<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
REGISTRATION NO. 33-80812
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
AMENDMENT NO. 5
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
UNITED VANGUARD HOMES, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 8052 11-2032899
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
4 CEDAR SWAMP ROAD 4 CEDAR SWAMP ROAD
GLEN COVE, NEW YORK 11542 GLEN COVE, NEW YORK 11542
(516) 759-1188 (Address of Principal Place of Business or Intended Principal
(Address and Telephone Number of Principal Executive Offices) Place of Business)
</TABLE>
CARL G. PAFFENDORF, ESQ.
UNITED VANGUARD HOMES, INC.
4 CEDAR SWAMP ROAD
GLEN COVE, NEW YORK 11542
(516) 759-1188
(Name, Address and Telephone Number of Agent For Service)
COPIES TO:
<TABLE>
<S> <C>
ROBERT H. FRIEDMAN, ESQ. LAWRENCE B. FISHER, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
505 PARK AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10103
(212) 753-7200 (212) 506-5000
(212) 755-1467 (TELECOPIER) (212) 506-5151 (TELECOPIER)
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value(2) $19,665,000(3) $6,782
Common Stock Purchase Warrants(4) $103,500(5) $36
Common Stock, $.01 par value, underlying Common Stock
Purchase Warrants $13,568,850(6) $4,679
Representatives' Warrants $18(7) $1
Common Stock Purchase Warrants underlying Representatives'
Warrants(8) $10,800(9) $4
Common Stock, $.01 par value, underlying Representatives'
Warrants(8) $2,052,000(10) $708
Common Stock, $.01 par value, underlying Common Stock
Purchase Warrants underlying Representatives' Warrants(8) $1,179,900(11) $407
Total $36,580,068 $12,617(12)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes 270,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(3) Based upon a proposed maximum offering price of $9.50 per share of Common
Stock.
(4) Includes 270,000 Common Stock Purchase Warrants issuable upon exercise of
the Underwriters' over-allotment option.
(5) Based upon a proposed maximum offering price of $0.05 per Common Stock
Purchase Warrant.
(6) Based upon a proposed maximum offering price of $13.11 per share of Common
Stock.
(7) Based upon a proposed maximum offering price of $0.0001 per
Representatives' Warrant.
(8) Pursuant to Rule 416, this Registration Statement also relates to an
indeterminate number of additional shares of Common Stock and Common Stock
Purchase Warrants issuable upon the exercise of the Representatives'
Warrants pursuant to anti-dilution provisions contained therein, which
shares of Common Stock and Common Stock Purchase Warrants are registered
hereunder.
(9) Based upon a proposed maximum offering price of $0.06 per Common Stock
Purchase Warrant.
(10) Based upon a proposed maximum offering price of $11.40 per share of Common
Stock.
(11) Based upon a proposed maximum offering price of $13.11 per share of Common
Stock.
(12) $3,793 was paid in connection with the initial filing of the Registration
Statement in June 1994 and $6,838 was paid in connection with the filing of
Amendment No. 4 to the Registration Statement on July 22, 1996.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNITED VANGUARD HOMES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM SB-2 REGISTRATION STATEMENT CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus; Available Information
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution............................................. Dilution
7. Selling Security-Holders............................. Principal and Selling Stockholders
8. Plan of Distribution................................. Outside Front and Inside Front Cover Pages of
Prospectus; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Principal and Selling Stockholders
12. Description of Securities............................ Description of Capital Stock
13. Interests of Named Experts and Counsel............... Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Indemnification For Securities Act Liabilities;
Underwriting
15. Organization Within Last Five Years.................. *
16. Description of Business.............................. Business
17. Management's Discussion and Analysis or Plan of
Operation........................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................. *
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................. Change in Accountants
</TABLE>
- ------------
* Not applicable
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996
PROSPECTUS
UNITED VANGUARD HOMES, INC.
1,800,000 SHARES OF COMMON STOCK AND
1,800,000 COMMON STOCK PURCHASE WARRANTS
---------------------
United Vanguard Homes, Inc., a Delaware corporation (the "Company"), hereby
offers 1,800,000 shares (the "Shares") of common stock, $.01 par value per share
(the "Common Stock"), and 1,800,000 Common Stock Purchase Warrants (the
"Warrants"). The Shares and Warrants are sometimes hereinafter collectively
referred to as the "Securities."The Shares and Warrants may only be purchased
together on the basis of one Share and one Warrant and will trade separately
immediately upon issuance. One Warrant entitles the registered holder thereof to
purchase one-half share of Common Stock at an exercise price of $ per share
[120% of the initial public offering price per share] at any time during the
period commencing on the date of this Prospectus until , 1998
[eighteen (18) months from the date of this Prospectus] and $ per share [138%
of the initial public offering price per share] at any time during the period
commencing , 1998 [eighteen (18) months from the date of this
Prospectus] until , 1999 [three (3) years from the date of this
Prospectus]. The Warrant exercise price is subject to adjustment under certain
circumstances.
Prior to the offering, there has been no public market for the Common Stock
or the Warrants and there can be no assurance that such a market will develop
after completion of the offering, or if developed, that it will be sustained. It
is currently anticipated that the initial public offering price of the Common
Stock will be between $7.50 and $9.50 per Share and $0.05 per Warrant. For
information regarding the factors considered in determining the initial public
offering prices of the Shares and Warrants and the terms of the Warrants, see
"Risk Factors" and "Underwriting." The Shares and Warrants have been approved
for quotation on the Nasdaq National Market under the symbols "UVHI" and
"UVHIW," respectively.
Concurrently with the offering of the Common Stock, the Company is offering
for sale, by means of a separate prospectus, $12,500,000 aggregate principal
amount of its % Convertible Senior Secured Notes due 2006 (the "Notes").
The Common Stock offering is conditioned upon, and is a condition to the
consummation of, the Notes offering (the "Concurrent Notes Offering" and,
collectively with this offering, the "Offerings"). See "Prospectus Summary --
Concurrent Notes Offering."
--------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 9 AND "DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................. $ $ $
Per Warrant............................................... $ $ $
Total(3).................................................. $ $ $
</TABLE>
(1) Does not include additional compensation payable to Janney Montgomery Scott
Inc. and Rodman & Renshaw, Inc., the representatives of the several
Underwriters (the "Representatives") in the form of a non-accountable
expense allowance. In addition, see "Underwriting" for information
concerning indemnification and contribution arrangements with the
Underwriters and other compensation payable to the Representatives.
(2) Before deducting estimated expenses of $ (inclusive of expenses of
Vanguard Ventures, Inc., the Company's principal stockholder ("Vanguard"))
payable by the Company, excluding the Representatives' non-accountable
expense allowance.
(3) Vanguard has granted to the Underwriters an option, exercisable within
thirty (30) days after the effective date of the Registration Statement, to
purchase up to 270,000 additional Shares and the Company has granted to the
Underwriters an option, exercisable within thirty (30) days after the
effective date of the Registration Statement, to purchase up to 270,000
additional Warrants, each upon the same terms and conditions as set forth
above, solely to cover over-allotments, if any (the "Over-Allotment
Option"). If such Over-Allotment Option is exercised in full, the total
Price to Public, Underwriting Discounts and Proceeds to Company will be
$ , $ and $ , respectively and proceeds to Vanguard
will be $ . See "Underwriting."
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this offering and to reject any order in whole or in part. It is expected that
delivery of the Securities will be made against payment, at the offices of
Janney Montgomery Scott Inc., New York, New York, on or about
, 1996.
JANNEY MONTGOMERY SCOTT INC. RODMAN & RENSHAW, INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[pictures]
1. The Whitcomb, St. Joseph, MI (Owned and Managed)
2. Olds Manor, Grand Rapids, MI (Owned and Managed)
3. Cottage Grove Place, Cedar Rapids, IA (Development and Management Agreements)
4. Harvest Village, Atco, NJ (To be Owned and Managed)
5. Hillside Terrace, Ann Arbor, MI (Owned and Managed)
6. Presidential Place, Hollywood, FL (Development, Management and Purchase
Option Agreements)
7. The Whittier, Detroit, MI (Management and Purchase Option Agreements)
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
------------------------
The Company intends to furnish its stockholders with quarterly and annual
reports containing financial statements audited and reported upon by its
independent certified public accountants after the end of each fiscal year, and
make available such other periodic reports as the Company may deem to be
appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER "RISK FACTORS." UNLESS OTHERWISE INDICATED, ALL SUCH
FINANCIAL INFORMATION AND SHARE AND PER SHARE DATA IN THIS PROSPECTUS HAVE BEEN
ADJUSTED TO GIVE EFFECT TO A 1-FOR-1.6667 REVERSE SPLIT OF THE COMMON STOCK
WHICH IS EXPECTED TO OCCUR PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART. IN ADDITION, UNLESS OTHERWISE
INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. SEE "UNDERWRITING." UNLESS THE
CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" REFER
TO UNITED VANGUARD HOMES, INC. AND ITS CONSOLIDATED SUBSIDIARIES.
THE COMPANY
United Vanguard Homes, Inc., a Delaware corporation (the "Company"), is an
owner, manager and developer of senior living facilities which provide housing
and various levels of care and services for the elderly. Until the consummation
of the Offerings, the Company will continue to be a majority-owned subsidiary of
Vanguard Ventures, Inc. ("Vanguard"). Upon completion of the Offerings, the
Company will own and/or manage five senior living facilities containing 1,071
apartments and nursing units (the "Initial Properties"). Additionally, it is in
the process of developing, acquiring or leasing for itself or on behalf of
others, eight facilities expected to contain approximately 780 apartments and
nursing units. One of these facilities (containing 201 apartment and nursing
units) is currently under construction, and two others (containing 168 apartment
units) have received zoning approval; two proposed facilities are in the zoning
process and three are subject to acquisition or lease agreements. The purchase
of nine other sites for the development of senior living facilities are
currently being negotiated.
Senior living facilities provide a combination of housing, personalized
support and healthcare services generally identified as INDEPENDENT LIVING,
ASSISTED LIVING and SKILLED NURSING. INDEPENDENT LIVING facilities are designed
to enable residents to live independently yet remain free from the chores of
home ownership and concerns of daily life, such as transportation, meal
preparation, personal security and housekeeping. ASSISTED LIVING facilities
offer a combination of housing and personal care and healthcare services
designed to respond to the individual needs of those who require help with the
activities of daily living but are not sick or bedridden. SKILLED NURSING
facilities are for those residents who require extensive care. A continuing care
retirement community ("CCRC") provides all three levels of services (independent
living, assisted living and skilled nursing) in the same facility, whereas other
facilities, known as congregate care facilities, provide only independent living
and assisted living services.
Two of the Company's Initial Properties are congregate care facilities and
three of the Initial Properties are CCRCs. As residents of senior living
facilities "age-in-place," they generally require more assistance. In each of
the Company's currently owned and/or managed senior living facilities, a
significant shift in the needs of residents from independent living services to
assisted living services has taken place, and to accommodate residents, the
Company is in the initial stages of converting a number of its independent
living apartments in each of the Initial Properties to assisted living units. Of
the eight properties being developed, acquired or leased, one is a CCRC, six are
assisted living facilities and one is an expansion at one of the Initial
Properties to add 64 independent living units. The Company's three-year
expansion objective is to develop at least 24 senior living facilities,
consisting of 20 assisted living facilities and four CCRCs with an estimated
aggregate capacity of approximately 3,000 units.
The Company's growth objective is to capitalize on the experience of its
management team in the senior living industry and on the growing demand for
senior living facilities as an increasingly preferred lifestyle for the elderly
by (i) providing a full range of high-quality personalized resident care
3
<PAGE>
and services; (ii) pursuing development opportunities for itself or on behalf of
others; and (iii) acquiring properties in the open market or through the
exercise of purchase options obtained in the development process.
The Company believes that its business will benefit in the foreseeable
future from significant trends affecting the long-term care industry, including
an increase in the demand for senior care resulting from the aging of the U.S.
population, efforts to contain healthcare costs by both the public and private
sector and the increasing financial net worth of the senior population which
makes the senior living facility an available option to a broader market. The
Company believes that these trends will result in increasing demand for senior
living facilities that generally offer a more secure, trouble-free environment
and improved quality of life.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
Securities Offered........................... 1,800,000 Shares of Common Stock and
1,800,000 Warrants. The Shares and the
Warrants will trade separately immediately
upon issuance.
<S> <C>
Exercise Price of Warrants................... One Warrant entitles the registered holder
thereof to purchase one-half share of Common
Stock at an exercise price of $ per share
[120% of the initial public offering price
per share] at any time during the period
commencing on the date of this Prospectus
until , 1998 [eighteen (18) months
from the date of this Prospectus] and $
per share [138% of the initial public
offering price per share] at any time during
the period commencing , 1998
[eighteen months from the date of this
Prospectus] until , 1999 [three (3)
years from the date of this Prospectus]. The
Warrant exercise price is subject to
adjustment under certain circumstances. See
"Description of Capital Stock."
Common Stock Outstanding Prior to the
Offering.................................... 2,240,950 shares(1)
Common Stock to be Outstanding After the
Offering.................................... 4,040,950 shares(1)
Use of Proceeds.............................. The net proceeds to be received by the
Company from this offering, together with the
net proceeds from the sale of the Notes in
the Concurrent Notes Offering, will be used
for the acquisition of Harvest Village, for
capital improvements at the Initial
Properties and for working capital and
general corporate purposes. See "Use of
Proceeds."
Risk Factors................................. The Common Stock offered hereby involves a
high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
Proposed Nasdaq National Market Symbols:.....
Common Stock............................. UVHI
Warrants................................. UVHIW
</TABLE>
- ------------------------
(1) Excludes (i) 126,480 shares of Common Stock issuable upon exercise of stock
options with a weighted average exercise price of $3.85 per share
outstanding under the Company's 1991 Incentive Stock Option Plan, (ii) 9,000
shares of Common Stock issuable upon exercise of stock options with an
exercise price of $6.00 per share outstanding under the Company's 1996
Outside Directors' Stock Option Plan, (iii) 190,876 shares of Common Stock
issuable upon conversion of convertible securities with a weighted average
conversion price of $7.18 per share, (iv) 1,225,490 shares of Common Stock
issuable upon conversion of the Notes (at an assumed initial conversion
price of $10.20 per share based upon an assumed initial public offering
price of $8.50 per Share), (v) 270,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants, and upon exercise of the Warrants
underlying the Representatives' Warrants, (vi) 122,549 shares of Common
Stock issuable upon exercise of the Placement Agent's warrants issued to
Janney Montgomery Scott Inc. ("Janney") in the Concurrent Notes Offering and
(vii) 900,000 shares of Common Stock issuable upon exercise of the Warrants.
Under the treasury stock method of computation, outstanding options and
warrants represent 6,152 Common Stock equivalents. See "Description of
Capital Stock" and "Shares Eligible for Future Sale."
5
<PAGE>
CONCURRENT NOTES OFFERING
Concurrently with the Common Stock offering, the Company is offering, by
separate prospectus, $12,500,000 aggregate principal amount of its Notes. The
consummation of the offering of Common Stock made hereby is conditioned upon,
and is a condition to, the consummation of the Concurrent Notes Offering. See
"Description of Notes."
The Notes will mature on November 1, 2006, bear interest at a rate of %
per annum and will be convertible into Common Stock at a conversion price of
$ [ % of the initial public offering price of the Common Stock]. The
Notes will be redeemable, at the Company's option, at any time after November 1,
1998, at redemption prices beginning at 107% of principal amount and declining
to 103% beginning November 1, 2002 under certain circumstances. In addition, the
Company will be required to redeem $3,125,000 principal amount of Notes on
November 1, 2003 and on each November 1, thereafter through maturity at 100% of
the principal amount thereof. The Notes will be secured by a first mortgage on
Harvest Village.
6
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share amounts and Operating Data)
The following summary should be read in conjunction with the Consolidated
Financial Statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
----------------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 (1) 1995 1996 1996 (1)
---------- ---------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Resident and healthcare
services...................... $ 7,229 $ 7,378 $ 7,521 $ 7,521 $ 1,820 $ 1,892 $ 1,892
Development fees............... 150 700 1,004 1,004 85 85
Rental income.................. -- -- -- 2,550 -- -- 637
---------- ---------- ---------- ----------- --------- --------- ----------
Total revenues................. 7,379 8,078 8,525 11,075 1,820 1,977 2,614
---------- ---------- ---------- ----------- --------- --------- ----------
Expenses:
Residence operating expenses... 5,372 5,595 5,913 5,913 1,389 1,481 1,481
General and administrative
expenses...................... 606 503 414 418 68 155 156
Depreciation and amortization.. 549 565 378 1,074 133 70 240
Provision for (recovery of)
loss on advances to
affiliates.................... 829 1,651 296 296 (72) (72)
---------- ---------- ---------- ----------- --------- --------- ----------
Total expenses................. 7,356 8,314 7,001 7,701 1,590 1,634 1,805
---------- ---------- ---------- ----------- --------- --------- ----------
Income from operations......... 23 (236) 1,524 3,374 230 343 809
Other income (expense):
Interest (expense) net......... (750) (623) (601) (1,797) (178) (135) (434)
Other income................... 145 232 109 109 13 21 21
Debt conversion expense........ -- -- -- -- -- (157) (157)
---------- ---------- ---------- ----------- --------- --------- ----------
Income (loss) before income
taxes......................... (582) (627) 1,032 1,686 65 72 239
Income taxes................ -- -- 420 675 26 33 110
---------- ---------- ---------- ----------- --------- --------- ----------
Net income (loss).............. $ (582) $ (627) $ 612 $ 1,011 $ 39 $ 39 $ 129
---------- ---------- ---------- ----------- --------- --------- ----------
---------- ---------- ---------- ----------- --------- --------- ----------
Earnings (loss) per share
(2)........................... $ (.20) $ (.22) $ .36 $ .29 $ .02 $ .02 $ .03
---------- ---------- ---------- ----------- --------- --------- ----------
---------- ---------- ---------- ----------- --------- --------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average common shares
and equivalents outstanding
(2)........................... 2,937,722 2,848,825 1,692,894 3,492,894 1,681,938 2,197,166 3,997,166
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
MARCH 31, 1996 --------------------------
-------------- PRO FORMA,
ACTUAL ACTUAL AS ADJUSTED (1)
-------------- --------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................ $ (100) $ (4,181) $ 6,893
Total assets............................................................. 6,088 6,386 35,882
Long-term debt, excluding current portion:
Convertible mortgages and notes....................................... 2,616 1,315 14,005
Other debt............................................................ 4,557 285 95
Stockholders' (deficiency) equity........................................ (3,328) (1,689) 15,306
</TABLE>
- ---------------
(1) On April 19, 1996, the Company entered into an agreement to purchase Harvest
Village from an affiliate of Vanguard. The purchase is contingent upon
certain events, including the consummation of the Offerings. The pro forma
statement of operations data present the results of operations as if the
acquisition of Harvest Village and the Offerings had occurred at the
beginning of the period presented and the pro forma balance sheet data
present such balance sheet data as if the acquisition of Harvest Village and
the Offerings had occurred as of June 30, 1996. See "Selected Financial
Data" and Note L to Consolidated Financial Statements.
(2) The weighted average number of shares of Common Stock and equivalents
outstanding at March 31, 1996 and June 30, 1996 give effect to the
cancellation by the Company, in March 1995, of 1,200,000 shares of Common
Stock held by Vanguard. See "Certain Relationships and Related Transactions"
and Note I to Consolidated Financial Statements. Fully diluted earnings per
share and Common Stock and equivalents outstanding are not presented for
periods in which the effect would be anti-dilutive. In addition, excluded
for all periods presented, from the weighted average number of common shares
and common equivalent shares are 46,936 shares owned by Vanguard which are
held in escrow pursuant to an agreement to be entered into in connection
with the Company's proposed public offering. See Note A to Consolidated
Financial Statements.
7
<PAGE>
OPERATING DATA:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
------------------------------------------ THREE MONTHS ENDED
1993 1994 1995 1996 JUNE 30, 1996
--------- --------- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
PROPERTIES OWNED: HILLSIDE TERRACE, OLDS MANOR AND THE
WHITCOMB
Number of independent living apartments (end of
period).............................................. 270 270 270 270 265
Average occupancy percentage.......................... 93% 94% 94% 93% 98%
Number of assisted living units (end of period)....... 91 91 91 91 98
Average occupancy percentage.......................... 91% 92% 92% 88% 97%
Number of skilled nursing beds (end of period)........ 67 67 67 67 67
Average occupancy percentage.......................... 100% 99% 100% 99% 100%
PROPERTY TO BE ACQUIRED: HARVEST VILLAGE (1)
Number of independent living apartments
(end of period)...................................... 300 300 300 300 300
Average occupancy percentage.......................... 48% 51% 50% 52% 51%
Number of skilled nursing beds (end of period)........ 60 60 60 60 60
Average occupancy percentage.......................... 93% 95% 92% 91% 93%
MANAGED PROPERTY: THE WHITTIER (2)
Number of independent living apartments (end of
period).............................................. 229 229 229 229 229
Average occupancy percentage.......................... 60% 55% 46% 39% 47%
Number of assisted living units (end of period)....... 52 52 52 52 52
Average occupancy percentage.......................... 77% 77% 81% 92% 96%
</TABLE>
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(1) See "Use of Proceeds" and "Business -- The Initial Properties."
(2) The Company may terminate the management agreement for The Whittier upon 30
days' written notice to Vanguard. See "Business -- The Initial Properties."
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK AND WARRANTS OFFERED HEREBY. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
HISTORY OF LOSSES; UNCERTAINTY OF PROFITABILITY
The Company reported losses in fiscal 1992, 1993, 1994 and 1995. Although
the Company operated profitably in fiscal 1996 and the three months ended June
30, 1996, there can be no assurance that profitability on a quarterly or annual
basis will be sustained in the future. At June 30, 1996, the Company had an
accumulated deficit of approximately $8,928,000 and a working capital deficit of
approximately $4,181,000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LOSSES AT CERTAIN SENIOR LIVING FACILITIES
Certain of the Initial Properties have historically recorded losses. The
Whittier (owned by a subsidiary of Vanguard and managed by the Company), which
did not account for any of the Company's revenues for the fiscal year ended
March 31, 1996 and the three months ended June 30, 1996, has recorded historical
net losses in each of the five fiscal years ended March 31, 1996. Harvest
Village (which is being acquired with a portion of the net proceeds of the
Offerings), which will account, on a pro forma basis, for approximately 46% of
the Company's owned units and beds immediately upon consummation of the
Offerings, has recorded historical net losses in each of the five fiscal years
ended December 31, 1995 and the six months ended June 30, 1996. The failure of
Gateway Communities, Inc., a Michigan not-for-profit corporation and the lessee
of Harvest Village, to make rental payments to the Company may have a material
adverse effect on the Company. There can be no assurance that the Company's
proposed turnaround strategies for these senior living facilities or any other
senior living facilities will be successful. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "The
Company--Proposed Acquisition" and Footnote L to Consolidated Financial
Statements.
UNCERTAINTY OF AVAILABILITY OF MORTGAGE REFINANCING; RISK OF FORECLOSURE
Upon the consummation of the Offerings, the Company will have outstanding
approximately $19.7 million of mortgage indebtedness secured by the Initial
Properties. Of such amount, approximately $5.0 million is due on or before May
31, 1997. Although the Company is attempting to refinance its current
outstanding indebtedness, no assurance can be given that the Company will be
successful. In addition, the Company expects that as it finances the acquisition
of additional senior living facilities, the aggregate amount of its mortgage
indebtedness will increase. An inability to make such payments when due or to
refinance such indebtedness could cause the mortgage lender to foreclose on the
Company's senior living facilities securing such indebtedness, which would have
a material adverse effect on the Company. In addition, interest rates on any
debt issued to refinance such mortgage debt may be higher than the rates on
current mortgages. $1,453,947 of the Company's current mortgage indebtedness
bears interest at a variable rate. Increases in interest rates will increase the
Company's interest costs and could have a material adverse effect on the
Company's financial condition and results of operations. See "Description of
Mortgage Loans."
POSSIBILITY OF CROSS DEFAULT
As of June 30, 1996, Vanguard, the owner of The Whittier, one of the Initial
Properties which is managed by the Company, was indebted to Great-West Life &
Annuity Insurance Company in the aggregate principal amount of $4,087,500. Such
indebtedness is secured by a first mortgage loan on The Whittier and is due
April 30, 1997. The mortgage securing The Whittier provides that a default under
such loan is a default under each of the Company's loans securing Hillside
Terrace and The Whitcomb, two of the Initial Properties owned by the Company.
Therefore, a default by Vanguard
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under the loan securing The Whittier could result in the foreclosure of Hillside
Terrace and The Whitcomb. In addition, a default under certain of the Company's
outstanding indebtedness, including the loans secured by Hillside Terrace and
The Whitcomb, would be an event of default under the Notes. See "Certain
Relationships and Related Transactions," "Description of Mortgage Loans" and
"Description of Notes."
REPAYMENT RISK ASSOCIATED WITH SPONSORED DEVELOPMENT PROJECTS; POSSIBLE
FLUCTUATIONS IN QUARTERLY RESULTS
The Company intends to increase the number of senior living facilities it
owns and manages in part through a strategy whereby the Company may enter into
an agreement with an unaffiliated not-for-profit organization exempt from
federal income taxes under Section501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code") (a "501(c)(3) organization") to develop a senior
living facility for such entity. In connection with such development projects,
the Company may attempt to obtain a management agreement to operate the senior
living facility upon its completion as well as a fair market value purchase
option for such facility. Through this type of transaction if the unaffiliated
entity is adequately financed, the Company would not incur the start-up
development costs and operating losses typically associated with the development
and initial operation of a senior living facility because the Company would not
be its owner. The Company would, however, earn a development fee for the
development of the senior living facility. The recognition by the Company of
development fees will generally be contingent upon the completion of
construction financing, therefore the Company's quarterly recognition of
development fee revenue can vary materially from quarter to quarter. The Company
first used this form of transaction at Cottage Grove Place, a 201-unit senior
living facility under construction in Cedar Rapids, Iowa. As part of this
transaction, the Company advanced funds to the owner of Cottage Grove Place. The
Company has advanced funds on a non-recourse basis to the owner of a facility
currently under development in Hollywood, Florida and intends to advance funds
on a non-recourse basis in the future for the development of additional senior
living facilities in an amount up to $1.5 million for any one senior living
facility. Although the Company anticipates that any future advances will be
secured by the assets of the entity to which the Company has advanced funds
(principally the land for the proposed facility), there can be no assurance that
advances of this type will ever be repaid or will be repaid on a timely basis.
To the extent such advances are not secured by land, they will be reserved as
uncollectible until the unaffiliated entity can repay the advances. There can be
no assurance that a 501(c)(3) organization will be willing to enter into such a
contractual arrangement, and moreover, there can be no assurance that this form
of transaction for a 501(c)(3) organization will withstand regulatory challenge.
See, "--Possibility of Regulatory Challenge to Tax Exempt Not-For-Profit
Organizations," and "Business -- Business Strategy."
POSSIBILITY OF REGULATORY CHALLENGE TO TAX EXEMPT NOT-FOR-PROFIT ORGANIZATIONS
A number of the Company's transactions in connection with the Company's
development and/or management of senior living facilities involve contractual
arrangements (e.g., development contracts, management contracts, purchase
options) with 501(c)(3) organizations which are governed by state laws
applicable to not-for-profit organizations. There can be no assurance that the
Internal Revenue Service or a state regulator such as a state's Attorney General
will not challenge the Company's contractual arrangements with such 501(c)(3)
organizations under existing laws and regulations, so as to cause such 501(c)(3)
organizations to lose their tax exempt status under Section501(c)(3) of the Code
or otherwise preclude them from entering into such contractual arrangements with
the Company and/or its affiliates. Furthermore, there can be no assurance that
legislative or administrative amendments to existing law, or changes in the
administrative or judicial interpretations thereof, will not occur so as to
limit or prohibit the participation of 501(c)(3) organizations in these
transactions with the Company. In the event that such 501(c)(3) organizations
lose their tax-exempt status or are otherwise precluded from entering into such
contractual arrangements with the Company and/or its affiliates, and the Company
assumes ownership of such properties, the Company's net income may be reduced by
a significant amount which could have a material adverse affect on the Company's
financial
10
<PAGE>
condition and results of operation. Additionally, if such 501(c)(3)
organizations lose their tax-exempt status under Section501(c)(3) of the Code or
if the management contracts are determined not to comply with certain
requirements imposed thereon by the Internal Revenue Service, any tax-exempt
bonds issued in connection with such entities would have to be redeemed.
RISKS ASSOCIATED WITH ABILITY TO DEVELOP OR ACQUIRE ADDITIONAL SENIOR LIVING
FACILITIES
Initially, the Company's operations will be limited to the Initial
Properties. Therefore, the Company's prospects for growth are directly affected
by its ability to develop senior living facilities primarily for unaffiliated
third party entities in conjunction, in certain cases, with purchase options for
such facilities, and to a significantly lesser extent acquire additional senior
living facilities in the open market. The Company's ability to achieve its
development plans for itself or on behalf of others will depend upon a variety
of factors, many of which are beyond the Company's control. The development of
senior living facilities will also involve a number of risks, including the risk
that the Company or third-party owners will be unable to locate suitable sites,
risks relating to the inability to obtain, or delays in obtaining, necessary
zoning, land use, building, occupancy and other required governmental permits
and authorizations, risks that financing may not be available on satisfactory
terms, environmental risks, risks that construction costs may exceed original
estimates, risks that construction and lease-up may not be completed on
schedule, risks that occupancy rates at a newly completed senior living facility
may not be achieved on schedule, risks that occupancy rates at a newly completed
senior living facility may not be realized or be sustained at expected levels
and risks relating to the competitive environment for development. There can be
no assurance that the Company will achieve its development plans for itself or
on behalf of others, that it will be successful in developing any particular
senior living facility, that the Company's planned expansion will not adversely
affect its operations or that any senior living facilities developed by the
Company will be successful. The various risks associated with the Company's
development or acquisition of senior living facilities and uncertainties
regarding the profitability of such operations could have a material adverse
effect on the Company's financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Business
Strategy."
POSSIBLE NEED FOR ADDITIONAL FINANCING
While the Company estimates that the net proceeds of the Offerings will
provide adequate capital to fund the Company's growth and development program
for at least the 12 months following the date of this Prospectus, additional
financing may be necessary in order to meet the Company's growth and development
program to the extent such plan is modified or certain assumptions of the plan
prove inaccurate. Even if such funds are sufficient to fund the Company's
activities during such period, there can be no assurance that the Company will
generate sufficient cash flow after such time to fund its future working capital
requirements and growth. In such event, the Company would also have to seek
additional borrowings, effect debt or equity offerings or otherwise raise
capital. The Company plans to obtain construction financing for Orchard Terrace
through a HUD Section 232 loan in the next nine months. There can be no
assurance that the Company will be able to secure such financing or, if
available, that the terms will be acceptable to the Company. Furthermore, the
Company has historically depended upon Vanguard to raise capital for senior
living facility development projects, however, there can be no assurance that
Vanguard will continue to provide such services. There can be no assurance that
any such financing will be available to the Company, or if available, that the
terms will be acceptable to the Company. The Notes to be sold in the Concurrent
Notes Offering will include a number of restrictive and financial covenants
including restrictions on the ability of the Company to incur additional
indebtedness. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Notes."
UNCERTAIN ABILITY TO MANAGE GROWTH
The Company's ability to achieve its planned growth is dependent upon a
number of factors, including its ability to hire, train and assimilate
management and other employees, the adequacy of
11
<PAGE>
the Company's financial resources, the Company's ability to identify new markets
in which it can successfully compete and its ability to adapt its purchasing,
marketing, management information and other systems to accommodate its expanded
operations. In addition, there can be no assurance that the Company will be able
to achieve its planned expansion or that it will be able to manage successfully
its expanded operations. In particular, the Company has experience managing only
the Initial Properties and does not have the depth of experience managing the
significantly larger number of senior living facilities that the Company plans
to develop for itself or on behalf of others and operate pursuant to its
business strategy. There is also no assurance that any of the Company's
additional senior living facilities will achieve anticipated occupancy levels
necessary for profitability. Failure to manage growth effectively could have a
material adverse effect on the Company. See "Business -- Business Strategy."
GEOGRAPHIC EXPANSION INTO NEW MARKETS
The Company has not operated a senior living facility outside of Michigan
and New Jersey (where it operated Harvest Village from 1990 to 1994). Adverse
changes in general economic factors affecting the healthcare industry or laws
and regulatory environments in the states in which the Company plans to operate
could have a material adverse effect on the Company's growth strategy, financial
condition and results of operations.
DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT RESOURCES TO PAY; EFFORTS BY
THIRD-PARTY PAYORS TO LOWER REIMBURSEMENT RATES
The Company currently, and for the foreseeable future, expects to rely
primarily on its residents' ability to pay the Company's fees from their own or
familial financial resources. Generally, only seniors with income or assets
exceeding the comparable median in the region where the Company's senior living
facilities are located can afford the Company's fees. Inflation or other
circumstances that adversely affect the ability of seniors to pay for the
Company's services could have an adverse effect on the Company. If the Company
encounters difficulty in attracting seniors with adequate resources to pay for
its services, its operating results and financial condition could be adversely
affected. A portion of the Company's revenues is dependent upon reimbursement
from third-party payors, including state Medicaid programs and private insurers.
Approximately $1,320,500, or 15%, of the Company's revenues were received under
Medicaid for the fiscal year ended March 31, 1996. In addition, approximately
$433,400, or 5%, of the Company's revenues for the fiscal year ended March 31,
1996 were derived from residents who are recipients of Supplemental Security
Income ("SSI") payments. The revenues and profitability of the Company could be
affected by the continuing efforts of governmental and private third-party
payors to contain or reduce the costs of healthcare by attempting to lower
reimbursement rates, increasing case management review of services and
negotiating reduced contract pricing. See "Business -- Paying for Senior Living
Care."
BENEFITS TO RELATED PARTIES
As of June 30, 1996, Carl G. Paffendorf, the Company's Chairman of the Board
and Chief Executive Officer, guaranteed the repayment by Vanguard of $1.00 of
indebtedness relating to Harvest Village. The $1.00 guarantee increases to
$6,350,000 if Harvest Partners files for bankruptcy. That indebtedness will be
repaid as a result of the initial application of the net proceeds of the
Offerings. In addition, $6,094,000 due the Company from Vanguard was cancelled
in connection with the acquisition by the Company of Harvest Village. See
"Certain Relationships and Related Transactions."
IMMEDIATE SUBSTANTIAL DILUTION
Based upon the pro forma net tangible book value of the Company at June 30,
1996, and based upon an assumed initial public offering price of $8.50 per
share, investors in this offering will suffer an immediate and substantial
dilution of their investment of approximately $5.87 per share. See "Dilution."
12
<PAGE>
CONFLICTS OF INTEREST
Certain officers and Directors of the Company are also officers and
directors of affiliates of the Company, either directly or indirectly. For
example, the Company manages The Whittier, which is owned by Vanguard, and the
management fee for The Whittier is set by agreement between the Company and
Vanguard, which have substantially identical officers and directors. In
connection with the Offerings, the Company has adopted a policy whereby all
future transactions between the Company and its officers, Directors, principal
stockholders or affiliates, will be approved by a majority of the Board of
Directors, including all of the independent and disinterested members of the
Board of Directors or, if required by law, a majority of disinterested
stockholders, and will be on terms no less favorable to the Company than could
be obtained in arm's length transactions from unaffiliated third parties. In
addition, the Notes will contain certain restrictions on the Company involving
transactions with affiliates. See "Certain Relationships and Related
Transactions."
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL
The Company depends, and will continue to depend, upon the services of Carl
G. Paffendorf, its Chairman of the Board and Chief Executive Officer, and Larry
L. Laird, its President and Chief Operating Officer. The Company has entered
into employment agreements with each of Messrs. Paffendorf and Laird and has
obtained a key employee insurance policy, with the Company as the sole
beneficiary, covering the life of each of them in the amount of $2,000,000. The
Company is also dependent upon its ability to attract and retain management
personnel who will be responsible for the day-to-day operations of each senior
living facility. The loss of the services of either or both of such officers or
the Company's inability to attract additional management personnel in the future
could have a material adverse effect on the Company's financial condition and
results of operations. See "Management -- Employment Agreements."
EFFECT OF GOVERNMENT REGULATION
Healthcare and senior living facilities are areas of extensive regulation
and frequent regulatory change. Changes in the laws or new interpretations of
existing laws can have a significant effect on methods of doing business, costs
of doing business and amounts of reimbursement from governmental and other
payors. The Company and the facilities owned and/or managed by the Company are
subject to varying degrees of regulation and licensing by health or social
service agencies and other regulatory authorities in the states and localities
in which they operate or intend to operate, as well as to cost and other
reporting requirements and reimbursement limitations imposed by the Medicaid
program and other government payors. The Company and the facilities owned and/or
managed by the Company are also subject to federal and state fraud and abuse
laws, such as the Medicare/Medicaid anti-kickback and state self-referral laws,
which govern certain financial arrangements among healthcare providers and
others who may be in a position to refer or recommend patients to such
providers. These laws prohibit, among other things, certain referrals by
physicians and other licensed providers for certain services to providers with
which they have a financial relationship, and certain direct and indirect
payments that are intended to induce the referral of patients to, the arranging
for services by, or the recommending of, a particular provider of healthcare
items or services. The federal fraud and abuse laws have been broadly
interpreted to apply to certain financial and contractual relationships between
healthcare providers and sources of patient referral. Most states have similar
laws which, vary from state to state, are sometimes vague and seldom have been
interpreted by courts or regulatory agencies. Violation of these laws can result
in loss of licensure, civil and criminal penalties, and exclusion of healthcare
providers from the Medicare and Medicaid programs. There can be no assurance
that administrative or judicial interpretation of existing laws, regulations or
policies will not have a material adverse effect on the Company's operations or
financial condition.
The success of the Company will be dependent in part upon its ability to
satisfy the applicable laws, regulations and requirements and to procure and
maintain required licenses and certifications. In New York, for example, a
public for-profit corporation is not eligible for a license to operate a skilled
13
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nursing or assisted living facility. Regulation of the senior living industry is
evolving and the Company's operations could also be adversely affected by, among
other things, future regulatory developments such as mandatory increases in the
scope and quality of care to be afforded residents and revisions in licensing
and certification standards. Currently, no federal rules explicitly define or
regulate assisted living. A majority of states have adopted certificate of need
("CON") or similar statutes that generally require a state agency to determine
that a need exists for new beds or assisted living units and that certain other
criteria are also satisfied before construction of new skilled nursing beds or
assisted living units commences, new services are provided or certain
expenditures are made, particularly where the cost of which would be
reimbursable either in whole or in part by one or more state-funded programs. In
most states, senior living facilities are also subject to state or local
building code, fire code and food service licensure or certification
requirements. Like other healthcare facilities, facilities providing nursing
care and assisted living services are subject to periodic survey or inspection
by governmental authorities. From time to time in the ordinary course of
business, the Company and the facilities managed by the Company receive
deficiency reports. The Company reviews such reports and seeks to take
appropriate corrective action. The reviewing agency typically is authorized to
take action against a licensed facility where deficiencies are noted in the
inspection process. Such action may include imposition of fines, imposition of a
provisional or conditional license or suspension or revocation of a license or
other sanctions. Any failure by the Company or the facilities managed by the
Company to comply with applicable requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
Increased regulatory requirements could increase costs of compliance with such
requirements. There can be no assurance that federal, state or local laws or
regulatory procedures which might adversely affect the Company will not be
expanded or imposed. See "-- Possibility of Regulatory Challenge to Tax Exempt
Not-For-Profit Organizations" and "Business -- Government Regulation of Senior
Living Facilities."
COMPETITION; POSSIBILITY OF NEW ENTRANTS INTO INDUSTRY
The long-term care industry is highly competitive and the Company expects
that the assisted living business, in particular, will become more competitive
in the future. The Company competes with numerous other companies providing
similar long-term care alternatives, such as home health agencies, lifecare at
home, community-based service programs, retirement communities and convalescent
centers. The Company expects that as assisted living receives increased
attention and market acceptance, and if the number of states that include
assisted living in their Medicaid waiver programs increases, competition will
grow from new market entrants, including companies focusing primarily on
assisted living. Nursing facilities that provide long-term care services are
also a potential source of competition to the Company. Moreover, the Company
expects to face competition for development, acquisition and management of
senior living facilities. Some of the Company's present and potential
competitors are significantly larger and have, or may obtain, greater financial
resources than those of the Company. Further, in many instances, small, local
operators will represent competition in specific market areas. Consequently,
there can be no assurance that the Company will not encounter increased
competition in the future that could limit its ability to attract residents or
expand its business and could have a material adverse effect on the Company's
financial condition, results of operations and prospects. Moreover, if the
development of new assisted living facilities outpaces demand for those
facilities in certain markets, such markets may become saturated. Such an
oversupply of facilities could cause the Company to experience decreased
occupancy, depressed margins and lower profitability. See "Business --
Competition."
OPERATING RISKS MAY NOT BE COVERED BY INSURANCE
The provision of assisted living and healthcare services entails an inherent
risk of liability. In recent years, participants in the long-term care industry
have become subject to an increasing number of lawsuits alleging malpractice,
negligence or related legal theories, many of which involve large claims and
significant defense costs. The Company currently maintains liability insurance
in amounts and with such coverage and deductibles as it deems appropriate, based
upon the nature and risks of the business, historical experience and industry
standards. Effective April 1, 1992, the Company
14
<PAGE>
began to self-insure for health and medical liability costs for up to a maximum
of $300,000 in claims. There can be no assurance, however, that claims in excess
of the Company's insurance coverage or claims not covered by the Company's
insurance coverage (e.g., claims for punitive damages) will not arise. A
successful claim against the Company not covered by, or in excess of, the
Company's insurance coverage could have a material adverse effect upon the
Company's financial condition and results of operations. Claims against the
Company, regardless of their merit or eventual outcome, may also have a material
adverse effect upon the Company's ability to attract residents or expand its
business. In addition, the Company's insurance policies must be renewed
annually. There can be no assurance that the Company will be able to obtain
liability insurance coverage in the future or that, if such coverage is
available, it will be available on acceptable terms.
RISKS COMMON TO THE COMPANY'S SENIOR LIVING OPERATIONS
STAFFING AND LABOR COSTS. The Company competes with other long-term care
providers with respect to attracting and retaining qualified personnel. The
Company also is dependent upon the available labor pool of employees. A shortage
of trained or other personnel may require the Company to enhance its wage and
benefits package in order to compete. No assurance can be given that the
Company's labor costs will not increase, or that if they do increase, they can
be matched by corresponding increases in rental or management revenue. See
"Business -- Company Operations."
OBTAINING RESIDENTS AND MAINTAINING RENTAL RATES. There can be no assurance
that, at any time, any senior living facility will be substantially occupied at
assumed rents. In addition, lease-up and full occupancy may be achievable only
at rental rates below those assumed. If operating expenses increase, the local
rental market may limit the extent to which rents may be increased. Because rent
increases generally can only be implemented at the time of expiration of leases,
rental increases may lag behind increases in operating expenses.
REVENUE FROM MANAGEMENT CONTRACTS. Revenue from management contracts is
dependent upon the performance of the properties the Company manages. This
performance in turn is dependent in part upon the ability to attract and retain
tenants, the ability to control operating expenses, energy costs, governmental
regulations, local rent control or stabilization ordinances, various uninsurable
risks, prevailing financial conditions, the nature and extent of competitive
properties in the areas where such properties are located and the real estate
market generally.
GENERAL REAL ESTATE RISKS. The performance of the Company's senior living
facilities is influenced by factors affecting real estate investments, including
the general economic climate and local conditions, such as an oversupply of, or
a reduction in demand for, senior living apartment properties. Other factors
include the attractiveness of senior living facilities to tenants, zoning, rent
control, environmental quality regulations or other regulatory restrictions,
competition from other forms of housing and the ability of the Company to
provide adequate maintenance and insurance and to control operating costs,
including maintenance, insurance premiums and real estate taxes. Real estate
investments also are affected by such factors as applicable laws, including tax
laws, interest rates and the availability of financing. In addition, real estate
investments are relatively illiquid and, therefore, limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances including, without
limitation, asbestos-containing materials ("ACMs"), which could be located on,
in or under such property. Such laws and regulations often impose liability
regardless of whether the owner or operator knew of, or was responsible for, the
presence of the hazardous or toxic substances. The costs of any required
remediation or removal of these substances could be substantial, and the owner's
liability as to any property is generally not limited under such laws and
regulations and could exceed the value of the property and the aggregate assets
of the owner or operator. The presence of these
15
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substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property or to borrow using the
property as collateral. Under these laws and regulations, an owner, operator, or
any entity who arranges for the disposal of hazardous or toxic substances, such
as ACMs, at a disposal site may also be liable for the costs of any required
remediation or removal of the hazardous or toxic substances at the disposal
site. In connection with the ownership or operation of the Initial Properties as
well as the acquisition of additional senior living facilities, the Company
could be liable for these costs, as well as certain other costs, including
governmental fines and injuries to persons or properties.
RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist that also may require modifications to existing and planned
properties to create access to the properties by disabled persons. If required
changes involve a greater expenditure than anticipated or must be made on a more
accelerated basis than anticipated, additional costs would be incurred by the
Company. Further legislation may impose additional burdens or restrictions with
respect to access by disabled persons, the costs of compliance with which could
be substantial.
CONSTRUCTION RISKS. Certain construction risks are beyond the Company's
control, including strikes, adverse weather, natural disasters, supply of
materials and labor, and other unknown contingencies which could cause the cost
of construction and the time required to complete construction to exceed
estimates. If construction is not commenced or completed, or if there are unpaid
subcontractors or suppliers, or if required occupancy permits are not issued in
a timely manner, cash flow could be significantly reduced. In addition, any
property in construction carries with it its own risks such as construction
defects, cost overruns, the discovery of geological or environmental hazards on
the property and changes in zoning restrictions.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
There is currently no public market for the Securities and there can be no
assurance that an active trading market will develop in any of the Securities
or, if developed, be sustained after this offering. The initial public offering
prices of the Securities and the exercise price and terms of the Warrants will
be determined by negotiation between the Company and the Representatives and do
not necessarily relate to or reflect the Company's assets or book value, results
of operations or any other established criteria of value. For factors that may
be considered in determining the initial public offering prices, see
"Underwriting." After completion of the Offerings, the market prices of the
Securities could be subject to significant fluctuations in response to various
factors and events, including the liquidity of the market for the Securities,
variations in the Company's operating results, new statutes or regulations or
changes in the interpretation of existing statutes or regulations affecting the
healthcare industry or assisted living residence businesses in particular. In
addition, the stock market in recent years has experienced broad price and
volume fluctuations that often have been unrelated to the operating performance
of particular companies. These market fluctuations also may adversely affect the
market price of the Securities.
EFFECT OF LEGAL RESTRICTIONS ON SALES OF SHARES UNDERLYING THE WARRANTS
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. The Company anticipates that the Common
Stock will be exempt from the registration requirements of all 50 states as a
result of the quotation of the Common Stock on the Nasdaq National Market.
Although the Company has agreed to keep a registration statement covering the
shares of Common Stock issuable upon the exercise of the Warrants effective for
the term of the Warrants, if it fails to do so for any reason, the Warrants may
be deprived of value.
16
<PAGE>
The Shares and Warrants will trade separately immediately upon issuance.
Purchasers may buy Warrants in the aftermarket in, or may move to, jurisdictions
in which the shares underlying the Warrants are not so registered or qualified
during the period that the Warrants are exercisable. In this event, the Company
would be unable to issue shares to those persons desiring to exercise their
Warrants, and holders of Warrants would have no choice but to attempt to sell
the Warrants in a jurisdiction where such sale is permissible or allow them to
expire unexercised. See "Description of Capital Stock."
EFFECT OF CONTROL BY PRINCIPAL STOCKHOLDER AFTER OFFERING
Upon completion of this offering, Vanguard will beneficially own or have
voting control over 1,635,969 shares of Common Stock, or approximately 40.5%
(33.8% if the Over-Allotment Option is exercised in full) of the then
outstanding shares of Common Stock. Vanguard will therefore be in a position to
effectively control the outcome of matters submitted for stockholder approval,
including election of the Company's directors, and could thereby affect the
selection of management and direct policies of the Company. Carl G. Paffendorf,
the Company's Chairman of the Board and Chief Executive Officer, currently
beneficially owns approximately 63.1% of the outstanding shares of Vanguard. See
"Principal and Selling Stockholders."
ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW
The Company's Certificate of Incorporation, Bylaws and the Delaware General
Corporation Law contain provisions that may have the effect of making more
difficult or delaying attempts by others to obtain control of the Company. One
of these provisions classifies the Company's Board of Directors into three
classes, each of which serves for a staggered three-year term. The Company's
Board of Directors has the authority to issue up to 1,000,000 shares of
preferred stock, $.001 par value per share (the "Preferred Stock") and to
determine the price, rights, preferences and privileges of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. While the
Company has no present intent to issue shares of Preferred Stock after the
closing of the Offerings, such issuance could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"), which prohibits the Company from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change in
control of the Company, including a possible change of control that could result
in stockholders receiving a premium over the then current market value of their
shares of Common Stock. The Notes will contain certain restrictions upon the
ability of the Company to amend its Certificate of Incorporation or Bylaws and
issue Preferred Stock. See "Management," "Description of Capital Stock" and
"Description of Notes."
NO DIVIDENDS ANTICIPATED; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has never paid cash dividends and it does not anticipate that it
will pay cash dividends in the foreseeable future. The payment of cash dividends
by the Company will depend on its earnings and financial condition and such
other factors as the Board of Directors of the Company may consider relevant. In
addition, certain of the Company's mortgage loans as well as the terms of the
Notes limit the payment of dividends. The Company currently plans to retain any
earnings to provide for the development and growth of the Company. See
"Description of Mortgage Loans," "Dividend Policy" and "Description of Notes."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offerings, the Company will have 4,040,950
shares of Common Stock outstanding, 1,225,490 shares issuable upon conversion of
the Notes (at an assumed initial
17
<PAGE>
conversion price of $10.20 per share based upon an assumed initial public
offering price of $8.50 per share) and 190,876 shares of Common Stock issuable
upon conversion of convertible securities. All of the 1,800,000 Shares offered
hereby and the shares issuable upon the conversion of the Notes will be freely
tradeable unless acquired by "affiliates" of the Company as defined in Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The remaining 2,431,826 shares will be "restricted" securities as defined in
Rule 144 and may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, including an exemption
contained in Rule 144. Of these restricted shares, 1,698,836 shares are
currently eligible for sale under Rule 144, subject, however, to any
restrictions of Rule 144. Vanguard and each of the directors and officers of the
Company has agreed not to offer, sell or otherwise dispose of any shares of
Common Stock without the prior written consent of Janney Montgomery Scott Inc.
("Janney"), one of the Representatives of the Underwriters for a period of nine
months after the date of this Prospectus. In addition, each of the directors and
officers of the Company and Vanguard, has agreed that for a period of 24 months
from the date of this Prospectus all sales of shares of Common Stock owned by
them will be effected through Janney. Sales of substantial amounts of Common
Stock, or the perception that such sales could occur, may adversely affect the
market price of the Common Stock prevailing from time to time. See "Shares
Eligible for Future Sale."
18
<PAGE>
THE COMPANY
GENERAL
The Company is a Delaware corporation. The Company's executive offices are
located at 4 Cedar Swamp Road, Glen Cove, New York 11542, and its telephone
number is (516) 759-1188. The Company was originally organized on September 26,
1988 ("Old UVH") in order to combine various activities relating to the
development, ownership and management of senior living facilities organized and
operated by Vanguard and its principals beginning in 1980. On March 30, 1993,
Old UVH merged into Coap Systems Inc. ("Coap"), a relatively inactive,
publicly-owned subsidiary of Vanguard, and simultaneously Coap changed its name
to United Vanguard Homes, Inc. Although the Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), there are less than 6,000 shares in the public float and
there is no public market for the Common Stock.
[GRAPHIC]
PROPOSED ACQUISITION
On April 19, 1996, the Company entered into an agreement, as amended, to
purchase Harvest Village, a 360-unit senior living facility located in Atco, New
Jersey ("Harvest Village") from Harvest Village Partners, L.P., a Delaware
limited partnership ("Harvest Partners") and an affiliate of Vanguard. The
purchase by the Company of Harvest Village is contingent upon certain events,
including the consummation of the Offerings and the satisfaction of the Harvest
Village construction loan mortgage. The purchase price for Harvest Village is
$17,400,000, consisting of (i) $13,500,000 cash (which may include the
assumption of a first mortgage in the amount of $12,500,000) and (ii) the
assignment to Vanguard of a promissory note in the amount of $7,481,953 due to
the Company from Gateway Communities, Inc., a 501(c)(3) organization organized
under Michigan not-for-profit corporation law ("Gateway"), the lessee of Harvest
Village from Harvest Partners, and the cancellation of $6,094,000 of debt owed
to the Company by Vanguard, which the parties, based upon an appraisal, have
deemed to collectively have a stipulated value of $3,900,000. In addition,
Harvest Partners will assign the lease with Gateway to the Company. The Company
will enter into a management contract with Gateway to operate and manage Harvest
Village, subject to the consummation of the Offerings. The Company will have an
option to terminate Gateway's lease in exchange for a sum equal to the fair
value of the lease. The Company does not anticipate exercising this option until
Harvest Village has
19
<PAGE>
attained a stabilized occupancy rate in excess of 90%. Vanguard has agreed to
lend Gateway $1.5 million for working capital purposes after the consummation of
the Offerings. See "Certain Relationships and Related Transactions."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,800,000 shares of Common Stock and 1,800,000 Warrants offered hereby are
estimated to be approximately $13.5 million, after deduction of underwriting
discounts and commissions and the estimated offering expenses payable by the
Company based upon an assumed initial public offering price at $8.50 per Share
and $0.05 per Warrant. The net proceeds to be received by the Company from the
sale of the Notes offered in the Concurrent Notes Offering are estimated to be
approximately $11.2 million, after deduction of placement agent discounts and
the estimated offering expenses payable by the Company. The following table sets
forth the sources and uses of the cash proceeds from the Offerings:
<TABLE>
<S> <C>
SOURCES:
Net proceeds from this offering of Common Stock and Warrants................ $13,502,000
Net proceeds from the Concurrent Notes Offering............................. $11,162,000
USES:
Cash portion of purchase price of Harvest Village (1)....................... $13,500,000
Capital improvements to Initial Properties (2).............................. $ 1,750,000
Working capital (3)......................................................... $ 3,000,000
General corporate purposes (which may include short-term advances associated
with development projects)................................................. $ 6,414,000
</TABLE>
- ------------------------
(1) See "The Company -- Proposed Acquisition" and "Certain Relationships and
Related Transactions."
(2) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(3) There are no current specific plans for the use of such working capital.
Pending such uses, the net proceeds will be invested in short-term,
investment-grade, interest-bearing securities.
The Company does not presently have any written agreements or commitments
concerning any specific acquisition of senior living facilities, other than the
acquisition of Harvest Village and purchase option agreements on one currently
managed senior living facility and three senior living facilities under
development for others. The Company believes that the net proceeds to be
realized from the Offerings, together with existing cash balances, cash flow
from operations and available lines of credit, will be sufficient to meet its
liquidity and capital spending requirements for at least 12 months, including
the acquisition of Harvest Village. In the event that the Company is unable to
obtain construction financing for Orchard Terrace through a HUD Section 232
loan, the Company may use up to $1.5 million of the net proceeds of the
Offerings allocated from general corporate purposes together with financing from
other sources to finance such construction. See "The Company," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Company Projects."
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1996, (i) on an actual basis and (ii) on a pro forma, as adjusted basis to
reflect (a) the estimated net proceeds from the sale by the Company of 1,800,000
shares of Common Stock and 1,800,000 Warrants pursuant to this offering (at an
assumed initial public offering price of $8.50 per Share and $0.05 per Warrant)
(b) the estimated net proceeds from the Concurrent Notes Offering and (c) the
initial application of the net proceeds of the Offerings as described under "Use
of Proceeds," including the acquisition of Harvest Village. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996 (1)
-------------------------------
PRO FORMA,
ACTUAL AS ADJUSTED (2)
-------------- ---------------
<S> <C> <C>
Current portion of long-term debt (3)........................ $ 4,862,091 $ 4,862,091
Long-term debt, less current maturities:.....................
% Convertible Senior Secured Notes due 2006............... -- 12,500,000
Mortgages payable.......................................... 1,344,833 1,344,833
Notes payable.............................................. 255,457 255,457
Stockholders' equity (deficiency) (4):
Preferred stock, $.001 per share, 1,000,000 shares
authorized, no shares issued and outstanding.............. -- --
Common stock, $.01 per share, 14,000,000 shares authorized,
2,240,950 shares issued and outstanding; 4,040,950 shares
issued and outstanding pro forma as adjusted.............. 22,410 40,410
Additional paid in capital................................. 7,216,026 20,700,026
Accumulated deficit........................................ (8,927,653) (5,434,511)
-------------- ---------------
Total stockholders' equity (deficiency)...................... (1,689,217) 15,305,925
Total capitalization......................................... $ 4,773,164 $ 34,268,306
-------------- ---------------
-------------- ---------------
</TABLE>
- ------------------------------
(1) See Note G to the Consolidated Financial Statements for certain commitments
and contingencies of the Company.
(2) See "Selected Financial Data" and Note L to Consolidated Financial
Statements.
(3) Includes $2,250,000 of mortgage indebtedness relating to Hillside Terrace
and $2,100,500 of mortgage indebtedness relating to The Whitcomb which
indebtedness is due April 30, 1997. Although the Company is attempting to
refinance such indebtedness no assurance can be given that the Company will
be successful. See "Risk Factors -- Uncertainty of Availability of Mortgage
Refinancing; Risk of Foreclosure."
(4) Excludes (i) 300,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1991 Incentive Stock Option Plan, under which options to
purchase 126,480 shares have been granted, (ii) 90,000 shares of Common
Stock reserved for issuance pursuant to the Company's 1996 Outside
Directors' Stock Option Plan, under which options to purchase 9,000 shares
have been granted, (iii) 51,873 shares of Common Stock issuable upon
conversion of the Olds Manor Note, (iv) 117,729 shares of Common Stock
issuable upon conversion of The Whitcomb Tower Note, (v) 21,274 shares of
Common Stock issuable upon conversion of the 7% Notes, (vi) 1,225,490
shares of Common Stock into which the Notes are initially convertible (at
an assumed initial conversion price of $10.20 per share based upon an
assumed initial public offering price of $8.50 per share), (vii) 270,000
shares of Common Stock issuable upon exercise of the Representatives'
Warrants and upon exercise of the Warrants underlying the Representatives'
Warrants, (viii) 122,549 shares of Common Stock issuable upon exercise of
the Placement Agent's warrants issued to Janney in the Concurrent Notes
Offering and (ix) 900,000 shares of Common Stock issuable upon exercise of
the Warrants. Under the treasury stock method of computation, outstanding
options and warrants represent 6,152 Common Stock equivalents. See
"Management-Stock Option Plans," "Description of Mortgage Loans," "Certain
Relationships and Related Transactions," "Description of Notes" and
"Underwriting."
21
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock since its
inception and the Board of Directors does not anticipate declaring any cash
dividends on the Common Stock in the foreseeable future. The Company currently
intends to utilize any earnings it may achieve for the development of its
business (including the acquisition or development of other senior living
facilities) and working capital purposes. In addition, certain provisions of
existing indebtedness of the Company limit, and the terms of the Notes will
limit, future indebtedness of the Company as well as the Company's ability to
pay cash dividends. See "Description of Mortgage Loans," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Description of Notes."
DILUTION
The negative net tangible book value of the Company as of June 30, 1996 was
$(2,888,322), or $(1.29) per share of Common Stock. Negative net tangible book
value per share represents the Company's net tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 1,800,000 shares of Common Stock and 1,800,000
Warrants offered hereby at an assumed initial public offering price of $8.50 per
Share and $0.05 per Warrant and the initial application of the net proceeds
therefrom, the Company's as adjusted net tangible book value at June 30, 1996
would have been $10,613,678 or $2.63 per share. This represents an immediate
increase in net tangible book value of $3.92 per share to existing stockholders
and an immediate dilution of $5.87 per Share to new investors purchasing the
Shares in this offering. The following table illustrates this pro forma
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Share............................ $ 8.50
Negative net tangible book value per Share before offering................. $ (1.29)
Increase in net tangible book value per share attributable to new
investors................................................................. 3.92
--------- ---------
As adjusted net tangible book value per Share after offering............... 2.63
---------
Dilution per Share to new investors........................................ $ 5.87
---------
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and the new investors purchasing shares of Common Stock from the Company in this
offering (before deducting estimated underwriting discounts and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------------- ----------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 2,240,950 55.5% $ 7,238,436 32.1% $ 3.23
New investors........................ 1,800,000 44.5 15,300,000 67.9 $ 8.50
------------- ------------- -------------- ------------- -------------
Total.......................... 4,040,950 100.0% $ 22,538,436 100.0%
</TABLE>
22
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share amounts and Operating Data)
The following table summarizes certain selected consolidated financial
information relating to the Company for each of the five years in the period
ended March 31, 1996 and is derived from the audited consolidated financial
statements of the Company which have been audited by the Company's independent
certified public accountants. The data for the three months ended June 30, 1996
and 1995 has been derived from unaudited financial statements of the Company. In
the opinion of management, the unaudited financial statements have been prepared
on the same basis as the audited financial statements and include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the results of these periods.
The information set forth below is qualified by reference to and should be
read in conjunction with the Consolidated Financial Statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 1996(1)
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Resident services......... $ 4,589 $ 4,698 $ 4,765 $ 4,887 $ 4,966 $ 4,966
Healthcare services....... 2,184 2,252 2,464 2,491 2,555 2,555
Management fees........... 202 -- -- -- -- --
Development fees.......... -- -- 150 700 1,004 1,004
Rental income............. -- -- -- -- -- 2,550
---------- ---------- ---------- ---------- ---------- -----------
Total revenues.......... 6,975 6,950 7,379 8,078 8,525 11,075
---------- ---------- ---------- ---------- ---------- -----------
Expenses:
Residence operating
expenses................. 4,791 5,064 5,372 5,595 5,913 5,913
General and administrative
expenses................. 579 585 606 503 414 418
Depreciation and
amortization............. 529 551 549 565 378 1,074
Provision for (recovery
of) loss on advances to
affiliates............... 1,715 1,662 829 1,651 296 296
---------- ---------- ---------- ---------- ---------- -----------
Total expenses.......... 7,614 7,862 7,356 8,314 7,001 7,701
---------- ---------- ---------- ---------- ---------- -----------
Income from operations...... (639) (912) 23 (236) 1,524 3,374
Other income (expense):
Interest (expense) net...... (622) (613) (750) (623) (601) (1,797)
Other income................ 255 251 145 232 109 109
Debt conversion expense..... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before income
taxes........................ (1,006) (1,274) (582) (627) 1,032 1,686
Income taxes................ -- -- -- -- 420 675
---------- ---------- ---------- ---------- ---------- -----------
Net income (loss)........... $ (1,006) $ (1,274) $ (582) $ (627) $ 612 $ 1,011
---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- -----------
Earnings (loss) per share
(2)........................ $ (.34) $ (.45) $ (.20) $ (.22) $ .36 .29
---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- -----------
Weighted average common
shares and equivalents
outstanding (2)............ 2,952,673 2,833,281 2,937,722 2,848,825 1,692,894 3,492,894
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------
PRO FORMA
1995 1996 1996(1)
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Resident services......... $ 1,195 $ 1,248 $ 1,248
Healthcare services....... 625 644 644
Management fees........... -- -- --
Development fees.......... 85 85
Rental income............. -- -- 637
--------- --------- ---------
Total revenues.......... 1,820 1,977 2,614
--------- --------- ---------
Expenses:
Residence operating
expenses................. 1,389 1,481 1,481
General and administrative
expenses................. 68 155 156
Depreciation and
amortization............. 133 70 240
Provision for (recovery
of) loss on advances to
affiliates............... (72) (72)
--------- --------- ---------
Total expenses.......... 1,590 1,634 1,805
--------- --------- ---------
Income from operations...... 230 343 809
Other income (expense):
Interest (expense) net...... (178) (135) (434)
Other income................ 13 21 21
Debt conversion expense..... -- (157) (157)
--------- --------- ---------
Income (loss) before income
taxes........................ 65 72 239
Income taxes................ 26 33 110
--------- --------- ---------
Net income (loss)........... $ 39 $ 39 $ 129
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per share
(2)........................ $ .02 $ .02 $ .03
--------- --------- ---------
--------- --------- ---------
Weighted average common
shares and equivalents
outstanding (2)............ 1,681,938 2,197,166 3,997,166
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, 1996
1996 ----------------------------
--------- PRO FORMA,
ACTUAL ACTUAL AS ADJUSTED (1)
--------- --------- ----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................. $ (100) $ (4,181) $ 6,893
Total assets............................... 6,088 6,386 35,882
Long-term debt, excluding current portion:
Convertible mortgages and notes.......... 2,616 1,315 14,005
Other debt............................... 4,557 285 95
Stockholders' (deficiency) equity.......... (3,328) (1,689) 15,306
</TABLE>
- ------------------------------
(1) On April 19, 1996, the Company entered into an agreement to purchase Harvest
Village from an affiliate of Vanguard. The purchase is contingent upon
certain events, including the consummation of the Offerings. The pro forma
statement of operations data present the results of operations as if the
acquisition of Harvest Village and the Offerings had occurred at the
beginning of the period presented and the pro forma balance sheet data
present such balance sheet data as if the acquisition of Harvest Village and
the Offerings had occurred as of June 30, 1996. See Note L to Consolidated
Financial Statements.
(2) The weighted average number of shares of Common Stock and equivalents
outstanding at March 31, 1996 and June 30, 1996 give effect to the
cancellation by the Company in March 1995 of 1,200,000 shares of Common
Stock held by Vanguard. See "Certain Relationships and Related Transactions"
and Note I of Notes to Consolidated Financial Statements. Fully diluted
earnings per share are not presented as the effect would be anti-dilutive.
In addition, excluded for all periods presented, from the weighted average
number of common shares and common equivalent shares are 46,936 shares owned
by Vanguard which are held in escrow pursuant to an agreement to be entered
into in connection with the Company's proposed public offering. See Note A
to Consolidated Financial Statements.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company is a long-term care provider that owns, manages and develops for
itself or on behalf of others senior living facilities. For the fiscal year
ended March 31, 1996, the Company had revenues of approximately $8.5 million and
income from operations of approximately $1.5 million. Upon consummation of the
Offerings and giving effect to the acquisition of Harvest Village, the Company
will own and/or manage five senior living facilities containing an aggregate of
794 independent living apartments, 150 assisted living units and 127 nursing
beds in Michigan and New Jersey. On a pro forma basis, for the fiscal year ended
March 31, 1996, the Company would have had revenues of approximately $11.1
million and income from operations of approximately $3.4 million. The Company is
in the process of developing, acquiring or leasing for itself or on behalf of
others, eight facilities expected to contain approximately 780 apartments and
nursing units. One of these facilities (containing 201 apartment and nursing
units) is currently under construction, and two others (containing 168 apartment
units) have received zoning approval; two proposed facilities are in the zoning
process and three are subject to acquisition or lease agreements. The purchase
of nine other sites for the development of senior living facilities are
currently being negotiated.
Three of the Initial Properties, Hillside Terrace, Olds Manor and The
Whitcomb, presently have a high average occupancy rate and are profitable
operations. The fourth Initial Property, known as The Whittier, which is owned
by Vanguard and managed by the Company, is located in Detroit and has
experienced a decline in its occupancy over the last several years as a result
of local demographic changes. However, the Company has instituted a number of
changes consisting of, among other things, shifting the operational focus to
assisted living and changing the target market, which now targets the upper
middle income, retired, African-American community, which has resulted in a
significant improvement in The Whittier's occupancy during the last eight
months, increasing from a low of 130 apartments as of October 31, 1995 to 160 as
of June 30, 1996, representing an eight-month increase of 23 percent. The
Company believes that at an occupancy level of 180 residents The Whittier will
generate sufficient revenues to cover operating expenses and debt service. The
Company's approach in this and other underperforming senior living facilities is
to obtain a management contract, without incurring the corresponding losses and
risks inherent in turnaround situations but, nevertheless, obtaining a fair
market value purchase option to acquire the property at some future date.
With respect to the acquisition of Harvest Village, the Company believes
that Harvest Village's occupancy and its profitability can be improved as a
result of several significant factors, including: (i) the removal of the present
risk of foreclosure of the construction loan (due September 30, 1996), which has
negatively impacted sales over the past three years because prospective
residents have been reluctant to commit resources to a potentially unstable
situation, and (ii) the conversion of an independent living wing to a 52-unit
assisted living facility. The Company believes that removing the financial
uncertainty and the assisted living conversion will improve Harvest Village's
occupancy level. The purchase price for Harvest Village is $17,400,000,
consisting of (i) $13,500,000 cash (which may include the assumption of a first
mortgage in the amount of $12,500,000) and (ii) the assignment to Vanguard of a
promissory note in the amount of $7,481,953 due to the Company from Gateway, the
lessee of Harvest Village from Harvest Partners, and the cancellation of
$6,094,000 of debt owed to the Company by Vanguard, which the parties, based
upon an appraisal, have deemed to collectively have a stipulated value of
$3,900,000. The Company believes that the cash purchase price at which it has
been able to acquire Harvest Village is substantially lower than its current
fair market value of
25
<PAGE>
$24,700,000 based upon a recent appraisal. The appraisal assumes the conversion
of the facility to a retirement facility comprised of 264 independent living
units, 52 assisted living rental units and 60 skilled nursing beds which is the
use for the facility planned by the Company. In addition, the appraisal
considered the improvement in public perception upon the refinancing of its
current debt and management of the facility by the Company. The independent
auditors report on Harvest Partners, the owner of Harvest Village, states that
conditions raise substantial doubt about Harvest Partners' ability to continue
as a going concern. See the Financial Statements of Harvest Partners, page F-27.
The Company's two primary sources of revenue are: (i) operating revenue and
management fees from senior living facilities owned by the Company and managed
by the Company, respectively, and (ii) development fees from unaffiliated third
parties for senior living facilities in development.
INCOME FROM OWNED PROPERTIES. When a facility managed by the Company attains
a level of profitability after the payment of debt service and management fees
and the Company has a purchase option, the exercise of the Company's option, if
any, will generally be considered. The Company's income from facilities that
have attained a level of profitability, usually after stabilized occupancy in
excess of 90 percent and at times lower depending upon the level of debt
service, will generally increase at an increasing rate as occupancy increases
above the breakeven point. The Company expects that the operating income of a
typical facility, once it has attained a 90 percent average occupancy rate, is
approximately 40 percent of gross revenue.
MANAGEMENT FEES. The Company's typical management agreement calls for a
management fee between four and five percent of the facility's gross revenue. In
addition, where the Company provides data processing services, an additional one
percent fee would be charged. These fees are paid on a monthly basis.
DEVELOPMENT FEES. The Company's project development agreements generally
call for a development fee of 7.5 percent of the project's hard and soft
construction cost. This fee is generally paid over a three-year period in the
case of assisted living projects and a four-year period for CCRCs with
installments triggered by various benchmark events during the course of
development, construction and occupancy fill-up. With the number of development
projects expected to increase to approximately 10 projects per year by the third
year, development fee revenue can be expected to represent a major component of
the future revenue and profitability of the Company. While the profit margins on
development fee revenue are high, the nature of this revenue is more episodic
and less reliable than operational and management fee revenue due to external
factors beyond the control of the Company such as market factors relating to
site acquisition and regulatory factors impacting zoning and licensing
approvals. The recognition by the Company of development fees will generally be
contingent upon the completion of construction financing, therefore the
Company's quarterly recognition of development fee revenue can vary materially
from quarter to quarter. See "Risk Factors--Repayment Risk Associated With
Sponsored Development Projects."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
information derived from the Company's consolidated statement of operations.
There can be no assurance that trends in sales growth or operating results will
continue in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
PERCENTAGE PERCENTAGE
MARCH 31, CHANGE JUNE 30, CHANGE
-------------------- INCREASE -------------------- INCREASE
1995 1996 (DECREASE) 1995 1996 (DECREASE)
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues, as a percentage of total revenues:
Resident services.............................. 60.5% 58.3% (2.2)% 65.7% 63.1% (2.6)%
Healthcare services............................ 30.8 30.0 (.8) 34.3 32.6 (1.7)
Development fees............................... 8.7 11.7 3.0 -- 4.3 4.3
--------- --------- ----- --------- --------- ---
Total revenues................................... 100.0% 100.0% -- 100.0% 100.0% --
--------- --------- ----- --------- --------- ---
--------- --------- ----- --------- --------- ---
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
PERCENTAGE PERCENTAGE
MARCH 31, CHANGE JUNE 30, CHANGE
-------------------- INCREASE -------------------- INCREASE
1995 1996 (DECREASE) 1995 1996 (DECREASE)
--------- --------- ------------- --------- --------- -------------
Expenses as a percentage of total revenues
<S> <C> <C> <C> <C> <C> <C>
Residence operating expenses..................... 69.3% 69.3% 76.3% 74.9% (1.4)%
General and administrative expenses.............. 6.2 4.9 (1.3)% 3.8 7.8 4.0
Depreciation and amortization.................... 7.0 4.4 (2.6) 7.3 3.5 (3.8)
Provision for loss on (recovery of) advances to
affiliates...................................... 20.4 3.5 (16.9) -- (3.6) (3.6)
--------- --------- ----- --------- --------- ---
Total expenses................................. 102.9 82.1 (20.8) 87.4 82.6 (4.8)
--------- --------- ----- --------- --------- ---
Income from operations......................... (2.9) 17.9 20.8 12.6 17.4 4.8
Other income (expense)
Interest (expense) net......................... (7.7) (7.1) .6 (9.7) (6.8) 2.9
Other income................................... 2.8 1.3 (1.5) .7 1.0 .3
Debt conversion expense........................ -- -- -- -- (7.9) (7.9)
--------- --------- ----- --------- --------- ---
Income (loss) before income taxes................ (7.8) 12.1 19.9 3.6 3.7 .1
Income taxes................................... -- (4.9) (4.9) (1.5) (1.7) (.2)
--------- --------- ----- --------- --------- ---
Net income (loss)................................ (7.8)% 7.2% 15% 2.1% 2.0% (.1 )%
--------- --------- ----- --------- --------- ---
--------- --------- ----- --------- --------- ---
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
REVENUES
Net revenues of the Company represent gross consolidated revenues of the
Company, less charitable and SSI discounts.
Net revenues increased by $157,000, or 9%, from $1,820,000 in the 1995
period to $1,977,000 in the 1996 period. Approximately $85,000 of the increase
represented development fees. Development fees can vary substantially from
quarter to quarter depending upon the number of projects in development, the
percentage of completion and, in certain instances, the project owner's
financial condition. Development fees are generally deferred in periods in which
the project owner's ability to remit such fees is uncertain. Resident and
healthcare services revenues increased by $72,000, or 4%, from $1,820,000 in the
1995 period to $1,892,000 in the 1996 period. Resident and healthcare services
revenues increased as a result of higher rates as well as a slight increase in
occupancy rates.
RESIDENCE OPERATING EXPENSES
Residence operating expenses include all retirement and healthcare center
operating expenses, including, among other things, payroll and employment costs,
food, utilities, repairs and maintenance, insurance and property taxes.
Residence operating expenses increased by $92,000, or 7%, from $1,389,000 in
the 1995 period to $1,481,000 in the 1996 period. During the 1996 period,
payroll costs increased by approximately $59,000 due to salary increases and
additional personnel. Further, in the 1996 period, $27,000 of additional
maintenance was performed at the Company's Michigan facilities as part of the
Company's refurbishment plan.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include all marketing costs, as well as
the general and administrative expenses incurred at the Company's principal
executive offices. General and administrative expenses include, among other
things, administrative salaries, rent, utilities, insurance and related
expenses.
General and administrative expenses increased by $87,000, or 128%, from
$68,000 in the 1995 period to $155,000 in the 1996 period. The increase is
primarily attributable to increased administrative staff and salary increases.
27
<PAGE>
PROVISION FOR RECOVERY ON ADVANCES TO AFFILIATES
During the 1996 period, the Company recognized a recovery of $72,000 due to
repayment of advances from affiliates. During the 1995 period, there was no
provision for (recovery of) loss on advances to affiliates.
INTEREST EXPENSE, NET
Interest expense, net, decreased by $43,000 or 24%, from $178,000, in the
1995 period to $135,000 in the 1996 period. The decrease is primarily
attributable to the conversion of $1,305,000 of debt to equity.
DEBT CONVERSION EXPENSE
The Company offered its debtholders an inducement in the form of a reduced
conversion price on its then outstanding debt. As a result of such inducement an
aggregate of $1,305,000 of the Company's debt was converted into 347,996 shares
of the Company's Common Stock effective April 1, 1996. The fair value of the
additional shares issued, $167,877, as a result of such inducement has been
recorded as debt conversion expense during the 1996 period.
INCOME TAXES
Income taxes increased by $7,000, or 27%, from $26,000 in the 1995 period to
$33,000 in the 1996 period. The increase in the effective tax rate from 40.7% in
the 1995 period to 46.3% in the 1996 period is primarily due to the
non-deductibility of the debt conversion expense.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
REVENUES
Net revenues increased by $699,000, or 9%, in fiscal 1995, and by $447,000,
or 6%, in fiscal 1996. The growth in net revenues in fiscal 1995 and fiscal 1996
was largely attributable to a further increase in development fees in the amount
of $550,000 and $304,000 respectively. Resident and healthcare services
increased $149,000 in fiscal 1995 and $143,000 in fiscal 1996. Resident and
healthcare revenues increased as a result of higher rates, while occupancy rates
remained relatively constant from fiscal 1994 through fiscal 1996.
RESIDENCE OPERATING EXPENSES
Residence operating expenses have increased for each fiscal year presented,
primarily due to normal inflationary cost increases. Said expenses increased by
$223,000, or 4%, in fiscal 1995, and by $318,000, or 6%, in fiscal 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by approximately $103,000, or
17%, in fiscal 1995 and $89,000 or 18% in fiscal 1996, primarily due to the
closing of the Company's Florida office in fiscal 1995.
PROVISION FOR LOSS ON ADVANCES TO AFFILIATES
The provision for loss on advances to affiliates represents the net expense
pertaining to amounts advanced to the Company's parent and its affiliates. Said
advances have been made to fund, among other things, operating losses of these
affiliates. As their ultimate repayment is uncertain, a reserve has been
provided for doubtful collection. Any net reimbursements are recorded as income
in the period received. For the two fiscal years ended March 31, 1996 and 1995,
the Company recorded losses in the amount of $296,000 and $1,651,000,
respectively, net of recoveries. See "Risk Factors--Repayment Risk Associated
With Sponsored Development Projects."
INTEREST EXPENSE, NET
Interest expense, net, also fluctuated during the reporting period. In
fiscal 1995, interest expense, net, decreased by $127,000, or 17%, which is
directly attributable to a 3% interest rate decrease on two of the Company's
three mortgages on the Initial Properties in Michigan, and in fiscal 1996,
interest decreased by 4%, or $22,000.
28
<PAGE>
INCOME TAXES
The income tax expense was zero and $420,000 for the fiscal years ended
March 31, 1995 and 1996, respectively. Under generally accepted accounting
principles, future tax benefits can be recognized for financial reporting
purposes if it is more likely than not that such benefits will ultimately result
in the reduction of a future tax liability. The Company has net operating loss
carryforwards for Federal income tax purposes as of March 31, 1996 of
approximately $2,464,000. Such net operating loss carryforwards are subject to
several statutory limitations which limit their current and future utilization,
and, accordingly, no benefit from such utilization has been provided for. The
net operating loss carryforwards expire during fiscal 1997 through 2005;
$2,083,000 of which expire in fiscal 1998. See Note F to the Consolidated
Financial Statements.
This offering or subsequent equity transactions may trigger an ownership
change which could serve to limit the use of some or all of the net operating
loss carryforwards. See Note F to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was approximately $589,000 for the year ended
March 31, 1996 as compared with a negative cash flow of approximately $2,010,000
for the year ended March 31, 1995. Cash flows from operations were negative in
the fiscal year ended March 31, 1995 primarily due to the cash advances made to
development projects and fees earned but not collected. For the fiscal year
ended March 31, 1995, such net cash advances were approximately $495,000. In
addition, for the fiscal year ended March 31, 1995, the Company earned
development fees of approximately $700,000, that were not collected until the
subsequent year. The Company's primary source of funds for these advances have
been through the private placement of convertible notes secured in certain
instances by subordinate mortgages. These obligations are intended to be repaid
if not converted from the proceeds of construction and/or permanent financing on
a project by project basis. During the fiscal year ended March 31, 1995, the
Company generated cash flow of approximately $1,400,000 by issuing promissory
notes to private investors. Said notes were paid in their entirety by December
31, 1995 from the proceeds of a tax exempt bond issue arranged for the
construction of one of the Company's senior living facilities. The funds from
this private placement represented the major portion of the cash used in
financing activities during 1996.
The Company has financed the operating losses of certain affiliates with
advances when the Company believed that the affiliate at some future date would
be able to repay such advances. In connection with such advances, the Company
has generally obtained an option to buy a facility owned by the affiliate to
which advances have been made for a price equal to the facility's fair market
value. In the event the Company exercises its option, such advances may
constitute a portion of the purchase price.
Amounts due from affiliates consist of cash advances, unpaid management
fees, interest income and other revenue items. Most of the affiliates have been
operating at a loss and their ability to repay cash advances and earned fees due
to the Company is uncertain. Accordingly, a reserve for such amounts has been
provided for by the Company, reducing revenues, fees and interest income and
providing for losses on cash advances to affiliates. In the event such advances
or fees are remitted by the affiliates, the reserve is reduced and income is
recorded. At June 30, 1996, the aggregate amount due from affiliates and the
unreserved amounts due from affiliates were $6,786,361 and $280,207,
respectively. In connection with the acquisition of Harvest Village, $6,094,000
due from Vanguard and its affiliates was cancelled. See "The Company--Proposed
Acquisition", "Certain Relationships and Related Transactions" and Notes C and L
to Consolidated Financial Statements.
The Company intends to use the net proceeds of the Offerings and available
lines of credit, together with cash flows from operations and private
placements, to finance its operations (including expenses of additional
personnel required as the Company's business grows) and future development
projects. Accordingly, the Company believes that the net proceeds to be realized
from the Offerings, together with existing cash balances, cash flow from
operations and available lines of credit, will be
29
<PAGE>
sufficient to meet its liquidity and capital spending requirements for at least
12 months, including the acquisition of Harvest Village. The Company intends to
use approximately $1,750,000 of the net proceeds of the Offerings for capital
improvements at the Initial Properties. See "Use of Proceeds."
IMPACT OF INFLATION AND CHANGING PRICES
Operating revenue from assisted living facilities and congregate care
facilities operated by the Company are the primary sources of revenue earned by
the Company. These properties are affected by rental rates which are highly
dependent upon market conditions and the competitive environments where the
facilities are located. Employee compensation is the principal cost element of
property operations. Although there can be no assurance it will be able to
continue to do so, the Company has been able historically to offset the effects
of inflation on salaries and other operating expenses by increasing rental and
assisted living rates.
30
<PAGE>
BUSINESS
The Company is an owner, manager and developer of senior living facilities
which provide housing and various levels of care and services for the elderly.
Upon completion of the Offerings, the Company will own and/or manage five senior
living facilities containing 1,071 apartments and nursing units (the "Initial
Properties"). Additionally, it is in the process of developing, acquiring or
leasing for itself or on behalf of others, eight facilities expected to contain
approximately 780 apartments and nursing units. One of these facilities
(containing 201 apartment and nursing units) is currently under construction,
and two others (containing 168 apartment units) have received zoning approval;
two proposed facilities are in the zoning process and three are subject to
acquisition or lease agreements. The purchase of nine other sites for the
development of senior living facilities are currently being negotiated.
Senior living facilities provide a combination of housing, personalized
support and healthcare services generally identified as INDEPENDENT LIVING,
ASSISTED LIVING and SKILLED NURSING. INDEPENDENT LIVING facilities are designed
to enable residents to live independently yet remain free from the chores of
home ownership and concerns of daily life, such as transportation, meal
preparation, personal security and housekeeping. ASSISTED LIVING facilities
offer a combination of housing and personal care and healthcare services
designed to respond to the individual needs of those who require help with the
activities of daily living but are not sick or bedridden. SKILLED NURSING
facilities are for those residents who require extensive care. A CCRC provides
all three levels of services (independent living, assisted living and skilled
nursing) in the same facility, whereas other facilities, known as congregate
care facilities, provide only independent living and assisted living services.
Two of the Company's Initial Properties are congregate care facilities and
three of the Initial Properties are CCRCs. As residents of senior living
facilities "age-in-place," they generally require more assistance. In each of
the Company's currently owned and/or managed senior living facilities, a
significant shift in the needs of residents from independent living services to
assisted living services has taken place, and to accommodate residents, the
Company is in the initial stages of converting a number of its independent
living apartments in each of the Initial Properties to assisted living units. Of
the eight properties being developed, acquired or leased, one is a CCRC, six are
assisted living facilities and one is an expansion at one of the Initial
Properties to add 64 independent living units. The Company's three-year
expansion objective is to develop principally for others at least 24 senior
living facilities, consisting of 20 assisted living facilities and four CCRCs
with an estimated aggregate capacity of approximately 3,000 units.
The Company's growth objective is to capitalize on the experience of its
management team in the senior living industry and on the growing demand for
senior living facilities as an increasingly preferred lifestyle for the elderly
by (i) providing a full range of high-quality personalized resident care and
services; (ii) pursuing development opportunities for itself or on behalf of
others; and (iii) acquiring properties in the open market or through the
exercise of purchase options obtained in the development process.
The Company believes that its business will benefit in the foreseeable
future from significant trends affecting the long-term care industry, including
an increase in the demand for senior care resulting from the aging of the U.S.
population, efforts to contain healthcare costs by both the public and private
sector and the increasing financial net worth of the senior population which
makes the senior living facility an available option to a broader market. The
Company believes that these trends will result in increasing demand for senior
living facilities that generally offer a more secure, trouble-free environment
and improved quality of life.
INDUSTRY BACKGROUND
Senior living facilities comprise a combination of housing, personalized
support and healthcare services generally identified as INDEPENDENT LIVING,
ASSISTED LIVING, and SKILLED NURSING. INDEPENDENT LIVING facilities are designed
to enable residents to live independently yet remain free from the chores of
home ownership and concerns of daily life, such as transportation, meal
preparation, personal
31
<PAGE>
security and housekeeping. ASSISTED LIVING facilities are a combination of
housing, and personal care and healthcare services designed to respond to the
individual needs of those who require help with the activities of daily living
but are not sick or bedridden. SKILLED NURSING facilities are for those
residents who require extensive care. A CCRC provides all three levels of
services, (independent living, assisted living and skilled nursing) in the same
facility whereas a congregate care facility provides only independent living and
assisted living services. Stand-alone assisted living facilities and skilled
nursing homes are also options available to the elderly. The Company intends to
focus its attention on the development, management and ownership of assisted
living facilities and, to a lesser degree, on CCRCs. It believes that the
following demographic factors are increasing the demand for senior living
facilities in general and assisted living facilities and CCRCs in particular.
INCREASED AGING POPULATION: As illustrated below, the number of seniors 85
years of age and older, the primary target market for assisted living
facilities, is estimated to increase by approximately 42% during the 1990s from
3.1 million seniors in 1990 to approximately 4.3 million seniors in 2000. It is
estimated that the total U.S. population will increase by approximately 11%
during the same period. It is further estimated that approximately 50% of the
population of seniors over 85 years of age need assistance with activities of
daily living such as bathing and dressing ("ADLs"), and more than one-half of
such seniors develop Alzheimer's disease or other forms of dementia.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EIGHTY-FIVE YEARS AND OLDER
FASTEST GROWING POPULATION IN U.S.
85 YEARS AND OVER TOTAL POPULATION
<S> <C> <C>
1990 0% 0%
2000 42% 11%
</TABLE>
OTHER DEMOGRAPHIC TRENDS. Other trends benefiting the Company include the
increased financial net worth of the elderly population, the changing role of
women and the increase in the population of individuals living alone. As the
ratio of elderly in need of assistance has increased, so too has the number of
elderly able to afford assisted living. According to U.S. Bureau of the Census
data, the median net worth of householders 75 years of age or older has
increased from $55,178 in 1984 and $61,491 in 1988 to $77,654 in 1993.
Furthermore, according to the same source, the percentage of people 65 years of
age and older below the poverty line has decreased from 27.3% in 1970 to 14.8%
in 1980 to 11.9% in 1994. The increased number of women in the labor force has
reduced the supply of care givers. Historically, unpaid women (mostly daughters
or daughters-in-law) represented a large portion of the care givers of the
non-institutionalized elderly. Since 1960, the population of individuals living
alone has increased significantly as a percentage of the total elderly
population. This increase has been the result of an aging population in which
women outlive men by an average of 6.8 years, rising divorce rates and an
increase in the number of unmarried individuals.
32
<PAGE>
The increased financial net worth of the elderly population is illustrated
by the following chart:
[GRAPHIC]
REGULATORY TRENDS. While demographic trends are increasing demand for
long-term care for elderly people, other trends are limiting the supply of such
care. Some of these regulatory trends include:
SUPPLY/DEMAND IMBALANCE: As illustrated below, the supply of skilled
nursing home beds per 1,000 seniors 85 years of age and older is declining.
This decline may be attributed to several factors, including the aging of
the population and the implementation of moratoria on the granting of CONs
for new skilled nursing facilities. The Company also believes that high
construction costs, limitations on governmental reimbursement and the costs
of construction and start-up expenses also constrain growth in the supply of
such facilities and beds. In addition, many skilled nursing facilities are
focusing on higher acuity patients with higher reimbursement profiles. As a
result, fewer skilled nursing beds are available for the increasing number
of elderly who need assistance with ADLs but do not require significant
medical attention. The Company also believes that the age and income
qualified will choose the residential assisted living facility model over
the institutionalized medical model skilled nursing facility when given the
choice.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BEDS PER THOUSAND
<S> <C>
1967 540
1976 690
1980 650
1986 540
1990 500
2000E 350
</TABLE>
HEALTHCARE COST CONTAINMENT. Both government and private pay sources
have responded to increasing healthcare costs with a range of
cost-containment measures. Some of these measures have created a "push-down"
effect that affects senior citizens and encourages demand for, and
33
<PAGE>
creates opportunities for, assisted living facilities. In the effort to cut
costs, healthcare payors have tried to reduce the length of hospital visits.
As a result, seniors requiring acute care who might have been hospitalized
in the past are more likely to be cared for in a skilled nursing facility.
At the same time, the limited number of skilled nursing facilities are also
focusing their efforts on higher margin subacute care patients, leaving
little excess capacity for senior citizens seeking a lower level of care.
The Company therefore believes that healthcare cost containment has
encouraged seniors to seek new residential options, such as assisted living
facilities and CCRC's.
As a result of the conflict between the demographic trends, which are
increasing the demand for long-term care, and the regulatory trends, which are
limiting the availability of, and access to, such care, together with the desire
to avoid institutionalization, the Company believes a significant opportunity is
being created for CCRCs and assisted living facilities.
BUSINESS STRATEGY
GENERAL. The Company's business strategy is based upon the experience of
its management team in the senior living industry and on the growing demand for
senior living facilities as an increasingly preferred life style for the
elderly. The Company intends to capitalize on these two factors by (i) providing
a full range of high-quality personalized resident care and services; (ii)
pursuing development opportunities for itself or on behalf of others; and (iii)
acquiring properties in the open market or through the exercise of purchase
options obtained in the development process.
PERSONALIZED RESIDENT CARE AND SERVICES. The Company believes that income
qualified elderly would choose residential CCRCs and assisted living facilities
over skilled nursing facilities when given the choice. The Company believes that
the elderly would choose the residential assisted living facility alternative
because of the significant quality of life advantages which they offer.
Consequently, providing a high quality of life for its residents in a safe,
healthy and secure environment is the foundation of the Company's business
strategy.
In furtherance of this strategy, the Company has structured its senior
living facilities to offer residents a supportive, "home-like" setting and
assistance with ADLs. Its facilities are, in many respects, similar to
conventional apartment living with enhanced services allowing residents a more
independent and social lifestyle than they would receive in a skilled nursing
facility or, in most cases, at home. At the same time, support is provided in a
manner sufficient to meet residents' requirements. General services in the
Company's residences include the provision of three meals per day, laundry,
housekeeping and maintenance. Available support services include personal and
routine nursing care, social and recreational services and transportation.
Personal care includes assistance with activities such as bathing, dressing,
personal hygiene, grooming, and eating and ambulating. The Company also provides
routine nursing services (in addition to its skilled nursing facility services)
entertainment, banking and shopping. Generally, however, the Company is able to
tailor the changing needs of its residents through the use of individual service
contracts and flexible staffing patterns.
DEVELOPMENT OPPORTUNITIES. Operating revenues and management fees are
generally stable once a facility is fully occupied. At that point, growth in
revenue of the Company becomes dependent upon development and management fees
received through the development and management of additional senior living
facilities for itself or on behalf of others. Consequently, the second part of
the Company's business strategy is to increase the number of senior living
facilities it develops and manages for itself or on behalf of others, in part
through a strategy whereby the Company may enter into an agreement with an
unaffiliated third party entity, which may be a 501(c)(3) organization, to
develop a senior living facility for such entity. The Company would generally
obtain a management agreement to operate the facility upon its completion as
well as an option to purchase the facility at a future time. Through this type
of transaction if the unaffiliated entity is adequately financed, the Company
would not incur the start-up development costs and operating losses typically
associated with the development and initial operation of a senior living
facility because the Company would not be the owner, however prior to entering
into such agreement, the Company may incur certain initial expenses
34
<PAGE>
associated with its site selection process. The Company would earn a development
fee for the development of the senior living facility and a management fee for
its operation and might exercise its option, if any, to purchase the senior
living facility. The unaffiliated third party entity (which would often be a
not-for-profit entity) would benefit through the attainment of a turnkey senior
living facility. There can be no assurance that a 501(c)(3) organization will be
willing to enter into such a contractual arrangement, and moreover, there can be
no assurance that this form of transaction for a 501(c)(3) organization will
withstand regulatory challenge. To date, neither the Company nor any of the
501(c)(3) organizations involved with Vanguard or the Company has received any
inquiry or comment from any regulatory authority with respect to its contractual
arrangements with 501(c)(3) organizations. See "Risk Factors -- Repayment Risk
Associated with Sponsored Development Projects" and "-- Possibility of
Regulatory Challenge to Tax-Exempt Not-For-Profit Organizations."
The Company's development program will initially focus on site selection and
residence size, both of which the Company believes are essential to the success
of its development projects. In evaluating a prospective development site, the
Company will consider primarily the strength of the market demand and the
ability to maximize the efficiency of its management resources in a specific
market or "cluster." Accordingly, the Company intends to select sites so that it
can strategically place three to five senior living facilities within a 200-mile
radius, creating a regional cluster of senior living facilities. The Company
believes that the clustering concept will allow it to reduce costs by sharing
certain management, marketing and operational resources within the regional
cluster. The Company intends to locate its assisted living facilities in
well-established residential neighborhoods in communities where the population
typically ranges from 40,000 to 100,000 people. The size of a typical community
for a CCRC would generally be somewhat larger, ranging between 100,000 and
500,000 people. The Company intends to pursue the development of senior living
facilities in communities that show a strong need for senior living services and
a higher than average percentage of middle-aged or elderly individuals. Other
factors that are considered in the site selection process include the level of
competition, the local labor market, the state and local legislative and
regulatory environment and the presence of strong community support for senior
living facilities.
Once a site is selected, the Company would either advance funds to the
unaffiliated third party owner of the facility, which funds would be secured by
the assets of the unaffiliated third party entity, including the land for the
proposed facility or expend funds itself. To the extent such advances are not
secured by land, they will be reserved as uncollectible until the unaffiliated
entity can repay the advances. The Company would be limited pursuant to the
terms of the Notes to advance no more than $1.5 million for any one senior
living facility. While these advances may at times consist of the Company's
working capital (including the proceeds from the Offerings), the Company may
also seek to arrange, through Vanguard or another placement agent, short term
financing to satisfy the project's initial funding requirements. The Company may
set up a special purpose wholly-owned subsidiary which would issue the debt,
which debt may then be convertible into the Company's Common Stock. It is
intended that these advances would be repaid from the proceeds of construction
financing arranged for or by the Company on behalf of the unaffiliated third
party entity. The Company may be restricted from recording as a receivable any
advances to the unaffiliated third party entity under certain circumstances. The
Company would then, pursuant to project development agreements, act as the
project developer for what would typically be a development fee of 7.5 percent
of the project's soft and hard costs. Once the project is completed, the Company
may act as the manager of the facility pursuant to a management agreement, which
would provide for a management fee of between four and five percent of the
facility's gross revenue.
ACQUISITION OF PROPERTIES. In addition to the development and management of
senior living facilities for third parties, the Company may also, in selected
circumstances and on an opportunistic basis, acquire existing senior living
facilities. These acquisitions may be effected either through the exercise of a
purchase option obtained on properties which the Company had developed for third
35
<PAGE>
parties or through acquisitions in the open market. While the Company believes
that opportunities to acquire existing senior living facilities which fit its
criteria are limited, the Company will consider such acquisitions if the
opportunities arise.
When a facility managed by the Company attains a level of profitability
after the payment of debt service and management fees (usually after stabilized
occupancy in excess of 90% and at times lower depending on the level of debt
service) and the Company has a purchase option, the exercise of the Company's
option, would generally be considered. The Company's income from facilities that
have attained a level of profitability, will generally increase at an increasing
rate as occupancy increases after the break-even point.
SERVICES AND AMENITIES
GENERAL. The Company's senior living facilities offer residents a
supportive, "home-like" setting and assistance with activities of daily living.
The independent and assisted living community is very similar in many respects
to conventional apartment living with enhanced services allowing the residents
to live independently but yet socialize in a safe environment. Residents are
individuals who, for a variety of reasons, cannot live alone but do not
typically need the 24-hour skilled medical care provided in skilled nursing
facilities. Services provided to these residents are designed to respond to
their individual needs and to improve their quality of life. This individualized
assistance is available 24 hours a day, to meet both anticipated and
unanticipated needs. General services in the Company's residences include the
provision of three meals per day, laundry, housekeeping and maintenance.
Available support services include personal and routine nursing care, social and
recreational services, transportation and special services needed by the
resident. Personal care includes assistance with activities such as bathing,
dressing, personal hygiene, grooming, as well as eating and ambulating
assistance. Routine nursing services, which are made available and are provided
according to the resident's individual need and state regulatory requirements,
include assistance with taking medication, skin care and injections. Organized
activities are available for social interaction and entertainment. Special
services available include banking, grocery shopping and pet care. Although a
typical package of basic services provided to a resident includes meals,
housekeeping, laundry and personal care, the Company does not have a standard
service package for all residents. Instead, it is able to accommodate the
changing needs of its residents through the use of individual service contracts
and flexible staffing patterns.
As the Company's residents age, the level of care required by particular
residents is expected to increase. The Company's multi-tiered rate structure for
the services it provides is based upon the acuity of, or level of services
needed by, each resident. Supplemental and specialized health and personal care
services for those residents requiring 24-hour supervision or more extensive
assistance with activities of daily living is provided to the residents by
third-party providers who are reimbursed directly by the resident or a
third-party payor (such as Medicaid or Medicare). In the event that a resident's
acuity reaches a level such that the Company is unable to meet such resident's
needs, the Company maintains relationships with local hospitals and skilled
nursing facilities to facilitate a transfer of the resident. A resident of the
Company's CCRCs would be transferred to the skilled nursing component at the
facility.
Amenities common to the Initial Properties include convenience stores,
barber shops and beauty parlors, exercise and/or physical therapy rooms, pools,
clubrooms, music rooms, card rooms mail facilities, communal kitchen and dining
areas, extensive recreational programs,including arts and crafts, day trips,
parties, dinner dances, lectures, cards, pool tables, exercise classes, nature
walks, movies, and other group activities, church services and healthcare
monitoring. In addition, The Whittier has a swimming pool.
Special design features for independent and assisted living facilities
include large bathrooms with easy-to-operate fixtures and roll-in showers, wide,
barrier-free, well-lighted corridors, handicap access to all building interiors
and exteriors, large storage spaces, emergency call systems, ramps and elevators
(in addition to stairs), extensive signage, easy-to-operate kitchen appliances,
abundant
36
<PAGE>
common areas with appropriate seating and centralized service areas. All of the
Initial Properties have the features listed above, except only Hillside Terrace
and Harvest Village have an emergency call system for all units; The Whitcomb,
The Whittier and Olds Manor have emergency call systems for selective units
only.
Three of the Initial Properties have skilled nursing units. At the Company's
other senior living facilities arrangements are made with home healthcare
providers to fill most of the needs of those residents who require skilled
nursing assistance when and if they become ill. Phoenix Lifecare Corp.
("Phoenix"), a not-for-profit entity, provides home healthcare services to two
of the Initial Properties (The Whitcomb and The Whittier) that do not have
licenses to provide such services pursuant to a CON.
THE INITIAL PROPERTIES
The Company will own and/or manage five senior living facilities containing
1,071 apartments and nursing units upon consummation of the Offerings. Two of
the Company's Initial Properties are congregate care facilities and three of the
Initial Properties are CCRCs. As residents of senior living facilities
"age-in-place," they generally require more assistance. In each of the Company's
currently owned and/or managed senior living facilities, a significant shift in
the needs of residents from independent living services to assisted living
services has taken place, and to accommodate residents, the Company is in the
initial stages of converting a number of its independent living apartments in
each of the Initial Properties to assisted living units.
OPERATING DATA. The table below sets forth certain information regarding
the Initial Properties.
<TABLE>
<CAPTION>
UNITS
-----------------------------------------
YEAR YEARS INDEPENDENT ASSISTED SKILLED OCCUPANCY RATE(%)
NAME AND LOCATION BUILT RENOVATED LIVING LIVING NURSING JUNE 30, 1996
- ------------------------------ ----------- ------------- --------------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
PROPERTIES OWNED:
Hillside Terrace, Ann Arbor,
MI........................... 1969 1994 66 9 23 99
Olds Manor, Grand Rapids,
MI........................... 1920s 1964, 1970 97 55 44 97
The Whitcomb, St. Joseph,
MI........................... 1928 1973, 1989 102 34 -- 96
TO BE ACQUIRED:
Harvest Village, Atco,
NJ(1)........................ 1989 300 -- 60 58
MANAGED ONLY PROPERTY:
The Whittier, Detroit,
MI(2)........................ 1920s 1972, 1989 229 52 -- 56
--- --- ---
794 150 127
</TABLE>
- ------------------------
(1) In connection with the Company's purchase of Harvest Village, Gateway, the
current lessee of Harvest Village, will enter into a management agreement
with the Company for the management of Harvest Village. The Company will
have the right to terminate Gateway's lease for Harvest Village upon the
payment to Gateway of the fair market value of the lease at the time of
termination. The fair market value of the lease at the time of termination
will be determined by a panel of three real estate appraisers, one selected
by Harvest Partners, one selected by Gateway and the third selected by the
other two appraisers.
(2) Owned by Vanguard and managed by the Company. The Company has an option to
purchase The Whittier at the lesser of (i) its appraised fair market value
and (ii) the amount of its current mortgage and accrued management fees
payable. See "Description of Notes."
37
<PAGE>
HILLSIDE TERRACE. Hillside Terrace is a CCRC located in Ann Arbor, Michgan,
approximately 30 miles from Detroit. The facility is located 1.5 miles from
downtown Ann Arbor, the main business district and home to the University of
Michigan, which enables residents to attend nearby cultural and athletic events.
Hillside Terrace was built in 1969 and was renovated in 1994. The facility
currently has 75 apartment units and 23 nursing beds, and a 64-unit expansion
has been approved by the city of Ann Arbor. This will facilitate the conversion
of a majority of the existing independent living apartment units to assisted
living units.
THE WHITCOMB. The Whitcomb is a CCRC located in downtown St. Joseph,
Michigan, which is on Lake Michigan at the mouth of the St. Joseph River. St.
Joseph's population, approximately 80,000 residents, and proximity to four
cosmopolitan cities, make The Whitcomb accessible to a large population and
secondary market. St. Joseph is 85 miles from Chicago, 195 miles from Detroit,
80 miles from Grand Rapids, Michigan and 35 miles from South Bend, Indiana. The
Whitcomb, formerly a hotel, was built in 1928. It was renovated in 1973 and in
1989 and has 136 apartments.
OLDS MANOR. Olds Manor is a CCRC located in Grand Rapids, Michigan. Olds
Manor was built as a hotel in the 1920s, but was renovated in the 1960s for use
as a retirement center and nursing facility. Olds Manor borders the central
business district of Grand Rapids, adjacent to the Post Office and across the
street from city and county administrative offices. It has 97 apartment units,
55 assisted living units and 44 skilled nursing beds.
THE WHITTIER. The Whittier is a congregate care facility located in Detroit
and has experienced a decline in its occupancy over the last several years as a
result of local demographic changes. However, the Company has instituted a
number of changes consisting of, among other things, shifting the operational
focus to assisted living and changing the target market, which now targets the
upper middle income, retired, African-American community. These changes have
resulted in a significant improvement in The Whittier's occupancy during the
last eight months, increasing from a low of 130 apartments as of October 31,
1995 to the current level of 160 in June 1996, which represents an eight-month
increase of 23 percent. The Company has reason to believe that The Whittier will
break even after operating expenses and debt service upon attaining an occupancy
level of 180 residents. Thereafter, profitability can be expected to increase at
an increasing rate as The Whittier's occupancy expands, after which the
Company's option to purchase the facility pursuant to the terms of its purchase
option can be exercised, subject to the terms of the Notes, which limit the
Company's ability to exercise its option.
HARVEST VILLAGE. Harvest Village is a congregate care facility located in
Atco, New Jersey. With respect to the Company's proposed acquisition of Harvest
Village, the Company believes that Harvest Village's occupancy and its
profitability can be improved as a result of several significant factors,
including: (i) the removal of the present risk of foreclosure of the
construction loan (due September 30, 1996), which has negatively impacted sales
over the past three years because prospective residents have been reluctant to
commit resources to a potentially unstable situation, and (ii) the conversion of
an independent living wing to a 51 unit assisted living facility. The Company
believes that removing the financial uncertainty and the assisted living
conversion will accelerate the increase of Harvest Village's occupancy level and
improve its operating net income and cash flow. In any event, the Company
believes that the purchase price at which it will acquire Harvest Village is
substantially lower than its current fair market value of $24,700,000 based upon
a recent appraisal. The appraisal assumes the conversion of the facility to a
retirement facility comprised of 264 independent living units, 52 assisted
living rental units and 60 skilled nursing beds which is the use for the
facility planned by the Company. In addition, the appraisal considered the
improvement in public perception upon the refinancing of its current debt and
management of the facility by the Company. The purchase price ($17.4 million)
breaks down to an average per unit cost of $48,333 for the 360 apartments and
licensed nursing beds located at the facility. This is significantly under the
national average of $69,892 for a CCRC unit and approximately 50 percent of the
cost of developing and constructuring the facility. Moreover, after the
conversion of one of the 36 apartment unit wings to 51 assisted living apartment
units, Harvest Village will still have 100 remaining saleable apartment units
38
<PAGE>
at an average cost of approximately $100,000 per unit ($10 million), or
approximately $60,000 per unit ($6 million) if all units are sold pursuant to a
Traditional Residency Agreement (See "-- Paying for Senior Living Care"), which
can be used to augment the facility's cash flow. Finally, when Harvest Village
was originally constructed during the late 1980s, the population density in its
primary market area was significantly lower than the present population density.
Claritas, Inc., an independent demographic data company, has estimated that
the population within a 10-mile radius of Harvest Village has increased from
approximately 200,000 to 280,000, a 40 percent increase from 1980 through 1996.
Moreover, the median household income for that same area over that period
increased over 140 percent from $20,586 to $49,710. Commercial development
including office and retail building construction has increased dramatically
along the Route 73 corridor which borders the Harvest Village property and, in
the Company's opinion, indicates the positive demographic trend applicable to
the facility's primary market area.
The Company's revenues will be conditioned upon receipt of rental payments
from Gateway which, in turn, will be dependent upon the success of the
operations of Harvest Village.
In connection with the Company's purchase of Harvest Village, Gateway, the
current lessee of Harvest Village, will enter into a management agreement with
the Company for the management of Harvest Village. The Company will have the
right to terminate Gateway's lease for Harvest Village upon the payment to
Gateway of the fair market value of the lease at the time of termination. In
addition, Vanguard has agreed to lend Gateway $1.5 million for working capital
purposes after the consummation of the Offerings.
Harvest Partners, the owner of Harvest Village, is the defendant in an
action to recover uncollected attorney's fees, interest thereon and costs. See
"--Legal Proceedings." In the event that the plaintiff in such action is
successful, Harvest Partners would be liable for such fees, interest thereon and
costs, not the Company.
COMPANY PROJECTS
To provide the appropriate level of personal care efficiently and
economically, the Company intends to develop for itself or on behalf of others,
or acquire assisted living facilities generally ranging in size from 80 to 120
units. The Company has developed a prototype assisted living facility. It is
anticipated that the prototype assisted living facility will be built on its
Hollywood, Florida, Huntington, New York and Stroudsburg, Pennsylvania sites as
well as on other qualified sites presently being negotiated. Each assisted
living facility will generally be built on a parcel of land ranging in size from
3 to 10 acres and will contain approximately 70,000 to 105,000 square feet.
Approximately 40 percent of the building will be devoted to common areas and
amenities, including reading rooms, family or living rooms and other areas
designed to promote social interaction among residents. These areas will be
located primarily in a basic central core structure which is essentially
repeatable in all of the Company's proposed facilities. Modular wings of similar
design are added to the central core, depending upon the size of the facility.
The building is usually two or three stories and of either steel frame or
masonry construction built to institutional healthcare standards but strongly
residential in appearance. The interior layout is designed to promote a
"home-like" environment, efficient delivery of resident care and resident
independence. Each residential unit will be between approximately 375 to 550
square feet and is expected to cost approximately $60,000 to $90,000 to
construct, depending upon construction costs which vary from state to state.
Resident units in the Company's prototype assisted living facility are
functionally arranged in eight to twelve apartment clusters surrounding a
"neighborhood" living area in order to foster social interaction between
residents. The Company's prototype may be configured with several different
types of resident units, including a mix of one- and two-bedroom suites and
large studio or alcove apartments. All units have a small kitchen and roll-in
showers for easy wheelchair access. The ground level typically contains a
kitchen and common dining area, administrative offices, exercise or physical
therapy room, arts and crafts, beauty salon, laundry room, a private dining
room, library, living room,
39
<PAGE>
and TV room. Typically, one floor or one or two wings of a facility contain
resident units and common areas, including separate dining facilities,
specifically designed to serve residents with cognitive impairments (E.G.,
Alzheimer's disease) or other special needs.
CCRCs will generally be built on a parcel of land ranging from 10 to 30
acres and will contain from 150 to 200 units with an average size independent
living unit of between 900 and 1,000 square feet. The cost will average between
$100,000 and $200,000 per independent living unit. Each CCRC will be tailored to
the specific needs of each site selected.
The Company's three-year expansion objective is to develop principally for
others at least 24 senior living facilities consisting of 20 assisted living
facilities and four CCRCs with an estimated aggregate capacity of approximately
3,000 units.
The following table sets forth certain information regarding sites and
facilities that are either owned, under construction or are subject to
development, management or purchase contracts:
<TABLE>
<CAPTION>
NUMBER OF UNITS
-------------------------------------------
INDEPENDENT ASSISTED SKILLED
NAME LIVING LIVING NURSING
- ------------------------------------------------------------- --------------- ----------- -------------
<S> <C> <C> <C>
Cottage Grove Place,
Cedar Rapids, IA(a) 135 50 16
Presidential Place,
Hollywood, FL(b)(c) -- 104 --
Camelot Village,
Huntington, NY(b)(d) -- 122 --
Orchard Terrace,
Ann Arbor, MI(c)(e) 64 -- --
Camelot Village,
Stroudsburg, PA(b)(d) -- 80 --
Camelot Village,
Columbus, IN(f) -- 80 --
Home Place, Indianapolis, IN(g) -- 60 --
Sanders Glen, Westfield, IN(g) -- 69 --
</TABLE>
- ------------------------
(a) A 201-unit CCRC being developed by the Company pursuant to development and
management agreements with an unaffiliated not-for-profit entity. Initial
occupancy is scheduled for October 15, 1996.
(b) The Company has entered into development and management agreements and has a
purchase option on this senior living facility.
(c) Zoning approval has been obtained, and the Company is awaiting Federal
Housing Administration financing approval.
(d) Zoning approval is in the process of being obtained.
(e) This site is owned by the Company and is being used to expand Hillside
Terrace by 64 independent living units. Upon completion, the Company will
convert 66 of Hillside Terrace's independent living units into assisted
living units. The commencement of construction is contingent upon financing
which the Company expects to arrange within the next nine months. Completion
is anticipated in Fall 1998. See "Use of Proceeds."
(f) The Company has entered into a letter of intent to develop a senior living
facility on this site.
(g) The Company intends to lease this existing senior living facility following
its proposed acquisition by an unaffiliated third party.
40
<PAGE>
COMPANY OPERATIONS
MANAGEMENT. The day-to-day operations of each senior living facility are
managed by an on-site administrator who is responsible for the overall operation
of the senior living facility, including quality of care, marketing, social
services and financial performance. The administrator is assisted by
professional and non-professional personnel, some of whom may be independent
providers or part-time personnel, including nurses, personal service assistants,
maintenance and dietary personnel. The routine nursing services are provided by
a nurse who is typically employed by the Company, subject to state regulatory
requirements. The nursing hours vary depending on the residents' needs. The
Company consults with outside providers, such as pharmacists and dieticians, for
purposes of medication review, menu planning and responding to any special
dietary needs of its residents. Personal care, dietary services, housekeeping
and laundry services are performed primarily by personal service assistants who
are full-time employees of the Company. Maintenance services are performed by
full-time employees, while landscaping services are sometimes performed by
third-party contractors.
The Company provides management services to each of its senior living
facilities which include the development of operating standards and the
provision of recruiting, training and accounting services. It is anticipated
that, as the Company grows, it will establish regional offices that will include
a regional manager to oversee six to ten senior living facilities. The regional
manager will be responsible for monitoring and supervising all aspects of
operations in the region, including reviewing and monitoring compliance with
corporate policies and procedures and acting as a liaison between the senior
living facilities and corporate headquarters.
Presently, senior living facility personnel are supported by a corporate
staff based at the Company's headquarters. Corporate personnel work with the
on-site administrator with respect to the establishment of senior living
facility goals and strategies, quality assurance oversight, development of
Company policies and procedures, development and implementation of new programs,
cash management and treasury functions, human resource management and
development.
The Company's executive team has been carefully selected based upon his or
her knowledge and experience in the senior living field and related areas. The
Company has sought talented, self-starters who are capable of handling many
aspects of the senior living business. The Company believes that a successful
senior living facility is operationally related to the hotel/hospitality field
and programmatically related to the residential/social model of healthcare.
MARKETING. The Company's senior living facilities provide affordably priced
housing, personalized support and healthcare services and primarily target
private-pay residents. By targeting senior living facility development projects
primarily in upper middle income communities and by maintaining competitive
pricing, the Company believes it will be able to achieve high occupancy levels.
The Company has found an effective niche in the upper middle income market
between the high income prospect who can afford to obtain services at home and
the low income prospect who cannot afford to live in the Company's senior living
facilities.
For its assisted living facilities, the Company targets senior citizens who,
although generally ambulatory, need help with the activities of daily living.
For instance, a typical prospective resident for the Company's assisted living
facilities may not be eating properly, may not be taking medication properly or
may be forgetful and need assistance with activities such as bathing, dressing,
medication monitoring, transportation and diet monitoring. The Company's target
market also includes senior citizens who are socially isolated or unable to
perform housework, such as cooking, yardwork or home repairs or maintenance. The
Company's strategy is to develop in each assisted living facility a setting with
a wide range of related services provided to serve primarily those individuals
whose care requirements fall between a typical nursing facility and the
independent living provided in a private home or a congregate care facility. The
Company assesses the level of need of each resident regularly.
41
<PAGE>
The marketing of independent living facilities is done through a combination
of media and direct mail advertising, referrals from residents and various
centers of influence (e.g., hospital administrators, religious leaders, service
clubs, attorneys, accountants, bankers, etc.) and various types of social
functions at a senior living facility. Marketing assisted living facilities is
better accomplished through networking with major referral sources. During the
rent-up stage of a project, the marketing staff would consist of a Director of
Marketing, two sales persons, and a secretary. The senior living facility's
administrator would also assist with special events and market-oriented social
affairs. After the senior living facility is substantially rented, the staff can
be reduced to a single or part-time Marketing Director and secretary.
PAYING FOR SENIOR LIVING CARE
The residents of CCRCs and assisted living facilities or their families
generally pay the cost of care from their own financial resources. Depending on
the nature of an individual's health insurance program or long-term care
insurance policy, the individual may receive reimbursement for the costs of
care.
Government payments for assisted living outside of a skilled nursing
facility have been limited. Some state or local governments offer subsidies for
rent or services for low income elderly. Others may provide subsidies in the
form of additional payment for those who receive SSI payments. Medicaid provides
reimbursement for certain financially or medically needy persons, regardless of
age, and is funded jointly by federal, state and local governments. Medicaid
reimbursement varies from state to state. According to the Report on Long-Term
Care published in February 1994, only 11 states have Medicaid Waiver programs
that allow them to pay for assisted living care. Without a Medicaid Waiver
Program, states can only use federal Medicaid funds for care in skilled nursing
facilities.
Potential residents of Cottage Grove Place and Harvest Village are required
to pay an application fee upon submission of each application. At Harvest
Village, for example, applicants are required to pay an application fee of $500
per residency agreement. Additionally, new residents are required to pay an
entrance fee that ranges from $40,000 to $147,000. The specific amount is
determined by (i) the type of residency agreement signed by each resident and
(ii) the size of the apartment that is chosen by the resident. Harvest Village
has two different types of residency agreements. One is called the Return of
Capital Residency Agreement the other is entitled Traditional Residency
Agreement.
The Return of Capital Residency Agreement allows the resident to be eligible
for a partial reimbursement of up to 90% of the entrance fee, and upon the
resident's death, the estate may be eligible for partial reimbursement of up to
90% of the entrance fee. Partial resident reimbursement is subject to deductions
specified in the agreement and will be paid only after receipt of the proceeds
paid by a new resident. Under the Return of Capital Residency Agreement, if a
resident is permanently assigned to the healthcare center, the resident will pay
a healthcare fee each month and 90% of the entrance fee will be amortized at 2%
for each full or partial month the resident receives care in the healthcare
center.
Under the Traditional Residency Agreement admission payments are lower than
under the Return of Capital Residency Agreement. Any refund of the entrance fee
is determined by length of residency; amortization of the entrance fee for care
in the healthcare center does not apply. If the resident is permanently assigned
to the healthcare center the resident will pay the healthcare fee for each month
or partial month. Amortization of the entrance fee does not apply. The resident
is responsible for the cost of two additional meals or medical treatment,
prescription drugs, prescribed therapy, nursing supplies and other medical
miscellaneous supplies and services associated with medical treatment. The
healthcare fee includes semi-private room, one meal per day and basic nursing
care. There is an additional service fee when a second person shares a living
unit.
COMPETITION
The long-term care industry generally is highly competitive and the Company
expects that the assisted living business in particular will become more
competitive in the future. The Company will be
42
<PAGE>
competing with numerous other companies providing similar long-term care
alternatives such as home health agencies, lifecare at home, community-based
service programs, congregate care communities and convalescent centers. While
there presently are few assisted living facilities existing in the markets the
Company intends to serve, the Company expects that, as assisted living receives
increased attention and the number of states which include assisted living in
their Medicaid Waiver Program increases, competition will grow from new market
entrants, including companies focusing primarily on assisted living. Nursing
facilities that provide long-term care services are also a potential source of
competition for the Company.
Providers of senior living facilities compete for residents primarily on the
basis of quality of care, price, reputation, physical appearance of the
facilities, services offered, family preferences, physician referrals and
location. Some of the Company's competitors are significantly larger than the
Company and have, or may obtain, greater resources than those of the Company.
The Company believes that the rate at which competition will grow in the
CCRC industry market will be slower than assisted living facilities because of
the increased difficulty of locating larger sites, obtaining financing for this
type of project and the longer rent-up periods for CCRCs. The Company expects
that its major competitors will be other long-term care facilities within the
same geographic area as the Company's facilities because management's experience
indicates that senior citizens who move into senior living facilities frequently
choose communities near their homes.
GOVERNMENT REGULATION OF SENIOR LIVING FACILITIES
In general, senior living facilities and healthcare services are subject to
extensive government regulation. The senior living facilities owned and managed
by the Company are subject to state regulation and licensing requirements and to
CON or similar statutes under which a proposed operator must demonstrate public
need for skilled nursing beds or assisted living units and satisfy other
criteria. The operators of those facilities must also comply with any cost
reporting or other reporting requirements imposed by the Medicaid program as
well as any reimbursement limitations on amounts that may be charged to the
program or to program beneficiaries. In order to qualify as a state licensed
facility and, where applicable, qualify for Medicaid reimbursement and/or
resident SSI supplemental payments, the senior living facilities owned and
managed by the Company must comply with regulations that address, among other
things, staffing, physical design, required services and resident
characteristics. Such facilities are also subject to various local building
codes and similar ordinances, including fire safety codes. These requirements
vary from state to state and are monitored by varying state and local agencies.
Currently, assisted living facilities are not regulated as such by the
federal government. Current state requirements for assisted living providers in
many states are typically less stringent than the requirements for skilled
nursing facilities. Management anticipates that states that regulate assisted
living facilities, to the extent they do not already do so, will require
licensure as an assisted living facility and will establish varying requirments
with respect to such licensure. The facilities that the Company intends to
develop and manage in New York and Florida will apply for appropriate licensure.
In addition, the Company expects that it, or the facilities that the Company
manages, will obtain licenses in other states as required. Under current New
York law, a public for-profit corporation such as the Company may own the land
and buildings in which a nursing facility or assisted living facility (denoted
under New York law as an "adult home") is located but is not eligible to be the
licensed operator of the facility. It is anticipated, therefore, that a
not-for-profit entity or other legally eligible person will be the licensed
operator of the New York facilities and that the Company will enter into lease,
management and/or other service contract arrangements with the licensee.
The facilities owned and managed by the Company are subject to periodic
survey or inspection by governmental authorities. From time to time, in the
ordinary course of business a facility may be cited for one or more deficiencies
which are typically addressed in a plan of correction by the facility. None of
the Initial Properties is subject to any proceedings to revoke any of its
licenses nor is the Company
43
<PAGE>
aware of any conditions that could reasonably lead to such proceedings. The
Company believes that the Initial Properties are in substantial compliance with
all applicable licensing, reimbursement and similar regulatory requirements.
The Company and the facilities it manages are also subject to various state
and federal "fraud and abuse" laws, including "anti-kickback" and "physician
self-referral" laws. The federal "anti-kickback" law prohibits the knowing and
willful solicitation, receipt or offering of any direct or indirect remuneration
or consideration to induce or in exchange for referrals of patients or for the
ordering of services covered by Medicaid or Medicare and certain other state
healthcare programs. The federal "self-referral" law, known as the Stark II law,
imposes restrictions on physician (and other licensed provider) referrals of
patients for physical therapy, occupational therapy and certain other designated
healthcare services, to certain entities with which the provider or any
immediate family member has a financial relationship. Several states in which
the Company operates or proposes to operate have similar "anti-kickback" and
"self-referral" laws. In some cases, such state laws apply to a broader range of
services and a broader class of payors. Penalties for violating existing fraud
and abuse laws include civil monetary penalties, criminal sanctions and
exclusion from the Medicare and Medicaid programs.
The Company believes that its operations and those of the Initial Properties
that the Company manages are in material compliance with such laws and
regulations. The laws, rules and regulations which govern the Company, the
Initial Properties and other persons with whom the Company has relationships are
very broad and are subject to continuing change and interpretation. Thus, it is
possible that certain of the past of present contractual arrangements or
business practices of the Company or the Initial Properties might be challenged.
No assurance can be given that the Company or the facilities managed by the
Company will be able to obtain or maintain the CONs, licenses and approvals
necessary to conduct their current or proposed businesses. Further, no assurance
can be given that federal, state and local laws, rules and regulations will not
be amended or interpreted so as to require the Company or a facility managed by
the Company to change its contracts or practices or to obtain additional CONs,
approvals or licenses to conduct its business as now conducted or as proposed to
be conducted or that the Company or such facility will be able to obtain such
CONs, approvals or licenses. The failure to obtain or maintain requisite CONs,
licenses or approvals or to otherwise comply with existing or future laws, rules
and regulations or interpretations thereof could have a material adverse effect
on the Company's results of operations or financial condition.
OFFICES
The Company's corporate offices are located at 4 Cedar Swamp Road, Glen
Cove, New York 11542, where the Company rents 2,200 square feet from CBF
Building Company, a New York limited partnership of which Vanguard is the
general partner, under a lease expiring December 31, 2002. The Company subleases
25 percent of its space to Vanguard. See "Certain Relationships and Related
Transactions" and Note G to Notes to Consolidated Financial Statements.
EMPLOYEES
As of June 30, 1996, the Company had approximately 250 employees of whom
approximately 147 are full-time employees. In the opinion of the Company,
employee relations are good.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the normal
course of business. Effective April 1, 1992, the Company began to self-insure
for health and medical liability costs for up to a maximum of $300,000 in
claims. In the opinion of management of the Company, although the outcomes of
these suits and claims are uncertain in the aggregate they should not have a
material adverse effect on the Company's business, financial condition and
results of operations.
44
<PAGE>
On January 5, 1996, the law firm of Hannoch Weisman commenced an action in
the Superior Court of New Jersey, Law Division, Essex County against Harvest
Partners, an affiliate of Vanguard and the owner of Harvest Village, seeking
recovery of uncollected attorney's fees in an amount of $466,751, interest
thereon and costs. The case is being vigorously defended.
DESCRIPTION OF MORTGAGE LOANS
Upon the consummation of the Offerings, the Company's indebtedness for
borrowed money will consist primarily of the mortgage loans described below (the
"Mortgage Loans") and the Notes. See Note E to Consolidated Financial
Statements. The Mortgage Loans encumber all of the Initial Properties. See
"Description of Notes."
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
As of June 30, 1996, Hillside Terrace, Inc., a wholly-owned subsidiary of
the Company and the owner of Hillside Terrace, was indebted to Great-West Life &
Annuity Insurance Company ("GWL") in the aggregate principal amount of
$2,250,700. Such indebtedness is secured by a first mortgage loan on Hillside
Terrace. As of June 30, 1996, Whitcomb Tower Corp., a wholly-owned subsidiary of
the Company and the owner of The Whitcomb, was indebted to GWL in the aggregate
principal amount of $2,100,500. Such indebtedness is secured by a first mortgage
lien on The Whitcomb. The payment of principal and interest on each of the
foregoing first mortgages has been guaranteed by Vanguard. In addition, as of
June 30, 1996, Whittier Towers, Inc., a wholly-owned subsidiary of Vanguard and
the owner of The Whittier, was indebted to GWL in the aggregate principal amount
of $4,087,500. Such indebtedness is secured by a first mortgage loan on The
Whittier. Each of the foregoing first mortgage loans bears interest at 7.5% per
annum and is due April 30, 1997. The first mortgage loan securing The Whittier
provides that a default under such loan is also a default under both of the
first mortgage loans securing Hillside Terrace and The Whitcomb. Consequently, a
default under the first mortgage loan securing The Whittier could result in the
foreclosure of Hillside Terrace and The Whitcomb. See "Certain Relationships and
Related Transactions."
Under the Second Amendment to Mortgage and Security Agreements with GWL,
dated as of September 1, 1994, in the event that any of Whittier Towers, Inc.,
Whitcomb Tower Corp., or Hillside Terrace, Inc. sells, conveys, transfers,
pledges or further encumbers its property without the prior written consent of
GWL, then GWL has the right to declare due and payable the entire balance of the
unpaid principal with accrued and unpaid interest due thereon, plus the
prepayment premium provided in the promissory note related to its mortgage.
In the event that Olds Manor, Inc., a wholly-owned subsidiary of the Company
and the owner of Olds Manor sells, conveys, transfers, pledges or further
encumbers its property without the prior written consent of GWL, then GWL shall
have the right, at its option, to declare forthwith due and payable the entire
balance of the unpaid principal with accrued and unpaid interest thereon, plus
the prepayment premium provided in the promissory notes executed by Hillside
Terrace, Inc., Whittier Towers, Inc. and Whitcomb Tower Corp. See "--Old Kent
Bank."
OLD KENT BANK
As of June 30, 1996, Olds Manor, Inc., a wholly-owned subsidiary of the
Company and the owner of Olds Manor, was indebted to Old Kent Bank ("Old Kent")
in the aggregate principal amount of $243,947. Such indebtedness is secured by a
first mortgage lien on Olds Manor. The foregoing loan bears interest at Old
Kent's prime rate plus one percent per annum (9 1/4% per annum as of August 31,
1996) and is due August 7, 2001.
Under a Negative Pledge Agreement dated as of September 1, 1994, between
Olds Manor, Inc. and GWL, Olds Manor, Inc. agreed that prior to the date on
which the loans of GWL to Whittier Towers, Inc., Whitcomb Tower Corp. and
Hillside Terrace, Inc. are repaid in full, Olds Manor, Inc. will not, without
the prior written consent of GWL, assign, transfer, sell, convey, mortgage,
pledge, hypothecate, or otherwise dispose of or encumber Olds Manor, any
interest therein or any portion thereof.
45
<PAGE>
OLDS MANOR MORTGAGE TRUST
As of June 30, 1996, Olds Manor, Inc. was indebted to Olds Manor Mortgage
Trust in the aggregate principal amount of $360,000. Such mortgage is secured by
a convertible mortgage note on Olds Manor that is subordinate to the first
mortgage lien on Olds Manor held by Old Kent to a maximum amount of $436,459 and
a second mortgage on Olds Manor held by Citibank, N.A. ("Citibank") and Lloyds
Bank Plc ("Lloyds") to a maximum amount of $1,400,000. The foregoing loan bears
interest at prime rate of Citibank plus three percent per annum (11 1/4% per
annum as of August 31, 1996), is due May 31, 2000 and is convertible at any time
prior to repayment into 51,873 shares of Common Stock, subject to adjustment
(the "Olds Manor Note"). The Company is the guarantor of the Olds Manor Note.
WHITCOMB MORTGAGE TRUST
As of June 30, 1996, Whitcomb Tower Corp. was indebted to Whitcomb Mortgage
Trust in the aggregate principal amount of $850,000. Such mortgage is secured by
a convertible mortgage note on The Whitcomb that is subordinate to the first
mortgage loan on The Whitcomb held by GWL and prior and superior to a mortgage
on Whitcomb Tower held by Citibank and Lloyds. The foregoing loan bears interest
at prime rate of Citibank plus three percent per annum (11 1/4% per annum as of
August 31, 1996), is due March 31, 1999 and is convertible at any time prior to
repayment into 117,729 shares of Common Stock, subject to adjustment (the
"Whitcomb Tower Note"). The Company is guarantor of the Whitcomb Tower Note.
SEVEN PERCENT PROMISSORY NOTES
During 1993 and 1994, the Company issued and sold $795,000 aggregate
principal amount of Seven Percent Promissory Notes due December 31, 2000 (the
"7% Notes"). As of the date of this Prospectus, the outstanding principal amount
of the 7% Notes is currently convertible into 21,274 shares of Common Stock.
CITIBANK, N.A. AND LLOYDS BANK PLC
Citibank and Lloyds hold a second mortgage on Olds Manor in the amount of
$1,400,000 and a consolidated mortgage in the amount of $1,000,000 on The
Whittier, The Whitcomb and Hillside Terrace securing Vanguard's $6,350,000
guarantee of a construction loan in connection with Harvest Village. In
addition, as of June 30, 1996, Vanguard had pledged 1,340,573 shares of Common
Stock it owns as security for its guarantee. In connection with the consummation
of the Offerings and the acquisition of Harvest Village, the construction loan
encumbering Harvest Village will be repaid and the Citibank and Lloyds mortgages
on Olds Manor, The Whittier, The Whitcomb and Hillside Terrace will terminate.
46
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Carl G. Paffendorf................................... 63 Chairman of the Board and Chief Executive Officer
Larry L. Laird....................................... 59 President, Chief Operating Officer and Director
Paul D'Andrea........................................ 63 Vice President--Finance
Theresa A. Govier.................................... 57 Vice President--Administration and Secretary
Craig M. Shields..................................... 54 Vice President and General Counsel
Alan Guttman......................................... 47 Treasurer
James E. Eden........................................ 58 Director
Benjamin Frank....................................... 62 Director
Francis S. Gabreski.................................. 77 Director
Robert S. Hoshino, Jr................................ 49 Director
Stanford J. Shuster.................................. 54 Director
</TABLE>
CARL G. PAFFENDORF has been Chairman of the Board and Chief Executive
Officer of the Company since 1988 as well as a Director of the Company since
inception. Mr. Paffendorf has been involved in the development, management,
acquisition and/or financing of 12 retirement communities since 1979. Mr.
Paffendorf has been president of Vanguard since 1979 and Chairman of Vanguard
since 1972. Vanguard is a real estate holding company. Mr. Paffendorf is an
attorney and a member of the Florida and Ohio Bars and holds a Masters degree in
Tax Law (LL.M.)
LARRY L. LAIRD has been President and Chief Operating Officer of the
Company since 1994 and a Director of the Company since 1993. Mr. Laird has been
involved in the development and management of retirement communities since 1965.
Mr. Laird's experience encompasses the development of 42 retirement facilities
and the management of 51 retirement facilities in 25 states. He has served as an
industry leader and spokesman; an interstate lobbyist for stringent legislation
with regard to lifecare facilities; a founder, director and officer of both
state and national industry associations; and has lectured in numerous
industry-related forums. Mr. Laird received a B.A. from Central College, Pella,
Iowa and did graduate work at the University of Iowa in Iowa City. Mr. Laird
continues to serve as executive director of Friendship Village, Waterloo, Iowa,
a lifecare facility. From October 1986 until October 1992, Mr. Laird served as
president of Forum Lifecare, Inc., a wholly-owned subsidiary of Forum Group,
Inc., and as a vice president of Forum Group, Inc. From October 1992 until July
1996, Mr. Laird was also president of Laird Lifecare Ltd., a developer of senior
living facilities. Prior to 1986 he was a co-founder and executive vice
president and chief operating officer of Life Care Services Corporation in Des
Moines, Iowa.
PAUL D'ANDREA has been Vice President -- Finance of the Company since May
1994. From 1991 to 1994, Mr. D'Andrea was vice president/controller of ODA
Environetics International, Inc., a company engaged in architectural design, and
from 1975 through 1991 was vice president/treasurer of Apco Merchandising
Corporation, a jewelry manufacturer and retailer. Mr. D'Andrea received a B.S.
in accounting from New York University.
THERESA A. GOVIER has been Vice President -- Administration and Secretary
of the Company since 1991. Ms. Govier has also been employed by Vanguard since
1977 as executive assistant to the president and director of employee benefits.
Ms. Govier attended Nassau Community College from 1988 to 1992.
47
<PAGE>
CRAIG M. SHIELDS has been Vice President and General Counsel of the Company
since 1992. From 1992 through 1995 Mr. Shields was of counsel/partner of the law
firm of Quinn & Suhr, LLP, White Plains, New York. From 1983 through 1991 he was
founder/partner of the law firm of Collier, Cohen, Shields & Bock, New York, New
York. He was educated at Fordham University School of Law, New York, New York,
LL.B and Lafayette College, Easton, Pennsylvania, B.A.
ALAN GUTTMAN has been Treasurer of the Company since 1991 and Treasurer of
Vanguard since 1985. Prior to joining Vanguard, he was controller of Brittan
Corporation, a real estate property owner and management company. Mr. Guttman
has a B.A. degree in Accounting from the City University of New York.
JAMES E. EDEN has been a Director of the Company since June 1996. Mr. Eden
has been president of James E. Eden & Associates and Eden & Associates, Inc.
since 1992, consulting businesses active in both the senior living and the
long-term care industries. Since 1992, Mr. Eden has also been chairman of the
board and chief executive officer of Oakwood Living Centers, Inc., a long-term
care company which operates geriatric and rehabilitative nursing beds and
centers throughout New England and Virginia. From 1988 to 1992, Mr. Eden was
employed by Marriott Corporation, first as vice president and general manager,
senior living services division, which acquired and/or developed Marriott's
senior living facilities and later as executive vice president, where he was
responsible for trade association and governmental relations for senior markets.
