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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
FRM NEXUS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3754422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
271 North Avenue New Rochelle, NY 10801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 636-0188
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
(Title of Class)
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ITEM 1. BUSINESS
Formation of the Company
FRM NEXUS, INC. (the "Company" or "Nexus") was incorporated in the
State of Delaware on November 17, 1993 under the name of PSI Settlement Corp.
pursuant to a Stipulation of Settlement dated as of November 15, 1993 (the
"Stipulation") filed in the United States District Court for the Southern
District of New York (the "Federal Court") in a shareholder Class Action,
Sandler v. Programming and Systems Incorporated ("PSI") et al, 92 Civ 5292 (the
"Class Action").
The Class Action was commenced on July 16, 1992 against the defendants
for damages sustained by shareholders of PSI by reason of alleged understatement
of net income for the fiscal year ended February 28, 1989 and the alleged
overstatement of net income for the fiscal years ended February 28, 1990 and
1991, which were alleged to be violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, the Rules promulgated thereunder and the common
law.
After certain discovery and independent investigation by plaintiff's
counsel into the facts and circumstances relevant to the allegations in the
Class Action, the parties entered into the Stipulation, which released the
defendants from all claims which the Class Members asserted, or could have
asserted, in the Class Action in consideration of the payment by PSI of (i)
$1,400,000 and (ii) the transfer to the Company of the non-vocational-school
assets of PSI and the delivery to Escrow Agents of all outstanding shares of the
Company to hold for the benefit of the shareholders of PSI.
The assets transferred by PSI to the Company in payment of the
settlement included all of the Wendy's Restaurants assets, the real estate
investments held by PSI and all of the outstanding capital stock of the
wholly-owned subsidiaries which owned restaurant and real estate assets.
Initially the Stipulation contemplated that the Company would liquidate these
assets and distribute the proceeds to the PSI shareholders. However on April 28,
1995 the Stipulation was amended to provide that the Company could continue to
operate rather than liquidate, since it was anticipated that the shares of the
Company's stock would be released from escrow, registered pursuant to Section
12(g) of The Securities Exchange Act of 1934 (the "Exchange Act") and followed
by an application to list the common stock on NASDAQ.
On November 17, 1993 Judge Sweet signed his Order granting preliminary
approval of the Settlement and ordered a Settlement Hearing to be held on
January 5, 1994, pursuant to the Federal Rules of Civil Procedure ("FRCP"), to
determine whether the Settlement is fair, reasonable and adequate and should be
approved by the Court. Notice of the Settlement Hearing was given to all PSI
shareholders and after all persons having any objection to the proposed
Settlement had been given an opportunity to present such objections to the
Court, Judge Sweet signed the Final Judgment and Order on January 21, 1994
approving the Settlement Stipulation.
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The same procedure under the FRCP was followed with respect to the
Amendment to the Settlement Stipulation signed on April 28, 1995. The Hearing
was held on June 12, 1995 and the Court signed the Order Amending the Final
Judgment and Order on June 12, 1995.
On February 23, 1996, the Company amended its certificate of
incorporation to change its corporate name to FRM Nexus, Inc. and to change its
authorized capital stock to 2,000,000 shares of common stock of the par value of
ten (10(cent)) cents per share. On July 23, 1996 Judge Sweet signed the
Stipulation and Order authorizing the Escrow Agents to release 1,211,635 shares
of Nexus' common stock to the holders of record of PSI common stock in the ratio
of one share of Nexus common stock for each three shares of PSI common stock.
On November 14, 1996 an annual meeting of stockholders of Nexus was
held pursuant to Section 211 of the Delaware General Corporation Law and the
Order of the Court of Chancery of the State of Delaware (New Castle County)
dated October 10, 1996. At that meeting the five persons named herein were
elected as Directors of Nexus and are still serving until the next Annual
Meeting of Stockholders to be held in November, 1997. None of the five Directors
was an officer, director or employee of PSI prior to November 15, 1993 and none
of them has been an officer, director or employee of PSI since they were elected
as Directors of Nexus on November 14, 1996. Three of the five Directors of Nexus
were never an officer, director or employee of PSI and the other two, Seth
Grossman and Jed Schutz, were directors only of PSI during the period that the
Escrow Agents held the Company's shares for the benefit of the Company's present
shareholders.
Description of Business
The FRM in the Company's name stands for the three markets in which
Nexus is presently engaged - Food Services, Real Estate Development and Medical
Financing.
THE FOOD SERVICES DIVISION presently consists of sixteen Wendy's
restaurants, eight in West Virginia and eight in New York owned by Wendclark
Corp. and Wendcello Corp., wholly owned subsidiaries of Nexus. The restaurants
are operated by two management corporations, in which Nexus has no interest,
under franchise agreements with Wendy's International, the public company listed
on the New York Stock Exchange. The management agreements provide for the
sharing of the operating profits of the restaurants and certain proceeds of the
sale or refinancing of the restaurants. This division commenced business in
1990, when it was part of PSI, with the purchase of eleven restaurants. Since
1990 five additional restaurants were constructed or acquired with the funds and
credit of the two Nexus subsidiaries and the management companies. This division
has usually been profitable, although just as the economy has fluctuated, so too
have the results of operations of the restaurants. Since February 28, 1997 sales
and net income of this division has improved, as has Wendy's franchisees
generally.
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Wendclark Corp. is planning to build a Wendy's restaurant at Flatwoods, West
Virginia, beginning later in 1997 which will be the 17th restaurant owned by
Nexus.
THE REAL ESTATE DEVELOPMENT DIVISION of the Company presently conducts
its operations through PSI Capital Corp and Yolo Equities Corp., wholly-owned
subsidiaries which own and/or control the fee interests in a variety of parcels
of real estate, in which co-investors also have interests. Nexus controls the
development, for residential and commercial use, of this real estate which is
located in New York and Connecticut. A brief description of each parcel follows:
Goshen, New York. A subdivision plan for the development of 165 single family
homes in the Village of Goshen, Orange County, New York, was recently agreed
upon in settlement of a lawsuit between the Company and the Village of Goshen.
Participating in the settlement was Windemere in the Pines at Goshen, Inc., a
part of the Windemere Group of construction companies, in which Jed Schutz, a
director of Nexus, is an officer, director and shareholder ("Windemere"). Nexus
has agreed with Windemere for the joint development of the parcel on terms which
will assure Nexus of a specified profit on its land, with the financing to be
provided by Windemere and a sharing of the profits or losses to be realized in
the joint construction and sale of the homes.
In February and August, 1996, Nexus sold the 165 building lots to
Windemere for $2,499,150 to be paid principally from construction loan funding
plus an additional $2,499,750 contingent on the amount of profit to be realized
on the construction and sale of the homes to be built on the lots. This
contingent profit has not been reflected in the Company's net income because of
its contingent nature.
East Granby, Connecticut. The Company owned a two-story office building located
in East Granby, Connecticut which was carried at the value of $900,000 on
February 28, 1995. In the fiscal year ended February 29, 1996, the Company spent
about $1,300,000 in developing the site and improving a portion of the building.
In February 1996, the property was sold to Gateway Granby, LLC. ("Gateway") for
$4,800,000, of which $2,900,000 has since been paid and $1,900,000, as reduced
by amortization, is held by the Company pursuant to a purchase money second
mortgage. The Company realized a profit on the sale and retained a lease on the
first floor of the building for sublease to a subtenant. In June 1997 a
subtenant for the entire first floor signed an agreement for a lease to begin in
September 1, 1997. Gateway is owned and managed by investors, unrelated to the
officers and directors of Nexus, except that Daniel Elstein, who has 10.5%
interest in Gateway, became a director of Nexus in November 1996, after the sale
of the property by Nexus to Granby.
Hunter, New York. Nexus controls the fee interest in various properties in
Hunter, New York, in which it owns the principal co-investment interest and a
mortgage. The properties consist of undeveloped acreage in an area known as
Hunter Highlands, which is adjacent to the Hunter Mountain Ski Slopes in the
town of Hunter, Greene County, New York. The undeveloped acreage, which Nexus
plans to develop, is zoned for single family residences, condominium
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units and a hotel site. There is already constructed on the property a water
treatment plant, a clubhouse with restaurant, tennis courts and swimming pool, a
small office building and 8 unsold condominium units. Adjoining the site are
some 200 condominium units owned by unrelated persons, who purchased their
resort homes from prior owners of Hunter Highlands.
Hunter, New York has been depressed economically in recent years, which
gave rise to the Company's acquisition of this property through the mortgage
foreclosure process. Management believes that these properties have potential
for profitable development if there is recovery in the market for second homes
in that area.
Brookfield, Connecticut. Nexus owns the fee interest in two parcels of
undeveloped land in Brookfield, Connecticut which is carried on the balance
sheet at $430,000, which is their cost, and which is believed to be less than
fair market value. Nexus plans to develop both parcels for commercial use. One
parcel is on Federal Road, across from the popular Stew Leonards' Supermarket.
The other is a short distance from this location. Nexus has obtained approval to
develop a 23,000 square foot retail building on the first parcel and plans to
seek approval for a restaurant or office structure on the second parcel.
Middletown, Connecticut. Nexus formerly owned several parcels of improved land
in Middletown, Connecticut. These parcels were not readily available for
profitable development and have been sold.
Pound Ridge, New York. This parcel consisted of an unimproved 4 acre lot zoned
for one family residence in Pound Ridge, New York. It has been sold for
$225,000, the price at which it was carried on the Company's balance sheet.
Other Properties. Nexus, alone or with co-investors and joint ventures, intends
to acquire other lands for development of residential, commercial and office
structures, when management identifies opportunities for enhancement of
shareholder values.
THE MEDICAL FINANCING DIVISION of the Company conducts its operations
through a wholly-owned subsidiary, Medical Financial Corp. ("MFC"), a start-up
company with its first full year of operations included in the fiscal year ended
February 28, 1996. MFC purchases insurance company receivables, paying cash to
the medical provider in return for a negotiated fee. For its clients, MFC
delivers valuable services and increased liquidity, which is normally
unavailable to medical groups from traditional lenders. The profitability of
this division in the current and future fiscal years will depend on management's
ability to obtain favorable contracts with additional clients and employ its
resources at fuller capacity.
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Marketing
The Company's Wendy's Restaurants participate in Wendy's national
advertising campaigns pursuant to the franchise agreements with Wendy's
International. National advertising includes network television, radio and print
media. The Company's restaurants supplement the franchisor's national efforts
with local and regional newspapers, TV, radio and outdoor advertising, where
appropriate to the locale. See Note 8A to the financial statements herein.
The Company's marketing in its real estate activities has been limited
in the past, and for the present, to working with real estate brokerage firms in
connection with the sale and leasing of properties. Development of the homes in
Goshen, NY is expected to commence in 1998 and Nexus is planning to employ a
marketing firm to assist it in pricing, advertising and selling the one-family
homes during the construction phases of the development.
The Medical Financing Division has heretofore marketed its services to
medical groups through its own individual employees and consultants. MFC
recently retained a marketing firm to design a brochure for a direct mail and
personal recruiting campaign scheduled for Winter 1997-1998.
Competition
The Company's restaurant business is highly competitive, with the many
stores in the diverse fast food service field, particularly the McDonalds and
Burger King franchisees which are members of larger national restaurant chains.
The Company's presently owned real estate held for development and sale
(i) for its own account is located in Hunter, New York and Brookfield,
Connecticut and (ii) in joint venture with Windemere is located in Goshen, New
York. The real estate markets in those communities have been depressed in the
past years, so that competition has not been a factor. With the expectation of
improved demand and financing for purchasers, the Company will be competing with
many owners and developers in the locale to market properties which it presently
owns and which will be developed and built for sale or lease.
MFC competes with a wide variety of financial service companies,
including banks, and other lending and factoring companies which provide
financial assistance and bill collection services to medical providers. The
Company's services are designed to serve a niche market and in its focus on
purchasing and collecting insured receivables of certain medical groups, the
competition is limited to only a few companies of which it is aware.
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Trademarks
The Company's use of the tradename, trademark and logo for Wendy's is
pursuant to franchise agreements with Wendy's International for each of its 16
restaurants. These agreements have terms extending many years and there is no
reason to expect that the franchises will not be renewed whenever they expire.
The day to day operations of the Wendy's subsidiaries, Wendcello Corp. and
Wendclark Corp. are managed by two management companies, whose principals have
similar agreements with other Wendy's franchisees (see Note 7 to the financial
statements herein). Their experience and performance as franchise managers has
forged a mutually respected relationship with Wendy's International which has
enabled Wendclark and Wendcello to grow the number of restaurants in their
region and to foster the expectation of continuing cooperation. See Notes 8A and
7 to the financial statements herein.
Employees
As of June 26, 1997 the Company had 538 employees in its Wendy's operations, 8
employees at MFC and 4 employees in its real estate and parent company
operations. None of the Company's employees is represented by a union and Nexus
considers its relationship with its employees to be good.
Environmental Laws
The Company is in compliance with all environmental laws. Future compliance with
environmental laws is not expected to have a material effect on its business.
ITEM 2. FINANCIAL INFORMATION
The information required by Items 301 and 303 of Regulation S-K has
been furnished by the Company's independent accountants and is included in the
financial statements listed in Item 15 hereof and filed as part of this
registration statement.
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ITEM 3. PROPERTIES.
In addition to the real property held for development and sale as set
forth in Item 1 above, Nexus owns certain property, land and equipment utilized
in its Wendy's operations which are described in Notes 3 and 6A to the financial
statements herein, which secure, to the extent described in Note 6B, the four
separate notes payable by Wendcello Corp. and Wendclark Corp.
The Wendy's restaurants are tenants in the various restaurant operating
leases described in Note 8B to the financial statements herein.
Nexus' lease for its offices in New Rochelle, which also house MFC's
operations, expires on February 28, 1998 and will be the subject of renewal
negotiations in the Fall of 1997.
All of the space leased by the Company is leased from unaffiliated
third parties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of Nexus common stock as of June 26, 1997 by (i) each person who owns
beneficially more than 5% of Nexus Common Stock to the extent known to
management and (ii) each executive officer and director of Nexus and (iii) all
directors and executive officers, as a group. Unless otherwise indicated, the
named persons exercise sole voting and investment power over the shares that are
shown as beneficially owned by them.
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<TABLE>
<CAPTION>
Beneficially Owned
------------------
Name Number Percent
- ---- ------ -------
<S> <C> <C>
Seth Grossman (1)(2) 101,777 8.4%
Jed Schutz (2) 101,777 8.4%
Joseph Dolan (3) -- --
Daniel Elstein (3) -- --
Allan Kornfeld (3) -- --
Deborah Knowlton (2) -- --
Lester Tanner (4) 118,493 9.8%
All directors and executive
officers as a group (6 persons) 203,554 16.8%
</TABLE>
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(1) Includes all shares owned by Seymour Grossman Pension Trust of which Seth
Grossman is sole Trustee and beneficiary of 50% thereof.
(2) The addressed of Seth Grossman, Jed Schutz and Deborah Knowlton is 271 North
Avenue, Suite 520, New Rochelle, N.Y. 10801.
(3) The address of Joseph Dolan is 35 Huckleberry Lane, East Hampton, NY 11937.
The address of Daniel Elstein is 325 University Avenue, Syracuse, NY 13210. The
address of Allan Kornfeld is 5 Patterson Square, Newtown Sqaure, PA 19073.
(4) Includes all shares owned by Tanner & Gilbert P.C. Retirement Plan Trust, of
which Lester Tanner is the sole Trustee and beneficiary of the shares in his
segregated account. The address of Lester Tanner is 99 Park Avenue, New York,
NY 10016. Seth Grossman is the son of Lester Tanner's wife, Dr. Anne-Renee
Testa.
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The executive officers and directors of Nexus are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Seth Grossman 29 Mr. Grossman has been President and Chief Executive
Officer of Nexus since January 1, 1997 and a Director of
Nexus since January 1994. He is a director of M & A
London, LLC, of New York, NY, which provides corpo
rate development services to mid-range public and private
companies. In 1991, Mr. Grossman founded a transporta
tion company which he sold in 1994.
Jed Schutz 38 Mr. Schutz has been Chairman of the Board of Nexus since
January 1, 1997 and a Director of Nexus since January
1994. He is a 50% owner and President of Windemere
Development Corp. of Hauppauge, NY, which builds one-
family homes in New York State by itself and with affili
ated companies. He has been in the real estate business for
more than five years.
Joseph Dolan 59 Mr. Dolan recently retired from Dun & Bradstreet, Inc.
where he worked for 31 years rising to a senior manage
ment position in D & B's marketing division. He was
elected a Director of Nexus in November 1996. Mr.
Dolan is a consultant to, and a director of, unaffiliated real
estate companies in East Hampton, New York.
Daniel Elstein 64 Dr. Elstein is a practicing orthopedic surgeon in Syracuse,
NY. He was elected a Director of Nexus in November,
1996. He has been the manager and participant for more
than 25 years in the development and ownership of com
mercial and residential real estate throughout the United
States. He is the operating manager of Gateway Granby,
LLC, the company to which Nexus sold the East Granby,
Connecticut office building in February 1996 for
$4,800,000.
Allan Kornfeld 59 Mr. Kornfeld, a certified public accountant and attorney,
was elected a Director of Nexus in November 1996. He
was an accountant and audit partner at Ernst & Young from
1960-1975, a comptroller, Vice President and Senior Vice
President of Ametek, Inc. (NYSE) from 1975-1986 and
</TABLE>
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<TABLE>
<S> <C> <C>
then Chief Financial Officer and Executive Vice President
of Ametek from 1986-1994. Presently Mr. Kornfeld is an
independent consultant on financial matters.
Deborah Knowlton 46 Ms. Knowlton was elected Secretary -Treasurer of Nexus
in June 1997 and is presently serving as Chief Financial
Officer. Previously she has worked with Kenneth Fuld,
President of Medical Financial Corp., on accounting
matters for other companies in which Mr. Fuld was an
executive officer.
</TABLE>
ITEM 6. EXECUTIVE COMPENSATION
The following table shows for the years ended February 28, 1997, 1996
and 1995, compensation paid by Nexus, including salaries, bonuses and certain
other compensation, to the only persons who were executive officers in those
periods:
<TABLE>
<CAPTION>
Name and Fiscal Salary Bonus Other Annual
Principal Position Year $ $ Compensation(1)
- ------------------ ----- --------- ------- ---------------
<S> <C> <C> <C> <C>
Peter Barotz 1997 121,530(2) -- 22,000
President and CEO 1996 111,537 60,000 21,000
until 12/31/96 1995 101,539 -- 20,000
Bridget Dewsnap, 1997 60,000 -- --
Treasurer, Secretary 1996 58,000 -- --
and CFO until 6/1/97 1995 56,000 -- --
Seth Grossman, 1997 6,000 -- --
President and CEO 1996 -- -- --
1/1/97 - 2/28/97 1995 --
Jed Schutz, Chairman 1997 6,000
of the Board 1996 -- -- --
1/1/97 - 2/28/97 1995 -- -- --
</TABLE>
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(1) The amounts in this column represent automobile allowances and certain
unaccountable and reasonable expense allowances.
(2) Peter Barotz's salary during his incumbency as President of Nexus in the
period from March 1, 1994 to December 31, 1996 is shown above and includes for
the two months, from January 1, 1997 to February 28, 1997, the compensation for
his consulting agreement with Nexus, which continues until December 31, 1997.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since March 1, 1996 Nexus, through its subsidiary PSI Capital Corp.,
sold building lots in Goshen, NY to Windemere in the Pines at Goshen, Inc., a
part of the Windemere Group of construction companies, in which Jed Schutz, a
director of Nexus, is an officer, director and shareholder ("Windemere"). The
total selling price for the Goshen lots, sold in February and August 1996, was
$2,499,150 resulting in a profit of $1,860,270. In addition the Company received
a debenture for $2,499,750 with payment contingent on, and related to, 50% of
the profits to be realized on the construction and sale of the homes to be built
on the 165 lots. This $2,499,750 has not been reflected in the Company's net
income nor is it carried as an asset on the balance sheet, because of its
contingent nature. It is management's opinion that this transaction would be at
the same terms had Jed Schutz not been a director of Nexus at the time it took
place.
In February 1996 Nexus sold the property in East Granby, to Gateway
Granby, LLC (see Item 1 herein) at a time when Lester Tanner was a director of
Nexus. Shari Stack, the 42 year old daughter of Lester Tanner, owned then and
now a 24% interest in Gateway Granby, LLC.
ITEM 8. LEGAL PROCEEDINGS
The Company's Yolo subsidiaries filed an action in Supreme Court of New
York, Westchester County against the former managing agent of its real property
in Hunter N.Y., and corporate entities controlled by the agent, after the
expiration of the agent's option to purchase the property had expired. The
defendants have counterclaimed seeking damages of over $2,000,000 for not
permitting exercise of the option. The option price was then, and is now, more
than twice the total of the value of the property carried on the books
($461,897) plus the note receivable for Hunter ($636,000) and the defendants
were not then, and are not now, able to pay the option price (See Notes 4 and 2
to the financial statements herein). The Company had negotiated to sell the
Hunter real estate to the defendants for much less than the option price before
the option had expired, but the defendants were unable to raise the financing
for the purchase. Discovery in the lawsuit has been completed and it is expected
that the matter will be placed on the trial calendar shortly. Company counsel
believes that the counterclaims of the defendants will be dismissed.
On March 25, 1992, PSI Capital Corp. filed in Connecticut for relief
under Chapter 11 of the Bankruptcy Code because RTC, which had taken over the
first mortgage positions of two Connecticut banks, was about to foreclose on the
properties, wiping out the value of the second mortgages held by PSI Capital
Corp. The stay in the Chapter 11 proceeding provided sufficient time to purchase
the first mortgages on the real estate (one of which was the building in East
Granby and the other in Greenwich) for less than the outstanding principal
amount and thereby protect PSI Capital's second mortgage position in the real
estate. A Plan of reorganization has been filed in the Chapter 11 proceeding and
it is expected that PSI Capital Corp will emerge from Chapter 11 by the end of
the present fiscal year.
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ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The registrant is unaware of any significant transfers of its common
stock, sales or trading since August 1996 when the shares were released from
escrow. The Company does not know of anyone making a market for its common
stock. After this application has been reviewed by the SEC, the Company plans to
send an Information Statement to its shareholders containing the financial
statements and information in this Form 10 and to seek market makers,
preliminary to its application to list the common stock for trading on NASDAQ.
The Company has never paid dividends on the common stock and there is
no present intention to do so in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The only securities issued by the registrant within the past three
years were the 1,211,635 shares of its common stock issued to shareholders of
PSI pursuant to the Orders of the Federal Court, as described in Item 1 above.
As set forth in the opinion filed herewith as Exhibit 3.10, which was Exhibit
(g) to PSI's Current Report (Form 8-K) dated August 7, 1996, the shares were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 3(a)(10) thereof.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The only authorized capital stock of the Company consists of 2,000,000
shares of common stock, $.10 par value. These are the securities to be
registered. There are issued and outstanding 1,211,635 shares held by more than
800 shareholders at all times since August 1996.
The Company believes that it will meet the requirements for listing the
common stock on NASDAQ at such time as the market prices at which the common
stock will have traded in the over-the-counter market will permit, but there is
no assurance that this will occur.
There is no cumulative voting and each share of common stock has one
vote on all matters brought before the shareholders for a vote. There are no
preemption rights in the holders of common stock.
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ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Company's By-Laws provides indemnification by the
Company for its directors, officers, employees, agents and other persons who may
be indemnified pursuant to the provisions of Section 145 of the General
Corporation Law of the State of Delaware (the "Indemnitee").
Nexus shall, and is obligated to, indemnify and advance the expenses of
the Indemnitee in every situation where it is obligated to do so pursuant to the
aforesaid statutory provisions provided Nexus had made the determination that
the Indemnitee has acted in good faith and in a manner such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, in the case of any criminal action or proceeding, had not
reasonable cause to believe that such Indemnitee's conduct was unlawful.
See the text of Article VII in the By-laws filed as an Exhibit herein.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial statements required by Regulation S-X and the
supplementary financial information required by Item 302 of Regulation S-K has
been furnished by the Company's independent accountants and is included in the
financial statements listed in Item 15 and filed as part of this registration
statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Nexus has had the same independent accountants since its incorporation
and there have been no disagreements with them on accounting or financial
matters.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
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The response to this portion of Item 15 is submitted as a
separate "Index to Financial Statements and Schedules" which precedes the
Independent Auditor's Report herein.
(b) Exhibits:
Exhibit
Number Description
- ------ -----------
3.01 Certificate of Incorporation of the Company.
3.02 Certificate of Amendment of Certificate of Incorporation of
the Company.
3.03 Amended By-Laws of the Company.
3.04 Settlement Stipulation dated November 17, 1993.
3.05 Court Order dated November 17, 1993.
3.06 Final Judgment and Order Approving Settlement.
3.07 Amendment to Settlement Stipulation
3.08 Court Order Amending Final Judgment and Order.
3.09 Stipulation and Order Authorizing Release of Shares From
Escrow.
3.10 Opinion re release of shares.
4.01 Specimen Common Stock Certificate.
5.01 Opinion re legality of common stock.
10.01 Agreement for sale of lots in Goshen, NY to Windemere in the
Pines at Goshen, Inc.
10.02 Agreement for the sale of real property in East Granby, CT to
Gateway Granby, LLC.
10.03 Management Agreement for Wendy's Restaurants.
19.01 Letter to shareholders dated January 5, 1996.
19.02 Letter to shareholders dated July 26, 1996.
23.01 Consent of Michael, Adest & Blumenkrantz.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly cause this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRM NEXUS, INC.
(Registrant)
By /s/ Seth Grossman
--------------------------
June 27, 1997 Seth Grossman, President
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<PAGE> 16
Index to Financial Statements and Schedules
<TABLE>
<S> <C>
Independent Auditor's Report dated May 9, 1997 ................................cover page
Consolidated Balance Sheets as of February 28, 1997
and February 29, 1996 (Balance Sheet as of
February 28, 1995 is part of Exhibit 19.1 herewith) ........................... 2 pages
Consolidated Income Statements For the Three Years
Ended February 28, 1997 ....................................................... 1 page
Consolidated Statement of Stockholders' Equity For
the Three Years Ended February 28, 1997 ....................................... 1 page
Statements of Cash Flows For The Three Years Ended
February 28, 1997 ............................................................. 1 page
Notes 1 through 9 to Consolidated Financial Statements
for the Three Years Ended February 28, 1997 ................................... 15 pages
Selected Consolidated Financial Data for the Three Years
Ended February 28, 1997 ....................................................... 1 page
Supplemental Financial Information Segment Information ........................ 2 pages
Supplemental Financial Information Unaudited Selected
Quarterly Financial Data ...................................................... 1 page
</TABLE>
<PAGE> 17
[MICHAEL, ADEST & BLUMENKRANTZ LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of FRM Nexus, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of FRM Nexus, Inc.
and Subsidiaries as of February 28, 1997 and February 29, 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended February 28, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Wendclark Corporation and Wendcello Corporation, wholly owned subsidiaries,
which statements reflect total assets of $4,998,033 and $3,423,936 as of
February 28, 1997 and February 29, 1996. Those statements were audited by
another auditor whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Wendclark Corporation and Wendcello
Corporation, is based solely on the report of the other auditor.
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, based on our audits and the report of the other auditor, the
financial statements referred to in the first paragraph present fairly, in all
material respects, the financial position of FRM Nexus, Inc. and Subsidiaries as
of February 28, 1997 and February 29, 1996, and the results of their operations
and their cash flows for the three years then ended, in conformity with
generally accepted accounting principles.
/s/ Michael, Adest & Blumenkrantz
---------------------------------
MICHAEL, ADEST & BLUMENKRANTZ
Certified Public Accountants, P.C.
New York, New York
May 9, 1997
<PAGE> 18
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 1,861,219 $ 1,170,713
Mortgage and notes receivable 141,718 2,848,477
Finance receivables, net of
deferred finance income of
$127,354 in 1997 and $-0- in 1996 1,238,891 484,073
Inventories at cost 97,210 88,669
Other current assets 275,078 344,135
----------- -----------
TOTAL CURRENT ASSETS 3,614,116 4,936,067
----------- -----------
FIXED ASSETS
Property, land, and equipment 5,351,679 3,316,145
Less: Accumulated depreciation 1,897,197 1,429,387
----------- -----------
NET BOOK VALUE 3,454,482 1,886,758
----------- -----------
OTHER ASSETS
Real estate held for
development and sale 793,369 1,385,360
Mortgage and notes receivable 4,897,852 2,993,629
Loans receivable 92,526 87,226
Unamortized leasehold costs 548,685 592,809
Technical assistance fees 248,490 269,747
Other 100,073 29,638
----------- -----------
TOTAL OTHER ASSETS 6,680,995 5,358,409
----------- -----------
TOTAL ASSETS $13,749,593 $12,181,234
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 19
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and
Accrued expenses $ 888,410 $ 2,086,329
Notes payable - current maturities 244,441 109,182
Due to customers 957,585 267,322
Taxes payable - income 14,357 14,751
Deferred income -- 2,685,175
Other current liabilities 36,111 71,648
------------ ------------
Total current liabilities 2,140,904 5,234,407
------------ ------------
Other liabilities
Notes payable - less current
maturities 2,162,064 645,925
Deferred taxes payable 66,076 335,379
Deferred income 2,317,248 567,363
Other 59,418 53,335
------------ ------------
Total other liabilities 4,604,806 1,602,002
------------ ------------
Total liabilities 6,745,710 6,836,409
------------ ------------
Stockholder's equity
Common stock - $.10 par value;
Authorized - 2,000,000 shares;
Issued and outstanding 1,211,635 121,164 121,164
Capital in excess of par value 5,887,706 5,887,706
Retained earnings 995,013 (664,045)
------------ ------------
Total stockholder's equity 7,003,883 5,344,825
------------ ------------
Total liabilities and
Stockholder's equity $ 13,749,593 $ 12,181,234
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 20
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Restaurant food sales $ 16,263,323 $ 14,536,291 $ 14,523,900
Sale of real estate 2,617,750 5,510,560 --
Rental income -- 21,458 --
Interest from mortgages 315,874 14,312 --
Income from the purchase of
accounts receivable 216,521 253,857 --
------------ ------------ ------------
Total income 19,709,878 20,336,478 14,523,900
------------ ------------ ------------
COST OF SALES
Restaurants 5,687,138 4,973,113 4,854,252
Real estate 1,487,580 2,272,106 --
------------ ------------ ------------
Total costs of sales 7,174,718 7,245,219 4,854,252
------------ ------------ ------------
Gross profit 12,238,750 13,091,259 9,669,648
------------ ------------ ------------
OPERATING EXPENSES
Selling, general & administrative -
Restaurants 9,794,793 9,298,403 8,705,224
Other 1,234,892 448,839 136,164
Interest expense 207,164 46,098 16,384
Depreciation and amortization 532,909 437,210 364,352
------------ ------------ ------------
Total costs and expenses 11,769,758 10,230,550 9,222,124
------------ ------------ ------------
Income from operations before
income taxes and other items 468,992 2,860,709 447,524
Interest income 72,077 59,094 39,697
------------ ------------ ------------
Income before income taxes 541,069 2,919,803 487,221
Provision for (benefit from)
income taxes (193,015) 356,833 70,004
------------ ------------ ------------
Net income $ 734,084 $ 2,562,970 $ 417,217
============ ============ ============
Net income per common share and
common share equivalents (a)
Primary and fully diluted $ .606 $ 2.12 $ .34
============ ============ ============
Number of shares used in computation
of primary and fully diluted
earnings (a) 1,211,635 1,211,635 1,211,635
============ ============ ============
</TABLE>
(a) Common shares outstanding at
February 28, 1995 have been restated
to give effect to recapitalization.
See Notes to Consolidated Financial Statements
<PAGE> 21
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Total
Additional Retained Stock-
Common Paid-In Earnings holder's
Stock Capital (Deficit) Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances,
February 28, 1994 $ 10,000 $ 4,459,797 $ (582,805) $ 3,886,992
Net income for the
year ended
February 28, 1995 -- -- 417,217 417,217
----------- ----------- ----------- -----------
Balances,
February 28, 1995 10,000 4,459,797 (165,588) 4,304,209
Recapitalization 111,164 (111,164) -- --
Transfer of assets
from parent -- 1,539,073 -- 1,539,073
Net income for the
year ended
February 29, 1996 -- -- 2,562,970 2,562,970
----------- ----------- ----------- -----------
Balances
February 29, 1996 121,164 5,887,706 2,397,382 8,406,252
Net income for the
year ended
February 29, 1997 -- -- 734,084 734,084
Dividend paid to parent -- -- (10,316) (10,316)
----------- ----------- ----------- -----------
Balances
February 29, 1997 $ 121,164 $ 5,887,706 $ 3,121,150 $ 9,130,020
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 22
FRM NEXUS, INC.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 734,084 $ 2,562,970 $ 417,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 536,686 437,210 364,352
Deferred income tax expense (benefit) (269,303) 342,196 (6,817)
(Increase) decrease in accounts receivable (882,172) (309,561) (174,512)
(Increase) decrease in notes receivable 802,536 (5,277,106) --
(Increase) decrease in inventory (8,541) (12,231) 97
(Increase) decrease in real estate held
for development and sale 591,991 (110,385) 160,727
(Increase) decrease in prepaid expenses
misc. receivables, and other assets 34,710 (199,926) 8,145
Increase (decrease) in accounts payable,
accrued expenses and taxes (1,198,313) 1,351,330 (136,601)
Increase (decrease) in due to Parent -- (71,678) 56,362
Increase (decrease) in due to customers 690,263 210,960 71,678
Increase (decrease) in deferred income 127,354 191,111 --
Increase (decrease) in other liabilities (29,454) 47,740 (9,239)
----------- ----------- -----------
Net cash provided (used) by
operating activities 1,129,841 (837,370) 751,409
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures & intangible assets (395,117) (797,207) (300,092)
Loans to officer (5,300) (16,886) (14,617)
----------- ----------- -----------
Net cash provided (used) by
investing activities (400,417) (814,093) (314,709)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of notes payable, banks 100,000 550,000 --
Principal payments on notes payable (128,602) (58,696) (298,473)
Transfer of assets from parent -- 1,539,073 --
Dividend paid to parent (10,316) -- --
----------- ----------- -----------
Net cash provided (used) by
financing activities (38,918) 2,030,377 (298,473)
----------- ----------- -----------
Net increase (decrease) in cash 690,506 378,914 138,227
Cash, beginning of year 1,170,713 791,799 653,572
----------- ----------- -----------
Cash, end of year $ 1,861,219 $ 1,170,713 $ 791,799
=========== =========== ===========
Additional cash flow information:
Interest expense paid $ 196,841 $ 34,652 $ 16,384
=========== =========== ===========
Income taxes paid $ 49,322 $ -- $ 68,783
=========== =========== ===========
Non-cash financing activities:
Assets acquired under capital lease $ -- $ 94,549 $ 124,254
=========== =========== ===========
Transfer of assets from parent $ -- $(1,539,073) $ --
=========== =========== ===========
Purchase money note given on realty
acquisition $ 1,680,000 $ -- $ 45,000
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 23
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of FRM Nexus, Inc.
(the "Company" or "Nexus") and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
B. BUSINESS ACTIVITIES OF THE COMPANY:
The Company was incorporated in November 1993 under the laws of the State of
Delaware to settle a class action (See Note 8E) against Programming and Systems,
Inc. (PSI), in order to liquidate certain assets in favor of the shareholder
class in settlement of the class action. The assets transferred to Nexus
included PSI Capital Corp. and PSI Food Services, Inc. which in turn own all of
the stock of Wendcello Corp., and Wendclark Corp. In 1995, an additional
subsidiary, Medical Financial Corp. was formed. In 1996, additional
subsidiaries, Yolo Capital Corp. and Yolo Equities Corp. were acquired. However,
pursuant to Court Order Nexus is no longer under the obligation to liquidate.
Nexus intends to list its common stock on NASDAQ and operate as an ongoing
entity.
On February 26, 1996, the Company amended its certificate of incorporation as
follows:
1) The Company changed its name from PSI Settlement Corp. to FRM Nexus,
Inc.
2) The Company increased authorized capital stock from 75,000 shares, par
value $1.00 per share, to 2,000,000 shares common stock of the par
value of ten cents (.10) per share.
All of the outstanding shares of stock of the Corporation, consisting of 10,000
shares of stock of PSI Settlement Corp., of the par value of $1 per share,
registered in the name of one shareholder, be changed into such number of shares
of common stock of FRM Nexus, Inc. of the par value of .10 per shares as shall
be determined by the Board of Directors of the Corporation, namely 1,211,635
shares of common stock. These shares had been held in escrow for the benefit of
the shareholders of PSI since the settlement of the class action in January 21,
1994. On August 12, 1996, the shares were released from escrow to shareholders
of PSI.
1) The Food Services Companies consist of Wendclark Corp. and Wendcello
Corp.
Wendclark Corp. was incorporated in West Virginia on March 22, 1990.
Wendcello Corp. was incorporated in New York on June 25, 1990. The food
service companies were formed to acquire, own and operate eleven
existing Wendy's Old Fashioned Hamburger Restaurants in West Virginia
and the Hudson Valley, New York area. Six of the restaurants were
acquired from a franchisee of Wendy's International and five were
acquired from a subsidiary of Wendy's International. In addition, the
companies constructed 3 new restaurants which opened between December
1990 and November 1992. During fiscal 1996, two additional restaurants
were opened.
On June 21, 1996, Wendclark Corp. exercised its option to purchase the
land and buildings of the four restaurants it was leasing from Wendy's
International (See Note 6B-4).
<PAGE> 24
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
The Food Service Companies' day-to-day operations are managed by
Management Corporations, which are affiliated to the extent set forth
in Note 7A.
2) The real estate business is conducted by PSI Capital Corp, Yolo Capital
Corp. and Yolo Equities Corp. PSI Capital Corp. was incorporated in
April, 1989 for the purpose of extending first and subordinate real
estate mortgages. These mortgages were subsequently foreclosed and the
properties were sold except for two parcels in Brookfield, Connecticut
(See Note 4). Yolo Capital Corp. and Yolo Equities Corp. hold
beneficial interest in trusts, own real estate and hold mortgages on
real estate parcels in Hunter, New York. The properties in Hunter, New
York and Brookfield, Connecticut are currently held for development and
sale.
3) Medical Financial Corp was incorporated in New York on January 12,
1995. The Company purchases the insurance claims receivable of medical
practices.
C. REVENUE RECOGNITION:
The accrual method of accounting is used to record all income.
D. INVENTORIES:
Inventories of food and supplies are stated at cost.
E. PROPERTY, LAND, EQUIPMENT AND DEPRECIATION:
Property, Land and equipment are stated at cost. Depreciation is provided by
application of the straight-line method over estimated useful lives as follows:
Buildings 39 years
Land improvements 15 years
Leasehold improvements 10-22 years
Restaurant equipment 7 years
Computer equipment 5 years
Transportation equipment 5 years
F. REAL ESTATE HELD FOR DEVELOPMENT AND SALE:
The methods for valuing property and mortgages where current appraisals are
unobtainable, is based on management's best judgements regarding the economy and
market trends. These factors cannot be precisely quantified and verified. As a
result, estimates may change based on ongoing evaluation of future economic and
market trends.
G. LEASES:
Leases which transfer substantially all of the risks and benefits of ownership
are classified as capital leases, and assets and liabilities are recorded at
amounts equal to the lesser of the present value of the minimum lease payments
or the fair value of the leased properties at the beginning of the respective
lease terms. Such assets are depreciated in the same manner as owned assets.
Interest expense relating to the lease liabilities is recorded to effect
constant rates of interest over the terms of the leases. Leases which do not
meet such criteria are classified as operating leases and the related rentals
are charged to expense as incurred.
<PAGE> 25
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
H. LEASEHOLD COSTS:
The Company has capitalized the applicable costs and related expenses of
acquiring the leases for its various restaurants and is amortizing them over the
terms of the applicable leases, ten to twenty years.
I. TECHNICAL ASSISTANCE FEES:
The Company has capitalized the Technical Assistance Fees paid to Wendy's
International and is amortizing them on a straight-line basis over fifteen to
twenty years.
J. INCOME TAXES:
Deferred income taxes are recognized for all temporary differences between the
tax and financial reporting bases of the Company's assets and liabilities based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. The Company accounts for
such deferred taxes pursuant to Financial Accounting Standards Board Statement
No. 109.
K. CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the company considers all
highly-liquid, short-term investments with an original maturity of three months
or less to be cash equivalents.
L. CONCENTRATION OF CREDIT:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, commercial paper maturing in less than
90 days and trade and notes receivables.
As of February 28, 1997, the Company had concentrations of cash in bank balances
totaling approximately $463,000 located at one bank, under two different
accounts which exposes the Company to concentrations of credit risk.
All trade receivables arise from the purchase of insurance claims receivable
from several medical groups in the New York City area. The insurance claims are
from various insurance companies.
All note receivables are from the sale of real estate in New York and
Connecticut. Three purchasers account for approximately 46%, 37% and 13% of the
total notes receivable (See Note 2).
The Company's restaurant operations are all located in West Virginia and the
Hudson Valley area of New York.
M. 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.
<PAGE> 26
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 2: NOTES RECEIVABLE
The Company has notes and mortgages receivable arising from the sale of real
estate (See Notes 4 and 7C). These notes have various terms for payments of
principal and interest and are collateralized by the underlying real estate.
These notes bear interest ranging from 6% to 14%. The Company recognizes
interest income on these notes on the accrual basis. These notes mature as
follows:
<TABLE>
<S> <C> <C>
1998 $ 141,718
1999 2,469,520
2000 89,288
2001 77,156
2002 83,664
Thereafter 2,178,224
-----------
$ 5,039,570
===========
</TABLE>
Of the $2,178,224 scheduled to mature after 2002, $636,000 is non-performing.
Interest income has not been accrued on this mortgage. The underlying value of
the real estate is in excess of the mortgage receivable.
The notes receivable consist of the following:
<TABLE>
<S> <C>
Goshen, NY $ 2,310,000
Granby, CT 1,854,834
Hunter, NY 636,000
Pound Ridge, NY 150,000
New York, NY 45,500
Middletown, CT 43,236
-----------
$ 5,039,570
===========
</TABLE>
NOTE 3: PROPERTY, LAND AND EQUIPMENT
Property, Land and equipment consists of the following assets:
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
---------- ----------
<S> <C> <C>
Land $ 740,000 $ 50,000
Land improvements 296,600 90,100
Buildings 790,000 --
Restaurant equipment 2,571,281 2,336,106
Leasehold improvements 683,210 588,204
Computer equipment 47,985 29,132
Register systems under capital leases 218,803 218,803
Transportation 3,800 3,800
---------- ----------
Total 5,351,679 3,316,145
Less: Accumulated depreciation 1,897,197 1,429,387
---------- ----------
Property and equipment, net $3,454,482 $1,886,758
========== ==========
</TABLE>
Substantially all of the above assets are utilized in the food service
subsidiaries.
<PAGE> 27
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 4: REAL ESTATE HELD FOR DEVELOPMENT AND SALE
The borrowers on several mortgages defaulted on their loan payments and PSI
Capital Corp. successfully foreclosed on the underlying properties. These
properties have been capitalized at the value of the mortgage debt. Some of the
properties have been written down to fair market value where the capitalized
value exceeded the fair market value.
The foreclosed properties are shown net of co-investors. Co-investors were used
to finance the original mortgages receivable. Upon foreclosure, when the
recovery is for a lesser amount than the principal amount of the mortgage, PSI
Capital Corp. agreed that the first 10-15% of the losses, if any, upon the
liquidation of the collateral, shall be borne by it.
The following properties are included in real estate held for development and
sale:
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
A. Hunter, NY $ 461,897 $ 436,897 $ --
B. Brookfield, CT 476,472 455,559 455,559
C. Goshen, NY -- 306,304 380,000
D. Pound Ridge, NY -- 225,000 225,000
E. Middletown, CT -- 186,600 300,000
F. Granby, CT -- -- 927,416
----------- ----------- -----------
938,369 1,610,360 2,287,975
Less: Due to co-investors (145,000) (225,000) (458,000)
----------- ----------- -----------
$ 793,369 $ 1,385,360 $ 1,829,975
=========== =========== ===========
</TABLE>
A. HUNTER, NY
These are condominium units and land held for development and sale at the base
of Hunter Mountain in Greene County, New York (See Note 8F).
