any material portion of the
Property where the Property may be taken by condemnation or other right of
eminent domain, then, Seller shall immediately notify Purchaser, and at the
option of Purchaser, either (a) Purchaser may terminate this Agreement in
accordance with Subsection 12.2 hereof, or (b) the transaction contemplated
hereby shall be closed as provided herein, and Seller shall assign to Purchaser
at Closing all its rights in the condemnation proceeds.
<PAGE>
12.0 Termination. To the extent and under the circumstances set forth in
the following paragraphs of this Section 12.0, this Agreement may be terminated
at any time by the Seller or by the Purchaser prior to the Closing upon written
notice to the other party.
12.01 By a written agreement signed by Seller and Purchaser. Upon the
execution and delivery of such agreement, this Agreement shall be terminated,
the Earnest Money shall be immediately paid to Purchaser and no party shall have
any further rights, obligations, or liabilities under, arising out of, or
resulting from this Agreement.
12.02 Purchaser may terminate this Agreement if: (a) Purchaser is
entitled to terminate this Agreement pursuant to Sections 7.0, 10.0 or 11.0
hereof; or (b) the conditions precedent to Purchaser's obligations set forth in
this Agreement have not been satisfied at or prior to Closing. If Purchaser
elects to terminate this Agreement pursuant to the foregoing provisions, then
this Agreement shall be terminated, the Earnest Money shall be paid to Purchaser
and no party shall have any further rights, obligations or liabilities under,
arising out of or resulting from this Agreement, except that if the Seller is in
default of its obligations under this Agreement, and Purchaser has complied with
its obligations under this Agreement, then Purchaser shall also have the rights
and remedies provided in Section 13.0 hereof for a default by Seller. Provided,
however, if Purchaser raises any valid title objections which arise after the
Condition Date or are not Permitted Exceptions as set forth in this Agreement
and which cannot reasonably be cured by Seller within thirty (30) days after the
effective date of Purchaser's written notice to Seller specifying the title
objections, then Seller shall not be deemed to be in default of its obligations
under this Agreement and Purchaser's rights shall be limited to terminating this
Agreement as set forth above without the rights and remedies provided in Section
13.0 for a default by Seller.
12.03 Seller may terminate this Agreement if the conditions precedent
to Seller's obligations contained in Section 6.0 hereof have not been satisfied
at or prior to Closing. If Seller elects to terminate this Agreement pursuant to
the foregoing provisions, then this Agreement shall be terminated, the Earnest
Money shall be paid to Purchaser and no party shall have any further rights,
obligations or liabilities under, arising out of or resulting from this
Agreement, except that if the Purchaser is in default of its obligations under
this Agreement, and Seller has complied with its obligations under this
Agreement, then Seller shall also have the rights and remedies provided in
Section 13.0 hereof for a default by Purchaser.
<PAGE>
13.0 Default. If Seller commits a default in the performance of any of its
material obligations under this Agreement, through no fault of Purchaser, and if
such default is not waived in writing by Purchaser and Purchaser elects to
terminate this Agreement, then Purchaser shall be reimbursed by Seller for all
attorneys fees, accounting fees, surveyor fees, fees paid to Banco Popular de
Puerto Rico for the first priority loan, and such other costs and expenses
incurred by Purchaser to third parties in attempting to close this transaction;
provided, however, that except as specifically set forth in Section 8.0 of this
Agreement, the total amount of liability of Seller to Purchaser shall not exceed
the sum of $10,000.00 under both this Agreement and the Orange Grove Agreement.
If Purchaser commits a default in the performance of any of its material
obligations under this Agreement, through no fault of Seller, and if such
default is not waived in writing by Seller and Seller elects to terminate this
Agreement, then Seller shall be reimbursed by Purchaser for all attorneys fees,
accounting fees, surveyor fees, fees paid to Banco Popular de Puerto Rico and
such other costs and expenses incurred by Seller to third parties in attempting
to close this transaction; provided, however, the total amount of liability of
Purchaser to Seller shall not exceed the sum of $10,000.00 under both this
Agreement and the Orange Grove Agreement. The amount due and payable to Seller
shall be deducted from the Earnest Money Deposit and immediately paid to Seller.
The balance of the Earnest Money Deposit, if any, shall be paid to Purchaser. No
party shall have the right of specific performance and no party shall be liable
for any consequential damages or other damages of any type, except for the
reimbursement of the costs and expenses as provided for above.
14.0 Notices. All notices, demands, or requests (collectively "Notice")
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be hand delivered or sent through the United States Postal Service, by
express mail or certified mail, return receipt requested, to the parties at the
following addresses:
SELLER: Miller Properties, Inc.
Buccaneer Mall No. 33
St. Thomas, V.I. 00802
With a copy to: G. Hunter Logan, Jr., Esq.
Logan & Logan
6 Chandlers Wharf
Christiansted, St. Croix, V.I. 00820
PURCHASER: Fort Mylner Properties, Inc.
No. 44 Estate Thomas
P.O. Box 7030
St. Thomas, V.I. 00801
<PAGE>
With a copy to: A. James Casner III, Esq.
Dudley, Topper & Feuerzeig
1A Frederiksberg Gade
P.O. Box 756
St. Thomas, V.I. 00804
Rejection or other refusal to accept or inability to deliver because of a
changed address of which no notice has been given shall constitute receipt of
the Notice. Either party shall have the right to change its address for Notice
hereunder by giving two (2) days prior notice thereof to the other party in the
manner set forth above. Each notice shall be deemed effective when hand
delivered, or if sent through the United States Postal Service by Express Mail
or certified mail, on the date such notice is deposited with the United States
Postal Service as evidenced by the return receipt.
l5.0 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Purchaser shall have the right to assign its right to purchase the Property, or
portions thereof, to one or more subsidiaries as long as such assignment does
not delay the Closing. Such assignment shall not release the Purchaser from its
obligations under this Agreement.
16.0 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of such counterparts together
shall constitute one and the same instrument.
17.0 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Territory of the United States Virgin Islands.
18.0 Prior Discussions and Amendments. This Agreement supersedes all prior
discussions and agreements between the parties hereto with respect to the
transactions contemplated herein and constitute the sole and entire agreement
between the parties with respect thereto. This Agreement may not be modified or
amended unless such amendment is in writing and signed by both Seller and
Purchaser.
19.0 Judicial Interpretation. If any provision of this Agreement requires
judicial interpretation, it is agreed that the court interpreting or construing
the same shall not apply a presumption that the terms hereof shall be more
strictly construed against one party by reason of the rule of construction that
a document is to be construed more strictly against the party who itself or
through its agent prepared the document. It is agreed that the agents of all
parties participated in the preparation hereof.
<PAGE>
20.0 Survival of Agreement. All agreements, representations, and warranties
contained in this Agreement which by the terms of this Agreement are to survive
the Closing shall not be merged into the documents executed and delivered at
Closing.
21.0 Confidentiality. Purchaser will maintain as strictly confidential all
documents and information it derives from such access to Seller's business, and
shall not use such information, documents, copies or products of its "due
diligence" information for any use or purpose other than its due diligence
anticipation of Closing. This Agreement does not restrict Purchaser with respect
to information that Purchaser proves it acquired wholly independently of or
prior to its access to Seller's business pursuant to this Agreement and the
prior Confidentiality Agreement which becomes public other than by any act or
omission of Purchaser. If for any reason the purchase and sale of the Property
does not close, then Purchaser will return promptly to the Seller all nonpublic
information obtained by it concerning Seller and the Property. Notwithstanding
the foregoing, the Purchaser shall be permitted to show this Agreement and any
Seller documents in its possession or to be provided by Seller to Purchaser's
accountants, attorneys, title insurers, insurance agents and companies, lenders,
lenders' counsel, business consultants, surveyors, appraisers, and the Virgin
Islands Department of Public Works as part of the Purchaser's efforts to
complete the transaction contemplated by this Agreement.
22.0 Captions. All captions, headings, and section numbers are solely for
the purpose of convenience and shall not supplement, limit or otherwise vary in
any respect the text of this Agreement.
23.0 Escrow Provisions. The Escrow Agent hereby agrees to hold the Earnest
Money in its noninterest bearing trust account and shall disburse the Earnest
Money pursuant to the provisions contained herein and in the escrow provisions
set forth in Exhibit "O" attached hereto and made a part hereof. If there is a
dispute between Seller and Purchaser over the return or forfeiture of the
Earnest Money, then the Escrow Agent shall retain the Earnest Money in its trust
account until it has received a written release from the parties consenting to
its disposition or until disposition is ordered by a court of competent
jurisdiction.
24.0 Individual Properties. Seller and Purchaser acknowledge that this
Agreement and that certain agreement of even date herewith for the acquisition
of the property commonly known as Orange Grove Shopping Center (the "Orange
Grove Agreement") covers three separate and distinct properties. In the event
that any contingency, condition precedent, title, zoning or access issue
relating to only one of the properties cannot be cured to the Purchaser's
<PAGE>
satisfaction prior to Closing or any extension thereof pursuant to this
Agreement, Seller shall have the option to convey the other property or
properties to Purchaser, subject to Purchaser's right to decline such an
opportunity, at the price for such property or properties set forth in Section
2.01 of this Agreement and the Orange Grove Agreement, all other terms and
conditions of this Agreement and the Orange Grove Agreement remaining in full
force and effect. In such an event, Seller and Purchaser shall execute mutual
releases as to the property or properties not purchased.
25.0 Further Acts. In addition to the acts recited in this Agreement to be
performed by Seller and Purchaser, Seller and Purchaser agree to perform or
cause to be performed at the Closing or for a period of one year after the
Closing any and all such further acts as may be reasonably necessary to
consummate the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties by their duly authorized officers, have
executed this Agreement as an instrument under seal effective the day and year
first above written.
SELLER:
MILLER PROPERTIES, INC.
By: /s/ B. READ MILLER
----------------------------------
B. READ MILLER, PRESIDENT
[SEAL]
ATTEST:
BY: /s/ NANCY M. MILLER
- -----------------------------
NANCY M. MILLER, SECRETARY
PURCHASER:
FORT MYLNER PROPERTIES, INC.
By: /s/ JOHN P. deJONGH, JR.
----------------------------------
JOHN P. deJONGH, JR., PRESIDENT
[SEAL]
ATTEST:
BY: /s/ ETIENNE R. BERTRAND
- ------------------------------
ETIENNE R. BERTRAND, SECRETARY
Exhibit 10.6
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is executed effective June 14, 1996,
between MILLER PROPERTIES, INC., a U.S. Virgin Islands corporation ("Seller")
and GOLDEN ORANGE CENTERS, INC., a U.S. Virgin Islands corporation and a wholly
owned subsidiary of H.E. Lockhart Management, Inc. ("Purchaser").
W I T N E S S E T H:
A. Seller is the owner of all the real and personal property described as
follows:
All the real property and improvements located thereon known as the
Orange Grove Shopping Center located in St. Croix, United States
Virgin Islands (the "Shopping Center"), which property is more
particularly described in Exhibit "A" attached hereto and made a part
hereof, together with all tenements, hereditaments, and appurtenances
thereunto belonging (collectively, "Land");
Together with all tangible personal property of every kind and nature
owned by Seller which is installed, located or situated on the Land
and used in the operation, use and enjoyment of the Land
(collectively, "Personal Property") including without limitation, all
fixtures, furniture, equipment and all inventories of supplies on hand
as of the date of Closing;
Together with all of Seller's rights, title and interest in and to the
trade name "Orange Grove Shopping Center" ("Trade Names");
All of Seller's rights, title and interest in and to all leases for
any portion of the
Land and all guarantees of such leases (individually, "Lease" or
collectively "Leases") in effect on the Date of this Agreement.
<PAGE>
The Land, Personal Property, Trade names and Leases are hereinafter
collectively sometimes referred to as the "Property".