Mr. Eden is a director of Omega Healthcare Investors, Inc. and Just Like Home,
Inc., public companies serving the senior living industry.
BENJAMIN FRANK has been a Director of the Company since 1991. Mr. Frank is
an attorney and real estate developer. He holds a J.D. degree from New York
University School of Law and a B.Sc. degree in Business Management from Boston
University. Prior to 1988 he was an executive with Allied Stores Corporation
("Allied") for 16 years. His last position with Allied was that of senior vice
president with overall responsibility for real estate, legal and governmental
affairs.
FRANCIS S. GABRESKI has been a Director of the Company since 1992. Mr.
Gabreski is retired. Mr. Gabreski has a B.S. degree from Columbia University.
Upon retirement from the Air Force in 1962, he accepted a position as Assistant
to the president of Grumman Aerospace Corporation, a position he held until 1978
when he was named president of the Long Island Railroad.
ROBERT S. HOSHINO, JR. has been a Director of the Company since June 1996.
Mr. Hoshino has been assistant general counsel, EBASCO Services Incorporated,
New York, New York, an international company engaged in engineering,
construction and environmental services, since 1981. Mr. Hoshino holds a J.D.
degree from Columbia University School of Law, a B.A. from Colgate University
and continued his education at the Wharton School of Business, University of
Pennsylvania, in its Advanced Management Program.
STANFORD J. SHUSTER has been a Director of the Company since June 1996. Mr.
Shuster is president (since 1987) and chief executive officer (since 1993) of
Rosewood Estate USA, Inc. a development and management firm of assisted living
facilities based in St. Paul, Minnesota. Mr. Shuster also serves as president
(since 1973) and chief executive officer (since 1987) of Arthur Shuster, Inc.
("ASI"). ASI is the nation's largest firm specializing in the interior design
and contract furnishings of long-term care and senior housing facilities. In
addition, he is a founding member, executive committee member and current
secretary-treasurer of the National Association of Senior Living Industries
(NASLI). Mr. Shuster has been a member of the American Association of Homes and
Services for the Aging (AAHA) since 1978 and a frequent speaker at many national
conventions and seminars regarding the provision of services to the aging.
INFORMATION REGARDING THE BOARD OF DIRECTORS
The Bylaws of the Company provide for a Board of Directors divided into
three classes, each of which serves for a staggered three-year term. Messrs.
Frank and Gabreski have been elected to serve until the annual meeting of
stockholders in 1996, Messrs. Hoshino, Eden and Shuster have been
48
<PAGE>
elected to serve until the annual meeting of stockholders in 1997 and Messrs.
Paffendorf and Laird have been elected to serve until the annual meeting of
stockholders in 1998. Outside Directors are expected to be compensated at the
rate of $6,000 per year plus $1,000 for each meeting attended. In addition, each
non-employee Director is eligible to participate in the Company's 1996 Outside
Directors' Stock Option Plan. All of the officers of the Company and all of its
Directors, other than Messrs. Laird, Hoshino, Eden and Shuster, are officers and
directors of Vanguard. The Company also has an Audit Committee composed of
Messrs. Eden, Frank and Hoshino.
The Representatives of the Underwriters may designate for election one
person to the Company's Board of Directors for a period of five years. See
"Underwriting."
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for Carl G.
Paffendorf, the Company's Chief Executive Officer during the fiscal years ended
March 31, 1996, 1995 and 1994. No executive officer's salary and bonus exceeded
$100,000 for services rendered to the Company during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR ANNUAL COMPENSATION
ENDED --------------------
NAME AND PRINCIPAL POSITION MARCH 31, SALARY
- ------------------------------------------------------------------------------- ------------- --------------------
<S> <C> <C>
Carl G. Paffendorf............................................................. 1996 --(1)
Chief Executive Officer 1995 --(1)
1994 --(1)
</TABLE>
- ------------------------
(1) Mr. Paffendorf was paid $75,600 by Vanguard during the fiscal year ended
March 31, 1994, $75,600 by Vanguard during the fiscal year ended March 31,
1995 and $75,600 by Vanguard during the fiscal year ended March 31, 1996.
The Company estimates that Mr. Paffendorf devoted 40% of his time during the
fiscal year ended March 31, 1994 to the Company, 50% of his time during the
fiscal year ended March 31, 1995 to the Company and 60% of his time during
the fiscal year ended March 31, 1996 to the Company. The Company paid to
Vanguard administrative fees of $50,000 per year in each of the three fiscal
years ended March 31, 1996.
The following table sets forth certain information regarding stock option
grants made to the Chief Executive Officer during the fiscal year ended March
31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
% OF TOTAL OPTIONS
GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE
- -------------------------------------------------------------- ------------- ------------------- ----------- ----------
<S> <C> <C> <C> <C>
Carl G. Paffendorf............................................ 3,000 7.0% $ 6.10 01/01/01
7,000 16.3% $ 3.67 03/22/01
</TABLE>
The following table sets forth certain information regarding unexercised
stock options held by the Chief Executive Officer as of March 31, 1996. No
options were exercised by the Chief Executive Officer during the fiscal year
ended March 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT MARCH 31,
1996(#)
NAME EXERCISABLE/ UNEXERCISABLE
- ------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Carl G. Paffendorf................................................................... 8,000/22,000
</TABLE>
49
<PAGE>
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or defined benefit pension
plans.
EMPLOYMENT AGREEMENTS
Effective April 1, 1996, Mr. Paffendorf entered into a three-year employment
agreement with the Company, pursuant to which he serves as its Chief Executive
Officer. Mr. Paffendorf's annual cash compensation under the employment
agreement is $100,000 during the first year of the employment agreement. Mr.
Paffendorf has agreed not to compete with the Company during the term of his
employment and for a period of three years thereafter, and he will not, without
the Company's written consent, solicit the residents of facilities owned or
managed by the Company or any management contract owned or being negotiated by
the Company or its subsidiaries for a period of 24 months following the end of
the term of his employment agreement. The agreement automatically renews for
successive one-year terms unless either party terminates the agreement at least
45 days prior to the end of the initial term or any subsequent term. The Company
may terminate the agreement for "cause" (a breach of the terms and conditions of
the agreement, dishonesty, habitual drunkenness or committing an act of moral
turpitude) upon 30 days' prior written notice to Mr. Paffendorf.
Mr. Laird entered into a two-year employment agreement with the Company as
of April 1, 1996, pursuant to which he serves as the Company's President and
Chief Operating Officer. Mr. Laird's annual base salary under the employment
agreement is $100,000. In December 1995, Mr. Laird received a $25,000 cash bonus
and will receive 9,000 shares of Common Stock pursuant to the Company's December
29, 1995 letter agreement with Mr. Laird that survived Mr. Laird's April 1, 1996
employment agreement. Mr. Laird received an additional bonus on June 30, 1996 of
$25,000 cash and 3,000 shares of Common Stock. If Mr. Laird is employed by the
Company on March 31, 1998, Mr. Laird will receive a bonus of $25,000 cash and
3,000 shares of Common Stock. If Mr. Laird dies prior to March 31, 1998, while
employed by the Company, Mr. Laird's estate will receive the full bonus due on
March 31, 1998.
Mr. Laird has agreed not to compete with the Company during the term of his
employment and for a period of three years thereafter within a 15-mile radius of
any facility owned by the Company, and, upon his termination he will not,
without the Company's written consent, solicit the residents of facilities owned
or managed by the Company, any management contract owned or being negotiated by
the Company or any employees of the Company for a period of 24 months following
the end of the term of his employment agreement. The agreement automatically
renews for successive one-year terms unless either party terminates the
agreement at least 45 days prior to the end of the initial term or any
subsequent term. The Company may terminate the agreement for "cause" (a breach
of the terms and conditions of the agreement,dishonesty, habitual drunkenness or
committing an act of moral turpitude) upon 30 days' prior written notice to Mr.
Laird. In the event that Mr. Laird's employment is terminated, the Company
ceases to be manager of Cottage Grove Place and Mr. Laird becomes its manager,
the Company will receive one-half of the Cottage Grove Place management fee. In
the event that Mr. Laird's employment is terminated, the Company ceases to be
the developer of Cottage Grove Place and Mr. Laird becomes its developer, the
Company will receive 90% of the development fee.
STOCK OPTION PLANS
1991 INCENTIVE STOCK OPTION PLAN. Under the Company's 1991 Incentive Stock
Option Plan (the "Incentive Plan"), 300,000 shares of Common Stock are reserved
for issuance upon the exercise of stock options. As of the date of this
Prospectus, options to purchase an aggregate of 126,480 shares of Common Stock
are outstanding under the Incentive Plan. The Incentive Plan is designed as a
means to attract, retain and motivate key employees. The Stock Option Plan
Committee administers and interprets the Plan.
The Incentive Plan provides for the granting of incentive stock options (as
defined in Section 422 of the Code). Options are granted under the Incentive
Plan on such terms and at such prices as determined by the Stock Option Plan
Committee, except that the per share exercise price of options
50
<PAGE>
cannot be less than the fair market value of the Common Stock on the date of
grant. Each option is exercisable after the period or periods specified in the
option agreement, but no option may be exercisable after the expiration of ten
years from the date of grant. Options granted under the Incentive Plan are not
transferable other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or the
Employee Retirement Income Security Act.
1996 OUTSIDE DIRECTORS' STOCK OPTION PLAN. The Company's 1996 Outside
Directors' Stock Option Plan (the "Directors' Plan") provides for the grant of
options to purchase Common Stock of the Company to non-employee directors of the
Company. The Directors' Plan authorizes the issuance of a maximum of 90,000
shares of Common Stock. As of the date of this Prospectus, options to purchase
an aggregate of 9,000 shares of Common Stock are outstanding under the
Directors' Plan.
The Directors' Plan is administered by the Board of Directors. Under the
Directors' Plan each non-employee director elected after April 1, 1996 will
receive options for 3,000 shares of Common Stock upon election. To the extent
that shares of Common Stock remain available for the grant of options under the
Directors' Plan, each year on April 1, commencing April 1, 1997, each
non-employee director will be granted an option to purchase 1,800 shares of
Common Stock. The exercise price per share for all options granted under the
Directors' Plan will be equal to the fair market value of the Common Stock as of
the date preceding the date of grant. All options vest in three equal annual
installments beginning on the first anniversary of the date of grant. Each
option will be for a ten-year term, subject to earlier termination in the event
of death or permanent disability.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DUE FROM AFFILIATES
The Company is owed by Vanguard and its affiliates cash advances, unpaid
management fees, interest and other revenues. These amounts consisted of the
following as of the dates indicated below:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, JUNE 30,
1994 1995 1996 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Due from Vanguard................................ $ 1,708,684 $ 2,829,998 $ 2,452,137 $ 2,379,165
Due from Whittier Tower Corp..................... 1,078,634 1,576,150 2,406,266 2,441,068
Due from Vanguard Affiliated Limited Partnerships
(Vanguard is General Partner)................... 951,201 1,107,467 1,235,661 1,242,523
Management fees and cash advances due from
not-for-profit entities......................... 913,873 1,422,746 1,088,208 723,605
-------------- -------------- -------------- -------------
$ 4,652,392 $ 6,936,361 $ 7,182,272 $ 6,786,361
</TABLE>
The aggregate of $6,786,361 due from affiliates at June 30, 1996 was reduced
by $6,094,000 effective March 31, 1996 in connection with the acquisition of
Harvest Village. The balance due from affiliates of $723,605 is not secured,
however a portion of such amount will be secured by the escrow agreement to be
entered into among Vanguard, the Company and American Stock Transfer and Trust
Company as escrow agent. See "-- Escrow Agreement." In addition, the Company has
a note receivable collateralized by a third mortgage in the amount of
$6,863,340, $7,481,953 and $7,481,953 at March 31, 1995, March 31, 1996 and June
30, 1996, respectively. The note is due from Gateway.
On February 28, 1994, through a series of transfers and assignments, the
debt due to the Company from affiliates was reduced by $6,711,253. Vanguard
owned certain receivables from Gateway which it assigned to the Company in
partial settlement of Vanguard's obligation to the Company. The assignments were
made by Vanguard and Harvest Partners in the amounts of $6,258,875 ("GCI Note")
and $452,378.
HARVEST VILLAGE
Under an agreement dated June 20, 1992, the Company purchased (for $275,000)
a five-year option from Vanguard to acquire a 50 percent equity interest in
Harvest Village for a purchase price of $2 million upon exercise of the option,
subject to the construction loan and other indebtedness on the property. The
Company's 1992 option to acquire Harvest Village was terminated in connection
with the acquisition of Harvest Village. At that time Harvest Village was owned
95 percent by Vanguard Homes of N.J., Inc. ("VHNJ"), a Vanguard subsidiary, and
5 percent by Rimco Associates, Inc., an unaffiliated corporation and the general
contractor of Harvest Village. On January 10, 1995, Rimco assigned one half of
its general partnership interest in Harvest Partners to VHNJ and on January 2,
1996 assigned the balance of its partnership interest in Harvest Partners to
Phoenix Resources, Inc., a Vanguard subsidiary. In the event of the sale of
Harvest Village, VHNJ agreed to use its best efforts to have the GCI Note
assumed by the buyer. In consideration for the assignment of Rimco's partnership
interest in Harvest Village, these subsidiaries of Vanguard have agreed that if,
as, and when and to the extent that GCI Note is paid, then they each will pay
Rimco the sum of $275,000 on September 10, 2005, with interest at the rate of 9
percent per annum, compounded annually. In consideration of Rimco's
unconditional consent to the assignment of the GCI Note to the Company, and
other consideration, the Company agreed that if, as and when the GCI Note is
paid that the Company will fund Phoenix Resources, Inc. and VHNJ out of said
proceeds with sums sufficient for them to pay Rimco sums due it. On July 12,
1996, the Company's obligation to fund Phoenix Resources, Inc. and VHNJ out of
the proceeds of the GCI Note was terminated.
In fiscal 1996, the Company agreed to purchase Harvest Village from Harvest
Partners. The purchase is contingent upon certain events, including the
consummation of a proposed $25 million
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<PAGE>
public offering and the satisfaction of the Harvest Village construction loans
(or purchase by Vanguard or its designee). The purchase price is $17.4 million,
consisting of (i) $13,500,000 cash (which may include the assumption of a first
mortgage of $12,500,000), (ii) the cancellation of $6,094,000 of indebtedness
due to the Company from Vanguard and (iii) the assignment to Vanguard of the
$7.5 million GCI Note. The intercompany debt and assignment of the GCI Note have
been valued by the parties, based upon an appraisal, at $3.9 million.
In connection with the restructuring of the construction loan for Harvest
Village, the construction lenders required Vanguard to make a $7 million loan
guaranty. This guaranty, currently $6,350,000, is secured by a subordinate
mortgage on Olds Manor in the amount of $1.4 million and a subordinate mortgage
on The Whittier in the amount of $1 million. The Whittier mortgage is cross-
collateralized with subordinate mortgages on Hillside Terrace and The Whitcomb.
As of June 30, 1996 the guaranty was also secured by 1,340,573 shares of the
Company's stock owned by Vanguard. The guaranty and security interests will be
terminated upon the completion of the Offerings and the purchase of Harvest
Village by the Company which will result in the repayment of the debt and a full
release from the current mortgages. See "--Guarantees."
GUARANTEES
Vanguard has guaranteed to the Company the payment of the management fees
and other sums aggregating $2,406,266 at March 31, 1996 from Whittier Towers,
Inc., a Vanguard subsidiary which owns The Whittier, and $1,235,661 from two
partnerships of which Vanguard is general partner, Lake Fredrica, Ltd., which
then owned a 360-unit apartment complex in Orlando, Florida and Colony Court
Associates, Ltd., which owns a 104-unit apartment complex in Stuart, Florida.
All indebtedness with respect to such guarantees was cancelled in connection
with the acquisition of Harvest Village. In fiscal 1997, the Company assigned to
Vanguard the management agreements for Lake Fredrica and Colony Court, and Lake
Fredrica was sold.
The Company, Mr. Carl G. Paffendorf, Chief Executive Officer of the Company,
and Vanguard have guaranteed certain bank debt as follows:
<TABLE>
<CAPTION>
AMOUNT AS OF
AUGUST 31,
GUARANTOR MAKER(S) LENDER/OBLIGEE 1996
- --------------------------------- --------------------------------- --------------------------------- --------------
<S> <C> <C> <C>
The Company CBF Building Company Apple Savings Bank $ 112,000
The Company, Vanguard, Phoenix
Lifecare Corp. and Carl G.
Paffendorf Camelot Retirement Homes, Inc. State Bank of Long Island 450,000
Vanguard and Carl G. Paffendorf The Company State Bank of Long Island 450,000
Vanguard Hillside Terrace, Inc. Great-West Life 2,250,659
Vanguard Whitcomb Tower Corp. Great-West Life 2,100,449
Vanguard The Company Cedar Rapids CGP, L.C. $ 451,275
</TABLE>
As of March 31, 1996, Vanguard's $6,350,000 guaranty of the Harvest Village
construction loan was secured by subordinate mortgages on Olds Manor
($1,400,000) and other collateral, discussed above under "Harvest Village." Carl
G. Paffendorf has guaranteed $1.00 of the Harvest Village construction loan.
This $1.00 guarantee increases to $6,350,000 if Harvest Partners files for
bankruptcy. Upon the acquisition of Harvest Village by the Company, Mr.
Paffendorf's $1.00 guarantee will be cancelled.
The Great-West Life mortgage on The Whittier, which is owned by Vanguard,
was $4,087,500 at June 30, 1996. A default under The Whittier mortgage is a
default under the Hillside Terrace and Whitcomb mortgages.
Under an agreement, dated September 15, 1995 among the Company, Vanguard,
Heritage Corporation of Iowa ("Heritage"), an unaffiliated corporation and owner
of certain real property ("Lot 3") adjacent to the Cottage Grove Place
retirement facility in Cedar Rapids, Iowa, and Cottage Grove Place ("CGP"), an
unaffiliated 501(c)(3) corporation, Heritage granted CGP a five-year option to
purchase Lot 3 for approximately $450,000 plus certain expenses. The Company
agreed to advance
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<PAGE>
sums during the term of the option to pay real estate taxes and other expenses
relating to Lot 3 and agreed that it would exercise such option if CGP did not.
Vanguard has guaranteed the foregoing agreement of the Company.
Subsequently, under an agreement dated November 20, 1995, as amended, CGP
assigned its option rights to Cedar Rapids CGP, L.C. ("L.C."), a limited
liability company affiliated with CGP but unaffiliated with the Company, and
L.C. acquired Lot 3 from Heritage; L.C. granted CGP a five-year option to
purchase Lot 3 for approximately $450,000 plus certain interest and taxes. The
option expires September 19, 2000. The Company continued its agreement which
requires it to pay real estate taxes and other expenses and exercise its option
if CGP does not exercise its option. Vanguard continues to guarantee this
agreement of the Company.
OTHER
The Company leases its offices in Glen Cove, New York from CBF Building
Company, a limited partnership in which Vanguard is the general partner. The
Company has sublet 550 square feet of its space at 4 Cedar Swamp Road, Glen
Cove, New York 11542 to Vanguard on the same terms as the Company's lease with
CBF.
In fiscal 1996, certain officers/directors of the Company and its parent
company were officers and directors of Phoenix Lifecare Corp. ("Phoenix"), a
501(c)(3) organization which provides home healthcare services to residents of
The Whittier and The Whitcomb. As of the date of this Prospectus no director,
officer, employee or agent of the Company, Vanguard or any of their respective
affiliates is a director of Phoenix or will, in the aggregate, constitute a
majority of the officers of Phoenix.
Phoenix provides healthcare services to residents of The Whitcomb and The
Whittier on behalf of the Company. The Company earns a management fee from
Phoenix for services rendered. At June 30, 1996, the amounts due from Phoenix,
$369,950, have been fully reserved and no management fees have been recognized
during fiscal 1995 and 1996.
In fiscal 1996, the Company assigned its option to acquire 3.2 acres of land
in Hollywood, Florida to Presidential Care Corp., a 501(c)(3) organization of
which Phoenix is the sole member, in return for agreements to develop and manage
an assisted living facility on such property, plus an option to acquire the
facility. The option is exercisable from January 1, 2000 until December 31, 2005
at appraised fair market value, provided that in no event shall the purchase
price be less than the sum of outstanding principal and interest, together with
any prepayment penalties of any mortgages on the property. Loans from the
Company to Phoenix and Presidential Care Corp. as of March 31, 1996 aggregated
$867,614, of which $531,077 was paid subsequent to March 31, 1996.
In fiscal 1996, in consideration of the issuance of 120,000 shares of Common
Stock to be issued by the Company to Vanguard, Vanguard released its right to
receive up to 1,200,000 shares of Common Stock at the rate of one share upon
each $5.73 received by the Company in payment or sale of the GCI Note. Effective
March 31, 1995, Vanguard contributed 1,200,000 shares to the Company for
cancellation.
The Company entered into agreements with Camelot Retirement Homes, Inc., a
wholly-owned subsidiary of Vanguard for the development and management of
Camelot Village at Huntington, a proposed 122-unit senior living facility to be
located in Huntington, New York. On July 12, 1996, all of the outstanding shares
of the Common Stock of Camelot Retirement Homes, Inc., were transferred to
Phoenix. The Company has an option, exercisable from January 2, 1997 until
December 31, 2005, to purchase Camelot Village at Huntington at a purchase price
equal to the appraised fair market value, provided that in no event shall the
purchase price be less than the sum of outstanding principal and interest,
together with any prepayment penalties of any mortgage notes. As discussed above
under "Guarantees," the Company, Vanguard, Phoenix Lifecare Corp. and Carl G.
Paffendorf have guaranteed a $450,000 bank loan to Camelot Retirement Homes,
Inc., the proceeds of which were used as part of the purchase price for the
Huntington, New York property.
54
<PAGE>
The Company has an option, exercisable until December 31, 2001, to purchase
The Whittier from Whittier Towers, Inc., a wholly-owned subsidiary of Vanguard,
at a purchase price equal to the lesser of the appraised fair market value, or
the then amount of its mortgage debt less accrued management fees payable. See
"Description of Notes."
During the year ended December 31, 1994, Carl G. Paffendorf and a
partnership controlled by his spouse purchased $100,000 of the Company's 7%
Notes, and 10,000 warrants to purchase Common Stock on the same terms and
conditions offered to the other investors in a private placement. The notes and
warrants were converted and exercised in fiscal 1997.
The Company has adopted a policy whereby all future transactions between the
Company and its officers, Directors, principal stockholders or affiliates, will
be approved by a majority of the Board of Directors, including all of the
independent and disinterested members of the Board of Directors or, if required
by law, a majority of disinterested stockholders, and will be on terms no less
favorable to the Company than could be obtained in arm's length transactions
from unaffiliated third parties. In addition, the Notes will contain certain
restrictions on the Company involving transactions with affiliates. See
"Description of Notes."
Vanguard and each of its subsidiaries have agreed to indemnify the Company
from any liabilities it may incur, including interest and penalties arising
from, among other things, (i) any unpaid taxes, assessments or similar changes
attributable to the operations of Vanguard, its subsidiaries and predecessors of
the Company prior to the effective date of the Offerings, (ii) any disallowance
of any operating loss carry-forward recorded by the Company in its income tax
returns for each year prior to and including the fiscal year ended March 31,
1996 and (iii) the cancellation of indebtedness income from the satisfaction of
a subordinate mortgage held by Gateway on Harvest Village, which is to be
acquired by the Company from a Vanguard affiliate See "-- Harvest Village."
MANAGEMENT AGREEMENT
Under an agreement dated as of April 1, 1991, Whittier Towers Inc., a
Vanguard subsidiary, agreed to pay to the Company's subsidiary, UVH Management
Corp. ("UVHMC"), a management fee of 5% plus a 1% data processing fee for a
total of 6% of gross revenue collected or received from operation of the
facility. The term of the agreement was for a period of 60 months commencing on
April 1, 1991. UVHMC earned management fees of $151,474, $142,857 and $165,190
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
Under an agreement dated April 1, 1996, Whittier Towers Inc. agreed to pay
to UVHMC a management fee of 5% of the gross operating income of The Whittier.
The term of the agreement is 60 months and will continue on a month-to-month
basis thereafter. The agreement may be terminated by either party upon 30 days'
prior written notice to the other party.
ESCROW AGREEMENT
In connection with the Offerings, Vanguard, the Company and American Stock
Transfer and Trust Company as escrow agent have entered into an escrow agreement
pursuant to which 540,684 shares of Common Stock (assuming a public offering
price of $8.50 per share) held by Vanguard will be held in escrow to secure for
the benefit of the Company certain outstanding obligations of Vanguard and
others aggregating $4,596,000. Subject to certain conditions and formulas
contained in the escrow agreement, shares will be released to Vanguard as the
obligations are repaid. In the event the obligations are not repaid within three
years of the date of the escrow agreement shares with a value aggregating such
unpaid indebtedness will be cancelled.
55
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock, (ii) each director and each executive officer
named in the Summary Compensation Table and (iii) all directors and executive
officers as a group. Except as otherwise noted, each person maintains a business
address at c/o United Vanguard Homes, Inc., 4 Cedar Swamp Road, Glen Cove, New
York 11542, and has sole voting and investment power over the shares shown as
beneficially owned.
<TABLE>
<CAPTION>
SHARES TO
BE SHARES TO BE
SOLD IN BENEFICIALLY OWNED
EVENT OVER-
ALLOTMENT IN EVENT OVER-
SHARES SHARES TO BE OPTION IS ALLOTMENT OPTION IS
BENEFICIALLY OWNED BENEFICIALLY OWNED FULLY
BEFORE OFFERING SHARES OFFERED AFTER OFFERING EXERCISED FULLY EXERCISED
-------------------- ------------------- -------------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vanguard Ventures, Inc....... 1,635,969(1) 73.0% -- 1,635,969(1) 40.5% 270,000 1,365,969(1) 33.8%
Carl G. Paffendorf........... 1,700,010(2) 75.6 -- 1,700,010(2) 42.0 270,000 1,430,010(2) 35.3
Larry L. Laird............... 22,680(3) 1.0 -- 22,680(3) * -- 22,680(3) *
Benjamin Frank............... 13,402(4) * -- 13,402(4) * -- 13,402(4) *
Francis S. Gabreski.......... 29,326(5) 1.3 -- 29,326(5) * -- 29,326(5) *
Robert S. Hoshino, Jr........ 17,817 * -- 17,817 * -- 17,817 *
James E. Eden................ -- -- -- -- * -- -- --
Stanford J. Shuster.......... -- -- -- -- -- -- -- --
Directors and Executive
Officers, as a Group
(11 Persons)................ 1,794,275(6) 78.3% -- 1,794,275(6) 43.9% 270,000 1,524,275(6) 37.3%
</TABLE>
- ------------
* less than 1%.
(1) As of June 30, 1996, Vanguard had pledged 1,340,573 shares of Common Stock
owned by Vanguard as security for its guaranty in connection with
construction loans to Harvest Village. See "Certain Relationships and
Related Transactions."
(2) Mr. Paffendorf is an officer, director and controlling stockholder of
Vanguard. Consequently, Mr. Paffendorf may be deemed to be the beneficial
owner of all shares of Common Stock owned by Vanguard. Includes 7,200 shares
of Common Stock issuable upon exercise of options exercisable within 60 days
after the date of this Prospectus.
(3) Includes 4,680 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of this Prospectus.
(4) Includes 6,480 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of this Prospectus.
(5) Includes 20,326 shares of Common Stock issuable upon exercise of options and
convertible securities exercisable within 60 days after the date of this
Prospectus.
(6) Includes 49,726 shares of Common Stock issuable upon exercise of options and
convertible securities exercisable within 60 days after the date of this
Prospectus.
56
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Company will issue the Notes under an Indenture (the "Indenture")
qualified under the Trust Indenture Act of 1939 ("TIA") between the Company and
American Stock Transfer and Trust Company, as Trustee (the "Trustee"). The
following description of the Notes does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Indenture. A copy of the form of Indenture will be filed as an exhibit to the
Registration Statement of which this Prospectus is a part. In addition, the
Indenture may be subject to change if necessary to comply with law and is
permitted to be amended pursuant to the terms of the Indenture.
The Notes will be limited to $12,500,000 ($14,375,000 if the Placement
Agent's over-allotment option is exercised) in aggregate principal amount and
will mature on November 1, 2006, with mandatory redemptions in principal amounts
of $3,125,000 on November 1, 2003, 2004 and 2005 and a final payment at maturity
of $3,125,000. Interest on the Notes shall accrue from the Closing Date. The
Company will pay interest on the Notes in arrears on each April 1 and October 1
(commencing April 1, 1997) at the rate of [ ]% per annum. The Notes may be
redeemed by the Company after November 1, 1998 if the Closing Price of the
Common Stock exceeds 150% of the conversion price (as defined in the Indenture)
for 20 trading days within a period of 30 consecutive trading days ending not
more than five trading days prior to the notice of such redemption at a
redemption price (expressed as a percentage of principal amount) of 107% if
redeemed before October 31, 1999, of 106% if redeemed before October 31, 2000,
of 105% if redeemed before October 31, 2001, of 104% if redeemed before October
31, 2002 and of 103% if redeemed before October 31, 2003. Notes may be redeemed
at the option of the Company after October 31, 2003 at 100% of the principal
amount. The Notes will be secured by a mortgage between the Company and the
Trustee (the "Mortgage"), creating a lien on the real property comprising
Harvest Village and a security interest in certain personal property owned by
the Company and located at Harvest Village, and will constitute direct
obligations of the Company, ranking equally with, or senior in priority to, all
other unsecured indebtedness of the Company.
CONVERSION RIGHTS
Upon compliance with certain requirements of the Indenture, Holders of the
Notes shall have the right to convert such Notes (in minimum aggregate principal
amount of $1,000 or multiple thereof) into the Common Stock of the Company at a
price per share of $ [ % of the Common Stock offering price]. The
Conversion Price shall be adjusted by the Company to preserve the relative
ownership percentages of the Holders upon: distributions of the Common Stock on
capital stock of the Company; the issuance of rights, options, or warrants to
holders entitling them to purchase Common Stock at a price per share less than
the current market price; subdivision or reclassification of the Common Stock
into a greater number of shares or combining existing shares into fewer shares;
changing the shares of Common Stock into the same or a different number of
shares of any class or classes of stock; or distributions of assets or evidence
of indebtedness to substantially all Holders. However, adjustment need not be
made if such event would result in an adjustment of less than $0.01 or for
distributions of stock pursuant to the authorized stock option plan of the
Company, as described in the Indenture.
OPTIONAL REPURCHASE ON CHANGE IN CONTROL
The Indenture provides that in the event of a Change of Control, each Holder
shall have the right, subject to certain terms and conditions set forth in the
Indenture, to require the Company to repurchase all or any part of such Holder's
Notes no later than 45 calendar days after the Company gives notice of such
Change of Control (the "Repurchase Date"), at a cash purchase price (the
"Repurchase Price") equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to and including the Repurchase Date.
"Change of Control" is defined in the Indenture to mean, except as described
below, the occurrence of either of the following events, whether or not approved
by the Board of Directors of the Company: (i) any person other than Vanguard, a
subsidiary of Vanguard or Carl G. Paffendorf is or
57
<PAGE>
becomes the beneficial owner, directly or indirectly, of securities representing
more than 50% of the total number of votes that may be cast for the election of
directors of the Company or (ii) any person acquires from the Company more than
50% of the assets or earning power of the Company and its subsidiaries. For the
purposes of this definition, "Person" means a person or group (as such terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable), together with any affiliates or associates thereof, but does
not include any subsidiary of the Company and "beneficial ownership" shall be
determined pursuant to the provisions of Rules 13d-3 and 13d-5 under the
Exchange Act, whether or not applicable, except that a person shall have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
COVENANTS
The Indenture will contain affirmative and restrictive covenants. The
affirmative covenants require the Company to, subject to certain limitations
described therein, to: (i) pay the principal of, and interest on, the Notes when
the same shall be due and payable; (ii) maintain an office or agency where Notes
may be surrendered for payment or registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Notes and the
Indenture may be served; (iii) maintain its corporate existence; (iv) pay its
taxes when due except where such payments are being contested in good faith; (v)
maintain its property (and that of its subsidiaries) in good repair and to
maintain adequate insurance thereon; (vi) deliver to the Trustee copies of all
reports and information filed with the Commission (and, if the Company is not
subject to such filing requirements, the Company shall provide the Trustee and
each Holder with the reports and information specified in Section 13 or 15(d) of
the Exchange Act as if the Company were subject to such filing and reporting
requirements, and copies of such reports and information to any prospective
holder of the Notes promptly upon written request and payment of reasonable
costs of duplication and delivery); (vii) deliver to the Trustee an annual
certificate certifying compliance with all its obligations under the Indenture;
(viii) deliver to the Trustee and each Holder, within three days of becoming
aware of any Default or Event of Default under the Indenture or upon receipt of
notice of default or of any other action with respect to a claimed default from
any Holder or from any holder of any other evidence of Indebtedness of the
Company or any Subsidiary a certificate specifying such default and what action
the Company is taking or proposes to take with respect thereto, (ix) provide to
the Trustee and each Holder quarterly and annual consolidated financial
statements; and (x) not cause itself or any of its subsidiaries to become an
"investment company" (as that term is defined in the Investment Company Act of
1940). The Indenture also provides that the Company will comply with the other
provisions of Section 314(a) of the TIA.
The Indenture will also contain restrictive covenants which will restrict
the ability of the Company and its Subsidiaries from: (i) changing its line of
business; (ii) incurring additional indebtedness (other than the Notes or
additional long-term indebtedness unless such additional long-term indebtedness
does not exceed 225% of the sum of the outstanding principal amount of the Notes
and the consolidated net worth (calculated in accordance with GAAP) of the
Company and its Subsidiaries, and short-term indebtedness as otherwise allowed
by the Indenture); (iii) selling its assets (or those of any Subsidiary) other
than in the ordinary course of its business or to a wholly-owned subsidiary or
which sale would have allowed the Company to incur $1.00 of additional long-term
indebtedness as otherwise allowed by the Indenture, other than certain sales in
which the proceeds would be applied to the purchase of additional properties;
(iv) declaring any dividends or making other distributions on, or redeeming the
Company's equity securities, including the Common Stock or making any
investments other than property or inventory used in the ordinary course of
business of the Company or its Subsidiaries, investment in an existing
Subsidiary or acquisition of a new subsidiary, or certain securities or deposits
of or guaranteed by the United States government (to the extent such investment
or payment exceeds 25% of the consolidated net earnings of the Company and its
Subsidiaries for the fiscal quarter then ended); (v) the maintenance of a ratio
of consolidated net earnings (including amounts expended for interest, income
tax payments, and rentals for such period) to fixed charges of to 1.0; (vi)
maintaining consolidated net worth (calculated in accordance with GAAP) of
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<PAGE>
the Company and its Subsidiaries at a level equal to the sum of 25% of
consolidated net earnings for each prior quarter subsequent to the Closing Date;
(vii) encumber any of its property except for "Permitted Liens" as defined in
the Indenture; or (viii) enter into any transaction with the Company or any
Subsidiary that is not in the ordinary course of its business and on
commercially reasonable terms, all as set forth in the Indenture. The Indenture
will also contain certain restrictive covenants limiting the Company's ability
to exercise its option to purchase The Whittier.
The Indenture also provides that the Company shall not, in a single
transaction or through a series of related transactions, consolidate with or
merge with or into any other Person, or, directly or indirectly, sell, lease,
assign, transfer or convey or otherwise dispose of all or substantially all of
its assets (computed on a consolidated basis), to another Person or group of
persons, unless (i) the Company shall be the surviving entity; (ii) immediately
after such transaction, no Event of Default or event which, after notice or
lapse of time or both, would become an Event of Default under the Indenture,
shall have happened and be continuing; (iii) immediately after giving effect to
such transaction, the Company shall be permitted to incur at least $1.00 of
additional debt under the other provisions of the Indenture; and (iv) the
Company has delivered to the Trustee an officers' certificate stating that such
consolidation, merger, sale, lease, assignment, transfer, conveyance or other
disposition and such supplemental indenture comply with Article V of the
Indenture and that all other conditions precedent provided in the Indenture
relating to such transaction have been satisfied. The Indenture further provides
that the sale, lease, assignment, transfer, conveyance, or other disposition of
all or substantially all of the properties and assets of one or more wholly
owned Subsidiaries of the Company, which properties and assets, if held by the
Company instead of such Subsidiaries, would constitute all or substantially all
of the properties and assets of the Company on a consolidated basis shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company. In addition, the Indenture will provide that the Company
may be required to repurchase securities in the event of defined changes in
control of the Company.
EVENTS OF DEFAULT
The following events, among others, constitute events of default under the
Notes: (i) the Company's failure to pay interest or principal when due, (ii) the
failure of the Company to comply with any covenant of the Company or its
Subsidiaries contained in the Indenture and the continuance of such failure for
a period of 15 days, (iii) failure of the Company to provide notice of a Change
of Control (iv) certain cross-defaults with respect to other indebtedness of the
Company or its Subsidiaries and events of default under the Mortgage, (v) the
Company's failure to pay or have discharged certain judgments against the
Company or a subsidiary; (vi) the lien created by the Mortgage is no longer
enforceable or no longer has priority over other liens, or (vii) certain events
of bankruptcy or insolvency.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offerings, the Company's authorized capital stock
will consist of 14,000,000 shares of Common Stock, par value $.01 per share and
1,000,000 shares of Preferred Stock, par value $.001 per share, available for
issuance.
COMMON STOCK
Upon the closing of the Offerings there will be 4,040,950 shares of Common
Stock outstanding. Holders of shares of Common Stock are entitled to one vote
per share, without cumulative voting, on all matters to be voted on by
stockholders. Therefore, the holders of more than 50% of the shares voting for
the election of directors can elect all the directors elected by the holders of
Common Stock, and the remaining holders of Common Stock will not be able to
elect any directors. Subject to preferences that may be applicable to any
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation or dissolution of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the
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<PAGE>
liquidation preference of any outstanding Preferred Stock. Holders of the Common
Stock do not have preemptive rights to purchase any future issues of securities.
All of the shares of Common Stock presently outstanding are fully paid and
non-assessable.
PREFERRED STOCK
Upon the closing of the Offerings, the Company will have 1,000,000
authorized shares of Preferred Stock available for issuance, none of which will
be outstanding. The Company has no current plan to issue any shares of Preferred
Stock. The Preferred Stock may be issued from time to time in one or more series
or classes. The Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of Preferred Stock in
one or more series or classes, to establish from time to time the number of
shares to be included in each such series or class, to fix the rights,
preferences and privileges of the shares of each wholly unissued series or class
and qualifications, limitations or restrictions thereon, without any further
vote or action by the stockholders. The Board of Directors may authorize and
issue Preferred Stock with voting, dividend, liquidation, conversion or other
rights or preferences that could adversely affect the voting power or other
rights of the holders of Common Stock. For example, the terms of the Preferred
Stock that might be issued could prohibit the Company's consummation of any
merger, reorganization, sale of all or substantially all its assets, liquidation
or other extraordinary corporate transaction without approval of the outstanding
shares of Preferred Stock. Thus, the issuance of Preferred Stock might have the
effect of delaying, deferring or preventing a change in control of the Company.
The Board of Directors could also issue Preferred Stock with preferential
voting, conversion and/or dividend rights and thereby dilute the voting power
and equity of the holders of Common Stock and adversely affect the market price
for Common Stock.
WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company, the
Representative and Continental Stock Transfer & Trust Company (the "Warrant
Agent"). A copy of the Warrant Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
EXERCISE PRICE AND TERMS. One Warrant entitles the registered holder
thereof to purchase one-half share of Common Stock at an exercise price of $
per share [120% of the initial public offering price per share] at any time
during the eighteen (18) month period commencing on the date of this Prospectus
and $ per share [138% of the initial public offering price per share] at any
time during the period commencing on the date of this Prospectus until
, 1998 [eighteen (18) months from the date of this Prospectus] and
$ per share [138% of the initial public offering price per share] at any time
during the period commencing , 1998 [eighteen (18) months from the
date of this Prospectus] until , 1999 [three (3) years from the date
of this Prospectus], subject to adjustment in accordance with the anti-dilution
and other provisions referred to below. The holder of any Warrant may exercise
such Warrant by surrendering the certificate representing the Warrant to the
Warrant Agent, with the subscription form thereon properly completed and
executed, together with payment of the exercise price. The Warrants may be
exercised at any time in whole or in part at the applicable exercise price until
expiration of the Warrants. No fractional shares will be issued upon the
exercise of the Warrants.
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock
(exclusive of options and shares under the Incentive Plan and the Directors'
Plan) at a price below the market
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<PAGE>
price of the Common Stock. Additionally, an adjustment would be made in the case
of a reclassification or exchange of Common Stock, consolidation or merger of
the Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company in order to enable warrantholders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might otherwise have been purchased upon the exercise of the Warrant.
TRANSFER EXCHANGE AND EXERCISE. The Warrants are in registered form and may
be presented to the Warrant Agent for transfer, exchange or exercise at any time
on or prior to their expiration date three (3) years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
WARRANTHOLDER NOT A STOCKHOLDER. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
MODIFICATION OF WARRANTS. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days' prior written
notice to the warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Warrants without the consent of two-thirds of the warrantholders.
A significant amount of the securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Representative. Although it has no obligation to do so, the Representative
currently intends to make a market in the Company's securities and may otherwise
effect transactions in such securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the securities described in this Prospectus. Such market-making activity may
be discontinued at any time. The price and liquidity of the Common Stock and the
Warrants may be significantly affected by the degree, if any, of the
Representative's participation in such market. See "Underwriting."
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
The Warrants are separately transferable immediately upon issuance. Although
the Securities will not knowingly be sold to purchasers in jurisdictions in
which the Securities are not registered or otherwise qualified for sale,
purchasers may buy Warrants in the aftermarket in, or may move to, jurisdictions
in which the shares underlying the Warrants are not so registered or qualified
during the period that the Warrants are exercisable. In this event, the Company
would be unable to issue shares to those persons desiring to exercise their
Warrants, and holders of Warrants would have no choice but to attempt to sell
the Warrants in a jurisdiction where such sale is permissible or allow them to
expire unexercised.
CHANGE OF CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying a change in the
control of the Company and may maintain the
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<PAGE>
incumbency of the Board of Directors and management. The authorization of
undesignated Preferred Stock makes it possible for the Board of Directors to
issue Preferred Stock with voting or other rights or preferences that could
impede the success of any attempt to change control of the Company. In addition,
the Company's Bylaws limit the ability of stockholders of the Company to raise
matters or nominate persons to serve as members of the Company's Board of
Directors at a meeting of stockholders without giving advance notice. The
Company's Bylaws provide the Board of Directors be divided into three classes of
directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors. The Certificate of Incorporation and
Bylaws do not provide for cumulative voting in the election of directors.
The Company is subject to the provisions of Section 203 regulating corporate
takeovers. Section 203 prevents certain Delaware corporations, including those
whose securities are listed on the Nasdaq National Market, from engaging, under
certain circumstances, in a "business combination" (which includes a merger or
sale of more than 10% of the corporation's assets) with any "interested
stockholder" (a stockholder who acquired 15% or more of the corporation's
outstanding voting stock without the prior approval of the corporation's Board
of Directors) for three years following the date that such stockholder became an
"interested stockholder." A Delaware corporation may "opt out" of Section 203
with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the provisions of Section 203.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and the Warrant Agent
for the Warrants is Continental Stock Transfer & Trust Company, New York, New
York.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offerings, the Company will have 4,040,950
shares of Common Stock outstanding, 1,225,490 shares issuable upon conversion of
the Notes (at an assumed initial conversion price of $10.70 per share based upon
an initial public offering price of $8.50 per Share) and 190,876 shares of
Common Stock issuable upon conversion of convertible securities. All of the
1,800,000 shares offered hereby and the shares issuable upon conversion of the
Notes will be freely tradeable unless acquired by "affiliates" of the Company as
defined in Rule 144 promulgated under the Securities Act. The remaining
2,431,826 shares will be "restricted" securities as defined in Rule 144 and may
not be sold unless they are registered under the Securities Act or are sold
pursuant to an exemption from registration, including an exemption contained in
Rule 144. In general, under Rule 144 a person (or group of persons who shares
are aggregated) who has beneficially owned restricted securities for at least
two years, including persons who may be deemed "affiliates" (as defined in Rule
144) of the Company, will be entitled to sell, within any three month period, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of the Common Stock or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale limitations, notice
requirements and the availability of current public information about the
Company. A person who has not been an "affiliate" of the Company for the 90 days
preceding a sale and who has beneficially owned restricted securities for at
least three years will be entitled to sell such shares in the public market
without restriction. Restricted securities properly sold in reliance upon Rule
144 are thereafter freely tradeable without restrictions or registration under
the Securities Act, unless thereafter held by an "affiliate" of the Company. For
purposes of Rule 144, 36,836 of the restricted shares have been beneficially
owned by its holder for more than two years but less than three years and
1,662,000 of such shares have been beneficially owned for three years or more
(1,584,972 of these shares are held by affiliates). In addition, on July 27,
1995, the Securities and Exchange Commission (the "Commission") proposed to
reduce the Rule 144(d) holding period for resales of restricted securities from
two years to one year and to reduce the Rule 144(k) holding period from three
years to two years. If the Rule 144 changes are adopted as proposed, the reduced
holding periods will apply to all restricted securities.
Each of the directors and officers and certain shareholders of the Company
has agreed not to offer, sell or otherwise dispose of any shares of Common Stock
without the prior written consent of Janney for a period of nine months after
the date of this Prospectus. In addition, each of the directors and officers of
the Company, and Vanguard, has agreed that for a period of 24 months from the
date of the Prospectus all sales of shares of Common Stock owned by them will be
effected through Janney. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, may adversely affect the market price of
the Common Stock prevailing from time to time.
63
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Janney
Montgomery Scott Inc. and Rodman & Renshaw, Inc. are acting as representatives
(in such capacity, the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of Securities
set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SECURITIES
---------------------- -------------------
<S> <C>
Janney Montgomery Scott Inc........................................................
Rodman & Renshaw, Inc..............................................................
----------
Total...................................................................... 1,800,000
----------
----------
</TABLE>
The Underwriters are committed to purchase all the Securities offered
hereby, if any of such securities are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Share and
$ per Warrant. Such dealers may reallow a concession not in excess of
$ per Share and $ per Warrant to certain other dealers. After the
commencement of the offering, the public offering prices, concessions and
reallowances may be changed by the Representatives.
The Representatives have informed the Company that they do not expect sales
to discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.
Vanguard has granted to the Underwriters an option, exercisable within
thirty (30) days from the date of this Prospectus, to purchase from Vanguard, at
the offering price less underwriting discounts, all or part of an additional
270,000 Shares on the same terms and conditions of this offering for the sole
purpose of covering overallotments, if any. To the extent such option is
exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of Shares proportionate to
its initial commitment.
The Company has granted to the Underwriters an option, exercisable within
thirty (30) days from the date of this Prospectus, to purchase from the Company,
at the offering price less underwriting discounts, all or part of an additional
270,000 Warrants on the same terms and conditions of this offering for the sole
purpose of covering overallotments, if any. To the extent such option is
exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of Warrants proportionate
to its initial commitment.
The Company and Vanguard have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make. The
Company has agreed to pay to the Representatives a non-accountable expense
allowance equal to one and one-half percent (1 1/2%) of the gross proceeds
derived from the sale of the Securities underwritten, $50,000 of which has been
paid to date.
In connection with this offering, the Company has agreed to sell to the
Representatives, warrants to purchase up to 180,000 shares of Common Stock
and/or 180,000 Warrants (the "Representatives' Warrants") at a price of $.0001
per Representatives' Warrant. The Representatives' Warrants are initially
exercisable for a period of four (4) years commencing one year after the date of
this Prospectus at a price of $ per Share [120% of the initial public offering
price per Share] and $ per
64
<PAGE>
Warrant [120% of the initial public offering price per Warrant]. The
Representatives' Warrants are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the date of this Prospectus, except
to officers of the Representatives. The Warrants underlying the Representatives'
Warrants expire on , 1999 [3 years from the date of the
Prospectus]. The Representatives' Warrants provide for adjustment in the number
of shares of Common Stock and Warrants issuable upon the exercise thereof and in
the exercise price of the Representatives' Warrants as a result of certain
events, including subdivisions and combinations of the Common Stock. The
Representatives' Warrants grant to the holders thereof certain rights of
registration for resale of the securities underlying the Representatives'
Warrants.
Janney will also be acting as placement agent for the Company in connection
with the Concurrent Notes Offering, for which it will be receiving a fee of
$750,000 (6% of the aggregate amount of the Concurrent Notes Offering) and a
non-accountable expense allowance equal to one and one-half percent (1 1/2%) of
the Notes.
In connection with the Concurrent Notes Offering, the Company has agreed to
sell to Janney warrants to purchase up to 122,549 shares of Common Stock (based
upon an assumed initial public offering price of $8.50 per Share) at a price of
$.0001 per warrant. The Placement Agent's warrants in the Concurrent Notes
Offering, are initially exercisable at a price of $ per share [120% of
initial public offering price per share] for a period of four (4) years
commencing one year after the date of this Prospectus and are restricted from
sale, transfer, assignment or hypothecation for a period of twelve (12) months
from the date of this Prospectus, except to officers of Janney.
All officers, directors, and certain holders of shares of Common Stock, and
securities exercisable, convertible, or exchangeable for shares of Common Stock,
have agreed not to, directly or indirectly, offer, sell, transfer, pledge,
assign, hypothecate, or otherwise encumber or dispose of any shares of Common
Stock or convertible securities whether or not owned, or otherwise dispose of
any interest therein under Rule 144 or otherwise, for a period of not less than
nine months following the effective date of the Registration Statement, except
upon the consent of Janney or if an offer is made to all of the stockholders of
the Company to sell their shares. An appropriate legend shall be marked on the
face of certificates representing all such securities. Each of the directors and
officers of the Company and Vanguard has agreed that for a period of 24 months
from the date of this Prospectus all sales of shares of Common Stock owned by
them will be effected through Janney.
The Company has agreed that for a period of five (5) years after the date of
this Prospectus, the Representatives may designate one person for election to
the Company's Board of Directors (the "Designation Right"). In the event that
the Representatives elect not to exercise such right, then they may designate
one person to attend all meetings of the Company's Board of Directors. The
Company has agreed to reimburse the Representatives' designee for his
out-of-pocket expenses incurred in connection with his attendance at the Board
of Directors meetings.
Prior to this offering, there has been no public market for the Common Stock
or the Warrants. Consequently, the initial public offering prices of the
Securities will be determined by negotiation between the Company and the
Representatives and will not necessarily bear any relationship to the Company's
asset value, net worth or other established criteria of value. The factors
considered in such negotiation, in addition to prevailing market conditions,
included the history of and the prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant including, but not limited to the
financial condition and financial prospects of the Company and market prices of
similar securities of comparable publicly-traded companies.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part. See "Additional Information."
65
<PAGE>
LEGAL MATTERS
The legality of the securities offered by this Prospectus will be passed
upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York, New
York. Orrick, Herrington & Sutcliffe LLP, New York, New York has acted as
counsel to the Underwriters.
EXPERTS
The financial statements of the Company as of March 31, 1996 and for the
fiscal year then ended have been audited by Grant Thornton LLP, independent
certified public accountants, as stated in their report thereon appearing
elsewhere herein, and are included in reliance upon the authority of such firm
as experts in accounting and auditing.
The financial statements of the Company as of March 31, 1995 and for the
fiscal year then ended have been included herein in reliance upon the report of
Farber, Blicht & Eyerman, LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
CHANGE IN ACCOUNTANTS
On May 16, 1996, the Company dismissed Farber, Blicht & Eyerman, LLP. The
dismissal of Farber, Blicht & Eyerman, LLP was approved by the Board of
Directors. On May 16, 1996, the Company engaged Grant Thornton LLP to audit its
financial statements for the fiscal year ended March 31, 1996. For the fiscal
year ended March 31, 1995, the Company's financial statements were audited by
Farber, Blicht & Eyerman, LLP.
The Company believes, and has been advised by Farber, Blicht & Eyerman, LLP
that it concurs in such belief, that during the fiscal year ended March 31,
1995, the Company and Farber, Blicht & Eyerman, LLP did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Farber, Blicht & Eyerman, LLP, would have caused
it to make reference in connection with its report on the Company's financial
statements to the subject matter of the disagreement.
No report of Farber, Blicht & Eyerman, LLP on the Company's financial
statements for either of the past two fiscal years contained an adverse opinion,
a disclaimer of opinion or a qualification, or was modified as to uncertainty,
audit scope or accounting principles. During such fiscal periods, there were no
"reportable events" within the meaning of Item 304(a)(1) of Regulation S-B
promulgated under the Securities Act.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Certificate of Incorporation of the Company provides that the Company
shall indemnify its officers and directors to the fullest extent permitted by
Delaware law.
The Company has also agreed to indemnify each director and executive officer
pursuant to an Indemnification Agreement with each such director and executive
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or executive officer for or as a result of
action taken or not taken while such director or executive officer was acting in
his capacity as a director, officer, employee or agent of the Company, to the
fullest extent permitted under Delaware law.
The Company has a directors and officers insurance policy in the amount of
$1,000,000, insuring directors and officers against loss arising from certain
acts in their capacities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in
66
<PAGE>
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (referred to herein, together with all amendments and exhibits, as the
"Registration Statement") under the Securities Act, with respect to the shares
of Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other documents labeled as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Copies of the Registration Statement may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois upon payment of
the prescribed fees.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at prescribed rates. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http:// www.sec.gov.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Reports of Independent Certified Public Accountants
Grant Thornton LLP....................................................................................... F-2
Farber, Blicht & Eyerman, LLP............................................................................ F-3
Financial Statements
Consolidated Balance Sheets.............................................................................. F-4
Consolidated Statements of Operations.................................................................... F-5
Consolidated Statement of Stockholders' Deficiency....................................................... F-6
Consolidated Statements of Cash Flows.................................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
</TABLE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditor's Report............................................................................. F-27
Statements of Assets, Liabilities and Partners' Deficit.................................................. F-28
Statements of Revenues and Expenses and Partners' Deficit................................................ F-29
Statements of Cash Flows................................................................................. F-30
Notes to Financial Statements............................................................................ F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
UNITED VANGUARD HOMES, INC.
We have audited the accompanying consolidated balance sheet of United
Vanguard Homes, Inc. and Subsidiaries as of March 31, 1996 and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United Vanguard
Homes, Inc. and Subsidiaries as of March 31, 1996, and the consolidated results
of their operations and their consolidated cash flows for the year then ended,
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
July 15, 1996, except for Note A
as to which the date is September 17, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Board of Directors
UNITED VANGUARD HOMES, INC.
We have audited the accompanying statements of operations, stockholders'
deficiency and cash flows for the year ended March 31, 1995 of United Vanguard
Homes, Inc. and Subsidiaries. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of their operations and their cash flows
for the year ended March 31, 1995, in conformity with generally accepted
accounting principles.
FARBER, BLICHT & EYERMAN, LLP
Plainview, New York
February 29, 1996, except for Notes A7 and L,
the latest of which is dated June 25, 1996
F-3
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash........................................................... $ 210,245 $ 843,843
Accounts receivable, less allowance for doubtful accounts of
$40,000....................................................... 413,539 451,904
Development fees and advances.................................. 270,864 159,932
Due from affiliates, net....................................... 658,717 280,207
Prepaid expenses and other..................................... 274,654 239,992
----------- -----------
Total current assets......................................... 1,828,019 1,975,878
PROPERTY AND EQUIPMENT, NET...................................... 2,361,698 2,374,360
OTHER ASSETS
Development fees............................................... 575,017 660,750
Restricted assets.............................................. 176,352 176,352
Deferred income taxes.......................................... 981,000 976,500
Other assets................................................... 165,453 222,605
----------- -----------
1,897,822 2,036,207
----------- -----------
$6,087,539 $ 6,386,445
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Current portion of long-term debt.............................. $ 626,043 $ 4,862,091
Accounts payable............................................... 242,470 146,675
Accrued expenses............................................... 617,043 687,162
Income taxes payable........................................... 442,371 461,139
----------- -----------
Total current liabilities.................................... 1,927,927 6,157,067
RESIDENT SECURITY DEPOSITS....................................... 314,705 318,305
LONG-TERM DEBT, less current portion............................. 7,172,982 1,600,290
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock $.001 par value; 1,000,000 shares authorized;
none issued and outstanding................................... -- --
Common stock $.01 par value; authorized, 14,000,000 shares;
issued and outstanding, 1,827,833 and 2,240,950 shares,
respectively.................................................. 18,278 22,410
Additional paid-in capital..................................... 5,619,905 7,216,026
Accumulated deficit............................................ (8,966,258) (8,927,653)
----------- -----------
(3,328,075) (1,689,217)
----------- -----------
$6,087,539 $ 6,386,445
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
----------------------------- ----------------------------
1995 1996 1995 1996
-------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenues
Resident services.................................... $ 4,887,231 $ 4,966,058 $ 1,195,053 $ 1,247,844
Health care services................................. 2,491,261 2,555,138 624,988 644,005
Development fees..................................... 700,000 1,003,955 -- 85,000
-------------- ------------- ------------- -------------
8,078,492 8,525,151 1,820,041 1,976,849
-------------- ------------- ------------- -------------
Operating expenses
Residence operating expenses......................... 5,594,826 5,912,624 1,388,801 1,481,302
General and administrative........................... 503,164 414,703 68,334 155,020
Depreciation and amortization........................ 565,067 378,215 133,156 69,601
Provision for loss on (recovery of) advances to
affiliates.......................................... 1,650,772 296,093 -- (71,856)
-------------- ------------- ------------- -------------
8,313,829 7,001,635 1,590,291 1,634,067
-------------- ------------- ------------- -------------
Income (loss) from operations...................... (235,337) 1,523,516 229,750 342,782
Other income (expense)
Interest expense, net................................ (623,224) (600,871) (177,517) (135,317)
Other income......................................... 231,910 109,022 13,059 20,856
Debt conversion expense.............................. -- -- -- (156,466)
-------------- ------------- ------------- -------------
Income (loss) before income taxes.................. (626,651) 1,031,667 65,292 71,855
Income taxes........................................... -- 420,000 26,600 33,250
-------------- ------------- ------------- -------------
NET INCOME (LOSS).................................. $ (626,651) $ 611,667 $ 38,692 $ 38,605
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Earnings (loss) per share.............................. $(.22) $.36 $.02 $.02
Common shares and equivalents outstanding.............. 2,848,825 1,692,894 1,681,938 2,197,166
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED MARCH 31, 1995 AND 1996 AND THE THREE MONTHS
ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ---------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1994..................... 2,898,833 $ 28,988 $ 4,477,245 $ (8,951,274) $ (4,445,041)
Shares contributed by parent and
simultaneously retired.................... (1,200,000) (12,000) 12,000
Contribution from parent................... 311,000 311,000
Net loss................................... (626,651) (626,651)
------------ ---------- ------------- --------------- --------------
Balance, March 31, 1995.................... 1,698,833 16,988 4,800,245 (9,577,925) (4,760,692)
Reissuance to parent....................... 120,000 1,200 (1,200)
Shares issued as compensation.............. 9,000 90 49,860 49,950
Contribution from parent................... 771,000 771,000
Net income................................. 611,667 611,667
------------ ---------- ------------- --------------- --------------
Balance, March 31, 1996.................... 1,827,833 18,278 5,619,905 (8,966,258) (3,328,075)
Shares issued upon conversion of debt...... 347,996 3,480 1,386,918 1,390,398
Exercise of Warrants....................... 62,121 622 206,452 207,074
Shares issued as compensation.............. 3,000 30 2,751 2,781
Net income................................. 38,605 38,605
------------ ---------- ------------- --------------- --------------
Balance, June 30, 1996 (unaudited)......... 2,240,950 $ 22,410 $ 7,216,026 $ (8,927,653) $ (1,689,217)
------------ ---------- ------------- --------------- --------------
------------ ---------- ------------- --------------- --------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
YEAR ENDED MARCH 31, 30,
-------------------------- --------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss).................................... $ (626,651) $ 611,667 $ 38,692 $ 38,605
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization...................... 565,067 378,215 137,298 69,601
Common stock issued for services................... 49,950 2,781
Deferred income taxes.............................. (400,000) (581,000) (36,751) 4,500
Debt conversion expense............................ 156,466
Changes in operating assets and liabilities
Accounts receivable, advances and other
receivables..................................... 48,168 977,180 9,261 340,145
Prepaid expenses and other....................... (104,471) (84,746) (145,658) 34,662
Development fees................................. (1,343,614) (575,017) 25,199
Other assets..................................... (143,804) (34,232) --
Accounts payable................................. (120,445) (32,238) 60,156 (95,795)
Accrued expenses................................. 15,355 (267,102) 78,752 70,119
Income taxes payable............................. (26,700) 310,621 80,851 18,768
Resident security deposits....................... (8,513) 12,731 11,425 3,600
Deferred revenue................................. 135,943 (177,221)
------------ ------------ ------------ ------------
Net cash (used in) provided by operating
activities........................................ (2,009,665) 588,808 234,026 668,651
------------ ------------ ------------ ------------
Cash flows used in investing activities
Purchases of property and equipment.................. (169,565) (79,121) (12,900) (74,320)
------------ ------------ ------------ ------------
Cash flows from financing activities
Proceeds from borrowings on mortgages and notes
payable............................................. 1,441,000 249,880 47,591
Principal repayments of mortgages and notes
payable............................................. (124,620) (1,543,131) (34,738) (79,235)
Decrease (increase) in restricted cash financing..... 464,257 (26,752)
Increase in additional paid-in capital............... 311,000 771,000
Proceeds from exercise of warrants................... 207,074
Increase in deferred offering costs.................. (136,163)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities........................................ 2,091,637 (549,003) (34,738) 39,267
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH.................... (87,593) (39,316) 186,388 633,598
Cash at beginning of period............................ 337,154 249,561 249,561 210,245
------------ ------------ ------------ ------------
Cash at end of period.................................. $ 249,561 $ 210,245 $ 435,949 $ 843,843
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest........................................... $ 751,000 $ 619,000 $ 180,000 $ 119,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income taxes....................................... $ 41,000 $ 57,000 $ $ 1,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Non-cash financing and investing activity: Conversion
of debt to common stock............................... $ 1,305,000
------------
------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. BUSINESS
United Vanguard Homes, Inc. ("UVH") (the "Company") is a Delaware
corporation which was originally formed in New York in 1964 as Coap Systems Inc.
("Coap") and is a majority-owned subsidiary of Vanguard Ventures, Inc. ("VVI").
UVH owns and operates three residential retirement centers in the State of
Michigan, which provide living and extended care services for residents on a
month-to-month basis. The facilities are known as Olds Manor, Hillside Terrace
and Whitcomb Tower. In addition, UVH, through a wholly-owned subsidiary,
provides management and other services for companies affiliated with VVI and
partnerships which are located in Michigan and Florida (Note C). During the year
ended March 31, 1994, UVH commenced providing services, through a subsidiary, to
develop residential retirement centers.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of UVH and its
wholly-owned subsidiary corporations. All significant intercompany balances and
transactions have been eliminated in consolidation.
3. RESTRICTED ASSETS
Restricted assets include cash of $99,600 that collateralizes an insurance
bond required by Michigan State law for resident security deposits. In addition,
restricted use cash accounts totalling approximately $76,000 have been
segregated pursuant to the terms of certain mortgage indebtedness, which
requires the net operating income of the Company's residential retirement
centers, as defined, to be used to fund capital improvements and the related
mortgage indebtedness.
4. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, as follows:
<TABLE>
<S> <C>
Buildings and improvements.......................... 10 to 30 years
Equipment........................................... 12 1/2 years
Vehicles............................................ 3 years
Furniture and office equipment...................... 5 to 7 years
</TABLE>
5. DEBT
The fair value of the Company's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. The carrying amounts of the
Company's borrowings are estimated to approximate fair value.
6. INCOME TAXES
The Company is included in the consolidated Federal income tax return of
VVI. It is the policy of VVI to allocate income taxes to the Company pro rata on
a separate return basis, charging or crediting the Company with its
proportionate share of expense or reduction in taxes.
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and loss
carryforwards for which income tax benefits are expected to be realized in
future years. A valuation allowance has been established to reduce the
F-8
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred tax assets, as it is more likely than not, a portion of such deferred
tax assets will not be realized. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
7. PER SHARE INFORMATION
In June 1996, the Company approved a 1-for-1.6667 reverse stock split and,
accordingly, all share and per share amounts have been retroactively restated.
Earnings (loss) per common share are calculated by dividing net income
(loss) applicable to common stock by the weighted average number of common
shares outstanding during the year and common stock equivalents. On a
fully-diluted basis, both net income (loss) and shares outstanding are adjusted
to assume the conversion of mortgage indebtedness from the date of issuance.
Fully-diluted amounts are not presented as the effect would be immaterial or
antidilutive.
Excluded, for all periods presented, from the weighted average number of
common shares and common equivalent shares are 46,936 shares owned by VVI which
are held in escrow purusant to an agreement to be entered into in connection
with the Company's proposed public offering. The shares held in escrow, 540,684,
will be released from escrow on a pro rata basis upon the collection by the
Company of certain amounts due from affiliates and the payment by certain
affiliates of obligations guaranteed by or collateralized by assets of the
Company, as defined in the agreement. As the conditions for the release of the
shares held in escrow are dependent upon the performance of the affiliates, no
compensation expense is expected to be recognized by the Company upon release.
To the extent the number of shares excluded from the calculation of earnings per
share differs upon actual release of such shares earnings per share will be
retroactively restated.
8. REVENUE RECOGNITION
Revenues from services provided to residents, including, among other things,
room and board and health care, are recognized contemporaneously with the
providing of said services and are shown in the accompanying consolidated
financial statements net of charitable and Supplemental Security Income
discounts.
Charitable discounts result from the reduction of occupancy charges for
qualified residents to an amount equal to their ability to pay. Supplemental
Security Income ("SSI") discounts result from the reduction of occupancy charges
for qualified residents to the net amount paid by the SSI program. The discount
amount is equal to the difference between the standard apartment rental fee
(including meal and housekeeping charges) and the amount that is paid by the SSI
program.
Management fee revenues are recognized monthly, based upon a contractual
rate of compensation.
Fee income to which the Company is entitled in connection with the
development of residential retirement centers it does not own is recognized on
the percentage-of-completion basis. The Company accrues in full, as soon as
determinable, any losses that arise from contracts for project development.
9. RECLASSIFICATIONS
Certain prior years amounts have been reclassified to conform with the
current year's presentation.
F-9
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
10. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required 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, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
11. ACCOUNTING PRONOUNCEMENT NOT YET ADOPTED
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," is required to be implemented in fiscal 1997. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by the entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS No. 121 is not expected to have a material
impact on the Company's financial position or results of its operations.
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," is required to be adopted in 1997 and
allows for a choice of the method of accounting used for stock-based
compensation. Entities may use the "intrinsic value" method currently based on
APB No. 25 or the new "fair value" method contained in SFAS No. 123. The Company
intends to adopt SFAS No. 123 in 1997 by continuing to account for stock-based
compensation under APB No. 25. As required by SFAS No. 123, the pro forma
effects on net income and earnings per share will be determined as if the fair
value based method had been applied and disclosed in the notes to the financial
statements.
12. INTERIM FINANCIAL INFORMATION
The financial information presented as of June 30, 1996, for the three
months ended June 30, 1996 and 1995 and events subsequent to June 30, 1996
disclosed in the notes to the financial statements are unaudited. In the opinion
of management, this unaudited financial information contains all adjustments
(which consist of normal recurring accrual adjustments) necessary for a fair
presentation for the interim periods presented. The results for the interim
periods are not necessarily indicative of results expected for the full year.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Land............................................... $ 632,408 $ 632,408
Buildings and improvements......................... 4,405,417 4,424,286
Equipment.......................................... 850,969 906,421
---------- ----------
5,888,794 5,963,115
Less accumulated depreciation and amortization..... 3,527,096 3,588,755
---------- ----------
Property and equipment, net........................ $2,361,698 $2,374,360
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE C -- RELATED PARTY TRANSACTIONS
1. DUE FROM AFFILIATES, NET
Amounts due from affiliates consist of cash advances, unpaid management
fees, interest income and other revenue items. Most of the affiliated companies
have been operating at a loss and their respective ability to repay the cash
advances and earned fees due to the Company is uncertain. Accordingly, a reserve
for such amounts has been provided for by the Company, reducing revenues, fees
and interest income and providing for losses on cash advances to affiliates. In
the event such advances or fees are remitted by the affiliates, the reserve is
reduced and income is recorded. Amounts due from affiliates consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
Due from VVI...................................... $2,452,137 $2,379,165
Due from VVI affiliated companies................. 2,406,266 2,441,068
Due from VVI affiliated limited partnerships (VVI
is general partner).............................. 1,235,661 1,242,523
Management fees and cash advances due from
affiliated not-for-profit companies.............. 1,088,208 723,605
----------- ----------
7,182,272 6,786,361
Less reserve for losses........................... 6,523,555 6,506,154
----------- ----------
Due from affiliates, net.......................... $ 658,717 $ 280,207
----------- ----------
----------- ----------
</TABLE>
At March 31, 1996 and June 30, 1996, the unreserved amounts due from
affiliates represent development fees and advances of $143,200, and $515,517 and
$143,200 and $137,007, respectively, from Presidential Care Corp.
("Presidential"), a Florida not-for-profit corporation affiliated with VVI. The
Company entered into a development agreement on March 24, 1995 to plan, design,
develop and construct an assisted living retirement home in Hollywood, Florida,
and to arrange for permanent and interim financing. The development agreement
provides for compensation to the Company for locating the land, zoning
application work and other services of 7 1/2% of the overall project cost (as
defined), payable upon commencement of construction. The Company recognizes
development fees on a percentage-of-completion basis and has recognized $43,200
in fiscal 1996. The initial $100,000 fee earned in fiscal 1995 had not been
recognized in fiscal 1995, as the underlying project was in the initial stages.
During fiscal 1996, the Company reassessed the collectibility of such fee and a
recovery of $100,000 was recognized. The advances of $515,517 and $137,007 as of
March and June 1996, respectively, net of repayments during the year ended March
31, 1996 of $359,000, primarily relate to the purchase of land. Presidential
received interim financing of approximately $500,000 through a private placement
and is awaiting approval on its construction financing. Management believes all
amounts due from Presidential will be collected currently upon the securing of
construction financing.
Phoenix Lifecare Corp. ("Phoenix"), a not-for-profit corporation affiliated
to the Company, provides health care services to residents of the Whitcomb Tower
and the Whittier (an affiliate of VVI) on behalf of the Company. The Company
earns a management fee from Phoenix for services rendered. At March 31, 1996 and
June 30, 1996, the amounts due from Phoenix, $355,942 and $369,950 resepctively,
have been fully reserved and no management fees have been recognized during
fiscal 1995 and 1996 and the three months ended June 30, 1996.
F-11
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE C -- RELATED PARTY TRANSACTIONS (CONTINUED)
During fiscal 1996, the Company advanced $73,449 to Camelot Retirement
Homes, Inc. ("Camelot"), a corporation affiliated with the Company. The Company
has entered into a development agreement with Camelot and has obtained an option
to purchase the underlying property. In addition, the Company has guaranteed
$450,000 of mortgage indebtedness relating to the property. During the three
month period ended June 30, 1996, no additional advances were made to Camelot.
At March 31, 1996 and June 30, 1996, the above-mentioned advance has been fully
reserved.
2 Receivables from Gateway
a. NOTE RECEIVABLE
The Company has a note receivable including accrued interest at 9% per
annum, collateralized by a third mortgage in the amount of $7,481,953 at March
31, 1996 and June 30, 1996. The note is due from Gateway Communities, Inc.
("Gateway"), a not-for-profit company formerly affiliated to the Company and the
lessee and operator of Harvest Village, a continuing care retirement community,
that the Company intends to acquire from an entity indirectly owned by VVI (Note
L). This note and accrued interest have been fully reserved by the Company, as
Gateway has historically suffered losses and does not have the financial
resources to pay this obligation. The Company acquired the note receiveable from
Gateway through a series of assignments from VVI and affiliates.
b. OTHER RECEIVABLES
Other receivables consist of prior years' management fees and cash advances
to Gateway aggregating $1,066,197 at March 31, 1996 and June 30, 1996, which
have been fully reserved.
NOTE D -- DEVELOPMENT FEES AND ADVANCES
During 1995, the Company began developing a residential retirement center in
the State of Iowa known as Cottage Grove Place, an unaffiliated entity. Pursuant
to the development agreement, the Company is obligated to plan, design, develop
and construct the property, arrange financing and supervise occupancy
development for a total fee of $2,270,000. During the years ended 1996 and 1995,
the Company recognized $1,003,955 (net of financing discount of $144,500) and
$700,000, respectively, of such development fee. During the three-month period
ended June 30, 1996, the Company recognized an additional $85,000 of such
development fee. The initial installment of $750,000 was paid upon the bond
closing, which provided Cottage Grove Place with its construction financing in
1995. An additional $385,005 will be paid in monthly installments during
construction provided construction is on time and on budget, and the remaining
$1,135,000 will be paid upon the later of: (i) 90% occupancy achieved by the
project or (ii) the payment in full of the short-term bonds of Cottage Grove
Place, which mature on or before July 1, 2001, and the satisfaction of the Debt
Service Coverage Ratio and the Reserve Ratio (as defined) after giving effect to
the repayment of such short-term bonds. While the Company has earned and
recognized a majority of the development fee, the terms of the agreement defer
payment. A portion of the fee has been discounted at 10% to give effect to the
estimated payment during the first quarter of fiscal 1999. In addition, the
Company advanced certain amounts in connection with developing the project,
which are currently reimbursable by Cottage Grove Place.
F-12
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE D -- DEVELOPMENT FEES AND ADVANCES (CONTINUED)
The components of fees and advances receivable from Cottage Grove Place are
as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
Advances.............................................. $ 39,861 $ 5,930
Development fees, net................................. 806,020 814,752
--------- -----------
845,881 820,682
Less long-term portion, net........................... 575,017 660,750
--------- -----------
$ 270,864 $ 159,932
--------- -----------
--------- -----------
</TABLE>
NOTE E -- MORTGAGES AND NOTES PAYABLE
1. MORTGAGES PAYABLE
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Mortgages, guaranteed by VVI, bearing interest at
7.5% payable in monthly interest only installments
through April 1996; monthly installments of
principal and interest of $30,429 are payable
beginning June 1996; maturity -- April 30, 1997;
restricted use cash accounts have been pledged as
additional collateral (Note A).................... $4,351,862 $4,351,108
Convertible mortgages with interest at prime, plus
3% (11.25% at March 31, 1996), payable in interest
only installments quarterly, maturity dates are
March 1999 and August 2000, net of original issue
discount of $59,356 and $55,214, respectively.
Convertible into 264,074 and 169,602 shares of UVH
common stock, respectively, subject to adjustment,
as defined........................................ 1,820,643 1,154,786
Mortgage with interest at prime plus 1% (9.25% at
March 31, 1996) payable in monthly installments of
$4,700; including interest balance due August
2001.............................................. 252,433 243,947
---------- ----------
$6,424,938 $5,749,841
---------- ----------
</TABLE>
F-13
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE E -- MORTGAGES AND NOTES PAYABLE (CONTINUED)
2. NOTES PAYABLE
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Note payable bearing interest at 8.25% at March 31,
1996, payable monthly. The note is pursuant to a
line of credit of $500,000 which expires October
3, 1996........................................... $ 356,000 $ 356,000
Convertible 7% promissory notes, interest payable
quarterly, compounded annually, maturity no later
than July 15, 2001; convertible into 105,999 and
21,274 shares, respectively of the Company's
common stock at $7.50 per share................... 795,000 160,000
Equipment notes payable, with interest ranging from
8.25% to 12% payable in monthly installments of
principal and interest of $21,620 until July
1999.............................................. 199,754 179,457
Promissory notes payable, with interest at prime
plus 1% (9.25% at March 31, 1996) payable in
monthly principal installments of $2,917, plus
interest until December 1996...................... 23,333 17,083
---------- ----------
1,374,087 712,540
---------- ----------
7,799,025 6,462,381
Less current portion............................... 626,043 4,862,091
---------- ----------
$7,172,982 $1,600,290
---------- ----------
---------- ----------
</TABLE>
The aggregate maturities of mortgages and notes payable are as follows:
<TABLE>
<CAPTION>
Fiscal years ending March 31,:
<S> <C>
1997......................................................... $ 626,043
1998......................................................... 4,409,983
1999......................................................... 1,229,492
2000......................................................... 56,735
2001......................................................... 1,476,772
----------
$7,799,025
----------
----------
</TABLE>
F-14
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE F -- INCOME TAXES
The consolidated provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
-------------------------- --------------------------
1995 1996 1995 1996
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Current
Federal............................ $ 311,000 $ 771,000 $ 48,750 $ 24,500
State and local.................... 89,000 230,000 14,601 4,250
----------- ------------- ----------- -------------
400,000 1,001,000 63,351 28,750
----------- ------------- ----------- -------------
Deferred
Federal............................ (311,000) (449,000) (28,400) 3,400
State and local.................... (89,000) (132,000) (8,351) 1,100
----------- ------------- ----------- -------------
(400,000) (581,000) (36,751) 4,500
----------- ------------- ----------- -------------
$ -- $ 420,000 $ 26,600 $ 33,250
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
The Company files its Federal consolidated tax return with its parent, VVI.
During fiscal 1995 and 1996, VVI incurred tax losses which were used to offset
the Company's taxable income. The resulting tax benefits associated with the
utilization of VVI's losses of $311,000 and $771,000 in fiscal 1995 and 1996,
respectively, have been recorded as a contribution of capital from VVI. As a
result of the Company's issuance of additional common shares pursuant to the
conversion of debt (Note I) and the proposed public offering, the Company may be
unable to file its consolidated tax return with its parent, VVI.
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
MARCH 31, JUNE 30,
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statutory Federal tax rate.......................... (34.0)% 34.0% 34.0% 34.0%
State income taxes, net of Federal income tax
benefit............................................ (5.9) 6.2 6.3 7.5
Debt conversion costs............................... 3.8
Other............................................... .5 .4 1.0
Losses for which no future tax benefit has been
recorded........................................... 39.9
--------- --------- --------- ---------
Effective tax rate.................................. 0.0% 40.7% 40.7% 46.3%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-15
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE F -- INCOME TAXES (CONTINUED)
Temporary differences which give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
MARCH 31, ENDED
1996 JUNE 30, 1996
----------- ---------------
(UNAUDITED)
<S> <C> <C>
Net operating loss carryover.................. $ 838,000 $ 838,000
Due from affiliate............................ 5,274,000 5,267,000
Fixed assets.................................. 902,000 904,500
Other......................................... 57,000 57,000
----------- ---------------
7,071,000 7,066,500
Valuation allowance........................... 6,090,000 6,090,000
----------- ---------------
Net deferred tax asset........................ $ 981,000 $ 976,500
----------- ---------------
----------- ---------------
</TABLE>
The Company has net operating loss carryforwards for Federal income tax
purposes as of March 31, 1996 and June 30, 1996 of approximately $2,464,000.
Such net operating loss carryforwards are subject to several statutory
limitations which limit their current and future utilization, and, accordingly,
no benefit from such utilization has been provided for. The net operating loss
carryfowards expire during fiscal 1997 through 2005; $2,083,000 of which expire
in fiscal 1998. The proposed public offering or subsequent equity transactions
may trigger an ownership change which could serve to limit the use of some or
all of the net operating loss carryfowards.
NOTE G -- COMMITMENTS AND CONTINGENCIES
1. OPERATING LEASES
Aggregate rental expense under operating leases was approximately $29,100
and $35,000 for March 31, 1995 and 1996, respectively. Rent expense for the
three months ended June 30, 1995 and 1996 was approximately $8,800 and $8,500,
respectively. UVH rents its administrative office facilities from CBF Building
Company, an affiliate of VVI, under a lease expiring December 31, 2002, at an
annual rental as follows:
<TABLE>
<CAPTION>
Fiscal year ending March 31,
<S> <C>
1997................................................... $ 35,163
1998................................................... 36,921
1999................................................... 38,767
2000................................................... 40,705
2001................................................... 42,740
Thereafter............................................. 79,781
---------
$ 274,077
---------
---------
</TABLE>
2. PURCHASE COMMITMENT
The Company may be required to purchase a parcel of land at the Cottage
Grove Place retirement facility in Cedar Rapids, Iowa, for $450,000 plus
interest and taxes if Cottage Grove Place fails to exercise its option to the
property.
F-16
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE G -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
3. COLLATERAL
Under an amended and restated loan agreement of an affiliate of VVI, the
lenders hold a second mortgage on the Olds Manor retirement center (net book
value of $286,000 and $280,000 at March 31, 1996 and June 30, 1996,
respectively) in the amount of $1,400,000 and a consolidated mortgage in the
amount of $1,000,000 on the Whitcomb Tower and Hillside Terrace (net book value
of $1,716,000 and $1,689,000 at March 31, 1996 and June 30, 1996, respectively)
collateralizing VVI's $6,350,000 guarantee of a construction loan in connection
with Harvest Village Partners L.P., an affiliate of VVI. In addition, VVI has
pledged 1,340,573 shares of the Company's common stock owned by VVI as
additional collateral for the guarantee.
4. GUARANTEES
The Company guaranteed a bank loan to CBF Building Company. The balance
outstanding on this loan was $122,832 and $115,997 at March 31, 1996 and June
30, 1996, respectively.
The Company guaranteed a bank loan to an affiliate of VVI with a balance of
$450,000 at March 31, 1996. (Note C)
The Company is a co-borrower on a line of credit given to VVI in the
original amount of $300,000. The balance outstanding at March 31, 1996 and June
30, 1996 was approximately $192,000 and $167,000, respectively.
5. SELF-INSURANCE
Effective April 1, 1992, the Company began to partially self-insure for
health and medical liability costs for up to a maximum of $300,000 in claims.
The Company has insurance coverage for claims above the aforementioned limit.
The self-insurance claim liability is determined on a nondiscounted basis based
on claims filed and an estimate of claims incurred but not yet reported. The
amount of said liability accrued at March 31, 1996 and June 30, 1996 was
$192,244 and $208,195, respectively.
6. CONCENTRATIONS OF CREDIT RISK AND REVENUES
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and receivables.
F-17
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND
1995 ARE UNAUDITED)
NOTE G -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company maintains its cash in highly rated financial institutions and
limits the amount of credit exposure to any one institution. At March 31, 1996,
the Company had no bank deposits exceeding federally insured limits.
A concentration of credit risk exists with respect to development fees and
advances and amounts due from affiliates.
7. EMPLOYMENT AGREEMENTS
Effective April 1, 1996, the Company entered into a three-year employment
agreement with the Company's Chief Executive Officer, pursuant to which annual
cash compensation under the agreement is $100,000 during the first year of
employment.
In addition, as of April 1, 1996, the Company entered into an employment
agreement with the Company's President and Chief Operating Officer pursuant to
which an annual base salary under the employment agreement is $100,000. In
December 1995, the President received a $25,000 cash bonus and the Company
agreed to issue 9,000 shares of the Company's common stock fair valued at $5.55
per share. In June 1996, the President received a $25,000 cash bonus and 3,000
shares of the Company's common stock fair valued at $.97 per share. An
additional bonus of $25,000 and 3,000 shares of the Company's common stock is
payable on March 31, 1998, subject to continued employment.
8. POSSIBILITY OF CROSS DEFAULT
An affiliate of VVI was indebted under a first mortgage in the principal
amount of $4,087,000. The mortgage securing this loan provides that a default
under such loan is a default under each of the Company's Hillside Terrace and
Whitcomb Tower Mortgages. Therefore, a potential VVI default on this affiliate's
loan could result in the foreclosure of Hillside Terrace and Whitcomb Tower.
9. GOVERNMENT REGULATION
Health care and senior living facilities are areas of extensive and frequent
regulatory change. Changes in the laws or new interpretations of existing laws
can have a significant effect on methods of doing business, costs of doing
business and amounts of reimbursement from governmental and other payors. The
Company at all times attempts to comply with all applicable fraud and abuse
laws; however, there can be no assurance that administrative or judicial
interpretation of existing laws or regulations will not have a material adverse
effect on the Company's operations or financial condition.
NOTE H -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
Interest.............................................. $ 95,551 $ 96,432
Real estate taxes..................................... 1,814 --
Payroll and related taxes............................. 220,234 251,865
Insurance............................................. 192,244 208,195
Professional fees..................................... 107,200 130,670
--------- -----------
$ 617,043 $ 687,162
--------- -----------
--------- -----------
</TABLE>
F-18
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND
1995 ARE UNAUDITED)
NOTE I -- STOCKHOLDERS' EQUITY
1. COMMON STOCK
On March 31, 1995, VVI contributed 1,200,000 shares of the Company's common
stock to the Company, which the Company then simultaneously retired. As
consideration for such contribution, VVI was entitled to be issued one share of
common stock for each $5.73 received by the Company in payment of amounts due
from Gateway. In 1996, VVI received 120,000 shares as consideration for
relinquishing the right to receive such shares upon collection. As the amounts
due from Gateway had been fully reserved for by the Company (Note C), the net
contribution of shares by the Company has been accounted for in a manner similar
to a recapitalization.
In March 1996, the expiration date on outstanding warrants was extended from
March 31, 1996 to April 30, 1996 and the exercise price was adjusted from $6.66
to $3.33 per share. In April 1996, 62,121 shares were issued in connection with
the exercise of these warrants.
In March 1996, the Company offered the convertible mortgageholders and
noteholders the option to convert, through April 30, 1996, to common shares at a
price of $3.75 instead of prices ranging from $6.67 through $7.22. In April
1996, 347,996 common shares were issued in connection with the offer. The
estimated fair value of the incremental shares issued, 167,887, as a result of
the offer has been recorded as debt conversion expense in the accompanying
consoldiated statement of operations for the three months ended June 30, 1996.
Had the conversion of this debt and exercise of warrants taken place at the
beginning of 1996, earnings per share would have been $.33 as compared to
historical earnings per share of $.36.
2. INCENTIVE STOCK OPTION PLAN
The Company has reserved 300,000 shares of common stock for issue to key
employees and/or directors under the Company's Incentive Stock Option Plan (the
"1991 Plan"), as amended. Under the plan, options exercise prices must be at
least 100% of the estimated fair market value of the common stock at the time of
the grant. Exercise periods are for ten years, but terminate at a stipulated
period of time after an employee's death or termination of employment for causes
other than disability or retirement. No options have been exercised since
inception of the plan. The options become exercisable at the rate of 20% per
year. Accordingly, as of March 31, 1996, options for an aggregate of 35,220
shares were exercisable.
In June 1996, the Company adopted the 1996 Outside Directors' Stock Option
Plan (the "Directors Plan"), which provides for the grant of options to purchase
common stock of the Company to nonemployee directors of the Company. The
Directors' Plan authorizes the issuance of a maximum of 90,000 shares of common
stock.
The Directors' Plan is administered by the Board of Directors. Under the
Directors' Plan, each nonemployee director elected after April 1, 1996 will
receive options for 3,000 shares of common stock upon election. To the extent
that shares of common stock remain available for the grant of options under the
Directors' Plan, each year on April 1, commencing April 1, 1997, each
nonemployee director will be granted an option to purchase 1,800 shares of
common stock. The exercise price per share for all options granted under the
Directors' Plan will be equal to the fair market value of the common stock as of
the date preceding the date of grant. All options vest in three equal annual
installments
F-19
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND
1995 ARE UNAUDITED)
NOTE I -- STOCKHOLDERS' EQUITY (CONTINUED)
beginning on the first anniversary of the date of grant. Each option will be for
a ten-year term, subject to earlier termination in the event of death or
permanent disability. A summary of the activity within the 1991 Plan and the
Directors' Plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
PER SHARE GRANTED AVAILABLE
----------------- --------- ---------
<S> <C> <C> <C>
Balance, April 1, 1994............................. $1.33 to $6.10 111,600 188,400
Terminated......................................... $1.33 to $5.55 (35,400) 35,400
--------- ---------
Balance, March 31, 1995............................ $1.33 to $6.10 76,200 223,800
Granted............................................ $1.33 to $6.10 53,880 (53,880)
Terminated......................................... $1.33 (2,700) 2,700
--------- ---------
Balance, March 31, 1996............................ $1.33 to $6.10 127,380 172,620
Granted............................................ $5.55 9,000 (9,000)
Terminated......................................... $5.55 (900) 900
--------- ---------
Balance June 30, 1996 (unaudited).................. $1.33 to $6.10 135,480 164,520
--------- ---------
--------- ---------
</TABLE>
NOTE J -- BUSINESS SEGMENTS
The Company owns and operates its three residential retirement centers in
Michigan to provide living and extended care services to the elderly. In
addition to a room, the Company provides significant personal services,
including, among other things, meal preparation and health care. The Company's
management provides the requisite day-to-day supervision and administration
services to various affiliates and nonaffiliated companies. Losses and
recoveries on advances have been classified as a separate business segment.
Intersegment revenues are not significant. Operating profit is defined as
sales and other income directly related to a segment's operations, less
operating expenses.
The following summaries set forth certain financial information, classified
as described above:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------ ----------------------------
1995 1996 1995 1996
-------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Resident centers................................. $ 7,378,492 $ 7,521,196 $ 1,820,041 $ 1,891,849
Management and development companies............. 700,000 1,003,955 85,000
-------------- -------------- ------------- -------------
$ 8,078,492 $ 8,525,151 $ 1,820,041 $ 1,976,849
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
Operating profit (loss)
Resident centers................................. $ 1,275,106 $ 1,268,361 $ 301,240 $ 350,030
Management and development companies............. 140,329 551,248 (71,490) (79,104)
(Loss) recovery on advances to affiliates........ (1,650,772) (296,093) 71,856
-------------- -------------- ------------- -------------
Income (loss) from operations.................. $ (235,337) $ 1,523,516 $ 229,750 $ 342,782
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
</TABLE>
F-20
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND
1995 ARE UNAUDITED)
NOTE J -- BUSINESS SEGMENTS (CONTINUED)
Corporate assets are principally cash, and corporate office equipment,
furnishings and related assets.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Identifiable assets are as follows:
Retirement centers............................... $3,656,272 $3,802,356
Management and development companies............. 2,250,917 2,024,000
Corporate........................................ 180,350 560,089
---------- ----------
$6,087,539 $6,386,445
---------- ----------
---------- ----------
</TABLE>
NOTE K -- PRIOR PERIOD ADJUSTMENTS
The Company has restated its previously issued financial statements for the
fiscal year ended March 31, 1994 to reflect adjustments related to the
receivables due the Company from related parties and the associated income
reported during those years and in prior periods. The adjustments are necessary
as it has been determined that, in part, an entity previously treated as an
unrelated and unaffiliated organization can be construed as a related party.
Additionally, transactions with other related entities should have been treated
as special purpose entities. Accordingly, advances made to said entities and
previously recorded management fees and interest income earned on the
receivables were erroneously accounted for.
The results of these adjustments reduced the previously reported net assets
by $11,120,209 at March 31, 1994. Therefore, the retained earnings as originally
reported in the amount of $2,168,935 have been adjusted so that, as restated,
the Company reflects an accumulated deficit of $8,951,274. The adjustments had
the following changes on previously reported results of 1995 operations and
financial position:
<TABLE>
<S> <C>
Net income (loss)
As previously reported........................... $ 1,284,177
As restated...................................... (626,651)
Net income (loss) per common share
As previously reported March 31, 1995............ $ .46
As restated March 31, 1995....................... (.23)
Retained earnings (deficit)
As previously reported March 31, 1994............ $ 2,168,935
As restated, March 31, 1994...................... (8,951,274)
</TABLE>
NOTE L -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
On April 19, 1996, the Company entered into an agreement to purchase the
Harvest Village facility, a 360 unit senior living facility located in Atco, New
Jersey ("Harvest Village"). The purchase is contingent upon certain events,
including the consummation of a proposed firm commitment public offering. The
purchase price is $17,400,000 consisting: (i) $13,500,000 in cash (which sum may
include the assumption of a first mortgage of $12,500,000), (ii) the assignment
to seller of a promissory note in the amount of $7,491,953 as of March 31, 1996
due to the Company from Gateway and (iii) the cancellation of $6,094,000 due
from VVI and an affiliate of VVI. The intercompany debt and assignment of the
Gateway Note have been valued by the parties, based upon an appraisal, at $3.9
million.
F-21
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND
1995 ARE UNAUDITED)
NOTE L -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
The pro forma results of operations for the year ended March 31, 1996 of the
Company, assuming the acquisition had taken place of April 1, 1995, would have
been as follows:
<TABLE>
<CAPTION>
HARVEST PRO FORMA
UVH VILLAGE ADJUSTMENTS
HISTORICAL HISTORICAL ASSUMING
YEAR ENDED YEAR ENDED ACQUISITION AND
MARCH 31, DECEMBER 31, THE OFFERINGS AS OF PRO FORMA
1996 1995 APRIL 1, 1995 AMOUNTS
------------- -------------- ------------------- -------------
<S> <C> <C> <C> <C>
Operating revenues
Residents services................ $ 4,966,058 $ $ 4,966,058
Health care services.............. 2,555,138 2,555,138
Development fees.................. 1,003,955 1,003,955
Rental Income..................... $ 1,689,372 (A) $860,628 2,550,000
------------- -------------- ------------------- -------------
8,525,151 1,689,372 860,628 11,075,151
------------- -------------- ------------------- -------------
Operating expenses
Residence operating expenses...... 5,912,624 5,912,624
General and administrative........ 414,703 162,056 (E) (158,856) 417,903
Depreciation and amortization..... 378,215 1,115,881 (B) (419,881) 1,074,215
Provision for loss on advances to
affiliates....................... 296,093 296,093
------------- -------------- ------------------- -------------
7,001,635 1,277,937 (578,737) 7,700,835
------------- -------------- ------------------- -------------
Income from operations.......... 1,523,516 411,435 1,439,365 3,374,316
Other income (expense)
Interest expense, net............. (600,871) (3,894,837) (C) 2,698,537 (1,797,171)
Other income...................... 109,022 109,022
------------- -------------- ------------------- -------------
Income (loss) before income
taxes.......................... 1,031,667 (3,483,402) 4,137,902 1,686,167
Income taxes........................ 420,000 (D) 255,000 675,000
------------- -------------- ------------------- -------------
NET INCOME (LOSS)............... $ 611,667 $ (3,483,402) $3,882,902 $ 1,011,167
------------- -------------- ------------------- -------------
------------- -------------- ------------------- -------------
Earnings per share.................. $.36 $.29
Common shares and equivalents
outstanding........................ 1,692,894 3,492,894
------------- -------------
------------- -------------
</TABLE>
F-22
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND
1995 ARE UNAUDITED)
NOTE L -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
Had the contemplated acquisition taken place at June 30, 1996, the balance
sheet would have been as follows:
ASSETS
<TABLE>
<CAPTION>
HARVEST PRO FORMA ADJUSTMENTS
VILLAGE ASSUMING ACQUISITION
UVH HISTORICAL HISTORICAL AND THE OFFERINGS AS OF PRO FORMA
JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996 AMOUNTS
-------------- ------------- ----------------------- -------------
<S> <C> <C> <C> <C>
Current assets
(A) (60)
Cash............................. $ 843,843 $ 60 (E) 24,664,000 $ 12,007,843
(D) (13,500,000)
Accounts receivable, net......... 451,904 1,108,672 (A) (1,108,672) 451,904
Development project fees and
advances........................ 159,932 159,932
Due from affiliates, net......... 280,207 280,207
Prepaid expenses and other....... 239,992 239,992
-------------- ------------- ----------------------- -------------
Total current assets........... 1,975,878 1,108,732 10,055,268 13,139,878
Property and equipment, net........ 2,374,360 16,993,142 19,367,502
Other Assets
Development fees............... 660,750 660,750
Restricted assets.............. 176,352 176,352
Deferred income taxes.......... 976,500 976,500
(E) 1,338,000
Other assets................... 222,605 456,405 (A) (456,405) 1,560,605
-------------- ------------- ----------------------- -------------
$ 6,386,445 $ 18,558,279 $10,936,863 $ 35,881,587
-------------- ------------- ----------------------- -------------
-------------- ------------- ----------------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Current portion of long-term
debt............................ $ 4,862,091 $ 42,160,652 (B) $(42,160,652) $ 4,862,091
Accounts payable................. 146,675 146,675
Accrued expenses................. 687,162 1,359,366 (B) (1,359,366) 687,162
Income taxes payable............. 461,139 461,139
-------------- ------------- ----------------------- -------------
Total current liabilities...... 6,157,067 43,520,018 (43,520,018) 6,157,067
Resident security deposits......... 318,305 318,305
Long-term debt, less current
portion........................... 1,600,290 (E) $12,500,000 14,100,290
Stockholders' deficiency
Common stock..................... 22,410 (E) 18,000 40,410
Additional paid-in capital....... 7,216,026 (E) 13,484,000 20,700,026
Accumulated deficit.............. (8,927,653) (24,961,739) (C) 28,454,881 (5,434,511)
-------------- ------------- ----------------------- -------------
(1,689,217) (24,961,739) 41,956,881 15,305,925
-------------- ------------- ----------------------- -------------
$ 6,386,445 $ 18,558,279 10,936,863 35,881,587
-------------- ------------- ----------------------- -------------
-------------- ------------- ----------------------- -------------
</TABLE>
F-23
<PAGE>
UNITED VANGUARD HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995 AND 1996 AND JUNE 30, 1995 AND 1996
(INFORMATION WITH RESPECT TO THE THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND
1995 ARE UNAUDITED)
NOTE L -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
The pro forma results of operations for the three months ended June 30, 1996
of the Company, assuming the acquisition had taken place as of April 1, 1996,
would have been as follows:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HARVEST ASSUMING ACQUISITION
VILLAGE AND
UVH HISTORICAL HISTORICAL THE OFFERINGS AS OF PRO FORMA
JUNE 30, 1996 JUNE 30, 1996 APRIL 1, 1996 AMOUNTS
-------------- ----------------- ----------------------- ------------
<S> <C> <C> <C> <C>
Operating revenues
Residents services.......... $ 1,247,844 $ $ 1,247,844
Health care services........ 644,005 644,005
Development fees............ 85,000 85,000
Rental Income............... 355,762 (A) 281,738 637,500
-------------- ----------------- ----------------------- ------------
1,976,849 355,762 281,738 2,614,349
-------------- ----------------- ----------------------- ------------
Operating expenses
Residence operating
expenses................... 1,481,302 1,481,302
General and
administrative............. 155,020 1000 156,020
Depreciation and
amortization............... 69,601 266,758 (B) (96,000) 240,359
Provision for loss on
(recovery of) advances to
affiliates................. (71,856) (71,856)
-------------- ----------------- ----------------------- ------------
1,634,067 267,758 (96,000) 1,805,825
-------------- ----------------- ----------------------- ------------
Income from operations.... 342,782 88,004 377,738 808,524
Other income (expense)
Interest expense, net....... (135,317) (955,418) (C) 656,343 (434,392)
Other income................ 20,856 20,856
Debt conversion expense..... (156,466) (156,466)
-------------- ----------------- ----------------------- ------------
Income (loss) before
income taxes............. 71,855 (867,414) 1,034,081 238,522
Income taxes.................. 33,250 (D) 76,450 109,700
-------------- ----------------- ----------------------- ------------
NET INCOME (LOSS)......... $ 38,605 $ (867,414) $957,631 $ 128,822
-------------- ----------------- ----------------------- ------------
-------------- ----------------- ----------------------- ------------
Earnings per share............ $.02 $.03
Common shares and equivalents
outstanding.................. 2,197,166 3,997,166
-------------- ------------
-------------- ------------
</TABLE>
F-24
<PAGE>
NOTE L -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
The adjustments below were prepared from data currently available and in
some cases are based on estimates or approximations. It is possible that the
actual amounts to be recorded may have an impact on the results of operations
and the balance sheet different from that reflected in the accompanying
unaudited pro forma condensed consolidated financial statements. It is therefore
possible that the entries presented below will not be the amounts actually
recorded at the closing date. Deferred income taxes have not been considered in
the pro forma balance sheet because they are not expected to be material at the
time of the consummation of the acquisitions.
The following pro-forma adjustments have been recorded assuming the purchase
of Harvest Village and the Offerings have been consummated as of the perspective
balance sheet date and as of the beginning of the period for each respective
pro-forma statement of operations.
BALANCE SHEET
(A) To reflect assets of Harvest Village not acquired by the Company.
(B) To reflect liabilities assumed or satisfied by VVI and not acquired by the
Company.
(C) To eliminate the historical deficit of Harvest Village and reflect the
cancellation of intercompany debt valued at $3.9 million (subject to
founders cost limitations) as purchase consideration.
(D) To reflect cash consideration paid for Harvest Village.
(E) To record the proceeds of the issuance of 1,800,000 shares of the Company's
common stock, 1,800,000 warrants to purchase common stock and the issuance
of convertible notes aggregating $12,500,000 net of underwriting discounts
and expenses.
STATEMENT OF OPERATIONS
(A) To adjust rental income to amounts payable by Gateway pursuant to the lease
agreement.
(B) To adjust depreciation expense to reflect an estimated life of 25 years,
using the straight line method.
(C) To adjust interest expense to reflect the elimination of pre-acquisition
Harvest Village debt and to provide for interest expense related to the
proposed convertible debt offering.
(D) To adjust income tax expense.
(E) To eliminate general and administrative expenses not to be incurred by the
Company.
F-25
<PAGE>
NOTE L -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
UNITED VANGUARD HOMES, INC.
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
(UNAUDITED)
The following unaudited statement is a pro forma estimate for a twelve month
period of taxable income and funds available from operations of the Company. The
pro forma estimate is based upon the historical operating results of the Company
for the year ended March 31, 1996, adjusted for the Company's proposed public
offering and the acquisition of Harvest Village. This statement does not purport
to, nor is it intended to, forecast actual operating results for any future
period.
This statement should be read in conjunction with (i) the historical
financial statements and notes thereto of the Company and Harvest Village
Partners, L.P. and (ii) the pro forma financial statements of the Company.
<TABLE>
<S> <C>
ESTIMATE OF TAXABLE NET OPERATING INCOME
Pro forma net income for the year ended March 31, 1996(1)......... $1,011,167
Adjust depreciation expense to tax basis depreciation(2)........ 261,000
-----------
Estimated taxable net operating income............................ $1,272,167
-----------
-----------
ESTIMATE OF PRO FORMA OPERATING FUNDS AVAILABLE
Pro forma net income for the year ended March 31, 1996(1)......... $1,011,167
Add depreciation and amortization............................... 1,074,215
-----------
Estimate of pro forma operating funds available(3)................ $2,085,382
-----------
-----------
</TABLE>
- --------------------------
1. The pro forma net income should be read in conjunction with the pro forma
information and notes thereto appearing elsewhere in this report.
2. To adjust depreciation expense to reflect depreciation expense for the
acquired property using a 40 year life and the straight line method.
3. Operating funds available does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs.
F-26
<PAGE>
FARBER, BLICHT & EYERMAN, LLP
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 255 EXECUTIVE DRIVE, SUITE 215 TELEPHONE: (516)
576-7040
PLAINVIEW, NY 11803-1715 FACSIMILE: (516)
576-1232
INDEPENDENT AUDITOR'S REPORT
To the Partners
Harvest Village Partners, L.P.
(A Limited Partnership)
We have audited the accompanying statements of assets, liabilities and
partners' deficit of Harvest Village Partners, L.P. (a limited partnership) as
of December 31, 1995 and 1994 and the related statements of revenues and
expenses and partners' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Harvest Village Partners,
L.P. as of December 31, 1995 and 1994 and the results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has incurred net losses since inception, and,
as of December 31, 1995, had a partners' capital deficit of $23,226,912. As more
fully described in Note 4 to the financial statements, the Company has long-term
debt in excess of $40,000,000. The Company is not aware of any alternate sources
of capital to meet such obligations. Those conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Plainview, New York
April 16, 1996
F-27
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ ------------------------------
1995 1994 1996 1995
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Residential real estate:
Property and equipment at cost, net of
accumulated depreciation (Note 5)............. $ 17,399,200 $ 18,246,600 $ 16,993,142 $ 17,822,900
Cash........................................... 60 88 60 60
Due from lessee (Note 7)....................... 920,615 368,907 1,108,672 671,805
Capitalized costs, net of accumulated
amortization (Note 6)......................... 583,862 852,342 456,405 718,101
-------------- -------------- -------------- --------------
$ 18,903,737 $ 19,467,937 $ 18,558,279 $ 19,212,866
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Construction loan payable (Note 4)............. $ 22,349,309 $ 21,432,362 $ 23,636,339 $ 21,902,080
Loan payable--Gateway Communities, Inc. (Note
4)............................................ 17,058,400 15,499,000 17,119,400 16,303,200
Notes payable--Presbyterian Home at Winslow,
Inc. (Note 4)................................. 1,191,720 1,112,532 1,231,314 1,152,126
Notes payable--other (Note 4).................. 168,663 158,790 173,599 163,726
Accrued interest (Note 4)...................... 197,264 121,390 192,073 191,616
Accrued expenses............................... 552,903 323,199 554,903 552,903
Due to affiliates (Note 8)..................... 612,390 564,174 612,390 588,381
-------------- -------------- -------------- --------------
Total liabilities......................... 42,130,649 39,211,447 43,520,018 40,854,032
Partners' deficit.............................. (23,226,912) (19,743,510) (24,961,739) (21,641,166)
-------------- -------------- -------------- --------------
$ 18,903,737 $ 19,467,937 $ 18,558,279 $ 19,212,866
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF REVENUES AND EXPENSES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
1995 1994 1996 1995
--------------- --------------- --------------- ---------------
(UNAUDITED)
<CAPTION>
Revenues:
<S> <C> <C> <C> <C>
Rental (Notes 2b, 4 and 10)............... $ 1,689,372 $ 1,393,236 $ 711,524 $ 767,015
Interest.................................. 66,446 94,885 48,287 27,405
--------------- --------------- --------------- ---------------
1,755,818 1,488,121 759,811 794,420
--------------- --------------- --------------- ---------------
Expenses:
Interest expense.......................... 3,961,283 2,962,255 1,959,123 1,974,078
Depreciation and amortization............. 1,115,881 1,034,973 533,515 557,941
Professional fees......................... 161,829 4,500 2,000 159,830
Miscellaneous expense..................... 227 867 -- 227
--------------- --------------- --------------- ---------------
5,239,220 4,002,595 2,494,638 2,692,076
--------------- --------------- --------------- ---------------
Net loss.................................... (3,483,402) (2,514,474) (1,734,827) (1,897,656)
Partners' deficit, beginning of period...... (19,743,510) (11,230,161) (23,226,912) (19,743,510)
Capital contribution........................ -- 260,000 -- --
Distribution (Note 8)....................... -- (6,258,875) -- --
--------------- --------------- --------------- ---------------
Partners' deficit, end of period............ $ (23,226,912) $ (19,743,510) $ (24,961,739) $ (21,641,166)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1995 1994 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net loss.............................. $(3,483,402) $(2,514,474) $(1,734,827) $(1,897,656)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 1,115,881 1,034,973 533,515 557,941
Accrued interest income............. (66,446) (94,885) (48,287) (27,405)
Changes in assets and liabilities:
Increase in accrued interest........ 2,375,385 1,569,091 1,186,599 1,197,015
Increase in accrued expenses........ 229,704 2,500 2,000 218,599
----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities................... 171,122 (2,795) (61,000) 48,494
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from construction loan....... 485,262 341,599 139,770 275,493
Proceeds from loan from Gateway....... 1,559,400 310,150 61,000 804,200
Payments on construction loan......... (1,778,766) (310,150) -- (852,722)
Advances from affiliates.............. 48,216 2,867 -- --
Advances to affiliates................ (485,262) (366,518) (139,770) (275,493)
Partners capital contribution......... -- 260,000 -- --
Payments for capitalized loan costs... -- (235,140) -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................. (171,150) 2,808 61,000 (48,522)
----------- ----------- ----------- -----------
Net change in cash...................... (28) 13 -- (28)
Cash -- beginning of period............. 88 75 60 88
----------- ----------- ----------- -----------
Cash -- end of period................... $ 60 $ 88 $ 60 $ 60
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest............................. $ 1,481,688 $ 1,393,163 $ 770,395 $ 718,492
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Non-cash financing activities:
Reduction of accrued interest
payable.............................. $(6,926,013)
-----------
-----------
Increase in notes payable............. $ 6,926,013
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS
UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Harvest Village Partners, L.P. (a Limited Partnership) (the "Partnership")
was organized on December 1, 1986 under the Uniform Limited Partnership Act of
Delaware to construct and own a 300 unit residential lifecare retirement center
(the "Retirement Center") in Winslow Township, New Jersey.
The Partnership had entered into a lease agreement with Presbyterian Home at
Winslow, Inc. ("PHW"), a New Jersey not-for-profit corporation, pursuant to
which PHW leased the entire facility. Effective December 14, 1990, Gateway
Communities, Inc. ("Gateway"), a company that had been a wholly owned subsidiary
of an affiliate of the general partner, assumed the lease agreement and began
operating the retirement center (see Note 10). On September 18, 1992, said
affiliate spun off its ownership in Gateway to an unaffiliated owner.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
a) Depreciation is being provided for on a straight-line basis over the
estimated useful lives of the assets which range from 7 to 27.5 years.
Amortization of capitalized acquisition fees and marketing costs is being
provided for on a straight-line basis over a ten year period, which represents
the initial term of the lease. Amortization of capitalized mortgage costs, loan
costs, consulting fees and refinancing fees is being provided for on a
straight-line basis over a three year period, which represents the time between
the date of the refinancing of bank loans and the extended due date of the debt.
b) Rental income is being recorded pursuant to its lease agreement with
Gateway, as amended, as it is collected. Said lease initially requires Gateway
to pay as rent its net operating cash flow, as defined, exclusive of advance
entrance fees, on a monthly basis plus an amount equal to all interest on the
note payable to Gateway.
c) Prior to formation of the Partnership, the partners had incurred certain
predevelopment costs, both tangible and intangible in nature. Certain
expenditures, because of their nature, have been reflected in the accompanying
financial statements as predevelopment costs and as contributions to capital
(see Note 9 (b) (4)).
d) The Partnership includes cash on hand and amounts due from banks with an
original maturity of three months or less as cash.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective for fiscal years ending after December 15, 1995, Statement of
Financial Accounting Standards No. 107 requires entities with total assets less
than $150 million to disclose the fair value of financial instruments recognized
in the balance sheet. At June 30, 1996, the carrying amounts of the Company's
financial instruments, including cash, receivables, accounts payable, and notes
and loans payable approximate fair value because of the short maturity of those
instruments.
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of June 30, 1996 and 1995 and the
six months then ended, are unaudited but, in the opinion of management of the
Partnership, reflects all adjustments (consisting of normal and recurring
adjustments) necessary for a fair presentation.
F-31
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS
UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The financial position as of June 30, 1996 and 1995, and the results of
operations and cash flows for the six months then ended are not necessarily
indicative of the results that may be expected for the entire year.
INCOME TAXES
Income taxes have not been provided as any income or loss is reportable on
the individual income tax return of the respective partner. The Partnership
files its tax returns using the accrual method of accounting.
3. GOING CONCERN CONSIDERATIONS
As more fully described in Note 4, the Partnership has long-term debt in
excess of $40,000,000. Additionally, the Partnership has been operating at a
loss since inception and through June 30, 1996, had accumulated a deficit of
$24,961,739. The Partnership is not aware of any alternate sources of capital
nor does it expect to be able to begin operating profitably. Those conditions
raise substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-32
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS
UNAUDITED)
4. DEBT
Debt at December 31, 1995 and 1994 and June 30, 1996 and 1995, consisted of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ ------------------------------
1995 1994 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Construction loan payable to bank bearing
interest at 1 1/2% above prime (10 1/2%, 10%,
9 3/4% and 10 1/4% at December 31, 1995 and
1994, and June 30, 1996 and 1995,
respectively). The loan is collateralized by a
mortgage on the facility and matures September
30, 1996....................................... $ 22,349,309 $ 21,432,362 $ 23,636,339 $ 21,902,080
Loan payable to Gateway Communities, Inc.
bearing interest at 9% per annum and is
collateralized by a third mortgage on the
retirement center. Pursuant to the terms of the
lease agreement, rent income is due to the
Partnership in the amount of the interest on
this loan, in addition to certain other
amounts. See Note 10. Interest expense for
December 31, 1995 and 1994 and June 30, 1996
and 1995 aggregated $1,481,688, $1,393,163,
$770,395 and $718,492, respectively............ 17,058,400 15,499,000 17,119,400 16,303,200
-------------- -------------- -------------- --------------
39,407,709 36,931,362 40,755,739 38,205,280
-------------- -------------- -------------- --------------
Notes payable to PHW bearing interest at 10% per
annum which accrues to maturity and is
collateralized by a second mortgage on the
property; the principal amount of this note,
together with all accrued and unpaid interest,
shall be due and payable on the earlier of
September 1, 1996 (maturity date) or the sale
of the property................................ 1,191,720 1,112,532 1,231,314 1,152,126
Notes payable to various vendors and
professionals bearing interest at 8% per annum
and which are past due......................... 168,663 158,790 173,599 163,726
-------------- -------------- -------------- --------------
$ 40,768,092 $ 38,202,684 $ 42,160,652 $ 39,521,132
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
Pursuant to a loan agreement originally entered into by the Partnership and
PHW and which was assumed by Gateway, Gateway is committed to transfer to the
Partnership the entrance fees collected by Gateway from residents up to the
Partnership's maximum indebtedness under the construction loan.
F-33
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS
UNAUDITED)
4. DEBT (CONTINUED)
On September 8, 1994, the Partnership modified its financing agreement with
two financial institutions regarding the construction loan. The Partnership had
accrued interest aggregating $6,926,013 on that date, which was converted into
promissory notes bearing interest at 1 1/2% above prime and maturing on
September 1, 1996. An extension until September 30, 1996 was negotiated in July,
1996.
Also on September 8, 1994, the Partnership received a commitment from
financial institutions to enable it to borrow up to $1,000,000 of additional
funds. Closing costs incurred aggregated $260,000, which were paid by Vanguard
Homes of N.J., Inc. on behalf of the Partnership. Said funds were treated as a
capital contribution to the Partnership.
5. PROPERTY AND EQUIPMENT
As of December 31, 1995 and 1994 and June 30, 1996 and 1995, property and
equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ ------------------------------
1995 1994 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Land........................ $ 719,907 $ 719,907 $ 719,907 $ 719,907
Building and improvements... 21,350,721 21,350,721 21,350,721 21,350,721
Building and equipment...... 796,081 796,081 796,081 796,081
-------------- -------------- -------------- --------------
22,866,709 22,866,709 22,866,709 22,866,709
Less accumulated
depreciation............... 5,467,509 4,620,109 5,873,567 5,043,809
-------------- -------------- -------------- --------------
$ 17,399,200 $ 18,246,600 $ 16,993,142 $ 17,822,900
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The Partnership's property and equipment is pledged as collateral for the
mortgages discussed in Notes 4.
6. CAPITALIZED COSTS
As of December 31, 1995 and 1994 and June 30, 1996 and 1995, capitalized
costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
1995 1994 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Consulting fees.................. $ -- $ 75,000 $ -- $ --
Refinancing fees................. 235,140 1,412,692 235,140 235,140
Acquisition fees................. 670,583 670,583 670,583 670,583
Marketing costs.................. 797,600 797,600 797,600 797,600
------------- ------------- ------------- -------------
1,703,323 2,955,875 1,703,323 1,703,323
Less accumulated amortization.... 1,119,461 2,103,533 1,246,918 985,222
------------- ------------- ------------- -------------
$ 583,862 $ 852,342 $ 456,405 $ 718,101
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
F-34
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS
UNAUDITED)
7. DUE FROM LESSEE
As of December 31, 1995 and 1994 and June 30, 1996 and 1995, the Partnership
has a receivable in the aggregate amount of $920,615, $368,907, $1,108,672 and
$671,805, respectively, due from Gateway, which is the tenant of the
Partnership's facility. Said receivable is comprised of unsecured cash advances
for various operating expenses, including, among other things, advertising and
marketing, with interest at prime plus 1 1/2% per annum, payable from available
cash flow.
8. RELATED PARTY TRANSACTIONS
A consulting fee in the amount of $75,000 is due to Vanguard Realty and
Management Company, Inc.("VRM" -- an affiliate of the general partner) for
services performed in 1990 in connection with a loan extension negotiated by VRM
on behalf of the Partnership.
On February 28, 1994, the Partnership assigned to its General Partner,
Vanguard Homes of N.J., Inc. ("VHNJ"), an aggregate receivable of $6,258,875,
being all sums due to the Partnership from Gateway at that date. This assignment
was treated as a capital distribution to VHNJ and was consummated at the
direction of and for benefit of VHNJ's parent company, Vanguard Ventures, Inc.
9. OWNERSHIP AND ALLOCATIONS
a) Pursuant to the Partnership agreement, profit or loss shall be allocated
among the partners as follows:
<TABLE>
<S> <C>
Vanguard Homes of N.J. Inc........................................... 95%
Rimco Associates, Inc................................................ 5%
</TABLE>
However, on January 10, 1995, Rimco Associates, Inc. ("Rimco") assigned
one-half of its limited partnership interest in the Partnership to Phoenix
Resources, Inc. ("Phoenix"). Phoenix agreed to pay Rimco $550,000 on January 10,
2005, with interest at the rate of 9% per annum
b) The partners have agreed that proceeds from refinancing or sale will be
distributed as follows:
1) Repay loans made directly or on behalf of the Partnership, plus
interest at prime plus 2% per annum.
2) A fee payable to VHNJ equal to 12% per annum based on the amount of
any guarantee and or collateral posted to VHNJ or any affiliate thereof in
connection with the December, 1990 loan restructuring or subsequent
guarantee or posting of collateral related to the Partnership. If such
guarantee is called or collateral is used such amounts will be treated as
loans and treated as #1 above.
3) Outstanding Partnership vendor obligations and Partnership
professional fees from operations due but not paid.
4) First $2,200,000 available for distribution will be split 81.5% to
VHNJ and $18.5% to Rimco, with no interest paid. The $2,200,000 represents
$1,100,000 as a return of VHNJ contribution and $1,100,000 as a reduction of
the Predevelopment Costs.
5) The next $866,225 will be split 63% to VHNJ and 37% to Rimco, with
8% simple interest earned on the unpaid balance of the $1,966,255
Predevelopment Cost from November 1, 1987 until entire Predevelopment Cost
is retired.
F-35
<PAGE>
HARVEST VILLAGE PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 IS
UNAUDITED)
9. OWNERSHIP AND ALLOCATIONS (CONTINUED)
6) The next $762,000, plus interest of 8% per annum from November 1,
1987, will be split 93% to VHNJ and 7% to Rimco.
7) VHNJ limited partner's contribution of $1,000,000 will earn 10%
simple interest from November 1, 1987.
8) General Partners management fee: $15,000 per month for the first 18
months and $4,000 per month during each month thereafter, until December 31,
1990. To date $119,000 has been paid. The fee to be split equally between
VHNJ and Rimco.
9) The General Partners developers fee of up to $2,000,000 will be
distributed in accordance with paragraph 2 of the April 26, 1989 letter from
VHNJ to Rimco Associates.
10) Remaining proceeds will be divided 95% to VHNJ and 5% to Rimco.
10. COMMITMENTS
The minimum rental income due the Partnership from Gateway is equal to net
operating cash flow, as defined, exclusive of advance entrance fees, on a
monthly basis, plus an amount equal to all interest paid on the construction
loan payable discussed in Note 4. This provision remains in effect until
repayment in full of all principal and interest due and owing by the
Partnership, pursuant to its mortgage obligation with Gateway. To date, there
has been no net operating cash flow.
F-36
<PAGE>
OUR MISSION
The Company's mission and
the foundation of its operating
philosophy is to improve the
quality of life of its residents
in a safe, healthy and secure
environment at an affordable price.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER
OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 9
The Company.................................... 19
Use of Proceeds................................ 20
Capitalization................................. 21
Dividend Policy................................ 22
Dilution....................................... 22
Selected Financial Data........................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business....................................... 31
Description of Mortgage Loans.................. 45
Management..................................... 47
Certain Relationships and Related
Transactions.................................. 52
Principal and Selling Stockholders............. 56
Description of Notes........................... 57
Description of Capital Stock................... 59
Shares Eligible for Future Sale................ 63
Underwriting................................... 64
Legal Matters.................................. 66
Experts........................................ 66
Change in Accountants.......................... 66
Indemnification for Securities Act
Liabilities................................... 66
Available Information.......................... 67
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN SHARES OF COMMON STOCK AND COMMON STOCK
PURCHASE WARRANTS, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
1,800,000 SHARES OF COMMON STOCK
AND
1,800,000 COMMON
STOCK PURCHASE WARRANTS
---------------------
PROSPECTUS
---------------------
JANNEY MONTGOMERY SCOTT INC.
RODMAN & RENSHAW, INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except to the extent hereinafter set forth, there is no statute, charter
provision, bylaw, contract or other arrangement under which any controlling
person, director, or officer of the Registrant is insured or indemnified in any
manner against liability which he may incur in his capacity as such.
Article Tenth of the Registrant's Certificate of Incorporation provides for
the indemnification of directors and officers to the fullest extent allowed by
Section 145 of the General Corporation Law of the State of Delaware.
Registrant has entered into Indemnification Agreements with its officers and
directors consistent with the foregoing authority.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors,officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Registrant has a $1,000,000 directors' and officers' liability insurance
policy.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be borne
by the Company in connection with the offering described in the Registration
Statement, other than underwriting commissions and discounts.
<TABLE>
<S> <C>
SEC Registration Fee..................................................... $ 12,617
Nasdaq National Market Listing Fee....................................... 20,000
National Association of Securities Dealers, Inc. Fee..................... 3,582
Legal Fees and Expenses.................................................. 120,000
Accounting Fees and Expenses............................................. 100,000
Printing and Engraving Expenses.......................................... 100,000
Blue Sky Fees and Expenses............................................... 35,000
Transfer Agent's and Registrar's Fees.................................... 10,000
Miscellaneous Expenses................................................... 23,801
---------
Total............................................................ $ 425,000
---------
---------
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
<TABLE>
<CAPTION>
PERSONS OR
CLASS OF
PERSONS TO TOTAL OFFERING CLAIMED
AMOUNT OF WHOM PRICE EXEMPTIONS
SECURITIES PRINCIPAL SECURITIES (COMMISSIONS NON-CASH FROM
DATE TITLE SOLD UNDERWRITER SOLD PAID) CONSIDERATION REGISTRATION
- --------- ------------- ------------- ------------- ------------- --------------- ------------- ----------------
<C> <S> <C> <C> <C> <C> <C> <C>
05/03/93 United 250,000 wts. None Vanguard $ 37,500 None Section4(2)
Vanguard Ventures,
Homes, Inc. Inc. (parent
Common Stock company)
Warrants
05/31/93 United 61,200 shs. Advanced Private $680,000 (10%) None Section4(2);
Vanguard Planning Investors Reg. D.(a)
Homes, Inc. Securities,
Common Stock Inc., an
(re Olds affiliated
Manor broker-dealer
Mortgage
Trust)
10/31/93 United 194 shs. None Private $ 646 (None) None Section4(2)
Vanguard Investors
Homes, Inc.
Common Stock
07/31/94 UVH $ 1,400,000 Advanced Private 1$,400,000 (10%) None Section4(2);
Development Notes Planning Investors Reg. D(a)
Corp. 9% Securities,
Convertible Inc., an
Notes affiliated
broker-dealer
08/15/94 United $730,000 Notes Advanced Private $730,000 (10%) None Section4(2);
Vanguard Planning Investors Reg. D(a)
Homes, Inc. Securities,
7% Inc., an
Convertible affiliated
Notes broker-dealer
08/15/94 United 73,000 Wts. Advanced Private None None Section4(2);
Vanguard Planning Investors Reg. D(a)
Homes, Inc. Securities,
Common Stock Inc., an
Warrants affiliated
broker-dealer
04/96 United 103,537 shs. None Existing $ 207,074 None Section3(a)(9)
Vanguard Warrantholders
Homes, Inc.
Common Stock
06/96 United 3,000 shs. None Executive None (b) Section4(2)
Vanguard Officer
Homes, Inc.
Common Stock
</TABLE>
- ------------------------------
(a) The Company conducted the offering and sale pursuant to the terms and
provisions of a confidential private placement memorandum. The Company had
reason to believe, prior to the making of any offer that, each offeree,
either:
(a) had such knowledge and experience in business and financial matters
that he was capable of evaluating the merits and risks of the investment and
had the capacity to protect his own interests in connection with the
transaction: or
(b) was able to bear all of the economic risks of the investment.
Each purchaser represented and warranted in writing that he:
(a) Had such knowledge and experience in financial and business matters
as to capable of evaluating the merits and risks of his investment in the
Company;
(b) Was able to bear the economic risks of such investment;
(c) Had received and reviewed the confidential memorandum (including the
exhibits thereto); and
(d) Understood and acknowledged that the Company had given him the
opportunity to ask questions of, receive answers and review documents
relating to an investment in the Company.
Further, each investor acknowledged that the securities were being sold
without registration under the Securities Act of 1933, as amended, pursuant to
the exemption afforded by Section 4(2) thereof and that the Shares were not
freely transferable. Each investor acknowledged that he could not transfer his
securities except as set forth in the confidential private placement memorandum
and the restrictions on the transferability of securities as set forth in an
executed subscription agreement. A Form D was filed with the Securities and
Exchange Commission.
Stock certificates evidencing the securities bear an investment legend, and
a stop order were placed.
The Company did not engage in any general solicitation or advertising with
regard to the offering.
(b) Pursuant to employment agreement
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of Registrant.
3.2 Form of Certificate of Amendment to the Certificate of
Incorporation of Registrant.
3.3 Bylaws of Registrant.
4.1 Form of Common Stock Purchase Warrant Agreement between
Registrant and Continental Stock Transfer & Trust Company,
including form of Common Stock Purchase Warrant.
4.2 Form of Representatives' Warrant Agreement, including form
of Representatives' Warrant.
4.3 Form of Indenture between Registrant and American Stock
Transfer and Trust Company, as Trustee, relating to the
Notes.
4.4 Form of [ ]% Convertible Senior Secured Notes (included in
Exhibit 4.3).
4.5 Form of 7% Convertible Promissory Note.
*****5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with
respect to the legality of the Common Stock and Common Stock
Purchase Warrants.
10.1 Employment Agreement of Larry L. Laird with Registrant dated
as of April 1, 1996.
10.2 Letter Agreement between Larry L. Laird and Registrant dated
September 3, 1996.
10.3 Amended and Restated Employment Agreement between Carl
Paffendorf and Registrant dated as of April 1, 1996.
10.4 Letter Agreement between Carl G. Paffendorf and Registrant
dated July 24, 1996.
10.5 Amended and Restated 1991 Incentive Stock Option Plan.
10.6 1996 Outside Directors' Stock Option Plan.
10.7 Whittier Management Agreement between Whittier Towers, Inc.
and UVH Management Corp. (f/k/a Vanguard Realty and
Management Company, Inc.) dated as of April 1, 1996.
***10.8 Management Agreement between Cottage Grove Place, Inc. and
Vanguard Realty and Management Company, Inc. dated June 7,
1995.
***10.9 Management Agreement between Phoenix Lifecare Corp. and
Vanguard Realty and Management Company, Inc. dated March 24,
1995.
10.10 Camelot Village Management Agreement (Huntington, NY)
between Camelot Retirement Homes, Inc. and Vanguard Realty
and Management Company, Inc. dated March 18, 1996.
10.11 Camelot Village Management Agreement (Stroudsburg, PA)
between Camelot Village at Stroudsburg LLC and UVH
Management Corp. dated as of July 12, 1996.
**10.12 Development Agreement between UVH Development Corp. and
Cottage Grove Place, Inc. dated October 13, 1993.
***10.13 Development Agreement between UVH Development Corp. and
Cottage Grove Place, Inc. dated June 7, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
***10.14 Development Agreement between Phoenix Lifecare Corp. and UVH
Development Corp. dated March 24, 1995.
10.15 Camelot Village Development Agreement (Huntington, NY)
between Camelot Retirement Homes, Inc. and UVH Development
Corp. dated January 26, 1996.
10.16 Camelot Village Development Agreement (Stroudsburg, PA)
between Camelot Village at Stroudsburg, LLC and Registrant
(D/B/A UVH Development) dated as of July 12, 1996.
***10.17 Option Agreement dated June 23, 1995 between Phoenix
Lifecare Corp. and Registrant.
10.18 Option and Agreement to Purchase Real Estate-Lot 3 among
Heritage Corporation of Iowa, Cottage Grove Place and
Registrant dated September 15, 1995.
10.19 Agreement between Cedar Grove Place, Cedar Rapids CGP, L.C.,
Registrant and Vanguard Ventures, Inc. dated November 20,
1995.
10.20 Amendment to November 20, 1995 Agreement among Cottage Grove
Place, Cedar Rapids CGP, L.C., Registrant and Vanguard
Ventures, Inc. dated as of March 12, 1996.
10.21 Camelot Village Option Agreement (Huntington, NY) between
Camelot Retirement Homes, Inc. and Registrant dated March
29, 1996.
10.22 Option Agreement between Whittier Towers, Inc. and
Registrant dated March 29, 1996.
10.23 Amendment No. 1 to Whittier Option Agreement between
Whittier Towers, Inc. and Registrant dated July 15, 1996.
10.24 Camelot Village Option Agreement (Stroudsburg, PA) between
Camelot Village at Stroudsburg, LLC and Registrant dated
July 24, 1996.
10.25 Harvest Village Purchase Agreement by and among Harvest
Village Partners, L.P., Registrant and Vanguard Ventures,
Inc. dated April 19, 1996.
10.26 Amendment No. 1 to the Harvest Village Purchase Agreement
among Harvest Village Partners, L.P., Registrant and
Vanguard Ventures, Inc. dated June 20, 1996.
10.27 Amendment No. 2 to the Harvest Village Purchase Agreement
among Harvest Village Partners, L.P., Registrant and
Vanguard Ventures, Inc. dated July 6, 1996.
10.28 Amendment No. 3 to the Harvest Village Purchase Agreement
among Harvest Village Partners, L.P., Registrant and
Vanguard Ventures, Inc. dated July 8, 1996.
10.29 Form of Harvest Village Return of Capital Residency
Agreement.
10.30 Form of Harvest Village Traditional Residency Agreement.
10.31 Mortgage given to Old Kent Bank and Trust Company by Olds
Manor, Inc. dated June 30, 1989.
10.32 Mortgage given to the Olds Manor Mortgage Trust by Olds
Manor Inc. dated May 31, 1993.
10.33 Mortgage given to Citibank N.A. by Olds Manor Inc. dated
October 18, 1989.
10.34 Mortgage given to Whitcomb Mortgage Trust by Whitcomb Tower
Corporation dated March 30, 1992.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.35 First Amendment to Mortgage between Whitcomb Tower
Corporation and The Whitcomb Mortgage Trust c/o Carl
Paffendorf, Trustee, dated January 31, 1995.
10.36 Consolidation Agreement among Whittier Towers, Inc.,
Whitcomb Tower Corp., Vanguard Ventures, Inc., Citibank N.A.
and Lloyd's Bank Plc dated December 14, 1990.
10.37 Restated Consolidation Agreement and Guarantee among
Whittier Towers Inc., Vanguard Homes of Michigan, Inc.
(n/k/a Gateway Communities, Inc.), Vanguard Ventures, Inc.
and The Great-West Life Assurance Company dated December 7,
1988.
10.38 First Amendment to Loan Documents between Great-West Life
and Annuity Insurance Company, Whittier Towers, Inc.,
Whitcomb Tower Corp., Hillside Terrace, Inc., Olds Manor,
Inc. and Vanguard Ventures, Inc. dated August 31, 1995.
10.39 Letter Agreement between Great-West Life and Annuity
Insurance Company and Carl Paffendorf dated April 1, 1996.
10.40 Guarantee Agreement of Vanguard Ventures, Inc. to Vanguard
Realty and Management Company, Inc. dated December 30, 1994.
10.41 Guarantee Agreement of Vanguard Ventures, Inc. to Vanguard
Realty and Management Company, Inc. dated March 12, 1996.
10.42 Form of Escrow Agreement among Registrant, Vanguard
Ventures, Inc. and American Stock Transfer & Trust Company.
11. Statement of Computation of Per Share Earnings.
****16. Letter from Farber, Blicht & Eyerman, LLP dated May 23,
1996.
21. Subsidiaries of Registrant.
*****23.1 The consent of Olshan Grundman Frome & Rosenzweig LLP will
be included in the opinion filed as Exhibit 5 to this
Registration Statement.
23.2 The consent of Farber, Blicht & Eyerman, LLP, certified
public accountants.
23.3 The consent of Grant Thornton LLP, certified public
accountants.
******24. Powers of Attorney.
*****25. Statement on Form T-1 of Eligibility and Qualification under
the Trust Indenture Act of 1989 of American Stock Transfer
and Trust Company, as Trustee under the Indenture relating
to the Notes.
</TABLE>
- ------------------------
* Filed as an Exhibit to Registrant's Form 8-K filed on April 16, 1993.
** Filed as an Exhibit to Amendment No. 1 to Registrant's Annual Report on
Form 10-K for the year ended March 31, 1994, SEC File No. 0-5097.
*** Filed as an Exhibit to Registrant's Form 10-K for the year ended March
31, 1995, SEC File No. 0-5097.
**** Filed as an Exhibit to Registrant's Form 8-K filed on May 23, 1996.
***** To be filed by amendment.
****** Filed as an Exhibit to Amendment No. 4 to Registrant's Registration
Statement on Form SB-2 (No. 33-80812).
II-5
<PAGE>
ITEM 28. UNDERTAKINGS.
Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
b. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
c. To remove from registration by means of a post-effective amendment any
securities being registered which remain unsold at termination of the offering.
d. For the purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
e. For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
f. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Glen Cove, State of New York, on the 20th day of September, 1996.
UNITED VANGUARD HOMES, INC.
By: /s/ CARL G. PAFFENDORF
-----------------------------------
Name: Carl G. Paffendorf
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURES TITLE DATE
- ------------------------------------------------------ -------------------------------- -----------------------
Vice President--Finance
* (Principal Financial Officer
------------------------------------------- and Principal Accounting September 20, 1996
Paul D'Andrea Officer)
*
------------------------------------------- Director September 20, 1996
Benjamin Frank
*
------------------------------------------- Director September 20, 1996
Francis S. Gabreski
*
------------------------------------------- President, Chief Operating September 20, 1996
Larry L. Laird Officer and Director
/s/ CARL G. PAFFENDORF
------------------------------------------- Chairman of the Board and Chief September 20, 1996
Carl G. Paffendorf Executive Officer
*
------------------------------------------- Director September 20, 1996
Robert S. Hoshino, Jr.
*
------------------------------------------- Director September 20, 1996
James E. Eden
------------------------------------------- Director
Stanford J. Shuster
*By: /s/ CARL G. PAFFENDORF
--------------------------------------
Carl G. Paffendorf
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------ ------------------------------------------------------------ -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of Registrant.
3.2 Form of Certificate of Amendment to the Certificate of
Incorporation of Registrant.
3.3 Bylaws of Registrant.
4.1 Form of Common Stock Purchase Warrant Agreement between
Registrant and Continental Stock Transfer & Trust Company,
including form of Common Stock Purchase Warrant.
4.2 Form of Representatives' Warrant Agreement, including form
of Representatives' Warrant.
4.3 Form of Indenture between Registrant and American Stock
Transfer and Trust Company, as Trustee, relating to the
Notes.
4.4 Form of [ ]% Convertible Senior Secured Notes (included in
Exhibit 4.3).
4.5 Form of 7% Convertible Promissory Note.
*****5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with
respect to the legality of the Common Stock and Common Stock
Purchase Warrants.
10.1 Employment Agreement of Larry L. Laird with Registrant dated
as of April 1, 1996.
10.2 Letter Agreement between Larry L. Laird and Registrant dated
September 3, 1996.
10.3 Amended and Restated Employment Agreement between Carl
Paffendorf and Registrant dated as of April 1, 1996.
10.4 Letter Agreement between Carl G. Paffendorf and Registrant
dated July 24, 1996.
10.5 Amended and Restated 1991 Incentive Stock Option Plan.
10.6 1996 Outside Directors' Stock Option Plan.
10.7 Whittier Management Agreement between Whittier Towers, Inc.
and UVH Management Corp. (f/k/a Vanguard Realty and
Management Company, Inc.) dated as of April 1, 1996.
***10.8 Management Agreement between Cottage Grove Place, Inc. and
Vanguard Realty and Management Company, Inc. dated June 7,
1995.
***10.9 Management Agreement between Phoenix Lifecare Corp. and
Vanguard Realty and Management Company, Inc. dated March 24,
1995.
10.10 Camelot Village Management Agreement (Huntington, NY)
between Camelot Retirement Homes, Inc. and Vanguard Realty
and Management Company, Inc. dated March 18, 1996.