B. BROOKFIELD, CT
These are two parcels of land in Brookfield, Connecticut. PSI Capital Corp. held
the original mortgage of $430,000, less $70,000 due to co-investors. The Company
foreclosed upon the property. Current appraisals for the two parcels of land are
for $290,000 and $225,000. The property is valued at the face value of the
mortgage plus foreclosure costs and capitalized costs on the balance sheet
because this amount is less than its fair market value.
C. GOSHEN, NY
PSI Capital Corp. held the first mortgage on 90% of a parcel of land in Goshen,
New York, and a second mortgage on 10% of this same property. The property had
been foreclosed upon and was owned by PSI Capital Corp. PSI Capital had
instituted an action against the village of Goshen to enforce a subdivision plan
for the property. During fiscal year 1994 this property had been written down to
$380,000 which represented its fair market value as vacant land. During fiscal
year 1996, 32 lots of the 165 lots were sold for $484,800, reducing the $380,000
to $306,304 representing the amount at which the remaining 133 lots are included
above. During fiscal 1997, the remaining lots were sold for $2,014,950 (See
Notes 2 and 8D).
<PAGE> 28
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 4: REAL ESTATE HELD FOR DEVELOPMENT AND SALE (CONT'D)
D. POUND RIDGE, NY
PSI Capital Corp. held the first mortgage on four acres of residential land in
Pound Ridge, New York. During fiscal 1994 this property had been written down to
$225,000 based upon an appraisal. This property was sold during fiscal 1997 for
$225,000 (See Note 2).
E. MIDDLETOWN, CT
PSI Capital Corp. held the first mortgage on seven parcels of land in
Middletown, Connecticut, and the third mortgage on the home of the borrower. The
amount of the mortgages were for $550,000, less $40,000 due to participants.
Based upon appraisals this property had been written down to $300,000. It was
then owned by PSI Capital Corp as a result of the foreclosure of the mortgages.
During fiscal year 1996, two properties were sold, leaving a balance of
$186,600. During fiscal 1997, the remaining property was sold.
F. GRANBY, CT
This was a partially built office building in Granby, Connecticut, which FRM
owned as a result of the foreclosure of the first mortgage on the property which
was acquired for approximately $1,000,000. Based on a current appraisal the
property had been written down to $900,000 during fiscal 1994. This property was
sold during fiscal 1996 (See Notes 2, 8D-1, and 8H).
NOTE 5: LOANS RECEIVABLE OFFICER
Wendcello Corp. has made certain loans to its President who is not an officer or
director of Nexus. At February 28, 1997 and February 29, 1996 $92,526 and
$87,226 were outstanding. Included in this amount was $5,300 of interest accrued
at 9% per annum. The loans have no specific repayment terms and are accordingly
reported as non-current.
NOTE 6: NOTES PAYABLE
The Food Service Companies entered into the following notes and capital leases
payable:
A. CAPITAL LEASES PAYABLE:
1) In January 1995, Wendcello Corp committed to the lease of new cash
register systems for all of its restaurants. Sixty payments of $2,442
commerce April 1995. At the conclusion of the lease, the equipment may
be purchased for $12,150. Wendcello has capitalized this lease
obligation including the purchase option utilizing an imputed interest
rate of 9.37%.
2) In May 1995, Wendclark Corp. leased new cash register systems for its
restaurants. Sixty payments of $1,936 commenced June 1995. At the
conclusion of the lease, the equipment may be purchased for $8,797.
Wendclark has capitalized this lease obligation including the purchase
option utilizing an imputed interest rate of 10.8%.
<PAGE> 29
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 6: NOTES PAYABLE (CONT'D)
A. CAPITAL LEASES PAYABLE (CONT'D):
Minimum lease payments including imputed interest and principal through maturity
are as follows:
<TABLE>
<CAPTION>
Year-Ending Minimum Amounts Representing
February Lease-Payments Interest Principal
-------- -------------- -------- ---------
<S> <C> <C> <C>
1998 $ 52,535 $ 13,977 $ 38,558
1999 52,535 9,944 42,591
2000 52,535 5,486 47,049
2001 27,798 451 27,347
-------- -------- --------
Total $185,403 $ 29,858 $155,545
======== ======== ========
</TABLE>
B. NOTES PAYABLE:
1) Wendcello Corp., Bank:
Wendcello borrowed $350,000 to finance the renovations and equipment of
its eighth restaurant in Chester, New York. This loan is for a term of
five years and is payable in monthly principal payments of $4,167 plus
interest at 1% above prime through September 29, 2000 at which time a
balloon payment of $100,000 plus accrued interest is due. The loan is
secured by all the inventory, furniture, fixtures and equipment of
Wendcello and is guaranteed by the three executive officers.
2) Wendclark Corp., Bank:
On May 1, 1995, Wendclark borrowed $200,000 from a local bank pursuant
to a promissory note and term loan agreement. The note is for a term of
ten years, bearing interest at one percent above the prime rate.
Monthly principal payments of $2,755 including interest commenced June
1, 1995.
The note is secured by all the personal property at the new
Martinsville, West Virginia restaurant and is guaranteed by the
Wendclark's Chairman, President and Vice President.
3) Wendcello Corp., Purchase Money Note Payable:
The consideration for the land purchased to extend a Wendy's parking
lot was $50,000, of which $5,000 was paid in cash and the balance by
delivery of five-year, 5%, $45,000 purchase money note secured by a
deed of trust. The note is payable in five annual installments of
$10,394 on April 1, 1995 through 1999.
<PAGE> 30
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 6: NOTES PAYABLE (CONT'D)
B. NOTES PAYABLE (CONT'D):
4) Wendclark Corp., Mortgage Payable:
In June 1996, Wendclark obtained a loan from its bank for new financing
in the aggregate amount of $1,680,000. The loan was used to exercise
the option to purchase the land and buildings of the four restaurants
leased from Wendy's (See Note 8B). The loan bears interest at 9.25%
over its term and requires 60 monthly payments of $15,387 including
principal and interest calculated on a 20 year amortization basis. A
balloon payment will be required after five years. The loan, which
required an $8,400 origination fee in addition to other closing costs
aggregating $41,913, is secured by a first deed of trust on the realty
of and the equipment at the four restaurants and is guaranteed by
Wendclark's three executive officers. The loan agreement imposes
various affirmative and negative covenants upon Wendclark relating to
the conduct of business, maintenance of insurance, submission of
financial statements of Wendclark and its guarantors, compliance with
certain financial ratios, restrictions on dividends, management fees
and the sale of Wendclark's outstanding capital stock.
5) Medical Financial Corp., Bank:
Medical Financial Corp. has a $300,000 line of credit with a bank. The
line expires on August 30, 1997 and bears interest at the rate of prime
plus 1.5%. The line is collateralized by a blanket lien on all of
Medical Financial Corp's assets and is guaranteed by FRM.
Annual principal maturities for all of these notes as referred to above for the
years ended February 28, are as follows:
<TABLE>
<S> <C> <C>
1998 $ 205,883
1999 111,159
2000 116,956
2001 200,434
2002 1,536,370
Thereafter 80,158
----------
$2,250,960
==========
</TABLE>
As of February 28, 1997 the amounts outstanding on all of the capital leases and
notes payable are as follows:
<TABLE>
<CAPTION>
Current Longterm
Maturities Maturities Total
---------- ---------- ----------
<S> <C> <C> <C>
Wendcello Corp. $ 72,055 $ 302,681 $ 374,736
Wendclark Corp. 72,386 1,859,383 1,931,769
Medical Financial Corp. 100,000 0 100,000
---------- ---------- ----------
Total $ 244,441 $2,162,064 $2,406,505
========== ========== ==========
</TABLE>
<PAGE> 31
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 7: RELATED PARTY TRANSACTIONS
A. MANAGEMENT AGREEMENT:
The day-to-day operations of the subsidiaries, Wendcello and Wendclark
are managed by Cello and Clark Management Corps., respectively. The
management companies are affiliated with the subsidiaries in that
certain of its officers and/or directors (none of whom are officers or
directors of Nexus) are also officers and/or directors of the
subsidiaries. The management agreement took effect upon the purchase of
the restaurants and is to remain in effect as long as the subsidiaries
continue to own the restaurants.
The management agreement grants the management company complete
authority with respect to day-to-day operations, all of which is
carried out under the subsidiaries' name. Any non-routine matters such
as the purchase or sale of real property or fixed assets, assignment or
sublease of a lease, any proposed borrowing or financing or
participation in a joint venture including the exercise of the purchase
option granted by the seller or Wendy's requires the joint approval of
the subsidiaries' and the management company.
The management agreement provides for a basic fee equal to thirty
percent in Wendcello and forty percent in Wendclark of pre-tax cash
flow determined annually and paid on an estimated basis quarterly to be
adjusted when annual results are known. The management fees were $
68,600 in 1997, $117,500 in 1996 and $178,000 in 1995. The agreement
further provides for an incentive fee equal to thirty and forty percent
of the pre-tax proceeds of the sale or refinancing of any assets owned
or later acquired by the subsidiaries less any amounts used to buy
replacement assets or to pay off any refinanced obligations. Whenever
basic or incentive fees are paid, the subsidiaries must pay a dividend
to its parent equal to two and one-third times and one and one-half
times the amount of the fee paid to Cello and Clark Management Corps.,
respectively.
The agreement further provides that in the event the subsidiaries
exercise the purchase option for the real property granted by Wendy's
International, the parent Company and the management company shall
share in the capital funding thereof (that is, for the portion which
cannot be financed through third parties). For any period in which cash
flow is negative, working capital advances shall be made to the
subsidiaries by its parent and management company in the ratio of 7 to
3 and 3 to 2 for Wendcello and Wendclark, respectively.
B. CONSULTING AGREEMENT:
Wendclark has a three-year consulting contract with its Chairman (who
is not an officer or director of Nexus) renewed in 1996 through March
31, 1999 providing for a monthly fee of $1,150 plus reasonable
expenses. For fiscal 1997, 1996 and 1995, $13,650, $12,600 and $12,550
were incurred pursuant to this contract. At expiration, the agreement
is automatically renewable for as long as Wendclark remains in business
at not less than the current fee.
<PAGE> 32
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 7: RELATED PARTY TRANSACTIONS (CONT'D)
C. NOTES RECEIVABLE (CONT'D):
The transaction involving the sale of land in Goshen, NY (See Note 4)
and the related note receivable (See Note 2) was with Windemere in the
Pines at Goshen, Inc., a part of the Windemere Group of construction
companies, in which Jed Schutz, a director of Nexus, is an officer,
director and shareholder. The selling price of this land was $2,014,950
in fiscal 1997 and $484,200 in fiscal 1996, resulting in a profit
$1,453,646 in fiscal 1997 and $406,624 in fiscal 1996 (See Note 8D-2).
The balance of the notes receivable at February 28, 1997 and February
29, 1996 were $2,310,000 and $448,000, respectively. It is management's
opinion that this transaction would be at the same terms had the
parties not been related.
NOTE 8: COMMITMENTS AND CONTINGENCIES
A. FRANCHISE AGREEMENT COMMITMENTS:
Wendcello and Wendclark, subsidiaries of the Company are the
franchisees for the sixteen Wendy's Restaurants it owns and operates.
The franchise agreements obligates the subsidiaries to pay to Wendy's
International a monthly royalty equal to 4% of the gross sales of each
restaurant during the month, or $250, whichever is greater.
Additionally, the subsidiaries must contribute to Wendy's National
Advertising Program 2.5% of the gross sales and spend not less than
1.5% of the gross sales of each restaurant for local and regional
advertising.
B. MINIMUM OPERATING LEASE COMMITMENTS:
The Wendy's restaurants entered into various leases, with various
clauses relating to real estate taxes, common charges, renewals and
percentage rent with certain minimum payments.
Rent expense for these restaurants, were as follows:
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Base rentals $ 729,000 $ 665,750 $ 638,750
Contingent rentals 277,607 324,717 347,900
------------ ------------ ------------
Total $ 1,006,607 $ 990,467 $ 986,650
============ ============ ============
</TABLE>
In June, 1996 Wendclark exercised its option to purchase the land and
buildings of the four restaurants it was leasing from Wendy's for
$1,680,000 (See Note 6B-4). The purchase option agreement required
Wendclark to give to Wendy's the right of first refusal, for a period
of twenty years, in the event the properties are resold.
In July, 1994 Nexus moved its executive offices to office facilities
that are leased under a three year and eight month lease expiring on
February 28, 1998.
<PAGE> 33
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 8: COMMITMENTS AND CONTINGENCIES (CONT'D)
B. MINIMUM OPERATING LEASE COMMITMENTS (CONT'D):
Subject to annual real estate adjustments, and additional rent in
excess of base sales, the following is a schedule of future minimum
rental payments required under the above operating leases as of
February 28,:
<TABLE>
<CAPTION>
Year Ending
February
-----------
<S> <C> <C>
1998 $ 739,436
1999 711,230
2000 714,851
2001 710,180
2002 714,346
Thereafter 6,001,419
-----------
Total $ 9,591,462
===========
</TABLE>
On March 1, 1996, pursuant to an agreement for the sale of real estate
Nexus leased back 50% of the building that was sold for a period of ten
years. The Company is obligated to pay for construction and landscaping
costs necessary to complete the building. The lease calls for monthly
rent payable in the period from March 1, 1996 throughout April 1, 1998,
on the first day of each such month in said period, shall be determined
by the following formula: the sum of (i) $10,500, (ii) the monthly
payments due in said month for principal and interest on the first and
purchase money notes, namely $34,833 (See Note 2) and (iii) the
operating expenses payable by the landlord for said month pursuant to
this lease and an existing lease on the remainder of the building,
less, (iv) the rent receivable from the existing lease for said month
under that lease. Commencing May 1, 1998 and for the balance of the
term, the annual base rent on a monthly basis is $35,290.33 per month.
The Company may sublease the entire space covered under the lease, with
any profit to be payable to the Company.
C. CONTRACTS:
1) The Company has a three year employment contract with one of its
executive officers commencing January 1, 1995 through December 31,
1997. The base salary for this executive is $120,000 in 1996, and
$130,000 in 1997 plus an unaccountable expense allowance of $5,000 per
year, plus any other reasonable expenses. In, addition he received a
bonus of $60,000 in 1996.
2) The Wendcello and Wendclark subsidiaries have three-year consulting
contracts with one of its executives and another consultant renewed in
1993 providing for a total fee of approximately $1,750 per month, plus
reasonable expenses. At expiration, the agreements are automatically
renewable thereafter for as long as Wendcello and Wendclark remain in
business at not less than the current fee. For fiscal 1997, 1996 and
1995 $29,500, $27,000 and $27,000 was incurred pursuant to this
contract.
<PAGE> 34
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 8: COMMITMENTS AND CONTINGENCIES (CONT'D)
D. SALE OF REAL ESTATE:
1) Upon full collection of the note receivable as referred to in Note 2
for Granby in the amount of $1,854,834, an additional liability will be
due and payable for approximately $150,000. If the note is not
collected in full, an amount substantially less will be paid.
2) The Company received additional consideration for the land sold in
Goshen, N.Y., which is not included among the notes receivable (See
Notes 2, 4C and 7C). This was a purchase money debenture payable to PSI
Capital Corp. for $2,499,750 which matures on February 28, 2002
together with interest at the rate of 6% per annum payable at maturity,
but subject to increase or decrease, as set forth below, contingent on
the sale of the single family residences to be built on the 165 lots
which were sold. There is no interest income being accrued on this
debenture.
Prior to the maturity date, the principal sum of this debenture shall
be prepaid as each of the single family residences constructed on the
real estate are conveyed to the end purchaser, each such prepayment to
be equal to at least 50% of the net profit to the buyer with respect to
said sale. The buyer agrees to take such action as is necessary to
construct and sell the one family residences and the buyer shall not
sell any portion of the real estate except to an end purchaser of said
residences. Upon the sale of the last residence that is built or could
be built on the real estate, the parties shall compute the amount of
the buyer's net profit on all residences constructed on the real estate
(the "final net profit of the buyer"). If 50% of the final net profit
of the buyer is (i) more that $2,499,750, the excess shall be paid to
the seller at the time or (ii) less than $2,499,750, the deficiency
shall not be payable by the buyer and the debenture shall be deemed
fully paid. At that date the interest shall be adjusted to reflect the
actual principal sum of the debenture already paid.
E. FORMATION OF FRM NEXUS (FORMERLY PSI SETTLEMENT CORP):
In 1993, Shareholders of Programming and Systems, Inc. (PSI) brought a
class action against PSI and certain of its officers in the United
States District Court for the Southern District of New York, which was
settled by a Stipulation of Settlement dated as of November 15,
1993(the "Stipulation"), pursuant to which PSI Settlement Corp. (Nexus)
was formed. On January 21, 1994 Judge Robert Sweet signed the Order
confirming the Stipulation. Pursuant to that Stipulation (i) the
eligible shareholders of PSI received a pro-rata distribution of
$1,400,000, after deduction of the fees and expenses of the class
action, which amounted to fifty cents per share, and (ii) all the
shares of Nexus were delivered to Escrow Agents to hold for the benefit
of all shareholders of PSI. Pursuant to the Orders of Judge Sweet, PSI
transferred certain assets to Nexus as specified in the Stipulation and
the Court's Orders. These payments, including the shares of Nexus,
fully settled all of the claims by PSI shareholders that could have
been asserted against PSI and the other defendants in the class action.
<PAGE> 35
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 8: COMMITMENTS AND CONTINGENCIES (CONT'D)
E. FORMATION OF FRM NEXUS (FORMERLY PSI SETTLEMENT CORP) (CONT'D):
On June 12, 1995 Judge Sweet signed an Order approving an amendment of
the Stipulation which permitted Nexus to operate as an ongoing entity
rather than liquidating its assets, provided the escrowed shares of
Nexus were delivered out to PSI shareholders by June 12, 1997 and
listed for trading on NASDAQ.
In addition to settling the class action and making payment to
shareholders, PSI has now settled the action by the Securities and
Exchange Commission against it and resolved the material claims and
lawsuits which arose out of its discontinued vocational school
operations. At the present time, PSI is indebted to (i) the United
States for $1,000,000 by reason of the fraudulent conduct of a former
chief executive officer, (ii) to the Internal Revenue Service for
$416,000 representing excess refunds of income taxes made by IRS to PSI
plus interest thereon and (iii) to a former landlord of a PSI school
for $98,621. While PSI may not be able to pay its debts in full, Nexus
is not responsible for their payment, will defend against any claim
that may be instituted and management believes it will be successful.
F. LITIGATION:
The Yolo Capital subsidiary (Yolo) filed an action against the former
management of its property in Hunter, NY (See Note 4A). The defendants
have counterclaimed against Yolo for various charges, seeking damages
of over $2,000,000. Yolo's legal counsel believes that the
counterclaims will be dismissed.
G. BANKRUPTCY:
On March 25, 1992, PSI Capital Corp. filed for relief under Chapter 11
of the Bankruptcy Code. This filing was done in order to protect second
mortgage positions on two of the properties. This action provided PSI
Capital Corp., with sufficient time to negotiate with the holders of
prior mortgages and secure PSI Capital Corp's interest in the
properties. A plan of reorganization has been filed and PSI Capital
Corp. expects to complete the Chapter 11 proceeding by the fiscal year
ending February 28, 1998.
H. LOAN GUARANTY:
The Company received the unpaid balance of its $1,900,000 purchase
money note when the purchaser of the property in Granby, CT refinanced
the mortgage with a bank in the amount of $1,900,000. As part of the
refinancing, Nexus guaranteed payment of this mortgage. Payments
include interest and principal over the term of 25 years.
The interest rate was fixed at closing based upon the five-year U.S.
Treasury Note Constant Maturity Yield plus 2.75% and continues at that
rate for the first five years of the loan. Then repricing at the fifth,
tenth, fifteenth and twentieth year anniversaries at a rate equal to
the then 5-year U.S. Treasury Note Constant Maturity Yield rate on said
anniversary date plus 2.75%. The Interest rate will have a ceiling of
12% and a floor of 7% for the first adjustment (year 6) only.
<PAGE> 36
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 9: INCOME TAXES
The provision for (benefit from) income taxes consist of the following:
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Currently payable:
Federal $ 0 $ 0 $ 0
State 76,288 14,637 76,821
--------- --------- ---------
Total currently payable 76,288 14,637 76,821
--------- --------- ---------
Deferred:
Federal $ 0 $ 0 $ 0
State (298,439) 342,196 (6,817)
--------- --------- ---------
Total deferred (298,439) 342,196 (6,817)
--------- --------- ---------
Total $(222,151) $ 356,833 $ 70,004
========= ========= =========
</TABLE>
Nexus filed consolidated federal tax return with PSI through August 12, 1996,
which has no federal tax liability due to current and prior year net operating
losses. After August 12, 1996, Nexus and its subsidiaries will file a
consolidated tax return without PSI (See Note 1B).
Due to a net operating loss in the period from August 12, 1996 to February 28,
1997, there is no federal tax liability. Future benefits of this net operating
loss have not been provided for.
Significant components of deferred tax liabilities (assets) were as follows:
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Property, plant and
equipment $ 5,764 $ 8,790 $ --
Installment sale of
real estate 60,312 326,589 --
--------- --------- ---------
Gross deferred tax
liabilities 66,076 335,379 --
--------- --------- ---------
Property, plant and
equipment -- -- $ (6,817)
--------- --------- ---------
Gross deferred tax
assets -- -- (6,817)
--------- --------- ---------
$ 66,076 $ 335,379 $ (6,817)
========= ========= =========
</TABLE>
<PAGE> 37
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTE 9: INCOME TAXES (CONT'D)
The following is a reconciliation of the statutory federal and
effective income tax rates for the years ended:
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
% of % of % of
Pretax Pretax Pretax
Income Income Income
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income
tax expense rate 34.0% 34.0% 34.0%
State taxes, less federal
tax effect 8.4 11.3 7.9
Permanent differences 7.2 -- --
Utilization of prior net
operating losses (90.0) (33.0) (24.8)
----- ----- -----
(40.4%) 12.3% 17.1%
===== ==== ====
</TABLE>
<PAGE> 38
FRM NEXUS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
SEGMENT INFORMATION
The following analysis provides segment information for the three industries in
which the Company operates:
<TABLE>
<CAPTION>
Food Medical
1 9 9 7 Service Real Estate Financing Total
--------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $16,263,323 $ 2,933,624 $ 216,521 $19,413,468
Operating Expenses 16,014,840 2,587,933 134,539 18,737,312
----------- ----------- ---------- -----------
Operating Profit $ 248,483 $ 345,691 $ 81,982 676,156
=========== =========== ==========
Interest Expense - Net 135,087
Provision for (Benefit
from) Income Taxes (193,015)
-----------
Net Income $ 734,084
===========
Identifiable Assets $ 4,965,638 $ 7,314,057 $ 1,597,252 $13,876,947
=========== =========== =========== ===========
Capital Expenditures $ 376,264 $ - $ 18,853 $ 395,117
=========== =========== =========== ===========
Depreciation and
Amortization $ 532,909 $ - $ 3,777 $ 536,686
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Food Medical
1 9 9 6 Service Real Estate Financing Total
--------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Net Sales $14,536,291 $ 5,546,330 $ 253,857 $20,336,478
Operating Expenses 14,583,726 2,730,500 115,445 17,429,671
----------- ----------- ---------- -----------
Operating Profit (Loss) $ (47,435) $ 2,815,830 $ 138,412 2,906,807
============ =========== ==========
Interest Income - Net 12,996
Provision for Income Taxes 356,833
-----------
Net Income $ 2,562,970
===========
Identifiable Assets $ 3,471,187 $ 8,123,560 $ 586,487 $12,181,234
=========== =========== =========== ===========
Capital Expenditures $ 797,207 $ - $ - $ 797,207
=========== =========== =========== ===========
Depreciation and
Amortization $ 437,210 $ - $ - $ 437,210
=========== =========== =========== ===========
</TABLE>
<PAGE> 39
FRM NEXUS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Food Medical
1 9 9 5 Service Real Estate Financing Total
--------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $14,523,900 $ - $ - $14,523,900
Operating Expenses 13,923,828 124,520 11,644 14,059,992
----------- ----------- ---------- -----------
Operating Profit (Loss) $ 600,072 $ (124,520) $ (11,644) 463,908
=========== ============ ==========
Interest Income - Net 23,313
Provision for Income Taxes 70,004
-----------
Net Income $ 417,217
===========
Identifiable Assets $ 3,104,880 $ 2,121,898 $ 201,718 $ 5,428,496
=========== =========== =========== ===========
Capital Expenditures $ 300,092 $ - $ - $ 300,092
=========== =========== =========== ===========
Depreciation and
Amortization $ 364,352 $ - $ - $ 364,352
=========== =========== =========== ===========
</TABLE>
<PAGE> 40
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Income Statement Data:
Total Revenue $19,417,625 $20,336,478 $14,523,900
=========== =========== ===========
Earnings Before Interest
and Taxes $ 468,992 $ 2,860,709 $ 447,524
=========== =========== ===========
Net Income $ 734,084 $ 2,562,970 $ 417,217
=========== =========== ===========
Net income per common share
primary and fully diluted (a) $ .606 $ 2.12 $ .34
=========== =========== ===========
Number of shares used in computation
of primary and fully diluted
earnings (a) 1,211,635 1,211,635 1,211,635
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Balance Sheet Data:
Working Capital $ 1,600,566 $ 2,386,835 $ 319,070
=========== =========== ===========
Total Assets $13,876,947 $12,181,234 $ 5,428,496
=========== =========== ===========
Long-Term Debt $ 2,606,023 $ 645,925 $ 144,133
=========== =========== ===========
Stockholders' Equity $ 9,130,020 $ 8,406,252 $ 4,304,209
=========== =========== ===========
Common Shares Outstanding (a) 1,211,635 1,211,635 1,211,635
=========== =========== ===========
</TABLE>
(a) Common shares outstanding at February 28, 1995 have been restated to
give effect to recapitalization.
<PAGE> 41
EXHIBITS TO FORM 10 OF FRM NEXUS, INC.
DATED JUNE 27, 1997
Number Description
3.01 Certificate of Incorporation of the Company.
3.02 Certificate of Amendment of Certificate of Incorporation of the
Company.
3.03 Amended By-Laws of the Company.
3.04 Settlement Stipulation dated November 17, 1993.
3.05 Court Order dated November 17, 1993.
3.06 Final Judgment and Order Approving Settlement.
3.07 Amendment to Settlement Stipulation
3.08 Court Order Amending Final Judgment and Order.
3.09 Stipulation and Order Authorizing Release of Shares From Escrow.
3.10 Opinion re release of shares.
4.01 Specimen Common Stock Certificate.
5.01 Opinion re legality of common stock.
10.01 Agreement for sale of lots in Goshen, NY to Windemere in the Pines at
Goshen, Inc.
10.02 Agreement for the sale of real property in East Granby, CT to Gateway
Granby, LLC.
10.03 Management Agreement for Wendy's Restaurants.
19.01 Letter to shareholders dated January 5, 1996.
19.02 Letter to shareholders dated July 26, 1996.
23.01 Consent of Michael, Adest & Blumenkrantz.
<PAGE> 1
Exhibit 3.01
State of Delaware PAGE 1
Office of the Secretary of State
--------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "PSI SETTLEMENT CORP." FILED IN THIS OFFICE ON THE SEVENTEENTH
DAY OF NOVEMBER, A.D. 1993, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
* * * * * * * * * *
/s/ William T. Quillen
[SEAL OF THE SECRETARY OF STATE --------------------------------------
OF THE STATE OF DELAWARE] William T. Quillen, Secretary of State
AUTHENTICATION: *4153021
DATE: 11/18/1993
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
PSI Settlement Corp.
*****
1. The name of the corporation is
PSI Settlement Corp.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware for the purpose and
intent to sell or otherwise dispose of all of its assets in a reasonable and
prudent manner so as to maximize the net proceeds realizable therefrom.
<PAGE> 3
4. The total number of shares of stock which the corporation shall
have authority to issue is seventy five thousand shares (75,000) and the par
value of each of such shares is One Dollar ($1.00) amounting in the aggregate to
Seventy Five Thousand Dollars ($75,000.00).
5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
M. A. Brzoska Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
K. A. Widdoes Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
L. J. Vitalo Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the corporation.
-2-
<PAGE> 4
8. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
9. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
-3-
<PAGE> 5
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that this is our act and deed and the facts herein
stated are true, and accordingly have hereunto set our hands this 17th day of
November, 1993.
/s/ M.A. Brzoska
----------------------------------
/s/ K. A. Widdoes
----------------------------------
/s/ L. J. Vitalo
----------------------------------
-4-
<PAGE> 1
Exhibit 3.02
State of Delaware PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "PSI SETTLEMENT CORP.", CHANGING ITS NAME FROM "PSI SETTLEMENT CORP." TO "FRM
NEXUS, INC.", FILED IN THIS OFFICE ON THE TWENTY-THIRD DAY OF FEBRUARY, A.D.
1996, AT 3:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF THE SECRETARY OF STATE /s/ Edward J. Freel
OF THE STATE OF DELAWARE] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7840658
DATE: 04-18-96
<PAGE> 2
Certificate of Amendment
of
Certificate of Incorporation
of
PSI Settlement Corp.
----------------------------------------
PSI SETTLEMENT CORP., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation at a meeting duly
held on February 22, 1996 adopted resolutions proposing and declaring advisable
the following amendments to the Certificate of Incorporation of said
corporation:
RESOLVED, that Article 1 of the Certificate of Incorporation of PSI
Settlement Corp. be amended by changing the name of said corporation to
FRM NEXUS, INC., so that, as amended, said Article 1 shall be and read as
follows:
"1. The name of the corporation is FRM NEXUS, INC."
<PAGE> 3
FURTHER RESOLVED, that Article 3 of the Certificate of Incorporation
of PSI Settlement Corp. be amended by enlarging the business to be
conducted, so that, as amended, said Article 3 shall be and read as
follows:
"3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware, including without limiting the generality of the
foregoing, the conduct of business relating to food services, real
estate and medical financial services."
FURTHER RESOLVED, that Article 4 of the Certificate of Incorporation
of PSI Settlement Corp. be amended by increasing the authorized capital
stock from 75,000 shares, par value $1.00 per share, to 2,000,000 shares
of common stock of the par value of ten cents (10 cents) per share, so
that said Article 4 shall be and read as follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is two million (2,000,000) shares of common
stock of the par value of
-2-
<PAGE> 4
ten (10 cents) cents per share amounting in the aggregate to Two
Hundred Thousand Dollars ($200,000)."
FURTHER RESOLVED, that all of the outstanding shares of stock of the
corporation, consisting of 10,000 shares of stock of PSI Settlement Corp.,
of the par value of $1 per share, registered in the name of one
shareholder, be changed into such number of shares of common stock of FRM
NEXUS, INC. of the par value of 10 cents per share as shall be determined
by the Board of Directors of the corporation.
SECOND: That in lieu of a meeting and vote of stockholders the sole
shareholder of the corporation has given unanimous written consent to the
foregoing amendments and resolutions in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendments of the Certificate of Incorporation
of PSI Settlement Corp. were duly adopted in accordance with the applicable
provisions of Sections 242 and 228 of the General Corporation Law of the State
of Delaware.
-3-
<PAGE> 5
IN WITNESS WHEREOF, said PSI Settlement Corp. has caused this certificate
to be signed by Peter Barotz, its President, this 22nd day of February, 1996.
PSI SETTLEMENT CORP.
By: /s/ Peter Barotz
-------------------------
Peter Barotz, President
-4-
<PAGE> 1
Exhibit 3.03
BY-LAWS OF
PSI SETTLEMENT CORP.
(A Delaware Corporation)
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. Other Offices. The Corporation may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place. A meeting of shareholders for any purpose may be held at
such place, within or without the State of Delaware, as the Board of Directors
may fix from time to time and as shall be stated in the notice of the meeting or
in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of shareholders, commencing
with the year 1994, shall be held on the third Tuesday of May each * year, if
not a legal holiday, or, if a legal holiday, then on the next secular day
following, at 2 P.M., or at such other date and time as shall, from time to
time, be designated by the Board of Directors and stated in the notice of the
meeting. At such annual meeting, the shareholders entitled to vote shall elect a
Board of Directors and transact such other business as may properly be brought
before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual meeting,
stating the place, date and time thereof, shall be given to each shareholder
entitled to vote at such meeting not less than 10 (unless a longer period is
required by law) nor more than 60 days prior to the meeting.
* Amended to second Thursday of November commencing in 1996.
<PAGE> 2
Section 4. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or the President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors, or at the request in
writing of the shareholders owning a majority of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 5. Notice of Meetings. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which their meeting is called, shall be
given to each stockholder of record entitled to vote thereat not less than ten
nor more than sixty days before the date of the meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice. Notice shall be given personally or by mail and, if by mail, shall
be sent in a postage prepaid envelope, addressed to the stockholder at his
address as it appears on the records of the Corporation. Notice by mail shall be
deemed given at the time when the same shall be deposited in the United States
mail, postage prepaid. Notice of any meeting shall not be required to be given
to any person who attends such meeting, except when such person attends the
meeting in person or by proxy 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, or who, either before or after the meeting,
shall submit a signed written waiver of notice, in person or by proxy. Neither
the business to be transacted at, nor the purpose of, an annual or special
meeting of stockholders need be specified in any written waiver of notice.
Section 6. List of Shareholders. The officer in charge of the stock ledger
of the Corporation or the transfer agent shall prepare and make, at least 10
days before every meeting of shareholders, a complete list of the shareholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each shareholder and the number of shares registered in the name of
each shareholder. Such list shall be open to the examination of any shareholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, at a place within the city
where the meeting is to be held, which place, if other than the place of the
meeting, shall be specified in the notice of the meeting. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any shareholder who is present in person
thereat.
2
<PAGE> 3
Section 7. Presiding Officer; Order of Business.
(a) Meetings of shareholders shall be presided over by the Chairman
of the Board, if any, or, if he is not present (or, if there is none), by the
President, or, if he is not present, by a Vice President, or, if he is not
present, by such person who may have been chosen by the Board of Directors, or,
if none of such persons is present, by a chairman to be chosen by the
shareholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting and who are present
in person or represented by proxy. The Secretary of the Corporation, or, if he
is not present, an Assistant Secretary, or, if he is not present, such person as
may be chosen by the Board of Directors, shall act as secretary of meetings of
shareholders, or, if none of such persons is present, the shareholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
(b) Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Quorum; Adjournments. The holders of a majority of the shares
of capital stock of the Corporation issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall be necessary to, and
shall constitute a quorum for, the transaction of business at all meetings of
the shareholders, except as otherwise provided by statute or by the Certificate
of Incorporation. If, however, a quorum shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, until a quorum shall be present or represented. Even if a quorum shall be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time for good cause, without
notice of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken, until a date which is not more
than 30 days after the date of the original meeting. At any such adjourned
meeting, at which a quorum shall be present in person or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote thereat.
3
<PAGE> 4
Section 9. Voting.
(a) At any meeting of shareholders, every shareholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each shareholder
of record as of the record date for determining stockholders entitled to vote at
such meeting shall be entitled to one vote for each share of capital stock
registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and,
except as otherwise provided by law or the Certificate of Incorporation, all
other matters shall be determined by a vote of a majority of the shares present
in person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law or
the Certificate of Incorporation to be taken at any meeting of shareholders may
be taken without a meeting, without prior notice and without a vote, if a
written consent, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present or represented by proxy and
voted. Such written consent shall be filed with the minutes of meetings of
shareholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
shareholders who have not so consented in writing thereto.
4
<PAGE> 5
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business of the Corporation
shall be managed by or under the direction of its Board of Directors, which may
exercise all powers of the Corporation and perform all lawful acts and things
which are not by law, the Certificate of Incorporation or these Bylaws directed
or required to be exercised or performed by the shareholders. The number of
directors constituting the entire Board shall be as set by initially the
Incorporators and thereafter by the Board of Directors by resolution, from time
to time. The directors shall be elected at the annual meeting of the
shareholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and shall qualify or
until his earlier death, resignation or removal. Directors need not be
shareholders.
Section 2. Vacancies. Any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of directors or any other cause, may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by the
sole remaining director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof. Each director so elected shall hold
office until his successor shall have been elected and qualified.
Section 3. Removal; Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director, directors or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to
the Board of Directors, the Chairman of the Board, the President or the
Secretary of the Corporation. Unless otherwise specified in such written notice,
a resignation shall take effect upon delivery thereof to the Board of Directors
or the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
5
<PAGE> 6
Section 5. Annual Meeting. The annual meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
shareholders, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board of
Directors may be held without notice, at such time and place as may from time to
time be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or by 2 or more
directors on at least 2 days' notice to each director, if such notice is
delivered personally or sent by telegram, or on at least 3 days' notice if sent
by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary or 2 or more directors in like manner and on like notice on
the written request of one-half or more of the number of directors then in
office. Any such notice need not state the purpose or purposes of such meeting
except as provided in Article X.
Section 8. Quorum; Adjournments. At all meetings of the Board of
Directors, a majority of the number of directors then in office shall constitute
a quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by law
or the Certificate of Incorporation. If a quorum is not present at any meeting
of the Board of Directors, the directors present may adjourn the meeting, from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such compensation
for their services as directors and to such reimbursement for any reasonable
expenses incurred in attending directors' meetings as may from time to time be
fixed by the Board of Directors. The compensation of directors may be on such
basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
a written consent to such action is signed by all members of the Board of
Directors and such written consent is filed with the minutes of its proceedings.
6
<PAGE> 7
Section 11. Meetings by Telephone or Similar Communications. The Board of
Directors may participate in a meeting by means of conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such meeting shall
constitute presence in person by such director at such meeting.
ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the entire Board, may appoint an Executive Committee
consisting of not less than three (3) directors, one of whom shall be designated
as Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the expiration of his term as a
director, or his earlier resignation, unless sooner removed as a member or as a
director.
Section 2. Powers. The Executive Committee shall have and may exercise
those rights, powers and authority of the Board of Directors as may from time to
time be granted to it (to the extent permitted by law) by the Board of Directors
and may authorize the seal of the Corporation to be affixed to all papers which
may require it.
Section 3. Procedure; Meetings. The Executive Committee shall fix its own
rules of procedure and shall meet at such times and at such place or places as
may be provided by such rules or as the members of the Executive Committee shall
provide. The Executive Committee shall keep regular minutes of its meetings and
deliver such minutes to the Board of Directors. The Chairman of the Executive
Committee, or, in his absence, a member of the Executive Committee chosen by a
majority of the members present, shall preside at meetings of the Executive
Committee, and another member thereof chosen by the Executive Committee shall
act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall constitute
a quorum for the transaction of business, and the affirmative vote of a majority
of the members thereof shall be required for any action of the Executive
Committee.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority vote of the entire Board, may appoint such other committee
or
7
<PAGE> 8
committees as it shall deem advisable and with such functions and duties as the
Board of Directors shall prescribe.
Section 6. Vacancies; Changes; Discharge. The Board of Directors shall
have the power at any time to fill vacancies in, to change the membership of,
and to discharge any committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of any such committee and to
such reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any member
may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and from receiving compensation and
reimbursement of reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted to be taken
at any meeting of any committee of the Board of Directors may be taken without a
meeting if a written consent to such action is signed by all members of the
committee and such written consent is filed with the minutes of its proceedings.
Section 9. Meetings by Telephone or Similar Communications. The members of
any committee designated by the Board of Directors may participate in a meeting
of such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in such meeting can hear
each other and participation in such meeting shall constitute presence in person
at such meeting.
ARTICLE V
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of law, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or shareholder, it shall not be construed to mean personal notice
unless otherwise specifically provided, but such notice may be given in writing,
by mail, addressed to such director or shareholder, at his address as it appears
on the records of the Corporation, with postage thereon prepaid. Such notices
shall be deemed to be given at the time they are deposited in the United States
mail. Notice to a director may also be given personally or by telegram sent to
his address as it appears on the records of the Corporation.
8
<PAGE> 9
Section 2. Waiver. Whenever any notice is required to be given under the
provisions of law, the Certificate of Incorporation or these Bylaws, a written
waiver thereof, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any shareholder who attends a meeting of shareholders
in person, or is represented at such meeting by proxy, without protesting prior
to the conclusion of the meeting the lack of notice thereof to him, or any
director who attends a meeting of the Board of Directors without protesting, at
the commencement of the meeting, such lack of notice, shall be conclusively
deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations. The officers of the Corporation shall be chosen
by the Board of Directors. The Board of Directors may choose a Chairman of the
Board, a President, a Vice President or Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers and
other officers and agents as it shall deem necessary or appropriate. All
officers of the Corporation shall exercise such powers and perform such duties
as shall from time to time be determined by the Board of Directors. All officers
of the Corporation shall hold office until the earlier of their death,
resignation, removal or election and qualification of a successor by the Board
of Directors. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. Term of Office; Removal. The Board of Directors at its first
regular meeting after each annual meeting of shareholders shall choose a
President, a Secretary and a Treasurer. The Board of Directors may also choose a
Chairman of the Board, a Vice President or Vice Presidents, one or more
Assistant Secretaries and/or Assistant Treasurers, and such other officers and
agents as it shall deem necessary or appropriate. Any officer elected or
appointed by the Board of Directors may be removed, with or without cause, at
any time by the affirmative vote of a majority of the directors then in office.
Such removal shall not prejudice the contract rights, if any, of the person so
removed. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 3. Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board of Directors and no officer
9
<PAGE> 10
shall be prevented from receiving such salary by reason of the fact that he is
also a director of the Corporation.
Section 4. The Chairman of the Board. The Chairman of the Board, if any,
shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall perform such executive, supervisory and management
functions and duties as may be assigned to him from time to time by the Board of
Directors. He shall, if present, preside at all meetings of shareholders and of
the Board of Directors.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents. In general, he shall
perform all duties incident to the office of President and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the President shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities which the Corporation might have possessed and exercised if
it had been present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
Section 6. The Vice Presidents. The Vice President, if any (or in the
event there be more than one, the Vice Presidents in the order designated, or in
the absence of any designation, in the order of their election), shall, in the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
10
<PAGE> 11
Section 7. The Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of
shareholders and special meetings of the Board of Directors, and shall perform
such other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board or the President, under whose supervision
he shall act. He shall have custody of the seal of the Corporation, and he, or
an Assistant Secretary, shall have authority to affix the same to any instrument
requiring it, and, when so affixed, the seal may be attested by his signature or
by the signature of such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any (or in
the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have the custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all monies and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chairman of the Board,
the President and the Board of Directors, at regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any (or
in the event there shall be more than one, the Assistant Treasurers in the order
designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
11
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ARTICLE VII
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Reference is made to Section 145 (and any other relevant provisions) of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons (hereinafter called "Indemnitee") who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person (or the heirs, executors or administrators of such
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, by reason of the fact that such
person is or was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The Corporation shall (and is hereby obligated to) indemnify
and advance the expenses of the Indemnitee, and each of them, in each and every
situation where the Corporation is obligated to make such indemnification and/or
advance such expenses pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify and advance the expenses of the Indemnitee, and each
of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification and/or advance such expenses, it being
understood, that, before making such indemnification with respect to any
situation covered under this sentence, (i) the Corporation shall promptly make
or cause to be made, by any of the methods referred to in subsection (d) of such
Section 145, a determination as to whether each Indemnitee acted in good faith
and in a manner such Indemnitee reasonably believed to be in or not opposed to
the best interests of the Corporation, and, in the case of any criminal action
or proceeding, had no reasonable cause to believe that such Indemnitee's conduct
was unlawful, and (ii) no such indemnification shall be made unless it is
determined that such Indemnitee acted in good faith and in a manner such
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that such Indemnitee's conduct was unlawful.
12
<PAGE> 13
ARTICLE VIII
STOCK CERTIFICATES
Section 1. Form; Signatures.