B. Seller desires to sell the Property to Purchaser and Purchaser desires
to buy the Property from Seller pursuant to the provisions contained in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1.0 Sale and Purchase of Property. Subject to and on the terms and
conditions provided herein, Purchaser shall buy from Seller, and Seller shall
sell to Purchaser, the Property.
2.0 Purchase Price.
2.01 The purchase price for the Property shall be THREE MILLION FIVE
HUNDRED EIGHTY FOUR THOUSAND FOUR HUNDRED TWENTY FIVE DOLLARS ($3,584,425.00)
(the "Purchase Price"). The Purchase Price, after deducting the Earnest Money,
and subject to such other credits, prorations and adjustments as are provided
herein, shall be paid at Closing by cashier's check or other funds acceptable to
Seller.
2.02 Contemporaneously with the execution of this Agreement, Purchaser
shall pay to Logan & Logan, as escrow agent ("Escrow Agent") the sum of
$10,000.00 a earnest money ("Earnest Money") under this Agreement and that
certain Purchase Agreement of even date herewith by and between the Seller and
Fort Mylner Properties, Inc. (the "St. Thomas Agreement"). Escrow Agent shall
hold the Earnest Money pursuant to the provisions of this Agreement and the St.
Thomas Agreement. Escrow Agent acknowledges receipt of the Earnest Money. If the
closing is consummated, then the Earnest Money shall be paid to Seller and
credited towards the Purchase Price at the Closing. If the closing is not
consummated, then the Earnest Money shall be paid to Seller or Purchaser as
provided in Sections 12.0 and 13.0 hereof.
2.03 At Closing, Purchaser shall assume in writing all the maintenance
contracts, service contracts and other agreements described in Exhibit "B"
attached hereto and made a part hereof (collectively "Contracts"). If there are
any such contracts which the Purchaser does not desire to assume, then it shall
notify the Seller at
<PAGE>
least thirty (30) days in advance of the Closing, and Seller will cause such
contract(s) to be canceled at or prior to the Closing.
2.04 Purchaser shall not hereby, or in connection herewith, whether by
implication or otherwise, assume or become obligated or liable for any
liability, indebtedness or other obligations of Seller of any nature whatsoever,
whether now or hereafter existing, due or to become due, absolute or contingent,
or otherwise, whether or not any such liability, indebtedness or other
obligation was disclosed to Purchaser, including, without limitation, any
contracts, mortgages, liens, charges, or encumbrances affecting the Seller or
the Property; except the Leases and the Contracts. The provisions of this
Section 2.04 shall survive the Closing.
2.05 Seller represents and warrants that all information and
documentation previously provided by Seller to Purchaser concerning the Leases
encumbering the Property, the title to the Property, the financial operating
history of the Property (including, without limitation, all bookkeeping records,
income and expense reports, and any other financial reports affiliated with the
Property), the physical condition of the Property and its structural components
and any other matters relative to the Property are materially true, accurate and
complete to the best of its actual knowledge. Purchaser has examined and found
satisfactory such Leases, the financial operating history of the Property
(including, without limitation, all bookkeeping records, income and expense
reports and other financial reports furnished by the Seller), the physical
condition of the Property and its structural components and all other matters
relative to the Property. Purchaser has satisfied itself with respect to market
conditions affecting the Property, including, without limitation, effective
market rental rates, space availability and absorption in markets competitive
with the Property, insurance premiums, insurance coverage, land values,
replacement costs, interest rates, discount rates, and other similar market
factors. Purchaser has conducted a physical inspection of the Property. Seller
and Purchaser agree that Seller shall perform, at its expense, the repairs
listed on Exhibit "C" attached hereto and made a part hereof in a good and
workmanlike manner consistent with the existing improvements and in accordance
with all applicable territorial laws, rules and regulations. The obligation of
Seller to perform the repairs listed in
<PAGE>
Exhibit "C" shall survive the Closing. In the event that the Seller has not
completed the repairs prior to Closing, Seller shall coordinate all post Closing
repairs with Purchaser, and Seller shall proceed with such repairs as
expeditiously as possible and shall complete the same not later than 180 days
from the Closing Date. Except for the repairs set forth on Exhibit "C" attached
hereto, and except as otherwise set forth in this Agreement, Purchaser agrees
that the Property is being conveyed to it "AS IS, WHERE IS" without any express
or implied warranties of any type concerning the physical condition of the
Property, including without limitation, implied warranties of merchantability
and fitness for a particular purpose.
2.06 From and after the date of this agreement, Seller agrees to
permit Buyer and its designees reasonable access at reasonable times to the
Property for the purposes of making measurements, inspections, and the like.
3.0 Seller's Representations and Warranties. Seller hereby represents and
warrants to Purchaser as follows:
3.01 Seller is a corporation duly organized, validly existing and in
good standing under the laws of the Territory of the United States Virgin
Islands. The execution, delivery and performance of this Agreement and the
transactions contemplated herein by the Seller are within the corporate powers
of Seller and have been duly authorized by all necessary corporate action by the
Seller. Upon execution and delivery, this Agreement and the documents
contemplated herein shall be legally binding obligations of Seller enforceable
in accordance with their provisions.
3.02 There are no actions, suits or proceedings threatened or pending
against by or affecting Seller or the Property, which question the validity of
this Agreement or question or impair Seller's title to the Property or of any
action to be taken by Seller pursuant to or in connection with this Agreement or
for any other reason, in any court or before any governmental agency.
3.03 Up to and including the Closing Date, no one will modify or
remove any of the Personal Property, except that supplies will be used and
replaced in the ordinary course of business; unless such personal property is
replaced with personal property of similar character and value.
<PAGE>
3.04 Seller will not execute any new lease, service contract or enter
into any other agreement concerning the Property without Purchaser's prior
written consent, which consent shall not be unreasonably withheld, unless such
lease, service contract, or agreement shall terminate prior to the effective
date of the Closing.
3.05 Seller shall continue to operate the Property in the Seller's
normal manner.
3.06 Seller will not modify, amend, cancel or terminate any of its
existing Leases or Contracts without Purchaser's prior written consent, which
consent shall not be unreasonably withheld.
3.07 Seller owns good, marketable, and insurable fee simple record
title to the Land, free and clear of all encumbrances; except the rights of the
tenants under the Leases, all zoning, environmental, building and all other
laws, rules and regulations affecting the use or occupancy of the Property; all
matters shown by As-Built surveys of the Land and the improvements located
thereon, copies of which are attached hereto as Exhibit "D" and ad valorem real
property taxes for the year 1995 and all years thereafter; and those
encumbrances set forth in the documents attached as Exhibit "E" hereto and made
a part hereof (collectively, the "Title Exceptions"). Seller owns good and
marketable title to the Personal Property and the Trade Name free and clear of
all encumbrances, except the loans from Banco Popular de Puerto Rico to Seller
listed on Exhibit "F" attached hereto and made a part hereof.
The parties agree that if there is any conflict between the representations
and warranties of Seller contained in this Agreement which are specifically
designated and intended to survive the Closing and the warranties of title
contained in the Warranty Deed, then the representations and warranties
contained in this Agreement which are specifically designated and intended to
survive the Closing shall control.
3.08 A complete and correct list of all Leases (including current
rent, Additional Rents as defined in Section 8.05(c) hereof and security
deposits) is attached hereto as Exhibit "G" and made a part hereof. There are
<PAGE>
no Leases, tenancies, licenses or other rights of occupancy or use for any
portion of the Property except as set forth in Exhibit "G". To the best of
Seller's actual knowledge, the Leases which the Seller shall deliver on or
before the execution of this Agreement are true and complete, are in full force
and effect and there are no defaults in the payment of rent (i.e., rents which
are more than thirty (30) days past due) under the Leases except as described on
Exhibit "G" attached hereto. To the best of Seller's actual knowledge and
belief, Seller is not in default under any of the terms and conditions of the
Leases and shall not be in default under the terms and conditions of the Leases
at the time of Closing.
3.09 To the best of Seller's actual knowledge and belief without any
independent investigation or inquiry, Seller has not caused or allowed any
unpermitted disposal or release of hazardous substances onto the Property, into
the air from the Property, or into any surface water or ground water from the
Property, or into any sewer, septic system or waste treatment, storage or other
disposal system servicing the Property. To the best of Seller's actual knowledge
and belief without any independent investigation or inquiry, no tenant of the
Property has caused or allowed any unpermitted disposal or other release of
hazardous substances onto the Property, into the air, or into any ground water,
or into any sewer, septic system or waste treatment, storage or disposal system
servicing the property. To the best of Seller's actual knowledge and belief and
without any independent investigation or inquiry, except for inventory of raw
materials or goods to be sold, supplies work in progress and finished, that are
to be used or sold in the ordinary course of business, Seller has not caused or
allowed the storage of any hazardous substances at the Property. As used in this
Agreement, the term "hazardous substances" is defined in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act
("SARA").
Seller has received no legal complaint, order, directive, claim, citation,
or written notice by any governmental authority or any person or entity with
respect to violations of law relating to: (1) air emissions; (2) spills,
releases, or discharges to the soil or improvements located thereon, surface
water, ground water, or the sewer, septic system or waste treatment,
<PAGE>
storage or disposal systems servicing the Property; (3) noise emissions; (4)
solid or liquid waste disposal; (5) the use, generation, storage,
transportation, or disposal of hazardous substances; or (6) other environmental,
health or safety laws, rules or regulations affecting the Property. To the best
of Seller's actual knowledge and belief without any independent investigation or
inquiry, Seller has no indebtedness, obligation or liability, absolute or
contingent, matured or not matured with respect to the storage, treatment, clean
up, or disposal of any hazardous substances (including without limitation any
such indebtedness, obligation or liability with respect to any current
regulation, law or statute regarding such storage, treatment, clean up or
disposal).
Notwithstanding any other provisions contained herein or in the Warranty
Deed, the provisions of this Section 3.09 shall survive Closing for a period of
one year after the Closing Date.
3.10 Seller shall not take any action, omit to take any action, or
permit the taking or omission of any action which would make any of the
foregoing representations or warranties untrue in any material respect on and as
of the Closing Date.
4.0 Conditions Precedent To Purchaser's Obligations. The obligations of
Purchaser hereunder are subject to the satisfaction at or prior to the Closing,
of the following conditions:
4.01 All representations and warranties made by Seller shall be
materially true and correct as of Closing Date as though they were made again on
such date.
4.02 Seller shall have complied with all its obligations under this
Agreement.
4.03 There is no material adverse change in the physical condition of
the Property between the effective date of this Agreement and the Closing. A
"material adverse change" means damage or other destruction to a portion of the
improvements comprising the Land and the Personal Property which will cost in
excess of $10,000 to repair, replace or restore.
5.0 Purchaser's Representations and Warranties. Purchaser represents and
warrants to Seller as follows:
<PAGE>
5.01 Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the Territory of the United States Virgin
Islands. The execution, delivery and performance of this Agreement and the
transactions contemplated herein by the Purchaser are within the corporate
powers of Purchaser and have been duly authorized by all necessary corporate
action by the Purchaser. Upon execution and delivery, this Agreement and the
documents contemplated herein shall be legally binding obligations of Purchaser
enforceable in accordance with their provisions.
5.02 There are no actions, suits or proceedings threatened or pending
against, by or affecting Purchaser, which question or impair Purchaser's ability
to enter into this Agreement and to perform its obligations hereunder before any
court or governmental agency.
6.0 Conditions Precedent to Seller's Obligations. The obligations of Seller
hereunder are subject to the satisfaction, at or prior to the Closing, of the
following conditions:
6.01 All representations and warranties made by Purchaser shall be
materially true and correct as of the Closing Date.
6.02 Purchaser shall have complied with all its obligations under this
Agreement.
6.03 Seller and Banco Popular de Puerto Rico shall have reached an
agreement acceptable to Seller to release the Property from the existing loans
from Banco Popular de Puerto Rico to Seller encumbering the Property. Seller
agrees to seek such an agreement in good faith.
