SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
DVL, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction
applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
DVL, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ., 1996
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TO OUR STOCKHOLDERS:
You are cordially invited to be present, either in person or by
proxy, at the Annual Meeting of Stockholders of DVL, Inc., a Delaware
corporation (the "Company"), to be held at 24 River Road, Bogota, New
Jersey on ., 1996, at 10:00 a.m., local time (the "Meeting"), to
consider and act upon the following:
1. To elect three directors to serve until the next Annual
Meeting of Stockholders and until their successors are duly
elected and qualified;
2. To approve a certain loan agreement and the consummation of
the transactions contemplated thereby (the "Loan
Transaction") pursuant to which, among other things, an
independent third party lender (the "New Lender") will
acquire certain outstanding indebtedness of the Company,
lend the Company additional funds and simultaneously
consolidate all such indebtedness into a single long term
loan and, in connection therewith, the Company will (i)
issue and sell to affiliates of the New Lender 1,000,000
shares of Common Stock of the Company at $0.20 per share,
(ii) issue to affiliates of the New Lender warrants to
purchase such additional shares of Common Stock of the
Company at $0.16 per share which, when added to the
aforementioned 1,000,000 shares (and any other shares of
Common Stock then owned by such warrantholders and their
affiliates), will represent, on a fully diluted basis, 49%
of the outstanding Common Stock of the Company, and (iii)
continue in effect a certain Asset Servicing Agreement with
an affiliate of the New Lender;
3. To approve an amendment to the Company's Certificate of
Incorporation, as amended (the "Certificate"), to create a
class of 100 shares of Preferred Stock to be issued to the
New Lender in connection with the Loan Transaction at $10.00
per share entitling the holders thereof to elect a special
purpose Director to the Company's Board of Directors (the
"Preferred Stock");
4. To approve amendments to the Company's Certificate and By-
laws to create certain restrictions on the transferability
of shares of the Company's Common Stock to help preserve the
utilization of the Company's carryforwards of net operating
losses and credits for federal income tax purposes;
5. To ratify and approve the 1996 Stock Option Plan of the
Company which will replace the Company's Performance Unit
(Stock Appreciation Rights) Plan; and
6. To transact such other business as may properly come before
the Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on .,
1996, as the record date for determining the stockholders entitled to
notice of, and to vote at, the Meeting or any adjournment thereof. A
Proxy and a Proxy Statement for the Meeting are enclosed.
THE DIRECTORS HOPE THAT YOU WILL FIND IT CONVENIENT TO ATTEND THE
MEETING IN PERSON, BUT WHETHER YOU PLAN TO ATTEND, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. RETURNING YOUR PROXY DOES NOT DEPRIVE YOU
OF YOUR RIGHT TO ATTEND THE MEETING AND TO VOTE YOUR SHARES IN PERSON.
Please relay any questions to the Company at 201-487-1300.
By Order of the Board of Directors
., 1996 Robert W. LoSchiavo
Secretary
<PAGE>
DVL, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held ., 1996
This Proxy Statement is furnished to the stockholders of
DVL, Inc., a Delaware corporation (the "Company"), in connection
with the solicitation by the Company's Board of Directors (the
"Board of Directors") of proxies to be used at the Annual Meeting
of Stockholders to be held on ., 1996, 10:00 a.m., local time
(the "Meeting"), for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders (the "Notice").
The approximate mailing date to stockholders of the Notice,
this Proxy Statement and the accompanying form of proxy is .,
1996.
VOTING OF PROXIES
A form of proxy is enclosed for use at the Meeting if a
stockholder is unable to attend in person. Each proxy may be
revoked at any time thereafter by writing such to the Secretary
of the Company prior to the Meeting, by execution and delivery of
a subsequent proxy, or by attendance and voting in person at the
Meeting, except as to any matter or matters upon which, prior to
such revocation, a vote shall have been cast pursuant to the
authority conferred by such proxy. Shares represented by a valid
proxy which if received pursuant to this solicitation and not
revoked before it is exercised, will be voted as provided on the
proxy at the Meeting or at any adjournment thereof.
The directors of the Company have advised the Company that
they will vote the 478,004 shares of common stock, $.01 par value
per share, of the Company (the "Common Stock") which they control
(approximately 3.35% of the outstanding shares of Common Stock)
in favor of the proposals to:
i. elect three Directors to serve until the next Annual
Meeting of Stockholders and until their successors are
duly elected and qualified;
ii. approve a certain loan agreement and the consummation
of the transactions contemplated thereby (the "Loan
Transaction") pursuant to which, among other things, an
independent third party lender (the "New Lender") will
acquire certain outstanding indebtedness of the
Company, lend the Company additional funds and
simultaneously consolidate all such indebtedness into a
single long term loan and, in connection therewith, the
Company will (i) issue and sell to affiliates of the
New Lender 1,000,000 shares of Common Stock at $0.20
per share, (ii) issue to affiliates of the New Lender
warrants to purchase such additional shares of Common
Stock at $0.16 per share which, when added to the
aforementioned 1,000,000 shares (and any other shares
of Common Stock then owned by such warrantholders and
their affiliates), will represent, on a fully diluted
basis, 49% of the outstanding Common Stock of the
Company (the "Warrants"), and (iii) continue in effect
a certain Asset Servicing Agreement with an affiliate
of the New Lender;
iii. approve an amendment to the Company's Certificate of
Incorporation, as amended (the "Certificate"), to
create a class of 100 shares of preferred stock to be
issued to the New Lender in connection with the Loan
Transaction at $10.00 per share entitling the holders
thereof to elect a special purpose Director to the
Company's Board of Directors;
iv. approve amendments to the Company's Certificate and By-
laws to create certain restrictions on the
transferability of shares of Common Stock to help
preserve the utilization of the Company's carryforwards
of net operating losses and credits for federal income
tax purposes;
v. ratify and approve the 1996 Stock Option Plan of the
Company (the "1996 Option Plan") which will replace the
Company's Performance Unit (Stock Appreciation Rights)
Plan (the "Performance Plan"); and
vi. transact such other business as may properly come
before the Meeting or any adjournment thereof.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY
RECOMMENDED THAT STOCKHOLDERS OF THE COMPANY VOTE THEIR SHARES OF
COMMON STOCK TO ELECT EACH OF THE COMPANY'S NOMINEES FOR DIRECTOR
AND TO APPROVE EACH OF THE MATTERS SET FORTH IN PROPOSAL NOS. 2
THROUGH 5 HEREIN.
As of the date of this Proxy Statement, the Board of
Directors does not intend to present to the Meeting any other
business, and it has not been informed of any business intended
to be presented by others. Should any other matters, however,
properly come before the Meeting, the persons named in the
enclosed proxy will take action, and vote proxies, in accordance
with their judgment on such matters.
The executive offices of the Company are located at 24
River Road, Bogota, New Jersey 07603; telephone no: (201) 487-
1300.
IMPORTANT NOTE: STOCKHOLDERS WHO HOLD SHARES OF COMMON
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STOCK IN THE NAME OF ONE OR MORE BROKERAGE FIRMS, BANKS OR
NOMINEES CAN ONLY VOTE THEIR SHARES OF COMMON STOCK WITH RESPECT
TO THE MATTERS SET FORTH IN PROPOSAL NOS. 2 THROUGH 5 IF SUCH
BROKERAGE FIRMS, BANKS OR NOMINEES GIVE SUCH STOCKHOLDERS A LEGAL
PROXY TO VOTE SUCH SHARES OF COMMON STOCK OR IF SUCH STOCKHOLDERS
GIVE SUCH BROKERAGE FIRMS, BANKS OR NOMINEES SPECIFIC
INSTRUCTIONS AS TO HOW TO VOTE SUCH STOCKHOLDERS' COMMON STOCK.
ACCORDINGLY, IT IS CRITICAL THAT STOCKHOLDERS WHO HOLD SHARES OF
COMMON STOCK IN THE NAME OF ONE OR MORE BROKERAGE FIRMS, BANKS OR
NOMINEES PROMPTLY CONTACT THE PERSON RESPONSIBLE FOR SUCH
STOCKHOLDERS' ACCOUNTS AND GIVE SPECIFIC INSTRUCTIONS AS TO HOW
SUCH SHARES OF COMMON STOCK SHOULD BE VOTED WITH RESPECT TO THE
MATTERS SET FORTH IN PROPOSAL NOS. 2 THROUGH 5.
MANNER OF VOTING AND VOTE REQUIRED
Only holders of shares of Common Stock of record at the
close of business on ., 1996 (the "Record Date"), will be
entitled to vote at the Meeting. As of the Record Date,
14,279,450 shares of Common Stock, the only class of voting
securities of the Company, were issued and outstanding. Each
holder of Common Stock is entitled to one vote for each share
held by such holder. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock
is necessary to constitute a quorum at the Meeting.
Under the rules of the Securities and Exchange
Commission (the "Commission"), boxes and a designated blank space
are provided on the proxy card for stockholders to mark if they
wish to withhold authority to vote for one or more nominees for
Director or for Proposal Nos. 2 through 5. Votes withheld in
connection with the election of one or more of the nominees for
Director or Proposal Nos. 2 through 5 and broker "non-votes" will
be counted as votes cast against such individuals or Proposals
and will be counted toward the presence of a quorum for the
transaction of business. If no direction is indicated, the proxy
will be voted FOR the election of the nominees for Director and
FOR each of Proposal Nos. 2 through 5. The form of proxy does
not provide for abstentions with respect to the election of
Directors; however, a stockholder present at the Meeting may
abstain with respect to such election.
The election of Directors will be by a plurality of the
votes actually cast thereon. Approval of the Loan Transaction
and the 1996 Option Plan, set forth in Proposal Nos. 2 and 5,
respectively, requires the affirmative vote of a majority of the
shares of Common Stock voting, in person or by proxy, at the
Meeting. Approval of the amendments to the Company's Certificate
and By-laws, as the case may be, to authorize the creation of the
Preferred Stock and to create certain restrictions on the
transferability of shares of Common Stock, set forth in Proposal
Nos. 3 and 4, respectively, requires the affirmative vote of a
majority of the outstanding shares of Common Stock of the
Company, whether voted at the Meeting in person or by proxy.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information
regarding the beneficial ownership of the Company's Common Stock
as of May 24, 1996, by (a) each person known by the Company to
own beneficially more than 5% of such stock, (b) each Director
and nominee for Director of the Company and (c) all Directors and
executive officers of the Company as a group. Unless otherwise
indicated, the shares listed in the table are owned directly by
the individual and the individual has sole voting and investment
power with respect to such shares. All Directors of the Company
have indicated to the Company that they will vote their shares of
Common Stock (aggregating 478,004 shares, or approximately 3.35%
of the outstanding shares of Common Stock) in favor of each of
the proposals set forth herein.
NAME OF BENEFICIAL AMOUNT AND NATURE OF
OWNER BENEFICIAL OWNERSHIP* % OF CLASS*
------------------ --------------------- -----------
Alan E. Casnoff(1) 200,000(3) 1.40%
Herbert L. Golden(1) 56,600 **
Myron Rosenberg 163,854(4) 1.15%
Frederick E. Smithline 57,550(5) **
Alan Yudell(2) -0- --
All current Directors 578,004 4.05%
and executive officers
as a group (6 persons)
________________
* Each named person and all executive officers, Directors and
nominees for director, as a group, are deemed to be the
beneficial owners of securities that may be acquired within
60 days through the exercise of options, warrants or
exchange or conversion rights. Accordingly, the number of
shares and percentage set forth opposite each stockholder's
name in the above table under the columns captioned "Amount
and Nature of Beneficial Ownership" include shares of Common
Stock issuable upon exercise of presently exercisable
warrants, convertible debentures and stock options. The
shares of Common Stock so issuable upon such exercise,
exchange or conversion by any such stockholder are not
included in calculating the number of shares or percentage
of Common Stock beneficially owned by any other stockholder.
** Less than 1%.
(1) Will not seek re-election as a Director.
(2) Nominee for, and currently not a, Director.
(3) Excludes 461 shares of the Company's Common Stock held
by Mr. Casnoff's adult son, as to which shares Mr.
Casnoff disclaims beneficial ownership. Includes
26,000 shares of the Company's Common Stock owned by a
corporation, partially owned and controlled by Mr.
Casnoff.
(4) Includes 4,300 shares held by Mr. Rosenberg's wife, of
which Mr. Rosenberg disclaims beneficial ownership.
(5) Includes 550 shares held by Mr. Smithline and his
brother as tenants-in-common and 6,000 shares held by
Mr. Smithline's wife, of which 6,000 shares Mr.
Smithline disclaims beneficial ownership.
Proposal No. 5 to this Proxy Statement asks stockholders to
ratify and approve the 1996 Option Plan of the Company. If the
1996 Option Plan is ratified and approved by stockholders, the
673,131 performance units (i.e., stock appreciation rights)
currently owned by former and current officers of the Company
pursuant to the Company's Performance Plan will be exchanged for
options to purchase up to 673,131 shares of Common Stock under
the 1996 Option Plan of the Company. The per share exercise
price of these options will be $0.21 per share. Concurrently
therewith, the Company's Performance Plan will be terminated. As
the proposed 1996 Option Plan requires stockholder ratification
and approval, the options proposed to be issued thereunder and
exchanged for outstanding performance units are not currently
owned by the Company's former and current officers and,
therefore, the shares of Common Stock underlying the proposed
options cannot be voted at the Meeting. See "Stock Based
Compensation," and "Proposal No. 5 Condition Precedent to Loan
Transaction: Approval of the 1996 Stock Option Plan in
Connection with the Exchange of Certain Stock Appreciation
Rights."
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's Directors
and executive officers and persons who own more than ten percent
of a registered class of the Company's equity securities (i.e.,
the Company's Common Stock), to file with the Commission initial
reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company.
Executive officers, Directors and greater than ten percent
shareholders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that
no other reports were required during the two fiscal years ended
December 31, 1995, all Section 16(a) filing requirements
applicable to the Company's executive officers, Directors and
greater than ten percent beneficial owners were complied with.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors, acting in accordance with the By-
laws of the Company, has reconstituted the Board of Directors,
effective immediately following the Meeting, to be comprised of
four directors provided that Proposals Nos. 2 and 3 herein are
approved by stockholders and the transactions contemplated by the
Loan Transaction are consummated. Otherwise, the Board of
Directors has been reconstituted to be comprised of three
directors.
Three Directors are to be elected at the Meeting to serve
until the next Annual Meeting of Stockholders of the Company and
until their successors shall be duly elected and shall qualify.
If stockholders of the Company approve Proposal Nos. 2 and 3
herein and the transactions contemplated by the Loan Transaction
are consummated, the holders of the newly issued shares of
Preferred Stock of the Company will have the right to elect a
special purpose Director to the Board of Directors. See
"Proposal No. 2--Approval of Loan Agreement and Consummation of
the Transactions Contemplated Thereby" and "Proposal No.
3--Condition Precedent to Loan Transaction: Approval of Amendment
to Certificate of Incorporation to Create Class of 100 Shares of
Preferred Stock to be Issued at $10.00 Per Share Entitling the
Holders Thereof to Elect Special Purpose Director."