(a) Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by the Chairman of the Board or the President and the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation, exhibiting the number and class (and series, if any) of
shares owned by him, and bearing the seal of the Corporation. Such signatures
and seal may be a facsimile. A certificate may be manually signed by a transfer
agent or registrar other than the Corporation or its employee but may be a
facsimile. In case any officer who has signed, or whose facsimile signature was
placed on, a certificate shall have ceased to by such officer before such
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
(b) All stock certificates representing shares of capital stock
which are subject to restrictions on transfer or to other restrictions may have
imprinted thereon such notation to such effect as may be determined by the Board
of Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation or
any transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation or its transfer agent to issue
a new certificate to the person entitled thereto, to cancel the old certificate
and to record the transaction upon its books.
Section 3. Registered Shareholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions, to vote as such owner, and to hold liable for calls and
assessments a person who is registered on its books as the owner of shares of
its capital stock. The Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
(b) If a shareholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation (or by the transfer agent or registrar, if
any), such shareholder shall have the duty to notify the Corporation (or the
transfer agent or
13
<PAGE> 14
registrar, if any) in writing, of such desire. Such written notice shall specify
the alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine the
shareholders of record who are entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution, or to make a determination of the
shareholders of record for any other proper purpose, the Board of Directors may,
in advance, fix a date as the record date for any such determination. Such date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and (i) shall not be more than 60 nor less
than 10 days before the date of such shareholders meeting, nor (ii) more than 10
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors, if pertaining to a written consent of shareholders
without a meeting, nor (iii) more than 60 days prior to the date of any other
action. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
taken pursuant to Section 8 of Article II; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 5. Lost, Stolen or Destroyed Certificates. The Board of Directors
may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Corporation a bond in such sum, or other security in such form, as
it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate claimed to have been lost, stolen or
destroyed.
14
<PAGE> 15
ARTICLE IX
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of the Certificate of
Incorporation, dividends upon the outstanding capital stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law, and may be paid in cash, in property or in shares of the
Corporation's capital stock.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its incorporation and the words "Corporate Seal"
and "Delaware".
ARTICLE X
AMENDMENTS
These Bylaws may be adopted, amended or repealed by vote of the holders of
the shares at the time entitled to vote in the election of any directors. In
addition, The Board of Directors shall have the power to make, alter and repeal
these Bylaws, and to adopt new bylaws, by unanimous written consent or by an
affirmative vote of a majority of the whole Board, provided that notice of the
proposal to make, alter or repeal these Bylaws, or to adopt new bylaws, must be
included in the notice of the meeting of the Board of Directors at which such
action takes place.
15
<PAGE> 1
Exhibit 3.04
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------------- )
SHARON P. SANDLER, )
) 92 Civ. 5292 (RWS)
Plaintiff, )
)
- - against - )
)
PROGRAMMING AND SYSTEMS )
INCORPORATED, IRWIN MAUTNER, ALVIN )
LIPOFF, LESTER J. TANNER, KENNETH FULD )
and MARTIN GREENSTEIN, C.P.A. )
)
Defendants. )
- ---------------------------------------- )
STIPULATION OF SETTLEMENT
This Stipulation of Settlement of Class Action (the "Settlement
Stipulation") dated as of November 15, 1993 is made and entered into by and
among the plaintiff, acting individually and on behalf of the Class, and the
defendants herein individually or by and through their counsel of record,
subject to Court approval described below.
The Action
A. There is pending in this Court an action entitled Sandler v.
Programming and Systems, Inc., et al., 92 CIV 5292 (RWS) (the "Action"),
commenced in the United States District Court for the Southern District of New
York (the "District Court").
B. A Class Action Complaint (the "Complaint") was filed in the Action on
or about July 15, 1992. The Complaint involves claims asserted on behalf of a
STIPULATION OF SETTLEMENT
<PAGE> 2
Class of purchasers of the common stock of Programming and Systems, Inc. ("PSI"
or "the Company") who were injured by defendants' alleged violations of the
federal securities laws and the common law (the "Class Claims"). The Class
Claims are asserted against PSI, Irwin Mautner, Alvin Lipoff, Lester J. Tanner,
Kenneth Fuld and Martin Greenstein, C.P.A. ("the Settling Defendants").
C. Plaintiff seeks to recover damages purportedly sustained by members of
the plaintiff Class as a result of alleged violations by defendants of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and the Rules promulgated
thereunder, and the common law. Plaintiff asserts that in various quarterly and
annual filings with the Securities and Exchange Commission, press releases and
in other publicly issued statements defendants made materially false and
misleading statements and/or omissions with respect to the Company's financial
condition. As a result of these allegedly false and misleading statements and/or
omissions, the market prices of PSI's common stock were artificially inflated
from at least May 31, 1989 through June 17, 1992, inclusive. Plaintiff alleges
that she and all other members of the plaintiff Class were damaged as a result
of the alleged misstatements and non-disclosures and by the resulting suspension
in trading of PSI's common stock on the NASDAQ on June 17, 1992.
D. Defendants represent that as a group they own or control approximately
1,200,000 shares of PSI common stock and that as of June 17, 1992 there were
issued and outstanding about an additional 2,432,290 shares of PSI common stock
which continue to be issued and outstanding as of the date of this stipulation.
Defendants represent that PSI's common stock was eligible for quotation
STIPULATION OF SETTLEMENT 2
<PAGE> 3
on the National Association of Securities Dealers Automated Quotations System
("NASDAQ") until June 17, 1992 and since that date the stock has not been traded
on any public exchange or market.
E. Plaintiff seeks an Order, pursuant to Rule 23 of the Federal Rules of
Civil Procedure, certifying the Action as a Class Action on behalf of:
All persons who owned the Common Stock of Programming and Systems, Inc.
("PSI") on June 17, 1992 and their successors in interest ("Class").
Excluded from the Class are the defendants herein, members of the
immediate family of the individual defendants, members of PSI's
management, any entity in which any of the defendants has a controlling
interest, and the legal representatives, heirs, successors or assigns of
any of the defendants.
Factors Leading To The Proposed Settlement
F. A condition of this Settlement is that plaintiff has been afforded the
opportunity to conduct certain discovery in order to independently investigate
the facts and circumstances relevant to the allegations in the Action.
Plaintiff, through her counsel, has made such an investigation. In connection
with that investigation, counsel have inspected pertinent corporate and
governmental records and have reviewed the sworn testimony of PSI employees and
others. They have considered the expense and length of time necessary to
prosecute this action through trial, the uncertainties of the outcome of this
complex litigation, the uncertain ability of PSI to continue as a going concern
in the absence of a settlement, the absence of insurance to cover the asserted
claims, and the substantial benefit provided by the proposed settlement to the
plaintiff Class. Based upon these considerations, plaintiff and her counsel have
concluded that it is in the best interests of the plaintiff and the Class to
settle these actions on the terms set forth herein.
STIPULATION OF SETTLEMENT 3
<PAGE> 4
G. Settling Defendants, while denying all wrongdoing of any kind
whatsoever and denying any liability to plaintiff or the Class, and relying on
the provisions of the Settlement Stipulation that the proposed settlement shall
in no event be construed or deemed to be evidence, or an admission, or a
concession on the part of the defendants, or any of them, of any fault or
liability whatsoever, and without conceding any infirmity in the defenses they
have asserted or intended to assert in the Action, consider it desirable that
these actions be dismissed on the terms set forth herein in order to avoid
further expense, to dispose of burdensome and protracted litigation, to permit
the continued operation of their affairs unhindered by expensive litigation and
by distractions and diversion of themselves and the personnel of the corporate
defendant, and to terminate all controversy concerning the Class Claims asserted
in the Action.
NOW, THEREFORE, IT IS STIPULATED AND AGREED, by and among the parties,
through them or their undersigned counsel, that the Action shall be settled and
compromised, subject to the approval of the District Court pursuant to Rule
23(e) of the Federal Rules of Civil Procedure upon and subject to the terms and
conditions set forth below.
The Terms Of The Proposed Settlement
1. In full and final settlement of any and all claims, individual and
representative, that are, could have been, or might in the future be asserted by
plaintiff or any member of the Class in the Action and all obligations in the
Action, PSI shall:
(a) Pay a total of $1,400,000 in cash or cash equivalents, as
STIPULATION OF SETTLEMENT 4
<PAGE> 5
counsel may agree upon, within twenty (20) days of the execution of this
Stipulation to the Escrow Agents pursuant to the Escrow Agreement substantially
in the form of that set forth as Exhibit F hereto. This payment ("Settlement
Fund") shall be held in escrow and disbursed in accordance with the provisions
of this Settlement.
(b) If the settlement becomes final in accordance with the
provisions of this agreement, the Settlement Fund plus interest earned thereon
shall be reduced by the amount awarded by the Court for Plaintiff's attorneys'
fees, reimbursement of expenses, and award to the named Plaintiff subject to the
conditions as provided for herein. The balance remaining in the Settlement Fund
after all such deductions, shall be deemed the Net Settlement Fund ("Net
Settlement Fund"). The Net Settlement Fund shall be distributed to all Class
Members who timely file valid Proofs of Claim pursuant to the procedure set
forth in this Stipulation of Settlement ("Eligible Class Claimants").
(c) In addition to the Settlement Fund, as further payment in
settlement of this Action and as payment in full and complete satisfaction of
any and all claims that Eligible Class Claimants and other shareholders of PSI
may have against any one or more of the Settling Defendants by reason of the
facts and circumstances underlying or relating, directly or indirectly, to the
Action, and as a measure leading to the consolidation and contraction of the
operations of PSI, PSI shall establish on its books and records a supplemental
settlement fund (the "Supplemental Settlement Fund"). The Supplemental
Settlement Fund shall consist of the net proceeds of sale of the assets of PSI
Settlement Corp., a Delaware corporation that PSI has caused to be formed
("PSC"), including the assets of the direct or indirect subsidiaries of PSC. PSC
shall be a wholly owned subsidiary of
STIPULATION OF SETTLEMENT 5
<PAGE> 6
PSI. In consideration of receipt of all the securities of PSC, PSI shall
transfer on the Effective Settlement Date (as hereinafter defined), free and
clear of all liens, claims and encumbrances, to PSI all of the stock of the
following PSI subsidiaries: PSI Capital Corp., and PSI Food Services, Inc. which
in turn owns all of the stock of Wendcello Corp., and Wendclark Corp., indirect
wholly owned PSI subsidiaries. The sole stated purpose of PSC shall be to sell
or otherwise dispose of all of its assets in a reasonable and prudent manner so
as to maximize the net proceeds realizable therefrom with a view to realize an
amount no less than $1.50 per issued and outstanding share of PSC and pay over
and deposit the net proceeds realized into the Supplemental Settlement Fund.
Promptly upon receipt of monies in the Supplemental Settlement Fund, PSI shall
distribute same pro rata to all shareholders of PSI as of the close of trading
on NASDAQ on June 17, 1992, including Eligible Class Claimants and any
successors or transferees of all of PSI's shareholders as of June 17, 1992,
provided, however, that no distribution need be made unless and until the amount
distributed on a per share basis is at least Fifty Cents ($0.50).
(d) To secure the obligations of PSI and PSC hereunder, the monies
in the Supplemental Settlement Fund shall be deposited in a separate bank
account denominated as such for the sole benefit of, and to grant a security
interest in such account to the PSI shareholders entitled to receive such
proceeds, and to pledge, hypothecate and grant a security interest in the stock
of PSC for the benefit of the PSI shareholders entitled to receive the proceeds
of the Supplemental Settlement Account. TO secure such pledge and hypothecation
and to perfect such security interest, the shares of PSC shall be delivered to
the Escrow Agents set forth in Exhibit F hereto.
STIPULATION OF SETTLEMENT 6
<PAGE> 7
(e) To secure the performance by PSC of its obligations under this
Stipulation, including its business purpose and the payment of the proceeds of
sale of its assets (including the assets of its direct and indirect
subsidiaries) into the Supplemental Settlement Fund, PSC pledges, hypothecates
and grants a security interest in all of its assets to and for the benefit of
the PSI shareholders entitled to receive distributions from the Supplemental
Settlement Fund. To secure such pledge and hypothecation and to perfect such
security interest shall deliver to the Escrow Agents set forth in Exhibit F
hereto the shares of stock of PSI Capital Corp., PSI Food Services, Inc.,
Wendcello Corp. and Wendclark Corp.
(f) Class Members shall continue to own shares in PSI. PSI shall
continue as a going concern to the extent financial and economic conditions
permit and may be merged with or combined with other entities only so long as
the Class Members who continue to own PSI shares shall be treated the same or
substantially the same as other PSI shareholders in any entity resulting from
such a combination.
(g) Irwin Mautner, PSI Chairman, has agreed to resign from the Board
of Directors and as an officer and employee of PSI on or before December 31,
1993 and have no further role in the management of PSI. Mautner's Employment
Agreement dated February 2, 1981, as amended ("Mautner Employment Agreement"),
shall be terminated as of December 31, 1993 and a lump sum payment of $600,000
will be paid by PSI to Mautner in full settlement of any and all claims he may
have against PSI Mautner the Employment Agreement at the date of his
resignation. Under the agreement terminating the Mautner Employment Agreement,
Mautner will be available to PSI as a consultant on an "as needed" basis after
December 31, 1993.
STIPULATION OF SETTLEMENT 7
<PAGE> 8
(h) As a condition of this Settlement, counsel for the plaintiff
agree to cooperate and to undertake such efforts as are reasonable to represent
to various governmental agencies which have ongoing investigations or
administrative matters involving PSI, that this Settlement is in the best
interests of all shareholders and that PSI should only be required to provide
and file with the Securities Exchange Commission audited financial statements
for the past two consecutive fiscal years, in order that all shareholders may
have current financial statements as soon as possible.
2. If the District Court disapproves this Settlement by failing to enter
the Order of Preliminary Approval substantially in the form attached hereto as
Exhibit "A", or if Final Approval is not obtained from the District Court for
any reason by April 5, 1994, or if a final approval or final judgment
substantially in the form annexed hereto as Exhibit E is reversed on appeal,
then the entire amount of the Settlement Fund and all accrued interest (less any
costs payable therefrom which are identified herein) shall be returned to PSI.
3. In addition to the benefits described above, PSI, as part of the
Settlement, has also agreed to bear all costs associated with dissemination of
Notice to the Class, including, but not limited to: the production of a list or
lists of putative Class members; printing, preparation arid mailing of Notices
with attached claim forms; the costs relating to mailing by brokers or nominees
to beneficial owners of PSI common stock; the cost of publishing summary notice
in the manner approved by the Court, all costs associated with the processing of
claims, claims administration, the solicitation of claims; any other associated
expenses of plaintiff's attorneys (exclusive of legal fees but including
disbursements approved by the
STIPULATION OF SETTLEMENT 8
<PAGE> 9
Court), up to a total of $50,000. Said expenses are to be paid out of a separate
Escrow expense fund established by PSI and held by Tanner Propp & Farber (the
"Expense Fund"). Plaintiff's counsel shall have responsibility for notification
of the Class and for administering claims processing and shall account to PSI
for sums expended in connection herewith. If the Settlement is not finally
consummated, without regard to the reason for such failure, PSI shall not be
entitled to a refund of any monies expended or for expenses incurred in
connection with such notification and claims processing.
4. Stamell, Tabacco & Schager and Golomb, Sindel & Dible, P.C., in their
capacities as counsel herein, will serve jointly as Escrow Agents for the
Settlement Fund. Tanner Propp & Farber will serve as Escrow Agent for the
Expense Fund.
(a) The Escrow Agents shall promptly invest the Settlement Fund, and
Tanner Propp & Farber shall invest the Expense Fund, in a prudent manner in a
bank which is a member of the New York Clearing House Association. The interest,
income and net gains, if and to the extent realized, from the investment of the
Settlement Fund and Expense Fund shall be added to the Settlement Fund and the
Expense Fund, as the case may be.
(b) Attorneys' fees, or other disbursements as may be awarded by the
Court to Plaintiff's Counsel or the named plaintiff upon application therefor
(see paragraphs 18 and 19 below) shall be paid entirely from the Settlement Fund
except as otherwise provided herein; and
(c) The Net Settlement Fund shall be distributed pro rata to all
Eligible Class Claimants in the manner and subject to the conditions set forth
in paragraph 8(a) below.
STIPULATION OF SETTLEMENT 9
<PAGE> 10
Order of Preliminary Approval
5. The parties to the Action shall promptly submit this Stipulation of
Settlement to the District Court and jointly request that the District Court
enter an Order in substantially the form annexed hereto as Exhibit "A" (the
"Preliminary Approval Order"):
(a) Conditionally certifying a settlement Class defined as follows:
All persons who owned the Common Stock of Programming and Systems, Inc.
("PSI") at the close of trading on the NASDAQ on June 17, 1992 and their
successors in interest ("Class"). Excluded from the Class are the
defendants herein, members of the immediate family of the individual
defendants, members of PSI's management, any entity in which any of the
defendants has a controlling interest, and the legal representatives,
heirs, successors or assigns of any of the defendants.
(b) Scheduling a hearing pursuant to Rule 23(e) of the Federal Rules
of Civil Procedure (the "Class Settlement Hearing"): (i) to determine whether
the proposed settlement of the Class Claims in the Action on the terms and
conditions provided in the Settlement is fair, reasonable, and adequate and
should be approved by the District Court; (ii) to determine whether a judgment
should be entered dismissing the Action on the merits, with prejudice, and
without costs as to the Settling Defendants; (iii) to consider the applications
by Plaintiff's Class Counsel for award of attorneys' fees, costs and
disbursements; and (iv) to consider any application for an award to the named
plaintiff;
(c) Approving the form and manner of the notice to be provided to
Class Members;
STIPULATION OF SETTLEMENT 10
<PAGE> 11
(d) Directing that the Notice of Proposed Settlement of the Class
Action and Proof of Claim and Release annexed hereto as Exhibits "B" and "D",
respectively, be mailed, and that the Summary Notice annexed hereto as Exhibit
"C" be published; and
(e) Setting forth schedules and procedures for the implementation of
the terms and conditions of the proposed settlement including, among other
things, provisions for the filing by members of the Class of objections to the
proposed settlement.
The Review and Calculation of Class Claims
6. For purposes of determining whether and in what amount an Eligible
Class Claimant shall be entitled to share in the Net Settlement Fund, the
following conditions shall apply:
(a) Class Plaintiff's Counsel have formulated the manner of
allocating the Net Settlement Fund and shall be responsible for the supervision,
review, processing and calculation of Claims and the distribution of the Net
Settlement Fund;
(b) Class Plaintiff's Counsel may retain an appropriate
administrative agent to process the Claims under their supervision and may also
retain an appropriate proxy solicitation organization to solicit claims;
(c) In order for a Claim to be considered to receive a pro-rata
distribution of the Net Settlement Fund, it must be properly and timely executed
and filed before June 5, 1994 in the form provided for in Exhibit D annexed
hereto,
STIPULATION OF SETTLEMENT 11
<PAGE> 12
accompanied by sufficient proof demonstrating entitlement to share in the
Settlement;
(d) Class Plaintiff's Counsel or their administrative agent shall
notify, in a timely fashion and in writing, each Claimant whose Proof of Claim
is deficient or which has been rejected, in whole or in part, setting forth the
reasons therefor, and shall advise each such Claimant of his, her, or its right
to correct the deficiency or to object to the rejection of the Claim and to seek
review of the Claim by the District Court;
(e) All decisions with respect to the ultimate validity of any Claim
and the distribution of the Net Settlement Fund shall be made by Class
Plaintiff's Counsel subject to the approval of the District Court.
7. Defendants shall have no responsibility for supervising the
administration of the Settlement.
8. The Net Settlement Fund shall be allocated among Eligible Claimants in
the following manner:
Each valid Eligible Claimant will be entitled to receive from the
Net Settlement Fund, and only to the extent that cash funds are available in the
Net Settlement Fund, the Claimant's pro rata share calculated by a formula where
the number of shares owned by such Eligible Claimant shall be the numerator and
the total number of shares owned by all Eligible Claimants shall be the
denominator, the resulting fraction then being multiplied by the amount of the
Net Settlement Fund. Any moneys remaining in the Net Settlement Fund after
compliance with all the
STIPULATION OF SETTLEMENT 12
<PAGE> 13
provisions hereof and the expiration of nine months from the last date for
filing Proofs of Claim shall be paid to PSC which shall account for and be
liable for the same to any Eligible Claimant entitled thereto but only if such
Eligible Claimant shall file with PSC a later submitted Proof of Claim approved
by the Court as provided in paragraph 9(a), except that in no event shall any
later claim be considered after December 31, 1995 or when the Net Settlement
Fund is fully paid, whichever occurs first.
9. For purposes of determining the extent, if any, to which a Class Member
shall be entitled to be treated as an Eligible Claimant, the following
conditions shall apply:
(a) Each shareholder of PSI stock at the close of trading on June
17, 1992 shall submit a completed Proof of Claim form substantially in the form
attached hereto as Exhibit "D". Shareholders of record which are brokers,
nominees or trustees may submit a completed Proof of Claim on behalf of any
eligible beneficial holder of PSI common stock. Any Class Member who fails to
submit a valid Proof of Claim by the date established by the Court shall not be
eligible to receive any payment pursuant this Settlement unless, by Order of the
Court, a later submitted Proof of Claim by such Class Member is approved. All
Class Members shall in all respects be bound by the terms of this Settlement and
the final judgment entered in the Action. A Proof of Claim shall be deemed to
have been submitted when posted, if received and if a postmark is indicated on
the envelope and it is mailed first-class postage prepaid and addressed in
accordance with the instructions thereon, and in all other cases shall be deemed
to have been submitted
STIPULATION OF SETTLEMENT 13
<PAGE> 14
when actually received by Class Plaintiff's Counsel or their agents;
(b) Each Proof of Claim shall be submitted to and reviewed by Class
Plaintiff's Counsel or their agents who shall determine in accordance with this
Stipulation and Order of the Court the extent, if any, to which each Claim shall
be allowed, subject to review by the Court pursuant to paragraph 9(d) below.
Copies of such Proofs of Claim shall be made available to Settling Defendants'
Counsel upon request;
(c) Class Plaintiff's Counsel or their agents shall reject Proofs of
Claim that do not meet the requirements set forth herein and in the Preliminary
Order of Approval. Prior thereto, Class Plaintiff's Counsel or their agents may
communicate with claimants in order to remedy deficiencies in Proofs of Claim
submitted. Class Plaintiff's Counsel or their agents shall notify, in a timely
fashion and in writing, all Claimants whose Proofs of Claim they have rejected,
in whole or in part, setting forth the reasons therefor, and shall indicate in
such notice that the Claimant whose claim is rejected has the right to a review
by the Court if the Claimant so desires and complies with the requirements of
paragraph 9(d) below; and
(d) If any Claimant whose claim has been rejected, in whole or in
part, desires to contest such rejection, the Claimant must, within twenty (20)
days after the date of mailing of the notice required in paragraph 9(c) hereof,
serve upon Class Plaintiff's Counsel or their administrative agent a notice and
statement of reasons indicating the Claimant's grounds for contesting the
rejection along with any supporting documentation, and requesting a review
thereof by the Court. Class Plaintiff's Counsel shall thereafter present all
such requests for review to the Court.
STIPULATION OF SETTLEMENT 14
<PAGE> 15
10. Each Claimant shall be deemed to have submitted to the jurisdiction of
the Court with respect to the Claimant's claim, and the claim will be subject to
investigation and discovery under the Federal Rules of Civil Procedure, provided
that such investigation and discovery shall be limited to that Claimant's status
as a Class Member and the amount of the Claimant's claim.
11. All proceedings with respect to the Settlement described by this
Settlement Stipulation and the determination of all controversies relating
thereto, including disputed questions of law and fact with respect to the
validity of claims, shall be subject to the jurisdiction of the Court.
12. The Net Settlement Fund shall be distributed to Eligible Class
Claimants by the Escrow Agents or the administration agent retained by the
Escrow Agents, pursuant to an order of the District Court. only after the
Settlement Effective Date (as defined in paragraph 14 below) and after (i) all
Claims have been processed, and all Claimants whose Claims have been rejected or
disallowed, in whole or in part, have been notified and provided the opportunity
to object to such rejection or disallowance; (ii) all objections with respect to
all rejected or disallowed Claims have been resolved by the District Court, and
all appeals therefrom have been resolved or the time therefor has expired; and
(iii) all matters with respect to attorneys' fees, costs, and disbursements have
been resolved by the District Court, and all appeals therefrom have been
resolved or the time therefor has expired.
13. Payment of the Net Settlement Fund in the manner set forth above
STIPULATION OF SETTLEMENT 15
<PAGE> 16
shall be deemed conclusive against all Class Members. Each class Member who does
not file a claim or whose Claim is not approved by the Court shall be barred
from participating in distributions from the Settlement Fund, but otherwise
shall be bound by all of the terms of this Settlement Stipulation, including the
terms of the judgments to be entered in the Action.
The Effective Date of the Proposed Settlement
14. The proposed settlement encompassed in the Settlement Stipulation
shall become effective (the "Settlement Effective Date") upon the occurrence of
the entry by the District Court of an Order and Final Judgment substantially in
the form annexed hereto as Exhibit "E", and the expiration of the time within
which to appeal said Order and Final Judgment without any review or appeal
having been taken from any of such Order and Final Judgment, or if such review
or appeal is taken, the expiration of the time within which to take any further
review or appeal, and the resolution and final determination of such reviews or
appeals by the highest court before which appellate review is sought, and not
subject to further appeal, in such manner as to permit the consummation of the
proposed settlement provided for by this Settlement Stipulation in accordance
with all of its terms and provisions.
Applications for Attorneys' Fees, Costs, and Disbursements
15. Notwithstanding any other provision herein, all attorneys' fees, costs
and disbursements that the District Court may allow on behalf of Class
Plaintiff's
STIPULATION OF SETTLEMENT 16
<PAGE> 17
District Court's approval of such application but only if no person or entity
has come forth and filed an objection which is not withdrawn prior to the
hearing on final approval but which otherwise complies with the provisions of
paragraph 16. In such event, payment of such Plaintiff's Counsel's fees, costs
and disbursements shall be made promptly after the Settlement Effective Date in
such manner as the District Court may direct. The attorneys' fees, costs and
disbursements awarded by the District Court shall accrue interest from the date
that the Settlement Fund is established until it is paid out to Class
Plaintiff's Counsel, at the same rate as the Settlement Fund earns interest,
unless otherwise provided by the District Court.
16. If the Settlement is approved by the District Court, Class Plaintiff's
Counsel may simultaneously apply to the District Court for awards of attorneys'
fees, costs and disbursements. Class Plaintiff's Counsel have agreed not to
apply for a fee and disbursement award from the Settlement Fund in excess of
$400,000 to include legal fees of Plaintiff's Counsel, reimbursement of their
reasonable costs and disbursements for both the litigation and settlement of the
Action and an award to the plaintiff. Except for PSI's payments establishing the
Settlement Fund and Expense Fund, no Settling Defendant shall be liable for any
fees, costs or disbursements of Class Plaintiff's Counsel or for any award to
the named plaintiff. In the event Class Plaintiff's Counsel make any further
application to the District Court for attorneys' fees costs or disbursements
incurred by Class Plaintiff's Counsel in their capacity as administrative
counsel for the distribution of the Settlement Fund and/or in connection with
the administration of the Supplemental Settlement Fund, such additional
attorneys' fees, costs or disbursements as maybe awarded shall be
STIPULATION OF SETTLEMENT 17
<PAGE> 18
payable only out of the assets of the Supplemental Settlement Fund.
Release
17. Subject only to the final approval of this Settlement Stipulation by
the District Court, and subject to paragraph 28 hereof, all Class Members
(including its, his, her or their heirs, executors, administrators,
predecessors, successors, affiliates and assigns), and each of them, for good
and sufficient consideration, release, remise and forever discharge the Settling
Defendants in the Action (including that individual or entity and his, her, its,
or their respective spouses, heirs, executors, administrators, assigns) and all,
past, present and former directors, partners, principals, officers, employees,
agents, attorneys, accountants, subsidiaries, divisions, affiliates,
predecessors, successors and assigns of PSI and the other Defendants, and any
person they represent, and each of them, of and from any and all manner of
actions and causes of actions, suits, obligations, claims, debts, demands,
agreements, promises, liabilities, controversies, costs, expenses, and
attorneys' fees whatsoever, whether in law or in equity and whether based on any
federal law, state law, or common law right of action or otherwise, foreseen or
unforeseen, matured or unmatured, known or unknown, accrued or not accrued,
which the Class Members in the Action, or any of them, ever had, now have, or
can have, or shall or may hereafter have, either individually or as a member of
a class, including, among others, the Class, by reason of, based upon, arising
from, or in any way related to, the alleged acts, failures to act, omissions,
misrepresentations, facts, events, transactions, statements, occurrences, or
other subject matter which either
STIPULATION OF SETTLEMENT 18
<PAGE> 19
were or which could have been set forth, alleged, embraced, complained of or
otherwise referred to in the Action or in any action which either could have
been consolidated with the Action or could have been brought in any other forum,
from the beginning of the world up to and including the date of final approval
of the Settlement Stipulation.
Nothing herein contained, however, shall release, and there are
specifically reserved, any and all rights, claims and causes of action which PSI
has asserted or may assert against Martin Greenstein, C.P.A.
Negotiations and Settlement Stipulation Nor an Admission
18. The Settlement Stipulation and all negotiations relating to it and any
proceedings taken hereunder (the "Settlement Proceedings") shall not in any
event be construed as, or deemed to be, evidence of an admission or concession
by any of the Defendants of any liability or wrongdoing whatsoever by them or on
the part of any other persons. The Settlement Stipulation and each of its
provisions shall not be offered or received in evidence in the Action or any
other action or proceeding as an admission or concession of liability or
wrongdoing of any nature on the part of the Defendants, or any of them. The
Settlement Proceedings shall not be deemed a concession or an admission by
plaintiff or the Class of any lack of merit of their claims.
Effect of Disapproval or Termination of Proposed Settlement
STIPULATION OF SETTLEMENT 19
<PAGE> 20
19. If settling parties, despite their best efforts, are unable to obtain
approval of the proposed settlement provided for in the Settlement Stipulation
and a final judgment as described in paragraph 14 is not obtained from the
District Court for any reason, or is reversed an appeal, then the Settlement
Stipulation and the order conditionally certifying the Class, shall be null and
void, shall have no further force and effect with respect to any party in any of
these actions, and shall not be used in these actions or in any other proceeding
for any purpose. In such case, the Settlement Fund and the Expense Fund, less
all expenditures chargeable thereto, paid pursuant to paragraph 1 above
(including all interest, income, and net gains realized thereon) shall be
returned in their entirety to PSI.
Miscellaneous
20. The parties hereto and their attorneys agree to cooperate fully with
one another in seeking Court approval of the Settlement Stipulation and to use
their best efforts to effect the consummation of this Settlement Stipulation and
the proposed settlement provided for hereunder.
21. The Settlement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators,
predecessors, successors, affiliates and assigns and upon any corporation or
other entity into or with which any party hereto may merge or consolidate.
22. The exhibits to the Joint Application are incorporated in and
constitute
STIPULATION OF SETTLEMENT 20
<PAGE> 21
an integral part of the Settlement Stipulation.
23. The Settlement Stipulation may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
24. The District Court shall retain jurisdiction with respect to
enforcement of the terms of the Settlement Stipulation.
25. All terms of this Stipulation and the exhibits thereto shall be
governed and interpreted according to the laws of New York.
26. The foregoing constitutes the entire agreement among the parties with
respect to the subject matter hereof and may not be modified or amended except
in writing signed by all parties hereto.
27. Settling Defendants, upon final approval of this settlement, shall be
deemed to have released and forever discharged each other from any claims for
contribution or indemnification arising in this Action, except as to any such
claims by PSI against Martin Greenstein.
28. In the event Martin Greenstein fails to execute and deliver to
Plaintiff's counsel, an executed counterpart of this Stipulation by 5 PM on
November 24, 1993, he shall be excluded from this Stipulation as a Settling
Defendant and the
STIPULATION OF SETTLEMENT 21
<PAGE> 22
Action shall continue solely against him, provided however upon signing of a
counterpart hereof and application to the Court prior to November 30, 1993, the
Court may issue an Order including Martin Greenstein as a Settling Defendant in
accordance with this Stipulation.
IN WITNESS WHEREOF, the Settlement Stipulation has been executed by the
undersigned counsel of record as of the date set forth below.
Dated: November 15, 1993
New York, New York
STAMELL, TABACCO & SCHAGER GOLOMB, SINDEL & DIBLE, P.C.
Counsel for Plaintiff Counsel for Defendants other than Martin
Greenstein
By: /s/ Jared B. Stamell By: /s/ Irving L. Golomb
------------------------- -------------------------------
Jared B. Stamell (JS 5225) Irving L. Golomb (IG 2755)
555 Madison Avenue, Suite 600 185 Madison Avenue, Suite 1600
New York, NY 10011 New York, NY 10016
Telephone: (212) 752-9222 Telephone: (212) 686-40O4
-------------------------
Martin Greenstein, Pro Se
Dated November , 1993
New York, New York
STIPULATION OF SETTLEMENT 22
<PAGE> 1
Exhibit 3.05
EXHIBIT A
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------------)
SHARON P. SANDLER, )
)
) 92 CIV 5292 (RWS)
)
Plaintiff, )
)
-against- )
)
PROGRAMMING AND SYSTEMS )
INCORPORATED, IRWIN MAUTNER, ALVIN )
LIPOFF, LESTER J. TANNER, KENNETH FULD )
and MARTIN GREENSTEIN, C.P.A., )
)
Defendants. )
- ---------------------------------------)
ORDER GRANTING
PRELIMINARY APPROVAL OF SETTLEMENT,
NOTICE AND SCHEDULING
Plaintiff Sharon Sandler and Defendants Programming and Systems
Incorporated, Irwin Mautner, Alvin Lipoff, Lester J. Tanner, Kenneth Fuld and
Martin Greenstein, C.P.A. (collectively the "Settling Defendants") having made
application, pursuant to Fed R.Civ.P. 23(e), for an order approving the
settlement of Sandler v. Programming and Systems Inc., et al., 92 CIV 5292 (RJS)
(the "Action") in accordance with the Stipulation of Settlement, dated November
15, 1993 (the "Settlement Stipulation") which, together with the exhibits
annexed thereto, sets forth the terms and conditions of a proposed settlement of
the Action and for dismissal of the Action as against the Settling Defendants
with prejudice, upon the terms and conditions set forth therein; and the Court
having read and considered the Settlement Agreement and the exhibits annexed
thereto; and the parties to the
ORDER GRANTING PRELIMINARY APPROVAL
<PAGE> 2
Action having been heard,
IT IS HEREBY ORDERED:
1. A hearing (the "Settlement Hearing") will be held before this
Court on January 5, 1994, at 9:30 a.m. in Courtroom 434, of the United States
Courthouse, Foley Square, 40 Centre Street, New York, New York (i) to determine
whether the proposed settlement of the Action on the terms and conditions
provided in the Settlement Agreement is fair, reasonable and adequate and should
be approved by the Court; (ii) to determine whether a judgment should be entered
dismissing the Action as against the Settling Defendants on the merits, with
prejudice, and without costs; and (iii) to consider the application of
plaintiffs' counsel for an award of attorney's fees, reimbursement of expenses
and an award to named plaintiff.
2. For purposes of this Proposed Settlement there is hereby
certified, pursuant to Rule 23 of the Federal Rules of Civil Procedure a Class
consisting of: All persons who held Common Stock of Programming and Systems,
Inc. ("PSI") on June 17, 1992 and their successors in interest ("Class").
Excluded from the Class are the defendants herein, members of the immediate
family of the individual defendants, members of PSI's management, any entity in
which any of the defendants has a controlling interest, and the legal
representatives, heirs, successors or assigns of any of the defendants.
3. The Court approves, as to form and content, the "Notice of
Proposed Settlement Between Plaintiffs and Programming and Systems Incorporated,
Irwin Mautner, Alvin Lipoff, Lester J. Tanner, Kenneth Fuld and Martin
Greenstein,
ORDER GRANTING PRELIMINARY APPROVAL 2
<PAGE> 3
C.P.A." (the "Notice"); the "Summary Notice of Proposed Settlement" (the
"Summary Notice"), and the "Proof of Claim and Release" (the "Proof of Claim and
Release"), annexed as Exhibits B through D to the Settlement Agreement, and
finds that the public mailing and distribution of the Notice, Proof of Claim and
Release and Summary Notice, substantially in the form attached hereto and in the
manner set forth in paragraph 4 of this Order, meet the requirements of Rule 23
of the Federal Rules of Civil Procedure and due process and constitutes the best
notice practicable under the circumstances and shall constitute due and
sufficient notice to all persons entitled thereto.
4. Plaintiff's Counsel is hereby empowered to, and shall, subject to
Court order, supervise and administer the notice procedure and administer the
processing of claims as more fully set forth below:
(a) PSI has agreed to pay for the costs of notice and administration
and plaintiff's attorneys' disbursements in an amount not to exceed $50,000,
which shall be used to pay the expenses in notifying the Class Members of this
proposed settlement and for processing of claims of Class members and such costs
reasonably incurred shall be paid by PSI regardless of whether this proposed
settlement receives final approval pursuant to Rule 23(e) of the Federal Rules
of Civil Procedure.
(b) Plaintiff's Counsel has indicated its intention to apply to the
Court for an award of attorneys' fees, reimbursement of expenses and award to
named plaintiff out of the proceeds of the Settlement Fund established pursuant
to the Settlement Stipulation. If the settlement is approved and the application
is approved in part or in whole by the Court all such amounts shall be paid from
the Settlement Fund. The remaining portion of such fund shall be distributed to
the
ORDER GRANTING PRELIMINARY APPROVAL 3
<PAGE> 4
Class pursuant to further Order of the Court. Accordingly, the Court finds that
all eligible Class Members who desire to participate in sharing of such monies,
if any, should file appropriate Proofs of Claim subject to the following
conditions:
(i) on or before November 19, 1993, Plaintiff's Counsel shall
cause a Notice and Proof of Claim, substantially in the forms annexed as
Exhibits B and D, respectively, to the Settlement Stipulation, to be mailed by
first class mail, postage prepaid, to all persons appearing on the transfer
records of PSI as having held shares of PSI common stock at the close of trading
on the NASDAQ on June 17, 1992, at their addresses listed on such transfer
records.
(ii) on or before November 26, 1993, Plaintiff's Counsel shall
cause to be published a Summary Notice, substantially in the form annexed as
Exhibit C to the Settlement Agreement, twice in the National Edition of The Wall
Street Journal.
(iii) At or prior to the Settlement Hearing provided for in
paragraph 2 of this Order, Plaintiffs' Counsel shall serve on counsel for the
Settling Defendants and file with the Court proof, by affidavit, of the
aforesaid publications and mailings.
5. Any Class Member may appear personally or by counsel of his own
choice and at his own expense at the Settlement Hearing to show cause why (a)
the proposed settlement should or should not be approved as fair, reasonable and
adequate; or (b) a judgment should or should not be entered thereon; provided,
however, that no Class Member will be heard or entitled to contest the approval
of the terms and conditions of the proposed settlement, the judgment to be
entered thereon approving the same, or the expenses requested or other matter(s)
that may
ORDER GRANTING PRELIMINARY APPROVAL 4
<PAGE> 5
be considered by the Court at or in connection with said Settlement Hearing,
except as the Court, in its discretion, may otherwise direct, unless on or
before December 27, 1993, such shareholder has served by hand or by first-class
mail a notice of intention to appear, together with satisfactory proof of Class
membership, written objections and copies of any supporting papers and briefs
upon Plaintiff's Counsel:
Jared B. Stamell
Stamell, Tabacco & Schager
555 Madison Avenue, Suite 600
New York, New York 10022
and upon counsel for certain of the Settling Defendants:
Irving L. Golomb
Golomb Sindel & Dible, P.C.
185 Madison Avenue, Suite 1600
New York New York 10016
and has filed said notice, objections, papers and briefs, showing due proof of
service upon said counsel for the plaintiffs and counsel for certain of the
Settling Defendants with the Clerk of the United States District Court for the
Southern District of New York, United States Courthouse, New York, New York.
6. Any Class Member who does not object in the manner provided will
be deemed to have waived such objection and will forever be foreclosed from
making any objection to the fairness, adequacy or reasonableness of the proposed
settlement or the fee application.
7. All members of the Class who want may exclude themselves from the
Class by mailing, by first class mail, a timely and valid request for exclusion
to Jared B. Stamell and Irving L. Golomb, at the addresses set forth in
paragraph 5 of this Notice, postmarked on or before December 27, 1993, and by
filing said request with the Clerk of the United States District Court of the
Southern District of
ORDER GRANTING PRELIMINARY APPROVAL 5
<PAGE> 6
New York, United States Courthouse, New York, New York on or before December 23,
1993. A request for exclusion must set forth the following information with
respect to the person or entry requesting exclusion: name, address, and social
security or taxpayer identification number and the number of shares of PSI stock
the person or entity beneficially owned on June 17, 1992 and the number of
shares owned at the date of the request and if held in broker's or nominee's
name, the identity thereof. All requests for exclusion must be signed by or on
behalf of the person or entity requesting exclusion.
8. If a request for exclusion does not include the foregoing
information or is not timely signed, mailed and filed, it shall not be a valid
request for exclusion and any person or entity who files an invalid request for
exclusion shall be a member of the Class. All persons who properly file requests
for exclusion from the Class shall have no rights with respect to the
Settlement.
9. In order to be entitled to a distribution from the Settlement
Fund (as provided in the Settlement Agreement), a member of the Class must
submit a Proof of Claim in the manner set forth below.
10. Any Class Member who does not submit a timely and valid Proof of
Claim will not be entitled to share in this Settlement Fund, but nonetheless
will be barred and enjoined from asserting any claims that have been or might
have been asserted in this Action against the Settling Defendants.
11. "Proofs of Claim" will be submitted in accordance with the
following procedures and conditions:
(a) A Proof of Claim must be mailed by first class mail,
postmarked no later that June 5, 1994, to the post office box address maintained
ORDER GRANTING PRELIMINARY APPROVAL 6
<PAGE> 7
by Plaintiff's Counsel in accordance with paragraph 9 herein. Any such Class
Member who fails to submit the required Proof of Claim and Release within said
period will be precluded from receiving payment pursuant to the Settlement
Agreement, but will in all other respects be subject to the provisions of the
Settlement Agreement. A Proof of Claim and Release will be deemed to have been
submitted when postmarked, postage prepaid, and addressed in accordance with the
instructions therein. Extensions of time to submit, correct or complete Proofs
and Claim and Release in general, or an individual Proof of Claim and Release
may be agreed to by the parties or granted by the Court;
(b) A Proof of Claim and Release must satisfy the following
conditions:
(i) the Proof of Claim must be substantially complete
and provide all the information requested therein;
(ii) the Proof of Claim must be properly executed by
each claimant;
(iii) if the person executing the Proof of Claim and
Release is acting in a representative capacity, the Proof of Claim and Release
must be accompanied by proof of authority of the representative to act on behalf
of and to bind the claimant.
(c) By submitting a Proof of Claim each claimant thereby
acknowledges or reaffirms that he, she or it submits to the jurisdiction of the
Court for purposes of this Action;
12. Plaintiff's Counsel or their Settlement Agent will be
responsible for processing all Proofs of Claim and administrating the settlement
in accordance
ORDER GRANTING PRELIMINARY APPROVAL 7
<PAGE> 8
with the procedures set forth herein. For purposes of facilitating the receipt
and processing of "Proofs of Claim," Plaintiff's Counsel or their Settlement
Agent will maintain a numbered post office box. All notice to Class Members and
other communications regarding the proposed settlement of the Action will
designate that post office box as the return address. Plaintiff's Counsel or
their Settlement Agent shall be responsible for (a) the initial receipt of all
responses to the Notice, (b) forwarding to counsel for the Class inquiries from
Class Members, where appropriate, and (c) preserving all "Proofs of Claim" and
any and all other written communications from Class Members or any other person
in response to the Notice. Either Plaintiff's Counsel or the Settlement Agent
may respond to inquiries mailed to said post ofiice box, but copies of all
written answers to such inquiries will be maintained and made available far
inspection by all counsel in this Action.
13. All papers in support of this settlement, submitted by any of
the named parties to the Action, shall be filed with the Court and served on the
other parties no later than December 28, 1993.