7.0 Title, Zoning, Survey, Access and Permits Examination. Purchaser's
performance of its obligations hereunder is subject to the conditions precedent
that at or before 5 p.m. on June 12, 1996 ("Condition Date") all of the
following conditions shall have been satisfied or waived in writing by
Purchaser, to wit:
7.01 Purchaser shall have until the Condition Date to examine the
title to the Property and to notify Seller of any valid title objections
Purchaser may find, including the Title Exceptions. Seller shall then have
<PAGE>
until the Closing to cure any title objections raised by Purchaser. Seller
shall, at or prior to Closing, pay all taxes and assessments which constitute a
lien upon the Property (other than those not then due and payable) and shall
cause the Banco Popular de Puerto Rico loans encumbering the Property to be
released. If Seller fails or is unable to cure such title objections, then
Purchaser shall have only the following alternatives: (1) to waive such title
objections and to close the transaction contemplated thereby without any
deduction in the Purchase Price unless such title objection is a monetary lien
in which case Seller shall arrange for payment of same and delivery of a
discharge of the lien at Closing and the Seller hereby authorizes the Purchaser
to pay such amount as is necessary to discharge the lien by deducting the
necessary funds from the Purchase Price; (2) to terminate this Agreement in
accordance with the Subsection 12.02 hereof, or (3) to extend the date of
Closing for an additional thirty (30) days to allow Seller to try to cure such
objections. Purchaser shall have five (5) days from the date of notice by Seller
that Seller is unable to cure any such title objections in which to elect one of
the options set forth above in this Section 7.0 and Purchaser may extend the
time for Closing to the extent necessary to provide such five (5) day period. If
Purchaser elects option (3) above and if at the end of the such thirty (30) day
period Seller has not cured such objections, then Purchaser shall have the right
to elect one of options (1) through (2) above. Any liens or encumbrances filed
against the Property after the Condition Date, but prior to the Closing, shall,
also, be subject to the terms of this Section 7.01.
7.02 Purchaser shall have until the Condition Date to review zoning,
environmental and other laws applicable to the Property and its operation and
the As-Built Surveys of the Property to determine compliance with U.S. Virgin
Islands zoning, environmental and other applicable laws and to analyze the
As-Built surveys for encroachments and zoning compliance. If encroachments,
zoning violations or other matters adversely affect the Property, Purchaser
shall, by notice in writing to the Seller delivered on or before the Condition
Date, advise Seller of such matters Purchaser considers to be material which
Seller shall cure at or prior to the Time of Closing. At or prior to the
execution of this Agreement, Seller shall provide to Purchaser copies of all
permits it has relating to the operation of the Property, including
<PAGE>
without limitation, permits relating to the standby electrical generators and
sewage treatment facilities. If Seller shall fail to cure or discharge such
material matters affecting the Property at or prior to the Time of Closing,
Sections 12 and 13 of this Agreement shall control.
If all said conditions are not so satisfied or waived by the Condition
Date, then all deposits made hereunder shall, at Buyer's option, be returned to
Buyer within three business days after the Condition Date and upon such return
this Agreement shall terminate and be of no further force or effect.
If there are any adverse changes to the zoning of the Property or if any
permits now held by Seller are revoked or otherwise challenged by the
appropriate governmental agency between the Condition Date and the Closing Date,
then the Purchaser shall have the right to terminate this Agreement, receive a
refund of the Earnest Money, and no party shall have any further rights,
obligations or liabilities under, arising out of, or resulting from this
Agreement.
8.0 Closing. The closing ("Closing") of the transaction contemplated herein
shall occur on or before June 27, 1996, on a date and time acceptable to Seller
and Purchaser ("Closing Date") and shall be held at the law offices of Dudley,
Topper and Feuerzeig, 1A Frederiksberg Gade, St. Thomas, VI 00804. If Purchaser
and Seller are unable to agree upon a time and date for Closing, then such
Closing shall be held on June 27, 1996, at 10:00 a.m., Atlantic Standard Time;
provided, however, that in the event that Purchaser's lender (Banco Popular de
Puerto Rico) is unable to close on or before such date, Purchaser may extend the
Closing Date for up to 33 days (not beyond July 31, 1996), subject to the
obligation of Purchaser set forth below. In the event that Purchaser requires an
extension of the Closing Date pursuant to the terms and provisions of this
Section, the Purchaser shall obtain and maintain all risk property insurance and
comprehensive liability insurance in amounts approved by Seller and Seller's
Mortgagee (but not more than Seller currently holds) over the Shopping Center
(the "Insurance"), said insurance to name the Seller and Seller's Mortgagee as
additional insureds until Closing. In return, Seller hereby agrees to give
Purchaser a per diem credit at Closing for each day beyond June 27, 1996 that
the
<PAGE>
Shopping Center is still owned by Seller. The per diem rate shall be based on a
fraction, the numerator of which will be the number of days during which Seller
still holds title and the denominator of which shall be 365. If the Closing does
not take place for any reason whatsoever, Purchaser shall have the right to
cancel the Insurance not sooner than 30 days from the date of termination of
this Agreement and Seller shall pay the per diem rate to Purchaser in addition
to any other sums due and owing to Purchaser pursuant to the default provisions
of this Agreement. Seller hereby agrees to assist Purchaser in its efforts to
obtain the insurance contemplated by this Section and to provide and deliver
such documents and information as Purchaser's insurance agents or companies may
reasonably require or request. Purchaser agrees to assist Seller in any efforts
Seller may make to try to transfer the Insurance to Seller after termination of
this Agreement, without any liability on Purchaser's part for Seller's inability
to obtain a commitment from Purchaser's insurance carrier(s) to transfer the
Insurance.
8.01 At the closing Seller shall deliver or cause to be delivered the
following documents:
(a) General warranty deed in recordable form, duly attested with
Certificates of Real Property Tax Status attached in the form attached hereto as
Exhibit "I" conveying to Purchaser good, marketable and insurance fee simple
title to the Property, subject to Title Exceptions accepted or waived by
Purchaser prior to the Condition Date as provided in Section 7.0 above
(excluding the loans from Banco Popular de Puerto Rico to Seller) and those
standard exceptions contained in an owner's title insurance policy which are not
deleted upon receipt of the customary Seller's affidavit.
(b) Bills of sale conveying the Personal Property to the
Purchaser, together with a warranty of title and a certificate that there are no
liens or other encumbrances against the Property, in the form attached hereto as
Exhibit "J".
(c) An assignment and assumption agreement for the Contracts,
containing the provisions described in Subsection 8.8 below and in the form
attached hereto as Exhibit "K".
<PAGE>
(d) An assignment and assumption agreement for the Leases,
containing the provisions described in Subsection 8.7 below and in the form
attached hereto as Exhibit "L".
(e) A FIRPTA Affidavit in the form attached hereto as Exhibit
"M".
(f) A corporate resolution authorizing the transactions
contemplated herein from the directors of Seller, a valid and current
certificate of good standing from the Office of the Lieutenant Governor,
Government of the United States Virgin Islands pertaining to Seller post dating
the June 30 filing deadline for maintaining the Seller's good standing if the
Closing takes place after June 30, 1996, and a certificate of incumbency
certifying the identity of the officers and directors of Seller.
(g) A Closing Statement.
(h) A termination of the Trade Names and Consent of the Seller
for the Purchaser to use the Trade Names in the form attached hereto as Exhibit
"N".
(i) Releases of the Property from any and all monetary liens,
including, without limitation, those held by Banco Popular de Puerto Rico.
(j) Certified originals of all Contracts and Leases, payment
records for the tenants under the Leases and ad valorem real property tax bills
assessed against the Property for the last 4 years (including 1995 if the tax
bills have been issued), permits and certificate of use and occupancy.
(k) Any other documents necessary and requested by Purchaser to
consummate the transaction contemplated herein.
8.02 At the Closing, Purchaser shall deliver or cause to be delivered
the following items:
(a) The assignment and assumption agreement for the Leases;
(b) The assignment and assumption agreement for the Contracts;
(c) A Closing Statement;
<PAGE>
(d) A corporate resolution authorizing the transactions
contemplated herein from the directors of Purchaser, a certificate of good
standing from the Office of the Lieutenant Governor, Government of the United
States Virgin Islands pertaining to Purchaser post dating the June 30 filing
deadline for maintaining the Purchaser's good standing if the Closing takes
place after June 30, 1996 and a certificate of incumbency certifying the
identity of the officers and directors of Purchaser.
(e) Any other documents necessary and reasonably requested by
Seller to consummate the transaction contemplated herein.
8.03 Possession of the Property shall be delivered to the Purchaser at
Closing. Seller shall retain all risk of loss, and shall maintain all insurance
coverage with respect to the Property until conclusion of the Closing.
8.04 Seller shall pay the cost of the recording fees for any documents
needed to provide clear title to the Property as required under this Agreement.
Purchaser shall pay the costs for any title examination and owner's policy,
updated surveys and appraisals obtained by Purchaser, and for obtaining the
Banco Loan. Each party shall pay its own attorney's fees. Seller shall pay the
transfer stamp tax due for the deed.
8.05 All rents, Additional Rents as defined below, amounts payable
under any of the Contracts, utilities, and all other costs, expenses and income
of every kind which in any manner relates to the operations of the Property
(except real property ad valorem taxes) shall be prorated as of midnight of the
Closing Date. Seller shall be entitled to all accrued and unpaid rentals and
other receivables with respect to the Property through midnight of the Closing
Date, and if such funds are received after the Closing then Purchaser shall
promptly remit to Seller the funds received as set forth below. Purchaser shall
use commercially reasonable efforts to assist Seller in collecting such unpaid
rent and other income, but Purchaser shall not be obligated to expend any money
on Seller's behalf to collect such unpaid rent and other income.
(a) If any tenant is in arrears in the payment of rent on the
Closing Date, then rents and
<PAGE>
Additional Rents as defined below received by either Seller or Purchaser from
such tenant after the Closing shall be applied in the following order of
priority: (i) first to the month in which the Closing occurs and the rent shall
be immediately prorated between Seller and Purchaser; (ii) then to the current
month during which the rent is received; (iii) then to the months preceding the
month in which the Closing occurred; and (iv) then to any month or months
following the month in which the Closing occurred.
(b) If rents, Additional Rents as defined below or any portion
thereof received by Seller or Purchaser after the Closing are payable to the
other party by reason of this allocation, then the appropriate amount, less a
proportionate share of any attorneys' fees and costs of collection, incurred by
such party in collecting such amounts, shall be promptly paid to the other
party.
(c) If any tenants are required to pay percentage rent, common
area maintenance charges, operating expenses, escalation charges for real estate
taxes or insurance or other charges of a similar nature (collectively
"Additional Rents") that are attributable in whole or in part to any period
prior to the Closing, then whichever party receives such Additional Rents shall
promptly pay to the other its proportionate share of such amounts, less any
attorneys' fees and costs of collection incurred by either party in collecting
such amounts. Such amounts shall promptly be paid to the party entitled. The
provisions of this Section 8.5 shall survive the Closing.
8.06 Each of the real property ad valorem taxes for the year 1995
shall be paid by Seller at or prior to the Closing if the tax bill has been
issued. If one or more of the 1995 tax bills have not been issued prior to the
Closing Date, then Seller shall pay each tax bill within thirty (30) days after
the date Seller receives such tax bill. Upon receipt of each 1996 real property
tax bill assessed against the Property, the party receiving such tax bill shall
promptly send a copy of the bill to the other party. The parties shall prorate
each 1996 tax bill assessed against a portion of the Property based upon the
Closing Date. Each party shall pay its prorate share of such tax bill prior to
the due date for such tax bill. The provisions of this Section 8.6 shall survive
the Closing.