As noted, unless otherwise indicated thereon, all proxies
received will be voted in favor of the election individually, of
the nominees of the Board of Directors named below. Should any
of the nominees not remain a candidate for election at the date
of the Meeting (which contingency is not now contemplated or
foreseen by the Board of Directors), proxies solicited thereunder
will be voted in favor of those nominees who do remain candidates
and may be voted for substitute nominees selected by the Board of
Directors. Directors shall be elected by a plurality of the
votes cast at the Meeting. Whether a nominee is currently
serving as a Director of the Company is indicated below. The
names of the nominees and certain information with regard to each
nominee follows:
DIRECTOR POSITION WITH
NOMINEE AGE SINCE COMPANY
------- --- -------- -------------
Myron Rosenberg 68 1973 Director
Frederick E. 64 1982 Chairman of the
Smithline Board and Director
Alan Yudell 57 -- --
Messrs. Alan E. Casnoff and Herbert Golden, each of whom is
currently serving as a Director of the Company, are not seeking
re-election to the Board of Directors of the Company.
NOMINEES FOR DIRECTORS AND EXECUTIVE OFFICERS
FREDERICK E. SMITHLINE has served as Chairman of the Board
of the Company since 1990 and as a Director since 1982. Since
September 1989, Mr. Smithline has been Of Counsel to the law firm
of Epstein, Becker & Green, P.C., New York, New York.
MYRON ROSENBERG has served as a Director of the Company
since 1973. Mr. Rosenberg is currently Executive Vice President
of Rosenthal & Rosenthal, Inc., New York, New York, a commercial
finance concern, and has been employed by Rosenthal & Rosenthal,
Inc. since 1961.
ALAN YUDELL is a nominee for election as a Director of the
Company. Mr. Yudell currently has no other affiliation with the
Company. Since 1967, Mr. Yudell has been a partner in Delco
Development Corporation, a Jericho, New York based shopping
center development company which has developed more than 40
shopping centers in 13 states comprising over 5 million square
feet. Mr. Yudell has approximately 30 years experience in the
real estate development business. During 1990 and 1991, two
limited partnerships in which Mr. Yudell was one of the general
partners, filed for bankruptcy protection under Chapter 11 of
Title 11 of the United States Code.
In addition, Alan E. Casnoff serves as President of the
Company, Joel Zbar serves as Chief Operating Officer, Chief
Financial Officer and Treasurer of the Company and Robert W.
LoSchiavo serves as Vice President, Secretary and General Counsel
of the Company.
ALAN E. CASNOFF (age 52) has served as President of the
Company since November 1994 and as a Director since October 1991.
Mr. Casnoff served as Executive Vice President of the Company
from October 1991 to November 1994. Since June 1992, Mr. Casnoff
has also served as Of Counsel to the Philadelphia, Pennsylvania
law firm of Fox, Rothschild, O'Brien & Frankel. From November
1990 to October 1991, Mr. Casnoff served as a consultant to the
Company and from 1971 to October 1991, as Secretary of the
Company. Since May 1991, Mr. Casnoff has also served as a
Director of Kenbee Management, Inc. ("Kenbee"), an affiliate of
the Company, and as President of Kenbee since November 1994.
Since 1977, Mr. Casnoff has also been a Partner of P&A
Associates, a private real estate development firm headquartered
in Philadelphia, Pennsylvania. From 1969 to October 1990, Mr.
Casnoff was associated with the Philadelphia, Pennsylvania law
firm of Saul, Ewing, Remick & Saul, previous legal counsel to the
Company and Kenbee.
JOEL ZBAR (age 39) has served as the Company's Chief
Operating Officer since November 1994, as Chief Financial Officer
of the Company since January 1993, and as Treasurer of the
Company since 1988. Mr. Zbar also serves as Chief Operating
Officer, Chief Financial Officer and Treasurer of Kenbee. In
November 1993, the Commission commenced an administrative
proceeding against Mr. Zbar in connection with certain events
related to the Company's 1990 stock offering and market price
decline. Without admitting or denying the allegations of the
complaint, Mr. Zbar has agreed, and the Commission has consented
to, the issuance of a cease and desist order. Such order does
not affect the ability of Mr. Zbar to perform his duties for the
Company.
ROBERT W. LOSCHIAVO (age 38) has served as Vice President of
the Company since January 1990, as Secretary of the Company since
October 1991 and as General Counsel since December 1991. Mr.
LoSchiavo also serves as Vice President, General Counsel and
Secretary of Kenbee.
During 1995, the Board of Directors of the Company held
eleven meetings. Each Director of the Company attended at least
75% of these meetings.
The Board of Directors has established two committees of the
Board, the Audit Committee and the Compensation Committee. The
Audit Committee, which is comprised of Messrs. Rosenberg,
Smithline and Golden, reviews the services provided by the
Company's independent auditors, consults with the independent
auditors on audits and proposed audits of the Company and reviews
certain filings with the Commission and the need for internal
auditing procedures and the adequacy of internal controls. The
Audit Committee held two meetings during 1995, at which all
members were present. The Compensation Committee, which is also
comprised of Messrs. Rosenberg, Smithline and Golden, determines
executive compensation and reviews transactions between the
Company and its affiliates. The Compensation Committee held one
meeting during 1995, at which all members were present.
EXECUTIVE COMPENSATION
The following table discloses the compensation awarded to or
earned by, during the Company's last three fiscal years, the
Chief Executive Officer and the two other most highly compensated
executive officers as of the end of fiscal 1995 whose annual
salary plus other forms of compensation exceeded $100,000:
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
------------ ----------------------
RESTRICTED
CASH OTHER ANNUALED STOCK
NAME YEAR SALARY BONUS COMPENSATION(2) AWARDS
---- ---- ------ ----- --------------- ----------
Alan E. Casnoff 1995 $314,002 None $15,000 None
President 1994 339,810(1) None None None
since 1993 340,636(1) None None None
November 1994
Joel Zbar 1995 250,000 None 7,500 None
Treasurer, 1994 250,000 None None None
Chief 1993 226,000 $13,000 None None
Financial
Officer
and Chief
Operating
Officer
Robert W. 1995 160,260 None 7,500 None
LoSchiavo 1994 144,530 None None None
Vice 1993 119,189 5,000 None None
President,
Secretary
and General
Counsel
ALL
OTHER
LONG-TERM COMPENSATION COMPENSATION
---------------------- ------------
PERFORMANCE LTIP
UNITS(3) PAYOUTS
----------- -------
Alan E. Casnoff -0- $7,500(4) None
-0- None None
50,000 None None
Joel Zbar 100,000 23,469(4) None
-0- None None
50,000 None None
Robert W. LoSchiavo 18,750 7,219(4) None
-0- None None
15,000 None None
---------------
(1) Does not include payments made to a corporation partially owned and
controlled by Mr. Casnoff which provided management assistance for two
properties in Philadelphia, Pennsylvania owned by affiliated
partnerships for which such corporation received $9,187.50 and $12,000
in 1994 and 1993, respectively. During 1994, Mr. Casnoff was appointed
President of the Company and as part of the Company's ongoing efforts
to reduce overhead, Mr. Casnoff's salary was reduced by $35,000.
(2) Other Annual Compensation represents the value of 100,000 shares,
50,000 shares and 50,000 shares of the Company's common stock issued
in 1995 to Messrs. Casnoff, Zbar and LoSchiavo, respectively.
(3) The performance units granted under the Company's Performance Plan are
considered stock appreciation rights.
(4) Mr. Zbar exercised 50,000 performance units and Mr. LoSchiavo
exercised 18,750 performance units in 1995 realizing $23,469 and
$7,219, respectively. Mr. Casnoff surrendered 50,000 performance
units in consideration of the issuance to him of 50,000 shares of the
Company's common stock which shares the Company valued at $7,500.
The Company has employment contracts with Messrs. Zbar and
LoSchiavo pursuant to which they are paid current salaries at the
rate per annum of $250,000 and $150,000, respectively. The
employment contracts with Messrs. Zbar and LoSchiavo provide for
certain payments if the employment term is terminated without
cause or is not renewed at the end of the contract term in
amounts equal to six (6) months salary. The employment contracts
with Messrs. Zbar and LoSchiavo expire on October 31, 1996 and
December 31, 1996, respectively. In addition, the Board of
Directors has authorized the Company to make certain termination
payments to Mr. Casnoff upon a change of control of the Company
in an amount equal to six (6) months salary payable over a period
of three months. Mr. Casnoff intends, following the consummation
of the transactions contemplated by the Loan Transaction, to
continue to serve as President of the Company through at least
December 31, 1996. Mr. Casnoff has agreed that all compensation
paid to him following the consummation of the transactions
contemplated by the Loan Agreement will be credited, on a dollar-
for-dollar basis, against the aforementioned termination
payments, if any, owing to him. See Proposal No. 2--Approval of
the Loan Agreement and Consummation of the Transactions
Contemplated Thereby."
Directors who are not officers or employees of the Company
presently receive a Directors fee of $1,500 per month plus $500
for each Audit Committee meeting of the Board of Directors
attended. Directors who are officers or employees of the Company
receive no compensation for their services as Directors or
attendance at any Board of Directors or committee meetings.
INDEBTEDNESS OF MANAGEMENT
No officers, directors or stockholders of the Company have
obtained loans or loan commitments from the Company in excess of
$60,000.
STOCK BASED COMPENSATION
On November 15, 1990, the Board of Directors adopted the
Company's Performance Plan for the purpose of providing long-term
incentives to Company employees who are largely responsible for
the management, growth and protection of the Company's business.
The Performance Plan authorized the grant of performance
units, considered to be stock appreciation rights, only to
officers who are also employees of the Company or any subsidiary
thereof, and who are in a position to make substantial
contributions to the management, growth and success of the
business of the Company or any subsidiary thereof, as determined
by the Board of Directors, or a committee thereof, as the case
may be. In March 1996, as a condition to the Loan Transaction,
current and former employees who currently own performance units
have agreed, concurrently with the ratification and approval by
stockholders of the Company's 1996 Option Plan, to exchange their
outstanding performance units for a like number of options to
purchase, pursuant to the 1996 Option Plan, shares of Common
Stock of the Company. The per share exercise price of these
options will be $0.21 per share. Concurrently with the
ratification and approval by stockholders of the 1996 Option
Plan, the Company will terminate the Performance Plan. See
"Proposal No. 5 - Condition Precedent to Loan Transaction:
Approval of the 1996 Stock Option Plan in Connection with the
Exchange of Certain Stock Appreciation Rights."
The number of performance units reserved for issuance under
the Performance Plan is 900,000, of which 673,131 performance
units were outstanding as of May 24, 1996. Under the Performance
Plan, the holder of performance units is entitled to receive upon
exercise of such units an amount equal to the Fair Market Value
(as defined in the Performance Plan) of a performance unit at the
time of exercise plus all dividends declared with respect to a
single share of the Company's Common Stock from the date of
exercise minus the Fair Market Value of a performance unit at the
time of grant, multiplied by the total number of performance
units being exercised by the holder.
Under the Performance Plan, the Fair Market Value of a
performance unit means an amount equal to the fair market value
of a share of Common Stock as determined by the Board of
Directors, or a committee thereof, either (a) by determining the
average of the closing prices for the Company's Common Stock for
the 20 most recent trading days (or for such other period as may
be agreed upon between the Company and the holder) on the New
York Stock Exchange or such other national securities exchange
(including the NASDAQ system) on which the Company's Common Stock
may then be publicly traded or (b) in the event no such market
exists, pursuant to such other reasonable method as may be
adopted by the Board of Directors or the committee, as the case
may be, in good faith for such purpose.
The following tables set forth certain information with
respect to performance units granted under the Performance Plan
to, and performance units exercised by (i) the executive officers
of the Company listed in the Cash Compensation Table and (ii) all
current executive officers of the Company as a group, during
fiscal 1995. All performance units granted are vested and fully
exercisable.
PERFORMANCE UNIT GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
INDIVIDUAL GRANTS
-----------------
PERCENT OF
TOTAL
PERFORMANCE
UNITS EXERCISE
GRANTED TO OR
PERFORMANCE EMPLOYEES BASE
UNITS IN FISCAL PRICE EXPIRATION
GRANTED YEAR 1995 ($/SH) DATE
NAME (#)(b) (c) (d) (e)
---- ------------ --------- -------- ----------
Alan E. Casnoff -0- 0% -0- None
Robert W. LoSchiavo 18,750 15.8 .39 None
Joel Zbar 50,000 42.1 .39 None
Joel Zbar 50,000 42.1 .29 None
POTENTIAL REALIZABLE ALTERNATIVE
VALUE AT ASSUMED ANNUAL TO (f) AND
RATES OF STOCK PRICE (g): GRANT
APPRECIATION FOR TERM DATE VALUE
--------------------- ----------
GRANT DATE
PRESENT
5% ($) 10% ($) VALUE
NAME (f) (g) ($) (h)
---- ------ ------- ----------
Alan E. Casnoff N/A N/A -0-
Robert W. LoSchiavo N/A N/A -0-
Joel Zbar N/A N/A -0-
Joel Zbar N/A N/A -0-
AGGREGATED PERFORMANCE UNITS EXERCISED AND SURRENDERED
IN FISCAL YEAR ENDED DECEMBER 31, 1995
PERFORMANCE UNIT VALUES
------------------------------------------------------
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
PERFORMANCE PERFORMANCE
UNITS AT UNITS AT
FISCAL YEAR- FISCAL
END YEAR-END
(#) ($)
----------- -----------
PERFORMANCE
UNITS
EXERCISED
OR VALUE
SURRENDERED REALIZED EXERCISABLE/ EXERCISABLE/
NAME (3) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ------- ------------- -------------
Ben S. Read, Jr.(1) 50,000 $-0- 198,131/-0- -0-/-0-
Alan E. Casnoff 50,000 7,500 300,000/-0- -0-/-0-
Robert W. LoSchiavo 18,750 7,219 15,000/-0- -0-/-0-
Joel Zbar(2) 50,000 23,469 150,000/-0- -0-/-0-
All others(3) 130,000 -0- 10,000/-0- -0-/-0-
(Footnotes appear on next page)
<PAGE>
---------------
(1) Mr. Read surrendered 50,000 performance units to the Company
in consideration of the Company's settlement of a legal
matter in which Mr. Read was personally named. As Mr. Read
was under no legal obligation to surrender these units, the
Company considers the value realized to be $ 0.
(2) Mr. Casnoff surrendered 50,000 performance units to the
Company in consideration of the issuance to him of 50,000
shares of the Company's Common Stock, which shares the
Company valued at $7,500.
(3) Certain former officers of the Company whose employment
terminated during 1995 surrendered a total of 130,000
performance units to the Company as part of their
termination agreements.
In April 1995, the Board of Directors authorized the
issuance of up to 450,000 shares of the Company's Common Stock as
a special incentive bonus. 50,000 of such shares were issued to
each of Messrs. Smithline, Rosenberg and Golden, 100,000 of such
shares to Mr. Casnoff, 50,000 of such shares to each of Messrs.
Zbar and LoSchiavo and 25,000 of such shares to other officers of
the Company. In addition, Mr. Casnoff was issued 50,000 shares
of Common Stock in exchange for his surrender of 50,000
performance units.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of the
Company is comprised of the independent directors, Messrs.
Golden, Rosenberg and Smithline. The purpose of the Compensation
Committee is to review compensation of the executive officers of
the Company to determine if such compensation is in line with
similar organizations and to recommend and provide appropriate
incentives to key employees.