14. The Court expressly reserves its right to adjourn the Settlement
Hearing, or any adjournment thereof, without any further notice other than an
announcement at the Settlement Hearing or any adjournment thereof, and to
approve the Settlement Agreement with modifications agreed to by the parties and
without further notice to members of the Class. The Court retains jurisdiction
of this Action to consider all further applications arising out of or connected
with the proposed settlement herein.
15. All pretrial and trial proceedings in this Action, involving the
Settling Defendants, are stayed and suspended until further order of the Court.
ORDER GRANTING PRELIMINARY APPROVAL 8
<PAGE> 9
Pending the final determination of the fairness, reasonableness and adequacy of
the settlement, no plaintiff or member of the Class may institute or commence
any action or proceeding against any or all of the Settling Defendants asserting
any of the Released Claims, as defined in paragraph 17 of the Settlement
Agreement.
16. In the event the proposed settlement as provided in the
Settlement Agreement is not approved by the Court, or if for any reason the
parties fail to obtain a final judgment (as provided in the Stipulation of
Settlement), by April 5, 1994 then, in either of such events, the Stipulation of
Settlement and prior orders of the Court relating to it will become null and
void and of no further force and effect except as to contribute to any
expenditures payable out of the Escrow Fund established pursuant to the
Stipulation of Settlement, and will not be used or referred to for any purpose
whatsoever. In such event, the Stipulation of Settlement and all negotiations
and proceedings relating thereto will be withdrawn without prejudice as to the
rights of any and all parties thereto.
Dated: November 17, 1993 SO ORDERED.
New York, New York
/s/ ROBERT W. SWEET
-------------------
U.S.D.J.
ORDER GRANTING PRELIMINARY APPROVAL 9
<PAGE> 1
Exhibit 3.06
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------)
SHARON P. SANDLER, ) 92 CIV 5292 (RWS)
)
Plaintiff, )
)
- against - )
)
PROGRAMMING AND SYSTEMS )
INCORPORATED, IRWIN MAUTNER, ALVIN )
LIPOFF, LESTER J. TANNER, KENNETH )
FULD and MARTIN GREENSTEIN, C.P.A., )
)
Defendants. )
- --------------------------------------------)
[SEAL OF U.S. DISTRICT COURT S.D. OF NEW YORK]
FINAL JUDGMENT AND ORDER
APPROVING SETTLEMENT BETWEEN PLAINTIFFS AND
PROGRAMMING AND SYSTEMS INCORPORATED,
IRWIN MAUTNER, ALVIN LIPOFF, LESTER J. TANNER,
KENNETH FULD AND MARTIN GREENSTEIN, C.P.A.
The Court having held a hearing, as noticed, on January 5, 1994 at 9:30
a.m., pursuant to the Order Concerning Notice and Scheduling of this Court,
dated November 17, 1993 (the "Order"), to determine the fairness, adequacy and
reasonableness of a proposed settlement of the Class Action, as set forth in the
said Order and in the Stipulation of Settlement, dated November 15, 1993 (the
"Settlement Stipulation") (such Order, and Settlement Stipulation being
sometimes hereinafter referred to as the "Settlement"), and to consider other
matters set forth in said Order; and due and adequate notice (the "Notice")
having been published and transmitted by first-class mail, postage prepaid, to
those persons and entities who were identified as shareholders of record of the
common stock of Programming and
FINAL JUDGMENT & ORDER
<PAGE> 2
Systems, Inc. ("PSI") at suspension of trading on June 17, 1992 and all such
persons having any objection to the proposed settlement described in the Notice
having been given an opportunity to present such objections to the Court and the
Court having heard and considered the matter, including all papers filed in
connection therewith and the oral presentations of counsel at said hearing, and
good cause appearing therefor,
IT IS HEREBY FOUND, ORDERED, ADJUDGED AND DECREED AS FOLLOWS:
1. A Class is hereby certified pursuant to Rule 23 of the Federal
Rules of Civil Procedure defined as follows:
All persons who owned the Common Stock of Programming and Systems, Inc.
("PSI") at the close of trading on the NASDAQ on June 17, 1992 and their
successors in interest ("Class"). Excluded from the Class are the
defendants herein, members of the immediate family of the individual
defendants, members of PSI's management, any entity in which any of the
defendants has a controlling interest, and the legal representatives,
heirs, successors or assigns of any of the defendants.
2. The Settlement of the Class Action and the terms of the
Settlement Stipulation are fair, reasonable and adequate and in the best
interests of the Class and are hereby approved.
3. The plaintiff and Programming and Systems Incorporated, Irwin
Mautner, Alvin Lipoff, Lester J. Tanner, Kenneth Fuld and Martin Greenstein,
C.P.A. (the "Settling Defendants") are hereby ordered and directed to perform
and consummate the Settlement in accordance with the terms and conditions of the
Settlement Stipulation.
4. The notification to the members of the Class regarding the
FINAL JUDGMENT & ORDER 2
<PAGE> 3
Settlement is the best notice practicable under the circumstances and is in
compliance Rule 23 of the Fed. R. Civ. P. and the requirements of due process of
law.
5. Class Action Complaint ("Complaint") in Civil Action No. 92 Civ.
5292 (the "Action"), filed in the United States District Court for the Southern
District of New York, is hereby dismissed against all Defendants with prejudice,
and without costs to any party, and any liability or claims asserted in the
Action against the Defendants, or which could have been asserted in the Action,
by or on behalf of the plaintiffs or members of the Class against any or all of
the Defendants based on the facts alleged in the Complaint are hereby
discharged.
6. Without any further action by anyone, the plaintiff in the Action
and all owners of PSI common stock on June 17, 1992, inclusive, and their
transferees and successors in interest except for those persons identified on
Exhibit 1 hereto who submitted a timely and valid Request for Exclusion, on
behalf of themselves, their heirs, executors, administrators, officers,
directors, successors, assigns, and any person they represent (the "Releasors"),
for good and sufficient consideration, are hereby deemed to have remised,
released and forever discharged, and the Court hereby approves the remise,
release and discharge of each and every class, derivative, individual and other
claim, right, cause of action and issue, under United States or any other laws,
known or unknown, which the Releasors, or any of them, had, now has or may
hereafter have, against the Settling Defendants, or any of their present or
former agents, directors, partners, principals, officers, employees, attorneys,
accountants, subsidiaries, divisions, affiliates, predecessors, successors and
assigns which (i) has been or might have been asserted in the Action
FINAL JUDGMENT & ORDER 3
<PAGE> 4
or in any other action, court or forum in connection with, arising out of or in
any way related to any acts, facts, transactions, occurrences, representations
or omissions relating to PSI whether or not set forth or alleged in the Action,
or (ii) arises from or is in any way related to the settlement of this Action
(the "Released Claims"); provided, however, that this final Judgment and Order
shall not effect a release of any action PSI may have against Martin Greenstein.
7. Without any further action by anyone, the Settling Defendants,
for good and sufficient consideration, are hereby deemed to have mutually
remised, released, and forever discharged, and the Court hereby approves the
mutual remise, release and discharge of any claim for indemnification or
contribution which the Settling Defendants have or may hereafter have against
each other which arises out of this Action except as to any claim by PSI against
Martin Greenstein.
8. All claims, right or cause of action against Martin Greenstein by
PSI shall not be released or discharged or in any way affected by this Final
Judgment and Order.
9. Plaintiff's counsel's application for an Order establishing
attorney's fees, reimbursement of expenses and award to named plaintiff is
hereby approved. Specifically, the Court awards plaintiff's counsel's attorneys
fees in the amount of $137,545.25 and reimbursement of expenses incurred in
connection with this litigation in the amount of $32,860.14. Further, the Court
awards named plaintiff Sharon Sandier $3500 as an incentive award for her
efforts in obtaining substantial benefits on behalf of the Class. All amounts so
awarded shall earn interest from the date of this Order, at the same rate as
interest earned on the Settlement Fund until the date of payment as provided for
in the Settlement.
FINAL JUDGMENT & ORDER 4
<PAGE> 5
10. The Court retains jurisdiction of this matter with respect to
the effectuation of all aspects of the Settlement Stipulation, including but not
limited to the claims of each Class Member filing Proofs of Claim and any other
related matters.
11. The provisions of paragraph 10 hereof respecting the retention
of jurisdiction shall not affect the finality of this judgment as to matters not
reserved. It is expressly determined that there is no just reason for delay of
the entry of judgment herein and it is expressly directed that his Final
Judgment and Order be entered pursuant to Rule 54(b) of the Federal Rules of
Civil Procedure.
Dated: January 21, 1994 SO ORDERED:
New York, New York
/s/ R. SWEET
---------------------
U.S.D.J.
FINAL JUDGMENT & ORDER 5
<PAGE> 1
Exhibit 3.07
JARED STAMELL, ESQ.
STAMELL TABACCO & SCHAGER
One Liberty Plaza, 35th Floor
New York, New York 10006
(212) 566-4047
Attorneys for Plaintiff
IRVING L. GOLOMB, ESQ.
GOLOMB, SINDEL & DIBLE, P.C.
185 Madison Avenue, Suite 1600
New York, New York 10016
(212) 686-4004
Attorneys for Defendants
- -------------------------------------X UNITED STATES DISTRICT COURT
SHARON P. SANDLER, SOUTHERN DISTRICT COURT
OF NEW YORK
Plaintiff,
- against - Case No. 92 Civ. 5292
PROGRAMMING AND SYSTEMS
INCORPORATED, IRWIN MAUTNER, ALVIN AMENDMENT TO STIPULATION
LIPOFF, LESTER J. TANNER, KENNETH OF SETTLEMENT
FULD and MARTIN GREENSTEIN, C.P.A.,
Defendants.
- -------------------------------------X
This Amendment of Stipulation of Settlement ("Amendment") dated as of
April , 1995, amending that certain Stipulation of Settlement in the captioned
cation dated November 15, 1993, is made and entered into by and among the
plaintiff, acting individually and on behalf of the Class, and the defendant
Programming and Systems, Incorporated ("PSI" or "the Company"), by and through
its counsel, subject to court approval, described below.
<PAGE> 2
THE ACTION
A. The Court granted approval of the Stipulation of Settlement in this
action on January 21, 1994.
B. The Stipulation of Settlement was entered into in settlement of claims
on behalf of a class of purchasers of the common stock of PSI who were injured
by defendants' alleged violations of the federal securities laws and the common
law.
C. Plaintiff alleged that: (i) as a result of false and misleading
statements and/or omissions by defendants, the market prices of PSI's common
stock were artificially inflated from at least May 31, 1989 through and
including June 17, 1992, and (ii) as a result of the alleged misstatements,
non-disc1osures and the resulting suspension in trading of PSI's common stock on
June 17, 1992, plaintiff and the Class were damaged. Defendants denied all
liability on the claims made against them.
D. Defendants represented that, as a group, they owned or controlled
approximately 1,200,000 shares of PSI common stock, and that as of June 17, 1992
there were issued and outstanding about 2,432,290 additional shares of PSI
common stock. PSI represents that this same number of shares continue to be
issued and outstanding as of the date of this Amendment. PSI further represents
that its common stock was eligible for quotation on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") until June 17, 1992,
and since that date the stock has not been eligible to trade and has not traded
on any public exchange or market.
-2-
<PAGE> 3
E. Plaintiff has been afforded the opportunity to investigate the facts
and circumstances of PSI relevant to this Amendment and has made such an
investigation. In connection with that investigation, counsel interviewed
executives of PSI and considered the best interests of the shareholders and the
Company in amending the Stipulation of Settlement approved on November 17, 1994,
to provide for PSI to obtain audited financial statements for the fiscal year
ended February 28, 1995 and the current fiscal year in order to seek a relisting
on the NASDAQ of PSI's shares or, in the alternative, a listing of the shares of
its wholly-owned subsidiary, PSI Settlement Corp. ("PSC"). This will provide
Class Members and all PSI shareholders with a market in which to sell their PSI
shares, or in the alternative, the shares of PSC which will be distributed to
them, share for share, in the event of such listing in lieu of listing the
shares of PSI. Based upon these and other considerations, plaintiff and her
counsel have concluded that is in the best interests of plaintiff, the Class and
all shareholders of PSI to enter into this Amendment.
F. PSI considers it desirable to enter into the Amendment because of the
progress it has made in resolving claims against PSI and its former school
subsidiaries and the prospect of providing a greater value to the PSI
shareholders than a liquidation of PSC would provide. By providing PSI
shareholders with a market for their stock, and the ability to benefit from
PSI's net operating tax loss carryover, the Company believes the PSI
shareholders will be able to sell or hold their shares, as each shareholder
determines, and benefit from an earlier realization of the value of the shares
through marketability than could be realized by a liquidation of the real estate
assets, a substantial portion of which depend on future developments and
recoveries in that market.
-3-
<PAGE> 4
G. In accordance with the Stipulation of Settlement, PSI created a
Settlement Fund in the sum of $1.4 million which was distributed recently to
shareholders pursuant to this Court's Orders, in the amount of fifty cents
($.50) per share. PSI also paid the fees and expenses contemplated by the
Stipulation of Settlement.
H. PSI incorporated PSC as a Delaware corporation and a wholly-owned
subsidiary of PSI pursuant to the Court's Order. The stock of PSC is held in
escrow for the benefit of PSI's shareholders and PSI transferred to PSC all of
the stock of the following PSI subsidiaries: PSI Capital Corp. and PSI Food
Services, Inc., which in turn owns all of the stock of Wendcello Corp. and
Wendclark Corp. (collectively the "Identified Subsidiaries") and assets relating
thereto.
I. To secure the obligations of PSI and PSC under the terms of the
Stipulation of Settlement and to pledge, hypothecate and grant a security
interest in the stock of PSC for the benefit of the PSI shareholders, and to
perfect such security interest, the shares of PSC were delivered to, and are
held by, Irving L. Golomb, attorney for defendants, and Jared Stamell, attorney
for plaintiffs, as Escrow Agents.
J. In accordance with the Stipulation of Settlement, Irwin Mautner
resigned as Chairman and as an employee of PSI, and has no further role in its
management. Further, a majority of the members of PSI's Board are persons who
were not associated with PSI before commencement of this action.
K. The stated purpose of PSC in the Stipulation of Settlement was to sell
or otherwise dispose of all of its assets in a reasonable and prudent manner so
as to maximize the net proceeds realizable therefrom, with a view to realizing
an amount of no less than
-4-
<PAGE> 5
$1.50 per issued and outstanding share of PSI, and pay over and deposit the net
proceeds into the Supplemental Settlement Fund. PSC has not sold or disposed of
the PSC assets because it has not been able to do so in a reasonable and prudent
manner which would be in the best interests of PSI's shareholders.
L. Plaintiff and her counsel have cooperated with the Company to represent
to various governmental agencies that PSI should only be required to provide and
file with the SEC audited financial statements that would have current financial
information. The SEC has not required the Company to obtain audited financial
statements for the fiscal years ended before March 1, 1994 and PSI's new
management has determined that the Company can best serve the interests of the
PSI shareholders by providing audited financial statements of PSI for the two
fiscal years commencing March 1, 1994.
M. The parties to this Amendment conclude that it is not presently
economically practical, nor in the best interest of PSI's shareholders, to sell
the shares of the Identified subsidiaries or liquidate their assets. For
example, one of the three Identified Subsidiaries was, as of the date of the
Stipulation of Settlement, and still is a Debtor in a Proceeding for
Reorganization under Chapter 11 of the Bankruptcy Code.
NOW, THEREFORE, IT IS STIPULATED AND AGREED by and among the parties,
through them or their undersigned counsel, that the parties will enter into this
Amendment, subject to the approval of the District Court under Rule 23(e) of the
Federal Rules of Civil Procedure, upon and subject to the terms and conditions
set forth below.
-5-
<PAGE> 6
TERMS OF THE PROPOSED SETTLEMENT
1. PSI shall prepare and file an audited financial statement for the
fiscal year ended February 28, 1995, on or before July 10, 1995. PSI will cause
PSC to prepare audited financial statements for its fiscal year ended February
28, 1995, on or before July 10, 1995. Said financial statements shall comply
with SEC regulations applicable to a public corporation and annual audited
financial statements shall be prepared in subsequent years for whichever of PSI
or PSC shall have its shares listed or to be listed on the NASDAQ.
2. PSI has furnished PSC, or will furnish, to PSC additional assets and
working capital of not less than $1,000,000, or such greater amount as may be
available to PSI's subsidiaries in order to develop properties owned by them and
to conduct their business in a manner that will allow PSI or PSC to register
with the SEC and to list the shares of one of said corporations on the NASDAQ.
3. PSI will take such action as may be necessary, including any amendment
of PSC's Certificate of Incorporation, to have the shares of PSI or PSC traded
on the NASDAQ. In the event this does not, in fact, take place on the earlier of
(i) two years after the date of the Order of the Court giving its final approval
to this Amendment, or (ii) the date relisting is determined not to be feasible
or (iii) the date efforts to relist are abandoned, then the obligation in the
Stipulation of Settlement to liquidate the assets of PSC and to distribute the
proceeds pro-rata to all shareholders of PSI shall be reinstated.
4. In the event PSI determines to list the shares of PSC in lieu of
relisting the PSI shares, PSI will prepare and file with the SEC, with the
appropriate states, and with
-6-
<PAGE> 7
NASDAQ, all necessary and appropriate filings, and upon such filings being
declared effective, the parties hereto and their counsel will thereupon cause
the Escrow Agent that is holding PSC's shares as security for PSI's performance
of its obligations under the Settlement to distribute PSC's shares to PSI's
shareholders at the rate of one share of PSC for each share of PSI owned at the
effective date of such distribution.
5. This Amendment of Settlement Agreement will be effective upon approval
by the United States District Court for the Southern District of New York (the
"Court").
6. The parties hereto will cooperate with each other to obtain the
approval of the Court, make any necessary or appropriate filings with federal
and state agencies and NASDAQ and use their best efforts to cause such filings
to be declared effective.
7. All reasonable costs and expenses of this Amendment, including, without
limitation, the fees of the parties' counsel and the expense of giving notice to
Class Members, shall be paid by PSI, which may utilize any remaining balance in
the Expense Fund established pursuant to the Stipulation of Settlement.
8. Except as defined herein, all definitions set forth in the Stipulation
of Settlement are incorporated herein by reference.
9. Except as superseded or amended by the provisions of this Amendment of
the Stipulation of Settlement, all terms, conditions and provisions of the
Stipulation of Settlement, including the transfers of assets and shares made by
PSI to PSC following the final approval of the Stipulation of Settlement by the
Court's Order of January 21, 1994, are ratified and confirmed in all respects.
-7-
<PAGE> 8
10. The parties to the Settlement shall promptly submit this Amendment to
the Court and jointly request the Court to enter an Order of Preliminary
Approval substantially in the form annexed hereto as Exhibit A, and to enter the
Order Approving the Amendment in the event of final approval in the form annexed
hereto as Exhibit B.
IN WITNESS WHEREOF, the Amendment of Stipulation of Settlement has been
executed by the undersigned counsel of record.
Dated: April 28, 1995
New York, New York
STAMMEL, TABACCO & SCHAGER GOLOMB, SINDEL & DIBLE, P.C.
Counsel for Plaintiff Counsel for Defendants
By: /s/ Jared B. Stamell By: /s/ Irving L. Golomb
------------------------------- -------------------------------
Jared B. Stamell (JS-5225) Irving L. Golomb (IG-2755)
One Liberty Plaza, 35th Floor 185 Madison Avenue, Suite 1600
New York, NY 10006 New York, NY 10016
Telephone: (212) 566-4047 Telephone: (212) 686-4004
-8-
<PAGE> 1
Exhibit 3.08
EXHIBIT 7(a)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
)
SHARON P. SANDLER, ) 92 CIV 5292 (RWS)
)
Plaintiff, )
)
- against - )
)
PROGRAMMING AND SYSTEMS )
INCORPORATED, IRWIN MAUTNER, ALVIN )
LIPOFF, LESTER J. TANNER, KENNETH )
FULD and MARTIN GREENSTEIN, C.P.A., )
)
Defendants. )
ORDER AMENDING FINAL JUDGMENT AND ORDER APPROVING
SETTLEMENT BETWEEN PLAINTIFFS AND PROGRAMMING
AND SYSTEMS INCORPORATED, IRWIN MAUTNER, ALVIN LIPOFF,
LESTER J. TANNER, KENNETH FULD AND MARTIN GREENSTEIN, C.P.A.
On January 21, 1994 the Court entered a Final Judgment Order pursuant to
the Stipulation of Settlement of this Class Action. On June 12, 1994 the Court
held a hearing on the Party's application for approval of amendment of the
Stipulation of Settlement on Final Judgment and Order. Having heard the parties
and all Class Members who wish to have been heard with respect to any aspect of
the amendment to settlement,
IT IS HEREBY FOUND, ORDERED, ADJUDGED AND DECREED AS FOLLOWS:
1. The notification to the members of the Class regarding the proposed
amendment to Settlement is the best notice practicable under the circumstances
and is in compliance Rule 23 of the Fed. R. Civ. P. and the requirements of due
process of law.
ORDER APPROVING FINAL JUDGMENT & AMENDED SETTLEMENT
<PAGE> 2
\
2. The Amendment to Settlement is hereby approved as fair, reasonable and
adequate.
3. The Final Judgment entered on January 21, 1994 is hereby amended only
to the extent of requiring the parties to effectuate the terms of the Amended
Settlement and shall otherwise remain in full force and effect.
4. The Court retains jurisdiction of this matter with respect to the
effectuation of all aspects of the Amendment Settlement Stipulation, including
but not limited to the claims of each Class Member and any other related
matters.
5. The provisions of paragraph 10 of the Final Judgment Order of January
21, 1994, respecting the retention of jurisdiction shall not affect the finality
of the judgment previously entered or this Order as to matters not reserved.
Dated: June 12, 1995 SO ORDERED:
New York, New York
/s/ R. SWEET
---------------------
U.S.D.J.
ORDER APPROVING FINAL JUDGMENT & AMENDED SETTLEMENT 2
<PAGE> 1
EXHIBIT 3.09
--------------------
RECEIVED
--------------------
JUL 23 1996
--------------------
JUDGE SWEET CHAMBERS
--------------------
JARED STAMELL, ESQ.
STAMELL & SCHAGER, LIP
One Liberty Plaza, 35th Floor
New York, New York 10006
(212) 566-4047
Attorneys for Plaintiff
IRVING L. GOLOMB, ESQ.
GOLOMB, SINDEL & DIBLE, P.C.
185 Madison Avenue, Suite 1600
New York, New York 10016
(212) 686-4004
Attorneys for Defendants
- -----------------------------------X UNITED STATES DISTRICT COURT
SHARON SANDLER, SOUTHERN DISTRICT COURT
OF NEW YORK
Plaintiff,
- against - Case No. 92 Civ. 5292
PROGRAMMING AND SYSTEMS,
INCORPORATED, IRWIN MAUTNER, ALVIN STIPULATION AND ORDER
LIPOFF, LESTER J. TANNER, KENNETH AUTHORIZING RELEASE OF
FULD and MARTIN GREENSTEIN, C.P.A., SHARES FROM ESCROW
Defendants.
- -----------------------------------X
The parties stipulate, that to consummate the Stipulation of Settlement
approved by the Court on January 21, 1994, as amended by an Order entered on
June 12, 1995, plaintiff, acting individually and on behalf of the Class, and
the defendant Programming and Systems, Incorporated ("PSI"), agree as follows:
<PAGE> 2
THE ACTION
A. The Stipulation of Settlement was entered to settle claims of alleged
violations of the federal securities laws and the common law asserted on behalf
of a class of all persons who owned common stock of PSI on June 17, 1992 and
their successors in interest ("Class").
B. Plaintiff alleged, among other things, that: (i) as a result of false
and misleading statements and/or omissions by defendants, the market prices of
PSI's common stock were artificially inflated from at least May 31, 1989 through
and including June 17, 1992, and (ii) as a result of the alleged misstatements,
non-disclosures and the resulting suspension in trading of PSI's common stock on
June 17, 1992, plaintiff and the Class were damaged. Defendants denied all
liability on the claims made against them.
C. Defendants represented that, as a group, they owned or controlled
approximately 1,200,000 shares of PSI common stock, and that as of June 17, 1992
there were issued and outstanding about 2,432,290 additional shares of PSI
common stock. PSI represented that this same number of shares continued to be
issued and outstanding as of the date of the Amendment and PSI represents that
this continues to be true as of the date this stipulation is signed and
submitted to the Court. PSI further represented that its common stock had been
eligible for quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") until June 17, 1992, and since that date
the stock has not been eligible to trade and has not traded on any public
exchange or market.
D. Plaintiff was afforded the opportunity to investigate the facts and
circumstances of PSI relevant to the settlement and made investigations of the
facts before the hearings at which the settlement was approved and amended and
the settlement was approved by the
-2-
<PAGE> 3
Court as fair, reasonable, adequate and in the best interests of the Class under
Rule 23 of the Federal Rules of Civil Procedure after hearings upon the fairness
of the terms and conditions at which all members of the Class had the right to
appear.
E. The settlement, as amended, provided, among other things, for PSI
shareholders to receive audited financial statements for the fiscal years ended
February 28, 1994, 1995 and 1996 and for the Company to seek a listing on the
NASDAQ of shares of a wholly-owned subsidiary, PSI Settlement Corp. ("PSC"),
established pursuant to the settlement. PSC, which changed its corporate name to
FRM Nexus, Inc. ("Nexus") on February 23, 1996, was capitalized in accordance
with the settlement and presently holds all of the assets of PSI except for a
claim in the lawsuit brought by PSI against fire insurance companies to recover
additional amounts claimed by PSI to be due to it by reason of a fire which
damaged PSI's New York City offices on April 29, 1993. PSI has not prepared or
filed audited financial statements. Nexus has prepared and filed audited
financial statements.
F. This Stipulation is made to authorize the release of the Nexus shares
from escrow for delivery to the Class as contemplated by the previous Orders of
the Court.
THE TERMS OF THE SETTLEMENT
G. In accordance with the original Stipulation of Settlement, PSI created
a Settlement Fund in the sum of $1.4 million which was distributed in 1995 to
shareholders pursuant to this Court's Order, in the amount of fifty cents ($.50)
per share. PSI also paid fees and expenses of the settlement as required by the
Stipulation of Settlement.
-3-
<PAGE> 4
H. PSI incorporated Nexus as a Delaware corporation and a wholly-owned
subsidiary of PSI pursuant to the Court's Order. Pursuant to the Settlement, as
amended, PSI previously transferred to Nexus all of the stock of PSI Capital
Corp., PSI Food Services, Inc., Wendcello Corp. and Wendclark Corp., additional
assets from which Nexus organized a new start-up subsidiary called Medical
Financial Corp., and cash.
I. To secure the obligations of PSI under the terms of the Settlement, PSI
granted a security interest in the stock of Nexus for the benefit of the PSI
shareholders, and to perfect such security interest, the shares of Nexus were
delivered in 1994, and are presently held by, Irving L. Golomb, attorney for
defendants, and Jared B. Stamell, attorney for plaintiff, as Escrow Agents.
J. The original purpose of Nexus was to sell all its assets and distribute
the proceeds to all PSI shareholders, with a view to realizing an amount no less
than $l.50 per issued and outstanding share of PSI. The purpose of the Amended
Settlement, as approved by the Court was to have the shares of PSI or Nexus
trade on NASDAQ and for the Escrow Agents to release the Nexus shares from
escrow so the shares can be delivered to PSI shareholders as a necessary step
before the Nexus shares can be listed on NASDAQ.
K. As required by the Amended Settlement, PSI has provided to the PSI
shareholders audited financial statements of Nexus for the three fiscal years
ended February 29, 1996. PSI has not provided audited financial statements as
required by the Amended Settlement which the parties agree is not material to
consummation of the settlement so long as Nexus can be listed on NASDAQ.
-4-
<PAGE> 5
L. The Court's Order of June 12, 1995 requires PSI to take such steps as
are necessary to have Nexus shares traded on NASDAQ and this Stipulation is a
necessary step in authorizing release to PSI, for delivery to shareholders, of
the Nexus shares for over-the-counter trading and subsequent listing on NASDAQ.
Over-the-counter trading of Nexus shares will be required by NASDAQ before a
listing application is accepted.
M. PSI has prepared for mailing to shareholders a letter dated July 26,
1996 (Exhibit A) and audited financial statement for the fiscal year ended
February 29, 1996, (Exhibit B), copies of which are annexed hereto.
TERMS OF THE STIPULATION
1. Nexus shall mail to shareholders the Letter (Exhibit A) together with
the audited Financial Statement of Nexus for the fiscal year ended February 29,
1996 (Exhibit B).
2. The Escrow Agents shall release the shares held by them in escrow
forthwith so that PSI may cause the transfer agent for the Nexus common stock to
transfer the Nexus common stock to all holders of record of PSI common stock in
the ratio and manner described in Exhibit A.
3. Nexus shall make application for the listing of its shares of common
stock on the NASDAQ Stock Exchange. The Court shall retain jurisdiction of this
action until said listing has been completed in accordance with its prior
Orders.
-5-
<PAGE> 6
4. This Stipulation and Order does not affect the finality of the
Judgments and Orders previously entered herein and is intended to implement the
same.
Dated: July 22, 1996
New York, New York
STAMELL & SCHAGER, LLP
Counsel for Plaintiff
By: /s/ Jared B. Stamell
----------------------------------
Jared B. Stamell (JS-5225)
One Liberty Plaza, 35th Floor
New York, NY 10006
Telephone: (212) 566-4047
GOLOMB, SINDEL & DIBLE, P.C.
Counsel for Defendants
By: /s/ Irving L. Golomb
----------------------------------
Irving L. Golomb (IG-2755)
185 Madison Avenue, Suite 1600
New York, NY 10016
Telephone: (212) 686-4004
SO ORDERED:
/s/ JOHN G. KOELTL
----------------------------------
U.S.D.J.
Dated: July 23, 1996
-6-
<PAGE> 1
EXHIBIT 3.10
[LETTERHEAD OF TANNER PROPP, LLP]
August 8, 1996
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Re: FRM Nexus, Inc.
Gentlemen and Ladies:
We are counsel for Programming and Systems, Inc. and FRM Nexus, Inc. and
write to furnish our opinion in connection with the 1,211,635 shares of common
stock of Nexus, Inc. (the "Shares") to be issued to shareholders of Programming
and Systems, Inc. pursuant to the authorizing documents submitted herewith.
Accompanying this opinion are copies of three Orders of the United States
District Court for the Southern District of New York (the "Court") dated
February 2, 1994, June 12, 1995 and July 23, 1996 (the "Orders").
The Shares are being issued to shareholders of Programming and Systems,
Inc. ("PSI") pursuant to the Orders in exchange for their claims, and the terms
and conditions of such issuance and exchange have been approved by the Court
after a hearing upon the fairness of such terms and conditions at which all
persons to whom the Shares will be issued had the right to appear and be heard.
Accordingly it is our opinion that the issuance of the Shares are exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
3(a)(10) thereof.
Very truly yours,
/s/ Tanner Propp LLP.
-------------------------------
<PAGE> 1
Exhibit 4.01
Countersigned and Registered:
REGISTRAR AND TRANSFER COMPANY
(New Jersey) Transfer Agent
and Registrar
By
Authorized Signature
[GRAPHIC OMITTED]
- ------ ------
NUMBER SHARES
- ------ ------
----------------------------------------------------
FRM NEXUS, INC.
----------------------------------------------------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP 30262f 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.10 PER SHARE OF
FRM NEXUS, INC. (the "Corporation"), a Delaware corporation. The shares
represented by this certificate are transferable only on the stock transfer
books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
and registered by the Corporation's transfer agent and registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED
[SEAL OF FRM NEXUS, INC.]
/s/ Bridget F. Dewsnap /s/ Peter Barotz
- ----------------------- ---------------------
SECRETARY PRESIDENT
(C) SECURITY-COLUMBIAN UNITED STATES BANKNOTE COMPANY 1960
<PAGE> 2
The corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences, and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with the right of surviorship
and not as tenants in common
UNIF GIFT MIN ACT -- _________ Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors
Act________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with the
full power of substitution in the premises.
Dated __________________________________
X __________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
X __________________________
--------------------------------------------------------
ALL GUARANTEES MUST BE MADE BY A FINANCIAL INSTITUTION
(SUCH AS A BANK OR BROKER) WHICH IS A PARTICIPANT IN THE
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM ("STAMP"),
THE NEW YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE
PROGRAM ("MSP"), OR THE STOCK EXCHANGES MEDALLION
PROGRAM ("SEMP") AND MUST NOT BE DATED. GUARANTEES BY A
NOTARY PUBLIC ARE NOT ACCEPTABLE.
--------------------------------------------------------
<PAGE> 1
Exhibit 5.01
[LETTERHEAD OF TANNER PROPP, LLP]
August 8, 1996
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Re: FRM Nexus, Inc.
Gentlemen and Ladies:
We are counsel for Programming and Systems, Inc. and FRM Nexus, Inc. and
write to furnish our opinion in connection with the 1,211,635 shares of common
stock of Nexus, Inc. (the "Shares") to be issued to shareholders of Programming
and Systems, Inc. pursuant to the authorizing documents submitted herewith.
Accompanying this opinion are copies of three Orders of the United States
District Court for the Southern District of New York (the "Court") dated
February 2, 1994, June 12, 1995 and July 23, 1996 (the "Orders").
The Shares that are being issued to shareholders of Programming and
Systems, Inc. ("PSI") pursuant to the Orders in exchange for their claims are
duly authorized shares of common stock of FRM Nexus, Inc. and they will, when
issued, be fully paid and nonassessable shares of common stock in accordance
with the provisions or the Delaware General Corporation Law.
Very truly yours,
Tanner Propp LLP
/s/ Lester J. Tanner
----------------------------
Lester J. Tanner
<PAGE> 1
Exhibit 10.01
SALE AGREEMENT
THIS AGREEMENT is made and entered into this 23rd day of July, 1996 by and
between (i) PSI CAPITAL CORP., a Connecticut corporation ("Seller"), and (ii)
WINDEMERE PINES AT GOSHEN, INC., a New York corporation, 888 Veteran Memorial
Highway, Hauppauge, New York 11788, ("Purchaser").
RECITALS
A. Seller owns in fee simple remaining 133 lots described in Exhibit A
annexed hereto located in the Village of Goshen, Orange County, New York, (the
"Real Property").
B. On December 18, 1973, the Planning Board of the Village of Goshen
granted final approval to a subdivision plat which included the Real Property
and such subdivision plat was filed in the Orange County Clerk's Office on
December 24, 1973 as Map No. 3124 and a new map dated May 31, 1996 is the
subject of the Stipulation of Settlement annexed as Exhibit B, said map being
the operative map of the development (the "Map").
NOW, THEREFORE, in consideration of these premises, of the mutual promises
hereinafter set forth, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Purchase and Sale. On the Closing Date, and subject to the
terms and conditions set forth in this Agreement, Seller agrees to sell and
convey the Real Property to Purchaser, and Purchaser agrees to purchase and
acquire the Real Property from Seller.
Section 2. Purchase Price.
The purchase price ("Purchase Price") for the 133 lots constituting the
Real Property shall be $4,029,900 payable as follows:
(a) $152,950 in cash at the closing;
(b) $1,862,000 by a purchase money note to be paid from the construction
loan on the Real Property annexed hereto as Exhibit C.
<PAGE> 2
(c) $2,014,950 by the Debenture annexed hereto as Exhibit D.
Section 3. The Construction Loan. As soon as is feasible, the Purchaser
shall obtain a construction loan for the Real Property and use the first
proceeds thereof to satisfy the purchase money note and the balance to be used
for the construction of residences on each lot.
Section 4. The Debenture. The Debenture shall be paid off as each of the
lots constituting the Real Property are conveyed to the end purchaser of the one
family residence constructed thereon, each such payment to be equal to at least
50% of the net profit to the Purchaser with respect to said sale until the
Debenture has been paid in full. If the parties cannot agree on the amount of
the net profit it shall be determined by arbitration in New York City in
accordance with the commercial arbitration rules of the American Arbitration
Association (the "Arbitration Provisions").
Section 5. Condition of Title.
(a) Title in and to the Real Property shall be marketable and good of
record and in fact and insurable as such at ordinary rates, and shall be free
and clear of all liens, encumbrances, leasehold interests, covenants,
conditions, restrictions, rights-of-way, easements and other matters affecting
title, excepting only (i) the lien of real estate taxes to be brought current at
the Closing, (ii) utility easements which do not render title unmarketable or
impair the intended development of the Real Property by Purchaser, (iii) the
mortgage of Bank of New York and Seller indemnifies Purchaser for the amount
necessary to satisfy said mortgage, and (iv) the matters contemplated in this
Agreement.
(b) In the event the title commitment obtained by Purchaser reveals that
title is not in the condition as required in paragraph (a) of this Section,
Purchaser shall give to Seller written notice specializing any and all title
defects and Seller shall take such actions as is appropriate to remove said
defects. Any dispute over whom shall remove any title defect shall also be
resolved by the Arbitration Provision set forth above.
Section 6. Additional Representations and Warranties of Seller.
Seller warrants and represents to and covenants with Purchaser as follows:
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<PAGE> 3
(a) Seller is a duly organized and validly existing corporation and is the
owner of all legal and beneficial right, title and interest in and to the Real
Property, with full power and authority to enter into and perform its
obligations under this Agreement, and the person(s) executing this Agreement on
behalf of Seller has(ve) been empowered to bind Seller.
(b) Except as provided herein Seller shall not, without in each instance
first obtaining the prior written consent of Purchaser, (i) grant, create,
assume, suffer or permit to exist any lien, encumbrance, leasehold interest,
covenant, condition, restriction, right-of-way, or easement upon or against the
Real Property or (ii) take or permit any action which could affect adversely the
condition of title to the Real Property.
(c) No commitment or obligation to any Governmental Authority or to any
other entity, organization, group or individual has been made by Seller in
connection with the Real Property which would burden the Real Property or impose
any obligation on Purchaser, its successors or assigns, to make any payments or
contributions of money or dedications of land, or to construct, install or
maintain any improvements of a public or private nature on or off the Real
Property.
(d) To Seller's knowledge, there is no (i) hazardous material located on
the Real Property which, under federal, state or local law, statute, ordinance
or regulation, or court or administrative order or decree, or private agreement,
requires special handling in collection, storage, treatment or disposal, or (ii)
fill material located on the Real Property other than homogeneous soils suitable
for the intended development of the Real Property and compacted within normal
tolerances.
(e) Seller is not a "foreign person" within the meaning of the Internal
Revenue Code of 1986 (the "Code"), the transactions contemplated hereunder do
not constitute a disposition of a U.S. real property interest by a foreign
person, and on the Closing Date, no person, including without limitation,
Purchaser and its counsel and title company, will be subject to the withholding
requirements of Section 1445 of the Code. At the time of closing hereunder,
Seller shall deliver to Purchaser, such title company and Purchaser's lender (if
any) an affidavit under penalties of perjury providing Seller's U.S. taxpayer
identification number and stating that Seller is not a foreign person, it being
understood and agreed by Seller that Purchaser may be required to file such
affidavit with the Secretary of the Treasury pursuant to applicable regulations.
(f) The representations and warranties shall survive the Closing hereunder
for a period of two years from the Closing.
-3-
<PAGE> 4
Section 7. Additional Undertakings of Seller.
(a) Seller shall give or cause to be given to Purchaser, and its agents
and representatives, full access to the Real Property.
(b) On the Closing Date, Seller shall execute, acknowledge and deliver to
Purchaser a bargain and sale deed(s) in proper form for recording, conveying the
Real Property to Purchaser, with title in the condition required under this
Agreement.
(c) Seller shall give possession of the Real Property to Purchaser on the
Closing Date.
Section 8. Representations and Warranties of Purchaser.
Purchaser represents and warrants to and covenants with Seller as follows:
(a) The person executing this Agreement on behalf of Purchaser has been
empowered to bind Purchaser.
(b) Purchaser agrees to indemnify and hold harmless Seller from and
against any liability for personal injury or property damage Seller may incur as
a result of the rights of entry and access granted to Purchaser under Section
6(a) of this Agreement.
Section 9. Closing.
(a) Unless extended by mutual consent, the closing of the purchase and
sale of the Real Property during normal business hours, at Tanner Propp, LLP, 99
Park Avenue, New York, New York, on or before August 5, 1996.
(b) The delivery of the Purchase Price, the executed deed of conveyance
and all other documents and instruments required to be delivered by either party
to the other by the terms of this Agreement shall be deemed to be a good and
sufficient tender of performance of the terms hereof. On the Closing Date,
Purchaser and Seller shall deliver to the other such additional or other
documents or instruments as either reasonably may request in order to consummate
the transactions contemplated hereby.
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<PAGE> 5
(c) Real estate taxes and other pro-ratable items shall be adjusted as of
the Closing Date and shall be assumed thereafter by Purchaser. Seller shall pay
for the preparation of the deed of conveyance, any other required documents for
the conveyance, the NYS Transfer Tax and the fees of Seller's legal counsel.
Purchaser shall pay the fees of Purchaser's legal counsel.
(d) From time to time after the Closing Date, Seller and Purchaser,
without charge to the other, shall perform such other acts, and shall execute
and acknowledge and shall furnish to the other such other instruments and/or
documents and materials and information which each may have in its possession to
effect the consummation of the transactions provided for in this Agreement.
Section 10. Governmental Approval.
Seller covenants that it shall use reasonable efforts to assist the
Purchaser to obtain the necessary approvals from the Board of Trustees of the
Village of Goshen, the Planning Board of the Village of Goshen and all other
government agencies and authorities having jurisdiction for the development of
the Real Property. Purchaser acknowledges that the acts, covenants,
restrictions, easements, conditions, grants and concessions of the developer
relating to the lots to be sold hereunder are acceptable, and covenants to
accept title to and purchase and acquire the Real Property subject to such acts,
covenants, restrictions, grants and concessions.
Section 11. Default.
If Purchaser shall default in its obligations to close under this
Agreement and such default shall continue uncured for more than ten (10) days
after the date written notice thereof shall have been given to Purchaser by
Seller, then Seller shall have the right, upon written notice given to
Purchaser, to terminate this Agreement and this shall be the sole right of
Seller at law or in equity.
Section 12. Brokerage.
Purchaser and Seller each represent and warrant to the other that no
broker has acted for it in connection with the sale and purchase of the Real
Property.
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<PAGE> 6
Section 13. Notices.
All notices and other communications under this Agreement shall be in
writing and shall be sent by certified mail, return receipt requested,
postage-prepaid, or by personal delivery, addressed to the parties as and at the
addresses set forth after their signatures to this Agreement, with copies to the
other parties there noted, or to such other address and/or to the attention of
such other person of which Seller or Purchaser shall give notice as provided
herein. Notice by mail shall be deemed to have been given as of the date on
which the same shall be postmarked by the United States Postal Service. Notice
by personal delivery shall be deemed given on the date delivered or attempted to
be delivered during normal business hours on working days.
Section 14. Miscellaneous.
(a) Modification. No modification of this Agreement shall be valid unless
the same is in writing and signed by the parties hereto. No waiver of any
provision of this Agreement shall be valid unless in writing and signed by the
party against whom enforcement is sought.
(b) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
(c) Risk of Loss. The risk of loss or damage to the Real Property shall be
assumed by Seller until the time the deed of conveyance therefor shall have been
executed and delivered.
(d) Entire Agreement. This Agreement contains the entire agreement between
the parties relating to the purchase and sale of the Real Property, all prior
negotiations between the parties are merged into this Agreement and there are no
agreements, conditions, warranties or representations, oral or written, express
or implied, between them other than as herein set forth.
(e) Benefit and Burden. All terms of this Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors
and permitted assigns.
(f) Assignment. Purchaser shall not have the right of assignment except
with the prior written consent of Seller first obtained which consent may be
refused or withheld in Seller's sole and absolute discretion. In the event of a
permitted assignment all references in this Agreement to Purchaser shall be
deemed to refer to such assignee.
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<PAGE> 7
(g) Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
(h) Dating. Notwithstanding any provision of this Agreement to the
contrary, wherever in this Agreement any provision governs the date of
commencement or expiration of any time period, or the date of occurrence of any
act or event, if any such date otherwise would fall on a Saturday, Sunday or
legal holiday, then and in any such event, such date shall be deemed for all
purposes of this Agreement to commence, expire or occur, as the case may be, on
the next succeeding day which is not a Saturday, Sunday or legal holiday.