10.11 Camelot Village Management Agreement (Stroudsburg, PA)
between Camelot Village at Stroudsburg LLC and UVH
Management Corp. dated as of July 12, 1996.
**10.12 Development Agreement between UVH Development Corp. and
Cottage Grove Place, Inc. dated October 13, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------ ------------------------------------------------------------ -----------
<C> <S> <C>
***10.13 Development Agreement between UVH Development Corp. and
Cottage Grove Place, Inc. dated June 7, 1995.
***10.14 Development Agreement between Phoenix Lifecare Corp. and UVH
Development Corp. dated March 24, 1995.
10.15 Camelot Village Development Agreement (Huntington, NY)
between Camelot Retirement Homes, Inc. and UVH Development
Corp. dated January 26, 1996.
10.16 Camelot Village Development Agreement (Stroudsburg, PA)
between Camelot Village at Stroudsburg, LLC and Registrant
(D/B/A UVH Development) dated as of July 12, 1996.
***10.17 Option Agreement dated June 23, 1995 between Phoenix
Lifecare Corp. and Registrant.
10.18 Option and Agreement to Purchase Real Estate-Lot 3 among
Heritage Corporation of Iowa, Cottage Grove Place and
Registrant dated September 15, 1995.
10.19 Agreement between Cedar Grove Place, Cedar Rapids CGP, L.C.,
Registrant and Vanguard Ventures, Inc. dated November 20,
1995.
10.20 Amendment to November 20, 1995 Agreement among Cottage Grove
Place, Cedar Rapids CGP, L.C., Registrant and Vanguard
Ventures, Inc. dated as of March 12, 1996.
10.21 Camelot Village Option Agreement (Huntington, NY) between
Camelot Retirement Homes, Inc. and Registrant dated March
29, 1996.
10.22 Option Agreement between Whittier Towers, Inc. and
Registrant dated March 29, 1996.
10.23 Amendment No. 1 to Whittier Option Agreement between
Whittier Towers, Inc. and Registrant dated July 15, 1996.
10.24 Camelot Village Option Agreement (Stroudsburg, PA) between
Camelot Village at Stroudsburg, LLC and Registrant dated
July 24, 1996.
10.25 Harvest Village Purchase Agreement by and among Harvest
Village Partners, L.P., Registrant and Vanguard Ventures,
Inc. dated April 19, 1996.
10.26 Amendment No. 1 to the Harvest Village Purchase Agreement
among Harvest Village Partners, L.P., Registrant and
Vanguard Ventures, Inc. dated June 20, 1996.
10.27 Amendment No. 2 to the Harvest Village Purchase Agreement
among Harvest Village Partners, L.P., Registrant and
Vanguard Ventures, Inc. dated July 6, 1996.
10.28 Amendment No. 3 to the Harvest Village Purchase Agreement
among Harvest Village Partners, L.P., Registrant and
Vanguard Ventures, Inc. dated July 8, 1996.
10.29 Form of Harvest Village Return of Capital Residency
Agreement.
10.30 Form of Harvest Village Traditional Residency Agreement.
10.31 Mortgage given to Old Kent Bank and Trust Company by Olds
Manor, Inc. dated June 30, 1989.
10.32 Mortgage given to the Olds Manor Mortgage Trust by Olds
Manor Inc. dated May 31, 1993.
10.33 Mortgage given to Citibank N.A. by Olds Manor Inc. dated
October 18, 1989.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------ ------------------------------------------------------------ -----------
<C> <S> <C>
10.34 Mortgage given to Whitcomb Mortgage Trust by Whitcomb Tower
Corporation dated March 30, 1992.
10.35 First Amendment to Mortgage between Whitcomb Tower
Corporation and The Whitcomb Mortgage Trust c/o Carl
affendorf, Trustee, dated January 31, 1995.
10.36 Consolidation Agreement among Whittier Towers, Inc.,
Whitcomb Tower Corp., Vanguard Ventures, Inc., Citibank N.A.
and Lloyd's Bank Plc dated December 14, 1990.
10.37 Restated Consolidation Agreement and Guarantee among
Whittier Towers Inc., Vanguard Homes of Michigan, Inc.
(n/k/a Gateway Communities, Inc.), Vanguard Ventures, Inc.
and The Great-West Life Assurance Company dated December 7,
1988.
10.38 First Amendment to Loan Documents between Great-West Life
and Annuity Insurance Company, Whittier Towers, Inc.,
Whitcomb Tower Corp., Hillside Terrace, Inc., Olds Manor,
Inc. and Vanguard Ventures, Inc. dated August 31, 1995.
10.39 Letter Agreement between Great-West Life and Annuity
Insurance Company and Carl Paffendorf dated April 1, 1996.
10.40 Guarantee Agreement of Vanguard Ventures, Inc. to Vanguard
Realty and Management Company, Inc. dated December 30, 1994.
10.41 Guarantee Agreement of Vanguard Ventures, Inc. to Vanguard
Realty and Management Company, Inc. dated March 12, 1996.
10.42 Form of Escrow Agreement among Registrant, Vanguard
Ventures, Inc. and American Stock Transfer & Trust Company.
11. Statement of Computation of Per Share Earnings.
****16. Letter from Farber, Blicht & Eyerman, LLP dated May 23,
1996.
21. Subsidiaries of Registrant.
*****23.1 The consent of Olshan Grundman Frome & Rosenzweig LLP will
be included in the opinion filed as Exhibit 5 to this
Registration Statement.
23.2 The consent of Farber, Blicht & Eyerman, LLP, certified
public accountants.
23.3 The consent of Grant Thornton LLP, certified public
accountants.
******24. Powers of Attorney.
*****25. Statement on Form T-1 of Eligibility and Qualification under
the Trust Indenture Act of 1989 of American Stock Transfer
and Trust Company, as Trustee under the Indenture relating
to the Notes.
</TABLE>
- ------------------------
* Filed as an Exhibit to Registrant's Form 8-K filed on April 16, 1993.
** Filed as an Exhibit to Amendment No. 1 to Registrant's Annual Report on
Form 10-K for the year ended March 31, 1994, SEC File No. 0-5097.
*** Filed as an Exhibit to Registrant's Form 10-K for the year ended March
31, 1995, SEC File No. 0-5097.
**** Filed as an Exhibit to Registrant's Form 8-K filed on May 23, 1996.
***** To be filed by amendment.
****** Filed as an Exhibit to Amendment No. 4 to Registrant's Registration
Statement on Form SB-2 (File 33-80812)
<PAGE>
EXHIBIT 1.1
OHS DRAFT
9/19/96
[Form of Underwriting Agreement - Subject to Additional Review]
1,800,000 SHARES OF COMMON STOCK
AND 1,800,000 COMMON STOCK PURCHASE WARRANTS
UNITED VANGUARD HOMES, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
, 1996
JANNEY MONTGOMERY SCOTT INC.
RODMAN & RENSHAW, INC.
As Representatives of the
Several Underwriters listed on Schedule A hereto
c/o Janney Montgomery Scott Inc.
26 Broadway
New York, New York 10004
Ladies and Gentlemen:
United Vanguard Homes, Inc., a Delaware corporation (the "Company"), and
Vanguard Ventures, Inc., a principal stockholder of the Company (the "Selling
Stockholder") each confirms its agreement with each of Janney Montgomery Scott
Inc. ("Janney") and Rodman & Renshaw, Inc. ("Rodman") and each of the
underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
SECTION 12), for whom Janney and Rodman are acting as representatives (in such
capacity, Janney and Rodman shall hereinafter be referred to as "you" or the
"Representatives"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective numbers of
shares ("Shares")
<PAGE>
of the Company's common stock, $.01 par value per share (the "Common Stock"),
and common stock purchase warrants (the "Purchase Warrants"), each to purchase
one-half share of Common Stock, set forth in Schedule A hereto. The aggregate
1,800,000 Shares and 1,800,000 Purchase Warrants will be separately tradeable
upon issuance and are hereinafter referred to as the "Firm Securities." Each
Purchase Warrant is exercisable at an exercise price of $_____ per share [120%
of the initial public offering price per share of Common Stock] commencing on
____________, 1996 [the effective date of the Registration Statement] until
________, 1998. [18 months from the effective date of the Registration
Statement], and $____ per share [138% of the initial public offering price per
share of Common Stock] commencing on ______ 1998 [18 months from the effective
date of the Registration Statement] until _____, 1999 [3 years from the
effective date of the Registration Statement], at which time the Purchase
Warrants will expire, unless extended.
Upon your request, as provided in Section 3(b) of this Agreement, the
Selling Stockholder shall sell to the Underwriters, acting severally and not
jointly, up to an additional 270,000 shares of Common Stock (the "Option
Shares") and the Company shall issue and sell to the Underwriters, acting
severally and not jointly, up to an additional 270,000 Purchase Warrants (the
"Option Warrants") for the purpose of covering over-allotments, if any. Such
Option Shares and Option Warrants are hereinafter collectively to as the "Option
Securities." The Company also proposes to issue and sell to you warrants (the
"Representatives' Warrants") pursuant to the Representatives' Warrant Agreement
(the "Representatives' Warrant Agreement") for the purchase of 180,000 shares of
Common Stock and 180,000 Purchase Warrants. The shares of Common Stock and
Purchase Warrants issuable upon exercise of the Representatives' Warrants are
hereinafter referred to as the "Representatives' Securities." The Firm
Securities, the Option Securities, the Representatives' Warrants and the
Representatives' Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 33-80812), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Firm Securities, the Option Securities and the Representatives' Securities under
the Securities Act of 1933, as amended (the "Act"), which registration statement
and amendment or amendments have been prepared by the Company in conformity with
the requirements of the Act, and the rules and regulations (the "Regulations")
of the Commission under the Act. The Company will promptly file a further
amendment to said registration statement in the form heretofore delivered to the
Underwriters and will not file any other amendment thereto to which the
Underwriters shall have objected in writing after having been furnished with a
copy thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules, exhibits
- 2 -
<PAGE>
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof,
"Rules and Regulations" mean the rules and regulations adopted by the Commission
under either the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed in all material respects
with the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that this representation and warranty does not apply to
statements made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and each Option
Closing Date (as defined herein), if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all material statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and will conform in all
material respects to the requirements of the Act and the Rules and Regulations;
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, PROVIDED, HOWEVER, that this representation and warranty
does not apply to statements made or statements omitted in reliance upon and in
strict conformity with information furnished to the Company in writing by or on
behalf of any Underwriter expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(d) Each of the Company, and the Company's wholly-owned subsidiaries
listed on Schedule B hereto, (such subsidiaries are hereinafter referred to
individually as a "Subsidiary" and collectively as the "Subsidiaries"), has been
duly organized and is validly existing as a corporation in good standing under
the laws of the state of its incorporation. Except as set forth in the
Prospectus, none of the Company nor the Subsidiaries owns an interest in any
corporation,
- 3 -
<PAGE>
partnership, trust, joint venture or other business entity. Each of the Company
and the Subsidiaries is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such qualification or
licensing. The Company owns, directly or indirectly, one hundred percent (100%)
of the outstanding capital stock of each of the Subsidiaries, and all of such
shares have been validly issued, are fully paid and non-assessable, were not
issued in violation of any preemptive rights, and, except as set forth in the
Prospectus, are owned free and clear of any liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, other than restrictions on transfer imposed by
securities laws. Each of the Company and the Subsidiaries has all requisite
power and authority (corporate and other), and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; each of the Company and the Subsidiaries is and has
been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all applicable
federal, state, local and foreign laws, rules and regulations; and none of the
Company nor the Subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company or the Subsidiaries. The disclosures in the
Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's and the Subsidiaries'
businesses as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not misleading in
light of the circumstances under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization,"
"Description of Mortgage Loans," "Description of Notes" and "Description of
Capital Stock" and will have the adjusted capitalization set forth therein on
the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Warrant Agreement, the Agency Agreement between the Company and Janney dated
as of ____________, 1996, the Placement Agent Warrant Agreement between the
Company and Janney dated as of ________________, 1996, the Representatives'
Warrant Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform or, when issued and
paid for, will conform, in all respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and the holders thereof have no
rights of rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights
- 4 -
<PAGE>
granted by the Company. The Securities are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representatives, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
(f) The consolidated financial statements of the Company and the
Subsidiaries, together with the related notes and schedules thereto, included in
the Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and the
Subsidiaries at the respective dates and for the respective periods to which
they apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by each of Grant Thornton LLP and
Farber, Blicht & Eyerman, LLP, who are independent certified public accountants
within the meaning of the Act and the Rules and Regulations, as indicated in
their reports filed therewith. There has been no adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or in the earnings, position, prospects, value, operation, properties, business,
or results of operations of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company and the Subsidiaries, conform in all material respects
to the descriptions thereof contained in the Registration Statement and the
Prospectus. Financial information (including, without limitation, any pro forma
financial information) set forth in the Prospectus under the headings "Summary
Financial Data", "Selected Financial Data," "Capitalization," "Dilution," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," fairly present, on the basis stated in the Prospectus, the
information set forth therein, and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus; and, in the case of pro forma financial information, if any, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid federal, state, local and foreign income
taxes, interest, penalties, assessments or deficiencies applicable to the
Company and the Subsidiaries, whether disputed or not, for the applicable period
then ended and periods prior thereto; adequate allowance for doubtful accounts
has been provided for unindemnified losses due to the operations of the Company
and the Subsidiaries; and the statements of income do not contain any items of
special or nonrecurring income not earned in the ordinary course of business,
except as specified in the notes thereto.
- 5 -
<PAGE>
(g) Each of the Company and the Subsidiaries (i) has paid all federal,
state, local, and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through 24
of the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished
all information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters in connection with (i) the issuance by the Company of
the Securities, (ii) the purchase by the Underwriters of the Firm Securities and
the Option Securities from the Company and the purchase by the Representatives
of the Representatives' Warrants from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement, or (iv) resales of the
Firm Securities and the Option Securities in connection with the distribution
contemplated hereby.
(i) Each of the Company and the Subsidiaries maintains insurance
policies, including, but not limited to, general liability, environmental and
property insurance, which insures each of the Company, the Subsidiaries and
their respective employees, against such losses and risks generally insured
against by comparable businesses. None of the Company nor the Subsidiaries (A)
has failed to give notice or present any insurance claim with respect to any
matter, including but not limited to the Company's business, property or
employees, under any insurance policy or surety bond in a due and timely manner,
(B) has any disputes or claims against any underwriter of such insurance
policies or surety bonds or has failed to pay any premiums due and payable
thereunder, or (C) has failed to comply with all conditions contained in such
insurance policies and surety bonds. There are no facts or circumstances under
any such insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company or any Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiaries which (i) questions the validity of the capital stock of the
Company, this Agreement, the Warrant Agreement, the Acquisition Agreement, the
Escrow Agreement (as defined herein) or the Representatives' Warrant Agreement,
or of any action taken or to be taken by the Company pursuant to or in
connection with this Agreement, the Warrant Agreement, the Acquisition
Agreement, the Escrow Agreement or the Representatives' Warrant Agreement,
(ii) is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all material respects), or (iii) might materially
and adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company and the Subsidiaries taken as a
whole.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, enter into this Agreement, the Warrant
Agreement, the Acquisition
- 6 -
<PAGE>
Agreement, the Escrow Agreement and the Representatives' Warrant Agreement and
to consummate the transactions provided for in this Agreement, the Warrant
Agreement, the Acquisition Agreement, the Escrow Agreement and the
Representatives' Warrant Agreement; and this Agreement, the Warrant Agreement,
the Acquisition Agreement, the Escrow Agreement and the Representatives' Warrant
Agreement have each been duly and properly authorized, executed and delivered by
the Company. Each of this Agreement, the Warrant Agreement, the Acquisition
Agreement, the Escrow Agreement and the Representatives' Warrant Agreement
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, and none of the Company's
issue and sale of the Securities, execution or delivery of this Agreement, the
Warrant Agreement, the Acquisition Agreement, the Escrow Agreement or the
Representatives' Warrant Agreement, its performance hereunder and thereunder,
its consummation of the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of any of the
Company or the Subsidiaries pursuant to the terms of (i) the certificate of
incorporation or by-laws of any of the Company or the Subsidiaries, (ii) any
license, contract, collective bargaining agreement, indenture, mortgage, deed of
trust, lease, voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which any of the
Company or the Subsidiaries is a party or by which any of the Company or the
Subsidiaries is or may be bound or to which either of its or their respective
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to any of the Company or the Subsidiaries of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over any of the
Company or the Subsidiaries or any of its or their respective activities or
properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement,
the Warrant Agreement, the Acquisition Agreement, the Escrow Agreement and the
Representatives' Warrant Agreement and the transactions contemplated hereby and
thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Firm Securities and the
Option Securities, and the Representatives' Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which any of the Company or the Subsidiaries is a
party or by which it or they may be bound or to
- 7 -
<PAGE>
which its or their respective assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company or the
Subsidiaries, as the case may be, and constitute the legal, valid and binding
agreements of the Company or the Subsidiaries, as the case may be, enforceable
against each of them in accordance with their respective terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, none of the Company nor the
Subsidiaries has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of any of the Company or the
Subsidiaries.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which any of the Company or the Subsidiaries is a party or by
which any of the Company or the Subsidiaries may be bound or to which the
property or assets (tangible or intangible) of any of the Company or the
Subsidiaries is subject or affected, which default would have a material adverse
effect on the Company and the Subsidiaries taken as a whole.
(p) Each of the Company and the Subsidiaries has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
any of the Company or the Subsidiaries by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against any of the Company or the Subsidiaries
pending before the National Labor Relations Board or any lockout, strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving any of the Company or the Subsidiaries, or any predecessor entity,
and none has ever occurred. No representation question exists respecting the
employees of any of the Company or the Subsidiaries, and no collective
bargaining agreement or modification thereof is currently being negotiated by
any of the Company or the Subsidiaries. No grievance or arbitration proceeding
is pending under any expired or existing collective bargaining agreements
- 8 -
<PAGE>
of any of the Company or the Subsidiaries. No labor dispute with the employees
of any of the Company or the Subsidiaries exists, or, is imminent.
(q) None of the Company nor any of the Subsidiaries maintains, sponsors
or contributes to any program or arrangement that is an "employee pension
benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as
such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). None of the Company nor the Subsidiaries maintains or contributes, now
or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in
a "prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or the Subsidiaries to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
None of the Company nor the Subsidiaries has ever completely or partially
withdrawn from a "multiemployer plan."
(r) None of the Company, the Subsidiaries, nor any of its or their
respective employees, directors, stockholders, partners, or affiliates (within
the meaning of the Rules and Regulations) of any of the foregoing has taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or otherwise.
(s) Each of the Company and the Subsidiaries has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it, free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus, liens for taxes not yet due and payable and
liens which would not have a material adverse effect on the Company and the
Subsidiaries taken as a whole.
(t) Each of Grant Thornton LLP and Farber, Blicht & Eyerman, LLP, whose
reports are filed with the Commission as a part of the Registration Statement,
are independent certified public accountants as required by the Act and the
Rules and Regulations.
(u) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors, and certain holders of securities exchangeable or exercisable for or
convertible into shares of Common Stock has agreed (i) not to, directly or
indirectly, issue, offer, offer to sell, sell, grant any option for the sale or
purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant
- 9 -
<PAGE>
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of not less than nine (9) months
following the effective date of the Registration Statement without the prior
written consent of the Representatives and the Company and (ii) to waive all
rights to request or demand the registration pursuant to the Act of any
securities of the Company which are registered in the name of or beneficially
owned by any such holder. In addition, such agreements provide that each of the
directors and officers of the Company and the Selling Stockholder has agreed
that for a period of 24 months from the date of the Prospectus, all sales of
shares of Common Stock owned by them will be effected through the
Representatives. The Company will cause the Transfer Agent (as hereinafter
defined) to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
(v) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, the Subsidiaries, or any of its or their respective
officers, directors, stockholders, partners, employees or affiliates, that may
affect the Underwriters' compensation, as determined by the National Association
of Securities Dealers, Inc. ("NASD").
(w) The Common Stock has been approved for quotation on the Nasdaq
National Market ("Nasdaq/NM"), subject to notice of issuance.
(x) None of the Company, the Subsidiaries, nor any of its or their
respective officers, employees, agents or any other person acting on behalf of
any of the Company or the Subsidiaries has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of any of the Company or the Subsidiaries (or assist
any of the Company or the Subsidiaries in connection with any actual or proposed
transaction) which (a) might subject any of the Company or the Subsidiaries, or
any other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of any of the Company or the Subsidiaries, or (c) if not continued in
the future, might adversely affect the assets, business, condition, financial or
otherwise, earnings, position, properties, value, operations or prospects of any
of the Company or the Subsidiaries. The Company's and each Subsidiary's
internal accounting controls are sufficient to cause each of the Company and the
Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
(y) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or of any Subsidiary, or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest in any person or
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entity which (A) furnishes or sells services or products which are furnished or
sold or are proposed to be furnished or sold by any of the Company or the
Subsidiaries, or (B) purchases from or sells or furnishes to any of the Company
or the Subsidiaries any goods or services, or (ii) a beneficiary interest in any
contract or agreement to which the Company or any Subsidiary is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Relationships and Related Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company or any Subsidiary, and any officer, director, or 5% or greater
securityholder of the Company or any Subsidiary, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(z) Any certificate signed by any officer of the Company or any
Subsidiary, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
(aa) The minute books of each of the Company and the Subsidiaries have
been made available to the Underwriters and contain a complete summary of all
meetings and actions of the directors (including committees thereof) and
stockholders of each of the Company and the Subsidiaries, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ab) Except and to the extent described in the Prospectus, no holders of
any securities of the Company or of any options, warrants or other convertible
or exchangeable securities of the Company have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ac) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Carl G.
Paffendorf and Larry L. Laird in the forms filed as Exhibits and ,
respectively, to the Registration Statement and (ii) purchased term key person
insurance on the lives of Messrs. Paffendorf and Laird in the amount of $2
million each, which policies name the Company as the sole beneficiary thereof.
(ad) Each of the Company and the Subsidiaries confirms as of the date
hereof that it is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH
CUBA, and each of the Company and the Subsidiaries further agrees that if it or
any affiliate commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's, any Subsidiary's or any
affiliate's, business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the Department.
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<PAGE>
(ae) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(af) Each of the Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparations of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ag) The Company has entered into a warrant agreement substantially in
the form filed as Exhibit ____ to the Registration Statement (the "Warrant
Agreement") with Continental Stock Transfer and Trust Company, as Warrant Agent,
in form and substance satisfactory to the Representatives, with respect to the
Purchase Warrants.
(ah) Assuming due execution by the parties thereto other than the
Company, each of the Harvest Village Acquisition Agreement dated ____________,
1996 (the "Acquisition Agreement") and the Escrow Agreement dated ________, 1996
among the Company, the Selling Stockholder and _______________, as Escrow Agent
(the "Escrow Agreement") is a legal, valid and binding obligation of the parties
thereto, enforceable against the parties thereto in accordance with their
respective terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of the Escrow Agreement and the
Acquisition Agreement, its performance hereunder or thereunder, its consummation
of the transactions contemplated herein or therein, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of any of the
Company or the Subsidiaries pursuant to the terms of, (A) the certificate of
incorporation or by-laws of any of the Company or the Subsidiaries, (B) any
license, contract, collective bargaining agreement, indenture, mortgage, deed of
trust, lease, voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which any of the
Company or the Subsidiaries is a party or by which it is or they are or may be
bound or to which any of its or their respective properties or assets (tangible
or intangible) is or may be subject, or any indebtedness, or (C) any statute,
judgment, decree, order, rule or regulation applicable to any of the Company or
the Subsidiaries of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without limitation,
those having
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jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over any of the Company or the Subsidiaries or any of its or their
respective activities or properties.
(ai) [REPRESENTATION AND WARRANTY REGARDING HARVEST VILLAGE]
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER.
The Selling Stockholder represents and warrants to, and agrees with, the
Underwriters as of the date hereof, and as of the Option Closing Date, if any,
as follows:
(a) The Selling Stockholder has now and will have on each Option
Closing Date, if any, good and valid title to the Option Shares free and clear
of any lien, charge, claim, encumbrance, pledge, security interest,
stockholders' agreement, voting trust, community property right, defect in
title, equitable interest or other equities or restrictions of any kind
whatsoever (including any liability for estate or inheritance taxes and claims
of any creditor, devisee, legatee or beneficiary); other than as described in
this Agreement or disclosed in the Registration Statement or Prospectus, there
are no outstanding options, warrants, rights or other agreements or arrangements
with respect to any of the Option Shares; the Selling Stockholder has and will
have on each Option Closing Date, if any, full right, power and authority to
sell, transfer and deliver the Option Shares hereunder; and upon delivery of the
Option Shares against payment of the purchase price therefor as contemplated in
this Agreement, each of the Underwriters, who has purchased in good faith and
without notice of any adverse claim, will receive good and marketable title to
the Option Shares purchased by it, free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, stockholders' agreement, voting trust,
community property right, defect in title, equitable interests or other equities
or restrictions of any kind whatsoever (including any liability for estate or
inheritance taxes and claims of any creditor, devisee, legatee or beneficiary).
(b) The Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the forms theretofore furnished to the
Representatives, a Lock-up Agreement (the "Seller Lockup Agreement") and a
Custody Agreement (the "Custody Agreement"); each of the Custody Agreement and
the Seller Lock-up Agreement constitutes a legal, valid and binding agreement of
the Selling Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(c) All authorizations, approvals, consents and orders necessary for
the execution and delivery by the Selling Stockholder of this Agreement, the
Custody Agreement and the Seller Lock-Up Agreement and the sale and delivery of
the Option Shares hereunder (other than such authorizations, approvals, orders
or consents as may be necessary under federal or state securities laws) have
been obtained and are in full force and effect; and the Selling Stockholder has
full right, power and authority to enter into and perform its obligations under
this Agreement, the Custody Agreement and the Seller Lock-Up Agreement.
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<PAGE>
(d) The Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
distribution of the Securities.
(e) This Agreement has been duly authorized (if applicable), executed
and delivered by the Selling Stockholder and is a legal, valid and binding
agreement of the Selling Stockholder, enforceable in accordance with its terms,
except insofar as indemnity and contribution provisions may be limited by
applicable laws (including, without limitation, federal laws) or equitable
principles and except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. The
execution, delivery and performance of this Agreement, the Custody Agreement and
the Seller Lock-Up Agreement and the consummation of the transactions
contemplated hereby and thereby by the Selling Stockholder has not conflicted
and will not conflict with and has not resulted and will not result in a breach
of or default under (i) any will, license, contract, indenture, mortgage, lease,
deed of trust, voting trust agreement, bond, debenture, stockholders' agreement,
note, loan or credit agreement or other agreement or instrument to which the
Selling Stockholder is a party or by which the Selling Stockholder is or may be
bound or to which any of its properties (including the Option Shares) is or may
be subject, or any indebtedness, or (ii) any statute, judgment, decree, order,
rule or regulation applicable to the Selling Stockholder of any arbitrator,
court, regulatory body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the Selling Stockholder or
any of the Selling Stockholder's activities or properties (including the Option
Shares), except for conflicts, breaches and defaults which will not adversely
affect the consummation by the Selling Stockholder of the transactions
contemplated hereby.
(f) The sale of the Option Shares hereunder is not prompted by any
information concerning the Company or any of the Subsidiaries which is material
and adverse to the Company and the Subsidiaries taken as a whole and which is
not set forth in the Prospectus; the information relating to the Selling
Stockholder, the transactions between the Selling Stockholder or its
stockholders, directors, officers, employees, agents or affiliates and the
Company or any of the Subsidiaries and all securities of the Company or any of
the subsidiaries owned by the Selling Stockholder (collectively, "Seller
Information") set forth in the Registration Statement and the Prospectus, as so
amended or supplemented, does not and at the Closing Date and each Option
Closing Date, if any, will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; all information furnished by or on
behalf of the Selling Stockholder in writing for use in each Preliminary
Prospectus, the Registration Statement and the Prospectus, or any amendment or
supplement thereto, is and at the Closing Date and each Option Closing Date, if
any, will be true, correct and complete in all material respects; and there are
not now and will not be at the Closing Date and each Option Closing Date, if
any, any agreements, contracts or other documents or instruments providing for
indemnification, contribution or reimbursement to the Selling Stockholder or any
of its stockholders, directors, officers, employees, agents, affiliates or
controlling persons (as defined in SECTION 8) by the Company or any of the
Subsidiaries with respect to the offer or sale of the Option Shares or the
distribution contemplated hereby (other than those provisions of the By-Laws or
the Certificate of
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<PAGE>
Incorporation, as amended, of the Company relating to the indemnification of
directors of the Company in their capacity as such).
(g) Nothing material has come to the attention of the Selling
Stockholder to cause the Selling Stockholder to believe that the Company's
representations and warranties contained in this Agreement are not accurate in
any material respect.
(h) There is not pending or, to the knowledge of the Selling
Stockholder, threatened against the Selling Stockholder or involving its
properties or activities any material action, inquiry, investigation, suit or
proceeding (and, to the knowledge of the Selling Stockholder, there are no
circumstances that would be expected to give rise to the same) which (i)
questions the validity of this Agreement, the Custody Agreement, the Seller
Lock-Up Agreement or any action taken or to be taken by the Selling Stockholder
in connection herewith or therewith, (ii) has or reasonably would be expected to
materially adversely affect the Company and the Subsidiaries taken as a whole
and which is not disclosed in the Prospectus or (iii) reasonably would be
expected to adversely affect the consummation by the Selling Stockholder of the
transactions contemplated hereby or thereby.
(i) Except as and to the extent disclosed in the Registration
Statement or the Prospectus, the Selling Stockholder does not have any
registration rights, rights of first refusal, co-sale rights, preemptive rights
or other similar rights with respect to any securities of the Company or any of
the Subsidiaries; the Selling Stockholder has waived all of those rights which
it may have with respect to the Securities and the transactions contemplated
hereby; and the Selling Stockholder does not have any warrants, options or
similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company or any of the Subsidiaries, other than those disclosed in the
Registration Statement or the Prospectus.
(j) The Selling Stockholder has not since the initial filing of the
Registration Statement with the Commission (i) sold, bid for, purchased,
attempted to induce any person to purchase or paid anyone any compensation for
soliciting purchases of any securities of the Company or (ii) paid or agreed to
pay to any person any compensation for soliciting another person or entity to
purchase any securities of the Company (in each case, except for the sale of the
Securities to the Underwriters hereunder and except as permitted by federal and
state securities laws).
(k) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the distribution of
the Securities.
(l) Any certificate signed by or on behalf of the Selling Stockholder
and delivered to the Underwriters or Underwriters' Counsel shall be deemed a
representation and warranty by the Selling Stockholder to the Underwriters or
Underwriters' Counsel as to the matters covered thereby.
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<PAGE>
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [92% of the public offering price] per Share and $_______ [92% of the
public offering price] per Purchase Warrant, that number of Firm Securities set
forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representatives in its sole discretion shall make to eliminate
any sales or purchases of fractional shares, plus any additional number of Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of SECTION 12 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Selling Stockholder hereby grants an option to
the Underwriters, severally and not jointly, to purchase all or any part of an
additional 270,000 shares of Common Stock at a price of $ ____ [92% of the
public offering price] per share of Common Stock and the Company hereby grants
an option to the Underwriters, severally and not jointly, to purchase all or any
part of an additional 270,000 Purchase Warrants at a price of $______ [92% of
the public offering price] per Purchase Warrant. The options granted hereby
will expire thirty (30) days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representatives to the
Company and the Selling Stockholder setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for any such Option Securities.
Any such time and date of delivery (an "Option Closing Date") shall be
determined by the Representatives, but shall not be later than three (3) full
business days after the exercise of said option, nor in any event prior to the
Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representatives, the Company and the Selling Stockholder. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No
Option Securities shall be delivered unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of Janney at 26 Broadway, New
York, New York, 10004, or at such other place as shall be agreed upon by the
Representatives and the Company. Such delivery and payment shall be made at
10:00 a.m. (New York City time) on , 1996 or at such other time
and date as shall be agreed upon by the Representatives and the Company, but not
less than three (3) nor more than five (5) full business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being herein called the "Closing Date"). In addition, in the event
that any or all of the Option Securities are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above-mentioned office of the Representatives or
at such
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other place as shall be agreed upon by the Representatives, the Company and the
Selling Stockholder on each Option Closing Date as specified in the notice from
the Representatives to the Company. Delivery of the certificates for the Firm
Securities and the Option Securities, if any, shall be made to the Underwriters
against payment by the Underwriters, severally and not jointly, of the purchase
price for the Firm Securities and the Option Securities, if any, to the order of
the Company for the Firm Securities and the Option Warrants, if any, and to the
order of the Selling Stockholder for the Option Shares by New York Clearing
House funds. In the event such option is exercised, each of the Underwriters,
acting severally and not jointly, shall purchase that proportion of the total
number of Option Securities then being purchased which the number of Firm
Securities set forth in Schedule A hereto opposite the name of such Underwriter
bears to the total number of Firm Securities, subject in each case to such
adjustments as the Representatives in its discretion shall make to eliminate any
sales or purchases of fractional shares. Certificates for the Firm Securities
and the Option Securities, if any, shall be in definitive, fully registered
form, shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least two
(2) business days prior to the Closing Date or the relevant Option Closing Date,
as the case may be. The certificates for the Firm Securities and the Option
Securities, if any, shall be made available to the Representatives at such
office or such other place as the Representatives may designate for inspection,
checking and packaging no later than 9:30 a.m. on the last business day prior to
the Closing Date or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives Representatives' Warrants at a purchase price of $.0001 per
warrant, which Representatives' Warrants shall entitle the holders thereof to
purchase an aggregate of 180,000 shares of Common Stock and 180,000 Purchase
Warrants. The Representatives' Warrants shall be exercisable for a period of
four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling 120% of the initial public offering
price of the Shares and 120% of the initial public offering price of the
Purchase Warrant. The Representatives' Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [___] to the
Registration Statement. Payment for the Representatives' Warrants shall be made
on the Closing Date.
4. PUBLIC OFFERING OF THE SHARES AND PURCHASE WARRANTS. As soon after the
Registration Statement becomes effective as the Representatives deem advisable,
the Underwriters shall make a public offering of the Shares and Purchase
Warrants (other than to residents of or in any jurisdiction in which
qualification of the Shares and Purchase Warrants is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representatives may from time to time increase or decrease the respective
public offering price after distribution of the Shares and Purchase Warrants has
been completed to such extent as the Representatives, in their sole discretion
deems advisable. The Underwriters may enter into one of more agreements as the
Underwriters, in each of their sole discretion, deem advisable with one or more
broker-dealers who shall act as dealers in connection with such public offering.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with each of the Underwriters as follows:
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(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares and Purchase Warrants by
the Underwriters of which the Representatives shall not previously have been
advised and furnished with a copy, or to which the Representatives shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representatives and confirm the notice in writing
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective;
(ii) of the issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceeding suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose; (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose; (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
shall enter a stop order or suspend such qualification at any time, the Company
will make every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifth business day after the effective date of
the Registration Statement.
(d) The Company will give the Representatives notice of its intention to
file or prepare any amendment to the Registration Statement (including any post-
effective amendment) or any amendment or supplement to the Prospectus (including
any revised prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Representatives with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Representatives or
Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel") shall object.
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<PAGE>
(e) The Company shall endeavor in good faith, in cooperation with the
Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representatives may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; PROVIDED,
HOWEVER, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representatives agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Representatives promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
satisfactory to Underwriters' Counsel, and the Company will furnish to the
Underwriters copies of such amendment or supplement as soon as available and in
such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Representatives, an
earnings statement which will be in the detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least twelve (12) consecutive months after the
effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the
Representatives:
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i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity,
and cash flows of the Company for such fiscal year, accompanied by a copy
of the certificate thereon of independent certified public accountants;
iii. as soon as they are available, copies of all reports (financial or
other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company; and
vi. any additional information of a public nature concerning the Company
(and any future subsidiary) or its businesses which the Representatives may
request.
During such seven-year period, if the Company has an active subsidiary, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Purchase Warrants.
(j) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representatives may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representatives with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of nine (9) months from the effective date of the Registration Statement,
each of the Company's directors and officers and certain of its stockholders and
holders of securities exchangeable or exercisable for or convertible into shares
of Common Stock agrees that it or he or she (i) will not, directly or
indirectly, offer to
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sell, sell, grant an option for the sale or purchase of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representatives (collectively, the "Lock-up Agreements") and (ii) waives, during
such 9 month period, any and all rights to request or demand the registration
pursuant to the Act, of any securities of the Company which are registered in
the name of or beneficially owned by it or he or she, respectively. In
addition, such agreements shall provide that each of the directors and officers
of the Company and the Selling Stockholder has agreed that for a period of 24
months from the date of the Prospectus, all sales of shares of Common Stock
owned by them will be effected through Janney. On or before the Closing Date,
the Company shall deliver instructions to the Transfer Agent authorizing it to
place appropriate legends on the certificates representing the securities
subject to the Lock-up Agreements and to place appropriate stop transfer orders
on the Company's ledgers.
(l) None of the Company, the Subsidiaries, nor any of its or their
respective officers, directors, stockholders, nor any of its or their respective
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to SECTIONS 7(m) and 7(n) hereof.
(p) The Company shall cause the Common Stock and Purchase Warrants to be
quoted on Nasdaq and, for a period of seven (7) years from the date hereof, use
its best efforts to maintain the Nasdaq quotation or any listing on a national
exchange of the Common Stock and the Purchase Warrants to the extent
outstanding.
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<PAGE>
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representatives at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock and Purchase Warrants
(ii) the list of holders of all of the Company's securities and (iii) a Blue Sky
"Trading Survey" for secondary sales of the Company's securities prepared by
counsel to the Company.
(r) As soon as practicable, but in no event more than five (5) business
days before the effective date of the Registration Statement, file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Securities.
(s) The Company hereby agrees that it will not, for a period of nine (9)
months from the effective date of the Registration Statement, adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or similar arrangement permitting (i) the grant, issue,
sale or entry into any agreement to grant, issue or sell any option, warrant or
other contract right (x) at an exercise price that is less than the greater of
the public offering price of the Shares set forth herein and the fair market
value on the date of grant or sale or (y) to any of its executive officers or
directors or to any holder of 5% or more of the Common Stock; (ii) the maximum
number of shares of Common Stock or other securities of the Company purchasable
at any time pursuant to options or warrants issued by the Company to exceed the
aggregate 390,000 shares reserved for future issuance under the Company's 1991
Incentive Stock Option Plan and 1996 Outside Directors' Stock Option Plan; (iii)
the payment for such securities with any form of consideration other than cash;
or (iv) the existence of stock appreciation rights, phantom options or similar
arrangements.
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representatives and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representatives' Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 (or other appropriate form) for the registration
under the Act of the Representatives' Securities. The Company further agrees to
use its best efforts to file such post-effective amendments to the Registration
Statement, as may be necessary, in order to maintain its effectiveness and to
keep such Registration Statement effective while any of the Purchase Warrants or
Representatives' Warrants remain outstanding.
(v) For a period of five (5) years from the effective date of the
Registration Statement, the Company hereby agrees to use its best efforts to
nominate for election and elect one (1) person designated by the Representatives
to the Company's Board of Directors (the "Board"), which person shall be
entitled to all fees, payments, expense reimbursements and other rights and
privileges generally accorded to the other members of the Board. In the event
the Representatives elect not to exercise its right to designate one (1) person
for election to the
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<PAGE>
Board, then the Representatives shall have the right to designate one (1) person
to attend all meetings of the Board. The Company shall send to such person all
notices and other correspondence and communications sent by the Company to
members of the Board. Such designee of the Representatives shall be reimbursed
for all out-of-pocket expenses incurred in connection with his attendance of
meetings of the Board.
(w) The Company hereby agrees that it will hire a chief financial
officer shortly after consummation of the offering.
6. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date (to the extent not paid at the Closing Date) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement, the Warrant Agreement and the Representatives' Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Warrant Agreement, the
Representatives' Warrant Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreements, and related documents, including the cost of all
copies thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriters and such
dealers as the Underwriters may request, in quantities as hereinabove stated,
(iii) the printing, engraving, issuance and delivery of the Securities
including, but not limited to, (x) the purchase by the Underwriters of the Firm
Securities and the Option Securities and the purchase by the Representatives of
the Representatives' Warrants from the Company, (y) the consummation by the
Company of any of its obligations under this Agreement, the Warrant Agreement
and the Representatives' Warrant Agreement, and (z) resale of the Firm
Securities and the Option Securities by the Underwriters in connection with the
distribution contemplated hereby, (iv) the qualification of the Securities under
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show", information meetings and presentations, bound volumes and prospectus
memorabilia and "tomb-stone" advertisement expenses, (vi) fees and expenses of
the Transfer Agent and registrar and all issue and transfer taxes, if any,
(vii) the fees payable to the Commission and the NASD, and (viii) the fees and
expenses incurred in connection with the quotation of the Securities on Nasdaq
and any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of SECTION 7 or SECTION 13, the Company shall reimburse and
indemnify the
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Underwriters for all of their actual out-of-pocket expenses, including the fees
and disbursements of Underwriters' Counsel, less any amounts already paid
pursuant to SECTION 6(c) hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this SECTION 6, it will pay to the Representatives
on the Closing Date by certified or bank cashier's check or, at the election of
the Representatives, by deduction from the proceeds of the offering contemplated
herein a non-accountable expense allowance equal to one and one-half percent (1
1/2%) of the gross proceeds received by the Company from the sale of the Firm
Securities, $50,000 of which has been paid to date. In the event the
Representatives elects to exercise the over-allotment option described in
SECTION 3(b) hereof, the Company agrees to pay to the Representatives on the
Option Closing Date (by certified or bank cashier's check or, at the
Representatives' election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to one and one-half percent (1 1/2%) of
the gross proceeds received by the Company and the Selling Stockholder from the
sale of the Option Securities.
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholder herein
as of the date hereof and as of the Closing Date and each Option Closing Date,
if any, as if they had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company and
the Selling Stockholder on and as of the Closing Date and each Option Closing
Date, if any, of its covenants and obligations hereunder and to the following
further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 P.M., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representatives, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and Purchase
Warrants and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue
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<PAGE>
statement of fact which, in the Representatives' opinion, is material, or omits
to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representatives shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representatives may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Olshan Grundman Frome & Rosenzweig LLP, counsel to the
Company and the Subsidiaries, dated the Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel, to
the effect that:
i. each of the Company and the Subsidiaries (A) has been duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of organization, (B) is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all requisite
corporate power and authority to own or lease its properties and conduct
its business as described in the Prospectus.
ii. The Company owns, directly or indirectly, one hundred percent (100%)
of the outstanding capital stock of each of the Subsidiaries, and, to the
best knowledge of such counsel, all such shares have been validly issued,
are fully paid and non-assessable, were not issued in violation of any
preemptive rights and are owned free and clear of any liens, charges,
claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever;
iii. except as described in the Prospectus, to the best knowledge of
such counsel, none of the Company nor the Subsidiaries owns an interest in
any other corporation, partnership, joint venture, trust or other business
entity;
iv. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and, to the best knowledge of
such counsel, the Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue, sell, transfer,
purchase or redeem any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Warrant Agreement and the
Representatives' Warrant Agreement and as described in the Prospectus. The
Warrants and all other securities issued or issuable by the Company conform
in all material respects to all statements with respect thereto contained
in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly
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authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are
not subject to personal liability by reason of being such holders; and, to
the best knowledge of such counsel, none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company or any similar rights granted by the Company. The Securities to be
sold by the Company hereunder and under the Warrant Agreement and the
Representatives' Warrant Agreement, to the best knowledge of such counsel,
are not and will not be subject to any preemptive or other similar rights
of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued,
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken
for the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities are in due
and proper form. The Representatives' Warrants and the Purchase Warrants
constitute valid and binding obligations of the Company to issue and sell,
upon exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the issuance and
delivery pursuant to this Agreement of the Firm Securities and the Option
Warrants and the Representatives' Warrants to be sold by the Company, the
Underwriters and the Representatives, respectively, will acquire good and
marketable title to the Firm Securities and the Option Warrants and the
Representatives' Warrants free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever. No transfer tax is payable by or on behalf
of the Underwriters in connection with (A) the issuance by the Company of
the Securities, (B) the purchase by the Underwriters of the Firm Securities
and the Option Warrants from the Company, and the purchase by the
Representatives of the Representatives' Warrants from the Company (C) the
consummation by the Company of any of its obligations under this Agreement,
the Warrant Agreement or the Representatives' Warrant Agreement, or (D)
resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
v. the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or Prospectus or any
part of any thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's knowledge,
threatened or contemplated under the Act;
vi. each of the Preliminary Prospectus, the Registration Statement, and
the Prospectus and any amendments or supplements thereto (other than the
financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations.
vii. to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and
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the Prospectus and filed as exhibits to the Registration Statement other
than those described in the Registration Statement and the Prospectus and
filed as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and other documents to which
the Company or any Subsidiary is a party or by which it is bound, including
any document to which the Company or any Subsidiary is a party or by which
it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2; (C) to
the best knowledge of such counsel, there is not pending or threatened
against any of the Company or the Subsidiaries any action, arbitration,
suit, proceeding, inquiry, investigation, litigation, governmental or other
proceeding (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of any of the Company or the
Subsidiaries which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized
in the Registration Statement are accurately summarized in all respects),
(y) questions the validity of the capital stock of the Company or this
Agreement, the Warrant Agreement, the Acquisition Agreement, the Escrow
Agreement or the Representatives' Warrant Agreement, or of any action taken
or to be taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental proceeding
required to be described in the Prospectus is not described as required,
except for those statutes or regulations pertaining to tax exempt not-for-
profit organizations and healthcare regulation; and (E) there is no action,
suit or proceeding pending, or threatened, against or affecting any of the
Company or the Subsidiaries before any court or arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel) in
which there is a reasonable possibility of a decision which may result in a
material adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of any of the Company or the
Subsidiaries, which could adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement, the
Warrant Agreement, the Acquisition Agreement, the Escrow Agreement or the
Representatives' Warrant Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the Warrant
Agreement, the Acquisition Agreement, the Escrow Agreement or the
Representatives' Warrant Agreement;
viii. the Company has full legal right, power and authority to enter
into each of this Agreement, the Warrant Agreement, the Acquisition
Agreement, the Escrow Agreement and the Representatives' Warrant Agreement,
and to consummate the transactions provided for therein; and each of this
Agreement, the Warrant Agreement, the Acquisition Agreement, the Escrow
Agreement and the Representatives' Warrant Agreement has been duly
authorized, executed and delivered by the Company. Each of this Agreement,
the Warrant Agreement, the Acquisition Agreement, the Escrow Agreement and
the Representatives' Warrant Agreement, assuming due authorization,
execution and delivery by each other party thereto constitutes a legal,
valid and binding agreement of the
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Company enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable
law), and none of the Company's execution or delivery of this Agreement,
the Warrant Agreement, the Acquisition Agreement, the Escrow Agreement and
the Representatives' Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of any of the Company or the Subsidiaries
pursuant to the terms of, (A) the certificate of incorporation or by-laws
of any of the Company or the Subsidiaries, (B) any license, contract,
collective bargaining agreement, indenture, mortgage, deed of trust, lease,
voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which any of the Company
or the Subsidiaries is a party or by which it is or they are or may be
bound or to which any of its or their respective properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable to
any of the Company or the Subsidiaries of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having jurisdiction
over any of the Company or the Subsidiaries or any of its or their
respective activities or properties, except for any matters relating to tax
exempt not-for-profit organizations and healthcare regulation.
ix. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the Firm
Securities and the Option Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Representatives' Warrants, the
performance of this Agreement, the Warrant Agreement, the Acquisition
Agreement, the Escrow Agreement and the Representatives' Warrant Agreement,
and the transactions contemplated hereby and thereby;
x. to the best knowledge of such counsel, each of the Company and the
Subsidiaries has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property stated in the
Prospectus to be owned or leased by it, in each case free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and payable;
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<PAGE>
xi. to the best knowledge of such counsel, none of the Company nor the
Subsidiaries is in breach of, or in default under, any term or provision of
any license, contract, collective bargaining agreement, indenture,
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan or
credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which any of the Company or the Subsidiaries is a party or by which any of
the Company or the Subsidiaries may be bound or to which the respective
properties or assets (tangible or intangible) of any of the Company or the
Subsidiaries is subject or affected; and none of the Company nor the
Subsidiaries is in violation of any term or provision of its Articles of
Incorporation or By-Laws or, to the best knowledge of such counsel, in
violation of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation;
xii. the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "DESCRIPTION OF MORTGAGE LOANS,"
"PRINCIPAL AND SELLING STOCKHOLDERS," "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," "DESCRIPTION OF NOTES" and
"SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in all
material respects, except for any matters relating to tax exempt not-for-
profit organizations and healthcare regulation;
xiii. the Securities have been accepted for quotation on Nasdaq,
subject to issuance;
xiv. the persons listed under the caption "PRINCIPAL AND SELLING
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners" (as
such phrase is defined in regulation 13d-3 under the Exchange Act) of the
securities set forth opposite their respective names thereunder as and to
the extent set forth therein;
xv. to the best knowledge of such counsel, none of the Company, the
Subsidiaries nor any of their respective officers, stockholders, employees
or agents, nor any other person acting on behalf of any of the Company or
the Subsidiaries has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or hinder
the business of any of the Company or the Subsidiaries (or assist it in
connection with any actual or proposed transaction) which might subject any
of the Company or the Subsidiaries to any damage or penalty in any civil,
criminal or governmental litigation or proceeding;
xvi. to the best knowledge of such counsel, no person, corporation,
trust, partnership, association or other entity has the right to include
and/or register any securities of the
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Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
xvii. except as described in the Prospectus, to the best knowledge of
such counsel, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee
with respect to the sale of the Securities hereunder or financial
consulting arrangements or any other arrangements, agreements,
understandings, payments or issuances that may affect the Underwriters'
compensation, as determined by the NASD;
xviii. assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable
law);
xix. except as described in the Prospectus, to the best knowledge of
such counsel, none of the Company nor the Subsidiaries (A) maintains,
sponsors or contributes to any ERISA Plans, (B) maintains or contributes,
now or at any time previously, to a defined benefit plan, as defined in
Section 3(35) of ERISA, and (C) has ever completely or partially withdrawn
from a "multiemployer plan";
xx. except as set forth in the Prospectus and to the best knowledge of
such counsel, no officer, director or stockholder of any of the Company or
the Subsidiaries, or any "affiliate" or "associate" (as these terms are
defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or
indirectly, (A) an interest in any person or entity which (x) furnishes or
sells services or products which are furnished or sold or are proposed to
be furnished or sold by any of the Company or the Subsidiaries, or (y)
purchases from or sells or furnishes to any of the Company or the
Subsidiaries any goods or services, or (B) a beneficial interest in any
contract or agreement to which any of the Company or the Subsidiaries is a
party or by which it or they may be bound or affected. Except as set forth
in the Prospectus under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,"
and, to the best knowledge of such counsel, there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among
any of the Company or the Subsidiaries, and any officer, director, or 5% or
greater securityholder of any of the Company or the Subsidiaries, or any
affiliate or associate of any such person or entity;
xxi. none of the Company, the Subsidiaries or any of their respective
affiliates shall be subject to the requirements of or shall be deemed an
"Investment Company," pursuant to and as defined under, respectively, the
Investment Company Act.
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Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and the Subsidiaries, and
representatives of the independent public accountants for the Company and the
Subsidiaries, at which conferences such counsel made inquiries of such officers,
representatives and accountants and discussed the contents of the Preliminary
Prospectus, the Registration Statement, the Prospectus, and related matters and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of each of the Company and the
Subsidiaries and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of each of the Company and the
Subsidiaries, provided that copies of any such statements or certificates shall
be delivered to Underwriters' Counsel if requested. The opinion of such counsel
for the Company and the Subsidiaries shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representatives, Underwriters' Counsel and they are each justified in relying
thereon. Any opinion of counsel for the Company and the Subsidiaries shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state accord.
(e) At the Closing Date, the Underwriters shall have received the
favorable opinion of Epstein Becker & Green, special counsel to the Company and
the Subsidiaries, dated the Closing Date, addressed to the Underwriters, in form
and substance satisfactory to Underwriters' Counsel, and in substantially the
form of Schedule C attached hereto.
(f) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinions of each of Olshan Grundman Frome & Rosenzweig
LLP, counsel to the Company and the Subsidiaries, and Epstein Becker & Green,
special counsel to the Company and the Subsidiaries, dated such Option Closing
Date, addressed to the Underwriters and in form
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and substance satisfactory to Underwriters' Counsel confirming as of such Option
Closing Date the statements made by each of Olshan Grundman Frome & Rosenzweig
LLP, and Epstein Becker & Green, in their respective opinions delivered on the
Closing Date.
(g) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Olshan Grundman Frome & Rosenzweig LLP,
counsel to the Selling Stockholder, dated the Option Closing Date, addressed to
the Underwriters and in form and substance satisfactory to Underwriters'
Counsel, to the effect that:
i. The Selling Stockholder has full right, power and authority to
enter into this Agreement and to sell, transfer and deliver in the manner
provided herein the Option Shares sold by the Selling Stockholder; this
Agreement has been duly executed and delivered by the Selling Stockholder;
and this Agreement, assuming due authorization, execution and delivery by
each other party hereto and further assuming it is a valid and binding
agreement of each of the Underwriters, is a valid and binding agreement of
the Selling Stockholder, enforceable in accordance with its terms (except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws now or hereafter in effect relating to or
affecting creditors' rights generally and by general principles of equity
relating to the availability of remedies and except as rights to indemnity
and contribution may be limited by federal or state securities laws and the
public policy underlying such laws);
ii. None of the execution, delivery or performance of this Agreement
and the Custody Agreement by the Selling Stockholder and the consummation
by the Selling Stockholder of the transactions herein and therein
contemplated, conflict with or will conflict with or results or will result
in a breach of or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation
or imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or restriction or equity of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Selling Stockholder
pursuant to the terms of (A) the Certificate of Incorporation or by-laws of
the Selling Stockholder, (B) to the best knowledge of such counsel, any
license, contract, collective bargaining agreement, indenture, mortgage,
deed of trust, lease, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Selling Stockholder is a party or by which it is or may be bound or to
which any of its assets (tangible or intangible) or properties is or may be
subject or any indebtedness, or (C) to the best knowledge of such counsel,
any statute, judgment, decree, order, rule or regulation applicable to the
Selling Stockholder of any arbitrator, court, regulatory body or
administrative agency or body, domestic or foreign, having jurisdiction
over the Selling Stockholder or any of its activities or properties;
iii. A Custody Agreement has been duly executed and delivered by the
Selling Stockholder and, assuming the due authorization, execution and
delivery of the Custody Agreement by the other parties thereto, constitutes
the valid and binding agreement of the Selling Stockholder enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
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similar laws relating to or affecting creditors' rights generally or by
general principles of equity relating to the availability of remedies and
except as rights to indemnity or contribution may be limited by federal or
state securities laws and the public policy underlying such laws; and
(iv) Upon the delivery of the Option Shares to be sold hereunder by
the Selling Stockholder and payment therefor in accordance with the terms
of this Agreement and assuming that each of the Underwriters which has
severally purchased such Option Shares acquires such Option Shares without
notice of any adverse claim (within the meaning of the Uniform Commercial
Code), such Underwriter will have acquired all of the rights of the Selling
Stockholder to the Option Shares sold by the Selling Stockholder hereunder,
and in addition will have acquired title to the Option Shares free and
clear of any adverse claim.
(h) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this SECTION 7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(i) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' equity or the
business activities of the Company and the Subsidiaries, taken as a whole,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by any of the Company or the Subsidiaries, from the
latest date as of which the financial condition of the Company and the
Subsidiaries is set forth in the Registration Statement and Prospectus which is
adverse to the Company and the Subsidiaries taken as a whole; (iii) none of the
Company nor the Subsidiaries shall be in default under any provision of any
instrument relating to any outstanding indebtedness; (iv) none of the Company
nor the Subsidiaries shall have issued any securities (other than the
Securities) or declared or paid any dividend or made any distribution in respect
of its capital stock of any class and there has not been any change in the
capital stock or any material change in the debt (long or short term) or
liabilities or obligations of any of the Company or the Subsidiaries (contingent
or otherwise); (v) no material amount of the assets of any of the Company or the
Subsidiaries shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against any of the Company or the Subsidiaries, or affecting any
of its or their respective properties or businesses before or by any court or
federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may adversely affect the
business, operations, earnings, position, value, properties, results of
operations, prospects or financial condition or income of the Company and the
Subsidiaries taken as a whole; and (vii)
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no stop order shall have been issued under the Act and no proceedings therefor
shall have been initiated, threatened or contemplated by the Commission.
(j) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
1. The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with
all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such
Closing Date or Option Closing Date, as the case may be;
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of
such person's knowledge, are contemplated or threatened under the Act;
iii. The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and neither the Preliminary Prospectus or any supplement
thereto included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) none of the
Company nor the Subsidiaries has incurred up to and including the Closing
Date or the Option Closing Date, as the case may be, other than in the
ordinary course of its business, any material liabilities or obligations,
direct or contingent; (b) none of the Company nor the Subsidiaries has paid
or declared any dividends or other distributions on its capital stock; (c)
none of the Company nor the Subsidiaries has entered into any transactions
not in the ordinary course of business; (d) there has not been any change
in the capital stock or long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term borrowings in the
ordinary course of business) of any of the Company or the Subsidiaries; (e)
none of the Company nor the Subsidiaries has sustained any loss or damage
to its or their respective properties or assets, whether or not insured;
(f) there is no litigation which is pending or threatened (or circumstances
giving rise to same) against any of the Company or the Subsidiaries or any
affiliated party of any of the foregoing which is required to be set forth
in an amended or supplemented Prospectus which has not been set
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forth; and (g) there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
(k) At each Option Closing Date, if any, the Representatives shall
have received a certificate of the Selling Stockholder dated as of such date, to
the effect that (i) the representations and warranties of the Selling
Stockholder contained herein are true and correct in all material respects as if
made on and as of the Option Closing Date, if any, and (ii) the Selling
Stockholder has complied in all material respects with all covenants and
agreements and satisfied in all material respects all conditions on its part to
be performed or satisfied under the Agreement or the Custody Agreement relating
to the Selling Stockholder on or before the Option Closing Date, if any. For
purposes of each such certificate, references to the Registration Statement and
the Prospectus in such representations, warranties, covenants and agreements
shall mean the Registration Statement and Prospectus as amended or supplemented
to the date of such certificate.
(l) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(m) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Grant Thornton LLP:
i. confirming that they are independent certified public accountants
with respect to the Company and the Subsidiaries within the meaning of the
Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the consolidated financial
statements and supporting schedules of the Company and the Subsidiaries
included in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Representatives may rely upon
the opinion of Grant Thornton LLP with respect to the consolidated
financial statements and supporting schedules included in the Registration
Statement;
iii. stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of
each of the Company and the Subsidiaries, a reading of the latest available
minutes of the stockholders and board of directors and the various
committees of the boards of directors of each of the Company and the
Subsidiaries, consultations with officers and other employees of each of
the Company and the Subsidiaries responsible for financial and accounting
matters and other
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specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the pro forma financial
information contained in the Registration Statement and Prospectus does not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or is not fairly
presented in conformity with generally accepted accounting principles
applied on a basis consistent with that of the audited consolidated
financial statements of the Company or the unaudited pro forma financial
information included in the Registration Statement, (B) the unaudited
consolidated financial statements and supporting schedules of the Company
and the Subsidiaries included in the Registration Statement do not comply
as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements of the Company and the Subsidiaries
included in the Registration Statement, or (C) at a specified date not more
than five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or long-term debt
of any of the Company or the Subsidiaries, or any decrease in the
stockholders' equity or net current assets or net assets of any of the
Company or the Subsidiaries as compared with amounts shown in the June 30,
1996 balance sheet included in the Registration Statement, other than as
set forth in or contemplated by the Registration Statement, or, if there
was any change or decrease, setting forth the amount of such change or
decrease, and (D) during the period from July 1, 1996 to a specified date
not more than five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net earnings or increase
in net earnings per common share of any of the Company or the Subsidiaries,
in each case as compared with the corresponding period beginning July 1,
1995, other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of
such decrease;
iv. setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);
v. stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company and the Subsidiaries set
forth in the Prospectus in each case to the extent that such amounts,
numbers, percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and the
Subsidiaries and excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do
not constitute an examination in accordance with generally accepted
auditing standards) set forth in the letter and found them to be in
agreement;
vi. statements as to such other matters incident to the transaction
contemplated hereby as the Representatives may request.
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(n) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Grant Thornton LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
SUBSECTION (m) of this SECTION, except that the specified date referred to shall
be a date not more than five (5) days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of SUBSECTION (m) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representatives and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(o) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Securities.
(p) No order suspending the sale of the Securities in any jurisdiction
designated by the Representatives pursuant to SUBSECTION (e) of SECTION 5 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(q) On or before the Closing Date, the Company shall have executed and
delivered to the Representatives, (i) the Representatives' Warrant Agreement
substantially in the form filed as Exhibit [___] to the Registration Statement,
in final form and substance satisfactory to the Representatives, and (ii) the
Representatives' Warrants in such denominations and to such designees as shall
have been provided to the Company.
(r) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Nasdaq, subject to
official notice of issuance.
(s) On or before the Closing Date, there shall have been delivered to
the Representatives all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(t) On or before the Closing Date, the Company shall have executed and
delivered to the Representatives and the Transfer Agent the Warrant Agreement
substantially in the form filed as Exhibit [___] to the Registration Statement,
in final form and substance satisfactory to the Representatives.
(u) On or before the Closing Date, the Company shall have at least
$12,500,000 in escrow from the sale of $12,500,000 aggregate principal amount of
its convertible senior secured notes.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the
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Representatives may terminate this Agreement or, if the Representatives so
elects, it may waive any such conditions which have not been fulfilled or extend
the time for their fulfillment.
INDEMNIFICATION.
(a) Each of the Company and the Selling Stockholder agrees to
indemnify and hold harmless each of the Underwriters (for purposes of this
SECTION 8 "Underwriter" shall include the officers, directors, partners,
employees, agents and counsel of the Underwriter, including specifically each
person who may be substituted for an Underwriter as provided in SECTION 12
hereof), and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions, proceedings, investigations,
inquiries, suits and litigation in respect thereof), whatsoever (including but
not limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such claim, action,
proceeding, investigation, inquiry, suit or litigation, commenced or threatened,
or any claim whatsoever), as such are incurred, to which the Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon (A) any untrue statement or alleged
untrue statement of a material fact contained (i) in any Preliminary Prospectus,
the Registration Statement or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included securities of the
Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this SECTION 8
collectively called "application") executed by the Company or based upon written
information furnished by the Company or the Selling Stockholder in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange; (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company or the Selling
Stockholder contained herein or in any certificate by or on behalf of the
Company, any Subsidiary or the Selling Stockholder or any of their respective
officers delivered pursuant hereto, unless, in the case of clause (A) or (B)
above, such statement or omission was made in reliance upon and in strict
conformity with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be.
The foregoing indemnity with respect to any untrue statement contained in
or omission from a Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) from whom the person
asserting any such loss, liability, claim, damage or expense purchased any of
the securities which are the subject thereof if (1) the Company and/or the
Selling Stockholder sustains the burden of proving that such asserting person
did not receive a copy of the Prospectus (or the Prospectus as amended or
supplemented)
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(in each case exclusive of the documents from which information is incorporated
by reference) at or prior to the written confirmation of the sale of such
securities to such person and the untrue statement contained in or omitted from
such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus
as amended or supplemented) and (2) the Company shall have complied with its
covenant pursuant to Section 5(f) of this Agreement.
The indemnity agreement in this SUBSECTION (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, the Selling Stockholder and
each other person, if any, who controls the Company within the meaning of the
Act, to the same extent as the foregoing indemnity from the Company and the
Selling Stockholder to the Underwriters but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any Underwriter by such
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus directly relating to the transactions effected by the Underwriters
in connection with this Offering. The Company acknowledges that the statements
with respect to the public offering of the Firm Securities and the Option
Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this SECTION
8 of notice of the commencement of any claim, action, suit, investigation,
inquiry, proceeding or litigation, such indemnified party shall, if a claim in
respect thereof is to be made against one or more indemnifying parties under
this SECTION 8, notify each party against whom indemnification is to be sought
in writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this SECTION 8 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have
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<PAGE>
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense thereof within a reasonable time after notice of
commencement thereof, or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense thereof on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this SECTION 8 to the contrary notwithstanding,
an indemnifying party shall not be liable for any settlement of any claim,
action, suit, investigation, inquiry, proceeding or litigation effected without
its written consent; PROVIDED, HOWEVER, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this SECTION 8, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 8 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company or the Selling Stockholder is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company or the Selling Stockholder on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Firm Securities and the Option
Securities (before deducting expenses) bear to the total underwriting
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<PAGE>
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the Cover Page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, by a Selling
Stockholder or by the Underwriters, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to above in this SUBSECTION (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this SUBSECTION (d), the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Firm Securities and the Option Securities purchased by the
Underwriters hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 117(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this SECTION 8, each person, if any, who
controls the Company or the Underwriter within the meaning of the Act, each
officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
SUBSECTION (d). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another party
or parties under this SUBSECTION (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
SUBSECTION (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the Selling Stockholder and the
indemnity agreements contained in SECTION 8 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter, the Company, the Selling Stockholder, any controlling person of
any Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the Securities to the Underwriters and the
Representatives, as the case may be.
10. EFFECTIVE DATE. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representatives, in its discretion, shall release the Securities for sale to the
public; PROVIDED, HOWEVER, that the provisions of SECTIONS 6, 8 and 11 of this
Agreement shall at all times be effective. For purposes of this SECTION 10, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representatives of telegrams to securities
dealers releasing such securities for
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<PAGE>
offering or the release by the Representatives for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
11. TERMINATION.
(a) Subject to SUBSECTION (b) of this SECTION 11, the Representatives
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has materially adversely disrupted, or
in the Representatives' opinion will in the immediate future materially
adversely disrupt, the financial markets; or (ii) if any material adverse change
in the financial markets shall have occurred; or (iii) if trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the NASD, the
Boston Stock Exchange, the Commission or any governmental authority having
jurisdiction over such matters; or (iv) if trading of any of the securities of
the Company shall have been suspended, or any of the securities of the Company
shall have been delisted, on any exchange or in any over-the-counter market; (v)
if the United States shall have become involved in a war or major hostilities,
or if there shall have been an escalation in an existing war or major
hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representatives' opinion, make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, that, in each case, in the Representatives' judgment, would make it
inadvisable to proceed with the offering, sale and/or delivery of the Securities
or (x) if any of Carl G. Paffendorf or Larry L. Laird shall no longer serve the
Company in their present capacity.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of SECTION 11(a) the Company shall promptly
reimburse and indemnify the Representatives for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to SECTION 6(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted to the Representatives, by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement by
it to be performed or satisfied (including, without limitation, pursuant to
SECTION 7 or SECTION 13) then, the Company shall promptly reimburse and
indemnify the Representatives for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to SECTION 6(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to SECTIONS 7, 11, 12 and 13 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
SECTION 6 and SECTION 8 shall not be in any way affected
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<PAGE>
by such election or termination or failure to carry out the terms of this
Agreement or any part hereof.
12. SUBSTITUTION OF THE UNDERWRITERS. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of SECTION 7, SECTION 11 or SECTION 13
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the non-
defaulting Underwriters shall be obligated to purchase the full amount thereof
in the proportions that their respective underwriting obligations hereunder bear
to the underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriters (or, if such default shall
occur with respect to any Option Securities to be purchased on an Option
Closing Date, the Underwriters may at the Representatives' option, by
notice from the Representatives to the Company, terminate the Underwriters'
obligation to purchase Option Securities from the Company on such date).
No action taken pursuant to this SECTION 12 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representatives shall have the right to postpone the Closing
Date for a period not exceeding seven (7) days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
13. DEFAULT BY THE COMPANY AND/OR THE SELLING STOCKHOLDER. If the Company
shall fail at the Closing Date or at any Option Closing Date, as applicable, to
sell and deliver the number of Securities which it is obligated to sell
hereunder on such date, then this Agreement shall terminate (or, if such default
shall occur with respect to any Option Warrants to be purchased on an Option
Closing Date, the Underwriters may at the Representatives' option, by notice
from the Representatives to the Company, terminate the Underwriters' obligation
to purchase Option Warrants from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to SECTION 6,
SECTION 8 and SECTION 11 hereof. If the Selling Stockholder shall fail at any
Option Closing Date, if any, to sell and deliver the number of Option Shares
which it is obligated to sell hereunder on such date, the Underwriters may at
the Representatives' option, terminate the Underwriters' obligation to purchase
Option Shares from
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<PAGE>
the Selling Stockholder on such date. No action taken pursuant to this SECTION
13 shall relieve the Company from liability, if any, in respect of such default.
14. NOTICES. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives c/o Janney Montgomery Scott Inc., 26 Broadway, New York, New
York, 10004, Attention: Herbert M. Gardner, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq. Notices to the Company shall be directed to the Company at 4
Cedar Swamp Road, Glen Cove, New York 11542, Attention: Carl G. Paffendorf,
Chief Executive Officer, with a copy to Olshan Grundman Frome & Rosenzweig LLP,
505 Park Avenue, New York, New York 10022, Attention: Robert H. Friedman, Esq.
15. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company, the Selling Stockholder
and the controlling persons, directors and officers referred to in SECTION 8
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
16. CONSTRUCTION. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
18. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Warrant Agreement
and the Representatives' Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representatives
and the Company.
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<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters, the Company and the Selling Stockholder, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
UNITED VANGUARD HOMES, INC.
By:____________________________________
Carl G. Paffendorf
Chairman and Chief Executive Officer
Selling Stockholder:
VANGUARD VENTURES, INC.
By:____________________________________
Carl G. Paffendorf
Chairman and President
Confirmed and accepted as of
the date first above written.
JANNEY MONTGOMERY SCOTT INC.
RODMAN & RENSHAW, INC.
By: JANNEY MONTGOMERY SCOTT INC.
Acting on its own behalf and as the
Representatives of the several
Underwriters named in Schedule A hereto.
By:____________________________________
<PAGE>
SCHEDULE A
Number of Firm
Securities
Name of Underwriters to be Purchased
- -------------------- ---------------
Janney Montgomery Scott Inc. . . . . . . . . . . . . . . .
Rodman & Renshaw, Inc. . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000
---------------
---------------
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
UNITED VANGUARD HOMES, INC.
--------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation Law
of the State of Delaware
--------------------------
The undersigned, Chairman of the Board and Secretary, respectively of
United Vanguard Homes, Inc., a corporation existing under the laws of the State
of Delaware, do hereby certify as follows:
1. Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended in its entirety to be and read as follows:
FOURTH: The total number of shares of all classes of
capital stock which the Corporation shall have authority
to issue is 15,000,000, of which 1,000,000 shares shall
be Preferred Stock of the par value of $.001 per share
and 14,000,000 shall be Common Stock of the par value of
$.01 per share.
A. Preferred Stock. The Board of Directors is
expressly authorized to provide for the issuance of all
or any shares of the Preferred Stock, in one or more
series, and to fix for each such series such voting
powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating,
optional or other special rights and such
qualifications, limitations or restrictions thereof as
shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing
for the issue of such series (a "Preferred Stock
Designation") and as may be permitted by the General
Corporation Law of the State of Delaware. The number of
authorized shares of Preferred Stock may be increased
(but not above the number of authorized shares of the
class) or decreased (but not below the number of shares
thereof then outstanding). Without limiting the
generality of the foregoing, the resolutions providing
for issuance of any series of Preferred Stock may
<PAGE>
provide that such series shall be superior or rank
equally or junior to the Preferred Stock of any other
series to the extent permitted by law. No vote of the
holders of the Preferred Stock or Common Stock shall be
required in connection with the designation or the
issuance of any shares of any series of any preferred
stock authorized by and complying with the conditions
herein, the right to have such vote being expressly
waived by all present and future holders of the capital
stock of the Corporation.
B. Common Stock.
Section 1. VOTING. Except as otherwise required by
law or as otherwise provided in any Preferred Stock
Designation, the holders of the Common Stock shall
exclusively possess all voting power, and each share of
Common Stock shall have one vote.
Section 2. DIVIDENDS. The holders of Common Stock
shall be entitled to receive dividends, when, as and if
declared by the Board of Directors out of funds legally
available for such purpose and subject to any
preferential dividend rights of any then outstanding
Preferred Stock.
Section 3. LIQUIDATION, DISSOLUTION, WINDING UP.
After distribution in full of the preferential amount,
if any (fixed in accordance with the provisions of
paragraph A of this Article FOURTH), to be distributed
to the holders of Preferred Stock in the event of
voluntary or involuntary liquidation, distribution or
sale of assets, dissolution or winding-up of the
Corporation, the holders of the Common Stock shall be
entitled to receive all the remaining assets of the
Corporation, tangible and intangible, of whatever kind
available for distribution to stockholders ratably in
proportion to the number of shares of Common Stock held
by them respectively.
2. The aforesaid amendment to the Corporation's Certificate of
Incorporation has been duly adopted in accordance with the provisions of the
General Corporation Law of the State of Delaware by the unanimous written
consent of the Board of Directors; and written consent thereto of a majority of
the Corporation's stockholders entitled to vote thereon with prompt notice
thereof given to those stockholders who have not consented in writing has been
given in accordance with the provisions of Section 228 of the Delaware General
Corporation Law.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned execute this certificate and
affirm, under penalties of perjury, that the statements made herein are true,
this 30th day of August 1996.
UNITED VANGUARD HOMES, INC.
By:/s/ Carl G. Paffendorf
----------------------------
Carl G. Paffendorf, Chairman
ATTEST:
/s/ Craig M. Shields
- -------------------------------------
Craig M. Shields, Assistant Secretary
3
<PAGE>
BYLAWS
OF
UNITED VANGUARD HOMES, INC.
(A DELAWARE CORPORATION)
------------------------------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated
<PAGE>
shares, the corporation shall send to the registered owner thereof any written
notice prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the
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<PAGE>
record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors, the record date for determining the
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual
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<PAGE>
meeting shall be held on a date within thirteen months after the date of the
preceding annual meeting. A special meeting shall be held on the date and at the
time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place
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<PAGE>
within the city or other municipality or community where the meeting is to be
held, which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. 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 stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them.
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<PAGE>
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, 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 and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of one person. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. Directors shall be elected at each annual meeting
of the stockholders, or, if no such election shall be held, at a meeting called
and held in accordance with the statutes of the State of Delaware. Each director
shall be elected to hold office until the
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<PAGE>
expiration of the term for which he is elected, and thereafter until a successor
shall be elected and shall qualify. The directors shall be divided, with respect
to the terms for which they severally hold office, into three classes, hereby
designated as Class I, Class II and Class III. Each class shall be as nearly
equal in number as possible. Concurrent with the adoption of this Section 3,
Benjamin Frank and Francis S. Gabreski shall be designated as the Class I
directors, James E. Eden, Robert S. Hoshino, Jr. and Stanford J. Shuster shall
be designated as the Class II directors and Carl G. Paffendorf and Larry L.
Laird shall be designated as the Class III directors. The initial terms of
office of the Class I, Class II and Class III directors named herein shall
expire at the next succeeding annual meeting of stockholders, the second
succeeding annual meeting of stockholders and the third succeeding annual
meeting of stockholders, respectively. At each annual meeting of stockholders,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in the third year following the year of their election.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is
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<PAGE>
present, may adjourn a meeting to another time and place. Except as herein
otherwise provided, and except as otherwise provided by the General Corporation
Law, the vote of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. The quorum and voting
provisions herein stated shall not be construed as conflicting with any
provisions of the General Corporation Law and these Bylaws which govern a
meeting of directors held to fill vacancies and newly created directorships in
the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
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<PAGE>
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
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<PAGE>
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the Certificate of Incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders, provided, however, that only stockholders may amend,
alter or repeal Section 3 of Article II.
I HEREBY CERTIFY that the foregoing is a full, true, and correct-copy
of the Bylaws of United Vanguard Homes, Inc., a Delaware corporation, as in
effect on the date hereof.
Dated:
---------------------------------
Secretary of
(SEAL)
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<PAGE>
DRAFT
9/13/96
[Form of Warrant Agreement Subject to Additional Review]
================================================================================
UNITED VANGUARD HOMES, INC.
AND
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
-------------------
WARRANT AGREEMENT
DATED AS OF ___________ __, 1996
================================================================================
<PAGE>
AGREEMENT, dated this ____ day of __________, 1996, by and among UNITED
VANGUARD HOMES, INC., Delaware corporation (the "Company"), and CONTINENTAL
STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of up to
1,800,000 shares of Common Stock (as defined in Section 1) and 1,800,000 common
stock purchase warrants (the "Warrants"), each warrant entitling the holder
thereof to purchase one additional share of Common Stock, (ii) the
over-allotment option to purchase up to an additional 270,000 shares of Common
Stock and/or 270,000 Warrants (the "Over-allotment Option"), and (iii) the sale
to Janney Montgomery Scott Inc. ("Janney") and Rodman & Renshaw, Inc. ("Rodman")
(collectively, the "Representatives") of warrants (the "Representatives'
Warrants") to purchase up to 180,000 shares of Common Stock and/or 180,000
Warrants, the Company will issue up to 2,250,000 Warrants (subject to increase
as provided in the Representatives' Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the Warrants
and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of
<PAGE>
the Company, Janney, the holders of certificates representing the Warrants and
the Warrant Agent, the parties hereto agree as follows:
SECTION 1.
1. DEFINITIONS. As used herein, the following terms shall have the following
meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as
amended.
(b) "Common Stock" shall mean the authorized stock of the
Company of any class, whether now or hereafter authorized, which has the right
to participate in the voting and in the distribution of earnings and assets of
the Company without limit as to amount or percentage.
(c) "Commission" shall mean the Securities and Exchange
Commission.
(d) "Corporate Office shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its business in New
York, New York, shall be administered, which office is located on the date
hereof at 2 Broadway.
(e) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(f) "Exercise Date" shall mean, subject to the provisions
of Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder thereof or
his attorney duly authorized in writing, and (ii) payment in cash or by
official bank or certified check made payable to the Warrant Agent for the
account of the Company, of the amount in lawful money of the United States of
America equal to the applicable Purchase Price (as hereinafter defined) in good
funds.
2
<PAGE>
(g) "Initial Warrant Exercise Date" shall mean
_____________ __, 1996 [the date of the Prospectus].
(h) "NASD" shall mean the National Association of
Securities Dealers, Inc.
(i) "Nasdaq" shall mean the Nasdaq National Market.
(j) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8, $_____ [120% of the initial public offering
price of the Common Stock] commencing on the date of the Prospectus until
_______, 1998 [18 months from the date of the Prospectus] and $______ [138% of
the initial public offering price of the Common Stock] commencing _______, 1998
[18 months from the date of the Prospectus] until ______, 1999 [3 years from the
date of the Prospectus] and further subject to the Company's right, in its sole
discretion, to decrease the Purchase Price for a period of not less than 30 days
on not less than 30 days' prior written notice to the Registered Holders and the
Representatives.
(k) "Registered Holder" shall mean the person in whose name
any certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(l) "Transfer Agent" shall mean Continental Stock Transfer
and Trust Company, or its authorized successor.
(m) "Underwriting Agreement" shall mean the underwriting
agreement dated ______________ __, 1996 [the date of the Prospectus] between the
Company and the several underwriters listed therein relating to the purchase for
resale to the public of the 1,800,000 shares of Common Stock and 1,800,000
Warrants.
3
<PAGE>
(n) "Representatives' Warrant Agreement" shall mean the
agreement dated as of _______________ __, 1996 [the date of the Prospectus]
among the Company, Janney and Rodman relating to and governing the terms and
provisions of the Representatives' Warrants.
(o) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(p) "Warrant Expiration Date" shall mean 5:30 p.m. (New
York time), on ______________ __, 1999 [3 years after the date of the
Prospectus]; PROVIDED that if such date shall in the State of New York be a
holiday or a day on which banks are authorized to close, then 5:30 p.m. (New
York time) on the next following day which, in the State of New York, is not a
holiday or a day on which banks are authorized to close. Upon five business
days' prior written notice to the Registered Holders, the Company shall have the
right to extend the Warrant Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one-half share of Common Stock upon the exercise thereof in accordance with
the terms hereof, subject to modification and adjustment as provided in Section
8.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
(subject to modification and adjustment as provided in Section 8) shall be
executed by the Company and delivered to the Warrant Agent.
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<PAGE>
(c) Upon exercise of the Representatives' Warrants as provided
therein, Warrant Certificates representing all or a portion of 270,000 Warrants
to purchase up to an aggregate of 270,000 shares of Common Stock (subject to
modification and adjustment as provided in Section 8 hereof and in the
Representatives' Warrant Agreement), shall be countersigned, issued and
delivered by the Warrant Agent upon written order of the Company signed by its
Chairman of the Board, Chief Executive Officer, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. Except as provided herein, no Warrant Certificates shall be issued
except (i) Warrant Certificates initially issued hereunder and those issued on
or after the Initial Warrant Exercise Date, upon the exercise of fewer than all
Warrants held by the exercising Registered Holder, (ii) Warrant Certificates
issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7, (iv) Warrant Certificates issued pursuant to
the Representatives' Warrant Agreement, and (v) at the option of the Company,
Warrant Certificates in such form as may be approved by its Board of Directors,
to reflect any adjustment or change in the Purchase Price, the number of shares
of Common Stock purchasable upon exercise of the Warrants therefor made pursuant
to Section 8 hereof.
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<PAGE>
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage. The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates) and issued in
registered form. Warrants shall be numbered serially with the letter W on the
Warrants.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, Chief Executive Officer, President or any Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates, nevertheless, may be countersigned
by the Warrant Agent, issued and delivered with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be such
officer of the Company. After countersignature by the Warrant Agent, Warrant
Certificates shall be delivered
6
<PAGE>
by the Warrant Agent to the Registered Holder promptly and without further
action by the Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. EXERCISE.
(a) Warrants in denominations of one or whole number multiples thereof
may be exercised by the Registered Holder thereof commencing at any time on or
after the Initial Warrant Exercise Date, but not after the Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the Exercise Date and
the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder, upon exercise thereof, as of
the close of business on the Exercise Date. If Warrants in denominations other
than whole number multiples thereof shall be exercised at one time by the same
Registered Holder, the number of full shares of Common Stock which shall be
issuable upon exercise thereof shall be computed on the basis of the aggregate
number of full shares of Common Stock issuable upon such exercise. As soon as
practicable on or after the Exercise Date and in any event within five business
days after such date, if one or more Warrants have been exercised, the Warrant
Agent on behalf of the Company shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or certificates for the
shares of Common Stock deliverable upon such exercise, and the Warrant Agent
shall deliver the same to the person or persons entitled thereto. Upon the
exercise of any one or more Warrants, the Warrant Agent shall promptly notify
the Company in writing of such fact and of the number of securities delivered
upon such exercise and, subject to subsection (b) below, shall cause all
payments of an amount in cash or by check made payable to the order of the
Company, equal to the Purchase Price, to be deposited promptly in the Company's
bank account.
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(b) The Company shall not be required to issue fractional shares on
the exercise of Warrants. Warrants may only be exercised in such multiples as
are required to permit the issuance by the Company of one or more whole shares.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Registered Holder, the number of whole shares which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares purchasable on exercise of the Warrants so presented.
If any fraction of a share would, except for the provisions provided herein, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to such fraction multiplied by the
then current market value of a share of Common Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted trading
privileges on a national securities exchange, or is traded on Nasdaq, the
current market value of a share of Common Stock shall be the closing sale price
of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants on whichever of such
exchanges or Nasdaq had the highest average daily trading volume for the Common
Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, but is traded in the over-the-counter market, the current
market value of a share of Common Stock shall be the average of the last
reported bid and asked prices of the Common Stock reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of exercise of
the Warrants; or
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(3) If the Common Stock is not listed, admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the current market value of a
share of Common Stock shall be an amount, not less than the book value thereof
as of the end of the most recently completed fiscal quarter of the Company
ending prior to the date of exercise, determined by the members of the Board of
Directors of the Company exercising good faith and using customary valuation
methods.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery thereof, be duly and validly
issued and fully paid and nonassessable and free from all preemptive or similar
rights, taxes, liens and charges with respect to the issue thereof, and that
upon issuance such shares shall be listed on each securities exchange, if any,
on which the other shares of outstanding Common Stock of the Company are then
listed.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment, use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are
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outstanding and deliver a prospectus which complies with Section 10(a)(3) of the
Act, to the Registered Holder exercising the Warrant (except, if in the opinion
of counsel to the Company, such registration is not required under the federal
securities law or if the Company receives a letter from the staff of the
Commission stating that it would not take any enforcement action if such
registration is not effected). The Company will use its best efforts to obtain
appropriate approvals or registrations under state "blue sky" securities laws
with respect to any such securities. However, Warrants may not be exercised by,
or shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and the
Company will comply with all such requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent
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at its Corporate Office, and, upon satisfaction of the terms and provisions
hereof, the Company shall execute and the Warrant Agent shall countersign, issue
and deliver in exchange therefor the Warrant Certificate or Certificates which
the Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with customary
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
exercise form, as the case may be, on the reverse thereof shall be duly endorsed
or be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such Holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement.
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(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or the
Warrant Agent that a new Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Warrant Agent may prescribe.
SECTION 8. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON
STOCK DELIVERABLE.
(a) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof and prior to the Warrant
Expiration Date, issue or sell any shares of Common Stock for a consideration
per share less than the Purchase Price or issue any shares of Common Stock as a
stock dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number
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<PAGE>
of shares (any such issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent to the nearest
cent) determined by dividing (i) the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, multiplied
by the Purchase Price in effect immediately prior to such Change of Shares and
(b) the consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination, by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; PROVIDED, HOWEVER, that in
no event shall the Purchase Price be adjusted pursuant to this computation to an
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.
For the purposes of any adjustment to be made in accordance with this
Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares
of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have
been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith), if such securities are sold to
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<PAGE>
underwriters or dealers for public offering without a subscription
offering, or (iii) the gross amount of cash actually received by the
Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company, and otherwise than on the
exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares
of Common Stock) for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor other than cash deemed
to have been received by the Company shall be the value of such
consideration as determined in good faith by the Board of Directors of the
Company, using customary valuation methods and on the basis of prevailing
market values for similar property or services.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(D) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares, and the value of
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the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time outstanding
shall be deemed to include the aggregate maximum number of shares issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(b) Upon each adjustment of the Purchase Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Purchase
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share (determined as provided in Sections 8(a) and 8(b) and
as provided below) less than the Purchase Price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of any
such securities by way of dividend or other distribution), the Purchase Price
for the Warrants (whether or not the same shall be issued and outstanding) in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Sections 8(a) and 8(b) hereof, PROVIDED that:
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(A) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable or that may become issuable under such options,
rights or warrants (assuming exercise in full even if not then currently
exercisable or currently exercisable in full) shall be deemed to be issued
and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided
for in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; PROVIDED, HOWEVER, that upon the expiration or other termination
of such options, rights or warrants, if any thereof shall not have been
exercised, the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (A) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number of
shares as to which options, warrants and/or rights shall have expired, and
such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares
actually issued plus the shares remaining issuable upon the exercise of
those options, rights or warrants as to which the exercise rights shall not
have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable or
that may become issuable upon conversion or exchange of any convertible or
exchangeable securities (assuming conversion or exchange in full even if
not then currently convertible or exchangeable in full) shall be deemed to
be issued and
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<PAGE>
outstanding at the time of issuance of such securities, for a consideration
equal to the consideration received by the Company for such securities,
plus the minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof; PROVIDED, HOWEVER, that upon the
termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason of redemption or otherwise), the
number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (B) (and for the purposes of subsection (E) of
Section 8(a) hereof) shall be reduced by the number of shares as to which
the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be
issued and outstanding, and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been
had adjustment been made on the basis of the issuance only of the shares
actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated
unexercised.
(C) If any change shall occur in the price per share provided for in
any of the options, rights or warrants referred to in subsection (A) of
this Section 8(c), or in the price per share or ratio at which the
securities referred to in subsection (B) of this Section 8(c) are
convertible or exchangeable, such options, rights or warrants or conversion
or exchange rights, as the case may be, to the extent not theretofore
exercised, shall be deemed to have expired or terminated on the date when
such price change became effective in respect of shares not theretofore
issued
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pursuant to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities.
(d) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a subsidiary of the Company in which merger the Company is the continuing
corporation) and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of subdivision or
combination) or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
Corporate Office of the Warrant Agent a statement signed by its Chief Executive
Officer, President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such
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provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Sections
8(a), (b) and (c). The above provisions of this Section 8(d) shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder were expressed in the
Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman, Chief Executive Officer or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant, after such
adjustment, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the holder to whom the Company failed to mail such notice, or except as to the
holder whose notice was defective. The affidavit of an officer of the Warrant
Agent or the Secretary or an Assistant Secretary of the Company that
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such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(g) No adjustment of the Purchase Price shall be made as a result of
or in connection with (A) the issuance or sale of shares of Common Stock
pursuant to options, warrants, stock purchase agreements and convertible or
exchangeable securities outstanding or in effect on the date hereof and on the
terms described in the final prospectus relating to the public offering
contemplated by the Underwriting Agreement; or (B) the issuance or sale of
shares of Common Stock if the amount of said adjustment shall be less than $.10,
PROVIDED, HOWEVER, that in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.10. In addition,
Registered Holders shall not be entitled to cash dividends paid by the Company
prior to the exercise of any Warrant or Warrants held by them.
SECTION 9. CONCERNING THE WARRANT AGENT.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company and the Representatives, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment
20
<PAGE>
of the Purchase Price provided in this Agreement, or to determine whether any
fact exists which may require any such adjustments, or with respect to the
nature or extent of any such adjustments, when made, or with respect to the
method employed in making the same. It shall not (i) be liable for any recital
or statement of fact contained herein or for any action taken, suffered or
omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence, bad faith or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for the
Representatives) and shall incur no liability or responsibility for any action
taken, suffered or omitted by it in good faith in accordance with the opinion or
advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board of Directors, Chief Executive Officer, President or
any Vice President (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand reasonably believed by it to be
genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and save it harmless from and against any and all
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losses, expenses and liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the execution of its duties
and powers hereunder EXCEPT losses, expenses and liabilities arising as a result
of the Warrant Agent's negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own gross negligence or willful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or
any inability of the Warrant Agent to act as such hereunder, the Company shall
appoint in writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning
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Warrant Agent. Not later than the effective date of any such appointment the
Company shall file notice thereof with the resigning Warrant Agent and shall
forthwith cause a copy of such notice to be mailed to the Registered Holder of
each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the
date of exercise any Warrant Certificate received by it upon such exercise.
SECTION 10. MODIFICATION OF AGREEMENT.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein
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contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; PROVIDED,
HOWEVER, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders representing not less than 66-2/3% of the Warrants then outstanding;
PROVIDED, FURTHER, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, or to increase the Purchase Price
therefor or to accelerate the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are presently specifically
prescribed by this Agreement as originally executed. In addition, this
Agreement may not be modified, amended or supplemented without the prior written
consent of Janney, other than to cure any ambiguity or to correct any provision
which is inconsistent with any other provision of this Agreement or to make any
such change that is necessary or desirable and which shall not adversely affect
the interests of Janney and except as may be required by law.
SECTION 11. NOTICES.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made when delivered or mailed
first-class registered or certified mail, postage prepaid, as follows: if to the
Registered Holder of a Warrant Certificate, at the address of such holder as
shown on the registry books maintained by the Warrant Agent; if to the Company
at 4 Cedar Swamp Road, Glen Cove, New York 11542, Attention: Carl G.
Paffendorf, Chief Executive Officer, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; and if to the Warrant
Agent, at its Corporate Office. Copies of any notice delivered pursuant to this
Agreement shall also be delivered to Janney Montgomery Scott Inc., 1801 Market
Street, 20th Floor, Philadelphia, Pennsylvania 19103,
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Attention: General Counsel, or at such other address as may have been furnished
to the Company and the Warrant Agent in writing.
SECTION 12. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws.
SECTION 13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Representatives, the Warrant Agent and their respective successors
and assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer
upon any other person any right, remedy or claim, in equity or at law, or to
impose upon any other person any duty, liability or obligation.
SECTION 14. TERMINATION.
This Agreement shall terminate at the close of business on the Expiration
Date of all of the Warrants or such earlier date upon which all Warrants have
been exercised or redeemed, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of Section 11 hereof shall
survive such termination.
SECTION 15. COUNTERPARTS.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
[SEAL]
UNITED VANGUARD HOMES, INC.
By:_____________________________________________________
Name:
Title:
Attest:
By:_____________________________
Name:
Title:
CONTINENTAL STOCK TRANSFER AND
TRUST COMPANY,
As Warrant Agent
By:_____________________________________________________
Name:
Title:
26
<PAGE>
EXHIBIT A
No. W __________ VOID AFTER _________, 1999
WARRANTS
WARRANT CERTIFICATE TO
PURCHASE ONE-HALF SHARE OF COMMON STOCK
UNITED VANGUARD HOMES, INC.
CUSIP _______
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Warrants (the "Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one-half
fully paid and nonassessable share of Common Stock, $.01 par value, of United
Vanguard Homes, Inc., a Delaware corporation (the "Company"), at any time
between ____________, 1996 (the "Initial Warrant Exercise Date"), and the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer and Trust
Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $_____, [120% of the initial public offering price of the Common
Stock] subject to adjustment for the period from _______, 1996 [the date of the
Prospectus] until _____, 1998 [18 months from the date of the Prospectus] and
$_____ [138% of the initial public offering price of the Common Stock] subject
to adjustment for the period from _______, 1998 [18 months from the date of the
Prospectus] until _______, 1999 [3 years from the date of the Prospectus] (the
"Purchase Price"), in lawful money of the United States of America in cash or by
check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_______________, 1996 [date of the Prospectus], between the Company and the
Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time) on the
date which is three (3) years after the Initial Warrant Exercise Date. If each
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:30 p.m.
(New York time) on the next following day which in the State of New York is not
a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:
UNITED VANGUARD HOMES, INC.
[SEAL]
By:_____________________________________________________
Name:
Title:
By:____________________________________________________
Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By:___________________________________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ________________________Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________________________
________________________________________
________________________________________
________________________________________
(please print or type name and address)
and be delivered to
________________________________________
________________________________________
________________________________________
________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _______________________________, hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
________________________________________
________________________________________
________________________________________
________________________________________
(please print or type name and address)
_____________________________________________ of the Warrants represented by
this Warrant Certificate, and hereby irrevocably constitutes and appoints
_____________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:______________________ X________________________________
Signature Guaranteed
________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
A-5
<PAGE>
EXHIBIT 4.2
OH&S DRAFT
9/13/96
[FORM OF REPRESENTATIVES'S WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
================================================================================
UNITED VANGUARD HOMES, INC.
AND
JANNEY MONTGOMERY SCOTT INC.
AND
RODMAN & RENSHAW, INC.
_________________
REPRESENTATIVES'
WARRANT AGREEMENT
Dated as of _________ ____, 1996
================================================================================
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT dated as of _______, 1996 among UNITED
VANGUARD HOMES, INC., a Delaware corporation (the "Company"), JANNEY MONTGOMERY
SCOTT INC., and RODMAN & RENSHAW, INC. (hereinafter referred to variously as the
"Holder" or the "Representatives").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives warrants
("Warrants") to purchase up to an aggregate 180,000 shares of Common Stock,
$.001 par value, of the Company and/or 180,000 common stock purchase warrants of
the Company ("Purchase Warrants"), each Purchase Warrant to purchase one-half
additional share of Common Stock; and
WHEREAS, the Representatives have agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the several Underwriters listed therein to act as the
Representatives in connection with the Company's proposed public offering of up
to 1,800,000 shares of Common Stock and 1,800,000 Purchase Warrants (the
"Purchase Warrants") at a public offering price of $____ per share of Common
Stock and $.05 per Purchase Warrant (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives' compensation in connection with, the
Representatives acting as the Representatives pursuant to the Underwriting
Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate eighteen dollars ($18.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. GRANT. The Representatives (or their designees) is hereby granted the
right to purchase, at any time from _______, 1997 [one year from the effective
date of the Registration Statement], until 5:30 P.M., New York time, on _______,
2001 [five years from the effective date of the Registration Statement], up to
an aggregate of 180,000 shares of Common Stock and/or 180,000 Purchase Warrants
at an initial exercise price (subject to adjustment as provided in SECTION 8
hereof) of $____ per share of Common Stock [120% of the initial public offering
price per share], and $____ per Purchase Warrant [120% of the initial public
offering price per Purchase Warrant], subject to the terms and conditions of
this Agreement. One Purchase Warrant is exercisable to purchase one-half share
of Common Stock at an initial exercise price of $_____ [100% of the initial
exercise price of the Purchase Warrants] from _______, 1997 [one year from the
effective date of the registration statement] until 5:30 p.m. New York time on
_____, 1999 [three years from the effective date of the registration statement],
at which time the Purchase Warrants shall expire. Except as set forth herein,
the shares of Common Stock and the Purchase Warrants issuable upon exercise of
the Warrants are in all respects identical to the shares of Common Stock and the
Purchase Warrants being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement. The shares
of Common Stock and the Purchase Warrants issuable upon exercise of the Warrants
are sometimes hereinafter referred to collectively as the "Securities."
- 2 -
<PAGE>
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
Section 3.1 METHOD OF EXERCISE. The Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
SECTION 8 hereof) per share of Common Stock and Purchase Warrant set forth in
SECTION 6 hereof payable by certified or official bank check in New York
Clearing House funds, subject to adjustment as provided in SECTION 8 hereof.
Upon surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the shares of Common Stock and/or Purchase Warrants
purchased at the Company's principal executive offices in Glen Cove, New York
(presently located at 4 Cedar Swamp Road, Glen Cove, New York 11542) the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased and a certificate or certificates for the Purchase Warrants so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock and Purchase Warrants underlying the
Warrants). Warrants may be exercised to purchase all or part of the shares of
Common Stock together with an equal or unequal number of the Purchase Warrants
represented thereby. In the case of the purchase of less than all the shares of
Common Stock and/or Purchase Warrants purchasable under any Warrant Certificate,
the Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant
- 3 -
<PAGE>
Certificate of like tenor for the balance of the shares of Common Stock and/or
Purchase Warrants purchasable thereunder.
Section 3.2 EXERCISE BY SURRENDER OF WARRANT. In addition to the method
of payment set forth in SECTION 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in SECTION 3.1 in exchange for
the number of shares of Common Stock equal to the quotient derived from dividing
the numerator (x) an amount equal to the difference between (A) the sum of (1)
the number of shares of Common Stock as to which the Warrants are being
exercised multiplied by the per share Market Price, and (2) the number of
Purchase Warrants as to which the Warrants are being exercised multiplied by the
per Purchase Warrant Market Price, and (3) the number of shares of Common Stock
issuable upon exercise of the Purchase Warrants underlying the Warrants being
exercised multiplied by the per share Market Price, and (B) the sum of (1) the
number of Warrants which are being exercised multiplied by the Exercise Price
and (2) the number of Purchase Warrants included in the Warrants which are being
exercised multiplied by the exercise price per Purchase Warrant (as calculated
pursuant to the Purchase Warrant Agreement (hereinafter defined)) as then in
effect, by the denominator (y) the per share Market Price of the Common Stock.
Solely for the purposes of this paragraph, Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 14 hereof ("Notice Date")
or (ii) as the average of the Market Prices for each of the five trading days
preceding the Notice Date, whichever of (i) or (ii) is greater.
- 4 -
<PAGE>
Section 3.3 DEFINITION OF MARKET PRICE. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) when referring to the Common Stock,
the last reported sale price, or, in case no such reported sale takes place on
such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading or by the
Nasdaq National Market ("Nasdaq/NM"), or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted by the
National Association of Securities Dealers Automated Quotation System
("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or if the Common
Stock is not quoted on Nasdaq, as determined in good faith (using customary
valuation methods) by resolution of the members of the Board of Directors of the
Company, based on the best information available to it or (ii) when referring to
a Purchase Warrant, the last reported sales price, or, in the case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Purchase Warrants are
listed or admitted to trading or by Nasdaq/NM, or, if the Purchase Warrants are
not listed or admitted to trading on any national securities exchange or quoted
by Nasdaq, the average closing bid price as furnished by the NASD through Nasdaq
or similar organization if Nasdaq is no longer reporting such information, or if
the Purchase Warrants are not quoted on Nasdaq or are no longer outstanding, the
Market Price of a Purchase Warrant shall equal the difference between the Market
Price of the Common Stock and the Exercise Price of the Purchase Warrant.
- 5 -
<PAGE>
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or Purchase Warrants
and/or other securities, properties or rights underlying such Warrants and, upon
the exercise of the Purchase Warrants, the issuance of certificates for shares
of Common Stock and/or other securities, properties or rights underlying such
Purchase Warrants shall be made forthwith (and in any event within five (5)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of SECTIONS 5
and 7 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock and the Purchase Warrants underlying the Warrants and the shares of
Common Stock underlying the Purchase Warrants (and/or other securities, property
or rights issuable upon the exercise of the Warrants or the Purchase Warrants)
shall be executed on behalf of the Company by the manual or facsimile signature
of the then Chairman or Vice Chairman of the Board of Directors or President or
Vice President of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer. Certificates representing the shares of Common Stock and Purchase
Warrants, and the shares of Common Stock underlying each Purchase Warrant
(and/or other securities, property
- 6 -
<PAGE>
or rights issuable upon exercise of the Warrants) shall be dated as of the
Notice Date (regardless of when executed or delivered) and dividend bearing
securities so issued shall accrue dividends from the Notice Date.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representatives.
6. EXERCISE PRICE.
Section 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in SECTION 8 hereof, the initial exercise price of each Warrant shall
be $____ [120% of the initial public offering price] per share of Common Stock
and $_____ per Purchase Warrant [120% of the initial public offering price per
Purchase Warrant]. The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of SECTION 8 hereof. Any transfer of a
Warrant shall constitute an automatic transfer and assignment of the
registration rights set forth in SECTION 7 hereof with respect to the Securities
or other securities, properties or rights underlying the Warrants.
Section 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
- 7 -
<PAGE>
7. REGISTRATION RIGHTS.
Section 7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The shares of
Common Stock and Purchase Warrants issuable upon exercise of the Warrants, the
shares of Common Stock issuable upon exercise of such Purchase Warrants and any
of the other securities issuable upon exercise of the Warrants (collectively,
the "Warrant Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"), pursuant to the Company's Registration Statement on Form
S-1 (Registration No. 33-80812) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are defined in the Underwriting Agreement) and made as
of the dates provided therein, are incorporated by reference herein. The
Company agrees and covenants promptly to file post-effective amendments to such
Registration Statement as may be necessary in order to maintain its
effectiveness and otherwise to take such action as may be necessary to maintain
the effectiveness of the Registration Statement as long as any Warrants are
outstanding. In the event that, for any reason whatsoever, the Company shall
fail to maintain the effectiveness of the Registration Statement, the
certificates representing the Warrant Securities shall bear the following
legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered or sold except pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144 under the Act (or
any similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from registration
under such Act is available.
- 8 -
<PAGE>
Section 7.2 PIGGYBACK REGISTRATION. If, at any time commencing after the
date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-4,
Form S-8 or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Representatives and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Representatives or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) business days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Representatives and such
Holders of the Warrants and/or Warrant Securities the opportunity to have any
such Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this SECTION 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
SECTION 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 DEMAND REGISTRATION.
(a) At any time commencing after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under SECTION 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration
- 9 -
<PAGE>
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the
Representatives and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this SECTION 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under SECTION 7.2 and
subsection (a) of this SECTION 7.3, at any time commencing after the date hereof
and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant
Securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months by any such Holder of its Warrant Securities provided,
however, that the provisions of SECTION 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in SECTION 7.4(a) hereof pursuant to the
written notice specified in SECTION 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company may, at its
- 10 -
<PAGE>
option, upon the written notice of election of a Majority of the Holders of the
Warrants and/or Warrant Securities requesting such registration, repurchase (i)
any and all Warrant Securities of such Holders at the higher of the Market Price
per share of Common Stock and per Purchase Warrant on (x) the date of the notice
sent pursuant to SECTION 7.3(a) or (y) the expiration of the period specified in
SECTION 7.4(a) and (ii) any and all Warrants of such Holders at such Market
Price less the Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the expiration of the period specified in SECTION 7.4(a) or (ii) the
delivery of the written notice of election specified in this SECTION 7.3(d).
Section 7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under SECTION 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
SECTIONS 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) whose Warrant Securities are the subject of such registration
- 11 -
<PAGE>
statement will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to SECTION 7.3(c).
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of SECTION 15 of the Act or SECTION
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in SECTION 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of SECTION 15 of the Act or
SECTION 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under
- 12 -
<PAGE>
the Act, the Exchange Act or otherwise, arising from information furnished by or
on behalf of such Holders, or their successors or assigns, for specific
inclusion in such registration statement to the same extent and with the same
effect as the provisions contained in SECTION 7 of the Underwriting Agreement
pursuant to which the Underwriters have agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to SECTION 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to SECTION 7.3 hereof, without the prior written consent of the Holders
of the Warrants and Warrant Securities representing a Majority of such
securities.
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same
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<PAGE>
matters with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
SECTION 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be either of the
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<PAGE>
Representatives. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter(s), and shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter(s). The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Securities and may,
at their option, require that any or all of the representations, warranties and
covenants of the Company to or for the benefit of such underwriter(s) shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
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<PAGE>
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
Section 8.1 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
Section 8.2 STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall
pay a dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
SECTION 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
Section 8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this SECTION 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 DEFINITION OF COMMON STOCK. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value. In the event that the Company shall after the date hereof issue
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<PAGE>
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either the Warrant Securities or a like number of
such securities with greater or superior voting rights.
Section 8.5 MERGER OR CONSOLIDATION. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of securities of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in SECTION 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
Section 8.6 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the Warrant
Securities issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than two cents
(2CENTS) per Warrant Security, provided, however, that in such case any
adjustment that
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<PAGE>
would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall
amount to at least two cents (2CENTS) per Warrant Security.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or Purchase Warrants upon the exercise of the Warrants, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or Purchase
Warrants or other securities, properties or rights.
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<PAGE>
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants and the Purchase
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all shares of Common Stock, Purchase Warrants and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. The
Company further covenants and agrees that upon exercise of the Purchase Warrants
underlying the Warrants and payment of the respective Purchase Warrant exercise
price therefor, all shares of Common Stock and other securities issuable upon
such exercises shall be duly and validly issued, fully paid, non-assessable and
not subject to the preemptive rights of any stockholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of the Warrants and
Purchase Warrants and all Purchase Warrants underlying the Warrants to be listed
(subject to official notice of issuance) on all securities exchanges on which
the Common Stock or the Purchase Warrants issued to the public in connection
herewith may then be listed and/or quoted on Nasdaq/NM or Nasdaq.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If,
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<PAGE>
however, at any time prior to the expiration of the Warrants and their exercise,
any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings or
capital surplus (in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or
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<PAGE>
exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. PURCHASE WARRANTS.
The form of the certificate representing Purchase Warrants (and the form of
election to purchase shares of Common Stock upon the exercise of Purchase
Warrants and the form of assignment printed on the reverse thereof) shall be
substantially as set forth in Exhibit "A" to the Warrant Agreement dated as of
the date hereof by and between the Company and American Stock Transfer and Trust
Company (the "Purchase Warrant Agreement"). Each Purchase Warrant issuable upon
exercise of the Warrants shall evidence the right to initially purchase one-half
fully paid and non-assessable share of Common Stock at an initial purchase price
of $______ [100% of the Purchase Warrant exercise price] from ______ 1997 [one
year from the effective date of the Registration Statement] until 5:30 p.m. New
York time on _________, 1999 [3 years from the effective date of the
Registration Statement] at which time the Purchase Warrants, unless the exercise
period has been extended, shall expire. The exercise price of the Purchase
Warrants and the number of shares of Common Stock issuable upon the exercise of
the Purchase Warrants are subject to adjustment, whether or not the Warrants
have been exercised and the Purchase Warrants have been issued, in the manner
and upon the occurrence of the events set forth in Section 8 of the Purchase
Warrant Agreement, which is hereby incorporated herein by reference and made a
part hereof as if set forth in its entirety herein. Subject to the provisions
of this Agreement and upon issuance of the Purchase Warrants underlying the
Warrants, each registered holder of such Purchase Warrant shall have the right
to purchase from the Company (and the Company shall issue to such registered
holders) up to the number of fully paid and non-assessable shares of Common
Stock (subject
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<PAGE>
to adjustment as provided herein and in the Purchase Warrant Agreement), free
and clear of all preemptive rights of stockholders, provided that such
registered holder complies with the terms governing exercise of the Purchase
Warrant set forth in the Purchase Warrant Agreement, and pays the applicable
exercise price, determined in accordance with the terms of the Purchase Warrant
Agreement. Upon exercise of the Purchase Warrants, the Company shall forthwith
issue to the registered holder of any such Purchase Warrant in his name or in
such name as may be directed by him, certificates for the number of shares of
Common Stock so purchased. Except as otherwise provided in this Agreement, the
Purchase Warrants underlying the Warrants shall be governed in all respects by
the terms of the Purchase Warrant Agreement. The Purchase Warrants shall be
transferable in the manner provided in the Purchase Warrant Agreement, and upon
any such transfer, a new Purchase Warrant Certificate shall be issued promptly
to the transferee. The Company covenants to, and agrees with, the Holder(s)
that without the prior written consent of the Holder(s), which will not be
unreasonably withheld, the Purchase Warrant Agreement will not be modified,
amended, canceled, altered or superseded, and that the Company will send to each
Holder, irrespective of whether or not the Warrants have been exercised, any and
all notices required by the Purchase Warrant Agreement to be sent to holders of
Purchase Warrants.
14. NOTICES.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made and sent when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
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<PAGE>
(b) If to the Company, to the address set forth in SECTION 3 hereof or
to such other address as the Company may designate by notice to the
Holders.
15. SUPPLEMENTS AND AMENDMENTS. The Company and the Representatives may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Representatives) in order to
cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Representatives may deem necessary or desirable and which
the Company and the Representatives deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
16. SUCCESSORS. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. TERMINATION. This Agreement shall terminate at the close of business
on _______, 2003. Notwithstanding the foregoing, the indemnification provisions
of SECTION 7 shall survive such termination until the close of business on
_______, 2009.
18. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representatives and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of
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<PAGE>
America for the Southern District of New York, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representatives and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representatives and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in SECTION
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Representatives and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
19. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement and the Purchase Warrant Agreement to the extent portions
thereof are referred to herein) contains the entire understanding between the
parties hereto with respect to the subject matter hereof and may not be modified
or amended except by a writing duly signed by the party against whom enforcement
of the modification or amendment is sought.
20. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. CAPTIONS. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
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<PAGE>
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representatives and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representatives and any other registered Holders of Warrant Certificates or
Warrant Securities.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
UNITED VANGUARD HOMES, INC.
By:________________________________________
Name:
Title:
Attest:
____________________________
Secretary
JANNEY MONTGOMERY SCOTT INC.
By:________________________________________
Name:
Title:
RODMAN & RENSHAW, INC.
By:________________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2001
No. W- Warrants to Purchase
____ Shares of Common Stock and/or
____ Purchase Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or registered assigns,
is the registered holder of _____________ Warrants to purchase initially, at any
time from __________, 1997 [one year from the effective date of the Registration
Statement] until 5:30 p.m. New York time on ___________, 2001 [five years from
the effective date of the Registration Statement] ("Expiration Date"), up to
__________ fully-paid and non-assessable shares of common stock, $.01 par value
("Common Stock"), of UNITED VANGUARD HOMES, INC., a Delaware corporation (the
"Company"), and/or _____ Purchase Warrants of the Company (one Purchase Warrant
entitling the owner to purchase one-half fully-paid and non-assessable share of
Common Stock) at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $______ [120% of the initial public offering
price] per share of Common Stock and $____ [120% of the initial public offering
price] per Purchase Warrant upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the warrant agreement dated as of
_______, 1996 between the Company and JANNEY MONTGOMERY SCOTT
A-1
<PAGE>
INC. (the "Warrant Agreement"). Payment of the Exercise Price shall be made by
certified or official bank check in New York Clearing House funds payable to the
order of the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ___________, 1996
UNITED VANGUARD HOMES, INC.
By:_________________________________________
Name:
Title:
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / _______________________ shares of Common Stock;
/ / _______________________ Purchase Warrants;
/ / _______________________ shares of Common Stock together with an equal
number of Purchase Warrants; or
/ / _______________________ shares of Common Stock together with
_______________________ Purchase Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Commodore Applied
Technologies, Inc. in the amount of $_______________________, all in accordance
with the terms of Section 3.1 of the Representatives' Warrant Agreement dated as
of ______________________, 1996 between United Vanguard Homes, Inc. and Janney
Montgomery Scott Inc. The undersigned requests that a certificate for such
securities be registered in the name of _________________________________ whose
address is ______________________________________ and that such Certificate be
delivered to ______________________________________ whose address is
______________________________________________.
Dated:
Signature ______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying
Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / _______________________ shares of Common Stock;
/ / _______________________ Purchase Warrants;
/ / _______________________ shares of Common Stock together with
an equal number of Purchase Warrants;
or
/ / _______________________ shares of Common Stock together with
_______________________ Purchase Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representatives' Warrant
Agreement dated as of __________________, 1996 between United Vanguard Homes,
Inc. and Janney Montgomery Scott Inc. The undersigned requests that a
certificate for such securities be registered in the name of
_________________________________________________________ whose address is
__________________________________________ and that such Certificate be
delivered to ______________________________________ whose address is
__________________________________________________.
Dated:
Signature ______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:__________________________ Signature:______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
A-6
<PAGE>
$12,500,000
[__]% Convertible Senior Secured Notes due October 1, 2006
____________________________________
UNITED VANGUARD HOMES, INC.
INDENTURE
Dated as of ____________, 1996
[ ], as Trustee
____________________________________________
<PAGE>
CROSS-REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
- -------- --------
310 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.8; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6; 14.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.7; 14.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2; 7.2; 14.4
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . .7.2; 14.4
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.5; 14.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.13
316 (a) (last sentence) . . . . . . . . . . . . . . . . . . . . .2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . .6.11
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . .6.12
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.8, 6.12
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10.5
317 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . .6.3
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . .6.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.4
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.1
___________________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
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TABLE OF CONTENTS
Page
----
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Incorporation by Reference of TIA. . . . . . . . . . . . 15
Section 1.3 Rules of Construction. . . . . . . . . . . . . . . . . . 15
ARTICLE II.
THE NOTES
Section 2.1 Form and Dating. . . . . . . . . . . . . . . . . . . . . 16
Section 2.2 Execution and Authentication . . . . . . . . . . . . . . 16
Section 2.3 Registrar, Paying Agent and Conversion Agent . . . . . . 17
Section 2.4 Paying Agent to Hold Assets in Trust . . . . . . . . . . 18
Section 2.5 Noteholder Lists.. . . . . . . . . . . . . . . . . . . . 18
Section 2.6 Transfer and Exchange. . . . . . . . . . . . . . . . . . 18
Section 2.7 Replacement Notes. . . . . . . . . . . . . . . . . . . . 20
Section 2.8 Outstanding Notes. . . . . . . . . . . . . . . . . . . . 20
Section 2.9 Treasury Notes . . . . . . . . . . . . . . . . . . . . . 21
Section 2.10 Temporary Notes. . . . . . . . . . . . . . . . . . . . . 21
Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . 21
Section 2.13 CUSIP Number . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.14. Notes in Global Form . . . . . . . . . . . . . . . . . . 23
Section 2.15. Security.. . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III.
REDEMPTION
Section 3.1 Right of Redemption. . . . . . . . . . . . . . . . . . . 23
Section 3.2 Notices to Trustee . . . . . . . . . . . . . . . . . . . 24
Section 3.3 Selection of Notes to be Redeemed. . . . . . . . . . . . 24
Section 3.4 Notice of Redemption . . . . . . . . . . . . . . . . . . 24
Section 3.5 Effect of Notice of Redemption . . . . . . . . . . . . . 25
Section 3.6 Deposit of Redemption Price. . . . . . . . . . . . . . . 26
Section 3.7 Notes Redeemed in Part . . . . . . . . . . . . . . . . . 26
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ARTICLE IV.
COVENANTS
Section 4.1 Payment of Notes . . . . . . . . . . . . . . . . . . . . 27
Section 4.2 Maintenance of Office or Agency. . . . . . . . . . . . . 27
Section 4.3 Corporate Existence. . . . . . . . . . . . . . . . . . . 28
Section 4.4 Payment of Taxes and Other Claims. . . . . . . . . . . . 28
Section 4.5 Maintenance of Properties and Insurance. . . . . . . . . 28
Section 4.6 Compliance Certificate; Notice of Default. . . . . . . . 28
Section 4.7 SEC Reports. . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.8 Limitations on Status as Investment Company. . . . . . . 29
Section 4.9. Nature of Business . . . . . . . . . . . . . . . . . . . 30
Section 4.10. Limitation on Indebtedness . . . . . . . . . . . . . . . 30
Section 4.11. Asset Sale . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.12. Fixed Charge Coverage. . . . . . . . . . . . . . . . . . 31
Section 4.13. Restricted Investments and Restricted Payments . . . . . 31
Section 4.14. Financial Statements . . . . . . . . . . . . . . . . . . 31
Section 4.15. Limitation on Designation of Unrestricted Subsidiaries . 32
Section 4.16. Consolidated Net Worth . . . . . . . . . . . . . . . . . 32
Section 4.17. Transactions with Affiliates . . . . . . . . . . . . . . 33
Section 4.18. Limitations on Liens . . . . . . . . . . . . . . . . . . 33
Section 4.19. Restrictions on Exercise of Purchase Options . . . . . . 33
ARTICLE V.
SUCCESSOR CORPORATION
Section 5.1 When Company May Merge, Etc. . . . . . . . . . . . . . . 33
Section 5.2 Successor Corporation Substituted. . . . . . . . . . . . 34
ARTICLE VI.
EVENTS OF DEFAULT AND REMEDIES
Section 6.1 Events of Default. . . . . . . . . . . . . . . . . . . . 34
Section 6.2 Acceleration of Maturity Date; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.3 Collection of Indebtedness and Suits for Enforcement by
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.4 Trustee May File Proofs of Claim . . . . . . . . . . . . 37
Section 6.5 Trustee May Enforce Claims Without Possession of Notes . 38
Section 6.6 Priorities . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.7 Limitation on Suits. . . . . . . . . . . . . . . . . . . 39
Section 6.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest . . . . . . . . . . . . . . . . . . 39
Section 6.9 Rights and Remedies Cumulative . . . . . . . . . . . . . 40
Section 6.10 Delay or Omission Not Waiver . . . . . . . . . . . . . . 40
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Section 6.11 Control by Holders . . . . . . . . . . . . . . . . . . . 40
Section 6.12 Waiver of Past Default . . . . . . . . . . . . . . . . . 40
Section 6.13 Undertaking for Costs. . . . . . . . . . . . . . . . . . 41
Section 6.14 Restoration of Rights and Remedies . . . . . . . . . . . 41
ARTICLE VII.
TRUSTEE
Section 7.1 Duties of Trustee. . . . . . . . . . . . . . . . . . . . 42
Section 7.2 Rights of Trustee. . . . . . . . . . . . . . . . . . . . 43
Section 7.3 Individual Rights of Trustee . . . . . . . . . . . . . . 43
Section 7.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 44
Section 7.5 Notice of Default. . . . . . . . . . . . . . . . . . . . 44
Section 7.6 Reports by Trustee to Holders. . . . . . . . . . . . . . 44
Section 7.7 Compensation and Indemnity . . . . . . . . . . . . . . . 44
Section 7.8 Replacement of Trustee . . . . . . . . . . . . . . . . . 45
Section 7.9 Successor Trustee by Merger, Etc.. . . . . . . . . . . . 46
Section 7.10 Eligibility; Disqualification. . . . . . . . . . . . . . 46
Section 7.11 Preferential Collection of Claims against Company. . . . 47
Section 7.12 No Bonds . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.13 Condition of Action. . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII.
SATISFACTION AND DISCHARGE
Section 8.1 Satisfaction, Discharge of the Indenture and Defeasance
of the Notes . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.2 Survival of Certain Obligations. . . . . . . . . . . . . 48
Section 8.3 Acknowledgment of Discharge by Trustee . . . . . . . . . 48
Section 8.4 Application of Trust Assets. . . . . . . . . . . . . . . 49
Section 8.5 Repayment to the Company . . . . . . . . . . . . . . . . 49
Section 8.6 Reinstatement. . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE IX.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Supplemental Indentures Without Consent of Holders . . . 50
Section 9.2 Amendments, Supplemental Indentures and Waivers With
Consent of Holders . . . . . . . . . . . . . . . . . . . 50
Section 9.3 Compliance with TIA. . . . . . . . . . . . . . . . . . . 52
Section 9.4 Revocation and Effect of Consents. . . . . . . . . . . . 52
Section 9.5 Notation on or Exchange of Notes . . . . . . . . . . . . 52
Section 9.6 Trustee to Sign Amendments, Etc. . . . . . . . . . . . . 53
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ARTICLE X.
[RESERVED]
ARTICLE XI.
[RESERVED]
ARTICLE XII.
RIGHT TO REQUIRE REPURCHASE
Section 12.1 Repurchase of Notes at Option of the Holder Upon Change
of Control . . . . . . . . . . . . . . . . . . . . . . . 53
Section 12.2 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . 53
Section 12.3 Notices; Method of Exercising Repurchase Right, Etc. . . 53
ARTICLE XIII.
CONVERSION OF NOTES
Section 13.1 Right of Conversion; Conversion Price. . . . . . . . . . 55
Section 13.2 Issuance of Shares on Conversion . . . . . . . . . . . . 56
Section 13.3 No Adjustment for Interest or Dividends. . . . . . . . . 56
Section 13.4 Adjustment of Conversion Price . . . . . . . . . . . . . 57
Section 13.5 Notice of Adjustment of Conversion Price . . . . . . . . 59
Section 13.6 Notice of Certain Corporation Action . . . . . . . . . . 59
Section 13.7 Taxes on Conversions . . . . . . . . . . . . . . . . . . 60
Section 13.8 Fractional Shares. . . . . . . . . . . . . . . . . . . . 61
Section 13.9 Cancellation of Converted Notes. . . . . . . . . . . . . 61
Section 13.10 Provisions in Case of Consolidation, Merger or Sale of
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 13.11 Disclaimer by Trustee of Responsibility for Certain
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 13.12 Covenant to Reserve Shares . . . . . . . . . . . . . . . 62
ARTICLE XIV.
MISCELLANEOUS
Section 14.1 TIA Controls . . . . . . . . . . . . . . . . . . . . . . 63
Section 14.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 14.3 Communications by Holders With Other Holders . . . . . . 64
Section 14.4 Certificate and Opinion as to Conditions Precedent . . . 64
Section 14.5 Statements Required in Certificate or Opinion. . . . . . 64
Section 14.6 Legal Holidays . . . . . . . . . . . . . . . . . . . . . 65
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Section 14.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . 65
Section 14.8 No Adverse Interpretation of Other Agreements. . . . . . 65
Section 14.9 No Recourse Against Others . . . . . . . . . . . . . . . 65
Section 14.10 Successors . . . . . . . . . . . . . . . . . . . . . . . 65
Section 14.11 Duplicate Originals. . . . . . . . . . . . . . . . . . . 66
Section 14.12 Severability . . . . . . . . . . . . . . . . . . . . . . 66
Section 14.13 Table of Contents, Headings, Etc.. . . . . . . . . . . . 66
Exhibit A FORM OF NOTE
Schedule I PERMITTED LIENS
vii
<PAGE>
INDENTURE, dated as of ___________, 1996, by and between United
Vanguard Homes, Inc., a Delaware corporation (the "Company"), and [ ]
Company, an __________________, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
[__]% Convertible Senior Secured Notes due October 1, 2006:
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"Acceleration Notice" shall have the meaning specified in Section
6.2 hereof.
"Affiliate", with respect to any Person (hereinafter "SUCH PERSON"),
shall mean any other Person (a) directly or indirectly controlling, (including
all directors, officers and partners of such Person), controlled by, or under
direct or indirect common control with, such Person or (b) that directly or
indirectly owns more than 5% of any class of the voting securities or 10% of the
Participating Shares of such Person. A Person shall be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such other
Person, whether through the ownership of voting securities, by contract or
otherwise. The term "AFFILIATE", when used herein without reference to any
Person, shall mean an Affiliate of the Company.
"Agent" means any Registrar, co-Registrar, Paying Agent, Conversion
Agent or agent for service of notices and demands.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal,
state or foreign law for the relief of debtors
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means a day that is not a Legal Holiday.
"Capital Lease" means a lease with respect to which the lessee is
required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with generally accepted accounting
principles.
<PAGE>
"Capital Lease Obligation" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with generally accepted accounting
principles, appear as a liability on a balance sheet of such Person.
"Change of Control" means, except as described below, the occurrence
of any of the following events, whether or not approved by the Board of
Directors of the Company: (i) any person other than (x) Carl G. Paffendorf or
(y) for so long as Carl G. Paffendorf is the beneficial owner of securities
representing more than 50% of the total number of votes that may be cast for the
election of Directors of Vanguard, Vanguard or any wholly-owned subsidiary of
Vanguard is or becomes the beneficial owner, directly or indirectly, of
securities representing more than 50% of the total number of votes that may be
cast for the election of directors of the Company or (ii) any person acquires
from the Company more than 50% of the assets or earning power of the Company and
its Restricted Subsidiaries. For the purposes of this definition, "person"
means a person or group (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable), together with any
affiliates or associates thereof, but does not include any subsidiary of the
Company and "beneficial ownership" shall be determined pursuant to the
provisions of Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable, except that a person shall have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time.
"Closing Price" means, with respect to the shares of Common Stock of
the Company on any day, (i) the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on Nasdaq, or (ii) if
the shares of Common Stock are not listed or admitted to trading on Nasdaq, the
last reported sales price regular way, or in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, on the principal national securities exchange on which the shares
of Common Stock are listed or admitted to trading, or (iii) if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked price as furnished by any New
York Stock Exchange member firm selected from time to time by the Company for
that purpose.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Common Stock of the Company, par value
$0.01 per share.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Company Request" and "Company Order" mean, respectively, a written
request or order, as the case may be, signed in the name of the Company by the
Chairman of
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<PAGE>
the Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President, a Vice President, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, of the Company, or by another officer of
the Company duly authorized to sign by a Board Resolution, and delivered to the
Trustee.
"Consolidated Current Assets" means the current assets of the
Company and its Subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Current Debt" means, as of any date of determination,
the total of all Current Debt of the Company and its Subsidiaries outstanding on
such date, after eliminating all offsetting debits and credits between the
Company and its Subsidiaries and all other items required to be eliminated in
the course of the preparation of consolidated financial statements of the
Company and its Subsidiaries in accordance with GAAP.
"Consolidated EBITR" for any period, means Consolidated Net Earnings
for such period increased by the sum of (i) interest expense for such period,
(ii) income tax expense for such period, and (iii) rental expense for such
period, all as determined on a consolidated basis for the Company and its
Subsidiaries in accordance with generally accepted accounting principles.
"Consolidated Net Earnings" for any period, means the consolidated
net earnings of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with generally accepted
accounting principles after elimination of earnings or losses attributable to
Minority Interests (without duplication), but, in any event, determined after
exclusion of:
1. any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
2. the proceeds of any life insurance policy;
3. net earnings and losses of any of its Subsidiaries accrued
prior to the date it became a Subsidiary;
4. net earnings and losses of any corporation, substantially all
the assets of which have been acquired in any manner, realized by such
other corporation prior to the date of such acquisition;
5. net earnings and losses of any Person in which the Company or
any of its Restricted Subsidiaries shall have consolidated or which shall
have merged into or with the Company or any of its Restricted Subsidiaries
prior to the date of such consolidation or merger;
3
<PAGE>
6. net earnings of any Person in which the Company or any of its
Restricted Subsidiaries has an ownership interest unless such net earnings
shall have actually been received by the Company or a Subsidiary in the
form of cash distributions;
7. any portion of the net earnings of any of the Company's
Restricted Subsidiaries which for any reason is unavailable for payment of
dividends to the Company or any other Restricted Subsidiary, provided,
however, that the net earnings of any of its Restricted Subsidiaries are
not required to be excluded if and to the extent that such net earnings
are otherwise available for the purpose of making principal and interest
payments on the Notes;
8. earnings resulting from any reappraisal, revaluation or
write-up of assets;
9. any deferred or other credit representing any excess of the
equity in any of its Restricted Subsidiaries at the date of acquisition
thereof over the amount invested in such Restricted Subsidiary;
10. any reversal of any contingency reserve, except to the extent
that provision for such contingency reserve shall have been made from
income arising during such period; or
11. any other extraordinary items (including, without limitation,
any prepayment penalties paid on the Closing Date in connection with any
payment of Indebtedness).
"Consolidated Net Worth" means, as of any date of determination, (i)
the total assets of the Company and its Restricted Subsidiaries which would be
shown as assets on a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of such time prepared in accordance with generally
accepted accounting principles, after eliminating all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Restricted Subsidiaries, minus (ii) the total liabilities of the Company and its
Restricted Subsidiaries which would be shown as liabilities on a consolidated
balance sheet of the Company and its Restricted Subsidiaries as of such time
prepared in accordance with generally accepted accounting principles.
"Consolidated Total Assets" means as of any date of determination
the total amount of assets of the Company and its Restricted Subsidiaries (less
applicable reserves and other properly deductible items) determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Contingent Obligations" means any guaranty or other contingent
liability, direct or indirect, with respect to any Indebtedness of another
Person, through an agreement or otherwise, including, without limitation, (a)
any endorsement (other than of notes, bills and checks presented to banks and
other financial institutions for collection or deposit in the
4
<PAGE>
ordinary course of business) or discount with recourse or undertaking
substantially equivalent to or having similar economic effect of a guaranty with
respect to any such Indebtedness, (b) any agreement (i) to purchase, or to
advance or supply funds for the payment or purchase of, any such Indebtedness,
(ii) to purchase, sell or lease property, products, materials or supplies, or
transportation or services, primarily for the purpose of enabling such other
Person to pay such Indebtedness or to insure the owner thereof against loss
regardless of the delivery or non-delivery of the property, products, materials
or supplies, or transportation or services, or (iii) to make any loan, advance,
capital contribution or other investment in such other Person to assure a
minimum equity, working capital or other balance sheet condition as of any date,
or to provide funds for the payment of any liability, dividend or stock
liquidation payment, or otherwise to supply funds or to in any manner invest in
such other Person, in each case, for the direct or indirect benefit of the
holder or obligee of such Indebtedness, (c) obligations for which such Person is
obligated pursuant to or in respect of a letter of credit or similar instrument
which is issued upon the application of such Person or upon which such Person is
an account party or for which such Person is in any way liable, (d) repurchase
obligations or liabilities of such Person with respect to accounts or notes
receivable sold by such Person or (e) guaranties or obligations with respect to
(i) maintaining the value of any asset of any Person or (ii) protecting the
holder of such asset against loss in respect thereof. The amount of any
Contingent Obligation shall (subject to any limitation contained therein) be
equal to the outstanding principal amount of the Indebtedness guarantied or
subject thereto or, in the case of (e) above, the guarantied value of the
subject asset.
"Conversion Agent" shall have the meaning specified in Section 2.3
hereof.
"Conversion Date" shall have the meaning specified in Section 13.2
hereof.
"conversion price" shall have the meaning specified in Section 13.1
hereof.
"Corporate Trust Office" means the principal office of the Trustee
or other applicable Person at which at any particular time its corporate trust
business shall be administered.
"Current Debt" means all short-term Indebtedness of the Company and
its Subsidiaries, determined on a consolidated basis in accordance with
generally accepted accounting principles, but excluding in any event all current
maturities of long-term Indebtedness, and including in any event all
Indebtedness under any revolving credit or other similar agreement, regardless
of the maturity of such Indebtedness.
"current market price" shall have the meaning specified in Section
13.4(f) hereof.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition, the occurrence of which is,
or with the lapse of time or giving of notice, or both, would be, an Event of
Default.
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"Defaulted Interest" shall have the meaning specified in Section
2.12 hereof.
"Depository" means, with respect to any Note issuable or issued in
the form of one or more global Notes, the Person designated as Depository by the
Company in or pursuant to this Indenture, which Person must be, to the extent
required by applicable law or regulation, a clearing agency registered under the
Exchange Act, and, if so provided with respect to any Note, any successor to
such Person. If at any time there is more than one such Person, "Depository"
shall mean, with respect to any Notes, the qualifying entity which has been
appointed with respect to such Notes.
"Development Entity" shall mean any Person that is not an Affiliate
of the Company and that has entered into an agreement with the Company for the
development and/or management of senior living facilities.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"Event of Default" shall have the meaning specified in Section 6.1
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Final Repurchase Put Date" shall have the meaning specified in
Section 12.3 hereof.
"Fiscal Quarter" means any quarter in any Fiscal Year, the duration
of such quarter being defined in accordance with generally accepted accounting
principles.
"Fiscal Year" means the fiscal year of the Company and its
Subsidiaries, which is and will be the twelve-month period prior to March 31 of
each year after the date hereof.
"Fixed Charges" for any period, means the sum of interest expense
for such period and actual rental obligations under operating leases paid or
payable of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Funded Debt" shall mean, with respect to the Company and its
Restricted Subsidiaries, all Indebtedness of the Company and its Restricted
Subsidiaries which would, in accordance with generally accepted accounting
principles, constitute long term Indebtedness, including (a) any Indebtedness
with a maturity of more than one year after the creation of such Indebtedness
(including, without limitation, current maturities thereof), (b) any redeemable
stock issued on or after the Closing Date, (c) any Capital Lease Obligation of
the Company and its Restricted Subsidiaries and (d) Contingent Obligations of
the Company and its Restricted
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Subsidiaries with respect to Indebtedness of another Person, determined on a
consolidated basis in accordance with generally accepted accounting principles.
"GAAP" means generally accepted accounting principles as in effect
in the United States from time to time.
"Governmental Body" means any federal, state, municipal or other
governmental department, commission, court, board, bureau, agency or
instrumentality, domestic or foreign.
"Harvest Village" shall mean the Harvest Village real property as
described in the Mortgage.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Indebtedness" means with respect to any Person means, at any time,
without duplication:
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatory redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement with
respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance
with generally accepted accounting principles in respect of Capital
Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
(e) all liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its accounts by banks
and other financial institutions (whether or not representing obligations
for borrowed money);
(f) any Contingent Obligation of such Person with respect to
liabilities of a type described in any of clauses (a) through (e) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under generally accepted accounting principles.
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"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Interest Payment Date" means the stated due date of an installment
of interest on the Notes.
"Investments" means any investment, made in cash or by delivery of
property, by the Company or any of its Restricted Subsidiaries (i) in any
Person, whether by acquisition of stock, indebtedness or other obligation or
security, or by loan, Contingent Obligation, advance, capital contribution or
otherwise, or (ii) in any property.
"Issue Date" means the date of first issuance of the Notes under
this Indenture.
"Legal Holiday" shall have the meaning specified in Section 14.6
hereof.
"Lien" means any mortgage, lien, pledge, charge, security interest
or encumbrance, or any interest or title of any vendor, lessor, lender or other
secured party under any conditional sale or other title retention agreement or
Capital Lease.
"Material Sale of Assets" means any sale of assets or series of such
sales, consummated during any Fiscal Year which in the aggregate represent more
than (i) 10% of the consolidated assets of the Company and its Restricted
Subsidiaries as of the end of the immediately preceding Fiscal Year or (ii) 10%
of Consolidated Net Earnings for the immediately preceding Fiscal Year.
"Minority Interests" means any shares of stock of any class of any
of the Restricted Subsidiaries (other than directors' qualifying shares as
required by law) that are not owned by the Company or another Restricted
Subsidiary. "Minority Interests" shall be valued by valuing "Minority
Interests" constituting preferred stock at the voluntary or involuntary
liquidation value of such preferred stock, whichever is greater, and by valuing
"Minority Interests" constituting common stock at the book value of capital and
surplus applicable thereto adjusted, if necessary, to reflect any changes from
the book value of such common stock required by the foregoing method of valuing
"Minority Interests" in preferred stock.
"Maturity Date," when used with respect to any Note, means the date
on which the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or Repurchase Date or by declaration of
acceleration, call for redemption or otherwise.
"Mortgage" shall have the meaning assigned thereto in Section 2.15.
"Nasdaq" shall mean the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System.
"Note Register" shall have the meaning specified in Section 2.5
hereof.
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"Notes" means the [__]% Convertible Senior Secured Notes due October
1, 2006 authenticated and delivered under this Indenture in accordance with its
terms.
"Officer" means, with respect to the Company, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or
Executive Vice President, the Chief Financial Officer, the Treasurer, the
Controller or the Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Sections 14.4
and 14.5 hereof.