During 1995, in connection with the Company's efforts to
reduce overhead and expenses, the Company did not replace certain
executive officer level positions which were vacated during 1995.
Instead, the responsibilities of those positions were merged into
the duties of the remaining executive officers without an
increase in compensation.
This report was furnished by Messrs. Golden, Rosenberg and
Smithline, all members of the Compensation Committee.
STOCK PERFORMANCE CHART
The following graph compares the yearly percentage change in
the cumulative total stockholder return on the Company's Common
Stock for each of the Company's last five fiscal years with the
cumulative return (assuming reinvestment of dividends) of the Dow
Jones Equity Market Index and the Dow Jones Real Estate
Investment Index.
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
DVL, Inc. 100 31 67 111 25 6
Dow Jones Equity Market 100 91 90 100 91 130
Index
Dow Jones Real Estate 100 112 101 118 112 139
Investment Index
<PAGE>
PROPOSAL NO. 2 - APPROVAL OF THE LOAN AGREEMENT AND
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY (COLLECTIVELY, THE "LOAN TRANSACTION")
REASONS FOR AND SUMMARY DESCRIPTION OF THE LOAN TRANSACTION
During early 1995, the Board of Directors of the Company
determined that it was in the Company's best interests to seek a
strategic alliance with an entity which was both experienced in,
among other things, real estate and limited partnership matters,
and capable of providing the Company with new capital and
business opportunities not necessarily limited to the Company's
current line of business (the "Strategic Alliance"). The Board
of Directors concluded that either a new long term loan, a debt
refinancing or restructuring or a third party's purchase of
certain of the Company's indebtedness was necessary to help
alleviate the Company's short term liquidity problems,
particularly in light of the Company's having several loans,
aggregating approximately $7.5 million (two of which originally
matured on or about December 1995 and were subsequently
extended), maturing during the second half of 1996, and one of
which matures in January 1999 (the "1996 Loans"). The maturity
dates of each of the 1996 Loans previously had been extended
several times and the Board of Directors believed that the then
current lenders under the 1996 Loans would not extend these Loans
further without any meaningful assurance of repayment. The Board
of Directors further concluded that repayment of the 1996 Loans
could not be extended further for any meaningful period and that
any further short term extensions would result in the Company
incurring increased interest and other charges. The Board of
Directors reasoned further that the Strategic Alliance, with its
corresponding new long term loan, debt refinancing or
restructuring or debt purchase, effectively would enable the
Company to refinance the 1996 Loans over several years, thereby
affording the Company the opportunity, subject to then prevailing
market conditions, to operate, refinance or sell its assets in an
orderly manner in an effort to maximize stockholder value. The
Board of Directors also concluded that a Strategic Alliance with
an entity experienced in, among other things, real estate and
limited partnership matters could result in new business
opportunities for the Company, not necessarily limited to the
Company's current line of business. See "Background,
Alternatives and General Business Considerations."
On March 27, 1996, the Company, following the unanimous
approval of its Board of Directors, entered into an Amended and
Restated Loan Agreement (the "Loan Agreement") with NPM Capital
LLC, a Delaware limited liability company ("NPM Capital"), whose
principals and affiliates have over 20 years of experience in
both real estate and limited partnership matters and the
operation of businesses in the manufacturing and finance
industries. NPM Capital has agreed to acquire 100% of the 1996
Loans (the "Debt Acquisition") owing to three of the Company's
lenders (the "Lenders"). Two of the three loans comprising the
1996 Loans are due and payable in August 1996. The third loan
comprising the 1996 Loans is not yet due, but requires periodic
principal installments. The Lender of this third loan, however,
has agreed to discount the amount of this loan if it is paid or
acquired prior to September 30, 1996. NPM Capital will
consolidate the indebtedness of the Company acquired in the Debt
Acquisition, will lend to the Company an amount (the "Advance")
necessary for the Company to make regularly scheduled principal
payments to a lender (the "Other Lender") of other indebtedness
of the Company and consolidate all of such indebtedness into a
single six year loan (the "Long Term Loan"). None of the Lenders
or the Other Lender is an affiliate of the Company. A copy of
the Loan Agreement is attached hereto as Exhibit A.
The Company and NPM Capital reasonably believe that the
aggregate amount to be paid by NPM Capital for the Debt
Acquisition, including related closing costs, and giving effect
to the payment discounts to be realized upon acquisition of the
1996 Loans (the "Debt Acquisition Price"), will be approximately
$5.2 million and that the Advance to the Company will be $600,000
over time. As a result of the Debt Acquisition and the Advance,
and NPM Capital's simultaneous consolidation of the 1996 Loans
into the Long Term Loan, NPM Capital will hold a six-year
promissory note, requiring periodic principal payments, bearing
interest at the rate of 10.25% per annum (of which the Company is
only required to pay the actual cash flow generated by certain
mortgage assets and may defer and accrue payment of up to 5.25%
per annum prior to the periodic principal prepayments) in the
principal amount of approximately $8,950,000 (the "Note"). This
sum represents the Debt Acquisition Price of approximately
$4.7 million, the $600,000 Advance, the negotiated payment
discount of approximately $2.8 million, the $350,000 that the
Company and NPM Capital have agreed to add to the principal
amount of the Note and NPM Capital's expenses incurred in
connection with the Loan Transaction to the extent that such
expenses exceed $175,000 (which excess is currently estimated to
be approximately $500,000). Pursuant to the Loan Agreement, the
Company and NPM Capital have agreed that if the approximate
$2.8 million negotiated payment discount is reduced prior to the
Closing (as defined below), then the aforementioned $350,000
payment by the Company will be increased by the amount of the
decrease in such negotiated discount. See "Terms of Amended and
Restated Loan Agreement."
In connection with the Loan Transaction, the Company and NPO
Management LLC, a Delaware limited liability company and an
affiliate of NPM Capital ("NPO Management"), have entered into an
Asset Servicing Agreement effective as of March 27, 1996 (the
"Asset Servicing Agreement"). Pursuant to the Asset Servicing
Agreement, among other things, NPO Management has begun
providing the Company with administrative and advisory services
relating to the assets of the Company and the Company's
affiliated partnerships. In addition, in connection with the
Loan Transaction, NPO Holdings LLC, a Delaware limited liability
company and an affiliate of NPM Capital and NPO Management ("NPO
Holdings"), has agreed to acquire from the Company at the closing
of the transactions contemplated by the Loan Agreement (the
"Closing") (i) 1,000,000 shares of Common Stock of the Company
(representing approximately 7% of the outstanding Common Stock of
the Company) for $200,000 ($0.20 per share), (ii) shares of a
newly created class of Preferred Stock for an aggregate purchase
price of $1,000, which shares of Preferred Stock will enable the
holders to elect a special purpose Director to the Board of
Directors but will not entitle the holders to any regular annual
or cumulative dividends or other material preferential rights and
(iii) Warrants to purchase an additional number of shares of
Common Stock at $0.16 per share which, when added to the
1,000,000 shares of Common Stock to be acquired by NPO Holdings
at the Closing (and any other shares of Common Stock then owned
by the Warrantholders and their affiliates), will represent, on a
fully diluted basis, 49% of the outstanding shares of Common
Stock of the Company (collectively, the "Securities Purchases").
See "Terms of Asset Servicing Agreement," "Terms of Stock
Purchase Agreement," "Terms of Securities Purchase Agreement" and
"Proposal No. 3 - Condition Precedent to Loan Transaction:
Approval of Amendment to Certificate of Incorporation to Create
Class of 100 Shares of Preferred Stock to be Issued at $10.00 per
Share Entitling the Holders Thereof to Elect Special Purpose
Director."
Consummation of the Loan Transaction, including the Loan
Agreement, the Debt Acquisition, the Asset Servicing Agreement
and the Securities Purchases, is conditioned upon, among other
things, the Loan Transaction being approved by a majority of the
Company's outstanding shares of Common Stock present at the
Meeting, whether in person or by proxy. The transactions
encompassed by the Loan Agreement, the Asset Servicing Agreement
and the Securities Purchases constitute significant and
indivisible aspects of the Loan Transaction. Accordingly, a vote
by a stockholder in favor of the Loan Transaction (Proposal No.
2) will be deemed a vote in favor of each of the Loan Agreement,
the Asset Servicing Agreement, the Securities Purchases and the
transactions contemplated thereby.
General information with respect to NPM Capital and its
affiliates (including NPO Management and NPO Holdings) is
included elsewhere in this Proxy Statement. Such information has
been supplied by the management of NPM Capital. Although the
Company does not know of any misstatement or omission in the
information supplied by the management of NPM Capital, the
Company does not assume responsibility for its accuracy or
completeness or for any failure by NPM Capital to disclose to the
Company events that may have occurred and may affect the
significance or accuracy of any such information.
Attached hereto as Exhibits A through H are copies of the
Loan Agreement and the Asset Servicing Agreement, the documents
governing the Securities Purchases and the form of the Note
(collectively, the "Related Documents"). The following
description of the Loan Transaction, the Loan Agreement and the
Related Documents is only a summary, is necessarily general and
is not complete. The entire discussion is qualified in its
entirety by reference to Exhibits A through H attached hereto.
INASMUCH AS THE LOAN TRANSACTION IS OF GREAT IMPORTANCE TO THE
COMPANY AND ITS STOCKHOLDERS AND CONSUMMATION OF THE LOAN
TRANSACTION WOULD HAVE A DILUTIVE EFFECT ON THE RELATIVE EQUITY
INTERESTS OF STOCKHOLDERS IN THE COMPANY, ALL STOCKHOLDERS ARE
URGED STRONGLY TO READ THE ATTACHED DOCUMENTS CAREFULLY AND IN
THEIR ENTIRETY AND NOT TO RELY ON THE SUMMARY DESCRIPTION THAT
FOLLOWS.
BACKGROUND, ALTERNATIVES AND GENERAL BUSINESS CONSIDERATIONS
As set forth above, during early 1995, the Board of
Directors determined, principally in light of the Company's short
term liquidity problems and the necessity to satisfy the 1996
Loans when they became due, that the Strategic Alliance was in
the best interests of the Company. There was serious concern
among the Company's Directors as to whether the Company could
continue as a going concern if the Strategic Alliance, consisting
of both, a new long term loan, a debt refinancing or
restructuring or a debt purchase, and the possibility of new
business opportunities, was not consummated. In this regard, the
Board of Directors retained an independent investment banker to
introduce potential Strategic Alliance entities to the Company.
During 1995, numerous potential Strategic Alliance entities
were introduced to the Company, including affiliates of NPM
Capital. Many of these potential Strategic Alliance entities
reviewed information supplied to them by the Company relating to
the Company's operations and financial condition. Following
extensive discussions and negotiations with several of these
entities, the Board of Directors determined that there were only
two viable Strategic Alliance entities, one of which was NPM
Capital. Following further discussions and negotiations, and
after receiving indications that the other potential Strategic
Alliance entity was no longer interested in pursuing a Strategic
Alliance with the Company, in September 1995, the Company entered
into a letter of intent with the principals of NPM Capital to
proceed with the Loan Transaction. Following an exclusive due
diligence period, NPM Capital, in December 1995, advised the
Company of its intention to proceed with the Loan Transaction.
On March 27, 1996, the Board of Directors of the Company
unanimously approved the Loan Transaction and the consummation of
the transactions contemplated thereby. This decision was based,
in part, on (i) the Board of Directors' assessment that the
proposal submitted by NPM Capital satisfied the criteria for a
Strategic Alliance in that (a) the Debt Acquisition and the
Advance by NPM Capital and its simultaneous consolidation of this
indebtedness into the Long Term Loan, effectively, would
refinance the Company's 1996 Loans over a six year period,
thereby affording the Company the opportunity, subject to then
prevailing market conditions, to operate, refinance or sell its
assets in an orderly manner in an effort to maximize stockholder
value and that (b) the principals and affiliates of NPM Capital
and NPO Management, with over 20 years experience in real estate,
limited partnership and other matters, and expertise in
maximizing the value of assets on a cost-effective basis, could
provide the Company with new business opportunities not
necessarily limited to the Company's current line of business,
(ii) the Board of Directors' assessment that the terms
encompassing the proposal submitted by NPM Capital, in their
entirety, were the most favorable that the Company could obtain
after having canvassed the market, with its investment banker,
for entities interested in the Strategic Alliance, (iii) the fact
that the $0.20 per share purchase price to be paid by NPO
Holdings and its affiliates at the Closing for 1,000,000 shares
of the Company's Common Stock was reasonable given the fact that
the 1,000,000 shares represented a control block and were
restricted securities and (iv) the opinion of Duff & Phelps
Capital Markets Co. ("Duff & Phelps"), independent financial
advisors to the Company and NPM Capital, that the exercise price
of the Warrants of $0.16 per share is greater than the fair
market value of the underlying stock specific to the Warrants as
of the date of Duff & Phelps' opinion.
Subsequent to the execution of the Loan Agreement, the
Company received an indication of interest from certain
stockholders of the Company who were considering lending the
Company money in order to help alleviate the Company's liquidity
problems. After reviewing this indication of interest, the
Company reaffirmed its decision to proceed with the Loan
Transaction. This reaffirmation was based upon several factors,
including, without limitation, (i) the Board of Directors'
determination that the indication of interest did not satisfy
both of the criteria for the Strategic Alliance in that the Board
of Directors believed that it did not appear reasonable, based
upon the background and experience of the proponents of the
indication of interest, that these proponents could realistically
present new business opportunities to the Company, (ii) the Board
of Directors' uncertainty as to whether certain conditions to the
indication of interest could be satisfied, including complete
financing of the transaction contemplated by the indication of
interest, (iii) the Board of Directors' determination, based upon
the advice of counsel, that the Company's failure to continue to
use its best efforts to consummate the transactions contemplated
by the Loan Agreement would constitute a breach by the Company of
the Loan Agreement that could potentially expose the Company to
substantial damages which could materially adversely affect the
Company and (iv) the Board of Directors' conclusion, after
contrasting in their entirety the transactions contemplated by
the Loan Transaction and the indication of interest, that the
perceived long term benefits to the Company offered by the Loan
Transaction outweighed the benefits that may have been derived by
the Company from the indication of interest.
While the Board of Directors is optimistic that the
Strategic Alliance will address the Company's foreseeable
liquidity problems in connection with the 1996 Loans, the Board
of Directors does not expect the Strategic Alliance to eliminate
the Company's continuing operating cash flow problems. Even
after consummation of the Strategic Alliance, the Company will
continue to have to rely upon the sale or refinancing of its
assets to meet current expenses. The Board of Directors is
optimistic that the Company, with the managerial assistance and
expertise that NPO Management is providing pursuant to the Asset
Servicing Agreement, will be able to maximize the value of its
assets so that future asset sales and refinancings can be on
favorable terms to the Company, thereby maximizing stockholder
values.
Moreover, the Board of Directors is hopeful that the
proposed Strategic Alliance with NPM Capital and its affiliates
will ultimately provide new business opportunities for the
Company which may enable the Company to overcome its operating
cash flow shortfalls. There can be no assurance, however, that
the Company will be able to continue to meet its operating
expenses in the short term or that the Strategic Alliance, if
consummated, will provide long term solutions to the Company's
operating cash flow problems.