IN WITNESS WHEREOF, Purchaser and Seller have caused this Agreement duly
to be executed the day and year first above written.
PSI CAPITAL CORP. (SELLER) WINDEMERE PINES AT GOSHEN, INC.
(PURCHASER)
by: /s/ Peter Barotz by: /s/ Jed Schutz, Pres.
------------------------------ ------------------------------------
President Jed Schutz, President
Address: 271 North Avenue Address: 888 Veterans Memorial Highway
New Rochelle, NY 10801 Hauppauge, NY 11788
NOTICE TO BE COPIED TO: NOTICE TO BE COPIED TO:
Tanner Propp, LLP Julie Friedlander, Esq.
99 Park Avenue 888 Veterans Memorial Highway
New York, NY 10016 Hauppauge, NY 11788
Attn: Lester J. Tanner, Esq.
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<PAGE> 8
EXHIBIT A
Per Lot Sale Prices 2/29/96 8/5/96
- ------------------- ------- ------
1st Sale Balance
32 Lots 133 Lots
------- --------
Purchase Price $30,300 969,600 $4,029,900
======= ======= ==========
Cash 1,150 36,800 $152,950
PM Note 14,000 448,000 1,862,000
Debenture 15,150 484,000 2,014,950
Use the new Realty Subdivision Map for Harness Estates dated May 31, 1996
showing the Proposed Lot Line Changes (the "Map"), as set forth in the
Stipulation of Settlement Exhibit B hereto for the description of the 165 lots.
Lots sold in this sale include the total number of lots in the Map, namely
165, less the lots previously sold which were described by reference to another
map, namely 32 lots. The new deed will refer to the new Map and be inclusive of
165 lots, 133 being sold on this sale and 32 on the previous sale, which will be
included as a confirmatory deed.
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<PAGE> 9
Exhibit B
UNITED STATES BANKRUPTCY COURT
DISTRICT OF CONNECTICUT
- -------------------------------------x
IN RE:
PSI CAPITAL CORP. CASE NO. 92-50978
Debtor-In-Possession
Adversary Proceeding
PSI CAPITAL CORP. No. 94-5052
Plaintiff
SO ORDERED
vs. STIPULATION OF
SETTLEMENT
THE VILLAGE OF GOSHEN, THE BOARD OF
TRUSTEES OF THE VILLAGE OF GOSHEN,
THE PLANNING BOARD OF THE VILLAGE
OF GOSHEN, GEORGE LYONS, MARCIA
MATTHEUS, ROBERT V. JONES, WILLIAM
FINAN AND LOUIS NEUBERGER,
Defendants.
- -------------------------------------x
IT IS HEREBY STIPULATED AND AGREED, by and among the parties hereto and
by their attorneys of record herein, that this Adversary Proceeding is settled
upon the following terms and pursuant to the stipulation of settlement attached
hereto and made part hereof as Exhibit 1.
1. This Adversary Proceeding is dismissed, on consent, with prejudice
and without costs and disbursements to either party.
PSI CAPITAL CORP. ZELDES NEEDLE AND COOPER, P.C.
Attorneys for Debtor-In-Possession
By: ______________________ and Plaintiff
THE VILLAGE OF GOSHEN AND By: __________________________________
THE BOARD OF TRUSTEES OF
THE VILLAGE OF GOSHEN DAVID L. LEVINSON, ESQ.
Appearing for all Defendants and
By: ____________________ admitted Pro Hac Vice
George Lyons, Mayor
By: __________________________________
Dated:
SO ORDERED THE PLANNING BOARD OF THE VILLAGE OF
GOSHEN
_________________________ By: __________________________________
Judge, United States Jerome O'Donnell, Chairman
Bankruptcy Court
__________________________________
George Lyons
<PAGE> 10
_________________________________________
Marcia Mattheus
_________________________________________
Robert V. Jones
_________________________________________
William Finan
_________________________________________
Louis Neuberger
<PAGE> 11
EXHIBIT 1
AGREEMENT
THIS AGREEMENT made the day of April, 1996, by and among WINDEMERE
PINES AT GOSHEN, INC., a New York corporation, having an office at 84 Main
Street, Sag Harbor, New York 11963 (hereinafter called the Owner"), P.S.I.
CAPITAL CORP., a Connecticut corporation, with a principal place of business at
271 North Avenue, New Rochelle, New York 10801, the BOARD OF TRUSTEES OF THE
VILLAGE OF GOSHEN, having its principal office at 276 Main Street, Goshen, New
York 10924 (hereinafter called "the Board of Trustees"), and THE PLANNING BOARD
OF THE VILLAGE OF GOSHEN, having an office at 276 Main Street, Goshen, New York
10924.
WITNESSETH:
WHEREAS, PSI Capital Corp., a Connecticut corporation, having a office at
271 North Avenue, New Rochelle, New York 10801 ("PSI") has, prior to the signing
of this Agreement, conveyed to the Owner some of the real estate constituting
the Project and the Owner proposes to construct the Project within the Village
of Goshen (hereinafter called "the Village"), consisting of 165 single family
dwellings, to be erected on individual building lots shown on the Plan for the
Harness Estates Realty Subdivision by Corless Associates annexed hereto as
Exhibit A (the "Development Plan"); hereinafter called "the Project"; and
WHEREAS, PSI sought to obtain a building permit to proceed with the
construction of the original project in what it perceived to be in
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<PAGE> 12
accordance with prior agreements and after the refusal of the Village of Goshen
to issue a building permit, PSI commenced an Adversary Proceeding (Case No.
92-50978) in the United States Bankruptcy Court, District of Connecticut for,
inter alia, specific performance of the prior Agreements; and
WHEREAS, the Village of Goshen appeared in the adversary proceeding and
defended its position in refusing to issue a building permit; and
WHEREAS, the adversary proceeding is still pending; and
WHEREAS, the parties hereto and PSI, in order to settle their differences
with respect to the prior Agreements and the pending Adversary Proceeding, do
hereby revoke the prior Agreements subject to the continuing performance of this
agreement as set forth herein (the "Agreements").
NOW, THEREFORE, in consideration of the foregoing and the covenants
hereinafter set forth, the parties hereto agree as follows:
1. CONSTRUCTION OF SINGLE FAMILY DWELLINGS PORTIONS OF PROJECT IN
SECTIONS.
A. The portion of the Project which is to consist of the
number of single family dwellings to be erected on the individual building lots
in the Approved Residential Subdivision are and shall be as shown on the Section
Map, signed by the parties for identification, and incorporated herein
(hereinafter referred to as the "Section Map"). They are to be sited on said
lots, with such lot line modification as the Owner
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<PAGE> 13
and the Board of Trustees of the Village of Goshen, and the Planning Board shall
jointly agree and, subject to any change by said joint agreement, said dwellings
are to be constructed in sections as set forth on the Section Map with all lot
sizes as set forth on the Section Map.
B. As and when building permits are requested in any Section,
the Owner shall delineate the appropriate Section upon the Section Map and shall
furnish the Board of Trustees, the Planning Board, and Building Inspector of the
Village of Goshen with prints of said map.
C. Six building permits shall be issued by the Village of
Goshen, within 30 days after the signing of this Agreement and its approval by
the Bankruptcy Court and the discontinuance, with prejudice, of the pending
Adversary Proceeding, for model homes on the lots designated by the Owner. Each
such model home shall be serviced at the Owner's expense by all utilities
including roads, water and sewer which shall meet all applicable current Village
standards and specifications for public improvements. Thereafter, building
permits shall only be issued for the construction of any of such single family
dwellings within any Section when the Owner has filed with the Village a
performance bond to insure completion of the Water System hereinafter described
and the other public improvements within such Section which are to be dedicated
to the Village at later date.
All matters pertaining to the form, amount, sufficiency and
approval of said performance bond shall be governed by
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<PAGE> 14
Section 13-13(a)(1)(a) of the Subdivision Regulations of the Village of Goshen
and such approval shall not be unreasonably delayed or withheld. All public
improvements shall comply with all current and applicable Village standards and
specifications.
D. No certificates of occupancy for any Section shall be
issued for any residential dwellings until public improvements necessary for the
occupancy of the buildings, including and limited to water supply, wastewater
collection, storm sewers and roads with curbs [except final wear course] are
installed and are functioning in accordance with the Section Map.
E. The Owner shall be required to install sidewalks on one
side of street in the proposed new subdivision, on all collector streets
specifically Murray Avenue, Post Court and Maiden Lane in the old subdivision as
shown on the section maps and on the New Road as hereinafter set forth.
2. REPLACEMENT OF 458 RESIDENTIAL UNITS IN CONDOMINIUMS AND
APARTMENT BUILDINGS BY 55 SINGLE FAMILY RESIDENCES AS SET FORTH IN PROPOSED NEW
SUBDIVISION.
A. So long as the provisions of this Paragraph 2 shall be
performed in good faith by the Village, the Board of Trustees and the Village
Planning Board and the necessary approvals of the Proposed New Subdivision are
issued in a timely fashion, it is agreed that the provisions of Paragraphs 2 and
3 of the Original Agreement, including all
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<PAGE> 15
prior agreements, with respect to 458 residential units in multi-dwellings shall
be replaced by the provisions of this Paragraph 2. Under no circumstances,
however, shall the total number of dwellings as shown on the "Section Map"
exceed 165 single family residential units, inclusive of the Proposed New
Subdivision.
[B. Within forty-five (45) days of submission to the Planning Board
of a complete subdivision application for 55 single family homes and a completed
long form environmental impact statement, the Village Planning Board as lead
agency shall use its best efforts to obtain and issue a declaration of
significance under SEQRA for the fifty-five (55) lots as shown on Sections
________ of the Section Map. If this declaration of significance is not
acceptable to the Owner, the Owner may declare this stipulation as null and
void. The Planning Board in acting upon the application of significance shall
consider that impacts have been mitigated from the original agreements including
the abandonment of any commercial development, the elimination of multiple
family housing (apartments) the density of the project has been very
significantly reduced and currently mitigates impacts on the Village for a
development project now made commensurate with current Village standards and
specifications and in consideration of the prior approvals relied upon by the
Owner. Moreover, the Owner and Village have agreed on a water source allocation
to satisfy the Owner's and Village's needs.
C. The Owner shall, after the signing of this Agreement,
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<PAGE> 16
designate six (6) lots for building permits in Section ______ as and for the
model homes. The Owner shall also after signing of this Agreement remove the
barn and structures on the former parcel designated as the "Shopping Parcel".
The Owner shall be permitted to locate one sale and construction office on lands
adjacent to New York State Route 207. The sale and/or construction office shall
temporarily be serviced by the existing subsurface disposal system and well
formerly serving the Van Damn Farm House or such other temporary water supply or
waste water facility approved by the Orange County Department of Health
["OCDH"}. Upon completion of the community water supply and waste water
facility, the sale and/or construction office shall be connected to those
facilities and the on-site facilities permanently abandoned. A certificate of
occupancy for the sale and/or construction office's use as a single family
dwelling shall not be issued until the above is complied with. A certificate of
occupancy for use of the sale and/or construction office shall be in effect
until the residential use certificate of occupancy is granted.
D. Certificates of occupancy for these six (6) model homes and
for other homes shall not be issued until the Water System hereinafter set forth
has been completed to provide an interconnection into the existing Village
System in accordance with the approved plans and specifications and in
compliance with the present Village standards and specifications and the
completion of the infrastructure for the Section upon which the model homes and
other homes are to be situated.
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<PAGE> 17
E. It is understood that the Water System for the entire
development does not have to be completed, only the interconnection of the new
water supply into the existing Village system, the storage tank, well, well
house, treatment systems, mains and appurtances shall be installed and in
working order following receipt of all appropriate approvals, for any Section in
which homes are located.
F. Certificates of occupancy shall be issued in accordance
with the Village's normal practice and regulations.
G. The Owner shall provide the Village Engineer with current
plans, profiles, construction drawings and details for each of the Sections as
set forth on the Section Map.
H. This Agreement is made by way of Court-Approved Settlement
in lieu of litigation. The SEQRA requirements shall not apply to Sections _____,
______ and _________ as set forth on the Section Map. The SEQRA requirements
shall apply to Sections _____, _______ and ______ of the Section Map for which a
negative declaration of significance shall be sought from the Planning Board as
set forth above predicated upon the potential environmental impacts appearing to
have been mitigated by this Agreement.
3. ROADS
A. The Owner shall apply to New York State Department of
Transportation (NYSDOT) for a renewed permit for a new road connection to State
Highway 207, as shown on the Section Map. The Owner shall construct
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<PAGE> 18
this road as the primary connection to Route 207 and use this entrance for its
construction activities.
B. Access to The Project from the presently existing Murray
Avenue to the site shall be restricted during the construction phases to
passenger cars only and only for sale purposes. At the direction of the Village
Board, the vehicular connection to the existing Murray Avenue may be abandoned
after a second access and egress (the "New Road") to and from the Project has
been opened and approved as shown on the Section Map.
C. The applicable portion of the New Road shall be surveyed on
lands owned or acquired by the Village, i.e., the former railroad bed, and shall
be designed by the engineer for the Owner and approved by the Village Engineer.
Access shall be provided to the Owner and the road shall be built by the Owner
in accordance with current Village standards and specifications. The Owner shall
at all times provide the Village with liability insurance in a minimum sum of
Two Million ($2,000,000.00) Dollars prior to its entry upon Village lands. The
Owner or Owner's designated contractors shall also be required at all times to
maintain worker's compensation insurance and New York State Disability
Insurance and provide proof of such insurances to the Village.
The liability insurance policy shall name the Village as
additional insured, shall be written by a Class "A" rated company authorized to
transact business in New York State and shall provide that
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<PAGE> 19
it is not cancelable except on thirty (30) days prior written notice to the
Village.
The Owner shall at all times save the Village harmless
and keep it fully indemnified against any loss, damage or injury arising out of
and/or in connection with its work upon Village owned lands.
D. All roads in the Project including the New Road from the
Project to Scotchtown Avenue shall be constructed by the Owner at Owner's sole
expense.
E. In the event that the New Road is not constructed or
suitable bonding not made by the Owner, then no more than fifty-five (55)
certificates of occupancy shall be issued for any of the dwelling units.
4. WATER SYSTEM
A. Subject to Orange County Health Department approval the
Village shall provide the Owner with water from the existing Village water
supply system for temporary use in the six (G) model homes only. The cost of
said water to be paid for by the Owner and the Owner shall also pay the usual
cost for said water.
B. The Owner shall install, at its expense, the water
distribution system including the 185,000 gallon distribution reservoir and all
appurtenances in accordance with Federal, State, County, and Village Code. Costs
for these facilities shall not be recoverable from the Village per Section 4F.
C. Promptly after the issuance of the six building permits
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for the model houses, the Owner shall, at its expense, and in accordance with
Federal, State, County and Village Code install:
185,000 gallon stand pipe
Two 8" diameter wells,
raw water pipes between the wells and the treatment
building,
a treatment building with facilities to control flow,
disinfect and control corrosion,
chlorine contact pipe or tanks,
an 8" transmission line between the chlorine contact
chamber and the distribution system on Murray
Avenue,
emergency generator,
electrical service from an 0 & R power line, if
necessary to bring power from Route 207, the
Village agrees to grant to Owner a utility
easement under Post Court,
all other necessary appurtenances to complete the wells
as fully operational sources of supply. Said wells
shall be on line, functioning with all approvals within
six (6) months of the signing of this agreement. This
time limitation shall be extended by Village from month
to month if the Owner is otherwise proceeding
expeditiously and in good faith with the permitting
authorities. In the event that no approvals are
obtained within one year of the date of this agreement,
the Village may enter upon the property and install the
water supply system, in which case the Village shall
have a mechanic's lien on the entire property owned by
the Owner for the cost of all expenditures incurred by
it in installing said water supply system. The lien may
be filed by the Village with the Orange County Clerk.
This lien may be discharged only by payment in full by
the Owner to the Village of the Village's actual costs
incurred in completion of the system.
The Village agrees to assist, expedite and in every way
cooperate with the approval process with all agencies.
In the event that the sources of supply are needed by the
Village as an emergency or auxiliary source in 1996, and if the source of
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<PAGE> 21
supply has not yet been completed by the Owner, then the Village may install the
necessary facilities to complete the source of supply. The Owner shall reimburse
the Village for costs incurred by the Village in completing any aspect of the
permanent source of supply and no further building permits or certificates of
occupancy shall be issued until the costs of these facilities are paid by the
Owner.
D. The Owner, at its expense, shall tap the main in a manner
acceptable to the Village. The cost of tap for each dwelling unit shall be paid
to the Village by the Owner in a sum not to exceed $150.00 per unit for
administrative services for the new tap. The Owner shall install a curb stop
with a valve riser to the ground surface for each dwelling unit. The Owner shall
install in each house a water meter with an outside reader, each acceptable to
the Village.
E. Upon completion of all water supply and distribution system
facilities and receipt of a completed works certificate from the NYSDOH or OCDOH
and NYSDEC as appropriate, the Owner shall dedicate all water supply and
distribution system facilities to the Village and the Village shall supply water
to users at rates and in accordance with normal practices and procedures of the
Village. The Owner shall, however, retain the water rights and the land upon
which the source of supply is located until the payments described in 4F are
completed.
F. The Owner and the Village agree that the cost of the source
of supply facilities, exclusive of the 185,000 gallon standpipe, described in 4C
above shall be established at a later date based on three
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<PAGE> 22
estimates submitted by mutually agreed upon contractors as approved by the
Owner's Engineer and Village's Engineer. The Village shall repay the Owner
eighty (80%) percent for these costs over a ten year period, without interest,
in ten equal annual payments due January 1 of each year, beginning on January 1,
1998 and finishing with the last payment on January 1, 2007, at which time all
retained Ownership or rights to the water or the land as described in 4E above
shall be waived and those rights and Ownership shall become the Villages.
G. The Owner shall also pay the sum of $100,000 to the Village
to update and accommodate the Village water system, to receive the water from
the wells on the land of the Owner. The $100,000 shall be paid in eight annual
installments of $12,500 each, without interest, commencing on January 1, 1998
and finishing on January 1, 2005 or prior to the issuance of the last
certificate of occupancy whichever event occurs first. The Village may withhold
certificates of occupancy if the installments required hereunder are not paid.
H. All legitimate claims caused by the adverse impacts to
substantially contiguous off-site wells, shall be paid by the Owner and the
Owner shall save the Village harmless and keep it fully indemnified against any
claims for damages arising from the construction of the Water System, including,
but not limited to the impact on substantially contiguous off-site wells.
5. SEWER LINE
A. Upon execution of this Agreement, the Village will
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<PAGE> 23
provide the Owner with sewage transmission and disposal services for the six
model homes provided that the Owner conveys the wastewater to the Village's
existing wastewater collection system at Owner's expense and subject to sewer
use charges.
B. The Owner shall install, at its expense, a gravity sewerage
collection system and all appurtenances in accordance with Federal, State,
County and Village Code. In the event that the sewage from any lot or group of
lots needs to be pumped to reach the gravity sewerage system, the Owner shall
install pump grinders in individual homes on individual pumps. The ownership of
any individual pump or individual grinder pump shall not be the Village of
Goshen and the Village shall forever have no responsibility whatsoever for
maintenance, replacement or operation of any such grinder pump.
C. The Owner shall install a gravity trunk sewer having a
minimum diameter of 12" along the former railroad bed, now owned by the of
Village of Goshen, between an existing manhole on Scotchtown Avenue and the
proposed development.
D. The Village will provide the Owner with sewage transmission
and disposal services for all other dwelling units after the trunk sewer and the
gravity sewerage collection systems are constructed and the Owner has received a
completed works approval from the OCDH or NYSDEC, as appropriate. Users shall be
billed for these services in accordance with the Village's normal practices and
upon receipt of the completed works approval the Owner shall dedicate all
gravity sewage
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<PAGE> 24
collection facilities and all trunk sewerage to the Village.
E. The Owner and the Village agree that the cost of the trunk
sewer described in 5C above shall be $120,000, which shall be deducted from an
agreed wastewater service fee of $330,000. The difference of $210,000 shall be
paid to the Village at the rate of $1,273 per tap at the time of issuance of the
building permits.
6. PUBLIC IMPROVEMENTS STANDARDS
A. All public improvements to be installed and constructed
within the Project shall conform to the published 1995 standards of the Village
of Goshen and all current County, State and Federal regulations and
requirements.
B. When the improvements are completed for each Section, the
necessary and appropriate dedication of improvements and easements shall be made
in accordance with the Village Law and regulations including, but not limited
to, to the Owner's delivery to the Village in each instance of title policies
insuring to the Village good and marketable title to the improvements and
easements.
C. The Owner shall create a homeowner association one purpose
of which shall be to own and maintain the property outside the boundaries of the
lots which are currently referred to as parklands exclusive of Parcels A & B to
be conveyed to the Village. Alternatively, the Owner may increase the lot sizes
to encompass within each lot the lands otherwise designated as parkland
exclusive of Parcels A & B.
7. PARK AND DEDICATED LAND
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<PAGE> 25
A. Simultaneously with the filing of the subdivision map with
the Orange County Clerk the Owner shall convey to the Village the 55 unit
subdivision acreage as shown on the Section Map and reflected as Parcel A and
Parcel B. Said land shall be in lieu of any money to be paid to the Village and
the Owner shall have no further financial obligation to the Village relating to
park or recreation land fees. The Village shall use Parcel A for recreational
purposes only and the Village may use Parcel B for parks or other beneficial
Village services, and for no other use without the prior written consent of the
Owner, if the Owner still owns any lots in the subdivision. In no instance, when
the Owner's consent is required, shall the Owner's consent be unreasonably
withheld or refused to the Village's request to use Parcel B for any other use.
B. In dedicating Parcel A, the Owner shall create a 75 foot
buffer zone bordering the residential lots contiguous to the North Acreage, on
which no structures shall be erected.
8. MISCELLANEOUS
9.1 Notices. Any notice, request, demand, statement,
authorization, approval or consent required or permitted under this Agreement
shall be in writing and shall be made by, and deemed duly given upon (a) deposit
in the mail, postage prepaid, registered or certified return receipt requested,
(b) personal delivery, (c) delivery to an overnight courier of recognized
reputation, or (d) facsimile transmission (with confirmation by mail) to the
parties at the addresses set forth above.
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<PAGE> 26
All such notices and communications hereunder shall be deemed
given when received, as evidenced by the acknowledgment of receipt issued with
respect thereto by the applicable postal authority or the telecopier receipt or
the signed acknowledgment of receipt of the person to whom such notice or
communication shall have been addressed. A courtesy cop shall be sent to the
attorneys representing the parties in each instance.
9.2 Entire Agreement. This Agreement constitutes the entire
stipulation between the parties with respect to the subject matter covered by
this Agreement, and supersedes all previous discussions, negotiations, oral or
written, representations, statements, arrangements, agreements and
understandings, if any, by and among the parties with respect to the subject
matter covered by this Agreement other than those herein, and any such
discussions, negotiations, oral or written, representations, statements,
arrangements, agreements and understandings are hereby canceled and terminated
in all respects. This Agreement may not be amended, changed or modified except
by a writing duly executed by the parties hereto or their duly authorized
representatives. All amendments or modifications of this Agreement shall be
binding upon the parties despite any lack of consideration so long as the same
shall be in writing and executed by the parties hereto. The parties have made no
representations or warranties not expressly set forth in this Agreement.
9.3 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which
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<PAGE> 27
together shall constitute one and the same agreement.
9.4 Applicable Law. The rights and obligations of the parties
hereto shall be construed and enforced in accordance with and governed by the
internal laws (and not the conflict of laws) of the State of New York applicable
to the construction and enforcement of contracts between parties resident in New
York.
9.5 Waiver. Any waiver by any party of any provision of this
Agreement or any right hereunder shall not be deemed a continuing waiver and
shall not prevent or estop such party from thereafter enforcing such provision,
and the failure of any party to insist in any one or more instances upon the
strict performance of any of the provisions of this Agreement by the other party
shall not be construed as a waiver or relinquishment for the future performance
of any such term or provision, but the same continue in full force and effect.
9.6 Headings. The headings in this Agreement are solely for
convenience of reference and shall not affect interpretation.
9.7 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the respective heirs, executors, successors and assigns
of the parties hereto. The term "Owner" shall mean Windemere Pines at Goshen,
Inc. and its designated assignees who became a record Owner, from time to time,
of real property affected by this Agreement which has not had constructed
thereon an improvement for which a Certificate of Occupancy has been issued.
9.8 Real Property Affected. The real property affected by
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<PAGE> 28
this Agreement is located in the Village of Goshen, Town of Goshen, Orange
County, New York and is depicted upon a map entitled "The Owner" dated April,
1972, last revision October 23, 1973 and filed in the Orange County Clerk's
Office on December 24, 1973 as map number 3124 and as to which the Development
Plan relates.
9.9 The Bank of New York. In the event The Bank of New York,
as a mortgagee, makes any claim against the parties arising out of this
Agreement or the Bank's claim to an interest in the real property subject of
this stipulation, the Owner shall defend the claim at its cost and expense and
shall fully indemnify the Village against any final judgment arising out of said
claim, including but not limited to costs, expenses and reasonable attorney
fees.
10.10 Time Constraints. This agreement is contingent upon the
applicant submitting a completed subdivision application to the Planning Board
for the 55 units within forty-five (45) days of this stipulation together with
completed long form E.A.F., unless extended by mutual agreement of the Owner,
the Village Board and Planning Board.
This agreement is further contingent upon the applicant to
diligently pursue and advance its application to the Planning
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<PAGE> 29
Board.
BOARD OF TRUSTEES OF THE VILLAGE OF GOSHEN
By: /s/
--------------------------------------
Mayor George Lyons
WINDEMERE PINES AT GOSHEN, INC.
By: /s/
--------------------------------------
Jed Schutz, President
THE PLANNING BOARD OF THE VILLAGE OF
GOSHEN
By: /s/
--------------------------------------
Jerome O'Donnell, Chairman
By: /s/
--------------------------------------
George Lyons
By: /s/
--------------------------------------
Marcia Mattheus
By: /s/
--------------------------------------
Robert V. Jones
By: /s/
--------------------------------------
William Finan
By: /s/
--------------------------------------
Louis Neuberger
Approved:
PSI CAPITAL CORP.
By: /s/
-----------------------------
Peter Baratz, President
THE VILLAGE OF GOSHEN AND THE BOARD OF TRUSTEES OF THE VILLAGE OF GOSHEN
By: /s/
-----------------------------
George Lyons, Mayor
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<PAGE> 30
COMBINED FIRST MORTGAGE NOTE
$2,310,000 August 5, 1996
FOR VALUE RECEIVED, the undersigned ("Buyer") promises to pay PSI Capital Corp.
("Seller") the sum of Two Million Three Hundred Ten Thousand ($2,310,000),
representing the sum of (i) $448,000 First Mortgage Note dated February 29,
1996, which is being cancelled herewith because that amount is now included in
this Note and (ii) $1,862,000 as a payment on the additional lots being conveyed
by Seller to Buyer today. This Combined First Mortgage Note now covers all 165
lots on the new Map dated May 31, 1996, which is expected to be filed in the
Orange County Clerk's Office in final form by February 1, 1997.
Payment of interest at the rate of 6% per annum on $448,000 from February 29,
1996 and on $1,862,000 from August 5, 1996 shall be made annually commencing
February 28, 1997 until February 28, 1999 when the unpaid principal amount of
this Note shall become due and payable. It is contemplated that prior to the
maturity date of this Note one or more of the 165 lots will be released from the
lien of this Note in connection with the construction loan mortgage to be placed
on the Real Estate, each lot to be released for the prepayment of $14,000 of
principal plus the accrued interest thereon.
In the event of a default in the payment of interest or principal on this Note
at or before the Maturity Date, which shall continue for a period of 15 days
after written notice thereof has been given, (i) interest shall run thereon from
said date until paid at the rate of 24% per annum, or such lesser rate as may be
required under any law of the State of New York relating to usury, and (ii) the
Buyer unconditionally waives any right to a trial by jury or to interpose any
counterclaim and consents to judgment against it for the amount due on said note
with interest thereon and the Seller's costs and expenses, including reasonable
attorney's fees, in obtaining said judgment.
This Note is to be secured by a first mortgage on the 165 lots in the Harness
Estates development which shall be placed on record on or after February 1, 1997
if the construction loan mortgage has not been completed by said date. This Note
may be prepaid at any time in whole or in part without penalty but with interest
accrued to the date of such prepayment.
This Note shall be governed by and construed in accordance with the laws of the
State of New York.
WINDEMERE PINES AT GOSHEN, INC.
By: _____________________________
Jed Schutz, President
<PAGE> 31
Exhibit D
PURCHASE MONEY DEBENTURE
$2,499,750 August 5, 1996
FOR VALUE RECEIVED, the undersigned ("Buyer") promises to pay PSI Capital Corp.
("Seller") the sum of Two Million Four Hundred Ninety Nine Thousand, Seven
Hundred Fifty ($2,499,750) representing the sum of (i) $484,800 Purchase Money
Debenture dated February 29, 1996, which is being cancelled herewith because
that amount is now included in this Debenture and (ii) $2,014,950 as a payment
on the additional lots being conveyed by Seller to Buyer today. This Combined
Purchase Money Debenture now covers all 165 lots on the new Map dated May 31,
1996, which is expected to be filed in the Orange County Clerk's Office in final
form by February 1, 1997.
This Debenture shall be due and payable on February 28, 2002 together with
interest at the rate of 6% per annum payable at maturity from February 29, 1996
on $484,800 and from the date hereof on $2,014,950 to the extent said the
principal amounts remain unpaid from time to time.
Prior to the maturity date, the principal sum of this Debenture shall be prepaid
as each of the single family residences constructed on the 165 lots at the
Harness Estates Subdivision (the "Real Estate") are conveyed to the end
purchaser thereof, each such prepayment to be equal to at least 50% of the net
profit to the Buyer with respect to said sale. The Buyer agrees to take such
action as is necessary to construct and sell the one family residence and the
Buyer shall not sell any portion of the Real Estate except to an end purchaser
of said residences.
The parties shall use their best efforts to determine the amount of the net
profit of the sale in good faith, but if the parties do not reach an agreement
within 30 days after the sale, it shall be determined by arbitration rules of
the American Arbitration (the "Arbitration Provisions").
In the event of a default in the payment of this Debenture at or before the
Maturity Date, which shall continue for a period of 15 days after written notice
thereof has been given, (i) interest shall run thereon from the default until
paid at the rate of 12% per annum, or such lesser rate as may be required under
any law of the State of New York relating to usury, and (ii) the Buyer
unconditionally waives any right to a trial by jury or to interpose any
counterclaim and consents to judgment against it for the amount due on said note
with interest thereon and the Seller's costs and expenses, including reasonable
attorneys fees, in obtaining said judgment.
This Debenture may be prepaid in whole or in part at any time without penalty
and shall be prepaid as set forth above, in part upon the sale of each residence
constructed on the Real Estate. Upon the sale of the last residence that is
built or could be built on the Real Estate, the parties shall compute the amount
of the Buyer's net profit on all residences constructed on the Real Estate (the
"Final Net Profit of the Buyer"). If
<PAGE> 32
50% of the Final Net Profit of the Buyer is (i) more than $2,499,750, the excess
shall be paid to the Seller at that time or (ii) less than $2,499,750, the
deficiency shall not be payable by the Buyer and the Debenture shall be deemed
fully paid. At that date the interest shall be adjusted to reflect the actual
principal sum of the Debenture so paid.
This Debenture shall be governed by and construed in accordance with the laws of
the State of New York and the Arbitration Provisions shall apply to any dispute
relating to this Debenture or the Agreements of Purchase and Sale dated February
2, 1996 and July 23, 1996, which together covered all 165 lots on the new Map.
WINDEMERE PINES AT GOSHEN, INC.
By: ___________________________
Jed Schutz, President
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<PAGE> 1
Exhibit 10.02
CONTRACT OF SALE
AGREEMENT made this 23rd day of February, 1996 between PSI SETTLEMENT
CORP., a Delaware corporation with a place of business at 271 North Avenue, New
Rochelle, New York 10801 (the Seller) and GATEWAY GRANBY, LLC, a Connecticut
Limited Liability Company, having an office at 325 University Avenue, Syracuse,
New York 13210 (the "Buyer").
Whenever used herein, the singular number shall include the plural, and plural
the singular, and the use if any gender shall be applicable to all genders.
WITNESSETH, that the Seller agree to sell and convey, and the Buyer agrees
to purchase all that certain parcel of land, together with the buildings and
improvements thereon described in Schedule A hereto (the "Premises"). All
fixtures, now on said premises and appurtenant thereto and owned by the Seller,
are included in this sale.
The sale price is $4,800,000 payable as follows:
(i) $100,000 at the closing on delivery of the deed;
(ii) $900,000 by the note of Buyer payable on or before July 31,
1996, in the form annexed hereto as Exhibit 1.
(iii) $1,900,000 by the first mortgage note in the form annexed
hereto as Exhibit 2.
(iv) $1,900,000 by the purchase money note in the form annexed
hereto as Exhibit 3.
The Buyer may not assign this agreement or any right, title or interest
therein, without the prior written consent of the seller, which consent shall
not be unreasonably withheld.
The acceptance of a deed by the Buyer shall be deemed to be a full
performance and discharge of every agreement and obligation herein contained or
expressed, except such as are, by the terms hereof, to be performed after the
delivery of said deed.
<PAGE> 2
The deed shall be a full covenant Connecticut form of warranty deed in
proper form, and shall be duly executed and acknowledged and delivered with the
necessary amount of Connecticut Conveyance tax thereto affixed by the Seller, at
the Seller's expense, to convey to the Buyer, or the Buyer's assigns, the
absolute fee of the above premises, free of all encumbrances, except as stated
herein.
It is further understood and agreed that if the Seller shall be unable to
convey the title to said premises to the Buyer, free and clear of encumbrances,
or defect of title, except as herein set forth, the Buyer may elect to accept
such title as the Seller can convey, upon payment of the purchase price as
aforesaid, or may reject the acceptance of the deed conveying such title upon
the ground of such defect or incumbrance, and upon such rejection, all sums paid
on account hereof, together with the reasonable fees for the examination of
title in said premises, if any are in fact incurred by the Buyer, shall be
repaid to the Buyer by the Seller, without interest thereon, and this agreement,
upon receipt of such payments, shall terminate and become null and void and the
parties hereto shall be released and discharged of all further claims and
obligations, each to the other, hereunder; provided, however, that, before the
Buyer shall have the right to exercise the option of termination, the Seller
may, on or before the closing date herein designated, request the closing to be
postponed for a period not exceeding thirty (30) days, as the Seller may request
in order to afford said Seller an opportunity to remedy the alleged defect or
defects claimed as the basis of said cancellation.
All sums paid on account of this agreement and the reasonable fees for the
examination of the title to said premises are hereby made liens thereon, but
such liens shall not continue after default by the Buyer under the terms of this
agreement.
The Buyer further agrees that he has examined the premises and that he is
fully satisfied with the physical condition thereof and that neither the Seller,
nor any representative of the Seller, has made any representation upon which the
Buyer relies, with respect to the condition of the property covered by this
agreement, except as herein expressly set forth.
Said deed shall be delivered at the office of the Seller located at 271
North Avenue, room 520, New Rochelle, New York 10801 on February 28, 1996 at
10:00 AM, with time being of the essence, or at such other place as may be
subsequently agreed upon by the parties, said delivery to be made upon receipt
of the sale price as set forth above.
Rents, fuel oil, bottle gas, water, taxes, municipal assessments, sewer
assessments and liens, if any, are to be apportioned. Fuel oil on the premises
shall be purchased by the Buyer at the price in effect at the time of closing.
The risk of loss or damage to said premises by fire or other casualty
until the delivery of said deed is assumed by the Seller, and the Seller shall
maintain until closing all existing insurance on said building and improvements.
If the premises are damaged from any cause whatsoever prior to the closing of
title, the Seller may elect to repair or replace the loss or damage before the
date of closing, but if the Seller does not so elect, or if such repairs cannot
be made before the date of closing, the Buyer may, at his option (1) elect to
terminate and cancel this agreement, in which event the Seller shall return to
the Buyer all monies heretofore paid on account of the purchase price herein,
plus any reasonable expenses he may have incurred for title examination, or (2)
elect to take title to the premises in their then
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<PAGE> 3
present condition and receive all insurance monies recovered or recoverable on
account of such damage, plus the benefit of any insurance proceeds previously
received by the Seller and applied to the restoration or appearance of the
buildings and improvements, however, such amount is not to exceed the purchase
price of the premises. Before the Buyer shall have the right to elect to
terminate and cancel this agreement, as provided in option (1) in this
paragraph, the Seller may, on or before the closing date designated in this
contract request that the closing be postponed for a period not exceeding (30)
days so that the Seller may have an opportunity to repair such damage.
The parties hereto recognize that there is no broker involved in this
transaction.
Buyer agrees that if he breaches any provision of this agreement, in
addition to any damages award, Seller shall be entitled to an award of
reasonable attorney's fees and costs of collection.
The parties hereto agree that if this contract shall be lodged for record,
nothing herein contained shall operate to bind or cloud the title to said
premises in case the Buyer fails to fulfill the terms hereof.
If this agreement is cancelled for any reason, then and in that event, the
Buyer agrees to immediately return all copies hereof to the Seller.
In the event the Buyer fails to perform any of the obligations hereinabove
set forth, he shall forfeit all claims to the premises described herein, and all
monies paid in pursuance of this agreement, shall be construed as full
liquidated damages to the Seller, without prejudice to any rights of the Seller
for specific performance of the within agreement. The parties agree that the
deposit shall be considered as liquidated damages by reason of the fact that the
parties will be unable to agree on actual damages suffered by the Seller by the
removal of the above described premises from the sales market. The actual tender
of the deed shall not be necessary if the Buyer has clearly indicated, prior to
the date of closing, that he will not or cannot make the payments agreed upon.
This Contract of Sale is continued on the Rider annexed hereto
IN WITNESS WHEREOF, this Contract of Sale has been executed this 23rd day
of February, 1996.
WITNESS PSI SETTLEMENT CORP.
By:__________________________
GATEWAY GRANBY, LLC
By: /s/ Paul Mesches
------------------------
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<PAGE> 4
RIDER to Contract of Sale
Between PSI Settlement Corp.
and GATEWAY GRANBY, LLC
--------------------------------
1. On or before July 31, 1996 Seller shall, at its cost and expense,
complete all construction at the Premises pursuant to the plans and
specifications referred to in the International Paper Lease for the second floor
of the Premises, a copy of which has been furnished to the Buyer (the "IP
Lease"). Seller represents, warrants and agrees that (i) the IP Lease is in full
force and effect, (ii) Seller will obtain by July 31, 1996 a valid certificate
of occupancy for the premises as a 57,000 square foot Class A office building
ready for existing tenants, including but not limited to International Paper
Company. Seller may draw on a construction loan before and after closing up to a
maximum of $800,000 to assist in financing the costs of construction and Buyer
will after the closing execute any further documents required in connection with
such construction loan and mortgage on the Premises (the "Construction Loan").
2. Seller shall, at the closing, execute and deliver to the Buyer, a lease
for the entire first floor of the Premises in the form annexed hereto as Exhibit
4 (the "Nexus Lease") which obligates the Tenant in said Nexus Lease to complete
and lease the first floor space to one or more subtenants during the term of
said Nexus Lease, retaining for itself during said term the rents received from
said subtenants and any profit thereon over the rental payable to the Buyer
under the Nexus Lease. Provision is made in the Nexus Lease for the parties
thereto to agree to substitute any subtenant's lease, which is acceptable to the
Buyer, for the Seller's obligations with respect to the space involved under the
Nexus Lease, but neither party shall have any obligation to do so, and the
renting of the first floor shall be for the benefit or risk, as the case may be,
of the Seller.
3. The first mortgage note of $1,900,000 to be delivered by the Buyer to
the Seller at the closing shall include within it any Construction Loan and
Mortgage which may be placed against the Premises; and the Seller shall have the
right, after International Paper is in possession and the certificate of
occupancy has been issued, to refinance said first mortgage note, as set forth
therein, with an institutional first mortgage, at the Seller's cost and expense,
and to retain the net proceeds thereof after paying off the Construction Loan.
To the extent that said institutional first mortgage is less than the unpaid
principal then outstanding on the first mortgage note, the balance will be added
to the principal of the purchase money note without changing the interest rate
on said portion.
4. The purchase money note provides that the Seller and Buyer shall use
their best efforts during its term to refinance the institutional first mortgage
to an amount which exceeds $1,900,000, or its then principal balance, as set
forth in said purchase money note, at the Seller's cost and expense, so that
Seller may realize a larger portion of the purchase money note in cash prior to
its maturity and the Buyer may obtain better institutional financing for the
Premises.
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<PAGE> 5
SCHEDULE A
ALL THAT certain piece or parcel of land, together with the buildings and
improvements thereon, situate in the Town of East Granby, County of Hartford and
State of Connecticut, more particularly as follows:
COMMENCING at a point in the westerly highway line of Rainbow Road (a.k.a. Conn.
Rte. 20), which point is on a curve having a radius of 3859.80', said point
being 106.43' northerly from an existing C.H.D. monument measured along said
curve; thence in a southerly direction along said curve 106.43' to said existing
C.H.D. monument; thence E 34-54-22 E 209.34' to an existing monument at the
beginning of a curve having a radius of 25.00'; thence along the length of said
curve a distance of 39.27' to an existing monument tangent to said curve at the
northerly street line of Gateway Boulevard; thence S 53-05-32 W 630.00 along the
northerly street line of Gateway Boulevard to an existing monument at the
beginning of a curve having a radius of 36.00', thence along the length of said
curve at the easterly street line of Connecticut North Drive; thence S 34-54-22
W 92.08' along the easterly street line of Connecticut North Drive to a point
marking the beginning of a curve with a radius of 780.00'; thence along said
curve a distance of 139.1' to a point tangent to said curve; thence N 45-07-02 W
57.26' along the easterly street line of Connecticut North Drive; thence N
01-13-18 E 279.08' along land now or formerly of Newgate International Business
Center to a point; thence N 55-05-40 E 288.21' along land now or formerly of
Newgate International Business Center to an existing concrete monument; thence
along said Newgate International Business Center S 86-35-55 E 332.80' to the
point and place of beginning. Said parcel is bounded northeasterly by Newgate
International Business Center, easterly by Rainbow Road (a.k.a. Conn. Rte. 20),
southerly by Gateway Boulevard, westerly by Connecticut North Drive and
northwesterly by Newgate International Business Center, containing 338,598 sq.
ft. or 7.77 acres. For a more particular description, see map entitled:
MAP OF LAND KNOWN AS TWO GATEWAY, LOT 11/12, NEWGATE INTERNATIONAL BUSINESS
CENTER, EAST GRANBY, CONN., SCALE 1" = 40', APRIL 27, 1988, SHEET 1 OF 1,
#88-04-12, RONALD H. DUFOUR-L.S. #22319, which map was recorded in the Land
Records of the Town of East Granby on March 13, 1989.
RECEIVED FEBRUARY 6, 1995 AT 8:31 A.M.
BY /s/ Elisabeth W. Buonigiani
-----------------------------
TOWN CLERK
<PAGE> 6
EXHIBIT 1
NOTE
$900,000 February 28, 1996
FOR VALUE RECEIVED, the undersigned ("Buyer") promises to pay to PSI Settlement
Corp. ("Seller") the sum of Nine Hundred Thousand ($900,000) Dollars, without
interest on July 31, 1996 (the "Maturity Date") as additional payment on the
purchase of the office building at 2 Gateway Boulevard, East Granby, Connecticut
(the "Real Estate") which is being conveyed by the Seller to the Buyer today.
The Maturity Date shall be earlier than July 31, 1996 to a date fixed by the
Seller which is not less than 15 business days nor more than 20 business days
after Seller has notified the Buyer that (i) International Paper has taken
possession of its premises under the International Paper Lease for the second
floor of the Real Estate and (ii) an institutional first mortgage lender is
committed to make a first mortgage of an amount not in excess of $1,900,000 for
a term of not less than 10 years with annual debt service equal to 11% of the
principal sum of which interest shall not exceed 8% per annum and said mortgage
shall close on the earlier of the Maturity Date. In the event item (i) above
shall have been completed by July 31, 1996 but item (ii) has not been
consummated, the $900,000 shall be payable on July 31, 1996.