"Opinion of Counsel" means a written opinion from legal counsel
complying with the requirements of Sections 14.4 and 14.5 hereof. Unless
otherwise reasonably required by the Trustee, the counsel may be inside counsel
to the Company.
"Over-Allotment Option" means the option of the Underwriters to
purchase additional Notes in the aggregate principal amount of up to $2,375,000
as provided in Section 2.2 hereof.
"Paying Agent" shall have the meaning specified in Section 2.3
hereof.
"Permitted Liens" means: (i) Liens for taxes, assessments or charges
of any governmental body for claims not yet due or which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
the provisions of generally accepted accounting principles; (ii) statutory Liens
of landlords and Liens of carriers, warehousemen, mechanics, materialmen and
other Liens (other than any lien imposed under ERISA or section 401(a)(29) or
412 of the Code) imposed by law and created in the ordinary course of business
and Liens on deposits made to obtain the release of such Liens if (x) the
underlying obligations are not overdue for a period of more than sixty (60) days
or (y) such Liens are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with the provisions of generally accepted
accounting principles; (iii) Liens (other than any lien imposed under ERISA or
section 401(a)(29) or 412 of the Code) incurred on deposits made in the ordinary
course of business (including, without limitation, surety bonds and appeal
bonds) in connection with workers' compensation, unemployment insurance and
other types of social security benefits or to secure the performance of tenders,
bids, leases, contracts (other than the repayment of Indebtedness), statutory
obligations and other similar obligations or arising as a result of progress
payments under contracts; (iv) easements (including, without limitation,
reciprocal easement agreements and utility agreements), rights-of-way,
covenants, consents, reservations, encroachments, variations and other
restrictions, charges or encumbrances (whether or not recorded) which do not
interfere materially with the ordinary conduct of the business of the Company or
its Restricted Subsidiaries and which do not materially detract form the value
of the property to which they attach or materially impair the use thereof to the
Company or its Restricted Subsidiaries; (v) building restrictions, zoning laws
and other statutes, laws, rules, regulations, ordinances and restrictions, and
any amendments thereto, now or at any time hereafter adopted
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by any Governmental Body having jurisdiction; (vi) any attachment or judgment
Lien unless it constitutes an Event of Default; (vii) Liens existing on the
Closing Date and listed in SCHEDULE I hereto; (viii) Liens created to secure
all or any part of the purchase price, or to secure Indebtedness incurred or
assumed to pay all or any part of the purchase price or cost of construction of
property (or any improvement thereon) acquired or constructed by the Company or
a Restricted Subsidiary after the Closing Date, PROVIDED that (A) any such Lien
shall extend solely to the item or items of such property (or improvement
thereon) so acquired or constructed and, if required by the terms of the
instrument originally creating such Lien, other property (or improvement
thereon) which is an improvement to or is acquired for specific use in
connection with such acquired or constructed property (or improvement thereon)
or which is real property being improved by such acquired or constructed
property (or improvement thereon), (B) the principal amount of the Indebtedness
secured by any such Lien shall at no time exceed an amount equal to the lesser
of the cost to the Company or such Restricted Subsidiary of the property (or
improvement thereon) so acquired or constructed and the fair market value
thereof (as determined in good faith by the board of directors of the Company)
at the time of such acquisition or construction, and (C) any such Lien shall be
created contemporaneously with, or within 90 days after, the acquisition or
construction of such property; (ix) any Lien existing on property of a Person
immediately prior to its being consolidated with or merged into the Company or a
Restricted Subsidiary or its becoming a Subsidiary, or any Lien existing on any
property acquired by the Company or a Restricted Subsidiary at the time such
property is so acquired (whether or not the Indebtedness secured thereby shall
have been assumed), PROVIDED that (A) no such Lien shall have been created or
assumed in contemplation of such consolidation or merger of such Person's
becoming a Restricted Subsidiary or such acquisition of property, and (B) each
such Lien shall extend solely to the item or items of property so acquired and,
if required by the terms of the instrument originally creating such Lien, other
property which is an improvement to or is acquired for specific use in
connection with such acquired property; and (x) any Lien renewing, extending or
refunding any Lien permitted by the foregoing clauses (vii), (viii) and (ix),
PROVIDED, that (A) the principal amount of Indebtedness secured by such Lien
immediately prior to such extension, renewal or refunding is not increased or
the maturity thereof reduced, (B) such Lien is not extended to any other
property, (C) immediately after such extension, renewal or refunding, no Default
or Event of Default would exist, and (D) immediately after such extension,
renewal or refunding, the Company shall be permitted to incur at least $1.00 of
additional Funded Debt under the provisions of Section 4.10.
"Person" means any corporation, individual, joint stock company,
joint venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality or
other entity.
"Preferred Stock" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"Record Date" means a Record Date specified in the Notes whether or
not such Record Date is a Business Day.
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"Redemption Date," when used with respect to any Note or Notes to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and Paragraph 5 in the form of Note attached hereto as Exhibit A.
"Redemption Price," when used with respect to any Note or Notes to
be redeemed, means the redemption price for such redemption pursuant to
Paragraph 5 in the form of Note attached hereto as Exhibit A.
"Registrar" shall have the meaning specified in Section 2.3 hereof.
"Repurchase Date" shall have the meaning specified in Section 12.1
hereof.
"Repurchase Offer" shall have the meaning specified in Section 12.3
hereof.
"Repurchase Price" shall have the meaning specified in Section 12.1
hereof.
"Restricted Investments" means all investments except the following:
(a) property to be used in the ordinary course of business of the
Company and its Restricted Subsidiaries;
(b) current assets arising from the sale of goods and services in
the ordinary course of business of the Company and its Restricted
Subsidiaries;
(c) Investments in one or more Restricted Subsidiaries or any
Person that concurrently with such Investment becomes a Restricted
Subsidiary;
(d) Investments in United States Governmental Securities, provided
that such obligations mature within 365 days from the date of acquisition
thereof;
(e) Investments in certificates of deposit or banker's acceptances
issued by an Acceptable Bank, provided that such obligations mature within
365 days from the date of acquisition thereof;
(f) Investments in commercial paper given the highest rating by a
credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof; or
(g) Mutual Funds comprised solely of any of the investments
described in (d)-(f) above.
As of any date of determination, each Restricted Investment shall be
valued at the greater of
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(x) the amount at which such Restricted Investment is shown on the
books of the Company or any of its Restricted Subsidiaries (or zero if
such Restricted Investment is not shown on any such books); and
(y) either
(i) in the case of any Contingent Obligation in
respect of the obligation of any Person, the amount which the
Company or any of its Restricted Subsidiaries has paid on account of
such obligation less any recoupment by the Company or such
Restricted Subsidiary of any such payments, or
(ii) in the case of any other Restricted Investment,
the excess of (x) the greater of (A) the amount originally entered
on the books of the Company or any of its Restricted Subsidiaries
with respect thereto and (b) the cost thereof to the Company or its
Restricted Subsidiary over (y) any return of capital (after income
taxes applicable thereto) upon such Restricted Investment through
the sale or other liquidation thereof or part thereof or otherwise.
As used in this definition of "Restricted Investments":
"ACCEPTABLE BANK" means any bank or trust company (i)
which is organized under the laws of the United States
of America or any State thereof, (ii) which has capital,
surplus and undivided profits aggregating at least
$500,000,000, and (iii) whose long-term unsecured debt
obligations )or the long-term unsecured debt
obligations) of the bank holding company owning all of
the capital stock of such bank or trust company) shall
have been given a rating of "A" or better by S&P, "A2"
or better by Moody's or an equivalent rating by any
other credit rating agency of recognized national
standing.
"MOODY'S" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc.
"UNITED STATES GOVERNMENTAL SECURITY" means any direct
obligation of, or obligation guaranteed by, the United
States of America, or any agency controlled or
supervised by or acting as an instrumentality of the
United States of America pursuant to authority granted
by the Congress of the United States of America, so long
as such obligation or guarantee shall have the benefit
of the full faith and credit of the United States of
America which shall have been pledged pursuant to
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authority granted by the Congress of the United States
of America.
"Restricted Payment" means (1) any dividends or other distributions,
direct or indirect, in respect of any shares of the common stock of the Company
or any of its Restricted Subsidiaries, other than dividends or other
distributions payable solely in shares of its common stock, or warrants, rights,
or options therefor, and dividends or other distributions by any of its
Restricted Subsidiaries to the Company or a Wholly-Owned Restricted Subsidiary;
or (2) any purchase, redemption, retirement or other acquisition of any shares
of common stock of the Company or any of its Restricted Subsidiaries, or of any
warrants, rights or options evidencing a right to purchase or acquire any such
common stock of the Company or any of its Subsidiaries (except in exchange for
other shares of common stock of the Company or any of its Restricted
Subsidiaries, or warrants, rights or options evidencing a right to purchase or
acquire any such common stock).
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of the Company, by resolution to the Trustee,
as an Unrestricted Subsidiary pursuant to the covenant described herein under
"Limitation on Designations of Unrestricted Subsidiaries". Any such designation
may be revoked by the Company by resolution to the Trustee, subject to the
provisions of such covenant.
"Sale" shall have the meaning assigned in Section 4.11 hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Special Payment Date" shall have the meaning specified in Section
2.12 hereof.
"Special Record Date" for payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.12 hereof.
"Stated Maturity," when used with respect to any Note, means
February 1, 2006.
"Subsidiary" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such
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Person or one or more of its Subsidiaries). Unless the context otherwise
clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary
of the Company.
"Surviving Person" shall have the meaning specified in Section 5.2
hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of the execution of this Indenture,
except as provided in Section 9.3 hereof.
"Trading Day" means any day other than any day on which securities
are not traded on the applicable securities exchange or in the applicable
securities market.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
department (or any successor group) of the Trustee including any vice president,
assistant vice president, secretary, assistant secretary or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the Persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer of
the corporate trust department (or any successor group) of the Trustee to whom
such trust matter is referred because of his knowledge of and familiarity with
the particular subject.
"Underwriters" means the parties underwriting the offering of the
Notes.
"Underperforming Property" means, as of any date of determination at
the time of a proposed sale thereof, any health-care related facility (except
for Harvest Village) which has experienced pre-tax operating losses for a period
of at least twelve consecutive calendar months immediately prior to such date.
"Unrestricted Subsidiary" means any Subsidiary of the Company that
has been declared an Unrestricted Subsidiary pursuant to resolution of the board
of directors in compliance with the provisions of Section 4.15 hereof.
"U.S. Government Obligations" means direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"The Whittier" shall mean that certain senior living facility
located at ________________________, Detroit, Michigan, to which the Company has
agreed to provide
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certain management services as described in the Management Agreement dated
_____________ between the Company and Vanguard Ventures, Inc.
"Wholly-Owned Restricted Subsidiary" means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity interests
(except directors' qualifying shares) and voting interests of which are owned by
any one or more of the Company and the Company's other Wholly-Owned Restricted
Subsidiaries at such time.
SECTION 1.2 INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"obligor" on the indenture securities means the Company and any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in the
plural include the singular;
(e) provisions apply to successive events and transactions;
(f) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(g) references to Sections or Articles mean reference to such
Section or Article in this Indenture, unless stated otherwise.
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ARTICLE II.
THE NOTES
SECTION 2.1 FORM AND DATING.
The Notes and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
is part of this Indenture, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends, notations or endorsements placed thereon as may be required by
law to comply with the rules of any securities exchange, usage, or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution thereof. The Company and the Trustee shall approve
the form of the Notes and any notation, legend or endorsement on them. Any such
notations, legends or endorsements not contained in the form of Note attached as
Exhibit A hereto shall be delivered in writing to the Trustee. Each Note shall
be dated the date of its authentication.
The terms and provisions contained in the forms of Notes shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby. In the event of any inconsistency between the Notes and the Indenture,
the Indenture controls.
The Notes will initially be represented by one or more global
securities which shall bear the legend set forth in Exhibit A hereto and shall
be deposited with The Depository Trust Company ("DTC"), as Depository, or an
agent of DTC.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Notes for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on the
Notes and may be in facsimile form.
If an Officer whose signature is on a Note was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Note, the Note shall be valid nevertheless and the Company
shall nevertheless be bound by the terms of the Notes and this Indenture.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note but such
signature shall be conclusive evidence that the Note has been authenticated
pursuant to the terms of this Indenture.
The Trustee shall authenticate Notes for original issue in the
aggregate principal amount of up to $12,500,000 (or up to $14,375,000 if the
Over-Allotment Option is exercised) upon a written order of the Company signed
by two Officers or by an Officer and
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Assistant Treasurer or Assistant Secretary of the Company. The written order
shall specify the amount of Notes to be authenticated and the date on which the
Notes are to be authenticated. The aggregate principal amount of Notes
outstanding at any time may not exceed $12,500,000 (or up to $14,375,000 if the
Over-Allotment Option is exercised), except as provided in Section 2.7 hereof.
Upon a written order of the Company signed by two Officers or by an Officer and
Assistant Treasurer or Assistant Secretary for the Company, the Trustee shall
authenticate Notes in substitution of Notes originally issued to reflect any
name change of the Company.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless otherwise provided in the appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with any obligor, any Affiliate of any obligor, or any of their
respective Subsidiaries.
Unless otherwise provided in or pursuant to this Indenture,
debentures shall be issuable only in global and registered form without coupons.
SECTION 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar"), an office
or agency where Notes may be presented for payment ("Paying Agent") and an
office or agency where Notes may be presented for conversion ("Conversion
Agent"). Notices and demands to or upon the Company in respect of the Notes may
be served as is provided in Section 14.2 hereof. The Company or an Affiliate of
the Company may act as Registrar, Paying Agent or Conversion Agent, except that,
for the purposes of Articles III, VIII and XII hereof, neither the Company nor
any Affiliate of the Company shall act as Paying Agent. The Registrar shall
keep a register of the Notes and of their transfer and exchange as provided in
Section 2.5 hereof.
The Company may have one or more co-Registrars, one or more
additional Paying Agents and one or more additional Conversion Agents. The term
"Paying Agent" includes any additional Paying Agent and the term "Conversion
Agent" includes any additional Conversion Agent. The Company may change any
Registrar, co-Registrar, Paying Agent, Conversion Agent or agent for service of
notices and demands on 30 days' prior notice to the Trustee.
The Company shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee in writing in advance of the name and address of any such
Agent. If the Company fails to maintain a Registrar, Paying Agent, Conversion
Agent or agent for service of notices and demands, the Trustee shall act as
such.
The Company hereby appoints (i) Continental Stock Transfer and Trust
Company as Registrar and Conversion Agent, and (ii) the Trustee as Paying Agent
and agent
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for service of notices and demands, and each of Continental Stock Transfer and
Trust Company and the Trustee hereby agrees so to act.
SECTION 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, or interest on, the Notes (whether such assets
have been distributed to it by the Company or any other obligor on the Notes),
and shall notify the Trustee in writing of any Default in making any such
payment. If the Company or an Affiliate of the Company acts as Paying Agent, it
shall segregate such assets and hold them as a separate trust fund for the
benefit of the Holders or the Trustee. The Company at any time may require a
Paying Agent to distribute all assets held by it to the Trustee and account for
any assets disbursed and the Trustee may at any time during the continuance of
any payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent (if
other than the Company or an Affiliate of the Company) shall have no further
liability for such assets.
SECTION 2.5 NOTEHOLDER LISTS.
The Company shall cause to be kept at the Corporate Trust Office of
the Registrar a register (the register maintained in such office and in any
other office or agency designated pursuant to this Section 2.5 being herein
sometimes collectively referred to as the "Note Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration and transfers of Notes. The Registrar shall preserve in the
Note Register, in as current a form as is reasonably practicable, the most
recent list available to the Registrar of the names and addresses of Holders.
If the Trustee is not the Registrar, the Company shall furnish to the Trustee on
or before the third Business Day preceding each Interest Payment Date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee reasonably may require of the names and addresses
of Holders.
SECTION 2.6 TRANSFER AND EXCHANGE.
(a) When Notes (other than Notes in global form) are presented to
the Registrar or a co-Registrar with a request to register the transfer of such
Notes or to exchange such Notes for an equal principal amount of Notes of other
authorized denominations, the Registrar or co-Registrar shall register the
transfer or make the exchange as requested if its reasonable requirements for
such transaction are met; PROVIDED, HOWEVER, that the Notes surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company and the
Registrar or co-Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Notes at the
Registrar's or co-Registrar's request. No service charge shall be made
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for any registration of transfer or exchange, but the Company or the Trustee may
require payment of a sum sufficient to cover any transfer tax, assessment, or
similar governmental charge payable in connection therewith (other than any such
transfer taxes, assessment, or similar governmental charge payable upon
exchanges or transfers pursuant to Section 2.2, 2.10, 3.7, 9.5, 12.1 or 13.2
hereof).
Notwithstanding the foregoing, except as otherwise provided in or
pursuant to this Indenture, any global Note shall be exchangeable for definitive
Notes only if (i) the Depository is at any time unwilling, unable or ineligible
to continue as Depository and a successor depository is not appointed by the
Company within 60 days of the date the Company is so informed in writing, (ii)
the Company executes and delivers to the Trustee a Company Order to the effect
that such global Note shall be so exchangeable, or (iii) a Default or Event of
Default has occurred and is continuing with respect to the Notes. A global Note
that is exchangeable pursuant to the preceding sentence shall be exchangeable
for Notes issuable in denomination of $1,000 and any integral multiple thereof
and registered in such names as the Depository holding such global Note shall
direct. If the beneficial owners of interests in a global Note are entitled to
exchange such interests for definitive Notes of like tenor and principal amount
of any authorized form and denomination as specified as contemplated by Section
2.10, then without unnecessary delay but in any event not later than the
earliest date on which such interests may be so exchanged, the Company shall
deliver to the Trustee definitive Notes in such form and denominations as are
required by or pursuant to this Indenture containing identical terms and in
aggregate principal amount equal to the principal amount of, such global Note,
executed by the Company. On or after the earliest date on which such interests
may be so exchanged, such global Notes shall be surrendered from time to time by
the Depository, and in accordance with instructions given to the Trustee and the
Depository (which instructions shall be in writing but need not be contained in
or accompanied by an Officers' Certificate or be accompanied by an Opinion of
Counsel), as shall be specified in the Company Order with respect thereto to the
Trustee, as the Company's agent for such purpose, to be exchanged PROVIDED,
HOWEVER, that no such exchanges may occur during a period beginning at the
opening of business 15 days before any such selection of Notes for redemption,
to be redeemed and ending on the relevant Redemption Date. Promptly following
any such exchange in part, such global Note shall be returned by the Trustee to
such Depository in accordance with the instructions of the Company referred to
above. If a Note is issued in exchange for any portion of a global Note after
the close of business at the office or agency for such Note where such exchange
occurs on or after (i) any Regular Record Date and before the opening of
business at such office or agency on the next Interest Payment Date, or (ii) any
Special Record date and before the opening of business at such office or agency
on the related proposed date for payment of interest or Defaulted Interest, as
the case may be, interest shall not be payable on such Interest Payment Date or
proposed date for payment, as the case may be, in respect of such Note, but
shall be payable on such Interest Payment Date or proposed date for payment, as
the case may be, only to the Person to whom interest in respect of such portion
of such global Note shall be payable in accordance with the provisions of this
Indenture.
(b) The Registrar or co-Registrar shall not be required (i) to
issue, register the transfer of or exchange any Note for a period beginning 10
Business Days before the mailing of a notice of an offer to repurchase pursuant
to Article XII hereof or redeem Notes
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pursuant to Article III hereof and ending at the close of business on the day of
such mailing or (ii) to register the transfer or exchange of any Note selected
for redemption in whole or in part pursuant to Article III, except the
unredeemed portion of any Note being redeemed in part. The Registrar or co-
Registrar shall not be liable to the Company, Holders of Notes or any other
Persons for transfers of such Notes effected prior to its receipt of such
written instructions from the Company and the Company shall indemnify the
Registrar or co-Registrar for all claims, costs and expenses incurred by it in
connection with refusing to transfer Notes as instructed by the Company.
SECTION 2.7 REPLACEMENT NOTES.
If a mutilated Note is surrendered to the Trustee or if the Holder
of a Note claims and submits to the Trustee an affidavit or other evidence,
satisfactory to the Company and Trustee, to the effect that the Note has been
lost, destroyed or wrongfully taken, the Company shall issue and the Trustee
shall authenticate a replacement Note if the Company's and the Trustee's
requirements are met. If required by the Trustee or the Company, such Holder
must provide an indemnity bond or other indemnity, sufficient in the judgment of
both the Company and the Trustee, to protect the Company, the Trustee or any
Agent from any loss which any of them may suffer if a Note is replaced. Upon
the issuance of any new Note under this Section 2.7, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith. The provisions of this
Section 2.7 are exclusive and shall preclude (to the extent lawful) all other
rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Notes. Every replacement Note is an additional
obligation of the Company.
SECTION 2.8 OUTSTANDING NOTES.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section 2.8 as not outstanding. A
Note does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note, except as provided in Section 2.9 hereof.
If a Note is replaced pursuant to Section 2.7 hereof (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a BONA FIDE purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.7 hereof.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or an Affiliate of the Company) holds U.S. Legal Tender or U.S.
Government Obligations sufficient to pay all of the principal of, premium, if
any, and interest due on the Notes payable on that date, then on and after that
date such Notes cease to be outstanding and interest on them ceases to accrue.
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SECTION 2.9 TREASURY NOTES.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, amendment, supplement, waiver or
consent, Notes owned by the Company and Affiliates of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Notes that the Trustee knows or has reason to know are
so owned shall be disregarded.
SECTION 2.10 TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare, and the Trustee shall authenticate, temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company reasonably and in good faith considers appropriate for
temporary Notes. Except in the case of temporary Notes in global form, which
shall be exchanged in accordance with the provisions thereof, without
unreasonable delay, the Company shall prepare, and the Trustee shall
authenticate, definitive Notes in exchange for temporary Notes. Unless
otherwise provided in or pursuant to this Indenture with respect to a temporary
global Note, until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as permanent Notes
authenticated and delivered hereunder.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation which the Company may have acquired in any manner whatsoever, and
all Notes so delivered shall be promptly cancelled by the Trustee. The
Registrar, the Paying Agent and the Conversion Agent shall forward to the
Trustee any Notes surrendered to them for transfer, payment or exchange. The
Trustee, or at the direction of the Trustee, the Registrar, the Paying Agent or
Conversion Agent (other than the Company or an Affiliate of the Company), shall
cancel and, at the written direction of the Company, shall dispose of all Notes
surrendered for transfer, payment, exchange or cancellation. Subject to Section
2.7 hereof, the Company may not issue new Notes to replace Notes it has paid or
delivered to the Trustee for cancellation. No Notes shall be authenticated in
lieu of or in exchange for any Notes cancelled as provided in this Section 2.11,
except as expressly permitted in the form of Notes and as permitted by this
Indenture.
SECTION 2.12 DEFAULTED INTEREST.
Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Note (or one or more predecessor Notes) is registered at the
close of business on the Record Date for such interest.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus, to the extent
lawful, any interest payable on
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the defaulted interest (herein called "Defaulted Interest") shall forthwith
cease to be payable to the registered holder on the relevant Record Date by
virtue of having been such Holder, and such Defaulted Interest may be paid by
the Company, at its election in each case, as provided in clause (a) or (b)
below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
predecessor Notes) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the amount
of Defaulted Interest proposed to be paid on each Note, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
fixed for payment, such money when deposited to be held in trust for the benefit
of the Persons entitled to such Defaulted Interest as provided in this clause
(a). Thereupon the Trustee shall fix a Special Record Date and special payment
date (the "Special Payment Date") for the payment of such Defaulted Interest.
The Special Record Date shall be not more than 15 days and not less than 10 days
prior to the Special Payment Date. The Special Payment Date shall be not more
than 60 days after receipt by the Trustee of the notice to pay the Defaulted
Interest. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder at his
address as it appears in the Note Register not less than 10 days prior to such
Special Record Date. The Trustee may, in its discretion, in the name and at the
expense of the Company, cause a similar notice to be published at least once in
a newspaper, customarily published in the English language on each Business Day
and of general circulation in the Borough of Manhattan, The City of New York,
but such publication shall not be a condition precedent to the establishment of
such Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as aforesaid,
such Defaulted Interest shall be paid to the Persons in whose names the Notes
(or their respective predecessor Notes) are registered on such Special Record
Date and shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause accompanied by an Opinion of
Counsel stating that the manner of payment complies with this clause, such
manner shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.12, each Note
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Note shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Note.
SECTION 2.13 CUSIP NUMBER.
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The Company may use a "CUSIP" number when issuing the Notes, and if
so, the Trustee may use the CUSIP number in notices of redemption or exchange as
a convenience to Noteholders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes, and that reliance may be placed only on
the other identification numbers printed on the Notes.
SECTION 2.14. NOTES IN GLOBAL FORM.
The Notes shall initially be issued in global form (i.e., in the
name of the nominee of a Depository for purposes of book-entry transfer) and one
or more Notes shall represent the aggregate amount of all outstanding Notes from
time to time endorsed thereon and may provide that the aggregate amount of
outstanding Notes represented thereby may from time to time be increased or
reduced to reflect exchanges, repurchases and redemptions. Any endorsement of
any Note in global form to reflect the amount, or any increase or decrease in
the amount, or changes in the rights of Holders, of outstanding Notes
represented thereby shall be made in such manner and by such Person or Persons
as shall be specified therein or in a written order of the Company signed by two
Officers or by an Officer and Assistant Treasurer or Assistant Secretary for the
Company. The Trustee shall deliver and redeliver any Note in permanent global
form in the manner and upon instructions given by the Person or Persons
specified therein or in the written order of the Company signed by two Officers
or by an Officer and Assistant Treasurer or Assistant Secretary for the Company.
SECTION 2.15. SECURITY. In order to secure the Company's
obligations under the Notes, concurrently with the execution hereof, the Company
has executed and delivered a Mortgage (the "Mortgage") creating a lien on the
real property comprising Harvest Village and a security interest in certain
personal property owned by the Company and located at Harvest Village.
ARTICLE III.
REDEMPTION
SECTION 3.1 RIGHT OF REDEMPTION.
Redemption of Notes, as permitted or required by any provision of
this Indenture, shall be made in accordance with such provision and this
Article III. The Notes may be redeemed at the election of the Company, in whole
or in part, at any time on or after October 1, 1999, at the applicable
Redemption Prices specified in Paragraph 5 of the form of Note attached as
Exhibit A hereto, set forth therein under the caption "Optional Redemption,"
plus accrued and unpaid interest to and including the Redemption Date if the
Closing Price shall have been at least 150% of the conversion price for at least
20 consecutive Trading Days within a period of 30 consecutive Trading Days
ending not more than five Trading Days prior to the date of the notice of such
redemption.
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SECTION 3.2 NOTICES TO TRUSTEE.
When the Company redeems Notes pursuant to Paragraph 5 of the Notes,
it shall notify the Trustee in writing of the Redemption Date and the principal
amount of Notes to be redeemed and whether the Company or the Trustee is to give
notice of redemption to the Holder or Holders.
If the Company wants to reduce the principal amount of Notes to be
redeemed pursuant to paragraph 5(b) of the Notes, it shall notify the Trustee of
the amount of the reduction and the basis for it. If the Company wants to
credit against any such redemption Securities it has not previously delivered to
the Trustee for cancellation, it shall deliver the Securities with the notice.
Notwithstanding any other provision of this Indenture to the
contrary, any principal amount of Notes paid upon partial redemption of Notes
pursuant to paragraph 5(a) of the Notes shall be applied in inverse order of
maturity to reduce each of the then remaining mandatory redemption amounts
required under paragraph 5(b) of the Notes and the payment of the Notes at
maturity. Notwithstanding any other provision of this Indenture to the
contrary, any amount paid in respect of principal of the Notes upon the purchase
or prepayment of any Notes by the Company pursuant to this Indenture shall be
applied to reduce pro rata each of the then remaining mandatory redemption
amounts required under paragraph 5 of the Notes.
The Company shall give each notice to the Trustee provided for in
this Section 3.2 at least 10 days before the Redemption Date (unless a shorter
notice shall be satisfactory to the Trustee).
SECTION 3.3 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed pursuant to
Paragraph 5 of the Notes, the Trustee shall redeem PRO RATA or by lot or in such
other manner as complies with any applicable legal and stock exchange
requirements.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption and shall promptly notify the Company in
writing of the Notes selected for redemption and, in the case of any Note
selected for partial redemption, the principal amount thereof to be redeemed.
Notes in denominations of $1,000 may be redeemed only in whole. The Trustee may
select for redemption portions (equal to $1,000 or any integral multiple
thereof) of the principal of Notes that have denominations larger than $1,000.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.4 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee
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and each Holder whose Notes are to be redeemed pursuant to Paragraph 5 of the
Notes at his address appearing in the Note Register.
Each notice of redemption shall identify the Notes to be redeemed
and shall state the following and such other matters as the Trustee shall deem
proper:
(a) the Redemption Date;
(b) the Redemption Price and the amount of accrued and unpaid
interest per $1,000 principal amount to be paid upon such redemption;
(c) the name, address and telephone number of the Paying Agent;
(d) that Notes called for redemption must be surrendered to the
Paying Agent at the address specified in such notice to collect the Redemption
Price plus accrued and unpaid interest;
(e) that, unless the Company defaults in its obligation to deposit
U.S. Legal Tender with the Paying Agent in accordance with Section 3.6 hereof,
interest on Notes called for redemption ceases to accrue on and after the
Redemption Date and the only remaining right of the Holders of such Notes is to
receive payment of the Redemption Price and accrued and unpaid interest, upon
surrender to the Paying Agent of the Notes called for redemption and to be
redeemed;
(f) if any Note is being redeemed in part, the portion of the
principal amount, equal to $1,000 or any integral multiple thereof, of such Note
that will not be redeemed and that, after the Redemption Date, and upon
surrender of such Note, a new Note or Notes in aggregate principal amount equal
to the unredeemed portion thereof will be issued;
(g) if less than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be redeemed, as
well as the aggregate principal amount of such Notes to be redeemed and the
aggregate principal amount of Notes to be outstanding after such partial
redemption; and
(h) that the notice is being sent pursuant to this Section 3.4 and
pursuant to the redemption provisions of Paragraph 5 of the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. If a CUSIP
number is listed in such notice or printed on the Note, the notice shall state
that no representation is made as to the correctness or accuracy of such CUSIP
number.
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.4
hereof, Notes called for redemption become due and payable on the Redemption
date at the Redemption
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Price plus accrued and unpaid interest to the Redemption Date. Upon surrender
to the Trustee or Paying Agent, such Notes called for redemption shall be paid
on the Redemption Date at the Redemption Price plus interest, if any, accrued
and unpaid to the Redemption Date; PROVIDED that if the Redemption Date is after
a regular Record Date and on or prior to the Interest Payment Date, the accrued
interest shall be payable to the Holder of the redeemed Notes registered as of
the close of business on the relevant Record Date; and PROVIDED, FURTHER, that
if a Redemption Date is a Legal Holiday, payment shall be made on the next
succeeding Business Day and no interest shall accrue for the period from such
Redemption Date to such succeeding Business Day.
SECTION 3.6 DEPOSIT OF REDEMPTION PRICE.
On or prior to the Redemption Date, the Company shall deposit with
the Paying Agent (other than the Company or an Affiliate of the Company) U.S.
Legal Tender sufficient to pay the Redemption Price of and accrued and unpaid
interest on all Notes to be redeemed on such Redemption Date (other than Notes
or portions thereof called for redemption on that date that have been delivered
by the Company to the Trustee for cancellation). The Paying Agent shall
promptly return to the Company any U.S. Legal Tender so deposited which is not
required for that purpose upon the written request of the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III, interest on the Notes to be redeemed will cease
to accrue on the applicable Redemption Date, whether or not such Notes are
presented for payment. Notwithstanding anything herein to the contrary, if any
Note surrendered for redemption in the manner provided in the Notes shall not be
so paid upon surrender for redemption because of the failure of the Company to
comply with the preceding paragraph, interest shall continue to accrue and be
paid from the Redemption Date until such payment is made on the unpaid
principal, and, to the extent lawful, on any interest not paid on such unpaid
principal, in each case at the rate and in the manner provided in Section 4.1
hereof and the Notes.
SECTION 3.7 NOTES REDEEMED IN PART.
Upon surrender of a Note that is to be redeemed in part, the Company
shall execute and the Trustee shall authenticate and deliver to the Holder,
without service charge, a new Note or Notes equal in principal amount to the
unredeemed portion of the Note surrendered. If a Note in global form is so
surrendered, the Company shall execute, and the Trustee shall authenticate and
deliver to the Depository for such Note in global form as shall be specified in
the Company Order with respect thereto to the Trustee, without service charge, a
new Note in global form in a denomination equal to and in exchange for the
unredeemed portion of the principal of the Note in global form so surrendered.
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ARTICLE IV.
COVENANTS
SECTION 4.1 PAYMENT OF NOTES.
The Company shall pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes. An
installment of principal of, premium, if any, or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or an Affiliate of the Company) holds for the benefit of the
Holders, on or before 10:00 a.m. New York City time on that date, U.S. Legal
Tender deposited and designated for and sufficient to pay the installment.
The Company shall pay interest on overdue principal and on overdue
installments of interest at the rate specified in the Notes compounded semi-
annually, to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company or the Trustee may, to the extent required by law, deduct
or withhold income or other similar taxes imposed by the United States of
America or any state or other political jurisdiction thereof from principal of,
premium, if any, or interest payments on the Notes.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, New York,
New York an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company shall give prior written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 14.2 hereof. Such office may be an
office maintained directly or indirectly by the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; PROVIDED,
HOWEVER, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in New York, New York
for such purposes. The Company shall give prior written notice to the Trustee
of any such designation or rescission and of any change in the location of any
such other office or agency. The Company hereby initially designates Corporate
Trust Office of Continental Stock Transfer and Trust Company (or the office of
the agent thereof) in New York, New York as such office of the Company.
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SECTION 4.3 CORPORATE EXISTENCE.
Subject to Article V hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate or other existence of each of its
Subsidiaries in accordance with the respective organizational documents of each
of them; PROVIDED, HOWEVER, that the Company shall not be required to preserve
any such existence if (a) the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and (b) the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 4.4 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall, and shall cause each of its Subsidiaries to,
comply with or contest in good faith all statutes and governmental regulations
and pay all taxes, assessments, governmental charges, claims for labor,
supplies, rent and any other obligations which, if unpaid, might become a lien,
charge or encumbrance against any of their properties, except liabilities being
contested in good faith and against which adequate reserves have been
established.
SECTION 4.5 MAINTENANCE OF PROPERTIES AND INSURANCE.
The Company shall maintain or shall cause to be maintained in good
working order and condition (ordinary wear and tear excepted) the properties
necessary to its and its Subsidiaries' operations and shall make or shall cause
to be made all needed repairs, replacements and renewals as are necessary to
conduct its business and the businesses of its Subsidiaries in accordance with
customary business practices. The Company and each of its Subsidiaries will
cause insurance, in favor of the Company or the Subsidiaries, to be maintained
with responsible insurers with respect to each of the Company's and the
Subsidiaries' properties and businesses against such casualties and
contingencies as shall be in accordance with general practices of businesses
engaged in similar activities in similar geographic areas.
SECTION 4.6 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee within 45 days after
the end of each of its fiscal quarters an Officers' Certificate at least one of
which in each fiscal year shall comply with the annual reporting requirements of
Section 314(a)(4) of the TIA (including the required signatory provisions) and
stating that a review of its activities and the activities of its Subsidiaries
during the preceding fiscal quarter has been made under the supervision of the
signing Officers with a view to determining whether the Company and its
Subsidiaries have kept, observed, performed and fulfilled its obligations under
this Indenture and further stating, as to each such Officer signing such
certificate, whether or not to the best knowledge of the signers thereof the
Company or any Subsidiary of the Company has failed to comply with any
conditions or covenants in this Indenture, or if the Company shall be in
Default, the occurrence of any Default, and, if such signor does know of such a
failure to comply or Default, the certificate shall describe such failure or
Default with reasonable particularity.
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(b) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee and to each Holder, (a) within three
Business Days of becoming aware of any Default or Event of Default under this
Indenture or (b) upon receipt of notice of default or of any other action with
respect to a claimed default from any Holder or from any holder of any other
evidence of Indebtedness by the Company or any Restricted Subsidiary an
Officers' Certificate specifying such default and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not be
deemed to have knowledge of a Default or an Event of Default unless one of its
Trust Officers receives notice of the Default giving rise thereto from the
Company or any of the Holders.
SECTION 4.7 SEC REPORTS.
The Company shall deliver to the Trustee and each Holder, within 10
days after it files the same with the SEC, copies of all reports and information
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe), if any, which the Company is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act provided that in the
case of annual reports, information may be incorporated by reference and
furnished to Holders at the time and in the manner in which such information is
required to be furnished to the Company's common stockholders. The Company
agrees to comply with the filing and reporting requirements of the SEC as long
as any of the Notes are outstanding; PROVIDED, that if the Company is not
subject to the filing and reporting requirements of the SEC at any time, (a) the
Company shall provide the Trustee and each Holder with the reports and
information (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which are specified in Section 13 or 15(d)
of the Exchange Act as if the Company were subject to such filing and reporting
requirements, and (b) the Company shall provide copies of such reports and
information to any prospective holder of the Notes promptly upon written request
and payment of reasonable costs of duplication and delivery. The Record Date to
identify the Holders to whom such reports shall be furnished shall be no longer
than 60 days prior to the date on which such reports are first mailed to the
Holders of the Notes.
SECTION 4.8 LIMITATIONS ON STATUS AS INVESTMENT COMPANY.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, become an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended) or otherwise become subject to
regulation under such Investment Company Act.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other similar law which would prohibit or forgive the Company from
paying all or any portion of the principal of, premium, if any, or interest on
the Notes as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution
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of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 4.9. NATURE OF BUSINESS. The Company will not engage
in any business other than owning, managing, and developing long-term health
care living facilities for senior citizens and the provision of other health
care services relating to the operation of long-ten health care living
facilities for senior citizens and performing its obligations hereunder and
under the Mortgage and the other documents executed in connection herewith to
which it is a party.
SECTION 4.10. LIMITATION ON INDEBTEDNESS. The Company will not
incur, assume, guarantee or otherwise become liable with respect to any
Indebtedness other than (i) the Notes and (ii) other Funded Debt, so long as,
after giving effect thereto, the Funded Debt of the Company does not exceed 225%
of the sum of Consolidated Net Worth and the aggregate principal amount of the
Notes then outstanding.
SECTION 4.11. ASSET SALE. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, in a single
transaction or a series of transactions, sell, lease, transfer, abandon or
otherwise dispose of or suffer to be sold, leased, transferred, abandoned or
otherwise disposed of, all or any part of its assets except:
(1) the Company or any Restricted Subsidiary may sell its surplus
and obsolete equipment, in each case, in the ordinary course of its
business; and
(2) any Restricted Subsidiary may sell, lease or otherwise dispose
of any or all of its assets to the Company or any other Wholly-Owned
Restricted Subsidiary;
(3) any sale of an Underperforming Property; and
(4) the Company or any Restricted Subsidiary may sell, lease or
otherwise dispose of assets in transactions not otherwise permitted under
clause (i) of this Section 4.11(h) (each such sale, lease or other
disposition of assets being hereinafter referred to as a "SALE"), so long
as (A) after giving effect to such Sale, no Material Sale of Assets (as
defined below) shall have occurred; (B) both before and immediately after
the consummation of such Sale, no Default or Event of Default shall exist
with respect to this Indenture; and (C) immediately after the consummation
of such Sale, and after giving effect thereto, the Company would be
permitted to incur at least $1.00 of additional Funded Debt in compliance
with Section 4.10 hereof.
Notwithstanding the foregoing, in the event a Material Sale of
Assets shall have occurred, no Default or Event of Default shall be deemed to
occur hereunder unless the proceeds received by the Company or any Restricted
Subsidiary in connection with any sale or sales of assets (excluding any such
sale or sales which would not constitute a Material Sale of Assets) are either
(i) used by the Company or a Restricted Subsidiary to acquire assets to be used
by the Company or such Restricted Subsidiary in a business permitted under the
limitations of Section 4.9; or (ii) used by the Company, to the extent the
Company shall otherwise be
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permitted, to redeem Notes at the Company's option pursuant to Article 3 of this
Indenture and Paragraph 5 of the Notes.
For the purposes of this Section 4.11(h), a "MATERIAL SALE OF
ASSETS" shall have occurred if, after and giving effect to any Sale the
aggregate book value of assets disposed of in such Sale and in all prior Sales
during the same Fiscal Year exceeds an amount equal to ten percent (10%) of the
amount of Consolidated Total Assets as at the end of the most recently ended
Fiscal Year.
SECTION 4.12. FIXED CHARGE COVERAGE. The Company will maintain
at all times a ratio of Consolidated EBITR to Fixed Charges for the period of
the four Fiscal Quarters most recently ended of not less than ____ to 1.00.
SECTION 4.13. RESTRICTED INVESTMENTS AND RESTRICTED PAYMENTS.
Neither the Company nor any of its Restricted Subsidiaries shall make any
Restricted Investment or declare, make or pay, or incur any liability to make or
pay, or cause or permit to be declared, made or paid any Restricted Payment
unless: (i) the amount of such Restricted Payment or Restricted Investment,
together with any other Restricted Investments made and any other Restricted
Payments declared, made or paid on or after July 1, 1996, does not exceed an
amount equal to 25% of the Consolidated Net Earnings for the period commencing
on such date and ending on the last day of the Fiscal Quarter then most recently
ended; (ii) immediately after giving effect to such Restricted Investment or
Restricted Payment, no Default or Event of Default shall exist; and
(iii) immediately after giving effect to such Restricted Investment or
Restricted Payment, the Company would be permitted to incur at least $1.00 of
additional Funded Debt in compliance with the provisions of Section 4.10 hereof.
The amount of any Restricted Payment in the form of property shall be deemed to
be the greater of its net book value or its fair value (as determined by the
Board, which determination shall be evidenced by a resolution of the Board filed
with the Trustee) at the time of making the Restricted Payment. In addition,
the Company shall be permitted to make loans or advances to Development Entities
provided that (i) the aggregate amount of all such loans or advances to any
single Development Entity outstanding at any time does not exceed $1,500,000 and
shall be secured by assets of such Development Entity having an appraised fair
market value (at the time of making any such loan or advance) not less than the
aggregate amount of such loans and advances outstanding, except that such loans
or advances in an aggregate amount of not more than 25% of such loan or advance,
solely for working capital purposes, may be unsecured; (ii) the aggregate amount
of all such loans and advances made to all Development Entities in any Fiscal
Year does not exceed 40% of the sum of (x) Consolidated Net Worth, (y) the
outstanding principal amount of the Notes and (z) all Indebtedness of the
Company and its Restricted Subsidiaries subordinate to the Notes;
(iii) immediately after giving effect to such loan or advance, no Default or
Event of Default under the Indenture shall exist; and (iv) immediately after
giving effect to such loan or advance, the Company would be permitted to incur
at least $1.00 of additional Funded Debt in compliance with the provisions of
Section 4.10 hereof.
SECTION 4.14. FINANCIAL STATEMENTS. The Company will provide to
the Trustee and each Holder (i) within 45 days of the end of each of the first
three Fiscal Quarters of each Fiscal Year, consolidated and consolidating and
cash flow statements for such Fiscal
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Quarter, prepared in accordance with generally accepted accounting principles
and certified by the Chief Financial Officer of the Company verifying the
Company's compliance with this Indenture and (ii) within 90 days of the end of
each Fiscal Year, consolidated financial statements prepared and certified by a
firm of independent public accountants in accordance with generally accepted
accounting principles which shall include such accountant's certificate
verifying the Company's compliance with the terms of this Indenture, together
with unaudited consolidating financial statements.
SECTION 4.15. LIMITATION ON DESIGNATION OF UNRESTRICTED
SUBSIDIARIES. (a) The Company may designate (a "Designation") any Subsidiary as
an Unrestricted Subsidiary only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation; and
(ii) the Company would be permitted under the provisions of this
Article IV to make an Investment at the time of the Designation in an
amount (the "Designation Amount") equal to greater of the fair market
value or book value of the aggregate amount of its Investments in such
Subsidiary on such date; and
(iii) immediately after giving effect to such Designation, the
Company would be permitted to incur $1.00 of additional Funded Debt in
compliance with Section 4.10 hereof.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Investment for all purposes of
the Indenture in the Designation Amount.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of the Indenture.
(iii) All Designations and Revocations must be evidenced by
resolutions of the Company delivered to the Trustee certifying compliance with
the provisions of this Section 4.15.
SECTION 4.16. CONSOLIDATED NET WORTH. The Company will not
permit Consolidated Net Worth to be less than an amount equal to the sum of (i)
$6,000,000 plus (ii) the sum of twenty-five percent (25%) of Consolidated Net
Earnings for each Fiscal Quarter
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ended on or after September 30, 1996, for which Consolidated Net Earnings is a
positive number (Consolidated Net Earnings for any such fiscal quarter for which
Consolidated Net Earnings is a loss having no effect on the calculation of the
amount referred to herein).
SECTION 4.17. TRANSACTIONS WITH AFFILIATES. The Company will
not, and will not permit any of its Restricted Subsidiaries to, enter into any
transaction (including, without limitation, the purchase, sale or exchange of
any property, the rendering of any services or the payment of management fees)
with any Affiliate (other than the Company or any Restricted Subsidiary), except
in the ordinary course of, and pursuant to the reasonable requirements of, the
business of the Company and its Restricted Subsidiaries, and in good faith and
upon commercially reasonable terms that are no less favorable to the Company or
such Restricted Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person other than an Affiliate.
SECTION 4.18. LIMITATIONS ON LIENS. Neither the Company nor any
of its Subsidiaries will create, incur, assume or suffer to exist any Lien other
than Permitted Liens.
SECTION 4.19. RESTRICTIONS ON EXERCISE OF PURCHASE OPTIONS. The
Company shall not exercise its option to purchase The Whittier for a purchase
price greater than (i) the lesser of (x) the appraised fair market value of The
Whittier or (y) the amount of Indebtedness secured by the mortgage encumbering
The Whittier less any accrued management fees payable to the Company or (ii) the
product of (x) [__] times (y) operating cash flow of The Whittier for period of
four fiscal quarters of The Whittier most recently ended at the time of exercise
of the option.
ARTICLE V.
SUCCESSOR CORPORATION
SECTION 5.1 WHEN COMPANY MAY MERGE, ETC.
(a) The Company shall not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person, or, directly or indirectly, sell, lease, assign, transfer or convey or
otherwise dispose of all or substantially all of its assets (computed on a
consolidated basis), to another Person or group of Affiliated Persons, unless:
(i) the Company shall be the continuing Person;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have happened and be continuing;
(iii) immediately after giving effect to such transaction, the
Company shall be permitted to incur at least $1.00 of additional Funded Debt
under the provisions of Section 4.10; and
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(iv) the Company has delivered to the Trustee an Officers'
Certificate stating that such consolidation, merger, sale, lease, assignment,
transfer, conveyance or other disposition and such supplemental indenture comply
with this Article V and that all conditions precedent herein provided relating
to such transaction have been satisfied.
(b) For purposes of clause (a), the sale, lease, assignment,
transfer, conveyance, or other disposition of all or substantially all of the
properties and assets of one or more wholly owned Subsidiaries of the Company,
which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon consolidation or merger, or any transfer or disposition of
assets in accordance with Section 5.1 hereof the Person formed by such
consolidation or into which the Company is merged or to which such transfer is
made (such Person being hereinafter referred to as a "Surviving Person") shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such Surviving
Person had been named as the Company herein. When a Surviving Person duly
assumes all of the obligations of the Company pursuant hereto and pursuant to
the Notes, the Company shall be released from such obligations.
ARTICLE VI.
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) the failure by the Company to pay installments of interest
upon any Note as and when the same becomes due and payable;
(b) the failure by the Company to pay all or any part of the
principal of, or premium, if any, on the Notes when and as the same becomes due
and payable at Stated Maturity, upon redemption, upon acceleration, or
otherwise, including payment of the Repurchase Price;
(c) the failure of the Company to comply with the provisions in
Article V hereof;
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(d) the failure of the Company to provide notice of a Change of
Control as provided in Section 12.3 hereof;
(e) the failure by the Company to observe or perform any other
covenant, agreement or warranty of the Company contained in the Mortgage, the
Notes or this Indenture (other than a default in the performance of any
covenant, agreement or warranty which is specifically provided for elsewhere in
this Section 6.1), and continuance of such failure for the period and after the
notice specified below;
(f) a default or defaults under the Mortgage or any bond,
debenture, note or other evidence of Indebtedness of the Company or any
Subsidiary in the outstanding aggregate principal amount of at least $100,000,
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any such Indebtedness which shall
have resulted in such Indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable (or
one or more Persons being entitled to cause such Indebtedness to become due and
payable);
(g) the entry by a court or courts of competent jurisdiction of a
final judgment or final judgments for the payment of money against the Company
or any Subsidiary which remain undischarged for a period (during which execution
shall not be effectively stayed, the posting of any required bond not being
deemed an execution for purposes hereof) of 30 days after all rights to appeal
have been exhausted, provided that the aggregate amount of all such judgments
exceeds $100,000;
(h) commencement of an action with a court having jurisdiction in
the premises thereof which could result in (A) a decree or order for relief in
respect of the Company or any Subsidiary in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or (B) a decree or order adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company or any Subsidiary under any applicable federal or state law, or
ordering the winding up or liquidation of affairs, and such proceedings are
consented to or are not dismissed within 60 days of such commencement;
(i) the commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent to the
entry of a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing of a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary or of any substantial part of their respective
properties, or the making of an assignment for the benefit of creditors, or the
admission in writing of inability to pay debts
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generally as they become due, or the taking of corporate action by the Company
or any Subsidiary in furtherance of any such action; or
(j) the Lien created or intended to be created by the Mortgage shall
cease to be a valid and enforceable Lien, shall cease to have priority over any
other Liens.
A Default under clause (e) above (other than in the case of any
Default under Article XII of this Indenture) is not an Event of Default until
the Trustee notifies the Company, or a Holder notifies the Company and the
Trustee, of the Default, and the Company does not cure the Default within 30
days after the earlier of (i) the date on which the Company receives such notice
and (ii) the date on which the Company first obtains knowledge of such Default.
The notice must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default." Such notice shall be given by the Trustee
if so requested by the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding.
SECTION 6.2 ACCELERATION OF MATURITY DATE; RESCISSION AND
ANNULMENT.
Subject to Section 11.2(c), if an Event of Default (other than an
Event of Default specified in Section 6.1(h) or (i) relating to the Company or
its Subsidiaries) occurs and is continuing, then, and in every such case, unless
the principal of all of the Notes shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Notes then outstanding, by a notice in writing to the Company (and
to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all
of the principal of the Notes, determined as set forth below, including in each
case accrued interest thereon, to be due and payable immediately. If an Event
of Default specified in Section 6.1(h) or (i) relating to the Company or its
Subsidiaries occurs, all principal of, premium, if any, and accrued and unpaid
interest on the Notes shall be immediately due and payable on all outstanding
Notes without any declaration or other act on the part of the Trustee or the
Holders.
At any time after such a declaration or acceleration is made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of a
majority in aggregate principal amount of the Notes then outstanding, by written
notice to the Company and the Trustee, may waive, rescind and annul on behalf of
all Holders, any such declaration of acceleration if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all overdue interest on all Notes;
(ii) the principal of, and premium, if any, applicable to,
any Notes which is then due other than by such declaration of acceleration, and
interest thereon at the rate borne by the Notes;
(iii) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes; and
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(iv) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances then due and
unpaid of the Trustee, its agents and counsel; and
(b) all Events of Default (other than the nonpayment of the
principal of, premium, if any, and interest on Notes which have become due
solely by such declaration of acceleration) have been cured or waived as
provided in Section 6.12 hereof, including, if applicable, any Event of Default
relating to the covenants contained in Article XII hereof. No such waiver shall
cure or waive any subsequent default or impair any right consequent thereon.
SECTION 6.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
The Company covenants that if an Event of Default in payment of
principal of, premium, if any, or interest specified in clause (a) or (b) of
Section 6.1 hereof occurs and is continuing, the Company shall, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole
amount then due and payable on such Notes for principal, premium, if any, and
interest, and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal, and premium, if any, and on any
overdue interest, at the rate borne by the Notes, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation to, and expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts within 10 days of such
demand, the Trustee, in its own name and as trustee of an express trust in favor
of the Holders, may institute a judicial proceeding for the collection of the
sums so due and unpaid, may prosecute such proceeding to judgment or final
decree and may enforce the same against the Company or any other obligor upon
the Notes and collect the moneys adjudged or decreed to be payable in the manner
provided by law out of the property of the Company or any other obligor upon the
Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company or
any obligor
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for the payment of overdue principal, premium, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise to take
any and all actions under the TIA, including:
(a) to file and prove a claim for the whole amount of principal
of, premium, if any, and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any debtor-in-possession custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 6.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
NOTES.
All rights of action and claims under this Indenture or the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision of the payment of reasonable compensation to,
and reasonable expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Notes in respect
of which such judgment has been recovered.
SECTION 6.6 PRIORITIES.
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium,
if any, or interest, upon presentation of the Notes and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
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FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7 hereof;
SECOND: To the Holders in payment of the amounts then due and
unpaid for principal of, premium, if any, and interest on, the Notes in respect
of which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Notes for principal of, premium, if any, and interest,
respectively; and
THIRD: To the Company, the remainder, if any.
SECTION 6.7 LIMITATION ON SUITS.
No Holder of any Note shall have any right to institute or to order
or direct the Trustee to institute any proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal amount
of the Notes then outstanding shall have made written request to the Trustee to
institute proceedings in respect to such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities to be incurred
or reasonably probable to be incurred in compliance with such request;
(d) the Trustee has, for 60 days after its receipt of such notice,
request and offer of indemnity, failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Notes then outstanding;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision of this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of,
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premium, if any, and interest on, such Note on the Maturity Dates of such
payments as expressed in such Note and to institute suit for the enforcement of
any such payment after such respective dates, and such rights shall not be
impaired without the consent of such Holder.
SECTION 6.9 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in Section 2.7 hereof, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.10 DELAY OR OMISSION NOT WAIVER.
No delay or omission by the Trustee or by any Holder of any Note to
exercise any right or remedy arising upon any Event of Default shall impair the
exercise of any such right or remedy or constitute a waiver of any such Event of
Default. Every right and remedy given by this Article VI or by law to the
Trustee or to the Holders may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 6.11 CONTROL BY HOLDERS.
The Holder and Holders of a majority in aggregate principal amount
of the Notes then outstanding shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred upon the Trustee, PROVIDED, that
(a) such direction shall not be in conflict with any rule of law
or with this Indenture, and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12 WAIVER OF PAST DEFAULT.
Subject to Sections 2.9 and 9.2 hereof, the Holder or Holders of not
less than a majority in aggregate principal amount of the Notes then outstanding
may, on behalf of all Holders, prior to the declaration of the maturity of the
Notes, waive any past default hereunder and its consequences, except a default
(a) in the payment of the principal of, premium, if any, or
interest on, any Note as specified in clauses (a) and (b) of Section 6.1, or
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(b) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder of
each outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.13 shall not apply to any suit instituted
by the Company, to any suit, instituted by the Trustee, to any suit instituted
by the Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the Notes then outstanding, or to any suit
instituted by any Holder for enforcement of the payment of principal of,
premium, if any, or interest on, any Note on or after the respective Maturity
Date expressed in such Note (including, in the case of redemption, on or after
the Redemption Date and in the case of repurchase, on or after the Repurchase
Date).
SECTION 6.14 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding has been instituted.
ARTICLE VII.
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
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SECTION 7.1 DUTIES OF TRUSTEE.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(i) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are adverse to
the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of paragraph
(b) of this Section 7.1.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
receive by it pursuant to Section 6.2 or 6.11 hereof.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
of the Holders or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(e) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
(f) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c), (d) and (e) of this Section
7.1.
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SECTION 7.2 RIGHTS OF TRUSTEE.
Subject to Section 7.1 hereof:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting on any document believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not investigate
any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may, in the case of any request or application by the
Company, require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Sections 14.4 and 14.5 hereof. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on written advice
from such counsel or such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it
reasonably may see fit.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Whenever by the terms of this Indenture, the Trustee shall be
required to transmit notices or reports to any or all Holders, the Trustee shall
be entitled to rely on the information provided by the Registrar as to the names
and addresses of the Holders as being correct. If the Registrar is other than
the Trustee, the Trustee shall not be responsible for the accuracy of such
information.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11 hereof.
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SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Notes; it shall not be accountable for the Company's
use of the proceeds from the Notes; and it shall not be responsible for (a) the
use or application of any funds received by a Paying Agent other than the
Trustee or (b) any statement in the Notes, other than the Trustee's certificate
of authentication.
The Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions or agreements on the part
of the Company hereunder, except as specifically set forth herein.
SECTION 7.5 NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and if
it is known to the Trustee pursuant to Section 4.6(b) hereof, the Trustee shall
mail to each Noteholder notice of the uncured Default or Event of Default within
90 days after such Default or Event of Default occurs. Except in the case of a
Default or an Event of Default in payment of principal of, or premium, if any,
or interest on, any Note (including all payments due on any Maturity Date), the
Trustee may withhold the notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or responsible
officers of the Trustee in good faith determines that withholding the notice is
in the best interest of the Holders.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each September 15 beginning with the
September 15 following the date of this Indenture, the Trustee shall, if
required, mail to each Noteholder a brief report dated as of such September 15
that complies with TIA Section 313(a). The Trustee also shall comply with TIA
Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Noteholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Notes are listed.
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services (in whatever capacity rendered). The Trustee's
compensation shall not be limited by any law on compensation of the trustee of
an express trust. Except as otherwise expressly provided herein, the Company
shall reimburse the Trustee upon its request for all reasonable disbursements,
expenses and advances incurred or made by it in accordance with the provisions
of this Indenture. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents, experts and counsel.
The Company shall indemnify the Trustee (in its capacity as
Trustee), and hold it harmless against, any claim, demand, expense (including,
but not limited to, compensation,
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disbursements and expenses of the Trustees' agents and counsel), loss or
liability incurred by it without negligence or bad faith on its part, arising
out of or in connection with the administration of this trust and its rights or
duties hereunder including the reasonable costs and expenses of defending itself
against any claim of liability in connection with the exercise or performance of
any of its powers or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall provide
reasonable cooperation at the Company's expense in the defense. The Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel; PROVIDED, that the Company will not be required to pay such
fees and expenses if it assumes the Trustee's defense and there is no conflict
of interest as reasonably determined by the Trustee between the Company and the
Trustee in connection with such defense. The Company need not pay for any
settlement made without its written consent which shall not be unreasonably
withheld. The Company need not reimburse any expense or indemnify against any
loss or liability to the extent incurred by the Trustee through its negligence,
bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Notes on all assets held or collected by
the Trustee, in its capacity as Trustee, except assets held in trust to pay
principal of, and premium, if any, or interest on particular Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.1(h) or (i) hereof occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Company's obligations pursuant to Article VIII of this
Indenture and any rejection or termination of this Indenture under any
Bankruptcy Law.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in aggregate principal amount of the Notes then
outstanding may remove the Trustee by so notifying the Company and the Trustee
in writing and the Company shall appoint a successor trustee. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes charge of
the Trustee or its property;
(d) the Trustee becomes incapable of acting; or
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(e) the Trustee fails to perform its duties, obligations and
responsibilities under this Indenture in any material respect.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in aggregate principal amount of the Notes then
outstanding may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the Trustee provided for in Section 7.7
hereof have been paid, the retiring Trustee shall transfer all property held by
it as Trustee to the successor Trustee, subject to the lien provided in Section
7.7 hereof, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
Subject to Section 310(b) of the TIA, if a successor Trustee does
not take office within 60 days after the retiring Trustee resigns or is removed,
the retiring Trustee, the Company or the Holder or Holders of at least 10% in
aggregate principal amount of the Notes then outstanding may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Noteholder who has been a bona fide holder of Notes for at least six months may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 hereof shall continue for the
benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting surviving or transferred corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of TIA
Sections 310(a)(1), (a)(2), and (a)(5). The Trustee shall comply with TIA
Section 310(b).
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SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
SECTION 7.12 NO BONDS.
The Trustee shall not be required to give any bond or surety in
respect to the execution of its trusts, powers, rights and duties under this
Indenture or otherwise in respect of the premises.
SECTION 7.13 CONDITION OF ACTION.
Notwithstanding anything elsewhere in this Indenture to the
contrary, the Trustee shall have the right, but shall not be required, to
demand, in respect of the authentication of any Notes, any showings,
certificates, opinions, or other information, or corporate action or evidence
thereof in addition to that by the terms hereof required, as a condition of such
action by the Trustee if reasonably deemed desirable by the Trustee for the
purpose of establishing the right to the authentication of any Notes by the
Trustee.
ARTICLE VIII.
SATISFACTION AND DISCHARGE
SECTION 8.1 SATISFACTION, DISCHARGE OF THE INDENTURE AND
DEFEASANCE OF THE NOTES.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of Notes
herein expressly provided for), and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(i) all Notes theretofore authenticated and delivered (other
than (1) Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.7 hereof and (2) Notes for whose
payment money has heretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Sections 8.4 and 8.5 hereof) have been delivered to
the Trustee for cancellation; or
(ii) all such Notes not theretofore delivered to the Trustee
for cancellation
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(1) have become due and payable, or
(2) will become due and payable at their Stated
Maturity within one year, or
(3) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of clauses (1), (2) or (3) above, has deposited or
caused to be deposited with the Trustee, as trust funds in an irrevocable trust,
U.S. Legal Tender or U.S. Government Obligations sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore delivered to the Trustee
for cancellation, for principal, premium, if any, and interest to the date of
such deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity, Redemption Date or Repurchase Date, as the case may be;
PROVIDED, HOWEVER, that the Company shall be deemed to have made the deposit
required herein as to any Notes in respect of which the Company has mailed a
check to the address of the Holder, as such address appears in the Note
Register;
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
SECTION 8.2 SURVIVAL OF CERTAIN OBLIGATIONS.
Notwithstanding the satisfaction and discharge of this Indenture and
of the Notes referred to in Section 8.1 hereof, the respective obligations of
the Company and the Trustee under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.11,
Article III, Sections 4.1, 4.2, 6.8, 7.7, 7.8, 8.4, 8.5, 8.6 hereof and this
Section 8.2 shall survive until the Notes are no longer outstanding, and
thereafter the obligations of the Company and the Trustee under Sections 6.8,
7.7, 8.4, 8.5, 8.6 hereof and this Section 8.2 shall survive. Nothing contained
in this Article VIII shall abrogate any of the obligations or duties of the
Trustee under this Indenture.
SECTION 8.3 ACKNOWLEDGMENT OF DISCHARGE BY TRUSTEE.
After (a) the conditions of Section 8.1 hereof have been satisfied,
(b) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel as provided for in Section 8.1 hereof, the
Trustee upon request shall acknowledge in writing the discharge of the Company's
obligations under this Indenture except for those surviving obligations
specified in Section 8.2 hereof.
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SECTION 8.4 APPLICATION OF TRUST ASSETS.
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it in the irrevocable trust established pursuant to
Section 8.1 hereof. The Trustee shall apply the deposited U.S. Legal Tender or
U.S. Government Obligations, together with earnings thereon, through the Paying
Agent (other than the Company or any Affiliate of the Company), in accordance
with this Indenture and the terms of the irrevocable trust agreement, if any, to
the payment of principal of, premium, if any, and interest on the Notes.
SECTION 8.5 REPAYMENT TO THE COMPANY.
Upon termination of the trust established pursuant to Section 8.1
hereof, the Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess U.S. Legal Tender or U.S. Government Obligations held by
them.
The Trustee and the Paying Agent shall pay to the Company upon
request, and, if applicable, in accordance with the irrevocable trust
established pursuant to Section 8.1 hereof, any U.S. Legal Tender or U.S.
Government Obligations held by them for the payment of principal of, premium, if
any, or interest on the Notes that remain unclaimed for two years after the date
on which such payment shall have become due; PROVIDED, HOWEVER, that the Trustee
or such Paying Agent, before being required to make any such repayment, may, at
the expense of the Company, cause to be published once, in a newspaper
customarily published on each Business Day and of general circulation in the
Borough of Manhattan, The City of New York, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining shall be repaid to the Company. After payment to the Company,
Holders entitled to such payment must look to the Company for such payment as
general creditors unless an applicable abandoned property law designates another
Person.
SECTION 8.6 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Sections 8.4 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.1 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance
with Section 8.4 hereof; PROVIDED, HOWEVER, that if the Company has made any
payment of principal of, premium, if any, or interest on any Notes because of
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the U.S. Legal
Tender or U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE IX.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holder, the Company, when authorized by
Board Resolutions, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency, or to make
any other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided such action pursuant to this clause (a) shall not adversely affect the
interests of any Holder in any respect;
(b) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company or
to make any other change that does not adversely affect the rights of any
Holder, PROVIDED, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change does not adversely affect the rights of any
Holder;
(c) to provide for collateral for the Notes;
(d) to evidence the succession of any other Person to the Company
and the assumption by any such successor of the obligations of the Company
herein and in the Notes in accordance with Article V; or
(e) to comply with the TIA.
SECTION 9.2 AMENDMENTS, SUPPLEMENTAL INDENTURES AND WAIVERS
WITH CONSENT OF HOLDERS.
Subject to Sections 2.9 and 6.8 hereof, with the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
then outstanding, by written act of said Holders delivered to the Company and
the Trustee, the Company, when authorized by Board Resolutions, and the Trustee
may amend or supplement this Indenture or the Notes or enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
Notes or of modifying in any manner the rights of the Holders under this
Indenture or the Notes. Subject to Sections 2.9 and 6.8 hereof, the Holder or
Holders of not less than a majority in aggregate principal amount of the Notes
then outstanding may waive compliance by the Company with any provision of this
Indenture or the Notes. Notwithstanding any of the above, however, no such
amendment, supplemental indenture or waiver shall, without the consent of the
Holder of each outstanding Note affected thereby:
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(a) reduce the percentage of principal amount of Notes whose
Holders must consent to an amendment, supplement or waiver of any provision of
this Indenture or the Notes;
(b) reduce the rate or extend the time for payment of interest on
any Note;
(c) reduce the principal amount of any Note, or reduce the
Repurchase Price or the Redemption Price;
(d) (i) change the Stated Maturity of any Note or (ii) change
the Repurchase Date of any Note;
(e) alter (i) the redemption provisions of Article III hereof or
paragraph 5 of the Notes, (ii) the terms or provisions of Article XII hereof in
a manner adverse to any Holder or (iii) the conversion provisions of Article XII
hereof or paragraph 14 of the Notes;
(f) make any changes in the provisions concerning waivers of
Defaults or Events of Default by Holders of the Notes (except to increase any
required percentage or to provide that certain other provisions hereof cannot be
modified or waived without the consent of the Holders of each outstanding Note
affected thereby) or the rights of Holders to recover the principal of, premium,
if any, interest on, or redemption payments with respect to, any Note;
(g) make any changes in Section 6.4 or 6.7 hereof or the third
sentence of this Section 9.2; or
(h) make the principal of, premium, if any, or the interest on,
any Note payable with anything or in any manner other than as provided for in
this Indenture (including changing the place of payment where, or the coin or
currency in which, any Note or any premium or the interest thereon is payable)
and the Notes as in effect on the date hereof.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
After an amendment, supplement or waiver under this Section 9.2 or
under Section 9.4 hereof becomes effective, it shall bind each applicable
Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such
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amendment, supplement or waiver, or to all Holders, consideration for such
Holder's consent to such amendment, supplement or waiver.
SECTION 9.3 COMPLIANCE WITH TIA
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as
to his Note or portion of his Note by written notice to the Company or the
Person designated by the Company as the Person to whom consents should be sent
if such revocation is received by the Company or such Person before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Notes have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Noteholder; PROVIDED, that any such waiver shall not impair or affect
the right of any Holder to receive payment of principal of, premium, if any, and
interest on a Note, on or after the respective dates set for such amounts to
become due and payable expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates.
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of a Note,
the Trustee may require the Holder of the Note to deliver it to the Trustee or
require the Holder to put an appropriate notation on the Note. The Trustee may
place an appropriate notation on the Note about the changed terms and return it
to the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Any failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment,
supplement or waiver.
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SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; PROVIDED, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee at the expense of the Company shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of any amendment, supplement or waiver authorized
pursuant to this Article IX is authorized or permitted by this Indenture.
ARTICLE X.
[RESERVED]
ARTICLE XI.
[RESERVED]
ARTICLE XII.
RIGHT TO REQUIRE REPURCHASE
SECTION 12.1 REPURCHASE OF NOTES AT OPTION OF THE HOLDER UPON
CHANGE OF CONTROL.
In the event of a Change of Control, each Holder shall have the
right, at such Holder's option, subject to the terms and conditions set forth
herein, to require the Company to repurchase all or any part of such Holder's
Notes (provided that the principal amount of such Notes at maturity must be
$1,000 or an integral multiple thereof) on the date that is no later than 45
calendar days after the date the Company gives notice of such Change of Control
(the "Repurchase Date"), at a cash purchase price (the "Repurchase Price") equal
to 100% of the principal amount thereof, plus accrued and unpaid interest, if
any, to and including the Repurchase Date.
SECTION 12.2 [RESERVED].
SECTION 12.3 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT,
ETC.
(a) Within 30 calendar days after the occurrence of a Change of
Control, the Company shall make an irrevocable unconditional offer (a
"Repurchase Offer") to the
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Holders to purchase for U.S. Legal Tender all the Notes pursuant to the offer
described in clause (b) of this Section 12.3 at the Repurchase Price plus
accrued and unpaid interest, if any, to the Repurchase Date. Within five
Business Days after each date upon which the Company knows of the occurrence of
a Change of Control requiring the Company to make a Repurchase Offer pursuant to
Section 12.1 hereof, the Company shall so notify the Trustee.
(b) Notice of a Repurchase Offer shall be sent, not more than 30
calendar days after the occurrence of the Change of Control by first class mail,
by the Company to each Holder at its registered address, with a copy to the
Trustee. The notice to the Holders shall contain all instructions and materials
required by applicable law and shall contain or make available to Holders other
information material to the decision of Holders generally to tender Notes
pursuant to the Repurchase Offer. No failure of the Company to give such notice
or defect therein shall limit any Holder's right to exercise his repurchase
right or affect the validity of the proceedings for the repurchase of the Notes.
The notice, which shall govern the terms of the Repurchase Offer, shall state:
(i) that the Repurchase Offer is being made pursuant to such
notice and this Article XII and that all Notes, or portions thereof, properly
tendered pursuant to the Repurchase Offer prior to the fifth Business Day prior
to the Repurchase Date (the "Final Repurchase Put Date") will be accepted for
payment;
(ii) the Repurchase Price, the Repurchase Date and the Final
Repurchase Put Date;
(iii) that any Note, or portion thereof, not tendered or
accepted for payment will continue to accrue interest, if interest is then
accruing;
(iv) that, unless the Company defaults in depositing U.S.
Legal Tender with the Paying Agent in accordance with the last paragraph of
clause (c) of this Section 12.3 or payment is otherwise prevented, any Notes, or
portion thereof, accepted for payment pursuant to the Repurchase Offer shall
cease to accrue interest after the Repurchase Date;
(v) that Holders electing to have a Note, or portion thereof,
purchased purchase to a Repurchase Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent (which may not for purposes of this
Article XII, notwithstanding anything in this Indenture to the contrary, be the
Company or any Affiliate of the Company) at the address specified in the notice
prior to the close of business on the Final Repurchase Put Date;
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, prior to the close of business on the Final
Repurchase Put Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Notes the Holder is
withdrawing and a statement containing a facsimile signature that such Holder is
withdrawing his election to have such principal amount of Notes purchased;
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(vii) that Holders whose Notes were purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; and
(viii) a brief description, to the extent known to the
Company, of the events resulting in such Change of Control.
(c) Any such Repurchase Offer shall comply with all applicable
provisions of federal and state laws, including those regulating tender offers,
if applicable, and any provisions of this Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws. On or
before the Repurchase Date, the Company shall (a) accept for payment Notes or
portions thereof properly tendered pursuant to the Repurchase Offer prior to the
close of business on the Final Repurchase Put Date, (b) deposit with the Paying
Agent U.S. Legal Tender sufficient to pay the Repurchase Price plus accrued and
unpaid interest, if any, to the Repurchase Date of all Notes so tendered and (c)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to the Holders of Notes so accepted payment in
an amount equal to the Repurchase Price plus accrued and unpaid interest, if
any, to the Repurchase Date, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered. Any Notes not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof and the
principal shall, until paid, bear interest to the extent permitted by applicable
law from the Repurchase Date at the rate borne by the Note and each Note shall
remain convertible into Common Stock until the principal of such Note shall have
been paid or duly provided for. The Company shall publicly announce the results
of the Repurchase Offer on or as soon as practicable after the Repurchase Date.
ARTICLE XIII.
CONVERSION OF NOTES
SECTION 13.1 RIGHT OF CONVERSION; CONVERSION PRICE.
Subject to the provision of Section 14 of the Notes and Section
13.13 hereof, the Holder of any Note or Notes shall have the right, at his
option, at any time (except that, with respect to any Note or portion of a Note
which shall be called for redemption, such right shall terminate at the close of
business on the fifth calendar day prior to the date fixed for redemption of
such Note or portion of a Note unless the Company shall default in payment due
upon redemption thereof), to convert, subject to the terms and provisions of
this Article XIII, the principal of any such Note or Notes or any portion
thereof which is $1,000 principal amount or an integral multiple thereof into
shares of Common Stock, initially at the conversion price per share of $________
[____% of Common Stock offering price]; or, in case an adjustment of such price
has taken place pursuant to the provisions of Section 13.4 hereof, then at the
price as last adjusted (such price or adjusted price being referred to herein as
the "conversion price"), upon surrender of the Note or Notes, the principal of
which is so to be converted, accompanied by written notice of conversion duly
executed, to the Company, at any time during usual business hours at the office
or agency maintained by it for such purpose, and, if so required by the
Conversion Agent or Registrar, accompanied
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by a written instrument or instruments of transfer in form satisfactory to the
Conversion Agent or Registrar duly executed by the Holder or his duly authorized
representative in writing. For convenience, the conversion of any portion of
the principal of any Note or Notes into Common Stock is hereinafter sometimes
referred to as the conversion of such Note or Notes.
SECTION 13.2 ISSUANCE OF SHARES ON CONVERSION.
As promptly as practicable after the surrender, as herein provided,
of any Note or Notes for conversion, the Company shall deliver or cause to be
delivered at its said office or agency, to or upon the written order of the
Holder of the Note or Notes so surrendered, certificates representing the number
of fully paid and nonassessable shares of Common Stock into which such Note or
Notes may be converted in accordance with the provisions of this Article XIII.
Such conversion shall be deemed to have been made as of the close of business on
the date that such Note or Notes shall have been surrendered for conversion with
a written notice of conversion duly executed, so that the rights of the Holder
of such Note or Notes as a Noteholder shall cease at such time (such date being
referred to herein as the "Conversion Date") and, subject to the following
provisions of this paragraph, the Person or Persons entitled to receive the
shares of Common Stock upon conversion of such Note or Notes shall be treated
for all purposes as having become the record holder or holders of such shares of
Common Stock at such time and such conversion shall be at the conversion price
in effect at such time; PROVIDED, HOWEVER, that no such surrender on any date
when the stock transfer books of the Company shall be closed shall be effective
to constitute the Person or Persons entitled to receive the shares of Common
Stock upon such conversion as the record holder or holders of such shares of
Common Stock on such date, but such surrender shall be effective to constitute
the Person or Persons entitled to receive such shares of Common Stock as the
record holder or holders thereof for all purposes at the close of business on
the next succeeding day on which such stock transfer books are open; such
conversion shall be at the conversion price in effect on the date that such Note
or Notes shall have been surrendered for conversion, as if the stock transfer
books of the Company had not been closed.
Upon conversion of any Note which is converted in part only, the
Company shall execute and the Trustee shall authenticate and deliver to or on
the order of the Holder thereof, at the expense of the Company, a new Note or
Notes of authorized denominations in principal amount equal to the unconverted
portion of such Note.
SECTION 13.3 NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.
No payment or adjustment in respect of interest on the Notes or
dividends on the shares of Common Stock shall be made upon the conversion of any
Note or Notes; except that (i) if a Note or any portion thereof (other than a
Note or portion thereof called for redemption) shall be converted subsequent to
any Record Date and on or prior to the next succeeding Interest Payment Date,
the interest falling due on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
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(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name such Note is registered at the close of business on such
Record Date and Notes surrendered for conversion during the period from the
close of business on any Record Date to the opening of business on the
corresponding Interest Payment Date must be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date, or (ii) if a Note
or any portion thereof called for redemption shall be converted or if a Note or
any portion thereof (other than any Note or portion thereof called for
redemption) shall be converted prior to any Record Date and on or prior to the
next succeeding Interest Payment Date, interest shall continue to accrue on such
Note or portion thereof through the Conversion Date, and such interest shall be
payable on the next succeeding Interest Payment Date to the Person in whose name
such Note is registered at the close of business on such Conversion Date. No
such additional funds shall be required from Holders for Notes called for
redemption and converted.
SECTION 13.4 ADJUSTMENT OF CONVERSION PRICE.
(a) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in shares of Common
Stock or any class of capital stock of the Company, the conversion price in
effect at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination.
(b) In case the Company shall issue rights, options or warrants
entitling any Person to subscribe for or purchase shares of Common Stock at a
price per share less than the current market price per share (determined as
provided in paragraph (f) of this Section 13.4) of Common Stock on the date
fixed for the determination of stockholders entitled to receive such rights or
warrants, the conversion price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such conversion price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the subscription price of the total number of shares of Common
Stock so offered for subscription or purchase would purchase at such current
market price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase, such reduction to become effective immediately after the opening of
business on the day following the date fixed for such determination. In the
event that all of the shares of Common Stock subject to such rights or warrants
have not been issued when such rights or warrants expire, then the conversion
price shall promptly be readjusted to the conversion price which would then be
in effect had the adjustment upon the issuance of such rights or warrants been
made on the basis of the actual number of shares of Common Stock issued upon the
exercise of such rights or warrants. For the purposes of this paragraph (b),
the number of shares of Common Stock at any time
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outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not issue any rights or
warrants in respect of shares of Common Stock held in the treasury of the
Company.
(c) In case the outstanding shares of Common Stock shall be
subdivided or reclassified into a greater number of shares, the conversion price
in effect at the opening of business on the day following the day upon which
such subdivision or reclassification becomes effective shall be proportionately
reduced, and, conversely, in case outstanding shares of Common Stock shall be
combined into a smaller number of shares, the conversion price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision,
reclassification or combination becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all or substantially all holders of shares of Common Stock
evidences of indebtedness or assets of the Company or rights or warrants to
acquire such evidences of indebtedness or assets (including securities, but
excluding any (i) rights, options or warrants referred to in paragraph (b) of
this Section 13.4 and (ii) any dividend or distribution referred to in paragraph
(a) of this Section 13.4), the conversion price shall be adjusted so that the
same shall equal the price determined by multiplying the conversion price in
effect immediately prior to the close of business on the day fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in paragraph (f) of this Section 13.4) of Common Stock
on the date fixed for such determination less the then fair market value as
determined by the Board of Directors (whose determination shall be conclusive
and described in a Board Resolution filed with the Trustee) of the portion of
the assets or evidences of indebtedness so distributed allocable to one share of
Common Stock and the denominator shall be such current market price per share of
Common Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such distribution.
(e) In case the shares of Common Stock shall be changed into the
same or a different number of shares of any class or classes of stock, whether
by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or a stock dividend described in paragraph
(a) or paragraph (c) of this Section 13.4, or a consolidation, merger or sale of
assets described in Section 13.10 hereof), then and in each such event the
Holders of Notes shall have the right thereafter to convert such Notes into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders of the
number of shares of Common Stock into which such Notes might have been converted
immediately prior to such reorganization, reclassification or change.
(f) For the purpose of any computation under paragraphs (b) and
(d) of this Section 13.4, the current market price per share of Common Stock on
any date shall be
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deemed to be the average of the Closing Prices for the 15 consecutive Trading
Days selected by the Company commencing not more than 30 and not less than 20
Trading Days before the date in question.
(g) No adjustment in the conversion price shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
paragraph (g)) would require an increase or decrease of at least $0.01;
PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (g)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this paragraph (g) shall be
made to the nearest cent.
(h) The Company may, but shall not be required to, make such
reductions in the conversion price, in addition to those required by paragraphs
(a), (b), (c) and (d) of this Section 13.4, as the Company's Board of Directors,
in its discretion, considers to be advisable. The Company's Board of Directors
shall have the power to resolve any ambiguity or correct any error in the
adjustments made pursuant to this Section 13.4 and its actions in so doing shall
be final and conclusive.
(i) No adjustment in the conversion price need be made for the
issuance of options to purchase Common Stock granted to employees or directors
of the Company pursuant to a Company plan providing for sale of stock pursuant
to such options (or the issuance of Common Stock pursuant to such options);
PROVIDED, HOWEVER, that the aggregate number of shares of Common Stock issuable
under such options may not exceed 9.661% of the total number of shares of Common
Stock issued and outstanding immediately subsequent to the initial public
offering of Common Stock.
SECTION 13.5 NOTICE OF ADJUSTMENT OF CONVERSION PRICE.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 13.4 and shall prepare an Officers' Certificate setting
forth the adjusted conversion price and showing in reasonable detail the facts
upon which such adjustment is based on the computation thereof, and such
certificate shall forthwith be filed at each office or agency maintained for the
purpose of conversion of Notes pursuant to Section 2.3 hereof and with the
Trustee; and
(b) a notice stating that the conversion price has been adjusted
and setting forth the adjusted conversion price shall as soon as practicable be
mailed by the Company to all Holders at their last addresses as they shall
appear in the Note Register.
SECTION 13.6 NOTICE OF CERTAIN CORPORATION ACTION.
(a) In case:
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(i) the Company shall authorize the granting to holders of
its shares of Common Stock of rights or warrants entitling them to subscribe for
or purchase any shares of capital stock of any class or of any other rights; or
(ii) of any reclassification of the shares of Common Stock,
or of any consolidation or merger to which the Company is a part and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(iii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Notes pursuant to Section 2.3 and shall cause to be
mailed to all Holders at their last addresses as they shall appear in the Note
Register, at least 10 days (or 20 days in any case specified in clause (iii)
above) prior to the applicable record date hereinafter specified, a notice
stating (1) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights or warrants, or, if a record is not to be taken,
the date as of which the holders of shares of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants is to be determined,
or (2) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of shares of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Such notice shall also state whether such
transaction will result in the adjustment in the conversion price applicable to
the Notes and, if so, shall state what the adjusted conversion price will be and
when it will become effective. Neither the failure to give the notice required
by this Section 13.6, nor any defect therein, to any particular Holder shall
affect the sufficiency of the notice or the legality or validity of any such
dividend, distribution, right, warrant, reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding-up, or the vote on any
action authorizing such with respect to the other Holders.
(b) In case the Company or any Affiliate of the Company shall
propose to engage in a "Rule 13e-3 Transaction" (as defined in the SEC's Rule
13e-3 under the Exchange Act) the Company shall, no later than the date on which
any information with respect to such Rule 13e-3 Transaction is first required to
be given to the SEC or any other person pursuant to such Rule 13e-3, cause to be
mailed to all Holders at their last addresses as they shall appear in the Note
Register, a copy of all information required to be given to the SEC or such
other person pursuant to such Rule 13e-3. The information required to be given
under this paragraph shall be in addition to and not in lieu of any other
information required to be given by the Company pursuant to this Section 13.6 or
any other provision of the Notes or this Indenture.
SECTION 13.7 TAXES ON CONVERSIONS.
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The Company will pay any and all stamp or similar taxes that may be
payable in respect to the issuance or delivery of shares of Common Stock on
conversion of Notes pursuant hereto. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of shares of Common Stock in a name other than that
of the Holder of the Note or Notes to be converted, and no such issuance or
delivery shall be made unless and until the Person requesting such issuance has
paid the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid.
SECTION 13.8 FRACTIONAL SHARES.
No fractional shares or script representing fractional shares shall
be issued upon the conversion of Notes. If any such conversion would otherwise
require the issuance of a fractional share, an amount equal to such fraction
multiplied by the Current Market Price per share of Common Stock (determined as
provided in paragraph (f) of Section 13.4 hereof) on the day of conversion shall
be paid to the Holder in cash by the Company.
SECTION 13.9 CANCELLATION OF CONVERTED NOTES.
All Notes delivered for conversion shall be delivered to the Trustee
to be cancelled by or at the direction of the Trustee, which shall dispose of
the same as provided in Section 2.11 hereof.
SECTION 13.10 PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR
SALE OF ASSETS.
(a) In case of any consolidation of the Company with, or merger of
the Company into, any other corporation or trust, or in the case of any merger
of another corporation or trust into the Company (other than a merger which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company), or in the case of any sale,
transfer or other disposition of all or substantially all of the assets of the
Company, the corporation or trust formed by such consolidation or resulting from
such merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture (which shall conform to the TIA
at the time of execution) providing that the Holder of each Note then
outstanding shall have the right thereafter, during the period such Note shall
be convertible as specified in Section 13.1 hereto to convert such Note only
into the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock of the Company into which such Note might have been converted
immediately prior to such consolidation, merger, sale or transfer, assuming such
holder of Common Stock (i) is not a Person with which the Company consolidated
or into which the Company merged or which merged into the Company or to which
such sale or transfer was made, as the case may be (a "Constituent Person"), or
an Affiliate of the Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such
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consolidation, merger, sale or transfer (provided that if the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer is not the same for each share of Common Stock held immediately
prior to such consolidation, merger, sale or transfer by other than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purpose of this Section 13.10 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of non-electing shares). Such supplemental indenture shall
provide for adjustments which, for events subsequent to the effective date of
such supplemental indenture, shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Article XIII. The above provisions of
this Section 13.10 shall similarly apply to successive consolidations, mergers,
sales or transfers.
(b) The Trustee shall not be under any responsibility to determine
the correctness of any provisions contained in any such supplemental indenture
relating either to the kind or amount of shares of stock or securities or
property receivable by Holders upon the conversion of their Notes after any such
reclassification, change, consolidation, merger, sale or conveyance or to any
adjustment to be made with respect thereto.
SECTION 13.11 DISCLAIMER BY TRUSTEE OF RESPONSIBILITY FOR
CERTAIN MATTERS.
The Trustee and each Conversion Agent (other than the Company or any
of its Subsidiaries) shall not at any time be under any duty or responsibility
to any Holder of Notes to determine whether any facts exist which may require
any adjustment of the conversion price, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in making the
same. The Trustee and each Conversion Agent (other than the Company or any of
its Subsidiaries) shall not be responsible for any failure of the Company to
issue, transfer or deliver any shares of Common Stock or stock certificates or
other securities or property upon the surrender of any Note for the purpose of
conversion or, subject to Section 7.1 hereof, to comply with any of the
covenants of the Company contained in this Article XIII.
SECTION 13.12 COVENANT TO RESERVE SHARES.
The Company covenants that it will at all times reserve and keep
available, free from preemptive rights, out of its authorized shares of Common
Stock, solely for the purpose of issuance upon conversion of Notes as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding Notes. The Company covenants that all shares
of Common Stock which shall be so issuable shall be, when issued in accordance
with the Notes and this Indenture, duly and validly issued and fully paid and
nonassessable. For purposes of this Section 13.12, the number of shares of
Common Stock which shall be deliverable upon the conversion of all outstanding
Notes shall be computed as if at the time of computation all outstanding Notes
were held by a single holder.
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ARTICLE XIV.
MISCELLANEOUS
SECTION 14.1 TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 14.2 NOTICES.
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery by a nationally recognized overnight air courier,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company:
United Vanguard Homes, Inc.
____________________________
____________________________
Attention: ___________________
Telecopy: ___________________
If to the Trustee:
Attention: Corporate Trust Administrator
Telecopy:
The Company or the Trustee by notice to each other party may
designate additional or different addresses as shall be furnished in writing by
such party. Any notice or communication to the Company or the Trustee shall be
deemed to have been given or made as of the date so delivered, if personally
delivered or delivered by air courier; when answered back, if telexed; when
receipt is acknowledged, if telecopied; and five Business Days after mailing if
sent by registered or certified mail, postage prepaid (except that a notice of
change of address shall not be deemed to have been given until actually received
by the addressee).
Any notice or communication mailed to a Noteholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
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Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 14.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and any other Person shall have
the protection of TIA Section 312(c).
SECTION 14.4 CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
SECTION 14.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; PROVIDED, HOWEVER,
that with respect to matters of fact or mixed matters of law and fact, an
Opinion of Counsel may rely on an Officers' Certificate or certificates of
public officials.
64
<PAGE>
SECTION 14.6 LEGAL HOLIDAYS.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions at such place are
not required to be open. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 14.7 GOVERNING LAW.
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York, without regard to principles of
conflicts of law. The Company hereby irrevocably submits to the jurisdiction of
any New York State court sitting in the Borough of Manhattan in The City of New
York or any federal court sitting in the Borough of Manhattan in The City of New
York in respect of any suit, action or proceedings arising out of or relating to
this Indenture and the Notes, and irrevocably accepts for itself and in respect
of its property, generally and unconditionally, jurisdiction of the aforesaid
courts. The Company irrevocably waives, to the fullest extent it may
effectively do so under applicable law, trial by jury and any objection which it
may now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of the Trustee or any Noteholder to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Company in any other jurisdiction.
SECTION 14.8 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 14.9 NO RECOURSE AGAINST OTHERS.
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Notes or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creations. Each Noteholder by accepting a
Note waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of the Notes.
SECTION 14.10 SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
65
<PAGE>
SECTION 14.11 DUPLICATE ORIGINALS.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 14.12 SEVERABILITY.
In case any one or more of the provisions in this Indenture or in
the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 14.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
66
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
UNITED VANGUARD HOMES, INC.
By:________________________________
Name:
Title:
[TRUSTEE]
By:________________________________
Title:
67
<PAGE>
EXHIBIT A
FORM OF NOTE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNITED VANGUARD HOMES, INC.
[__]% CONVERTIBLE SENIOR SECURED NOTE DUE FEBRUARY 1, 2006
No._____________ $________________
CUSIP No. ________
United Vanguard Homes, Inc., a New York corporation (hereinafter
called the "Company," which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ___________________, or registered assigns, the principal sum of
___________________ Dollars, on February 1, 2006.
Interest Payment Dates: February 1 and
August 1, commencing
August 1, 1996
Record Dates: _____________ and ______________
Reference is made to the further provisions of this Note on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated:
UNITED VANGUARD HOMES, INC.
By:________________________________
Attest:
______________________________
Secretary
[Seal]
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-mentioned Indenture.
[TRUSTEE]
By:________________________________
Authorized Officer
Dated:
A-2
<PAGE>
UNITED VANGUARD HOMES, INC.
______% CONVERTIBLE SENIOR SECURED NOTE DUE OCTOBER 1, 2006
1. INTEREST.
United Vanguard Homes, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at a rate of [__]%
per annum until the principal hereof is paid or made available for payment. To
the extent it is lawful, the Company promises to pay interest on any interest
payment due but unpaid on such principal amount at a rate of [__+x]% per annum.
The Company will pay interest semi-annually on August 1 and February 1
of each year (each, an "Interest Payment Date"), commencing February 1, 1997.
The Company will pay principal, together with any interest accrued thereon, in
the amount of $2,500,000 on February 1 of each of 2003, 2004, 2005, and 2006.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of issuance of the
Notes. Notwithstanding the foregoing, Notes issued pursuant to the Over-
Allotment Option shall accrue interest from the date of issuance of the initial
$12,500,000 aggregate principal amount of Notes. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Notes (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders
must surrender Notes to a Paying Agent to collect principal payments. Except as
provided below, the Company shall pay principal of, premium, if any, and
interest on the Notes in such coin or currency of the United States of America
as at the time of payment shall be legal tender for payment of public and
private debts ("U.S. Legal Tender"). However, the Company may pay principal of,
premium, if any and interest on the Notes by wire transfer of federal funds, or
interest by its check payable in such U.S. Legal Tender. The Company shall
deliver any such interest payment to the Paying Agent who shall remit such
payment to the Person in whose name this Note (or one or more predecessor Notes)
is registered at the close of business on the Record Date for such interest,
which shall be the August 1 or February 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid or duly provided for will forthwith cease to be payable
to the Holder on such Record Date and may either (i) be paid to the Person in
whose name this Note (or one or more predecessor Notes) is registered at the
close of business on a Special Record Date for the payment or such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Notes not less than 10 days prior to such Special Record Date, or (ii) be paid
at any time in any other lawful manner not inconsistent with the requirement of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange.
A-3
<PAGE>
3. REGISTRAR AND AGENTS.
Initially, Continental Stock Transfer and Trust Company will act as
Registrar and Conversion Agent, and the Trustee will act as co-Registrar, Paying
Agent and agent for service of notice and demands. The Company may change any
Registrar, co-Registrar, Paying Agent, Conversion Agent and agent for service of
notice and demands without notice to the Holders. The Company or an Affiliate
of the Company may, subject to certain exceptions, act as Registrar or co-
Registrar, Paying Agent or Conversion Agent.
4. INDENTURE.
The Company issued the Notes under an Indenture, dated as of
______________, 1996 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code Sections 77aaa - 77bbbb), as amended (the "TIA"), as in
effect on the date of the Indenture. The Notes are subject to all such terms,
and Holders of Notes are referred to the Indenture and the TIA for a statement
of them. The Notes are general unsecured obligations of the Company limited in
aggregate principal amount to $12,500,000 ($14,375,000 if the Over-Allotment
Option is exercised in full).
5. (a) OPTIONAL REDEMPTION.
The Notes may be redeemed, in whole or in part, at any time on and
after October 1, 1998, at the option of the Company, at the Redemption Price
(expressed as a percentage of principal amount) set forth below with respect to
the indicated Redemption Date, in each case, together with any accrued but
unpaid interest to and including the Redemption Date.
If redeemed during the period indicated below, the Redemption Price shall be:
REDEMPTION PRICE
October 1, 1998 - September 30, 1999 . . . . . . . . . . . . . . 107%
October 1, 1999 - September 30, 2000 . . . . . . . . . . . . . . 106%
October 1, 2000 - September 30, 2001 . . . . . . . . . . . . . . 105%
October 1, 2001 - September 30, 2002 . . . . . . . . . . . . . . 104%
October 1, 2002 - September 30, 2003 . . . . . . . . . . . . . . 103%
if the price of the Company's Common Stock shall have been at least 150% of the
conversion price for at least 20 consecutive trading days within a period of 30
consecutive trading days ending not more than five trading days prior to the
notice of such redemption; and after October 1, 2003 at 100% of the principal
amount thereof.
A-4
<PAGE>
(b) MANDATORY REDEMPTION. The Company will redeem $3,125,000(1) principal
amount of Notes on October 1, 2003, and on each October 1 thereafter through
maturity at a redemption price of 100% of principal amount, plus accrued
interest to the redemption date. The Company may reduce the principal amount of
Notes to be redeemed pursuant to this paragraph 5(b) by subtracting 100% of the
principal amount (excluding premium) of any Notes (i) that Noteholders have
converted (other than Notes converted after being called for mandatory
redemption), (ii) that the Company has delivered to the Trustee for cancellation
or (iii) that the Company has redeemed other than pursuant to this paragraph
5(b). The Company may so subtract the same Note only once.
Any such redemption pursuant to the terms of paragraph 5 will comply
with Article III of the Indenture. Pursuant to Section 3.3 if less than all of
the Notes are to be redeemed, the Trustee shall redeem PRO RATA or by lot or in
such other manner as complies with any applicable legal and stock exchange
requirements.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed by first class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his registered address. The Notes may be redeemed in
part in multiples of $1,000 only. Notes in denominations larger than $1,000 may
be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Notes called for redemption shall have
been deposited with the Paying Agent on such Redemption Date the Notes called
for redemption will cease to bear interest and the only right of the Holders of
such Notes will be to receive payment of the Redemption Price and any accrued
and unpaid interest to and including the Redemption Date.
7. TRANSFER AND EXCHANGE.
The Notes are in registered form, without coupons. A Holder may
register the transfer of or exchange of Notes in accordance with the Indenture
and subject to the restrictions contained therein, including the restrictions
described in Paragraph 21 below. The Registrar or co-Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar or co-Registrar is not required (i) to issue, register
the transfer of or exchange any Notes during a period beginning 10 Business Days
before the mailing of a notice of an offer to repurchase pursuant to Article XII
of the Indenture or redeem Notes pursuant to Article III of the Indenture and
ending at the close of business on the day of such mailing or (ii) to register
the transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of Notes being redeemed in part. Any
attempted transfer of a Note or Notes by a Holder in violation of the limits set
forth above shall be null and void AB INITIO as to such Holder and such
transferee, and such transferee shall not acquire any rights or economic
interest in the Note or Notes transferred.
- ---------------------------------------------
(1) $3,743,4893.58 if the Over-Allotment Option is exercised.
A-5
<PAGE>
8. PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the registered Holder of a Note as the owner of it for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal of, premium, if any or interest
on the Notes remains unclaimed for two years, the Trustee and the Paying
Agent(s) will pay the money back to the Company at its written request. After
that, all liability of the Trustee and such Paying Agent(s) with respect to such
money shall cease.
10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
If the Company at any time deposits into an irrevocable trust with the
Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the
principal of, premium, if any, and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (excluding its obligation to pay the principal of, premium, if
any, and interest on the Notes).
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, and any
existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Notes then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the Notes
to, among other things, cure any ambiguity, defect or inconsistency (provided
such amendment or supplement does not adversely affect the rights of any Holder
of a Note).
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, merge or consolidate with
any other Person and sell, lease, transfer or otherwise dispose of substantially
all of its properties or assets. The limitations are subject to a number of
important qualifications and exceptions. The Company must make quarterly
reports to the Trustee with respect to its compliance with such limitations.
13. REPURCHASE EVENTS.
In the event there shall occur any Change of Control, each Holder of
Notes shall have the right, at such Holder's option but subject to the
limitations and conditions set forth in the Indenture, to require the Company to
purchase on the Repurchase Date in the manner specified in the Indenture, all or
any part (in integral multiples of $1,000) of such Holder's
A-6
<PAGE>
Notes at a Repurchase Price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest, if any, to and including the
Repurchase Date.
14. CONVERSION.
A Holder of a Note may convert such Note into shares of Common Stock
of the Company at any time. If the Note is called for redemption, the Holder
may convert it at any time before the close of business on the last Business Day
prior to the date fixed for such redemption. The initial conversion price is
$_______ [____% of the Common Stock offering price] per share, subject to
adjustment in certain events. To determine the number of shares issuable upon
conversion of a Note, divide the principle amount to be converted by the
conversion price in effect on the conversion date. The Company will deliver a
check for any fractional share.
To convert a Note, a Holder must (i) complete and sign the Conversion
Notice on the back of the Note, (ii) surrender the Note to a Conversion Agent,
(iii) furnish appropriate endorsements and transfer documents if required by the
Registrar or Conversion Agent and (iv) pay any transfer or similar tax if
required. No adjustment is to be made on conversion for interest accrued hereon
or for dividends on shares of Common Stock issued on conversion; except that (i)
if a Note (other than a Note called for redemption) is surrendered for
conversion after the record date for a payment of interest and on or before the
interest payment date, then, notwithstanding such conversion, the interest
falling due to such interest payment date will be paid to the Person in whose
name the Note is registered at the close of business on such record date and any
Note surrendered for conversion during the period from the close of business on
any regular record payment date to the opening of business on the corresponding
interest payment date shall not be required to be accompanied by payment of an
amount equal to the interest payable on such interest payment date or (ii) if a
Note or any portion thereof called for redemption shall be converted or if a
Note or any portion thereof (other than any Note or portion thereof called for
redemption) shall be converted on or prior to the Record Date next succeeding
the Interest Payment Date on which interest on the Notes was last paid, interest
accrued on such Note or portion thereof converted through the conversion date
shall be payable on the conversion date notwithstanding such conversion, and
interest shall be paid on the conversion date to the Person in whose name such
Note is registered on the conversion date. A Holder may convert a portion of a
Note if the portion is $1,000 principal amount or an integral multiple thereof.
If the Company is a party to a consolidation or merger or a transfer,
lease or other disposition of all or substantially all of its assets, the right
to convert a Note into shares of Common Stock may be changed into a right to
convert it into securities, cash or other assets of the Company or another
Person.
15. SUCCESSORS.
When a successor assumes all the obligations of its predecessor under
the Notes and the Indenture, the predecessor will be released from those
obligations.
A-7
<PAGE>
16. DEFAULTS AND REMEDIES.
Subject to certain restrictions on the ability to accelerate contained
in the subordination provisions in the Indenture, if an Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable immediately in the manner and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Notes. Subject to certain
limitations, Holders of a majority in aggregate principal amount of the Notes
then outstanding may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of Notes notice of any continuing Default
or Event of Default (except a Default in payment of principal of, premium, if
any, or interest on the Notes, including a Default at any Maturity Date), if it
determines that withholding notice is in their interest.
17. NO RECOURSE AGAINST OTHERS.
No stockholder, director, officer, employee or incorporator, as such,
past, present or future, of the Company or any successor corporation shall have
any liability for any obligation of the Company under the Notes or the Indenture
or for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Holder of a Note by accepting a Note waives and releases
all such liability. The waiver and release are part of the consideration for
the issuance of the Notes.
18. [RESERVED].
19. AUTHENTICATION.
This Note shall not be valid until the Trustee or an authenticating
agent acceptable to the Company signs the certificate of authentication
contained in this Note.
20. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a Note
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act). Additional abbreviations may also be used though not in the above list.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Indenture.
21. GLOBAL SECURITY.
This Note is a global Note and shall be exchangeable, in whole but not
in part, for Notes registered in the names of Persons other than the Depository
with respect to this
A-8
<PAGE>
global Note or its nominee only if (i) the Depository is at any time unwilling,
unable or ineligible to continue as Depository and a successor Depository is not
appointed by the Company within 60 days of the date the Company is so informed
in writing, (ii) the Company executes and delivers to the Trustee a Company
Order to the effect that this global Note shall be so exchangeable, or (iii) a
Default or Event of Default has occurred and is continuing with respect to the
Notes. If this global Note is exchangeable pursuant to the preceding sentence
it shall be exchangeable for Notes issuable in denominations of $1,000 and any
integral multiple thereof, registered in such names as such Depository shall
direct.
A-9
<PAGE>
FORM OF ASSIGNMENT
I or we assign this Note to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee:
-----------------------------------------
and irrevocably appoint _____________ agent to transfer this Note on the books
of the Company. The agent may substitute another to act for him.
Dated:__________________ Signed: x
------------------------------------
x
------------------------------------
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 WHATSOEVER.
Signatures guaranteed: x
-----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR DESTROYED, THE
CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Article XII of the Indenture, check the box: / /
If you want to elect to have only part of this Note purchased by the
Company pursuant to Article XII of the Indenture, state the amount you want to
be purchased (which must be a minimum of $1,000 or any multiple thereof):
$________________.
Dated:__________________ Signed: x
-------------------------------------
x
-------------------------------------
x
-------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS OPTION
OF HOLDER TO ELECT PURCHASE MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signatures guaranteed: x
------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
CONVERSION NOTICE
To convert this Note into shares of common stock, par value $.001 per
share, of the Company, check the box: / /
To convert only part of this Note, state the principal amount you want
to be converted (which must be a minimum of $1,000 or any multiple thereof):
$________________
If you want the certificate made out in another person's name, fill in
the form below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type other person's name, address and zip code)
Dated:__________________ Signed: x
-------------------------------------
x
-------------------------------------
x
-------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
CONVERSION NOTICE MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
Signatures guaranteed: x
------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
SCHEDULE I
PERMITTED LIENS
<PAGE>
UNITED VANGUARD HOMES, INC.
7% CONVERTIBLE PROMISSORY NOTE
REGISTERED OWNER:______________________________________
______________________________________
NOTE DATE:______________________________________
NOTE NUMBER:______________________________________
NOTE AMOUNT:______________________________________
The issuance of this Convertible Promissory Note has not been registered
under the Securities Act of 1933, as amended. No transfer or sale or other
disposition of this Note or any portion hereof may be made unless a Registration
Statement with respect to this Note (or portion hereof) has become effective
under said Act, or the issuer is furnished with an opinion of counsel or an SEC
No-Action Letter satisfactory in form and substance to it that such registration
is not required.
The issuance of the shares of Common Stock of United Vanguard Homes, Inc.
into which this Note is convertible has not been registered under the Securities
Act of 1933, as amended. No transfer or sale or other disposition of these
Shares may be made unless a Registration Statement with respect to these Shares
has become effective under said Act, or the issuer is furnished with an opinion
of counsel or an SEC No-Action Letter satisfactory in form and substance to it
that such registration is not required.
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. For Value Received ........................................... 1
Section 2. Optional Prepayment .......................................... 1
Section 3 Issuance of Note ............................................. 2
Section 4. Conversion ................................................... 2
Section 5. Adjustment of Conversion Price ............................... 2
Section 6. Taxes ........................................................ 5
Section 7. Liquidation .................................................. 6
Section 8. Issuance of Shares ........................................... 6
Section 9. No Rights as Stockholders .................................... 6
Section 10. No Limitation on Corporate Acts .............................. 6
Section 11. Subsidiaries ................................................. 7
Section 12. Covenants .................................................... 7
Section 13. Events of Default ............................................ 8
Section 14. Investment Restrictions ...................................... 9
Section 15. Transferability .............................................. 11
Section 16. Non-Recourse ................................................. 11
Section 17. Acceptance by Holder ......................................... 11
Section 18. Amendments and Modifications ................................. 11
Section 19. Non-waivers .................................................. 12
Section 20. Presentment .................................................. 12
Section 21. Headings ..................................................... 12
Section 22. Usury ........................................................ 12
Section 23. Governing Law ................................................ 12
Conversion Form ............................................................ 13
Assignment Form ............................................................ 14
(ii)
<PAGE>
$___________ Note No.______
UNITED VANGUARD HOMES, INC.
7% CONVERTIBLE PROMISSORY NOTE
1. FOR VALUE RECEIVED, UNITED VANGUARD HOMES, INC., a Delaware corporation
(the "Company" or "UVH"), with offices at 4 Cedar Swamp Road, Glen Cove, New
York 11542, hereby promises to pay to ____________________________________,
whose address is
_______________________________________________________________________________,
or registered assigns (hereinafter termed the "holder" or the "registered
holder"), the principal sum of ________________, Dollars ($____________), in
lawful money of the United States, with interest thereon from the date of this
Note in like money at the rate equal to seven percent (7%) per annum on the
unpaid balance of this Note, compounded annually.
Principal shall be payable on December 31, 2000.
Interest on the unpaid balance shall be payable quarterly on the last day
of March, June, September and December of each year commencing with an interest
payment on the first such date occurring after the holder's check in purchasing
this Note has cleared, and interest shall continue so long as this Note shall be
outstanding or until the principal sum hereof shall have been paid in full.
Principal and interest shall be payable by mail to the holder at the
address set forth above or at such other place as the holder may specify by
written notice to UVH.
2. Optional Prepayment. UVH shall have the right to prepay this Note at any
time or from time to time in whole or in part without the payment of any premium
or penalty whatsoever, upon 30 days advance notice. In the event of such
redemption, a notice fixing the time and place of redemption shall be mailed not
less than 30 days prior to the Redemption Date to each holder of record of the
Notes to be redeemed at his or her address as it appears on the books and
records of UVH, plus a copy of UVH's last year-end and interim financial
statements, if any. On and after the Redemption Date, the holders of the Notes
to be redeemed shall no longer be entitled to any interest with respect to the
Notes except to receive the payment or payments referred to in this paragraph,
without interest thereon, upon presentation and surrender of their executed
Promissory Notes.
<PAGE>
3. Issuance of the Note. This Note is part of a series of Convertible
Promissory Notes aggregating $3,000,000 and is issued by UVH pursuant to
authorization of the Board of Directors of UVH contained in a resolution adopted
on December 17, 1993, which Note, together with any notes from time to time
issued as part of said series or in replacement thereof, whether pursuant to
transfer and assignment, partial conversion thereof or otherwise, are
hereinafter sometimes collectively referred to as the "Notes."
4. Conversion. At the option of the holder, all or any part of the unpaid
principal amount of this Note may, upon execution of the Conversion Form
attached hereto and surrender of this Note to UVH for conversion, be converted
at any time prior to payment (but only into multiples of 100 shares, or if the
then balance hereof is convertible into less than 100 shares into the entire
number of such shares) into fully paid non-assessable shares of the presently
authorized Common Stock, par value of $.0l per share ("Common Stock") of UVH, as
follows:
Year Conversion Price
---- ----------------
1994 $3.50
1995 4.00
1996 4.50
1997 5.00
1998 5.50
1999 6.00
2000 6.50
subject to change or adjustment as hereinafter provided (which conversion price
as adjusted is hereinafter referred to as the "Conversion Price"). If less than
all of the unpaid principal amount evidenced by this Note shall be converted,
UVH, upon such exercise, will execute and deliver to the registered holder
hereof a new Note (dated the date hereof) evidencing the remaining amount of
principal and interest then owing. Conversions may be effected only into full
shares, and no fractions of a share of Common Stock shall be issuable upon
conversion. No adjustments shall be made upon the conversion of this Note with
respect to interest accrued but not payable on this Note at the date of
conversion; all such interest on the portion of the principal amount of the Note
as shall then be converted shall be deemed to have been waived.
5. Adjustment of Conversion Price. The Conversion Price shall be subject to
adjustment from time to time as follows:
a. In case UVH shall at any time issue shares of Common Stock by way
of dividend or other distribution on the outstanding stock of UVH or subdivide
or combine the outstanding shares of Common Stock, the Conversion Price shall
forthwith be proportionately decreased in the case of the dividend, distribution
or subdivision or increased in the case of combination
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<PAGE>
to the nearest one cent. An adjustment made pursuant to this subsection a. shall
become effective in the case of a dividend immediately after the opening of
business on the day following the record date for the determination of
stockholders entitled to receive such dividend, and shall become effective in
the case of a distribution, subdivision or combination immediately after the
time when such distribution, subdivision or combination or reclassification, as
the case may be, becomes effective.
b. In case UVH at any time on or after the date of the issuance of
this Note or from time to time while any of the Notes are outstanding shall
distribute to all holders of shares of its Common Stock evidences of its
indebtedness or securities or assets (excluding cash dividends or cash
distributions payable out of accumulated net earnings, or dividends payable in
shares of Common Stock) or rights to subscribe or purchase to the foregoing, the
Conversion Price in effect immediately prior to the record date mentioned below
shall be adjusted by multiplying such price by a fraction of which the
denominator shall be the current market price per share of Common Stock (as
defined in subsection c. below), on the record date for such distribution, and
of which the numerator shall be such current market price per share of the
Common Stock less the then fair market value (as determined by the Board of
Directors of UVH whose determination shall be conclusive) of the portion of the
evidences of indebtedness, assets or securities so distributed or of such
subscription or purchase rights applicable to one share of Common Stock. Such
adjustment shall become effective immediately after the opening of business on
the day following the record date for the determination of stockholders entitled
to receive such distribution.
c. For the purpose of any computation under subsection b. above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the last reported prices for the ten (10) consecutive business
days immediately preceding the day in question. The last reported price for each
day shall be the last reported sale price of Common Stock on the principal
securities exchange on which the Common Stock is listed or admitted to trading
(or on the "Consolidated Tape" if a central securities market is then in effect
at the time) or if there shall not have been a sale on such last business day,
the average of the closing bid and asked prices on such exchange; or if the
Common Stock shall not be listed or admitted to trading on a securities
exchange, then on the basis of the last reported sales price as reported on
NASDAQ; or if there shall not have been a sale on such day as reported by
NASDAQ, then on the average of the closing high bid and low asked prices for the
Common Stock as reported by NASDAQ; or if there shall not have been any bid or
asked prices on NASDAQ, then current market price per share of Common Stock at
any date shall be the fair value of the stock as of the day in question as
determined by the Board of Directors of UVH (whose determination shall be
conclusive) .
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<PAGE>
d. Except as provided above, no adjustment in the Conversion Price or
in the number of shares of Common Stock issuable upon conversion shall be made
by reason of the issuance in exchange for cash, property or services of shares
of Common Stock or any securities convertible into or exchangeable for shares of
Common Stock, or carrying the right to purchase any of the foregoing.
Notwithstanding the provisions of subsection b., if UVH shall distribute to the
holder of the Note the rights to subscribe or to purchase referred to in such
sections which such holders would have been entitled to receive had the Note
been converted (to the nearest full share) as of the record date referred to,
the adjustment referred to in subsection b. shall not be made.
e. No adjustment shall be required unless such adjustment would
require an increase or decrease of at least thirty-five cents ($.35) in such
price provided, however, that any adjustments which by reason of this subsection
e. are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
f. For all purposes of this Note, the term "Common Stock" shall mean
(i) the class of stock designated as the common stock of UVH at the date of this
Note, or (ii) any other class of stock resulting from successive changes or
reclassifications of such common stock. In the event that at any time as a
result of an adjustment made pursuant to subsection b. above, the holder of any
Note thereafter surrendered upon conversion shall become entitled to receive any
securities of UVH other than shares of its common stock as described in clause
(i) above, thereafter the number of such other securities so receivable upon
conversion of any Note shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this paragraph 5.
g. Promptly after the occurrence of any of the above events which
gives rise to the need to adjust the conversion Price, UVH shall (a) prepare a
certificate signed by any one of the Chairman of the Board of Directors, the
President, the Vice President-Finance or the Treasurer of UVH, showing in detail
the facts requiring all such adjustments occurring during such period and the
Conversion Price after each such adjustment; and (b) cause a notice stating that
each such adjustment had been effected and stating the Conversion Price after
each such adjustment to be sent by first-class mail, postage prepaid, to each
registered holder of a Note at his or her address appearing on the records of
UVH.
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<PAGE>
h. Notwithstanding anything contained herein to the contrary, no
adjustment of the Conversion Price shall be made by reason of the issuance of
shares pursuant to the acquisition by UVH of all or substantially all of the
stock or assets of any other corporation or other entity.
i. In case of any reorganization or reclassification of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination) or in the case of any consolidation of UVH with,
or merger of UVH with another corporation, or in the case of any sale of all, or
substantially all, of its property or assets, the holder of each Note then
outstanding shall thereafter have the right to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, consolidation, merger or sale by a holder of
the number of shares of Common Stock which the holder of such Note would have
had the right to purchase immediately prior to such reorganization,
reclassification, consolidation, merger or sale, at a price equal to the
Conversion Price then in effect pertaining to such Note (the kind, amount and
price of such stock and other securities to be subject to adjustment as herein
provided).
j. Irrespective of any adjustments in the Conversion Price, Notes
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Notes initially issuable
pursuant to authority referred to in paragraph 3.
k. UVH may retain a firm of independent certified public accountants
(who may be any such firm regularly employed by UVH) to make any computation
required under this paragraph 5, and a Certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
paragraph 5.
1. UVH shall not be required to issue fractions of Common Stock on the
conversion of Notes. If any fraction of a share would, except for the provisions
of this section, be issuable pursuant to the provisions of paragraph 4 hereof on
the conversion of any Note (or specified portions thereof), UVH shall pay cash
in lieu thereof based on the market value of the Common Stock as determined in
good faith by the Board of Directors of UVH on the business day prior to the
date of conversion.
6. Taxes. The issue of stock certificates upon the conversion of this Note
shall be made without charge to the converting registered holder of the Note for
any tax with respect to such issue. However, UVH shall not be required to pay
any tax which may be payable with respect to any transfer involved in the issue
and delivery of stock in a name other than that
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<PAGE>
of the registered holder of the converted Note; and UVH shall not be required to
issue or deliver any stock certificate unless and until the person or persons
requesting the issue thereof shall have paid UVH the amount of such tax or shall
have established to the satisfaction of UVH that such tax has been paid.
7. Liquidation. In the case of a dissolution, liquidation or winding up of
UVH, all conversion rights hereunder shall terminate at the close of business on
the date as of which holders of record of UVH's Common stock shall be entitled
to participate in the distribution of the assets of UVH in connection with such
distribution, liquidation or winding up provided that in no event shall such
date be less than twenty (20) days after mailing of notice of the event to the
holder. In the case of termination of conversion rights, as aforesaid, a
statement thereof shall be included in the notice.
8. Issuance of Shares. UVH covenants and agrees that all shares of Common
Stock (or securities issued in lieu thereof under any paragraph hereof) which
may be delivered upon the conversion of this Note will, upon delivery, be fully
paid and non-assessable and free from all taxes, liens and charges. UVH further
covenants and agrees that it will from time to time take all such action as may
be requisite to ensure that the par value per share of its shares of Common
Stock shall be at all times equal to or less than the then Conversion Price, and
further agrees at all times to reserve and hold available a sufficient number of
shares of Common Stock to cover the number of shares deliverable upon the
conversion of this Note.
9. No Rights as Stockholders. The registered holder of this Note shall not,
by reason of the ownership or possession of this Note, have any rights
whatsoever as a stockholder of UVH, or any other rights, whatsoever, except as
stated in this Note.
10. No Limitation on Corporate Acts. No provisions of this Note and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by UVH of any of its corporate rights or powers, including,
without limitation, its corporate right and power to recapitalize, amend its
Certificate of Incorporation, reorganize, consolidate or merge with or into
another corporation, or transfer all or any part of its property or assets;
provided, however, that UVH hereby covenants and agrees that upon such
consolidation or merger or upon the transfer of all or substantially all of the
property or assets of UVH, the due and punctual payment of the principal and
interest on all the Notes according to their tenor and the due and punctual
performance and observance of all the terms, covenants and conditions of the
Notes to be kept and performed by UVH shall be assumed by the
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<PAGE>
corporation formed by such consolidation, or into which UVH shall have merged or
by the purchase of such property or assets; and such assumption shall be an
express condition of such merger or consolidation agreement or agreement for the
transfer of property or assets.
11. Subsidiaries. For purposes of this Note, "Subsidiaries" as of any time
shall mean any corporation the majority of the shares of stock of which at such
time outstanding and having voting power for the election of directors is owned
directly or indirectly by UVH.
12. Covenants.
a. UVH will and will cause each Subsidiary to pay all taxes,
assessments and governmental charges lawfully levied or assessed upon it, its
property and part thereof, and upon its income or profits, and any part thereof,
before the same shall become delinquent; and will duly observe, and conform to,
all lawful requirements of any governmental authority relative to any of its
property, and all covenants, terms and conditions upon or under which any of its
property is held; provided that nothing in this paragraph 12 shall require UVH
to observe or conform to any requirement of governmental authority or to pay any
such tax, assessment or governmental charge so long as the validity thereof
shall be contested in good faith; and provided further that neither UVH nor any
Subsidiary shall be required to pay any such taxes, assessments, or charges, if,
in the judgment of the Board of Directors of UVH or the Board of Directors of
such Subsidiary, such payment shall not be in the best interests of UVH or of
such Subsidiary, in the conduct of its business.
b. Subject to the other provisions of this Note, UVH at all times
will, and will cause each Subsidiary to, maintain its corporate existence and
right to carry on its business and duly procure all necessary renewals and
extensions thereof and use its best efforts to maintain, preserve and renew all
its rights, powers, privileges and franchises; provided, however, that nothing
herein contained shall be construed to prevent UVH or a Subsidiary from ceasing
or omitting to exercise any rights, powers, privileges or franchises (including,
in the case of a Subsidiary, the corporate existence thereof) which in the
judgment of the Board of Directors of UVH can no longer be profitably exercised,
nor to prevent the consolidation, merger or liquidation of any Subsidiary or
Subsidiaries with or into any other Subsidiary or Subsidiaries or with or into
UVH.
c. UVH will insure and keep insured, and will cause each Subsidiary to
insure and keep insured, to a like extent as other companies engaged in a
similar business, with reputable insurance companies, (i) so much of their
respective properties and equipment as companies engaged in a similar business
-7-
<PAGE>
and to the extent such companies in accordance with good business practice
customarily insure properties and equipment of a similar character against loss
by fire and from other causes and, (ii) against public liability other than
product liability and property damage as is customarily maintained in accordance
with good business practice by companies engaged in a similar business; or, in
lieu thereof, in the case of itself or of any one or more of its Subsidiaries,
UVH will maintain or cause to be maintained self-insurance which will accord
with the approved practices of companies owning or operating properties of a
similar character and maintaining such self-insurance, and, in such cases of
self-insurance, will cause to be maintained an insurance reserve or insurance
reserves deemed by it to be adequate for itself and its Subsidiaries.
d. UVH will make available to the holder during normal business hours
all of its books and records regarding this Note and allow inspection, copying
and audit (at the holder's expense).
13. Events of Default. In case one or more of the following events of
default shall have occurred and be continuing, the registered holder of this
Note may, at the holder's option, declare it immediately due and payable:
a. The default in the due and punctual payment of any installment of
interest upon this Note as and when the same becomes due and payable, and
continuance of such default for a period of thirty (30) days; or
b. Default in the due and punctual payment of the principal of this
Note as and when the same becomes due and payable; or
c. Failure on the part of UVH duly to observe or perform any other of
the covenants or agreements on the part of UVH for a period of forty-five (45)
days after the date on which written notice of such failure requiring the same
to be remedied has been given to UVH by the holder; or
d. A decree or order by a court having jurisdiction in the premises
has been entered adjudging UVH a bankrupt or insolvent, or approving a petition
seeking reorganization of UVH under the National Bankruptcy Act or any other
similar applicable Federal or state law, and such decree or order has continued
undischarged or unstayed for a period of sixty (60) days; or a decree or order
of a court, having jurisdiction in the premises, for the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of UVH
or of all or substantially all of its property, or for the winding up or
liquidation of its affairs, has been entered, and has remained in force
undischarged or unstayed for a period of sixty (60) days; or
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<PAGE>
e. UVH institutes proceedings to be adjudicated a voluntary bankrupt,
or consents to the filing of a bankruptcy proceeding against it, or files a
petition or answer or consent seeking reorganization under the National
Bankruptcy Act or any other similar applicable Federal or state law, or consents
to the filing of any such petition or to the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of its or of all
or substantially all of its property, or makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts generally as they
become due,
then and in each and every case, so long as such event of default has not been
remedied and unless the principal of this Note has already become due and
payable, the holder by notice in writing to UVH may declare the principal of
this Note then outstanding and the interest accrued thereof, if not already due
and payable, to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything herein
contained to the contrary notwithstanding.
14. Investment Restrictions.
a. The holder of this Note, by acceptance hereof, agrees that this
Note and the shares of Common Stock issuable upon conversion hereof have been
and will be acquired for investment and not with a view to distribution or
resale, and that neither this Note, nor any such shares, will be transferred or
disposed of except in accordance with the requirements of the Securities Act of
1933, as amended, and the then existing Rules and Regulations promulgated
thereunder. The Notes and the shares of Common Stock of UVH issued upon the
conversion of any of the Notes into Common stock of UVH shall not be
transferable except upon the conditions specified in this paragraph 14, which
conditions are intended to effect compliance with the provisions of the
Securities Act in respect of the transfer of any Note or of any such shares of
Common Stock of UVH.
b. The holder agrees that the Notes and the Common Stock issuable upon
conversion of the Notes shall bear the following legends, respectively:
The issuance of this Convertible Promissory Note has not been
registered under the Securities Act of 1933, as amended. No transfer
or sale or other disposition of this Note or any portion hereof may be
made unless a Registration Statement with respect to this Note (or
portion hereof) has become effective under said Act, or the issuer is
furnished with an opinion of counsel or an SEC No-Action Letter
satisfactory in form and substance to it that such registration is not
required.
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<PAGE>
The issuance of the shares of Common Stock of United Vanguard Homes,
Inc. evidenced by this certificate has not been registered under the
Securities Act of 1933, as amended. No transfer or sale or other
disposition of these Shares may be made unless a Registration
Statement with respect to these Shares has become effective under said
Act, or United Vanguard Homes, Inc. is furnished with an opinion of
counsel or an SEC No-Action Letter satisfactory in form and substance
to it that such registration is not required.
c. Neither the issuance of the Notes nor the shares of UVH Common
Stock to be issued upon conversion of this Note have been registered under the
Securities Act. No transfer or sale or other disposition of this Note or said
shares may be made unless a Registration Statement with respect to this Note or
said shares has become effective under the Securities Act or pursuant to Rule
144 under the Securities Act, or UVH is furnished with an opinion of counsel or
an SEC No-Action Letter satisfactory in form and substance to it that such
registration is not required.
d. The holder of each Note and each certificate representing Common
Stock by acceptance thereof agrees, prior to any proposed sale, assignment,
pledge, gift or other transfer (collectively, "transfer") thereof, to give
written notice to UVH in case of any transfer of Notes, or any transfer of
Common Stock underlying the Notes, of such holder's intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail and enclose the opinion or an SEC
No-Action Letter referred to above. Such proposed transfer may be effected only
if in the opinion of counsel for UVH the proposed transfer may be effected
without registration under the Securities Act (and applicable state securities
or Blue Sky laws) of such Note or such Common Stock. If counsel is of the
opinion that the transfer may be effected, UVH shall promptly notify the holder
of such Note or Common Stock to that effect. Each certificate evidencing the
shares of Common Stock thus to be transferred (and each certificate evidencing
any untransferred balance of the Note) shall bear the restrictive legend set
forth on the cover page of this Note and/or in subsection c. hereof unless in
the opinion of counsel for UVH such legend is not required by the applicable
provisions of the Securities Act (and applicable state securities or Blue Sky
laws).
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<PAGE>
15. Transferability. This Note is transferable only in writing by the
registered holder hereof, in person or by his duly authorized attorney, on the
register of UVH at its offices in Glen Cove, New York, or at such other place in
the United States as UVH may specify. UVH may deem and treat the person in whose
name this Note is registered as the absolute owner hereof, whether or not the
same shall be overdue, for the purpose of receiving payment of the principal
thereof and interest hereon and all other purposes whatsoever, including but
without limitation, the giving of any written notices required hereunder, and
UVH shall not be affected by any notice to the contrary.
16. Non-Recourse. No recourse shall be had for the payment of the principal
of or the interest on this Note or any part hereof, or for any claim based
hereon or otherwise in respect hereof, or of the indebtedness represented hereby
against any incorporator, officer or director, as such, past, present or future
of UVH, or of any successor corporation, either directly or through UVH, or any
such successor whether by virtue of any constitutional provision, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise;
all liability, if any, of that character against any such incorporator, officer
or director being by the acceptance hereof and as part of the consideration for
the issue hereof, is expressly waived and released.
17. Acceptance by Holder. This Note is subject to all of the covenants,
conditions, rights, limitations and other provisions stated herein, to all of
which the holder and each successive holder hereof by acceptance of any Note
assents.
18. Amendments and Modifications. Any provision in this Note to the
contrary notwithstanding, changes in or additions to this Note may be made, and
compliance with any covenant or condition herein set forth may be omitted if UVH
(i) shall obtain from the holders of record of Notes aggregating not less than
fifty-one percent (51%) of the aggregate principal amount of the Notes at the
time outstanding their consent thereto in writing, and (ii) shall deliver copies
of such consent in writing to any such holders of record who did not execute the
same; provided, however, that no such consent shall be effective to reduce the
principal of or the rate of interest (7%) payable on, or to postpone any date
fixed for the payment of principal of or any installment of interest on, any
Note, or the terms and conditions on which any Note may be converted, without
the consent of the holder thereof, or to reduce the percentage of the principal
amount of the Notes the consent of the holders of which shall be required under
this paragraph 18.
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<PAGE>
19 Non-waivers. Neither any failure nor any delay on the part of the holder
of this Note in exercising any right, power, or privilege hereunder shall
operate as a waiver of any rights of any holder hereof, nor shall a single or
partial exercise of any right preclude any other or further exercise of any
other right, power of privilege accorded to any holder hereof.
20. Presentment. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby waived.
21. Headings. The headings contained in this Note are for reference
purposes only and shall not affect the meaning or interpretations of this Note.
22. Usury. Notwithstanding any provision herein or in any instrument now or
hereafter securing this Note, the total liability for payments in the nature of
interest shall not exceed the maximum amount permitted under applicable state or
federal law, whichever permits the greater amount of interest to be paid.
Nothing contained in this paragraph shall limit the amount of interest for which
the maker is liable hereunder to the maximum amount permitted under the laws of
New York. In addition, nothing contained in this paragraph shall permit the
maker directly or indirectly to recover any interest paid by the maker hereunder
prior to the final judgment of a court of competent jurisdiction determining
that the interest rate of this Note is usurious, or permit the reallocation of
such interest paid to reduction of the principal balance, with all payments to
be allocated between principal and interest at the time of payment prior to such
judgment as provided by this Note exclusive of this paragraph, except to the
extent the amount of interest resulting from such allocation would make the
holder hereof subject to criminal prosecution.
23. Governing Law. This Note shall be governed and construed by the laws of
the State of New York, applicable to contracts made in and to be performed in
the State of New York.
IN WITNESS WHEREOF, UVH has caused this Note to be executed in Glen Cove,
New York by its Chairman and attested by its Secretary, and its corporate seal
to be hereunto affixed, as of the 15th day of August 1994.
Attest: UNITED VANGUARD HOMES, INC.
____________________________ By: __________________________
Theresa A. Govier Carl G. Paffendorf
Secretary Chairman
(Corporate Seal)
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<PAGE>
19. Non-waivers. Neither any failure nor any delay on the part of the
holder of this Note in exercising any right, power, or privilege hereunder shall
operate as a waiver of any rights of any holder hereof, nor shall a single or
partial exercise of any right preclude any other or further exercise of any
other right, power of privilege accorded to any holder hereof.
20. Presentment. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby waived.
21. Headings. The headings contained in this Note are for reference
purposes only and shall not affect the meaning or interpretations of this Note.
22. Usury. Notwithstanding any provision herein or in any instrument now or
hereafter securing this Note, the total liability for payments in the nature of
interest shall not exceed the maximum amount permitted under applicable state or
federal law, whichever permits the greater amount of interest to be paid.
Nothing contained in this paragraph shall limit the amount of interest for which
the maker is liable hereunder to the maximum amount permitted under the laws of
New York. In addition, nothing contained in this paragraph shall permit the
maker directly or indirectly to recover any interest paid by the maker hereunder
prior to the final judgment of a court of competent jurisdiction determining
that the interest rate of this Note is usurious, or permit the reallocation of
such interest paid to reduction of the principal balance, with all payments to
be allocated between principal and interest at the time of payment prior to such
judgment as provided by this Note exclusive of this paragraph, except to the
extent the amount of interest resulting from such allocation would make the
holder hereof subject to criminal prosecution.
23. Governing Law. This Note shall be governed and construed by the laws of
the State of New York, applicable to contracts made in and to be performed in
the State of New York.
IN WITNESS WHEREOF, UVH has caused this Note to be executed in Glen Cove,
New York by its Vice President Finance and attested by its Secretary, and its
corporate seal to be hereunto affixed, as of the 15th day of August 1994.
Attest: UNITED VANGUARD HOMES, INC.
________________________________ By:__________________________
Theresa A. Govier Paul D'Andrea
Secretary Vice President - Finance
(Corporate Seal)
- 12 -
<PAGE>
NOTICE
The conversion form appearing below should only be executed by the
registered owner desiring to convert all or part of the principal amount of
the Note attached hereto.
CONVERSION FORM
TO: DATE:
United Vanguard Homes, Inc.
4 Cedar Swamp Road
Glen Cove, New York 11542
The undersigned hereby exercises the conversion privilege upon the terms
and conditions set forth in the Note, to the extent of________ shares of Common
Stock of United Vanguard Homes, Inc. and, accordingly, authorizes UVH to apply
$________ principal amount of the attached Note to payment in full for such
shares. Please register such shares and make delivery thereof as follows:
Register in Name of (Giving First or Middle Name in Full)
Name _______________________________________
(Please Print)
Address _______________________________________
_______________________________________
Soc.Sec#_______________________________________
DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to other than
the Registered Holder.
Name _______________________________________
(Please Print)
Address _______________________________________
_______________________________________
_____________________________
Signature
- 13 -
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________the within Note and all rights thereunder,hereby
irrevocably constituting ______________________ attorney to transfer said Note
on the books of United Vanguard Homes, Inc. with full power of substitution in
the premises.
Dated:
_______________________________
Signature
In the presence of:
___________________
NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Note in every particular, without alteration
or enlargement or any change whatever, and must be guaranteed as required for
delivery of securities under the rules of the Securities Transfer Agents
Medallion Program.
- 14 -
<PAGE>
LARRY L. LAIRD
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of April 1996, by and between Larry L.
Laird ("Laird") and United Vanguard Homes, Inc., a Delaware corporation ("UVH").
The parties agree as follows:
1. Employment.
1.1 UVH hereby employs Laird and Laird agrees to continue to be a
full-time employee of UVH, serving as its President and Chief Operating Officer;
provided, however, that Laird may continue as an employee of Friendship Village
in Waterloo, Iowa so long as such activities do not interfere with the
performance of his duties for UVH.
1.2 Laird's base salary shall be $100,000 per annum, commencing April
1, 1996, with additional increases from time-to-time as approved by UVH's Board
of Directors.
1.3 Laird will receive a $25,000 cash bonus and 5,000 shares of UVH
Common Stock to be paid on June 30, 1996.
1.4 Provided Laird is in the employ of UVH or a subsidiary thereof on
March 31, 1998, Laird will receive a $25,000 cash bonus to be paid on March 31,
1998 and 5,000 shares of UVH Common Stock to be delivered on or before April 30,
1998.
1.5 If Laird dies prior to March 31, 1998 while in the employ of UVH
or a subsidiary thereof, Laird's Estate shall be paid the full cash bonus and
the full stock bonus referred to in paragraph 1.4.
<PAGE>
1.6 Subject to the terms and conditions of this Agreement, employment
shall continue until March 31, 1998, and thereafter for 12-month periods, unless
either party terminates this Agreement not less than 45 days prior to March 31
of any employment period; provided, however, that UVH may terminate this
Agreement for cause, upon 30 days' prior written notice to Laird. For purposes
of this Agreement, "cause" is defined as a breach of the terms and conditions of
this Agreement, dishonesty, habitual drunkenness, and committing an act
involving moral turpitude.
1.7 In the event that (i) the employment of Laird by UVH is terminated
for any reason whatsoever and (ii) UVH's subsidiary Vanguard Realty and
Management Company, Inc. ("VRM") ceases to be the manager of Cottage Grove
Place, Cedar Rapids, Iowa, pursuant to the Management Agreement dated June 7,
1995 between VRM and Cottage Grove Place, and (iii) Laird or Laird Lifecare,
Ltd. or any company controlled by Laird becomes the manager of the Cottage Grove
Place facility, then one half of the Cottage Grove Place management fee shall be
paid to VRM.
1.8 In the event that (i) the employment of Laird by UVH is terminated
for any reason whatsoever and (ii) UVH's subsidiary, UVH Development Corp.
("UVH/DC") ceases to be the developer of Cottage Grove Place, Cedar Rapids,
Iowa, pursuant to the Development Agreement dated June 7, 1995 between UVH/DC
and Cottage Grove Place, and (iii) Laird or Laird Lifecare, Ltd. or any company
controlled by Laird becomes the developer of the Cottage Grove Place facility,
then 90 percent of the Cottage Grove Place $2,270,000 Development Fee received
shall be paid to UVH/DC within ten days of receipt thereof.
2. Investment Representation. Laird acknowledges that the UVH shares
referred to in paragraph 1.3 and 1.4 have not been and will not be registered
under the Securities Act of 1933, as amended, or pursuant to the provisions of
the securities or other laws of
2
<PAGE>
applicable jurisdictions. Laird is aware of the restrictions on sale,
transferability and assignment of these shares. Therefore, the UVH shares cannot
be sold unless they are registered under the Securities Act or an exemption from
such registration is available. The certificates evidencing UVH shares will bear
an appropriate investment legend. Laird represents that he will acquire said UVH
shares for his own account and not for purpose of distribution.
3. Confidentiality. During the term of this Agreement, and thereafter,
Laird agrees that all confidential information concerning the business of UVH
(and subsidiaries) and its operations and finances, and all other confidential
information will be kept in confidence and will not disclose or divulge such
information to any person without the written consent of an officer of UVH
unless such person is entitled to same for the furtherance of the purposes and
best interests of UVH.
4. Competition. During the term of this Agreement, Laird agrees not to
directly or indirectly engage in the business of owning or managing congregate
care facilities for the elderly, except for the benefit of or on behalf of UVH
or its subsidiaries or acting as an officer, director, employee of such
facilities, or as a consultant thereto, other than as Executive Director and an
employee of Friendship Village, Waterloo, Iowa.