<PAGE>
8.07 The assignment of the Leases shall be in recordable form and
shall contain an indemnification by Seller with respect to the landlord's
obligations under such Leases arising on or prior to the Closing Date. Purchaser
shall assume and agree to perform all the obligations of landlord arising after
the Closing Date under all the Leases. The Assignment shall also contain an
indemnification in favor of Seller with respect to the Landlord's obligations
under the Leases arising from and after the Closing Date. Purchaser and Seller
shall execute a form notice of assignment to be delivered to each tenant. Such
notice shall notify the Tenant that the Lease has been assigned to the Purchaser
and shall state that all future rent shall be paid to Purchaser. All security
deposits shall be transferred to Purchaser by bank or certified check on the
Closing Date.
8.08 To the extent that the Contracts are assignable, Seller shall
assign to Purchaser such Contracts, without warranty or recourse. Purchaser
shall also assume and agree to perform all obligations of Seller under such
Contracts from and after the Closing Date. The assignment of the Contracts shall
contain the same cross indemnification provisions described above for the
Leases. It is hereby agreed that the Seller shall be obligated to pay and shall
pay for any work performed prior to the Closing Date whether or not payment is
due prior to the Closing Date. The provisions of this Section 8.8 shall survive
the Closing.
9.0 Real Estate Brokers. Seller and Purchaser hereby acknowledge that no
broker or finder has been employed by them in connection with the execution of
this Agreement or the consummation of the transaction contemplated hereby. Each
of Seller and Purchaser warrants to the other that no commissions are payable or
due to any broker or finder in connection with this Agreement or the
transactions contemplated herein. Each of Seller and Purchaser agrees to
indemnify, defend and hold the other harmless from and against any commissions
or fees or claims for commissions or fees asserted by any party with whom the
indemnifying party has dealt. The provisions of this Section 9.0 shall survive
the termination of this Agreement or the Closing.
10.0 Casualty. If, prior to the Closing, the Personal Property or any
improvements located on the Land are destroyed or damaged by fire or other
casualty and
<PAGE>
such repairs or replacements have not been completed by Seller at Seller's
expense prior to the Closing to Purchaser's reasonable satisfaction, then
Purchaser shall have the right and option to terminate this Agreement in
accordance with Subsection 12.2 hereof. If Purchaser does not terminate this
Agreement, then all insurance money payable as a result of such casualty shall
be paid to Purchaser for the purpose of making the required repairs or
replacements. The provisions of this Section 10.0 shall survive the Closing.
11.0 Condemnation. If any action or proceeding is filed (or notice of such
action or proceeding given) under which all or any material portion of the
Property where the Property may be taken by condemnation or other right of
eminent domain, then, Seller shall immediately notify Purchaser, and at the
option of Purchaser, either (a) Purchaser may terminate this Agreement in
accordance with Subsection 12.2 hereof, or (b) the transaction contemplated
hereby shall be closed as provided herein, and Seller shall assign to Purchaser
at Closing all its rights in the condemnation proceeds.
12.0 Termination. To the extent and under the circumstances set forth in
the following paragraphs of this Section 12.0, this Agreement may be terminated
at any time by the Seller or by the Purchaser prior to the Closing upon written
notice to the other party.
12.01 By a written agreement signed by Seller and Purchaser. Upon the
execution and delivery of such agreement, this Agreement shell be terminated,
the Earnest Money shall be immediately paid to Purchaser and no party shall have
any further rights, obligations, or liabilities under, arising out of, or
resulting from this Agreement.
12.02 Purchaser may terminate this Agreement if: (a) Purchaser is
entitled to terminate this Agreement pursuant to Sections 7.0, 10.0 or 11.0
hereof; or (b) the conditions precedent to Purchaser's obligations set forth in
this Agreement have not been satisfied at or prior to Closing. If Purchaser
elects to terminate this Agreement pursuant to the foregoing provisions, then
this Agreement shall be terminated, the Earnest Money shall be paid to Purchaser
and no party shall have any further rights, obligations or liabilities under,
arising out of or resulting from this Agreement, except that if the Seller is in
default of its obligations under this Agreement, and
<PAGE>
Purchaser has complied with its obligations under this Agreement, then Purchaser
shall also have the rights and remedies provided in Section 13.0 hereof for a
default by Seller. Provided, however, if Purchaser raises any valid title
objections which arise after the Condition Date or are not Permitted Exceptions
as set forth in this Agreement and which cannot reasonably be cured by Seller
within thirty (30) days after the effective date of Purchaser's written notice
to Seller specifying the title objections, then Seller shall not be deemed to be
in default of its obligations under this Agreement and Purchaser's rights shall
be limited to terminating this Agreement as set forth above without the rights
and remedies provided in Section 13.0 for a default by Seller.
12.03 Seller may terminate this Agreement if the conditions precedent
to Seller's obligations contained in Section 6.0 hereof have not been satisfied
at or prior to Closing. If Seller elects to terminate this Agreement pursuant to
the foregoing provisions, then this Agreement shall be terminated, the Earnest
Money shall be paid to Purchaser and no party shall have any further rights,
obligations or liabilities under, arising out of or resulting from this
Agreement, except that if the Purchaser is in default of its obligations under
this Agreement, and Seller has complied with its obligations under this
Agreement, then Seller shall also have the rights and remedies provided in
Section 13.0 hereof for a default by Purchaser.
13.0 Default. If Seller commits a default in the performance of any of its
material obligations under this Agreement, through no fault of Purchaser, and if
such default is not waived in writing by Purchaser and Purchaser elects to
terminate this Agreement, then Purchaser shall be reimbursed by Seller for all
attorneys fees, accounting fees, surveyor fees, fees paid to Banco Popular de
Puerto Rico for the first priority loan, and such other costs and expenses
incurred by Purchaser to third parties in attempting to close this transaction;
provided, however, that except as specifically set forth in Section 8.0 of this
Agreement, the total amount of liability of Seller to Purchaser shall not exceed
the sum of $10,000.00 under both this Agreement and the St. Thomas Agreement. If
Purchaser commits a default in the performance of any of its material
obligations under this Agreement, through no fault of Seller, and if such
default is not waived in writing by Seller and Seller elects to
<PAGE>
terminate this Agreement, then Seller shall be reimbursed by Purchaser for all
attorneys fees, accounting fees, surveyor fees, fees paid to Banco Popular de
Puerto Rico and such other costs and expenses incurred by Seller to third
parties in attempting to close this transaction; provided, however, the total
amount of liability of Purchaser to Seller shall not exceed the sum of
$10,000.00 under both this Agreement and the St. Thomas Agreement. The amount
due and payable to Seller shall be deducted from the Earnest Money Deposit and
immediately paid to Seller. The balance of the Earnest Money Deposit, if any,
shall be paid to Purchaser. No party shall have the right of specific
performance and no party shall be liable for any consequential damages or other
damages of any type, except for the reimbursement of the costs and expenses as
provided for above.
14.0 Notices. All notices, demands, or requests (collectively "Notice")
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be hand delivered or sent through the United States Postal Service, by
express mail or certified mail, return receipt requested, to the parties at the
following addresses:
SELLER: Miller Properties, Inc.
Buccaneer Mall No. 33
St. Thomas, V.I. 00802
With a copy to: G. Hunter Logan, Jr., Esq.
Logan & Logan
6 Chandlers Wharf
Christiansted, St. Croix, V.I. 00820
PURCHASER: Golden Orange Centers, Inc.
No. 44 Estate Thomas
P.O. Box 7030
St. Thomas, V.I. 00801
With a copy to: A. James Casner III, Esq.
Dudley, Topper & Feuerzeig
1A Frederiksberg Gade
P.O. Box 756
St. Thomas, V.I. 00804
Rejection or other refusal to accept or inability to deliver because of a
changed address of which no notice has been given shall constitute receipt of
the Notice. Either party shall have the right to change its address
<PAGE>
for Notice hereunder by giving two (2) days prior notice thereof to the other
party in the manner set forth above. Each notice shall be deemed effective when
hand delivered, or if sent through the United States Postal Service by Express
Mail or certified mail, on the date such notice is deposited with the United
States Postal Service as evidenced by the return receipt.
15.0 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Purchaser shall have the right to assign its right to purchase the Property, or
portions thereof, to one or more subsidiaries as long as such assignment does
not delay the Closing. Such assignment shall not release the Purchaser from its
obligations under this Agreement.
16.0 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of such counterparts together
shall constitute one and the same instrument.
17.0 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Territory of the United States Virgin Islands.
18.0 Prior Discussions and Amendments. This Agreement supersedes all prior
discussions and agreements between the parties hereto with respect to the
transactions contemplated herein and constitute the sole and entire agreement
between the parties with respect thereto. This Agreement may not be modified or
amended unless such amendment is in writing and signed by both Seller and
Purchaser.
19.0 Judicial Interpretation. If any provision of this Agreement requires
judicial interpretation, it is agreed that the court interpreting or construing
the same shall not apply a presumption that the terms hereof shall be more
strictly construed against one party by reason of the rule of construction that
a document is to be construed more strictly against the party who itself or
through its agent prepared the document. It is agreed that the agents of all
parties participated in the preparation hereof.
20.0 Survival of Agreement. All agreements, representations, and warranties
contained in this
<PAGE>
Agreement which by the terms of this Agreement are to survive the Closing shall
not be merged into the documents executed and delivered at Closing.
21.0 Confidentiality. Purchaser will maintain as strictly confidential all
documents and information it derives from such access to Seller's business, and
shall not use such information, documents, copies or products of its "due
diligence" information for any use or purpose other than its due diligence
anticipation of Closing. This Agreement does not restrict Purchaser with respect
to information that Purchaser proves it acquired wholly independently of or
prior to its access to Seller's business pursuant to this Agreement and the
prior Confidentiality Agreement which becomes public other than by any act or
omission of Purchaser. If for any reason the purchase and sale of the Property
does not close, then Purchaser will return promptly to the Seller all nonpublic
information obtained by it concerning Seller and the Property. Notwithstanding
the foregoing, the Purchaser shall be permitted to show this Agreement and any
Seller documents in its possession or to be provided by Seller to Purchaser's
accountant, attorneys, title insurers, insurance agents and companies, lenders,
lenders' counsel, business consultants, surveyors, appraisers, and the Virgin
Islands Department of Public Works as part of the Purchaser's efforts to
complete the transaction contemplated by this Agreement.
22.0 Captions. All captions, headings, and section numbers are solely for
the purpose of convenience and shall not supplement, limit or otherwise vary in
any respect the text of this Agreement.
23.0 Escrow Provisions. The Escrow Agent hereby agrees to hold the Earnest
Money in its noninterest bearing trust account and shall disburse the Earnest
Money pursuant to the provisions contained herein and in the escrow provisions
set forth in Exhibit "O" attached hereto and made a part hereof. If there is a
dispute between Seller and Purchaser over the return or forfeiture of the
Earnest Money, then the Escrow Agent shall retain the Earnest Money in its trust
account until it has received a written release from the parties consenting to
its disposition or until disposition is ordered by a court of competent
jurisdiction.
<PAGE>
24.0 Individual Properties. Seller and Purchaser acknowledge that this
Agreement and the St. Thomas Agreement cover three separate and distinct
properties. In the event that any contingency, condition precedent, title,
zoning or access issue relating to only one of the properties cannot be cured to
the Purchaser's satisfaction prior to Closing or any extension thereof pursuant
to this Agreement, Seller shall have the option to convey the other property or
properties to Purchaser, subject to Purchaser's right to decline such an
opportunity, at the price for such property or properties set forth in Section
2.01 of this Agreement and the St. Thomas Agreement, all other terms and
conditions of this Agreement and the St. Thomas Agreement remaining in full
force and effect. In such an event, Seller and Purchaser shall execute mutual
releases as to the property or properties not purchased.
25.0 Further Acts. In addition to the acts recited in this Agreement to be
performed by Seller and Purchaser, Seller and Purchaser agree to perform or
cause to be performed at the Closing or for a period of one year after the
Closing any and all such further acts as may be reasonably necessary to
consummate the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties by their duly authorized officers, have
executed this Agreement as an instrument under seal effective the day and year
first above written.