As a result of the complex nature of the transactions
comprising the Loan Transaction, it is possible that, following
an audit, if any, of the Company, the Internal Revenue Service
(the "IRS") could assert that certain consequences of the Loan
Transaction have the effect of limiting or eliminating all or a
portion of the Company's net operating loss carryforwards and
credits. While the Company will not seek an advance ruling from
the IRS regarding the affect of the Loan Transaction, it is the
opinion of Reid & Priest LLP, counsel to the Company, that the
transactions contemplated by the Loan Transaction shall
reasonably not result in a limitation or elimination of the
Company's net operating loss carryforwards and credits. Since
opinions of counsel are not binding on the IRS, the Company's
treatment with respect to its net operating loss carryforwards
and credits as a result of the Loan Transaction could be
challenged by the IRS. For more information concerning the
Company's use of its net operating loss carryforwards and
credits, see "Analysis of Certain Federal Income Tax
Considerations Affecting the Company's Net Operating Losses"
attached hereto as Exhibit H.
In connection with its approval of the Loan Transaction, the
Board of Directors also elected for the Loan Transaction,
including the associated Securities Purchases, to be excluded
from the purview of Article Ninth of the Company's Certificate
("Article Ninth"), and Section 203 of the Delaware General
Corporation Law (the "DGCL"). In general, each of Article Ninth
and Section 203 of the DGCL ("Section 203") details certain
procedural and other requirements, including obtaining
supermajority disinterested stockholder approval, in order to
consummate certain business combinations and other material
transactions between the Company and a "control person" (with
respect to Article Ninth) or an "interested stockholder" (with
respect to Section 203). A control person and an interested
stockholder are defined, generally, as the beneficial owners of
10% or more, and 15% or more, respectively, of the Company's
outstanding voting securities.
Upon consummation of the Loan Transaction and the associated
Securities Purchases (pursuant to which NPM Capital and its
affiliates, including NPO Holdings and NPO Management, will be
deemed to become the beneficial owners of 49% of the Company's
outstanding voting securities), NPM Capital and its affiliates,
including NPO Holdings and NPO Management, will become "control
persons" for purposes of Article Ninth and "interested
stockholders" for purposes of Section 203. If the Board of
Directors did not elect for the Loan Transaction and the
associated Securities Purchases to be excluded from the purview
of Article Ninth and Section 203, then, generally, the Company
would be prohibited, during the three year period immediately
following the Closing of the Loan Transaction, from effecting
certain business combinations and other material transactions
with NPM Capital or its affiliates unless the holders of not less
than two-thirds of the outstanding shares of Common Stock of the
Company (excluding NPM Capital and its affiliates) approve such
business combination or other material transaction and certain
other fair price and procedural requirements are satisfied. By
excluding the Loan Transaction and the associated Securities
Purchases from the purview of Article Ninth and Section 203, the
Board of Directors has enabled the Company to enter into
transactions potentially favorable to the Company with NPM
Capital or its affiliates without procuring disinterested
stockholder approval of the same.
In support of its decision to exclude the Loan Transaction
and the associated Securities Purchases from the purview of
Article Ninth and Section 203, the Board of Directors concluded
that one of the goals of the Strategic Alliance was to locate a
person who could introduce new business opportunities to the
Company, including opportunities involving such person. By
excluding the Loan Transaction and the associated Securities
Purchases from the purview of Article Ninth and Section 203, and
thereby excluding NPM Capital and its affiliates from the
definitions of control persons (for purposes of Article Ninth)
and interested stockholders (for purposes of Section 203), the
Board of Directors has eliminated an impediment that could
otherwise jeopardize an advantageous commercial relationship or
business venture involving the Company and NPM Capital or its
affiliates. NPM Capital has advised the Company that following
the consummation of the transactions contemplated by the Loan
Transaction, NPM Capital and its affiliates will evaluate further
the Company's business and assets for the purpose of determining
and assessing possible new business opportunities for the
Company.
Exclusion of the Loan Transaction and the associated
Securities Purchases from the purview of Article Ninth and
Section 203 in no way, however, affects the fiduciary obligation
of the Board of Directors to the Company's stockholders in
respect of transactions and ventures involving the Company and
NPM Capital or its affiliates.
TERMS OF AMENDED AND RESTATED LOAN AGREEMENT
THE FOLLOWING DESCRIPTION OF THE LOAN TRANSACTION AND
RELATED DOCUMENTS IS ONLY A SUMMARY, IS NECESSARILY GENERAL AND
IS NOT COMPLETE. IN VIEW OF THE IMPORTANCE OF THIS TRANSACTION
TO THE COMPANY AND ITS STOCKHOLDERS, STOCKHOLDERS ARE URGED
STRONGLY TO READ THIS PROXY STATEMENT IN FULL, INCLUDING THE FULL
TEXT OF THE LOAN AGREEMENT AND THE RELATED DOCUMENTS. THE
FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY THE ACTUAL
TEXT OF THE DOCUMENTS ATTACHED HERETO.
General
On March 27, 1996, the Company, following the unanimous
approval of its Board of Directors, entered into the Loan
Agreement with NPM Capital. Pursuant to the Loan Agreement,
among other things, NPM Capital agreed to consummate the Debt
Acquisition and to make the Advance to the Company. Two of the
three loans being purchased as part of the Debt Acquisition are
due and payable in September 1996. The third loan comprising the
Debt Acquisition is not yet due, but requires periodic principal
installments. The holder of this third loan, however, has agreed
to discount the amount of this loan if it is acquired prior to
September 30, 1996. As of May 24, 1996, the Company was indebted
to the Lenders under the 1996 Loans in the approximate aggregate
amount of $7.5 million. As of May 24, 1996, the Company was
indebted to the Other Lender in the approximate amount of
$1.5 million, with the next regularly scheduled quarterly
principal payment of $87,500 due on July 31, 1996.
As a result of the Debt Acquisition and the Advance, and NPM
Capital's simultaneous consolidation of the 1996 Loans into the
Long Term Loan, NPM Capital will hold the Note in the principal
amount of approximately $8,950,000. This sum represents the Debt
Acquisition Price of approximately $4.7 million, the $600,000
Advance, the negotiated payment discount of approximately $2.8
million, the $350,000 that the Company and NPM Capital have
agreed to add to the principal amount of the Note and NPM
Capital's expenses incurred in connection with the Loan
Transaction to the extent that such expenses exceed $175,000
(which excess is currently estimated to be approximately
$500,000). The Company has agreed to include the above-
referenced $350,000 in the Note because it believes that the Debt
Acquisition and the Advance, and the resulting consolidation of
such indebtedness into the Long Term Loan, affords the Company
the opportunity, subject to then prevailing market conditions, to
operate, refinance or sell its assets in an orderly manner in an
effort to maximize stockholder value and that the Company's
ability to defer the payment of significant amounts of interest
under the Note and fees under the Asset Servicing Agreement will
assist the Company in managing its operating cash flow problems.
Pursuant to the Loan Agreement, the Company and NPM Capital have
agreed that if the approximate $2.8 million negotiated payment
discount is reduced prior to the Closing, then the aforementioned
$350,000 payment by the Company will be increased by the amount
of the decrease in such negotiated discount. See "--The Note" and
"Terms of Asset Servicing Agreement."
NPM Capital
NPM Capital was formed in March 1996 principally for the
purpose of effecting the Loan Transaction and to date, has no
other business operations. NPM Capital is owned and controlled
by the principals of National Financial Companies LLC, a Delaware
limited liability company ("NFC"), Omni Partnership Services,
Inc., a Delaware corporation ("Omni"), and Pembroke Companies,
Inc., a New Jersey corporation ("Pembroke").
NFC is a privately held investment and management firm
specializing in equity investments in, and the operation of,
middle-market companies and business and real estate ventures.
The principals of NFC and certain of their affiliates currently
own controlling interests in several operating companies,
including Bulova Technologies L.L.C., which is engaged in defense
and commercial manufacturing, National Auto Finance Company L.P.
and Auto Credit Clearinghouse L.P., each of which specializes in
non-prime auto financing, Hospitality Finance Company L.P., which
is engaged in commercial financing of furniture, fixtures, and
equipment to the hospitality industry, Environmental Systems and
Services, Inc., which is engaged in environmental consulting,
National Metalworking Corporation, which is engaged in
manufacturing metal parts and products, and several equipment
leasing portfolios and real estate interests.
Omni and its affiliates are diversified financial services
companies specializing in providing administrative and management
services to limited partnerships and other businesses. Omni
manages or provides administrative and partnership services,
including the facilitation of all investor communications, cash
distributions and solicitation services, to approximately 450
limited partnerships that are comprised of an aggregate of more
than 50,000 partners. Omni also acts as transfer agent for its
client partnerships, coordinating the administrative, legal and
accounting functions to properly record changes in title. Omni
further operates an independent valuation service providing, on a
fee basis, fair market value analysis to estate and qualified
plans which own limited partnerships that are not publicly
traded. Omni is also affiliated with Millennium Financial
Services, Inc., a Delaware corporation ("Millennium").
Millennium provides collection services for 25 major banks
throughout the United States with a collection portfolio in
excess of $40 million. Millennium specializes in the collection
of limited partner promissory notes, recovering over $60 million
on behalf of its clients over the past five years, and has
entered into a separate agreement with the Company with respect
to the collection of limited partner notes held by the Company.
See "Terms of Asset Servicing Agreement."
Millennium utilizes the legal services of the New York City
law firm of Jacobs and Simms in connection with litigation
matters pertaining to Millennium's collection activities. The
principals of Jacobs & Simms are also principals of Omni and
Millennium.
Pembroke specializes in equity investments in a variety of
venture capital, commercial finance and real estate investments.
The sole stockholder of Pembroke is one of the principals of NFC.
Over the past 25 years, the principals and affiliates of
NFC, Omni and Pembroke have owned, operated, financed and sold
numerous operating companies which have been engaged in a variety
of manufacturing and financing businesses and real estate
ventures. As described above, the principals and affiliates of
NFC, Omni and Pembroke have significant experience in the
acquisition, financing and management of commercial real estate,
particularly net leased real estate, and in the management of
limited partnerships, including with respect to legal, tax and
administrative matters.
The Note
The principal amount of the Note, and accrued interest
thereon, shall be paid in installments in the amounts and on the
dates specified therein and (unless sooner paid by prepayment,
acceleration or otherwise, as provided in the Loan Agreement)
shall be paid in full by the sixth anniversary date of the
Closing of the Loan Transaction. The form of the Note is
attached hereto as Exhibit B.
Pursuant to the Note, and assuming no default by the Company
thereunder, the Company shall pay to NPM Capital or any of its
successors or assigns (together referred to as the "Holder") on
or before the tenth day of each calendar month, an amount equal
to 100% of the Cash Flow (as defined below) of the Company and
its subsidiaries during the preceding calendar month; provided,
however, that in the event the Company receives in excess of
$10,000 of Cash Flow at any one time, the Company shall
immediately pay all such Cash Flow to the Holder. For purposes
of the Note, Cash Flow has been defined as, with respect to the
Company and each of its subsidiaries for any period, the
collective reference to the sum of (i) the gross proceeds
generated by the Primary Collateral (as defined in the Note)
(including, without limitation, all payments of interest and
principal, all proceeds from the refinancing of any notes and
mortgages (including, without limitation, the Underlying
Mortgages and the Wrap Mortgages (each as defined in the Note))
and all proceeds of any payoff of, or sale of, or with respect
to, any of the Primary Collateral), plus (ii) the excess of (a)
---- -------------
the gross proceeds generated by all of the Wrap Notes (as defined
in the Note) and Wrap Mortgages included within the collateral
securing the Other Secured Debt (as defined in the Note)
(including, without limitation, all payments of interest and
principal, all proceeds from the refinancing of any notes and
mortgages (including, without limitation, the Underlying
Mortgages and the Wrap Mortgages included within such collateral)
and all proceeds of any payoff of, or sale of, or with respect to
such collateral) over (b) any and all payments then due and
----
payable under, or with respect to, such Other Secured Debt.
Interest on the outstanding principal balance of the Note
shall accrue at the rate of 10.25% per annum, compounded monthly;
provided, however, that the Company, effectively, may defer and
accrue up to 5.25% per annum of such interest charges. Interest
shall be payable as and when payments out of Cash Flow are made
by the Company. In the event that, for any fiscal year of the
Company (a "Fiscal Year"), the Company fails to pay the Holder
accrued interest at a rate of at least 5.00% per annum,
compounded monthly (the "Annual Minimum Interest Payment"), then
the Company shall make a further mandatory payment of accrued
interest to the Holder in an amount equal to such shortfall on or
before the thirtieth day after the expiration of such Fiscal
Year.
In addition to the foregoing Annual Minimum Interest
Payments, the Company shall pay to the Holder, on or before the
last day of the applicable calendar month set forth in the
following chart, a sufficient amount of principal of, and accrued
interest on, the Note in order (i) to reduce the then outstanding
principal balance of the Note by an amount equal to the
applicable percentage of the original principal amount of the
Note set forth below (the "Applicable Percentage Reduction") and
(ii) to pay the full accrued and unpaid interest on the entire
outstanding principal balance of the Note as of such last day of
such calendar month (such payments shall be referred to as
"Installment Payments").
Applicable
Percentage
Calendar Month After Closing Date Reduction
--------------------------------- ----------
Last day of 18th Calendar Month 15.0%
Last day of 27th Calendar Month 33.0%
Last day of 36th Calendar Month 50.0%
Last day of 42nd Calendar Month 67.0%
Last day of 48th Calendar Month 72.5%
Last day of 54th Calendar Month 80.0%
Last day of 60th Calendar Month 85.0%
Last day of 66th Calendar Month 92.0%
Last day of 72nd Calendar Month 100%
The Company also shall pay to the Holder any and all cash
and cash equivalents as and when received by the Company from the
sale, issuance, conversion, transfer or distribution of capital
stock of the Company, or rights, options, warrants or agreements
with respect thereto, in excess of $250,000 in the aggregate, at
any time prior to the full payment of moneys due under the Note.
The Note may be prepaid voluntarily in whole or in part by
the Company and is subject to acceleration upon default at the
times and in the manner specified in the Loan Agreement. The
Company's obligations under the Note will be secured by the
Company's grant to NPM Capital of a security interest in all
assets of the Company then not encumbered by liens securing other
indebtedness of the Company, as specified in the Loan Agreement.
Concurrently with the acquisition by NPM Capital of the 1996
Loans and the making by it of the Advance, the Company will grant
NPM Capital a security interest in all assets of the Company that
are then not encumbered by liens securing other indebtedness of
the Company, as specified in the Loan Agreement.
Upon the consummation of the transactions contemplated by
the Loan Transaction, NPM Capital and its affiliates will be
issued shares of Common Stock and Warrants to purchase additional
shares of Common Stock such that NPM Capital and its affiliates
will become the beneficial owners, on a fully diluted basis, of
approximately 49% of the outstanding Common Stock of the Company.
As such, NPM Capital and its affiliates will become affiliates of
the Company. As a result of the mandatory principal payments
required under the Note (and assuming that such payments are made
when required) and the inclusion in the principal amount of the
Note of the approximate $2.8 million of negotiated payment
discounts and the additional $350,000 that the Company and NPM
Capital have agreed to add to the principal amount of the Note
(subject to adjustment as discussed above) as a result of, among
other things, the consolidation by NPM Capital of the 1996 Loans
and the Advance into the Long Term Loan, NPM Capital and its
affiliates will effectively receive an internal rate of return on
their loan to the Company of approximately 27.5% per annum. The
negotiated discounts of approximately $2.8 million on the 1996
Notes will be amortized over the life of the Long Term Loan
resulting in an effective interest rate to the Company for
financial reporting purposes of 11.7%, exclusive of any
amortization in connection with the issuance of the Warrants.