5. Non-solicitation. Effective upon the termination of the employment of
Laird by UVH, and for a period of 24 months thereafter, Laird will not, without
the written consent of UVH, directly or indirectly (i) solicit the residents of
congregate care facilities owned or managed by UVH or subsidiaries or (ii)
solicit any management contract owned or being negotiated by UVH or its
subsidiaries or (iii) solicit or hire any employees of UVH or its subsidiaries.
3
<PAGE>
6. Right to Injunctive Relief.
6.1 Laird understands and acknowledges that UVH would not have an
adequate remedy at law for the breach or threatened breach of his covenants as
set forth in paragraphs 3, 4, and 5 of this Agreement and agrees that UVH, in
the case of such breach or threatened breach, may file a suit in equity to
enjoin Laird from such breach or threatened breach, and agrees that the court
having jurisdiction over such proceedings may enter an order temporarily or
permanently enjoining Laird and/or his agents from such breach or threatened
breach.
6.2 UVH's rights to injunctive relief for violations of paragraphs 3,
4, and 5 shall be cumulative and in addition to, and not in limitation of, any
other rights and remedies which it may possess, including, without limitation,
the right of UVH to terminate salary as of the date of the breach and to
withhold the payment of income, expenses, dividends, or any sums due or shares
of UVH stock due to Laird from UVH until the dispute between them has been
resolved.
7. Covenants. Laird agrees, represents, and warrants that: (i) he will
faithfully and diligently do and perform the acts and duties required by the
Board of Directors of UVH in connection with his services hereunder; (ii) he
will not engage in any activity which is or may be contrary to the welfare,
interest, or benefit of the business now or hereafter conducted by UVH or its
subsidiaries; and (iii) his entry into and a performance of this Agreement will
not result in any violation or breach or be in conflict with or constitute a
default under any agreement, instrument, decree, judgment, or order applicable
to him.
8. Notices. Any notice required or permitted to be given to any party
pursuant to this Agreement shall be sufficiently given if received or, if sent
to such party by overnight courier or mailed by Registered or Certified Mail,
Return Receipt Requested, addressed to the
4
<PAGE>
address set forth below, or at such other address as he (or it) shall designate
by notice to all of the other parties hereto.
United Vanguard Homes, Inc.
4 Cedar Swamp Road
Glen Cove, NY 11542
Attn: The Chairman
Mr. Larry L. Laird
11906 Forest Drive
Carmel, IN 46033
9. Indemnification. Each party to this Agreement agrees to indemnify and
save the other parties harmless from and against any costs, damages, or expenses
(including reasonable attorneys' fees) resulting from any misrepresentation made
by such party in this Agreement and any breach of any of the covenants made by
such party in this Agreement.
10. Entire Agreement. This Agreement supersedes the Larry L. Laird
Employment Agreement dated as of January 1, 1994 among Laird, UVH and UVH
Development Corp., as amended by letter agreements dated as of October 24, 1995
and December 29, 1995, except for UVH's covenants to pay the $25,000cash bonus
and issue 15,000 shares of UVH stock per paragraph B and D of the December 29, 1
995 letter agreement, which covenants shall continue until such sum is paid and
shares delivered. This Agreement embodies the entire agreement among the parties
hereto and supersedes all prior agreements or understandings among the parties
hereto, whether written or oral, relating to the subject matter of this
Agreement, other than option agreements heretofore entered into between UVH and
Laird.
11. Amendments. This Agreement may not be modified or amended except by
written amendment(s) signed by the party to be charged.
12. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in such state.
5
<PAGE>
13. Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, all other provisions shall nevertheless continue in
full force and effect.
14. Assigns. This Agreement is not assignable by Laird. This Agreement is
assignable by UVH in connection with the sale of all or substantially all of its
assets, provided the assignee assumes UVH's obligations under this Agreement, in
writing.
15. Consent to Jurisdiction. The parties hereby consent to the personal
jurisdiction of the United States District Court, Eastern District of New York
and the Supreme Court, State of New York, County of Nassau, and to venue in
Nassau County.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
/s/ Larry L. Laird
-------------------------------
LARRY L. LAIRD
UNITED VANGUARD HOMES, INC.
by: /s/ Carl G. Paffendorf
------------------------------
Carl G. Paffendorf
Chairman
AGREED, as to paragraphs
1.7, 9, and 15
LAIRD LIFECARE, LTD.
by: /s/ Larry L. Laird
-------------------------
Larry L. Laird, President
6
<PAGE>
[Letterhead of United Vanguard Homes, Inc.]
September 3, 1996
Via FAX and Mail
Mr. Larry L. Laird
11906 Forest Drive
Carmel, IN 46033
Re: Employment Agreement
Dear Larry:
This letter will serve to confirm that paragraph 4 of your Employment Agreement
with United Vanguard Homes, Inc. dated as of April 1, 1995 is hereby amended in
its entirety, to be and read as follows:
4. Competition. During the term of this Agreement and, subject to the
last sentence of this paragraph, for a period of three years thereafter,
Laird agrees not to directly or indirectly engage in the business of owning
or managing retirement facilities for the elderly, except for the benefit
of or on behalf of UVH or its subsidiaries or acting as an officer,
director, employee of such facilities, or as a consultant thereto, other
than as Executive Director and an employee of Friendship Village, Waterloo,
Iowa. During the said three-year noncompetition period, the covenant
not-to-compete shall only apply to facilities within a 15-mile radius of
facilities owned by UVH.
Please confirm your agreement with the foregoing by signing this letter in
duplicate and returning one copy.
Very truly yours,
/s/Craig M. Shields
Craig M. Shields
Vice President
CMS:adf
Enclosure
AGREED:
/s/Larry L. Laird
- ---------------------------------
Larry L. Laird
<PAGE>
CARL G. PAFFENDORF
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AGREEMENT made this 27th day of June 1996, by and between Carl G.
Paffendorf ("Employee"), residing at 11 Crossway, Glen Head, New York 11545, and
United Vanguard Homes, Inc., a Delaware corporation with offices at 4 Cedar
Swamp Road, Glen Cove, New York ("UVH").
The parties agree that the Carl G. Paffendorf Employment Agreement
dated April 19, 1996 is hereby amended and restated in its entirety as follows:
1. EMPLOYMENT.
1.1 UVH hereby employs Employee, and Employee agrees to be employed
by UVH, serving as its Chief Executive Officer.
1.2 Employee's base salary shall be $100,000 per annum, commencing
as of April 1, 1996, with additional increases from time-to-time as approved by
UVH's Board of Directors; provided, however, that no increase shall be made
prior to March 31, 1997.
1.3 Subject to the terms and conditions of this Agreement,
employment shall continue until March 31, 1999, and thereafter for 12-month
periods, unless either party terminates this Agreement not less than 45 days
prior to March 31 of any employment period; provided, however, that UVH may
terminate this Agreement for cause, upon 30 days' prior written notice to
Employee. For purposes of this Agreement, "cause" is defined as a breach of the
terms and conditions of this Agreement, dishonesty, habitual drunkenness, and
committing an act involving moral turpitude.
<PAGE>
2. CONFIDENTIALITY. During the term of this Agreement, and thereafter,
Employee agrees that all confidential information concerning the business of UVH
(and subsidiaries) and its operations and finances, and all other confidential
information will be kept in confidence and will not disclose or divulge such
information to any person without the written consent of an officer of UVH
unless such person is entitled to same for the furtherance of the purposes and
best interests of UVH.
3. COMPETITION. During the term of this Agreement, Employee agrees not
to directly or indirectly engage in the business of owning or managing
congregate care facilities for the elderly, except (i) for the benefit of or on
behalf of UVH or its subsidiaries or acting as an officer, director, employee of
such facilities, or as a consultant thereto and (ii) as an officer, director,
emloyee of Vanguard Ventures, Inc. and its subsidiaries and affiliates or as a
consultant thereto.
4. NON-SOLICITATION. Effective upon the termination of the employment
of Employee by UVH, and for a period of 24 months thereafter, Employee will not,
without the written consent of UVH, directly or indirectly (i) solicit the
residents of congregate care facilities owned or managed by UVH or subsidiaries
or (ii) solicit any management contract owned or being negotiated by UVH or its
subsidiaries.
5. RIGHT TO INJUNCTIVE RELIEF.
5.1 Employee understands and acknowledges that UVH would not have an
adequate remedy at law for the breach or threatened breach of his covenants as
set forth in paragraphs 2, 3, and 4 of this Agreement and agrees that UVH, in
the case of such breach or threatened breach, may file a suit in equity to
enjoin Employee from such breach or threatened breach, and agrees that the court
having jurisdiction over such proceedings may
2
<PAGE>
enter an order temporarily or permanently enjoining Employee and/or his agents
from such breach or threatened breach.
5.2 UVH's rights to injunctive relief for violations of paragraphs
2, 3, and 4 shall be cumulative and in addition to, and not in limitation of,
any other rights and remedies which it may possess, including, without
limitation, the right of UVH to terminate salary as of the date of the breach
and to withhold the payment of income, expenses, dividends, or any sums due or
shares of UVH stock due to Employee from UVH until the dispute between them has
been resolved.
6. Covenants.
6.1 Employee agrees, represents, and warrants that: (i) he will
faithfully and diligently do and perform the acts and duties required by the
Board of Directors of UVH in connection with his services hereunder; (ii) he
will not engage in any activity which is or may be contrary to the welfare,
interest, or benefit of the business now or hereafter conducted by UVH or its
subsidiaries; and (iii) his entry into and a performance of this Agreement will
not result in any violation or breach or be in conflict with or constitute a
default under any agreement, instrument, decree, judgment, or order applicable
to him.
6.2 UVH acknowledges that Employee is also the Chief Executive
Officer of Vanguard Ventures, Inc. and its subsidiaries and affiliates, and UVH
agrees that he may continue such employment, provided that Employee's covenant
set forth in Paragraph 6.1, above, is not violated.
7. NOTICES. Any notice required or permitted to be given to any party
pursuant to this Agreement shall be sufficiently given if received or, if sent
to such party by overnight courier or mailed by Registered or Certified Mail,
Return Receipt Requested, addressed to the
3
<PAGE>
address set forth below, or at such other address as he (or it) shall designate
by notice to all of the other parties hereto.
United Vanguard Homes, Inc.
4 Cedar Swamp Road
Glen Cove, NY 11542
Attn: The President
Mr. Carl G. Paffendorf
11 Crossway
Glen Head, NY 11545
8. INDEMNIFICATION. Each party to this Agreement agrees to indemnify
and save the other parties harmless from and against any costs, damages, or
expenses (including reasonable attorneys' fees) resulting from any
misrepresentation made by such party in this Agreement and any breach of any of
the covenants made by such party in this Agreement.
9. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of
the parties hereto and supersedes all prior agreements or understandings among
the parties hereto, whether written or oral, relating to the subject matter of
this Agreement, other than option agreements heretofore entered into between UVH
and Employee.
10. AMENDMENTS. This Agreement may not be modified or amended except by
written amendment(s) signed by the party to be charged.
11. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in such state.
12. PARTIAL INVALIDITY. If any provision of this Agreement is held to
be invalid or unenforceable, all other provisions shall nevertheless continue in
full force and effect.
13. ASSIGNS. This Agreement is not assignable by Employee. This
Agreement is assignable by UVH in connection with the sale of all or
substantially all of its assets, provided the assignee assumes UVH's obligations
under this Agreement, in writing.
4
<PAGE>
14. CONSENT TO JURISDICTION. The parties hereby consent to the personal
jurisdiction of the United States District Court, Eastern District of New York
and the Supreme Court, State of New York, County of Nassau, and to venue in
Nassau County. IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 1st day of April 1996.
/s/ Carl G. Paffendorf
---------------------------------------
Carl G. Paffendorf
UNITED VANGUARD HOMES, INC.
by: /s/ Paul D'Andrea
---------------------------------
Paul D'Andrea
Vice President - Finance
5
<PAGE>
[Letterhead of United Vanguard Homes, Inc.]
July 24, 1996
Mr. Carl G. Paffendorf
11 Crossway
Glen Head, NY 11545
Re: Employment Agreement
Dear Carl:
This letter will serve to confirm that paragraph 3 of your Employment Agreement
with United Vanguard Homes, Inc. dated June 27, 1996 (effective April 1, 1996)
is hereby amended in its entirety, to be and read as follows:
3. Competition. During the term of this Agreement and for a period of
36 months thereafter, Employee agrees not to directly or indirectly engage
in the business of owning or managing retirement facilities for the
elderly, except for the benefit of or on behalf of UVH or its subsidiaries
or acting as an officer, director, employee of such facilities, or as a
consultant thereto
Very truly yours,
/s/Craig M. Shields
Craig M. Shields
Vice President
CMS:adf
Enclosure
AGREED:
/s/ Carl G. Paffendorf
- --------------------------------------
Carl G. Paffendorf
<PAGE>
UNITED VANGUARD HOMES, INC.
1991 INCENTIVE STOCK OPTION PLAN
as amended and restated on June 21, 1996
1. PURPOSE. The purpose of the United Vanguard Homes, Inc. 1991
Incentive Stock Option Plan (the "Plan") is to secure for United Vanguard Homes,
Inc. (the "Company") and its stockholders the benefits that flow from providing
corporate officers and key employees with the incentive, inherent in the
ownership of the Company's common stock, par value $.01 per share (the "Common
Stock"), to contribute to the success and growth of the business of the Company
and its subsidiaries and to help the Company and its subsidiaries secure and
retain the services of such employees. All options to be granted under the Plan
are intended to qualify as "incentive stock options" under the provisions of
section 422A of the Internal Revenue Code of 1986, as from time to time amended
(the "Code"). For purposes of the Plan, the terms "parent" and "subsidiary"
shall mean "parent corporation" and "subsidiary corporation," respectively, as
such terms are defined in sections 425(e) and (f) of the Code.
2. STOCK OPTION COMMITTEE.
2.1 ADMINISTRATION. The Plan shall be administered by the Board of
Directors or by a Stock Option Committee (the "Committee") of not less than two
members of the Board of Directors who are disinterested persons, as defined in
Rule 16b-3, promulgated under the Securities Exchange Act of
<PAGE>
1934, as amended. The appointment of a Committee, however, shall not preclude
the Board of Directors from granting options and otherwise exercising its powers
with respect to the Plan. As used herein, the term "Committee" shall be deemed
to include the Board of Directors, whether or not a Committee shall have been
appointed.
2.2 INTERPRETATION; PROCEDURES. The Committee is authorized to
interpret the provisions of the Plan and shall adopt such rules and regulations
as it shall deem appropriate concerning the holding of its meetings and the
administration of the Plan. A majority of the whole Committee shall constitute a
quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee. Any
member of the Committee may be removed at any time either with or without cause
by resolution adopted by the Board of Directors of the Company; and any vacancy
on the Committee may at any time be filled by resolution adopted by the Board of
Directors.
3. SHARES SUBJECT TO OPTIONS.
3.1 NUMBER OF SHARES. Subject to the provisions of paragraph 13
(relating to adjustments upon changes in capitalization), the number of shares
of Common Stock subject at any one time to options granted under the Plan, plus
the number of shares of Common Stock theretofore issued or delivered
-2-
<PAGE>
pursuant to the exercise of options granted under the Plan, shall not exceed
500,000 shares; PROVIDED, that if and to the extent that options granted under
the Plan terminate, expire or are cancelled without having been exercised, new
options may be granted under the Plan with respect to the shares of Common Stock
covered by such terminated, expired or cancelled options.
3.2 CHARACTER OF SHARES. Shares of Common Stock delivered upon the
exercise of options granted under the Plan may be authorized and unissued Common
Stock, issued Common Stock held in the Company's treasury, or both.
3.3 RESERVATION OF SHARES. There shall be reserved at all times for
sale under the Plan a number of shares of Common Stock (authorized and unissued
Common Stock, issued Common Stock held in the Company's treasury, or both) equal
to the maximum number of shares which may be purchased pursuant to options
granted or that may be granted under the Plan.
4. GRANT OF OPTIONS. The Committee shall determine, within the
limitations of the Plan, the employees of the Company and its subsidiaries, if
any, to whom options are to be granted, the number of shares that may be
purchased under each option and the option price; PROVIDED, that the aggregate
fair market value (determined as of the time the option is granted) of the
Common Stock for which any officer or employee may be granted options in any
calendar year (under all incentive stock option plans of the Company, its
parent, if any, and its subsidiaries), shall not
-3-
<PAGE>
exceed the sum of $100,000 plus any "unused limit carryover" to such year within
the meaning of section 422A(c)(4) of the Code. Each option granted under the
Plan shall be evidenced by a written agreement between the Company and the
Optionee (as hereinafter defined) in such form, not inconsistent with the
provisions of the Plan or of section 422A of the Code, as the Committee shall
provide.
5. EMPLOYEES ELIGIBLE. Options may be granted under the Plan to any key
employee or prospective key employee (conditioned upon, and effective not
earlier than, his becoming an employee) of the Company or any of its
subsidiaries. When considering a potential grant of options, the Committee may
take into account the nature and period of service of eligible employees, their
level of compensation, their past, present and potential contributions to the
Company and such other factors as the Committee shall in its discretion deem
relevant. Employees who are also officers or directors of the Company or any of
its subsidiaries shall not by reason of such offices be ineligible to receive
options under the Plan. No options may be granted under the Plan to any person
who owns, directly or indirectly, at the time the option is granted, stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent, if any, or any of its subsidiaries
(within the meaning of sections 422A(b)(6) and 425(d) of the Code), unless the
option price is at least 110% of the fair
-4-
<PAGE>
market value of the shares subject to the option, determined on the date of the
grant, and the option by its terms is not exercisable after the expiration of
five years from the date such option is granted.
An individual receiving any option under the Plan is
hereinafter referred to as an "Optionee." Any reference herein to the employment
of an Optionee by the Company shall include his employment by the Company, its
parent, if any, or any of its subsidiaries.
6. PRICE. Subject to paragraph 13, the option price of each share of
Common Stock purchasable under any option granted under the Plan shall be (a)
not less than the fair market value thereof at the time the option is granted
(which time, in the case of the grant of an option to a prospective officer or
key employee, shall be deemed to be the time of effectiveness of such grant); or
(b) in the case of an option issued in a transaction described in section 425(a)
of the Code, an amount which conforms to the requirements of that section.
7. EXPIRATION AND TERMINATION OF THE PLAN.
7.1 GENERAL. Options may be granted under the Plan at any time and
from time to time on or prior to June 14, 20001, on which date the Plan will
expire except as to options then outstanding under the Plan. Such options shall
remain in effect until they have been exercised, terminated or have
-5-
<PAGE>
expired. The Plan may be terminated, modified or amended by the Board of
Directors at any time on or prior to June 14, 2001, except with respect to any
options then outstanding under the Plan; any change in the class of employees
eligible for the grant of options, as specified in paragraph 5, shall be subject
to approval by the Company shareholders; and PROVIDED FURTHER that any increase
in the maximum number of shares subject to options, as specified in paragraph 3,
or any decrease in the option price specified in paragraph 5 or 6, shall be
subject to approval by the Company's shareholders, unless made pursuant to the
provisions of paragraph 13.
7.2 MODIFICATIONS. No modification, extension, renewal or other
change in any option granted under the Plan shall be made after the grant of
such option, unless the same is consistent with the provisions of the Plan and
does not disqualify the option as an "incentive stock option" under the
provisions of section 422A of the Code.
8. EXERCISABILITY AND DURATION OF OPTIONS.
8.1 DETERMINATION OF COMMITTEE; ACCELERATION. Each option granted
under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee may
provide upon the granting thereof. Subsequent to the grant of an option which is
not immediately exercisable in full, the Committee, at any time before complete
termination of such option, may accelerate the
-6-
<PAGE>
time or times at which such option may be exercised in whole or in part. Any
option granted under the Plan shall be exercisable upon the death of the
Optionee or upon the termination of the Optionee's employment by the Company by
reason of his illness or disability only to the extent such option was
exercisable by the Optionee immediately prior to such event, unless otherwise
expressly provided in the option at the time it is granted.
8.2 AUTOMATIC TERMINATION. The unexercised portion of any option
granted under the Plan shall automatically and without notice terminate and
become null and void at the time of the earliest to occur of the following:
(a) The expiration of ten years from the date on which such option
was granted;
(b) The expiration of three months from the date of termination of
the Optionee's employment by the Company (other than a termination described in
subparagraph (c), (d) or (e) below); PROVIDED, that if the Optionee shall die
during such three-month period, the time of termination of the unexercised
portion of any such option shall be determined under the provisions of
subparagraph (d) below;
(c) The expiration of one year from the date of termination of the
employment of an Optionee who is permanently and totally disabled (other than a
termination described in subparagraph (e) below);
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(d) The expiration of six months following the issuance of letters
testamentary or letters of administration to the executor or administrator of a
deceased Optionee, if the Optionee's death occurs either during his employment
by the Company or during the three-month period following the date of
termination of such employment (other than a termination described in
subparagraph (e) below), but in no event later than one year after the
Optionee's death;
(e) The termination of the Optionee's employment by the Company if
such termination constitutes or is attributable to a breach by the Optionee of
an employment agreement with the Company, its parent, if any, or any of its
subsidiaries, or if the Optionee is discharged for cause. The Committee shall
have the right to determine whether the Optionee has been discharged for cause
and the date of such discharge, and such determination of the Committee shall be
final and conclusive; or
(f) The expiration of such period of time or the occurrence of such
event as the Committee in its discretion may provide upon the granting thereof.
9. EXERCISE OF OPTIONS: CERTAIN LEGAL AND OTHER RESTRICTIONS.
9.1 EXERCISE. Options granted under the Plan shall be exercised by
the Optionee (or by its executors or administrators, as provided in paragraph
10) as to all or part of the shares covered thereby, by the giving of written
notice of
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exercise to the Company, specifying the number of shares to be purchased,
accompanied by payment of the full purchase price for the shares being
purchased. No option shall be exercisable until more than six months have
elapsed from the Grant Date. Payment of such purchase price shall be made (a) by
check payable to the Company or (b) with the consent of the Committee, by
delivery of shares of Common Stock having a fair market value (determined as of
the date such option is exercised) equal to all or part of the purchase price
and, if applicable, of a check payable to the Company for any remaining portion
of the purchase price. Such notice of exercise, accompanied by such payment,
shall be delivered to the Company at its principal business office or such other
office as the Committee may from time to time direct, and shall be in such form,
containing such further provisions consistent with the provisions of the Plan,
as the Committee may from time to time prescribe. The Company shall effect the
transfer of the shares so purchased to the Optionee (or such other person
exercising the option pursuant to paragraph 10 hereof) as soon as practicable,
and within a reasonable time thereafter, such transfer shall be evidenced on the
books of the Company. No Optionee or other person exercising an option shall
have any of the rights of a shareholder of the Company with respect to shares
subject to an option granted under the Plan until certificates for such shares
shall have been issued following the exercise of such option. No adjustment
shall be made for cash dividends or other rights for which the record date
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is prior to the date of such issuance. In no event may any option granted
hereunder be exercised for a fraction of a share.
9.2 RESTRICTIONS ON DELIVERY OF SHARES. Each award granted under
the Plan is subject to the conditions that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such award upon any securities exchange or under any state
or federal law is necessary or desirable as a condition of or in connection with
the granting of such option or the purchase or delivery of shares thereunder,
the delivery of any or all shares pursuant to exercise of the option may be
withheld unless and until such listing, registration or qualification shall have
been effected. The Committee may require, as a condition of exercise of any
option, that the Optionee represent, in writing, that the shares received upon
exercise of the option are being acquired for investment and not with a view to
distribution, provided that the Committee may thereafter waive such
representation, subject to such restrictions as it may determine, if, in the
opinion of counsel to the Company, the offer of such shares by the Company
pursuant to such option and the resale of such shares by the Optionee, or either
of such acts, is pursuant to an applicable effective registration statement
under the Securities Act of 1933, as amended, or is exempt from such
registration. The Company may endorse on certificates representing shares issued
upon the exercise of an option such legends referring to the
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foregoing representations or any applicable restrictions on resale as the
Company, in its discretion, shall deem appropriate.
10. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan or
any right evidenced thereby shall be transferable by the Optionee other than by
will, by the laws of descent and distribution, pursuant to a qualified domestic
relations order as defined by the Code or by Title I of the Employee Retirement
Income Security Act or the rules thereunder.
In the event of an Optionee's death during his employment by the
Company, its parent, if any, or a subsidiary of the Company, or during the
three-month period following the date of termination of such employment, his
option shall thereafter be exercisable, during the period specified in paragraph
8(d), by his executors or administrators.
11. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any option
granted under the Plan shall confer upon any Optionee the right to continue in
the employment of the Company or affect the right of the Company, its parent, if
any, or any of its subsidiaries, to terminate the Optionee's employment at any
time, subject, however, to the provisions of any agreement of employment between
the Optionee and the Company, its parent, if any, or any of its subsidiaries.
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12. ORDER OF EXERCISE OF OPTIONS. No option granted under the Plan (the
"new option") shall be exercisable while there is outstanding (within the
meaning of section 422A(c)(7) of the Code) any incentive stock option (within
the meaning of section 422A(b) of the Code) which was granted to the Optionee,
before the granting of the new option, to purchase stock in the Company or in a
corporation which (at the time of the granting of the new option) is a parent or
subsidiary of the Company, or in a predecessor corporation of any such
corporation.
13. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of any
stock split, stock dividend, reclassification or recapitalization which changes
the character or amount of the Company's outstanding Common Stock while any
portion of any option theretofore granted under the Plan is outstanding but
unexercised, the Committee shall make such adjustments in the character and
number of shares subject to such options and in the option price, as shall be
equitable and appropriate in order to make the option, as nearly as may be
practicable, equivalent to such option immediately prior to such change;
PROVIDED, that no such adjustment shall give the Optionee any additional
benefits under his option; and PROVIDED FURTHER, that if any such adjustment is
made by reason of a transaction described in section 425(a) of the Code, it
shall be made so as to conform to the requirements of that section and the
regulations thereunder.
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If any transaction (other than a change specified in the preceding
paragraph) described in section 425(a) of the Code affects the Company's Common
Stock subject to any unexercised option theretofore granted under the Plan
(hereinafter for purposes of this paragraph 13 referred to as the "old option"),
the Board of Directors of the Company or any surviving or acquiring corporation
shall take such action as is equitable and appropriate and in conformity with
the requirements on that section and the regulations thereunder, to substitute a
new option for the old option, or to assume the old option, in order to make the
new option, as nearly as may be practicable, equivalent to the old option.
If any such change or transaction shall occur, the number and kind of
shares for which options may thereafter be granted under the Plan shall be
adjusted to give effect thereto.
14. EFFECTIVE DATE OF PLAN. The Plan shall become effective on June 14,
1991, the date of its adoption by the Board of Directors of the Company,
subject, however, to the approval of the Plan by the Company's stockholders
within 12 months of such adoption.
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ARTICLE I
PURPOSE
The purpose of the United Vanguard Homes, Inc. 1996 Outside Directors'
Stock Option Plan (the "Plan") is to secure for United Vanguard, Inc. and its
stockholders the benefits arising from stock ownership by its Outside Directors.
The Plan will provide a means whereby such Outside Directors may purchase shares
of the common stock, $.01 par value, of United Vanguard Homes, Inc. pursuant to
options granted in accordance with the Plan.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the
respective meanings set forth in this Article:
2.1 "BOARD" shall mean the Board of Directors of United Vanguard Homes,
Inc.
2.2 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.3 "COMPANY" shall mean United Vanguard Homes, Inc. and any of its
Subsidiaries.
2.4 "DIRECTOR" shall mean any person who is a member of the Board of
Directors of the Company.
2.5 "OUTSIDE DIRECTOR" shall mean any Director elected after April 1,
1996 who is neither a present nor past employee of the Company or a Subsidiary
of the Company during the 36 months preceding his election to the Board.
2.6 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
2.7 "EXERCISE PRICE" shall mean the price per Share at which an Option
may be exercised.
2.8 "FAIR MARKET VALUE" of the Shares means the closing price of
publicly traded Shares on the national securities exchange on which the Shares
are listed on the Grant Date (if the Shares are so listed) or on the Nasdaq
National Market on the Grant Date (if the Shares are regularly quoted on the
Nasdaq National Market), or, if
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not so listed or regularly quoted, the mean between the closing bid and asked
prices of publicly traded Shares in the over-the-counter market on the Grant
Date, or, if such bid and asked prices shall not be available, as reported by
any nationally recognized quotation service selected by the Company on the Grant
Date, or as determined by the Board in a manner consistent with the provisions
of the Code.
2.9 "GRANT DATE" shall mean the Initial Grant Date and any Subsequent
Grant Date.
2.10 "INITIAL GRANT DATE" shall mean the date an Outside Director is
elected to the Board.
2.11 "OPTION" shall mean an Option to purchase Shares granted pursuant
to the Plan.
2.12 "OPTION AGREEMENT" shall mean the written agreement described in
Article VI herein.
2.13 "PERMANENT DISABILITY" shall mean the condition of an Outside
Director who is unable to participate as a member of the Board by reason of any
medically determined physical or mental impairment that can be expected to
result in death or which can be expected to last for a continuous period of not
less than 12 months.
2.14 "PURCHASE PRICE" shall be the Exercise Price multiplied by the
number of whole Shares with respect to an Option may be exercised.
2.15 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
2.16 "SHARES" shall mean shares of common stock, $.01 par value, of the
Company.
2.17 "SUBSEQUENT GRANT DATE" shall mean any Grant Date other than the
Initial Grant Date.
2.18 "SUBSIDIARIES" shall have the meaning provided in Section 425(f)
of the Code.
ARTICLE III
ADMINISTRATION
3.1 GENERAL. This Plan shall be administered by the Board in accordance
with the express provisions of this Plan.
3.2 POWERS OF THE BOARD. The Board shall have full and complete
authority to adopt such rules and regulations and to make
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all such other determinations not inconsistent with the Plan as may be necessary
for the administration of the Plan.
ARTICLE IV
SHARES SUBJECT TO PLAN
Subject to adjustment in accordance with Article IX, an aggregate of
150,000 Shares is reserved for issuance under this Plan. Shares sold under this
Plan may be either authorized but unissued Shares or reacquired Shares. If an
Option, or any portion thereof, shall expire or terminate for any reason without
having been exercised in full, the unpurchased Shares covered by such Option
shall be available for future grants of Option.
ARTICLE V
GRANTS
5.1 INITIAL GRANTS. On the Initial Grant Date, each Outside Director
shall receive the grant of an option to purchase 5,000 Shares. If an Outside
Director was granted an option as of the date the Board approved the Plan, then
such grant is subject to shareholder approval of the Plan.
5.2 SUBSEQUENT GRANTS. To the extent that Shares remain available for
the grant of Options under the Plan, each year on April 1, beginning April 1,
1997, each Outside Director shall be granted an Option to purchase 3,000 Shares.
5.3 ADJUSTMENT OF GRANTS. The number of Shares set forth in Section 5.1
and 5.2 as to which Options shall be granted shall be subject to adjustment as
provided in Section 9.1 hereof.
5.4 COMPLIANCE WITH RULE 16B-3. The terms for the grant of Options to
an Outside Director may only be changed if permitted under Rule 16b-3 under the
Exchange Act and, accordingly, the formula for the grant of Options may not be
changed or otherwise modified more than once in any six month period, other than
to comport with changes in the Code, the Employee Retirement Income Security
Act, or the rules and regulations thereunder.
ARTICLE VI
TERMS OF OPTION
Each Option shall be evidenced by a written Option Agreement executed
by the Company and the Outside Director which shall specify the Grant Date, the
number of Shares subject to the Option and the Exercise Price and shall also
include or incorporate by reference the substance of all of the following
provisions and such
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other provisions consistent with this Plan as the Board may determine.
6.1 TERM. The term of each Option shall be 10 years from the Grant Date
thereof, subject to earlier termination in accordance with Articles VI and X.
6.2 RESTRICTION ON EXERCISE. Options shall be exercisable in three
equal installments beginning on the first anniversary of the Initial Grant Date
or any Subsequent Grant Date and subject to such terms and conditions as shall
be determined by the Board at grant, provided, however, that in the case of the
Outside Director's death or Permanent Disability, the Options held by him will
become immediately exercisable, unless a longer vesting period is otherwise
determined by the Board at grant. The Board may waive any installment exercise
provision at any time in whole or in part based on performance and/or such other
factors as the Board may determine in its sold discretion, provided, however,
that no Option shall be exercisable until more than six months have elapsed from
the Grant Date; and provided, further, that no Option will be exercisable until
shareholder approval of the Plan shall have been obtained.
6.3 EXERCISE PRICE. The Exercise Price for each Share subject to an
Option shall be the Fair Market Value of the Share as determined in Section 2.8
herein.
6.4 MANNER OF EXERCISE. An Option shall be exercised in accordance with
its terms, by delivery of a written notice of exercise to the Company, and
payment of the full purchase price of the Shares being purchased. An Outside
Director may exercise an Option with respect to all or less than all of the
Shares for which the Option may then be exercised, but a Director must exercise
the Option in full Shares.
6.5 PAYMENT. The Purchase Price of Shares purchased pursuant to an
Option or portion thereof, may be paid:
(a) in United States Dollars, in cash or by check, bank draft or
money order payable to the Company;
(b) at the discretion of the Board by delivery of Shares already
owned by an Outside Director with an aggregate Fair Market Value on
the date of exercise equal to the Purchase Price, subject to the
provisions of Section 16(b) of the Exchange Act; and
(c) through the written election of the Outside Director to have
Shares withheld by the Company from the Shares otherwise to be
received with such withheld Shares having an aggregate Fair Market
Value on the date of exercise equal to the Purchase Price.
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6.6 TRANSFERABILITY. No Option shall be transferable otherwise than by
will or the laws of descent and distribution, and an Option shall be exercisable
during the Outside Director's lifetime only by the Outside Director, his
guardian or legal representative.
6.7 TERMINATION OF MEMBERSHIP ON THE BOARD. If an Outside Director's
membership on the Board terminates for any reason other than cause, including
the death of an Outside Director, an Option held on the date of termination may
be exercised in whole or in part at any time within ninety (90) days after the
date of such termination (but in no event after the term of the Option expires)
and shall thereafter terminate. If an Outside Director's membership on the Board
is terminated for cause, which determination shall be made by the Board, Options
held by him shall terminate concurrently with termination of membership.
6.8 CAPITAL CHANGE OF THE COMPANY. In the event of any merger,
reorganization or consolidation of the Company, all Options granted under the
Plan shall immediately, prior to such merger, reorganization or consolidation,
vest assuming that the option holder has held the Option for at least six
months. In the event of a stock dividend or recapitalization, or other change in
corporate structure affecting the Shares not covered in the first sentence of
this Section 6.8 (or in the event of a merger, reorganization or consolidation
where the option holder has not held the Option for at least six months), the
Board shall make an appropriate and equitable adjustment in the number and kind
of shares reserved for issuance under the Plan and in the number and option
price of shares subject to outstanding Options granted under the Plan, to the
end that after such event each option holder's proportionate interest shall be
maintained as immediately before the occurrence of such event.
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ARTICLE VII
GOVERNMENT AND OTHER REGULATIONS
7.1 DELIVERY OF SHARES. The obligation of the Company to issue or
transfer and deliver Shares for exercised Options under the Plan shall be
subject to all applicable laws, regulations, rules, orders and approvals which
shall then be in effect.
7.2 HOLDING OF STOCK AFTER EXERCISE OF OPTION. The Option Agreement
shall provide that the Outside Director, by accepting such Option, represents
and agrees, for the Outside Director and his permitted transferees hereunder
that none of the Shares purchased upon exercise of the Option shall be acquired
with a view to any sale, transfer or distribution of the Shares in violation of
the Securities Act and the person exercising an Option shall furnish evidence
satisfactory to that Company to that effect, including an indemnification of the
Company in the event of any violation of the Act by such person. Notwithstanding
the foregoing, the Company in its sole discretion may register under the Act the
Shares issuable upon exercise of the Options under the Plan.
ARTICLE VIII
WITHHOLDING TAX
The Company may in its discretion, require an Outside Director to pay
to the Company, at the time of exercise of an Option an amount that the Company
deems necessary to satisfy its obligations to withhold federal, state or local
income or other taxes (which for purposes of this Article includes an Outside
Director's FICA obligation) incurred by reason of such exercise. When the
exercise of an Option does not give rise to the obligation to withhold federal
income taxes on the date of exercise, the Company may, in its discretion,
require an Outside Director to place Shares purchased under the Option in escrow
for the benefit of the Company until such time as federal income tax withholding
is required on amounts included in the Outside Director's gross income as a
result of the exercise of an Option. At such time, the Company, in its
discretion, may require an Outside Director to pay to the Company an amount that
the Company deems necessary to satisfy its obligation to withhold federal, state
or local taxes incurred by reason of the exercise of the Option, in which case
the Shares will be released from escrow upon such payment by an Outside
Director.
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ARTICLE IX
ADJUSTMENT
9.1 PROPORTIONATE ADJUSTMENTS. If the outstanding Shares are increased,
decreased, changed into or exchanged into a different number of kind of Shares
or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
to the maximum number and kind of Shares as to which Options may be granted
under this Plan. A corresponding adjustment changing the number or kind of
Shares allocated to unexercised Options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding Options shall be made without change in the
Purchase Price applicable to the unexercised portion of the Option with a
corresponding adjustment in the Exercise Price of the Shares covered by the
Option. Notwithstanding the foregoing, there shall be no adjustment for the
adjustment for the issuance of Shares on conversion of notes, preferred stock or
exercise of warrants or Shares issued by the Board for such consideration as the
Board deems appropriate.
9.2 DISSOLUTION OR LIQUIDATION. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale of substantially all of the property or
more than 80% of the then outstanding Shares of the Company to another
corporation, the Company shall give to each Outside Director at the time of
adoption of the plan for liquidation, dissolution, merger or sale either (1) a
reasonable time thereafter within which to exercise the Option prior to the
effective date of such liquidation or dissolution, merger or sale, or (2) the
right to exercise the Option as to an equivalent number of Shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, merger, consolidation or reorganization.
ARTICLE X
AMENDMENT OR TERMINATION OF PLAN
10.1 AMENDMENTS. The Board may at any time amend or revise the terms of
the Plan, provided no such amendment or revision shall, unless appropriate
shareholder approval of such amendment or revision is obtained:
(a) increase the maximum number of Shares which may be sold
pursuant to Options granted under the Plan, except as permitted
under the provisions of Article IX;
(b) change the minimum Exercise Price set forth in Article VI;
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(c) increase the maximum term of Options provided for in Article
VI; or
(d) permit the granting of Options to anyone other than as
provided in Article V.
10.2 TERMINATION. The Board at any time may suspend or terminate this
Plan. This Plan, unless sooner terminated, shall terminate on the tenth (10th)
anniversary of its adoption by the Board. Termination of the Plan shall not
affect Options previously granted thereunder. No Option may be granted under
this Plan while this Plan is suspended or after it is terminated.
10.3 CONSENT OF HOLDER. No amendment, suspension or termination of the
Plan shall, without the consent of the holder of Options, alter or impair any
rights or obligations under any Option theretofore granted under the Plan.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 PRIVILEGE OF STOCK OWNERSHIP. No Outside Director entitled to
exercise any Option granted under the Plan shall have any of the rights or
privileges of a shareholder of the Company with respect to any Shares issuable
upon exercise of an Option until certificates representing the Shares shall have
been issued and delivered.
11.2 PLAN EXPENSES. Any expenses incurred in the administration of the
Plan shall be borne by the Company.
11.3 GOVERNING LAW. The Plan has been adopted under the laws of the
State of Delaware. The Plan and all Options which may be granted hereunder and
all matters related thereto, shall be governed by and construed and enforceable
in accordance with the laws of the State of Delaware as it then exists.
ARTICLE XII
SHAREHOLDER APPROVAL
This Plan is subject to approval, at a duly held shareholders' meeting
within 12 months after the date the Board approves this Plan, by the affirmative
vote of holders of a majority of the voting Shares of the Company represented in
person or by proxy and entitled to vote at the meeting. Options may be granted,
but not exercised, before such shareholder approval is obtained. If the
shareholders fail to approve the Plan within the required time period, any
Options granted under this Plan shall be void, and no additional Options may
thereafter be granted.
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WHITTIER
MANAGEMENT AGREEMENT
AGREEMENT entered into this 16th day of July 1996, by and between
WHITTIER TOWERS, INC., a Michigan corporation ("Sponsor") with offices at 415
Burns Drive, Detroit, MI 48214 and UVH MANAGEMENT CORP., a Florida corporation
("Manager"), with offices at 4 Cedar Swamp Road, Glen Cove, New York 11542.
W I T N E S S E T H:
WHEREAS, Manager is a firm providing advisory and management services
to sponsors of senior retirement facilities; and
WHEREAS, Sponsor wishes to continue to employ the services of Manager
in connection with the management and operation of the 281-unit retirement
facility known as The Whittier, located at 415 Burns Drive, Detroit, Michigan
48214 ("Project"), and Manager wishes to supply such services;
NOW, THEREFORE, the parties do hereby agree as follows:
I. RESPONSIBILITIES.
A. On behalf of Sponsor, Manager shall supervise, direct and control
the management and operation of the Project.
1. As owner and operator, it is understood that Sponsor shall
establish policies and objectives for the Project.
2. Manager shall provide consultant and management services,
install operating procedures, and oversee the day-to-day
operations, all subject to and in accordance with the
budgets, policies, and guidelines established by Sponsor,
from time to time.
3. Manager shall recruit and train a Chief Administrative
Officer (who shall serve at the pleasure of Manager) and key
department heads for the Project and, as needed, shall
terminate them and recruit and train their replacements.
4. Manager shall employ or hire personnel as necessary or
appropriate to properly, adequately, safely and economically
manage, operate and maintain the Project. All matters
pertaining to the employment, fringe benefits and
compensation of such personnel are the responsibility of
Manager, except as otherwise provided herein.
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5. Manager shall supervise the occupancy development,
licensing, equipping, staffing, and operation of the
Project. Manager shall develop, install, and maintain
operating procedures, systems, and controls in the Project
for the purpose of providing an efficient operation, on a
fiscally sound basis, providing quality services for the
benefit of the residents of the Project. Manager shall
provide recommendations for the safety and insurance
programs for Sponsor.
6. Manager shall prepare annual budgets for revenue expense and
cash flow for the Project. The first such budget shall be
prepared prior to the commencement of operations of the
Project. A new budget shall be prepared at least one month
prior to the commencement of each new fiscal year for the
Project.
B. FINANCIAL CONTROL. Manager shall establish and operate a system of
financial control for the Project as follows:
1. During the period immediately prior to commencement of
operation of the Project, Manager shall assist in setting up
the bookkeeping system in the administrative offices of the
Project, and in training the Project bookkeeper employed by
Sponsor. Subsequent to occupancy of the Project, the
receipts and disbursements for the Project shall be handled
at the site of the Project by the Project's bookkeeper.
Manager shall arrange for computational services to prepare
statements for Sponsor of revenues and expenses, assets and
liabilities, and cash flow.
2. Each month Manager shall arrange for the preparation for
Sponsor of operating ratios and other analytical information
for the Project.
3. Manager shall maintain statistics on residents of the
Project which will make it possible to develop valid
mortality and morbidity rates for use in projecting future
operating results of the Project. Manager shall employ at
Sponsor's expense a consulting actuary to interpret the
statistics maintained by Manager, and to make mortality and
morbidity projections.
C. INDEMNITY. Manager shall indemnify and hold harmless Sponsor and its
officers, directors, agents and employees from and against all claims, damages,
losses, liabilities and expenses, including reasonable attorney's fees, arising
out of or resulting from the performance by Manager of its undertakings under
this Agreement, provided that any such claim, damage, loss, liability or expense
is caused in whole or in part by any negligent act or omission of Manager or
anyone for whose acts or omissions Manager may be liable.
II. SPONSOR'S RESPONSIBILITIES.
A. LEGAL SERVICES. Manager shall not perform or have the
responsibility for the performance of legal services in
connection with the obligations arising hereunder. Sponsor shall
obtain legal counsel at its cost to perform such legal services.
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B. ACCOUNTANT. Sponsor shall employ an accountant at Sponsor's cost
to prepare tax returns and to prepare any other reports required
by federal or state authorities. Sponsor's accountant shall
cooperate with and assist Manager in the development and
maintenance of bookkeeping and financial control systems.
C. COORDINATION. In order to assure proper coordination, Sponsor
shall issue orders concerning the Project through Manager.
D. OPERATING COSTS. Sponsor shall be responsible for all costs and
expenses of the Project.
E. OPERATING REPORTS - MEETINGS. During the term of this Agreement,
Sponsor agrees to provide Manager with copies of all monthly and
annual financial reports. Said reports will be mailed to Manager
within five (5) days of their issuance. In addition, Sponsor
agrees that during the same time, at the option and expense of
Manager, a representative of Manager may attend any regular or
special meeting of the Board of Directors of Sponsor as an
observer. At the request of Manager, Sponsor agrees to give to
Manager the same notice of said meetings as are required to be
given directors under the Sponsor's Articles of Incorporation or
Bylaws.
F. INDEMNITY. Sponsor shall indemnify and hold harmless Manager and
its officers, directors, agents and employees from and against
all claims, damages, losses and expenses, including reasonable
attorney's fees, arising out of or resulting from the performance
of this Agreement, provided that any such claim, damage, loss or
expense is caused in whole or in part by any negligent act or
omission of the Sponsor, or anyone for whose acts or omissions
the Sponsor may be liable.
III. TERM.
This Agreement shall commence as of April 1, 1996 and shall continue
until the end of the sixtieth (60th) month thereafter, and from month to month
thereafter unless terminated pursuant to paragraph A or B below.
A. TERMINATION ON NOTICE. Either party may terminate this Agreement
by giving the other party not less than thirty (30) days' prior
written notice of its desire to terminate.
B. TERMINATION FOR CAUSE. This Agreement may be terminated by either
party in the event that the other party files or has a petition
or complaint in receivership or bankruptcy filed against it which
has not been dismissed sixty (60) days of such filing, or in the
event that the other party fails to perform the obligations
imposed upon it under this Agreement. In the event that either
party elects to terminate this Agreement as a result of the
occurrence of any event specified in the preceding sentence, it
shall give the other party written notice, and such termination
shall be effective fifteen (15) days after the mailing thereof
unless the grounds for termination have been remedied by the
other party prior to that date.
3
<PAGE>
IV. COMPENSATION.
A. BASE. In consideration of the management services contemplated
hereunder, Sponsor shall pay to Manager a fee equal to five
percent (5%) of the gross operating income of the Project,
payable on the last day of each month.
B. INCENTIVE. Sponsor shall pay to Manager incentive compensation in
the event certain occupancy development goals are achieved, all
as set forth in Exhibit A.
C. CERTAIN EXPENSES. Sponsor shall pay Manager the net cost of
reasonable transportation and living expense for principals and
employees of Manager or its outside consultants when traveling in
connection with the performance of the services being performed
pursuant to this Agreement, together with any reasonable
long-distance telephone expense, cost of express shipments, or
similar communication costs.
V. GENERAL.
A. INSURANCE SUBROGATION. Each party shall secure at its expense
such liability insurance coverages as are generally available
from responsible insurers covering the operations and the
employees of the Project. No indemnity shall be paid to the other
party under this Agreement where the claim, damage, liability,
loss or expense incurred was or was required to be insured
against; and any such insurance policies obtained by the parties
shall contain provisions waiving any right of subrogation by the
insurer of one party against the other party or its insurer.
B. PROPERTY OF MANAGER. The name of the Project is owned by Sponsor.
Ideas and documents, forms, occupancy development material,
computer programs, actuarial statistics, and resident profile
information are to be considered proprietary and will remain the
property of Manager. Sponsor may use such materials and
information in the operation and management of the Project but
may not use such materials or information after termination of
this Agreement or for the development of new projects for itself
or others without the written consent of Manager.
C. STATUS OF PARTIES. Manager and Sponsor shall not be considered as
joint venturers or partners of each other, and neither shall have
the power to bind or obligate the other except as set forth in
this Agreement.
D. ADDITIONAL ACTIONS. In order to carry out the intent and spirit
of this Agreement, Sponsor and Manager will do all acts and
things necessary, including the execution of other agreements.
E. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between Manager and Sponsor and supercedes the prior Management
Agreement between them dated April 1, 1991, as amended. Any
change or modification of this Agreement must be in writing and
signed by both parties hereto.
4
<PAGE>
F. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, their successors, and
assigns.
G. CHOICE OF LAW. This Agreement, its interpretations, validity and
performance shall be governed by the laws of the state in which
the Project is located, applicable to contracts made in and to be
performed in such State.
H. NO PERSONAL LIABILITY. This Agreement has been executed on behalf
of Sponsor, and no officer, director, agent, employee or attorney
of Sponsor shall have any personal liability hereunder to the
other or any person claiming by or through the other, under any
circumstances.
I. CONSENT TO JURISDICTION. The parties consent to the personal
jurisdiction of the state and federal courts located in the state
where the Project is located.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
April 1, 1996.
Whittier Towers, Inc.
by /s/ Carl G. Paffendorf
------------------------------
Carl G. Paffendorf, President
UVH Management Corp.
by /s/ Larry L. Laird
------------------------------
Larry L. Laird, President
5
<PAGE>
EXHIBIT A
OCCUPANCY DEVELOPMENT GOALS/INCENTIVE COMPENSATION
None
6
<PAGE>
CAMELOT VILLAGE AT WEST HILLS
MANAGEMENT AGREEMENT
AGREEMENT entered into as of the 18th day of March 1996, by and between
CAMELOT RETIREMENT HOMES, INC., a New York corporation ("Sponsor") with offices
at 4 Cedar Swamp Road, Glen Cove, New York 11542; and VANGUARD REALTY AND
MANAGEMENT COMPANY, INC., a Florida corporation ("Manager"), with offices at 4
Cedar Swamp Road, Glen Cove, New York 11542.
W I T N E S S E T H:
WHEREAS, Manager is a firm providing advisory and management services
to sponsors of senior retirement facilities; and
WHEREAS, Sponsor wishes to employ the management services of Manager in
connection with the operation of a proposed 120-unit assisted living facility to
be located in Huntington, New York on the land described on Schedule "A" of
First American Title Insurance Company Report No. 151-S-1217 ("Project"), and
Manager wishes to supply such services;
NOW, THEREFORE, the parties do hereby agree as follows:
I. RESPONSIBILITIES.
A. On behalf of Sponsor, Manager shall supervise the operation of the
Project.
1. As owner and operator, it is understood that Sponsor shall
establish policies and objectives for the Project.
2. Manager shall provide consultant and management services, install
operating procedures, and oversee the day-to-day operations, all
subject to and in accordance with the budgets, policies, and
guidelines established by Sponsor, from time to time.
3. Manager shall recruit and train a Chief Administrative Officer
(who shall serve at the pleasure of Manager) and key department
heads for the Project, and, as needed, shall terminate them and
recruit and train their replacements, all of whom shall be
employees of Sponsor.
4. Manager shall supervise the occupancy development, licensing,
equipping, staffing, and start-up of the Project. Manager shall
develop, install, and maintain operating procedures, systems, and
controls in the Project for the purpose of providing an efficient
operation, on a fiscally sound basis, providing quality services
for the benefit of the residents of the Project. Manager shall
provide recommendations for the safety and insurance programs for
Sponsor.
<PAGE>
5. Manager shall prepare annual budgets for revenue expense and cash
flow for the Project. The first such budget shall be prepared
prior to the commencement of operations of the Project. A new
budget shall be prepared at least one month prior to the
commencement of each new fiscal year for the Project.
B. FINANCIAL CONTROL. Manager shall establish and operate a system of
financial control for the Project as follows:
1. During the period immediately prior to commencement of operation
of the Project, Manager shall assist in setting up the
bookkeeping system in the administrative offices of the Project,
and in training the Project bookkeeper employed by Sponsor.
Subsequent to occupancy of the Project, the receipts and
disbursements for the Project shall be handled at the site of the
Project by the Project's bookkeeper. Manager shall arrange for
computational services to prepare statements for Sponsor of
revenues and expenses, assets and liabilities, and cash flow.
2. Each month Manager shall arrange for the preparation for Sponsor
of operating ratios and other analytical information for the
Project.
C. INDEMNITY. Manager shall indemnify and hold harmless Sponsor and its
officers, directors, agents and employees from and against all claims, damages,
losses, liabilities and expenses, including reasonable attorney's fees arising
out of or resulting from the performance by Manager of its undertakings under
this Agreement, provided that any such claim, damage, loss, liability or expense
is caused in whole or in part by any negligent act or omission of Manager or
anyone for whose acts or omissions Manager may be liable.
II. SPONSOR'S RESPONSIBILITIES.
A. LEGAL SERVICES. Manager shall not perform or have the responsibility
for the performance of legal services in connection with the
obligations arising hereunder. Sponsor shall obtain legal counsel at
its cost to perform such legal services.
B. AUDITORS. Sponsor shall employ a certified public accountant at
Sponsor's cost to perform annual audits, to prepare tax returns, and
to prepare any other reports required for federal or state
bureaucracies which require certification. While Sponsor's certified
public accountant shall be directly responsible to Sponsor, he shall
be expected to cooperate with and assist Manager in the development
and maintenance of the bookkeeping and financial control systems.
C. COORDINATION. In order to assure proper coordination, Sponsor shall
issue orders concerning the Project through Manager.
D. OPERATING COSTS. Sponsor shall be responsible for all operating
costs, wages, salaries, expenses, fees and losses of the Project.
2
<PAGE>
E. INDEMNITY. Sponsor shall indemnify and hold harmless Manager and its
officers, directors, agents and employees from and against all
claims, damages, losses and expenses, including reasonable attorney's
fees arising out of or resulting from the performance of this
Agreement, provided that any such claim, damage, loss or expense is
caused in whole or in part by any negligent act or omission of the
Sponsor, or anyone for whose acts or omissions the Sponsor may be
liable.
III. TERM.
This Agreement shall commence on the date of its execution and shall
continue until the end of the sixtieth (60th) month thereafter, and from month
to month thereafter unless terminated pursuant to paragraph A or B below.
A. TERMINATION ON NOTICE. During the period after the aforesaid sixtieth
(60th) month, either party may terminate this Agreement by giving the
other party written notice of its desire to terminate. In the event
of such notice, termination shall take effect at the end of the sixth
month following the month during which the notice to terminate is
received by the party to whom it is addressed.
(Example: If the termination notice is received on December 2, the
termination will take effect on June 30 of the following year.)
B. TERMINATION FOR CAUSE. This Agreement may be terminated by either
party in the event that the other party files or has a petition or
complaint in receivership or bankruptcy filed against it which has
not been dismissed sixty (60) days of such filing, or in the event
that the other party fails to perform the obligations imposed upon it
under this Agreement. In the event that either party elects to
terminate this Agreement as a result of the occurrence of any event
specified in the preceding sentence, it shall give the other party
written notice, and such termination shall be effective fifteen (15)
days after the mailing thereof unless the grounds for termination
have been remedied by the other party prior to that date.
IV. COMPENSATION.
A. AMOUNT. In consideration of the management services contemplated
hereunder, Sponsor shall pay to Manager a fee equal to the greater of
six percent (6%) of the gross operating income of the Project or
Three Thousand Dollars ($3,000), payable on the last day of each
month, commencing with the first month during which residents occupy
the Project and ending on the last day of the month during which this
Agreement is terminated pursuant to Article III.
B. CERTAIN EXPENSES. Sponsor shall pay Manager the net cost of
reasonable transportation and living expense for principals and
employees of Manager or its outside consultants when traveling in
connection with the performance of the services being performed
pursuant to this Agreement, together with any reasonable
long-distance telephone expense, cost of express shipments, or
similar communication costs.
3
<PAGE>
V. GENERAL.
A. INSURANCE SUBROGATION. Each party shall secure at its expense such
liability insurance coverages as are generally available from
responsible insurers covering the operations and the employees of the
Project. No indemnity shall be paid to the other party under this
Agreement where the claim, damage, liability, loss or expense
incurred was or was required to be insured against; and any such
insurance policies obtained by the parties shall contain provisions
waiving any right of subrogation by the insurer of one party against
the other party or its insurer.
B. PROPERTY OF MANAGER. The names "Camelot Retirement Homes" and
"Camelot Village" are owned by Sponsor. Ideas and documents, forms,
occupancy development material, computer programs, actuarial
statistics, and resident profile information are to be considered
proprietary and will remain the property of Manager. Sponsor may use
such materials and information in the operation and management of the
Project but may not use such materials or information after
termination of this Agreement for the development of new projects for
itself or others without the written consent of Manager.
C. STATUS OF PARTIES. Manager and Sponsor shall not be considered as
joint venturers or partners of each other, and neither shall have the
power to bind or obligate the other except as set forth in this
Agreement.
D. ADDITIONAL ACTIONS. In order to carry out the intent and spirit of
this Agreement, Sponsor and Manager will do all acts and things
necessary, including the execution of other agreements.
E. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between Manager and Sponsor. Any change or modification of this
Agreement must be in writing and signed by both parties hereto.
F. BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their successors, and assigns.
G. CHOICE OF LAW. This Agreement, its interpretations, validity and
performance shall be governed by the laws of the State of New York
applicable to contracts made in and to be performed in such State.
H. NO PERSONAL LIABILITY. This Agreement has been executed on behalf of
Sponsor and UVH/DC by their respective officers solely in the
representative capacities, and no officer, director, agent, employee
or attorney of Sponsor or UVH/DC shall have any personal liability
hereunder to the other or any person claiming by or through the
other, under any circumstances.
I. CONSENT TO JURISDICTION. The parties consent to the personal
jurisdiction of the Federal Courts located in the State of New York
and of the New York State Supreme Court, and to venue in Nassau
County, New York.
4
<PAGE>
J. ASSIGNMENT. Manager may not assign this Agreement without the prior
written consent of Sponsor.
In witness whereof, the parties have executed this Agreement on the date
first written above.
CAMELOT RETIREMENT HOMES, INC.
by /s/ Carl G. Paffendorf
-------------------------------
Carl G. Paffendorf, Chairman
UVH DEVELOPMENT CORP.
by /s/ Paul D'Andrea
---------------------------------------
Paul D'Andrea, Vice President - Finance
5
<PAGE>
CAMELOT VILLAGE AT STROUDSBURG
MANAGEMENT AGREEMENT
AGREEMENT entered into as of the 12th day of July 1996, by and between
CAMELOT VILLAGE AT STROUDSBURG, LLC, a New York limited liability company
("Sponsor"), with offices at 4 Cedar Swamp Road, Glen Cove, New York 11542; and
UVH MANAGEMENT CORP., a Florida corporation ("Manager"), with offices at 4 Cedar
Swamp Road, Glen Cove, New York 11542.
W I T N E S S E T H:
WHEREAS, Manager is a firm providing advisory and management services
to sponsors of senior retirement facilities; and
WHEREAS, Sponsor wishes to employ the management services of Manager in
connection with the operation of a proposed retirement facility (the "Project")
to consist of up to 80 assisted living units, to be located in Stroudsburg,
Pennsylvania on property described on exhibits to the Stroudsburg Development
Company Joint Venture Agreement dated as of May 1, 1996 between Sponsor and VFG
LaBar, L.L.C., and Manager wishes to supply such services;
NOW, THEREFORE, the parties do hereby agree as follows:
I. RESPONSIBILITIES.
A. On behalf of Sponsor, Manager shall supervise the operation of the
Project.
1. As owner and operator, it is understood that Sponsor shall
establish policies and objectives for the Project.
2. Manager shall provide consultant and management services,
install operating procedures, and oversee the day-to-day
operations, all subject to and in accordance with the budgets,
policies, and guidelines established by Sponsor, from time to
time.
3. Manager shall recruit and train a Chief Administrative Officer
(who shall serve at the pleasure of Manager) and key department
heads for the Project, and, as needed, shall terminate them and
recruit and train their replacements, all of whom shall be
employees of Sponsor.
4. Manager shall supervise the occupancy development, licensing,
equipping, staffing, and start-up of the Project. Manager shall
develop, install, and maintain operating procedures, systems,
and controls in the Project for the purpose of providing an
efficient operation, on a fiscally sound basis, providing
quality services for the benefit of the residents of the
Project. Manager shall provide recommendations for the safety
and insurance programs for Sponsor.
5. Manager shall prepare annual budgets for revenue expense and
cash flow for the
<PAGE>
Project. The first such budget shall be prepared prior to the
commencement of operations of the Project. A new budget shall be
prepared at least one month prior to the commencement of each
new fiscal year for the Project.
B. FINANCIAL CONTROL. Manager shall establish and operate a system of
financial control for the Project as follows:
1. During the period immediately prior to commencement of operation
of the Project, Manager shall assist in setting up the
bookkeeping system in the administrative offices of the Project,
and in training the Project bookkeeper employed by Sponsor.
Subsequent to occupancy of the Project, the receipts and
disbursements for the Project shall be handled at the site of
the Project by the Project's bookkeeper. Manager shall arrange
for computational services to prepare statements for Sponsor of
revenues and expenses, assets and liabilities, and cash flow.
2. Each month Manager shall arrange for the preparation for Sponsor
of operating ratios and other analytical information for the
Project.
C. INDEMNITY. Manager shall indemnify and hold harmless Sponsor and its
officers, directors, agents and employees from and against all claims, damages,
losses, liabilities and expenses, including reasonable attorney's fees arising
out of or resulting from the performance by Manager of its undertakings under
this Agreement, provided that any such claim, damage, loss, liability or expense
is caused in whole or in part by any negligent act or omission of Manager or
anyone for whose acts or omissions Manager may be liable.
II. SPONSOR'S RESPONSIBILITIES.
A. LEGAL SERVICES. Manager shall not perform or have the responsibility
for the performance of legal services in connection with the
obligations arising hereunder. Sponsor shall obtain legal counsel at
its cost to perform such legal services.
B. AUDITORS. Sponsor shall employ a certified public accountant at
Sponsor's cost to perform annual audits, to prepare tax returns, and
to prepare any other reports required for federal or state
bureaucracies which require certification. While Sponsor's certified
public accountant shall be directly responsible to Sponsor, he shall
be expected to cooperate with and assist Manager in the development
and maintenance of the bookkeeping and financial control systems.
C. COORDINATION. In order to assure proper coordination, Sponsor shall
issue orders concerning the Project through Manager.
D. OPERATING COSTS. Sponsor shall be responsible for all operating
costs, wages, salaries, expenses, fees and losses of the Project.
2
<PAGE>
E. INDEMNITY. Sponsor shall indemnify and hold harmless Manager and its
officers, directors, agents and employees from and against all
claims, damages, losses and expenses, including reasonable attorney's
fees arising out of or resulting from the performance of this
Agreement, provided that any such claim, damage, loss or expense is
caused in whole or in part by any negligent act or omission of the
Sponsor, or anyone for whose acts or omissions the Sponsor may be
liable.
III. TERM.
This Agreement shall commence on the date of its execution and shall
continue until the end of the sixtieth (60th) month thereafter, and from month
to month thereafter unless terminated pursuant to paragraph A or B below.
A. TERMINATION ON NOTICE. During the period after the aforesaid sixtieth
(60th) month, either party may terminate this Agreement by giving the
other party written notice of its desire to terminate. In the event
of such notice, termination shall take effect at the end of the sixth
month following the month during which the notice to terminate is
received by the party to whom it is addressed.
(Example: If the termination notice is received on December 2, the
termination will take effect on June 30 of the following year.)
B. TERMINATION FOR CAUSE. This Agreement may be terminated by either
party in the event that the other party files or has a petition or
complaint in receivership or bankruptcy filed against it which has
not been dismissed sixty (60) days of such filing, or in the event
that the other party fails to perform the obligations imposed upon it
under this Agreement. In the event that either party elects to
terminate this Agreement as a result of the occurrence of any event
specified in the preceding sentence, it shall give the other party
written notice, and such termination shall be effective fifteen (15)
days after the mailing thereof unless the grounds for termination
have been remedied by the other party prior to that date.
IV. COMPENSATION.
A. AMOUNT. In consideration of the management services contemplated
hereunder, Sponsor shall pay to Manager a fee equal to four percent
(4%) of the gross operating income of the Project payable on the last
day of each month, commencing with the first month during which
residents occupy the Project and ending on the last day of the month
during which this Agreement is terminated pursuant to Article III.
B. CERTAIN EXPENSES. Sponsor shall pay Manager the net cost of
reasonable transportation and living expense for principals and
employees of Manager or its outside consultants when traveling in
connection with the performance of the services being performed
pursuant to this Agreement, together with any reasonable
long-distance telephone expense, cost of express shipments, or
similar communication costs.
3
<PAGE>
V. GENERAL.
A. INSURANCE SUBROGATION. Each party shall secure at its expense such
liability insurance coverages as are generally available from
responsible insurers covering the operations and the employees of the
Project. No indemnity shall be paid to the other party under this
Agreement where the claim, damage, liability, loss or expense
incurred was or was required to be insured against; and any such
insurance policies obtained by the parties shall contain provisions
waiving any right of subrogation by the insurer of one party against
the other party or its insurer.
B. PROPERTY OF MANAGER. Ideas and documents, forms, occupancy
development material, computer programs, actuarial statistics, and
resident profile information are to be considered proprietary and
will remain the property of Manager. Sponsor may use such materials
and information in the operation and management of the Project but
may not use such materials or information after termination of this
Agreement for the development of new projects for itself or others
without the written consent of Manager.
C. STATUS OF PARTIES. Manager and Sponsor shall not be considered as
joint venturers or partners of each other, and neither shall have the
power to bind or obligate the other except as set forth in this
Agreement.
D. ADDITIONAL ACTIONS. In order to carry out the intent and spirit of
this Agreement, Sponsor and Manager will do all acts and things
necessary, including the execution of other agreements.
E. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between Manager and Sponsor. Any change or modification of this
Agreement must be in writing and signed by both parties hereto.
F. BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their successors, and assigns.
G. CHOICE OF LAW. This Agreement, its interpretations, validity and
performance shall be governed by the laws of the State of New York
applicable to contracts made in and to be performed in such State.
H. NO PERSONAL LIABILITY. This Agreement has been executed on behalf of
Sponsor and Manager by their respective officers solely in the
representative capacities, and no officer, director, agent, employee
or attorney of Sponsor or Manager shall have any personal liability
hereunder to the other or any person claiming by or through the
other, under any circumstances.
I. CONSENT TO JURISDICTION. The parties consent to the personal
jurisdiction of the Federal Courts located in the State of New York
and of the New York State Supreme Court, and to venue in Nassau
County, New York.
5
<PAGE>
J. ASSIGNMENT. Manager may not assign this Agreement without the prior
written consent of Sponsor.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
CAMELOT VILLAGE AT STROUDSBURG, LLC
by: PHOENIX LIFECARE CORP.,
a Member
by /s/ Larry L. Laird
------------------------------------
Larry L. Laird, President
UVH MANAGEMENT CORP.
by /s/ Larry L. Laird
------------------------------------
Larry L. Laird, President
5
<PAGE>
CAMELOT VILLAGE AT WEST HILLS
DEVELOPMENT AGREEMENT
AGREEMENT entered into as of the 26th day of January 1996, by and between
CAMELOT RETIREMENT HOMES, INC., a New York corporation with offices at 4 Cedar
Swamp Road, Glen Cove, New York 11542 ("Sponsor"); and UVH DEVELOPMENT CORP., a
Michigan corporation with offices at 4 Cedar Swamp Road, Glen Cove, New York
11542("UVH/DC").
W I T N E S S E T H
WHEREAS, Sponsor is developing an assisted living retirement home project
on the property described on Schedule "A," of First American Title Insurance
Company Report No. 151-S-1217, in Huntington, New York ("Project"); and
WHEREAS, since November 1, 1995 UVH/DC has provided services in the
acquisition, planning and development, financing, occupancy development, design,
construction, and proposed operation of the Project; and
WHEREAS, Sponsor and UVH/DC wish to confirm the services of UVH/DC to
assist in the development of the Project;
NOW, THEREFORE, the parties do hereby agree as follows:
I. SERVICES TO BE PERFORMED BY UVH/DC
A. UVH/DC will continue to expedite and coordinate the planning, design,
development, and construction of the Project; arrange the financing; and
supervise the occupancy development, all as hereinafter set forth.
B. The scope of the entire Project will be to acquire the site and
develop approximately 120 assisted living units. The services of UVH/DC for the
Project commenced as of November 1, 1995. The occupancy development program and
construction will proceed at times mutually agreed by the parties hereto,
provided that if construction has not been completed by March 31, 1999, either
party may elect to terminate this Agreement.
II. PLANNING AND DEVELOPMENT.
A. Sponsor and UVH/DC will agree on the basic plans for the Project,
including site plan, size and shape of living units, mix of different types of
living units, and types of ancillary spaces which shall be essentially as set
forth in plans to be prepared by the Sponsor's architectural firm.
<PAGE>
B. UVH/DC will recommend for the approval of Sponsor the initial rates
for the entrance fees and monthly service fees in connection with the Project.
C. UVH/DC will prepare for the approval of sponsor the form of Residency
Agreement and Confidential Data Application to be executed by the residents. The
Residency Agreement will describe the program of services to be offered to the
residents in order to meet their physical, emotional, social, and religious
needs. UVH/DC shall obtain at Sponsor's cost legal counsel satisfactory to
Sponsor to determine the legality, effect, and enforceability of the Residency
Agreement. During the period prior to completion of the construction of the
Project, Sponsor agrees not to change the terms of the Residency Agreement
except with the consent of UVH/DC.
D. To the extent that circumstances require changes from time to time in
the basic plans, fee schedules, financial projections, or Residency Agreements,
UVH/DC will recommend changes to Sponsor for its approval.
E. UVH/DC has heretofore and will continue to determine municipal, state
and federal requirements affecting the planning for the Project. UVH/DC has
prepared and will cause to be prepared the documents to obtain approval of
governmental authorities having jurisdiction over the Project, and no such
documents shall be submitted by or on behalf of Sponsor without prior approval
of Sponsor.
F. UVH/DC will prepare for Sponsor a schedule of all of the Project
development activities and will update the schedule from time to time as may be
necessary due to changing circumstances.
III. ARRANGEMENT FOR PERMANENT AND INTERIM FINANCING.
A. UVH/DC will prepare the loan application documents for Sponsor such as
brochures, feasibility studies and reports, financial projections, information
regarding the community need for the Project and other material necessary to
make application for permanent and interim financing for Sponsor.
B. UVH/DC will present for Sponsor the loan application to interested
lenders and will negotiate the terms of any interim construction and permanent
financing. UVH/DC will, when successful in negotiating financing, recommend to
Sponsor for its approval and acceptance the interim and permanent financing.
C. UVH/DC will, on behalf of Sponsor, present applications to additional
short-term lenders, and, subject to the approval of Sponsor as to terms, assist
the Sponsor to obtain financing for the Project's front-end cost and/or equity
portion of the Project cost during or prior to the construction phase.
D. Provided that UVH/DC solicits any loan sources requested by Sponsor,
Sponsor agrees not to unilaterally negotiate for, or attempt to obtain on its
own, interim construction or permanent financing.
2
<PAGE>
E. UVH/DC will assist Sponsor in complying with the terms of the loan
commitments which require Sponsor's performance.
IV. SUPERVISION OF OCCUPANCY DEVELOPMENT PROGRAM.
A. UVH/DC will prepare and recommend to Sponsor, for its approval, the
occupancy development program and the budget for the cost of such program.
B. UVH/DC shall have the authority to plan and arrange, at Sponsor's
cost, for the creative services, production, type, mix, copy, placement, and
purchase of material and media to be purchased by Sponsor as necessary to
implement said occupancy development program.
C. UVH/DC will have the sole responsibility to locate, hire, and train
personnel for Sponsor to carry out the services under this Article provided that
all such personnel shall at all times be satisfactory to Sponsor. However,
Sponsor expressly delegates its authority to discharge such personnel to UVH/DC.
D. UVH/DC's personnel shall visit the Project periodically to assist
Sponsor's personnel as necessary. Unless UVH/DC occupancy development personnel
are assigned permanently to the Project, and then only with the prior approval
of Sponsor, UVH/DC personnel shall not be employees of Sponsor but shall be
consultants, and their salaries shall be the expense of UVH/DC.
V. DESIGN AND CONSTRUCTION MANAGEMENT SERVICES.
A. UVH/DC will furnish Sponsor its expertise and knowledge in connection
with the design and construction phase of the development of the Project.
B. UVH/DC on behalf of Sponsor, shall oversee activities of Sponsor's
Architect, RDG Schutte, Wilscam, Birge, Inc. At appropriate times, as Architect
proceeds with the design, UVH/DC will require Architect to submit the plans and
specifications directly to Sponsor for Sponsor's approval.
C. UVH/DC, with the assistance of Architect, will submit to Sponsor a
statement of probable construction costs based on square footage, volume, and
other unit costs. As Architect proceeds to refine and complete the plans and
specifications, UVH/DC shall keep Sponsor informed of any adjustments to
previous statements of probable Project construction costs indicted by changes
in scope, local requirements or changes in community needs.
D. UVH/DC shall prepare and submit to Sponsor a statement of the Overall
Project Cost (as that term is defined in Article VIII.A. hereof), the fees
payable to UVH/DC hereunder, and the anticipated Cash Reserves of each phase of
the Project.
E. UVH/DC shall file the required documents with and use its best efforts
to secure the approval of governmental authorities having jurisdiction over the
design of the Project.
3
<PAGE>
F. UVH/DC will arrange for a construction manager for Sponsor, who will
provide a Guaranteed Maximum Cost.
VI. ACCOUNTING FUNCTIONS.
A. From the date of this Agreement, UVH/DC shall arrange for all
accounting and bookkeeping services (except federal and state income tax
returns). UVH/DC shall prepare periodic reports for the Project showing the
financial condition of the Project and comparing the currently anticipated
Overall Project Cost and sources of funds with previous projections.
B. Sponsor shall open an account in Sponsor's name at a bank, the
location of which shall be mutually agreed upon by Sponsor and UVH/DC. UVH/DC
employees, acceptable to Sponsor, shall be designated to deposit and withdraw
funds from said account without restrictions, except that in the case of checks
written to UVH/DC, the signature of an officer of Sponsor shall be required.
C. All UVH/DC employees engaged in handling Sponsor's funds shall be
bonded. At Sponsor's request, UVH/DC shall supply to Sponsor a copy of the bond.
If Sponsor desires broader coverage or higher limits than the bond carried by
UVH/DC, the cost of said broader cover or higher limits shall be for Sponsor's
account.
VII. SPONSOR'S RESPONSIBILITIES.
A. Sponsor shall have the responsibility of approving or setting the
guidelines for approving applications for occupancy.
B. UVH/DC shall not perform or have the responsibility for the
performance of legal services in connection with the obligations arising
hereunder. Sponsor shall obtain legal counsel at its cost to perform such legal
services.
C. Sponsor shall examine documents submitted by UVH/DC and render
decisions pertaining thereto as promptly as reasonable possible, to avoid
unreasonable delay in the progress of UVH/DC's work.
D. Sponsor shall issue orders concerning the project only through
UVH/DC.
E. Sponsor agrees that it will use its best efforts through UVH/DC to
fulfill, in a timely manner, all of the terms of loans obtained for the Project
with its approval. Such terms shall include, but not be limited to, the payment
of commitment fees, the assignment, encumbering or pledging of its rights or
assets, the obtaining of the required number of living unit Residency
Agreements, the obtaining of title insurance and obtaining of and payment for
qualified appraisals and payment of interest.
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F. Sponsor shall pay all capital costs of the Project including, but not
limited to, legal and accounting fees, all forms of taxes, licenses, closing
costs, financing costs, architectural and engineering costs, construction costs,
and the cost of all furnishings, fixtures, and equipment.
G. Sponsor shall pay all costs of the occupancy development program. The
costs of the occupancy development program shall include, but not be limited to,
such expenses as cost of recruiting and training occupancy development
personnel; salaries, commissions and expenses of Sponsor's personnel; community
relations expenses; art work, engraving, printing, direct mail pieces, creative
work, copyrighting, production costs, and time and space charges; commissions
normally payable to agencies for media and printed materials; and construction
and furnishings of miniature or full-scale model apartments.
H. Sponsor shall cooperate with UVH/DC in every respect and shall furnish
UVH/DC all information required by it for the performance of its services and
shall permit UVH/DC to examine and copy any data in possession and control of
Sponsor affecting management and/or operation of the Project and shall in every
way cooperate to enable UVH/DC to perform its services satisfactorily.
I. UVH/DC and/or its parent company United Vanguard Homes, Inc. ("UVH"),
have incurred expenses in connection with the Project. Sponsor agrees to
reimburse UVH/DC and/or UVH for the actual amount of said out-of-pocket expenses
as set forth on a list, together with supporting detail. Sums advanced shall
bear interest at ten percent (10%) per annum until paid.
VIII. COMPENSATION.
A. In consideration of the performance of the services contemplated
herein, Sponsor agrees to pay UVH/DC a fee:
1. For locating the land, securing an option on the site, zoning
application work, architectural matters and formation of model (size and shape
of living units, mix of different types of living units and types of ancillary
spaces) and other services rendered November 1, 1995 through March 31, 1996, the
sum of One Hundred Thousand dollars ($100,000.00)
2. Seven and one half percent (7 1/2%) of the Overall Project Cost
(the "0PC" fee). The term Overall Project Cost means:
i. The cost of the land and building thereon, zoning, building
permits, plus the cost of construction of all physical
improvements.
ii. Financing charges and interest costs of the Project, legal
expenses, title insurance premiums, furnishings, and other
miscellaneous costs associated with the development,
financing, design and construction of the Project.
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iii. Costs of the occupancy development and marketing program up
to the date of Seventy-five percent (75%) occupancy.
The Overall Project Cost shall not include fees paid to UVH/DC
hereunder, working capital, stocking of supplies and other expenses related to
the operation of the completed Project.
B. Payment of the above-computed compensation shall be as follows:
1. One Hundred Thousand Dollars ($100,000.00) on March 31, 1996. If
this fee is not paid when due, it shall bear interest at prime
rate at Citibank, N.A., as from time to time in effect, or 9
percent p.a., whichever is higher, until such fee is paid.
2. The OPC fee, computed on the basis of the estimated Overall
Project Cost, shall be paid monthly, after commencement of
construction, up to a maximum of seventy-five percent (75%) of
the OPC fee.
3. After crediting amounts paid under subparagraphs 1 and 2 above,
the balance of the OPC fee, 25 percent, shall be due and payable
thirty (30) days after (i) the Project is substantially
complete, and (ii) occupancy of sixty percent (60%) of the
living units has been obtained.
C. In addition, Sponsor shall pay UVH/DC the net cost of reasonable
transportation and living expense for principals and employees of UVH/DC when
traveling in connection with the Project and any reasonable long distance
telephone or facsimile transmission expense incurred by UVH/DC since November 1,
1995, in connection with the performance of its services under this Agreement.
Said expenses shall be payable monthly following the month during which they are
incurred.
IX. GENERAL.
A. So long as this Agreement is in force, UVH/DC agrees that Sponsor may
represent to the public that its planning and development is being done by
UVH/DC, and Sponsor agrees that the UVH/DC name will be identified, in an
appropriate way, in the community relations and occupancy development program
materials as being responsible for said planning and development.
B. The names "Camelot Retirement Homes" and "Camelot Village" are owned
by Sponsor. The ownership of ideas and documents, forms, and occupancy
development materials, created by UVH/DC either prior to this Agreement or as a
result of this Agreement, is to be considered proprietary and will remain the
property of UVH/DC whether or not the proposed Project is constructed. They are
not to be used by Sponsor, except in connection with the Project.
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<PAGE>
C. The parties shall not be considered as joint venturers or partners of
each other, and neither shall have the power to bind or obligate the other as
set forth in this Agreement.
D. In order to carry out the intent and spirit of this Agreement, the
parties will do all acts or things necessary including the execution of other
agreements.
E. It is agreed that during the period prior to completion of
construction and occupancy of the complete Project, whenever in this Agreement
or otherwise in order to carry out its spirit and intent, the consent, approval
or agreement of sponsor is required, based upon a recommendation of UVH/DC, it
will not be unreasonable withheld. The measure of reasonableness shall include
the degree to which the recommendations are consistent with other projects
planned by UVH/DC, the degree to which the recommendations will result in a
financially sound project, and the degree to which the recommendations are
consistent with earlier recommendations previously approved by Sponsor. Once its
approval has been granted, Sponsor shall not subsequently alter or change the
plan, budget, or program without the consent of UVH/DC.
F. This Agreement sets forth the entire Agreement between the parties.
Any change or modification of this Agreement must be in writing and signed by
all parties hereto.
G. Sponsor shall indemnify and hold harmless UVH/DC and its officers,
directors, agents and employees from and against all claims, damages, losses and
expenses, including reasonable attorney's fees arising out of or resulting from
the performance pursuant to Articles II. - Planning and Development, III. -
Arrangement for Permanent and Interim Financing, and IV. - Supervision of
Occupancy Development Program, provided that any such claim, damage, loss or
expense is caused in whole or in part by any negligent act or omission of
Sponsor or anyone for whose acts or omissions Sponsor may be liable.
H. UVH/DC shall indemnify and hold harmless Sponsor and its officers,
directors, agents, and employees from and against all claims, damages, losses,
and expenses including reasonable attorney's fees arising out of or resulting
from the performance of UVH/DC under this Agreement, provided that any such
claim, damage, loss, liability or expense is caused in whole or in part by any
negligent act or omission of UVH/DC or anyone for whose acts or omissions UVH/DC
may be liable.
I. Each party shall secure at its own expense such liability insurance
coverage as is generally available from responsible insurers covering the
activities which such party has undertaken to perform herein. No indemnity shall
be paid to another party under this Agreement where the claim, damage,
liability, loss or expense incurred was or was required to be insured against;
and any such insurance policies obtained by the parties shall contain provisions
waiving any right of subrogation by the insurer of one party against the other
party or its insurer.
J. This Agreement, its interpretation, validity and performance shall be
governed by the laws of the State of New York applicable to contracts made in
and to be performed in such state.
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<PAGE>
K. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, their successors, and permitted assigns.
L. This Agreement has been executed on behalf of Sponsor and UVH/DC by
their respective officers solely in their representative capacities, and no
officer, director, agent, employee or attorney of Sponsor or UVH/DC shall have
any personal liability hereunder to the other, or any person claiming by or
through the other, under any circumstances.
M. The parties consent to the personal jurisdiction of the Federal Courts
located in the State of New York and of the New York State Supreme Court, and to
venue in Nassau County, New York.
N. This Agreement may not be assigned by UVH/DC without prior written
consent of of Sponsor.
X. TERMINATION.
This Agreement may be terminated by either party in the event the other
party files or has a petition or complaint in receivership or bankruptcy filed
against it which has not been dismissed within sixty (60) days of such filing,
or in the event either fails to perform the obligations imposed upon it under
this Agreement, within thirty (30) days of written notice, unless the grounds
for termination have been remedied by UVH/DC or the Sponsor, as the case may be,
within said sixty (60) day or thirty (30) day period, as the case may be.
In witness whereof, the parties have executed this Agreement as of the
date first written above.
UVH DEVELOPMENT CORP.
By: /s/ Paul D'Andrea
---------------------------------------
Paul D'Andrea, Vice President - Finance
CAMELOT RETIREMENT HOMES, INC.
By: /s/ Carl G. Paffendorf
---------------------------------------
Carl G. Paffendorf, Chairman
8
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CAMELOT VILLAGE AT STROUDSBURG
DEVELOPMENT AGREEMENT
AGREEMENT entered into as of the 12th day of July 1996, by and between
CAMELOT VILLAGE AT STROUDSBURG, LLC, a New York limited liability company, with
offices at 4 Cedar Swamp Road, Glen Cove, New York 11542 ("Sponsor"); and UNITED
VANGUARD HOMES, INC. (d/b/a UVH Development), a Delaware corporation, with
offices at 4 Cedar Swamp Road, Glen Cove, New York 11542("UVH/DC").
W I T N E S S E T H
WHEREAS, Sponsor is developing a retirement facility (the "Project") in
Stroudsburg, Pennsylvania on property described on exhibits to the Stroudsburg
Development Company Joint Venture Agreement dated as of May 1, 1996 between
Sponsor and VFG LaBar, L.L.C.; and
WHEREAS, since November 1, 1995 UVH/DC has provided services in the
acquisition, planning and development, financing, occupancy development, design,
construction, and proposed operation of the Project; and
WHEREAS, Sponsor and UVH/DC wish to confirm the services of UVH/DC to
assist in the development of the Project;
NOW, THEREFORE, the parties do hereby agree as follows:
I. SERVICES TO BE PERFORMED BY UVH/DC
A. UVH/DC will continue to expedite and coordinate the planning, design,
development, and construction of the Project; arrange the financing; and
supervise the occupancy development, all as hereinafter set forth.
B. The scope of the entire Project will be to acquire the site(s) and
develop up to 80 assisted living units. The services of UVH/DC for the Project
commenced as of November 1, 1995. The occupancy development program and
construction will proceed at times mutually agreed by the parties hereto,
provided that if construction has not been completed by June 30, 1999, either
party may elect to terminate this Agreement.
II. PLANNING AND DEVELOPMENT.
A. Sponsor and UVH/DC will agree on the basic plans for the Project,
including site plan, size and shape of living units, mix of different types of
living units, and types of ancillary spaces which shall be essentially as set
forth in plans to be prepared by the Sponsor's architectural firm.
<PAGE>
B. UVH/DC will recommend for the approval of Sponsor the initial rates
for the entrance fees and monthly service fees in connection with the Project.
C. UVH/DC will prepare for the approval of sponsor the form of Residency
Agreement and Confidential Data Application to be executed by the residents. The
Residency Agreement will describe the program of services to be offered to the
residents in order to meet their physical, emotional, social, and religious
needs. UVH/DC shall obtain at Sponsor's cost legal counsel satisfactory to
Sponsor to determine the legality, effect, and enforceability of the Residency
Agreement. During the period prior to completion of the construction of the
Project, Sponsor agrees not to change the terms of the Residency Agreement
except with the consent of UVH/DC.
D. To the extent that circumstances require changes from time to time in
the basic plans, fee schedules, financial projections, or Residency Agreements,
UVH/DC will recommend changes to Sponsor for its approval.
E. UVH/DC has heretofore and will continue to determine municipal, state
and federal requirements affecting the planning for the Project. UVH/DC has
prepared and will cause to be prepared the documents to obtain approval of
governmental authorities having jurisdiction over the Project, and no such
documents shall be submitted by or on behalf of Sponsor without prior approval
of Sponsor.
F. UVH/DC will prepare for Sponsor a schedule of all of the Project
development activities and will update the schedule from time to time as may be
necessary due to changing circumstances.
III. ARRANGEMENT FOR PERMANENT AND INTERIM FINANCING.
A. UVH/DC will prepare the loan application documents for Sponsor such as
brochures, feasibility studies and reports, financial projections, information
regarding the community need for the Project and other material necessary to
make application for permanent and interim financing for Sponsor.
B. UVH/DC will present for Sponsor the loan application to interested
lenders and will negotiate the terms of any interim construction and permanent
financing. UVH/DC will, when successful in negotiating financing, recommend to
Sponsor for its approval and acceptance the interim and permanent financing.
C. UVH/DC will, on behalf of Sponsor, present applications to additional
short-term lenders, and, subject to the approval of Sponsor as to terms, assist
the Sponsor to obtain financing for the Project's front-end cost and/or equity
portion of the Project cost during or prior to the construction phase.
D. Provided that UVH/DC solicits any loan sources requested by Sponsor,
Sponsor agrees not to unilaterally negotiate for, or attempt to obtain on its
own, interim construction or permanent financing.
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E. UVH/DC will assist Sponsor in complying with the terms of the loan
commitments which require Sponsor's performance.
IV. SUPERVISION OF OCCUPANCY DEVELOPMENT PROGRAM.
A. UVH/DC will prepare and recommend to Sponsor, for its approval, the
occupancy development program and the budget for the cost of such program.
B. UVH/DC shall have the authority to plan and arrange, at Sponsor's
cost, for the creative services, production, type, mix, copy, placement, and
purchase of material and media to be purchased by Sponsor as necessary to
implement said occupancy development program.
C. UVH/DC will have the sole responsibility to locate, hire, and train
personnel for Sponsor to carry out the services under this Article provided that
all such personnel shall at all times be satisfactory to Sponsor. However,
Sponsor expressly delegates its authority to discharge such personnel to UVH/DC.
D. UVH/DC's personnel shall visit the Project periodically to assist
Sponsor's personnel as necessary. Unless UVH/DC occupancy development personnel
are assigned permanently to the Project, and then only with the prior approval
of Sponsor, UVH/DC personnel shall not be employees of Sponsor but shall be
consultants, and their salaries shall be the expense of UVH/DC.
V. DESIGN AND CONSTRUCTION MANAGEMENT SERVICES.
A. UVH/DC will furnish Sponsor its expertise and knowledge in connection
with the design and construction phase of the development of the Project.
B. UVH/DC on behalf of Sponsor, shall oversee activities of Sponsor's
Architect, RDG Schutte, Wilscam, Birge, Inc. At appropriate times, as Architect
proceeds with the design, UVH/DC will require Architect to submit the plans and
specifications directly to Sponsor for Sponsor's approval.
C. UVH/DC, with the assistance of Architect, will submit to Sponsor a
statement of probable construction costs based on square footage, volume, and
other unit costs. As Architect proceeds to refine and complete the plans and
specifications, UVH/DC shall keep Sponsor informed of any adjustments to
previous statements of probable Project construction costs indicted by changes
in scope, local requirements or changes in community needs.
D. UVH/DC shall prepare and submit to Sponsor a statement of the Overall
Project Cost (as that term is defined in Article VIII.A. hereof), the fees
payable to UVH/DC hereunder, and the anticipated Cash Reserves of each phase of
the Project.
E. UVH/DC shall file the required documents with and use its best efforts
to secure the approval of governmental authorities having jurisdiction over the
design of the Project.
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F. UVH/DC will arrange for a construction manager for Sponsor, who will
provide a Guaranteed Maximum Cost.
VI. ACCOUNTING FUNCTIONS.
A. From the date of this Agreement, UVH/DC shall arrange for all
accounting and bookkeeping services (except federal and state income tax
returns). UVH/DC shall prepare periodic reports for the Project showing the
financial condition of the Project and comparing the currently anticipated
Overall Project Cost and sources of funds with previous projections.
B. Sponsor shall open an account in Sponsor's name at a bank, the
location of which shall be mutually agreed upon by Sponsor and UVH/DC. UVH/DC
employees, acceptable to Sponsor, shall be designated to deposit and withdraw
funds from said account without restrictions, except that in the case of checks
written to UVH/DC, the prior written approval of an officer of Sponsor shall be
required.
C. All UVH/DC employees engaged in handling Sponsor's funds shall be
bonded. At Sponsor's request, UVH/DC shall supply to Sponsor a copy of the bond.
If Sponsor desires broader coverage or higher limits than the bond carried by
UVH/DC, the cost of said broader cover or higher limits shall be for Sponsor's
account.
VII. SPONSOR'S RESPONSIBILITIES.
A. Sponsor shall have the responsibility of approving or setting the
guidelines for approving applications for occupancy.
B. UVH/DC shall not perform or have the responsibility for the performance
of legal services in connection with the obligations arising hereunder. Sponsor
shall obtain legal counsel at its cost to perform such legal services.
C. Sponsor shall examine documents submitted by UVH/DC and render
decisions pertaining thereto as promptly as reasonable possible, to avoid
unreasonable delay in the progress of UVH/DC's work.
D. Sponsor shall issue orders concerning the project only through UVH/DC.
E. Sponsor agrees that it will use its best efforts through UVH/DC to
fulfill, in a timely manner, all of the terms of loans obtained for the Project
with its approval. Such terms shall include, but not be limited to, the payment
of commitment fees, the assignment, encumbering or pledging of its rights or
assets, the obtaining of the required number of living unit Residency
Agreements, the obtaining of title insurance and obtaining of and payment for
qualified appraisals and payment of interest.
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<PAGE>
F. Sponsor shall pay all capital costs of the Project including, but not
limited to, legal and accounting fees, all forms of taxes, licenses, closing
costs, financing costs, architectural and engineering costs, construction costs,
and the cost of all furnishings, fixtures, and equipment.
G. Sponsor shall pay all costs of the occupancy development program. The
costs of the occupancy development program shall include, but not be limited to,
such expenses as cost of recruiting and training occupancy development
personnel; salaries, commissions and expenses of Sponsor's personnel; community
relations expenses; art work, engraving, printing, direct mail pieces, creative
work, copyrighting, production costs, and time and space charges; commissions
normally payable to agencies for media and printed materials; and construction
and furnishings of miniature or full-scale model apartments.
H. Sponsor shall cooperate with UVH/DC in every respect and shall furnish
UVH/DC all information required by it for the performance of its services and
shall permit UVH/DC to examine and copy any data in possession and control of
Sponsor affecting management and/or operation of the Project and shall in every
way cooperate to enable UVH/DC to perform its services satisfactorily.
I. UVH/DC and/or its parent company United Vanguard Homes, Inc. ("UVH"),
have incurred expenses in connection with the Project. Sponsor agrees to
reimburse UVH/DC and/or UVH for the actual amount of said out-of-pocket expenses
as set forth on a list, together with supporting detail. Sums advanced shall
bear interest at ten percent (10%) per annum until paid.
VIII. COMPENSATION -; EXPENSES.
A. In consideration of the performance of the services contemplated
herein, Sponsor agrees to pay UVH/DC a fee:
1. For locating the land, securing an option on the site, zoning
application work, architectural matters and formation of model (size and shape
of living units, mix of different types of living units and types of ancillary
spaces) and other services rendered November 1, 1995 through June 30, 1996, the
sum of One Hundred Thousand dollars ($100,000.00).
2. Seven and one half percent (7 1/2%) of the Overall Project Cost
(the "0PC" fee). The term Overall Project Cost means:
i. The cost of the land and building thereon, zoning, building
permits, plus the cost of construction of all physical
improvements.
ii. Financing charges and interest costs of the Project, legal
expenses, title insurance premiums, furnishings, and other
miscellaneous costs associated with the development,
financing, design and construction of the Project.
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<PAGE>
iii. Costs of the occupancy development and marketing program up
to the date of Seventy-five percent (75%) occupancy.
The Overall Project Cost shall not include fees paid to UVH/DC
hereunder, working capital, stocking of supplies and other expenses related to
the operation of the completed Project.
B. Payment of the above-computed compensation shall be as follows:
1. One Hundred Thousand Dollars ($100,000.00) on December 30, 1996.
If this fee is not paid when due, it shall bear interest at
prime rate at Citibank, N.A., as from time to time in effect, or
9 percent p.a., whichever is higher, until such fee is paid.
2. The OPC fee, computed on the basis of the estimated Overall
Project Cost, shall be paid monthly, after commencement of
construction, up to a maximum of seventy-five percent (75%) of
the OPC fee.
3. After crediting amounts paid under subparagraphs 1 and 2 above,
the balance of the OPC fee, 25 percent, shall be due and payable
thirty (30) days after (i) the Project is substantially
complete, and (ii) occupancy of seventy-five percent (75%) of
the living units has been obtained.
C. Sponsor shall pay UVH/DC the net cost of reasonable transportation and
living expense for principals and employees of UVH/DC when traveling in
connection with the Project and any reasonable long distance telephone or
facsimile transmission expense incurred by UVH/DC since November 1, 1995, in
connection with the performance of its services under this Agreement. Said
expenses shall be payable monthly following the month during which they are
incurred.
D. Sponsor shall reimburse UVH/DC and its parent company Vanguard
Ventures, Inc. and/or affiliates for expenses incurred on behalf of Sponsor,
including, but not limited to, $33,750.00 paid to VFG LaBar, LLC and $7,493.50
paid to Theodore J. Leo, Esq. in July 1996.
IX. GENERAL.
A. So long as this Agreement is in force, UVH/DC agrees that Sponsor may
represent to the public that its planning and development is being done by
UVH/DC, and Sponsor agrees that the UVH/DC name will be identified, in an
appropriate way, in the community relations and occupancy development program
materials as being responsible for said planning and development.
B. The ownership of ideas and documents, forms, and occupancy development
materials, created by UVH/DC either prior to this Agreement or as a result of
this Agreement, is to be considered proprietary and will remain the property of
UVH/DC whether or not the proposed Project is constructed. They are not to be
used by Sponsor, except in connection with the Project.
6
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C. The parties shall not be considered as joint venturers or partners of
each other, and neither shall have the power to bind or obligate the other as
set forth in this Agreement.
D. In order to carry out the intent and spirit of this Agreement, the
parties will do all acts or things necessary including the execution of other
agreements.
E. It is agreed that during the period prior to completion of
construction and occupancy of the complete Project, whenever in this Agreement
or otherwise in order to carry out its spirit and intent, the consent, approval
or agreement of sponsor is required, based upon a recommendation of UVH/DC, it
will not be unreasonable withheld. The measure of reasonableness shall include
the degree to which the recommendations are consistent with other projects
planned by UVH/DC, the degree to which the recommendations will result in a
financially sound project, and the degree to which the recommendations are
consistent with earlier recommendations previously approved by Sponsor. Once its
approval has been granted, Sponsor shall not subsequently alter or change the
plan, budget, or program without the consent of UVH/DC.
F. This Agreement sets forth the entire Agreement between the parties.
Any change or modification of this Agreement must be in writing and signed by
all parties hereto.
G. Sponsor shall indemnify and hold harmless UVH/DC and its officers,
directors, agents and employees from and against all claims, damages, losses and
expenses, including reasonable attorney's fees arising out of or resulting from
the performance pursuant to Articles II. - Planning and Development, III. -
Arrangement for Permanent and Interim Financing, and IV. - Supervision of
Occupancy Development Program, provided that any such claim, damage, loss or
expense is caused in whole or in part by any negligent act or omission of
Sponsor or anyone for whose acts or omissions Sponsor may be liable.
H. UVH/DC shall indemnify and hold harmless Sponsor and its officers,
directors, agents, and employees from and against all claims, damages, losses,
and expenses including reasonable attorney's fees arising out of or resulting
from the performance of UVH/DC under this Agreement, provided that any such
claim, damage, loss, liability or expense is caused in whole or in part by any
negligent act or omission of UVH/DC or anyone for whose acts or omissions UVH/DC
may be liable.
I. Each party shall secure at its own expense such liability insurance
coverage as is generally available from responsible insurers covering the
activities which such party has undertaken to perform herein. No indemnity shall
be paid to another party under this Agreement where the claim, damage,
liability, loss or expense incurred was or was required to be insured against;
and any such insurance policies obtained by the parties shall contain provisions
waiving any right of subrogation by the insurer of one party against the other
party or its insurer.
J. This Agreement, its interpretation, validity and performance shall be
governed by the laws of the State of New York applicable to contracts made in
and to be performed in such state.
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K. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, their successors, and permitted assigns.
L. This Agreement has been executed on behalf of Sponsor and UVH/DC by
their respective officers solely in their representative capacities, and no
officer, director, agent, employee or attorney of Sponsor or UVH/DC shall have
any personal liability hereunder to the other, or any person claiming by or
through the other, under any circumstances.
M. The parties consent to the personal jurisdiction of the Federal Courts
located in the State of New York and of the New York State Supreme Court, and to
venue in Nassau County, New York.
N. This Agreement may not be assigned by UVH/DC without prior written
consent of of Sponsor.
X. TERMINATION.
This Agreement may be terminated by either party in the event the other
party files or has a petition or complaint in receivership or bankruptcy filed
against it which has not been dismissed within sixty (60) days of such filing,
or in the event either fails to perform the obligations imposed upon it under
this Agreement, within thirty (30) days of written notice, unless the grounds
for termination have been remedied by UVH/DC or the Sponsor, as the case may be,
within said sixty (60) day or thirty (30) day period, as the case may be.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED VANGUARD HOMES, INC.
By: /s/ Carl G. Paffendorf
-----------------------------------
Carl G. Paffendorf, Chairman
CAMELOT VILLAGE AT STROUDSBURG, LLC
By: Phoenix Lifecare Corp.,
a Member
By: /s/ Larry L. Laird
-----------------------------------
Larry L. Laird, President
8
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OPTION AND AGREEMENT TO PURCHASE REAL ESTATE - LOT 3
This Option and Agreement to Purchase Real Estate - Lot 3 is entered this
15th day of September 1995, by HERITAGE CORPORATION OF IOWA, an Iowa corporation
of Linn County ("Heritage"), COTTAGE GROVE PLACE, an Iowa non-profit corporation
of Linn County ("Buyer"), and United Vanguard Homes, Inc., a Delaware
corporation ("Vanguard Homes").
WHEREAS, Heritage is the owner of certain real property situated in the
City of Cedar Rapids, County of Linn, State of Iowa, which is more particularly
described in Exhibit "A" and attached hereto and made a part hereof (the
"Property");
WHEREAS, Cottage Grove requested the exclusive right and option to purchase
the Property; and
WHEREAS, Heritage is willing to grant to Cottage Grove the exclusive right
and option to purchase the Property for the term set herein, subject to all the
terms and conditions set forth herein, and further subject to Vanguard Homes
agreeing to purchase the Property if Cottage Groves does not exercise the option
granted hereunder; and
WHEREAS, as a condition to entering into this Agreement, Heritage has
requested that Vanguard Homes' obligation be guaranteed by its parent
corporation, Vanguard Ventures, Inc., which guarantee Vanguard Ventures, Inc. is
willing to make.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100
Dollars ($10.00) and other goods and valuable consideration, which Heritage,
Vanguard Homes and Cottage Grove acknowledge receipt and payment thereof,
Heritage hereby agrees to grant to Cottage Grove, subject to the terms and
conditions hereinafter set forth, the exclusive option for a term of five (5)
years from the date that Cottage Grove purchases Lot 4 and the Bare Land from
Heritage (the "option term"), to purchase the Property for the sum and upon the
terms and conditions hereinafter set forth. Vanguard Homes agrees that, if
Cottage Grove does not exercise the option granted hereunder, that it shall
purchase
<PAGE>
the Property for the sum and upon the terms and conditions hereinafter set
forth, which obligation Vanguard Ventures, Inc., by the execution of this
Agreement, does guarantee.
I. OPTION CONSIDERATION AND FORFEITURE
As consideration for the Option ("option consideration") herein granted,
Cottage Grove and Vanguard Homes gives to Heritage the consideration described
herein.
A. Cottage Grove shall be responsible for and will pay in advance on a
quarterly basis (with the first payment due on the closing of Lot 4 and Bare
Land) all real estate taxes, including any special assessments on the Property,
owing by Heritage on the Property from the closing date of Lot 4 and Bare Land,
which amount Heritage shall deposit into an escrow account with Heritage to be
used to pay the real property taxes as such taxes become due. Heritage will
advise Cottage Grove of any increases or decreases in such tax obligations and
the payments owing by Cottage Grove will be adjusted accordingly. If Cottage
Grove fails to pay such taxes as set forth above, Vanguard Homes agrees to pay
such tax obligation within ten (10) days after written notice by Heritage of
Cottage Grove's failure to pay such tax obligation, which obligation Vanguard
Ventures, Inc. guarantees. If Cottage Grove fails to pay such taxes and neither
Vanguard Homes or Vanguard Ventures pays such real estate taxes within the time
set forth above, Cottage Grove shall be considered in default under the option,
and Cottage Grove's rights under the option shall terminate. Vanguard Homes
shall then be responsible for immediately purchasing the Property based on the
terms and conditions set forth herein.
B. For the option granted hereunder, Cottage Grove, in addition to the
Purchase Price, shall pay to Heritage the sum of Forty Thousand and 00/100
Dollars ($40,000.00) per year, or part thereof, until the exercise of such
option for the Property, which Forty Thousand and 00/100 Dollars ($40,000.00)
shall be payable as set forth in this paragraph and as set forth in Article II.
The amount shall be payable from the closing of Lot 4 and Bare Land, and shall
continue until closing on the purchase of the Property which amount shall be
payable by Cottage Grove (or, Vanguard Homes if Cottage Grove defaults
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<PAGE>
under the option or does not exercise the option) at the time of closing on the
Property. Of the Forty Thousand and 00/100 Dollars ($40,000) amount set forth
above, Vanguard Homes agrees to pay one-half (1/2) of the Forty Thousand and
00/100 Dollars ($40,000.00) amount on a current quarterly basis from the date of
closing on Lot 4 and Bare Land, with the first payment due three (3) months
after the closing date on Lot 4 and Bars Land, and continuing every three (3)
months thereafter until the Property is purchased. The other one-half (1/2) of
the Forty Thousand and 00/100 Dollars ($40,000.00) plus interest at a rate of
eight percent (8%) per annum on the amount being deferred shall be payable at
closing on the purchase of the Property. In computing this interest, Five
Thousand and 00/100 Dollars ($5,000.00) of the deferred amount shall be
considered due each three (3) month from the closing of Lot 4 and Bare Land and
continuing until the purchase of the Property. The amounts considered due (Five
Thousand and 00/100 Dollars ($5,000.00) each three (3) months) shall draw
interest at eight percent (8%) per annum from the date considered due until
paid. If Vanguard Homes fails to make the payments when due, such failure shall
constitute a default and if such default is not corrected within ten (10) days
of written notice to Cottage Grove and Vanguard Homes, Cottage Grove's option
shall terminate and Vanguard Homes shall immediately be obligated to purchase
the Property at the Purchase Price set forth herein. Heritage agrees to assign
to Vanguard Homes its rights to the payments owing by Cottage Grove to Heritage
as Vanguard Homes makes the payments described above.
C. Cottage Grove and Vanguard Homes jointly and severally agree to maintain
the property including but not limited to liability insurance, general
maintenance, snow removal, repairs and replacement of improvements, yard and
lawn maintenance, holding pond maintenance, including repairs and replace,
landscaping, utilities and all other expenses of any kind and nature. If Cottage
Grove or Vanguard Homes fails to maintain the Property, such failure shall
constitute a default and, if such default is not corrected within ten (10) days
of written notice to Cottage Grove and Vanguard Homes, Cottage Grove's option
shall terminate and Vanguard Homes shall immediately be obligated to purchase
the Property at the Purchase Price set forth herein.
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<PAGE>
If Cottage Grove has not exercised the Option to purchase the real estate
within the option term, the Option herein granted shall expire, Cottage Grove
shall have no further rights or obligations hereunder and this Option shall be
canceled and terminated all without further action of the parties. On expiration
of the option period or the failure of Cottage Grove to pay or provide the
consideration under this the option, Vanguard Homes agrees to and shall purchase
the Property from Heritage at the price and on the terms set forth below, which
obligation Vanguard Ventures, Inc. does guarantee.
II. PURCHASE PRICE AND ADJUSTMEMT TO PURCHASE PRICE
The purchase price for the Property shall be Five Hundred Thousand and
00/100 Dollars ($500,000.00) ("Purchase Price"), plus The Forty Thousand and
00/100 Dollars ($40,000.00) per year, or part thereof, (less amounts actually
paid on the Forty Thousand and 00/100 Dollars ($40,000.00) per year amount) for
the period from the closing on Lot 4 and Bare Land until the closing of
Property, plus a sum, as hereinafter described, that shall be added to such
amount. A material part of the consideration to Heritage for selling is that
Heritage reserves unto itself the right to qualify this transaction as a
like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as
amended. Cottage Grove and Vanguard Homes agree to cooperate with Heritage in
structuring the sale of the Property to qualify for like-kind exchange
treatment.
The aggregate of such sums shall be the Purchase Price and shall be paid in
cash at closing.
In addition to the Five Hundred Thousand and 00/100 Dollars ($500,000.00)
plus the Forty Thousand and 00/100 Dollars ($40,000.00) per year, (less amounts
actually paid on the Forty Thousand and 00/100 Dollars ($40.000.00) per year
amount) plus interest on the amount deferred, as set forth in Article I the
following amounts, if paid by Heritage, shall be added to the purchase price:
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<PAGE>
1. All real estate taxes accruing after the date of this Option and paid by
Heritage on the Property after the date of this Option.
2. Copies for insurance of every kind and nature which Heritage carries on
the Property.
3. Cost of all property maintenance not paid by Cottage Grove and Vanguard
Homes as required by this document to the extent paid by Heritage.
4. Special assessments, if any, assessed after the date of this Option.
5. Costs of all attorney fees and related costs incurred by Heritage in
connection with the Property or the enforcement of the obligation created
hereunder until the Property is purchased and the Purchase Price paid.
6. Any other expenses of any kind and nature, whether the same are ordinary
or extraordinary, contemplated or not contemplated and whether the same are in
the nature of repairs, maintenance, replacement or otherwise, which Heritage
incurs on account of the Property from the closing date on Lot 4 and Bare Land
until the Property is purchased.
7. Costs, if any, advanced by Heritage on Cottage Grove's or Vanguard
Homes' behalf for title insurance, abstracting costs and other expenses in
connection with Cottage Grove confirming that Heritage has marketable title to
the real estate that Cottage Grove or Vanguard Homes is purchasing.
8. All costs incurred by Heritage in connection with transfer taxes,
recording fees and other filing fees in connection with the transfer of the
Property from Heritage.
9. Engineering costs, platting fees and all expenses, if any, which
Heritage incurs in connection with complying with local and state regulations in
order to permit Heritage to convey the property to Cottage Grove or Vanguard
Homes.
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<PAGE>
As long as the Option herein granted has not been exercised and remains
unpaid, at the end of each quarter, i.e. March, June, September and December,
Heritage shall provide Cottage Grove and Vanguard Homes with evidence of
expenses which have been incurred by Heritage during the prior three months, the
sum of which shall be added to the Purchase Price. Heritage shall provide
Cottage Grove and Vanguard Homes quarterly with the Purchase Price which results
from such incurred expenses and accrued interest charges. The Purchase Price
which Heritage advises Cottage Grove and Vanguard Homes is due, shall be
conclusively presumed to be the Purchase Price due unless Cottage Grove objects
in writing to the advice given by Heritage within fifteen (15) days after said
advice by Heritage.
In the event Cottage Grove or Vanguard Homes fails to provide the
consideration or pay the amounts described in the Paragraphs A, B, and C of
Article I when due, Heritage shall, at its sole option, have the right to treat
Cottage Grove as being in default under the terms of the option and on written
notice to Vanguard Homes, Vanguard Homes shall, if it fails to remedy the
default in ten (10) days from the date of the notice, become obligated to
purchase the Property at the Purchase Price set forth in Article II. Closing
shall be ten (10) days after expiration of the ten (10) days written notice and,
if Vanguard Homes fails to purchase the Property, both Vanguard Homes and
Vanguard Ventures, Inc. shall become jointly and severally obligated to satisfy
fully the obligation of Vanguard Homes under this agreement.
III. RIGHT OF ENTRY
Cottage Grove and/or Vanguard Homes or their authorized representative(s)
shall have the right, at any time after the execution of this Option and at
Cottage Grove and/or Vanguard Homes' sole cost and expense, to enter on the
Property for any lawful purpose, including but not limited to, making such
surveys and site analysis, including soil tests, as Cottage Grove and/or
Vanguard Homes may deem necessary. Cottage Grove and/or Vanguard Homes agrees to
hold Heritage harmless in connection with any claims that may arise from such
entry and/or activity on the Property, whether caused by Cottage Grove and/or
Vanguard Homes or their employees, agents or authorized representatives. Any
action taken by Cottage
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<PAGE>
Grove and/or Vanguard Homes which involves any disturbance to the Property may
be taken only after Heritage has consented to such action.
IV. ZONING
Cottage Grove and/or Vanguard Homes shall, at its sole cost and expense,
secure proper zoning, licenses for use of the Property and comply with all other
city, county, state and federal rules and regulations. Heritage agrees to
cooperate with Cottage Grove and Vanguard Homes in pursuing all applications
that Cottage Grove and/or Vanguard Homes may be required to file and processing
it to completion, including executing all necessary and appropriate instruments.
Application shall be made in the name of either Heritage, Cottage Grove, or
Vanguard Homes or such of them as may be required in the particular matter the
subject of the application. The failure of Cottage Grove or Vanguard Homes to
secure zoning, licenses or compliance certificates shall not be a reason for the
option term to be extended.
V. EXERCISE OF OPTION; WARRANTY DEED
Subject to the provisions of Article VI, this Option may be exercised by
giving notice thereof to Heritage at 2115 First Avenue S.E., Cedar Rapids, Iowa
52403 or such other address provided to Cottage Grove and Vanguard Homes in
writing. Said notice shall be postmarked on or before 12:00 midnight on the last
day of the applicable term hereof. Closing shall be held within thirty (30) days
of notice of the exercise of the option at a location in Cedar Rapids, Iowa, and
at a time selected by Heritage. Cottage Grove and Vanguard Homes each agree that
the Property is being acquired "as is" on the date of this Agreement and
Heritage is not making any representation or warranty as to the condition of the
Property. At closing, Heritage shall deliver to Cottage Grove (or Vanguard Homes
if it becomes obligated to Purchase the Property) a General Warranty Deed
subject to zoning, easements and restrictions of record, and Cottage Grove, if
it exercises the Option, and Vanguard Homes, if Cottage Grove doesn't exercise
the option, shall deliver the Purchase Price, in cash to Heritage at the time it
delivers the General Warranty Deed.
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<PAGE>
VI. EXERCISE OF OTHER OPTIONS GRANTED TO
COTTAGE GROVE BY HERITAGE
Notwithstanding anything to the contrary herein stated, the Option herein
granted to Cottage Grove shall be null and void and the obligation of Vanguard
Homes shall not exist unless the Amended and Restated Option to Purchase Real
Estate - Heritage Property and the Amended and Restated Option to Purchase Real
Estate - Bare Land entered into contemporaneously herewith by Heritage and
Cottage Grove for the purchase of real estate has been exercised by Cottage
Grove and the properties described therein purchased by Cottage Grove.
VII. LIFE INSURANCE
AND CHARITABLE REMAINDER ANNUITY TRUSTS
Cottage Grove agrees that if it receives any funds after the date hereof
because of being designated as a charitable beneficiary under trusts or
insurance policies created by or owned by Terry R. and/or Marjorie A. Bjornsen,
Larry and/or Penny Bjornsen, Bjornsen Investment Corporation, Atlas Investment
Corporation, or any related party to the above-described individuals or
entities, including their successors in interest, that it shall immediately
enter into a binding contract with Heritage to buy the Property under this
Option and that it will apply the full proceeds (proceeds first applied against
the purchase of Lot 3, the Bare Land and then Lot 4 in that order) received
against the Purchase Price and that the balance of the Purchase Price shall be
payable in full on or before the expiration of the option period. Such real
estate contract shall provide that in the event of default that Heritage's sole
remedy shall be the right of forfeiture of all amounts paid under that contract
to Heritage and possession of the Property if the Purchase Price is not paid in
full.
VIII. RISK OF LOSS
Pending exercise of the Option by Cottage Grave, the risk of loss or damage
to the Property by condemnation shall be an Heritage. If any such loss or damage
occurs during
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<PAGE>
such period, then Cottage Grove shall have the option to (i) cancel and rescind
this Option, in which event Heritage shall retain the option consideration paid,
or (ii) accept the Property with an appropriate reduction of the Purchase Price.
IX. REMEDIES FOR BREACH
1. Cottage Grove's or Vanguard Homes' Remedies - If Heritage fails or
refuses to comply fully with the terms of this Option, because of
unmerchantability of title to the Property, Cottage Grove or Vanguard Homes may,
at its option, (i) rescind this Option or (ii) proceed with this Option and take
the Property, subject to an appropriate reduction in the Purchase Price.
2. Heritage's Remedies -- If Cottage Grove does not exercise the Option
herein granted Heritage shall have no further claim hereunder against Cottage
Grove. Heritage shall have the right to sue and collect the purchase price from
Vanguard Homes and Vanguard Ventures, Inc., under its guarantee of Vanguard
Homes' obligation under this Agreement, include reasonable attorneys' fees and
court costs in bringing and enforcing the obligation of Vanguard Homes and
Vanguard Ventures, Inc. under this Agreement.
X. NOTICES
Any notice hereunder shall be given in writing to the party for whom it is
intended, in person or by certified mail, at the following address, or such
future address as may be designated in writing: to Heritage as the address set
forth in Article V above; Cottage Grove at 2115 First Avenue S.E., Cedar Rapids,
Iowa 52403; to Vanguard Ventures at: 4 Cedar Swamp Road, Glen Cove, New York
11542; to United Vanguard Homes, Inc. at: 4 Cedar Swamp Road, Glen Cove, New
York 11542; to any successor or assignee of either party, at the address stated
in the notice of succession or assignment. If Cottage Grove elects to exercise
the option to purchase the Property at any time during the first fifty-four (54)
months of the option term, it shall provide Heritage and Vanguard Homes ninety
(90) days
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<PAGE>
advance notice of the exercise of the option prior to the scheduled closing on
the purchase of the Property.
XI. ASSIGNMENT AND SUCCESSION
This Agreement shall be binding upon and inure to the benefit of the heirs,
successors, administrators, executors, and assignees of the respective parties.
All rights hereunder may be assigned without restriction, provided that notice
of each assignment shall be given in writing to the other party.
XII. GUARANTEE OF OBLIGATION
Vanguard Homes guarantees the obligation of Cottage Grove of the payments
under this Agreement and agrees that if Cottage Grove fails to exercise the
option that Vanguard Homes will purchase the Property at the Purchase Price,
which obligation is guaranteed by Vanguard Ventures, Inc. Specifically, in the
event of default by Cottage Grove in any payment due under this Agreement or, in
the event that Cottage Grove does not exercise the option, Vanguard Homes agrees
that it shall purchase the Property at the Purchase Price, which obligation
Vanguard Ventures, Inc. guarantees. Heritage shall have the right to proceed
against either Vanguard Homes or Vanguard Ventures, Inc. without first
exhausting its remedies against Vanguard Homes. Heritage shall be entitled to
collect reasonable attorney fees and court costs in collecting the amounts from
Vanguard Homes or Vanguard Ventures, Inc. Vanguard Homes and Vanguard Ventures,
Inc., agree that jurisdiction and venue in any action shall be in Iowa District
Court in Linn County, Iowa.
XIII. MODIFICATION; ENTIRE AGREEMENT EXPRESSED
No modification of this Agreement shall be valid or binding unless such
modification is in writing, duly dated and signed by all parties.
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<PAGE>
This constitutes the entire agreement between the parties. The parties
shall not be bound by any turns, conditions statements, or representations, oral
or written, not herein contained. It is mutually understood and specifically
agreed that this Agreement is binding upon the respective heirs, successors,
administrators, executors, and assigns of the parties hereto.
XIV. EXECUTION FOR LIMITED PURPOSES
Vanguard Ventures, Inc. executes this Agreement for the limited purpose of
guaranteeing the obligation of Vanguard Homes to purchase the property in the
event Cottage Grove fails to provide the consideration or fails to make any
payments required under this agreement or does not elect to exercise the option
granted hereunder.
XIV. COUNTERPARTS
This Option may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Option the day and year
first written above.
HERITAGE CORPORATION OF IOWA COTTAGE GROVE PLACE
BY /s/Terry R. Bjornsen, President BY /s/ Richard F. Nazette
--------------------------------- --------------------------
"HERITAGE" Its Authorized Officer
"COTTAGE GROVE"
UNITED VANGUARD HOMES, INC.
BY /s/Carl G. Paffendorf
---------------------------
Carl G. Paffendorf, Chairman
VANGUARD VENTURES, INC.
BY /s/Carl G. Paffendorf
-----------------------------
Carl G. Paffendorf, President
<PAGE>
EXHIBIT "A"
LOT 3, PLAZA EAST SECOND ADDITION TO CEDAR RAPIDS, IOWA, together with all
easements and servient estates appurtenant thereto, and subject to covenants,
easements and restrictions of record.
<PAGE>
AGREEMENT
NOW, ON THIS 20th day of November, 1995, this agreement is entered into by
and between Cottage Grove Place, an Iowa Nonprofit Corporation, ("Cottage
Grove"), Cedar Rapids CGP, L.C., an Iowa Limited Liability Company, ("L.C."),
United Vanguard Homes, Inc., ("UVH"), and Vanguard Ventures, Inc., ("Vanguard").
RECITALS
A. Cottage Grove, UVH, and Vanguard have previously entered into an Option
and Agreement dated September 15, 1995, to purchase certain real estate (the
"Real Estate"), described as follows:
"Lot 3, PLAZA EAST SECOND ADDITION TO CEDAR RAPIDS, IOWA, together with all
easements and servient estates appurtenant thereto, and subject to
covenants, easements and restrictions of record."
B. Cottage Grove subsequently assigned its rights to the Option to Purchase
Real Estate to UVH on September 18, 1995, and entered into an Assignment and
Agreement to Hold Harmless with UVH, a copy of which Assignment is attached
hereto, marked Exhibit "1", which agreement is hereinafter referred to as the
"Assignment".
C. Notwithstanding, the Assignment, Cottage Grove subsequently, and at the
request of UVH, did enter into an agreement to exercise the option. A copy of
such exercise is attached hereto, marked Exhibit "2".
D. L.C. now desires to assume the position of Cottage Grove, and to
complete the exercise of the Option, as required by Exhibit "2", subject to the
agreement of UVH and Vanguard to fully perform all of the obligations UVH and
Vanguard have previously assumed in accord with the Assignment.
E. L.C. is entering into a loan agreement for the purpose of borrowing Four
Hundred Fifty Thousand Dollars ($450,000.00) in order to exercise the option to
purchase the real estate.
NOW, THEREFORE, in consideration of the mutual benefits to the parties,
receipt of which is hereby acknowledged, it is agreed as follows:
1. Cottage Grove does hereby sell, transfer and assign all of its right,
title and interest in and to the Agreement to Exercise Option dated October 25,
1995, (Exhibit "2") to the L.C.
2. L.C. agrees to perform the Agreement to Exercise Option and Purchase
Real Estate - Lot 3, for Four Hundred and Fifty Thousand Dollars ($450,000.00),
subject to the agreement of UVH and Vanguard to assume, pay and perform the
following:
<PAGE>
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A. All of the expenses associated with the closing for the purchase of
the Real Estate referred to in paragraph 1 of the Agreement and
Exercise of Option and Agreement to Purchase (Exhibit "2").
B. Payment by UVH of all of the costs incurred by L.C. for ownership and
management of the Real Estate, subsequent to its purchase, until the
Real Estate is sold, including but not limited to the interest payable
on the loan of L.C. obtained to purchase the Real Estate, any
insurance costs incurred by L.C., any real estate property taxes, any
accounting costs or preparation of tax returns for the L.C., and any
other costs incurred by L.C. with respect to the ownership of the Real
Estate, which would have been required to be paid and described in the
Assignment and Agreement to Hold Harmless (Exhibit "1"), including the
obligation to purchase the Real Estate within five (5) years.
3. Cottage Grove and L.C. acknowledge that the obligation imposed upon
Cottage Grove at paragraph 5 of the Assignment, shall continue and survive this
Agreement, to the extent that Cottage Grove is the recipient of any funds or
beneficiary under the trusts of insurance policies created by Terry R. and/or
Marjorie A. Bjornsen, Larry and/or Penny Bjornsen, Bjornsen Investment
Corporation, Atlas Investment Corporation, or any party related to the
aforesaid, and Cottage Grove and L.C. agree that such obligation shall continue
as an obligation of Cottage Grove in the event Cottage Grove and L.C. do not
purchase the Real Estate within five (5) years. Paragraph 5 of the Assignment is
by this reference made a part of this agreement.
4. It is the intent of this Assignment to substitute L.C. for Cottage Grove
by the assignment of all of the rights and obligations of Cottage Grove to L.C.
with respect to the Real Estate, as described in Exhibits "1" and "2", and to
provide that UVH and Vanguard Homes will, for the benefit of L.C., do and
perform all of those obligations and responsibilities as if L.C. were Cottage
Grove.
5. Cottage Grove, UVH and Vanguard each acknowledge and agree that, except
for the assurances provided to L.C. herein, L.C. would not enter into this
Agreement, and that such assurances are a material and necessary inducement
provided to L.C., to become a party to this Agreement.
<PAGE>
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IN WITNESS WHEREOF, the parties have entered into this agreement on this
20th day of November, 1995.
Cottage Grove Place Cedar Rapids CGP, L.C.
By: /s/Robert A. Sedlacek, M.D. By: /s/Robert A. Sedlacek, M.D.
--------------------------- -----------------------------
Robert A. Sedlacek, M.D. Robert A. Sedlacek, M.D.
President President
By: /s/William S. Elliott By: /s/William S. Elliott
---------------------------- -----------------------------
William S. Elliott, Secretary William S. Elliott, Secretary
United Vanguard Homes, Inc. Vanguard Ventures, Inc.
By: /s/Carl G. Paffendorf By: /s/Carl G. Paffendorf
------------------------------ -----------------------------
Carl G. Paffendorf, Chairman Carl G. Paffendorf, President
<PAGE>
ASSIGNMENT AND AGREEMENT TO HOLD HARMLESS
THIS AGREEMENT is entered into by and between Cottage Grove Place, an Iowa
Nonprofit Corporation, ("CGP") and United Vanguard Homes, Inc., ("Vanguard
Homes").
RECITALS
A. CGP and Vanguard Homes are parties to a certain Option and Agreement to
Purchase Real Estate known as Lot Three (3), Plaza East Second Addition to Cedar
Rapids, Iowa, a copy of which is attached hereto, marked Exhibit A, (the
"Option").
B. The Option sets forth certain obligations and duties of CGP which have
been guaranteed by Vanguard Homes and its parent corporation, Vanguard Ventures,
Inc.
C. The parties having reconsidered their position with respect to the real
estate described in the Option, now desire to enter into this agreement for the
purpose of assigning all of the interest of CGP to Vanguard Homes, in
consideration for which Vanguard Homes agrees to perform all of the obligations
required of CGP under the option to hold harmless CGP therefrom.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. For and in consideration of the sum of Ten Dollars ($10.00), and other
good and valuable consideration, which Vanguard Homes and CGP acknowledge
receipt and payment thereof, CGP does hereby assign all of its right, title and
interest in and to the Option.
2. Vanguard Homes does hereby agree to accept the assignment of the Option
from CGP, and agrees further that it will be responsible for the performance of
all of the obligations which otherwise would have been required by CGP to
Heritage Corporation of Iowa, or any other obligations which may arise or relate
to the Option.
3. Vanguard Homes agrees to indemnify and hold harmless CGP from any
claims, demands, suits made by Heritage Corporation of Iowa against CGP
resulting from the Option or from any of the transferees or assigns of Heritage
Corporation of Iowa.
Exhibit "1"
<PAGE>
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4. Vanguard Homes hereby accepts the assignment from CGP, and agrees for
itself, and its parent corporation, Vanguard Ventures, Inc., to faithfully
perform and undertake all of the obligations of CGP under the Option.
5. In the event that Cottage Grove receives any funds as charitable
beneficiary under the trusts or insurance policies created or owned by Terry R.
and/or Marjorie A. Bjornsen, Larry and/or Penny Bjornsen, Bjornsen Investment
Corporation, Atlas Investment Corporation or any party related to the aforesaid,
and Cottage Grove does not purchase certain real property known as "Lot 3 -
Plaza East Second Addition," situate in the property known as Cottage Grove
Place, Cedar Rapids, Iowa, as more fully described in Exhibit A hereto, Cottage
Grove will deliver said funds to United Vanguard Homes, Inc., or a Section
501(c)(3) tax-exempt entity designated by it, said sums to be applied to the
purchase of Lot 3 by United Vanguard Homes, Inc., or its 501(c)(3) designee, the
intent being to provide United Vanguard Homes, Inc. and Vanguard Ventures, Inc.
with the same collateral rights as provided for in the June 8, 1995 letter
agreement among Terry R. Bjornsen, Heritage Corporation of Iowa, Cottage Grove
Place, Vanguard Ventures, Inc., and United Vanguard Homes, Inc.
DATED this 18 day of September, 1995.
Cottage Grove Place United Vanguard Homes, Inc.
By: /s/Richard F. Nazette, President By: /s/Carl Paffendorf, Chairman
-------------------------------- -------------------------
The undersigned, Vanguard Ventures, Inc., hereby acknowledges receipt of a copy
of the Assignment of the Option referred to herein and consents to such
Assignment, and hereby waives any rights it may have otherwise had against CGP
for CGP's failure to perform all of which obligations have now been undertaken
by United Vanguard Homes, Inc.
Vanguard Ventures, Inc.
By: /s/Carl Paffendorf, President
-----------------------------
<PAGE>
AGREEMENT ON EXERCISE OF OPTION AND
AGREEMENT TO PURCHASE REAL ESTATE - LOT 3
THIS AGREEMENT is made this 25th day of October, 1995, by and between
HERITAGE CORPORATION OF IOWA, an Iowa corporation (hereinafter referred to as
"Heritage") and COTTAGE GROVE PLACE, an Iowa nonprofit corporation (hereinafter
referred to as "Cottage Grove").
WHEREAS, Heritage granted to Cottage Grove an option to purchase a certain
parcel of real estate ("Lot 3") which is legally described in the Option and
Agreement to Purchase Real Estate - Lot 3 (hereinafter referred to as the
"Option Agreement"), a copy of which is attached hereto as Exhibit "A" and
incorporated by reference;
WHEREAS, Cottage Grove wishes to exercise its option to purchase Lot 3 at
this time; and
WHEREAS, Heritage is prepared to sell Lot 3 to Cottage Grove and to
transfer to Cottage Grove legal title to certain items of personal property now
owned by Heritage.
NOW, THEREFORE, Heritage and Cottage Grove agree as follows:
1. Heritage agrees to reduce the exercise price for the purchase of Lot 3
to Four Hundred Fifty Thousand Dollars ($450,000), with Cottage Grove being
responsible for all real estate taxes and all other expenses associated with the
closing, including, but not limited to abstract extension expense and revenue
stamps, all consistent with the terms of the Option Agreement.
2. Cottage Grove does hereby exercise its option to purchase Lot 3 on the
terms and conditions set forth above and acknowledges and agrees that with the
signing of this Agreement Cottage Grove has a binding obligation to pay to
Heritage the sum of Four Hundred Fifty Thousand Dollars ($450,000) and that this
obligation is not subject to any condition precedent.
3. Closing on the transfer of Lot 3 and the transfer of legal title to the
personal property shall be held on or before November 27, 1995. Closing shall be
held at the offices of
Exhibit "2"
<PAGE>
Bradley & Riley, P.C., 100 1st Street S.W., Cedar Rapids, Iowa. At closing
Heritage shall transfer legal title to Lot 3 as provided under Article V of the
Option Agreement. At closing Heritage will transfer by Bill of Sale legal title
to all items of personal property located in the Heritage building, excepting
only those items of office furniture and equipment used by Heritage and
corporations owned by TERRY R. BJORNSEN and his children ("Bjornsen Affiliates")
in its office space and storage area used by Heritage and Bjornsen Affiliates in
the conduct of their business in the Heritage structure.
4. If, for any reason, Cottage Grove fails to tender the Four Hundred Fifty
Thousand Dollars ($450,000), Heritage shall have all the rights and remedies
available to it under the Iowa law, including the right to sue Cottage Grove for
the sum of Four Hundred Fifty Thousand Dollars ($450,000) plus any other amounts
to which it would be entitled under the Option Agreement and shall have the
right to take immediate possession of all items of personal property described
in this Agreement that may be in the possession of Cottage Grove.
5. Pursuant to the terms of the Option Agreement, Cottage Grove agrees to
cooperate with Heritage in structuring this transaction as a like-kind exchange
under Section 1031 of the Internal Revenue Code of 1986, as amended.
IN WITNESS WHEREOF, the parties execute this Agreement the day and year
first above written.
HERITAGE CORPORATION OF IOWA COTTAGE GROVE PLACE
BY /s/Terry R. Bjornsen BY /s/Richard F. Nazette
---------------------------- ----------------------------
Terry R. Bjornsen, President Richard F. Nazette, Chairman
"HERITAGE" BY /s/Elmer A. Brinkmann
----------------------------
Elmer A. Brinkmann, Vice-Chairman
"COTTAGE GROVE"
-2-
<PAGE>
AMENDMENT TO NOVEMBER 20, 1995 AGREEMENT
THIS AMENDMENT TO AGREEMENT is dated as of the 12th day of March, 1996, by
and between Cottage Grove Place, an Iowa Nonprofit corporation, ("Cottage
Grove"), Cedar Rapids CGP, L.C., an Iowa Limited Liability Company ("L.C."),
United Vanguard Homes, Inc., a Delaware corporation, ("UVH"), and Vanguard
Ventures, Inc., a New York corporation, ("Vanguard").
RECITALS
A. Cottage Grove, L.C., UVH, and Vanguard all entered into an Agreement
dated November 25, 1995, a copy of which is attached hereto, marked Exhibit "A",
and is by this reference made a part hereof, as if fully set out herein.
B. The matters contemplated in the November 20, 1995 Agreement (the
"November Agreement") have been largely accomplished, including the exercise of
the Bjornsen Option, the borrowing by L.C. of Four Hundred and Fifty Thousand
Dollars ($450,000.00), and the transfer of ownership of certain life insurance
policies and designation of beneficiary of certain trusts.
C. The parties now desire to set forth and clarify their understanding of
their mutual obligations concerning the ownership of the real estate described
in the November Agreement, and the payment of expenses and interest incurred for
its maintenance.
NOW, THEREFORE, in consideration of the mutual promises and understandings
of the parties, it is agreed as follows:
1. It remains the intent, understanding and expectation of the parties that
Cottage Grove will purchase the real estate (the "Property"), which is described
as follows:
"Lot 3, PLAZA EAST SECOND ADDITION TO CEDAR RAPIDS, IOWA, together with all
easements and servient estates appurtenant thereto, and subject to
covenants, easements and restrictions of record."
2. In the event Cottage Grove purchases the Property from L.C., the
purchase price shall be equal to the then-outstanding indebtedness incurred by
L.C. relating to the Property, and an amount equal to all of the expenses,
costs, funds, taxes, or other amounts advanced by UVH pursuant to its agreement
to pay such expenses on behalf of L.C. and Cottage Grove. Under such
circumstance, L.C. would reimburse UVH for all such amounts advanced, together
with interest on the amounts advanced by UVH at an interest which will fluctuate
and be reset annually from the
<PAGE>
date of each advance in accord with the "Prime Rate" published in the WALL
STREET JOURNAL until the full amount of all advances made by UVH have been
repaid in full.
3. In the event that Cottage Grove is unable or refuses to purchase the
Property on or before September 19, 2000, then L.C. shall have an option to:
A. Convey the Property to UVH in consideration for the assumption by UVH
of any unpaid indebtedness of L.C. relating to the Property, and the
forgiveness by UVH of any right against L.C. for the repayment of the
expenses advanced by UVH for L.C.'s benefit; or
B. Retaining title to Lot 3, and reimbursing UVH for all expenses
advanced by UVH with respect to Lot 3, and releasing UVH from any
further obligations to L.C. or Cottage Grove relating to the purchase
of the Property for payment of expenses therefore.
4. All of the parties understand and agree that the ultimate purpose and
intent is to obtain title in the Property for the benefit of Cottage Grove, and
that the funds received from the charitable trust and life insurance proceeds
referred to in paragraph 3 of the November 20, 1995 Agreement, and as more fully
described in paragraph 5 of the Assignment and Agreement to Hold Harmless dated
September 18, 1995, are to be used for that purpose. Therefore, it is agreed and
acknowledged that in the event UVH becomes the owner of the Property for any
reason, then the obligations of Cottage Grove to make use of the charitable
trust and life insurance proceeds are hereby confirmed and ratified, and at such
time as such proceeds are received, Cottage Grove Place will perform the
obligations as described in paragraph 3 of the November 20, 1995 Agreement, and
the September 18 Assignment and Agreement to Hold Harmless.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first written above.
Cottage Grove Place Cedar Rapids CGP, L.C.
By: /s/Robert A. Sedlacek, M.D. By: /s/Robert A. Sedlacek, M.D.
--------------------------- ---------------------------
Robert A. Sedlacek, M.D. Robert A. Sedlacek, M.D.
President President
United Vanguard Homes, Inc. Vanguard Ventures, Inc.
By: By: /s/Carl Paffendorf
---------------------------- ---------------------------
Larry L. Laird, President Carl G. Paffendorf, President
<PAGE>
CAMELOT VILLAGE AT WEST HILLS
OPTION AGREEMENT
BETWEEN
CAMELOT RETIREMENT HOMES, INC.
A NEW YORK CORPORATION, AS OPTIONOR
AND
UNITED VANGUARD HOMES, INC.
A DELAWARE CORPORATION OR ITS ASSIGNEE, AS OPTIONEE
RELATING TO LAND IN HUNTINGTON, NEW YORK DESCRIBED ON SCHEDULE "A" TO FIRST
AMERICAN TITLE INSURANCE COMPANY REPORT NO. 151-S-1217 AND IMPROVEMENTS THEREON,
IF ANY (THE "PREMISES")
FOR VALUE RECEIVED:
1. PURCHASE
OPTION: Subject to the terms and conditions of this Option
Agreement, Optionor hereby grants to Optionee the
exclusive right, at Optionee's option at any time during
the period commencing January 2, 1997 and ending on
December 31, 2005, to purchase the Premises for the sum
equal to the appraised fair market value of the Premises,
as ascertained by the method set forth in paragraph 3,
below, subject to adjustment as provided in this Option.