It is understood that the proceeds of this Note shall be applied to satisfy and
pay in full any construction loan mortgage on the real estate. Any institutional
first mortgage placed on the Real Estate at the Maturity Date or before or after
said Maturity Date will reduce the other note(s) made by the Buyer to the Seller
at the date hereof in an amount equal to the principal amount of said
institutional first mortgage. It is also agreed that all costs and expenses
incurred by the Seller or the Buyer in connection with the institutional first
mortgage and the delivery of possession of its premises to International Paper,
shall be borne and paid by the Seller.
In the event of an default in the payment of this note at the Maturity Date,
which shall continue for a period of 15 days after written notice thereof has
been given, (i) interest shall run thereon from the Maturity Date until paid at
the rate of 24% per annum, or such lesser rate as may be required under any law
of the State of Connecticut relating to usury, and (ii) the Buyer
unconditionally waives any right to a trial by jury or to interpose any
counterclaim and consents to judgment against it for the amount due on said note
with interest thereon and the Sellers costs and expenses, including reasonable
attorneys fees, in obtaining said judgment.
the Buyer agrees that it will not transfer or encumber the Real Estate until
this Note has been paid in full and Seller shall have the right to record a
memorandum of this covenant if it elects to do so.
This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut.
GATEWAY GRANBY, LLC
By: /s/ Paul Mesches
--------------------------
<PAGE> 7
EXHIBIT 2
FIRST MORTGAGE NOTE
$1,900,000 February 28, 1996
FOR VALUE RECEIVED, the undersigned ("Buyer") promises to pay to PSI Settlement
Corp. ("Seller") the sum of One Million Nine Hundred Thousand ($1,900,000)
Dollars, as set forth herein, as additional payment on the purchase of the
office building at 2 Gateway Boulevard, East Granby, Connecticut (the "Real
Estate") which is being conveyed by the Seller to the Buyer today.
Payments of $17,416.67 per month, commencing on the last day of March, 1996 and
on the last day of each calendar month thereafter for a total of 120 months,
ending on February 28, 2006 (the "Maturity Date"), which monthly payments shall
be applicable first to interest on the unpaid principal amount of this Note at
the rate of 8% per annum and then to the amortization and reduction of said
principal amount of this Note.
In the event there shall be a construction loan mortgage on the Real Estate, up
to a maximum sum of $800,000, and interest is accruing thereon, said
construction loan mortgage shall be deemed to be included as part of this Note
and shall be considered a reduction of the principal amount of this Note, so
long as the construction loan mortgage remains unpaid. The interest due and
payable on the construction loan mortgage shall be paid by the Buyer to the
mortgagee and the amount thereof shall be deducted from the monthly payment due
hereunder and be deemed a payment hereunder, said interest being paid to the
construction loan mortgagee on behalf of the Seller.
At any time after (or simultaneously with) the payment in full of the
construction loan mortgage, the Seller shall have the right to require the Buyer
to place an institutional first mortgage on the Real Estate which shall (i) not
exceed $1,900,000, (ii) require debt service for interest and amortization of
not less than 11% per annum, (iii) bear interest at the rate of not more than
8% per annum, (iv) have a maturity of not prior to the Maturity Date set forth
herein and (v) require no personal guaranty other than the Buyer or any unusual
terms which the Buyer is not willing to accept. Seller shall pay all costs and
expenses in connection with such institutional first mortgage, the principal
amount of which shall be deducted from this Note and the balance shall be
represented by a new Note with the same terms, except that the monthly payment
shall be one-twelfth of eleven (11%) percent of new principal balance of this
Note, as so reduced (the "Reduced Note").
If the parties deem it feasible and it is not prohibited by the first mortgage,
the said Reduced Note and the purchase money note for $1,900,000 made by the
Buyer to the Seller shall be combined and secured by a second mortgage on the
Real Estate.
<PAGE> 8
In the event of an default in the payment of this note at or before the Maturity
Date, which shall continue for a period of 15 days after written notice thereof
has been given, (i) interest shall run thereon from the Maturity Date until paid
at the rate of 24% per annum, or such lesser rate as may be required under any
law of the State of Connecticut relating to usury, and (ii) the Buyer
unconditionally waives any right to a trial by jury or to interpose any
counterclaim and consents to judgment against it for the amount due on said note
with interest thereon and the Seller's costs and expenses, including reasonable
attorneys fees, in obtaining said judgment.
This note is to be secured by a mortgage on the Real Estate which shall not be
placed on record, if at all, until after the institutional first mortgage has
been closed and recorded.
This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut.
GATEWAY GRANBY, LLC
By: /s/ Paul Mesches
-------------------------
-2-
<PAGE> 9
EXHIBIT 3
PURCHASE MONEY NOTE
$1,900,000 February 28, 1996
FOR VALUE RECEIVED, the undersigned ("Buyer") promises to pay to PSI Settlement
Corp. ("Seller") the sum of One Million Nine Hundred Thousand ($1,900,000)
Dollars, as set forth herein, as additional payment on the purchase of the
office building at 2 Gateway Boulevard, East Granby, Connecticut (the "Real
Estate") which is being conveyed by the Seller to the Buyer today.
Payments of $17,416.67 per month, commencing on the last day of March, 1996 and
on the last day of each calendar month thereafter for a total of 240 months,
ending on February 28, 2016 (the "Maturity Date"), which monthly payments shall
be applicable first to interest on the unpaid principal amount of this Note at
the rate of 9 1/2% per annum and then to the amortization and reduction of said
principal amount of this Note.
The purchase money note is junior in interest to the first mortgage note of
$1,900,000 made by Buyer to Seller of even date herewith, which provides for a
possible change to a Reduced Note upon the consummation of an institutional
first mortgage in place of the first mortgage note. At such time the parties
may, if feasible, secure the Reduced Note and this purchase money note by a
subordinate mortgage, provided that is not prohibited by the institutional first
mortgage.
Buyer and Seller also agree that after the institutional first mortgage is
consummated and during the balance of the maturity of this purchase money note,
they shall use their best efforts to refinance the institutional first mortgage
to an amount which exceeds $1,900,000, or the then principal balance of the
institutional first mortgage, at the Seller's sole cost and expense, provided
that (i) the term is at least 10 years, (ii) the debt service is not less than
11% per annum and the interest rate is not more than 8% per annum on the
Reduced Note portion and 9 1/2% per annum on the purchase money note portion and
(iii) there are no unusual terms or personal guaranty except that of the Buyer.
The additional principal sum received on the refinancing of the institutional
first mortgage shall be paid to the Seller and shall reduce, first the principal
amount of the Reduced Note and then the principal amount of the purchase money
note, which reduced amount shall be represented by a Revised Purchase Money Note
with the same terms except that the monthly payment shall be one-twelfth of
eleven (11%) percent of the new principal balance of the revised Purchase Money
Note.
In the event of an default in the payment of this note at or before the Maturity
Date, which shall continue for a period of 15 days after written notice thereof
has been given, (i) interest shall run thereon from the Maturity Date until paid
at the rate of 24% per annum, or such
<PAGE> 10
lesser rate as may be required under any law of the State of Connecticut
relating to usury, and (ii) the Buyer unconditionally waives any right to a
trial by jury or to interpose any counterclaim and consents to judgment against
it for the amount due on said note with interest thereon and the Seller's costs
and expenses, including reasonable attorneys fees, in obtaining said judgment.
This note is to be secured by a second mortgage on the Real Estate which shall
not be placed on record, if at all, until after the institutional first mortgage
has been closed and recorded and if not prohibited by said first mortgage.
This Note shall be governed by and construed in accordance with the laws of the
State of Connecticut.
GATEWAY GRANBY, LLC
By: /s/ Paul Mesches
------------------------
-2-
<PAGE> 11
EXHIBIT 4
LEASE AGREEMENT
THIS AGREEMENT, made and entered into this 28th day of February, 1996 by
and between GATEWAY GRANBY, LLC, a Connecticut Limited Liability Company, having
an office at 325 University Avenue, Syracuse, New York 13210, hereinafter called
"Landlord" and PSI SETTLEMENT CORP., having an address at 271 North Avenue,
Suite 520, New Rochelle, New York 10801 hereinafter called "Tenant".
Premises: Approximately 27,500 gross rentable square feet of a
55,163 square foot building, (the "Building"), known
as Newgate International Business Center, Two Gateway
located at 2 Gateway Boulevard, East Granby,
Connecticut.
Parking: Landlord warrants that Tenant shall have the right to
use at least Twenty (20) parking spaces on a
non-exclusive basis.
Commencement Date: March 1, 1996.
Annual Base Rent: $423,484
Monthly Base Rent: $35,290.33
Tenant's Percentage: Forty-seven and four tenths percent (47.4%). This
percentage shall be adjusted to reflect any
additional construction of buildings by landlord on
the property resulting in an increase in building
square footage owned by Landlord.
Landlord's Contribution
to Operating Expenses: $133,106 per annum.
Exhibit: A - The Premises
<PAGE> 12
Landlord by the Tenant during the term of this lease and the initial term of the
IP Lease.
5. RENT. Tenant agrees to pay to Landlord, without demand, deduction or
set-off, except herein provided, an Annual Base Rent at the rate of Four Hundred
Twenty Three Thousand Four Hundred Eighty Four Dollars ($423,484.00) per annum,
payable in equal monthly installments in advance on the first day of each
calendar month during the term of this lease in the amount of Thirty Five
Thousand Two Hundred Ninety and 33/100 Dollars ($35,290.33). Rental payments
shall be paid to Landlord at the address provided in written notice as provided
herein. Notwithstanding the foregoing, the monthly rent payable in the period
from March 1, 1996 throughout April 1, 1998, on the first day of each such month
in said period, shall be determined by the following formula: the sum of (i)
$1,500, (ii) 1% of the amount of additional cash of $900,000 theretofore paid by
the Landlord to the Tenant under the Note due July 31, 1996, (iii) the monthly
payments due in said month for principal and interest on the first and purchase
money notes, namely $34,833 and (iv) the Operating Expenses payable by the
Landlord for said month pursuant to this lease and the IP Lease, less, (x) the
rent receivable from International Paper for said month under the IP Lease.
Commencing May 1, 1998 and for the balance of the Term the Annual Base Rent on a
monthly basis shall be the $35,290.33 per month as set forth above.
6. OPERATING EXPENSES.
(A) Additional Rent. Commencing on May 1, 1998, Tenant shall pay to
Landlord the amount by which Tenant's Percentage of Operating Expenses exceeds
landlord's Contribution to Operating Expenses (as previously defined) for the
portion of calendar year 1998 after April 1, 1998 (such amount paid by Tenant
shall be referred to in this Article 6 as "Additional Rent").
(B) Operating Expenses. Operating Expenses shall mean those expenses
thereon paid or incurred on or behalf of the Landlord (whether directly or
through independent contractors) with respect to the operation, maintenance and
management of the land and/or building containing the Premises and the sidewalks
and areas adjacent thereto which in accordance with sound management principles
respecting the operation of non-institutional first class office buildings are
reasonable, allocable, and properly chargeable to the operation of the building
including Taxes and Assessments as defined below. For the purpose of this
Article 6, Landlord's Operating Expense for management/administration fees shall
not exceed twenty-five cents ($.25) per square foot.
-3-
<PAGE> 13
the estimated amount of Additional Rent payable by Tenant. The Additional Rent
shown on the Estimate Statement shall be divided into twelve (12) equal monthly
installments, and Tenant shall pay to Landlord, concurrently with the regular
monthly rent payment next due following the receipt of the Estimate Statement,
an amount equal to one (1) monthly installment of such Additional Rent
multiplied by the number of months from January in the calendar year in which
such statement is submitted to the month of such payment, both months inclusive.
Subsequent installments shall be paid concurrently with the regular monthly rent
payments for the balance of the calendar year and shall continue until the next
calendar year's Estimate Statement is received.
(E) Actual Statement. By the first day of April of each succeeding
calendar year during the term of this Lease (i.e., commencing April 1, 1998),
Landlord shall deliver to Tenant a statement ("Actual Statement") of the actual
Operating Expenses and Additional Rent for the immediately preceding calendar
year. As to calendar year 1997, the Actual Statement shall only include the
portion of that year after the second anniversary of the Commencement Date of
this Lease, if the Actual Statement reveals that Additional Rent were overstated
or understated in any Estimate Statement previously delivered by Landlord
pursuant to Article 6(D) above, then within thirty (30) days after delivery of
the Actual Statement, Tenant shall pay to Landlord the amount of any such
underpayment, or, Landlord shall pay to Tenant (or credit against the next
monthly rent falling due), the amount of such overpayment, as the case may be.
(F) Tenant's Audit Rights. If Tenant disputes the amount of Operating
Expenses set forth in any Actual Statement delivered by Landlord, Tenant shall
have the right, to be exercised, if at all, not later than six (6) months
following the receipt or such Actual Statement to inspect Landlord's books and
records and in the event a dispute exists after such inspection, then Tenant
shall have the right, to cause Landlord's books and records with respect to the
preceding calendar year to be audited, at Tenant's expense, by a certified
public accountant mutually acceptable to Landlord and Tenant. The amounts
payable under Article 6(E) by Landlord to Tenant or by Tenant to Landlord as the
case may be shall be appropriately adjusted on the basis of such audit. If
Tenant fails to request an audit within the six (6) month period, such Actual
Statement shall be conclusively binding upon Landlord and Tenant.
7. USE OF PREMISES. Said Premises shall be used by Tenant for general
office and uses incidental thereto as appropriate for Class A Suburban Office
Buildings and as allowed by state and local zoning and other regulations.
TENANT represents that Tenant's use as set forth herein complies with all
zoning ordinances and covenants and restrictions of record applicable to the
Premises, does not invalidate any policies of insurance of Landlord covering the
Premises and is not considered an extra use as defined in said policies of
insurance.
5
<PAGE> 14
but not limited to water fountains, bottled water dispensers, coffee/tea
machines, vending machines and ice makers that take water directly from the
source, and sinks in the bathrooms and kitchens as provided by Landlord. Tenant
shall submit the results of the tests to Landlord upon Landlord's request.
10. MAINTENANCE AND REPAIRS. Landlord shall, at its own cost and expense,
keep and maintain in good repair and condition for the entire term all
structural portions of the Building, including but not limited to: floors,
foundations, exterior and load bearing walls (exclusive of all glass and
exclusive of all interior doors), the roof, underground utility and sewer pipes
outside the exterior walls of the Premises, except as such repairs are rendered
necessary by the negligence of Tenant, its agents, employees, or invitees.
In the event Landlord fails to perform maintenance or repairs required by
this Article 10 within a reasonable time after written notice by Tenant to
Landlord thereof, Tenant shall have the right to perform or cause to be
performed such maintenance or repairs. Tenant shall deduct. from its rent
payments the cost and expense of such maintenance and repairs. Tenant shall
deliver to Landlord copies of the invoices for such maintenance or repairs. If
Landlord disputes the foregoing maintenance or repairs, Tenant shall deposit the
amount deducted from its rent payment with an escrow agent acceptable to
Landlord and Tenant. The escrow agent shall not release the deposit until
Landlord and Tenant resolve the dispute or a determination 15 made by a court or
competent jurisdiction.
11. DAMAGE OR DESTRUCTION. (a) In the event of the total destruction of
the Premises by fire or other casualty during the term hereof or in the event of
such partial destruction thereof as to render the Premises untenantable or unfit
for occupancy, therein either event, unless such damage can, in the reasonable
option of Landlord and Tenant, be repaired within one hundred twenty (120) days
after the occurrence, this Lease and the term hereby created shall cease from
the date of such damage or destruction and Tenant shall upon written notice from
Landlord surrender the Premises to Landlord and Tenant shall pay rent within
said term only to the time of such damage or destruction.
If, however, in the reasonable opinion of Landlord and Tenant, the damage
as aforesaid can be repaired within one hundred twenty (120) days from the
occurrence thereof, Landlord shall repair the Premises with all reasonable
speed, and this Lease shall continue in full force and effect but the rent shall
abate from the occurrence of the damage until the completion of such repairs.
(b) In the event of the partial destruction of the Premises by fire or
other casualty during the term hereof, which partial destruction does not render
the Premises untenantable or unfit for occupancy, Landlord shall repair the
damage with all reasonable speed within sixty (60) days thereafter, and this
Lease shall continue in full force and effect, but from the occurrence of the
partial destruction until the completion of such repairs the rent shall abate in
proportion to the area of the Premises which is unusable by Tenant.
7
<PAGE> 15
arising from Tenant's alterations.
14. SIGNS. No tenant signs shall be erected outside of the Building.
15. ACCESS AND INSPECTION. Tenant shall have access to the Premises 24
hours a day, seven (7) days a week.
Landlord shall have the right to enter upon the Premises during reasonable
business hours for the purpose of inspection or for maintenance work or repairs
in accordance with the Provisions hereof, provided that prior notice shall be
given to Tenant and such entry will not disrupt Tenant's business. Landlord
shall also have the right to enter at any time without notice in the event of
fire, explosion or other emergency, for the purposes of controlling,
extinguishing or abating the same.
16. INSURANCE.
(A) Tenant's Insurance: Tenant shall, at Tenant's sole cost and expense,
procure and maintain during the entire term of this agreement, a policy or
policies insuring: (i) Worker's compensation with minimum limits meeting
statutory requirements, or a state approved self insurance plan; (ii)
Comprehensive General Liability insurance, including contractual liability
coverage, with a minimum combined single limit of $1,000,000 for bodily injury
and property damage; and (iii) property insurance insuring Tenant's personal
property, however Tenant shall have the right to self insure the risk consistent
with Tenant's practices at similar facilities. Tenant is responsible for any and
all deductible amounts under all policies required to be carried.
All insurance required to be carried by Tenant shall be with a company or
companies licensed to do business in the state where the Premises is located,
and shall have a rating of at least "All or better in the current edition of
Best's Key Rating Guide. if requested, Tenant shall provide Landlord with a
certificate or certificates of insurance providing evidence of this coverage.
(Requests for certificates of insurance shall be directed to the International
Paper Risk Management Department, 6400 Poplar Avenue, Memphis, TN, 38197. A copy
of this executed lease agreement must be sent with any requests for
certificates.) All certificates issued on Tenant's behalf shall contain a
standard thirty (30) day notice of cancellation or material change.
(B) Landlord's Insurance: Landlord shall, at all times, during Tenant's
occupancy, keep the Premises and improvements thereon covered by Fire and
Extended Coverage insurance against the perils of fire, flood, lightning,
windstorm, hurricane, hail, explosion, radioactive contamination, riot, civil
commotion, vandalism, malicious mischief, smoke, aircraft or land vehicle, sonic
shock wave, molten material, liquid and leakage of fire protection equipment, in
an amount not less than one hundred percent (100%) of the replacement value
thereof, including all improvements, alterations and additions which may be
made. Landlord is responsible to pay all deductible amounts under this
insurance.
9
<PAGE> 16
18. DEFAULT. If (a) any rent or Additional Rent payable by Tenant shall
remain unpaid for more than ten (10) days after receipt by Tenant from Landlord
of written notice that same is unpaid, or if (b) Tenant shall violate or make
default in any of the other covenants, agreements, stipulations or conditions
herein, and Tenant does not commence the correction of default within thirty
(30) days after receipt by Tenant from Landlord of written notice stating the
nature of such violation or default, and thereafter does not continue the
correction thereof with promptness and dispatch until the same is fully
rectified, or if (c) Tenant is adjudicated bankrupt; or if a permanent receiver
is appointed for Tenant's property and such receiver is not removed within sixty
days after written notice from Landlord to Tenant to obtain such removal; or if,
whether voluntarily or involuntarily, Tenant takes advantage of any debt or
relief proceedings under any present or future law, whereby the rent or any part
thereof is, or is proposed to be, reduced or payment thereof deferred, or if
Tenant makes an assignment for benefit of creditors; or if Tenant's effects
should be levied upon or attached under process against Tenant, not satisfied or
dissolved within thirty (30) days after written notice from Landlord to Tenant
to obtain satisfaction thereof; then, and in any of said events, Landlord at its
option may at once or within six (6) months thereafter (but only during
continuance of such default or condition), upon written notice to Tenant,
declare the rights of Tenant under this Lease forfeited and the term ended, and
re-enter said Premises, and remove all persons or chattels therefrom; but
notwithstanding such re-entry by Landlord, the liability of Tenant for the rent
provided herein shall continue. Any such re-entry shall be without prejudice to
any other remedy Landlord may have. It is further expressly understood and
agreed that Landlord may resume possession of the Premises and relet the same
for the remainder of the term of this Lease for the best rent obtainable for the
account of Tenant, who shall make good any deficiency.
If either party should delay in enforcing any obligation hereunder, or
should waive the performance of any obligation, or if Landlord should accept
rent after the occurrence of any default by Tenant, then such action or
forbearance by said party shall not be construed as a waiver of any default in
any other obligation hereunder.
19. EFFECT OF TERMINATION OF LEASE. No termination of this Lease prior to
the normal ending thereof, by lapse of time or otherwise shall affect Landlord's
right to collect rent for the period prior to termination thereof.
20. ENTRY FOR CARDING. Landlord may card Premises "FOR SALE" ninety (90)
days before the termination of this Lease or any renewal thereof. Upon prior
notice to Tenant, Landlord may enter the Premises at any reasonable hours to
exhibit same to prospective purchasers or tenants.
21. ASSIGNMENT AND SUBLETTING - Except as provided herein, Tenant shall
not assign this Lease nor sublet the Premises, in whole or in part, without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld. The consent of Landlord need not be obtained if the assignment or
subletting is to a subsidiary or an affiliate of Tenant or if Tenant remains
liable on this lease.
11
<PAGE> 17
28. TITLE. Landlord covenants that it has full power and authority to
enter into this Lease as fee title owner of the Building.
29. BROKERAGE. No broker brought about this Lease.
30. TRANSFER OF LANDLORD'S RIGHTS. Landlord shall have the right to sell,
assign, transfer, in whole or in part, all of its rights in the Building or
Premises provided that any successor to Landlord agrees in writing that so long
as Tenant is not in default in the payment of rent or in the performance of any
of the terms, covenants and conditions of this Lease upon Tenant's part to be
performed (a) Tenant shall not be disturbed in its possession and said successor
shall carry out Landlord's obligations under this Lease; and (b) Tenant shall
not be named in any action or proceeding by the holder of any mortgage to
foreclosure thereunder, and any such action shall not result in the cancellation
or termination of this Lease.
31. SUBORDINATION. This lease is and shall be subject and subordinate to
(i) any and all existing and future mortgages affecting the fee and/or leasehold
title of the Landlord's building, of which the demised premises are a part, and
the land upon which said building is erected and which may, in addition, affect
the fee title of other land of Landlord and the improvements erected thereon,
and to any and all present and future extensions, modifications, renewals,
replacements and amendments thereof; and (ii) any and all ground or underlying
leases now or hereafter affecting said building or any part thereof and to any
and all extensions, modifications, renewals, replacements and amendments
thereof.
Tenant will execute and deliver promptly to Landlord but in any event not
more than ten (10) days after Landlord's written request, any certificate or
instrument which Landlord from time to time may request for confirmation of the
provisions of this Article 31. All mortgages and/or ground leases now or
hereafter affecting the fee and/or leasehold interests in Landlord's building
shall provide for non-disturbance and quiet enjoyment of Tenant's possession of
the demised premises so long as Tenant is not in default under the terms of this
Lease, and any certificate or instrument which Landlord from time to time may
request for confirmation of the provisions of this Article shall also confirm
Tenant's right to non-disturbance and quiet enjoyment.
(b) Neither the foreclosure of a mortgage referred to in the preceding
Article 31(a)(i), nor the termination of any ground or underlying lease
referred to in the preceding Article 31(a)(ii), nor the institution of any
suit, action, summary or other proceedings by the Landlord or any successor
landlord under such ground or underlying lease or by the holder of any such
mortgage, shall, by operation of law or otherwise, result in the cancellation or
termination of this Lease or the obligations of Tenant hereunder; the Tenant
agrees to attorn to and recognize the Landlord and any successor Landlord under
such ground or underlying lease or the holder of any such mortgage, or the
purchaser of the mortgaged premises in foreclosure, or any subsequent owner of
the fee, as the case may be, as Tenant's landlord hereunder in the event that
any of them shall succeed to Landlord's
13
<PAGE> 18
IN WITNESS WHEREOF, this instrument is executed in duplicate originals as
of the date and year first above written.
TENANT
PSI SETTLEMENT CORP.
By: /s/ Peter Barotz
-------------------------
NAME: Peter Barotz, Pres.
LANDLORD
GATEWAY GRANBY, LLC
By: /s/ Paul Mesches
-------------------------
NAME/TITLE: Manger
15
<PAGE> 19
OFFSET AGREEMENT
February 28, 1996
Gateway Granby, LLC
2 Gateway Blvd.
East Granby, CT 06026
Gentlemen:
This will confirm our agreement that in the unlikely event that PSI
Settlement Corp. does not pay the rent due under the Lease made with you today
for the first floor of the Two Gateway Office Building (the "Lease") you may
reduce the amount payable to this corporation under the $1,900,000 Purchase
Money Note made by you today at the time of your purchase of the Office
Building.
The offset shall be applied first to any interest due or to become due and
then to the principal sum of said Purchase Money Note. The undersigned agrees
not to assign, transfer or encumber the Purchase Money Note, without your
written consent, so long as the undersigned has any obligation under the Lease.
PSI Settlement Corp.
By: /s/ Peter Barotz
-------------------------
President
AGREED:
Gateway Granby, LLC
By: /s/ Paul Mesches
-------------------------
Manager
<PAGE> 20
PREPAYMENT MEMORANDUM
---------------------
It is agreed between the undersigned that Gateway Granby, LLC will prepay
the $900,000 Note annexed hereto notwithstanding that an institutional first
mortgage lender has not committed to make the first mortgage specified in said
Note.
FRM Nexus, Inc. (formerly PSI Settlement Corp.) confirms that it will hold
the First Mortgage Note until an institutional lender makes the first mortgage
specified in the First Mortgage Note and it agrees to use a portion of the
proceeds of the $900,000 Note to satisfy the construction loan mortgage on the
real estate. FRM Nexus, Inc. shall obtain, and record, a satisfaction of said
construction loan mortgage at its expense and furnish proof thereof to Gateway
Granby within thirty (30) days after collecting the $900,000 being prepaid.
FRM Nexus, Inc. confirms that, under the First Mortgage Note it shall pay
all costs and expenses in connection with the institutional first mortgage,
including any environmental audit necessary to obtain said mortgage and any cost
of compliance arising out of said audit which may be required by the
institution.
At such time as FRM Nexus, Inc. obtains an institutional first mortgage,
it shall confirm the Offset Agreement with respect to the Purchase Money Note,
by a recordable document in form satisfactory to each of the parties which shall
confirm that if the Tenant fails to construct the Leasehold Improvements for the
first floor of the office building, the same may be completed by Gateway Granby,
LLC and deducted from the first mortgage (or the proceeds held in escrow for
this purpose) and/or the Purchase Money note as provided in the Lease for the
first floor.
May 1, 1996
FRM NEXUS, INC.
By: /s/ Peter Barotz
-------------------------
Peter Barotz, President
GATEWAY GRANBY, LLC
By: /s/ Paul Mesches
-------------------------
Paul Mesches, Manager
<PAGE> 21
ESTOPPEL CERTIFICATE
--------------------
Pursuant to paragraphs 8 and 32 of the Lease dated February 28, 1996
between FRM Nexus, Inc. (formerly PSI Settlement Corp.) and Gateway Granby, LLC,
the undersigned does hereby certify:
1. The Leasehold Improvements required under the International
Paper Company ("IP") Lease have been completed, IP has taken
possession, paid the April 1996 rent, and said Lease is in
full force and effect and neither the Landlord nor the Tenant
thereunder is in default, except that the landscaping and
parking lot improvements are yet to be completed by the
undersigned.
2. The Leasehold Improvements to the IP Lease comply with the
Americans with Disabilities Act (ADA) 1991 as required by
paragraph 8 of the IP Lease. The undersigned will request a
letter from the architect confirming said compliance and the
undersigned will do all the renovations complying with said
Act when the first floor is completed and obtain letter(s)
from the architects involved in said Leasehold Improvements.
The Lease for said first floor is also in full force and
effect.
May 1, 1996 FRM NEXUS, INC.
By: /s/ Peter Barotz
--------------------------
Peter Barotz, President
<PAGE> 1
EXHIBIT 10.03
MANAGEMENT AGREEMENT
BETWEEN
CELLO MANAGEMENT CORP.
AND
WENDCELLO CORP.
MANAGEMENT AGREEMENT made this 2nd day of July 1990, by and between
CELLO MANAGEMENT CORP., a New York corporation having an office at 11 North Main
Street, Cortland, New York (hereafter, "Management Corp.") and WENDCELLO
CORP., a New York corporation having an office c/o Programming and Systems,
Inc., 269 West 40th Street, New York, N.Y. 10018 (hereafter, "Wendcello").
RECITALS
WHEREAS, Wendcello purchased and presently owns the six (6) Wendy's
Old Fashioned Hamburgers Restaurants in the geographic area in proximity to
Monticello, New York as set forth on Exhibit A attached hereto and made a part
hereof (the "Restaurants"); and
WHEREAS, the Restaurants are to be managed and operated in
accordance with the terms of those certain franchise agreements dated of even
date herewith in which Wendcello is the Franchisee and Wendy's International,
Inc. is the Franchisor, (the "Franchise Agreements"); and
<PAGE> 2
WHEREAS, Wendcello desires to enter into this Agreement so that
Management Corp. will provide the management and supervision of the Restaurants'
day-to-day operations of the business upon the terms and subject to the
conditions hereinafter set forth; for the purposes of this Agreement, the term
"Business" shall mean all operations now or hereafter conducted by or on behalf
of Wendcello with respect to the Restaurants and all related activities; and
WHEREAS, throughout the term of this Agreement, Wendcello desires to
continue to be the Franchisee of the Restaurants pursuant to the Franchise
Agreements, and to own or lease the assets associated with the Restaurants and
leasehold estates for the Restaurants;
NOW, THEREFORE, in consideration of the mutual agreements and
obligations set forth herein, the parties hereto agree as follows:
ARTICLE I
ENGAGEMENT
1.1 Commencing on the date of this Agreement and subject to the
terms and conditions set forth herein, Wendcello hereby engages Management Corp.
to direct, conduct, manage and supervise the day-to-day operation of the Busi-
2
<PAGE> 3
ness as set forth in this Agreement, and Management Corp. hereby accepts such
engagement.
1.2 Management Corp. hereby agrees to manage and supervise the
day-to-day operation of the Business so that the Restaurants are operated and
maintained in a manner which complies with (i) the policies, standards and
procedures set by the Franchisor from time to time in the operation of all
Wendy's Old Fashioned Hamburgers Restaurants, (ii) the standards and
requirements for the reputation and operation of the Restaurants as prescribed
by the Franchise Agreements and (iii) all of the other terms of the Franchise
Agreements.
1.3 The term of this Agreement shall commence on the date of this
Agreement (the "Effective Date") and, subject to the provisions of Article 5.3,
below, shall continue so long as Wendcello remains in the Business.
ARTICLE II
SERVICES TO BE PROVIDED BY MANAGEMENT CORP.
2.1 Management Corp. shall provide, or cause to be provided, all
necessary management, operational and consulting services with respect to the
operation of the Restaurants. The Restaurants will be operated in Wendcello's
name, the employees shall be employees of Wendcello, pur-
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chases shall be made in Wendcello's name and all the activities shall be carried
on by the Management Corp. in Wendcello's name.
2.2 Management Corp. shall maintain, or provide for the maintenance
of, all records pertaining to the day-to-day operation of the Business
(including all reports to Wendcello and the Franchisor and all payroll and tax
returns of every kind except income tax returns which shall be prepared and
filed by Wendcello's parent corporation) at its principal office at 11 N. Main
Street, Cortland, New York, all of which shall be available for inspection,
examination, and copying at all times by one or more duly authorized
representatives or agents of Wendcello.
2.3 Management Corp. shall not conduct any business other than the
Business.
ARTICLE III
CORPORATE COMPENSATION
3.1 A corporate officer, or director or third party may be employed
in various corporate capacities by Wendcello or Management Corp. at salaries or
such other compensation as shall be determined annually by resolution of the
Board of Directors of Wendcello based upon agreement or business practice. The
compensation of Management
4
<PAGE> 5
Corp.'s President, Harry Strang, shall be determined by Management Corp.
3.2 In connection with any such employment by Wendcello or
Management Corp., such person shall, within a reasonable time after the
commencement of the Business, devote such time as may be reasonably necessary to
promote and profitably operate the Business.
3.3 In furtherance of the foregoing, the President of Wendcello and
Management Corp., Harry Strang, shall devote his full time and effort to the
Business and shall be compensated in a manner directly related to the
corporation's financial results and in a manner acceptable under normal business
standards, however, such compensation shall not be less than Seventy-Two
Thousand ($72,000) Dollars per annum, which shall be paid entirely by Wendcello
as an expense under Article IV hereof.
ARTICLE IV
ALLOCATION OF EXPENSES
4.1 All expenses relating to the operation, use, repair, management,
ordinary and extraordinary costs associated with the operations of the
Restaurants, as contemplated herein, shall be borne entirely by Wendcello.
5
<PAGE> 6
4.2 All expenses in connection with the personnel of each
Restaurant, including salaries and other labor costs of all persons working in
each Restaurant, shall be expenses of Wendcello.
4.3 All ordinary and extraordinary expenses which are directly or
indirectly related to the Restaurants or their operation, maintenance, repair,
expansion or upkeep, shall be expenses of Wendcello, including, without
limitation, the costs and expenses which Management Corp. is expressly
authorized by this Agreement to incur on behalf of Wendcello.
4.4 All costs, expenses and future obligations incurred and arising
in connection with, among others, the acquisition of the leases, equipment,
furnishings and franchise rights of the Restaurants shall be exclusively those
of Wendcello. In addition, should Wendcello and Management Corp. jointly agree
to exercise the Option to Purchase or the Right of First Refusal pertaining to
the Restaurant sites, the parties shall agree before such exercise as to the
manner in which the purchase costs, expenses and other disbursements involved in
such purchases shall be arranged and the relative costs, risks and benefits of
the parties participating in the exercise of such purchases. If Wendcello does
not have sufficient funds for the exercise, and if institutional or private
financing is insufficient to
6
<PAGE> 7
cover such cost, the necessary additional funds shall be contributed by
Wendcello's parent corporation, PSI Food Services Corp. (hereafter "PSIFSC") and
Management Corp. to Wendcello in the ratio of 70 - 30, respectively.
4.5 Further, Wendcello shall:
(a) retain the services of Lewis E. Topper and Jeffrey J.
Coghlan in connection with certain consulting services to be rendered to
it in accordance with the Consultation Agreement of even date herewith;
and
(b) pay to Programming and Systems, Inc. ("PSI"), on a
quarterly basis, an annual fee (the "Guarantee Fee") equal to one and
one-half (1.5%) percent per annum of the corporate guarantee in the amount
of $500,000 furnished by PSI to S & R Restaurants, Inc. as set forth in
the Purchase and Sale Agreement between S & R Restaurants, Inc., as Seller
and Wendcello Corp., as Buyer, relating to the purchase of the assets and
leasehold estates for the Restaurants and which Agreement required the
corporate guarantee of PSI. The annual Guarantee Fee shall be paid on a
quarterly basis (25% of 1-1/2% of the lesser of $500,000 or the
outstanding principal balance during such quarter of the loan guaranteed)
beginning the date
7
<PAGE> 8
hereof and continuing for so long as the Guarantee is outstanding.
4.6 In February of each year, the parties hereto shall comply with
the reasonable directions of Alvin Lipoff or such other person designated by
Wendcello's shareholder(s) as to the timing of the payment of all expenses of
Wendcello, which in the reasonable judgment of such person may be prepaid or
deferred, including without limitation the prepayment of expenses which might
otherwise be paid after February 28th and/or the reasonable deferral of expenses
until after February 28th which might otherwise be paid in the month of
February.
ARTICLE V
JOINT BUSINESS DECISION
5.1 Wendcello (by resolution of its Board of Directors) and
Management Corp. shall jointly determine and be required to agree upon all
decisions which are not in the ordinary course of the Business including, but
not limited to, the following:
(a) any proposed sale, assignment or sublease of any
Restaurant lease or site, or the proposed sale of all or substantially all
of the assets of any Restaurant; or
8
<PAGE> 9
(b) any proposed purchase of any fee interest or leasehold
estate in real property whether related or unrelated to the present
Restaurants; or
(c) any proposed purchase of fixed assets or the making of any
capitalized improvement to any real property owned or leased by Wendcello;
or
(d) any proposed participation by Wendcello in the purchase of
any interest in real property, whether in joint venture, partnership or
other interparty association, including the exercise of the Purchase
Option or Right of First Refusal with respect to or contained in any lease
for any Restaurant site in connection with the purchase of a fee interest
in any property upon which any of the Restaurants are located; or
(e) any proposed borrowing by Wendcello, including any
financing for non-working capital purposes or for the purchase of any fee
interest in any property upon which any of the Restaurants are located.
5.2 Prior to the time that Wendcello's sole shareholder, PSIFSC,
incurs any expenses or liability on behalf of Wendcello, other than its initial
capitalization
9
<PAGE> 10
of $790,000, Management Corp. must approve of such expenditure, obligation or
liability; the parties hereto expressly recognize Management Corp.'s right in
this regard to the extent that any such expenditure, obligation and/or liability
might reduce the Management Fees described in Article VI hereof.
5.3 The parties recognize that PSIFSC and Management Corp. shall be
obligated to fund Wendcello's pre-tax operating expenses on a monthly basis in
the following ratio: 70 by PSIFSC and 30 by Management Corp.; the failure by
either party to supply the monies required by Wendcello shall be deemed a breach
of this Agreement. Upon the breach of the terms hereof by Management Corp.,
PSIFSC, on behalf of Wendcello, shall have the right to terminate this Agreement
upon thirty (30) days prior written notice and upon indemnifying Management
Corp., its officers, directors, principals and shareholders against any of their
financial obligations hereunder. Upon the breach of the terms hereof by PSIFSC,
Management Corp. shall have the right to buy-out PSIFSC's interest in Wendcello
for a sum equal to its initial capitalization of Wendcello plus any additional
sums contributed or guaranteed by it or PSI pursuant to the terms of this
Agreement.
10
<PAGE> 11
ARTICLE VI
MANAGEMENT FEES AND DISTRIBUTIONS TO PSIFSC
6.1 Wendcello agrees to pay to Management Corp. the following fees
in connection with the services rendered pursuant to the provisions of this
Agreement:
(a) an annual Basic Management Fee (the "Basic Management
Fee") equal to thirty (30%) percent of the pre-tax cash flow generated
from the operations of the Restaurants, said fee shall be estimated and
paid quarterly 30 days after the close of each quarter beginning September
30, 1990 for the quarter ended August 31, 1990, and shall be adjusted for
the fiscal year as set forth in ss.7.2 hereof; and
(b) an Incentive Management Fee (the "Incentive Management
Fee") equal to thirty (30%) percent of any pre-tax net proceeds resulting
from the sale or refinance of those assets presently owned by Wendcello
relating to the Restaurants or other non-Restaurant related assets which
may be acquired during the term of this Agreement, such fee to be payable
thirty (30) days after any such event occurs; and
(c) at such time as Wendcello pays the Basic Management Fee
and the Incentive Management Fee,
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<PAGE> 12
Wendcello shall pay to its sole shareholder, PSIFSC, as a compensatory fee
and/or dividend distribution an amount equal to 233.33% of the amount
payable to Management Corp. and if, for any reason, both payments cannot
be made in full, then each payment shall be reduced pro rata to permit
both payments to be made in proportion to the 70 - 30 ratio herein set
forth. Any such fees earned but not paid may be deferred to a later date
at the discretion of Management Corp.
6.2 In the event that the quarterly payments of the Basic Management
Fee, which are estimated for each of Wendcello's fiscal quarters, are greater or
less than the annual fee computed for the entire fiscal year, as set forth in
ss.6.1(a), above, the parties shall adjust the estimated payments to the actual
annual fee based upon the audit report prepared pursuant to ss.9.1 within thirty
(30) days after the rendition of said report.
6.3 Notwithstanding the foregoing, upon the sale or refinance of
those assets presently or hereafter acquired by Wendcello and relating to the
Business, PSIFSC shall be entitled to receive the first proceeds of such sale or
refinance in the sum of Seven Hundred Fifty-One Thousand Five Hundred
($751,500.00) Dollars prior to the payment of any Incentive Management Fee to
Management Corp. Thereafter, payment of the Incentive Management Fee to
Management
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<PAGE> 13
Corp. and payments to PSIFSC resulting therefrom shall continue in proportion to
the 70 - 30 ratio set forth above.
ARTICLE VII
MANAGEMENT
7.1 Subject to the right of PSIFSC and Wendcello's Board of
Directors to make changes as provided, from time to time, in its By-Laws,
Wendcello shall have the following officers and directors:
Harry Strang, President and Director
Alvin Lipoff, Executive Vice President,
Treasurer, Asst. Secretary and Director
Leonard Weiss, Vice President, Asst. Secretary and
Director
Jeffrey J. Coghlan, Asst. Secretary and Director
Kelly Grimes, Director
ARTICLE VIII
NO JOINT VENTURE
8.1 Nothing contained in this Agreement shall constitute, or shall
be deemed to constitute, a partnership, agency, joint venture or other similar
relationship as between Wendcello and Management Corp., and Management Corp.
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<PAGE> 14
shall be deemed to be an independent contractor for purposes of this Agreement.
ARTICLE IX
FISCAL YEAR AND FINANCIAL RECORDS
9.1 Promptly after the end of each fiscal year, Wendcello shall
cause the books and records of the Restaurants to be audited by an independent
certified public accountant ("CPA") selected by its Board of Directors. Said CPA
shall prepare and render his audit opinion with respect to the year-end balance
sheet, profit and loss statement, statement of cash flows, and such related
statements as Wendcello deems necessary. In addition, Management Corp. shall
provide for Wendcello, no later than 30 days after the close of each quarter,
quarterly unaudited financial statements for the three quarter annual periods
ending May 31, August 30 and November 30, which will be used by PSI for its
quarterly filings with the Securities and Exchange Commission.
9.2 Wendcello's fiscal year shall end on February 28.
ARTICLE X
PRE-TAX CASH FLOW; NET PROCEEDS
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<PAGE> 15
10.1 The term "Pre-tax cash flow generated from the operations of
the Restaurants" as used herein shall mean the difference between all of the
cash receipts of Wendcello (except receipts included in ss. 10.2 hereof) after
deducting all of the cash expenditures of Wendcello whether or not expressly
provided for herein (except for expenses included in ss. 10.2 hereof or income
taxes paid by Wendcello). Franchise taxes or minimum taxes which are payable
irrespective of the income of Wendcello shall not be included in the term
"income taxes". Management fees of Management Corp. and compensation or
distributions to PSIFSC under ss. 6.1 shall not be deducted as cash expenditures
in determining pre-tax cash flow.
10.2 The term "Pre-tax net proceeds resulting from the sale or
refinancing of . . . assets" as used herein shall mean the difference between
all cash receipts of Wendcello from such sale or refinancing less any such
proceeds which are used to purchase similar or replacement assets or used to pay
off obligations so refinanced as well as any expenses or costs incurred in
connection with such sale or refinancing (except income taxes as defined in
ss. 10.1 and the Management Fees or payments to PSI described in ss. 6.1).
10.3 In the event of any dispute over the computation of the amounts
defined in this Article X the parties
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<PAGE> 16
shall use their best efforts to resolve the dispute in accordance with the terms
and intent of this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 Bankruptcy. Wendcello and Management Corp. acknowledge and
agree that in the event of a material adverse change in the value of the
Restaurants, including, but not limited to, the filing by Wendcello or
Management Corp., or either of them, of a petition under Chapters 7 or 11 of the
U.S. Bankruptcy Code, the corporation so filing, upon such filing, shall be
excused from further performance under this Agreement, unless Wendcello and
Management Corp. specifically agree in writing to a continued operation as set
forth in such new agreement, and such continued operation of the Restaurants and
Business is in accordance with the Franchise Agreements and all applicable
local, state and federal laws.