Conditions Precedent to Closing of Loan Agreement
The consummation of the Loan Agreement and, consequently,
the Loan Transaction, is subject to a number of conditions which
are set forth in Section 3 of the Loan Agreement. Such
conditions include, but are not limited to, the following: (i)
the Debt Acquisition shall have been consummated; (ii) each of
the Loan Transaction, the Preferred Stock Amendment and the Stock
Transfer Amendments (each as defined herein) shall have been
approved by the stockholders of the Company; (iii) the
performance units (considered to be stock appreciation rights)
granted under the Company's Performance Plan shall have been
canceled; (iv) the 1996 Option Plan of the Company shall have
been ratified and approved by stockholders; (v) the Equity
Documents (as defined in the Loan Agreement), generally
consisting of stock options, Common Stock purchase warrants and
convertible debentures, shall have been amended by the parties
thereto in the manner agreed upon by the Company and NPM Capital;
(vi) the Stipulation of Settlement Agreement, dated August 12,
1992, of the class action litigation entitled In re Kenbee
------------
Limited Partnerships Litigation, as amended, shall have been
-------------------------------
amended by all of the parties thereto in substantially the form
agreed upon by the Company and NPM Capital and such amended
Stipulation of Settlement Agreement shall have been approved
finally by the courts having jurisdiction thereof; (vii) there
shall not have occurred any Material Adverse Effect (as defined
in the Loan Agreement) since December 31, 1995; and (viii) other
usual conditions as are customary for a transaction of the type
embodied by the Loan Agreement shall have been satisfied. See
"Proposal No. 3-Condition Precedent to Loan Transaction:
Approval of Amendment to Certificate of Incorporation to Create
Class of 100 Shares of Preferred Stock to be Issued at $10.00 per
Share Entitling the Holders Thereof To Elect Special Purpose
Director," "Proposal No. 4-Condition Precedent to Loan
Transaction: Approval of Amendments to Certificate of
Incorporation and By-laws to Place Restriction on Transfer of
Common Stock" and "Proposal No. 5-Condition Precedent to Loan
Transaction: Approval of the 1996 Stock Option Plan in
Connection with the Exchange of Certain Stock Appreciation
Rights."
Covenants
The Loan Agreement contains numerous affirmative and
negative covenants concerning the conduct of business by, and
other activities of, the Company and its subsidiaries during the
period in which the Company is indebted to NPM Capital or its
affiliates and these covenants, as applicable, will continue
during the period that any of the Warrants is outstanding or
remains unexercised. See "Terms of Securities Agreement."
The affirmative and negative covenants are set forth in
Sections 6 and 7 of the Loan Agreement and include, without
limitation, those that are usual and customary for a transaction
of the type embodied by the Loan Agreement for an entity in
comparable financial condition as the Company, including
covenants requiring the Company and its subsidiaries (i) to use
commercially reasonable efforts to actively seek, directly or
indirectly, the refinancing of the Underlying Notes (as defined
in the Loan Agreement) as soon as reasonably practicable upon
terms reasonably acceptable, (ii) to use best efforts to collect
the amounts owing under each of the Investor Notes and the other
Investor Loan Documents (each as defined in the Loan Agreement),
(iii) not to assume or permit to exist any additional
indebtedness, other than as expressly provided in the Loan
Agreement, (iv) not to sell, transfer or otherwise dispose of,
except as expressly permitted by the Loan Agreement, any of the
Company's properties or assets, (v) not to pay or agree to pay
employee compensation in excess of certain stated maximum
amounts, (vi) not to issue (except as expressly permitted by the
Loan Agreement) any additional shares of capital stock or
options, warrants or other securities exercisable or convertible
into shares of capital stock, and (vii) not to make any changes
in their capital structure, amend their Articles of Incorporation
or By-laws, or make any changes in any of their business
objectives, purposes or operations, except as required by the
Loan Transaction.
Termination
In the event that the Closing shall not have occurred on or
prior to September 1, 1996, for any reason or for no reason,
including the failure by the Company's stockholders to approve
the Loan Transaction, NPM Capital may, upon notice to the
Company, terminate all of NPM Capital's obligations under the
Loan Agreement and the Related Documents, provided, however, that
upon such termination, the Company (i) shall be and remain liable
to NPM Capital for any damages NPM Capital may suffer as a result
of any breach by the Company of any obligation it has to
indemnify NPM Capital under the Loan Agreement and (ii) the
Company shall pay to NPM Capital up to $100,000 of NPM Capital's
Transaction Expenses (as defined in the Loan Agreement) and a
$300,000 "Break-Up" fee. In the event that each of the
conditions precedent to the effectiveness of the obligations of
NPM Capital are satisfied on or before September 1, 1996, but
after the date that such conditions precedent are met, a Lender
Default (as defined in the Loan Agreement) occurs, then the
Company will not be required to pay the "Break-Up" fee.
TERMS OF ASSET SERVICING AGREEMENT
In connection with the Loan Transaction, the Company and NPO
Management have entered into the Asset Servicing Agreement,
pursuant to which, among other things, the Company has engaged
NPO Management, on an exclusive basis, as an independent
contractor to assist the Company in performing certain
"Partnership Property Level Services" and certain "Partnership
Administrative Services" on behalf of the Company in the
Company's capacity as general partner of approximately 100
limited partnerships (the "Partnerships"), and to assist the
Company and its affiliates in the supervision and management of
the Company's other assets. The Company believes that the Asset
Servicing Agreement is in the best interests of the Company and,
as a result of the expertise and recommendations that it
anticipates NPO Management providing, affords the Company an
opportunity to maximize the value of the Company's assets while
preserving cash flow without, due to the Company's ability to
defer a portion of the annual service fee, as discussed below,
any concomitant increase in cash required to meet current
overhead. The Company's deferral of the annual service fee will
provide the Company with the ability to preserve its cash flow
during the term of the Asset Servicing Agreement, other than
during the initial transition period which began upon the
commencement of the Asset Servicing Agreement and during any
period that the Company may be required to make severance
payments to former employees whose positions have been
eliminated. See "-Servicing Fees." A copy of the Asset
Servicing Agreement is attached hereto as Exhibit C.
NPO Management
NPO Management, which was formed in March 1996 principally
for the purpose of providing services under the Asset Servicing
Agreement, is owned and controlled by NFC, Pembroke and Omni.
Omni, which is an affiliate of Millennium, and its affiliates,
are diversified financial services companies specializing in
providing administrative and management services to limited
partnerships and other operating businesses.
The principals and affiliates of NFC, Pembroke and Omni
have, in the aggregate, over 20 years experience in acquiring,
developing, financing and disposing of net lease properties and
managing and administering real estate limited partnerships.
Currently, the principals and affiliates of NFC, Pembroke and
Omni manage or provide administrative or partnership services,
including the facilitation of all investor communications, cash
distributions and solicitation services, to approximately 450
limited partnerships which are comprised of an aggregate of more
than 50,000 partners.
Services Provided
The "Partnership Property Level Services" that NPO
Management will provide include (i) evaluating each property
owned by any of the Partnerships (the "Partnership Property"),
advising the Company of potential sales price ranges that NPO
Management deems appropriate for each such property, listing
those properties which NPO Management believes to be saleable at
the highest current return to the respective partnerships and
obtaining offers to purchase such properties using consultants
selected by NPO Management in connection with the Company's
strategic asset evaluation and disposition program; (ii)
coordinating all aspects of the refinancing of the indebtedness
of the Partnerships upon terms acceptable to the Company; (iii)
assisting the Company in obtaining and reviewing insurance
certificates delivered by tenants of the Partnership Properties
and confirming that such insurance is in full force and effect;
(iv) assisting the Company in obtaining annual financial
statements from the Partnership tenants; (v) providing other
general assistance to the Company with respect to the
relationships between the Partnerships and its tenants as
specified in the Asset Servicing Agreement; and (vi) generally,
maximizing the current value of the Partnership Property.
The "Partnership Administrative Services" that NPO
Management will provide include: (i) maintaining records of each
of the limited partners in each of the Partnerships to assist in
maintaining documentation for transfers of partnership interests,
changes of addresses of limited partners and other similar
transactions; (ii) assisting the Company in the preparation and
distribution of tax returns and annual financial statements for
certain Partnerships; (iii) assisting the Company in upgrading
and redeveloping the Company's management information systems,
including recommending appropriate hardware and software systems;
(iv) assisting the Company in preparing and submitting
solicitations to limited partners in the Partnerships to obtain
any consents required for any sale, financing, refinancing,
leasing, re-leasing or renovation of the Partnership Property or
any other required consent; (v) assisting the Company and its
counsel in analyzing the income tax consequences with respect to
any of the Partnership Property; (vi) acting as a liaison and
assisting the Company in communications with the Partnerships,
the limited partners of the Partnerships and the Partnership
tenants; and (vii) providing cash management services to the
Company.
In addition, under the Asset Servicing Agreement, NPO
Management will assist the Company in performing the following
asset and mortgage servicing services with respect to the
following assets of the Company:
Mortgages. NPO Management will (a) coordinate all
aspects of the refinancing of Underlying Mortgages (as
defined in the Asset Servicing Agreement) upon terms
acceptable to the Company, (b) engage consultants to list
and offer for sale the Mortgages (as defined in the Asset
Servicing Agreement) for prices and upon terms approved by
the Company and manage all aspects of any such sale to the
extent approved by the Company, (c) assist the Company in
collecting payments due under the Mortgages and provide loan
servicing services to the Company with respect to the
Mortgages; and (d) act as liaison and coordinate all
communications between the Company and the obligors under
the Mortgages.
Investor Notes. NPO Management will assist in
monitoring the collection and reporting services provided by
Millennium with respect to certain promissory notes owned by
the Company executed by certain limited partners in certain
Partnerships (the "Investor Notes") and will act as liaison
and manage all communication between the Company and
Millennium with respect to the Investor Notes.
In addition, NPO Management will provide to the Company and
its subsidiaries and their affiliates asset services with respect
to certain real property and limited partnership interests owned
by the Company and certain master leases (the "Master Leases")
pursuant to which the Company's subsidiaries and their affiliates
have leased, and subsequently re-leased, commercial space from
certain limited partnerships of which affiliates of the Company
are the general partner. With respect to such assets, NPO
Management will engage and oversee the work of asset managers,
property managers and other consultants, will make
recommendations with respect to any proposed alterations to any
such assets, will monitor the performance of the Master Leases,
and provide other asset management services.
NPO Management is required to use its commercially
reasonable efforts to perform its obligations under the Asset
Servicing Agreement pursuant to a standard of professional
service provided by other asset management firms in the industry
providing the types of asset management and partnership
administrative services which are similar to the services
described in the Asset Servicing Agreement.
Servicing Fees
In consideration for the services to be provided by NPO
Management under the Asset Servicing Agreement, the Company shall
pay to NPO Management a servicing fee at the rate of $600,000 per
year, less the 20% Collection Amount (as defined below), payable
in 12 equal monthly installments of $50,000. The servicing fee
will be increased annually after the third anniversary of the
date of the Asset Servicing Agreement to account for inflation.
For purposes of the Asset Servicing Agreement, the 20% Collection
Amount means 20% of all net amounts collected on each Investor
Note which is actually received and retained by Millennium or
Millennium's affiliates in accordance with the terms of
Millennium's agreement with the Company. Pursuant to
Millennium's agreement with the Company, Millennium has been
retained by the Company to collect and service the Investor Notes
for the account of the Company.
The Asset Servicing Agreement further provides that in the
event that Non-Primary Collateral Cash Flow (as defined in the
Asset Servicing Agreement and from which the monthly servicing
fee is intended to be paid) is not sufficient in any month to pay
the entire servicing fee then due, then, any unpaid portion of
such monthly servicing fee may be deferred by the Company
(subject to the limitations discussed below) and will bear
interest at the rate of 15% per annum, compounded monthly, until
the earlier to occur of (i) the existence of sufficient Non-
Primary Collateral Cash Flow to pay all deferred servicing fees
and accrued interest thereon and all then due and owing servicing
fees or (ii) the expiration or earlier termination of the Asset
Servicing Agreement.
Deferred and unpaid servicing fees (excluding accrued and
unpaid interest thereon) may not, however, exceed $600,000 at any
time prior to 90 days after the second anniversary date of the
Asset Servicing Agreement (the "Second Anniversary Date"),
$450,000 during the time period commencing 91 days after the
Second Anniversary Date and ending 90 days thereafter, $300,000
during the time period commencing 91 days after the Second
Anniversary Date and ending 180 days after the Second Anniversary
Date or $150,000 during the time period commencing 181 days after
the Second Anniversary Date and ending 270 days after the Second
Anniversary Date.
The Company has advised NPO Management that the Company
anticipates that it will significantly defer payments, possibly
up to the maximum amounts permitted, under the Asset Servicing
Agreement. In light of the Company's projected restricted cash
flow and its potential inability to pay the servicing fee on a
current basis, the Company, to secure its obligations to NPO
Management and in return for NPO Management's agreement to permit
the Company to defer the monthly servicing fee as described
above, has granted NPO Management a lien covering the Company's
assets, subordinated only to liens then granted by the Company
securing other indebtedness of the Company and the liens granted
to NPM Capital pursuant to the Loan Agreement.
Term
The term of the Asset Servicing Agreement is seven years
from the date of Closing of the Loan Transaction. Thereafter,
the term of the Asset Servicing Agreement shall automatically
renew for successive periods of three years each unless sooner
terminated in accordance with the provisions of the Asset
Servicing Agreement.
Termination
If the Closing of the Loan Agreement fails to occur for any
reason or for no reason in accordance with the provisions thereof
(including, if stockholders of the Company fail to approve the
Loan Transaction), the Company shall be entitled to terminate the
Asset Servicing Agreement by giving written notice of the same to
NPO Management within 30 days after a termination of the Loan
Agreement. In such event, NPO Management shall be entitled to
payment, over a six month period, of all fees accrued and unpaid
as of the date of such termination.
The Company has no right to terminate the Asset Servicing
Agreement unless an NPO Default thereunder has occurred. An NPO
Default includes the occurrence of fraud or gross negligence in
connection with the performance of NPO Management's duties under
the Asset Servicing Agreement or felony conviction of, or by, any
executive officer of NPO Management. NPO Management has, in
addition to other contractual termination rights, the right to
terminate the Asset Servicing Agreement upon 30 days written
notice to the Company for any reason or no reason.
TERMS OF STOCK PURCHASE AGREEMENT
As part of the Loan Transaction, the Company has agreed, at
the Closing, to sell and issue to NPO Holdings, and NPO Holdings
has agreed to acquire from the Company, 1,000,000 shares of
Common Stock of the Company in consideration for $200,000 (or
$0.20 per share). This per share purchase price was determined
by the Board of Directors of the Company to be reasonable given
the fact that the 1,000,000 shares represent a control block and
are restricted securities.
The terms and conditions of this stock purchase are embodied
in the Stock Purchase Agreement attached hereto as Exhibit D (the
"Stock Purchase Agreement"). The closing of the Loan Agreement
is an express condition precedent to the closing of the Stock
Purchase Agreement.