SELLER:
MILLER PROPERTIES, INC.
By: /s/ B. READ MILLER
----------------------------
B. READ MILLER, PRESIDENT
[SEAL]
ATTEST:
By: /s/ NANCY M. MILLER
---------------------------
NANCY M. MILLER, SECRETARY
<PAGE>
PURCHASER:
GOLDEN ORANGE CENTERS, INC.
By: /s/ JOHN P. DEJONGH, JR.
---------------------------
JOHN P. DEJONGH, JR.,
EXECUTIVE VICE PRESIDENT
[SEAL]
ATTEST:
By: /s/ ETIENNE R. BERTRAND
-------------------------------
ETIENNE R. BERTRAND, SECRETARY
Exhibit 10.7
THE LOCKHART COMPANIES INCORPORATED
LONG-TERM INCENTIVE PLAN
SECTION 1. Purpose. The purpose of this Long-Term Incentive Plan (the
"Plan") of The Lockhart Companies Incorporated (the "Corporation") is (a) to
promote the identity of interests between shareholders and employees of the
Corporation by encouraging and creating significant ownership of Common Stock of
the Corporation by officers and other employees of the Corporation and its
subsidiaries; (b) to enable the Corporation to attract and retain qualified
officers and employees who contribute to the Corporation's success by their
ability, ingenuity and industry; and (c) to provide meaningful long-term
incentive opportunities for officers and other employees who are responsible for
the success of the Corporation and who are in a position to make significant
contributions toward its objectives.
SECTION 2. Definitions. In addition to the terms defined elsewhere in the
Plan, the following shall be defined terms under the Plan:
2.01. "Award" means any Performance Award, Option, Stock Appreciation
Right, Restricted Stock, Deferred Stock, Dividend Equivalent, or Other
Stock-Based Award, or any other right or interest relating to Shares or cash,
granted to a Participant under the Plan.
2.02. "Award Agreement" means any written agreement, contract or other
instrument or document evidencing an Award.
2.03. "Board" means the Board of Directors of the Corporation.
2.04. "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
2.05. "Committee" means the Board, or such committee designated by the
Board to administer the Plan, or any subcommittee of either.
2.06. "Corporation" is defined as The Lockhart Companies Incorporated
or any successor to it in ownership of substantially all of its assets, whether
by merger, consolidation or otherwise.
2.07. "Covered Employee" has the same meaning as set forth in section
162(m) of the Code, and successor provisions.
<PAGE>
2.08. "Deferred Stock" means a right, granted to a Participant under
Section 6.05, to receive Shares at the end of a specified deferral period.
2.09. "Dividend Equivalent" means a right, granted to a Participant
under Section 6.03, to receive cash, Shares, other Awards, or other property
equal in value to dividends paid with respect to a specified number of Shares.
2.10. "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include successor provisions thereto and regulations thereunder.
2.11. "Fair Market Value" means, with respect to Shares, Awards or
other property, the fair market value of such Shares, Awards or other property
determined by such methods or procedures as shall be established from time to
time by the Committee. Unless otherwise determined by the Committee, the Fair
Market Value of Shares as of any date shall be the closing sales price on that
date of a Share as reported on a national securities exchange or the National
Association of Securities Dealers Automated Quotation National Market System;
provided, that if there were no sales on the valuation date but there were sales
on dates within a reasonable period both before and after the valuation date,
the Fair Market Value is the weighted average of the closing prices on the
nearest date before and the nearest date after the valuation date. The average
is to be weighted inversely by the respective numbers of trading days between
the selling dates and the valuation date.
2.12. "Incentive Stock Option" means an Option that is intended to
meet the requirements of Section 422 of the Code.
2.13. "Non-Qualified Stock Option" means an Option that is not
intended to be an Incentive Stock Option.
2.14. "Option" means a right, granted to a Participant under Section
6.06, to purchase Shares, other Awards, or other property at a specified price
during specified time periods.
2.15. "Other Stock-Based Award" means a right, granted to a
Participant under Section 6.08, that relates to or is valued by reference to
Shares.
2.16. "Parent Corporation" means a parent corporation ad defined in
Section 424(e) of the Code.
2.17. "Participant" means a person who, as an officer or employee of
the Corporation or any Subsidiary, has been granted an Award under the Plan.
2.18. "Performance Award" means a right, granted to a Participant
under Section 6.02, to receive cash, Shares, other
<PAGE>
Awards, or other property the payment of which is contingent upon achievement of
performance goals specified by the Committee.
2.19. "Performance-Based Restricted Stock" means Restricted Stock that
is subject to a risk of forfeiture if specified performance criteria are not met
within the restriction period.
2.20. "Plan" is The Lockhart Companies Long-Term Incentive Plan.
2.21. "Restricted Stock" means Shares granted to a Participant under
Section 6.04, that are subject to certain restrictions and to a risk of
forfeiture.
2.22. "Shares" means the Class A Common Stock of the Corporation and
such other securities of the Corporation as may be substituted for Shares or
such other securities pursuant to Section 10.
2.23. "Stock Appreciation Right" means a right, granted to a
Participant under Section 6.03, to be paid an amount measured by the
appreciation in the Fair Market Value of Shares from the date of grant to the
date of exercise of the right, with payment to be made in cash, Shares, other
Awards, or other property as specified in the Award or determined by the
Committee.
2.24. "Subsidiary" means any corporation (other than the Corporation)
with respect to which the Corporation owns, directly or indirectly, 50% or more
of the total combined voting power of all classes of stock.
2.25. "Year" means a calendar year.
SECTION 3. Administration.
3.01. Authority of the Committee. The Plan shall be administered by
the Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select and designate Participants;
(ii) to determine the type or types of Awards to be granted to
each Participant;
(iii) to determine the number of Awards to be granted, the number
of Shares to which an Award will relate, the terms and conditions of any Award
granted under the Plan and all other matters to be determined in connection with
an Award;
<PAGE>
(iv) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(v) to construe and interpret the Plan and any Award, rules and
regulations, Award Agreement or other instrument hereunder; and
(vi) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
3.02. Manner of Exercise of Committee Authority. Except to the extent
specifically reserved to another entity under the terms of the Plan or
applicable law, the Committee shall have sole discretion in exercising such
authority under the Plan. Any action of the Committee with respect to the Plan
shall be final, conclusive and binding on all persons, including the
Corporation, Subsidiaries, Participants, any person claiming any rights under
the Plan from or through any Participant and shareholders. The express grant of
any specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
Committee. A memorandum signed by all members of the Committee shall constitute
the act of the Committee without the necessity, in such event, to hold a
meeting. The Committee may delegate to officers or managers of the Corporation
or any Subsidiary the authority to perform administrative functions under the
Plan, subject to such terms as the Committee shall determine.
3.03. Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Corporation or any
Subsidiary, the Corporation's independent certified public accountants, or any
executive compensation consultant or other professional retained by the
Corporation to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Corporation acting on behalf of
the Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Corporation acting
on their behalf, shall, to the extent permitted by law, be fully indemnified and
protected by the Corporation with respect to any such action, determination, or
interpretation.
SECTION 4. Shares Subject to the Plan. Subject to adjustment as provided in
Section 10, the total number of Shares reserved and available for Awards under
the Plan shall be 1,000,000. If any Shares to which an Award relates are
forfeited or the Award is settled or terminates without a distribution of Shares
(whether or not cash, other Awards, or other property is
<PAGE>
distributed with respect to such Award), any Shares counted against the number
of Shares reserved and available under the Plan with respect to such Award
shall, to the extent of any such forfeiture, settlement or termination, again be
available for Awards under the Plan.
SECTION 5. Eligibility. Awards may be granted to individuals who are
officers employees (including employees who are also directors), or independent
contractors of the Corporation or a Subsidiary.
SECTION 6. Specific Terms of Awards.
6.01. General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
11.02), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including without
limitation the acceleration of vesting of any Awards or terms requiring
forfeiture of Awards in the event of termination of employment by the
Participant. Except as provided in Sections 7.03 or 7.04, only services may be
required as consideration for the grant of any Award.
6.02 Options. The Committee may grant an Option at any time and from
time to time to any eligible employee with respect to such number of Shares and
upon such terms as the Committee shall determine.
(i) Type of Options. Options granted under the Plan may be either
nonqualified stock options ("NQSO's") or incentive stock options ("ISO's")
intended to meet the requirements of Section 422 of the Code.
(ii) ISO Restrictions. Notwithstanding any provision of the Plan
to the contrary, no ISO may be granted more than ten years after the date the
Plan is adopted. The aggregate Fair Market Value (determined as of the date the
option is granted) of the Shares for which any Participant may be granted ISO's
which become exercisable for the first time by such participant in any calendar
year under this and any other stock option plan maintained by the Corporation or
by any Subsidiary or Parent Corporation of the Employer shall not exceed
$100,000.
(iii) Stock Option Agreement. Each Option granted hereunder shall
be evidenced by a written Stock Option Agreement that shall specify the number
of Shares which are subject to the Option, the Option Price, the installments,
if any, in which the Option shall vest and become exercisable, the date of
expiration of the Option and such other terms and conditions as the Committee
shall determine and as are consistent with the provisions of the Plan.
<PAGE>
(iv) Option Price. The Option Price shall be established by the
Committee and set forth in the Stock Option Agreement applicable to an Option.
In no event shall the Option Price designated by the Committee with respect to
any NQSO be less than seventy-five percent (75%) of the Fair Market Value of the
Shares subject to the option as of the date that such Option is granted or, if
greater, the par value of such Shares. In no event shall Option Price be
designated by the Committee with respect to any ISO be less than the Fair Market
Value of the Shares subject to the Option as of the date such Option is granted
or, if greater, the par value of such Shares. Notwithstanding the foregoing, no
ISO shall be granted to any employee who, at the time the Option is granted,
owns (directly, or with the meaning of Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Corporation or of any Subsidiary or Parent Corporation thereof, unless the
Option Price under such Option is at least one hundred and ten percent (110%) of
the Fair Market Value of the Shares subject to the Option on the date the Option
is granted.
(v) Expiration of Options. Subject to the provisions of Section
6.8, each Option granted hereunder shall expire at such time as the Committee
shall designate in the Stock Option Agreement applicable to such Option;
provided, however, that it shall in any event expire no later than the tenth
(10th) anniversary of the date it is granted. Notwithstanding the foregoing, any
ISO granted to any employee who, at the time the Option is granted, owns
(directly, or with the meaning of Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Employer or of any Subsidiary or Parent Corporation, shall expire no later than
the fifth (5th) anniversary of the date it is granted.
(vi) Exercise of Options. Each Option granted hereunder shall be
exercisable at such times and upon such conditions as are designated in the
Stock Option Agreement applicable to such Option. To exercise an Option in whole
or in part, a Participant shall give the Corporation a written notice of
exercise which specifies the number of Shares to be purchased and is accompanied
by payment of the full Option Price for such Shares. An Option may be exercised
with respect to fewer than all the Shares with respect to which it is then
exercisable, but it may not be exercised with respect to less than a full Share.
6.03. Stock Appreciation Rights. The Committee is authorized to grant
Stock Appreciation Rights to Participants on the following terms and conditions:
(i) Right to Payment. A Stock Appreciation Right shall confer on
the Participant to whom it is granted a right to receive, upon exercise thereof,
the excess of (A) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine in the case of any such right, other
than one
<PAGE>
related to an Incentive Stock Option, the Fair Market Value of one Share at any
time during a specified period before or after the date of exercise or the
Change of Control Price as defined in Section 9.03) over (B) the grant price of
the Stock Appreciation Right as determined by the Committee as of the date of
grant of the Stock Appreciation Right, which, except as provided in Section
7.03, shall be not less than the Fair Market Value of one Share on the date of
grant.