Optionee's election to purchase the Premises shall be by
written notice served upon Optionor either personally or
by Certified Mail or Registered Mail, Return Receipt
Requested, at 4 Cedar Swamp Road, Glen Cove, New York
11542 (or such other address as Optionor has advised
Optionee by like notice), not earlier than June 30, 1996
and not later than June 30, 2005.
2. CHECK AT OPTION
EXERCISE: A certified or bank check for $25,000 to be applied to the
purchase price shall be delivered to Optionor along with
the aforesaid
<PAGE>
election to exercise this Option. If for any reason, other
than Optionor's default, Optionee defaults in the purchase
of the Premises, Optionor shall be entitled to retain said
$25,000 as liquidated damages.
3. PURCHASE PRICE: The purchase price shall be the appraised fair market
value of the Premises. Appraised fair market value shall
be established by a panel of appraisers experienced in
real estate appraisal, one selected by Optionor, one
selected by Optionee, and the third selected by the other
two appraisers. In no event, however, shall the purchase
price be less than the sum of (i) the amount of the
outstanding principal of any mortgage note(s) on the
Premises, (ii) the amount of any accrued interest on such
mortgage note(s) and (iii) the amount of any prepayment
fee, penalty, and any other charge that is or would be
payable by Optionor upon payment by Optionor in full
satisfaction of the said mortgage note(s). The cost of
Optionor's appraiser shall be borne by Optionor. The cost
of Optionee's appraiser shall be borne by Optionee. The
cost of the third appraiser shall be borne by Optionor and
Optionee, equally.
4. MORTGAGES: At closing, Optionor shall pay or otherwise satisfy all
mortgages on the Premises.
5. TENANTS: The sale shall be subject to the rights to occupy of
tenants and/or residents in possession at closing. Leases
and security deposits shall be assigned at closing; and
rent adjusted.
2
<PAGE>
6. CLOSING: Closing for the purchase of the Premises shall be held at
10:00 AM at 4 Cedar Swamp Road, Glen Cove N.Y. 11442, on
the 120th day following the giving of the notice as
provided above, or on such other date and place as the
parties may agree.
7. INSPECTIONS: Commencing April 1, 1996 and during the term of this
Option, Optionee and its agents and consultants, at
Optionee's expense, shall be entitled to a review of the
Premises' financial performance and make such physical
inspections and other investigations of and concerning the
Premises, including, without limitation, surveys, soil
borings, percolation, engineering and environmental
studies, zoning review, and other tests as Optionee
considers necessary for Optionee and its consultants to
review and evaluate the physical and fiscal
characteristics of the Premises and condition and
structural soundness of Improvements and to perform
certain work or inspections in connection with such
evaluation.
8. PAYMENT OF
PURCHASE PRICE: The purchase price shall be payable by Optionee to
Optionor by certified or bank check, at the closing or, if
mutually agreed by Optionor and Optionee, in cash and
financing on mutually agreed terms.
9. DOCUMENTARY Optionor and Optionee each pay one half of the cost of any
realty STAMPS: transfer taxes and recording costs relating
to this conveyance.
10.TITLE: Optionor shall convey to Optionee a good and marketable
fee simple title to the Premises, free and clear of all
liens, encumbrances, easements, restrictions, and other
title objections other than those
3
<PAGE>
approved by Optionee. Occupancy by Optionor's tenants
shall not be an objection to title. Optionee's title shall
be insurable as aforesaid at ordinary rates by any
reputable title company of Optionee's choice.
11.INSURANCE, ETC.: Possession of the Premises shall be surrendered by
Optionor to Optionee at the time of closing. During the
term of this Option and prior to the surrender of
possession, Optionor shall commit no waste nor permit
waste, deterioration or destruction of the Premises,
normal wear and tear excepted, and shall bear the risk of
loss. During the term of this Option, Optionor shall
maintain insurance against loss by fire and all perils
included within the term "extended coverage endorsements"
on all improvements in an amount not less than the highest
insurable value.
12. WAIVER: If title to any part of the Premises shall not be in
accordance with the requirements of paragraph 10 above,
Optionee shall have the option of taking such title to the
Premises as Optionor can give with abatement of the
purchase price for liens of fixed or ascertainable
amounts.
13. APPROVAL: This Option has been duly approved by the Board of
Directors of Optionor, subject to the approval by the sole
Shareholder of Optionor. 14. NULL AND VOID: This Agreement
shall become null and void if Optionor does not acquire
title to the Premises on or before December 31, 1996.
4
<PAGE>
In Witness Whereof, the parties have executed this Option this 29th day of March
1996.
WITNESS: CAMELOT RETIREMENT HOMES, INC., Optionor
/s/ Theresa A. Govier by: /s/ Carl G. Paffendorf
- ------------------------------ ------------------------------------
Theresa A. Govier (seal) Carl G. Paffendorf, Chairman
WITNESS: UNITED VANGUARD HOMES, INC., Optionee
/s/ Theresa A. Govier by: /s/ Paul D'Andrea
- ------------------------------ ------------------------------------
Theresa A. Govier (seal) Paul D'Andrea, Vice President -
Finance
5
<PAGE>
STATE OF NEW YORK
ss.:
COUNTY OF NASSAU
On the 29th day of March 1996, before me personally came Carl G. Paffendorf, to
me known, who, being by me duly sworn, did depose and say that he resides at 11
Crossway, Glen Head, New York; that he is Chairman of Camelot Retirement Homes,
Inc., the corporation described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto like
order.
----------------------------
Notary Public
STATE OF NEW YORK
ss.:
COUNTY OF NASSAU
On the 29th day of March 1996, before me personally came Paul D'Andrea, to me
known, who, being by me duly sworn, did depose and say that he resides at 3
Sturbridge Lane, Dix Hills, New York; that he is Vice President - Finance of
United Vanguard Homes, Inc., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his name
thereto like order.
----------------------------
Notary Public
6
<PAGE>
OPTION AGREEMENT
between
WHITTIER TOWERS, INC.
A Michigan corporation, as Optionor
and
UNITED VANGUARD HOMES, INC.
A Delaware corporation or its Assignee, as Optionee
Relating to the Building(s) and Land in Detroit, Michigan described on Exhibit A
(the "Premises")
FOR VALUE RECEIVED:
1. Purchase Subject to the terms and conditions of this Option
Option: Agreement, Optionor hereby grants to Optionee the exclusive
right, at Optionee's option at any time during the period
commencing April 1, 1996 and ending on December 31, 2001,
to purchase the Premises for the sum equal to the appraised
fair market value of the Premises, as ascertained by the
method set forth in paragraph 3, below, subject to
adjustment as provided in this Option. Optionee's election
to purchase the Premises shall be by written notice served
upon Optionor either personally or by Certified Mail or
Registered Mail, Return Receipt Requested, at 4 Cedar Swamp
Road, Glen Cove, New York 11542 (or such other address as
Optionor has advised Optionee by like notice), not earlier
than April 1, 1996 and not later than June 30, 2001.
2. Check at Option A certified or bank check for $25,000 to be applied to the
Exercise: purchase price shall be delivered to Optionor along with the
aforesaid election to exercise this Option. If for any
reason, other than Optionor's default, Optionee defaults in
the purchase of the Premises,
<PAGE>
Optionor shall be entitled to retain said $25,000 as
liquidated damages.
3. Purchase Price: The purchase price shall be the appraised fair market value
of the Premises. Appraised fair market value shall be
established by a panel of appraisers experienced in real
estate appraisal, one selected by Optionor, one selected by
Optionee, and the third selected by the other two
appraisers. In no event, however, shall the purchase price
be less than the sum of (i) the amount of the outstanding
principal of any mortgage note(s) on the Premises, (ii) the
amount of any accrued interest on such mortgage note(s) and
(iii) the amount of any prepayment fee, penalty, and any
other charge that is or would be payable by Optionor upon
payment by Optionor in full satisfaction of the said
mortgage note(s). The cost of Optionor's appraiser shall be
borne by Optionor. The cost of Optionee's appraiser shall be
borne by Optionee. The cost of the third appraiser shall be
borne by Optionor and Optionee, equally.
4. Mortgages: At closing, Optionor shall pay or otherwise satisfy all
mortgages on the Premises.
5. Tenants: The sale shall be subject to the rights to occupy of tenants
and/or residents in possession at closing. Leases and
security deposits shall be assigned at closing; and rent
adjusted.
6. Closing: Closing for the purchase of the Premises shall be held at
10:00 AM at 4 Cedar Swamp Road, Glen Cove N.Y. 11442, on the
120th day following the giving of the notice as provided
above, or on such other date and place as the parties may
agree.
2
<PAGE>
7. Inspections: Commencing April 1, 1996 and during the term of this Option,
Optionee and its agents and consultants, at Optionee's
expense, shall be entitled to a review of the Premises'
financial performance and make such physical inspections and
other investigations of and concerning the Premises,
including, without limitation, surveys, soil borings,
percolation, engineering and environmental studies, zoning
review, and other tests as Optionee considers necessary for
Optionee and its consultants to review and evaluate the
physical and fiscal characteristics of the Premises and
condition and structural soundness of Improvements and to
perform certain work or inspections in connection with such
evaluation.
8. Payment of The purchase price shall be payable by Optionee to Optionor
Purchase Price: by certified or bank check, at the closing or, if mutually
agreed by Optionor and Optionee, in cash and financing on
mutually agreed terms.
s
9. Documentary Optionor and Optionee each pay one half of the cost of any
Stamps: realty transfer taxes and recording costs relating to this
conveyance.
10. Title: Optionor shall convey to Optionee a good and marketable fee
simple title to the Premises, free and clear of all liens,
encumbrances, easements, restrictions, and other title
objections other than those approved by Optionee. Occupancy
by Optionor's tenants shall not be an objection to title.
Optionee's title shall be insurable as aforesaid at ordinary
rates by any reputable title company of Optionee's choice.
3
<PAGE>
11. Insurance, Possession of the Premises shall be surrendered by Optionor
Etc.: to Optionee at the time of closing. During the term of this
Option and prior to the surrender of possession, Optionor
shall commit no waste nor permit waste, deterioration or
destruction of the Premises, normal wear and tear excepted,
and shall bear the risk of loss. During the term of this
Option, Optionor shall maintain insurance against loss by
fire and all perils included within the term "extended
coverage endorsements" on all improvements in an amount not
less than the highest insurable value.
12. Waiver: If title to any part of the Premises shall not be in
accordance with the requirements of paragraph 10 above,
Optionee shall have the option of taking such title to the
Premises as Optionor can give with abatement of the purchase
price for liens of fixed or ascertainable amounts.
13. Approval: This Option has been duly approved by the Board of Directors
of Optionor and by the sole Shareholder of Optionor.
In Witness Whereof, the parties have executed this Option this 29th day of March
1996.
WITNESS WHITTIER TOWERS, INC., Optionor
/s/ Alan Guttman by: /s/ Carl G. Paffendorf
- --------------------------------- ----------------------------------------
Alan Guttman Carl G. Paffendorf, President
/s/ Terry A. Govier
- ---------------------------------
Terry A. Govier
4
<PAGE>
WITNESS: UNITED VANGUARD HOMES, INC., Optionee
/s/ Alan Guttman by: /s/ Paul D'Andrea
- --------------------------------- ----------------------------------------
Alan Guttman Paul D'Andrea, Vice President - Finance
/s/ Terry A. Govier
- ---------------------------------
Terry A. Govier
APPROVED:
Vanguard Ventures, Inc., sole shareholder of Optionor
by: /s/ Carl G. Paffendorf
- ----------------------------------------
Carl G. Paffendorf, President
5
<PAGE>
STATE OF NEW YORK
COUNTY OF NASSAU
The foregoing instrument was acknowledged before me this 29 day of March
1996, by Carl G. Paffendorf, the President of WHITTIER TOWERS, INC., a Michigan
corporation, on its behalf.
/s/ Craig M. Shields
-------------------------------
Notary Public
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUG. 31, 1996
STATE OF NEW YORK
COUNTY OF NASSAU
The foregoing instrument was acknowledged before me this 29th day of March
1996, by Paul d'Andrea, the Vice President - Finance of UNITED VANGUARD HOMES,
INC., a Delaware corporation, on its behalf.
/s/ Craig M. Shields
-------------------------------
Notary Public
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUG. 31, 1996
STATE OF NEW YORK
COUNTY OF NASSAU
The foregoing instrument was acknowledged before me this 29th day of March
1996, by Carl G. Paffendorf, the President of VANGUARD VENTURES, INC., a New
York corporation, on its behalf.
/s/ Craig M. Shields
-------------------------------
Notary Public
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUG. 31, 1996
6
<PAGE>
EXHIBIT "A"
All that part of Private Claim 27, City of Detroit, Wayne County, Michigan,
described as: Beginning at a point on the Southerly line of Jefferson Avenue,
120 feet wide, which point is 117.84 feet Westerly of and as measured at right
angles to the Easterly line of said Private Claim 27; thence along the Westerly
line of Burns Drive and parallel to said Easterly Private Claim line, South
28(degrees) l6'30" East, 1,325.47 feet (calculated and measured, South
28(degrees) 05'East, 1,325.84 feet record); thence along the U.S. Harbor Line of
the Detroit River as established by the Secretary of War, July 28, 1933, South
73(degrees) 02'48" West, 282.91 feet (calculated, South 73(degrees) l5'West,
282.85 feet record); thence parallel to said Easterly Private Claim line, North
28(degrees) l6'30" West, 1,185.53 feet (record and measure North 28(degrees) 05'
West record); thence along said Southerly line of Jefferson Avenue, North
48(degrees) 57'20" East, 76.03 feet (record and measure), and North 43(degrees)
l9'50" East, 214.20 feet (record and measure) to the point of beginning.
<PAGE>
AMENDMENT NO. 1
TO
WHITTIER OPTION AGREEMENT
AGREEMENT dated July 15, 1996 by and between WHITTIER TOWERS, INC., a
Michigan corporation, and UNITED VANGUARD HOMES, INC., a Delaware corporation.
The parties agree that paragraphs 1 and 3 of the Option Agreement dated
March 29, 1996 are hereby amended as follows:
1. PURCHASE
OPTION: Subject to the terms and conditions of this Option Agreement,
Optionor hereby grants to Optionee the exclusive right, at
Optionee's option at any time during the period commencing
April 1, 1996 and ending on December 31, 2001, to purchase
the Premises for the sum equal to the lesser of:
(i) Appraised fair market value of the Premises, as
ascertained by the method set forth in paragraph 3,
below; and
(ii) The amount at date of closing of the Mortgage debt on
the Premises and management fees relating to management
of the Premises since April 1, 1996, accrued but unpaid,
subject to adjustment as provided in this Option. Optionee's
election to purchase the Premises shall be by written notice
served upon Optionor either personally or by Certified Mail
or Registered Mail, Return Receipt Requested, at 4 Cedar
Swamp Road, Glen Cove, New York 11542 (or such other address
as Optionor has advised Optionee by like notice), not earlier
than April 1, 1996 and not later than June 30, 2001.
<PAGE>
3. PURCHASE
PRICE: Appraised fair market value shall be established by a panel
of appraisers experienced in real estate appraisal, one
selected by Optionor, one selected by Optionee, and the third
selected by the other two appraisers. The cost of Optionor's
appraiser shall be borne by Optionor. The cost of Optionee's
appraiser shall be borne by Optionee. The cost of the third
appraiser shall be borne by Optionor and Optionee, equally.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
WITNESS: WHITTIER TOWERS, INC., Optionor
/s/ Alan Guttman by: /s/ Carl G. Paffendorf
- --------------------------- ---------------------------------------
Alan Guttman Carl G. Paffendorf, President
/s/ Terry A. Govier
- ----------------------------
Terry A. Govier
WITNESS: UNITED VANGUARD HOMES, INC., Optionee
/s/ Alan Guttman by: /s/ Carl G. Paffendorf
- --------------------------- ---------------------------------------
Alan Guttman Carl G. Paffendorf, President
by:
/s/ Terry A. Govier
- ----------------------------
Terry A. Govier
APPROVED:
Vanguard Ventures, Inc., sole shareholder of Optionor
by /s/ Carl G. Paffendorf
---------------------------------
Carl G. Paffendorf, President
2
<PAGE>
STATE OF NEW YORK
COUNTY OF NASSAU
The foregoing instrument was acknowledged before me this 15th day of
July 1996, by Carl G. Paffendorf, the President of WHITTIER TOWERS, INC., a
Michigan corporation, on its behalf.
/s/ Craig M. Shields
---------------------------------
Notary Public
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUGUST 31, 1996
STATE OF NEW YORK
COUNTY OF NASSAU
The foregoing instrument was acknowledged before me this 15th day of
July 1996, by Carl G. Paffendorf, the Chairman of UNITED VANGUARD HOMES, INC., a
Delaware corporation, on its behalf.
/s/ Craig M. Shields
---------------------------------
Notary Public
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUGUST 31, 1996
STATE OF NEW YORK
COUNTY OF NASSAU
The foregoing instrument was acknowledged before me this 15th day of
July 1996, by Carl G. Paffendorf, the President of VANGUARD VENTURES, INC., a
New York corporation, on its behalf.
/s/ Craig M. Shields
---------------------------------
Notary Public
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUGUST 31, 1996
3
<PAGE>
CAMELOT VILLAGE AT STROUDSBURG
OPTION AGREEMENT
BETWEEN
CAMELOT VILLAGE AT STROUDSBURG, LLC
A NEW YORK LIMITED LIABILITY COMPANY, AS OPTIONOR
AND
UNITED VANGUARD HOMES, INC.
A DELAWARE CORPORATION OR ITS ASSIGNEE, AS OPTIONEE
RELATING TO REAL PROPERTY TO BE ACQUIRED BY OPTIONOR DESCRIBED IN EXHIBITS TO
THE STROUDSBURG DEVELOPMENT COMPANY JOINT VENTURE AGREEMENT DATED AS OF MAY 1,
1996 BETWEEN SPONSOR AND VFG LABAR, L.L.C.
FOR VALUE RECEIVED:
1. PURCHASE
OPTION: Subject to the terms and conditions of this Option Agreement,
Optionor hereby grants to Optionee the exclusive right, at
Optionee's option at any time during the period commencing
July 1, 1997 and ending on June 30, 2006, to purchase the
Premises for the sum equal to the appraised fair market value
of the Premises, as ascertained by the method set forth in
paragraph 3, below, subject to adjustment as provided in this
Option. Optionee's election to purchase the Premises shall be
by written notice served upon Optionor either personally or
by Certified Mail or Registered Mail, Return Receipt
Requested, at 4 Cedar Swamp Road, Glen Cove, New York 11542
(or such other address as Optionor has advised Optionee by
like notice), not earlier than December 31, 1996 and not
later than January 1, 2006.
2. CHECK AT
OPTION
EXERCISE: A certified or bank check for $25,000 to be applied to the
purchase price shall be delivered to Optionor along with the
aforesaid
<PAGE>
election to exercise this Option. If for any reason, other
than Optionor's default, Optionee defaults in the purchase of
the Premises, Optionor shall be entitled to retain said
$25,000 as liquidated damages.
3. PURCHASE
PRICE: The purchase price shall be the appraised fair market value
of the Premises. Appraised fair market value shall be
established by a panel of appraisers experienced in real
estate appraisal, one selected by Optionor, one selected by
Optionee, and the third selected by the other two appraisers.
In no event, however, shall the purchase price be less than
the sum of (i) the amount of the outstanding principal of any
mortgage note(s) on the Premises, (ii) the amount of any
accrued interest on such mortgage note(s) and (iii) the
amount of any prepayment fee, penalty, and any other charge
that is or would be payable by Optionor upon payment by
Optionor in full satisfaction of the said mortgage note(s).
The cost of Optionor's appraiser shall be borne by Optionor.
The cost of Optionee's appraiser shall be borne by Optionee.
The cost of the third appraiser shall be borne by Optionor
and Optionee, equally.
4. MORTGAGES: At closing, Optionor shall pay or otherwise satisfy all
mortgages on the Premises.
5. TENANTS: The sale shall be subject to the rights to occupy of tenants
and/or residents in possession at closing. Leases and
security deposits shall be assigned at closing; and rent
adjusted.
2
<PAGE>
6. CLOSING: Closing for the purchase of the Premises shall be held at
10:00 AM at 4 Cedar Swamp Road, Glen Cove N.Y. 11442, on the
120th day following the giving of the notice as provided
above, or on such other date and place as the parties may
agree.
7. INSPECTIONS: Commencing July 1, 1996 and during the term of this Option,
Optionee and its agents and consultants, at Optionee's
expense, shall be entitled to a review of the Premises'
financial performance and make such physical inspections and
other investigations of and concerning the Premises,
including, without limitation, surveys, soil borings,
percolation, engineering and environmental studies, zoning
review, and other tests as Optionee considers necessary for
Optionee and its consultants to review and evaluate the
physical and fiscal characteristics of the Premises and
condition and structural soundness of Improvements and to
perform certain work or inspections in connection with such
evaluation.
8. PAYMENT OF
PURCHASE
PRICE: The purchase price shall be payable by Optionee to Optionor
by certified or bank check, at the closing or, if mutually
agreed by Optionor and Optionee, in cash and financing on
mutually agreed terms.
9. DOCUMENTARY
STAMPS: Optionor and Optionee each pay one half of the cost of any
realty transfer taxes and recording costs relating to this
conveyance.
10. TITLE: Optionor shall convey to Optionee a good and marketable fee
simple title to the Premises, free and clear of all liens,
encumbrances, easements, restrictions, and other title
objections other than those
3
<PAGE>
approved by Optionee. Occupancy by Optionor's tenants shall
not be an objection to title. Optionee's title shall be
insurable as aforesaid at ordinary rates by any reputable
title company of Optionee's choice.
11. INSURANCE,
ETC.: Possession of the Premises shall be surrendered by Optionor
to Optionee at the time of closing. During the term of this
Option and prior to the surrender of possession, Optionor
shall commit no waste nor permit waste, deterioration or
destruction of the Premises, normal wear and tear excepted,
and shall bear the risk of loss. During the term of this
Option, Optionor shall maintain insurance against loss by
fire and all perils included within the term "extended
coverage endorsements" on all improvements in an amount not
less than the highest insurable value.
12. WAIVER: If title to any part of the Premises shall not be in
accordance with the requirements of paragraph 10 above,
Optionee shall have the option of taking such title to the
Premises as Optionor can give with abatement of the purchase
price for liens of fixed or ascertainable amounts.
13. APPROVAL: This Option has been duly approved by the Board of Directors
of Optionor, subject to the approval by the sole Shareholder
of Optionor.
14. NULL AND VOID: This Agreement shall become null and void if as to any
portion of the Premises as to which Optionor has not acquired
title on or before December 31, 1999.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Option this ------ day of
July 1996.
CAMELOT VILLAGE AT STROUDSBURG, LLC,
Optionor
WITNESS: by: PHOENIX LIFECARE CORP.,
a Member
/s/ Theresa A. Govier by: /s/ Larry L. Laird
- --------------------------- --------------------------------------
Theresa A. Govier (seal) Larry L. Laird, President
WITNESS: UNITED VANGUARD HOMES, INC.,
Optionee
/s/ Theresa A. Govier by: /s/ Carl G. Paffendorf
- --------------------------- --------------------------------------
Theresa A. Govier (seal) Carl G. Paffendorf, Chairman
5
<PAGE>
STATE OF INDIANA
ss.:
COUNTY OF HAMILTON
On the 23rd day of July 1996, before me personally came Larry L. Laird, to me
known, who, being by me duly sworn, did depose and say that he resides at 11906
Forest Drive, Carmel, Indiana 46033, that he is President of Camelot Retirement
Homes, Inc., the corporation described in and which executed the foregoing
instrument as a member of Camelot Village at Stroudsburg, LLC, a New York
limited liability company; that he knows the seal of said limited liability
company; that the seal affixed to said instrument is such company seal; that it
was so affixed by order of the members of said company, and that he signed his
name thereto like order.
/s/ Susan K. Townsend
My Commission expires: ----------------------------
July 11, 1999 Notary Public
Susan K. Townsend
Resident of Hamilton County
STATE OF NEW YORK
ss.:
COUNTY OF NASSAU
On the 24 day of July 1996, before me personally came Carl G. Paffendorf, to me
known, who, being by me duly sworn, did depose and say that he resides at 11
Crossway, Glen Head, New York 11545; that he is Chairman of United Vanguard
Homes, Inc., the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto like
order.
/s/ Craig M. Shields
----------------------------
Notary Public
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUGUST 31, 1996
6
<PAGE>
HARVEST VILLAGE
PURCHASE AGREEMENT
Agreement made this 19th day of April 1996, by and among Harvest Village
Partners, L.P., a Delaware limited partnership ("Seller"), United Vanguard
Homes, Inc., a Delaware corporation or its designee ("Buyer"), and Vanguard
Ventures, Inc., a New York corporation ("Vanguard"), each with offices at 4
Cedar Swamp Road, Glen Cove, New York 11542.
W I T N E S S E T H:
WHEREAS, Seller is the owner of a continuing care facility located in Atco,
New Jersey, known as Harvest Village, which consists of (a) of approximately 28
acres and related appurtenances as more particularly described in Exhibit A
attached hereto ("Real Property"), (b) the buildings and improvements thereon
("Improvements"), (c) furnishings and equipment used and useful to the operation
of said continuing care facility ("Equipment"), which Real Property,
Improvements and Equipment are hereinafter collectively referred to as the
"Facility"; and
WHEREAS, Seller has an Agreement of Lease dated December 1, 1986, as
amended by Amendment Nos 1, 2 and 3 thereto ("Lease") with Gateway Communities,
Inc., a Michigan not-for-profit corporation ("Tenant"); and
WHEREAS, Seller and Buyer have agreed that Seller shall sell and Buyer
shall purchase the Facility upon terms and conditions herein contained,
NOW THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, the parties hereto agree as follows:
1. SALE. Subject to the terms and conditions of this Agreement, Seller
shall, as of the closing, by appropriate deed, bills of sale, and assignments,
sell, assign, transfer, convey and deliver the Facility, and Buyer shall
purchase the Facility from Seller.
<PAGE>
2. CONSIDERATION.
a. The purchase price for the Facility is:
Contract Deposit $ 4,250,000
Cash at Closing (or the assumption or
purchase of First Mortgage debt on
the Facility) 12,500,000
Assignment to Seller of promissory note
due Buyer from Tenant ("GCI Note") 7,500,000
Assumption of Second Mortgage debt on
the Facility and the Accounts Payable
listed on Exhibit B up to 1,000,000
-----------
$25,250,000
===========
b. Seller acknowledges receipt of the Contract Deposit by cancellation
of indebtedness due Buyer from Vanguard and its subsidiaries/affiliates (which
include Seller and its partners), effective December 31, 1995.
3. CLOSING. Closing shall take place at 10:00 A.M. at the offices of Olshan
Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, NY 10022 on July 11,
1996, or at such other time, date and place as may be agreed in writing between
Seller and Buyer.
4. ASSUMPTION OF CERTAIN LIABILITIES OF SELLER.
a. On and as of the Closing Date, Buyer shall assume the liabilities
listed on Exhibit B, up to $1,000,000.
b. The Lease is to be assigned by Seller and assumed by Buyer at
Closing.
5. CONDITION OF TITLE. Seller shall convey or cause to be conveyed, as
applicable, title to the Facility, as follows:
a. Title to Real Property and the Improvements shall be conveyed in
fee simple by Special Warranty Deed and shall be good and marketable and free
and clear of all liens and encumbrances except those acceptable to Buyer, and
title to the Real Property shall be insurable at ordinary rates by First
American Title Insurance Company ("Title Company") pursuant to a standard ALTA
Owner's policy of insurance.
b. Title to all Equipment shall be free and clear of all liens,
security interest and other encumbrances, except for liens and encumbrances
acceptable to Buyer.
6. CONTINGENCIES. The obligations of Buyer to purchase the Facility shall
be contingent upon the occurrence of the following:
2
<PAGE>
a. Buyer shall have received from the governmental authorities all
approvals, permits, and licenses as may be required for the transaction which is
the subject of this Agreement.
b. Buyer shall have received (less broker's discounts/commissions) not
less than $25,000,000 from the sale of securities of Buyer.
c. If either contingency set forth in subparagraphs a and b of this
Paragraph 6 is not satisfied on or before Closing, thereafter either Seller or
Buyer may terminate this Agreement, whereupon no party shall have any further
rights, obligations or liabilities under this Agreement.
7. RESPONSIBILITY AND INDEMNIFICATION AS TO LIABILITIES. The parties shall
indemnify each other as follows:
a. Buyer, upon Closing shall indemnify and hold harmless Seller
against all and any claims, demands, suits, damage, liability, loss and expense,
including, without limitation, reasonable attorneys' fees (collectively
"Losses"), which Seller may sustain or suffer or to which Seller may become
subject as a result of events which occur subsequent to the Closing and any
misrepresentation, breach of warranty or nonfulfillment of any agreement on the
part of Buyer under this Agreement.
b. Seller, upon Closing, shall indemnify and hold harmless Buyer
against Losses Buyer may sustain or suffer or to which Seller may become subject
as a result of events which occurred prior to Closing, any misrepresentation,
breach of warranty, or nonfulfillment of any agreement on the part of Seller
under this Agreement, or the operation of the Facility or use of the Equipment
by Seller or from any misrepresentation in or omission from any certificate or
other instrument furnished or to be furnished to Buyer hereinunder except for
entrance fee refund obligations.
c. The provisions of this Paragraph 7 shall survive the Closing.
8. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents, warrants and
covenants to Buyer as of the execution of this Agreement and as of the Closing
that:
a. Seller is duly formed, validly existing, and in good standing under
the laws of the State of Delaware. Seller is the owner of the Facility with all
requisite power and authority to own the Facility, and carry on its business as
now being conducted, and further has the power and authority to sell and dispose
of the Facility upon the terms and conditions herein contained.
b. The execution, delivery, and performance of this Agreement by the
Seller and the consummation of the transactions contemplated hereby have been
duly and effectively authorized by all of the partners of the Seller.
3
<PAGE>
c. Seller has not received notice of violation of any applicable law,
ordinance, regulation, order or requirement relating to the Facility or the
operation of the Facility that has not been remedied and to the knowledge of
Seller there are no such claims or proceedings pending or threatened.
d. From the date of this Agreement to the Closing, Seller shall not
sell, transfer or encumber any of the Facility nor engage in any conduct which
would damage the business of the Facility.
e. As soon as practicable after the execution of this Agreement and
prior to the Closing, Seller will use its best efforts to furnish to Buyer or
its authorized representatives copies of such records and documents related to
the Facility (e.g. surveys, building plans, equipment warranties, etc.) and the
operation thereof (e.g. patient records, to be extent not privileged, fiscal
statements, etc.) as Buyer shall request and shall afford the Buyer and Buyer's
counsel, auditors and authorized representatives for purposes of inspection,
verification and related matters full access during normal business hours to all
personnel, properties, records, and documents of Seller and the Facility.
f. Except for the possible conversion or addition of 60 units at the
Facility into assisted living units, Seller shall not, without the prior
approval of Buyer which approval shall not be unreasonably withheld, conditioned
or delayed for a period in excess of five (5) days, from the date hereof until
the Closing: (i) make or permit to be made any material physical changes or
material physical alterations to or upon the Facility or any part thereof,
except as the result of any emergency or governmental order; (ii) enter into or
extend any agreements affecting all or any part of the Facility that will
survive the Closing (other than in the ordinary course of business); (iii)
assign, transfer, convey, hypothecate, pledge, create a security interest in or
lien upon the Facility, unless same shall be removed prior to Closing or (iv)
grant any easement or right-of-way across the Facility that would (aa)
materially, adversely affect the title to the Facility as it exists on the date
hereof, except to cure title objections raised by Buyer, or (bb) restrict, limit
or prohibit in any materially adverse respect Buyer's use of the Facility.
g. Seller shall continue to maintain all of Seller's insurance
policies relating to the Facility, or any part thereof, in full force and effect
until the Closing.
h. Seller shall provide Buyer with a copy of any written governmental
notice received by Seller after the date hereof and prior to the Closing related
to any violations of any federal, state or municipal laws, ordinances, orders,
regulations and requirements affecting the Facility.
i. There are no leases or other rights of occupancy or use for any
portion of the Property other than the Residence and Care Agreements and leases,
if any, entered into by Tenant with residents and/or patients and the Lease.
j. All of Seller's partners are Vanguard Homes of N.J., Inc., a New
York corporation ("VHNJ") and Phoenix Resources, Inc., a New York corporation
("Phoenix"), wholly-owned subsidiaries of Vanguard.
4
<PAGE>
k. Seller is a "non-foreign person" within the meaning of Section 1445
of the United States Internal Revenue Code of 1986, as amended, and the
regulations issued thereunder.
l. There is no broker involved in this transaction.
m. Seller shall not modify or amend the Lease without the written
consent of Buyer, which consent shall not be unreasonably withheld.
9. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby represents,
warrants and covenants to Seller as of the execution of this Agreement and as of
the Closing as follows:
a. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has the requisite power and
authority to purchase the Facility, to assume the liabilities herein to be
assumed, and to otherwise made and carry out the obligations and commitments of
Buyer herein, none of which will violate the Certificate of Incorporation or the
Bylaws of the Buyer.
b. The execution and delivery of this Agreement by Buyer has been duly
authorized by the Board of Directors of Buyer.
c. Examinations and inspection by Buyer and its authorized agents and
representatives prior to Closing shall be undertaken in a manner that does not
unnecessarily hinder, restrict or interfere with the operation of the Facility.
d. All information pertaining to the Facility, other than such
information as is or may in the future become generally available to the public
other than as a result of disclosure by Buyer, directly or indirectly, will be
kept in strict confidence and shall not be used in competition with Seller or
for any purpose other than is reasonably necessary or customary in connection
with the consummation of the sale of the Facility and the financing thereof as
contemplated in this Agreement.
e. Buyer is not a party to any pending litigation, any pending
governmental or administrative investigation or proceeding or any arbitration
proceeding, not is there any unsatisfied arbitration proceeding, nor is there
any unsatisfied arbitration award or judicial order against Buyer which
adversely affects the ability of Buyer to perform its obligations under this
Agreement.
f. There is no broker involved in this transaction.
10. NO OTHER REPRESENTATIONS.
a. Seller has made no representations as to the physical condition,
income, expenses, operation or any other matter or thing affecting or relating
to the Facility and Buyer is accepting the Facility in an "AS-IS" condition.
Buyer acknowledges that no representations have been made by Seller, except as
set forth in this Agreement.
5
<PAGE>
b. Buyer represents that it has examined the Facility and Buyer agrees
to take the Facility "AS IS." Seller is not to be liable for, or bound in any
manner by, any expressed or implied warranties, guaranties, promises,
statements, representations or information pertaining to physical condition,
taxes, income, expenses, or any other matter or thing affecting or relating to
the Facility unless specifically set forth in this Agreement.
c. The provisions of this Paragraph 10 shall survive delivery of the
Deed.
11. FACILITY NAME. Buyer shall have the right to use the name "Harvest
Village." Seller will change its name promptly after Closing; the provisions of
this sentence shall survive the Closing.
12. CLOSING EVENTS.
a. At Closing, Seller shall deliver to Buyer the following:
(i) A fully executed Special Warranty Deed conveying the
Facility, in fee simple, to Buyer;
(ii) A fully executed Bill of Sale conveying the Equipment to be
delivered to Buyer pursuant to this Agreement, if any;
(iii) Duly executed Satisfaction of Mortgages on the Facility
listed in First American Title Policy No.356656 or assignments thereof to Buyer
or its designee;
(iv) A standard form title company owner's affidavit as
reasonably required by the Title Company for the elimination of any standard
exceptions listed as exceptions;
(v) A certificate of non-foreign status (FIRPTA Certificate) of
Seller; and
(vi) An Assignment of the Lease by Seller to Buyer.
b. At Closing, Buyer shall pay or deliver to the Seller the following:
(i) Balance of the purchase price set forth in Paragraph 2a;
(ii) An Assumption of the Lease; and
(iii) An Assumption of all Exhibit B items, subject to the limit
set forth in Paragraph 2a.
c. At Closing, Seller and Buyer shall each deliver to the Title
Company, as closing agent, and to each other evidence reasonably sufficient to
satisfy the Title Company that:
(i) Such party is duly organized;
(ii) As of the date of Closing, such party is validly existing,
qualified to do business and in good standing in the state of formation; and
6
<PAGE>
(iii) The execution, delivery and performance of this Agreement
has been duly authorized and approved by all requisite corporate or partnership
action, as applicable.
d. Buyer shall pay:
(i) All real property transfer taxes in connection with Closing;
(ii) The cost of preparing and filing the Deed, bills of sale,
satisfactions of mortgages, assignments and other instruments of conveyance; and
(iii) Title Company premiums and expenses.
e. To the extent that bank accounts, security deposits, liquid reserve
accounts, escrow deposits and other accounts are assigned by Seller to Buyer,
Buyer shall reimburse Seller on a dollar-for-dollar basis.
f. Real estate taxes, assessments (general or special, public or
private), personal property taxes pertaining to the Facility, insurance
premiums, if any, and rent and other sums due under the Lease shall be adjusted
and prorated between Buyer and Seller as of midnight prior to Closing. Interest
on the GCI Note accruing after March 31, 1996 shall belong to Seller, and Buyer
shall not be given a credit therefor.
g. The provisions of subparagraphs d. through g. of this Paragraph 1.2
shall survive the Closing.
13. RELEASES.
a. Buyer hereby releases its option to purchase an equity interest in
Seller under the Option Agreement dated June 20, 1992, as amended.
b. Vanguard hereby acknowledges that it no longer has a right to be
issued any shares of the Common Stock, $.01 par value per share, of Buyer upon
the payment or sale of the GCI Note.
c. Vanguard hereby releases Buyer from Vanguard's right of first
refusal with respect to the GCI Note.
14. FAILURE OF CLOSING. In the event the Closing does not timely occur,
this Agreement shall automatically become null and void and of no further force
and effect.
15. RISK OF LOSS.
a. Until execution and delivery of the Deed, the risk of loss or
damage to the Facility by fire or other casualty shall be borne by Seller.
b. Prior to Closing, Seller shall keep the Facility insured in
accordance with its past practice and custom against fire and casualty through
the Closing Date. If any part of the Facility is damaged or destroyed by fire or
casualty before the Closing Date and the cost
7
<PAGE>
to repair such damage exceeds $10,000 (as reasonably determined by Seller),
Buyer shall have the right, at Buyer's option, to terminate this Agreement by
giving written notice to Seller or, in the alternative, the Purchase Price shall
be reduced by the amount of the estimated repair cost or Buyer may elect to
acquire the Facility without any reduction of the Purchase Price and take an
assignment of the insurance proceeds and the right to bring claims against third
parties. If the estimated repair costs are less than $10,000 Seller shall make
the necessary repairs prior to the Closing Date and shall be entitled to a
reasonable postponement thereof to effect such repairs. Prior to Closing all
risk of loss shall be borne by Seller, after the Closing all risk of loss shall
be borne by Buyer.
16. CONDEMNATION. If, at or prior to the time of closing, any portion of
the Facility shall be condemned or taken pursuant to any governmental or other
power of eminent domain, any written notice to taking or condemnation is issued,
or any proceedings are instituted by any governmental authority having the power
of eminent domain, then Buyer shall have the right to (a) terminate this
Agreement by giving Seller written notice to the effect within ten (10) days
after receiving written notice from Seller advising of the condemnation or
taking, whereupon both Seller and Buyer shall be relieved of further liability
under this Agreement, at law or in equity, or (b) proceed to settlement with a
price mutually agreed to by Buyer and Seller, or (c) proceed to settlement
without reduction in the purchase price, in which case Buyer shall receive at
settlement all condemnation awards paid to Seller subsequent to the date of this
Agreement for any part of the Facility, together with an absolute assignment of
all of Seller's right and interest as an owner in any unpaid condemnation awards
to be made with respect to the Facility. If Seller has knowledge of any pending
or threatened condemnation proceedings or action or any notices thereof
affecting the Facility, Seller will promptly advise Buyer in writing of the
matters and facts relating thereto.
17. COMPLETE AGREEMENT/MODIFICATION. This Agreement sets forth all of the
promises, covenants, agreements, conditions and understandings among the parties
hereto relating to the Facility and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written, except as herein contained. This Agreement may not by modified
other than by a writing signed by the party to be charged.
18. FURTHER ASSURANCE. From and after the execution hereof, at the other's
request, each party will duly execute and deliver such documents as may be
reasonably necessary to implement the occurrence of the conditions to Closing
herein set forth.
19. NOTICES.
(a) All notices and other communications under the Agreement shall be
in writing and shall be deemed duly given if personally delivered or if mailed
by registered mail or certified mail, return receipt requested, first class,
postage prepaid; if to Seller or Vanguard, to Harvest Village Partners, L.P., 4
Cedar Swamp Road, Glen Cove, NY 11542, and if to Buyer, to United Vanguard
Homes, Inc., 4 Cedar Swamp Road, Glen Cove, NY 11542, Attn.: the President.
8
<PAGE>
(b) Copies of all Notices shall be sent to Lawrence Fisher, Esq.,
Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, NY 10103-0001, and
to Robert H. Friedman, Esq., Olshan Grundman Frome & Rosenzweig LLP, 505 Park
Avenue, New York, NY 10022.
20. BINDING EFFECT. This Agreement shall be assignable by Buyer upon notice
to all of the other parties to this Agreement, pursuant to Paragraph 19. All of
the covenants, conditions and obligations contained in this Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of Seller, Buyer, and Vanguard.
21. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
22. MERGER. All of the representations and warranties of Seller and
Vanguard contained in this Agreement, all covenants, agreements and indemnities
made herein by Seller and Vanguard, and all of Seller's and Vanguard's
obligations to be performed under the provisions hereof shall merge into the
Deed and not survive Closing unless otherwise specially agreed in writing as
stated to survive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
ATTEST:
Harvest Village Partners, L.P.
By: Vanguard Homes of N.J., Inc.
General Partner
/s/ Theresa A. Govier (SEAL) By: /s/ Carl G. Paffendorf
- ----------------------------- -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
ATTEST:
United Vanguard Homes, Inc.
/s/ Theresa A. Govier (SEAL) By: /s/ Paul D'Andrea
- ----------------------------- -----------------------------
Theresa A. Govier, Secretary Paul D'Andrea
Vice President - Finance
Vanguard Ventures, Inc.
ATTEST:
/s/ Theresa A. Govier (SEAL) By: /s/ Carl G. Paffendorf
- ----------------------------- -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
9
<PAGE>
EXHIBIT A
The metes and bounds description of the Real Property set forth in Schedule
A of First American Title Insurance Company Policy No.356656 is incorporated by
reference herein.
10
<PAGE>
EXHIBIT B
Mortgage and Security Agreement made by Seller to
The Presbyterian Homes of New Jersey Foundation
dated December 14, 1990, recorded in Mortgage
Book 3607, page 910, up to $ 500,000
Old Vendor Promissory Notes, up to 150,000
Sums due Hannoch Weisman, up to 300,000
Expenses relating to the foregoing 50,000
----------
$1,000,000
==========
11
<PAGE>
AMENDMENT NO. 1 TO THE
HARVEST VILLAGE
PURCHASE AGREEMENT
Agreement made this 20th day of June 1996, by and among HARVEST VILLAGE
PARTNERS, L.P., a Delaware limited partnership ("Seller"), UNITED VANGUARD
HOMES, INC., a Delaware corporation or its designee ("Buyer"), and VANGUARD
VENTURES, INC., a New York corporation ("Vanguard"), each with offices at 4
Cedar Swamp Road, Glen Cove, New York 11542.
The parties hereby amend the Harvest Village Purchase Agreement dated
April 19, 1996 to delete Exhibit B thereto, modify Exhibit A thereto and change
the following numbered paragraphs of the Purchase Agreement as follows:
2. CONSIDERATION.
a. The purchase price for the Facility is:
Contract Deposit $ 4,250,000
Cash at Closing 13,500,000
Assignment to Seller of promissory note
due Buyer from Tenant ("GCI Note") 7,500,000
-----------
$25,250,000
===========
b. Seller acknowledges receipt of the Contract Deposit by
cancellation of indebtedness due Buyer from Vanguard and its
subsidiaries/affiliates (which include Seller and its partners), effective
December 31, 1995.
c. Buyer or its designee may assume or purchase the First
Mortgage debt on the Facility (for $12,500,000) as part of the $13,500,000
portion of the purchase price.
3. CLOSING. Closing shall take place at 10:00 A.M. at the offices of
Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, NY 10022 on
August 15, 1996, or at such other time, date and place as may be agreed in
writing between Seller and Buyer.
4. ASSUMPTION OF CERTAIN LIABILITIES OF SELLER.
a. Buyer shall assume no liabilities of Seller except the Lease is
to be assigned by Seller and assumed by Buyer at Closing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
ATTEST: Harvest Village Partners, L.P.
By: Vanguard Homes of N.J., Inc.
General Partner
/s/ Theresa A. Govier /s/ Carl G. Paffendorf
- -----------------------------(SEAL) By: -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
ATTEST: United Vanguard Homes, Inc.
/s/ Theresa A. Govier (SEAL) By: /s/ Paul D'Andrea
- ----------------------------- ----------------------------------
Theresa A. Govier, Secretary Paul D'Andrea
Vice President - Finance
ATTEST: Vanguard Ventures, Inc.
/s/ Theresa A. Govier /s/ Carl G. Paffendorf
- -----------------------------(SEAL) By: -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
2
<PAGE>
EXHIBIT A
The metes and bounds description of the Real Property set forth in
Schedule A of First American Title Insurance Company Report No. 135-N-17256 is
incorporated by reference herein.
3
<PAGE>
AMENDMENT NO. 2 TO THE
HARVEST VILLAGE
PURCHASE AGREEMENT
Agreement made this 9th day of July 1996, by and among Harvest Village
Partners, L.P., a Delaware limited partnership ("Seller"), Harvest Village,
Inc., a New Jersey corporation (as assignee of United Vanguard Homes, Inc.) or
its designee ("Buyer"), and Vanguard Ventures, Inc., a New York corporation
("Vanguard"), each with offices at 4 Cedar Swamp Road, Glen Cove, New York
11542.
The parties hereby amend the Harvest Village Purchase Agreement dated April
19, 1996, as amended by Amendment No.1 thereto, as follows:
2. CONSIDERATION.
a. The purchase price for the Facility is:
Contract Deposit $ -0-
Cash at Closing 13,500,000
Assignment to Seller, without recourse, of
the $7,500,000 promissory note due Buyer
from Tenant ("GCI Note"), valued by Buyer
and Seller at 3,900,000
-----------
$17,400,000
===========
b. The $4,250,000 of indebtedness due United Vanguard Homes, Inc. from
Vanguard and its subsidiaries/affiliates is hereby reinstated effective
December 31, 1995.
c. Buyer or its designee may assume or purchase the First Mortgage
debt on the Facility (for $12,500,000) as part of the $13,500,000 portion of the
purchase price.
3. CLOSING. Closing shall take place at 10:00 A.M. at the offices of Olshan
Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, NY 10022 on
September 18, 1996, or at such other time, date and place as may be agreed in
writing between Seller and Buyer.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
ATTEST:
Harvest Village Partners, L.P.
By: Vanguard Homes of N.J., Inc.
General Partner
/s/ Theresa A. Govier (SEAL) By: /s/ Carl G. Paffendorf
- ----------------------------- -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
ATTEST:
United Vanguard Homes, Inc.
/s/ Theresa A. Govier (SEAL) By: /s/ Paul D'Andrea
- ----------------------------- -----------------------------
Theresa A. Govier, Secretary Paul D'Andrea
Vice President - Finance
Vanguard Ventures, Inc.
ATTEST:
/s/ Theresa A. Govier (SEAL) By: /s/ Carl G. Paffendorf
- ----------------------------- -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
ACKNOWLEDGED:
UNITED VANGUARD HOMES, INC.
by: /s/ Paul D'Andrea
-----------------------------
Paul D'Andrea
Vice President - Finance
2
<PAGE>
AMENDMENT NO. 3 TO THE
HARVEST VILLAGE
PURCHASE AGREEMENT
Agreement made this 8th day of July 1996, by and among HARVEST VILLAGE
PARTNERS, L.P., a Delaware limited partnership ("Seller"), HARVEST VILLAGE,
INC., a New Jersey corporation (as assignee of UNITED VANGUARD HOMES, INC.) or
its designee ("Buyer"), and VANGUARD VENTURES, INC., a New York corporation
("Vanguard"), each with offices at 4 Cedar Swamp Road, Glen Cove, New York
11542.
The parties hereby amend the Harvest Village Purchase Agreement dated
April 19, 1996, as amended by Amendment Nos. 1 and 2 thereto, as follows:
2. CONSIDERATION.
a. The purchase price for the Facility is:
Contract Deposit $ - 0 -
Cash at Closing 13,500,000
Assignment to Seller, without recourse, of
the $7,500,000 promissory note due Buyer
from Tenant "GCI Note") and cancellation
of $6,094,000 of indebtedness referred to
below, collectively valued by Buyer and
Seller at 3,900,000
-----------
$17,400,000
===========
b. The $6,094,000 of indebtedness due United Vanguard Homes, Inc.
from Vanguard and its subsidiaries/affiliates is hereby cancelled effective
March 31, 1996.
c. Buyer or its designee may assume or purchase the First
Mortgage debt on the Facility (for $12,500,000) as part of the $13,500,000
portion of the purchase price.
3. CLOSING. Closing shall take place at 10:00 A.M. at the offices of
Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, NY 10022 on
September 30, 1996, or at such other time, date and place as may be agreed in
writing between Seller and Buyer.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
ATTEST: Harvest Village Partners, L.P.
By: Vanguard Homes of N.J., Inc.
General Partner
/s/ Theresa A. Govier /s/ Carl G. Paffendorf
- --------------------------------- (SEAL) By: -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
ATTEST: Harvest Village, Inc.
/s/ Theresa A. Govier /s/ Carl G. Paffendorf
- --------------------------------- (SEAL) By: -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
ATTEST: Vanguard Ventures, Inc.
/s/ Theresa A. Govier /s/ Carl G. Paffendorf
- --------------------------------- (SEAL) By: -----------------------------
Theresa A. Govier, Secretary Carl G. Paffendorf, President
ACKNOWLEDGED:
UNITED VANGUARD HOMES, INC.
by: /s/ Alan Guttman
---------------------------
Alan Guttman, Treasurer
2
<PAGE>
HARVEST VILLAGE
Return of Capital(TM)
Residency Agreement
THIS MATTER INVOLVES A SUBSTANTIAL FINANCIAL INVESTMENT AND A LEGALLY BINDING
CONTRACT. IN EVALUATING THE DISCLOSURE STATEMENT AND THE CONTRACT PRIOR TO ANY
COMMITMENT, IT IS RECOMMENDED THAT YOU CONSULT WITH AN ATTORNEY AND FINANCIAL
ADVISOR OF YOUR CHOICE, IF YOU SO ELECT, WHO CAN REVIEW THESE DOCUMENTS WITH
YOU.
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TABLE OF CONTENTS
Page
----
1. Application Fee and Entrance Fee.........................................1
2. Reimbursement of Admission Payments......................................1
3. Monthly Service Fee and Extra Charges....................................3
4. Services and Features Provided to all Living Unit Residents..............4
5. Additional Services and Features Provided for an Extra Charge............5
6. The Village Health Care Center...........................................5
7. Your Cancellation Rights.................................................8
8. Our Cancellation Rights..................................................8
9. Miscellaneous Provisions with Respect to your Living Unit...............10
10. Representations.........................................................11
11. Promises................................................................11
12. Miscellaneous Legal Provisions..........................................12
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HARVEST VILLAGE
Return of Capital(TM)
Residency Agreement
1. APPLICATION FEE AND ENTRANCE FEE.
1.1 Admission Payments. To assure you, _____________________, (hereafter
"you" or "Resident") a place in Harvest Village (hereafter the "Village"),
a continuing care retirement community located at 114 Hayes Mill Road,
Atco, New Jersey 08004, in accordance with all the terms of this Agreement,
you will pay to Gateway Communities, Inc. (hereafter "Provider," "we,"
"our," or "us") an Application Fee and an Entrance Fee totaling
$______________. Your Application Fee and Entrance Fee together constitute
your Admission Payments. Payment of your Application Fee and first Entrance
Fee installment will reserve for you the ________, _____________________
living unit no. __________ (hereafter "Living Unit"). Paying the remaining
balance of the Entrance Fee and the Monthly Service Fee entitles you to
live in a Living Unit at the Village for as long as you are capable of
independent living, and in the Health Care Center if you are no longer
capable of independent living, all in accordance with the terms of this
Agreement.
1.2 Application Fee. Your Application Fee of Five Hundred Dollars ($500) is
paid herewith.
1.3 Entrance Fee. In addition to the Application Fee, you will pay an
Entrance Fee of $__________. The Entrance Fee will be paid in two (2)
installments. The Application Fee and the first installment of the Entrance
Fee together equal ten percent (10%) of the total Admission Payments. The
first Entrance Fee installment of $______________ is paid upon execution of
this Agreement and will be held in escrow pursuant to applicable statutory
provisions and the terms of the escrow agreement established for the
Village. The remaining balance of the Entrance Fee of $_____________ shall
be paid on or before the ninetieth (90th) day following the date of our
approval of this Agreement or upon the date of occupancy, whichever occurs
first.
2. REIMBURSEMENT OF ADMISSION PAYMENTS.
2.1 NONACCEPTANCE. EXCEPT AS WAIVED BY US AFTER FULL DISCLOSURE, WE REQUIRE
THAT YOU BE AT LEAST SIXTY-TWO (62) YEARS OF AGE, CAPABLE OF INDEPENDENT
LIVING, BE FREE OF COMMUNICABLE DISEASE, AND HAVE ASSETS AND INCOME WHICH
ARE SUFFICIENT UNDER FORESEEABLE CIRCUMSTANCES AND AFTER PROVISION FOR
PAYMENT OF YOUR OBLIGATIONS HEREUNDER TO MEET ORDINARY AND CUSTOMARY LIVING
EXPENSES AFTER ASSUMING OCCUPANCY. IF WE DO NOT ACCEPT YOU FOR RESIDENCY,
THE FULL AMOUNT OF THE APPLICATION FEE AND ENTRANCE FEE YOU HAVE PAID WILL
BE PROMPTLY REFUNDED TO YOU WITHOUT INTEREST.
2.2 RIGHT OF RESCISSION PERIOD. IF YOU CHANGE YOUR MIND AND YOU SEND BY
CERTIFIED MAIL OR HAND-
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DELIVER WRITTEN NOTICE OF CANCELLATION TO US BY MIDNIGHT ON THE THIRTIETH
(30TH) DAY FOLLOWING THE DATE THIS AGREEMENT WAS EXECUTED BY BOTH PARTIES.
THIS AGREEMENT WILL BE AUTOMATICALLY CANCELLED. IN SUCH EVENT, THE ENTIRE
APPLICATION FEE AND THE FULL AMOUNT OF THE ENTRANCE FEE YOU HAVE PAID WILL
BE REFUNDED TO YOU WITHOUT INTEREST WITHIN FORTY-FIVE (45) DAYS FROM THE
DATE WE RECEIVE SUCH NOTICE OF CANCELLATION, EXCEPT THAT WE WILL RETAIN AN
AMOUNT EQUAL TO ANY COSTS SPECIFICALLY INCURRED BY US AT YOUR REQUEST
PURSUANT TO A SEPARATE ADDENDUM TO THIS AGREEMENT (RELATING TO IMPROVEMENTS
YOU REQUEST TO YOUR LIVING UNIT). WE CANNOT REQUIRE YOU TO MOVE INTO THE
VILLAGE PRIOR TO THE EXPIRATION OF YOUR THIRTY (30) DAY RIGHT-OF-RESCISSION
PERIOD. HOWEVER, IF YOU CHOOSE TO MOVE INTO THE VILLAGE, OCCUPANCY OF YOUR
LIVING UNIT PRIOR TO EXPIRATION OF THE THIRTY (30) DAY RESCISSION PERIOD
SHALL NOT BE CONSTRUED AS A WAIVER OF THE RESCISSION PERIOD.
2.3 DEATH, ILLNESS, INJURY, OR INCAPACITY PRIOR TO OCCUPANCY. IF, PRIOR TO
OCCUPANCY, YOU (OR EITHER OF YOU, IF THERE ARE TWO OF YOU) DIE, OR PURSUANT
TO OUR DETERMINATION BECOME UNABLE TO OCCUPY YOUR LIVING UNIT OR THE HEALTH
CARE CENTER BECAUSE OF ILLNESS, INJURY, OR INCAPACITY, THIS AGREEMENT WILL
BE CANCELLED. WE WILL REFUND TO YOU (OR TO YOUR ESTATE) THE FULL AMOUNT OF
THE APPLICATION FEE AND THE PORTION OF THE ENTRANCE FEE YOU HAVE PAID
WITHOUT INTEREST WITHIN FORTY-FIVE (45) DAYS FOLLOWING WRITTEN NOTICE OF
CANCELLATION BY CERTIFIED MAIL OR HAND-DELIVERED, LESS ANY NONSTANDARD
COSTS INCURRED BY US AT YOUR REQUEST AND AS DESCRIBED IN A SEPARATE
ADDENDUM TO THIS AGREEMENT (RELATING TO IMPROVEMENTS YOU REQUEST TO YOUR
LIVING UNIT).
2.4 CANCELLATION PRIOR TO OCCUPANCY FOR REASONS OTHER THAN SET FORTH IN
2.1, 2.2, OR 2.3. IF, PRIOR TO OCCUPANCY, YOU CANCEL THIS AGREEMENT FOR
REASONS OTHER THAN IN 2.1, 2.2, OR 2.3 ABOVE, WE WILL REFUND THE ENTRANCE
FEE YOU HAVE PAID WITHOUT INTEREST WITHIN FORTY-FIVE (45) DAYS FOLLOWING
WRITTEN NOTICE OF CANCELLATION BY CERTIFIED MAIL OR HAND-DELIVERED. WE WILL
RETAIN AN AMOUNT EQUAL TO ANY COSTS SPECIFICALLY INCURRED BY US AT YOUR
REQUEST AND AS DESCRIBED IN A SEPARATE ADDENDUM TO THIS AGREEMENT (RELATING
TO IMPROVEMENTS YOU REQUEST TO YOUR LIVING UNIT). YOUR APPLICATION FEE WILL
NOT BE REFUNDED TO YOU.
2.5 CANCELLATION AFTER OCCUPANCY. AFTER MOVING INTO THE VILLAGE, SHOULD YOU
OR WE CANCEL THIS AGREEMENT PURSUANT TO SECTION 7 OR 8, OR IN THE EVENT OF
THE DEATH OF THE SURVIVING RESIDENT, AND UPON REOCCUPANCY OF YOUR LIVING
UNIT BY A NEW RESIDENT, AND UPON OUR RECEIPT OF THE PROCEEDS OF THE TOTAL
ADMISSION PAYMENTS PAID BY THE NEW RESIDENT, WE WILL REMIT TO YOU (OR TO
YOUR ESTATE) NINETY PERCENT
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(90%) OF THE NEW RESIDENT'S TOTAL ADMISSION PAYMENTS PAID, NOT TO EXCEED
$___________. SUCH REFUND AMOUNT SHALL BE FURTHER REDUCED AND OFFSET BY THE
FOLLOWING:
2.5.1 THE AMOUNT OF ANY UNREIMBURSED HEALTH CARE EXPENSES (EXCEPT THE
COST OF SERVICES DESCRIBED IN SECTION 4) INCURRED BY US FOR YOUR CARE
DURING THE TIME YOU LIVE IN THE VILLAGE HEALTH CARE CENTER;
2.5.2 THE AMOUNT OF ANY MONTHLY SERVICE FEES OR OTHER SUMS OWED BY YOU
TO US UNDER THIS AGREEMENT OR INCURRED BY US PURSUANT TO YOUR SPECIFIC
REQUEST, AND SET FORTH IN A SEPARATE ADDENDUM;
2.5.3 THE AMOUNT OF ANY MONTHLY SERVICE FEES OR OTHER SUMS DEFERRED BY
US ON YOUR BEHALF UNDER SECTION 11; AND
2.5.4 THE AMOUNT OF YOUR ADMISSION PAYMENTS AMORTIZED PURSUANT TO
SECTION 6.3.2 OR 6.3.4.
THE REMAINING TEN PERCENT (10%) OF THE TOTAL AMOUNT OF YOUR ADMISSION
PAYMENTS WILL BE CONSIDERED FULLY EARNED BY US UPON YOUR MOVING INTO THE
VILLAGE AND IS NONREFUNDABLE, WHICH INCLUDES YOUR APPLICATION FEE. HOWEVER,
IF YOU CANCEL DURING THE THIRTY (30) DAY RESCISSION PERIOD, YOU WILL BE
ENTITLED TO A REFUND PURSUANT TO SECTION 2.2.
SUCH REFUND AMOUNT SHALL BE PAID WITHOUT INTEREST WITHIN THIRTY (30)
DAYS FOLLOWING REOCCUPANCY OF YOUR LIVING UNIT BY A NEW RESIDENT (OR WITHIN
THIRTY (30) DAYS FOLLOWING YOUR CANCELLATION IF YOUR LIVING UNIT HAS BEEN
PREVIOUSLY REOCCUPIED).
3. MONTHLY SERVICE FEE AND EXTRA CHARGES. You will pay the following Monthly
Service Fee which provides the services and features listed under Section 4
and which includes the real property taxes assessed against the property
and improvements of the Village. In addition, you will pay extra charges
for the additional services and features requested by you under Section 5.
3.1 Monthly Service Fee and Extra Charges. When you move into the Village
or on or before the ninetieth (90th) day following the date of our approval
of this Agreement, whichever occurs first, you are obligated to pay a pro
rata portion of the Monthly Service Fee for that month. Thereafter, you are
obligated to pay the Monthly Service Fee by the fifth (5th) business day of
each month for that particular month during the term of this Agreement. Any
extra charges for additional services requested by you will be paid by the
fifth (5th) business day of each month for the additional services obtained
during the preceding month. Currently, the Monthly Service Fee is
$_________ per month for one person and an additional $_______ per month if
there are two of you. Your proportionate share of real property taxes
attributable to the Living Unit occupied by you and a proportionate share
of the common areas will be included in your Monthly Service Fee, but will
be borne by you separately from any other charges and will be separately
itemized on your Monthly Service Fee statement. If the Monthly Service Fee
and extra charges are not paid by the tenth (10th) business day of the
month, we will charge a one percent (1%)
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interest penalty per month on the unpaid balance of the Monthly Service Fee
and extra charges.
3.2 Monthly Service Fee Changes. We may change the amount of the Monthly
Service Fee upon thirty (30) days' written notice if, in our sole
discretion, we deem it necessary to meet the financial needs of operating
the Village or to provide the services to the residents (or without notice
if such change in fee is required by local, state, or federal laws or
regulations).
3.3 Use of the Monthly Service Fee. The Monthly Service Fee will be used by
us only for purposes related to the Village. The amount of the Monthly
Service Fee is intended to provide for the services and features provided
in Section 4 and the real property taxes assessed against the property and
improvements of the Village.
3.4 Reduction of the Monthly Service Fee. In the event two of you occupy
your Living Unit and one of you dies, or one of you is permanently assigned
to the Health Care Center, or other inability of one of you to occupy the
Living Unit, the second-person Monthly Service Fee will cease, and the
remaining person will continue to pay only the first-person Monthly Service
Fee.
4. SERVICES AND FEATURES PROVIDED TO ALL LIVING UNIT RESIDENTS. We will
furnish at the Village so long as you reside in a Living Unit at the
Village, the following services and features which are included in the
Monthly Service Fee:
4.1 One full meal per day in the dining room;
4.2 Air conditioning;
4.3 Heating;
4.4 Electricity;
4.5 Water;
4.6 Sewer;
4.7 Local non-toll telephone service;
4.8 Basic cable television;
4.9 Building and grounds maintenance;
4.10 Weekly laundry service for flat linens;
4.11 Weekly housekeeping service;
4.12 Availability of laundry facilities so that you can wash and dry
personal laundry;
4.13 Planned activities -- social, cultural, educational, recreational, and
spiritual -- for those who wish to participate;
4.14 Services of an activities director;
4.15 Use of the Village's amenities during scheduled hours;
4.16 Carpeting except in the kitchen and bath where there will be alternate
floor covering;
4.17 A kitchen, including refrigerator and range with oven and hood, except
in studio living units;
4.18 Scheduled local transportation;
4.19 Emergency call system and emergency nursing services;
4.20 Parking for you and your guests;
4.21 Fire detection and sprinkler system;
4.22 Health Care Center nursing care in a semiprivate room as specified in
Section 6;
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4.23 Special diet when ordered by the attending physician for medical
reasons;
4.24 Security for buildings and grounds;
4.25 Trash disposal; and
4.26 Assistance-in-living services which include: resident assessments,
escort services for three (3) days per year, tray service for six (6) trays
per year to be provided upon order of the medical director or director of
nursing in consultation with the resident's physician, clinic services, and
reintegration program.
We will not change or reduce the scope of our services without at least
thirty (30) days' notice to you, with the exception of changes required by
state or federal assistance programs. Pursuant to N.J.A.C. 5:19-6.4(a)(2),
all services which are to be provided to you are listed on a form
designated by the New Jersey Department of Community Affairs attached to
this Agreement as Exhibit A. A more complete description of each of these
services is also included in the Disclosure Statement.
5. ADDITIONAL SERVICES AND FEATURES PROVIDED FOR AN EXTRA CHARGE. We will also
make available at the Village at your request and so long as you reside in
a Living Unit at the then-prevailing rates of extra charge:
5.1 Additional meals in the dining room over those provided in
consideration for the Monthly Service Fee;
5.2 Health Care Center nursing care in a private room if available;
5.3 Guest accommodations as available;
5.4 Certain other services such as medicine, drugs, prescribed therapy,
personal laundry, nursing supplies, and other medical and miscellaneous
supplies and services associated with medical treatment;
5.5 Other optional services related or unrelated to care in the Health Care
Center as approved by us;
5.6 Personal laundry service;
5.7 Guest meals in the dining room;
5.8 Additional housekeeping services; and
5.9 Assistance-in-living services which include: escort service within
Harvest Village for more than three (3) days per year, personal care
activities, tray service to the Living Unit for more than six (6) trays per
year when necessary for health reasons or special diet for an extended
period of time, living unit visits, therapy services, clinic physician
services, blood work, clinic supplies, prescriptions, and
ancillary/supportive services.
Certain other services which are not provided in consideration of the
Monthly Service Fee may, from time to time, in our sole discretion be
offered. Pursuant to N.J.A.C. 5:19-6:4(a)(2), all services which are to be
provided to you are listed on a form designated by the New Jersey
Department of Community Affairs attached to this Agreement as Exhibit A.
The Disclosure Statement also contains a more complete description of
"other services" presently offered for an extra charge.
6. THE VILLAGE HEALTH CARE CENTER.
6.1 Health Care Center Assignment. You may be temporarily assigned to the
Health Care Center if, in the opinion of the Village after consultation
with your attending physician, your family or your responsible party, and
you to the extent possible, you need nursing care. You
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will be considered temporarily assigned to the Health Care Center for the
first ninety (90) cumulative days of care during your residency. If you
require more than ninety (90) cumulative days of nursing care during your
residency, you will be considered permanently assigned to the Health Care
Center. Your nursing care accommodations will be in a semiprivate room,
unless a private room is medically necessary. If not medically necessary,
you may still choose to occupy a private room if one is available as long
as you agree to pay the difference between the charges for private and
semiprivate accommodations.
6.2 Medical Director and Additional Health Services. We will designate a
member in good standing of the Camden County Medical Society as medical
director. The medical director may be available to perform services at your
own expense. You have the right to choose your own attending physician. You
may engage the services of your attending physician at any time at your own
expense. We will not be responsible for the cost of medical treatment by
the medical director or your attending physician, nor will we be
responsible for the cost of medicine, drugs, prescribed therapy, personal
laundry, nursing supplies, and other medical and miscellaneous supplies and
services associated with medical treatment. If we incur or advance costs
for your medical treatment or for medicine, drugs, prescribed therapy,
nursing supplies and services associated with medical treatment (even
though such medical care is given at the direction of your attending
physician or the medical director without your prior approval), you will
promptly reimburse us for such costs.
6.3 Nursing Care. We will provide you with nursing care in the Health Care
Center to the extent authorized by our license on the following terms:
6.3.1 Temporarily Assigned to the Health Care Center When There is One
of You. When temporarily assigned to the Health Care Center, you will
continue to pay the Monthly Service Fee for your Living Unit. In addition,
you will pay for the cost of two (2) Health Care Center meals per day not
covered by the Monthly Service Fee at the then-current charge for Health
Care Center meals and any additional services as described in Section 6.2
while a resident of the Health Care Center.
6.3.2 Permanently Assigned to the Health Care Center When There is One
of You. When permanently assigned to the Health Care Center, you will
continue to pay the Monthly Service Fee for the Living Unit you just
vacated until your personal property is removed therefrom. While you are in
the Health Care Center, ninety percent (90%) of the Admission Payments you
have paid will be amortized at two percent (2%) for each full or partial
month you are in the Health Care Center, less those costs incurred in
Section 2.5. Such monthly amortization shall in no event continue more than
fifty (50) months in the aggregate. You will also pay a Health Care Fee of
$_____________ per month for care in the Health Care Center. In addition,
you will pay for the cost of two (2) Health Care Center meals per day not
covered by the Health Care Center at the then-current charge for Health
Care Center meals and any additional services as described in Section 6.2
while a resident of the Health Care Center.
6.3.3 Temporarily Assigned to the Health Care Center When There are
Two of You. When there are two of you and one of you is temporarily
assigned to the Health Care Center, the other of you may continue to occupy
the Living Unit under the terms of this Agreement. When temporarily
assigned to the Health Care Center, you will continue to pay the
second-person Monthly Service Fee for the
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Living Unit. In addition, you will pay for the cost of the two (2)
Health Care Center meals per day not covered by the then-current charge for
Health Care Center meals and any additional services as described in
Section 6.2 while a resident of the Health Care Center. In the event the
resident in the Living Unit dies while the other one is assigned to the
Health Care Center, the resident in the Health Care Center will cease
paying the second-person Monthly Service Fee and will pay the first-person
Monthly Service Fee.
6.3.4 Permanently Assigned to the Health Care Center When There are
Two of You. When there are two of you and one of you is permanently
assigned to the Health Care Center, the other of you may continue to occupy
the Living Unit under the terms of this Agreement. When permanently
assigned to the Health Care Center, you will not pay the second person
Monthly Service Fee for the Living Unit. While you are in the Health Care
Center, ninety percent (90%) of the Admission Payments you have paid will
be amortized at two percent (2%) for each full or partial month you are in
the Health Care Center, less those costs incurred in Section 2.5. Such
monthly amortization shall in no event continue more than fifty (50) months
in the aggregate. You will also pay a Health Care Fee of $_____________ per
month for care in the Health Care Center. In addition, you will pay for the
cost of the two (2) Health Care Center meals per day not covered by the
Health Care Fee at the then-current charge for Health Care Center meals and
any additional services as described in Section 6.2 while a resident at the
Health Care Center.
6.4 Health Care Fee Changes. We may change the amount of the Health Care
Fee upon thirty (30) days' written notice if, in our sole discretion, we
deem it necessary to meet the financial needs of operating the Health Care
Center or to provide the services to the residents (or without notice if
such change in fee is required by local, state, or federal laws or
regulations).
6.5 Return to the Living Unit. If you have released your Living Unit
because you have moved to the Health Care Center, and if we later determine
that you are able to return to a Living Unit, we will provide you with a
Living Unit of the same type as your Living Unit as soon as one becomes
available. Upon reoccupying such Living Unit, your Monthly Service Fee will
be based on the then-current Monthly Service Fee for the Living Unit.
6.6 Supplemental Insurance. You agree to maintain Medicare Part A, Medicare
Part B, and one supplemental health insurance policy or equivalent
insurance coverage acceptable to us and, upon our request, furnish us
copies of such policies. If you qualify for Medicare, the Village will file
claims with Medicare on your behalf. However, to the extent Medicare does
not cover incurred health care expenses, you will file claims with your
supplemental insurance for the difference. If the required coverage is not
maintained by you or if you refuse medical treatment which your attending
physician or the medical director believes is medically required for your
health or the health or safety of other residents of the Village, we may
revoke you right to reside at the Village and cancel this Agreement as
provided in Section 8. Furthermore, should you fail to maintain required
insurance coverage, the Provider may, but without any obligation to do so,
apply on your behalf for such insurance and bill the cost of such insurance
to you as an addition to the Monthly Service Fee.
6.7 Absence from the Village. In the event you are absent from the Village
or choose to receive care at another health care facility not designated by
the Village, we shall not be
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responsible for health care charges incurred by you.
6.8 Alternate Accommodations. You shall be given priority over nonresidents
for admission to the Health Care Center. In the event the Health Care
Center is fully occupied, you will be provided care at another health care
facility. Such health care accommodations shall be in a semiprivate room
unless a private room is a medical necessity. Upon your relocation, you
shall continue to be responsible for the charges set forth in Section 6
herein. To the extent we would be liable for your care and accommodations
in the Health Care Center under this Agreement, we will be responsible for
the charges associated with the alternate health care accommodations. You
agree to relocate to the Health Care Center when a bed becomes available.
6.9 Under Age Sixty-Two (62). If you are under age sixty-two (62) when you
occupy a Living Unit under this Agreement, you shall be entitled to care in
the Health Care Center. However, you shall be charged the then-current rate
being charged to nonresidents until you attain the age of sixty-two (62). A
current fee schedule is available upon request during normal business hours
at the Village's administrative office.
6.10 Reimbursement of Admission Payments. If you (or both of you, if there
are two of you) are permanently assigned to the Health Care Center, this
does not qualify you for reimbursement of your Admission Payments. A refund
as set forth in Section 2.5 will only be made after you (or both of you, if
there are two of you) have died or this Agreement is cancelled.
7. YOUR CANCELLATION RIGHTS.
7.1 Prior to Occupancy. You may cancel this Agreement for any reason at any
time before you move into the Village by giving us written notice signed by
you (both of you, if there are two of you). If you give such notice prior
to your occupancy of the Village, the cancellation will be effective as
described in Section 2 above.
7.2 After Occupancy. After you have moved into the Village, you may cancel
this Agreement at any time by giving us sixty (60) days' written notice
signed by you (both of you, if there are two of you). This Agreement shall
be cancelled upon expiration of sixty (60) days from the date we receive
such notice of cancellation. If you give such notice, you will pay the
Monthly Service Fee until the later of expiration of such sixty (60) days
or the removal of your personal property. If removal of your personal
property is not accomplished, we may remove and store your personal
property at the expense and risk of you or your estate. You may be entitled
to reimbursement of a portion of the Admission Payments as described in
Section 2.5.
8. OUR CANCELLATION RIGHTS.
8.1 Just Cause. After we have accepted you for residency, we will not
cancel this Agreement except for just cause. Just cause includes, but is
not limited to, the following:
8.1.1 Noncompliance. You do no comply with the terms of this Agreement
or the published operating procedures, covenants, rules, regulations, and
policies now existing or later amended by us;
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8.1.2 Failure to Pay. Except as set forth below, nonpayment of fees or
charges;
8.1.3 Threat or Danger to Health or Safety. Health status or behavior
which constitutes a substantial threat or danger to the health or safety of
yourself, other residents, or others including your refusal to consent to
relocation; or
8.1.4 Not Licensed to Provide Care. There is a major change in your
physical or mental condition and your condition cannot be cared for at the
Health Care Center within the limits of our license.
8.2 Reimbursement of Admission Payments. If we do cancel this Agreement as
provided in this Section, you will be entitled to receive a portion of your
Admission Payments subject to the conditions set forth in Section 2.
8.3 Notice of Cancellation. Before any cancellation of this Agreement by us
under Section 8.1.1, 8.1.2 or 8.1.4, we will give you written notice signed
by the administrator that the decision is made in good faith, the reasons
supporting the decision, and the basis for the conclusion that there is no
other alternative. You will have sixty (60) days thereafter within which
the problem may be corrected. Prior to any cancellation of this Agreement
by us under Section 8.1.3, we will give you written notice signed by the
medical director and administrator that:
8.3.1 The decision is made in good faith;
8.3.2 The reasons supporting the decision that you are a danger to
yourself or others;
8.3.3 The basis for the conclusion that there is no less restrictive
alternative to cancellation; and
8.3.4 The basis for the conclusion that the danger is such that less
than a sixty (60) day notice is appropriate.
8.4 Notice Time. If the problem is corrected within the notice time, this
Agreement will remain in effect. If the problem is not corrected within the
notice time, this Agreement will be cancelled at the end of the notice
period, and you must leave the Village. Cancellation of this Agreement will
entitle you to a refund pursuant to Paragraph 2.5.
8.5 Emergency Cancellation. Notwithstanding the above, if the medical
director and the Village administrator, or persons authorized to act in
their absence, determine that either the giving of notice or the waiting
period described above might be detrimental to you or others, then such
notice and/or waiting period shall not be required before we relocate you
to an appropriate hospital or other appropriate facility. In such event, we
are expressly authorized to transfer you to a hospital or other appropriate
facility, and we will promptly notify your family or your responsible party
and your attending physician. Upon transferring you to such hospital or
other facility, we will immediately provide you with a notice of
cancellation. This Agreement shall be cancelled thirty (30) days following
notice, unless your condition improves and you are subsequently readmitted
to the Village. You are obligated to pay the Monthly Service Fee and any
extra charges you incur until removal of your personal property. If removal
of your personal property is not accomplished, we may remove and store your
personal property at the expense and risk of you or your estate.
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8.6 Request for a Hearing. Under any circumstance, you may, if you wish,
request a hearing before the Gateway Communities, Inc. Board of Directors.
The hearing shall be held pursuant to New Jersey's Administrative
Procedures Act, N.J.S.A. 52:14B-1 et. seq. and the Uniform Administrative
Practice Rules, N.J.A.C. 1:1-1 et seq.
9. MISCELLANEOUS PROVISIONS WITH RESPECT TO YOUR LIVING UNIT.
9.1 Use of the Living Unit. Your Living Unit is for living only and shall
not be used for carrying on any business or profession, nor in any manner
in violation of zoning restrictions.
9.2 Duration of Your Right to Occupy the Living Unit. You may reside in
your Living Unit for as long as you live unless you are not capable of
maintaining yourself in independent living in the Living Unit or this
Agreement is cancelled by you or by us.
9.3 Occupancy of the Living Unit. Except as hereinafter provided, no person
other than you (or both of you, if there are two of you) may occupy the
Living Unit except with our express written approval. In the event that a
second person who is not a party to this Agreement is accepted for
residency under this Agreement after the date we sign this Agreement, said
acceptance to be in accordance with our then-current admission policies
(except that your spouse may be under age sixty-two (62)), you shall pay
Admission Payments equal to fifty percent (50%) of the then-current Living
Unit Admission Payments upon admission. In addition, each month the
then-current Monthly Service Fee for second persons shall be paid. If such
second person does not meet the requirements for residency, such second
person will not be permitted to occupy the Living Unit for more than thirty
(30) days, except with our express written approval, and you may cancel
this Agreement as provided in Section 7.
9.4 Emergency Entry and Relocation. We may enter your Living Unit should it
be necessary in an emergency to protect your health or safety or that of
other residents. Emergency entries shall include, but not be limited to,
entries in response to the emergency call alert system, entries in response
to the automatic fire alert system, and entries by authorized personnel in
the event that you are reported missing or not responsive to calls. Should
it be necessary to modify facilities to meet requirements of any applicable
law or regulation which necessitates temporary vacation of your Living
Unit, we will provide alternate facilities for you without additional cost
within or outside the Village. If relocation is recommended by the medical
director or your attending physician, we may relocate you to another Living
Unit within the Village, or request that you relocate to the Health Care
Center.
9.5 Other Entries. In addition to emergency entries described above,
authorized personnel of the Provider shall have the right, upon notice, to
enter your Living Unit for the purpose of performing routine housekeeping,
maintenance and security services, and to otherwise fulfill the Provider's
obligations to you and other residents.
9.6 Furnishings. Furnishings within the Living Unit will not be provided by
us, except as stated in Section 4. Furnishings provided by you (or either
of you, if there are two of you) shall not be such as to interfere with the
health, safety, or general welfare of yourself, or that of other residents,
or others.
9.7 Alterations by You. You may not undertake any alterations to your
Living Unit without our prior written approval, and when
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you move out, if requested by us, you will, at your own cost and expense,
remove any alterations and restore the Living Unit to its original
condition, normal wear and tear excepted. We may remove any such
alterations and restore the Living Unit if you fail to do so, and you agree
to reimburse us for the cost thereof.
9.8 Refurbishment. At our discretion, customary and normal refurbishment
costs of your Living Unit will be borne by us. Any refurbishment costs
which we do not consider customary and normal will be paid by you.
9.9 Guests. No one other than you shall have a right of occupancy in the
Living Unit without the consent of the administrator, unless otherwise
permitted pursuant to guest policies established by us. The intent of the
policies shall be to permit stays of short duration by your guests where
such stays shall not, in the opinion of the administrator; adversely affect
the operation of the Village or be inconsistent with the welfare of other
residents.
10. REPRESENTATIONS.
10.1 Your Representations. You represent and warrant to us the following:
10.1.1 You are at least sixty-two (62) years of age, capable of
independent living, free of communicable disease, and have assets and
income which are sufficient under foreseeable circumstances, and after
provisions for payment of your obligations under this Agreement, to meet
ordinary and customary living expenses after you move into the Village
(this is a requirement of entrance, unless waived by us in writing and
after full disclosure by you of the circumstances);
10.1.2 All facts stated by you in your application are true and
complete;
10.1.3 You have not made any gift of your property in contemplation of
signing this Agreement; and
10.1.4 You will be at least sixty-two (62) years of age or will be the
spouse of a resident of the Village who is at least sixty-two (62) years of
age when you first move into the Village.
10.2 Our Representations. We represent and warrant to you that we are a
not-for-profit corporation, and we are not affiliated with any other
religious or charitable organization.
11. PROMISES.
11.1 Your Promises. You promise to do the following:
11.1.1 To comply with all of our reasonable published operating
procedures now existing or hereafter amended;
11.1.2 To pay the Application Fee, Entrance Fee, Monthly Service Fee,
and any extra charges provided for by this Agreement;
11.1.3 To provide, by will or otherwise within sixty (60) days after
you move into the Village, for the disposition of all furniture,
possessions, and property of yours located in the Village and to make
funeral and burial arrangements;
11.1.4 To not voluntarily take any action which could impair your
ability to meet your financial obligations to us under this Agreement
without our consent; and
11.1.5 To abide by all other terms of this Agreement.
11.2 Our Promises. We promise the following:
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11.2.1 It is and shall be our declared policy to operate as a
not-for-profit organization;
11.2.2 We shall not cancel this Agreement without just cause as
specified in Section 8;
11.2.3 We shall not cancel your residency solely by reasons of your
financial inability to pay the Monthly Service Fee or extra charges. You
shall be permitted to remain at the Village until the entire unearned
Entrance Fee plus any third party insurance benefits are earned by the
Provider. The unearned portion shall be the difference between the
refundable portion of the Entrance Fee as set forth in Section 2.5 and the
cost of caring for you based upon the per capita cost to the Provider. The
per capita cost of caring for you shall be calculated as follows:
11.2.3.1 No more than two percent (2%) of the Entrance Fee for
each month you occupy, or are entitled to occupy, a Living Unit of the
Village,
11.2.3.2 No more than four percent (4%) of the Entrance Fee for
each month the resident occupies, or is entitled to occupy, a bed in
the Village's Health Care Center, and
11.2.3.3 No more than ten percent (10%) of the Entrance Fee
pursuant to Section 2.5 as a one-time charge for processing and
refurbishment;
11.2.4 If the Entrance Fees are exhausted within ninety (90) days from
the date of failure to pay, we may not require you to leave before ninety
(90) days from the date of failure to pay. You can continue to pay us a
reduced Monthly Service Fee based on your income during this time. After
ninety (90) days, this provision shall be rendered inoperative if you have
impaired your ability to meet your financial obligations hereunder by
making unapproved gifts or other transfers. However, after ninety (90) days
if you establish facts to justify deferment of such charges and when
deferment of such charges can, in our sole discretion, be granted without
impairing our ability to operate the Village on a sound financial basis for
the benefit of the residents, we will not cancel your residency if you
continue to pay us a reduced Monthly Service Fee based on your income; and
11.2.5 We shall abide by all other terms of this Agreement.
12. MISCELLANEOUS LEGAL PROVISIONS.
12.1 Nature of Rights. You may not assign this Agreement or your rights
under it, and no rights or benefits under this Agreement shall inure to the
benefit of your heirs, legatees, assignees, or representatives, except as
to receipt of the amounts described in Section 2. Your contractual right to
occupy the Living Unit shall exist and continue to exist during your
lifetime unless cancelled by you or us pursuant to Section 7 or 8 or until
your permanent residence in the Health Care Center. You and we expressly
understand that this Agreement grants you a revocable license to occupy and
use space in the Village but does not give you exclusive possession of the
Living Unit as against us, and you and we understand that this Agreement is
not a lease or easement and does not transfer or grant you any interest in
real property owned by us.
12.2 Release. We are not responsible for loss of or damage to your personal
property,
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and you hereby release us from such liability. You shall be required at
your own expense to provide insurance sufficient to protect against such
losses.
12.3 Indemnity. We shall not be liable for, and you agree to indemnify,
defend, and hold us harmless from claims, damages, or expenses, including
attorneys' fees and court costs, resulting from any injury or death to
persons and any damages to property caused by, resulting from, attributable
to, or in any way connected with your negligent or intentional act or
omission.
12.4 Subordination. You agree that all your rights under this Agreement
will always be subordinate and junior to the lien of all mortgages or other
documents creating liens encumbering the Village, which have been or will
be executed by us or by the fee owner of the real property upon which the
Village is located. Upon request, you agree to sign, acknowledge, and
deliver to such lender or lenders such further written evidence of such
subordination as such lenders may reasonably require. You will not be
liable for any such indebtedness.
12.5 Entire Agreement. This Agreement and any addenda or exhibits hereto
contain our entire understanding with respect to your residency.
12.6 Adjustments for Absences. No fee adjustments for absences from the
Village will be made, except at our sole discretion.
12.7 Responsible Party. You agree to execute and deliver to us within sixty
(60) days after assuming residency in your Living Unit a Durable Power of
Attorney, trust documents, or other documentation naming a responsible
party for business and financial decision making. These documents should be
drafted to remain effective notwithstanding your incompetence or disability
and shall be in a form acceptable to us, and you agree to keep such
documents in effect as long as this Agreement is in effect. The person(s)
named as your responsible party shall not be a person(s) employed by us or
any other entity engaged in the management of the Village.
12.8 Monthly Statement. You shall receive a monthly statement showing
charges paid by, incurred by, and due from you.
12.9 Amendment. No amendment of this Agreement shall be valid unless in
writing and signed by you and us.
12.10 Compliance with Laws. This Agreement may be modified by us at any
time in order to comply with applicable laws and regulations.
12.11 Governing Law. This Agreement shall be governed, interpreted, and
construed according to the laws of the State of New Jersey.
12.12 Separability. The invalidity of any restriction, condition, or other
provision of this Agreement, or any part of the same, shall not impair or
affect in any way the validity or enforceability of the rest of this
Agreement.
12.13 Nonwaiver. If we fail to insist in any instance upon performance of
any of the terms, covenants, or conditions of this Agreement, it shall not
be construed as a waiver or relinquishment of the future performance of any
such terms, covenants, or conditions, but your obligations with respect to
such future performances shall continue in full force and effect.
12.14 Resident. When there are two of you, the rights and obligations of
each of you are
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joint and several, except as the context of this Agreement otherwise
requires.
12.15 Capacity. We are organized under the general not-for-profit
corporation law of Michigan and are authorized to do business in New
Jersey. This Agreement has been executed on our behalf by our duly
authorized agent, and no officer, director, agent, or employee shall have
any personal liability to you under this Agreement under any circumstance.
This Agreement will become effective upon acceptance and execution by us.
12.16 Transfers. We may sell or transfer our interest in the Village
provided the buyer shall agree to assume this Agreement and all other
existing residency agreements. Upon the assumption of this Agreement by a
buyer of the Village and its agreement to perform this Agreement and all
other agreements, we shall have no further obligation hereunder.
12.17 Reimbursement of Costs. You agree to reimburse us for any costs we
incur to collect any unpaid amounts you owe to us under this Agreement.
12.18 Arbitration. Any controversy arising under, out of, in connection
with, or relating to this Agreement, and any amendment hereof, or the
breach hereof, shall be determined and settled by arbitration in accordance
with the rules of the American Arbitration Association. Any award rendered
therein shall be final and binding on each and all of the parties thereto
and their personal representatives, and judgment may be entered on any such
award in any court having jurisdiction. Any arbitration award shall be
binding only as to the parties to the arbitration in the controversy
actually arbitrated, and the results of the arbitration shall not be
considered in any other adjudication or arbitration proceeding. If the
issue affects more than one resident, we may elect to join all affected
residents into one single arbitration proceeding, and you hereby consent to
such joinder.
12.19 Tax Consequences. Each person considering this Agreement should
consult with his or her tax advisor regarding the tax consequences
associated with this Agreement, including the application of the imputed
interest provisions of Section 7872 of the Internal Revenue Code of 1986,
as amended.
12.20 Notices. Any notice required to be given to us under this Agreement
shall be in writing and sent certified mail or hand-delivered to the
administrator of Harvest Village at 114 Hayes Mill Road, Atco, New Jersey
08004. Such notices shall be dated and signed. Any notice required to be
given to you under this Agreement shall be in writing and shall be given to
you at your last known address or, if applicable, at the last known address
of your estate.
12.21 Survival of Representations and Obligations. Your representations and
obligations under this Agreement, including but not limited to, your
obligation to pay all sums owed by you to us, and your agreement to
indemnify us as set forth in Section 12.3, and our representations and
obligations under this Agreement, shall survive any cancellation or
termination of your occupancy in the Village, regardless of the reason for
such cancellation or termination and regardless of whether it is initiated
by you or by us.
12.22 Acknowledgment of Receipt of Documents. You hereby certify that you
received a copy of this Agreement which includes Exhibit A and a copy of
our most current Disclosure Statement, and have been
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permitted to inspect any additional relevant materials requested to be
reviewed by you or your responsible party prior to signing this Agreement.
NOTICE TO THE RESIDENT: YOU HAVE THE RIGHT TO CANCEL THIS CONTRACT OR AGREEMENT
BY SENDING OR DELIVERING WRITTEN NOTICE OF CANCELLATION TO GATEWAY COMMUNITIES,
INC. BY MIDNIGHT OF THE THIRTIETH (30TH) CALENDAR DAY FOLLOWING THE DAY ON WHICH
IT WAS EXECUTED BY BOTH PARTIES, OR AN INITIAL DEPOSIT WAS MADE. SUCH
CANCELLATION IS WITHOUT PENALTY, AND ALL DEPOSITS MADE BY YOU SHALL BE PROMPTLY
REFUNDED WITHOUT INTEREST, EXCEPT FOR EXPENSES INCURRED BY GATEWAY COMMUNITIES,
INC. AT THE RESIDENT'S SPECIFIC REQUEST.
Executed this __ day of ____________________, 19__.
- ---------------------------------------------
RESIDENT
- ---------------------------------------------
Witness
- ---------------------------------------------
RESIDENT
- ---------------------------------------------
Witness
Approved this ____ day of __________________________, 19__.
GATEWAY COMMUNITIES, INC.
By: _____________________________________
Authorized Representative
Application Fee ($500) and
first installment of Entrance
Fee equal 10% of total
Admission Payments $_______________
Second installment of Entrance
Fee (90% of Admission
Payments) $_______________
Total Admission Payments $
(See Section 1.1) ===============
Living Unit Type ________________
Living Unit Number ________________
[logo]
Equal Housing Opportunity
9/95
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EXHIBIT A
CHECK LIST*
(PURSUANT TO N.J.A.C. 5:19-6.4(a)(2))
FACILITY: Harvest Village
TYPE OF PLAN: Return of Capital(TM) Residency Agreement
* These itemized services are subject to change in accordance with the terms of
Paragraphs 4 and 5 of the Return of Capital Residency Agreement.
KEY: A = Included in basic fee
B = Available for additional fee
C = Not available
Accommodations: Living Unit is equipped with wall-to-wall carpeting except in
kitchen and bath, draperies or curtains, bathroom with grab bars in tub or
shower, individual thermostatic control for heating and air conditioning, an
emergency call system, and additional inside storage area. All Living Units
other than studios include a range with oven, sink, and small refrigerator.
| | | |
| A | B | C | Comments
- ------------------------------------------------------------------
Utilities: | | | |
- ------------------------------------------------------------------
- -Heat | X | | |
- ------------------------------------------------------------------
- -Air Conditioning | X | | |
- ------------------------------------------------------------------
- -Electricity | X | | |
- ------------------------------------------------------------------
- -Water/Sewer Charge | X | | |
- ------------------------------------------------------------------
- -Real Estate Tax | X | | |
- ------------------------------------------------------------------
Telephone: | | | |
- ------------------------------------------------------------------
- -Service | X | | |
- ------------------------------------------------------------------
- -Outlet Only | X | | |
- ------------------------------------------------------------------
T.V.: | | | |
- ------------------------------------------------------------------
- -T.V. Antenna | | | X |
- ------------------------------------------------------------------
- -Cable Outlet | X | | |
- ------------------------------------------------------------------
- -Cable Service | X | | | Basic.
- ------------------------------------------------------------------
Meals: | | | |
- ------------------------------------------------------------------
- -Number of Meals included in M.S.F | X | | | One Daily.
- ------------------------------------------------------------------
- -Additional Meals | | X | |
- ------------------------------------------------------------------
- -Dining Room (Buffet/Waiter Service)| X | | |
- ------------------------------------------------------------------
- -Tray Service When Approved by M.D. | X | | | Limited to 6 per
| | | | year.
- ------------------------------------------------------------------
- -Prescribed Diets | X | | |
- ------------------------------------------------------------------
- -Guest Meals | | X | |
- ------------------------------------------------------------------
Housekeeping: | | | |
- ------------------------------------------------------------------
- -Light Housekeeping | X | | |
- ------------------------------------------------------------------
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| | | |
| A | B | C | Comments
- ------------------------------------------------------------------
How Often? | | | |Once a week.
- ------------------------------------------------------------------
- -Heavy Housekeeping | X | | |
- ------------------------------------------------------------------
How Often? | | | |Once a year.
- ------------------------------------------------------------------
- -What Duties Do They Include? | | | |Washing floors,
| | | |dusting, cleaning
| | | |baths, vacuuming
- ------------------------------------------------------------------
Laundry: | | | |
- ------------------------------------------------------------------
- -Bed Linen (S)Supplies/(L)Laundered | X | | |Laundered.
- ------------------------------------------------------------------
How Often? | | | |Once a week.
- ------------------------------------------------------------------
- -Laundry Facilities | X | | |Laundry rooms.
- ------------------------------------------------------------------
- -Other Laundry Service | | X | |
- ------------------------------------------------------------------
Maintenance and Repairs: | | | |
- ------------------------------------------------------------------
- -Electrical | X | | |
- ------------------------------------------------------------------
- -Plumbing | X | | |
- ------------------------------------------------------------------
- -Custodial | X | | |
- ------------------------------------------------------------------
- -Exterior of Living Unit | X | | |
- ------------------------------------------------------------------
- -Lawn and Snow Removal | X | | |
- ------------------------------------------------------------------
- -Trash Removal | X | | |
- ------------------------------------------------------------------
Security: | | | |
- ------------------------------------------------------------------
- -Emergency Alert System in Living | | | |
Unit | X | | |
- ------------------------------------------------------------------
- -24-Hour Response | X | | |
- ------------------------------------------------------------------
Who Responds? | | | |Security and
| | | |Nursing Personnel.
- ------------------------------------------------------------------
- -Fire and Smoke Alarms | X | | |
- ------------------------------------------------------------------
- -Sprinkler System | X | | |
- ------------------------------------------------------------------
- -Security at Entrance | X | | |At front desk.
- ------------------------------------------------------------------
- -Security on Duty 24 Hours | X | | |
- ------------------------------------------------------------------
Transportation: | | | |
- ------------------------------------------------------------------
- -To Local Areas, Shopping Centers | X | | |Scheduled.
- ------------------------------------------------------------------
- -Emergency Ambulance Service | | X | |
- ------------------------------------------------------------------
- -To Physician's Office Visits | X | | |As scheduled.
- ------------------------------------------------------------------
- -Vehicle Equipped for Handicapped | | | |
Ind. | | | X |
- ------------------------------------------------------------------
Social Activities: | | | |
- ------------------------------------------------------------------
- -Activities Director | X | | |
- ------------------------------------------------------------------
- -Social | X | | |
- ------------------------------------------------------------------
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| | | |
| A | B | C | Comments
- ------------------------------------------------------------------
- -Cultural | X | | |
- ------------------------------------------------------------------
- -Educational | X | | |
- ------------------------------------------------------------------
- -Spiritual | X | | |
- ------------------------------------------------------------------
- -Recreational | X | | |
- ------------------------------------------------------------------
Parking: | | | |Not Assigned.
- ------------------------------------------------------------------
- -(A)Assigned/(NA)Not Assigned | X | | |
- ------------------------------------------------------------------
- -Garage Available | | | X |
- ------------------------------------------------------------------
- -Guest Parking | X | | |In the Club House
| | | |parking area.
- ------------------------------------------------------------------
- -Carports | | | X |
- ------------------------------------------------------------------
Health Related Services: | | | |
- ------------------------------------------------------------------
- -Medical Director | | X | |Services provided
| | | |as an attending
| | | |physician are for
| | | |an additional charge.
- ------------------------------------------------------------------
- -Physician Care | | X | |
- ------------------------------------------------------------------
- -Consulting Physicians | | X | |
- ------------------------------------------------------------------
- -Physician Office on Site | X | | |
- ------------------------------------------------------------------
- -Annual or Routine Physical Exam | X | X | |Exams given as a
| | | |result of a diag-
| | | |nosed condition
| | | |are for an additional
| | | |charge.
- ------------------------------------------------------------------
X-ray or Laboratory Facilities | | X | |
- ------------------------------------------------------------------
- -Personal Care Unit | | | X |
- ------------------------------------------------------------------
- -Residential Health Care Unit | | | X |
- ------------------------------------------------------------------
- -Long Term Care Unit | | X | |90 cumulative days
| | | |of nursing care pro-
| | | |vided for the monthly
| | | |fee. Thereafter, it
| | | |is for an additional
| | | |charge.
- ------------------------------------------------------------------
- -Assistance with Bathing and Dress- | | | |
ing in Living Unit | | X | |
- ------------------------------------------------------------------
- -Prescription Medicines | | X | |
- ------------------------------------------------------------------
- -Psychiatric Therapy/Consultations | | X | |
- ------------------------------------------------------------------
- -Physical Therapy | | X | |
- ------------------------------------------------------------------
- -Occupational Therapy | | X | |
- ------------------------------------------------------------------
- -Social Services | X | | |
- ------------------------------------------------------------------
- -24-Hour Nursing Services | X | | |
- ------------------------------------------------------------------
- -Nursing Visits to Living Unit | X | | |Emergency services.
- ------------------------------------------------------------------
- -Physician Visits to Living Unit | | X | |
- ------------------------------------------------------------------
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| On-Site |
- -------------------------------------------------------------
| Yes | No |
- -------------------------------------------------------------
- -Alzheimer's or Related Disease Unit | | X |
- -------------------------------------------------------------
- -Auditorium | X | |
- -------------------------------------------------------------
- -Bank | X | |
- -------------------------------------------------------------
- -Barber/Beauty Shop | X | |
- -------------------------------------------------------------
- -Chapel | X | |
- -------------------------------------------------------------
- -Coffee Shop/Snack Bar | X | |
- -------------------------------------------------------------
- -Craft Rooms and Programs | X | |
- -------------------------------------------------------------
- -Dentist Office on Site | | X |
- -------------------------------------------------------------
- -Exercise Room and Program | X | |
- -------------------------------------------------------------
- -Game Room | X | |
- -------------------------------------------------------------
- -Garden Plots | X | |
- -------------------------------------------------------------
- -Golf Course/Putting Green | | X |
- -------------------------------------------------------------
- -Greenhouse | X | |
- -------------------------------------------------------------
- -Guest Accommodations | X | |
- -------------------------------------------------------------
- -Hiking and Walking Trails | X | |
- -------------------------------------------------------------
- -Library | X | |
- -------------------------------------------------------------
- -Lounges | X | |
- -------------------------------------------------------------
- -Pharmacy | | X |
- -------------------------------------------------------------
- -Postal Service (Stamps/Packages etc.) Stamps | X | |
- -------------------------------------------------------------
- -Private Dining Room/Catering | X | |
- -------------------------------------------------------------
- -Resident Association | X | |
- -------------------------------------------------------------
- -Storage Space (Outside of Unit) | | X |
- -------------------------------------------------------------
- -Sore for Gifts, Food, Sundries | X | |
- -------------------------------------------------------------
- -Swimming Pool (Indoor or Outdoor) | | X |
- -------------------------------------------------------------
- -Tennis Courts | | X |
- -------------------------------------------------------------
- -Washer/Dryer in Units | | X |
- -------------------------------------------------------------
- -Woodworking or Metal Shops | X | |
- -------------------------------------------------------------
Burial arrangements: Not Available
- --------------------------------------------------------------------------------
4129K-DCA 9/95
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<PAGE>
HARVEST VILLAGE
Traditional
Residency Agreement
THIS MATTER INVOLVES A SUBSTANTIAL FINANCIAL INVESTMENT AND A LEGALLY BINDING
CONTRACT. IN EVALUATING THE DISCLOSURE STATEMENT AND THE CONTRACT PRIOR TO ANY
COMMITMENT, IT IS RECOMMENDED THAT YOU CONSULT WITH AN ATTORNEY AND FINANCIAL
ADVISOR OF YOUR CHOICE, IF YOU SO ELECT, WHO CAN REVIEW THESE DOCUMENTS WITH
YOU.
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TABLE OF CONTENTS
Page
----
1. Application Fee and Entrance Fee.........................................1
2. Reimbursement of Admission Payments......................................1
3. Monthly Service Fee and Extra Charges....................................3
4. Services and Features Provided to all Living Unit Residents..............4
5. Additional Services and Features Provided for an Extra Charge............5
6. The Village Health Care Center...........................................5
7. Your Cancellation Rights.................................................8
8. Our Cancellation Rights..................................................8
9. Miscellaneous Provisions with Respect to your Living Unit................9
10. Representations.........................................................11
11. Promises................................................................11
12. Miscellaneous Legal Provisions..........................................12
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HARVEST VILLAGE
Traditional
Residency Agreement
1. APPLICATION FEE AND ENTRANCE FEE.
1.1 Admission Payments. To assure you, ________________________, (hereafter
"you" or "Resident") a place in Harvest Village (hereafter the "Village"),
a continuing care retirement community located at 114 Hayes Mill Road,
Atco, New Jersey 08004, in accordance with all the terms of this Agreement,
you will pay to Gateway Communities, Inc. (hereafter "Provider," "we,"
"our," or "us") an Application Fee and an Entrance Fee totaling $_____.
Your Application Fee and Entrance Fee together constitute your Admission
Payments. Payment of your Application Fee and first Entrance Fee
installment will reserve for you the _______, __________ living unit no.
_____ (hereafter "Living Unit"). Paying the remaining balance of the
Entrance Fee and the Monthly Service Fee entitles you to live in a Living
Unit at the Village for as long as you are capable of independent living,
and in the Health Care Center if you are no longer capable of independent
living, all in accordance with the terms of this Agreement.
1.2 Application Fee. Your Application Fee of Five Hundred Dollars ($500) is
paid herewith.
1.3 Entrance Fee. In addition to the Application Fee, you will pay an
Entrance Fee of $___________. The Entrance Fee will be paid in two (2)
installments. The Application Fee and the first installment of the Entrance
Fee together equal ten percent (10%) of the total Admission Payments. The
first Entrance Fee installment of $______ is paid upon execution of this
Agreement and will be held in escrow pursuant to applicable statutory
provisions and the terms of the escrow agreement established for the
Village. The remaining balance of the Entrance Fee of $_______ shall be
paid on or before the ninetieth (90th) day following the date of our
approval of this Agreement or upon the date of occupancy, whichever occurs
first.
2. REIMBURSEMENT OF ADMISSION PAYMENTS.
2.1 NONACCEPTANCE. EXCEPT AS WAIVED BY US AFTER FULL DISCLOSURE, WE REQUIRE
THAT YOU BE AT LEAST SIXTY-TWO (62) YEARS OF AGE, CAPABLE OF INDEPENDENT
LIVING, BE FREE OF COMMUNICABLE DISEASE, AND HAVE ASSETS AND INCOME WHICH
ARE SUFFICIENT UNDER FORESEEABLE CIRCUMSTANCES AND AFTER PROVISION FOR
PAYMENT OF YOUR OBLIGATIONS HEREUNDER TO MEET ORDINARY AND CUSTOMARY LIVING
EXPENSES AFTER ASSUMING OCCUPANCY. IF WE DO NOT ACCEPT YOU FOR RESIDENCY,
THE FULL AMOUNT OF THE APPLICATION FEE AND ENTRANCE FEE YOU HAVE PAID WILL
BE PROMPTLY REFUNDED TO YOU WITHOUT INTEREST.
2.2 RIGHT OF RESCISSION PERIOD. IF YOU CHANGE YOUR MIND AND YOU SEND BY
CERTIFIED MAIL OR HAND-
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DELIVER WRITTEN NOTICE OF CANCELLATION TO US BY MIDNIGHT ON THE THIRTIETH
(30TH) DAY FOLLOWING THE DATE THIS AGREEMENT WAS EXECUTED BY BOTH PARTIES,
THIS AGREEMENT WILL BE AUTOMATICALLY CANCELLED. IN SUCH EVENT, THE ENTIRE
APPLICATION FEE AND THE FULL AMOUNT OF THE ENTRANCE FEE YOU HAVE PAID WILL
BE REFUNDED TO YOU WITHOUT INTEREST WITHIN FORTY-FIVE (45) DAYS FROM THE
DATE WE RECEIVE SUCH NOTICE OF CANCELLATION, EXCEPT THAT WE WILL RETAIN AN
AMOUNT EQUAL TO ANY COSTS SPECIFICALLY INCURRED BY US AT YOUR REQUEST
PURSUANT TO A SEPARATE ADDENDUM TO THIS AGREEMENT (RELATING TO IMPROVEMENTS
YOU REQUEST TO YOUR LIVING UNIT). WE CANNOT REQUIRE YOU TO MOVE INTO THE
VILLAGE PRIOR TO THE EXPIRATION OF YOUR THIRTY (30) DAY RIGHT-OF-RESCISSION
PERIOD. HOWEVER, IF YOU CHOOSE TO MOVE INTO THE VILLAGE, OCCUPANCY OF YOUR
LIVING UNIT PRIOR TO EXPIRATION OF THE THIRTY (30) DAY RESCISSION PERIOD
SHALL NOT BE CONSTRUED AS A WAIVER OF THE RESCISSION PERIOD.
2.3 DEATH, ILLNESS, INJURY, OR INCAPACITY PRIOR TO OCCUPANCY. IF, PRIOR TO
OCCUPANCY, YOU (OR EITHER OF YOU, IF THERE ARE TWO OF YOU) DIE, OR PURSUANT
TO OUR DETERMINATION BECOME UNABLE TO OCCUPY YOUR LIVING UNIT OR THE
HEALTH CARE CENTER BECAUSE OF ILLNESS, INJURY, OR INCAPACITY, THIS
AGREEMENT WILL BE CANCELLED. WE WILL REFUND TO YOU (OR TO YOUR ESTATE) THE
FULL AMOUNT OF THE APPLICATION FEE AND THE PORTION OF THE ENTRANCE FEE YOU
HAVE PAID WITHOUT INTEREST WITHIN FORTY-FIVE (45) DAYS FOLLOWING WRITTEN
NOTICE OF CANCELLATION BY CERTIFIED MAIL OR HAND-DELIVERED, LESS ANY
NONSTANDARD COSTS INCURRED BY US AT YOUR REQUEST AND AS DESCRIBED IN A
SEPARATE ADDENDUM TO THIS AGREEMENT (RELATING TO IMPROVEMENTS YOU REQUEST
TO YOUR LIVING UNIT).
2.4 CANCELLATION PRIOR TO OCCUPANCY FOR REASONS OTHER THAN SET FORTH IN
2.1, 2.2, OR 2.3. IF, PRIOR TO OCCUPANCY, YOU CANCEL THIS AGREEMENT FOR
REASONS OTHER THAN IN 2.1, 2.2, OR 2.3 ABOVE, WE WILL REFUND THE ENTRANCE
FEE YOU HAVE PAID WITHOUT INTEREST WITHIN FORTY-FIVE (45) DAYS FOLLOWING
WRITTEN NOTICE OF CANCELLATION BY CERTIFIED MAIL OR HAND-DELIVERED. WE WILL
RETAIN AN AMOUNT EQUAL TO ANY COSTS SPECIFICALLY INCURRED BY US AT YOUR
REQUEST AND AS DESCRIBED IN A SEPARATE ADDENDUM TO THIS AGREEMENT (RELATING
TO IMPROVEMENTS YOU REQUEST TO YOUR LIVING UNIT). YOUR APPLICATION FEE WILL
NOT BE REFUNDED TO YOU.
2.5 CANCELLATION AFTER OCCUPANCY. AFTER MOVING INTO THE VILLAGE, SHOULD YOU
OR WE CANCEL THIS AGREEMENT PURSUANT TO SECTION 7 OR 8, OR IN THE EVENT OF
THE DEATH OF THE SURVIVING RESIDENT, AND UPON REOCCUPANCY OF YOUR LIVING
UNIT BY A NEW RESIDENT, AND UPON OUR RECEIPT OF THE PROCEEDS OF THE TOTAL
ADMISSION PAYMENTS PAID BY THE NEW RESIDENT, WE WILL REMIT TO YOU (OR TO
YOUR ESTATE) THE FULL AMOUNT
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<PAGE>
OF THE ADMISSION PAYMENTS YOU HAVE PAID LESS A SUM EQUAL TO TWO PERCENT
(2%) A MONTH FOR EACH MONTH, OR FRACTION THEREOF, OF OCCUPANCY OR TWENTY
PERCENT (20%) OF THE ADMISSION PAYMENTS, WHICHEVER IS GREATER. SUCH REFUND
AMOUNT SHALL BE FURTHER REDUCED AND OFFSET BY THE FOLLOWING:
2.5.1 THE AMOUNT OF ANY UNREIMBURSED HEALTH CARE EXPENSES (EXCEPT THE
COST OF SERVICES DESCRIBED IN SECTION 4) INCURRED BY US FOR YOUR CARE
DURING THE TIME YOU LIVE IN THE VILLAGE HEALTH CARE CENTER;
2.5.2 THE AMOUNT OF ANY MONTHLY SERVICE FEES OR OTHER SUMS OWED BY YOU
TO US UNDER THIS AGREEMENT OR INCURRED BY US PURSUANT TO YOUR SPECIFIC
REQUEST, AND SET FORTH IN A SEPARATE ADDENDUM; AND
2.5.3 THE AMOUNT OF ANY MONTHLY SERVICE FEES OR OTHER SUMS DEFERRED BY
US ON YOUR BEHALF UNDER SECTION 11.
TWENTY PERCENT (20%) OF THE TOTAL AMOUNT OF YOUR ADMISSION PAYMENTS WILL BE
CONSIDERED FULLY EARNED BY US UPON YOUR MOVING INTO THE VILLAGE AND IS
NONREFUNDABLE, WHICH INCLUDES YOUR APPLICATION FEE. HOWEVER, IF YOU CANCEL
DURING THE THIRTY (30) DAY RESCISSION PERIOD, YOU WILL BE ENTITLED TO A
REFUND PURSUANT TO SECTION 2.2.
SUCH REFUND AMOUNT SHALL BE PAID WITHOUT INTEREST WITHIN THIRTY (30) DAYS
FOLLOWING REOCCUPANCY OF YOUR LIVING UNIT BY A NEW RESIDENT (OR WITHIN
THIRTY (30) DAYS FOLLOWING YOUR CANCELLATION IF YOUR LIVING UNIT HAS BEEN
PREVIOUSLY REOCCUPIED).
3. MONTHLY SERVICE FEE AND EXTRA CHARGES. You will pay the following Monthly
Service Fee which provides the services and features listed under Section 4
and which includes the real property taxes assessed against the property
and improvements of the Village. In addition, you will pay extra charges
for the additional services and features requested by you under Section 5.
3.1 Monthly Service Fee and Extra Charges. When you move into the Village
or on or before the ninetieth (90th) day following the date of our approval
of this Agreement, whichever occurs first, you are obligated to pay a pro
rata portion of the Monthly Service Fee for that month. Thereafter, you are
obligated to pay the Monthly Service Fee by the fifth (5th) business day of
each month for that particular month during the term of this Agreement. Any
extra charges for additional services requested by you will be paid by the
fifth (5th) business day of each month for the additional services obtained
during the preceding month. Currently, the Monthly Service Fee is $_____
per month for one person and an additional $_____ per month if there are
two of you. Your proportionate share of real property taxes attributable to
the Living Unit occupied by you and a proportionate share of the common
areas will be included in your Monthly Service Fee, but will be borne by
you separately from any other charges and will be separately itemized on
your Monthly Service Fee statement. If the Monthly Service Fee and extra
charges are not paid by the tenth (10th) business day of the
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<PAGE>
month, we will charge a one percent (1%) interest penalty per month on the
unpaid balance of the Monthly Service Fee and extra charges.
3.2 Monthly Service Fee Changes. We may change the amount of the Monthly
Service Fee upon thirty (30) days' written notice if, in our sole
discretion, we deem it necessary to meet the financial needs of operating
the Village or to provide the services to the residents (or without notice
if such change in fee is required by local, state, or federal laws or
regulations).
3.3 Use of the Monthly Service Fee. The Monthly Service Fee will be used by
us only for purposes related to the Village. The amount of the Monthly
Service Fee is intended to provide for the services and features provided
in Section 4 and the real property taxes assessed against the property and
improvements of the Village.
3.4 Reduction of the Monthly Service Fee. In the event two of you occupy
your Living Unit and one of you dies, or one of you is permanently assigned
to the Health Care Center, or other inability of one of you to occupy the
Living Unit, the second-person Monthly Service Fee will cease, and the
remaining person will continue to pay only the first-person Monthly Service
Fee.
4. SERVICES AND FEATURES PROVIDED TO ALL LIVING UNIT RESIDENTS. We will
furnish at the Village so long as you reside in a Living Unit at the
Village, the following services and features which are included in the
Monthly Service Fee:
4.1 One full meal per day in the dining room;
4.2 Air conditioning;
4.3 Heating;
4.4 Electricity;
4.5 Water;
4.6 Sewer;
4.7 Local non-toll telephone service;
4.8 Basic cable television;
4.9 Building and grounds maintenance;
4.10 Weekly laundry service for flat linens;
4.11 Weekly housekeeping service;
4.12 Availability of laundry facilities so that you can wash and dry
personal laundry;
4.13 Planned activities -- social, cultural, educational, recreational, and
spiritual -- for those who wish to participate;
4.14 Services of an activities director;
4.15 Use of the Village's amenities during scheduled hours;
4.16 Carpeting except in the kitchen and bath where there is alternate
floor covering;
4.17 A kitchen, including refrigerator and range with oven and hood, except
in studio living units;
4.18 Scheduled local transportation;
4.19 Emergency call system and emergency nursing services;
4.20 Parking for you and your guests;
4.21 Fire detection and sprinkler system;
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<PAGE>
4.22 Health Care Center nursing care in a semiprivate room as specified in
Section 6;
4.23 Special diet when ordered by the attending physician for medical
reasons;
4.24 Security for buildings and grounds;
4.25 Trash disposal; and
4.26 Assistance-in-living services which include: resident assessments,
escort services for three (3) days per year, tray service for six (6) trays
per year to be provided upon order of the medical director or director of
nursing in consultation with your physician, clinic services, and
reintegration program.
We will not change or reduce the scope of our services without at least
thirty (30) days' notice to you, with the exception of changes required by
state or federal assistance programs. Pursuant to N.J.A.C. 5:19-6.4(a)(2),
all services which are to be provided to you are listed on a form
designated by the New Jersey Department of Community Affairs attached to
this Agreement as Exhibit A. A more complete description of each of these
services is also included in the Disclosure Statement.
5. ADDITIONAL SERVICES AND FEATURES PROVIDED FOR AN EXTRA CHARGE. We will also
make available at the Village at your request and so long as you reside in
a Living Unit at the then-prevailing rates of extra charge:
5.1 Additional meals in the dining room over those provided in
consideration for the Monthly Service Fee;
5.2 Health Care Center nursing care in a private room if available;
5.3 Guest accommodations as available;
5.4 Certain other services such as medicine, drugs, prescribed therapy,
personal laundry, nursing supplies, and other medical and miscellaneous
supplies and services associated with medical treatment;
5.5 Other optional services related or unrelated to care in the Health Care
Center as approved by us;
5.6 Personal laundry service;
5.7 Guest meals in the dining room;
5.8 Additional housekeeping services; and
5.9 Assistance-in-living services which include: escort service within the
Village for more than three (3) days per year, personal care activities,
tray service to the Living Unit for more than six (6) trays per year when
necessary for health reasons or special diet for an extended period of
time, living unit visits, therapy services, clinic physician services,
blood work, clinic supplies, prescriptions, and ancillary/supportive
services.
Certain other services which are not provided in consideration of the
Monthly Service Fee may, from time to time, in our sole discretion be
offered. Pursuant to N.J.A.C. 5:19-6.4(a)(2), all services which are to be
provided to you are listed on a form designated by the New Jersey
Department of Community Affairs attached to this Agreement as Exhibit A.
The Disclosure Statement also contains a more complete description of
"other services" presently offered for an extra charge.
6. THE VILLAGE HEALTH CARE CENTER.
6.1 Health Care Center Assignment. You may be temporarily assigned to the
Health Care Center if, in the opinion of the Village after consultation
with your attending physician, your
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<PAGE>
family or your responsible party, and you to the extent possible, you need
nursing care. You will be considered temporarily assigned to the Health
Care Center for the first ninety (90) cumulative days of care during your
residency. If you require more than ninety (90) cumulative days of nursing
care during your residency, you will be considered permanently assigned to
the Health Care Center. Your nursing care accommodations will be in a
semiprivate room, unless a private room is medically necessary. If not
medically necessary, you may still choose to occupy a private room if one
is available as long as you agree to pay the difference between the charges
for private and semiprivate accommodations.
6.2 Medical Director and Additional Health Services. We will designate a
member in good standing of the Camden County Medical Society as medical
director. The medical director may be available to perform services at your
own expense. You have the right to choose your own attending physician. You
may engage the services of your attending physician at any time at your own
expense. We will not be responsible for the cost of medical treatment by
the medical director or your attending physician, nor will we be
responsible for the cost of medicine, drugs, prescribed therapy, personal
laundry, nursing supplies, and other medical and miscellaneous supplies and
services associated with medical treatment. If we incur or advance costs
for your medical treatment or for medicine, drugs, prescribed therapy,
nursing supplies, and other medical and miscellaneous supplies and services
associated with medical treatment (even though such medical care is given
at the direction of your attending physician or the medical director
without your prior approval), you will promptly reimburse us for such
costs.
6.3 Nursing Care. We will provide you with nursing care in the Health Care
Center to the extent authorized by our license on the following terms:
6.3.1 Temporarily Assigned to the Health Care Center When There is One
of You. When temporarily assigned to the Health Care Center, you will
continue to pay the Monthly Service Fee for your Living Unit. In addition,
you will pay for the cost of two (2) Health Care Center meals per day not
covered by the Monthly Service Fee at the then-current charge for Health
Care Center meals and any additional services as described in Section 6.2
while a resident of the Health Care Center.
6.3.2 Permanently Assigned to the Health Care Center When There is One
of You. When permanently assigned to the Health Care Center, you will
continue to pay the Monthly Service Fee for the Living Unit you just
vacated until your personal property is removed therefrom. While you are in
the Health Care Center, you will pay a Health Care Fee of $___________ per
month for care in the Health Care Center. In addition, you will pay for the
cost of two (2) Health Care Center meals per day not covered by the Health
Care Fee at the then-current charge for Health Care Center meals and any
additional services as described in Section 6.2 while a resident of the
Health Care Center.
6.3.3 Temporarily Assigned to the Health Care Center When There are
Two of You. When there are two of you and one of you is temporarily
assigned to the Health Care Center, the other of you may continue to occupy
the Living Unit under the terms of this Agreement. When temporarily
assigned to the Health Care Center, you will continue to pay the
second-person Monthly Service Fee for the Living Unit. In addition, you
will pay for the cost of two (2) Health Care Center meals per day not
covered by the Monthly Service Fee at the then-current charge for Health
Care Center
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<PAGE>
meals and any additional services as described in Section 6.2 while a
resident of the Health Care Center. In the event the resident in the Living
Unit dies while the other one is assigned to the Health Care Center, the
resident in the Health Care Center will cease paying the second-person
Monthly Service Fee and will pay the first-person Monthly Service Fee.
6.3.4 Permanently Assigned to the Health Care Center When There are
Two of You. When there are two of you and one of you is permanently
assigned to the Health Care Center, the other of you may continue to occupy
the Living Unit under the terms of this Agreement. When permanently
assigned to the Health Care Center, you will not pay the second person
Monthly Service Fee for the Living Unit. While you are in the Health Care
Center, you will pay a Health Care Fee of $___________ per month for care
in the Health Care Center. In addition, you will pay for the cost of two
(2) Health Care Center meals per day not covered by the Health Care Fee at
the then-current charge for Health Care Center meals and any additional
services as described in Section 6.2 while a resident of the Health Care
Center.
6.4 Health Care Fee Changes. We may change the amount of the Health Care
Fee upon thirty (30) days' written notice if, in our sole discretion, we
deem it necessary to meet the financial needs of operating the Health Care
Center or to provide the services to the residents (or without notice if
such change in fee is required by local, state, or federal laws or
regulations).
6.5 Return to the Living Unit. If you have released your Living Unit
because you have moved to the Health Care Center, and if we later determine
that you are able to return to a Living Unit, we will provide you with a
Living Unit of the same type as your Living Unit as soon as one becomes
available. Upon reoccupying such Living Unit, your Monthly Service Fee will
be based on the then-current Monthly Service Fee for the Living Unit.
6.6 Supplemental Insurance. You agree to maintain Medicare Part A, Medicare
Part B, and one supplemental health insurance policy or equivalent
insurance coverage acceptable to us and, upon our request, furnish us
copies of such policies. If you qualify for Medicare, the Village will file
claims with Medicare on your behalf. However, to the extent Medicare does
not cover incurred health care expenses, you will file claims with your
supplemental insurance for the difference. If the required coverage is not
maintained by you or if you refuse medical treatment which your attending
physician or the medical director believers is medically required for your
health or the health or safety of other residents of the Village, we may
revoke your right to reside at the Village and cancel this Agreement as
provided in Section 8. Furthermore, should you fail to maintain required
insurance coverage, the Provider may, but without any obligation to do so,
apply on your behalf for such insurance and bill the cost of such insurance
to your as an addition to the Monthly Service Fee.
6.7 Absence from the Village. In the event you are absent from the Village
or choose to receive care at another health care facility not designated by
the Village, we shall not be responsible for health care charges incurred
by you.
6.8 Alternate Accommodations. You shall be given priority over nonresidents
for admission to the Health Care Center. In the event the Health Care
Center is fully occupied, you will be provided care at another health care
facility. Such health care accommodations shall be in a semiprivate room
unless a private room is a medical necessity. Upon your relocation, you
shall continue to be responsible for the charges set forth in Section 6
herein. To the extent we
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<PAGE>
would be liable for your care and accommodations in the Health Care Center
under this Agreement, we will be responsible for the charges associated
with the alternate health care accommodations. You agree to relocate to the
Health Care Center when a bed becomes available.
6.9 Under Age Sixty-Two (62). If you are under age sixty-two (62) when you
occupy a Living Unit under this Agreement, you shall be entitle to care in
the Health Care Center. However, you shall be charged the then-current rate
being charged to nonresidents until you attain the age of sixty-two (62). A
current fee schedule is available upon request during normal business hours
at the Village's administrative office.
6.10 Reimbursement of Admission Payments. If you (or both of you, if there
are two of you) are permanently assigned to the Health Care Center, this
does not qualify you for reimbursement of your Admission Payments. A refund
as set for the in Section 2.5 will only be made after you (or both of you,
if there are two of you) have died or this Agreement is cancelled.
7. YOUR CANCELLATION RIGHTS.
7.1 Prior to Occupancy. You may cancel this Agreement for any reason at any
time before you move into the Village by giving us written notice signed by
you (both of you, if there are two of you). If you give such notice prior
to your occupancy of the Village, the cancellation will be effective as
described in Section 2 above.
7.2 After Occupancy. After you have moved into the Village, you may cancel
this Agreement at any time be giving us sixty (60) days' written notice
signed by you (both of you, if there are two of you). This Agreement shall
be cancelled upon expiration of sixty (60) days from the date we receive
such notice of cancellation. If you give such notice, you will pay the
Monthly Service Fee until the later of expiration of such sixty (60) days
or the removal of your personal property. If removal of your personal
property is not accomplished, we may remove and store your personal
property at the expense and risk of you or your estate. You may be entitled
to reimbursement of a portion of the Admission Payments as described in
Section 2.5.
8. OUR CANCELLATION RIGHTS.
8.1 Just Cause. After we have accepted you for residency, we will not
cancel this Agreement except for just cause. Just cause includes, but is
not limited to, the following:
8.1.1 Noncompliance. You do not comply with the terms of this
Agreement or the published operating procedures, covenants, rules,
regulations, and policies now existing or later amended by us;
8.1.2 Failure to Pay. Except as set forth below, nonpayment of fees or
charges;
8.1.3 Threat or Danger to Health or Safety. Health status or behavior
which constitutes a substantial threat or danger to the health or safety of
yourself, other residents, or others including your refusal to consent to
relocation; or
8.1.4 Not Licensed to Provide Care. There is a major change in your
physical or mental condition and your condition cannot be cared for at the
Health Care Center within the limits of your license.
8.2 Reimbursement of Admission Payments. If we do cancel this Agreement as
provided in this Section, you will be entitled to
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receive a portion of your Admission Payments subject to the conditions set
forth in Section 2.
8.3 Notice of Cancellation. Before any cancellation of this Agreement by us
under Section 8.1.1., 8.1.2, or 8.1.4, we will give you written notice
signed by the administrator that the decision is made in good faith, the
reasons supporting the decision, and the basis for the conclusion that
there is no other alternative. You will have sixty (60) days thereafter
within which the problem may be corrected. Prior to any cancellation of
this Agreement by us under Section 8.1.3, we will give you written notice
signed by the medical director and administrator that:
8.3.1 The decision is made in good faith;
8.3.2 The reasons supporting the decision that you are a danger to
yourself or others;
8.3.3 The basis for the conclusion that there is no less restrictive
alternative to cancellation; and
8.3.4 The basis for the conclusion that the danger is such that less
than a sixty (60) day notice is appropriate.
8.4 Notice Time. If the problem is corrected within the notice time, this
Agreement will remain in effect. If the problem is not corrected within the
notice time, this Agreement will be cancelled at the end of the notice
period, and you must leave the Village. Cancellation of this Agreement will
entitle you to a refund pursuant to Paragraph 2.5.
8.5 Emergency Cancellation. Notwithstanding the above, if the medical
director and the Village administrator, or persons authorized to act in
their absence, determine that either that giving of notice or the waiting
period described above might be detrimental to you or others, then such
notice and/or waiting period shall not be required before we relocate you
to an appropriate hospital or other appropriate facility. In such event, we
are expressly authorized to transfer you to a hospital or other appropriate
facility, and we will promptly notify your family or your responsible party
and your attending physician. Upon transferring you to such hospital or
other facility, we will immediately provide you with a notice of
cancellation. This Agreement shall be cancelled thirty (30) days following
notice, unless your condition improves and you are subsequently readmitted
to the Village. You are obligated to pay the Monthly Service Fee and any
extra charges you incur until removal of your personal property. If removal
of your personal property is not accomplished, we may remove and store your
personal property at the expense and risk of you or your estate.
8.6 Request for a Hearing. Under any circumstance, you may, if you wish,
request a hearing before the Gateway Communities, Inc. Board of Directors.
The hearing shall be held pursuant to New Jersey's Administrative
Procedures Act, N.J.S.A. 52:14B-1 et. seq. and the Uniform Administrative
Practice Rules, N.J.A.C 1:1-1 et seq.
9. MISCELLANEOUS PROVISIONS WITH RESPECT TO YOUR LIVING UNIT.
9.1 Use of the Living Unit. Your Living Unit is for living only and shall
not be used for carrying on any business or profession, nor in any manner
in violation of zoning restrictions.
9.2 Duration of Your Right to Occupy the Living Unit. You may reside in
your Living Unit for as long as you live unless you are not capable of
maintaining yourself in independent
D-11
<PAGE>
living in the Living Unit or this Agreement is cancelled by you or by us.
9.3 Occupancy of the Living Unit. Except as hereinafter provided, no person
other than you (or both of you, if there are two of you) may occupy the
Living Unit except with our express written approval. In the event that a
second person who is not a party to this Agreement is accepted for
residency under this Agreement after the date we sign this Agreement, said
acceptance to be in accordance with our then-current admission policies
(except that your spouse may be under age sixty-two (62)), you shall pay
Admission Payments equal to fifty percent (50%) of the ten-current Living
Unit Admission Payments upon admission. In addition, each month the
then-current Monthly Service Fee for second persons shall be paid. If such
second person does not meet the requirements for residency, such second
person will not be permitted to occupy the Living Unit for more than thirty
(30) days, except with our express written approval, and you may cancel
this Agreement as provided in Section 7.
9.4 Emergency Entry and Relocation. We may enter your Living Unit should it
be necessary in an emergency to protect your health or safety or that of
other residents. Emergency entries shall include, but not be limited to,
entries in response to the emergency call alert system, entries in response
to the automatic fire alert system, and entries by authorized personnel in
the event that you are reported missing or not responsive to calls. Should
it be necessary to modify facilities to meet requirements of any applicable
law or regulation which necessitates temporary vacation of your Living
Unit, we will provide alternate facilities for you without additional cost
within or outside the Village. If relocation is recommended by the medical
director or your attending physician, we may relocate you to another Living
Unit within or outside the Village. If relocation is recommended by the
medical director or your attending physician, we may relocate you to
another Living Unit within the Village, or request that you relocate to the
Health Care Center.
9.5 Other Entries. In addition to emergency entries described above,
authorized personnel of the Provider shall have the right, upon notice, to
enter your Living Unit for the purpose of performing routine housekeeping,
maintenance and security services, and to otherwise fulfill the Provider's
obligations to you and other residents.
9.6 Furnishings. Furnishings within the Living Unit will not provided by
us, except as stated in Section 4. Furnishings provided by you (or either
of you, if there are two of you) shall not be such as to interfere with the
health, safety, or general welfare of yourself, or that of other residents,
or others.
9.7 Alterations by You. You may not undertake any alterations to your
Living Unit without our prior written approval, and when you move out, if
requested by us, you will, at your own cost and expense, remove any
alterations and restore the Living Unit to its original condition, normal
wear and tear excepted. We may remove any such alterations and restore the
Living Unit if you fail to do so, and you agree to reimburse us for the
cost hereof.
9.8 Refurbishment. At our discretion, customary and normal refurbishment
costs of your Living Unit will be borne by us. Any refurbishment costs
which we do not consider customary and normal will be paid by you.
9.9 Guests. No one other than you shall have a right of occupancy in the
Living Unit without the consent of the administrator, unless otherwise
permitted pursuant to guest policies established by us. The intent of the
policies shall be to permit stays of short duration by your guests where
such stays shall not, in the opinion
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<PAGE>
of the administrator, adversely affect the operation of the Village or be
inconsistent with the welfare of other residents.
10. REPRESENTATIONS.
10.1 Your Representations. You represent and warrant to us the following:
10.1.1 You are at least sixty-two (62) years of age, capable of
independent living, free of communicable disease, and have assets and
income which are sufficient under foreseeable circumstances, and after
provisions for payment of your obligations under this Agreement, to meet
ordinary and customary living expenses after you move into the Village
(this is a requirement of entrance, unless waived by us in writing and
after full disclosure by you of the circumstances);
10.1.2 All facts stated by you in your application are true and
complete;
10.1.3 You have not made any gift of your property in contemplation of
signing this Agreement; and
10.1.4 You will be at least sixty-two (62) years of age or will be the
spouse of a resident of the Village who is at least sixty-two (62) years of
age when you first move into the Village.
10.2 Our Representations. We represent and warrant to you that we are a
not-for-profit corporation, and we are not affiliated with any other
religious or charitable organization.
11. PROMISES.
11.1 Your Promises. You promise to do the following:
11.1.1 To comply with all of our reasonable published operating
procedures now existing or hereafter amended;
11.1.2 To pay the Application Fee, Entrance Fee, Monthly Service Fee,
and any extra charges provided for by this Agreement.
11.1.3 To provide, by will or otherwise within sixty (60) days after
you move into the Village, for the disposition of all furniture,
possessions, and property of yours located in the Village and to make
funeral and burial arrangements;
11.1.4 To not voluntarily take any action which could impair your
ability to meet your financial obligations to us under this Agreement
without our consent; and
11.1.5 To abide by all other terms of this Agreement.
11.2 Our Promises. We promise the following:
11.2.1 It is and shall be our declared policy to operate as a
not-for-profit organization;
11.2.2 We shall not cancel this Agreement without just cause as
specified in Section 8;
11.2.3 We shall not cancel your residency solely by reasons of your
financial inability to pay the total Monthly Service Fee or extra charges.
You shall be permitted to remain at the Village until the entire unearned
Entrance Fee plus any third party insurance benefits are earned by the
Provider. The unearned portion shall be the difference between the
refundable portion of the Entrance Fee as set forth in Section 2.5 and the
cost of caring for you based upon the per
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<PAGE>
capita cost to the Provider. The per capita cost of caring for you shall be
calculated as follows:
11.2.3.1 no more than two percent (2%) of the Entrance Fee for
each month you occupy, or are entitled to occupy, a Living Unit of the
Village,
11.2.3.2 No more than four percent (4%) of the Entrance Fee for
each month the resident occupies, or is entitled to occupy, a bed in
the Village's Health Care Center, and
11.2.3.3 No more than ten percent (10%) of the Entrance Fee
pursuant to Section 2.5 as a one-time charge for processing and
refurbishment;
11.2.4 If the Entrance Fees are exhausted within ninety (90) days from
the date of failure to pay, we may not require you to leave before ninety
(90) days from the date of failure to pay. You can continue to pay us a
reduced Monthly Service Fee based on your income during this time. After
ninety (90) days, this provision shall be rendered inoperative if you have
impaired your ability to meet your financial obligations hereunder by
making unapproved gifts or other transfers. However, after ninety (90) days
if you establish facts to justify deferment of such charges and when
deferment of such charges can, in our sole discretion, be granted without
impairing our ability to operate the Village on a sound financial basis for
the benefit of the residents, we will not cancel your residency if you
continue to pay us a reduced Monthly Service Fee based on your income; and
11.2.5 We shall abide by all other terms of this Agreement.
12. MISCELLANEOUS LEGAL PROVISIONS.
12.1 Nature of Rights. You may not assign this Agreement or your rights
under it, and no rights or benefits under this Agreement shall inure to the
benefit of your heirs, legatees, assignees, or representatives, except as
to receipt of the amounts described in Section 2. Your contractual right to
occupy the Living Unit shall exist and continue to exist during your
lifetime unless cancelled by you or us pursuant to Section 7 or 8 or until
your permanent residence in the Health Care Center. You and we expressly
understand that this Agreement grants you a revocable license to occupy and
use space in the Village but does not give you exclusive possession of the
Living Unit as against us, and you and we understand that this Agreement is
not a lease or easement and does not transfer or grant you any interest in
real property owned by us.
12.2 Release. We are not responsible for loss of or damage to your personal
property, and you hereby release us from such liability. You shall be
required at your own expense to provide insurance sufficient to protect
against such losses.
12.3 Indemnity. We shall not be liable for, and you agree to indemnify,
defend, and hold us harmless from claims, damages, or expenses, including
attorneys' fees and court costs, resulting from any injury or death to
persons and any damages to property caused by, resulting from, attributable
to, or in any way connected with your negligent or intentional act or
omission.
12.4 Subordination. You agree that all your rights under this Agreement
will always be subordinate and junior to the lien of all mortgages or other
documents creating liens encumbering the Village, which have been or
D-14
<PAGE>
will be executed by us or by the fee owner of the real property upon which
the Village is located. Upon request, you agree to sign, acknowledge, and
deliver to such lender or lenders such further written evidence of such
subordination as such lenders may reasonably require. You will not be
liable for any such indebtedness.