TERMS OF SECURITIES PURCHASE AGREEMENT
General
As part of the Loan Transaction, the Company has also
agreed, at the Closing, to (i) sell and issue to NPM Capital (or
its designee), and NPM Capital (on behalf of itself and its
designee) has agreed to acquire from the Company, 100 shares of a
newly created class of Preferred Stock of the Company, par value
$10.00 per share, for an aggregate purchase price of $1,000,
which Preferred Stock will enable the holders thereof to elect a
special purpose Director to the Board of Directors but will not
entitle the holders to any regular annual or cumulative dividends
or other material preferential rights and (ii) issue to NPM
Capital (or its designee) the Warrants to purchase, at an
exercise price of $0.16 per share, such additional shares of
Common Stock which, when added to the 1,000,000 shares of Common
Stock to be acquired by NPO Holdings pursuant to the Stock
Purchase Agreement (and any other shares of Common Stock then
owned by the Warrantholders and their affiliates), will
represent, on a fully diluted basis, 49% of the outstanding
Common Stock of the Company.
The terms and conditions governing the Company's issuance of
the Preferred Stock and the Warrants are embodied in the
Securities Purchase Agreement attached hereto as Exhibit E (the
"Securities Purchase Agreement"). The Company's obtaining
stockholder approval to create the Preferred Stock and the
closing of the Loan Agreement are express conditions precedent to
the closing of the Securities Purchase Agreement. See "Proposal
No. 3 - Condition Precedent to Loan Transaction: Approval of
Amendment to Certificate of Incorporation to Create Class of 100
Shares of Preferred Stock to be Issued at $10.00 Per Share
Entitling the Holders Thereof to Elect Special Purpose Director."
Special Purpose Director
Holders of the Preferred Stock will be entitled to nominate
and elect a Director (the "Special Purpose Director") to the
Board of Directors. The Special Purpose Director, however, will
have no right to vote on or consent to matters presented for a
vote at meetings of the Board of Directors other than with
respect to certain bankruptcy matters. Such bankruptcy matters
will require, for passage, the unanimous vote of the fully
constituted Board of Directors (including the Special Purpose
Director). The Special Purpose Director will have Board
visitation rights and will be able to be removed without cause
only by the holders of the then outstanding shares of Preferred
Stock. The Special Purpose Director shall be paid $100 per year
by the Company for his services. It is currently anticipated
that if the Loan Transaction and the amendment to the Company's
Certificate to authorize the creation of the Preferred Stock are
approved by stockholders, NPM Capital (or its designee), the
proposed holder of the Preferred Stock, will nominate and elect
Keith B. Stein as the Special Purpose Director. Mr. Stein is
currently a Senior Managing Director of NFC, one of the entities
that controls NPM Capital and its affiliates. For a more
complete description of the powers, designations and other rights
of the Preferred Stock and for more information concerning the
proposed Special Purpose Director, see "Proposal No. 3 -
Condition Precedent to Loan Transaction: Approval of Amendment
to Certificate of Incorporation to Create Class of 100 Shares of
Preferred Stock to be Issued at $10.00 Per Share Entitling the
Holders Thereof to Elect Special Purpose Director."
Warrants
NPO Holdings will be entitled, as holder of the Warrants, to
purchase from the Company, at any time before 5:00 p.m., New York
time, on December 31, 2007 (the "Expiration Date"), such number
of shares of Common Stock of the Company which, when added to the
1,000,000 shares of Common Stock to be acquired by NPM Capital
and its affiliates pursuant to the Stock Purchase Agreement (and
any other shares of Common Stock then owned by such
Warrantholders and their affiliates), will represent, on a fully
diluted basis, 49% of the outstanding Common Stock of the
Company. Notwithstanding the foregoing, except under certain
circumstances, no portion of the Warrants may be exercised prior
to January 1, 1999 without the prior consent of the Board of
Directors of the Company.
The Warrants specify certain conditions under which the
exercise price for, and the number of shares of Common Stock
issuable under, the Warrants will be adjusted to reflect certain
corporate actions, including stock splits and sales of shares of
Common Stock. In addition to the customary anti-dilution
provisions included in the Warrants relating to reorganizations,
reclassifications, consolidations and mergers, the Warrants
contain anti-dilution provisions which are designed to grant the
holder of the Warrants the right to purchase additional shares of
Common Stock each time currently outstanding options, warrants
and other derivative securities are exercised so that the holder
can always acquire (after taking into account their then owned
shares of Common Stock and the shares of Common Stock owned by
their affiliates) 49% of the outstanding Common Stock of the
Company. The holder of the Warrants also will be granted certain
demand and piggyback registration rights. Moreover, the Warrants
provide that certain of the affirmative and negative covenants
concerning the conduct of the business by, and other activities
of, the Company and its subsidiaries during the period in which
the Company is indebted to NPM Capital or its affiliates pursuant
to the Loan Agreement will continue, notwithstanding the
satisfaction of all such indebtedness, during the period that any
of the Warrants is outstanding or remains unexercised.
In connection with the proposed issuance of the Warrants,
the Board of Directors of the Company has received the opinion of
Duff & Phelps that, based upon and subject to the assumptions and
reliances set forth in the opinion of Duff & Phelps, as of the
date of such opinion, exercise price of the Warrants of $0.16 per
share was greater than the fair market value of the underlying
stock specific to the Warrants. A copy of the opinion of Duff &
Phelps is attached hereto as Exhibit G.
Neither the Warrants nor the shares of Common Stock
underlying the Warrants will be registered under the Securities
Act of 1933, as amended (the "Securities Act"). However, the
Company has agreed that it will at all times maintain and keep
available adequate public information and will file with the
Commission all required reports under the Exchange Act in order
to permit the use of Rule 144 promulgated by the Commission under
the Securities Act.
The form of the Warrants is attached hereto as Exhibit F.
VOTE NEEDED FOR APPROVAL
Although Delaware law does not require approval of the Loan
Transaction by the Company's stockholders, such approval has been
made a condition to Closing. Approval of the Loan Transaction
requires the affirmative vote of a majority of the shares of
Common Stock voting, in person or by proxy, at the Meeting. As a
result of this voting requirement, the holders of a minority of
the outstanding shares of Common Stock of the Company may have
the ability to ratify the Loan Transaction.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION
APPROVING THE LOAN TRANSACTION AND DECLARING ITS ADVISABILITY,
AND HEREBY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
FOR THE LOAN TRANSACTION.
IN CONNECTION WITH THE CONSUMMATION OF THE LOAN TRANSACTION, IT
IS NECESSARY THAT STOCKHOLDERS OF THE COMPANY APPROVE THE MATTERS
SET FORTH IN PROPOSALS 3, 4, AND 5 BELOW, EACH OF WHICH IS A
CONDITION PRECEDENT (THAT MAY BE WAIVED OR MODIFIED BY NPM
CAPITAL) TO THE CONSUMMATION OF THE LOAN TRANSACTION.
PROPOSAL NO. 3 - CONDITION PRECEDENT TO LOAN TRANSACTION:
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
TO CREATE CLASS OF 100 SHARES OF PREFERRED STOCK
TO BE ISSUED AT $10.00 PER SHARE ENTITLING THE
HOLDERS THEREOF TO ELECT SPECIAL PURPOSE DIRECTOR
GENERAL
In connection with the consummation of the Loan Transaction,
the Company and NPM Capital have entered into the Securities
Purchase Agreement pursuant to which, among other things, the
Company, at the Closing of the Loan Transaction, will sell and
issue to NPM Capital, 100 shares of Preferred Stock in
consideration for an aggregate of $1,000. Such Preferred Stock
will enable the holders thereof to elect the Special Purpose
Director to the Board of Directors of the Company but will not
entitle the holders to any regular annual or cumulative dividends
or other material preferential rights.
Prior to the issuance of any shares of Preferred Stock,
however, an amendment to the Certificate authorizing the Company
to create a series of, and to issue, such shares of Preferred
Stock must be effected. In this regard, the Board of Directors
has adopted a resolution unanimously approving and recommending
to the Company's stockholders for their approval, an amendment to
Article FOURTH of the Certificate of Incorporation to provide
therein for the authorization and creation of 100 shares of Class
A Preferred Stock, par value $10.00 per share (the "Preferred
Stock Amendment"). The text of proposed new Article FOURTH,
which gives effect to the Preferred Stock Amendment, is attached
hereto as Exhibit I.
DESCRIPTION OF PREFERRED STOCK
Voting Rights
The holders of shares of Preferred Stock shall be entitled
to nominate and elect the Special Purpose Director to the Board
of Directors by a vote of a majority of the then outstanding
shares of Preferred Stock voting as one class at a meeting of
such holders or by written consent of the holders of a majority
of such shares then outstanding. However, the Special Purpose
Director, in accordance with Section 141(d) of the DGCL, will
have no right to vote on, or consent to, matters presented for a
vote at meetings of the Board of Directors other than with
respect to matters relating to (i) the filing by the Company of a
petition in bankruptcy pursuant to Title 11 of the United States
Code (the "Bankruptcy Code") and (ii) in connection with the
insolvency of the Company, the dissolution or liquidation of the
Company or the making of a compromise or arrangement under
applicable state law between the Company and its creditors who
hold a substantial portion of the Company's indebtedness
(collectively, the "Bankruptcy Matters"). As to any Bankruptcy
Matter, the unanimous vote of the fully constituted Board of
Directors (including, without limitation, the Special Purpose
Director), will be required to constitute an act of the Board of
Directors. Accordingly, the Special Purpose Director will have
the ability to veto the filing by the Company of any voluntary
petition in bankruptcy under the Bankruptcy Code.
For so long as there is a Special Purpose Director, (i) he
shall be entitled to notice of each meeting of the Board of
Directors at the same time and in the same manner as notice is
given to the other Directors; (ii) he shall be entitled to attend
in person all meetings held in person and to participate in
telephone or other meetings of the Board of Directors; (iii) he
shall be provided by the Company copies of all notices, minutes,
consents, and all other materials or information that the Company
provides to the other Directors of the Company with respect to
meetings of the Board of Directors, or otherwise, at the same
time such materials and information are given to the other
Directors of the Company; (iv) if the Board of Directors proposes
to take any action by written consent in lieu of a meeting, he
shall be given written notice thereof prior to the effective date
of such consent describing in reasonable detail the nature and
substance of such action; and (v) he shall, except as otherwise
provided in the Certificate, enjoy all rights, privileges and
benefits conferred upon Directors of the Company by the
Certificate, the Company's By-laws or by law, including, without
limitation, with respect to indemnification and advancement of
expenses.
The Special Purpose Director may be removed without cause
only by the holders of the then outstanding shares of Preferred
Stock. Any vacancy in the position of Special Purpose Director
shall be filled only by the holders of the then outstanding
shares of Preferred Stock. The Special Purpose Director shall be
paid $100 per year by the Company for his services.
It is currently anticipated that if stockholders approve
this Proposal No. 3, the holders of the Preferred Stock will
nominate and elect Keith B. Stein as the Special Purpose
Director. Mr. Stein, age 38, currently is a Senior Managing
Director of NFC and has served as a principal of NFC since
January 1995. From 1993 through December 1994, Mr. Stein was
Senior Vice President, Secretary and General Counsel of WestPoint
Stevens Inc., a textile manufacturer, where he assisted in
leading that company through its complete recapitalization,
involving over $1.5 billion of equity, debt and securitization
transactions. For more than ten years prior to his affiliation
with WestPoint Stevens Inc., Mr. Stein was engaged in private
legal practice, primarily with the law firm of Weil, Gotshal &
Manges, New York, New York, during which time he represented
clients in all aspects of corporate finance, mergers and
acquisitions, securities and restructuring transactions and the
representation and restructuring of numerous real estate limited
partnerships. Mr. Stein is a graduate of the Emory University
School of Law and the University of Michigan, a member of the
bars of both New York and Georgia, and serves as a member of the
Emory Law School Council.
Redemption by the Company
The Company shall have the right, commencing on the date
that is three years following the date that the Company's
obligations to NPM Capital and its affiliates are satisfied in
full, to redeem all or any part of the shares of Preferred Stock
at the redemption price of $10.00 per share (or an aggregate
redemption price of $1,000 for all shares of Preferred Stock).
No Regular or Cumulative Dividends; Immaterial Liquidation
Preference
The holders of shares of Preferred Stock shall not be
entitled to receive any regular or cumulative dividends with
respect to their shares. Such holders, however, may receive
dividends with respect to such shares of Preferred Stock as, when
and if declared by the Board of Directors of the Company.
Moreover, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Company, the holders of shares of Preferred Stock then
outstanding shall be entitled to be paid, prior to any
distribution of the assets of the Company, an amount in cash
equal to $10.00 for each share of Preferred Stock owned by them
(or an aggregate of $1,000 for all shares of Preferred Stock).
Other
The holders of shares of Preferred Stock will not have any
rights to convert such shares into shares of any other class or
series of capital stock or into any other securities of, or any
other interest in, the Company. In addition, no holder of shares
of Preferred Stock shall have any preemptive or subscription
rights in respect of any securities of the Company that may be
issued. All certificates for shares of Preferred Stock issued by
the Company will conspicuously bear a legend to the effect that
the Certificate of the Company contains the powers, designations,
preferences and rights of each class of stock of the Company or
series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, and that, upon
written request to the Company at its principal place of
business, the Company will furnish a copy of the Certificate at
no charge.
NO AUTHORIZATION TO CREATE BLANK CHECK PREFERRED STOCK
The proposed Preferred Stock Amendment authorizes only the
creation and issuance of the shares of Preferred Stock to be
issued in connection with the Securities Purchase Agreement. The
proposed Preferred Stock Amendment does not authorize the
issuance of any additional shares of Preferred Stock or the
creation of any other series or class of preferred stock. In the
event that the Company, at a later date, determines that it is
advisable to issue additional shares of preferred stock or to
authorize the creation of another series or class of preferred
stock, the Company, following the recommendation of its Board of
Directors, will be required to seek stockholder approval of the
same before any additional shares of preferred stock can be
issued or any additional series or classes of preferred stock can
be created.
OTHER CONSIDERATIONS
Approval by stockholders of the Preferred Stock Amendment as
contemplated in this Proposal No. 3 is required as a condition
(which may be waived or modified) to the closing of the Loan
Transaction.
VOTE NEEDED FOR APPROVAL
Pursuant to the DGCL, approval and adoption of the Preferred
Stock Amendment requires the affirmative vote of a majority of
the outstanding shares of Common Stock of the Company, whether
voted at the Meeting in person or by proxy. The Preferred Stock
Amendment, if approved, would become effective upon the filing of
an appropriate Certificate of Amendment to the Company's
Certificate (the "Certificate of Amendment") with the Secretary
of State of the State of Delaware, which would be accomplished as
soon as practicable after stockholder approval is obtained.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION
SETTING FORTH THE PROPOSED PREFERRED STOCK AMENDMENT AND
DECLARING ITS ADVISABILITY, AND HEREBY RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSED PREFERRED STOCK
AMENDMENT.