(ii) Other Terms. The Committee shall determine the time or times
at which a Stock Appreciation Right may be exercised in whole or in part, the
method of exercise, method of settlement, form of consideration payable in
settlement, method by which Shares will be delivered or deemed to be delivered
to Participants, and any other terms and conditions of any Stock Appreciation
Right. Limited Stock Appreciation Rights that may be exercised only upon the
occurrence of a Change of Control (as such term is defined in Section 9.02) or
as otherwise defined by the Committee) may be granted under this Section 6.07.
Stock Appreciation Rights shall expire not later than ten years after the date
of grant.
6.04. Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Stock shall be subject
to such restrictions on transferability and other restrictions as the Committee
may impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends thereon), which restrictions
may lapse separately or in combination at such times, under such circumstances,
in such installments or otherwise as the Committee shall determine.
(ii) Forfeiture. Performance-Based Restricted Stock shall be
forfeited unless preestablished performance criteria specified by the Committee
are met during the applicable restriction period. Except as otherwise determined
by the Committee, upon termination of employment (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Corporation; provided, that the Committee may provide, by
rule or regulation or in any Award Agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Restricted Stock
will be waived in whole or in part in the event of terminations resulting from
specified causes.
(iii) Certificates of Shares. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates shall bear an appropriate legend referring to
<PAGE>
the terms, conditions, and restrictions applicable to such Restricted Stock, the
Corporation shall retain physical possession of the certificates, and the
Participant shall deliver a stock power to the Corporation, endorsed in blank,
relating to the Restricted Stock.
(iv) Dividends. Unless otherwise determined by the Committee, cash
dividends paid on Performance-Based Restricted Stock shall be automatically
reinvested in additional shares of Performance-Based Restricted Stock and cash
dividends paid on other Restricted Stock shall be paid to the Participant.
Dividends reinvested in Performance-Based Restricted Stock and Shares
distributed in connection with a stock split or stock dividend, and other
property distributed as a dividend, shall be subject to restrictions and a risk
of forfeiture to the same extent as the Restricted Stock with respect to which
such stock or other property has been distributed.
6.05. Deferred Stock. The Committee is authorized to grant Deferred
Stock to Participants, on the following terms and conditions:
(i) Award and Restrictions. Delivery of Shares will occur upon
expiration of the deferral period specified for Deferred Stock by the Committee
(or, if permitted by the Committee, as elected by the Participant). In addition,
Deferred Stock shall be subject to such restrictions as the Committee may
impose, which restrictions may lapse at the expiration of the deferral period or
at earlier specified times, separately or in combination, in installments, or
otherwise, as the Committee shall determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment (as determined under criteria established by the
Committee) during the applicable deferral period or portion thereof (as provided
in the Award Agreement evidencing the Deferred Stock), all Deferred Stock that
is at that time subject to deferral (other than a deferral at the election of
the Participant) shall be forfeited; provided, that the Committee may provide,
by rule or regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating to Deferred
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part the forfeiture of Deferred Stock.
6.06. Performance Awards. Subject to the provisions of Sections 7.01
and 7.02, the Committee is authorized to grant Performance Awards to
Participants on the following terms and conditions:
(i) Awards and Conditions. A Performance Award shall confer upon
the Participant rights, valued as determined by
<PAGE>
the Committee, and payable to, or exercisable by, the Participant to whom the
Performance Award is granted, in whole or in part, as determined by the
Committee, conditioned upon the achievement of performance criteria determined
by the Committee.
(ii) Other Terms. A Performance Award shall be denominated in
Shares and may be payable in cash, Shares, other Awards, or other property, and
have such other terms as shall be determined by the Committee.
6.07. Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Participants. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Shares or Awards, or otherwise reinvested.
6.08. Other Stock-Based Awards. The Committee is authorized to grant
to Participants such other Awards that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, Shares,
as deemed by the Committee to be consistent with the purposes of the Plan,
including without limitation, Shares awarded purely as a "bonus" and not subject
to any restrictions or conditions, convertible or exchangeable debt securities,
other rights convertible or exchangeable into Shares, purchase rights, and
Awards valued by reference to book value of Shares or the value of securities of
or the performance of specified Subsidiaries. The Committee shall determine the
terms and conditions of such Awards, which may include performance criteria.
Shares delivered pursuant to an Award in the nature of a purchase right granted
under this Section 6.08 shall be purchased for such consideration, paid for at
such times, by such methods, and in such forms, including, without limitation,
cash, Shares, other Awards, or other property, as the Committee shall determine.
SECTION 7. Certain Provisions Applicable to Awards.
7.01. Performance-Based Awards. Performance Awards, Performance-Based
Restricted Stock, and certain Other Stock-Based Awards subject to performance
criteria are intended to be "qualified performance-based compensation" within
the meaning of section 162(m) of the Code and shall be paid solely on account of
the attainment of one or more preestablished, objective performance goals within
the meaning of section 162(m) and the regulations thereunder. As selected by the
Committee, the performance goal shall be the attainment of one or more of the
preestablished amounts of annual net income, operating income, cash flow, return
on assets, return on equity, return on capital or total shareholder return of
the Corporation.
The payout of any such Award to a Covered Employee may be reduced, but not
increased, based on the degree of attainment of other performance criteria or
otherwise at the direction of the Committee.
<PAGE>
7.02. Maximum Individual Awards. No individual may be granted more
than 100,000 shares subject to any combination of Performance Awards, Restricted
Stock, or other Stock-Based Awards subject to performance criteria in any given
year. No individual may receive more than 100,000 options in any given year. The
Share amounts in this Section 7.02 are subject to adjustment under Section 10
and are subject to the Plan maximum under Section 4.
7.03. Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for any other
Award granted under the Plan or any award granted under any other plan of the
Corporation, any Subsidiary, or any business entity to be acquired by the
Corporation or a Subsidiary, or any other right of a Participant to receive
payment from the Corporation or any Subsidiary. If an Award is granted in
substitution for another Award or award, the Committee shall require the
surrender of such other Award or award in consideration for the grant of the new
Award. Awards granted in addition to or in tandem with other Awards or awards
may be granted either as of the same time as or a different time from the grant
of such other Awards or awards. The per Share exercise price of any Option,
grant price of any Stock Appreciation Right, or purchase price of any other
Award conferring a right to purchase Shares:
(i) Granted in substitution for an outstanding Award or award
shall be not less than the lesser of the Fair Market Value of a Share at the
date such substitute award is granted or such Fair Market Value at that date
reduced to reflect the Fair Market Value at that date of the Award or award
required to be surrendered by the Participant as a condition to receipt of the
substitute Award; or
(ii) Retroactively granted in tandem with an outstanding Award or
award shall be not less than the lesser of the Fair Market Value of a Share at
the date of grant of the later Award or at the date of grant of the earlier
Award or award.
7.04. Exchange Provisions. The Committee may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Shares,
other Awards (subject to Section 7.03), or other property based on such terms
and conditions as the Committee shall determine and communicate to the
Participant at the time that such offer is made.
7.05. Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided, that in no event shall the term
of any Option or a Stock
<PAGE>
Appreciation Right granted in tandem therewith exceed a period of ten years from
the date of its grant (or such shorter period as may be applicable under Section
422 of the Code).
7.06. Form of Payment Under Awards. Subject to the terms of the Plan
and any applicable Award Agreement, payments to be made by the Corporation or a
Subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including without limitation, cash, Shares, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in
Shares.
SECTION 8. General Restrictions Applicable to Awards.
8.01. Limits on Transfer of Awards; Beneficiaries. No right or
interest of a Participant in any Award shall be pledged, encumbered, or
hypothecated to or in favor of any party (other than the Corporation or a
Subsidiary), or shall be subject to any lien, obligation, or liability of such
Participant to any party (other than the Corporation or a Subsidiary). Unless
otherwise determined by the Committee, no Award subject to any restriction shall
be assignable or transferable by a Participant otherwise than by will or the
laws of descent and distribution (except to the Corporation under the terms of
the Plan); provided, that a Participant may, in the manner established by the
Committee, designate a beneficiary or beneficiaries to exercise the rights of
the Participant, and to receive any distribution, with respect to any Award,
upon the death of the Participant. A beneficiary, guardian, legal
representative, or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the Plan
and any Award Agreement applicable to such Participant or agreement applicable
to such, except to the extent the Plan and such Award Agreement or agreement
otherwise provide with respect to such persons, and to any additional
restrictions deemed necessary or appropriate by the Committee.
8.02. Registration and Listing Compliance. The Corporation shall not
be obligated to deliver any Award or distribute any Shares with respect to any
Award in a transaction subject to regulatory approval, registration, or any
other applicable requirement of federal or state law, or subject to a listing
requirement under any listing or similar agreement between the Corporation and
any national securities exchange, until such laws, regulations, and contractual
obligations of the Corporation have been complied with in full, although the
Corporation shall be obligated to use its best efforts to obtain any such
approval and comply with such requirements as promptly as practicable.
<PAGE>
8.03. Share Certificates. All certificates for Shares delivered under
the Plan pursuant to any Award or the exercise thereof shall be subject to such
restrictions as the Committee may deem advisable under applicable federal or
state laws, rules and regulations thereunder, and the rules of any national
securities exchange on which Shares are listed. The Committee may cause a legend
or legends to be placed on any such certificates to make appropriate reference
to such restrictions or any other restrictions that may be applicable to Shares,
including under the terms of the Plan or any Award Agreement. In addition,
during any period in which Awards or Shares are subject to restrictions under
the terms of the Plan or any Award Agreement, or during any period during which
delivery or receipt of an Award or Shares has been deferred by the Committee or
a Participant, the Committee may require the Participant to enter into an
agreement providing that certificates representing Shares issuable or issued
pursuant to an Award shall remain in the physical custody of the Corporation or
such other person as the Committee may designate.
SECTION 9. Change of Control Provisions. Notwithstanding any other
provision of the Plan, the following acceleration provisions shall apply in the
event of a "Change in Control" as defined in this Section 9.
9.01. Acceleration and Cash-Out Rights. Unless otherwise determined by
the Board, or as set forth under the terms of any Award, in the event of a
"Change in Control" and a "Qualified Termination" as defined in Sections 9.02
and 9.03:
(i) the performance criteria of all Performance Awards,
Performance-Based Restricted Stock, and Other Stock-Based Awards shall be deemed
fully achieved and all such Awards shall be fully earned and vested;
(ii) any Option, Stock Appreciation Right, and other Award in the
nature of a right that may be exercised which was not previously exercisable and
vested shall become fully exercisable and vested; and
(iii) the restrictions, deferral limitations, and forfeiture
conditions applicable to any other Award granted under the Plan shall lapse and
such Awards shall be deemed fully vested.
9.02. Change of Control. For purposes of Section 9.01, a "Change of
Control" shall mean the direct or indirect transfer of fifty percent (50%) or
more of the legal or beneficial ownership of the stock of the Corporation, or
the sale of substantially all of the assets of the Corporation, to an individual
or entity who is not a shareholder of the Corporation or any of its Subsidiaries
as of the date this Plan is approved by the Corporation's shareholders.
<PAGE>
9.03. Qualified Termination. For the purposes of Section 9.01, a
"Qualified Termination" shall mean any termination of employment for reasons
other than (i) Cause; (ii) death, Disability or Retirement, or (iii) by the
Participant without Good Reason within one (1) year following a Change in
Control.
(a) "Cause" shall mean (i) the willful and continued failure by
the Participant to substantially perform the Participant's duties with the
Corporation or (ii) the willful engaging by the Participant in conduct which is
demonstrably and materially injurious to the Corporation or its subsidiaries,
monetarily or otherwise.
(b) "Disability" shall be deemed the reason for the termination
by the Corporation of the Participant's employment, if, as a result of the
Participant's incapacity due to physical or mental illness, the Participant
shall have been absent from the full-time performance of the Participant's
duties with the Corporation for a period of six (6) consecutive months.
(c) "Good Reason" for termination by the Participant of the
Participant's employment shall mean the occurrence (without the Participant's
express written consent) after any Change in Control of any one of the following
acts by the Corporation.