12.5 Entire Agreement. This Agreement and any addenda or exhibits hereto
contain our entire understanding with respect to your residency.
12.6 Adjustments for Absences. No fee adjustments for absences from the
Village will be made, except at our sole discretion.
12.7 Responsible Party. You agree to execute and deliver to us within sixty
(60) days after assuming residency in your Living Unit a Durable Power of
Attorney, trust, documents, or other documentation naming a responsible
party for business and financial decision making. These documents should be
drafted to remain effective notwithstanding your incompetence or disability
and shall be in a form acceptable to us, and you agree to keep such
documents in effect as long as this Agreement is in effect. The person(s)
named as your responsible party shall not be a person(s) employed by us or
any other entity engaged in the management of the Village.
12.8 Monthly Statement. You shall receive a monthly statement showing
charges paid by, incurred by, and due from you.
12.9 Amendment. No amendment of this Agreement shall be valid unless in
writing and signed by you and us.
12.10 Compliance with Laws. This Agreement may be modified by us at any
time in order to comply with applicable laws and regulations.
12.11 Governing Law. This Agreement shall be governed, interpreted, and
construed according to the laws of the State of New Jersey.
12.12 Separability. The invalidity of any restriction, condition, or other
provision of this Agreement, or any part of the same, shall not impair or
affect in any way the validity or enforceability of the rest of this
Agreement.
12.13 Nonwaiver. If we fail to insist in any instance upon performance of
any of the terms, covenants, or conditions of this Agreement, it shall not
be construed as a waiver or relinquishment of the future performance of any
such terms, covenants, or conditions, but your obligations with respect to
such future performances shall continue in full force and effect.
12.14 Resident. When there are two of you, the rights and obligations of
each of you are joint and several, except as the context of this Agreement
otherwise requires.
12.15 Capacity. We are organized under the general not-for-profit
corporation law of Michigan and are authorized to do business in New
Jersey. This Agreement has been executed on our behalf by our duly
authorized agent, and no officer, director, agent, or employee shall have
any personal liability to you under this Agreement under any circumstance.
This Agreement will become effective upon acceptance and execution by us.
12.16 Transfers. We may sell or transfer our interest in the Village
provided the buyer shall agree to assume this Agreement and all other
existing residency agreements. Upon
D-15
<PAGE>
the assumption of this Agreement by a buyer of the Village and its
agreement to perform this Agreement and all other agreements, we shall have
no further obligation hereunder.
12.17 Reimbursement of Costs. You agree to reimburse us for any costs we
incur to collect any unpaid amounts you owe to use under this Agreement.
12.18 Arbitration. Any controversy arising under, out of, in connection
with, or relating to this Agreement, and any amendment hereof, or the
breach hereof, shall be determined and settled by arbitration in accordance
with the rules of the American Arbitration Association. Any award rendered
therein shall be final and binding on each and all of the parties thereto
and their personal representatives, and judgment may be entered on any such
award in any court having jurisdiction. Any arbitration award shall be
binding only as to the parties to the arbitration in the controversy
actually arbitrated, and the results of the arbitration shall not be
considered in any other adjudication or arbitration proceeding. If the
issue affects more than one resident, we may elect to join all affected
residents into one single arbitration proceeding, and you hereby consent to
such joinder.
12.19 Notices. Any notice required to be given to us under this Agreement
shall be in writing and sent certified mail or hand-delivered to the
administrator of Harvest Village at 114 Hayes Mill Road, Atco, New Jersey
08004. Such notices shall be dated and signed. Any notice required to be
given to you under this Agreement shall be in writing and shall be given to
you at your last known address or, if applicable, at the last known address
of your estate.
12.20 Survival of Representations and Obligations. Your representations and
obligations under this Agreement, including but not limited to, your
obligation to pay all sums owed by you to us, and your agreement to
indemnify us as set forth in Section 12.3, and our representations and
obligations under this Agreement, shall survive any cancellation or
termination of your occupancy in the Village, regardless of the reason for
such cancellation or termination and regardless of whether it is initiated
by you or by us.
12.21 Acknowledgment of Receipt of Documents. You hereby certify that you
received a copy of this Agreement which includes Exhibit A and a copy of
our most current Disclosure Statement, and have been permitted to inspect
any additional relevant materials requested to be reviewed by you or your
responsible party prior to signing this Agreement.
NOTICE TO THE RESIDENT: YOU HAVE THE RIGHT TO CANCEL THIS CONTRACT OR AGREEMENT
BY SENDING OR DELIVERING WRITTEN NOTICE OF CANCELLATION TO GATEWAY COMMUNITIES,
INC. BY MIDNIGHT OF THE THIRTIETH (30TH) CALENDAR DAY FOLLOWING THE DAY ON WHICH
IT WAS EXECUTED BY BOTH PARTIES, OR AN INITIAL DEPOSIT WAS MADE. SUCH
CANCELLATION IS WITHOUT PENALTY, AND ALL DEPOSITS MADE BY YOU SHALL BE PROMPTLY
REFUNDED WITHOUT INTEREST, EXCEPT FOR EXPENSES INCURRED BY GATEWAY COMMUNITIES,
INC. AT THE RESIDENT'S SPECIFIC REQUEST.
D-16
<PAGE>
Executed this ___ day of ___________, 19__.
____________________________________
RESIDENT
____________________________________
Witness
____________________________________
RESIDENT
____________________________________
Witness
Approved this ___ day of _______________,
19__.
GATEWAY COMMUNITIES, INC.
By:______________________________________
Authorized Representative
Application Fee ($500) and
first installment of Entrance
Fee equal 10% of total
Admission Payments $_____________
Second installment of Entrance
Fee (90% of Admission
Payments) $_____________
Total Admission Payments $
(See Section 1.1) =============
Living Unit Type _____________
Living Unit Number _____________
[Logo]
EQUAL HOUSING
OPPORTUNITY
9/95
D-17
<PAGE>
EXHIBIT A
CHECK LIST*
(PURSUANT TO N.J.A.C. 5:19-6.4(a)(2))
FACILITY: Harvest Village
TYPE OF PLAN: Traditional Residency Agreement
* These itemized services are subject to change in accordance with the terms of
Paragraphs 4 and 5 of the Traditional Residency Agreement.
KEY: A = Included in basic fee
B = Available for additional fee
C = Not available
Accommodations: Living Unit is equipped with wall-to-wall carpeting except in
kitchen and bath, draperies or curtains, bathroom with grab bars in tub or
shower, individual thermostatic control for heating and air conditioning, an
emergency call system, and additional inside storage area. All Living Units
other than studios include a range with oven, sink, and small refrigerator.
| | | |
| A | B | C | Comments
- ------------------------------------------------------------------
Utilities: | | | |
- ------------------------------------------------------------------
- -Heat | X | | |
- ------------------------------------------------------------------
- -Air Conditioning | X | | |
- ------------------------------------------------------------------
- -Electricity | X | | |
- ------------------------------------------------------------------
- -Water/Sewer Charge | X | | |
- ------------------------------------------------------------------
- -Real Estate Tax | X | | |
- ------------------------------------------------------------------
Telephone: | | | |
- ------------------------------------------------------------------
- -Service | X | | |
- ------------------------------------------------------------------
- -Outlet Only | X | | |
- ------------------------------------------------------------------
T.V.: | | | |
- ------------------------------------------------------------------
- -T.V. Antenna | | | X |
- ------------------------------------------------------------------
- -Cable Outlet | X | | |
- ------------------------------------------------------------------
- -Cable Service | X | | | Basic.
- ------------------------------------------------------------------
Meals: | | | |
- ------------------------------------------------------------------
- -Number of Meals included in M.S.F | X | | | One Daily.
- ------------------------------------------------------------------
- -Additional Meals | | X | |
- ------------------------------------------------------------------
- -Dining Room (Buffet/Waiter Service)| X | | |
- ------------------------------------------------------------------
- -Tray Service When Approved by M.D. | X | | | Limited to 6 per
| | | | year.
- ------------------------------------------------------------------
- -Prescribed Diets | X | | |
- ------------------------------------------------------------------
- -Guest Meals | | X | |
- ------------------------------------------------------------------
Housekeeping: | | | |
- ------------------------------------------------------------------
- -Light Housekeeping | X | | |
- ------------------------------------------------------------------
D-18
<PAGE>
| | | |
| A | B | C | Comments
- ------------------------------------------------------------------
How Often? | | | |Once a week.
- ------------------------------------------------------------------
- -Heavy Housekeeping | X | | |
- ------------------------------------------------------------------
How Often? | | | |Once a year.
- ------------------------------------------------------------------
- -What Duties Do They Include? | | | |Washing floors,
| | | |dusting, cleaning
| | | |baths, vacuuming
- ------------------------------------------------------------------
Laundry: | | | |
- ------------------------------------------------------------------
- -Bed Linen (S)Supplies/(L)Laundered | X | | |Laundered.
- ------------------------------------------------------------------
How Often? | | | |Once a week.
- ------------------------------------------------------------------
- -Laundry Facilities | X | | |Laundry rooms.
- ------------------------------------------------------------------
- -Other Laundry Service | | X | |
- ------------------------------------------------------------------
Maintenance and Repairs: | | | |
- ------------------------------------------------------------------
- -Electrical | X | | |
- ------------------------------------------------------------------
- -Plumbing | X | | |
- ------------------------------------------------------------------
- -Custodial | X | | |
- ------------------------------------------------------------------
- -Exterior of Living Unit | X | | |
- ------------------------------------------------------------------
- -Lawn and Snow Removal | X | | |
- ------------------------------------------------------------------
- -Trash Removal | X | | |
- ------------------------------------------------------------------
Security: | | | |
- ------------------------------------------------------------------
- -Emergency Alert System in Living | | | |
Unit | X | | |
- ------------------------------------------------------------------
- -24-Hour Response | X | | |
- ------------------------------------------------------------------
Who Responds? | | | |Security and
| | | |Nursing Personnel.
- ------------------------------------------------------------------
- -Fire and Smoke Alarms | X | | |
- ------------------------------------------------------------------
- -Sprinkler System | X | | |
- ------------------------------------------------------------------
- -Security at Entrance | X | | |At front desk.
- ------------------------------------------------------------------
- -Security on Duty 24 Hours | X | | |
- ------------------------------------------------------------------
Transportation: | | | |
- ------------------------------------------------------------------
- -To Local Areas, Shopping Centers | X | | |Scheduled.
- ------------------------------------------------------------------
- -Emergency Ambulance Service | | X | |
- ------------------------------------------------------------------
- -To Physician's Office Visits | X | | |As scheduled.
- ------------------------------------------------------------------
- -Vehicle Equipped for Handicapped | | | |
Ind. | | | X |
- ------------------------------------------------------------------
Social Activities: | | | |
- ------------------------------------------------------------------
- -Activities Director | X | | |
- ------------------------------------------------------------------
- -Social | X | | |
- ------------------------------------------------------------------
D-19
<PAGE>
| | | |
| A | B | C | Comments
- ------------------------------------------------------------------
- -Cultural | X | | |
- ------------------------------------------------------------------
- -Educational | X | | |
- ------------------------------------------------------------------
- -Spiritual | X | | |
- ------------------------------------------------------------------
- -Recreational | X | | |
- ------------------------------------------------------------------
Parking: | | | |Not Assigned.
- ------------------------------------------------------------------
- -(A)Assigned/(NA)Not Assigned | X | | |
- ------------------------------------------------------------------
- -Garage Available | | | X |
- ------------------------------------------------------------------
- -Guest Parking | X | | |In the Club House
| | | |parking area.
- ------------------------------------------------------------------
- -Carports | | | X |
- ------------------------------------------------------------------
Health Related Services: | | | |
- ------------------------------------------------------------------
- -Medical Director | | X | |Services provided
| | | |as an attending
| | | |physician are for
| | | |an additional charge.
- ------------------------------------------------------------------
- -Physician Care | | X | |
- ------------------------------------------------------------------
- -Consulting Physicians | | X | |
- ------------------------------------------------------------------
- -Physician Office on Site | X | | |
- ------------------------------------------------------------------
- -Annual or Routine Physical Exam | X | X | |Exams given as a
| | | |result of a diag-
| | | |nosed condition
| | | |are for an additional
| | | |charge.
- ------------------------------------------------------------------
X-ray or Laboratory Facilities | | X | |
- ------------------------------------------------------------------
- -Personal Care Unit | | | X |
- ------------------------------------------------------------------
- -Residential Health Care Unit | | | X |
- ------------------------------------------------------------------
- -Long Term Care Unit | | X | |90 cumulative days
| | | |of nursing care pro-
| | | |vided for the monthly
| | | |fee. Thereafter, it
| | | |is for an additional
| | | |charge.
- ------------------------------------------------------------------
- -Assistance with Bathing and Dress- | | | |
ing in Living Unit | | X | |
- ------------------------------------------------------------------
- -Prescription Medicines | | X | |
- ------------------------------------------------------------------
- -Psychiatric Therapy/Consultations | | X | |
- ------------------------------------------------------------------
- -Physical Therapy | | X | |
- ------------------------------------------------------------------
- -Occupational Therapy | | X | |
- ------------------------------------------------------------------
- -Social Services | X | | |
- ------------------------------------------------------------------
- -24-Hour Nursing Services | X | | |
- ------------------------------------------------------------------
- -Nursing Visits to Living Unit | X | | |Emergency services.
- ------------------------------------------------------------------
- -Physician Visits to Living Unit | | X | |
- ------------------------------------------------------------------
D-20
<PAGE>
| On-Site |
- -------------------------------------------------------------
| Yes | No |
- -------------------------------------------------------------
- -Alzheimer's or Related Disease Unit | | X |
- -------------------------------------------------------------
- -Auditorium | X | |
- -------------------------------------------------------------
- -Bank | X | |
- -------------------------------------------------------------
- -Barber/Beauty Shop | X | |
- -------------------------------------------------------------
- -Chapel | X | |
- -------------------------------------------------------------
- -Coffee Shop/Snack Bar | X | |
- -------------------------------------------------------------
- -Craft Rooms and Programs | X | |
- -------------------------------------------------------------
- -Dentist Office on Site | | X |
- -------------------------------------------------------------
- -Exercise Room and Program | X | |
- -------------------------------------------------------------
- -Game Room | X | |
- -------------------------------------------------------------
- -Garden Plots | X | |
- -------------------------------------------------------------
- -Golf Course/Putting Green | | X |
- -------------------------------------------------------------
- -Greenhouse | X | |
- -------------------------------------------------------------
- -Guest Accommodations | X | |
- -------------------------------------------------------------
- -Hiking and Walking Trails | X | |
- -------------------------------------------------------------
- -Library | X | |
- -------------------------------------------------------------
- -Lounges | X | |
- -------------------------------------------------------------
- -Pharmacy | | X |
- -------------------------------------------------------------
- -Postal Service (Stamps/Packages etc.) Stamps | X | |
- -------------------------------------------------------------
- -Private Dining Room/Catering | X | |
- -------------------------------------------------------------
- -Resident Association | X | |
- -------------------------------------------------------------
- -Storage Space (Outside of Unit) | | X |
- -------------------------------------------------------------
- -Sore for Gifts, Food, Sundries | X | |
- -------------------------------------------------------------
- -Swimming Pool (Indoor or Outdoor) | | X |
- -------------------------------------------------------------
- -Tennis Courts | | X |
- -------------------------------------------------------------
- -Washer/Dryer in Units | | X |
- -------------------------------------------------------------
- -Woodworking or Metal Shops | X | |
- -------------------------------------------------------------
Burial arrangements: Not Available
- --------------------------------------------------------------------------------
4129K-DCA 9/95
D-21
<PAGE>
Mortgage
(Commercial)
OLD KENT BANK AND TRUST COMPANY
THIS MORTGAGE is made on the 30th day of June, 1989, between
O1ds Manor, Inc., a Michigan corporation
as Mortgagor, and OLD KENT BANK AND TRUST COMPANY, a Michigan banking
corporation, of One Vandenberg Center, Grand Rapids, Michigan, as mortgagee
("Bank").
FOR VALUE RECEIVED, Mortgagor mortgages and warrants to Bank lands located in
the City of Grand Rapids, County of Kent, State of Michigan, described as
follows:
A11 that part of Lot 1, Kent Plat, and Part of Section 24, Town 7 North, Range
12 West described as follows: Commencing at the Northwest corner of Monroe
Avenue and Michigan Street; thence South 89 degrees 12 minutes 15 seconds West
155.25 feet along the North line of Michigan Street; thence North 18 degrees 16
minutes 15 seconds East 98.13 feet; thence North 37 degrees 23 minutes 30
seconds East 39.03 feet; thence North 17 degrees 42 minutes 30 seconds East
63.29 feet; thence North 89 degrees 14 minutes 45 seconds East 78.95 feet to the
West line of Monroe Avenue; thence South along the said West line of Monroe
Avenue 183.52 feet to beginning. Together with easements for driveway and
parking purposes as granted and determined by instruments recorded in Liber 1865
of Deeds, Page 121, Liber 1851 of Deeds Page 220, and Liber 1906 of Deeds, Page
967.
together with all buildings, structures and other improvements now and hereafter
located thereon and all easements, hereditaments, and appurtenances now or
hereafter belonging thereto and the rents, income, and profits therefrom and all
fixtures now or hereafter attached to or used in connection therewith, and all
machinery, engines, boilers, elevators, and plumbing, heating, air-conditioning,
and ventilating equipment now or hereafter located thereon, which shall be
deemed to be fixtures and a part of the realty, all of the foregoing being
collectively referred to herein as the "premises".
THIS MORTGAGE IS MADE AND GIVEN TO SECURE PAYMENT AND PERFORMANCE OF ALL
INDEBTEDNESS AND OBLIGATIONS NOW AND HEREAFTER OWING BY MORTGAGOR TO BANK,
including all obligations of Mortgagor under this Mortgage and all indebtedness
and obligations now and hereafter owing to Bank that are evidenced by any
instruments, documents and agreements listed below that have been executed by
another person or persons, including any and all extensions, renewals and
modifications thereof. The indebtedness and obligations secured by this Mortgage
are collectively referred to in this Mortgage as the "Indebtedness." If
Mortgagor is more than one person, the Indebtedness includes all indebtedness
and obligations now and hereafter owing to Bank by any one or more of such
persons, regardless of whether the remaining person or persons are not liable
for such indebtedness and obligations or whether one or more persons other than
Mortgagor are also liable for such indebtedness and obligations. The
indebtedness and obligations now owing by Mortgagor to Bank include, BUT ARE NOT
NECESSARILY LIMITED TO, the indebtedness and obligations evidenced by any
instruments, documents and agreements listed below:
Instrument, Document Principal Amount Maker
or Agreement Date (if any) (if other than Debtor)
Promissory Note June 30, 1989 $400,000.00
This Mortgage secures all present and future indebtedness and obligations owing
to Bank by Mortgagor, regardless of whether any such indebtedness or obligation
is (a) not listed above, (b) not presently intended or contemplated by Bank or
Mortgagor, (c) indirect, contingent or secondary, (d) unrelated to the premises
or to any financing of the premises by Bank, (e) of a kind or class that is
different from any indebtedness or obligation now owing to Bank by Mortgagor, or
(f) evidenced by a note or other document that does not refer to this Mortgage.
Mortgagor further warrants, represents, and agrees as follows:
1. Payment of Indebtedness. Mortgagor agrees to pay or perform all of the
Indebtedness, including all interest thereon, in accordance with the terms of
the instruments, documents, or agreements evidencing the same ("Instruments").
2. Warranties. Mortgagor warrants and represents to Bank that all financial
statements and other information concerning Mortgagor, the premises, and any
guarantor of the Indebtedness, heretofore or hereafter furnished to Bank, are
and shall be true and correct in all material
<PAGE>
respects; that the execution, delivery, and performance of this Mortgage by
Mortgagor will not violate any law, rule, judgment, order, agreement or
instrument binding upon Mortgagor nor require the approval of any public
authority or any third party, and that this Mortgage constitutes the valid and
binding obligation of Mortgagor, enforceable in accordance with its terms. If
Mortgagor is a corporation, partnership, association, trust or other entity,
Mortgagor further represents and warrants to Bank that Mortgagor is duly
organized and validly existing in good standing in the State of Michigan or
other state indicated in the first paragraph of this Mortgage; that Mortgagor
has full power and authority to carry on its business as presently conducted and
to enter into and perform its obligations under this Mortgage; that the
execution, delivery, and performance hereof by Mortgagor have been duly
authorized by all necessary action of its board of directors, trustees or other
governing body and will not violate Mortgagor's articles or certificate of
incorporation, bylaws, partnership agreement, articles of association, trust
agreement or other governing instrument, nor require the approval of its
shareholders or members.
3. Assignment of Interest as Lessee or Purchaser. Mortgagor hereby assigns
and mortgages to Bank, as additional security for the Indebtedness, all of
Mortgagor's right, title, and interest in and to any and all leases, land
contracts, or other agreements by which Mortgagor is leasing or purchasing any
part or all of the premises, including all modifications, renewals, and
extensions thereof and all of Mortgagor's rights in and to any purchase options
contained in any such lease or other agreement. Mortgagor agrees to pay or cause
to be paid each and every installment of rent or of principal or interest
required to be paid by the lessee or buyer under any such lease, land contract,
or other agreement, as and when the same shall become due and payable, whether
by acceleration or otherwise. Mortgagor further agrees to pay and perform, or
cause to be paid and performed, all other obligations of the lessee or buyer
under any such lease, land contract or other agreement. If Mortgagor shall
default in the payment of any such installment of rent or of principal or
interest or in the payment or performance of any other obligation under any such
lease, land contract, or other agreement, then Bank shall have the right, but
shall have no obligation, to pay such installment or installments, to pay or
perform such other obligation on behalf of Mortgagor, and to exercise any rights
of Mortgagor under any such lease, land contract or other agreement, including
any purchase option. All sums expended by Bank in connection therewith shall
become part of the Indebtedness, payable by Mortgagor to Bank upon demand,
together with interest at the lesser of (a) five percent (5%) above the rate of
interest announced from time to time by Bank as its "prime" rate of interest, or
(b) the highest rate to which Mortgagor could lawfully agree in writing
("Default Rate"). On receipt by Bank from the lessor or seller under any such
lease, land contract, or other agreement of any written notice of default by the
lessee or buyer thereunder, Bank may rely thereon and take any action to cure
the default even though the existence or nature of the default is questioned or
denied by Mortgagor.
4. Assignment of Leases and Contracts. Mortgagor, to the extent permitted
by law, hereby assigns and mortgages to Bank, and grants to Bank a security
interest in, as additional security for the Indebtedness, all of Mortgagor's
right, title, and interest in and to all existing and future oral or written
leases of all or any part of the premises or of any interest therein and any and
all existing and future land contracts or other agreements by which the premises
or any interest therein is being or shall be sold, together with all rents and
profits arising from, and all other proceeds of, any such leases, land
contracts, or other agreements. Without the written consent of Bank, Mortgagor
will not cancel, accept a surrender of, modify, consent to an assignment of the
lessee's interest under, or make any other assignment or other disposition of
any such lease, land contract, or other agreement or of any interest of
Mortgagor therein, and will not collect or accept any payment of rent or of
principal or interest or any other amount thereunder more than one month prior
to the time when the same shall become due and payable under the terms thereof.
Mortgagor will pay and perform all obligations and covenants required of it by
the terms of any such lease, land contract, or other agreement. If Mortgagor
shall default in the payment or performance of any such obligation or covenant,
then Bank shall have the right, but shall have no obligation, to pay or perform
the same on behalf of Mortgagor, and all sums expended by Bank in connection
therewith shall become part of the Indebtedness, payable by Mortgagor to Bank
upon demand, together with interest at the Default Rate. Nothing contained in
this paragraph or in Paragraph 10 hereof shall be construed to constitute
consent by Bank to the sale, lease or transfer of the premises or any interest
therein.
5. Taxes. Mortgagor will pay, or cause to be paid, before they become
delinquent, all taxes, assessments, and other similar charges levied upon or
with respect to the premises and will deliver to Bank satisfactory evidence of
the payment thereof. Upon request by Bank, Mortgagor will pay to Bank each
month, in addition to any payments required on the Indebtedness, a sum equal to
one-twelfth of the amount estimated by Bank from time to time to be sufficient
to enable Bank to pay, at least thirty days before due, all taxes, assessments,
and other similar charges levied upon or with respect to the premises; and upon
demand by Bank, Mortgagor will pay to Bank such additional sums as shall be
required to make up any deficiency in the amount necessary to enable Bank to pay
fully any of such taxes, assessments, or other similar charge when due. Such
sums may be commingled with the general funds of Bank, and no interest shall be
payable to Mortgagor with respect thereto. Upon occurrence of an event of
default, as hereinafter defined, Bank may apply any funds of Mortgagor then held
under this paragraph against the Indebtedness, in such manner as Bank shall
determine.
6. Insurance. Mortgagor will cause all buildings, improvements, and other
insurable parts of the premises to be insured against loss or damage by fire, by
hazards included within extended coverage and by such other hazards as Bank from
time to time may require, in such amounts and with such insurers as shall be
acceptable to Bank, and Mortgagor shall cause ail premiums on the insurance to
be paid when due. Each policy evidencing such insurance shall provide that loss
shall be payable to Bank as its interest shall appear at the time of the loss,
shall contain a standard mortgage clause, shall be in form and substance
acceptable to Bank, and shall be delivered to Bank. Each policy shall provide
that at least ten days' prior written notice of any cancellation of, or any
material change in, the insurance shall be given to Bank by the insurer. Each
renewal of each such policy shall be delivered to Bank at least ten days prior
to the expiration date of the policy. Upon foreclosure of this Mortgage or other
transfer of the premises in satisfaction of the Indebtedness, all right, title
and interest of Mortgagor in and to any insurance policies then in force,
including the right to any premium refund thereon, shall vest in the purchaser
or grantee. In event of any loss of or damage to the premises, Mortgagor will
give immediate notice thereof to Bank, and Bank shall have the right to make
proof of the loss or damage, if Mortgagor does not promptly do so. Bank is
authorized to settle, adjust, or compromise any claims for loss or damage under
any such insurance policy. Mortgagor shall forthwith endorse and deliver to Bank
all proceeds of any such policy.
7. Maintenance and Repair. Mortgagor will maintain the premises in good
condition and repair; will not commit or suffer any waste thereof; will not
remove, demolish, or substantially alter any building or fixture on the premises
without the prior written consent of Bank; will cause to be complied with all
laws, ordinances, regulations, or requirements of any governmental authority
applicable to the premises or to activities on the premises; will promptly
repair, restore, replace, or rebuild any part of the premises that is damaged or
destroyed by any casualty; and will promptly pay when due all charges for
utilities and other services to the premises.
8. Bank's Right to Perform; Receiver. If Mortgagor shall default in the
payment of the aforesaid taxes, assessments, or other similar charges or in
procuring and maintaining the aforesaid insurance or in the performance of any
other obligation of Mortgagor hereunder (other than any obligation of Mortgagor
under paragraph 11 hereof), including its obligation to keep the premises in
good condition and repair, then Bank shall have the right, but shall have no
obligation, to pay such taxes, assessments, or other similar charges, or procure
and maintain such insurance, or cause such other obligation to be performed, and
all sums expended by Bank in connection therewith shall become part of the
Indebtedness, payable by Mortgagor to Bank upon demand, together with interest
at the Default Rate. Bank and any persons authorized by Bank shall have the
right to enter upon the premises at all reasonable times for the purpose of
inspecting the premises or effecting maintenance or repairs or taking any other
action pursuant to the preceding sentence. The failure of Mortgagor to pay any
of such taxes, assessments or similar charges when due or to procure and
maintain any such insurance shall constitute waste and shall entitle Bank to the
appointment by a court of competent jurisdiction of a receiver of the premises
for the purpose of preventing the waste, which receiver, subject to the order of
the court, may collect the rents and income from the premises and exercise such
control over the premises as the court shall order.
9. Condemnation. If all or any part of the premises are taken, whether
temporarily or permanently, under power of eminent domain or by condemnation,
the entire proceeds of the award or other payment in relief thereof shall be
paid directly to Bank.
10. Vendee. In the event of the sale or transfer, by operation of law or
otherwise, of all or any part of the premises, Bank may deal with the vendee or
transferee with respect to this Mortgage and the Indebtedness as fully and to
the same extent as it might with Mortgagor, without in any way releasing,
discharging, or affecting the liability of Mortgagor hereunder and upon the
Indebtedness, and without waiving Bank's right to accelerate payment of the
Indebtedness, under paragraph 12 below, by reason of the sale or transfer.
11. Environmental Warranties and Agreements. Mortgagor warrants and
represents to, and agrees with, Bank as follows:
(a) The premises, and all operations and activities thereon, are and
shall continue to be in compliance with all environmental laws; and the
premises are not and shall not become (i) contaminated by, or the site of
the disposal or release of, any hazardous substance, (ii) the source of any
contamination, by any hazardous substance, of any adjacent property or of
any groundwater or surface water, or (iii) the source of any air emissions
in excess of any legal limit now or hereafter in effect; and, except as
expressly disclosed by Mortgagor to Bank in writing, no asbestos or
polychlorinated biphenyls are present or contained in or on the premises.
(b) Mortgagor shall take all actions necessary to investigate, clean
up, and eliminate the source of, any past, present or future contamination
of the premises by any hazardous substance and to prevent any additional
contamination of the premises. The taking of action by Mortgagor under this
subparagraph (b) shall not limit any other right or remedy available to
Bank by reason of any such contamination (including Bank's right to
accelerate payment of the Indebtedness).
(c) For purposes of this Mortgage, (i) "environmental law" means any
past, present or future federal, state, local or foreign law, ordinance,
rule, regulation or order that regulates or is intended to protect public
health or the environment or that establishes liability for the
investigation, removal or clean-up of, or damage caused by, any
environmental contamination, including, without limitation, any law,
ordinance, rule, regulation or order that regulates or prescribes
requirements for air quality, water quality or the disposition,
transportation or management of waste materials or toxic substances; (ii)
"hazardous substance" means any product or waste that is now or hereafter
regulated by or subject to any environmental law and any other hazardous
substance, pollutant, contaminant or waste, including, without limitation,
asbestos and polychlorinated biphenyls; and (iii) property shall be
considered to be "contaminated" by a hazardous substance if a hazardous
substance is present on or in the property in any amount or level.
12. Events of Default and Acceleration. Upon the occurrence of any of the
following events of default, all or any part of the Indebtedness shall, at the
option of Bank, become immediately due and payable without notice or demand:
(a) If default occurs in the payment or performance of any of the
Indebtedness, when and as it shall be due and payable, whether at maturity
or otherwise.
(b) If default occurs in the performance of any obligation to Bank
under this Mortgage, under any Instrument or under any other mort-
<PAGE>
gage, security agreement, loan agreement, assignment, guaranty, or other
agreement that now or hereafter secures or relates to any indebtedness or
obligation now or hereafter owing by Mortgagor to Bank or that secures or
relates to any guaranty of any such other indebtedness or obligation
("Security Documents").
(c) If any warranty, representation or statement heretofore or
hereafter made to Bank by Mortgagor or by any guarantor of all or part of
the Indebtedness ("Guarantor") in this Mortgage or in any Security
Document, credit application, financial statement or otherwise, shall have
been false in any material respect when made or furnished.
(d) If Mortgagor shall default in payment of the principal of or
interest on any indebtedness for borrowed money now or hereafter owed to
any person other than Bank.
(e) If Mortgagor or any of Mortgagor's partners (if Mortgagor is a
partnership) or any Guarantor shall die, dissolve, become insolvent or make
an assignment for the benefit of creditors.
(f) If Mortgagor, without the written consent of Bank, shall sell,
convey, or transfer the premises or any interest therein or any rents or
profits therefrom or if any mortgage, lien, or other encumbrance or any
writ of attachment, garnishment, execution, or other legal process shall
be issued against or placed upon the premises or any interest therein or
any rents or profits therefrom, in excess of 80% of the value of the
property being mortgaged, except in favor of Bank, or if any part of the
premises or any interest therein shall be transferred by operation of law.
(g) If all or any material part of the premises shall be damaged or
destroyed by fire or other casualty, regardless of insurance coverage
therefor, or shall be taken by condemnation or power of eminent domain.
(h) If any law or government regulation shall hereafter impose any tax
or assessment upon mortgages on debts secured by mortgages.
(i) If any guaranty that now or hereafter secures payment or
performance of all or any part of the Indebtedness shall be terminated or
limited, for any reason, without the written consent or agreement of Bank.
(j) If at any time Bank in good faith believes that the prospect of
payment or performance of any part or all of the Indebtedness is impaired.
(k) If any lease, land contract, or other agreement by which Mortgagor
is leasing or purchasing any interest in the premises shall be declared by
the lessor or seller thereunder to be forfeited or terminated or if any
suit or other action shall be commenced to foreclose any such land contract
or to recover possession of all or any part of the premises by reason of
any default or alleged default under any such lease, land contract, or
agreement.
If a voluntary or involuntary case in bankruptcy or receivership shall be
commenced by or against Mortgagor or any of Mortgagor's partners (if Mortgagor
is a partnership) or any Guarantor, then the entire Indebtedness shall
automatically become immediately due and payable, without notice or demand. All
or any part of the Indebtedness also may become, or may be declared to be,
immediately due and payable under the terms and conditions contained in any
Security Document, Instrument or other agreement heretofore or hereafter entered
into between Bank and Mortgagor.
13. Remedies. Bank shall have all rights and remedies provided for in this
Mortgage or otherwise permitted by law. In addition, if the Indebtedness shall
not be paid upon maturity, Bank shall have the right, and is hereby authorized:
(a) To the extent permitted by law, to collect and receive all rents,
profits, and other amounts that are due or shall hereafter become due under
the terms of any leases, land contracts, or other agreements, now or
hereafter in effect, by which the premises or any interest therein are then
being sold or leased, and to exercise any other right or remedy of
Mortgagor under any such lease, land contract, or other agreement,
provided, that Bank shall have no obligation to make any demand or inquiry
as to the nature or sufficiency of any payment received or to present or
file any claim or take any other action to collect or enforce the payment
of any amounts to which Bank may become entitled hereunder, nor shall Bank
be liable for any of Mortgagor's obligations under any such lease, land
contract, or other agreement.
(b) To obtain or update abstracts of title, title searches, title
insurance and surveys with respect to the premises, and Mortgagor shall
reimburse Bank for ail costs thereof, together with interest at the Default
Rate.
(c) To conduct or obtain an environmental investigation or audit of
the premises, and Mortgagor shall reimburse Bank for all costs thereof,
together with interest at the Default Rate.
(d) To foreclose this Mortgage by action pursuant to applicable law.
(e) To sell, release, and convey the premises at public sale, and to
execute and deliver to the purchasers at such sale good and sufficient
deeds of conveyance, rendering any surplus funds, after payment of the
Indebtedness in full and the expenses of such sale, including attorney fees
as provided by law, to Mortgagor, all in accordance with Chapter 32 of the
Michigan Revised Judicature Act, as the same may be amended from time to
time, and any similar statutory provisions which may hereafter be enacted
in addition thereto or in substitution therefor. In the event of public
sale, the premises, at the option of Bank, may be sold in one parcel.
(f) To exercise any and all rights and options of Mortgagor under any
lease, land contract, or other agreement by which Mortgagor is then leasing
or purchasing any part or all of the premises, including any option to
purchase the premises or to renew or extend the term of any such lease,
land contract, or other agreement, but Bank shall have no obligation to
exercise any such right or option.
All rights and remedies of Bank under this Mortgage, whether or not
exercisable only on default, shall be cumulative and may be exercised from time
to time, and no delay by Bank in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy, except to the extent otherwise provided by law. In this
Mortgage, "maturity" means such time as the Indebtedness shall be or shall
become due and payable, whether by the terms of the Instruments or pursuant to
paragraph 12 hereof or otherwise.
14. Security Interest In Fixtures. Mortgagor grants to Bank a security
interest in all fixtures now or hereafter located on the premises. If the
indebtedness is not paid at maturity, Bank, at its option, may enforce this
security interest in fixture under the Michigan Uniform Commercial Code or other
applicable law or may include the fixtures in any foreclosure of this Mortgage
under paragraph 13 hereof. Any requirement of reasonable notice with respect to
any sale or other disposition of fixtures shall be met if Bank sends the notice
at least five (5) days prior to the date of sale or other disposition.
15. Indemnification. Mortgagor shall indemnify and hold harmless Bank with
respect to any and all claims, demands, causes of action, liabilities, damages,
losses, judgments and expenses (including attorney fees) that shall be asserted
against or incurred by Bank by reason of (a) any representation or warranty by
Mortgagor in this Mortgage being inaccurate in any respect, (b) any failure of
Mortgagor to perform any of Mortgagor's obligations under this Mortgage, or (c)
any past, present or future condition or use of the premises (whether known or
unknown), other than an excluded condition or use, including, but not limited
to, liabilities arising under any "environmental law," as defined in paragraph
11 of this Mortgage. An "excluded condition or use" is one that (i) does not
exist or occur, to any extent, at any time before Mortgagor has permanently
given up possession and control of the premises by reason of a foreclosure of
this Mortgage or a conveyance of the premises to Bank in lieu of foreclosure and
(ii) was not caused or permitted to exist, in whole or part, by any act or
omission of Mortgagor. Indemnification by Mortgagor under this paragraph shall
not limit any other right or remedy (including Bank's right to accelerate
payment of the Indebtedness) that is available to Bank by reason of the
circumstance in respect of which indemnity is made. Mortgagor's obligations
under this paragraph shall survive foreclosure of this Mortgage and any
conveyance of the premises in lieu of foreclosure.
16. Waivers.
(a) Mortgagor and any other person hereafter obtaining any mortgage or
lien upon, or any other interest in, the premises waives, with respect to
any foreclosure of this Mortgage, (i) any right to marshaling of the
premises and any right to require a minimum bid or "upset" price, and (ii)
the benefit of any stay, extension, exemption or moratorium law, now
existing or hereafter enacted.
(b) Bank may at any time release all or any part of the premises from
the lien of this Mortgage or release the personal liability of any person
for the Indebtedness, with or without consideration and without giving
notice to, or obtaining the consent of, the holder of any mortgage or lien
upon, or other interest in, the premises. Any such release shall not impair
or affect the validity or priority of this Mortgage, regardless of the
effect of such release upon any such mortgage, lien or other interest or
the holder thereof. Nothing in this subparagraph constitutes consent by
Bank to the placing of a mortgage, lien or other encumbrance on the
premises.
(c) Mortgagor (i) waives notice of any advances or other extensions of
credit included in the Indebtedness, (ii) waives any right to require Bank
to sue upon or otherwise enforce payment of the Indebtedness or to enforce
any security therefor before exercising its rights and remedies under this
Mortgage, and (iii) agrees that the validity and enforceability of this
Mortgage shall not be impaired or affected by any failure of Bank to obtain
or perfect, or secure priority of, any other security at any time given, or
agreed to be given, by any person for the Indebtedness.
(d) Bank is authorized from time to time and without notice to or
consent of Mortgagor and with or without consideration, to give and make
such extensions, renewals, modifications, waivers, settlements, and
compromises, on such terms and conditions as Bank may see fit, with regard
to any of the Indebtedness as to which Mortgagor is not the obligor or with
regard to any security for the Indebtedness that is not owned by Mortgagor.
Any such action shall not impair or affect the validity or enforceability
of this Mortgage.
17. Expenses. Mortgagor shall pay to Bank on demand any and all expenses,
including attorneys' fees and legal expenses, paid or incurred by Bank in
collecting or attempting to collect the Indebtedness or in protecting and
enforcing the rights of and obligations to Bank under any provision of this
Mortgage, including, without limitation, taking any action in any bankruptcy,
insolvency, or reorganization proceedings concerning Mortgagor or foreclosing
this Mortgage by advertisement or by action. All such expenses shall be part of
the Indebtedness and shall bear interest, from the date paid or incurred by
Bank, at the Default Rate.
18. Application of Proceeds. In the event of the payment to Bank, pursuant
to the provisions hereof, of any rents or profits or any proceeds of insurance
or proceeds of any condemnation or eminent domain award or proceeds from any
sale of the premises at foreclosure, Bank shall have the right to apply such
rents or profits or proceeds, in such amounts and proportions as Bank shall in
its sole discretion determine, to the full or partial satisfaction of any or all
of the indebtedness and obligations of Mortgagor secured hereby, including any
contingent or secondary obligations, whether or not the same shall then be due
and payable by the primary obligor.
19. Other. All notices to Mortgagor and to Bank shall be deemed to be duly
given if and when mailed, with postage prepaid, to the respective addresses of
Mortgagor and Bank appearing on the front page hereof, or if and when delivered
personally. The provisions of this Mortgage shall be binding upon and inure to
the benefit of Mortgagor and Bank and their respective successors, assigns,
heirs and personal representatives. Any provision of this Mortgage prohibited or
unenforceable by any applicable law shall be ineffective only to the extent and
for the duration of such prohibition or unenforceability without invalidating
the remaining provisions hereof. If Mortgagor is more than one person, their
obligations under this Mortgage are joint and several, and the term "Mortgagor"
refers to each of them and all of them.
<PAGE>
IN WITNESS THEREOF, Mortgagor and Bank have executed this Mortgage as of the
date first written above.
Witnesses: Individual Mortgagor(s):
_________________________________ __________________________
_________________________________ __________________________
Non-individual Mortgagor:
Olds Manor, Inc.
/s/ Lawrence C. Proehl By /s/ Donald M. Sorota
- --------------------------------- --------------------
Lawrence C. Proehl Donald M. Sorota
Its Vice President
/s/ Becky S. Swaney And by ____________________
- ---------------------------------
Becky Swaney Its________________________
STATE OF MICHIGAN )
:ss
COUNTY OF )
The foregoing Mortgage was acknowledged before me this _________ day of
_________________, 19__, by __________________________________.
________________________________
Notary Public, _____ County, Michigan.
My commission expires: ______________
STATE OF MICHIGAN )
:ss
COUNTY OF KENT )
The foregoing Mortgage was acknowledged before me this 30th day of June,
1989, by Donald M. Sorota, the Vice President, of Olds Manor, Inc., a Michigan
corporation (type of entity), on its behalf.
/s/ Renee M. VanDriel
---------------------------------
Notary Public, Kent County, Michigan.
My commission expires: Jan 9, 1993
This instrument prepared by:
OLD KENT BANK AND TRUST COMPANY
One Vandenberg Center, Grand Rapids, Michigan 49503
MORTGAGE
LOAN NO.________________
Return to:
OLD KENT BANK
AND TRUST COMPANY
Grand Rapids, Michigan 49503
<PAGE>
ESTOPPEL CERTIFICATE
Date _______________
Title Commitment No. 800167
Transamerica Title Insurance Company
To induce you to issue your Mortgage Policy of Title Insurance in accordance
with your above mentioned Title Insurance Commitment, insuring the mortgage and
the title to the land described therein, the undersigned mortgagor(s)
acknowledge that incident to the closing of the mortgage upon said lands, the
mortgagee caused the full sum of $400,00.- the amount thereby secured, to be
paid to or for the benefit of the undersigned.
The undersigned further certify that, unless otherwise indicated below, the
property is owned and occupied exclusively by them on the date hereof.
The undersigned further certify that they are 18 years of age or over unless
otherwise indicated below.
Remarks:
Olds Manor, Inc.,
a Michigan Corporation
By: /s/Donald M. Sorota, V.P.
_____________________________
Mortgagor(s)
- --------------------------------------------------------------------------------
ORDER TO ISSUE POLICY
Please issue the above Mortgage Policy of Title Insurance.
Special instructions:
_______________________________
Mortgagee
(SEE REVERSE SIDE FOR TAX INDEMNITY)
Form No. M-132.1
<PAGE>
Date _______________
Policy No. _______________
Transamerica Title Insurance Company
Please issue your above cited Mortgage Policy of Title Insurance free of the
encumbrance of the following taxes:
|_| 19__ City or Village
|_| 19__ State and County
|_| Special Assessment Roll
- --------------------------------------------------------------------------------
|_| We have retained funds and will pay the tax as soon as bills are available.
|_| We have the "paid" receipt in our file.
|_| We enclose check and tax bill for payment.
This statement is made to induce TRANSAMERICA TITLE INSURANCE COMPANY to issue
the above cited Mortgage Policy of Title Insurance free of the encumbrance of
the above taxes.
Company_______________________________________
By_______________________________________
(Must be signed by authorized officer)
<PAGE>
Resolutions of Corporate Board
(Authority to Obtain Credit and Give Security)
THE UNDERSIGNED does hereby certify to OLD KENT BANK & TRUST CO. (Bank)
that the undersigned is the Secretary of OLDS MANOR, INC., a MICHIGAN
corporation (Company), and that the following resolution was adopted by the
board of directors of the Company on JUNE 26, 1989 (check applicable box)
|_| at a meeting of the board duly called, convened and held on that date,
at which meeting a quorum of the board was present and acting throughout,
and a majority of the board voted in favor of the adoption thereof:
|X| by a written consent signed by all members of the board of directors:
"RESOLVED, that the person(s) who shall from time to time be certified by
the Secretary or any Assistant Secretary of this corporation to the above named
bank as holding the office(s) of PRESIDENT, VICE-PRESIDENT or SECRETARY of this
corporation (Authorized Officer(s)), or any ONE of them, is/are authorized, for
an on behalf of this corporation, from time to time to:
(1) Apply for and obtain loans and other extensions of credit from
Bank to this corporation;
(2) Discount with and sell to Bank installment sales contracts, notes,
acceptances, drafts, receivables, commercial paper and other evidences of
indebtedness payable to this corporation, with or without recourse;
(3) Receive and receipt for, and sign orders and issue instructions as
to, the handling and delivery of proceeds of any such loans, extensions of
credit, discounts and sales;
(4) Apply for and obtain from Bank letters of credit for the account
of this corporation;
(5) Guarantee indebtedness and obligations owing to Bank by third
parties;
(6) Lease personal property or fixtures from Bank, whether under true
leases or financing leases;
(7) Subordinate any indebtedness or obligation at any time owing to
this corporation by any person, firm or corporation, to indebtedness and
obligations at any time owing to Bank by any such person, firm or
corporation, and subordinate any security interest, mortgage or other lien
in or upon any assets or properties of any person, firm or corporation, at
any time held by this corporation to secure any such indebtedness or
obligation, to security interests, mortgages and other liens at any time
held by Bank in any such assets or properties;
(8) Grant to Bank security interests in, and mortgages and liens upon,
and assignments of, any or all assets and properties of this corporation,
both real and personal, tangible and intangible, now owned and hereafter
acquired, wherever located, to secure any and all indebtedness, obligations
and liabilities now and hereafter owing to Bank by this corporation; and
(9) Enter into such renewals, extensions, refinancings and
modifications of any of the foregoing;
all in such amounts, at such rates of interest and on such other terms and
conditions as may be agreed to by such Authorized Officer(s) on behalf of this
corporation.
FURTHER RESOLVED, that the Authorized Officer(s) shall be and hereby is/are
authorized, for and on behalf of this corporation, to execute and deliver to
Bank, from time to time, all such applications, promissory notes, loan
agreements, leases, security agreements, mortgages, pledge agreements, financing
statements, guaranties, subordination agreements, assignments, acceptances,
deeds, bills of sale, waivers, amendments and other agreements, instruments and
documents as may be required from time to time by Bank in connection with the
transactions authorized above, and to take any and all other actions in
connection therewith as may
(continued on other side)
<PAGE>
THE UNDERSIGNED further certifies to Bank that the above resolution has not
been rescinded or modified in any manner and is in full force and effect on the
date hereof.
THE UNDERSIGNED further certifies to Bank that the persons whose names,
titles and signatures appear below are the Authorized Officers named in the
above resolution and are officers of the Company, holding on the date hereof the
offices set opposite their respective names below, and that the signatures
appearing opposite their respective names below are the genuine signatures of
such officers:
Name Office Signature
WILLIAM A. HENLEY PRESIDENT /s/ William A. Henley
- ------------------ --------------------- ------------------------
DONALD M. SOROTA VICE-PRESIDENT & TREASURER /s/ Donald M. Sorota
- ------------------ --------------------- ------------------------
CARL G. PAFFENDORF SECRETARY /s/ Carl G. Paffendorf
- ------------------ --------------------- ------------------------
IN WITNESS WHEREOF, the undersigned has signed this Certificate this 26th
day of JUNE, 1989.
/s/ Carl G. Paffendorf
------------------------
CARL G. PAFFENDORF
Secretary
I, BARRY ARONOWSKY, do hereby certify to the above-named bank that I am a
director of the corporation named above (Company), that the signature subscribed
to the foregoing Certificate purporting to be the signature of CARL G.
PAFFENDORF is the genuine signature of said person, that said person is the
Secretary of Company and that the Certificate is true and correct.
/s/ Barry Aronowsky
------------------------
BARRY ARONOWSKY
Director
<PAGE>
MORTGAGE
THIS MORTGAGE ("Mortgage") is made this 31 day of May, 1993, by the Olds
Manor, Inc., a Michigan corporation, whose address is c/o Vanguard Ventures,
Inc., 4 Cedar Swamp Road, Glen Cove, New York 11542 ("Borrower"), unto The Olds
Manor Mortgage Trust, a trust organized under the laws of the State of New York,
whose address is c/o Carl G. Paffendorf, Trustee, Vanguard Ventures, Inc., 4
Cedar Swamp Road, Glen Cove, New York 11542 ("Lender").
WHEREAS, Borrower is justly indebted to Lender in the principal sum of Nine
Hundred Fifty Thousand and 0/100 Dollars ($950,000.00), together with interest
thereon in accordance with a Convertible Mortgage Note from Borrower to Lender
of even date herewith (the "Mortgage Note"), the Mortgage Note identified as
being secured hereby by a statement thereon.
THEREFORE, in order to secure payment of the principal and interest of such
indebtedness according to the terms of the Mortgage Note, and all other amounts
payable by Borrower to Lender hereunder, the performance of the agreements and
covenants of Borrower under any other instrument or document executed by
Borrower in connection herewith, or the transactions contemplated thereby (the
Mortgage Note, this Mortgage and such other documents being collectively
referred to herein as the "Loan Documents"), and all other amounts payable by
Borrower to Lender under the Mortgage Note, and the performance of the covenants
and conditions hereof, and any and all extensions and renewals of any of the
foregoing, however evidenced (all of which secured obligations are referred to
herein as the "Obligations"), Borrower does hereby:
A. MORTGAGE and WARRANT to Lender and its successors and assigns forever,
certain land situated in the State of Michigan, as more particularly described
in Exhibit A attached hereto, together with:
1. all the estate, title, interest and rights of Borrower in and to said
land and all buildings and improvements of every kind and description
now or hereafter placed upon said land or any part thereof;
2. all machinery, apparatus, equipment, appliances, floor coverings,
furniture, furnishings, supplies, materials, fittings, fixtures and
personal property of every kind and nature whatsoever, now or
hereafter located in or upon, affixed to or intended for use in or
upon said land and improvements, whether stored thereon or elsewhere,
or any part thereof, now owned or hereafter acquired by Borrower, and
used or usable in connection with any present or future operation or
maintenance of said land and improvements, and all replacements
thereof, including, but not limited to: all heating, cooling,
ventilating, lighting, electrical and power systems, fixtures and
equipment, and all pipes, ducts, pumps, tanks, compressors, engines,
motors, conduits, plumbing and cleaning equipment, fire-extinguishing
systems, refrigerating and ventilating apparatus, air cooling and air
<PAGE>
conditioning apparatus, gas, water and electrical equipment,
elevators, escalators, attached cabinets, shelving, partitions,
carpeting, communications equipment, lifts, hoists, appliances,
awnings, stoves, refrigerators, dishwashers, disposals, incinerators,
carpeting and drapes, and all of Borrower's present or future interest
in all supplies, furniture,. fixtures and equipment of every type,
nature and description; all of which items described in this clause
(2) shall be deemed to be a part of the real property and covered by
the lien hereof;
3. all of the rents, profits, and income thereof, all leases and other
occupancy agreements and arrangements, and the tenements,
hereditaments, easements, privileges and appurtenances thereto running
to Borrower; and
4. all agreements, contracts (including contracts for the lease or sale
of the premises or any portion thereof), licenses and permits
affecting the premises, all awards in any condemnation or eminent
domain proceedings for a taking or for loss of value of said land and
improvements, all general intangibles now or hereafter located upon
said land, or related to or used or usable in connection with any
present or future operation upon said land, and the proceeds of all
insurance policies now or hereafter covering all or any part of the
premises.
(Any reference herein to the "mortgaged premises" or to the "premises" shall be
deemed to apply to the above described land and to the improvements, property,
rights and other items described in clauses (1), (2), (3) and (4) above, unless
the context shall require otherwise.)
To have and to hold the premises, with all of the tenements, hereditaments,
easements, appurtenances and other rights and privileges thereunto belonging or
in any manner now or hereafter appertaining thereto, for the use and benefit of
Lender upon the conditions hereinafter set forth.
This Mortgage and all rights of Lender hereunder, is and shall be
Subject and Subordinate, in each and every respect, to the rights of Old Kent
Bank and Trust Company (the "First Lender"), under and pursuant to a certain
mortgage upon the premises, recorded on August 8, 1989 in Liber 2653, Page 104,
Kent County Records (the "First Mortgage") and to the rights of Citibank, N.A.,
and Lloyds Bank Plc (collectively the "Second Lender"), under and pursuant to a
certain mortgage upon the premises, recorded on November 2, 1989 in Liber 2683,
Page 103, Kent County Records (the "Second Mortgage"). The provisions of this
paragraph are self operative, and no further instrument of subordination shall
be required.
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<PAGE>
B. Grant to Lender a security interest in that portion of the premises with
respect to which a security interest can be granted under Article Nine of the
Michigan Uniform Commercial Code, as amended, together with the proceeds and
products thereof.
C. Covenant, promise and agree to and with Lender, which covenants,
promises and agreements shall, to the extent permitted by law, be deemed to run
with the land, as follows:
1. Performance of Obligations
Borrower shall pay the principal and interest of Borrower's indebtedness to
Lender according to the terms of the Mortgage Note, and shall pay all other
amounts provided herein, and Borrower and all other parties to the Loan
Documents shall perform all the Obligations.
2. Covenants of Title
At the time of the execution and delivery of this Mortgage, Borrower is
well and truly seized of the premises in fee simple, free of all easements,
liens and encumbrances except and subject only to the First Mortgage, the Second
Mortgage and those matters of record as of the date hereof, and Borrower will
forever warrant and defend the same against any and all other claims whatever,
and the lien created hereby is and will be kept as a first lien upon the
premises and every part thereof, subject only to the foregoing exceptions.
3. Taxes
3.1. Borrower shall pay all real property taxes, assessments and other
charges and encumbrances levied upon the premises when and as the same become
due and payable, and will deliver to Lender, without demand, official receipts
showing such payment.
3.2. Borrower also shall pay, when due all taxes, assessments and
other charges and encumbrances that may be levied upon or on account of this
Mortgage or the indebtedness secured hereby or upon the interest or estate in
the mortgaged premises created or represented by this Mortgage, whether levied
against Lender or otherwise. In addition, in the event of the passage after the
date of this Mortgage of any law of the State of Michigan, deducting from the
land for the purpose of taxation any lien thereon, or changing in any way the
laws now in force for the taxation of mortgages, deeds of trust or debts secured
thereby for state or local purposes, or the manner of the operation of any such
taxes so as to affect the interest of Lender, then Borrower shall bear and pay
the full amount of such new or additional taxes. If payment by Borrower of any
tax referred to in this Paragraph 3.2 would be unlawful, or would result in the
payment of interest in excess of the rate permitted by law, then Borrower shall
have no obligation to pay the portion of such tax which would be unlawful or
would result in the payment of such excess; provided, however, in such event
Lender, at its option, may declare the
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<PAGE>
entire principal balance of the indebtedness secured hereby, together with all
interest thereon, to be immediately due and payable, without notice.
4. Insurance
4.1. Until the debt secured hereby is fully satisfied, Borrower shall
keep the premises continuously insured against loss or damage by fire,
lightning, windstorm, hail, explosion, riot, riot attending a strike, civil
commotion, aircraft, vehicle, smoke and other hazards, casualties and
contingencies, including vandalism and malicious mischief, in an amount equal to
80% of the full insurable value of the premises, as such amounts may be
determined and redetermined by Lender (but not more frequently than on an annual
basis); provided, however, that the amount of such insurance, in any event,
shall be sufficient to prevent Borrower from becoming a co-insurer under the
applicable insurance policies. Borrower shall also keep the premises insured
against rental loss in such amounts as Lender may require from time to time.
4.2. All insurance shall be carried in companies approved by Lender,
and the policies and renewals thereof shall be held by, and pledged to, Lender
(unless Lender shall direct or permit otherwise) as additional security
hereunder, and shall have attached thereto a mortgagee clause acceptable to
Lender, making all loss or losses under such policies payable to Lender, its
successors or assigns, as its or their interest may appear. In the event of loss
or damage to the mortgaged premises, Borrower shall give immediate notice in
writing by mail to Lender, who may make proof of loss if not made promptly by
Borrower, and each insurance company concerned is hereby authorized and directed
to make payment for such loss, to the extent of the indebtedness hereby secured,
directly to Lender instead of to Borrower and Lender jointly, and the insurance
proceeds or any part thereof may be applied by Lender toward reimbursement of
all costs and expenses of Lender in collecting such proceeds, and the balance,
at Lender's option, may be applied to the last maturing installments of
principal and interest due or to become due under the Mortgage Note (without any
penalty for prepayment), to fulfill any other covenant herein or any other
Obligation or to the restoration or repair of the property damaged, or may be
released to Borrower. In the event Lender releases any insurance proceeds to
Borrower, Borrower shall be obligated to use such proceeds to restore or repair
the premises unless Lender otherwise specifies in writing. Application by Lender
of any insurance proceeds toward the last maturing installments of principal and
interest due or to become due under the Mortgage Note shall not excuse Borrower
from making the regularly scheduled payments due thereunder, nor shall such
application extend or reduce the amount of such payments.
4.3. In the event of foreclosure of this Mortgage or other transfer of
title to the mortgaged premises in extinguishment of the indebtedness secured
hereby, all right, title and interest of Borrower in and to any insurance
policies then in force shall pass to the purchaser or grantee and Borrower
hereby appoints Lender its attorney-in-fact, in Borrower's name, to assign and
transfer all such policies and proceeds to such purchaser or grantee.
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<PAGE>
5. Payments by Lender
Should default be made in the payment of any taxes, assessments or
other charges or encumbrances described in Paragraph 3 hereof, or in procuring
and maintaining insurance as required by Paragraph 4 hereof, or in making
necessary repairs to the premises, or in making any other payments required to
be made by Borrower or any other party under the Loan Documents, Lender may pay
such taxes, assessments, charges or encumbrances, effect such insurance, make
such repairs and make such payments, and the monies so paid by it shall be a
further lien on the premises, payable forthwith, with interest at the default
rate set forth in the Mortgage Note. Lender may make advances pursuant to this
Paragraph 5 or pursuant to Paragraph 6 without curing Borrower's default and
without waiving Lender's right of foreclosure or any other right or remedy of
Lender under this Mortgage. The exercise of the right to make advances pursuant
to this Paragraph shall be optional with Lender and not obligatory and Lender
shall not be liable in any case for failure to exercise such right or for
failure to continue exercising such right once having exercised it. Borrower's
failure to pay taxes, assessments or other charges or encumbrances upon the
premises, or any installment thereof, or any insurance premium upon policies
covering the premises or any part thereof, shall constitute waste (although the
meaning of the term "waste" shall not necessarily be limited to such
nonpayment), as provided by Act No. 236 of the Public Acts of Michigan of 1961,
as amended, and shall entitle Lender to all remedies provided for therein.
Borrower further agrees to and does hereby consent to the appointment of a
receiver under such statute, should Lender elect to seek such relief thereunder.
6. Repairs, Maintenance and Use
6.1. Borrower shall abstain from and shall not suffer the commission
of waste on the premises and shall keep the premises in good repair and shall
make replacements thereto as and when the same become necessary.
6.2. Without Lender's prior written consent, Borrower shall not make
or permit any material alterations, additions or improvements of any type
whatever to the premises, regardless of whether such alterations, additions or
improvements would increase the value of the premises, nor shall Borrower remove
or demolish the premises or any portion thereof, except that Borrower shall have
the right, without such consent, to remove and dispose of, free from the lien
of this Mortgage, such personalty as from time to time may become worn out or
obsolete; provided that (a) simultaneously with or prior to such removal, any
such personalty shall be replaced with other new personalty of like kind and
quality, free from any security interest, lien or encumbrance, and by such
removal and replacement, Borrower shall be deemed to have subjected the
replacement personalty to the lien of this Mortgage, and (13) any net cash
proceeds after replacement received from such disposition shall be promptly paid
over to Lender to be applied to the last installment(s) due on the Mortgage
Note.
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<PAGE>
6.3. Borrower shall not permit the premises or any portion thereof to
be used for any unlawful purpose. Borrower shall comply promptly with all laws,
ordinances, regulations and orders of all public authorities having jurisdiction
over the premises relating to the use, occupancy and maintenance thereof, and
shall upon request promptly submit to Lender evidence of such compliance.
Nothing herein shall be deemed to prohibit Borrower from contesting the
enforceability or applicability of any law, ordinance, regulation or order;
provided, however, that Lender, in its sole discretion, may require that
Borrower comply with any such law, ordinance, regulation or order during the
pendency of any such contest and all appeals therefrom.
6.4. In the event that the premises or any part thereof, in the sole
judgment of Lender, require inspection, repair, care or attention of any kind or
nature not theretofore provided by Borrower, Lender may at any time and from
time to time (without being obligated to do so) enter or cause entry to be made
upon the premises and inspect the same as Lender may deem necessary or
advisable, and may (without being obligated to do so) make such expenditures and
outlays of money as Lender may deem appropriate for the repair and maintenance
of the premises. All such expenditures and outlays of money made by Lender shall
be secured by the lien of this Mortgage, shall be payable forthwith and shall
bear interest at the default rate provided in the Mortgage Note.
6.5. Borrower shall not accept or permit any increase of the principal
amount secured by the First Mortgage or the Second Mortgage, nor accept or
permit any amendment, modification, extension or other change to the terms of
any instrument or agreement executed in connection therewith, without the prior
written consent of Lender. Borrower represents and warrants to Lender that as of
the date hereof, the principal indebtedness secured by the First Mortgage is not
greater than $436,459.00 and the principal indebtedness secured by the Second
Mortgage is not greater than $1,400,000.00. 7 Events of Default
7.1. Each of the occurrences listed below shall be deemed an event of
default under this Mortgage and under the Mortgage Note, and any such occurrence
shall entitle Lender, at its option and without notice except where required by
law, to exercise any one or any combination of remedies described in Paragraph 8
hereof or otherwise available to Lender:
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<PAGE>
(a) Failure by Borrower to pay any installment or other payment when due
under the Mortgage Note or to make any payment when due under this
Mortgage.
(b) Failure by Borrower or any other party promptly and faithfully to
observe and perform all of the other terms, covenants and conditions
of this Mortgage, the Mortgage Note, and the other Loan Documents, or
the occurrence of any other event which, under the terms of this
Mortgage, the Mortgage Note or the other Loan Documents, constitutes a
default hereunder or thereunder, or the falsity in any material
respect of any warranty, representation or statement made or furnished
to Lender by Borrower.
(c) The occurrence of any of the following with respect to any mortgage,
security interest, lien or encumbrance of any kind upon the premises
or any portion thereof, whether senior or junior to the lien of this
Mortgage, including the First Mortgage and the Second Mortgage: any
event of default, any event which with the passage of time or the
giving of notice, or both, might constitute a default, or the
institution of foreclosure proceedings or the exercise of any rights
or remedies to enforce the same.
(d) Appointment by a court of competent jurisdiction of receiver,
liquidator or trustee of Borrower or for any portion of the property
of Borrower unless such appointment is discharged within sixty (60)
days from the date thereof.
(e) The sequestration of any of the property of Borrower if such decree
shall remain undischarged and unstayed for sixty (60) days after the
entry thereof.
(f) Failure by Borrower to pay debts as such debts become due, or the
appointment of a trustee, receiver or agent to take charge of less
than substantially all of the property of Borrower for the purpose of
enforcing a lien, or any other act which, under the applicable
provisions of the 1978 Bankruptcy Reform Act, would allow an
involuntary case in bankruptcy to be commenced against Borrower.
(g) An assignment by Borrower for the benefit of creditors or a written
admission by Borrower of inability to pay debts generally as they
become due.
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<PAGE>
(h) Consent by Borrower to the appointment of a receiver, trustee or
liquidator of Borrower or for all or any part of its property.
(i) Failure by Borrower to comply with any material terms, covenants and
provisions of any and all leases or other agreements, documents or
restrictions that now encumber, affect or pertain to the premises or
any portion thereof.
(j) Default under the terms of any agreement of guaranty relating to the
indebtedness evidenced by the Mortgage Note, or the occurrence of any
of the events enumerated in Paragraph 7.1(d)-(h) with regard to any
guarantor of the Mortgage Note, or the revocation, limitation or
termination of the obligations of any guarantor of the Mortgage Note.
(k) Termination of borrower's existence in good standing as a legal
entity.
(l) Failure by Borrower to (i) pay any installment or additional payment
when due under the note secured by the First Mortgage or the Second
Mortgage; or (ii) make any additional payment as and at the time
required under the First Mortgage or the Second Mortgage; or (iii)
promptly and faithfully perform all of the other terms, covenants and
conditions of the First Mortgage or the Second Mortgage, any note
secured by either instrument, or any other instrument executed
simultaneously or in connection with either the First Mortgage or the
Second Mortgage.
(m) Failure by the guarantor under the guaranty secured by the Second
Mortgage to make any payment when due thereunder or to promptly
perform all of the other terms, covenants and conditions of such
guaranty.
7.2. Anything herein to the contrary notwithstanding, in case of
default by Borrower in any of its obligations hereunder, notwithstanding the
existence and continuance of such default, no event of default shall be deemed
to have occurred and Lender shall not take any action or exercise any remedy to
which it be entitled against Borrower, unless, (a) in the case of monetary
obligations, Borrower shall have failed to remedy the default within ten (10)
days of its occurrence, and (b) in the case of non-monetary defaults
(obligations other than for the payment of money), Borrower shall have failed to
remedy the default within thirty (30) days of written notice of such default or
shall have failed, in the judgment of Lender, to commence appropriate action to
remedy the default and be proceeding diligently therewith; provided,
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<PAGE>
however, that Borrower shall not be entitled to any separate notice and
opportunity to cure any act of default which specifies its own cure period, as,
for example, the act of default specified in Paragraph 7.1(d); and such default
shall be deemed an event of default unless cured within the specific cure period
provided for such default, nor shall Borrower be entitled to notice and
opportunity to cure the acts of default specified in Paragraphs 7.l(f)-(g), 11.1
or 12 hereof, or for any act of default in the performance of its obligations
under Paragraph 16 hereof. Notwithstanding the foregoing, if, in the sole
discretion of Lender, a situation arises which requires immediate action by
Lender to preserve and protect any collateral given to secure the Obligations
secured by this Mortgage, Lender shall be free to take such action as it
reasonably deems appropriate to preserve and protect such collateral without
delivery of notice of default to Borrower, or if such notice has been delivered,
without waiting for the expiration of the applicable grace period.
7.3. Without in any way affecting or modifying the rights or
obligations of Borrower hereunder or under the Mortgage Note, Lender agrees that
within five (5) days of Lender becoming aware that an event of default has
occurred hereunder or under the Mortgage Note, Lender will send a notice of the
default to the First Lender and the Second Lender.
8. Remedies
Subject to Paragraph 7.2, immediately upon the occurrence of an event
of default defined in Paragraph 7.1 hereof, Lender shall have the option, in
addition to and not in lieu of or substitution for, all other rights and
remedies provided by law or the other Loan Documents, to do any or all of the
acts set forth in this Paragraph 8, without notice except as expressly provided
herein or required by law.
8.1. Lender may demand payment of any sums due, and if the same are
not paid on demand Lender may bring suit therefor.
8.2. Lender may declare the principal sum secured by this Mortgage,
with all interest thereon and all other sums secured hereby, to be immediately
due and payable, without notice, and if the same is not paid on demand Lender
may bring suit therefor.
8.3. Lender may take any and all steps and institute any and all other
proceedings which Lender deems necessary or appropriate to enforce the
Obligations and to protect the lien of this Mortgage.
8.4. Lender may apply any monies then remaining on deposit with Lender
or its designee whether pursuant to Paragraph 3 or 4 hereof or otherwise,
against the indebtedness hereby secured immediately upon or at any time after
default, and without notice to Borrower. Further, Lender may make payments from
any of such monies on deposit with Lender or its designee for taxes,
assessments, insurance premiums or other charges or
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<PAGE>
encumbrances on or with respect to the premises notwithstanding that subsequent
owners of the premises may benefit thereby.
8.5. In the event of default because of the existence of any lien upon
the premises, or in the event of a default under the First Mortgage or the
Second Mortgage or any document executed in connection therewith, Lender shall
have the right (without being obligated to do so or to continue to do so),
without notice to Borrower, to advance on and for the account of Borrower such
sums as Lender in its sole discretion deems necessary to cure such default or to
induce the holder of any such lien to forbear from exercising its rights
thereunder or to induce the First Lender from exercising any of its remedies
under the First Mortgage or the Second Lender from exercising any of its
remedies under the Second Mortgage or otherwise. The repayment of all such
advances, with interest thereon at the default rate set forth in the Mortgage
Note from the date of each such advance, shall be secured hereby and shall be
immediately due and payable without demand.
8.6. Borrower may procure mortgage foreclosure or title reports.
Borrower covenants to pay forthwith to Lender all sums expended by Lender for
such purposes with interest at the default rate provided for in the Mortgage
Note, and such sums and the interest thereon shall constitute a further lien
upon the premises.
8.7. Lender may enter into peaceful possession of the premises and/or
receive the rent, income and profits therefrom, and apply the same in accordance
with Paragraph 15 hereof. Borrower acknowledges that it has been advised that
there is a significant body of case law in Michigan which purportedly provides
that in the absence of a showing of waste of a character sufficient to endanger
the value of the premises, or other special factors, a mortgagor is entitled to
remain in possession of mortgaged premises, and to enjoy the income, rents and
profits therefrom, during the pendency of foreclosure proceedings and until the
expiration of the redemption period, even if the mortgage documents expressly
provide to the contrary. Borrower further acknowledges that it has been advised
that Lender recognizes the value of the security covered hereby is inextricably
intertwined with the effectiveness of the management, maintenance and general
operation of the premises, and that Lender would not make the loan secured
hereby unless it could be assured that it would have the right to take
possession of the premises in order to manage or to control management thereof,
and to enjoy the income, rents and profits therefrom, immediately upon default
by Borrower hereunder, notwithstanding that foreclosure proceedings may not have
been instituted, or are pending, or the redemption period may not have expired.
Accordingly, Borrower hereby knowingly, intelligently and voluntarily waives all
right to possession of the premises from and after the date of default
hereunder, upon demand for possession by Lender, and Borrower agrees not to
assert any objection or defense to Lender's request or petition to a court for
possession. The rights hereby conferred upon Lender have been agreed upon prior
to any default by Borrower hereunder, and the exercise by Lender of any such
rights shall not be deemed to put Lender in the status of a "mortgagee in
possession". Borrower
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<PAGE>
acknowledges that this provision is material to this transaction and that Lender
would not make the loan secured hereby but for this Paragraph.
8.8. Lender may immediately commence foreclosure proceedings against
the premises pursuant to applicable law. The commencement by Lender of
foreclosure proceedings by advertisement or in equity shall be deemed an
exercise by Lender of its option set forth in Paragraph 8.2 to accelerate the
due date of all sums secured hereby. Borrower hereby grants power to Lender, in
the event of the occurrence of an event of default hereunder, to grant, bargain,
sell, release and convey the premises at public auction or vendue, and upon such
sale to execute and deliver to the purchaser(s) instruments of conveyance
pursuant to the terms hereof and to the applicable laws. Borrower acknowledges
that the foregoing sentence confers a power of sale upon Lender, and that upon
default this Mortgage may be foreclosed by advertisement as described below and
in the applicable Michigan statutes. Borrower understands that upon default,
Lender is hereby authorized and empowered to sell the mortgaged premises, or
cause the same to be sold and to convey the same to the purchaser in any lawful
manner, including but not limited to that provided by Chapter 32 of the Revised
Judicature Act of Michigan, entitled "Foreclosure of Mortgage by Advertisement."
WARNING: THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE
FORECLOSED BY ADVERTISEMENT. WITH RESPECT TO FORECLOSURE BY ADVERTISEMENT AND
THE SALE OF THE MORTGAGED PROPERTY IN CONNECTION THEREWITH, NO HEARING IS
REQUIRED AND THE ONLY NOTICE REQUIRED IS TO PUBLISH NOTICE IN A LOCAL NEWSPAPER
AND TO POST A COPY OF THE NOTICE ON THE PREMISES.
WAIVER: Borrower HEREBY WAIVES ALL RIGHTS UNDER THE CONSTITUTION AND THE LAWS OF
THE UNITED STATES AND UNDER THE CONSTITUTION AND LAWS OF THE STATE OF MICHIGAN
AND TO A HEARING PRIOR TO SALE IN CONNECTION WITH THE ABOVE-MENTIONED
FORECLOSURE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS EXCEPT AS SET FORTH IN
THE MICHIGAN STATUTE PROVIDING FOR FORECLOSURE BY ADVERTISEMENT.
Upon any foreclosure sale of the premises, through suit in equity, by
publication or otherwise:
(a) The premises may be sold either as a whole or in parcels, as Lender may
elect, and if in parcels, the same may be divided as Lender may elect, and at
the election of Lender, may be offered first in parcels and then as a whole,
that offer producing the highest price for the entire property to prevail. Any
law, statutory or otherwise, to the contrary notwithstanding, Borrower hereby
waives the right to require any such sale to be made in parcels or the right to
select such parcels.
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<PAGE>
(b) The proceeds of any foreclosure sale shall be applied in the following
order of priority: (1) to all expenses incurred for the collection of Borrower's
indebtedness and the foreclosure of the Mortgage, including reasonable
attorneys' fees as permitted by law; (2) to all sums expended or incurred by
Lender directly or indirectly in carrying out the covenants and agreements of
Borrower under this Mortgage or any of the other Obligations, together with
interest thereon; (3) to all interest accrued under the Mortgage Note and on any
other sums owing to Lender; (4) to the principal balance of the Mortgage Note
and the principal balance of any other sums owing to Lender; and (5) the
surplus, if any, shall be paid to Borrower, unless a court of competent
jurisdiction decrees otherwise.
9. Attorney Fees
Borrower shall pay Lender a reasonable attorneys' fee in addition to all
other legal costs in case Lender shall become a party, either as plaintiff or
defendant, to any legal proceedings in relation to the premises or the lien
created hereby, whether or not such proceedings result from Lender's enforcement
of its rights and remedies hereunder, except attorneys fees incurred as a result
of Lender's fraud, gross negligence or willful acts. Such sums shall be secured
hereby and shall be payable forthwith, with interest at the default rate set
forth in the Mortgage Note.
10. Condemnation
In the event that the premises or any part thereof is taken under the power
of eminent domain, the entire award or payment in lieu of condemnation, to the
full extent of the amount secured hereby, shall be paid to Lender and applied
toward reimbursement of all of Lender's costs and expenses incurred in
connection with collecting such award or payment, and all or any portion of the
balance, at Lender's option, to the last maturing installments of principal and
interest due or to become due under the Mortgage Note (without any penalty for
prepayment), to fulfill any other covenant herein or any other Obligation, or to
repair or restore the premises. Application by Lender of any condemnation award
or payment or portion thereof toward the last maturing installments due or to
become due under the Mortgage Note shall not excuse Borrower from making the
regularly scheduled payments due thereunder, nor shall such application extend
or reduce the amount of such payments. Lender is hereby empowered in the name of
Borrower to receive, and give acquittance for, any such award or payment,
whether it is joint or several; provided, however, that Lender shall not be held
responsible for failure to collect any such award or payment, regardless of the
cause of such failure.
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11. Transfer of Premises; Due on Sale
11.1. In making the loan secured hereby, Lender is relying upon the
integrity, experience and general reputation of Borrower in operating the
premises for the intended purposes. Therefore, if any of the following events
occurs without the prior written consent of Lender, the same shall constitute a
default hereunder, whereupon Lender shall have all its rights and remedies
hereunder, including (but not limited to) the right in its sole option
thereafter to declare all sums secured hereby and then unpaid to be immediately
due and payable, although the period originally agreed upon by Borrower and
Lender for the payment thereof shall not then have expired, and if such sums are
not paid upon demand thereupon to exercise all of its other rights and remedies
under this Mortgage:
(a) The transfer, sale, assignment, or conveyance of all or any portion of
the premises or any interest therein, except for replacements
permitted by Paragraph 6.2 hereof; or
(b) The divestiture of Borrower's title to or interest in the premises or
any portion thereof, in any manner or way, whether voluntary or
involuntary, or any other change in the legal or equitable title to
the premises or in the beneficial ownership of the premises, or any
portion thereof, whether or not of record, and whether or not for
consideration, except for replacements permitted by Paragraph 6.2
hereof.
If Lender consents to any such event, the subsequent occurrence of any such
event without Lender's prior written consent shall constitute a default under
this Paragraph 11.
11.2. If ownership of the premises or any part thereof becomes vested
in a person or persons other than Borrower (with or without Lender's consent),
Lender may, without notice to Borrower, deal with such successor or successors
in interest with reference to this Mortgage, the Mortgage Note and the other
Loan Documents, without in any way releasing, discharging, or otherwise
affecting Borrower's liability hereunder or thereunder. No sale of the premises,
and no forbearance or extension by Lender of the time for the payment of the
debt or the performance of the covenants and agreements hereby secured, shall in
any way whatever operate to release, discharge, modify, change or affect the
lien of this Mortgage or the liability of the Borrower on the Mortgage Note or
for the performance hereof, either in whole or in part.
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12. Other Liens
Borrower shall not, without the prior written consent of Lender, further
mortgage or pledge the premises or any part thereof as security for any other
loans senior to or on a parity basis with the lien of this Mortgage obtained by
Borrower or otherwise. If any such mortgage or pledge is entered into without
the prior written consent of Lender, the entire indebtedness secured hereby,
may, at the option of Lender, be declared immediately due and payable without
notice. Notwithstanding anything to the contrary contained in this Mortgage,
Borrower shall have the right without the consent of the Lender, to further
mortgage or pledge the premises or any part thereof as security for any other
loans which are junior and subordinate to the lien of this Mortgage and any
renewals or replacements thereof so long as any such mortgage and the creation
of any such junior and subordinate lien does not violate any restrictions or
covenants contained in the First Mortgage or Second Mortgage. Borrower also
shall pay any and all other obligations, liabilities or debts which may become
liens, security interests, or encumbrances upon or charges against the premises
for any repairs or improvements that are now or may hereafter be made thereon,
and shall not, without Lender's prior written consent, permit any lien, security
interest, encumbrance or charge of any kind to accrue and remain outstanding
against the premises or any part thereof, or any improvements thereon,
irrespective of whether such lien, security interest, encumbrance or charge is
junior to the lien of this Mortgage, except as expressly permitted in this
Section. Notwithstanding the foregoing, if any personal property by way of
additions, replacements or substitutions is hereafter purchased and installed,
affixed or placed by Borrower on the mortgaged premises under a security
agreement the lien or title of which is superior to the lien created by this
Mortgage, all the right, title and interest of Borrower in and to any and all
such personal property, together with the benefit of any deposits or payments
made thereon by Borrower, shall nevertheless be and are hereby assigned to
Lender and are covered by the lien of this Mortgage.
13. Further Assurances; Security Agreement
13.1. Borrower shall execute, acknowledge and deliver any and all such
further conveyances, documents, mortgages and assurances as Lender may
reasonably require for accomplishing the purposes hereof, including financing
statements required by Lender to protect its interests under the provisions of
the Michigan Uniform Commercial Code, as amended, forthwith upon the written
request of Lender. Upon any failure of Borrower to do so, Lender may execute,
record, file, rerecord and refile any and all such documents for and in the name
of Borrower, and Borrower hereby irrevocably appoints Lender as agent and
attorney-in-fact of Borrower for the foregoing purposes.
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13.2. This instrument is intended by the parties to be, and shall be
construed as, a security agreement, as that term is defined and used in Article
Nine of the Michigan Uniform Commercial Code, as amended, and shall grant to
Lender a security interest in that portion of the premises with respect to which
a security interest can be granted under Article Nine of the Michigan Uniform
Commercial Code, as amended. For purposes of Article Nine of the Michigan
Uniform Commercial Code, (a) Borrower herein is the "debtor", (b) Lender herein
is the "secured party", (c) information concerning the security interest created
hereby may be obtained from Lender at its address set forth on page 1 hereof,
and (d) Borrower's mailing address is that set forth on page 1 hereof.
14. Assignment of Contracts, Etc.
Borrower hereby assigns to Lender, as further security for the
Obligations Borrower's interest to the extent assignable under existing law in
any agreements, contracts (including contracts for the lease or sale of the
premises or any portion thereof), licenses and permits affecting the premises.
Such assignment shall not be construed as a consent by Lender to any agreement,
contract, license, or permit so assigned, or to impose upon Lender any
obligations with respect thereto.
15. Assignment of Rents, Income and Profits
15.1. As additional security for the Obligations, Borrower does hereby
sell, assign, transfer and set over unto Lender, pursuant to Act 210 of the
Public Acts of Michigan of 1953, as amended, all the rents, profits and income
under all leases or occupancy agreements or arrangements, however evidenced or
denominated, upon or affecting the premises (including any extensions,
amendments or renewals thereof), whether such rents, profits and income are due
or are to become due, including all such leases in existence or coming into
existence during the period this Mortgage is in effect. This assignment shall
run with the land and be good and valid as against Borrower and those claiming
by, under or through Borrower, from the date of recording of this Mortgage. This
assignment shall continue to be operative during the foreclosure or any other
proceedings taken to enforce this Mortgage. In the event of a foreclosure sale
which results in a deficiency, this assignment shall stand as security during
the redemption period for the payment of such deficiency. This assignment is
given as collateral security only and does not and shall not be construed as
obligating Lender to perform any of the covenants or undertakings required to be
performed by Borrower in any leases.
15.2. In the event of default in any of the terms or covenants of this
Mortgage, Lender shall be entitled to collect the rents and income from the
premises, rent or lease the premises or any portion thereof upon such terms and
for such time as it may deem best, maintain proceedings to recover rents or
possession of the premises from any tenant or trespasser, and apply the net
proceeds of such rent and income to the following purposes: (a) payment of all
of the costs and expenses incurred by Lender in exercising its rights under this
Paragraph; (b)
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<PAGE>
payment of interest and principal due under the Mortgage Note; (c) payment of
all other sums secured hereby; (d) payment of expenses of preserving the
premises, including taxes and insurance premiums.
15.3. Lender and its duly authorized agents shall he entitled to enter
the mortgaged premises for the purpose of delivering any and all such notices
and other communications to the tenants and occupiers thereof as shall be
necessary or desirable in Lender's discretion to exercise its rights hereunder,
and Lender and its agents shall have absolutely no liability to Borrower arising
therefrom. Lender shall not, however, be obligated to give any tenant or
occupier of the premises any notice by personal delivery and Lender may, in its
sole discretion, deliver all such notices and communications by ordinary
first-class U.S. mail, postage prepaid, or otherwise, as required by law.
15.4. In the event that Borrower obstructs Lender in its efforts to
collect the rents and income from the premises, or after requested by Lender,
unreasonably refuses, fails or neglects to assist Lender in collecting such rent
and income, Lender shall be entitled to the appointment of a receiver of the
premises and of the income, rents and profits therefrom, with such powers as
the court making such appointment may confer.
15.5. Lender shall have no obligation whatever to attempt to collect
rent from any tenant or occupier of the mortgaged premises notwithstanding that
such tenants and occupiers may not be paying rent to either Borrower or to
Lender. Further, Lender shall have no obligation whatever to enforce any other
obligations owed by tenants or occupiers of the premises to Borrower. No action
taken by Lender under this Mortgage shall put Lender in the position of a
"mortgagee in possession."
15.6. Borrower shall collect no advance rent under any lease upon,
affecting or pertaining to the premises or any part thereof in excess of one
month (other than as a security deposit) and Lender shall not be bound in any
respect by any rent prepayment made or received in violation of the terms
hereof.
16. Notice by Borrower
Borrower shall promptly give Lender written notice as soon as either
of them becomes aware of (a) the falsity of any representation or warranty of
Borrower or any other party under the Loan Documents, or the occurrence of any
event which would render any such representation or warranty false if made at
such time, or (b) the occurrence of any event of default under any of the Loan
Document or the occurrence of any event which, with the passage of time or the
giving of notice, or both, might constitute a default under any of the Loan
Documents, or (c) any material change in any information previously or hereafter
submitted to Lender by Borrower.
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17. Safety, Hazardous Materials; Indemnification
17.1. Borrower shall comply with all laws, governmental standards and
regulations applicable to Borrower or to the mortgaged premises in respect of
occupational health and safety and Hazardous Materials. Borrower shall promptly
notify Lender of its receipt of any notice of a violation of any such law,
standard or regulation. "Hazardous Materials" means any materials containing
asbestos, urea formaldehyde or polychlorinated biphenyls and any pollutant or
other toxic or hazardous waste or substance regulated, prohibited, restricted or
controlled by any Environmental Law, or any substance or material on the
premises determined by duly constituted authority to be capable of posing a risk
to human health and safety or to the environment. "Environmental Laws" means any
applicable federal, state, county or local statutes, laws, regulations, rules,
ordinances, or codes relating to environmental matters, including by way of
illustration and not by way of limitation, the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Resource Conservation and Recovery Act of
1976, the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Hazardous Materials Transportation Act, and the Toxic Substances Control Act,
the State of Michigan Hazardous Waste Management Act, the State of Michigan Act
307, as amended, the State of Michigan Water Pollution Control Act, the State of
Michigan Solid Waste Disposal Act, and any amendments or extensions thereof and
any rules, regulations, standards or guidelines issued pursuant to any of the
aforesaid, and all other applicable environmental standards or requirements.
17.2. Borrower covenants, represents and warrants to Lender, its
successors and assigns, that (a) the premises and its existing use, and to the
best of Borrower's knowledge, prior uses, comply and have at all times complied
with, and Borrower is not in violation of, has not violated and will not
violate, in connection with the ownership, use, maintenance or operation of the
premises and the conduct of the business related thereto, any Environmental
Laws; (b) to the best of Borrower's knowledge, there are no Environmental Laws
requiring any remedial action with respect to the premises; (c) no Hazardous
Materials have been or will be released into the environment, or have been or
will be deposited, spilled, discharged, placed or disposed of on the premises,
nor to the best of Borrower's knowledge, has or will the premises be used at any
time by any person as landfill or a disposal site for Hazardous Materials or for
garbage, waste or refuse of any kind, (d) there are no electrical transformers
or other equipment containing dielectric fluid containing polychlorinated
biphenyls located on the premises, nor is there any friable asbestos contained
on the premises, nor will Borrower permit the installation of same; (e) there
are no locations off the premises where Hazardous Materials generated by or on
the premises by Borrower have been treated, stored, deposited or disposed of;
(f) to the best of Borrower's knowledge, there is no fact pertaining to the
physical condition of either the premises or the area surrounding the premises
(i) which Borrower has not disclosed to Lender in writing prior to the date of
this Mortgage, and (ii) which materially adversely affects or will materially
adversely affect the premises or the use or enjoyment or the value thereof, or
Borrower's ability to perform the transactions contemplated by this Mortgage;
(g) no notices of
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<PAGE>
any violation of any of the matters referred to in the foregoing sections
relating to the premises or its use have been received by Borrower and there are
no writs, injunctions, decrees, orders or judgments outstanding, no lawsuits,
claims, proceedings or investigations pending or, to the best of Borrower's
knowledge, threatened, relating to the ownership, use, maintenance or operation
of the premises, nor is there any basis for any such lawsuit, claim, proceeding
or investigation being instituted or filed; and (viii) the premises is not
listed in the United States Environmental Protection Agency's National
Priorities List of Hazardous Waste Sites nor to the best of Borrower's
knowledge, any other log, list, schedule, inventory or record of Hazardous
Materials or hazardous waste sites whether maintained by the United States, any
state or local governmental unit.
17.3. Borrower shall indemnify and hold harmless Lender, its officers,
directors, employees and agents and the Trustee of the Lender, and his
successors, from and against any and all claims, losses, liabilities
(including, without limitation, strict liability), suits, obligations, fines,
damages, judgments, injuries, administrative orders, consent agreements and
orders, penalties, actions, causes of action, charges, costs and expenses,
including without limitation attorneys' fees and consultants' fees arising out
of the following: (a) the inclusion in the Premises of any materials containing
any Hazardous Materials; (b) the presence on, release from, generation,
manufacture, transportation, refining, treatment, storage, handling or disposal
on, at, under, in or from the Premises in violation of Environmental Laws; (c)
the transportation, discharge, removal, release or emission from the Premises of
any Hazardous Material; (d) the inclusion of a Hazardous Material in any product
manufactured on the Premises; (e) the failure to perform the removal,
remediation or abatement of or to institute a safe, effective and
environmentally approved control plan for any Hazardous Materials, or the
replacement, remediation, removal or other clean-up of any soil, water, surface
water, or ground water containing Hazardous Materials in accordance with
Environmental Laws; (f) the existence of any environmental lien against the
Premises pursuant to any Environmental Laws; (g) any violation or claim of
violation of Environmental Laws, strict liability, nuisance, negligence or
trespass law by any third party with respect to Hazardous Materials at the
Premises; (h) the presence of any above ground or underground storage tanks at,
on or under the Premises; or (i) any breach of any of the warranties,
representations and covenants contained in this Section 17. The amount of all
such indemnified loss, damage, expense or cost not paid by the Borrower
following written request by Lender or the Trustee of the Lender shall bear
interest thereon at the default rate of interest in effect on the Mortgage Note
and shall become additional indebtedness secured hereby and shall become
immediately due and payable in full on demand of the Lender or the Trustee of
the Lender, their successors and assigns. The indemnification contained in this
Paragraph 17 shall be a personal monetary obligation of the Borrower
notwithstanding any provisions of this Mortgage to the contrary that limit or
exculp the personal liability of the Borrower and/or require the Lender or the
Trustee of the Lender to look solely to the security of the premises.
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17.4. In the event this Mortgage is foreclosed or Borrower shall
deliver a deed in lieu of foreclosure, Borrower shall deliver the premises to
Lender free of any and all Hazardous Materials so that the condition of the
premises shall conform with all Environmental Laws. The provisions of this
Paragraph 17 shall be in addition to any and all other obligations and
liabilities Borrower may have to Lender at common law, and shall survive (a)
repayment of the Mortgage Note, (b) the satisfaction of all other obligations of
Borrower hereunder and under the other Loan Documents, (c) the discharge of this
Mortgage, and (d) the foreclosure of this Mortgage or acceptance of a deed in
lieu of foreclosure.
18. Notices to Borrower
All notices, demands and requests required or permitted to be given
to Borrower hereunder or by law shall be deemed delivered when deposited in the
United States mail, with full postage prepaid thereon, addressed to Borrower at
the last address of Borrower on the records of Lender.
19. Miscellaneous Provisions
19.1. No waiver by Lender of any right or remedy granted hereunder
shall affect or extend to any other right or remedy of Lender hereunder, nor
affect the subsequent exercise of the same right or remedy by Lender for any
further or subsequent default by Borrower hereunder, and all such rights and
remedies of Lender hereunder are cumulative. Time is of the essence.
19.2. No part of the proceeds of the loan secured by this Mortgage
shall be used for the purpose (whether immediate, incidental or ultimate) of
"purchasing" or "carrying" any "margin securities" as such terms are defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System, or for the purpose of reducing or retiring any indebtedness which was
originally incurred for any such purpose.
19.3. Upon request, Borrower promptly shall provide Lender with
certificates of occupancy and such other documents, information and statements
pertaining to the premises and its operations as Lender may request. Borrower
shall submit to Lender, annually, within ninety (90) days of the end of each
fiscal year, a Financial Statement of Borrower, prepared by an officer of
Borrower. All costs of providing such financial statements shall be borne
entirely by Borrower.
19.4. Borrower, upon written request by Lender, shall certify by a
writing duly acknowledged to Lender or to any proposed assignee of this Mortgage
whether any off-sets or defenses exist against the mortgage debt. Such
certification shall be delivered to Lender within ten (10) days of a request
therefor.
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19.5. All of the covenants and conditions hereof shall run with the
land and shall be binding upon the successors and assigns of Borrower, and shall
inure to the benefit of the successors and assigns of Lender. Any reference
herein to "Borrower" or "Lender" shall include their respective successors and
assigns.
19.6. If any provision(s) hereof are in conflict with any statute or
rule of law of the State of Michigan or are otherwise unenforceable for any
reason whatever, then such provision(s) shall be deemed null and void to the
extent of such conflict or unenforceability, hut shall be deemed separable from
and shall not invalidate any other provisions of this Mortgage.
19.7. All captions in this Mortgage are for convenience only, do not
form a substantive part of this Mortgage and shall not restrict or enlarge the
substantive provisions of this Mortgage.
19.8. Where necessary or appropriate herein, the singular and plural
shall be interchangeable, and words of any gender shall include all genders.
19.9. This Mortgage shall be construed and enforced in accordance with
Michigan law.
20. Neither Borrower's incorporator, officers or directors shall have any
personally liable for the payment of the indebtedness evidenced by the Mortgage
Note; provided, however, this limitation shall not affect the personal liability
of Borrower under the Mortgage Note or this Mortgage, nor shall this limitation
of liability prejudice the right of Lender to enforce or foreclose this Mortgage
or other security instruments given to secure the Mortgage Note or to exercise
any of its remedies at law or in equity, including effecting the sale of the
premises in accordance with this Mortgage or foreclosing of this Mortgage and,
in furtherance thereof, naming Borrower as a party defendant in any action or
proceeding to enforce the same, nor limit or waive any rights Lender may have
against any guarantors, if any, of the Mortgage Note.
21. Borrower represents and warrants to Lender as follows:
(a) Borrower is duly organized and validly existing as a corporation
under the laws of the State of Michigan, and has full power and authority to
own, lease and operate the premises and to execute and deliver this Mortgage and
perform its obligations hereunder, and each person who executes this Mortgage
and all other instruments and documents in connection herewith, has due power
and authority to so act on behalf of the Borrower.
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<PAGE>
(b) Borrower has good, marketable and insurable title in and to the
premises and this Mortgage creates a valid and binding obligation of Borrower in
accordance with the respective terms, subject only to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting the enforcement of creditors' rights generally.
IN WITNESS WHEREOF, this Mortgage is executed and delivered by the
undersigned on the date first written above.
WITNESSES: BORROWER:
OLDS MANOR, INC.
/s/ Anita D. Feck By: /s/ Carl G. Paffendorf
- -------------------- ----------------------
Carl G. Paffendorf, Chairman
/s/ Lori Jean Govier
- --------------------
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<PAGE>
STATE OF NEW YORK )
)SS
COUNTY OF NEW YORK )
On this 31 day of May 1993, before me personally appeared Carl G.
Paffendorf, who being by me duly sworn, did say that he is the chairman of Olds
Manor, Inc., a Michigan corporation, and that the within and foregoing Mortgage
was signed in behalf of said corporation by authority of its board of directors,
and he duly acknowledged to me that said instrument was executed as the free act
and deed of such corporation.
/s/ Theresa A. Govier
---------------------------
Theresa A. Govier
Notary Public, State of New York
No. 30-4663759
Qualified in Nassau County
Commission Expires December 31, 1994
PREPARED BY AND AFTER RECORDING
RETURN TO:
Stephen G. Schafer
Jaffe, Raitt, Heuer & Weiss
One Woodward Avenue
Suite 2400
Detroit, Michigan 48226
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EXHIBIT A
LEGAL DESCRIPTION
Property located in the City of Grand Rapids, County of Kent, State of
Michigan, as follows:
All that part of Lot 1, Kent Plat, and Part of Section 24, Town 7 North,
Range 12 West described as follows: Commencing at the Northwest corner of
Monroe Avenue and Michigan Street; thence South 89 degrees 12 minutes 15
seconds West 155.25 feet along the North line of Michigan Street; thence
North 18 degrees 16 minutes 15 seconds East 98.13 feet; thence North 37
degrees 23 minutes 30 seconds East 39.03 feet; thence North 17 degrees 42
minutes 30 seconds East 63.29 feet; thence North 89 degrees 14 minutes 45
seconds East 78.95 feet to the West line of Monroe Avenue; thence South
along the said West line of Monroe Avenue 183.52 feet to beginning.
Together with easements for driveway and parking purposes as granted and
determined by instruments recorded in Liber 1865 of Deeds, Page 121, Liber
1851 of Deeds, Page 220, and Liber 1906 of Deeds, Page 967.
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MORTGAGE
THIS MORTGAGE, made as of the 18th day of October, 1989, by OLDS MANOR,
INC., a Michigan corporation (hereinafter referred to as the Mortgagor"), whose
address is 415 Burns Drive, Detroit, Michigan, to CITIBANK, N.A., and Lloyds
Bank Plc (hereinafter referred to as the "Mortgagee"), whose address is c/o
Citibank, 599 Lexington Avenue, New York, New York.
W I T N E S S E T H:
In consideration of the sum of Ten ($10.00) Dollars and other good and
valuable consideration the sufficiency of which is hereby acknowledged by
Mortgagor and to secure payment and performance of all of Vanguard Ventures,
Inc.'s (the "Guarantor") obligations and indebtedness in an amount up to One
Million Four Hundred Thousand and 00/100 ($1,400,000.00) Dollars pursuant to a
certain guaranty made by the Guarantor, dated as of December 1, 1986, (the
"Guaranty") and supplemented by the Supplemental Guaranty dated as of October
18, 1989, (the "Supplemental Guaranty"), all made in connection with a certain
Loan Agreement dated as of December 1, 1986, as amended, (the "Loan Agreement")
among Citibank, N.A. and Lloyds Bank Plc and Harvest Village Partners, L.P. In
connection with the Loan Agreement, Harvest Village Partners, L.P., requested
that Citibank, N.A. and Lloyds Bank Plc extend the maturity date of the loan and
increase the amount of the loan. The Guarantor agreed to secure the additional
amounts of indebtedness covered by its Supplemental Guaranty by causing its
subsidiary, the Mortgagor, to grant this Mortgage and the Mortgagee has accepted
same in reliance thereon. The Mortgagor does by these presents mortgage and
warrant unto the Mortgagee, its successors and assigns in fee simple, forever,
the certain property situated in the City of Grand Rapids, County of Kent, State
of Michigan described on Exhibit A attached hereto and made a part hereof
(hereinafter referred to as the "Premises"), together with:
(a) all right, title and interest of Mortgagor in and to the Premises,
including any after-acquired title or reversion or remainder in and to the ways,
easements, streets, strips, gores, alleys, passages, water, water courses,
riparian rights, other rights, and privileges, if any, in any way appertaining
to the Premises; and all buildings and improvements now or hereafter upon the
Premises or any part thereof, and all materials intended for construction,
reconstruction, alteration and repair of such buildings and improvements now or
hereafter erected thereon, all of which materials are deemed to be included in
the Premises upon delivery to the Premises; and
(b) all fixtures, equipment and articles of personal property now owned or
hereafter acquired by Mortgagor and attached to, contained in or used in
connection with the Premises, and the proceeds thereof, including but not
limited
<PAGE>
to all elevators, fittings, radiators, awnings, shades, screens, blinds,
carpeting, and all plumbing, heating, lighting, cooking, laundry, ventilating,
cleaning, refrigerating, incinerating, air-conditioning and sprinkler equipment
and fixtures and appurtenances thereof, and all renewals or replacements
thereof, proceeds thereof, or articles in substitution therefor, whether or not
the same are or shall be attached to the building or buildings in any manner, it
being mutually agreed that all the aforesaid property owned by said Mortgagor
and placed by it on said Premises shall, so far as permitted by law, be deemed
to be fixtures and a part of the realty security for the indebtedness covered by
this Mortgage, and as to the balance of this property, this Mortgage is and
shall be deemed to be a Security Agreement for the purpose of creating hereby a
security interest in said property, securing the Guaranty of Vanguard Ventures,
Inc., a New York corporation, for the benefit of the Mortgagee1 and Mortgagor
does hereby grant to Mortgagee a security interest in the property; and
(c) all leases, rents, issues, proceeds and profits accruing and to accrue
from the Premises or from the buildings and improvements thereon; and
(d) all the tenements, hereditaments, easements, privileges, and
appurtenances of the Premises or any of the above; and
(e) all awards and other compensation heretofore or hereafter to be made to
the present and all subsequent owners of the Premises for any taking by eminent
domain, either permanent or temporary, of all or any part of the Premises or any
easement or appurtenance thereof, including severance and consequential damages
and change in grade of streets, which awards and compensation are hereby
assigned to Mortgagee, and Mortgagor hereby appoints Mortgagee its
Attorney-in-Fact, coupled with an interest and authorizes, directs, and empowers
such Attorney, at the option of the Attorney, on behalf of Mortgagor or its
successors and assigns, to adjust or compromise the claim for any such award and
to collect and receive the proceeds thereof, to give proper receipts and
acquittances therefor and, after deducting expenses of collection, to apply the
net proceeds at Mortgagee's option either as a credit upon any portion, as
selected by the Mortgagee, of the indebtedness secured hereby, notwithstanding
the fact that the amount owing thereon may not then be due and payable or that
the indebtedness is otherwise adequately secured, or to the restoration of the
Premises, or to any combination thereof as Mortgagee shall so elect.
Any reference herein to the Premises shall be deemed to apply to the above
described lands, buildings and improvements,
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fixtures and equipment, the rents, profits and leases thereof, and the
tenements, hereditaments, easements, privileges and appurtenances1 and other
articles of personal property, unless the context shall require otherwise.
This Mortgage, and all rights of Mortgagee hereunder, is and shall be
subject and subordinate to that certain mortgage dated June 30, 1989 (the
"Senior Mortgage") granted by Mortgagor to Old Kent Bank and Trust Company
securing a promissory note of even date in the original principal amount of
$400,000.00 and covering the Premises. The provisions of the immediately
preceding sentence shall be self-operative, and no further instrument of
subordination shall be required. Mortgagee and Mortgagor shall nevertheless
promptly execute, acknowledge and deliver a certificate further evidencing and
confirming subordination, if Mortgagee or Mortgagor at any time or times shall
be requested to do so by the holder of the Senior Mortgage.
COVENANTS
MORTGAGOR does hereby covenant as follows:
1. Mortgagor will perform and observe all of the terms, conditions,
covenants, agreements and representations of Mortgagor contained in this
Mortgage.
2. Mortgagor's interest in the Premises is free and clear of all liens and
encumbrances except certain existing mortgages to Old Kent Bank and Trust
Company and Vanguard Homes of Michigan, Inc. (collectively the "Permitted
Encumbrances"), set forth on Exhibit B attached hereto. Mortgagor will keep the
Premises free from statutory liens of every kind, and will pay, before
delinquency and before any penalty for non-payment attaches thereto, all taxes,
assessments, water charges, sewer rentals and other governmental or municipal
or public dues, charges, fines or impositions which are or may be levied against
the Premises or any part thereof and will deliver to Mortgagee at least twenty
(20) days before delinquency, receipted bills evidencing payment therefor, and
will pay, in full under protest and in the manner provided by statute, any tax,
assessment, charge, fine or imposition aforesaid which Mortgagor may desire to
contest.
3. In the event of the passage after the date of this Mortgage of any
applicable law deducting from the value of land for the purpose of taxation of
any lien thereon, or changing in any way the laws for the taxation of mortgages
or debts secured by mortgages for state or local purposes, or the manner of the
collection of any such taxes as to impose a tax upon or
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otherwise to affect this Mortgage, or upon the rendition by any court of
competent jurisdiction of a decision that any undertaking by Mortgagor as in
this paragraph provided, is legally inoperative, then in any such event, the
indebtedness secured hereby, at the option of the Mortgagee shall become
immediately due, payable and collectible, provided, however, the Note and this
Mortgagor shall remain in effect in any event, if Mortgagor lawfully may pay all
such taxes, assessments and charges, including interest and penalties thereon,
to or for the Mortgagee and does in fact pay the same when so payable.
4. (a) Mortgagor will keep all buildings, fixtures, equipment, and
improvements now existing or hereafter on the Premises, insured against loss or
damage by or resulting from fire and flood and such other hazards, casualties
and contingencies (including, but not limited to extended endorsement (without
depreciation) and within a ninety (90%) percent coinsurance clause in such
amounts and for such periods at least equal to the minimum amounts and periods
as may reasonably be required from time to time by the Mortgagee, and will pay
promptly when due any premiums on such insurance, and all such insurance shall
be carried with companies satisfactory to the Mortgagee. The certificates
evidencing such insurance coverage and evidence of payment thereof shall be
deposited with, and held by, the Mortgagee and each such insurance certificate
shall contain a clause requiring thirty (30) days notice to Mortgagee prior to
cancellation, and a standard noncontributing mortgagee clause in favor of
Mortgagee, as its interests may appear, all to be in form acceptable to
Mortgagee. Mortgagor shall furnish to Mortgagee from tome to time upon request,
at Mortgagor's expense, evidence of the insurable value of an insured
improvement. Mortgagor shall not carry separate insurance, concurrent in kind or
form and contributing, in the event of loss, with any insurance required
hereunder
(b) In the event of a change in ownership of the Premises1 immediate
notice thereof shall be mailed to all insurers. In the event of foreclosure of
this Mortgage, or other transfer of title in lieu of foreclosure of the
Premises, all right, title and interest of the Mortgagor in and to any insurance
policies then in force, shall pass to the purchaser or Mortgagee, as their
respective interests shall appear.
(c) In the event of loss or damage to the Premises, Mortgagor will
give immediate notice to the Mortgagee, but nothing in this sentence shall be
deemed to modify the rights of the Mortgagee under any other provision hereof.
The Mortgagor hereby authorizes the Mortgagee, at its option, to
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collect, adjust and compromise any losses under any of the insurance and after
deducting costs of collection to apply the proceeds, at its option. as follows:
(i) to restore the improvements, in which event the Mortgagee shall
not be obligated to see to the proper application thereof nor shall the
amount so released or used be deemed a payment on any indebtedness secured
hereby; or
(ii) to deliver same to the owner of the insured property.
(iii) if and to the extent that insurance proceeds are not applied to
restoration of the improvements, such proceeds may be retained by Mortgagee
up to $1,400,000.00.
5. Mortgagor will carry and maintain comprehensive general public liability
and indemnity insurance (including, but without limitation, water damage and the
so-called assumed and contractual liability coverage) in amounts at least equal
to the minimum amounts as may reasonably be required from time to time by the
Mortgagee in forms and with companies satisfactory to the Mortgagee1 and will
pay promptly when due any premiums on such insurance. Each such insurance policy
shall contain a clause requiring thirty (30) days notice to the Mortgagee prior
to any cancellation thereof, and a clause naming the Mortgagee as an additional
insured as its interest may appear.
6. (a) Mortgagor covenants that no building or other improvement on the
Premises shall be structurally or materially altered, removed or demolished nor
shall any fixtures on, in or about the said buildings or improvements be
severed, removed, sold or mortgaged, without the consent of Mortgagee which such
consent shall not be unreasonably withheld; provided. however, the Mortgagee may
withhold such consent if Mortgagee, in its sole discretion, determines that such
alteration, removal, demolition, severance or sale, as the case may be, would
have a detrimental effect on the value of the Premises. In the event of the
demolition or destruction in whole or in part of any of the fixtures covered
hereby, the same shall be replaced promptly by similar fixtures, at least equal
in quality and condition as those replaced, free from any security interest in
or encumbrance thereon or reservation of title thereto.
(b) Mortgagor will not permit, commit or suffer any waste, impairment
or deterioration of the Premises or any
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part thereof. Mortgagor shall keep and maintain the Premises and every part
thereof with buildings, fixtures, and appurtenances in good repair and
condition1 and will effect such repairs as Mortgagee may reasonably require and
from time to time to make all needful and proper replacements so that said
buildings, fixtures, and appurtenances will, at all times, be in good condition,
fit and proper for the respective purposes for which they were erected or
installed,
(c) Mortgagor will comply with all statutes, orders, requirements or
decrees relating to the Premises by any federal, state, municipal or other
governmental authority having jurisdiction over the Premises, and Mortgagor will
observe and comply with all conditions and requirements necessary to preserve
and extend any and all rights, licenses, permits (including but not limited to
zoning variances, special exceptions and nonconforming uses), privileges,
franchises and concessions which are applicable to the Premises or which have
been granted to or contracted for by Mortgagor in connection with any existing
or presently contemplated use of the Premises.
7. Mortgagee, through its agents or employees, shall have the right at any
time and from time to time, to inspect the Premises. In the event that, in the
sole judgment of Mortgagee, the Premises require repair, care or attention of
any kind, Mortgagee may, without being obligated to do so, enter or cause entry
for such repairs and maintenance, and Mortgagee may make such expenditures and
outlays as it deems appropriate for preservation of the Premises.
8. Mortgagor will not voluntarily create or permit to be created or filed
against the Premises, any mortgage lien or other lien or liens inferior or
superior to the lien of this Mortgage except for Permitted Encumbrances. If such
lien is filed, Mortgagor will have the same discharged of record either by
payment, the bonding thereof or other lawful means for discharging any such
lien, within thirty (30) days after notice of filing, and on the failure of the
Mortgagor to perform these covenants, or any part thereof, thereupon the
principal shall, at the option of the Mortgagee, become due and payable,
anything contained herein to the contrary notwithstanding.
Anything contained herein to the contrary notwithstanding, Mortgagor shall
have the right, at any time and from time to time, (i) to amend the Senior
Mortgage by increasing the principal amount thereof, or (ii) to refinance the
Senior Mortgage, provided, in either case, that at no time shall the principal
amount of the Senior Mortgage exceed $500,000, or of mortgages encumbering the
Premises in the aggregate exceed the sum of $2,800,000. In the event that the
Senior Mortgage is so
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amended or the loan secured thereby is refinanced, and a replacement mortgage
issued to secure the refinanced loan, this Mortgage shall be, or shall continue
to be, subject and subordinate to such increased Senior Mortgage, or replacement
mortgage given to secure the refinanced loan, as the case may be, and Mortgagee
and Mortgagor shall promptly execute, acknowledge and deliver a certificate
further evidencing and confirming the subordination of this Mortgage to such
amended Senior Mortgage or new mortgage, if Mortgagee or Morgagor at any time
shall be requested to do so by the holder of the Senior Mortgage or new
mortgage.
9. If at any time the United States Government or any governmental
subdivision shall require Internal Revenue or other documentary stamps hereon or
shall require payment of any tax upon the obligation secured hereby, then the
said indebtedness and the accrued interest thereon shall be and become due and
payable at the election of the Mortgagee; provided, however, this Mortgage shall
be and remain in effect, if Mortgagor lawfully may pay for such stamps or such
tax including interest and penalties thereon to or for Mortgagee and does in
fact pay, when payable, for all such stamps or such tax, as the case may be,
including interest and penalties thereon. Mortgagor further agrees to deliver to
Mortgagee, at any time, upon demand, such evidence as may be required by any
government agency having jurisdiction in order to determine whether the
obligation secured hereby is subject to or exempt from any such tax.
10 (a) Mortgagor will indemnify Mortgagee, save it harmless from and
against, and pay to it all costs and expenses, including reasonable attorneys
fees and costs of a title search and preparation of survey, incurred by
Mortgagee by reason of any action, suit, proceeding, hearing, motion or
application before any court or administrative body and incurred in connection
with any extrajudicial collection procedure, in and to which Mortgagee may be or
become a party by reason of Mortgagor's ownership of the Premises, and/or by
reason of the interest of the Mortgagee in the Premises, including but not
limited to condemnation, bankruptcy, probate and administration proceedings, as
well as any other proceedings wherein proof of claims by law are required to be
filed or in which it becomes necessary to defend or uphold the terms of and lien
created by this Mortgage.
(b) All amounts paid, expended or incurred by Mortgagee under the
terms of this Mortgage shall be immediately due and payable by Mortgagor on
demand, at Mortgagor's option and shall be secured by the Mortgage. Upon the
failure of Mortgagor to so reimburse on demand, Mortgagee may, without notice to
Mortgagor, deem the Mortgagor to be in default under this Mortgage.
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<PAGE>
(c) All amounts paid, expended or incurred by Mortgagee under the
terms of this Mortgage shall be a lien upon the Premises prior to any right or
title to, interest in, or claim attaching to the Premises or accruing subsequent
to the lien of this Mortgage, and shall be deemed to be included in and secured
by this Mortgage.
11. (a) Mortgagor will give Mortgagee immediate notice of the actual or
threatened commencement of any proceedings under eminent domain affecting all or
any part of the said Premises or any easement therein or appurtenances thereof,
including severance and consequential damage and change in grade of streets, and
will deliver to Mortgagee copies of any and all papers served in connection with
such proceedings.
(b) Mortgagor further covenants and agrees to make, execute and
deliver to Mortgagee, at any time upon request, free, clear and discharged of
any encumbrances of any kind whatsoever, any and all further assignments and/or
instruments, without conditions deemed necessary by Mortgagee for the purpose of
validly and sufficiently assigning all awards and other compensation heretofore
and hereafter to be made to Mortgagor (including the assignment of any award
from the United States Government or any other governmental body, at any time
after the allowance of the claim therefor, the ascertainment of the amount
thereof and the issuance of the warrant for payment thereof) for any taking,
either permanent or temporary, under any such proceeding, for the Mortgagee's
application at its option, either to restoring the remaining Premises (if only a
partial condemnation) to a condition substantially comparable to that portion of
the Premises prior to such taking or to the reduction of the principal of the
indebtedness secured by this Mortgage, or to any combination thereof.
12. Mortgagor, within ten (10) days following a request by mail, will
furnish a written statement duly acknowledged, of the amount secured by this
Mortgage, whether any offset or defenses exist against the amount secured
hereby, and any other information which Mortgagee shall reasonably request.
13. (a) Upon default by Mortgagor in performance of any of the terms,
covenants or conditions contained herein, Mortgagee may, at its option, without
obligation, and whether electing to declare the whole indebtedness due and
payable or not, perform the same without waiver of any other remedy.
(b) Mortgagee, in making any payment herein authorized in the place of
the Mortgagor relating to taxes,
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<PAGE>
assessments and other governmental or municipal charges, fines, impositions or
liens asserted against the Premises may do so according to any bill, statement
or estimate procured from the appropriate public office without inquiry into the
accuracy of the bill, statement or estimate or into the validity of any tax,
assessment, sale, forfeiture, tax lien or title or claim thereof, or relating to
any apparent or threatened adverse title, lien, statement of lien, encumbrance,
claim or charge, and shall be the sole judge of the legality or validity of
same; in its judgment and discretion as shall seem necessary or desirable to
protect the full security intended to be created by this instrument, in
connection with any such advance, Mortgagee, at its option, may and is hereby
authorized to obtain a continuation report of title prepared by a title
insurance company, the cost and expense of which shall be repayable by the
Mortgagor upon demand and shall be secured hereby.
(c) Mortgagee may make such advances as shall seem necessary and
desirable, in its judgment and discretion, to protect the full security intended
to be created by this instrument, in connection with any such advance,
Mortgagee, at its option, may and is hereby authorized to obtain a continuation
report of title prepared by a title insurance company, the cost and expense of
which shall be repayable by the Mortgagor upon demand.
(d) Mortgagee shall have the right to make any payment notwithstanding
that at that time any such tax, assessment, charge or imposition is then being
protested or contested by Mortgagor, unless, upon not less than thirty (30) days
prior to the due date thereof, Mortgagor shall have notified Mortgagee, in
writing, of such protest or contest, in which event, as the case may be,
Mortgagee shall make such payment under protest in the manner prescribed by law
or shall withhold such payment so long as such contest shall preclude
enforcement of collection and the sale of the Premises in satisfaction of such
tax, assessment, charge or imposition. In the event such protest or contest
shall or might result in penalty or other charges, Mortgagor shall deposit
monthly the pro-rata amount of any such penalty or additional charge.
14. The following shall be events of default under this Mortgage:
(a) the commencement of proceedings seeking an order for relief in a
court in respect of Mortgagor in any involuntary case under the federal
bankruptcy laws, as now or hereafter constituted, or under any applicable
federal or state bankruptcy, insolvency, or similar law, or the commencement of
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proceedings seeking the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of Mortgagor or for any
substantial part of its property, or the commencement of proceedings seeking an
order winding up or liquidating the affairs of Mortgagor and the continuance of
any such proceedings for a period of ninety (90) days;
(b) the commencement by Mortgagor of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by it to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of Mortgagor or for any substantial part of its property, or the
making by it of any assignment for the benefit of creditors, or the failure of
Mortgagor generally to pay its debts as such debts become due, or the taking of
action by Mortgagor in furtherance of any of the foregoing;
(c) any default by Mortgagor in the payment of any amount that is due
Mortgagee hereunder which default shall continue and remain uncured for a period
of five (5) days;
(d) any default by Mortgagor in the performance or observance of any
other term, covenant or condition in this Mortgage or in any other instrument or
document evidencing or securing the indebtedness secured hereby;
(e) any default by Mortgagor in the payment of any installment of
principal, interest or other sums due under the Amended Loan Agreement between
Mortgagor and Vanguard Homes of Michigan, Inc.;
(f) any default by Mortgagor in the performance, payment or observance
of any term, covenant or condition in a certain Mortgage or Note secured thereby
between Mortgagor and Old Kent Bank and Trust Company, dated June 30, 1989;
(g) any default by Mortgagor in the performance, payment or observance
of any term, covenant or condition in a certain Mortgage or Note secured thereby
between Mortgagor and Vanguard Homes of Michigan, Inc. dated February 28, 1989;
(h) any default by Guarantor in the performance, payment or observance
of any term, covenant or condition of the Guaranty.
15. Upon the occurrence of an event of default under this Mortgage, then,
at the option of the Mortgagee, the whole indebtedness secured hereby shall
become immediately due and
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payable, and thereupon or at any time during the existence of any such default,
the Mortgagee shall have the option, in addition to and not in lieu of or in
substitution for all other rights and remedies provided by law, to do any or all
of the following:
(a) The Mortgagee may commence foreclosure proceedings (including sale
under power of sale hereunder) against the Premises.
(i) The Mortgagee, its legal representatives, successors and assigns
are hereby AUTHORIZED AND EMPOWERED to sell or cause to be sold at public
action the Premises and to convey same by the execution and delivery to the
purchaser at such sale of good and sufficient deeds of conveyance in law,
pursuant to the statute in such case made and provided and out of the
proceeds of such sale to retain the moneys due under the terms of this
Mortgage, the costs and charges of such sale and also the attorneys fees,
if permitted by law, and to deliver the surplus moneys (if any) to the said
Mortgagor. Mortgagor acknowledges that the foregoing sentence confers upon
Mortgagee, its successors and assigns, a power of sale, and that upon
default which is not cured as herein provided, this Mortgage may be
foreclosed by advertisement as described below and in the applicable
statutes. Mortgagor understands that upon default which is not cured as
herein provided, Mortgagee, and its successors and assigns, are hereby
authorized and empowered to sell the Premises, or cause the same to be
sold, and to convey the same to the purchaser in any lawful manner
(including but not limited to that provided by Chapter 32 of the Revised
Judicature Act of Michigan, entitled "Foreclosure of Mortgage by
Advertisement", or similar statute of any applicable state which permits
Mortgagee to sell the Premises without affording Mortgagor a hearing, or
giving it personal notice. The only notice required under such Chapter 32
is to publish notice in a local newspaper and to post a copy of the notice
on the Premises).
WAIVER: BY CONFERRING THIS POWER OF SALE UPON MORTGAGEE, MORTGAGOR, FOR
ITSELF, ITS SUCCESSORS AND ASSIGNS, AFTER AN OPPORTUNITY FOR CONSULTATION WITH
ITS LEGAL COUNSEL, HEREBY VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ALL
RIGHTS UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND UNDER THE
CONSTITUTION AND LAWS OF THE STATE OF MICHIGAN OR OF ANY OTHER APPLICABLE STATE,
BOTH TO A HEARING ON THE RIGHT TO
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EXERCISE AND THE EXERCISE OF THE POWER OF SALE, AND TO NOTICE EXCEPT AS REQUIRED
BY THE APPLICABLE STATUTE WHICH PROVIDES FOR FORECLOSURE OF MORTGAGES BY
ADVERTISEMENT.
(ii) In any suit to foreclose this Mortgage, the Mortgagee shall be
entitled to the appointment of a receiver of the Premises as a matter of
right and without notice (the same being expressly waived), with power to
collect the rents, issues and profits of the Premises due and to become due
during the pendency of such foreclosure suit to and including the date of
confirmation of the sale under such foreclosure and during the redemption
period, if any, after such confirmation, such rents and profits being
hereby expressly assigned and pledged as security for the payment of the
indebtedness secured by this Mortgage without regard to the value of the
Premises or the solvency of any person or persons liable for the payment of
the Mortgage indebtedness, and regardless of whether Mortgagee has an
adequate remedy at law. The Mortgagor for itself and any subsequent owner
hereby waives any and all defenses to the application for a receiver as
above and hereby specifically consents to such appointment without notice,
but nothing herein contained is to be construed to deprive the holder of
the Mortgage of any other right, remedy or privilege it may now have under
the law to have a receiver appointed. The provision for the appointment of
a receiver and the assignment of such rents, issues and profits is made an
express condition upon which the loans and advances hereby secured are
made. The rights and remedies herein provided for shall be deemed to be
cumulative and in addition to, and not in limitation of, those provided by
law, and if there be no receiver so appointed Mortgagee may proceed to
collect the rents, issues and profits from the property covered hereby.
From any said rents, issues and profits collected by the receiver or by the
Mortgagee prior to a foreclosure sale, shall be deducted the cost of
collection thereof, including, but not limited to real estate commissions,
receiver's and attorneys fees, if permitted by law, and court costs and the
remainder shall be applied against the indebtedness hereby secured.
(iii) Upon any such default as aforesaid, a tender of payment of the
amount necessary to satisfy the entire indebtedness secured hereby, made at
any time prior to foreclosure sale (including sale under power of sale
hereunder) by the Mortgagor or by anyone
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in behalf of the Mortgagor shall include, to the extent permitted by law,
all costs incurred as a result of the foreclosure action.
(iv) In case of foreclosure of this Mortgage in any court of law or
equity, whether or not any order or decree shall have been entered therein
and to the extent permitted by law, a reasonable sum as aforesaid shall be
allowed for attorneys fees of the Mortgagee in such proceeding, for
stenographers fees and for all moneys expended for documentary evidence and
the cost of a title report for the purpose of such foreclosure, such sums
to be secured by the lien hereunder; and to the extent permitted by law,
there shall be included in any judgment or decree foreclosing this Mortgage
to be paid out of said rents, issues and profits or out of the proceeds of
any sale made in pursuance of any such judgment or decree:
(A) All costs and expenses of such suit or suits1 advertising, sale
and conveyance, including attorneys and stenographers fees, if permitted by law,
outlays for documentary evidence and the cost of examination of title and title
report;
(B) All moneys advanced by Mortgagee, if any, for any purpose
authorized in this Mortgage;
(C) All the said principal money and interest thereon. The remaining
proceeds, if any, shall be paid to the said Mortgagor or to the owner of the
Premises, on reasonable request, or as the court may direct.
(v) In case of any foreclosure sale of the Premises, the same may be
sold either as a whole or in parcels1 as Mortgagee may elect, and if in
parcels1 the same may be divided as Mortgagee may elect, and at the
election of Mortgagee may be offered first in parcels and then as a whole,
that offer producing the highest price for the entire property to prevail,
any law, statutory or otherwise, to the contrary notwithstanding, and
Mortgagor hereby waives the right to require any such sale to be made in
parcels or the right to select such parcels. In addition, Mortgagee may
proceed directly against the Premises without resort to any other person or
the assets of Mortgagor, or other security held by Mortgagee for the
indebted-
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ness secured hereby, but such proceedings against the Premises shall not in
any sense release such other person, assets or security held by Mortgagee.
(b) Without notice except as expressly required by this Mortgage or by
law, the Mortgagee may declare the principal sum secured by the Mortgage, with
all other sums secured hereby, to be immediately due and payable, and if the
same is not paid on demand, may bring suit therefor; and may take any and all
steps and institute any and all other proceedings that Mortgagee deems necessary
to enforce collection of the indebtedness and obligations secured hereunder and
to protect the lien of this Mortgage.
(c) In the event of a default because of the existence of the lien
that is superior to this lien to Old Kent Bank and Trust Company, Mortgagee
shall have the right (without being obligated to do so or to continue to do so)
to advance on and for the account of Mortgagor such sums as Mortgagee in its
sole discretion deems necessary to cure such default or to induce the holder of
any such purported senior lien to forebear from exercising its rights thereunder
(d) The Mortgagee may cause to be brought down to date the abstract or
abstracts and tax histories of the Premises, procure mortgage foreclosure or
title reports or, if necessary, procure new abstracts and tax histories, and
Mortgagor agrees to reimburse Mortgagee for the costs of obtaining the
foregoing.
(e) The Mortgagee may enter into peaceful possession of the Premises,
and/or receive the rent, income and profits therefrom, or obtain the appointment
of a receiver over the premises, all as provided for herein.
(f) Mortgagee shall have the remedies of a secured party under the
Uniform Commercial Code, including, without limitation, the right to take
possession of the personal property on the Premises by any lawful means and for
that purpose Mortgagee may enter upon any premises on which the goods or any
part thereof may be situated and hold the goods upon such premises (without
charge to Mortgagee), or dispose of the goods on such premises, or remove the
same to such other place or places as Mortgagee shall determine. Upon demand by
Mortgagee, Mortgagor shall assemble the goods and make them available to
Mortgagee at a place to be designated by Mortgagee which is reasonably
convenient to both parties. Any requirement of notice under the Uniform
Commercial Code shall be met if such notice is mailed to Mortgagor at least five
(5) days before the event with respect to which notice is required.
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Mortgagee shall be entitled to recover all expenses incurred by Mortgagee in
retaking, holding, preparing for sales and selling the goods, together with
attorneys fees and legal expenses incurred by Mortgagee in protecting and
enforcing its rights and remedies with respect to the indebtedness and the
goods.
(g) Mortgagee may, pursuant to the assignment contained in paragraph
26 herein, with or without foreclosure or entry upon the premises, demand,
collect, sue for, receive, compromise, compound all rents, income, and arrears
of rent as may then or thereafter be due or owing from the tenants, occupiers,
lessees or assignees of any leases of the Premises, and Mortgagor hereby
authorizes and directs the tenants, occupiers, lessees or assignees of any
leases of the premises to make payment to Mortgagee of rent any other sums then
due and to become due under the leases upon receipt of written demand therefor
by Mortgagee, without liability for the determination of Mortgagee's right
thereto.
(i) In such event mortgagee shall have the power, either directly or
through a rental agent selected by Mortgagee, to operate, maintain and
repair the premises; and to rent or lease the same for any period of time
and to pay taxes, insurance premiums and all expenses of said premises, and
to amend any lease and to exercise any and all rights of Mortgagor with
respect to any lease; and out of the rents and income thus received, after
the payment of all costs and expenses of Mortgagee, to retail all sums then
or thereafter due hereunder, and apply the same to
(A) payment of all sums secured hereby;
(B) payment of the expenses of preserving the Premises,
including, but not limited to, taxes and insurance; and
(C) payment of a commission of five (5%) percent, or such greater
amount as may them be common practice in the locality where the Premises are
situates, upon all such rents and such collections. Notwithstanding the
foregoing, Mortgagee may, in its sole discretion, change the priorities set
forth above for the application of the net proceeds of such rent and income.
(ii) The right and powers of Mortgagee hereunder shall continue and
remain in full force and effect until all amounts secured hereby, including any
deficiency resulting from foreclosure sale, are paid in full, and shall continue
after
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commencement of foreclosure and after foreclosure sale and until expiration of
the eguity of redemption1 notwithstanding sale of the Premises to a purchaser
other than Mortgagee.
(iii) Mortgagee shall not be liable to Mortgagor or any one claiming
under or through Mortgagor by reason of any act or omission of Mortgagee
hereunder.
(iv) No action taken by Mortgagee under this paragraph shall put
Mortgagee in the position of a "mortgagee in possession."
16. Nonpayment of any taxes or assessments levied or assessed upon the
Premises, or any part thereof, or nonpayment of any insurance premium upon any
insurance policy covering the Premises, or any part thereof, shall constitute
waste, and shall entitle Mortgagee to exercise the remedies afforded by Section
2927 of Public Act No. 236 of the Public Acts of Michigan of 1961, as amended,
and Mortgagor does hereby agree to and does hereby consent to the appointment of
a receiver under the said statute should the Mortgagee elect to resort to such
remedies hereunder.
17. References in this Mortgage to events or conditions constituting a
default or otherwise permitting Mortgagee to declare the indebtedness secured
hereby to be immediately due shall in no way impair the Mortgagor's right to
demand immediate repayment of all or any portion of such indebtedness,
notwithstanding that at the time of such demand there may not exist any event or
condition constituting a default or otherwise specifically permitting Mortgage
under this Mortgage to make such demand.
18. The failure of the Mortgagee to demand payment in full of the
indebtedness secured hereby or to exercise the option for foreclosure (including
sale under power of sale hereunder) following any default under this Mortgage or
to exercise any other option granted to the Mortgagee hereunder in any one or
more instances, or the acceptance by Mortgagee of partial payment hereunder
shall not constitute a waiver of any such default, but such option shall remain
continuously in force. Any demand for immediate repayment once made hereunder by
Mortgagee may, at the option of Mortgagee, be rescinded by written knowledge to
that effect by the Mortgagee, but the tender and acceptance of partial payments
alone shall not in any way affect or rescind such demand.
19. Should the proceeds of the loans and advances made by the Mortgagee,
the repayment of which is hereby secured, or any par thereof, or any amount paid
out or advanced
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<PAGE>
by the Mortgagee, be used directly or indirectly to pay off, discharge, or
satisfy, in whole or in part, any prior lien or encumbrance upon the Premises or
any part thereof, then the Mortgagee shall be subrogated to such other liens or
encumbrances and to any additional security held by the holder thereof and shall
have the benefit of the priority of all of the same.
20. Should Mortgagor deed, quitclaim, assign, convey, transfer, sell, sell
under contract of sale, land contract, lease with option to purchase, dispose of
or further encumber and Premises, or any part thereof, or any interest therein,
or agree to do so, or such shall occur by any means, voluntary or involuntary,
then all sums secured by this Mortgage shall immediately become due and payable
at the option of the Mortgagee unless the Mortgagee shall have previously
consented thereto in writing. Failure of the Mortgagee to give such prior
written consent or to exercise the option provided for in this paragraph shall
not be deemed a waiver of its rights to exercise the option at any other time
during which the Mortgagor is in default under the terms of this paragraph.
Consent to one such transaction shall not be deemed to be a waiver of the right
to require such consent to future or successive transactions. In the event of
the sale or transfer by operation of law, or otherwise, of all or any part of
said Premises, the Mortgagee is hereby authorized and empowered to deal with
such vendee or transferee with reference to the Premises, or the debt secured
hereby, or with reference to any of the terms or conditions hereof, as fully and
to the same extent as it might with the Mortgagor.
21. (a) Mortgagee, without notice, and without regard to the consideration,
if any, paid therefor, and notwithstanding the existence at the time of any
inferior liens thereon, may release any part of the security described herein or
any part liable for any indebtedness secured hereby, without in any way
affecting the priority of the lien of this Mortgage to the full extent of the
indebtedness remaining unpaid hereunder. Upon any part of the security not
expressly released and may agree with any party obligated on said indebtedness
or having any interest in the security described herein to extend the time for
payment of any part of all of the indebtedness secured hereby. Such agreement
shall not, in any way, release or impair the lien hereof, but shall extend the
lien hereof as against the title of all parties having any interest in said
security which interest is subject to said lien
(b) In the event the Mortgagee: (i) releases, as aforesaid, any part
of the security described herein or any part liable for any indebtedness secured
hereby: (ii) grants an
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extension of time for any payments of the debt secured hereby; or (iii) takes
other or additional security for tile payment thereof; or (iv) waives or fails
to exercise any right granted herein, said act or omission shall not release the
Mortgagor, subsequent purchasers of the Premises or any part thereof, or makers,
guarantors or sureties of this Mortgage, under any covenant of this Mortgage,
nor preclude the Mortgagee from exercising any right, power or privilege herein
granted or intended to be granted in the event of any other default then made or
any subsequent default.
22. Mortgagor, within five (5) days upon request by mail, shall execute,
acknowledge and deliver to Mortgagee any certified financing statement,
affidavit, continuation statement or certification or other document as
Mortgagee may request in order to protect, preserve, maintain, continue and
extend the security interest hereunder or under any other instrument given as
security in connection herewith, and the priority thereof. Mortgagor further
agrees to pay to Mortgagee on demand all cost and expenses incurred by Mortgagee
in connection with the preparation, execution, recording and filing of any such
documents.
23. The parties hereto intend that in addition to any other indebtedness or
obligation secured hereby, this Mortgage shall secure the unpaid balance of loan
advances or other payments made by the holder hereof at the request of Mortgagor
or its successors, or in order to protect the Premises, after this Mortgage is
delivered to the recorder for record.
24. Nothing herein contained nor any transaction related thereto shall be
construed or shall so operate either presently or prospectively, (a) to require
Mortgagor to pay interest at a rate greater than is now lawful in such case to
contract for, but shall require payment of interest only to the extent of such
lawful rate, or (b) to require Mortgagor to make any payment or do any act
contrary to law, but if any clause and provision herein contained shall
otherwise so operate to invalidate this Mortgage in whole or in part then such
clauses and provisions only shall be held as though not herein contained and the
remainder of this Mortgage shall remain operative and in full force and effect.
25. At the option of Mortgagee, this Mortgage shall become subject and
subordinate in whole or in part (but not in respect to the priority of
entitlement to insurance proceeds or any award in condemnation) to any or all
leases, of all or any part of the Premises, upon the execution by Mortgagee and
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recording thereof, at any time hereafter, in the office of the recorder in and
for the county wherein the Premises are situated, of a unilateral declaration to
that effect.
26. As additional security for the payment of the principal indebtedness,
and all other amounts payable by Mortgagor to Mortgagee under this Mortgage, and
the performance by Mortgagor of the covenants and conditions contained herein,
and the obligations, covenants, undertakings and agreements contained in any
other instrument securing the indebtedness, Mortgagor does hereby assign,
mortgage and warrant to Mortgagee, its successors and assigns, all rents, income
and profits of the Premises and all present and future leases pertaining
thereto, and all extensions and renewals thereof, and all guarantees of the
tenants obligations thereunder, together with the right in Mortgagee to take
possession of the Premises and every part thereof, and to collect said rents and
profits and to apply the same, as hereinafter provided. Mortgagor shall perform
all of the obligations of the lessor under all leases of the Premises in
accordance with the terms and provisions thereof. Mortgagee shall have no
obligation, responsibility, or liability with respect to the Premises or the
operation thereof or with respect to any obligation or liability of the lessor
under any lease assigned hereby, and shall have no obligation to account for any
security deposit unless the same has been actually deposited with Mortgagee.
27. Mortgagor covenants that the Premises are located in the State of
Michigan, and this Mortgage and the rights and indebtedness hereby secured
shall, without regard to the place of contract or payment, be construed and
enforced according to the laws of that State
28. Mortgagor agrees that the mailing of a written notice, request or
demand, addressed to the owner of record of the Premises, directed to the owner
at the last address actually furnished to the Mortgagee, or to the Premises if
no address has been furnished to the Mortgagee, and mailed by certified mail,
postage prepaid, return receipt requested, shall be sufficient mail, postage
prepaid, return receipt requested, shall be required by the provisions hereby or
by law.
29. The Mortgagee shall be and is hereby authorized and empowered to do as
mortgagee all things provided in the applicable mechanic's or construction lien
laws and all acts amendatory or supplementary thereto that may be hereafter
enacted.
30. All of the covenants and conditions hereof shall run with the land and
shall be binding upon the successors and
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assigns of Mortgagor and shall inure to the benefit of the successors and
assigns of Mortgagee. Any reference herein to "Mortgagee" shall include the
successors and assigns of Mortgagee.
31. Each and every of the rights, remedies and benefits provided to
Mortgagee herein shall be cumulative and shall not be exclusive of any other of
said rights, remedies or benefits, or of any other rights, remedies or benefits
allowed by law. Any waiver by Mortgagee of any default shall not constitute a
waiver of any similar or other default.
32. All payments received from the Guarantor shall be applied first to all
amounts due under the Guaranty and the balance, if any, shall be applied to the
increased amount due under the Supplemental Guaranty.