11.2 Modification, Waivers, Agreement. The parties may, by mutual
written agreement, make any modification or amendment of this Agreement. Failure
to exercise any power given any party hereunder or to insist upon strict
compliance by any other party shall not constitute a waiver of any party's right
to demand exact compliance with the terms hereof.
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<PAGE> 17
11.3 Assignment. Neither party shall have the authority to assign
its rights or obligations under this Agreement without the prior written consent
of the other party.
11.4 Burden and Benefit.
(a) This Agreement shall be binding upon and, to the extent
permitted in this Agreement, shall inure to the benefit of, the parties
hereto and their respective successors and assigns.
(b) It is the intent of the parties hereto that no third-party
beneficiary rights be created or deemed to exist in favor of any person
not a party to this Agreement, unless otherwise expressly set forth
herein.
(c) Each of the parties hereby acknowledges that this
Agreement does not intend to bind any shareholder, director, officer,
employee, agent or Affiliate of the other party unless expressly provided,
and each party expressly waives any claim it may have against any of the
foregoing persons based upon any claim arising pursuant to this Agreement
and the transactions contemplated hereby.
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11.5 Expenses. Management Corp. agrees to pay $16,700. of the
expenses incurred by Wendcello in connection with the purchase of the assets
made contemporaneously herewith.
11.6 Entire Agreement. This Agreement and any other documents
referred to herein contain the entire agreement among the parties hereto with
respect to the transactions contemplated hereby and supersede all prior
agreements with respect thereto, whether written or oral.
11.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
(regardless of the laws of any other jurisdiction the State of New York may
otherwise apply upon application of its conflicts of laws principles).
11.8 Notices. Any notice, request, instruction or other document to
be given hereunder by a party shall be in writing and delivered personally, by
telecopier, or sent by overnight courier, next day delivery, receipt confirmed
(e.g., Federal Express), or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed to the parties at the addresses
herein set forth and as follows:
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If to Wendcello, with a copy to (the receipt of which shall not
constitute notice):
Tanner Propp Fersko & Sterner
99 Park Avenue, 25th Floor
New York, New York 10016
Attn: Lester J. Tanner, Esq.
If to Management Corp. with a copy to (the receipt of which shall
not constitute notice):
Litman & Lehrhaupt
220 Fifth Avenue
Suite 1500
New York, New York 10001
Attn: Wayne R. Lehrhaupt, Esq.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
11.10 Severability of Provisions. Whenever possible, each provision
of this Agreement will be interpreted in such a manner as to be effective and
valid under applicable law. The parties agree that (i) the provisions of this
Agreement shall be severable in the event that any of the provisions hereof are
held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, (ii) such invalid, void or otherwise unenforceable provisions
shall be automatically replaced by other provisions which are as similar as
possible in terms to such invalid,
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<PAGE> 20
void or otherwise unenforceable provisions but are valid and enforceable and
(iii) the remaining provisions shall remain enforceable to the fullest extent
permitted by law.
11.11 Headings. The headings of the Articles and Sections of this
Agreement are inserted for convenience of reference only and shall not be deemed
to constitute a part hereof.
11.12 Rights Cumulative. All rights, powers and privileges conferred
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law.
11.13 Jurisdiction; Venue; Process; Trial By Jury. The parties to
this Agreement agree that jurisdiction and venue in any action brought by any
party hereto pursuant to this Agreement to enforce this Agreements' terms or
otherwise, shall exclusively lie in any federal or state court located in New
York City, New York. By execution and delivery of this Agreement, the parties
hereto irrevocably submit to the jurisdiction of such courts for itself and in
respect of its property with respect to such action. The parties hereto
irrevocably agree that venue would be proper in such court, and hereby waive any
objection that such court is an improper or inconvenient forum for the
resolution of such action. The parties further agree that the
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mailing by certified or registered mail, return receipt requested, of any
process required by any such court shall constitute valid and lawful service of
process against them, without necessity for service by any other means provided
by statute or rule of court. THE PARTIES HERETO EACH WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
WENDCELLO CORP.
By /s/
-----------------------------
Alvin Lipoff,
Executive Vice President
CELLO MANAGEMENT CORP.
By /s/
-----------------------------
Harry Strang, President
21
<PAGE> 1
EXHIBIT 19.01
[Letterhead of Programming and Systems, Inc.]
January 5, 1996
To: The Shareholders of Programming and Systems, Inc. ("PSI")
Dear PSI Shareholder:
PSI is pleased to provide you with this report and to invite you to attend
a Director's meeting on February 22, 1996 as noted below.
FINANCIAL STATEMENT
Enclosed are the audited financial statements for PSI Settlement Corp.
("PSC") for the fiscal years ended February 28, 1994 and 1995.
With regard to Programming and Systems, Inc. ("PSI"), management has been
unable to prepare audited financial statements for the years preceding 1995
because all of the records of the discontinued vocational school subsidiaries
are either unavailable or obtainable at prohibitive cost.
In accordance with the orders of Federal Judge Robert Sweet PSI Settlement
Corp. ("PSC") was formed on November 17, 1993 to hold the assets resulting from
the disposition of the class action lawsuit filed by the shareholders of PSI in
the United States District Court for the Southern District of New York. In
compliance with Judge Sweet's orders, the PSC shares are being held in escrow
for the benefit of PSI shareholders. Management expects to have the Escrow
Agents distribute these shares and to list them on NASDAQ.
PROGRAMMING AND SYSTEMS, INC. ("PSI")
In December 1993 the management of PSI resigned and the Board of Directors
was realigned. Two new Board members were elected and the new Board appointed a
new slate of corporate officers.
The current management of PSI took office at the beginning of 1994, at
which time the Company was faced with many problems, which included the
following:
o a class action lawsuit against PSI by its shareholders;
o an action by the Securities and Exchange Commission ("SEC");
o claims by the U. S. Department of Education ("DOE") and the United
States Attorney's Office;
o a subpoena from the Department of Education Inspector General for
the Company's corporate records;
o and numerous major and minor civil suits by creditors, former
students and landlords of properties leased by PSI's former
subsidiaries, which leases were guaranteed by PSI.
<PAGE> 2
We are pleased to inform you that PSI has made significant progress in
dealing with the above and other ongoing problems. The current status is as
follows:
o the class action lawsuit against PSI by its shareholders has been
settled;
o the action by the SEC has been settled;
o the subpoena from the Department of Education Inspector General has
been complied with; the investigation launched by the United States
Attorney in Michigan has been concluded without charges being filed
against PSI;
o all of the landlord claims against PSI on its lease guarantees have
been settled;
o many of the lawsuits and claims by PSI's creditors have been
resolved favorably;
o PSI's lease for 50,000 square feet in Manhattan has been terminated
and the Company has relocated to smaller and less costly corporate
offices in New Rochelle, New York; and
o overhead has been cut dramatically by reducing the number of
corporate personnel to four and the monies expended on professional
fees.
The Internal Revenue Service is concluding its audit of PSI's tax return
for the fiscal year ended February 28, 1993. Because of timing differences in
the year in which bad debt and uncollected student receivables may be deducted,
the IRS may levy a tax assessment with an offsetting increase in PSI's net
operating loss carry-forward. In addition, it remains unclear whether the
Department of Education will file claims against PSI arising out of its
discontinued vocational school operations.
Management is of the opinion that if both the income tax and Department of
Education claims are filed against PSI, that PSI can prevail or resolve them in
a manner favorable to the Company but with significant expenses for professional
fees and executive personnel time. If PSI is successful in the disposition of
these claims, it will realize the value of one of PSI's principal assets, a
large net operating loss carry-forward.
PSI has also submitted substantial claims to and commenced litigation
against its insurance carrier for property damage and business interruption
losses resulting from damages incurred in a fire on April 29, 1993 at PSI's
former premises located in New York City.
PSI SETTLEMENT CORP. ("PSC")
At the time the class action by the shareholders of PSI was settled, it
was stated that the shares of PSC given to the Escrow Agents might produce for
all shareholders of PSC an additional $1.50 per share upon liquidation. Pursuant
to the orders of Judge Sweet, as amended, the continued operation of PSC is
permitted, in lieu of liquidation, if its shares can be listed on NASDAQ by June
12 1997. Management is of the opinion that the value of PSC can best be realized
by distributing these shares from escrow in 1996 for that purpose. The value of
PSC as an operating company is greater than the value of the assets if they were
forced to be sold in liquidation.
PSC operates three divisions: Food Services, Real Estate, and Medical
Financial. Management is planning to change the corporate name so that it better
describes its operations. A name currently under consideration is FRM Nexus,
Inc. The Company will he considering other names. including any which you
submit, before the scheduled Director's meeting on February 22, 1996.
The Food Service Division consists of fourteen Wendy's Restaurants which
are operated by two management corporations under franchise agreements with
Wendy's parent corporation. The management agreements provide for sharing of the
operating profits. Historically, the Food Service Division has been profitable,
although just as the economy has fluctuated, so too have the profits of the
restaurants. Management expects the Food Service Division to continue to be
profitable.
2
<PAGE> 3
Presently, the Real Estate Division consists of a variety of parcels of
real estate which are owned in fee and are in various stages of development. For
several years the value of the real estate has been depressed, reflecting the
overall condition of the real estate market in New York and Connecticut. The
February 28, 1995 financial statement enclosed herein carries these properties
at the lower of cost or the then current appraised value. As of the writing of
this letter, the general real estate market is recovering and management is
optimistic about the prospect for gain on the sale or development of the
properties. A brief description of each parcel follows:
East Granby, CT - This is a partially built two story office
building located in East Granby, Connecticut. PSC carries the
property at a value of $900,000. Recently, a long term lease for the
second floor was signed with a triple A rated tenant. The prospect
for leasing the first floor appears bright. Management expects to
complete the construction and obtain sufficient financing to recover
significantly more than the $900,000 carrying value and to derive a
continuing income from the building when it is fully leased.
Brookfield, CT - This holding consists of two parcels of undeveloped
land in Brookfield, Connecticut. Their highest and best use is
commercial. One parcel is on Federal Road, just across the road from
the very popular Stu Leonards supermarket. PSC is seeking approval
to develop a 24,000 square foot building on this site and if the
permits are granted, the prospect of leasing or selling the parcel
appears quite good. The other parcel is best suited for office or
restaurant development and PSC plans to seek approval for one of
these uses in 1996. Both parcels are carried on the books for a
combined value of $430,000, which is their cost, and which is
believed to be less than their fair market value.
Goshen, NY - This property consists of 122 acres of land in Goshen,
New York. A subdivision plan had been approved for this parcel but
after a PSC subsidiary took title the Village of Goshen rezoned the
property. The PSC subsidiary filed a lawsuit challenging the
rezoning in order to insure the viability of the previously approved
subdivision. Meanwhile, management is actively negotiating to settle
the lawsuit, which would then permit the PSC subsidiary to sell the
property or undertake to develop 165 single family homes. It is
carried on the books at $380,000, which represents its appraised
value as undeveloped land.
Pound Ridge, NY - This parcel consists of a 4 acre approved
residential lot in Pound Ridge, New York. It is carried at $225,000
on the February 28, 1995 Balance Sheet.
Middletown, Connecticut - The several parcels consisting of a small
factory building and several one and two family houses are either
under contract to be sold or expected to be sold by the beginning of
PSC's new fiscal year in March 1996.
Hunter, New York - PSC owns a participation interest in various
properties, which consist of a clubhouse, 8 condominium units, an
office building, a hotel site and acreage in an area called Hunter
Highlands which is adjacent to the Hunter ski resort. Management
believes that these properties have potential, although this
depends, in part, on whether a proposed amendment to the New York
state constitution, which would allow gaming in Greene County, is
authorized and approved by the voters in a referendum which could be
held as soon as 1997. A recovery in the market for second homes will
also positively affect the value of these properties.
3
<PAGE> 4
The Medical Financial division operates Medical Financial Corp., a
start-up company, for which financial information will be reported in the PSC's
next financial statement. This division purchases insurance company receivables
from medical groups. Recent results are encouraging and management is optimistic
that this division will make a significant contribution to PSC's future
profitablility.
NASDAQ Listing
On February 22, 1996 at 10:00 A.M. management will hold an open meeting of
the Board of Directors of PSI and PSC at the Hotel Ramada, 1 Ramada Place, New
Rochelle, New York to which all shareholders of Programming and Systems, Inc.
are invited. At this meeting, management will report further on the status of
the plans to carry out Judge Sweet's Orders.
At this meeting management also expects to conduct the following business:
(i) change the name of PSC; (ii) authorize counsel to obtain indications of
approval for the listing of PSC's shares on NASDAQ; (iii) direct PSC's auditors
to expedite the audit of the PSC financial statement for the year ending
February 28, 1996; (iv) set the agenda and timetable for the distribution to you
of one share of PSC for each share of PSI which you currently own. (You will
continue to hold your PSI shares.) After the distribution and when the current
audited financial statement for PSC is completed, a meeting of all shareholders
will be held to elect a PSC Board of Directors.
Sincerely,
PROGRAMMING AND SYSTEMS, INC.
/s/ Peter Barotz
Peter Barotz
President
Directors:
Peter Barotz
Seth Grossman
Jed E. Schutz
Lester Tanner
Bridget F. Dewsnap
Vice President Finance
4
<PAGE> 5
[Letterhead of MICHAEL, ADEST & BLUMENKRANTZ, CERTIFIED PUBLIC ACCOUNTANTS P.C.]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of PSI Settlement Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of PSI Settlement
Corp. and subsidiaries as of February 28, l995, and the related consolidated
statements of income, shareholders' equity end cash flows for the period then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
financial statements of Wendclark Corporation and Wendcello Corporation, wholly
owned subsidiaries, which statements reflect total assets of $3,104,880 as of
February 28, 1995. Those statements were audited by another auditor whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Wendclark Corporation and Wendcello Corporation, is based solely on
the report of the other auditor.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditor, the
financial statements referred to in the first paragraph present fairly, in all
material respects, the financial position of PSI Settlement Corp. and
subsidiaries as of February 28, 1995, and the results of their operations and
their cash flows for the period then ended, in conformity with generally
accepted accounting principles.
/s/ MICHAEL, ADEST & BLUMENKRANTZ
MICHAEL, ADEST & BLUMENKRANTZ
Certified Public Accountants, P.C.
New York, New York
November 2, 1995
(Except for note 7E & 7F, as to which
the date is December 5, 1995)
<PAGE> 6
PSI SETTLEMENT CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1995
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 791,799
Accounts Receivable-factoring 174,512
Inventories at cost 76,438
Other current assets 184,797
----------
TOTAL CURRENT ASSETS 1,227,546
----------
FIXED ASSETS
Furniture, fixtures
and equipment 2,474,389
Less: Accumulated depreciation 1,056,246
----------
NET BOOK VALUE 1,418,143
----------
OTHER ASSETS
Land & buildings
--Foreclosed properties $ 2,235,000
Less: Due to participants (458,000)
-----------
Net Value of foreclosed properties
and mortgages receivable 1,777,000
Capitalized foreclosure costs 52,975
Loans receivable - officer 70,340
Unamortized leasehold costs 634,590
Technical assistance fees 240,171
Other 7,731
----------
TOTAL OTHER ASSETS 2,782,807
----------
TOTAL ASSETS $5,428,496
==========
See Notes to Consolidated Financial Statements
<PAGE> 7
PSI SETTLEMENT CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1995
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and
Accrued expenses $ 745,467
Notes payable - current maturities 25,121
Due to customers 56,362
Taxes payable - income 4,283
Other current liabilities 77,243
-----------
Total current liabilities 908,476
-----------
Other liabilities
Notes payable - less current
Maturities 144,133
Due to Parent 71,678
-----------
Total other liabilities 215,811
-----------
Total liabilities 1,124,287
-----------
Stockholder's equity
Common stock -$1 par value
Authorized 75,000 shares
Issued 10,000 10,000
Capital in excess of par value 4,459,797
Retained earning (165,588)
-----------
Total stockholder's equity 4,304,209
-----------
Total liabilities and
Stockholder's equity $ 5,428,496
===========
See Notes to Consolidated Financial Statements
<PAGE> 8
PSI SETTLEMENT CORP.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED FEBRUARY 28, 1995
REVENUE
Restaurant food sales $ 14,523,900
------------
Total income 14,523,900
------------
COST AND EXPENSES
Cost of Sales - direct costs 4,854,252
Selling, general & administrative-
Restaurants 8,705,224
Other 136,164
Interest expense 16,384
Depreciation and amortization 364,352
------------
Total costs and expenses 14,076,376
------------
Income from operations
before income taxes and other items 447,524
Interest and dividends 39,697
------------
Income before income taxes 487,221
------------
TAXES ON INCOME
Current expense (benefit) 76,821
Deferred expense (benefit) (6,817)
------------
Total tax expense 70,004
------------
Net income $ 417,217
------------
See Notes to Consolidated Financial Statements
<PAGE> 9
PSI SETTLEMENT CORP.
AND SUBSIDIARIES
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED FEBRUARY 28, 1995
Total
Additional Retained Stock-
Common Paid-In Earnings holder's
Stock Capital (Deficit) Equity
----- ------- --------- ------
Balances,
February 28, 1994 $10,000 $4,459,797 $(582,805) $3,886,992
Net income for the
year ended
February 28, 1995 -- -- 417,217 417,217
------- ---------- --------- ----------
Balances
February 28, 1995 $10,000 $4,459,797 $(165,588) $4,304,209
======= ========== ========= ==========
See Notes to Consolidated Financial Statements
<PAGE> 10
PSI SETTLEMENT CORP.
AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 28. 1995
Cash flows from operating activities:
Net income $ 417,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 364,352
Deferred income tax expense (benefit) (6,817)
(Increase) decrease in accounts receivable (174,512)
(Increase) decrease in inventory 97
(Increase) decrease in net value of foreclosed
properties and mortgages receivable 164,189
(Increase) decrease in capitalized foreclosure costs (3,462)
(Increase) decrease in prepaid expenses
miscellaneous receivables, and other assets 8,145
Increase (decrease) in accounts payable,
accrued expenses and taxes (136,601)
Increase (decrease) in due to Parent 56,362
Increase (decrease) in due to customers 71,678
Increase (decrease) in other liabilities (9,239)
---------
Net cash provided by operating activities 751,409
---------
Cash flows from investing activities:
Acquisition of fixed assets (300,092)
Loans to officer (14,617)
---------
Net cash (used) by investing activities (314,709)
---------
Cash flows from financing activities:
Principal payments on notes payable (298,473)
---------
Net cash provided by financing activities (298,473)
---------
Net increase (decrease) in cash 138,227
Cash, beginning of year 653,572
---------
Cash, end of year $ 791,799
=========
Additional cash flow information:
Interest expense paid $ 16,384
=========
Income taxes paid $ 68,783
=========
Non-cash financing activities:
Assets acquired under capital lease $ 124,254
=========
Purchase money note given on land acquisition $ 45,000
=========
See Notes to Consolidated Financial Statements
<PAGE> 11
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of PSI
Settlement Corp. (the "Company" or "PSC") and all of its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
B. BUSINESS ACTIVITIES OF THE COMPANY:
PSC was established in November 1993, to settle a class action (see Note
7E) against Programming and Systems, Inc. (PSI), in order to liquidate
certain assets in favor of the shareholder class in settlement of the
class action. The assets transferred to PSC included PSI Capital Corp. and
PSI Food Services, Inc. which in turn own all of the stock of Wendcello
Corp., and Wendclark Corp. In 1995, an additional subsidiary, Medical
Financial Corp. was formed. However, pursuant to Court Order PSC is no
longer under the obligation to liquidate. PSC intends to register its
common stock on the NASDAQ and operate as an ongoing entity.
1) The food services companies consist of Wendclark Corp. and Wendcello
Corp.
Wendclark Corp. was incorporated in West Virginia on March 22, 1990.
Wendcello Corp. was incorporated in New York on June 25, 1990. The
food service companies were formed to acquire, own and operate
eleven existing Wendy's Old Fashioned Hamburger Restaurants in West
Virginia and the Hudson Valley, New York area. Six of the
restaurants were acquired from a franchisee of Wendy's International
and five were acquired from a subsidiary of Wendy's International.
In addition, the companies constructed 3 new restaurants which
opened between December 1990 and November 1992. In February 1995, a
previously closed fast food restaurant was leased and is being
renovated.
The Companies' day-to-day operations are managed by Management
Corporations, which are affiliated with the Companies by reason of
common management (See Note 6a).
2) The mortgage lending business consists of PSI Capital Corp. PSI
Capital Corp. was incorporated in April, 1989 for the purpose of
extending first and subordinate real estate mortgages.
3) Medical Financial Corp was incorporated in New York on January 12,
1995. The Company factors the insurance claims receivable of medical
practices.
C. REVENUE RECOGNITION:
The accrual method of accounting is used to record all income.
<PAGE> 12
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
D. INVENTORIES:
Inventories of food and supplies are stated at coat.
E. PROPERTY, EQUIPMENT AND DEPRECIATION:
Property and equipment are stated at cost. Depreciation is provided by
application of the straight-line method over estimated useful lives of
seven years for restaurant equipment, five years for computer equipment
and approximately ten to twenty two years for leasehold improvements.
F. LAND AND BUILDINGS (FORECLOSED PROPERTIES):
The methods for valuing property and mortgages where current appraisals
are unobtainable, is based on management's best judgements regarding the
economy and market trends. These factors cannot be precisely quantified
and verified. As a result, estimates may change based on ongoing
evaluation of future economic and market trends.
G. LEASES:
leases which transfer substantially all of the risks and benefits of
ownership are classified as capital leases, and assets and liabilities are
recorded at amounts equal to the lesser of the present value of the
minimum lease payments or the fair value of the leased properties at the
beginning of the respective lease terms. Such assets are depreciated in
the same manner as owned assets. Interest expense relating to the lease
liabilities is recorded to effect constant rates of interest over the
terms of the leases. Leases which do not meet such criteria are classified
as operating leases and the related rentals are charged to expense as
incurred.
H. LEASEHOLD COSTS:
The Company has capitalized the applicable costs and related expenses of
acquiring the leases for its various restaurants and is amortizing them
over the terms of the applicable leases, ten to twenty years.
I. TECHNICAL ASSISTANCE FEES:
The Company has capitalized the Technical Assistance Fees paid to Wendy's
International and is amortizing them on a straight-line basis over fifteen
to twenty years.
J. INCOME TAXES:
Deferred income taxes are recognized for all temporary differences between
the tax and financial reporting bases of the Company's assets and
liabilities based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect taxable
income. The Company accounts for such deferred taxes pursuant to Financial
Accounting Standards Board Statement No. 109.
<PAGE> 13
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment at February 28, 1995 consists of the following:
1995
----------
Land $ 50,000
Land improvements 69,943
Restaurant equipment 1,839,138
Leasehold improvements 358,226
Computer equipment 29,028
Register systems under capital leases 124,254
Transportation 3,800
----------
Total 2,474,389
Less: Accumulated depreciation 1,056,246
----------
Property and equipment, net $1,418,143
==========
NOTE 3: LAND AND BUILDING - FORECLOSED PROPERTIES
The borrowers on several mortgages defaulted on their loan payments and
PSI Capital Corp. successfully foreclosed on the underlying properties.
These properties have been capitalized at the value of the mortgage debt.
Some of the properties have been written down to fair market value where
the capitalized value exceeded the fair market value.
The foreclosed properties are shown net of participations. Participants
were used to finance the original mortgages receivable. Upon foreclosure,
when the recovery is for a lesser amount than the principal amount of the
mortgage, PSI Capital Corp. agreed that the first 10-15% of the losses, if
any, upon the liquidation of the collateral, shall be borne by it.
The following properties have bean foreclosed on:
A. Granby, CT $ 900,000
B. Brookfield, CT 430,000
C. Goshen, NY 380,000
D. Pound Ridge, NY 225,000
E. Middletown, CT 300,000
----------
$2,235,000
==========
<PAGE> 14
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 3: LAND AND BUILDING - FORECLOSED PROPERTIES (cont'd)
A. Granby, CT
This is a partially built office building in Granby, Connecticut, which
PSC now owns as a result of the foreclosure of the first mortgage on the
property which was acquired for approximately $1,000,000. PSI Capital held
a second mortgage on the property for $800,000, less $220,000 due to
participants, at the date of the foreclosure.
There is an agreement between PSC and PSI Capital that upon sale of the
property, the first net proceeds of sale will be paid to PSC until the
acquisition cost of the first mortgage plus interest at the rate of 10%
per annum are recovered. The next net proceeds of sale will be paid to PSI
Capital Corp. Based on a current appraisal the property has been written
down to $900,000.
B. Brookfield, CT
These are two parcels of land in Brookfield, Connecticut. PSI Capital
Corp. held the original mortgage of $430,000, less $70,000 due to
participants. The Company foreclosed upon the property. Current appraisals
for the two parcels of land are for $290,000 and $225,000. The property is
valued at the face value of the mortgage on the balance sheet because this
amount is less than its fair market value.
C. Goshen, NY
PSI Capital Corp. held the first mortgage on 90% of a parcel of land in
Goshen, New York, and a second mortgage on 10% of this same property. The
property has been foreclosed upon and is presently owned by PSI Capital
Corp. PSI Capital has instituted an action against the village of Goshen
to enforce a subdivision plan for the property. If this action is
successful, the property will be appraised at $2,500,000. During fiscal
year 1994 this property had bean written down to $380,000 which represents
its fair market value as vacant land.
D. Pound Ridge, NY
PSI Capital Corp. holds the first mortgage on four acres of residential
land in Pound Ridge, New York. During fiscal 1994 this property had been
written down to $225,000 based upon an appraisal.
<PAGE> 15
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 3: LAND AND BUILDING - FORECLOSED PROPERTIES (cont'd)
E. Middletown, CT
PSI Capital Corp. held the first mortgage on seven parcels of land in
Middletown, Connecticut, and the third mortgage on the home of the
borrower. The amount of the mortgages are for $550,000, less $40,000 due
to participants. Based upon appraisals this property has been written down
to $300,000. It is now owned by PSI Capital Corp. as a result of the
foreclosure of the mortgages.
NOTE 4 - LOANS RECEIVABLE OFFICER
Wendcello Corp. has made certain loans to its President. At February 28,
1995 $70,340 was outstanding. Included in this amount was $5,117 of
interest accrued at 9% per annum. The loans have no specific repayment
terms and are accordingly reported as non-current.
NOTE 5 - NOTES PAYABLE
Notes payable consist of the following:
A. Capitalized lease obligation payable $ 124,254
B. Purchase money note payable 45,000
---------
169,254
Less: Amounts payable within one year 25,121
---------
$ 144,133
=========
A. In January 1995, Wendcello Corp committed to the lease of new cash
register systems for all of its restaurants. Sixty payments of $2,442
commerce April 1995. At the conclusion of the lease, the equipment may be
purchased for $12,150. Wendcello Corp. has capitalized this lease
obligation including the purchase option utilizing an imputed interest
rate of 9.37%. Minimum lease payments including imputed interest and
principal through maturity are as follows:
Year-Ending Minimum Amounts Representing
February Lease-Payments Interest Principal
---------- -------------- -------- ---------
1996 $ 26,863 $10,025 $ 16,838
1997 29,306 9,217 20,089
1998 29,306 7,251 22,055
1999 29,306 5,094 24,212
2000 29,306 2,725 26,581
2001 14,592 113 14,479
-------- ------- --------
Total $158,679 $34,425 $124,254
======== ======= ========
<PAGE> 16
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 5 - NOTES PAYABLE (cont'd)
B. Purchase Money Note Payable:
The consideration for the land purchased to extend the Clarksburgh parking
lot was $50,000, of which $5,000 was paid in cash and the balance by
delivery of five-year, 5%, $45,000 purchase money note secured by a deed
of trust. The note is payable in five annual installments of $10,394 on
April 1, 1995 through 1999. Annual principal maturities are as follows:
1995: $8,283; 1996: $8,498; 1997: $8,937: 1998: $9,399 and 1999: $9,883.
NOTE 6 - RELATED PARTY TRANSACTIONS
A. Management Agreement:
The day-to-day operations of the subsidiaries, Wendcello and Wendclark are
managed by Cello and Clark Management Corps., respectively. The management
companies are affiliated with the subsidiaries in that certain of its
officers and/or directors are also officers and/or directors of the
subsidiaries. The management agreement took effect upon the purchase of
the restaurants and is to remain in effect as long as the subsidiaries
continue to own the restaurants.
The management agreement grants the management company complete authority
with respect to day-to-day operations, all of which is carried out under
the subsidiaries' name. Any non-routine matters such as the purchase or
sale of real property or fixed assets, assignment or sublease of a lease,
any proposed borrowing or financing or participation in a joint venture
including the exercise of the purchase option granted by the seller or
Wendy's requires the joint approval of the subsidiaries and the management
company.
The management agreement provides for a basic fee equal to thirty percent
on Wendcello and forty percent on Wendclark of pre-tax cash flow
determined annually and paid on an estimated basis quarterly to be
adjusted when annual results are known. The management fees were $178,000
in 1995. The agreement further provides for an incentive fee equal to
thirty and forty percent of the pre-tax proceeds of the sale or
refinancing of any assets owned or later acquired by the subsidiaries less
any amounts used to buy replacement assets or to pay off any refinanced
obligations. Whenever basic or incentive fees are paid, the subsidiaries
must pay a dividend to its parent equal to two and one-third times and one
and one-half times the amount of the fee paid to Cello and Clark
Management Corps., respectively.
The agreement further provides that in the event the subsidiaries exercise
the purchase option for the real property granted by Wendy's International
or the lessor, the parent Company and the management company shall share
in the capital funding there of (that is, for the portion which cannot be
financed through third parties). For any period in which cash flow is
negative, working capital advances shall be made to the subsidiaries by
its parent and management company in the ratio of 7 to 3 and 3 to 2 for
Wendcello and Wendclark, respectively.
<PAGE> 17
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 6 RELATED PARTY TRANSACTIONS (cont'd)
B. Consulting Agreement:
Wendclark has a three-year consulting contract with its Chairman renewed
in 1993 through March 31, 1996 providing for a monthly fee of $1,050 plus
reasonable expenses. For fiscal 1995, $12,550 was incurred pursuant to
this contract. At expiration, the agreement is automatically renewable for
as long as Wendclark remains in business at not less than the current fee.
C. Guarantee Fee:
Wendclark has a management agreement which provides that the Company shall
pay a quarterly fee to its Chairman and President for guaranteeing the
term bank loan to Union National Bank. The fee is equal to 1.5% of the
outstanding amount, payable quarterly, apportioned between the two
guarantors in the approximate ratio of their net worths available for
taking. For the year ended February 28, 1995 the guarantee fee was $319.
NOTE 7. COMMITMENTS AND CONTINGENCIES
A. Franchise Agreement Commitments:
Wendcello and Wendclark, subsidiaries of the Company are the franchisees
for the fourteen Wendy's Restaurants it owns and operates. The franchise
agreements obligates the subsidiaries to pay to Wendy's International a
monthly royalty equal to 4% of the gross sales of each restaurant during
the month, or $250, whichever is greater.
Additionally, the subsidiaries must contribute to Wendy's National
Advertising Program 2.5% of the gross sales and spend not less than 1.5%
of the gross sales of each restaurant for local and regional advertising.
B. Minimum Operating Lease Commitments:
All of the Wendy's leases are net leases and require the Company to pay
the taxes, maintenance and operating costs associated with the property,
except for one location, where the real estate taxes are paid by the
landlord.
The term of each Wendcello lease is approximately twenty years through
June 30, 2010 provided the Company's franchise agreements have been
renewed and are still in effect at such date. Rent is equal to eight
percent of gross sales subject to an annual aggregate minimum of
$450,000. The leases do not contain renewal provision except by
subsequent mutual agreement.
<PAGE> 18
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 7 - COMMITMENTS AND CONTINGENCIES (cont'd)
The Wendclark leases with Wendy's each have an initial term of
approximately twenty years expiring December 31, 2009. Rent is equal to
four percent of gross sales through December 31, 1995, five percent, six
percent and seven percent for each of the next three years, respectively,
and eight percent for the remaining eleven years of the leases' primary
terms. These leases may be extended for two successive five-year terms at
a rental equal to eight percent of gross sales.
The subsidiaries have various options to purchase the properties on which
the Wendy's restaurants are located. On four of the properties there is an
option to purchase all but not less than all of these properties leased
from Wendy's. If exercised, the aggregate purchase price is $1,680,000.
The option may be exercised through the tenth year of the lease. If
exercised, the purchase option agreement requires Wendclark to give to
Wendy's the right of first refusal, for a period of twenty years, in the
event the properties are resold.
Wendcello has the option through June 30, 1996 to purchase all four but
not less than all of the properties that it leases from Wendy's together
with a small office building located on one of the properties and also
owned by the lessor. If exercised, the aggregate purchase price is the
greater of $5,100,000 or an amount determined by a formula based on the
properties' rental income earned. Wendcello also has a right of first
refusal to purchase the leased properties during the exercise period of
the purchase option.
The lease for one of the newly constructed restaurants expires on January
31, 2003 without renewal provision. Minimum base rent is $77,050 through
March 31, 1999 and $81,000 for the remainder of the lease term. The lease
provides for common area charges as well as percentage rent at 8% of sales
in excess of base minimums.
The lease for one of the restaurants in the original acquisition (not
leased from Wendy's) has a primary term expiring on September 26, 1997.
The lease may be extended for up to three consecutive terms of five years
each. The basic annual rental for the primary and any renewal terms of the
lease is $27,000. The lease also requires percentage rent at 5% of annual
sales in excess of $540,000 but the lessee receives a credit against such
percentage rent for all sum it pays for real estate taxes, assessments,
hazard and liability insurance and various other charges imposed by local
governmental bodies, except utility charges.
<PAGE> 19
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 7 - COMMITMENTS AND CONTINGENCIES (cont'd)
The Bridgeport restaurant lease expires December 31, 2000. The minimum
rent is $30,000 par annum and percentage rent equal to 5% of annual sales
in excess of $600,000 also applies. The lease also requires additional
payments aggregating $4,750 annually for common area maintenance and
marketing expenses of the mall in which the restaurant is located.
The Summersville restaurant lease is for twenty years through December 1,
2012 and may be extended for up to 4 five-year renewal terms. Base annual
rent of $50,000 may be increased by the landlord by 5% after each of the
five year periods of the lease term including renewals. The lessee has the
right of first refusal to match any third-party purchase offers for the
property and commencing in the eighth year of the lease may purchase the
property for its then appraised value.
On February 20, 1995, Wendclark leased certain premises in New
Martinsville, West Virginia, where previously had been operated a
fast-food restaurant. The Company is renovating the restaurant. The lease
term is for twenty years through February 19, 2015 with one five-year
renewal period. The basic rent increases periodically from $27,000 per
annum in years 1 through 3 to $45,280 for years 19 and 20. There is no
percentage rent. Rent for the renewal period is $49,355 per annum.
Wendclark may terminate the lease at any time during the first five years
by payment of rent, on a monthly basis, through the end of the fifth year,
reduced by any rents received by the lessor from a subsequent tenant
during all or any part of such period. After the fifth year, Wendclark may
terminate the lease at any time upon the payment of rent, on a monthly
basis, for a two-year period.
Wendclark has the right of first refusal to match any bona-fide third
party purchase offer for the property during the lease term including the
renewal period, if elected.
Wendclark also has a purchase option for the property which it may
exercise upon notification from the lessor of his interest in selling the
property. In such case, if the lessor and Wendclark cannot reach a
mutually agreeable price, each shall designate a qualified real estate
appraiser and such two appraisers shall together designate a third. Each
of the three appraisers shall then independently appraise the property and
the purchase price shall be the arithmetic mean of the three appraisals.
Should Wendclark the elect to purchase the property at the price so
determined, the cost of all appraisals shall be divided equally between
Wendclark and the lessor. If Wendclark shall decline to purchase the
property, Wendclark must bear the entire cost of the appraisals. Upon the
sale, the lessor is to pay applicable transfer taxes and Wendclark is to
pay recordation charges.
Rent expense for all of these restaurants, was approximately $986,650 in
1995 of which approximately $638,750 was attributable to base rentals and
$347,900 was attributable to contingent rentals.
<PAGE> 20
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 7 - COMMITMENTS AND CONTINGENCIES (cont'd)
In July, 1994 PSC moved its executive offices to office facilities that
are leased under a three year and two month operating lease expiring in
August, 1997.
Subject to annual real estate adjustments, and additional rent in excess
of base sales, the following is a schedule of future minimum rental
payments required under the above operating leases as of February 29,
1995:
Year Ending
February
- -----------
1996 $ 695,800
1997 689,050
1998 654,436
1999 641,230
2000 638,430
Thereafter 6,040,945
-----------
Total $ 9,359,891
===========
C. Contracts
1. The Company has a three year employment contract with its Chief Executive
Officer commencing January 1, 1995 through December 31, 1997. The base
salary for this executive is $110,000 in 1995, $120,000 in 1996, and
$130,000 in 1997 plus an unaccountable expense allowance of $5,000 per
year, plus any other reasonable expenses. At expiration, the agreement is
automatically extended for additional one year period unless either party
shall notify the other of his or its intention not to renew the Agreement.
2. The Wendcello Subsidiary has three-year consulting contracts with one of
its executives and another consultant renewed in 1993 through August 30,
1996 providing for a monthly fee of $600 to each plus reasonable expenses.
At expiration, the agreements are automatically renewable thereafter for
as long as Wendcello remains in business at not less than the current fee.
For fiscal 1995 $14,400 was incurred pursuant to this and the previous
contract.
The Wendclark subsidiary is committed to pay a guarantee fee to its
Chairman and President and also has a consulting contract with its
Chairman (See Notes 6b and 6c).
<PAGE> 21
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 7 - COMMITMENTS AND CONTINGENCIES (cont'd)
D. Financing Commitment:
Wendclark estimates the total cost of renovating and equipping the New
Martinsville restaurant to be $290,000 and has obtained a financing
commitment from Banc One for a 10-year secured term loan in the amount of
$200,000 with the balance to be funded from operating cash flow. Wendclark
will choose between a floating or semi-fixed interest rate option. All
assets of the new location will be pledged as collateral and the loan will
be guaranteed by the Company's three executive officers.
E. Formation of PSI Settlement Corp:
In 1993, Shareholders of Programming and Systems, Inc. (PSI) brought a
class action against PSI and certain of its officers in the United States
District Court for the Southern District of New York, which was settled by
a Stipulation of Settlement dated as of November 15, 1993 (the
"Stipulation"), pursuant to which PSI Settlement Corp. (PSC) was formed.
On January 21, 1994 Judge Robert Sweet signed the Order confirming the
Stipulation. Pursuant to that Stipulation (i) the eligible shareholders of
PSI received a pro-rata distribution of $1,400,000, after deduction of the
fees and expenses of the class action, which amounted to fifty cents per
share, and (ii) all the shares of PSC were delivered to Escrow Agents to
hold for the benefit of all shareholders of PSI. Pursuant to the Orders of
Judge Sweet, PSI transferred certain assets to PSC as specified in the
Stipulation and the Court's Orders. These payments, including the shares
of PSC, fully settled all of the claims by PSI shareholders that could
have been asserted against PSI and the other defendants in the class
action.
On June 12, 1995 Judge Sweet signed an Order approving an amendment of the
Stipulation which permitted PSC to operate as an ongoing entity rather
than liquidating its assets, provided the escrowed shares of PSC are
delivered out to PSI shareholders and listed on NASDAQ by June 12, 1997.
In addition to settling the class action, PSI has now settled the action
by the Securities and Exchange Commission against it and resolved or paid
the material claims and lawsuits which arose out of its discontinued
vocational school operations. At the present time, the audits of PSI's
income tax returns through February 29, 1993 and reviews by education
agencies are incomplete, but no claims have been instituted against PSI.
PSI will defend against any such claims that may be instituted and the
management of PSI believes it will successful. PSC has been advised by
legal counsel that PSC would not be held liable for any liabilities PSI
might incur in the event of an unfavorable outcome to said audits, reviews
or other claims which may be made against PSI.
<PAGE> 22
PSI SETTLEMENT CORP.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
NOTE 7 - COMMITMENTS AND CONTINGENCIES (cont'd)
F. Litigation:
PSI is subject to a number of lawsuits, investigations and claims arising
out of the general conduct of its past businesses. Management has been
advised by legal counsel that PSC would not be held liable for any
unfavorable outcome of litigation involving the PSI. Management's
intentions are to vigorously defend all litigation to the best of its
ability.
In January 1995, PSI Capital Corp. filed a lawsuit against the village of
Goshen, N.Y. This is an action by PSI Capital Corp. against the village of
Goshen to specifically enforce an agreement with respect to the
development of vacant land and for damages. It is pending in the
Bankruptcy Court in Connecticut in the pending Chapter 11 Proceedings of
PSI Capital Corp.
G. Bankruptcy:
On March 25, 1992, PSI Capital Corp. filed for relief under Chapter 11 of
the Bankruptcy Code. This filing was done in order to protect second
mortgage positions on two of the properties. This action provided PSI
Capital Corp., with sufficient time to negotiate with the holders of prior
mortgages and secure PSI Capital Corp's interest in the properties.
NOTE 8 - INCOME TAXES
The provision for income taxes for fiscal 1995 reflects the following:
Currently payable:
Federal $ 0
State 76,821
--------
Total currently payable 76,821
--------
Deferred:
Federal $ 0
State (6,817)
--------
Total deferred (6,817)
--------
Total $ 70,004
========
PSC files a consolidated federal tax return with PSI, which has no federal
tax liability due to current and prior year net operating losses.
At February 28, 1995, the Company's book basis in its depreciable property
and equipment exceeded its taxable basis by $232,009 resulting in a
cumulative deferred state tax asset of $6,817.
<PAGE> 1
Exhibit 19.02
FRM NEXUS, INC.
271 North Avenue - Suite 520
New Rochelle, New York 10801
Telephone: (914) 636-0188
Facsimile: (914) 636-0388
July 26, 1996
To: The Shareholders of Programming and Systems, Inc. ("PSI")
Who are about to become Shareholders of FRM Nexus, Inc. ("Nexus")
Dear Nexus Shareholder:
Nexus is pleased to provide you with this current report of the progress
we have made in the agenda outlined in our letter of January 5, 1996.
FINANCIAL STATEMENT
Enclosed is the audited financial statement for FRM Nexus, Inc. ("Nexus")
for the fiscal year ended February 29, 1996. Nexus is the new corporate name of
PSI Settlement Corp. The expected name change was reported to shareholders in
the January 5th letter and became effective on February 23, 1996.
Nexus' performance in fiscal 1995 resulted in net income of $2,562,970,
attributable in part to the fact that a consolidated federal income tax return
was filed with PSI and no federal income taxes were paid due to prior years net
operating losses. That benefit will not be available to Nexus in future years.
At February 29, 1996, total stockholders equity was $8,406,252.
TRANSFER OF NEXUS SHARES
In accordance with the Orders of United States District Judge Robert Sweet
in the Class Action lawsuit filed by the stockholders of PSI in the United
States District Court for the Southern District of New York, 1,211,635 shares of
Common Stock of Nexus, par value 10(cents) per share, are being held in escrow
for the benefit of PSI shareholders. The Escrow Agents will release those shares
for transfer to the holders of record of PSI common stock in the ratio of one
(1) share of Nexus for each three (3) shares of PSI. It is expected that the
stock certificates for the Nexus shares will be mailed to you commencing after
August 1, 1996. You will continue to own your shares of PSI and it will not be
necessary for you to surrender your stock certificates of PSI.
Your management decided to issue one share for each three shares, rather
than a one for one ratio, because the bid price at the time of the initial
application for the listing must be at least $5 per share in order for the
shares to be listed on NASDAQ. On a one for three ratio the book value of the
common stock is $6.94 per share, making it more likely to meet this requirement,
than would a one-for-one ratio (and a book value of $2.31 per share),
notwithstanding that book value of publicly traded shares is not determinative
of the bid and asked price in market trading.