(i) a reduction by the Corporation in the Participant's
annual base salary;
(ii) the relocation of the Corporation's principal executive
offices to a location more than fifty (50) miles from the location of such
offices immediately prior to the Change in Control, but only in the event the
Participant was employed at the Corporation's principal executive offices
immediately prior to such reallocation.
(d) "Retirement" shall be deemed the reason for the termination
by the Corporation or the Participant of the Participant's employment if such
employment is terminated in accordance with the Corporation's retirement policy,
not including early retirement, generally applicable to its employees, as in
effect immediately prior to the Change in Control, or in accordance with any
retirement arrangement established with the Participant's consent with respect
to the Participant. In no event shall Retirement include a date prior to the
Participant's sixty-second (62nd) birthday.
SECTION 10. Adjustment Provisions. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Shares, or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate
<PAGE>
transaction or event, affects the Shares such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or enlargement
of the rights of Participants under the Plan, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of (i) the number and kind of
Shares which may thereafter be issued in connection with Awards (ii) the number
and kind of Shares issued or issuable in respect of outstanding Awards, and
(iii) the exercise price, grant price, or purchase price relating to any Award
or, if deemed appropriate, make provision for a cash payment with respect to any
outstanding Award; provided, however, in each case, that, with respect to
Incentive Stock Options, no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b)(1) of the
Code. In addition, the Committee is authorized to make adjustments in the terms
and conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, events described
in the preceding sentence) affecting the Corporation or any Subsidiary or the
financial statements of the Corporation or any Subsidiary, or in response to
changes in applicable laws, regulations, or accounting principles.
SECTION 11. Changes to the Plan and Awards.
11.01. Changes to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan without the consent of shareholders or
Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Corporation's shareholders within one year after such Board action if such
shareholder approval is required by any federal or state law or regulation or
the rules of any stock exchange on which the Shares may be listed, or if the
Board in its discretion determines that obtaining such shareholder approval is
for any reason advisable; provided, however, that, without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may impair the rights of such Participant under any
Award theretofore granted to him.
11.02. Changes to Awards. The Committee may waive any conditions or
rights under, or amend, alter, suspend, discontinue, or terminate, any Award
theretofore granted and any Award Agreement relating thereto; provided, however,
that, without the consent of an affected Participant, no such amendment,
alteration, suspension, discontinuation, or termination of any Award may impair
the rights of such Participant under such Award.
SECTION 12. General Provisions.
12.01. No Rights to Awards. No Participant or employee shall have any
claim to be granted any Award under the
<PAGE>
Plan, and there is no obligation for uniformity of treatment of Participants and
employees.
12.02. No Shareholder Rights. No Award shall confer on any Participant
any of the rights of a shareholder of the Corporation unless and until Shares
are duly issued or transferred to the Participant in accordance with the terms
of the Award.
12.03. Tax Withholding. As a precondition to the delivery of any
Shares or other payment in settlement of any Award, the Corporation shall have
the right and authority to deduct or withhold, or require a Participant to remit
to the Corporation, an amount sufficient to satisfy federal, state and local
taxes, domestic or foreign, that are required by law or regulation to be
withheld by the Corporation upon delivery of Shares or other payment under any
Award. The Participant may discharge such obligation in whole or in part with
respect to the minimum withholding-tax liability arising upon the settlement of
any Award (but no more than such minimum) (a) by transferring and delivering to
the Corporation previously owned shares of the Class A Stock, which shall be
valued at their Fair Market Value; (b) with the prior approval of the Committee,
by authorizing the Corporation in writing to deduct and retain Shares, valued at
their Fair Market Value, as of the date of exercise, from the Shares otherwise
to be issued upon settlement; or (c) by any combination of the foregoing methods
of payment.
12.04. No Right to Employment. Nothing contained in the Plan or any
Award Agreement shall confer, and no grant of an Award shall be construed as
conferring, upon any employee any right to continue in the employ of the
Corporation or any Subsidiary or to interfere in any way with the right of the
Corporation or any Subsidiary to terminate his employment at any time or
increase or decrease his compensation from the rate in existence at the time of
granting of an Award.
12.05. Unfunded Status of Awards. The Plan is intended to constitute
an "unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Corporation; provided, however,
that the Committee may authorize the creation of trusts or make other
arrangements to meet the Corporation's obligations under the Plan to deliver
cash, Shares, other Awards, or other property pursuant to any award, which
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant.
12.06. Other Compensatory Arrangements. The Corporation or any
Subsidiary shall be permitted to adopt other or additional compensation
arrangements (which may include
<PAGE>
arrangements which relate to Awards), and such arrangements may be either
generally applicable or applicable only in specific cases.
12.07. Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
12.08. Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan, and any Award Agreement
shall be determined in accordance with the laws of the U.S. Virgin Islands,
without giving effect to principles of conflicts of laws thereof, and applicable
Federal law.
SECTION 13. Effective Date. The Plan shall become effective on the date the
Plan is approved by the shareholders of the Corporation.
Exhibit 10.8
LOCKHART CARIBBEAN CORPORATION
DIVIDEND REINVESTMENT PLAN
LOCKHART CARIBBEAN CORPORATION, a corporation duly organized and
existing under and by virtue of the General Corporation Law of the Virgin
Islands (the "Company"), pursuant to its Amended and Restated Articles of
Incorporation, adopted a Reinvestment Plan (the "Reinvestment Plan") on the
terms and conditions set forth below.
1. Reinvestment of Distributions. ____________________, the agent (the
"Reinvestment Agent") for participants (the "Participants") in the Reinvestment
Plan, will receive all cash distributions made by the Company with respect to
shares of Class A Common Stock of the Company (the "Shares") and Class B Common
Stock owned by each Participant (collectively, the "Distribution"). The
Reinvestment Agent will apply such Distributions as follows:
(a) Prior to the termination of the public offering of Shares,
the Reinvestment Agent will invest Distributions in Shares acquired
from the managing dealer or participating brokers for the offering at
the initial public offering price per Share. Selling Commissions equal
to ___% of the total amount raised from sale of the Shares will be paid
to the broker who made the initial sale of Shares to the Participant at
the same rate as for initial purchase.
(b) After termination of the public offering of Shares, the
Reinvestment Agent will purchase Shares from any additional shares
which the Company elects to register with the Securities and Exchange
Commission (the "SEC") for the Reinvestment Plan, at a per Share price
equal to the fair market value of the Shares determined by quarterly
appraisal updates performed by the Company based on a review of the
existing appraisal and lease of each Property, focusing on a
re-examination of the capitalization rate applied to the rental stream
to be derived from each such property and a review of the fair market
value of the Company's undeveloped properties. In addition, following
consummation of the acquisition by the Company of Premium Finance
Company of the V.I., Inc. ("PFC"), the fair market value of PFC's
operations will be taken into account in determining the price per
share. Until the Shares are listed on a national securities exchange or
quoted on an automated quotation system ("Listing"), the capitalization
rate used by the Company and, as a result, the price per Share paid by
Participants in the Reinvestment Plan will be determined by the Board
of Directors of the Company (the "Board") in its sole discretion. The
factors that the Board will use to determine the capitalization rate
include (i) an examination of the conditions in the market; and (ii)
capitalization rates in use by private appraisers, to the extent that
the Board deems such factors appropriate, as well as any other
- 1 -
<PAGE>
factors that the Board deems relevant or appropriate in making its
determination. The Company's internal accountants then convert the most
recent quarterly balance sheet of the Company from a "GAAP" balance
sheet to a "fair market value" balance sheet. Based on the "fair market
value" balance sheet, the internal accountants then assume a sale of
the Company's assets and the liquidation of the Company in accordance
with its constitutive documents and applicable law and compute the
appropriate method of distributing the cash available after payment of
reasonable liquidation expenses, including closing costs typically
associated with the sale of assets and shared by the buyer and seller,
and the creation of reasonable reserves to provide for the payment of
any contingent liabilities. Upon listing the Shares on a national
securities exchange or over-the-counter market, the Reinvestment Agent
may purchase Shares either through such market or directly from the
Company pursuant to a registration statement relating to the
Reinvestment Plan, in either case at a per Share price equal to the
then-prevailing market price on the national securities exchange or
over-the-counter market on which the Shares are listed at the date of
purchase by the Reinvestment Agent. Notwithstanding the foregoing, the
Board of Directors is authorized to add a feature to the Reinvestment
Plan that provides for reinvestment purchases at a discount of not more
than 5% from the public offering price or fair market value, as the
case may be, which takes into consideration the savings to the Company
of the expenses of raising capital and the need for an incentive to
stockholders to participate in the Reinvestment Plan. The addition of a
discount feature to the Reinvestment Plan shall be approved by a
majority of the Independent Directors of the Board.
(c) For each Participant, the Reinvestment Agent will maintain
a record which shall reflect for each fiscal quarter the Distributions
received by the Reinvestment Agent on behalf of such Participant. The
Reinvestment Agent will use the aggregate amount of Distributions to
all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants
exceeds the amount required to purchase all Shares then available for
purchase, the Reinvestment Agent will purchase all available Shares and
will return all remaining Distributions to the Participants within 30
days after the date such Distributions are made. The purchased Shares
will be allocated among the Participants based on the portion of the
aggregate Distributions received by the Reinvestment Agent on behalf of
each Participant, as reflected in the records maintained by the
Reinvestment Agent. The ownership of the Shares purchased pursuant to
- 2 -
<PAGE>
the Reinvestment Plan shall be reflected on the books of the
Company.
(d) Distributions shall be invested by the Reinvestment Agent
in Shares promptly following the payment date with respect to such
Distributions to the extent Shares are available. If sufficient Shares
are not available, Distributions shall be invested on behalf of the
Participants in one or more interest-bearing accounts in [name of bank,
location] or in another commercial bank approved by the Company which
has assets of at least $100,000,000, until Shares are available for
purchase, provided that any Distributions have not been invested in
Shares within 30 days after such Distributions are made by the Company
shall be returned to Participants.
(e) The allocation of Shares among Participants may result in
the ownership of fractional Shares, which may be computed to as many as
four decimal places.
(f) Distributions attributable to Shares purchased on behalf
of the Participants pursuant to the Reinvestment Plan will be
reinvested in additional Shares in accordance with the terms hereof.
(g) No certificates will be issued to a Participant for Shares
purchased on behalf of the Participant pursuant to the Reinvestment
Plan. Participants in the Reinvestment Plan will receive statements of
account in accordance with Paragraph 6 below.
2. Election to Participate.
(a) Holders of Class B Common Stock identified on Schedule A
attached hereto are Participants in the Reinvestment. Any other holder
of Class B Common Stock may purchase Shares through the Reinvestment
Plan only after receipt of a separate prospectus relating solely to the
Reinvestment Plan.
(b) Any stockholder who participates in the public offering of
Shares and who has received a copy of the final prospectus included in
the Company's registration statement on Form S-11 filed with the SEC
may elect to participate in and purchase Shares through the
Reinvestment Plan at any time by written notice to the Company and
would not need to receive a separate prospectus relating solely to the
Reinvestment Plan. A person who becomes a stockholder otherwise than by
participating in the public offering of Shares may purchase Shares
through the Reinvestment Plan only after receipt of a separate
prospectus relating solely
- 3 -
<PAGE>
to the Reinvestment Plan. Participation in the Reinvestment Plan will
commence with the next Distribution made after receipt of the
Participant's notice, provided it is received more than ten days prior
to the last day of the fiscal month or quarter, as the case may be, to
which such Distribution relates. Subject to the preceding sentence,
regardless of the date of such election, a stockholder will become a
Participant in the Reinvestment Plan effective on the first day of the
fiscal month (prior to termination of the offering of Shares) or fiscal
quarter (after termination of the offering of Shares) following such
election, and the election will apply to all Distributions attributable
to the fiscal quarter or month (as the case may be) in which the
stockholder makes such written election to participate in the
Reinvestment Plan and to all fiscal quarters or months thereafter.