33. The Mortgagor represents and warrants to Mortgagee as follows:
(a) The Mortgagor is duly organized and validly existing as a
copartnership under the laws of the State of Michigan, and has full power and
authority to own, leases and operate the Premises and to execute and deliver the
Note and this Mortgage and perform its obligations hereunder, and each person
who executes the Note and Mortgage and all other instruments and documents in
connection herewith, has due power and authority to so act on behalf of the
Mortgagor.
(b) Mortgagor has good, marketable and insurable title in and to the
Premises and this Mortgage creates a valid and binding obligation of Mortgagor
in accordance with the respective terms, subject only to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting the enforcement of creditors' rights generally.
34. This Mortgage shall automatically terminate, and be of no further force
and effect, upon the first to occur of the following:
(a) upon satisfaction of the loan made pursuant to the Loan Agreement;
(b) upon delivery to Mortgagee of substitute collateral which, in
Mortgagee's sole discretion, is of equivalent or greater value than the
collateral represented by this Mortgage.
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Upon termination of this Mortgage1 Mortgagee shall execute and deliver to
Mortgagor in duly recordable form a satisfaction or termination document
evidencing same.
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage the day and year
first above written
IN PRESENCE OF: OLDS MANOR, INC.,
a Michigan corporation
Barry Aronowsky By: /s/ Carl Paffendorf
- ----------------------------- --------------------------------
Carl Paffendorf, Chief
Executive Officer
_____________________________
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<PAGE>
STATE OF NEW JERSEY )
) ss
COUNT OF ESSEX )
On this 18th day of October, 1989, before me personally appeared Carl
Paffendorf, who being by me duly sworn, did say that he is the Chairman of Olds
Manor, Inc., a Michigan corporation, and that the within and foregoing Mortgage
was signed in behalf of said corporation by authority of its board of directors,
and he duly acknowledged to me that said instrument was executed as the free act
and deed of such corporation
Laurie Anne Glasspool
---------------------------------
Notary Public, Essex County,
New Jersey
LAURIE ANNE GLASSPOOL
A Notary Public of New Jersey
My Commission Expires August 5, 1993
RECORD AND RETURN TO:
E. Gina Chase, Esq.
ROBINSON, WAYNE & LA SALA
ONE GATEWAY CENTER
NEWARK, NEW JERSEY 07102
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<PAGE>
MORTGAGE
THIS MORTGAGE ("Mortgage") is made this 30 day of March, 1992, by the
Whitcomb Tower Corporation, a Michigan corporation, whose address is c/o
Vanguard Ventures, Inc., 4 Cedar Swamp Road, Glen Cove, New York 11542
("Borrower"), unto The Whitcomb Mortgage Trust, a trust organized under the laws
of the State of New York, whose address is c/o Carl C. Paffendorf, Trustee,
Vanguard Ventures, Inc., 4 Cedar Swamp Road, Glen Cove, New York 11542
("Lender").
WHEREAS, Borrower is justly indebted to Lender in the principal sum of One
Million Two Hundred Thousand and no/100 Dollars ($1,200,000.00), together with
interest thereon in accordance with a Convertible Mortgage Note from Borrower to
Lender of even date herewith (the "Mortgage Note"), the Mortgage Note identified
as being secured hereby by a statement thereon.
THEREFORE, in order to secure payment of the principal and interest of such
indebtedness according to the term's of the Mortgage Note, and all other amounts
payable by Borrower to Lender hereunder, the performance of the agreements and
covenants of Borrower under any other instrument or document executed by
Borrower in connection herewith, or the transactions contemplated thereby (the
Mortgage Note, this Mortgage and such other documents being collectively
referred to herein as the "Loan Documents"), and all other amounts payable by
Borrower to Lender under the Mortgage Note, and the performance of the covenants
and conditions hereof, and any and all extensions and renewals of any of the
foregoing, however evidenced (all of which secured obligations are referred to
herein as the "Obligations"), Borrower does hereby:
A. MORTGAGE and WARRANT to Lender and its successors and assigns forever,
certain land situated in the State of Michigan, as more particularly described
in Exhibit A attached hereto, together with:
1. all the estate, title, interest and rights of Borrower in and to said
land and all buildings and improvements of every kind and description
now or hereafter placed upon said land or any part thereof;
2. all machinery, apparatus, equipment, appliances, floor coverings,
furniture, furnishings, supplies, materials, fittings, fixtures and
personal property of every kind and nature whatsoever, now or
hereafter located in or upon, affixed to or intended for use in or
upon said land and improvements, whether stored thereon or elsewhere,
or any part thereof, now owned or hereafter acquired by Borrower, and
used or usable in connection with any present or future operation or
maintenance of said land and improvements, and all replacements
thereof, including, but not limited to: all heating, cooling,
ventilating, lighting, electrical and power systems, fixtures and
equipment, and all pipes, ducts, pumps, tanks, compressors, engines,
motors, conduits, plumbing and cleaning equipment, fire-extinguishing
<PAGE>
systems, refrigerating and ventilating apparatus, air cooling and air
conditioning apparatus, gas, water and electrical equipment,
elevators, escalators, attached cabinets, shelving, partitions,
carpeting, communications equipment, lifts, hoists, appliances,
awnings, stoves, refrigerators, dishwashers, disposals, incinerators,
carpeting and drapes, and all of Borrower's present or future interest
in all supplies, furniture, fixtures and equipment of every type,
nature and description; all of which items described in this clause
(2) shall be deemed to be a part of the real property and covered by
the lien hereof;
3. all of the rents, profits, and income thereof, all leases and other
occupancy agreements and arrangements, and the tenements,
hereditaments, easements, privileges and appurtenances thereto running
to Borrower; and
4. all agreements, contracts (including contracts for the lease or sale
of the premises or any portion thereof), licenses and permits
affecting the premises, all awards in any condemnation or eminent
domain proceedings for a taking or for loss of value of said land and
improvements, all general intangibles now or hereafter located upon
said land, or related to or used or usable in connection with any
present or future operation upon said land, and the proceeds of all
insurance policies now or hereafter covering all or any part of the
premises.
(Any reference herein to the "mortgaged premises" or to the "premises" shall be
deemed to apply to the above described land and to the improvements, property,
rights and other items described in clauses (1), (2), (3) and (4) above, unless
the context shall require otherwise.)
To have and to hold the premises, with all of the tenements, hereditaments,
easements, appurtenances and other rights and privileges thereunto belonging or
in any manner now or hereafter appertaining thereto, for the use and benefit of
Lender upon the conditions hereinafter set forth.
This Mortgage and all rights of Lender hereunder, is and shall be Subject
and Subordinate, in each and every respect, to the rights of The Great-West Life
& Annuity Insurance Company (the "First Lender"), under and pursuant to a
certain mortgage upon the premises, recorded on April 22, 1988 in Liber 1339,
Page 210, Berrien County Records (the "First Mortgage"). The provisions of this
paragraph are self-operative, and no further instrument of subordination shall
be required; however, this Mortgage and all rights of Lender hereunder, is and
shall be PRIOR AND SUPERIOR, in each and every respect, to the rights of
Citibank, N.A., and Lloyds Bank Plc (collectively the "Third Lender"), under and
pursuant to a certain mortgage upon the premises, recorded on December 26, 1990
in Liber 1443, Page 1113, Berrien County Records (the "Third Mortgage"). The
provisions of this paragraph are self-operative, and no further
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<PAGE>
instrument shall be required; reference is made however to paragraph 8 on page 7
of the Third Mortgage wherein the Third Lender agreed that the Third Mortgage
would be subject and subordinate to a mortgage securing debt of the Borrower not
exceeding $1,200,000.00.
B. Grant to Lender a security interest in that portion of the premises with
respect to which a security interest can be granted under Article Nine of the
Michigan Uniform Commercial Code, as amended; together with the proceeds and
products thereof.
C. Covenant, promise and agree to and with Lender, which covenants,
promises and agreements shall, to the extent permitted by law, be deemed to run
with the land, as follows:
1. Performance of Obligations
Borrower shall pay the principal and interest of Borrower's
indebtedness to Lender according to the terms of the Mortgage Note, and shall
pay all other amounts provided herein, and Borrower and all other parties to the
Loan Documents shall perform all the Obligations.
2. Covenants of Title
At the time of the execution and delivery of this Mortgage, Borrower
is well and truly seized of the premises in fee simple, free of all easements,
liens and encumbrances except and subject only to the First Mortgage, the Third
Mortgage and those matters of record as of the date hereof, and Borrower will
forever warrant and defend the same against any and all other claims whatever,
and the lien created hereby is and will be kept as a first lien upon the
premises and every part thereof, subject only to the foregoing exceptions.
3. Taxes
3.1. Borrower shall pay all real property taxes, assessments and other
charges and encumbrances levied upon the premises when and as the same become
due and payable, and will deliver to Lender, without demand, official receipts
showing such payment.
3.2. Borrower also shall pay when due all taxes, assessments and other
charges and encumbrances that may be levied upon or on account of this Mortgage
or the indebtedness secured hereby or upon the interest or estate in the
mortgaged premises created or represented by this Mortgage, whether levied
against Lender or otherwise. In addition, in the event of the passage after the
date of this Mortgage of any law of the State of Michigan, deducting from the
land for the purpose of taxation any lien thereon, or changing in any way of the
laws now in force for the taxation of mortgages, deeds of trust or debts secured
thereby for state or local purposes, or the manner of the operation of any such
taxes so as to affect the interest of Lender, then Borrower shall bear and pay
the full amount of such new or additional
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<PAGE>
taxes. If payment by Borrower of any tax referred to in this Paragraph 3.2 would
be unlawful or would result in the payment of interest in excess of the rate
permitted by law, then Borrower shall have no obligation to pay the portion of
such tax which would be unlawful or would result in the payment of such excess;
provided, however, in such event Lender, at its option, may declare the entire
principal balance of the indebtedness secured hereby, together with all interest
thereon, to be immediately due and payable, without notice.
4. Insurance
4.1. Until the debt secured hereby is fully satisfied, Borrower shall
keep the premises continuously insured against loss or damage by fire,
lightning, windstorm, hail, explosion, riot, riot attending a strike, civil
commotion, aircraft, vehicle, smoke and other hazards, casualties and
contingencies, including vandalism and malicious mischief, in an amount equal to
90% of the full insurable value of the premises, as such amounts may be
determined and redetermined by Lender (but not more frequently than on an annual
basis); provided, however, that the amount of such insurance, in any event,
shall be sufficient to prevent Borrower from becoming a co-insurer under the
applicable insurance policies. Borrower shall also keep the premises insured
against rental loss in such amounts as Lender may require from time to time.
4.2. All insurance shall be carried in companies approved by Lender,
and the policies and renewals thereof shall be held by, and pledged to, Lender
(unless Lender shall direct or permit otherwise) as additional security
hereunder, and shall have attached thereto a mortgagee clause acceptable to
Lender, making all loss or losses under such policies payable to Lender, its
successors or assigns, as its or their interest may appear. In the event of loss
or damage to the mortgaged premises, Borrower shall give immediate notice in
writing by mail to Lender, who may make proof of loss if not made promptly by
Borrower, and each insurance company concerned is hereby authorized and directed
to make payment for such loss, to the extent of the indebtedness hereby secured,
directly to Lender instead of to Borrower and Lender jointly, and the insurance
proceeds or any part thereof may be applied by Lender toward reimbursement of
all costs and expenses of Lender in collecting such proceeds, and the balance,
at Lender's option, may be applied to the last maturing installments of
principal and interest due or to become due under the Mortgage Note (without any
penalty for prepayment), to fulfill any other covenant herein or any other
Obligation or to the restoration or repair of the property damaged, or may be
released to Borrower. In the event Lender releases any insurance proceeds to
Borrower, Borrower shall be obligated to use such proceeds to restore or repair
the premises unless Lender otherwise specifies in writing. Application by Lender
of any insurance proceeds toward the last maturing installments of principal and
interest due or to become due under the Mortgage Note shall not excuse Borrower
from making the regularly scheduled payments due thereunder, nor shall such
application extend or reduce the amount of such payments.
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<PAGE>
4.3. In the event of foreclosure of this Mortgage or other transfer of
title to the mortgaged premises in extinguishment of the indebtedness secured
hereby, all right, title and interest of Borrower in and to any insurance
policies then in force shall pass to the purchaser or grantee and Borrower
hereby appoints Lender its attorney-in-fact, in Borrower's name, to assign and
transfer all such policies and proceeds to such purchaser or grantee.
5. Payments by Lender
Should default be made in the payment of any taxes, assessments or
other charges or encumbrances described in Paragraph 3 hereof, or in procuring
and maintaining insurance as required by Paragraph 4 hereof, or in making
necessary repairs to the premises, or in making any other payments required to
be made by Borrower or any other party under the Loan Documents, Lender may pay
such taxes, assessments, charges or encumbrances, effect such insurance, make
such repairs and make such payments, and the monies so paid by it shall be a
further lien on the premises, payable forthwith, with interest at the default
rate set forth in the Mortgage Note. Lender may make advances pursuant to this
Paragraph 5 or pursuant to Paragraph 6 without curing Borrower's default and
without waiving Lender's right of foreclosure or any other right or remedy of
Lender under this Mortgage. The exercise of the right to make advances pursuant
to this Paragraph shall be optional with Lender and not obligatory and Lender
shall not be liable in any case for failure to exercise such right or for
failure to continue exercising such right once having exercised it. Borrower's
failure to pay taxes, assessments or other charges or encumbrances upon the
premises, or any installment thereof, or any insurance premium upon policies
covering the premises or any part thereof, shall constitute waste (although the
meaning of the term "waste" shall not necessarily be limited to such
nonpayment), as provided by Act No. 236 of the Public Acts of Michigan of 1961,
as amended, and shall entitle Lender to all remedies provided for therein.
Borrower further agrees to and does hereby consent to the appointment of a
receiver under such statute, should Lender elect to seek such relief thereunder.
6. Repairs, Maintenance and Use
6.1. Borrower shall abstain from and shall not suffer the commission
of waste on the premises and shall keep the premises in good repair and shall
make replacements thereto as and when the same become necessary.
6.2. Without Lender's prior written consent, Borrower shall not make
or permit any material alterations, additions or improvements of any type
whatever to the premises, regardless of whether such alterations, additions or
improvements would increase the value of the premises; nor shall Borrower remove
or demolish the premises or any portion thereof, except that Borrower shall have
the right, without such consent, to remove and dispose of, free from the lien of
this Mortgage, such personalty as from time to time may become worn out or
obsolete; provided that (a) simultaneously with or prior to such removal, any
such
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<PAGE>
personalty shall be replaced with other new personalty of like kind and quality,
free from any security interest, lien or encumbrance, and by such removal and
replacement, Borrower shall be deemed to have subjected the replacement
personalty to the lien of this Mortgage, and (b) any net cash proceeds after
replacement received from such disposition shall be promptly paid over to Lender
to be applied to the last installment(s) due on the Mortgage Note.
6.3. Borrower shall not permit the premises or any portion thereof to
be used for any unlawful purpose. Borrower shall comply promptly with all laws,
ordinances, regulations and orders of all public authorities having jurisdiction
over the premises relating to the use, occupancy and maintenance thereof, and
shall upon request promptly submit to Lender evidence of such compliance.
Nothing herein shall be deemed to prohibit Borrower from contesting the
enforceability or applicability of any law, ordinance, regulation or order;
provided, however, that Lender, in its sole discretion, may require that
Borrower comply with any such law, ordinance, regulation or order during the
pendency of any such contest and all appeals therefrom.
6.4. In the event that the premises or any part thereof, in the sole
judgment of Lender, require inspection, repair, care or attention of any kind or
nature not theretofore provided by Borrower, Lender may at any time and from
time to time (without being obligated to do so) enter or cause entry to be made
upon the premises and inspect the same as Lender may deem necessary or
advisable, and may (without being obligated to do so) make such expenditures and
outlays of money as Lender may deem appropriate for the repair and maintenance
of the premises. All such expenditures and outlays of money made by Lender shall
be secured by the lien of this Mortgage, shall be payable forthwith and shall
bear interest at the default rate provided in the Mortgage Note.
6.5. Borrower shall not accept or permit any increase of the principal
amount secured by the First Mortgage, nor accept or permit any amendment,
modification. extension or other change to the terms of any instrument or
agreement executed in connection therewith, without the prior written consent of
Lender. Borrower represents and warrants to Lender that as of the date hereof,
the principal indebtedness secured by the First Mortgage is not greater than
$2,170,000.00.
7. Events of Default
7.1. Each of the occurrences listed below shall be deemed an event of
default under this Mortgage and under the Mortgage Note, and any such occurrence
shall entitle Lender, at its option and without notice except where required by
law, to exercise any one or any combination of remedies described in Paragraph 8
hereof or otherwise available to Lender.
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<PAGE>
(a) Failure by Borrower to pay any installment or other payment when
due under the Mortgage Note or to make any payment when due under
this Mortgage.
(b) Failure by Borrower or any other party promptly and faithfully to
observe and perform all of the other terms, covenants and
conditions of this Mortgage, the Mortgage Note, and the other
Loan Documents, or the occurrence of any other event which, under
the terms of this Mortgage, the Mortgage Note or the other Loan
Documents, constitutes a default hereunder or thereunder, or the
falsity in any material respect of any warranty, representation
or statement made or furnished to Lender by Borrower.
(c) The occurrence of any of the following with respect to any
mortgage, security interest, lien or encumbrance of any kind upon
the premises or any portion thereof, whether senior or junior to
the lien of this Mortgage, including the First Mortgage and the
Third Mortgage: any event of default, any event which with the
passage of time or the giving of notice, or both, might
constitute a default, or the institution of foreclosure
proceedings or the exercise of any rights or remedies to enforce
the same.
(d) Appointment by a court of competent jurisdiction of receiver,
liquidator or trustee of Borrower or for any portion of the
property of Borrower unless such appointment is discharged within
sixty (60) days from the date thereof.
(e) The sequestration of any of the property of Borrower if such
decree shall remain undischarged and unstayed for sixty (60) days
after the entry thereof.
(f) Failure by Borrower to pay debts as such debts become due, or the
appointment of a trustee, receiver or agent to take charge of
less than substantially all of the property of Borrower for the
purpose of enforcing a lien, or any other act which, under the
applicable provisions of the 1978 Bankruptcy Reform Act, would
allow an involuntary case in bankruptcy to be commenced against
Borrower.
(g) An assignment by Borrower for the benefit of creditors or a
written admission by Borrower of inability to pay debts generally
as they become due.
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(h) Consent by Borrower to the appointment of a receiver, trustee or
liquidator of Borrower or for all or any put of its property.
(i) Failure by Borrower to comply with any material terms, covenants
and provisions of any and all leases or other agreements,
documents or restrictions that now encumber, affect or pertain to
the premises or any portion thereof.
(j) Default under the terms of any agreement of guaranty relating to
the indebtedness evidenced by the Mortgage Note, or the
occurrence of any of the events enumerated in Paragraph 7.1
(d)-(h) with regard to any guarantor of the Mortgage Note, or the
revocation, limitation or termination of the obligations of any
guarantor of the Mortgage Note.
(k) Termination of Borrower's existence in good standing as a legal
entity.
(l) Failure by Borrower to (i) pay any installment or additional
payment when due under the note secured by the First Mortgage; or
(ii) make any additional payment as and at the time required
under the First Mortgage or the Third Mortgage; or (iii) promptly
and faithfully perform all of the other terms, covenants and
conditions of the First Mortgage or the Third Mortgage, any note
secured either instrument, or any other instrument executed
simultaneously or in connection with either the First Mortgage or
the Third Mortgage.
7.2. Anything herein to the contrary notwithstanding, in case of
default by Borrower in any of its obligations hereunder, notwithstanding the
existence and continuance of such default, no event of default shall be deemed
to have occurred and Lender shall not take any action or exercise any remedy to
which it be entitled against Borrower, unless, (a) in the case of monetary
obligations, Borrower shall have failed to remedy the default within ten (10)
days of its occurrence, and (b) in the case of non-monetary defaults
(obligations other than for the payment of money), Borrower shall have failed to
remedy the default within thirty (30) days of written notice of such default or
shall have failed, in the judgment of Lender, to commence appropriate action to
remedy the default and be proceeding diligently therewith; provided, however,
that Borrower shall not be entitled to any separate notice and opportunity to
cure any act of default which specifies its own cure period, as, for example,
the act of default specified in Paragraph 7.1(d); and such default shall be
deemed an event of default unless cured within the specific cure period provided
for such default, nor shall Borrower be entitled to notice and opportunity to
cure the acts of default specified in Paragraphs 7.l(f)-(g), 11.1 or 12 hereof,
or
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for any act or default in the performance of its obligations under Paragraph 16
hereof. Notwithstanding the foregoing, if, in the sole discretion of Lender, a
situation arises which requires immediate action by Lender to preserve and
protect any collateral given to secure the Obligations secured by this Mortgage,
Lender shall be free to take such action as it reasonably deems appropriate to
preserve and protect such collateral without delivery of notice of default to
Borrower, or if such notice has been delivered, without waiting for the
expiration of the applicable grace period.
7.3. Without in any way affecting or modifying the rights or
obligations of Borrower hereunder or under the Mortgage Note, Lender agrees that
within five (5) days of Lender becoming aware that an event of default has
occurred hereunder or under the Mortgage Note, Lender will send a notice of the
default to the First Lender at the following address:
The Great-West Life & Annuity Insurance Company
Great-West Center, Tower 2
8515 East Orchard Road
Englewood, Colorado 80111
8. Remedies
Subject to Paragraph 7.2, immediately upon the occurrence of an event
of default defined in Paragraph 7.1 hereof, Lender shall have the option, in
addition to and not in lieu of or substitution for, all other rights and
remedies provided by law or the other Loan Documents, to do any or all of the
acts set forth in this Paragraph 8, without notice except as expressly provided
herein or required by law.
8.1. Lender may demand payment of any sums due, and if the same are
not paid on demand Lender may bring suit therefor.
8.2. Lender may declare the principal sum secured by this Mortgage,
with all interest thereon and all other sums secured hereby, to be immediately
due and payable, without notice, and if the same is not paid on demand Lender
may bring suit therefor.
8.3. Lender may take any and all steps and institute any and all other
proceedings which Lender deems necessary or appropriate to enforce the
Obligations and to protect the lien of this Mortgage.
8.4. Lender may apply any monies then remaining on deposit with Lender
or its designee whether pursuant to Paragraph 3 or 4 hereof or otherwise,
against the indebtedness hereby secured immediately upon or at any time after
default, and without notice to Borrower. Further, Lender may make payments from
any of such monies on deposit with
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Lender or its designee for taxes, assessments, insurance premiums or other
charges or encumbrances on or with respect to the premises notwithstanding that
subsequent owners of the premises may benefit thereby.
8.5. In the event of default because of the existence of any lien upon
the premises, or in the event of a default under the First Mortgage or any
document executed in connection therewith, Lender shall have the right (without
being obligated to do so or to continue to do so), without notice to Borrower,
to advance on and for the account of Borrower such sums as Lender in its sole
discretion deems necessary to cure such default or to induce the holder of any
such lien to forbear from exercising its rights thereunder or to induce the
First Lender from exercising any of its remedies under the First Mortgage or
otherwise. The repayment of all such advances, with interest thereon at the
default rate set forth in the Mortgage Note from the date of each such advance,
shall be secured hereby and shall be immediately due and payable without demand.
8.6. Borrower may procure mortgage foreclosure or title reports.
Borrower covenants to pay forthwith to Lender all sums expended by Lender for
such purposes with interest at the default rate provided for in the Mortgage
Note, and such sums and the interest thereon shall constitute a further lien
upon the premises.
8.7. Lender may enter into peaceful possession of the premises and/or
receive the rent, income and profits therefrom, and apply the same in accordance
with Paragraph 15 hereof. Borrower acknowledges that it has been advised that
there is a significant body of case law in Michigan which purportedly provides
that in the absence of a showing of waste of a character sufficient to endanger
the value of the premises, or other special factors, a mortgagor is entitled to
remain in possession of mortgaged premises, and to enjoy the income, rents and
profits therefrom, during the pendency of foreclosure proceedings and until the
expiration of the redemption period, even if the mortgage documents expressly
provide to the contrary. Borrower further acknowledges that it has been advised
that Lender recognizes the value of the security covered hereby is inextricably
intertwined with the effectiveness of the management, maintenance and general
operation of the premises, and that Lender would not make the loan secured
hereby unless it could be assured that it would have the right to take
possession of the premises in order to manage or to control management thereof,
and to enjoy the income, rents and profits therefrom, immediately upon default
by Borrower hereunder, notwithstanding that foreclosure proceedings may not have
been instituted, or are pending, or the redemption period may not have expired.
Accordingly, Borrower hereby knowingly, intelligently and voluntarily waives all
right to possession of the premises from and after the date of default
hereunder, upon demand for possession by Lender, and Borrower agrees not to
assert any objection or defense to Lender's request or petition to a court for
possession. The rights hereby conferred upon Lender have been agreed upon prior
to any default by Borrower hereunder, and the exercise by Lender of any such
rights shall not be deemed to put Lender in the status of a "mortgagee in
possession". Borrower
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acknowledges that this provision is material to this transaction and that Lender
would not make the loan secured hereby but for this Paragraph.
8.8. Lender may immediately commence foreclosure proceedings against
the premises pursuant to applicable law. The commencement by Lender of
foreclosure proceedings by advertisement or in equity shall be deemed an
exercise by Lender of its option set forth in Paragraph 8.2 to accelerate the
due date of all sums secured hereby. Borrower hereby grants power to Lender, in
the event of the occurrence of an event of default hereunder, to grant, bargain,
sell, release and convey the premises at public auction or vendue, and upon such
sale to execute and deliver to the purchaser(s) instruments of conveyance
pursuant to the terms hereof and to the applicable laws. Borrower acknowledges
that the foregoing sentence confers a power of sale upon Lender, and that upon
default this Mortgage may be foreclosed by advertisement as described below and
in the applicable Michigan statutes. Borrower understands that upon default,
Lender is hereby authorized and empowered to sell the mortgaged premises, or
cause the same to be sold and to convey the same to the purchaser in any lawful
manner, including but not limited to that provided by Chapter 32 of the Revised
Judicature Act of Michigan, entitled "Foreclosure of Mortgage by Advertisement."
WARNING: THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE
FORECLOSED BY ADVERTISEMENT. WITH RESPECT TO FORECLOSURE BY ADVERTISEMENT AND
THE SALE OF THE MORTGAGED PROPERTY IN CONNECTION THEREWITH, NO HEARING IS
REQUIRED AND THE ONLY NOTICE REQUIRED IS TO PUBLISH NOTICE IN A LOCAL NEWSPAPER
AND TO POST A COPY OF THE NOTICE ON THE PREMISES.
WAIVER: Borrower HEREBY WAIVES ALL RIGHTS UNDER THE CONSTITUTION AND THE LAWS OF
THE UNITED STATES AND UNDER THE CONSTITUTION AND LAWS OF THE STATE OF MICHIGAN
AND TO A HEARING PRIOR TO SALE IN CONNECTION WITH THE ABOVE-MENTIONED
FORECLOSURE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS EXCEPT AS SET FORTH IN
THE MICHIGAN STATUTE PROVIDING FOR FORECLOSURE BY ADVERTISEMENT.
Upon any foreclosure sale of the premises, through suit in equity, by
publication or otherwise:
(a) The premises may be sold either as a whole or in parcels, as Lender may
elect, and if in parcels, the same may be divided as Lender may elect, and at
the election of Lender, may be offered first in parcels and then as a whole,
that offer producing the highest price for the entire property to prevail. Any
law, statutory or otherwise, to the contrary notwithstanding, Borrower hereby
waives the right to require any such sale to be made in parcels or the right to
select such parcels.
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(b) The proceeds of any foreclosure sale shall be applied in the following
order of priority: (1) to all expenses incurred for the collection of Borrower's
indebtedness and the foreclosure of the Mortgage, including reasonable
attorneys' fees as permitted by law; (2) to all sums expended or incurred by
Lender directly or indirectly in carrying out the covenants and agreements of
Borrower under this Mortgage or any of the other Obligations, together with
interest thereon; (3) to all interest accrued under the Mortgage Note and on any
other sums owing to Lender; (4) to the principal balance of the Mortgage Note
and the principal balance of any other sums owing to Lender; and (5) the
surplus, if any, shall be paid to Borrower, unless a court of competent
jurisdiction decrees otherwise.
9. Attorney Fees
Borrower shall pay Lender a reasonable attorneys' fee in addition to
all other legal costs in case Lender shall become a party, either as plaintiff
or defendant, to any legal proceedings in relation to the premises or the lien
created hereby, whether or not such proceedings result from Lender's enforcement
of its rights and remedies hereunder, except attorneys fees incurred as a result
of Lender's fraud, gross negligence or willful acts. Such sums shall be secured
hereby and shall be payable forthwith, with interest at the default rate set
forth in the Mortgage Note.
10. Condemnation
In the event that the premises or any part thereof is taken under the
power of eminent domain, the entire award or payment in lieu of condemnation, to
the full extent of the amount secured hereby, shall be paid to Lender and
applied toward reimbursement of all of Lender's costs and expenses incurred in
connection with collecting such award or payment, and all or any portion of the
balance, at Lender's option, to the last maturing installments of principal and
interest due or to become due under the Mortgage Note (without any penalty for
prepayment), to fulfill any other covenant herein or any other Obligation, or to
repair or restore the premises. Application by Lender of any condemnation award
or payment or portion thereof toward the last maturing installments due or to
become due under the Mortgage Note shall not excuse Borrower from making the
regularly scheduled payments due thereunder, nor shall such application extend
or reduce the amount of such payments. Lender is hereby empowered in the name of
Borrower to receive, and give acquittance for, any such award or payment,
whether it is joint or several; provided, however, that Lender shall not be held
responsible for failure to collect any such award or payment, regardless of the
cause of such failure.
11. Transfer of Premises; Due on Sale
11 .1. In making the loan secured hereby, Lender is relying upon the
integrity, experience and general reputation of Borrower in operating the
premises for the intended purposes. Therefore, if any of the following events
occurs without the prior written
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consent of Lender, the same shall constitute a default hereunder, whereupon
Lender shall have all its rights and remedies hereunder, including (but not
limited to) the right in its sole option thereafter to declare all sums secured
hereby and then unpaid to be immediately due and payable, although the period
originally agreed upon by Borrower and Lender for the payment thereof shall not
then have expired, and if such sums are not paid upon demand thereupon to
exercise all of its other rights and remedies under this Mortgage:
(a) The transfer, sale, assignment, or conveyance of all or any
portion of the premises or any interest therein, except for
replacements permitted by Paragraph 6.2 hereof; or
(b) The divestiture of Borrower's title to or interest in the
premises or any portion thereof, in any manner or way, whether
voluntary or involuntary, or any other change in the legal or
equitable title to the premises or in the beneficial ownership of
the premises, or any portion thereof, whether or not of record,
and whether or not for consideration, except for replacements
permitted by Paragraph 6.2 hereof.
If Lender consents to any such event, the subsequent occurrence of any such
event without Lender's prior written consent shall constitute a default under
this Paragraph 11.
11.2. If ownership of the premises or any part thereof becomes vested
in a person or persons other than Borrower (with or without Lender's consent),
Lender may, without notice to Borrower, deal with such successor or successors
in interest with reference to this Mortgage the Mortgage Note and the other Loan
Documents, without in any way releasing, discharging, or otherwise affecting
Borrower's liability hereunder or thereunder. No sale of the premises, and no
forbearance or extension by Lender of the time for the payment of the debt or
the performance of the covenants and agreements hereby secured, shall in any way
whatever operate to release, discharge, modify, change or affect the lien of
this Mortgage or the liability of the Borrower on the Mortgage Note or for the
performance hereof, either in whole or in part.
12. Other Liens
Borrower shall not, without the prior written consent of Lender,
further mortgage or pledge the premises or any part thereof as security for any
other loans obtained by Borrower or otherwise. If any such mortgage or pledge is
entered into without the prior written consent of Lender, the entire
indebtedness secured hereby, may, at the option of Lender, be declared
immediately due and payable without notice. Borrower also shall pay any and all
other obligations, liabilities or debts which may become liens, security
interests, or encumbrances upon or charges against the premises for any repairs
or improvements that are now or may hereafter be made thereon, and shall not,
without Lender's prior written consent, permit any lien, security
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interest, encumbrance or charge of any kind to accrue and remain outstanding
against the premises or any part thereof, or any improvements thereon,
irrespective of whether such lien, security interest, encumbrance or charge is
junior to the lien of this Mortgage. Notwithstanding the foregoing, if any
personal property by way of additions, replacements or substitutions is
hereafter purchased and installed, affixed or placed by Borrower on the
mortgaged premises under a security agreement the lien or title of which is
superior to the lien created by this Mortgage, all the right, title and interest
of Borrower in and to any and all such personal property, together with the
benefit of any deposits or payments made thereon by Borrower, shall nevertheless
be and are hereby assigned to Lender and are covered by the lien of this
Mortgage.
13. Further Assurances; Security Agreement
13.1. Borrower shall execute, acknowledge and deliver any and all such
further conveyances, documents, mortgages and assurances as Lender may
reasonably require for accomplishing the purposes hereof, including financing
statements required by Lender to protect its interests under the provisions of
the Michigan Uniform Commercial Code, as amended, forthwith upon the written
request of Lender. Upon any failure of Borrower to do so, Lender may execute,
record, file, rerecord and refile any and all such documents for and in the name
of Borrower, and Borrower hereby irrevocably appoints Lender as agent and
attorney-in-fact of Borrower for the foregoing purposes.
13.2. This instrument is intended by the parties to be, and shall be
construed as, a security agreement, as that term is defined and used in Article
Nine of the Michigan Uniform Commercial Code, as amended, and shall grant to
Lender a security interest in that portion of the premises with respect to which
a security interest can be granted under Article Nine of the Michigan Uniform
Commercial Code, as amended. For purposes of Article Nine of the Michigan
Uniform Commercial Code, (a) Borrower herein is the "debtor", (b) Lender herein
is the "secured party", (c) information concerning the security interest created
hereby may be obtained from Lender at its address set forth on page 1 hereof,
and (d) Borrower's mailing address is that set forth on page 1 hereof.
14. Assignment of Contracts, Etc.
Borrower hereby assigns to Lender, as further security for the
Obligations Borrower's interest to the extent assignable under existing law in
any agreements, contracts (including contracts for the lease or sale of the
premises or any portion thereof), licenses and permits affecting the premises.
Such assignment shall not be construed as a consent by Lender to any agreement,
contract, license, or permit so assigned, or to impose upon Lender any
obligations with respect thereto.
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15. Assignment of Rents, Income and Profits
15.1. As additional security for the Obligations, Borrower does hereby
sell, assign. transfer and set over unto Lender, pursuant to Act 210 of the
Public Acts of Michigan of 1953, as amended, all the rents, profits and income
under all leases or occupancy agreements or arrangements, however evidenced or
denominated, upon or affecting the premises (including any extensions,
amendments or renewals thereof), whether such rents, profits and income are due
or are to become due, including all such leases in existence or coming into
existence during the period this Mortgage is in effect. This assignment shall
run with the land and be good and valid as against Borrower and those claiming
by, under or through Borrower, from the date of recording of this Mortgage. This
assignment shall continue to be operative during the foreclosure or any other
proceedings taken to enforce this Mortgage. In the event of a foreclosure sale
which results in a deficiency, this assignment shall stand as security during
the redemption period for the payment of such deficiency. This assignment is
given as collateral security only and does not and shall not be construed as
obligating Lender to perform any of the covenants or undertakings required to be
performed by Borrower in any leases.
15.2. In the event of default in any of the terms or covenants of this
Mortgage, Lender shall be entitled to collect the rents and income from the
premises, rent or lease the premises or any portion thereof upon such terms and
for such time as it may deem best, maintain proceedings to recover rents or
possession of the premises from any tenant or trespasser, and apply the net
proceeds of such rent and income to the following purposes: (a) payment of all
of the costs and expenses incurred by Lender in exercising its rights under this
Paragraph; (b) payment of interest and principal due under the Mortgage Note;
(c) payment of all other sums secured hereby; (d) payment of expenses of
preserving the premises, including taxes and insurance premiums.
15.3. Lender and its duly authorized agents shall be entitled to enter
the mortgaged premises for the purpose of delivering any and all such notices
and other communications to the tenants and occupiers thereof as shall be
necessary or desirable in Lender's discretion to exercise its rights hereunder,
and Lender and its agents shall have absolutely no liability to Borrower arising
therefrom. Lender shall not, however, be Obligated to give any tenant or
occupier of the premises any notice by personal delivery and Lender may, in its
sole discretion, deliver all such notices and communications by ordinary
first-class U.S. mail, postage prepaid, or otherwise, as required by law.
15.4. In the event that Borrower obstructs Lender in its efforts to
collect the rents and income from the premises, or after requested by Lender,
unreasonably refuse, fail or neglect to assist Lender in collecting such rent
and income, Lender shall be entitled to the appointment of a receiver of the
premises and of the income, rents and profits therefrom, with such powers as the
court making such appointment may confer.
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15.5. Lender shall have no obligation whatever to attempt to collect
rent from any tenant or occupier of the mortgaged premises notwithstanding that
such tenants and occupiers may not be paying rent to either Borrower or to
Lender. Further, Lender shall have no obligation whatever to enforce any other
obligations owed by tenants or occupiers of the premises to Borrower. No action
taken by Lender under this Mortgage shall put Lender in the position of a
"mortgagee in possession."
15.6. Borrower shall collect no advance rent under any lease upon,
affecting or pertaining to the premises or any part thereof in excess of one
month (other than as a security deposit) and Lender shall not be bound in any
respect by any rent prepayment made or received in violation of the terms
hereof.
16. Notice by Borrower
Borrower shall promptly give Lender written notice as soon as either
of them becomes aware of (a) the falsity of any representation or warranty of
Borrower or any other party under the Loan Documents, or the occurrence of any
event which would render any such representation or warranty false if made at
such time, or (b) the occurrence of any event of default under any of the Loan
Document or the occurrence of any event which, with the passage of time or the
giving of notice, or both, might constitute a default under any of the Lean
Documents, or (c) any material change in any information previously or hereafter
submitted to Lender by Borrower.
17. Safety; Hazardous Materials; Indemnification
17.1. Borrower shall comply with all laws, governmental standards and
regulations applicable to Borrower or to the mortgaged premises in respect of
occupational health and safety and Hazardous Materials. Borrower shall promptly
notify Lender of its receipt of any notice of a violation of any such law,
standard or regulation. "Hazardous Materials" means any materials containing
asbestos, urea formaldehyde or polychlorinated biphenyls and any pollutant or
other toxic or hazardous waste or substance regulated, prohibited, restricted or
controlled by any Environmental Law, or any substance or material on the
premises determined by duly constituted authority to be capable of posing a risk
to human health and safety or to the environment. "Environmental Laws" means any
applicable federal, state, county or local statutes, laws, regulations, rules,
ordinances, or codes relating to environmental matters, including by way of
illustration and not by way of limitation, the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Resource Conservation and Recovery Act of
1976, the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Hazardous Materials Transportation Act, and the Toxic Substances Control Act,
the State of Michigan Hazardous Waste Management Act, the State of Michigan Act
307, as amended, the State of Michigan Water Pollution Control Act, the State of
Michigan Solid Waste Disposal Act, and any amendments or extensions thereof and
any
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rules, regulations, standards or guidelines issued pursuant to any of the
aforesaid, and all other applicable environmental standards or requirements.
17.2. Borrower covenants, represents and warrants to Lender, its
successors and assigns, that (a) the premises and its existing use, and to the
best of Borrower's knowledge, prior uses, comply and have at all times complied
with, and Borrower is not in violation of, has not violated and will not
violate, in connection with the ownership, use, maintenance or operation of the
premises and the conduct of the business related thereto, any Environmental
Laws; (b) to the best of Borrower's knowledge, there are no Environmental Laws
requiring any remedial action with respect to the premises; (c) no Hazardous
Materials have been or will be released into the environment, or have been or
will be deposited, spilled, discharged, placed or disposed of on the premises,
nor to the best of Borrower's knowledge, has or will the premises be used at any
time by any person as landfill or a disposal site for Hazardous Materials or for
garbage, waste or refuse of any kind; (d) there are no electrical transformers
or other equipment containing dielectric fluid containing polychlorinated
biphenyls located on the premises, nor is there any friable asbestos contained
on the premises, nor will Borrower permit the installation of same; (e) there
are no locations off the premises where Hazardous Materials generated by or on
the premises by Borrower have been treated, stored, deposited or disposed of;
(f) to the best of Borrower's knowledge, there is no fact pertaining to the
physical condition of either the premises or the area surrounding the premises
(i) which Borrower has not disclosed to Lender in writing prior to the date of
this Mortgage, and (ii) which materially adversely affects or will materially
adversely affect the premises or the use or enjoyment or the value thereof, or
Borrower's ability to perform the transactions contemplated by this Mortgage;
(g) no notices of any violation of any of the matters referred to in the
foregoing sections relating to the premises or its use have been received by
Borrower and there are no writs, injunctions, decrees, orders or judgments
outstanding, no lawsuits, claims, proceedings or investigations pending or, to
the best of Borrower's knowledge, threatened, relating to the ownership, use,
maintenance or operation of the premises, nor is there any basis for any such
lawsuit, claim, proceeding or investigation being instituted or filed; and
(viii) the premises is not listed in the United States Environmental Protection
Agency's National Priorities List of Hazardous Waste Sites nor to the best of
Borrower's knowledge, any other log, list, schedule, inventory or record of
Hazardous Materials or hazardous waste sites whether maintained by the United
States, any state or local governmental unit.
17.3. Borrower shall indemnify and hold harmless Lender, its officers,
directors, employees and agents, from and against any and all claims, losses,
liabilities (including, without limitation, strict liability), suits,
obligations, fines, damages, judgments, injuries, administrative orders, consent
agreements and orders, penalties, actions, causes of action, charges, costs and
expenses, including without limitation attorneys' fees and consultants' fees
arising out of the following: (a) the inclusion in the Premises of any materials
containing any Hazardous Materials; (b) the presence on, release from,
generation, manufacture, transportation, refining, treatment, storage, handling
or disposal on, at, under, in or from the Premises in violation of
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Environmental Laws; (c) the transportation, discharge, removal, release or
emission from the Premises of any Hazardous Material; (d) the inclusion of a
Hazardous Material in any product manufactured on the Premises; (e) the failure
to perform the removal, remediation or abatement of or to institute a safe,
effective and environmentally approved control plan for any Hazardous Materials,
or the replacement, remediation, removal or other clean-up of any soil, water,
surface water, or ground water containing Hazardous Materials in accordance with
Environmental Laws; (f) the existence of any environmental lien against the
Premises pursuant to any Environmental Laws; (g) any violation or claim of
violation of Environmental Laws, strict liability, nuisance, negligence or
trespass law by any third party with respect to Hazardous Materials at the
Premises; (h) the presence of any above ground or underground storage tanks at,
on or under the Premises; or (i) any breach of any of the warranties,
representations and covenants contained in this Section 17. The amount of all
such indemnified loss, damage, expense or cost not paid by the Borrower
following written request by Lender shall bear interest thereon at the default
rate of interest in effect on the Mortgage Note and shall become additional
indebtedness secured hereby and shall become immediately due and payable in full
on demand of the Lender, its successors and assigns. The indemnification
contained in this Paragraph 17 shall be a personal monetary obligation of the
Borrower notwithstanding any provisions of this Mortgage to the contrary that
limit or exculp the personal liability of the Borrower and/or require the Lender
to look solely to the security of the premises.
17.4. In the event this Mortgage is foreclosed or Borrower shall
deliver a deed in lieu of foreclosure, Borrower shall deliver the premises to
Lender free of any and all Hazardous Materials so that the condition of the
premises shall conform with all Environmental Laws. The provisions of this
Paragraph 17 shall be in addition to any and all other obligations and
liabilities Borrower may have to Lender at common law, and shall survive (a)
repayment of the Mortgage Note, (b) the satisfaction of all other obligations of
Borrower hereunder and under the other Loan Documents, (c) the discharge of this
Mortgage, and (d) the foreclosure of this Mortgage or acceptance of a deed in
lieu of foreclosure.
18. Notices to Borrower
All notices, demands and requests required or permitted to be given to
Borrower hereunder or by law shall be deemed delivered when deposited in the
United States mail, with full postage prepaid thereon, addressed to Borrower at
the last address of Borrower on the records of Lender.
19. Miscellaneous Provisions
19.1. No waiver by Lender of any right or remedy granted hereunder
shall affect or extend to any other right or remedy of Lender hereunder, nor
affect the subsequent exercise of the same right or remedy by Lender for any
further or subsequent default by
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Borrower hereunder, and all such rights and remedies of Lender hereunder are
cumulative. Time is of the essence.
19.2. No part of the proceeds of the loan secured by this Mortgage
shall be used for the purpose (whether immediate, incidental or ultimate) of
"purchasing" or "carrying" any "margin securities" as such terms are defined in
Regulation C (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System, or for the purpose of reducing or retiring any indebtedness which was
originally incurred for any such purpose.
19.3. Upon request, Borrower promptly shall provide Lender with
certificates of occupancy and such other documents, information and statements
pertaining to the premises and its operations as Lender may request. Borrower
shall submit to Lender, annually, within ninety (90) days of the end of each
fiscal year, a Financial Statement of Borrower, prepared by an officer of
Borrower. All costs of providing such financial statements shall be borne
entirely by Borrower.
19.4. Borrower, upon written request by Lender, shall certify by a
writing duly acknowledged to Lender or to any proposed assignee of this Mortgage
whether any off-sets or defenses exist against the mortgage debt. Such
certification shall be delivered to Lender within ten (10) days of a request
therefor.
19.5. All of the covenants and conditions hereof shall run with the
land and shall be binding upon the successors and assigns of Borrower, and shall
inure to the benefit of the successors and assigns of Lender. Any reference
herein to "Borrower" or "Lender" shall include their respective successors and
assigns.
19.6. If any provision(s) hereof are in conflict with any statute or
rule of law of the State of Michigan or are otherwise unenforceable for any
reason whatever, then such provision(s) shall be deemed null and void to the
extent of such conflict or unenforceability, but shall be deemed separable from
and shall not invalidate any other provisions of this Mortgage.
19.7. All captions in this Mortgage are for convenience only, do not
form a substantive part of this Mortgage and shall not restrict or enlarge the
substantive provisions of this Mortgage.
19.8. Where necessary or appropriate herein, the singular and plural
shall be interchangeable, and words of any gender shall include all genders.
19.9. This Mortgage shall be construed and enforced in accordance with
Michigan law.
-19-
<PAGE>
20. Neither Borrower's incorporator, officers or directors shall have any
personally liable for the payment of the indebtedness evidenced by the Mortgage
Note; provided, however, this limitation shall not affect the personal liability
of Borrower under the Mortgage Note or this Mortgage, nor shall this limitation
of liability prejudice the right of Lender to enforce or foreclose this Mortgage
or other security instruments given to secure the Mortgage Note or to exercise
any of its remedies at law or in equity, including effecting the sale of the
premises in accordance with this Mortgage or foreclosing of this Mortgage and,
in furtherance thereof, naming Borrower as a party defendant in any action or
proceeding to enforce the same, nor limit or waive any rights Lender may have
against any guarantors, if any, of the Mortgage Note.
21. Borrower represents and warrants to Lender as follows:
(a) Borrower is duly organized and validly existing as a corporation
under the laws of the State of Michigan, and has full power and authority to
own, lease and operate the premises and to execute and deliver this Mortgage and
perform its obligations hereunder, and each person who executes this Mortgage
and all other instruments and documents in connection herewith, has due power
and authority to so act on behalf of the Borrower.
(b) Borrower has good, marketable and insurable title in and to the
premises and this Mortgage creates a valid and binding obligation of Borrower in
accordance with the respective terms, subject only to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting the enforcement of creditors' rights generally.
IN WITNESS WHEREOF, this Mortgage is executed and delivered by the
undersigned on the date first written above.
WITNESSES: BORROWER:
WHITCOMB TOWER CORPORATION
/s/ Theresa A. Govier By: /s/ Carl G. Paffendorf
- ------------------------ -----------------------------
Theresa A. Govier Carl G. Paffendorf, Chairman
/s/ Barry Aronowsky
- ------------------------
-20-
<PAGE>
STATE OF NEW YORK )
)SS
COUNTY OF NASSAU )
On this 30 day of March, 1992,before me personally appeared Carl G.
Paffendorf, who being by me duly sworn, did say that he is the chairman of the
Whitcomb Tower Corporation, a Michigan corporation, and that the within and
foregoing Mortgage was signed in behalf of said corporation by authority of its
board of directors, and he duly acknowledged to me that said instrument was
executed as the free act and deed of such corporation.
/s/ Theresa A. Govier
---------------------------
THERESA A. GOVIER
Notary Public, State of New York
No. 30-4663759
Qualified In Nassau County
Commission Expires December 31, 1992
PREPARED BY AND AFTER RECORDING
RETURN TO:
Craig A. Welch, Esq.
Jaffe, Raitt & Heuer
One Woodward Avenue
Suite 2400
Detroit, Michigan 48226
-21-
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Property located in the City of St. Joseph, County of Berrien, State of
Michigan, as follows:
Lots 101, 102, 129, and the Northeasterly 44.59 feet of Lot 130, Original
Plat of the Village, now City of St. Joseph, Berrien County, Michigan, according
to the plat thereof, recorded July 9, 1840 in Book "E" of Deeds, page 564.
-22-
<PAGE>
FIRST AMENDMENT TO
MORTGAGE
THIS FIRST AMENDMENT TO MORTGAGE is entered into on this 31st day of
January, 1995, by and between WHITCOMB TOWER CORPORATION, a Michigan corporation
of 1800 First National Building, Detroit, Michigan, ("Mortgagor") and THE
WHITCOMB MORTGAGE TRUST C/O CARL G. PAFFENDORF, TRUSTEE, of 4 Cedar Swamp Road,
Glan Cove, New York 11542 ("Mortgagee").
RECITALS:
A. Mortgagor executed and delivered to Mortgagee a Mortgage dated March
30, 1992, which was recorded on May 12, 1992, in Liber 1513, Page 160 of Berrien
County, Michigan, records (the "Mortgage"), which Mortgage is security for the
repayment of a Convertible Mortgage Note executed by Mortgagor and delivered to
Mortagee on March 30, 1992 (the "Note") evidencing a loan to Mortgagor in the
principal sum of One Million Two Hundred Thousand Dollars ($1,200,000.00)(the
"Loan").
B. Coincident herewith, the Mortgagor and Mortgagee have amended the
Note.
E. In order to induce the First Mortgage to amend the terms of the loan
secured by the First Mortgage, Mortgagor and Mortgagee have agreed to amend the
Mortgage as described herein.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Mortgagor and Mortgagee hereby agree that the Mortgage is
hereby amended as follows:
1. DEBT SECURED BY FIRST MORTGAGE. The number $2,170,000 is hereby
deleted from paragraph 6.5 of the Mortgage and the number $9,300,000 is
substituted therefor.
2. CONSENT BY GUARANTOR. United Vanguard Homes, Inc., the guarantor of
the Note, hereby consents to the modification described herein.
3. EFFECT OF AMENDMENT. Except as expressly modified hereby all other
terms and conditions of the Mortgage shall remain in full force and effect.
IN WITNESS WHEREOF this First Amendment to Mortgage Agreement has been
executed as of the date and year first above written.
WITNESS: WHITCOMB TOWER CORPORATION, a
Michigan corporation
/s/ Anita D. Feck By: /s/ Carl G. Paffendorf
- ------------------------- ------------------------------
Anita D. Feck Carl G. Paffendorf
Its President
/s/ Marianne Bonavita
- -------------------------
Marianne Bonavita
THE WHITCOMB MORTGAGE TRUST
/s/ Anita D. Feck By: /s/ Carl G. Paffendorf
- ------------------------- ------------------------------
Anita D. Feck Carl G. Paffendorf
Its Trustee
/s/ Marianne Bonavita
- -------------------------
Marianne Bonavita
UNITED VANGUARD HOMES, INC.
/s/ Anita D. Feck By: /s/ Carl G. Paffendorf
- ------------------------- ------------------------------
Anita D. Feck Carl G. Paffendorf
Chairman of the Board
/s/ Marianne Bonavita
- -------------------------
Marianne Bonavita
STATE OF NEW YORK )
)ss.
COUNTY OF NASSAU )
The foregoing instrument was acknowledged before me this 31st day of
January 1995, by Carl G. Paffendorf, the President of WHITCOMB TOWER
CORPORATION, a Michigan corporation, on its behalf.
/s/ Theresa A. Govier
-----------------------------
Notary Public, Nassau County, NY
My Commission Expires: 12-31-96
Theresa A. Govier
Notary Public, Sate of New York
No. 30-4663759
Qualified in Nassau County
Commission Expires December 31, 1996
<PAGE>
STATE OF NEW YORK )
)ss.
COUNTY OF NASSAU )
The foregoing instrument was acknowledged before me this 31st day of
January 1995, by Carl G. Paffendorf, Trustee of THE WHITCOMB MORTGAGE TRUST.
/s/ Theresa A. Govier
-----------------------------
Notary Public, Nassau County, NY
My Commission Expires: 12-31-96
Theresa A. Govier
Notary Public, Sate of New York
No. 30-4663759
Qualified in Nassau County
Commission Expires December 31, 1996
STATE OF NEW YORK )
)ss.
COUNTY OF NASSAU )
The foregoing instrument was acknowledged before me this 31st day of
January 1995, by Carl G. Paffendorf, the Chairman of the Board of United
Vanguard Homes, Inc., a Delaware corporation, on its behalf.
/s/ Theresa A. Govier
-----------------------------
Notary Public, Nassau County, NY
My Commission Expires: 12-31-96
Theresa A. Govier
Notary Public, Sate of New York
No. 30-4663759
Qualified in Nassau County
Commission Expires December 31, 1996
This Instrument Drafted by:
DAN M. CHALLA, ESQ.
McSHANE & BOWIE, P.L.C.
540 Old Kent Building
P.O. Box 360
Grand Rapids, MI 49501-0360
<PAGE>
CONSOLIDATION AGREEMENT
WITNESSETH, THIS AGREEMENT entered into this 14th day of December, 1990, by
and between WHITTIER TOWERS, INC. ("Whittier Towers"), WHITCOMB TOWER
CORPORATION ("Whitcomb") and HILLSIDE TERRACE, INC. ("Hillside"), all Michigan
corporations, all of 415 Burns Drive, Detroit, Michigan 48213-2761, VANGUARD
VENTURES, INC., a New York corporation of Four Cedar Swamp Road, Glen Cove, New
York 11542 ("Guarantor") and CITIBANK, N.A., 599 Lexington Avenue, New York, New
York and LLOYDS BANK Plc, 188 Water Street, New York, New York (collectively
"Mortgagees").
RECITALS
A. Whittier Towers, Whitcomb and Hillside coincident herewith have executed
and delivered to Mortgagees three Mortgages each in the principal amount of One
Million Dollars ($1,000,000) which are liens upon certain real estate located in
the City of Detroit, Wayne County, Michigan ("Whittier Mortgage"), encumbering
property more fully described on Exhibit A hereto, the City of St. Joseph,
Berrien County ("Whitcomb Mortgage"), encumbering property more fully described
on Exhibit B and the City of Ann Arbor, County of Washtenaw (Hillside Mortgage),
encumbering property more fully described on Exhibit C (hereinafter collectively
referred to as the "Mortgages"). (The properties described on Exhibits A, B and
C are sometimes collectively referred to as the "Mortgaged Properties".)
B. Coincident herewith, Guarantor has executed and delivered to Mortgagee
its Second Supplemental Guaranty, which is in the amount of $7,000,000, pursuant
to which Guarantor has guaranteed to Mortgagees the performance of all
obligations of Harvest Village Partners, L.P. pursuant to a certain Loan
Agreement among Harvest Village Partners, L.P. and Mortgagees (the "Loan
Agreement") and dated as of December 1, 1986, as amended, and Whittier Towers,
Whitcomb and Hillside have secured the guaranty by granting the Mortgages to the
Mortgagees.
C. It is a condition to Mortgagees increasing the loan amount and extending
the maturity date pursuant to the Loan Agreement that this Consolidation
Agreement be delivered to the Mortgagees.
NOW, THEREFORE, for valuable consideration and in consideration of the
premises, receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
<PAGE>
1. Consolidation.
The Mortgages are hereby consolidated and coordinated so that hereafter
they shall constitute in law but one Mortgage, and security agreement upon the
Mortgaged Properties described in each Mortgage securing the total principal
indebtedness of up to One Million Dollars ($1,000,000) as a single indebtedness
(the "Indebtedness"), recovery under all such Mortgages being limited to
$1,000,000.
2. Default.
Any default in any of the terms and conditions of any one of the Mortgages
shall be a default in the terms and conditions of the other Mortgages and any
default in the terms and conditions of this agreement shall be a default of all
the Mortgages.
3. Mortgage Terms.
The Hillside Mortgage and the Whitcomb Mortgage each recite that the
Mortgages will subordinate to secondary financing in the amount of $1,200,000.
Such subordination is conditioned upon (i) 25% of the first million dollars of
Net Proceeds, which shall be deemed to mean gross loan proceeds less customary
closing costs, received by Whitcomb and/or Hillside, shall deposit into an
escrow account at Citibank, N.A., and shall be used to fund operating expenses
of Harvest Village, which is the subject of the Loan Agreement, and (ii) 50% of
the next $1,400,000 of Net Proceeds received by Whitcomb and/or Hillside shall
be immediately paid to the Mortgagees to reduce the amount of the Second
Supplemental Guaranty.
4. Assignment of Rents and Leases.
In the event of any Event of Default in any one of the Mortgages or the
Second Supplemental Guaranty, such that Mortgagees exercise any of the
assignment of rents and leases, the Mortgagees, at their sole discretion, may
apply any of the rentals received against the total indebtedness evidenced by
any one of the Mortgages.
5. Foreclosure.
In the event of any Event of Default of the Second Supplemental Guaranty,
the Mortgages or in the terms and conditions of this Agreement, such that the
Mortgagees shall commence foreclosure, such foreclosure be of the Mortgages as
consolidated and coordinated herein and shall apply to all of the Mortgaged
Property described in such documents, however, noting shall prevent Mortgagee
from selling the Mortgaged Property in separate parcels at foreclosure sale.
-2-
<PAGE>
6. Binding Effect.
The covenants contained in this Agreement shall run with the land and shall
bind Whittier Towers, Whitcomb, Hillside and Guarantor and their successors and
assigns, and all subsequent owners and parties in interest of such real estate
and shall inure to the benefit of Mortgagees, their successors and assigns.
7. Continuing Effect.
Except as expressly hereby amended, all of the other remaining terms and
conditions of each one of the Mortgages shall remain in full force and effect.
8. Entire Understanding.
This Agreement contains the entire understanding of the parties on the
subject matter of this Agreement and the parties hereby acknowledge that there
have been and are no representations, warranties, covenants, or understandings
other than those expressly set forth herein.
9. Captions.
All headings contained in this Agreement are intended for convenience only
and are not to be deemed or taken as a summary of the provisions to which they
pertain or as a construction thereof.
10. Parties Bound.
The covenants, agreements, terms, provisions and conditions of this
Agreement shall bind and benefit the several respective heirs, representatives,
successors and assigns of the parties hereto.
11. Construction.
This Agreement shall be governed by and construed according to the laws of
the State of Michigan.
-3-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
WITNESS: WHITTIER TOWERS, INC., a
Michigan corporation
/s/ Christine V. Bator
/s/ Theresa A. Govier By: /s/ Carl Paffendorf
- ----------------------- ------------------------
Secretary Its: Chairman
- ----------------------- ------------------------
WHITCOMB TOWER CORPORATION,
a Michigan corporation
/s/ Christine V. Bator
/s/ Theresa A. Govier By: /s/ Carl Paffendorf
- ----------------------- ------------------------
Secretary Its: Chairman
- ----------------------- ------------------------
HILLSIDE TERRACE, INC.,
a Michigan corporation
/s/ Christine V. Bator
/s/ Theresa A. Govier By: /s/ Carl Paffendorf
- ----------------------- ------------------------
Secretary Its: Chairman
- ----------------------- ------------------------
VANGUARD VENTURES, INC., a New
York corporation
/s/ Christine V. Bator
/s/ Theresa A. Govier By: /s/ Carl Paffendorf
- ----------------------- ------------------------
Secretary Its: Chairman
- ----------------------- ------------------------
CITIBANK, N.A.
By: /s/ Elisabeth Sapery
- ----------------------- ------------------------
Its: /s/ VP
- ----------------------- ------------------------
-4-
<PAGE>
LLOYDS BANK PLC
By: /s/ Gary Riddell R438
- ----------------------- ------------------------
Its: /s/ Vice President
- ----------------------- ------------------------
By: /s/ Martin Cook C735
- ----------------------- ------------------------
Its: /s/ Assistant Vice
President
- ----------------------- ------------------------
-5-
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF New York )
The foregoing instrument was acknowledged before me this 14th day of
December, 1990 by Carl G. Paffendorf, the Chairman of WHITTIER TOWERS, INC., a
Michigan corporation, on behalf of the corporation.
/s/ Theresa A. Govier
--------------------------
Notary Public
My Commission Expires _____
THERESA A. GOVIER
Notary Public, State of New York
No. 30-4663759
Qualified in Nassau County
Commission Expires December 31, 1990
STATE OF NEW YORK )
) ss.
COUNTY OF New York )
The foregoing instrument was acknowledged before me this 14th day of
December, 1990 by Carl G. Paffendorf, the Chairman of HILLSIDE TERRACE, INC., a
Michigan corporation, on behalf of the corporation.
/s/ Theresa A. Govier
--------------------------
Notary Public
My Commission Expires _____
THERESA A. GOVIER
Notary Public, State of New York
No. 30-4663759
Qualified in Nassau County
Commission Expires December 31, 1990
STATE OF NEW YORK )
) ss.
COUNTY OF New York )
The foregoing instrument was acknowledged before me this 14 day of
December, 1990 by Carl G. Paffendorf, the President of VANGUARD VENTURES, INC.,
a New York corporation, on behalf of the corporation.
/s/ Theresa A. Govier
--------------------------
Notary Public
My Commission Expires _____
THERESA A. GOVIER
Notary Public, State of New York
No. 30-4663759
Qualified in Nassau County
Commission Expires December 31, 1990
-6-
<PAGE>
STATE OF NEW YORK
SS
COUNTY OF New York
BE IT REMEMBERED, that on this 14th day of December, 1990, before me, the
subscriber, Bryan G. Petkanics, personally appeared Elisabeth Supery, who I am
satisfied is Vice-President of CITIBANK, N.A., the corporation named in the
foregoing Amendment to Loan Agreement, to whom I first made known the contents
thereof, and thereupon (s)he acknowledged that (s)he signed and delivered the
same as (her)his voluntary act and deed, for the uses and purposes therein
expressed.
/s/ Bryan G. Petkanics
---------------------------
A Notary Public in and for the
State of New York
BRYAN G. PETKANICS
Notary Public, State of New York
No. 31-4901319
Qualified in New York County
Commission Expires June 29, 1991
STATE OF NEW YORK
SS
COUNTY OF New York
BE IT REMEMBERED, that on this 14th day of December, 1990, before me, the
subscriber, Bryan G. Petkanics, personally appeared Gary Riddell & Martin Cook,
who I am satisfied is Vice-President and Asst. Vice President of LLOYDS BANK
PLC, the corporation named in the foregoing Amendment to Loan Agreement, to whom
I first made known the contents thereof, and thereupon they acknowledged that
they signed and delivered the same as their voluntary act and deed, for the uses
and purposes therein expressed.
/s/ Bryan G. Petkanics
---------------------------
A Notary Public in and for the
State of New York
BRYAN G. PETKANICS
Notary Public, State of New York
No. 31-4901319
Qualified in New York County
Commission Expires June 29, 1991
This Instrument Drafted By:
RECORD AND RETURN TO:
E. Gina Chase
ROBINSON, ST. JOHN & WAYNE
One Gateway Center
Newark, New Jersey 07102
-7-
<PAGE>
EXHIBIT "A"
All that part of Private Claim 27, City of Detroit, Wayne County, Michigan,
described as: Beginning at a point on the Southerly line of Jefferson Avenue,
120 feet wide, which point is 117.84 feet Westerly of and as measured at right
angles to the Easterly line of said Private Claim 27; thence along the Westerly
line of Burns Drive and parallel to said Easterly Private Claim line, South
28(degrees) 16' 30" East, 1,325.47 feet (calculated and measured, South
28(degrees) 05' East, 1,325.84 feet record); thence along the U.S. Harbor Line
of the Detroit River as established by the Secretary of War, July 28, 1933,
South 73(degrees) 02' 48" West, 282.91 feet (calculated, South 73(degrees) 15'
West, 282.85 feet record); thence parallel to said Easterly Private Claim line,
North 28(degrees) 16' 30" West, 1,185.53 feel (record and measure North
28(degrees) 05' West record); thence along said Southerly line of Jefferson
Avenue, North 48(degrees) 57' 20" East, 76.03 feet (record and measure), and
North 43(degrees) 19' 50" East, 214.20 feet (record and measure) to the point of
beginning.
-8-
<PAGE>
EXHIBIT B
Property located in the City of St. Joseph, County of Berrien, State of
Michigan, as follows:
Lots 101, 102, 129, and the Northeasterly 44.59 feet of Lot 130, Original
Plat of the Village, now City of St. Joseph, Berrien County, Michigan, according
to the plat thereof, recorded July 9, 1840 in Book "E" of Deeds, page 564.
<PAGE>
APPENDIX C
Commencing at the West quarter corner of Section 30, Town 2 South, Range 6 East,
City of Ann Arbor, Washtenaw County, Michigan, thence East 2027.47 feet along
the East and West quarter line of said Section 30, to the POINT OF BEGINNING,
then North 00 degrees 13 minutes 30 seconds West 506.86 feet, thence West 149.44
feet, thence North 00 degrees 03 minutes 30 seconds West 125.00 feet along the
East line of Zahn Subdivision, as recorded in Liber 13 of Plats, Page 42,
Washtenaw County Records, thence North 89 degrees 41 minutes 00 seconds West
1.00 feet, thence North 00 degrees 03 minutes 30 seconds West 75.00 feet, thence
South 89 degrees 41 minutes 00 seconds East 1.00 feet, thence North 00 degrees
03 minutes 30 seconds West 175.12 feet along the East line of said Zahn
Subdivision, thence North 82 degrees 01 minutes 00 seconds East 149.68 feet
along the center line of Jackson Avenue, thence South 00 degrees 13 minutes 30
seconds East 33.33 feet, thence North 82 degrees 28 minutes 00 seconds East
161.53 feet along the South right-of-way line of Jackson Avenue, thence South 00
degrees 21 minutes 00 seconds West 198.00 feet, thence North 82 degrees 22
minutes 00 seconds East 50.09 feet, thence South 00 degrees 19 minutes 00
seconds West 28.00 feet, thence North 82 degrees 28 minutes 00 seconds East 3.46
feet, thence South 00 degrees 05 minutes 00 seconds East 671.80 feet, thence
West 209.40 feet to the POINT OF BEGINNING, being a part of the Northwest
quarter of Section 30, Town 2 South, Range 6 East, a part of Lots 4 and 5 of
Zahn Subdivision, as recorded in Liber 13 of Plats, Page 42 and a part of Lot 6,
Assessor's Plat No. 4, City of Ann Arbor, as recorded in Liber 4 of Plats, Page
25, Washtenaw County Records.
<PAGE>
RESTATED CONSOLIDATION AGREEMENT AND GUARANTY
WITNESSETH, THIS AGREEMENT entered into this 7th day of December 1988, by
and between WHITTIER TOWERS, INC., a Michigan corporation ("Whittier Towers"),
VANGUARD HOMES OF MICHIGAN INC., a Michigan non-profit corporation ("Vanguard
Homes"), both of 415 Burns Drive1 Detroit, Michigan 48214-2761, VANGUARD
VENTURES, INC., a New York corporation of Four Cedar Swamp Road, Glen Cove, New
York 11542 ("Guarantor") and THE GREAT-WEST LIFE ASSURANCE COMPANY, a Canadian
corporation of 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5
("Mortgagee")
RECITALS
A. Whittier Towers, coincident herewith has executed and delivered to
Mortgagee a Promissory Note in the principal amount of Four Million Five
Hundred Thousand Dollars ($4,500,000) (herein "Promissory Note No. 1") secured
by a Mortgage and Security Agreement of even date and an Assignment of Rents
and Leases of even date therewith (hereinafter referred to, together with all
other documents which evidence or secure said Promissory Note, referred to as
"Security No. 1") which are a lien upon certain real estate located in the City
of Detroit, Wayne County, Michigan more fully described on Exhibit A hereto.
B. Coincident herewith, Guarantor has executed and delivered to Mortgagee
its Guaranty ("Guaranty No. 1"), pursuant to which Guarantor has guaranteed to
Mortgagee the performance of all obligations of Whittier Towers under and
pursuant to Promissory Note No. 1 and Security No. 1.
C. Vanguard Homes executed and delivered to Mortgagee a Promissory Note
dated April 15, 1988 in the principal amount of Two Million Three Hundred
Thousand Dollars ($2,300,000) (herein "Promissory Note No. 2") secured by a
Mortgage and Security Agreement of even date recorded in Liber 1339 of Mortgages
at Page 210, Berrien County, Michigan Records, and an Assignment of Rents and
Leases of even date therewith recorded in Liber 1339, Page 228, Berrien County,
Michigan Records (hereinafter referred to, together with all other documents
which evidence or secure said Promissory Note, as "Security No. 2").
D. Coincident with the execution of Promissory Note No. 2, Guarantor
executed and delivered to Mortgagee its Guaranty ("Guaranty No. 2"), pursuant to
which Guarantor guaranteed to Mortgagee the performance of all obligations of
Vanguard Homes under and pursuant to Promissory Note No. 2 and Security No. 2.
<PAGE>
E. Vanguard Homes also executed and delivered to Mortgagee its Promissory
Note dated October 22, 1987, in the amount of Two Million Five Hundred Thousand
Dollars ($2,500,000) (herein "Promissory Note No. 3") secured by a Mortgage and
Security Agreement of even date therewith recorded in Liber 2184 of Mortgages at
Page 240, Washtenaw County, Michigan Records, and an Assignment of Rents and
Leases of even date therewith recorded in Liber 2184, Page 257, Washtenaw
County, Michigan Records (hereinafter referred to, together with all other
documents which evidence or secure said Promissory Note as "Security No. 3"),
and
F. Guarantor executed and delivered to Mortgagee its Guaranty dated of even
date with Promissory Note No. 3 ("Guaranty No. 3") pursuant to which Guarantor
guaranteed to Mortgagee all obligations of Vanguard Homes under and pursuant to
Promissory Note No. 3 and Security No. 3.
G. Vanguard Homes, Guarantor, and Mortgagee executed a Consolidated
Agreement and Guaranty dated April 20, 1988 which was recorded April 27, 1988 in
Liber 1339, Page 238, Washtenaw County, Michigan records and was recorded April
27, 1988 in Liber 2222, Page 546, Berrien County, Michigan records (the
"Consolidation Agreement"), with respect to Promissory Note No. 2 and No. 3 and
Security No. 2 and Security No. 3 as defined herein).
H. Promissory Note No. 1, Promissory Note No. 2 and Promissory Note No. 3
are hereinafter sometimes collectively referred to collectively as the
Promissory Notes. Security No. 1, Security No. 2 and Security No. 3 are
hereinafter sometimes collectively referred to as the "Security Documents", and;
I. It is a condition to Mortgagee making the loan evidenced by Promissory
Note No. 1 and secured by Security No. 1 that the Consolidation Agreement be
amended and restated as provided herein.
NOW, THEREFORE, for valuable consideration and in consideration of the
premises, the Consolidation Agreement is amended in its entirety and is restated
as follows:
1. Consolidation.
1.1 The Security Documents are hereby consolidated and coordinated so
that hereafter they shall constitute in law but one Mortgage, and Security
Agreement upon the Mortgaged Property described in each Mortgage and Security
Agreement securing the total principal indebtedness of Nine Million Three
Hundred Thousand Dollars ($9,300,000) as a single indebtedness (the
"Indebtedness") which is to be paid in accordance with the terms and provisions
of said Promissory Notes No. 1, No. 2 and No. 3.
-2-
<PAGE>
1.2 In furtherance of the foregoing, Vanguard Homes hereby mortgages
and warrants, and grants a security interest in, all of the Mortgaged Property,
as defined in the Mortgages and Security Agreements which are a part of
Securities No. 2 and No. 3 upon all of the terms and conditions of Securities
No. 2 and No. 3 which are hereby incorporated by reference, to secure the
obligations of Whittier Towers pursuant to Promissory Note No. 1.
1.3 In furtherance of the foregoing, Whittier Towers hereby mortgages
and warrants, and grants a security interest in, all of the Mortgaged Property,
as defined in the Mortgage and Security Agreement which is a part of Security
No. 1, upon all of the terms and conditions of Security No. 1, which are hereby
incorporated by reference, to secure the obligations of Vanguard Homes pursuant
to Promissory Notes No. 2 and No. 3.
2. Default.
2.1 Any default in any of the terms and conditions of any one of the
Promissory Notes shall be a default in the terms and conditions of the other
Promissory Notes.
2.2 Any default in any of the terms, covenants, agreements or
conditions of any of the Security Documents shall be a default in the terms,
covenants, agreements and conditions of the remaining Security Documents.
3. Guaranty.
Guarantor hereby confirms its obligations to Mortgagee under Guaranty
No. 1, Guaranty No. 2, and Guaranty No. 3 and further consents to the execution
of this Agreement and acknowledges, agrees, and confirms, that its obligations
under and pursuant to each of such Guaranties shall constitute in law one
guaranty of the total principal indebtedness to Mortgagee of the principal sum
of Nine Million Three Hundred Thousand Dollars ($9,300,000).
4. Prepayment
4.1 Notwithstanding any term or provision hereof to the contrary,
Whittier Towers, with respect to Promissory Note No. 1, and Vanguard Homes, with
respect to Promissory Note No. 2 and Promissory Note No. 3, may exercise the
right to prepay any of such Promissory Notes subject to, and only in accordance
with the terms and provisions of each such respective Promissory Note, and only
upon payment of the additional charges and prepayment
-3-
<PAGE>
premiums described therein. Provided that the entire principal balance, accrued
interest, and all such additional charges and prepayment premiums are paid as
required by any one of the Promissory Notes, and provided that there shall not
then be any default under any of the other Promissory Notes or the Security
Documents then Mortgagee shall execute and deliver to Whittier Towers, or
Vanguard Homes, as the case may be, a discharge of the Security Documents, and
this Restated Consolidation Agreement, with respect to the Promissory Note which
has been repaid.
4.2 Nothing contained herein shall be deemed to eliminate, amend, or
modify the time periods during which prepayments may be made under any one of
the Promissory Notes nor to modify in any respect, the charges and prepayment
premiums payable at the time of, and in connection with, any prepayments which
are otherwise permitted under the terms and provisions of any one of the
Promissory Notes.
5. Assignment of Rents and Leases.
In the event of any default in any one of the Promissory Notes or in
the Security Documents, such that Mortgagee exercises any of the Assignment of
Rents and Leases, the Mortgagee, at its sole discretion, may apply any of the
rentals received against the total indebtedness evidenced by any one of the
Promissory Notes or any of the Security Documents.
6. Foreclosure.
In the event of any default in any one of the Promissory Notes or the
Security Documents, such that the Mortgagee shall commence foreclosure, such
foreclosure shall be of the Security Documents as consolidated and coordinated
herein and shall apply to all of the Mortgaged Property described in such
documents, however, nothing shall prevent Mortgagee from selling the Mortgaged
Property in separate parcels at foreclosure sale.
7. Binding Effect.
The covenants contained in this Agreement shall run with the land and
shall bind Whittier Towers, Vanguard Homes and Guarantor and their successors
and assigns, and all subsequent owners and parties in interest of such real
estate and shall inure to the benefit of Mortgagee, its successors and assigns.
8. Continuing Effect.
Except as expressly hereby amended, all of the other remaining terms and
conditions of each one of the Promissory Notes and of said Security Documents
shall remain in full force and effect.
-4-
<PAGE>
9. Entire Understanding.
This Agreement contains the entire understanding of the parties on the
subject matter of this Agreement and the parties hereby acknowledge that there
have been and are no representations, warranties, covenants, or understandings
other than those expressly set forth herein.
10. Captions.
All headings contained in this Agreement are intended for convenience only
and are not to be deemed or taken as a summary of the provisions to which they
pertain or as a construction thereof.
11. Parties Bound.
The covenants, agreements, terms, provisions and conditions of this
Agreement shall bind and benefit the several respective heirs, representatives,
successors and assigns of the parties hereto.
12. Construction.
This Agreement shall be governed by and construed according to the
laws of the State of Michigan.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
WITNESS: WHITTIER TOWERS, INC., a
Michigan corporation
/s/ Theresa A. Govier By: /s/ Carl G. Paffendorf
- -------------------------- --------------------------
Theresa A. Govier Carl G. Paffendorf
/s/ Anita D. Feck Its: Chairman
- -------------------------- ---------------------
Anita D. Feck
VANGUARD HOMES OF MICHIGAN,
INC., a Michigan non-profit
corporation
/s/ Eve Smith By: /s/ Patricia E. Brown
- -------------------------- --------------------------
Eve Smith Patricia E. Brown
/s/ Bruce Komisar Its: Vice President
- -------------------------- ---------------------
Bruce Komisar
-5-
<PAGE>
VANGUARD VENTURES, INC., a New
York corporation
/s/ Theresa A. Govier By: [Illegible]
- -------------------------- --------------------------
Theresa A. Govier
/s/ Anita D. Feck Its: Chairman and C.E.O.
- -------------------------- ---------------------
Anita D. Feck
THE GREAT-WEST LIFE ASSURANCE
COMPANY, a Canadian corporation
/s/ Corrine Preece By: /s/ K. Stevenson
- -------------------------- --------------------------
Corrine Preece Its:K. STEVENSON, Authorized Signature
---------------------
/s/ Debbie Hardy
- --------------------------
Debbie Hardy
And By: /s/ M. E. McLeod
------------------------------
Its: Mrs. M. E. McLeod
MANAGER, MORTGAGE ADMINISTRATION
--------------------------------
NEW YORK STATE OF )
)ss.
COUNTY OF NASSAU )
The foregoing instrument was acknowledged before me this 6 day of December,
1988 by Carl G. Paffendorf the Chairman of WHITTIER TOWERS, INC., a Michigan
corporation, on behalf of the corporation.
/s/ Theresa A. Govier
---------------------------
Notary Public, County, MI
My Commission Expires:________
THERESA A. GOVIER
NOTARY PUBLIC, State of New York
No.30-4663759
Qualified in Nassau County
Commission Expires December 3l, 1988
-6-
<PAGE>
STATE OF MICHIGAN )
)ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this 7th day of
DECEMBER, 1988 by PATRICIA BROWN, the VICE PRESIDENT of VANGUARD HOMES OF
MICHIGAN, INC., a Michigan non-profit corporation, on behalf of the corporation.
/s/ Bruce M. Komisar
--------------------------
Notary Public, Kent County, MI
My Commission Expires: _________
BRUCE MICHAEL KOMISAR
Notary Public, Oakland County, Michigan
Acting in Wayne County
My Commission Expires May 2, 1990
STATE OF NEW YORK )
)ss.
COUNTY OF NASSAU )
The foregoing instrument was acknowledged before me this 6 day of December,
1988 by Carl G. Paffendorf, the Chairman and C.E.O. of VANGUARD VENTURES, INC.,
a New York corporation, on behalf of the corporation.
/s/ Theresa A. Govier
---------------------------
Notary Public, County, MI
My Commission Expires:________
THERESA A. GOVIER
NOTARY PUBLIC, State of New York
No.30-4663759
Qualified in Nassau County
Commission Expires December 3l, 1988
CANADA )
)SS
PROVINCE OF MANITOBA )
On this 8th day of DECEMBER, A.D. 1988, before me a Notary Public in and
for the said Province residing therein, duly appointed and sworn, personally
appeared K. STEVENSON and M. E. McLEOD to me personally known, and to me known
to be the officers of the Corporation which executed the foregoing instrument,
who, being by me duly sworn, did each for himself say that they are authorized
signatories of The Great-West Life Assurance Company, the corporation named in
and which executed the within instrument, and that the seal affixed to the said
instrument is the corporate seal of said corporation and that said K. STEVENSON
and M. E. McLEOD and signed and sealed said instrument on behalf of said
corporation by authority of its Board of Directors, and before me said K.
STEVENSON and M. E. McLEOD acknowledged said instrument to be their free act and
deed as such officers and the free act and deed of said corporation for
-7-
<PAGE>
the uses and purposes therein mentioned. In testimony whereof, I have hereunto
set my hand and affixed my official seal, the day and year first above written.
/s/ Joy Cottingham
------------------------------
JOY COTTINGHAM
A Notary Public in and for the
Province of Manitoba
My Commission does not expire in
as much as I am a member in good
standing of the Law Society of Manitoba
This Instrument Drafted By:
DAVID L. SMITH, ESQ.
McSHANE & BOWIE
540 Old Kent Building
Grand Rapids, MI 49503
-8-
<PAGE>
EXHIBIT "A"
All that part of Private Claim 27, City of Detroit, Wayne County, Michigan,
described as: Beginning at a point on the Southerly line of Jefferson Avenue,
120 feet wide, which point is 117.84 feet Westerly of and as measured at right
angles to the Easterly line of said Private Claim 27; thence along the Westerly
line of Burns Drive and parallel to said Easterly Private Claim line, South
28(degrees) l6'30" East, 1,325.47 feet (calculated and measured, South
28(degrees) 05'East, 1,325.84 feet record); thence along the U.S. Harbor Line of
the Detroit River as established by the Secretary of War, July 28, 1933, South
73(degrees) 02'48" West, 282.91 feet (calculated, South 73(degrees) l5'West,
282.85 feet record); thence parallel to said Easterly Private Claim line1 North
28(degrees) 16'30" West, 1,185.53 feet (record and measure North 28(degrees) 05'
West record) ; thence along said Southerly line of Jefferson Avenue, North
48(degrees) 57'20" East, 76.03 feet (record and measure), and North 43(degrees)
19'50" East, 214.20 feet (record and measure) to the point of beginning.
<PAGE>
Whitcomb Tower Corporation, a Michigan corporation1 hereby joins in the
execution of the foregoing Restated Consolidation Agreement and Guaranty (the
"Agreement") for the purpose of subjecting Whitcomb Tower Corporation to any
covenant contained in the Agreement which would be applicable to it as a result
of its assumption of Promissory Note No. 2 and its ownership of the property
referenced in Security No. 2
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written
WHITCOMB TOWER CORPORATION,
a Michigan corporation
/s/ Debbie Dietz
- --------------------------
Debbie Dietz
By: /s/ Donald Keal
--------------------------------
Donald Keal, Executive Vice President
/s/ Diane McGauley
- --------------------------
Diane McGauley
STATE OF FLORIDA )
)SS
COUNTY OF Pinellas )
The foregoing instrument was acknowledged before me this 7th day of
December, 1988, by Donald Keal, the Executive Vice President of Whitcomb Tower
Corporation, a Michigan corporation1 on behalf of the corporation.
/s/ Judith D. Swift
------------------------------
Judith D. Swift
Notary Public, Pinellas County,
Florida
My Commission Expires: __________
NOTARY PUBLIC, STATE OF FLORIDA.
MY COMMISSION EXPIRES: JUNE 14, 1992.
BONDED THRU NOTARY PUBLIC UNDERWRITERS.
<PAGE>
FIRST AMENDMENT TO LOAN DOCUMENTS
This First Amendment to Loan Documents is entered into on this 31 day of
August, 1995, by and between GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, a
Colorado corporation, of 8515 East Orchard Road, Englewood Colorado 80111
("Lender"), WHITTIER TOWERS, INC., a Michigan corporation, 415 Burns Drive,
Detroit, Michigan 48214 ("Whittier"), WHITCOMB TOWER CORPORATION, a Michigan
corporation, of 1800 First National Building, Detroit Michigan ("Whitcomb").
HILLISIDE TERRACE, INC., a Michigan corporation of 415 Burns Drive, Detroit,
Michigan 48214 ("Hillside"), OLDS MANOR, INC., a Michigan corporation, whose
address is c/o United Vanguard Homes, Inc., 4 Cedar Swamp Road, Glen Cove, New
York, 11542 ("Olds Manor") and VANGUARD VENTURES, INC., a New York corporation,
of 4 Cedar Swamp Road, Glen Cove, New York 11542 ("Guarantor").
RECITALS
A. On or about December 7, 1988, Whittier borrowed the sum of Four Million
Five Hundred Thousand Dollars ($4,500,000.00) (the "Whittier Loan") from The
Great-West Life Assurance Company ("Great-West"). Great-West subsequently
assigned the Whittier Loan to Lender.
B. On or about April 15, 1988, Vanguard Homes of Michigan, Inc., now known
as Gateway Communities, Inc. ("Gateway") borrowed the sum of Two Million Three
Hundred Thousand Dollars ($2,300,000.00) (the "Whitcomb Loan") from Great-West.
Great-West subsequently assigned the Whitcomb Loan to Lender. Whitcomb
subsequently assumed the obligations of Gateway with respect to the Whitcomb
loan.
C. On or about October 22, 1987, Gateway borrowed the sum of Two Million
Five Hundred Thousand Dollars ($2,500,000.00) (the "Hillside Loan") from
Great-West. Great-West subsequently assigned the Hillside Loan to Lender.
Hillside subsequently assumed the obligations of Gateway with respect to the
Hillside Loan.
D. The Whittier Loan, the Whitcomb Loan and the Hillside Loan have been
consolidated into one loan (collectively referred to herein as the "Loans") and
are evidenced and secured by the following documents, which, together will all
other documents and instruments evidencing or securing the Loans, are
hereinafter collectively referred to as the "Loan Documents":
1. With respect to the Whittier Loan: that certain Promissory Note
executed my Whittier to the order of Great-West, in the original principal
amount of Four Million Five Hundred Thousand Dollars s($4,500,000), as amended
(the "Whittier Note"), which Whittier Note is secured by, among other things, a
Mortgage and Security Agreement recorded in Liber 24001, Page 019, Wayne County,
Michigan, records, as modified (the "Whittier Mortgage"), and an Assignment of
Rents and Leases recorded in Liber 24001, Page 062, Wayne County, Michigan,
records; the Whittier Mortgage and the Whittier Note were most recently
amended/modified by that certain Second Amendment to Mortgage and Security
Agreement dated September 8, 1994, recorded December 29, 1994, in Liber 27807,
Page 811, Wayne County, Michigan, records and that certain First Amendment to
Promissory Note dated August 1, 1994;
<PAGE>
2. With respect to the Whitcomb Loan: that certain Promissory Note
executed by Gateway to the order of Great-West in the original principal amount
of $2,300,000 as amended (the "Whitcomb Note"), which Whitcomb Note is secured
by, among other things, a Mortgage and Security Agreement recorded in Liber 1339
of Mortgages at Page 210, Berrien County, Michigan, records, as modified (the
"Whitcomb Mortgage"), and an Assignment of Rents and Leases recorded in Liber
1339, Page 228, Berrien County, Michigan, records, the Whitcomb Mortgage and the
Whitcomb Note were most recently amended/modified by that certain Second
Amendment to Mortgage and Security Agreement dated August 1, 1994, recorded
December 30, 1994, in Liber 1673 at Page 415, Berrien County, Michigan, records
and that certain First Amendment to Promissory Note dated August 1, 1994;
3. With respect to the Hillside Loan: that certain Promissory Note
executed by Gateway to the order of Great-West in the original principal amount
of Two Million Five Hundred Thousand Dollars ($2,500,000), as amended (the
"Hillside Note"), which Hillside Note is secured by, among other things, a
Mortgage and Security Agreement recorded in Liber 2184 of Mortgages, Page 240,
Washtenaw County, Michigan, records, as modified (the "Hillside Mortgage"), and
an Assignment of Rents and Leases recorded in Liber 2184, Page 257, Washtenaw
County, Michigan, records; the Hillside Mortgage and the Hillside Note were most
recently amended/modified by that certain Second Amendment to Mortgage and
Security Agreement dated September 8, 1994, recorded December 30, 1994, in Liber
3064, Page 377, Washtenaw County, Michigan, records and that certain First
Amendment to Promissory Note dated August 1, 1994;
4. With respect to the Loans: those certain Guarantys of payment and
performance executed by the Guarantor; that certain Restated Consolidation
Agreement and Guaranty dated December 7, 1988, recorded December 9, 1988, in
Liber 24001, Page 069, Wayne County, Michigan, records by and among the Whittier
Borrower, the Whitcomb Borrower, the Hillside Borrower, the Guarantor and
Lender, as amended by that certain Amendment to Restated Consolidation Agreement
and Guaranty dated August 1, 1994, and recorded December 29, 1994, in Liber
27807, Page 817, Wayne County, Michigan, records; that certain Amendment to
Restated Consolidation Agreement and Guaranty dated August 1, 1994, and recorded
December 30, 1994, in Liber 1673, Page 426, Berrien County, Michigan, records;
that certain Amendment to Restated Consolidation Agreement and Guaranty dated
August 1, 1994, and recorded December 30, 1994, in Liber 3064, Page 383,
Washtenaw County, Michigan, records; that certain Improvement Reserve Account
Agreement dated June 27, 1994 (the "Improvement Reserve Agreement"); and that
certain Negative Pledge Agreement dated September 1, 1994, recorded December 30,
1994, and in Liber 3590, Page 493, Kent County, Michigan, records with respect
to the property commonly known and referred to as "Olds Manor" (the "Negative
Pledge Agreement").
E. The property described on Exhibit A, Exhibit B and Exhibit C attached
hereto is encumbered by the Whittier Mortgage, the Whitcomb Mortgage and the
Hillside Mortgage.
F. The Negative Pledge Agreement affects certain property described on
Exhibit D attached hereto.
G. The maturity date of the Loans was May 1, 1995.
2
<PAGE>
H. Whittier, Whitcomb and Hillside (collectively the "Borrowers") have
requested an extension of the maturity date of the Loans and Lender has agreed
to extend the maturity date of the Loans to April 30, 1996, subject to the terms
and conditions of this First Amendment to Loan Documents.
NOW THEREFOR, in consideration of the Premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower, Olds Manor, Guarantor, and Lender hereby agree to amend
the Loan Documents as follows, effective May 1, 1995:
1. Maturity Date. All references in the Loan Documents to the date "May 1,
1995" are hereby deleted and replaced with the date "April 30, 1996".
2. Tax Escrow Surplus. Any and all amounts which remain in the tax escrow
account required by the Loan Documents immediately following the payment of
property taxes and assessments on the mortgaged property for a particular year,
shall be deposited into the Improvement Reserve Account which has been
established pursuant to the Improvement Reserve Agreement and shall be disbursed
therefrom as described in the Improvement Reserve Agreement.
3. Effect of Amendment. Except as expressly modified hereby, all other
terms and conditions of the Loan Documents as amended shall remain in full force
and effect.
IN WITNESS WHEREOF, this First Amendment to Loan Documents has been executed as
of the date first above written.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY, a Colorado
corporation
/s/ S. Martens By: /s/ R. Tayner
- ----------------------- -----------------------
S. Martens R. TAYNER
/s/ M. Stibal Its: Assistant Vice-President,
- ----------------------- Mortgage Investments
M. Stibal
And
By: /s/ R. H. Oleson
-------------------------
R. H. OLESON
Its: VICE-PRESIDENT
MORTGAGE INVESTMENTS
3
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF Arapahoe )
The foregoing instrument was acknowledged before me this 6th day of
September, 1995 by R. Tayner and R.H. Oleson, the Asst. V.P., Mtg, Inv. and the
V.P., Mtg. Inv., respectively, of Great-West Life & Annuity Insurance Company, a
Colorado corporation, on behalf of the corporation.
/s/ Lynnette R. Rampy
----------------------------------
Lynnette R. Rampy
Notary Public, Arapahoe County, CO
My Commission Expires: EXPRIATION
DATE FEB. 7, 1998
WHITTIER TOWERS, INC., a Michigan
corporation
/s/ Paul D. Andrea By: /s/ Carl G. Paffendorf
- ----------------------- -------------------------
Paul D. Andrea Carl G. Paffendorf
Its President
/s/ Lillian McMahon
- -----------------------
Lillian McMahon
STATE OF New York)
) ss.
COUNTY OF Nassau )
The foregoing instrument was acknowledged before me this 31st day of
August, 1995 by Carl G. Paffendorf, the President of Whittier Towers, Inc., a
Michigan corporation, on behalf of the corporation.
CRAIG M. SHIELDS /s/ Craig M. Shields
NOTARY PUBLIC, STATE OF NEW YORK --------------------------
NO. 31-8972175 Craig M. Shields
QUALIFIED IN NEW YORK COUNTY Notary Public, Nassau County, NY
COMMISSION EXPIRES AUG. 31, 1996 My Commission Expires: August 31, 1996
WHITCOMB TOWER, CORPORATION,
a Michigan corporation
/s/ Paul D. Andrea By: /s/ Carl G. Paffendorf
- ----------------------- -------------------------
Paul D. Andrea Carl G. Paffendorf
Its President
/s/ Lillian McMahon
- -----------------------
Lillian McMahon
4
<PAGE>
STATE OF New York)
) ss.
COUNTY OF Nassau )
The foregoing instrument was acknowledged before me this 31st day of
August, 1995 by Carl G. Paffendorf, the President of Whitcomb Tower Corporation,
a Michigan corporation, on behalf of the corporation.
CRAIG M. SHIELDS /s/ Craig M. Shields
NOTARY PUBLIC, STATE OF NEW YORK --------------------------
NO. 31-8972175 Craig M. Shields
QUALIFIED IN NEW YORK COUNTY Notary Public, Nassau County, NY
COMMISSION EXPIRES AUG. 31, 1996 My Commission Expires: August 31, 1996
HILLSIDE TERRACE, INC., a Michigan
corporation
/s/ Paul D. Andrea By: /s/ Carl G. Paffendorf
- ----------------------- -------------------------
Paul D. Andrea Carl G. Paffendorf
Its President
/s/ Lillian McMahon
- -----------------------
Lillian McMahon
STATE OF New York)
) ss.
COUNTY OF Nassau )
The foregoing instrument was acknowledged before me this 31st day of
August, 1995 by Carl G. Paffendorf, the President of Hillside Terrace, Inc., a
Michigan corporation, on behalf of the corporation.
CRAIG M. SHIELDS /s/ Craig M. Shields
NOTARY PUBLIC, STATE OF NEW YORK --------------------------
NO. 31-8972175 Craig M. Shields
QUALIFIED IN NEW YORK COUNTY Notary Public, Nassau County, NY
COMMISSION EXPIRES AUG. 31, 1996 My Commission Expires: August 31, 1996
VANGUARD VENTURES, INC., a
New York corporation
/s/ Paul D. Andrea By: /s/ Carl G. Paffendorf
- ----------------------- -------------------------
Paul D. Andrea Carl G. Paffendorf
Its President
/s/ Lillian McMahon
- -----------------------
Lillian McMahon
5
<PAGE>
STATE OF New York)
) ss.
COUNTY OF Nassau )
The foregoing instrument was acknowledged before me this 31st day of
August, 1995 by Carl G. Paffendorf, the President of Vanguard Ventures, Inc., a
New York corporation, on behalf of the corporation.
CRAIG M. SHIELDS /s/ Craig M. Shields
NOTARY PUBLIC, STATE OF NEW YORK --------------------------
NO. 31-8972175 Craig M. Shields
QUALIFIED IN NEW YORK COUNTY Notary Public, Nassau County, NY
COMMISSION EXPIRES AUG. 31, 1996 My Commission Expires: August 31, 1996
OLDS MANOR, INC., a Michigan
corporation
/s/ Paul D. Andrea By: /s/ Carl G. Paffendorf
- ----------------------- -------------------------
Paul D. Andrea Carl G. Paffendorf
Its President
/s/ Lillian McMahon
- -----------------------
Lillian McMahon
STATE OF New York)
) ss.
COUNTY OF Nassau )
The foregoing instrument was acknowledged before me this 31st day of
August, 1995 by Carl G. Paffendorf, the President of Olds Manor, Inc., a
Michigan corporation, on behalf of the corporation.
/s/ Craig M. Shields
--------------------------
Craig M. Shields
Notary Public, Nassau County, NY
My Commission Expires: August 31, 1996
CRAIG M. SHIELDS
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-8972175
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUG. 31, 1996
This Instrument Drafted By:
DAN M. CHALLA, ESQ.
McSHANE & BOWIE, P.L.C.
1100 Campau Square Plaza
99 Monroe Ave., N.W.
P.O. Box 360
Grand Rapids, MI 49501-0360
(616) 732-5000
6
<PAGE>
EXHIBIT "A"
Whittier Towers
All that part of Private Claim 27, City of Detroit, Wayne County, Michigan,
described as: Beginning at a point on the Southerly line of Jefferson Avenue,
120 feet wide, which point is 117.84 feet Westerly of and as measured at right
angles to the Easterly line of said Private Claim 27; thence along the Westerly
line of Burns Drive and parallel to said Easterly Private Claim line, South
28(degrees) 16' 30" East, 1,325.47 feet (calculated and measured, South
28(degrees) 05' East, 1,325.84 feet record); thence along the U.S. Harbor Line
of the Detroit River as established by the Secretary of War, July 28, 1933,
South 73(degrees) 02' 48" West, 282.91 feet (calculated, South 73(degrees) 15'
West, 282.85 feet record); thence parallel to said Easterly Private Claim line,
North 28(degrees) 16' 30" West, 1,185.53 feel (record and measure North
28(degrees) 05' West record); thence along said Southerly line of Jefferson
Avenue, North 48(degrees) 57' 20" East, 76.03 feet (record and measure), and
North 43(degrees) 19' 50" East, 214.20 feet (record and measure) to the point of
beginning.
<PAGE>
EXHIBIT B
Whitcomb Tower
Lots 101, 102, 129, and the Northeasterly 44.59 feet of Lot 130, Original
Plat of the Village, now City of St. Joseph, Berrien County, Michigan, according
to the plat thereof, recorded July 9, 1840 in Book "E" of Deeds, page 564.
<PAGE>
EXHIBIT C
Hillside Terrace
Commencing at the West 1/4 corner of Section 30, Town 2 South, Range 6 East,
City of Ann Arbor, Washtenaw County, Michigan, thence East 2027.47 feet along
the East-West 1/4 line of said Section 30, to the Point of Beginning,
thence N 00(degrees) 13' 30" West 506.86 feet,
thence West 149.44 feet,
thence North 00(degrees) 03' 30" West 125.00 feet along the East line of
Zahn Subdivision, as recorded in Liber 13 of Plats, Page 42, Washtenaw
County Records,
thence North 89(degrees) 41' 00" West 1.00 feet,
thence North 00(degrees) 03' 30" West 75.00 feet,
thence South 89(degrees) 41' 00" East 1.00 feet,
thence North 00(degrees) 03' 30" West 175.12 feet along the East line of
said Zahn Subdivision,
thence North 82(degrees) 01' 00" East 149.68 feet along the center line of
Jackson Avenue,
thence South 00(degrees) 13' 30" East 33.33 feet,
thence North 82(degrees) 28' 00" East 161.53 feet along the South
right-of-way line of Jackson Avenue,
thence South 00(degrees) 21' 00" West 198.00 feet,
thence North 82(degrees) 22' 00" East 50.09 feet,
thence South 00(degrees) 19' 00" West 28.00 feet,
thence North 82(degrees) 28' 00" East 3.46 feet,
thence South 00(degrees) 05' 00" East 671.80 feet,
thence West 209.40 feet to the Point of Beginning.
being a part of the Northwest 1/4 of Section 30, also
being a part of Lot 6, Assessor's Play No. 4 and being
a part of Lots 4,5 and 6 of Zahn Subdivision.
<PAGE>
EXHIBIT "D"
Olds Manor
All that part of Lot 1, Kent Plat, and Part of Section 24, Town 7 North, Range
12 West, described as follows: Commencing at the Northwest corner of Monroe
Avenue and Michigan Street; thence South 89(degrees) 12' 15" West 155.25 feet
along the North line of Michigan Street; thence North 18(degrees) 16' 15" East
98.13 feet; thence North 37(degrees) 23' 30" East 39.03 feet; thence North
17(degrees) 42' 30" East 63.29 feet; thence North 89(degrees) 14' 45" East 78.95
feet to the West line of Monroe Avenue, thence South along the said West line of
Monroe Avenue 183.52 feet to beginning. Together with easements for driveway and
parking purposes as granted and determined by instruments recorded in Liber 1865
of Deeds, Page 121, Liber 1851 of Deeds, Page 220, and Liber 1906 of Deeds, Page
967.
<PAGE>
Endorsement
Attached to Policy No. 82-222129B
Issued By
TRANSAMERICA TITLE INSURANCE COMPANY
I Schedule A, the Effective Date is hereby amended to:
August 24, 1995 at 8:00 AM as to Parcel I
August 24, 1995 at 8:00 AM as to Parcel II
August 15, 1995 at 8:00 AM as to Parcel III
II Schedule A, Paragraph 2 is hereby amended to include the following:
First Amendment to Loan Documents dated August 31, 1995, recorded
____________, 1995 in Liber _____, Page ___ Washtenaw County.
First Amendment to Loan Documents dated August 31, 1995, recorded
____________, 1995 in Liber _____, Page ___ Berrien County.
First Amendment to Loan Documents dated August 31, 1995, recorded
____________, 1995 in Liber _____, Page ___ Wayne County.
III Schedule B, Part I is hereby amended to add the following paragraph:
29. Liens for any tax and/or assessment which become due and payable on or
after the effective date of this Policy.
IV Schedule B, Part II, Paragraph 15 is hereby amended to include the
following:
"First Amendment to Mortgage dated January 31, 1995, recorded February 10,
1995 in Liber 1678, Page 723." (Berrien County)
The total liability of the Company under said policy and any endorsements
therein shall not exceed, in the aggregate, the face amount of said policy and
costs which the Company is obligated under the Conditions and Stipulations
thereof to pay.
The endorsement is made a part of said policy and is subject to the
schedules, conditions and stipulations therein, except as modified by the
provisions hereof.
This endorsement is not to be construed as insuring the title to said
estate or interest as of any later date than the date of said policy, except as
herein expressly provided as the subject matter hereof.
Dated: September 11, 1995
Your Ref: Hillside/Whitcomb/Whittier
TRANSAMERICA TITLE INSURANCE COMPANY
Endorsement M 200
<PAGE>
Endorsement M 200 -- Continued Policy No. MARY
Dated: September 11, 1995
Countersigned:
By /s/ Albert [illegible]
-----------------------------
Authorized signature
Endorsement M 200
Form 2411
<PAGE>
[Logo]
Great-West
LIFE & ANNUITY INSURANCE COMPANY
8515 East Orchard Road
Englewood, CO 80111 Tel. (303) 689-3000
Address mail to: P.O. Box 1700, Denver, CO 80201
April 1, 1996
VIA AIRBORNE EXPRESS
Whittier Towers, Inc., et. al.
c/o Vanguard Ventures, Inc.
4 Cedar Swamp Road
Glen Cove, New York 11542
Attention: Mr. Carl Paffendorf
Re: Whittier Towers, Inc., a Michigan corporation (the "Whittier Borrower")
415 Burns Drive
Detroit, Michigan (the "Whittier Property")
Loan No.: MI 70268 (the "Whittier Loan")
Whitcomb Tower Corporation, a Michigan corporation
(the "Whitcomb Borrower")
Northeast Corner of Ship Street and Lake Boulevard
St. Joseph, Michigan (the "Whitcomb Property")
Loan No.: MI 70193 (the "Whitcomb Loan")
Hillside Terrace, Inc., a Michigan corporation (the "Hillside
Borrower")
1939 Jackson Avenue
Ann Arbor, Michigan (the "Hillside Property")
Loan No.: MI 70135 (the "Hillside Loan")
The Whittier Borrower, the Whitcomb Borrower and the Hillside Borrower
may be hereinafter referred to collectively as the "Borrowers."
The Whitter Property, the Whitcomb Property and the Hillside Property
may be hereinafter referred to collectively as the "Properties."
The Whittier Loan, the Whitcomb Loan and the Hillside Loan may be
hereinafter referred to collectively as the "Loans."
Great-West Life & Annuity Insurance Company, a Colorado corporation
(the "Lender")
Vanguard Ventures, Inc., a New York corporation (the "Guarantor")
<PAGE>
Account Nos. MI 70268, MI 70193, MI 70135
April 1, 1996
Page 2
Gentlemen:
The Lender hereby agrees to grant your request for certain short-term
extensions of the maturity dates of the Loans in order to provide you with
additional time to refinance the Loans. Said extensions of the maturity dates of
the Loans are subject to the Borrowers' full and timely compliance with all of
the terms, conditions and requirements set forth herein, including, without
limitation, execution of all documents required by the Lender's local counsel.
1. Loan Documents. The documents which evidence, secure and otherwise
relate to the Loans include, without limitation, the following: with respect to
the Whittier Loan: (i) that certain Promissory Note executed by the Whittier
Borrower to the order of Lender's predecessor in interest ("GWL"), in the
original principal amount of $4,500,000, as amended (the "Whitter Note"), which
Whittier Note is secured by, among other things, a Mortgage and Security
Agreement recorded in Liber 24001, Page 019, Wayne County, Michigan Records, as
modified (the "Whittier Mortgage"), and an Assignment of Rents and Leases
recorded in Liber 24001, Page 062, Wayne County, Michigan Records; the Whitter
Loan was most recently amended by that certain First Amendment to Loan Documents
dated August 31, 1995, recorded October 5, 1995 in Liber 28318, Page 067, Wayne
County, Michigan Records; with respect to the Whitcomb Loan: (ii) that certain
Promissory Note executed by the Whitcomb Borrower to the order of GWL in the
original principal amount of $2,300,000, as amended (the "Whitcomb Note"), which
Whitcomb Note is secured by, among other things, a Mortgage and Security
Agreement recorded in Liber 1339 of Mortgages at Page 210, Berrien County,
Michigan Records, as modified (the "Whitcomb Mortgage"), and an Assignment of
Rents and Leases recorded in Liber 1339 at Page 228, Berrien County, Michigan
Records; the Whitcomb Mortgage and the Whitcomb Note were most recently amended
by that certain First Amendment to Loan Documents dated August 31, 1995,
recorded September 29, 1995 in Liber 1712, Page 855, Berrien County, Michigan
Records; with respect to the Hillside Loan: (iii) that certain Promissory Note
executed by the Hillside Borrower to the order of GWL in the original principal
amount of $2,500,000, as amended (the "Hillside Note"), which Hillside Note is
secured by, among other things, a Mortgage and Security Agreement recorded in
Liber 2184 of Mortgages at Page 240, Washtenaw County, Michigan Records, as
modified (the "Hillside Mortgage"), and an Assignment of Rents and Leases
recorded in Liber 2184 at Page 257, Washtenaw County, Michigan Records; the
Hillside Mortgage and the Hillside Note were most recently amended by that
certain First Amendment to Loan Documents dated August 31, 1995, recorded
October 17, 1995 in Liber 3167, Page 291, with respect to the Loans: (iv) that
certain Guaranty of payment executed by the Guarantor (the "Guarantor"); (v)
that certain Restated Consolidation Agreement and Guaranty dated December 7,
1988 by and among the Whittier Borrower, the Whitcomb Borrower, the Hillside
Borrower, the Guarantor and Lender, as amended by that certain Amendment to
Restated Consolidation Agreement and Guaranty dated August 1, 1994 and recorded
December 29, 1994 in Liber 27807 at Page 817 of the Wayne County, Michigan
Records; that certain Amendment to Restated Consolidation Agreement and Guaranty
dated August 1, 1994 and recorded December 30, 1994 in Liber 1673 at Page 426 of
the Berrien County, Michigan Records; and that certain Amendment to Restated
Consolidation Agreement
<PAGE>
Account Nos. MI 70268, MI 70193, MI 70135
April 1, 1996
Page 3
and Guaranty dated August 1, 1994 and recorded December 30, 1994 in Liber 3064
at Page 393, of the Washtenaw County, Michigan Records; (vi) that certain
Improvement Reserve Account Agreement dated June 27, 1994; (vii) that certain
Negative Pledge Agreement dated September 1, 1994, recorded December 30, 1994 in
Liber 3590 at Page 493, Kent County, Michigan Records with respect to a property
commonly known and referred to as "Olds Manor." The foregoing described loan and
security documents, and all other and further documents and agreements
evidencing and securing the Loans, as such documents and agreements may be
modified, are hereinafter collectively referred to the "Loan Documents." They
may be herein referred to individually as the "Whitter Loan Documents," the
"Whitcomb Loan Documents," and the "Hillside Loan Documents."
2. No Defaults at Closing. As of the date of Closing (as hereinafter
defined) with respect to the modifications described herein, no defaults shall
have occurred which are then continuing under the Loans.
3. Extended Terms; Extended Maturity Dates. Subject to the Borrowers' frill
and timely satisfaction of the conditions set forth herein, the Loans shall be
renewed, effective May 1, 1996, for respective periods of one (1) year (the
"Extended Terms"). The Extended Terms shall expire and the Loans shall mature on
April 30, 1997 (the "Extended Maturity Dates").
4. Acknowledgment of Current Loan Balances. The Borrowers hereby
acknowledge that the current outstanding principal balances of the Loans as of
March 8, 1996 when the March, 1996 payments were received and applied, are as
follows: $4,091,610.23 for the Whittier Loan; $2,100,812.73 for the Whitcomb
Loan and $2,251,048.80 for the Hillside Loan.
5. Monthly Payments. The interest rates shall remain unchanged at seven and
one-half percent (7.50%) per annum and monthly payments of principal (based on
a 30 year amortization) and interest in the amount of $28,609 for the Whittier
Loan; $14,689 for the Whitcomb Loan and $15,740 for the Hillside Loan shall
continue to be payable in accordance with the terms of the Loan Documents.
6. Tax Deposits. Borrower shall continue to make monthly payments for
future property taxes, calculated at a sum equal to one-twelfth (1/12) of the
estimated annual charge, shall be remitted to the Lender with each monthly
payment. Notwithstanding the preceding sentence, until the time taxes are next
due, the monthly tax deposit amounts shall be adjusted so that, beginning with
the first monthly payments due under the Loans, monthly tax deposits in equal
amounts shall, together with any amounts currently on deposit, account for the
entire assessment when such assessment becomes due. All such deposits shall be
retained by the Lender without interest and free of trust, unless otherwise
required by law. The Lender shall pay the taxes and assessments on the
Properties as they become due from the funds so deposited by the Borrowers, to
the extent that such funds are available. The Borrowers shall be notified of
any shortage(s) and such shortage(s) shall be immediately due and payable by the
Borrowers. It is a condition precedent to Closing that the property taxes and
assessments with respect to the
<PAGE>
Account Nos. MI 70268, MI 70193, MI 70135
April 1, 1996
Page 4
Properties have been paid in full to their last due date and that the monthly
tax escrows are current. At the current time, the tax escrow payments are as
follows: $5,733 per month for the Whittier Loan; $7,346 per month for the
Whitcomb Loan; and, $4,156 per month for the Hillside Loan.
7. Subordinate Liens. When the Loans were modified in 1994, Lender obtained
Subordination Agreements from, respectively, the Whitcomb Mortgage Trust
recorded December 30, 1994 in Liber 1673 at Pages 421, Berrien County, Michigan
Records with respect to a mortgage held by the Whitcomb Mortgage Trust against
the Whitcomb Property recorded May 12, 1992 in Liber 1513, Page 160, Berrien
County, Michigan Records, as amended; and, from Citibank, N.A. and Lloyd's Bank,
P.L.C. (Acknowledgment and Confirmation of Subordination dated September 8,
1994) with respect to certain cross-collateralized mortgages against the
Properties in the aggregate amount of $1,000,000 which mortgages partially
secure a limited guaranty provided by Guarantor with respect to a loan
principally secured by property commonly referred to as "Harvest Village,"
Lender has been advised by its local counsel that the said Subordinations are
sufficiently broad such that the modifications described herein are covered
thereby.
8. Title Endorsement. If local counsel to Lender deems it legally
necessary, the existing Loan Policy of Title Insurance issued by Transamerica
Title Insurance Company, Policy No.82-222129B, dated January 25, 1991 and
endorsed December 30, 1994, shall be down-dated by separate endorsement which
endorsement shall also insure the continuing validity, enforceability and first
lien priority of the Whittier Mortgage, the Whitcomb Mortgage and the Hillside
Mortgage, as modified. The Borrowers hereby agree to promptly cooperate in the
delivery of same, at their sole cost and expense.
9. Documents. If Lender's local counsel deems it legally necessary, a
modification agreement and such other documents and agreements as the Lender and
its local counsel may require, shall be executed by the parties. Such documents
shall evidence the terms and conditions of this letter agreement and shall
contain such other terms and conditions as the Lender and its local counsel
shall reasonably require.
10. Costs, Fees and Expenses. All costs, fees and expenses incurred in
connection with the modifications to the Loan described herein, including,
without limitation, the fees and expenses the Lender's local counsel, title
costs, and recording and filing fees, shall be paid by the Borrowers immediately
when due. Any failure on the Borrowers' part to pay the foregoing when due
shall constitute an event of default under the Loans, whereupon the Lender shall
be entitled to exercise all remedies available to it at law, in equity, and
under the Loan Documents, as modified (including, without limitation, the right
of the Lender to add the amount of such defaulted costs, fees or expenses to the
indebtedness evidenced by the Notes).
<PAGE>
Account Nos. MI 70268, MI 70193, MI 70135
April 1, 1996
Page 5
11. Modifications in Writing. This letter agreement may be modified or
amended only in writing signed by the parties hereto. No oral modification or
amendment to this letter agreement shall be effective.
12. Relationship Between the Parties. Nothing contained herein or in the
modification documents arising herefrom shall be construed as creating a joint
venture or partnership among the Borrowers and the Lender, and the Lender shall
have no right of control or supervision, except as it may exercise pursuant to
the rights and remedies provided in the Loan Documents.
13. No Consents. The Borrowers hereby represent that no consent of any
person or entity not a party hereto is required, and the Borrowers hereby agree
to and do indemnify, defend and hold harmless the Lender from and against any
and all loss, damage or liability whatsoever, including, without limitation,
attorneys fees and costs, arising from any failure to obtain the consent of any
such person or entity which is not a party hereto.
14. Binding Effect. This letter agreement shall be binding upon and shall
inure to the benefit of the parties hereto and to the successors and assigns of
the Lender.
15. No Release of Makers or Collateral. It is hereby expressly agreed that
the execution of this letter agreement shall not release any maker, the
Guarantor, or any other party to the Loan Documents or any undertaking in
connection therewith, nor shall this letter agreement effect any release of any
collateral given at any time to secure payment of the Loan.
16. Ratification. It is hereby expressly agreed that the Loan Documents,
except as expressly modified, altered or amended by this letter agreement and
the agreements and documents arising herefrom, shall be and remain in full force
and effect and are hereby ratified and affirmed by the Borrowers, Olds Manor and
the Guarantor, including, without limitation, the provisions imposing full
recourse liability upon the Borrowers for payment and performance obligations
under the Loans; the provisions for cross-collateralization and cross-default of
the Loans; Guarantor's obligations under the Guaranty; and, Old Manor's
obligations under the Negative Pledge Agreement herein described.
17. No Waiver of Lender's Rights. It is acknowledged and agreed that
nothing contained herein or in the agreements and documents arising herefrom
shall be deemed or shall operate to impair, waive or affect in any way
whatsoever the rights of the Lender to enforce the Loan Documents, and the
Lender expressly reserves all rights to pursue any and all available remedies
existing at law, in equity and under the Loan Documents, as they may be
modified. No course of dealing or conduct shall be effective, per se, to amend,
waive, release or change any provisions of the Loan Documents.
18. Survival. This letter agreement shall survive execution of the
modification agreements and documents arising herefrom; provided, however, that
to the extent that there are any
<PAGE>
Account Nos. MI 70268, MI 70193, MI 70135
April 1, 1996
Page 6
inconsistencies between this letter agreement and the modification documents and
agreements arising herefrom, the modification documents and agreements shall
prevail and control.
19. Counterparts. This letter agreement may be executed in one or more
counterparts, which, when taken together, shall constitute one original
agreement.
Please indicate your acceptance of the foregoing terms and conditions by signing
in the space provided below on the duplicate original of the letter agreement
enclosed herewith and returning it, together with the Extension Fee, to the
attention of the undersigned on or before April 5, 1996. Absent our receipt of
this fully executed letter agreement by such date, the terms and conditions
hereof shall be of no force and effect and the Loans shall be repayable in
full, including all accrued and unpaid interest and other charges, on or before
April 5, 1996.
Very truly yours,
LENDER:
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY,
a Colorado corporation
By: /s/ [Illegible]
---------------------
By: /s/ R. H. Oleson
---------------------
The undersigned Borrowers and Guarantor hereby represent and warrant that their
execution of this letter agreement and performance of their obligations
hereunder have been duly authorized by the requisite corporate acts and that
performance of their obligations hereunder do not violate applicable provisions
of any law or their respective Articles of Incorporation and/or Bylaws.
BORROWERS:
WHITTIER TOWERS, INC., (SEAL)
a Michigan corporation
By: /s/ Carl G. Paffendorf 4-2-96
-------------------------- -------------------
Carl G. Paffendorf Acceptance Date
President
<PAGE>
Account Nos. MI 70268, MI 70193, MI 70135
April 1, 1996
Page 7
WHITCOMB TOWER CORPORATION,
a Michigan corporation
By: /s/ Carl G. Paffendorf 4-2-96
-------------------------- -------------------
Carl G. Paffendorf Acceptance Date
President
HILLSIDE TERRACE, INC.,
a Michigan corporation
By: /s/ Carl G. Paffendorf 4-2-96
-------------------------- -------------------
Carl G. Paffendorf Acceptance Date
President
GUARANTOR:
VANGUARD VENTURES, INC., (SEAL)
a New York corporation
By: /s/ Carl G. Paffendorf 4-2-96
-------------------------- -------------------
Carl G. Paffendorf Acceptance Date
President
OLDS MANOR, INC.,
a Michigan corporation (SEAL)
By: /s/ Carl G. Paffendorf 4-2-96
-------------------------- -------------------
Carl G. Paffendorf Acceptance Date
President
Enclosure
<PAGE>
Account Nos. MI 70268, MI 70193, MI 70135
April 1, 1996
Page 8
pc: J. Cahan, Assistant Vice President & Associate Counsel,
Investments-Legal, 2T2
D. Vande Vrede, Associate Manager - Mortgage Administration, 2T2
S. Martens, Associate Manager, Mortgage Closing, 3T2
L. King, Supervisor, Mortgage Administration, 2T2
J. Zamagni, Legal Assistant, Investments - Legal, 2T2
Dan M. Challa, Esq., McShane & Bowie, P.L.C., 1100 Campau Square Plaza,
99 Monroe Avenue, N.W., Grand Rapids, MI 49501-0360
<PAGE>
1994 GUARANTY AGREEMENT
Date: December 30, 1994
"Debtor": Whittier Towers, Inc.
"Guarantor": Vanguard Ventures, Inc.
"Creditor": Vanguard Realty and Management Company, Inc.
THIS GUARANTY AGREEMENT (the "Agreement") is entered into among the
above-named Debtor, Guarantor and Creditor.
WHEREAS, Guarantor is the owner of Debtor; and
WHEREAS, Debtor requests Creditor to continue to manage Debtor's property
located at 415 Burns Drive, Detroit, MI (the "Property"); and
WHEREAS, Creditor is not willing to extend any further credit to Debtor
unless the Guarantor enters into this Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable considerations, and to induce the Creditor to extend credit to Debtor,
the Guarantor agrees as follows:
1. GUARANTY. Guarantor hereby guarantees to the Creditor the payment of
all management fees and other debt, extensions of credit, financial
accommodations, and other amounts due from Debtor to Creditor relating to the
Property during all periods ending March 31, 1996, plus interest at 8 percent
per annum from December 31, 1994. Any debts incurred on or after April 1, 1996
are not guaranteed unless agreed to in writing.
2. ENFORCEMENT. The Creditor may enforce the provisions hereof from time
to time as often as occasion therefor may arise.
3. MISCELLANEOUS. This Agreement is delivered in the State of New York and
shall be construed according to the laws of New York, applicable to contracts
made in and to be performed in such State. This Guaranty Agreement shall inure
to the benefit of and be enforceable by the Creditor and shall be enforceable
against and binding upon Guarantor and its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GUARANTOR: CREDITOR:
Vanguard Ventures, Inc. Vanguard Realty and Management Company, Inc.
by:/s/ Paul D'Andrea by: /s/ Alan Guttman
---------------------- -------------------------------------
Paul D'Andrea Alan Guttman
Vice President - Finance Treasurer
<PAGE>
DEBTOR:
Whittier Towers, Inc.
by: /s/ Carl G. Paffendorf
-------------------------------
Carl G. Paffendorf, President
<PAGE>
1995 GUARANTY AGREEMENT
Date: March 12, 1996
Debtor: Whittier Towers, Inc.
Guarantor: Vanguard Ventures, Inc.
Creditor: Vanguard Realty and Management Company, Inc.
THIS GUARANTY AGREEMENT (the "Agreement") is entered into among the
above-named Debtor, Guarantor and Creditor.
WHEREAS, Guarantor is the owner of Debtor; and
WHEREAS, Debtor requests Creditor to continue to manage Debtor's property
located at 415 Burns Drive, Detroit, MI (the "Property"); and
WHEREAS, Creditor is not willing to extend any further credit to Debtor
unless the Guarantor enters into this Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable considerations, and to induce the Creditor to extend credit to Debtor,
the Guarantor agrees as follows:
1. GUARANTY. Guarantor hereby guarantees to the Creditor the payment of
all management fees and other debt, extensions of credit, financial
accommodations, and other amounts due from Debtor to Creditor relating to the
Property during all periods ending April 1, 1996, plus interest at 8 percent per
annum. Any debts incurred after March 31, 1997 are not guaranteed unless agreed
to in writing.
2. ENFORCEMENT. The Creditor may enforce the provisions hereof from time
to time as often as occasion therefor may arise.
3. MISCELLANEOUS. This Agreement is delivered in the State of New York and
shall be construed according to the laws of New York, applicable to contracts
made in and to be performed in such State. This Guaranty Agreement shall inure
to the benefit of and be enforceable by the Creditor and shall be enforceable
against and binding upon Guarantor and its successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GUARANTOR: CREDITOR:
Vanguard Ventures, Inc. Vanguard Realty and Management Company, Inc.
by:/s/ Paul D'Andrea by: /s/ Alan Guttman
------------------------ -------------------------------------
Paul D'Andrea Alan Guttman
Vice President - Finance Treasurer
<PAGE>
DEBTOR:
Whittier Towers, Inc.
by:/s/ Carl G. Paffendorf
----------------------------
Carl G. Paffendorf, President
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, made this ______ day of September, 1996, by and
among United Vanguard Homes, Inc., a Delaware corporation (the "Company"),
Vanguard Ventures, Inc., a New York corporation, ("Vanguard") and American Stock
Transfer & Trust Company (the "Escrow Agent").
R E C I T A L S
WHEREAS, the Company is expecting to undertake an initial public
offering (the "Public Offering") of 1,800,000 shares of Common Stock, $.01 par
value per share (the "Common Stock") and 1,800,000 Common Stock Purchase
Warrants (the "Warrants");
WHEREAS, in connection with such Public Offering, Janney Montgomery
Scott Inc. expects to act as one of the Representatives of the several
Underwriters (the "Representative"); and
WHEREAS, as a condition to acting as Representative thereof, the
Representative has required that Vanguard deposit into escrow 540,684 shares of
Common Stock [based on an assumed initial public offering price of $8.50 per
share] owned by Vanguard, to be held by the Escrow Agent on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and of the
following obligations and covenants, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged and
confessed, the parties hereto do hereby agree and act as follows:
1. DEPOSIT OF ESCROWED SHARES.
(a) Vanguard hereby deposits with the Escrow Agent certificates, with
stock powers endorsed in blank, representing an aggregate of 540,684 shares of
Common Stock [based on an assumed initial public offering price of $8.50 per
share] (such shares, together with any stock dividends, stock splits or other
non-cash distributions with respect to such shares, are hereinafter referred to
as the "Escrowed Shares").
Vanguard hereby appoints the Escrow Agent to hold and transfer
Vanguard's Escrowed Shares in accordance with the terms and conditions of this
Agreement, and the Escrow Agent accepts such appointment.
2. VOTING ESCROWED SHARES. During the term of this Escrow
Agreement, Vanguard shall be entitled to vote the Escrowed Shares and give
consents, waivers and ratifications in respect thereof for purposes that are not
inconsistent with the terms of this Agreement.
<PAGE>
3. DIVIDENDS. The Escrow Agent shall deliver all dividends paid
solely in cash out of current earnings on the Escrowed Shares to Vanguard. Any
other distribution on the Escrowed Shares including, without limitation, all
stock dividends and stock splits made on the Escrowed Shares shall be deemed to
be a part of the Escrowed Shares and added to Vanguard's Escrowed Shares.
4. CONFLICTING DEMANDS. In the event of a dispute arising out of
this Escrow Agreement, the Escrow Agent may deposit the Escrowed Shares with a
court of competent jurisdiction of the State of New York, pursuant to an action
in interpleader, to which the parties hereto hereby consent. Upon the making of
such deposit, the Escrow Agent shall be fully released and discharged from all
obligations hereunder, and the Company shall reimburse the Escrow Agent for all
costs, expenses and attorneys' fees reasonably expended or incurred by the
Escrow Agent in connection with such dispute over the Escrowed Shares.
5. SUBMISSION TO JURISDICTION. Solely in connection with any
dispute, claim or action arising from the terms of this Agreement and the rights
created hereunder Vanguard hereby submits to the jurisdiction of the federal
courts of the Southern District of New York and the courts of the State of New
York (collectively, the "New York Courts"), and hereby appoints the Escrow Agent
as his agent for service of process within the State of New York.
6. TRANSFER AND CANCELLATION OF ESCROWED SHARES.
(a) The Escrowed Shares are to be transferred to Vanguard pursuant to
Paragraph 6(b) upon evidence satisfactory to the Representative that any one or
all of the obligations set forth in Paragraph 6(b) have been paid in full.
Subject to Paragraph 7 hereof, the Escrow Agent shall transfer the Escrowed
Shares and related stock powers in accordance with the provisions of Paragraph
6(b) within three (3) business days after the Representative notifies the Escrow
Agent in writing to release the appropriate number of Escrowed Shares related to
the obligation(s) which have been satisfied.
(b) The Escrow Agent shall release the Escrowed Shares to Vanguard in
proportion to the obligation which has been repaid. The following schedule sets
forth the number of Escrowed Shares which are to be released upon payment of the
relevant obligation:
2
<PAGE>
NUMBER OF
NAME OF OBLIGATION AMOUNT OUTSTANDING ESCROWED SHARES
------------------ ------------------ ---------------
Great West Life Mortgage on the $4,087,500 480,882
Whittier (outstanding as of
June 30, 1996)
Phoenix Lifecare Corp. Receivable $398,957 46,936
(outstanding as of
September __,1996)
CBF Building Company bank loan $109,359 12,866
(outstanding as of
September __, 1996)
$4,595,816 540,684
---------- -------
---------- -------
(c) In the event that any of the obligations set forth in paragraph
6(b) are outstanding on _______________, 1999 [3 years from the date hereof],
the certificates evidencing the Escrowed Shares related to such obligations
shall be delivered to the Company by the Escrow Agent and returned to the
Company's treasury for cancellation by the Company as a contribution of capital.
The Company agrees to cancel such shares.
7. TERMINATION. This Escrow Agreement, and the Escrow Agent's
duties hereunder shall terminate in the event that:
(a) The Escrow Agent has disbursed all of the Escrowed Shares in
accordance with Paragraph 6;
(b) The parties hereto elect to terminate this Escrow Agreement prior
to termination pursuant to Paragraph 6(a) by written notice containing
instructions for the distribution of the Escrowed Shares signed by Vanguard, the
Representative and the Company to the Escrow Agent. Upon receipt of such notice
the Escrow Agent shall distribute the Escrowed Shares in accordance with such
instructions and thereafter the Escrow Agent's duties hereunder shall terminate;
(c) No definitive, written underwriting agreement between the Company
and the Representative is executed and delivered by both parties within 90 days
of the date of this
3
<PAGE>
Escrow Agreement. In such event the Escrow Agent shall deliver to Vanguard the
share certificates and stock power(s) deposited by Vanguard; or
(d) The Escrowed Shares are cancelled by the Company pursuant to
Paragraph 6(c).
8. ESCROW FEE. For services performed hereunder, the Escrow Agent
shall be entitled to receive fees from the Company, to be determined in
accordance with the Escrow Agent's customary fees as are in effect from time to
time. Any fees for extraordinary services by the Escrow Agent which are not
anticipated by this Agreement shall be at reasonable rates comparable to those
paid for similar services and shall be paid directly by the Company. Any fees
payable hereunder shall be the sole obligation of the Company.
9. REPRESENTATIONS AND WARRANTIES OF VANGUARD. Vanguard represents
and warrants to the Representative, to the Company and to the Escrow Agent that
Vanguard owns all of the shares of Common Stock which it is depositing into
Escrow pursuant to Paragraph 1, free and clear of any lien, claim, option,
charge, restriction or encumbrance whatsoever (other than restrictions imposed
under securities laws), which would prevent the Escrow Agent from transferring
the Escrowed Shares to a third party. Vanguard has the lawful right to deliver
such Escrowed Shares to the Escrow Agent for transfer in accordance with this
Escrow Agreement.
10. EXCULPATION AND INDEMNITY. (a) The Escrow Agent will not be
held liable for the authenticity, sufficiency or correctness as to form, manner
of execution, or validity of any instrument received by the Escrow Agent or as
to the identity, authority or rights of any person executing the same.
(b) The Escrow Agent's duties hereunder shall be limited to the
safekeeping of the Escrowed Shares and all distributions, dividends or splits
thereon, and the disposition of same in accordance with the written instructions
accepted by the Escrow Agent under this Escrow Agreement.
(c) The Escrow Agent shall have no duties or responsibilities except
as expressly provided for in this Agreement shall neither be obligated to
recognize nor have any liability or responsibility arising under any other
agreement to which the Escrow Agent is not a party, even though reference
thereto may be made herein.
(d) It is acknowledged that the Escrow Agent is acting solely as a
custodian at the request of the parties.
(e) The Escrow Agent shall not be deemed to be the agent of any of
the parties.
(f) The Escrow Agent shall not be liable to the Company, the
Representative or Vanguard for any acts or omissions on its part unless taken or
suffered in bad faith, in willful disregard of this Agreement or negligently.
4
<PAGE>
(g) The Escrow Agent shall be entitled to rely upon all
notifications, requests and instructions received from the Company and its
Accountants reasonably believed by the Escrow Agent to be genuine without the
duty to inquire as to the authenticity or authority of any signatory, and shall
not be liable to any party for claims arising out of the transfer of the
Escrowed Shares in accordance with the provisions of this Agreement.
(h) The Company shall indemnify the Escrow Agent and save it harmless
from any claim, loss or dispute arising out of this Escrow Agreement, other than
for the Escrow Agent's own negligence or willful misconduct.
(i) In the event that any property held by the Escrow Agent hereunder
shall be attached, garnished or levied upon, under any order of any court, or
the delivery thereof shall be stayed or enjoined by any order of any court, or
any other order, judgment or decree shall be made or entered by any court
affecting such property, or any part thereof, all or any acts of the Escrow
Agent are hereby expressly authorized, in its exclusive discretion, to obey and
comply with all writs, orders, judgments, or decrees so entered or issued, and
in case the Escrow Agent obeys and complies with any such writ, order, judgment
or decree, it shall not be liable to any of the parties hereto their successors,
heirs or personal representatives or to any other person, firm or corporation,
by reason of such compliance notwithstanding that such writ, order judgement or
decree be subsequently reversed, modified, annulled, set aside or vacated.
11. NOTICE. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Company or Vanguard shall be directed to the
Company or Vanguard, as the case may be, at 4 Cedar Swamp Road, Glen Cove, New
York, 11542, Attention: Carl G. Paffendorf, Chief Executive Officer, with a copy
to Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York
10022, Attention: Robert H. Friedman, Esq. Notices to the Representative shall
be directed to Janney Montgomery Scott Inc., 26 Broadway, New York, New York
10004, Attention: Herbert M. Gardner, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq.
12. GOVERNING LAW. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York without giving
effect to conflicts of laws rules or principles.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, heirs and legal and personal representatives, and no other persons
shall have any rights herein. A successor escrow agent may be appointed at any
time by mutual agreement of Vanguard, the Company, and the Representative.
14. SUCCESSOR ESCROW AGENT. The Escrow Agent may resign at any time
as such upon 30 days notice to all parties hereto. If the parties hereto cannot
unanimously agree upon a successor escrow agent, the Escrow Agent may deposit
the Escrowed Shares with a court
5
<PAGE>
of competent jurisdiction which shall appoint a successor. Effective upon such
deposit, the Escrow Agent shall have no further duties or responsibilities under
this Agreement.
15. COUNTERPARTS. This Agreement may be executed and endorsed in one
or more counterparts and each of such counterparts shall, for all purposes, be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
16. COOPERATION. Each party agrees to provide such reasonable
cooperation and to execute such documents, including but not limited to,
instruments of transfer, as may be necessary and proper to effectuate the
purposes of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date written above.
UNITED VANGUARD HOMES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY, AS ESCROW AGENT
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
JANNEY MONTGOMERY SCOTT INC.,
AS REPRESENTATIVE
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
VANGUARD VENTURES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT 11
UNITED VANGUARD HOMES, INC
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE
----------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
---------------------------- ----------------------------
<CAPTION>
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Earnings (loss)...................................... $ (626,651) $ 611,667 $ 38,692 $ 38,605
------------- ------------- ------------- -------------
Shares
Weighted average shares outstanding (1)............ 2,848,825 1,662,853 1,651,897 2,191,014
Dilutive stock options and warrants................ 30,041 30,041 6,152
------------- ------------- ------------- -------------
Weighted average common and equivalent shares
outstanding......................................... 2,848,825 1,692,894 1,681,938 2,197,166
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Primary earnings per share........................... $ (0.22) $ 0.36 $ 0.02 $ 0.02
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED EARNINGS PER SHARE
----------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30
---------------------------- ----------------------------
<CAPTION>
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Earnings (loss)...................................... $ (626,651) $ 611,667 $ 38,692 $ 38,605
Net interest expense related to convertible debt..... 234,066 164,225 41,056 20,448
------------- ------------- ------------- -------------
Adjusted net earnings (loss)....................... $ (392,585) $ 775,892 $ 79,748 $ 59,053
------------- ------------- ------------- -------------
Shares
Weighted average shares outstanding (1)............ 2,848,825 1,662,853 1,651,897 2,191,014
Dilutive stock options and warrants................ 30,041 30,041 6,152
Common shares issuable upon conversion............... 400,280 383,373 400,280 190,876
------------- ------------- ------------- -------------
Weighted average common and equivalent shares
outstanding......................................... 3,249,105 2,076,267 2,082,218 2,388,042
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted earnings per share..................... $ (0.12) $ 0.37 $ 0.04 $ 0.02
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
- ------------------------
(1) Exclude from the weighted average shares outstanding are 46,936 common
shares to be held in escrow, for which the conditions for release are not
currently being meet.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
Harvest Village, Inc. New Jersey
HIllside Terrace, Inc. Michigan
Olds Manor, Inc. Michigan
Orchard Terrace, Inc. Michigan
UVH Development Corp.` Michigan
UVH Management Corp. Florida
Whitcomb Tower Corporation Michigan
<PAGE>
EXHIBIT 23.2
CONSENT
We have issued our report dated February 29, 1996, except for Notes A7 and
L, the latest of which is dated June 25, 1996, accompanying the statements of
operations, stockholders' deficiency and cash flows for the year ended March 31,
1995 of United Vanguard Homes, Inc. and Subsidiaries. We have also issued our
report dated April 16, 1996, accompanying the statements of assets, liabilities
and partners' deficit of Harvest Village Partners, L.P. (a limited partnership)
as of December 31, 1995 and 1994 and the related statements of revenues and
expenses and partners' deficit, and cash flows for the years then ended. Each of
the aforementioned reports are contained in the Registration Statement (No.
33-80812) on Form SB-2 Amendment No. 5. We consent to the use of the
aforementioned reports in the Registration Statement, and to the use of our name
as it appears under the caption "Experts".
FARBER, BLICHT & EYERMAN, LLP
Plainview, New York
September 20, 1996
<PAGE>
EXHIBIT 23.3
CONSENT
We have issued our report dated July 15, 1996, (except for Note A-7 as to
which the date is September 17, 1996) accompanying the consolidated financial
statements of United Vanguard Homes, Inc. and subsidiaries contained in the
Registration Statement (No. 33-80812) on Form SB-2 Amendment No. 5. We consent
to the use of the aforementioned report in the Registration Statement, and to
the use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Melville, N.Y.
September 17, 1996