<PAGE> 2
FRM NEXUS, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENT
FEBRUARY 29, 1996
<PAGE> 3
NEXUS FINANCIAL HIGHLIGHTS
Fiscal Year Ended February 29, 1996 February 28, 1995
FOR THE YEAR
Total income ................ $20,336,478 $14,523,900
Income from operations ...... $ 2,860,709 $ 447,524
Net income .................. $ 2,562,970 $ 417,217
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AT YEAR END
Working capital ............. $ 2,386,835 $ 319,070
Total assets ................ $12,181,234 $ 5,428,496
Total liabilities ........... $ 3,774,982 $ 1,124,287
Stockholders' equity ........ $ 8,406,252 $ 4,304,209
Shares outstanding .......... $ 1,211,365 $ 1,211,365
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PER SHARE DATA
Net income .................. $ 2.12 $ 0.34
Book value .................. $ 6.94 $ 3.55
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NASDAQ LISTING
At the time the Class Action by the shareholders of PSI was settled, it
was stated that the shares of Nexus given to the Escrow Agents might produce for
all shareholders an additional $1.50 per PSI share upon liquidation. Pursuant to
the Orders of Judge Sweet, as amended, the continued operation of Nexus is
permitted in lieu of liquidation, if its shares can be listed on NASDAQ by June
12, 1997. Management has determined that the value of Nexus can best be realized
by transferring the Nexus shares from escrow in August 1996 for that purpose.
The value of Nexus as an operating company is greater than the value of the
assets if they were forced to be sold in liquidation.
It is expected that the shares of Nexus will be traded in the
over-the-counter market beginning in August 1996 before the shares are listed on
NASDAQ. Nexus intends to file with the Securities and Exchange Commission for
the Registration of its Common Stock pursuant to Section 12(g) of The Securities
Exchange Act of 1934 (Form 10). Thereafter Nexus will file an application with
the National Association of Securities Dealers, Inc. for listing in its
Automatic Quotations (NASDAQ). Management believes that Nexus will meet all the
financial requirements for the listing and its shares can be traded in the
NASDAQ Stock Market as early as the Fall of 1996.
NEXUS' MISSION
Nexus' mission is to enhance long-term shareholder value with a strong
operating company serving niche markets and earning a superior return on total
capital. The FRM in our names stands for the three markets in which the Company
is presently engaged - Food Services, Real Estate Development and Medical
Financing.
-2-
<PAGE> 4
FOOD SERVICE DIVISION
This division presently consists of sixteen Wendy's restaurants in West
Virginia and New York owned by Wendclark Corp. and Wendcello Corp., wholly owned
subsidiaries of Nexus. The restaurants are operated by two management
corporations, in which Nexus has no interest, under franchise agreements with
Wendy's International, the public company listed on the New York Stock Exchange.
The management agreements provide for the sharing of the operating profits of
the restaurants and certain proceeds of the sale or refinancing of the
restaurants. This division commenced business in 1990 with the purchase of
eleven restaurants. Since 1990 five additional restaurants were constructed or
acquired with the funds and credit of the two Nexus subsidiaries and the
management companies. This division has been profitable, although just as the
economy has fluctuated, so too have the operations of the restaurants.
REAL ESTATE DEVELOPMENT DIVISION
The operations of this division are conducted by wholly-owned subsidiaries
which own and/or control the fee interests in a variety of parcels of real
estate, in which co-investors also have interests. Nexus controls the
development, for residential and commercial use, of this real estate which is
located in New York and Connecticut. A brief description of each parcel follows:
Goshen, New York, A subdivision plan for the development of 165 single
family homes in the Village of Goshen, Orange County, New York, was
recently agreed upon in settlement of a lawsuit between the Company and
the Village of Goshen. Participating in the settlement was Windemere in
the Pines at Goshen, Inc., a part of the Windemere Group of construction
companies, in which Jed Schutz, a director of Nexus, is an officer,
director and shareholder ("Windemere"). Nexus is negotiating with
Windemere for the joint development of the parcel on terms which will
assure Nexus of a specified profit on its land, with the financing to be
provided by Windemere and a sharing of the profits or losses to be
realized in the joint construction and sale of the homes.
In February 1996, Nexus sold 32 of 165 building lots to Windemere
for $484,200 resulting in a profit of $406,624 plus an additional $448,000
contingent on the amount of profit to be realized on the construction and
sale of the 32 homes to be built on the lots. This contingent profit has
not been reflected in the Company's net income because of its contingent
nature. Nor has the apparent increase in the value of the remaining 133
building lots which are carried on the Company's balance sheet at February
29, 1996 at $306,304 representing its estimated value as vacant land
rather than as separate building lots. While the settlement with the
Village of Goshen has been signed by all the parties thereto, it has not
yet been "So Ordered" by the Court. The Company expects this to occur
later this year.
East Granby, Connecticut. The Company owned a two-story office building
located in East Granby, Connecticut which was carried at the value of
$900,000 on February 28, 1995. In the fiscal year ended February 29, 1996,
the Company spent about $1,300,000 in developing the site and improving
the building. In February 1996, the property was sold to Gateway Granby,
LLC. ("Gateway") for $4,800,000, of which $2,900,000 has been and will be
received in 1996 and $1,900,000 is held by the Company pursuant to a
purchase money second mortgage. The Company realized a profit of about
$2,600,000 on the sale and retained a lease on the first floor of the
building with the right to sublease the entire space and retain any profit
on the rent differential. Gateway is owned and managed by investors,
unrelated to the officers and directors of Nexus, except that the daughter
of Lester J. Tanner, a director of Nexus, owns a 24% interest in Gateway.
-3-
<PAGE> 5
Hunter, New York. Nexus controls the fee interest in various properties,
in which it owns the principal co-investment interest and a mortgage,
together carried on its balance sheet of February 29, 1996 at $991,897.
The properties consist of undeveloped acreage in an area known as Hunter
Highlands, which is adjacent to the Hunter Mountain Ski Slopes in the town
of Hunter, Greene County, New York. The undeveloped acreage, which Nexus
plans to develop, is zoned for single family residences, condominium units
and a hotel site. There is already constructed on the property a water
treatment plant, a clubhouse with restaurant, tennis courts and swimming
pool, a small office building and 8 unsold condominium units. Adjoining
the site are some 200 condominium units owned by unrelated persons, who
purchased their resort homes from prior owners of Hunter Highlands.
Hunter, New York has been depressed economically in recent years,
which gave rise to the Company's acquisition of this property through the
mortgage foreclosure process. Management believes that these properties
have potential for profitable development if there is recovery in the
market for second homes or if the proffered amendment to the New York
State Constitution allowing gaming in Greene County, passed once by the
legislature in 1995, is passed for the second time in the legislature to
be elected in November 1996 and then approved by the voters in a
referendum which could be held as early as November 1997.
Brookfield, Connecticut. Nexus owns the fee interest in two parcels of
undeveloped land in Brookfield, Connecticut which is carried on the
balance sheet of February 29, 1996 at $430,000, which is their cost, and
which is believed to be less than fair market value. Nexus plans to
develop both parcels for commercial use. One parcel is on Federal Road,
across from the popular Stew Leonards' Supermarket. The other is a short
distance from this location. Nexus has obtained approval to develop a
23,000 square foot retail building on the first parcel and plans to seek
approval for a restaurant or office structure on the second parcel.
Middletown, Connecticut. Nexus owns several parcels of improved land in
Middletown, Connecticut which are carried on its balance sheet of February
29, 1996 at $186,600. These parcels are not readily available for
profitable development and the Company plans to sell them.
Pound Ridge, New York. This parcel consisted of an unimproved 4 acre lot
zoned for one residence in Pound Ridge, New York. It has been sold for
$225,000, the price at which it has been carried on the Company's balance
sheet.
Other Properties. Nexus, alone or with co-investors and joint venturers,
intends to acquire other lands for development of residential, commercial
and office structures, when management identifies opportunities for
enhancement of shareholder values.
MEDICAL FINANCING DIVISION
The operations of this division are conducted by Nexus' wholly-owned
subsidiary, Medical Financial Corp. ("MFC"),a start-up company with its first
full year of operations included in the enclosed financial statements. MFC
purchases insurance company receivables, paying cash to the medical provider in
return for a negotiated fee. For its clients, MFC delivers valuable services and
increased liquidity, which is normally unavailable to medical groups from
traditional lenders. The profitability of this division in the current and
future fiscal years will depend on management's ability to obtain favorable
contracts with additional clients and employ its resources at fuller capacity.
<PAGE> 6
NEXUS SHAREHOLDERS' MEETING
After the transfer of the Nexus shares to you, the shareholders, the
Company will move to comply with the Proxy Rules of The Securities Exchange Act
of 1934 and call a meeting of Shareholders to elect directors of the Company and
pass upon such other matters as may come before that meeting. The timing of this
meeting will depend on how quickly the common stock of Nexus can be registered
pursuant ot Section 12(g) of the 1934 Act.
PROGRAMMING AND SYSTEMS, INC. ("PSI")
PSI, as distinguished from Nexus, has one remaining principal asset, its
lawsuit against the insurance carrier for property damage and business
interruption losses resulting from damages incurred in a fire on April 29, 1993
at PSI's former premises located in New York City.
Recently PSI has disposed of the remaining lawsuits against it, except for
minor actions which are not expected to have any materially adverse impact on
it. The Internal Revenue Service audits of PSI's tax returns are believed to
have been settled in principle and PSI is awaiting the documentation to conclude
the settlement, after which PSI will have a net operating loss carry-forward for
any future operations.
For that reason, management does not presently intend to discontinue
operations or liquidate PSI itself, but it will consider an application to the
Securities and Exchange Commission to deregulate its common stock, when it is
determined that the conditions for such deregulation have come to pass.
CONCLUSION
We are pleased that this management's incumbency during the past 30 months
has brought to fruition the prospects on which the Class Action was settled by
the shareholders. Management believes that the Nexus shares which you will
receive next month have a value in excess of the amount which was projected by
the Stipulation of Settlement approved by Judge Sweet in 1994.
Sincerely,
FRM NEXUS, INC.
Peter Barotz
President
Directors
Peter Barotz
Seth Grossman
Jed Schutz
Lester Tanner
Bridget F. Dewsnap
Vice President Finance
-5-
<PAGE> 7
[LETTERHEAD OF MICHAEL, ADEST & BLUMENKRANTZ]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of FRM Nexus, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of FRM Nexus, Inc.
and Subsidiaries as of February 29, 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for the period then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
financial statements of Wendclark Corporation and Wendcello Corporation, wholly
owned subsidiaries, which statements reflect total assets of $3,423,936 as of
February 29, 1996. Those statements were audited by another auditor whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Wendclark Corporation and Wendcello Corporation, is based solely on
the report of the other auditor.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
<PAGE> 8
In our opinion, based on our audit and the report of the other auditor, the
financial statements referred to in the first paragraph present fairly, in all
material respects, the financial position of FRM Nexus, Inc. and Subsidiaries as
of February 29, 1996, and the results of their operations and their cash flows
for the period then ended, in conformity with generally accepted accounting
principles.
/s/ Michael, Adest & Blumenkrantz
MICHAEL, ADEST & BLUMENKRANTZ
Certified Public Accountants, P.C.
New York, New York
May 22, 1996
<PAGE> 9
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 1996
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 1,170,713
Mortgage and notes receivable 2,848,477
Accounts receivable 484,073
Inventories at cost 88,669
Other current assets 344,135
-----------
TOTAL CURRENT ASSETS 4,936,067
-----------
FIXED ASSETS
Furniture, fixtures
and equipment 3,316,145
Less: Accumulated depreciation 1,429,387
-----------
NET BOOK VALUE 1,886,758
-----------
OTHER ASSETS
Real estate held for development and sale 1,940,360
Mortgage and notes receivable 2,428,629
Loans receivable 87,226
Unamortized leasehold costs 592,809
Technical assistance fees 269,747
Other 39,638
-----------
TOTAL OTHER ASSETS 5,358,409
-----------
TOTAL ASSETS $12,181,234
===========
See Notes to Consolidated Financial Statements
<PAGE> 10
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 1996
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and
Accrued expenses $ 2,086,329
Notes payable - current maturities 109,182
Due to customers 267,322
Taxes payable - income 14,751
Other current liabilities 71,648
-----------
Total current liabilities 2,549,232
-----------
Other liabilities
Notes payable - less current
maturities 645,925
Deferred taxes payable 335,379
Deferred income 191,111
Other 53,335
-----------
Total other liabilities 1,225,750
-----------
Total liabilities 3,774,982
-----------
Stockholder's equity
Common stock -$.10 par value
Authorized 2,000,000 shares
Issued 1,211,635 121,164
Capital in excess of par value 5,887,736
Retained earnings 2,397,382
-----------
Total stockholder's equity 8,406,252
-----------
Total liabilities and
Stockholder's equity $12,181,234
===========
See Notes to Consolidated Financial Statements
<PAGE> 11
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED FEBRUARY 29, 1996
REVENUE
Restaurant food sales $14,536,291
Sale of real estate 5,510,560
Rental income 21,458
Interest from mortgages 14,312
Income from the purchase of accounts receivable 253,857
-----------
Total income 20,336,478
-----------
COST OF SALES
Restaurants 4,973,113
Real estate 2,272,106
-----------
Total costs of sales 7,245,219
-----------
Gross profit 13,091,259
-----------
OPERATING EXPENSES
Selling, general & administrative-
Restaurants 9,298,403
Other 448,839
Interest expense 46,098
Depreciation and amortization 437,210
-----------
Total costs and expenses 10,230,550
-----------
Income from operations
before income taxes and other items 2,860,709
Interest income 59,094
-----------
Income before income taxes 2,919,803
-----------
TAXES ON INCOME
Current expense (benefit) 14,637
Deferred expense (benefit) 342,196
-----------
Total tax expense 356,833
-----------
Net income $ 2,562,970
===========
See Notes to Consolidated Financial Statements
<PAGE> 12
FRM NEXUS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED FEBRUARY 29,1996
<TABLE>
<CAPTION>
Total
Additional Retained Stock-
Common Paid-In Earnings holder's
Stock Capital (Deficit) Equity
-------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balances,
February 29, 1996 $ 10,000 $ 4,459,797 $ (165,588) $4,304,209
Recapitalization 111,164 (111,164) -- --
Transfer of assets
from parent -- 1,539,073 -- 1,539,073
Net income for the year ended
February 29, 1996 -- -- 2,562,970 2,562,970
-------- ----------- ----------- ----------
Balances
February 29, 1996 $121,164 $ 5,887,706 $ 2,397,382 $8,406,252
======== =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 13
FRM NEXUS, INC.
AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 29, 1996
Cash flows from operating activities:
Net income $ 2,562,970
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 437,210
Deferred income tax expense (benefit) 342,196
(Increase) decrease in accounts receivable (309,561)
(Increase) decrease in notes receivable (5,277,106)
(Increase) decrease in inventory (12,231)
(Increase) decrease in real estate held for
development and sale (110,385)
(Increase) decrease in prepaid expenses
miscellaneous receivables, and other assets (199,926)
Increase (decrease) in accounts payable,
accrued expenses and taxes 1,351,330
Increase (decrease) in due to Parent (71,678)
Increase (decrease) in due to customers 210,960
Increase (decrease) in deferred income 191,111
Increase (decrease) in other liabilities 47,740
-----------
Net cash provided (used) by operating activities (837,370)
-----------
Cash flows from investing activities:
Capital expenditures & intangible assets (797,207)
Loans to officer (16,886)
-----------
Net cash provided (used) by investing activities (814,093)
-----------
Cash flows from financing activities:
Proceeds of notes payable, banks 550,000
Principal payments on notes payable (58,696)
Transfer of assets from parent 1,539,073
-----------
Net cash provided (used) by financing activities 2,030,377
-----------
Net increase (decrease) in cash 378,914
Cash, beginning of year 791,799
-----------
Cash, end of year $ 1,170,713
===========
Additional cash flow information:
Interest expense paid $ 34,652
===========
Income taxes paid $ --
===========
Non-cash financing activities:
Assets acquired under capital lease $ 94,549
===========
Transfer of assets from parent $(1,539,073)
===========
See Notes to Consolidated Financial Statements
<PAGE> 14
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of FRM Nexus,
Inc. (the "Company" or "FRM") and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
B. BUSINESS ACTIVITIES OF THE COMPANY:
The Company was incorporated in November 1993 under the laws of the State
of Delaware to settle a class action (see note 7E) against Programming and
Systems, Inc. (PSI), in order to liquidate certain assets in favor of the
shareholder class in settlement of the class action. The assets
transferred to FRM included PSI Capital Corp. and PSI Food Services, Inc.
which in turn own all of the stock of Wendcello Corp., and Wendclark Corp.
In 1995, an additional subsidiary, Medical Financial Corp. was formed. In
1996, additional subsidiaries, Yolo Capital Corp. and Yolo Equities Corp.
were acquired. However, pursuant to Court Order FRM is no longer under the
obligation to liquidate. FRM intends to list its common stock on NASDAQ
and operate as an ongoing entity.
On February 26, 1996, the Company amended its certificate of incorporation as
follows:
1) The Company changed its name from PSI Settlement Corp. to FRM Nexus, Inc.
2) The Company increased authorized capital stock from 75,000 shares, par
value $1.00 per share, to 2,000,000 shares common stock of the par value
of ten cents (.10) per share.
All of the outstanding shares of stock of the Corporation, consisting of 10,000
shares of stock of PSI Settlement Corp., of the par value of $1 per share,
registered in the name of one shareholder, be changed into such number of shares
of common stock of FRM Nexus, Inc. of the par value of .10 per shares as shall
be determined by the Board of Directors of the Corporation, namely 1,211,635
shares of common stock.
1) The food services companies consist of Wendclark Corp. and Wendcello Corp.
Wendclark Corp. was incorporated in West Virginia on March 22, 1990.
Wendcello Corp. was incorporated in New York on June 25, 1990. The food
service companies were formed to acquire, own and operate eleven existing
Wendy's Old Fashioned Hamburger Restaurants in West Virginia and the
Hudson Valley, New York area. Six of the restaurants were acquired from a
franchisee of Wendy's International and five were acquired from a
subsidiary of Wendy's International. In addition, the companies
constructed 3 new restaurants which opened between December 1990 and
November 1992. During fiscal 1996, two additional restaurants were opened.
The Companies' day-to-day operations are managed by Management
Corporations, which are affiliated with the Companies by reason of common
management (see note 7a).
<PAGE> 15
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
2) The real estate business is conducted by PSI Capital Corp, Yolo
Capital Corp. and Yolo Equities Corp. PSI Capital Corp. was
incorporated in April, 1989 for the purpose of extending first and
subordinate real estate mortgages. These mortgages were subsequently
foreclosed (see note 4). Yolo Capital Corp. and Yolo Equities Corp.
hold beneficial interest in trusts that own real estate and hold
mortgages. All of these properties are currently held for
development and sale.
3) Medical Financial Corp was incorporated in New York on January 12,
1995. The Company purchases the insurance claims receivable of
medical practices.
C. REVENUE RECOGNITION:
The accrual method of accounting is used to record all income.
D. INVENTORIES:
Inventories of food and supplies are stated at cost.
E. PROPERTY, EQUIPMENT AND DEPRECIATION:
Property and equipment are stated at cost. Depreciation is provided by
application of the straight-line method over estimated useful lives of
seven years for restaurant equipment, five years for computer equipment
and approximately ten to twenty two years for leasehold improvements.
F. REAL ESTATE HELD FOR DEVELOPMENT AND SALE:
The methods for valuing property and mortgages where current appraisals
are unobtainable, is based on management's best judgements regarding the
economy and market trends. These factors cannot be precisely quantified
and verified. As a result, estimates may change based on ongoing
evaluation of future economic and market trends.
G. LEASES:
Leases which transfer substantially all of the risks and benefits of
ownership are classified as capital leases, and assets and liabilities are
recorded at amounts equal to the lesser of the present value of the
minimum lease payments or the fair value of the leased properties at the
beginning of the respective lease terms. Such assets are depreciated in
the same manner as owned assets. Interest expense relating to the lease
liabilities is recorded to effect constant rates of interest over the
terms of the leases. Leases which do not meet such criteria are classified
as operating leases and the related rentals are charged to expense as
incurred.
H. LEASEHOLD COSTS:
The Company has capitalized the applicable costs and related expenses of
acquiring the leases for its various restaurants and is amortizing them
over the terms of the applicable leases, ten to twenty years.
<PAGE> 16
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
I. TECHNICAL ASSISTANCE FEES:
The Company has capitalized the Technical Assistance Fees paid to Wendy's
International and is amortizing them on a straight-line basis over fifteen
to twenty years.
J. INCOME TAXES:
Deferred income taxes are recognized for all temporary differences between
the tax and financial reporting bases of the Company's assets and
liabilities based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect taxable
income. The Company accounts for such deferred taxes pursuant to Financial
Accounting Standards Board Statement No. 109.
K. CONCENTRATION OF CREDIT:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, trade and notes
receivables.
As of February 29, 1996, the Company had concentrations of cash in bank
balances totaling approximately $800,000 located at one bank, under three
different accounts which exposes the Company to concentrations of credit
risk.
All trade receivables arise from the purchase of insurance claims
receivable from several medical groups in the New York City area. The
insurance claims are from various insurance companies.
All note receivables are from the sale of real estate in New York and
Connecticut. One purchaser accounts for approximately 89% of the total
notes receivable. $2,800,000 of those notes receivables are to be received
in 1996, (see note 2).
The Company's restaurant operations are all located in West Virginia and
the Hudson Valley area of New York.
L. 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.
<PAGE> 17
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 2: NOTES RECEIVABLE
The Company has notes and mortgages receivable arising from the sale of
real estate (see notes 4 and 7c). These notes have various terms for
payments of principal and interest and are collateralized by the
underlying real estate. These notes bear interest ranging from 6% to 14%.
The Company recognizes interest income on these notes as the interest is
collected. These notes mature as follows:
1997 $ 2,848,477
1998 32,728
1999 483,978
2000 39,548
2001 43,473
Thereafter 1,828,902
-----------
$ 5,277,106
===========
Of the $2,848,477 shown to mature in 1997, $900,000 was collected on May
10, 1996 and $1,900,000 is to be received in 1996 pursuant to a commitment
from a Connecticut bank to refinance the mortgage, with the Company
receiving the proceeds. The Company is obligated to pay all expenses of
that refinancing (see notes 8b and 8d). The above table also includes a
purchase money note of $1,900,000 with maturities as shown therein.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment at February 29, 1996 consists of the following assets
of the food service companies:
Land $ 50,000
Land improvements 90,100
Restaurant equipment 2,336,106
Leasehold improvements 588,204
Computer equipment 29,132
Register systems under capital leases 218,803
Transportation 3,800
----------
Total 3,316,145
Less: Accumulated depreciation 1,429,387
----------
Property and equipment, net $1,886,758
==========
NOTE 4: REAL ESTATE HELD FOR DEVELOPMENT AND SALE
The borrowers on several mortgages defaulted on their loan payments and
PSI Capital Corp. successfully foreclosed on the underlying properties.
These properties have been capitalized at the value of the mortgage debt.
Some of the properties have been written down to fair market value where
the capitalized value exceeded the fair market value.
The foreclosed properties are shown net of co-investors. Co-investors were
used to finance the original mortgages receivable. Upon foreclosure, when
the recovery is for a lesser amount than the principal amount of the
mortgage, PSI Capital Corp. agreed that the first 10-15% of the losses, if
any, upon the liquidation of the collateral, shall be borne by it.
<PAGE> 18
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 4: REAL ESTATE HELD FOR DEVELOPMENT AND SALE (cont'd)
The following properties are included in real estate held for development
and sale:
A. Hunter, NY $ 991,897
B. Brookfield, CT 455,559
C. Goshen, NY 306,304
D. Pound Ridge, NY 225,000
H. Middletown, CT 186,600
----------
2,165,360
Less: Due to co-investors (225,000)
----------
$1,940,360
==========
A. Hunter, NY
These are condominium units and land held for development and sale at the
base of Hunter Mountain in Greene County, New York.
B. Brookfield, CT
These are two parcels of land in Brookfield, Connecticut. PSI Capital
Corp. held the original mortgage of $430,000, less $70,000 due to
co-investors. The Company foreclosed upon the property. Current appraisals
for the two parcels of land are for $290,000 and $225,000. The property is
valued at the face value of the mortgage and foreclosure costs on the
balance sheet because this amount is less than its fair market value.
C. Goshen, NY
PSI Capital Corp. held the first mortgage on 90% of a parcel of land in
Goshen, New York, and a second mortgage on 10% of this same property. The
property has been foreclosed upon and is presently owned by PSI Capital
Corp. PSI Capital has instituted an action against the village of Goshen
to enforce a subdivision plan for the property. If this action is
successful, the property will be appraised at $2,500,000. During fiscal
year 1994 this property had been written down to $380,000 which represents
its fair market value as vacant land. During fiscal year 1996, 32 lots of
the 165 lots were sold, reducing the $380,000 to $306,304 representing the
amount at which the remaining 133 lots are included above. In April, 1996,
the parties to the action against the Village of Goshen signed a
settlement stipulation which, when approved by the court, will permit the
Company to develop and sell, with a joint venture partner, the one family
residential lots in Goshen, New York (see notes 2, 7c, 8d-2 and l0b).
D. Pound Ridge, NY
PSI Capital Corp. holds the first mortgage on four acres of residential
land in Pound Ridge, New York. During fiscal 1994 this property had been
written down to $225,000 based upon an appraisal. The Company has signed a
contract for the sale of this property at $225,000 which is scheduled to
be completed in 1996 (see note 10b-2).
<PAGE> 19
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 4: REAL ESTATE HELD FOR DEVELOPMENT AND SALE (cont'd)
E. Middletown, CT
PSI Capital Corp. held the first mortgage on seven parcels of land in
Middletown, Connecticut, and the third mortgage on the home of the
borrower. The amount of the mortgages are for $550,000, less $40,000 due
to participants. Based upon appraisals this property has been written down
to $300,000. It is now owned by PSI Capital Corp as a result of the
foreclosure of the mortgages. During fiscal year 1996, two properties were
sold, leaving a balance of $186,600.
NOTE 5: LOANS RECEIVABLE OFFICER
Wendcello Corp. has made certain loans to its President who is not an
officer or director of Nexus. At February 29, 1996 $87,226 was
outstanding. Included in this amount was $5,386 of interest accrued at 9%
per annum. The loans have no specific repayment terms and are accordingly
reported as non-current.
NOTE 6: NOTES PAYABLE
The restaurant operations entered into the following notes and capital
lease payable:
A. CAPITAL LEASES PAYABLE:
1) In January 1995, Wendcello Corp committed to the lease of new cash
register systems for all of its restaurants. Sixty payments of
$2,442 commerce April 1995. At the conclusion of the lease, the
equipment may be purchased for $12,150. Wendcello has capitalized
this lease obligation including the purchase option utilizing an
imputed interest rate of 9.37%.
2) In May 1995, Wendclark Corp. leased new cash register systems for
its restaurants. Sixty payments of $1,936 commenced June 1995. At
the conclusion of the lease, the equipment may be purchased for
$8,797. Wendclark has capitalized this lease obligation including
the purchase option utilizing an imputed interest rate of 10.8%.
Minimum lease payments including imputed interest and principal through maturity
are as follows:
Year-Ending Minimum Amounts Representing
February Lease-Payments Interest Principal
----------- -------------- -------- ---------
1997 $ 52,535 $ 17,628 $ 34,907
1998 52,535 13,977 38,558
1999 52,535 9,944 42,591
2000 52,535 5,486 47,049
2001 29,198 451 28,747
--------- -------- ---------
Total $ 239,338 $ 47,486 $ 191,852
========= ======== =========
<PAGE> 20
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 6: NOTES PAYABLE (Cont'd)
B. NOTES PAYABLE:
1) Note Payable, Bank:
Wendclark borrowed $350,000 to finance the renovations and equipment
of its eighth restaurant in Chester, New York. This loan is for a
term of five years and is payable in monthly principal payments of
$4,167 plus interest at 1% above prime through September 29, 2000 at
which time a balloon payment of $100,000 plus accrued interest is
due. The loan is secured by all the inventory, furniture, fixtures
and equipment of Wendclark and is guaranteed by the three executive
officers.
2) Note Payable, Bank:
On May 1, 1995, Wendclark borrowed $200,000 from a local bank
pursuant to a promissory note and term loan agreement. The note is
for a term of ten years, bearing interest at one percent above the
prime rate. Monthly principal payments of $2,755 including interest
commenced June 1, 1995.
The note is secured by all the personal property at the new
Martinsville, West Virginia restaurant and is guaranteed by the
Wendclark's Chairman, President and Vice President.
Subsequent to February 29, 1996, Wendclark obtained a commitment
from this bank for additional financing (see note 10).
3) Construction Mortgage, Investment Co.:
On February 22, 1996, FRM entered into a construction mortgage, not
to exceed $800,000 (see note 8b). Advances may be drawn until
December 31, 1996. Interest is payable monthly at thirteen percent
per annum. At December 31, 1996 all unpaid principal and interest is
due, at February 29, 1996 there were no borrowings against this
mortgage.
4) Purchase Money Note Payable:
The consideration for the land purchased to extend a Wendy's parking
lot was $50,000, of which $5,000 was paid in cash and the balance by
delivery of five-year, 5%, $45,000 purchase money note secured by a
deed of trust. The note is payable in five annual installments of
$10,394 on April 1, 1995 through 1999.
Annual principal maturities for all of these notes as referred to above for the
years ended February 28, are as follows:
1997 $ 74,275
1998 76,279
1999 78,463
2000 80,839
2001 160,535
Thereafter 92,864
--------
$563,255
========
<PAGE> 21
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 7: RELATED PARTY TRANSACTIONS
A. MANAGEMENT AGREEMENT:
The day-to-day operations of the subsidiaries, Wendcello and Wendclark are
managed by Cello and Clark Management Corps., respectively. The management
companies are affiliated with the subsidiaries in that certain of its
officers and/or directors are also officers and/or directors of the
subsidiaries. The management agreement took effect upon the purchase of
the restaurants and is to remain in effect as long as the subsidiaries
continue to own the restaurants.
The management agreement grants the management company complete authority
with respect to day-to-day operations, all of which is carried out under
the subsidiaries' name. Any non-routine matters such as the purchase or
sale of real property or fixed assets, assignment or sublease of a lease,
any proposed borrowing or financing or participation in a joint venture
including the exercise of the purchase option granted by the seller or
Wendy's requires the joint approval of the subsidiaries' and the
management company.
The management agreement provides for a basic fee equal to thirty percent
on Wendcello and forty percent on Wendclark of pre-tax cash flow
determined annually and paid on an estimated basis quarterly to be
adjusted when annual results are known. The management fees were $117,500
in 1996. The agreement further provides for an incentive fee equal to
thirty and forty percent of the pre-tax proceeds of the sale or
refinancing of any assets owned or later acquired by the subsidiaries less
any amounts used to buy replacement assets or to pay off any refinanced
obligations. Whenever basic or incentive fees are paid, the subsidiaries
must pay a dividend to its parent equal to two and one-third times and one
and one-half times the amount of the fee paid to Cello and Clark
Management Corps., respectively.
The agreement further provides that in the event the subsidiaries exercise
the purchase option for the real property granted by Wendy's International
or the lessor, the parent Company and the management company shall share
in the capital funding thereof (that is, for the portion which cannot be
financed through third parties). For any period in which cash flow is
negative, working capital advances shall be made to the subsidiaries by
its parent and management company in the ratio of 7 to 3 and 3 to 2 for
Wendcello and Wendclark, respectively.
B. CONSULTING AGREEMENT:
Wendclark has a three-year consulting contract with its Chairman renewed
in 1993 through March 31, 1996 providing for a monthly fee of $1,050 plus
reasonable expenses. For fiscal 1996, $12,600 was incurred pursuant to
this contract. At expiration, the agreement is automatically renewable for
as long as Wendclark remains in business at not less than the current fee.
<PAGE> 22
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 7: RELATED PARTY TRANSACTIONS (cont'd)
C. NOTE RECEIVABLE:
The Transaction involving the sale of land in Goshen, NY (see note 4) and
the related note receivable (see note 2) was with Windemere in the Pines
at Goshen, Inc., a part of the Windemere Group of construction companies,
in which Jed Schutz, a director of Nexus, is an officer, director and
shareholder. The selling price of this land was $484,200, resulting in a
profit $406,624 (see note 8d-2). The balance of the note receivable at
February 29, 1996 was $448,000. It is management's opinion that this
transaction would be at the same terms had the parties not been related.
NOTE 9: COMMITMENTS AND CONTINGENCIES
A. FRANCHISE AGREEMENT COMMITMENTS:
Wendcello and Wendclark, subsidiaries of the Company are the franchisees
for the sixteen Wendy's Restaurants it owns and operates. The franchise
agreements obligates the subsidiaries to pay to Wendy's International a
monthly royalty equal to 4% of the gross sales of each restaurant during
the month, or $250, whichever is greater.
Additionally, the subsidiaries must contribute to Wendy's National
Advertising Program 2.5% of the gross sales and spend not less than 1.5%
of the gross sales of each restaurant for local and regional advertising.
B. MINIMUM OPERATING LEASE COMMITMENTS:
The Wendy's restaurants entered into various leases, with various clauses
relating to real estate taxes, common charges, renewals and percentage
rent with certain minimum payments.
The subsidiaries have various options to purchase the properties on which
the Wendy's restaurants are located. On four of the properties Wendclark
has an option to purchase all but not less than all of these properties
leased from Wendy's. If exercised, the aggregate purchase price is
$1,680,000. The option may be exercised through the tenth year of the
lease. If exercised, the purchase option agreement requires Wendclark to
give to Wendy's the right of first refusal, for a period of twenty years,
in the event the properties are resold. This option was exercised in 1996
and Wendclark has a commitment to borrow from a West Virginia bank the
entire $1,680,000 option purchase price, secured by mortgages on the four
properties. The purchase is scheduled to be completed in 1996 (see note
10a).
Wendcello has the option through June 30, 1996 to purchase all four but
not less than all of the properties that it leases from Wendy's together
with a small office building located on one of the properties and also
owned by the lessor. If exercised, the aggregate purchase price is the
greater of $5,100,000 or an amount determined by a formula based on the
properties' rental income earned. Wendcello also has a right of first
refusal to purchase the leased properties during the exercise period of
the purchase option.
<PAGE> 23
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 8: COMMITMENTS AND CONTINGENCIES (Cont'd)
B. MINIMUM OPERATING LEASE COMMITMENTS:
Rent expense for these restaurants, was approximately $990,467 in 1996 of
which approximately $665,750 was attributable to base rentals and $324,717
was attributable to contingent rentals.
In July, 1994 FRM moved its executive offices to office facilities that
are leased under a three year and two month operating lease expiring in
August, 1997.
Subject to annual real estate adjustments, and additional rent in excess
of base sales, the following is a schedule of future minimum rental
payments required under the above operating leases as of February 29,
1996:
Year Ending
February
--------
1997 $ 759,050
1998 724,436
1999 711,230
2000 714,851
2001 714,346
Thereafter 6,711,599
-----------
Total $10,335,512
===========
On March 1, 1996, pursuant to an agreement for the sale of real estate FRM
leased back 50% of the building that was sold for a period of ten years.
The Company is obligated to pay for construction and landscaping costs
necessary to complete the building (see note 6b-3). The lease calls for
monthly rent payable in the period from March 1, 1996 throughout April 1,
1998, on the first day of each such month in said period, shall be
determined by the following formula: the sum of (i) $1,500, (ii) 1% of the
amount of additional cash of $900,000 theretofore paid by the landlord to
the tenant under the note due July 31, 1996, (see note 6b-3), (iii) the
monthly payments due in said month for principal and interest on the first
and purchase money notes, namely $34,833 (see note 2) and (iv) the
operating expenses payable by the landlord for said month pursuant to this
lease and an existing lease on the remainder of the building, less, (x)
the rent receivable from the existing lease for said month under that
lease. Commencing May 1, 1998 and for the balance of the term, the annual
base rent on a monthly basis shall be the $35,290.33 per month.
The Company may sublease the entire space covered under the lease, with
any profit to be payable to the Company.
<PAGE> 24
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 8: COMMITMENTS AND CONTINGENCIES (Cont'd)
C. CONTRACTS:
1) The Company has a three year employment contract with its Chief
Executive Officer commencing January 1, 1995 through December 31,
1997. The base salary for this executive is $120,000 in 1996, and
$130,000 in 1997 plus an unaccountable expense allowance of $5,000
per year, plus any other reasonable expenses. In, addition he
received a bonus of $60,000 in 1996. At expiration, the agreement is
automatically extended for additional one year periods unless either
party shall notify the other of his or its intention not to renew
the Agreement.
2) The Wendcello Subsidiary has three-year consulting contracts with
one of its executives and another consultant renewed in 1993 through
August 30, 1996 providing for a monthly fee of $600 to each plus
reasonable expenses. At expiration, the agreements are automatically
renewable thereafter for as long as Wendcello remains in business at
not less than the current fee. For fiscal 1996 $14,400 was incurred
pursuant to this contract.
D. SALE OF REAL ESTATE:
1) Upon full collection of the purchase money mortgage in the amount of
$1,900,000 as discussed in note 2, an additional liability will be
due and payable for approximately $150,000. If the note is not
collected in full, an amount substantially less will be paid.
2) The Company received additional consideration for the land sold in
Goshen, N.Y., which is not included among the notes receivable (see
notes 2, 4c and 7c). This was a purchase money debenture payable to
PSI Capital Corp. for $484,800 which matures on February 28, 2002
together with interest at the rate of 6% per annum payable at
maturity, but subject to increase or decrease, as set forth below,
contingent on the sale of the single family residences to be built
on the 32 lots which were sold.
Prior to the maturity date, the principal sum of this debenture
shall be prepaid as each of the single family residences constructed
on the real estate are conveyed to the end purchaser, each such
prepayment to be equal to at least 50% of the net profit to the
buyer with respect to said sale. The buyer agrees to take such
action as is necessary to construct and sell the one family
residences and the buyer shall not sell any portion of the real
estate except to an end purchaser of said residences. Upon the sale
of the last residence that is built or could be built on the real
estate, the parties shall compute the amount of the buyer's net
profit on all residences constructed on the real estate (the "final
net profit of the buyer"). If 50% of the final net profit of the
buyer is (i) more that $484,800, the excess shall be paid to the
seller at the time or (ii) less than $484,800, the deficiency shall
not be payable by the buyer and the debenture shall be deemed fully
paid. At that date the interest shall be adjusted to reflect the
actual principal sum of the debenture already paid.
<PAGE> 25
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 8: COMMITMENTS AND CONTINGENCIES (cont'd)
E. FORMATION OF FRM NEXUS (FORMERLY PSI SETTLEMENT CORP):
In 1993, Shareholders of Programming and Systems, Inc. (PSI) brought a
class action against PSI and certain of its officers in the United States
District Court for the Southern District of New York, which was settled by
a Stipulation of Settlement dated as of November 15, 1993 (the
"Stipulation"), pursuant to which PSI Settlement Corp. (FRM) was formed.
On January 21, 1994 Judge Robert Sweet signed the Order confirming the
Stipulation. Pursuant to that Stipulation (i) the eligible shareholders of
PSI received a pro-rata distribution of $1,400,000, after deduction of the
fees and expenses of the class action, which amounted to fifty cents per
share, and (ii) all the shares of FRM were delivered to Escrow Agents to
hold for the benefit of all shareholders of PSI. Pursuant to the Orders of
Judge Sweet, PSI transferred certain assets to FRM as specified in the
Stipulation and the Court's Orders. These payments, including the shares
of FRM, fully settled all of the claims by PSI shareholders that could
have been asserted against PSI and the other defendants in the class
action.
On June 12, 1995 Judge Sweet signed an Order approving an amendment of the
Stipulation which permitted FRM to operate as an ongoing entity rather
than liquidating its assets, provided the escrowed shares of FRM are
delivered out to PSI shareholders and listed on NASDAQ by June 12, 1997.
In addition to settling the class action, PSI has now settled the action
by the Securities and Exchange Commission against it and resolved or paid
the material claims and lawsuits which arose out of its discontinued
vocational school operations. At the present time, the audits of PSI's
income tax returns through February 28, 1993 and reviews by education
agencies are incomplete, but no claims have been instituted against PSI.
PSI will defend against any such claims that may be instituted and the
management of PSI believes it will be successful. FRM has been advised by
legal counsel that FRM would not be held liable for any liabilities PSI
might incur in the event of an unfavorable outcome to said audits,
reviews or other claims which may be made against PSI.
F. LITIGATION:
PSI is subject to a number of lawsuits, investigations and claims arising
out of the general conduct of its past businesses. Management has been
advised by legal counsel that FRM would not be held liable for any
unfavorable outcome of litigation involving PSI. Management's intentions
are to vigorously defend all litigation to the best of its ability.
In January 1995, PSI Capital Corp. filed a lawsuit against the Village of
Goshen, N.Y. This is an action by PSI Capital Corp. against the Village of
Goshen to specifically enforce an agreement with respect to the
development of vacant land and for damages. It is pending in the
Bankruptcy Court in Connecticut in the pending Chapter 11 Proceedings of
PSI Capital Corp. See note 4c with respect to the pending settlement of
this action.
<PAGE> 26
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 8: COMMITMENTS AND CONTINGENCIES (cont'd)
G. BANKRUPTCY:
On March 25, 1992, PSI Capital Corp. filed for relief under Chapter 11 of
the Bankruptcy Code. This filing was done in order to protect second
mortgage positions on two of the properties. This action provided PSI
Capital Corp., with sufficient time to negotiate with the holders of prior
mortgages and secure PSI Capital Corp's interest in the properties.
NOTE 9: INCOME TAXES
The provision for income taxes for fiscal 1996 reflects the following:
Currently payable:
Federal $ 0
State 14,637
--------
Total currently payable 14,637
--------
Deferred:
Federal $ 0
State 342,196
--------
Total deferred 342,196
--------
Total $356,833
--------
FRM files a consolidated federal tax return with PSI, which has no federal
tax liability due to current and prior year net operating losses.
Significant components of deferred income taxes at February 29, 1996, were
as follows:
Deferred Deferred Tax
Tax Assets Liabilities
---------- ------------
Property, plant and
equipment $ -- $ 8,790
Installment sale of
real estate -- 326,589
-------- --------
$ -- $335,379
======== ========
<PAGE> 27
FRM NEXUS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
NOTE 10: SUBSEQUENT EVENT
A. FINANCING:
In March 1996, Wendclark obtained a commitment from its bank for new
financing in the aggregate amount of $1,680,000. The loan is to be
used to exercise the purchase option for the four restaurants leased
from Wendy's (see note 8b). The loan will bear interest at 9.25%
over its term and require 60 monthly payments of principal and
interest calculated on a 20-year amortization basis. A balloon
payment will be required after five years. The loan, which requires
an $8,400 origination fee, will be secured by a first deed of trust
on the realty of and the equipment at the four restaurants and is to
be guaranteed by the Company's three executive officers. The loan
amount is limited to the lessor of 70 percent of the properties'
appraised value or $1,680,000. The loan is agreement imposes various
affirmative and negative covenants upon the Company relating to the
conduct of business, maintenance of insurance, submission of
financial statements of the Company and its guarantors, compliance
with certain financial ratios, restrictions on dividends, management
fees and the sale of the Company's outstanding capital stock.
B. REAL ESTATE HELD FOR DEVELOPMENT AND SALE:
1) Subsequent to February 29, 1996 an agreement has been entered into
with the Village of Goshen allowing development of 165 single family
dwellings (see note 4c).
2) The Company has signed a contract for the sale of its Pound Ridge,
NY property at $225,000 which is scheduled to be completed in 1996
(see note 4d).
<PAGE> 1
EXHIBIT 23.01
CONSENT OF
INDEPENDENT ACCOUNTANTS
The undersigned, Michael, Adest & Blumenkrantz, does hereby consent to the
inclusion in the Registration Statement (Form 10) of FRM Nexus, Inc. for the
registration of its common stock, par value l0(cents) per share, pursuant to
Section l2(g) of The Securities Exchange Act of 1934 of its Independent
Auditor's Report dated May 9, 1997 and the financial statements, notes and
schedules described in the Index referred to in Item 15 of said Form 10.
June 27, 1997 /s/ Michael Adest & Blumenkrantz CPA PC
---------------------------------------
Michael Adest & Blumenkrantz CPA PC