PROPOSAL NO. 4 - CONDITION PRECEDENT TO LOAN TRANSACTION:
APPROVAL OF AMENDMENTS TO CERTIFICATE OF
INCORPORATION AND BY-LAWS TO PLACE RESTRICTION
ON TRANSFER OF COMMON STOCK
GENERAL
At the Meeting, stockholders will consider and vote upon a
proposal providing for amendments (the "Stock Transfer
Amendments") to each of the Company's Certificate and By-laws
that would impose certain restrictions upon the transfer of
shares of Common Stock of the Company to designated persons (the
"Stock Transfer Restrictions") for a period of three years from
the Closing of the Loan Transaction. It is currently possible
that certain future transfers of the Company's capital stock
could result in the imposition of limitations on the ability of
the Company to utilize its carryforwards of net operating losses
and certain credits for federal income tax purposes. The Board
of Directors believes that it is advisable and in the best
interests of the Company to attempt to prevent the imposition of
such limitations by adopting the amendments described below.
The proposed Stock Transfer Restrictions will be effected by
means of an amendment to each of the Company's Certificate and
By-laws. As such, pursuant to the DGCL, no appraisal rights will
be available to dissenting stockholders under Delaware law. The
text of each of the proposed Stock Transfer Amendments is
contained as a proposed new Article ELEVENTH to the Certificate
and as a proposed new Article XII to the By-laws. The text of
the proposed new Article ELEVENTH to the Certificate is attached
hereto as Exhibit J. The text of proposed new Article XII to the
By-laws is identical to the text of the proposed new Article
ELEVENTH to the Certificate.
BACKGROUND REGARDING DELAWARE LAW
Under the laws of the State of Delaware, the Company's
jurisdiction of incorporation, a corporation may provide in its
certificate of incorporation or by-laws that a transfer of a
security of the corporation to designated persons or classes of
persons may be prohibited so long as the designation of the
persons or classes of persons is not manifestly unreasonable.
Under Delaware law, a restriction on the transfer of shares of
common stock of a company for the purpose of maintaining any tax
advantage is conclusively presumed to be for a reasonable
purpose. The transfer restriction must be noted conspicuously on
the certificate representing the shares to be enforceable against
the holder of the restricted shares or any successor or
transferee of the holder. If the restriction is not
conspicuously noted on the certificate representing the shares,
Delaware law provides that the restriction is ineffective except
against a person with actual knowledge of the restriction.
Finally, no restriction so imposed is binding with respect to
shares issued prior to the inclusion of such restrictions in the
certificate of incorporation or by-laws unless the holders of
such shares agree thereto or vote in favor thereof.
REASONS FOR ADOPTION OF STOCK TRANSFER AMENDMENTS
The restrictions imposed by the proposed Stock Transfer
Amendments are designed to restrict for a period of three years
from the Closing of the Loan Transaction transfers of shares of
the Common Stock of the Company that could result in the
imposition of limitations on the use, for federal income tax
purposes, of the Company's carryforwards of net operating losses
and certain credits. The Company estimates that it had, as of
December 31, 1995, carryforwards of net operating losses of
approximately $65 million. For federal income tax purposes, the
carryforwards of net operating losses will expire through the
year 2010. Because the amount and timing of the Company's
taxable income in the current fiscal year and thereafter cannot
be accurately predicted, it is not presently feasible to estimate
the amount, if any, of carryforwards that ultimately may be used
to reduce the Company's federal income tax liability.
The benefit of the Company's existing and future loss and
credit carryforwards can be reduced or eliminated if the Company
undergoes an "ownership change," as defined in Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code").
Generally, an "ownership change" occurs if one or more
stockholders, any of whom owns five percent or more in value of a
company's capital stock, increase their aggregate percentage
ownership by more than 50 percentage points over the lowest
percentage of stock owned by such stockholders over the preceding
three-year period. For this purpose, all holders who each own
less than five percent of a company's capital stock generally are
treated together as one five-percent stockholder. In addition,
certain attribution rules, which generally attribute ownership of
stock to the ultimate beneficial owner thereof without regard to
ownership by nominees, trusts, corporations, partnerships or
other entities, are applied to determine the level of stock
ownership of a particular stockholder. If a principal purpose of
the issuance, transfer or structuring of an option (including a
warrant) to acquire stock is to avoid or ameliorate the impact of
an "ownership change," and the issuance, transfer or structuring
of the option satisfies the ownership, control or income test
under the applicable Treasury Regulations, such option may be
treated as if it had been exercised for purposes of determining
whether an "ownership change" has occurred. All percentage
determinations are based on the fair market value of a company's
capital stock, including, if any, preferred stock that is voting
or convertible and certain other interests in the Company.
If the Company were to undergo an "ownership change," the
amount of future taxable income of the Company that could be
offset in any year by its carryforwards of net operating losses
and credits incurred prior to such "ownership change" could not
exceed an amount equal to the product obtained by multiplying (i)
the aggregate value of the Company's outstanding capital stock
immediately prior to the "ownership change" (reduced by certain
capital contributions made during the immediately preceding two
years and certain other items) by (ii) the federal long-term
tax-exempt interest rate (5.31% at April 1996). Because the
aggregate value of the Company's outstanding stock and the
federal long-term tax-exempt interest rate fluctuate, it is
impossible to predict with any accuracy the annual limitation
upon the amount of taxable income of the Company that could be
offset by such loss carryforwards and credits were an "ownership
change" to occur in the future. While the carryovers not used as
a result of this limitation would remain available to offset
variable income in future years (again, subject to the
limitation), an ownership change could significantly defer the
utilization of the carryovers, accelerate payment of federal
income tax and cause a portion of the carryovers to expire
unused.
The Company knows of no stockholder currently owning more
than five percent, based on value, of the Company's capital stock
other than the persons listed in the table under "Security
Ownership of Certain Beneficial Owners, Directors and Officers"
above. The Company, however, during 1995, issued a number of
shares of Common Stock representing approximately 37.5% of the
currently outstanding number of shares of Common Stock of the
Company to plaintiffs in various stockholder litigation
settlements. If the Loan Transaction is approved by the
stockholders and the transactions contemplated thereby are
consummated, the designee of NPM Capital, as holder of the
Warrants, will become the owner of more than five percent of the
Company's capital stock. In addition, under the attribution
rules, since NPM Capital and NPO Holdings are affiliates, each of
NPM Capital and NPO Holdings, and their respective affiliates and
designees, will be deemed to be owner of more than five percent
of the Company's capital stock. It is possible that additional
accumulations of shares of Common Stock of the Company by NPO
Holdings, NPM Capital, their affiliates and designees or by the
persons listed in the table under "Security Ownership of Certain
Beneficial Owners, Directors and Executive Officers" or by
stockholders who become holders of at least five percent of the
Company's capital stock would result in an "ownership change"
with the consequent loss or deferral of the potential benefits
arising from the Company's carryforwards of net operating losses
and credits. The Stock Transfer Restrictions recommended by the
Board of Directors are intended to reduce the risk of such
additional accumulations by prohibiting certain transfers of the
Common Stock of the Company.
DESCRIPTION AND EFFECT OF PROPOSED STOCK TRANSFER AMENDMENTS
Upon approval of the Stock Transfer Amendments, the
Company's Certificate will be amended to add a new Article
ELEVENTH ("Article ELEVENTH"), and the By-laws will be amended to
add a new Article XII ("Article XII"), each of which will
prohibit, until three years from the Closing of the Loan
Transaction, unless otherwise permitted by the Board of Directors
in accordance with Article ELEVENTH and Article XII, any
individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity, as well as any
syndicate or group deemed to be a person under Section 14(d)(2)
of the Exchange Act (each a "Person"), who (i) purports to
purchase or acquire any shares of capital stock of the Company
from the Company by the exercise of a warrant or option or
otherwise or (ii) beneficially owns directly or through
attribution (as determined under Section 382 of Code) five
percent or more of the value of the outstanding shares of capital
stock of the Company or who, upon the acquisition of any shares
of capital stock of the Company, would beneficially own directly
or through attribution (as determined under Section 382 of the
Code) five percent or more of the value of the outstanding shares
of capital stock of the Company (each such Person described in
(i) or (ii) above being a "Restricted Holder"), from selling,
transferring, or disposing, or purchasing or acquiring in any
manner whatsoever, whether voluntarily or involuntarily, by
operation of law or otherwise (any such sale, transfer,
disposition, purchase, acquisition or contract being a
"Transfer"), any shares of capital stock of the Company or any
option, warrant or other security containing a right to purchase
or acquire capital stock of the Company (such warrant, option or
security being an "Option") or any securities convertible into or
exchangeable for capital stock of the Company. For purposes of
both Article ELEVENTH and Article XII, "capital stock" shall
include the Common Stock and the Preferred Stock of the Company
and any Option. Notwithstanding the preceding sentence, for
purposes of determining whether a Person owns five percent or
more of the value of the outstanding shares of capital stock of
the Company, Options shall be taken into account to the extent
taking such Options into account would cause a Person to become a
Restricted Holder. Each of Article ELEVENTH and Article XII will
provide, however, that notwithstanding the foregoing, nothing
shall prohibit the acquisition by NPM Capital and its affiliates,
including NPO Holdings, of the 1,000,000 shares of Common Stock
included in the Stock Purchase Agreement.
In order for the Stock Transfer Restrictions to be
effectively enforced, the Stock Transfer Amendments will further
provide that a Restricted Holder who proposes to transfer shares
of capital stock will be required, prior to the date of the
proposed Transfer, to request in writing that the Board of
Directors review the proposed Transfer and authorize or not
authorize such proposed Transfer. Any Transfer attempted to be
made in violation of the Stock Transfer Restrictions will be null
and void. In the event of an attempted or purported Transfer
involving a sale or disposition of capital stock in violation of
the Stock Transfer Restrictions, the Restricted Holder shall
remain the owner of such shares. In the event of an attempted or
purported Transfer involving the purchase or acquisition by a
Restricted Holder in violation of the Stock Transfer
Restrictions, the Company shall be deemed to be the exclusive and
irrevocable agent for the transferor of such capital stock. The
Company shall be such agent for the limited purpose of
consummating a sale of such shares to a Person who is not a
Restricted Holder (an "eligible transferee"), which may include,
without limitation, the transferor. The record ownership of the
subject shares shall remain in the name of the transferor until
the shares have been sold by the Company or its assignee, as
agent, to an eligible transferee.
The Board of Directors shall authorize a Transfer by a
Restricted Holder, or to a Restricted Holder, if, in its sole
discretion and judgment it determines that the Transfer will not
jeopardize the Company's preservation of its federal income tax
attributes pursuant to Section 382 of the Code. In deciding
whether to approve any proposed Transfer of capital stock by or
to a Restricted Holder, the Board of Directors may seek the
advice of counsel with respect to the Company's preservation of
its federal income tax attributes pursuant to Section 382 of the
Code and may request all relevant information from the Restricted
Holder with respect to all capital stock directly or indirectly
owned by such Restricted Holder. Any Person who makes such a
Request of the Board of Directors to Transfer shares of capital
stock shall reimburse the Company, on demand, for all costs and
expenses incurred by the Company with respect to any proposed
Transfer of capital stock, including, without limitation, the
Company's costs and expenses incurred in determining whether to
authorize that proposed Transfer.
The Company believes that, as of the Record Date, no
stockholder beneficially owns more than five percent in value of
the Company's outstanding capital stock, as defined herein to
include capital stock underlying the Options. If the Loan
Transaction is approved by the stockholders, NPO Holdings will
become the owner of more than five percent of the Company's
capital stock. In addition, under the attribution rules, NPM
Capital and NPO Holdings, as affiliates of NPO Holdings, will be
deemed to be owners of more than five percent of the Company's
capital stock. The Stock Transfer Restrictions, to the extent
applicable, would prohibit any other person, entity or group from
acquiring sufficient shares of Common Stock to cause such person,
entity or group to become the owner of more than five percent of
the value of Company's outstanding capital stock (within the
meaning of Section 382 of the Code).
Assuming adoption by stockholders of the Stock Transfer
Amendments, Article ELEVENTH and Article XII will each provide
that all certificates representing shares of Common Stock must
bear the following legend:
"Each of the Certificate of Incorporation (the
"Certificate") and the By-laws (the "By-laws") of the
Corporation contains restrictions prohibiting the sale,
transfer, disposition, purchase or acquisition of any
capital stock until . 1999, without the authorization
of the Board of Directors of the Corporation (the
"Board of Directors"), by or to any holder, other than
by or to any of the NPM Parties (as defined in Article
ELEVENTH of the Certificate and Article XII of the By-
laws), (a) who beneficially owns directly or through
attribution (as generally determined under Section 382
of the Internal Revenue Code of 1986, as amended (the
"Code")) five percent or more of the value of the then
issued and outstanding shares of capital stock of the
Corporation or (b) who, upon the sale, transfer,
disposition, purchase or acquisition of any capital
stock of the Corporation would beneficially own
directly or through attribution (as generally
determined under Section 382 of the Code) five percent
or more of the value of the then issued and outstanding
capital stock of the Corporation, if that sale,
transfer, disposition, purchase or acquisition would,
in the sole discretion and judgment of the Board of
Directors, jeopardize the Corporation's preservation of
its federal income tax attributes pursuant to Section
382 of the Code. The Corporation will furnish without
charge to the holder of record of this certificate a
copy of the Certificate and/or By-laws, containing the
above-referenced restrictions on transfer of stock,
upon written request to the Corporation at its
principal place of business."
The Board of Directors intends to issue instructions to or
make arrangements with the transfer agent for the Company's
Common Stock to implement the Stock Transfer Restrictions. These
instructions or arrangements may result in the delay or refusal
of transfers initially determined by the transfer agent to be in
violation of the Stock Transfer Restrictions, including such
transfers as might be ultimately determined by the Company and
its transfer agent not to be in violation of such restrictions.
The Company believes that such delays would be minimal but could
occur at any time while the Stock Transfer Restrictions are in
effect.
PROPOSED AMENDMENT NO GUARANTEE
Although the Stock Transfer Amendments are intended to
reduce the likelihood of an ownership change, it will not prevent
all transfers that might result in an "ownership change."
Furthermore, certain changes in relationships and other events
not addressed by the Stock Transfer Amendments could cause the
Company to undergo an "ownership change." Section 382 of the
Code is an extremely complex provision with respect to which
there are many uncertainties. In addition, the Company has not
requested a ruling from the IRS regarding the effectiveness of
the Stock Transfer Amendments and, therefore, there can be no
assurance that the IRS will agree that the Stock Transfer
Amendments are effective for purposes of Section 382 of the Code.
As a result of the foregoing, the Stock Transfer Amendments serve
to reduce, but do not eliminate, the risk that the Company will
undergo an ownership change. In addition, although the Company
believes that no "ownership change" has occurred as of the date
hereof, there can be no assurance that the Company has not
already undergone an "ownership change." Finally, there can be
no assurances that upon audit, the IRS would agree that all of
the Company's net operating loss, capital loss and tax credit
carryforwards are allowable. The Board of Directors nevertheless
believes that the adoption of the Stock Transfer Amendments is in
the best interests of the Company because it discourages
transfers that could cause or contribute to an "ownership
change."
OTHER CONSIDERATIONS
The Stock Transfer Amendments, if adopted, may be deemed to
have an "anti-takeover" effect because it will restrict the
ability of a person, entity or group to accumulate in the
aggregate, through transfers of Common Stock, more than five
percent, in value, of the Company's capital stock and the ability
of persons, entities or groups now owning more than five percent,
in value, of the Company's capital stock from acquiring
additional shares of Common Stock without the approval of the
Board of Directors, with the result that the Board of Directors
may be able to prevent any future takeover attempt, in its
discretion. Therefore, the Stock Transfer Amendments would
discourage or prevent accumulations of substantial blocks of
shares in which stockholders might receive a substantial premium
above market value. Similarly, because the Stock Transfer
Amendments operate to prevent the accumulation of more than five
percent of the Company's Common Stock, they will discourage the
assumption of control by third parties and tend to insulate
management against the possibility of removal. These results
might be considered disadvantageous by some stockholders.