3. Distribution of Funds. In making purchases for Participants'
accounts, the Reinvestment Agent may commingle Distributions attributable to
Shares owned by Participants in the Reinvestment Plan.
4. Proxy Solicitation. The Reinvestment Agent will distribute to
Participants proxy solicitation material received by it from the Company which
is attributable to Shares held in the Reinvestment Plan. The Reinvestment Agent
will vote any Shares that it holds for the account of a Participant in
accordance with the Participant's written instructions. If a Participant gives a
proxy to person(s) representing the Company covering Shares registered in the
Participant's name, such proxy will be deemed to be an instruction to the
Reinvestment Agent to vote the full Shares in the Participant's account in like
manner. If a Participant does not direct the Reinvestment Agent as to how the
Shares should be voted and does not give a proxy to person(s) representing the
Company covering these Shares, the Reinvestment Agent will not vote said Shares.
5. Absence of Liability. Neither the Company nor the Reinvestment Agent
shall have any responsibility or liability as to the value of the Company's
Shares, any change in the value of the Shares acquired for the Participant's
account, or the rate of return earned on, or the value of, the interest-bearing
accounts, in which Distributions are invested. Neither the Company nor the
Reinvestment Agent shall be liable for any act done in good faith, or for any
good faith omission to act, including, without limitation, any claims of
liability (a) arising out of the failure to terminate a Participant's
participation in the Reinvestment Plan upon such Participant's death prior to
receipt of notice in writing of such death and the expiration of 15 days from
the date of receipt of such notice and (b) with respect to
- 4 -
<PAGE>
the time and the prices at which Shares are purchased for a Participant.
Notwithstanding the foregoing, liability under the federal securities laws
cannot be waived. Similarly, the Company and the Reinvestment Agent have been
advised that in the opinion of certain state securities commissioners,
indemnification is also considered contrary to public policy and therefore
unenforceable.
6. Reports to Participants and Administrative Charges. Within 60 days
after the end of each fiscal quarter, the Reinvestment Agent will mail to each
Participant a statement of account describing, as to such Participant, the
Distributions received during the quarter, any optional cash payments made
during the quarter, the aggregate number of Shares purchased during the quarter
with Distributions and any optional cash payments, the per Share purchase price
for such Shares, and the total Shares purchased on behalf of the Participant
pursuant to the Reinvestment Plan. Each statement shall also advise the
Participant that he is required to notify the President of the Company, John P.
deJongh, Jr., in the event that there is any material change in his or her
financial condition or if any representation under the Subscription Agreement
becomes inaccurate. The Company shall be responsible for all administrative
charges and expenses charged by the Reinvestment Agent, provided that the Board
reserves its right, in its sole discretion, to amend the Reinvestment Plan to
impose an administrative charge on the Participants, if the Board deems it
necessary or appropriate.
7. No Drawing. No Participant shall have any right to draw checks or
drafts against his account or give instructions to the Company or the
Reinvestment Agent except as expressly provided herein.
8. Taxes. Taxable Participants may incur a tax liability for
Distributions made with respect to such Participant's Shares, even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.
9. Termination.
(a) A Participant may terminate his participation in the
Reinvestment Plan at any time without penalty by delivering written
notice to the Company, specifying a date for termination. To be
effective for any Distribution, such notice must be received by the
Company at least ten days prior to the specified termination date;
provided, however, that termination will not be effective with respect
to any Distribution with a record date prior to the specified
termination date. A Participant who chooses to terminate must terminate
his or her entire participation in the
- 5 -
<PAGE>
Reinvestment Plan and will not be allowed to terminate in part.
(b) The Company or the Reinvestment Agent may terminate a
Participant's individual participation in the Reinvestment Plan, and
the Company may terminate the Reinvestment Plan itself at any time by
ten days' prior written notice mailed to a Participant, or to all
Participants, as the case may be, at the address or addresses shown on
their account or such more recent address as a Participant may furnish
to the Company in writing.
(c) After termination of the Reinvestment Plan or termination
of a Participant's participation in the Reinvestment Plan, the
Reinvestment Agent will send to each Participant (i) a statement of
account in accordance with Paragraph 6 hereof, and (ii) a check for (a)
the amount of any Distributions in the Participant's account that have
not been reinvested in Shares, and (b) the value of any fractional
Shares standing to the credit of a Participant's account based on the
market price of the Shares. The record books of the Company will be
revised to reflect the ownership of record of the Participant's full
Shares and any future Distributions made after the effective date of
the termination will be sent directly to the former Participant.
(d) There are no fees associated with a Participant's
termination of his or her interest in the Reinvestment Plan. A
Participant in the Reinvestment Plan who terminates his or her interest
in the Reinvestment Plan will be allowed to participate in the
Reinvestment Plan again by notifying the Reinvestment Agent and
completing any required forms.
10. Optional Cash Payments. If and to the extent authorized by the
Board, Participants may acquire additional Shares by making optional cash
payments; provided, however, that optional cash payments may not exceed $10,000
for each Participant in any fiscal quarter. If cash payments are authorized,
Participants should send the Reinvestment Agent a check or money order payable
to the Reinvestment Agent accompanied by written instructions directing that
such optional cash payment be applied to the purchase of additional Shares for
the Participant under the Reinvestment Plan. Optional cash payments may only be
invested to coincide with the quarterly reinvestment of dividends as provided
for herein.
11. Notice. Any notice or other communication required or permitted to
be given by any provision of this Reinvestment Plan shall be in writing and
addressed to The Lockhart Companies Incorporated, PO Box 7020, Charlotte Amalie,
St. Thomas, U.S. Virgin Islands 00801, if to the Company, or to __________
- 6 -
<PAGE>
__________, if to the Reinvestment Agent, or such other addresses as may be
specified by written notice to all Participants. Notices to a Participant may be
given by letter addressed to the Participant at the Participant's last address
of record with the Company. Each Participant shall notify the Company promptly
in writing of any change of address.
12. Amendment. The Board of Directors reserves the right to amend,
modify, supplement or suspend the terms and conditions of the Reinvestment Plan,
provided, however, that any such amendment must be approved by a majority of the
Independent Directors of the Board. Such amendment or supplement shall be deemed
conclusively accepted by each Participant except those Participants from whom
the Company receives written notice of termination prior to the effective date
thereof.
13. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANT'S ELECTION
TO PARTICIPATE IN THE REINVESTMENT PLAN SHALL BE GOVERNED BY THE LAWS OF THE
U.S. VIRGIN ISLANDS.
- 7 -
Exhibit 11
LOCKHART CARIBBEAN CORPORATION
Statement re Computation of Earnings Per Share
Six Months Ended June 30 Year Ended December 31
------------------------ ----------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Average Shares
Outstanding 8,623,271 8,512,982 8,562,048 8,462,016 8,291,903
Net (Loss) Income (514,462) (205,432) (832,710) 2,503,875 (51,258)
Per Share Amount (0.06) (0.02) (0.10) 0.30 (0.01)
Exhibit 21
LOCKHART CARIBBEAN CORPORATION
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Incorporation Doing Business As
- ---------- ------------- -----------------
<S> <C> <C>
H.E. Lockhart Management, Inc. U.S. Virgin Islands H.E. Lockhart Management, Inc.
Lockhart Realty, Inc. U.S. Virgin Islands Lockhart Realty, Inc.
Red Hook Plaza, Inc. U.S. Virgin Islands Red Hook Plaza, Inc.
Fort Mylner Properties, Inc. U.S. Virgin Islands Fort Mylner Properties, Inc.
Golden Orange Centers, Inc. U.S. Virgin Islands Golden Orange Centers, Inc.
Market Square East, Inc. U.S. Virgin Islands Market Square East, Inc.
Sugar Estate Park, Inc. U.S. Virgin Islands Sugar Estate Park, Inc.
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
Lockhart Caribbean Corporation
We consent to the reference to our firm under the caption "Experts", "Summary
Selected Financial Information" and "Selected Financial Information" and to the
use of our reports dated March 7, 1997 on Lockhart Caribbean Corporation, June
16, 1997 on Red Hook Plaza, Inc., and August 1, 1997 on Fort Mylner Properties,
Inc. and Golden Orange Centers, Inc. in the Registration Statement (Form
S-11) and related Prospectus of Lockhart Caribbean Corporation for the
registration of 2,000,000 shares of its Class A common stock.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
September 5, 1997.
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANT
I consent to the inclusion in this registration statement on Form S-11
of my report dated March 21, 1997 on my audit of the consolidated financial
statements Premium Finance Company of the V.I., Inc. and subsidiaries. I also
consent to the reference to my firm under the caption "Experts".
/s/ Francisco E. Depusoir, CPA
St. Croix, U.S. Virgin Islands
September 5, 1997.
Exhibit 24
POWER OF ATTORNEY
Lockhart Caribbean Corporation, a U.S. Virgin Island corporation, and each
person whose signature appears below, constitutes and appoints George H.T.
Dudley, Wesley S. Williams, Jr. and John P. De Jongh, Jr., and any of them, with
full power to act without the others, such person's true and lawful
attorneys-in-fact, with full power of substitution and resubstitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
sign this Registration Statement, and any and all amendments thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform each and every act and thing necessary or desirable to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, thereby ratifying and confirming all that said
attorneys-in-fact, or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
/s/ JOHN P. DE JONGH, JR. July 5, 1997
- -------------------------
John P. De Jongh, Jr.
President, Chief Operating Officer
and Director (Principal Executive Officer)
/s/ CORNEL A. WILLIAMS July 5, 1997
- -------------------------
Cornel A. Williams
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ GEORGE H.T. DUDLEY July 5, 1997
- --------------------------
George H.T. Dudley
Co-Chief Executive Officer and
Chairman of the Board of Directors
/s/ WESLEY S. WILLIAMS, JR. July 5, 1997
- ----------------------------
Wesley S. Williams, Jr.
Co-Chief Executive Officer and
Chairman of the Board of Directors
DC02/44189-1//Power of Attorney
<PAGE>
/s/ ALTON L. ADAMS July 5, 1997
- ----------------------------
Alton L. Adams
Director
/s/ LISA S. CURRERI July 5, 1997
- ----------------------------
Lisa S. Curreri
Director
/s/ KATHLEEN P. GOLDBERG July 5, 1997
- ----------------------------
Kathleen P. Goldberg
Director
/s/ WILLIAM H. HASTIE July 5, 1997
- ----------------------------
William H. Hastie
Director
/s/ HERBERT E. LOCKHART, III July 5, 1997
- ----------------------------
Herbert E. Lockhart, III
Director
/s/ JOHN E. OXENDINE July 5, 1997
- ----------------------------
John E. Oxendine
Director
DC02/44189-1 // Power of Attorney
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 783 930
<SECURITIES> 0 0
<RECEIVABLES> 500 507
<ALLOWANCES> (32) (32)
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,967 2,010
<PP&E> 37,460 37,231
<DEPRECIATION> (4,582) (4,002)
<TOTAL-ASSETS> 35,692 36,270
<CURRENT-LIABILITIES> 2,032 1,570
<BONDS> 24,854 24,943
0 0
0 0
<COMMON> 6,774 6,756
<OTHER-SE> 919 1,578
<TOTAL-LIABILITY-AND-EQUITY> 35,692 36,270
<SALES> 0 0
<TOTAL-REVENUES> 2,520 4,217
<CGS> 0 0
<TOTAL-COSTS> 1,513 2,608
<OTHER-EXPENSES> 721 1,186
<LOSS-PROVISION> 0 32
<INTEREST-EXPENSE> 1,109 1,676
<INCOME-PRETAX> (823) (1,286)
<INCOME-TAX> 309 453
<INCOME-CONTINUING> (514) (833)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (514) (833)
<EPS-PRIMARY> (0.06) (0.10)
<EPS-DILUTED> (0.06) (0.10)
</TABLE>