However, such disadvantages are outweighed, in the opinion of the
Board of Directors, by the fundamental importance to the
Company's stockholders of maintaining the availability of the
Company's tax benefits. The Board of Directors is not aware of
any efforts of others to take control of the Company and has no
present intent to propose any provisions designed to inhibit a
change of control. The aforementioned "anti-takeover" effect of
the proposed Stock Transfer Amendments is not, however, the
reason for the Stock Transfer Restrictions. The Board of
Directors has adopted and proposed the Stock Transfer Amendments
in an effort to reduce the risk that the Company may be unable to
fully utilize the tax benefits described above as a result of
future transfers of the Common Stock of the Company.
The Board of Directors believes that attempting to safeguard
the tax benefits of the Company as described above is in the best
interests of the Company and its stockholders. Nonetheless, the
Stock Transfer Amendments, if adopted, could restrict a
stockholder's ability to acquire additional shares of the
Company's Common Stock to the extent those shares exceed the
specified limitations of the Stock Transfer Restrictions.
Furthermore, a stockholder's ability to dispose of his Common
Stock could be restricted as a result of the Stock Transfer
Restrictions. The Board of Directors has the discretion to
approve a transfer of the Company's Common Stock that would
otherwise violate the Stock Transfer Restrictions. If the Board
of Directors decides to permit a transfer that would otherwise
violate the Stock Transfer Restrictions, that transfer or later
transfers may result in an "ownership change" that would limit
the Company's use of its carryforwards. The Board of Directors
intends to consider any such attempted transfer individually and
determine at the time whether it is in the best interest of the
Company, after consideration of any factors that the Board deems
relevant, to permit such transfer notwithstanding that an
"ownership change" may then occur.
For more information on use of the Company's net operating
loss carryforwards and credits for federal income tax purposes,
see "Analysis of Certain Federal Income Tax Considerations
Affecting the Company's Net Operating Losses" attached hereto as
Exhibit H.
Approval by stockholders of the Stock Transfer Amendments as
contemplated in this Proposal No. 3 is required as a condition
(which may be waived or modified) to the closing of the Loan
Transaction.
VOTE NEEDED FOR APPROVAL
Pursuant to the DGCL, approval and adoption of the proposed
Stock Transfer Amendments requires the affirmative vote of a
majority of the outstanding shares of Common Stock of the
Company, whether voted at the Meeting in person or by proxy. The
Stock Transfer Amendments, if approved, will become effective
immediately following stockholder approval of the same. As soon
as practicable thereafter, the Company will file the Certificate
of Amendment with the Secretary of State of the State of
Delaware.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION
SETTING FORTH THE PROPOSED STOCK TRANSFER AMENDMENTS AND
DECLARING THEIR ADVISABILITY, AND HEREBY RECOMMENDS THAT THE
STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSED STOCK TRANSFER
AMENDMENTS.
PROPOSAL NO. 5 - CONDITION PRECEDENT TO LOAN TRANSACTION:
APPROVAL OF THE 1996 STOCK OPTION PLAN IN
CONNECTION WITH THE EXCHANGE OF CERTAIN
STOCK APPRECIATION RIGHTS
GENERAL
In connection with the Loan Transaction, and as a condition
precedent thereto, all current holders of performance units,
considered to be stock appreciation rights, granted under the
Company's Performance Plan, have agreed, as required by NPM
Capital, to exchange such stock appreciation rights for options
("Options") to be granted under the Company's 1996 Option Plan
concurrently with the ratification and approval by stockholders
of the 1996 Option Plan. The Company will terminate the
Performance Plan concurrently with the stockholders' ratification
and approval of the 1996 Option Plan, irrespective of whether
stockholders approve the Loan Transaction.
The Performance Plan authorizes the grant of performance
units, considered to be stock appreciation rights, to directors
and officers of the Company or any of its subsidiaries who are in
a position to make substantial contributions to the management,
growth and success of the business of the Company or its
subsidiaries. Under the Performance Plan, the holder of
performance units is entitled to receive upon exercise of such
units an amount equal to the Fair Market Value (as defined in the
Performance Plan) of a performance unit at the time of exercise
(plus all dividends with respect to a single share of the Common
Stock from the date of exercise) minus the Fair Market Value of a
performance unit at the time of grant, multiplied by the total
number of performance units being exercised by the holder. As of
May 24, 1996, 673,131 performance units were outstanding, each
fully vested and exercisable. As of such date, the Fair Market
Value of such performance units was less than the Fair Market
Value of such performance units as of their time of grant.
In contemplation of the Loan Transaction and in light of the
Company's operating cash flow deficiencies, the Board of
Directors deems it advisable to cancel the Performance Plan and,
with the consent of the holders of the performance units (which
consents have been obtained, subject to stockholder approval of
this Proposal No. 5), the stock appreciation rights granted
thereunder, in order for the Company to avoid having to make
potentially large outlays of cash upon the future exercise of
such stock appreciation rights if the market value of the
Company's Common Stock substantially increases.
As a replacement for the Performance Plan and the stock
appreciation rights that will be exchanged for Options upon the
Closing of the Loan Transaction if the stockholders ratify and
approve the 1996 Option Plan, the Board of Directors adopted the
1996 Option Plan in April 1996, subject to stockholder
ratification and approval at the Meeting. The Plan provides for
discretionary grants of Options to purchase up to 1,500,000
shares of Common Stock to officers and key Employees (as defined
below) of the Company, for automatic grants of 15,000 Options to
individuals upon their becoming Non-Employee Directors (as
defined below) of the Company and for annual grants of 15,000
Options to each Non-Employee Director of the Company. The
1,500,000 shares of Common Stock reserved for issuance under the
1996 Option Plan include the shares of Common Stock underlying
the Options to be granted (i) upon a person's becoming a Non-
Employee Director, (ii) annually to the Company's Non-Employee
Directors and (iii) to those holders of performance units who
will exchange their performance units for Options under the 1996
Option Plan concurrently with the ratification and approval by
stockholders of the 1996 Option Plan.
The 1996 Option Plan permits the grant only of stock options
which do not satisfy the requirements for, or which are not
intended to be eligible for, tax-favored treatment under Section
422 of the Code ("Non-Qualified Stock Options"). The exercise
price for each share of Common Stock underlying an Option granted
under the 1996 Option Plan, however, may not be less than the
fair market value for one share of the Company's Common Stock on
the date of grant of such Option; provided, however, that the
exercise price for each Option granted in exchange for currently
outstanding performance units under the Company's Performance
Plan shall be $0.21 per share.
The purpose of the Plan and the associated exchange of the
stock appreciation rights for Options is to promote the success
and enhance the value of the Company by eliminating potentially
large outlays of cash upon the future exercise of stock
appreciation rights and by linking the personal interests of
those participating under the 1996 Option Plan, including those
persons who may exchange stock appreciation rights for Options,
to those of the Company's stockholders.
As a cost savings measure, the Company intends to terminate
the Performance Plan and cause the stock appreciation rights
granted thereunder to be exchanged for Options under the 1996
Option Plan irrespective of whether stockholders approve the Loan
Transaction.
A copy of the 1996 Option Plan is attached hereto as Exhibit
K.
DESCRIPTION OF PLAN
Administration
The Plan will be administered by the Compensation Committee
of the Board of Directors (the "Committee"), which at all times
must be composed of at least two directors who meet the
requirements of disinterested administrators under Section 16 of
the Exchange Act. Subject to the express provisions of the Plan,
including the provisions of the Plan relating to the grant of
Options to Non-Employee Directors (as defined below), the
Committee will have the authority, in its discretion, to
determine the persons to whom Options shall be granted, the times
when such Options shall be granted, the number of Options, the
exercise price of each Option (subject to the requirement,
however, that the exercise price of the Option (other than
Options granted in exchange for currently outstanding performance
units) not be less than the fair market value for one share of
the Company's Common Stock as of the date of grant of the
Option), the period(s) during which such Option shall be
exercisable (whether in whole or in part), the restrictions to be
applicable to Options and the other terms and provisions thereof
(which need not be identical).
Eligible Persons
All officers and full-time employees of the Company,
including all officers and full-time employees who also serve as
Directors of the Company, and all consultants of the Company
(each, an "Employee"), and all members of the Board of Directors
who are not officers of the Company and who are not regularly
employed on a salaried basis as employees of the Company (each, a
"Non-Employee Director") will be eligible to participate in the
Plan.
Options Granted to Employees
The Committee also will have the authority, in its
discretion, to grant Options to Employees on such terms and
conditions as determined by the Committee. The Committee will be
given complete discretion in determining the exercise price of
any Option, provided, however, that the exercise price for each
Option granted under the Plan (other than Options granted in
exchange for currently outstanding performance units) shall be
not less than the fair market value per share of Common Stock as
of the date of grant of such Option. The price per share of
Common Stock with respect to each Option shall be payable at the
time the Option is exercised. Such price shall be payable in
cash or, upon the discretion of the Committee, by having withheld
from the total number of shares of Common Stock to be acquired
upon the exercise of an Option that number of shares having a
value equal to the exercise price of the Option, the effect of
which shall be that an Optionee can in sequence utilize such
newly acquired shares of Common Stock in payment of the exercise
price of the entire Option, together with such cash as shall be
paid in respect of fractional shares or by engaging in any form
of "cashless" exercise. Shares of Common Stock delivered to the
Company in payment of the exercise price shall be valued at the
Fair Market Value (as defined in the Plan) of the Common Stock on
the date preceding the date of the exercise of the Option.
The Committee shall have the discretion either (i) to
establish provisions relating to the forfeiture of an Option upon
the Employee's termination of employment with the Company or (ii)
to grant an Option not subject to any forfeiture provisions upon
the Employee's termination of employment with the Company. No
Option shall be granted to an Employee under the Plan with a term
longer than ten (10) years from the date of grant of the Option.
The Options to be granted in exchange for currently outstanding
performance units will not contain any forfeiture provisions upon
the Optionholder's termination of employment with the Company.
Options Granted to Non-Employee Directors
Each Non-Employee Director will automatically be granted an
Option to purchase shares of Common Stock, subject to
availability under the Plan, as follows: (i) upon the person's
becoming a Non-Employee Director, an Option to purchase 15,000
shares of Common Stock (the "Initial Grant") and (ii) on the
anniversary date in each subsequent calendar year of the Initial
Grant, or, if the person is a Non-Employee Director at the time
of stockholder ratification and approval of the 1996 Option Plan,
then, on the anniversary date in each subsequent calendar year of
the stockholders' ratification and approval of the 1996 Option
Plan, an Option to purchase 15,000 additional shares of Common
Stock (the "Annual Grant"). The exercise price of the shares of
Common Stock underlying the Initial Grant and each Annual Grant
shall be the fair market value of such shares on the date of each
respective grant.
All Options granted to Non-Employee Directors will vest
immediately and will be exercisable for a term of ten (10) years
from the date of grant of the Option.
The methods of exercising Options granted to Non-Employee
Directors are the same as those for exercising Options granted to
Employees.
Non-Employee Directors will be ineligible to receive any
other grant or award under any section of the 1996 Option Plan
other than the section specifically relating to grants to Non-
Employee Directors. The provisions of the 1996 Option Plan
relating to grants to Non-Employee Directors may not be amended
more than one time in any six month period, other than to comport
with changes in the Code, the Employee Retirement Income Security
Act of 1974, as amended, or any rules or regulations promulgated
thereunder.
Prior Board Approval for Exercise of Options
Any Employee or Non-Employee wishing to exercise his Option
must, prior to exercising such Option, furnish to the Board of
Directors notice (the "Notice") of such intent to exercise his
Option. Upon receipt of the Notice, the Board of Directors will
have seven business days in which to determine whether exercise
of such Option by the Employee will cause an "ownership change"
(as such term is defined in Section 382 of the Code) in the
Company which would have an adverse effect on the Company's use
of its "net operating loss carryforwards" (as such term is
defined in Section 382 of the Code) (an "Adverse Ownership
Change"). If the Board of Directors, in its reasonable
discretion, determines that such exercise would cause an Adverse
Ownership Change, the Board of Directors shall deny approval for
the exercise and such holder shall not be permitted to exercise
the Option. If, however, the Board of Directors determines, in
its reasonable discretion, that such exercise would not cause an
Adverse Ownership Change, the Board of Directors shall approve
the exercise of the Option. In either case, the Board of
Directors shall provide to the Employee notice of its approval or
denial within seven business days of receipt of the Notice. The
determination by the Board of Directors shall be conclusive and
binding on the Company and the Employee.
Adjustments
Upon the occurrence of certain events, including stock
dividends, reorganizations, recapitalizations or similar changes
or transactions of or by the Company, the aggregate number and
kind of shares available for issuance under the 1996 Option Plan
or pursuant to an individual Option grant agreement will be
appropriately adjusted and all of the provisions of the 1996
Option Plan with respect to the number and kind of shares so
available will likewise be adjusted so as to maintain the
economic reality, and the intent, of the grant.
Merger or Consolidation of the Company
Upon (i) the merger or consolidation of the Company with or
into another corporation, if the agreement of merger or
consolidation does not provide for (a) the continuance of the
Options granted under the 1996 Option Plan or (b) the
substitution of new Options of equivalent value for Options
granted under the 1996 Option Plan, or for the assumption of such
Options by the surviving corporation or (ii) the dissolution,
liquidation, or sale of substantially all the assets, of the
Company, the holder of any such Option theretofore granted and
still outstanding (and not otherwise expired) shall have the
right immediately prior to the effective date of such merger,
consolidation, dissolution, liquidation or sale of assets to
exercise such Option(s) in whole or in part without regard to any
installment provision that may have been made part of the terms
and conditions of such Option(s). All such Options which are not
so exercised shall be forfeited as of the effective time of such
merger, consolidation, dissolution, liquidation or sale of
assets.
Amendment of 1996 Option Plan
The Board of Directors may, at any time and from time to
time, subject to the restrictions on amendment set forth with
respect to Option grants to Non-Employee Directors, alter, amend,
suspend or terminate the 1996 Option Plan in whole or in part;
provided, however, that no amendment which requires stockholder
approval in order for the 1996 Option Plan to continue to comply
with Rule 16b-3 under the Exchange Act, including any successor
to such Rule, shall be effective unless such amendment shall be
approved by the requisite vote of the stockholders of the Company
entitled to vote thereon.
Term of 1996 Option Plan
The 1996 Option Plan shall remain in effect until the
earlier of March 31, 2006, or the tenth anniversary of the date
the 1996 Option Plan was adopted by the Board of Directors,
unless sooner terminated by such Board of Directors. Options
outstanding as of the termination date of the 1996 Option Plan
shall remain valid obligations of the Company in accordance with
their terms irrespective of the termination of the 1996 Option
Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised by its counsel that under
currently applicable provisions of the Code, the following tax
consequences may be expected by an Optionee and by the Company in
respect of the grant and exercise of Options under the 1996
Option Plan.
Consequences to the Optionee
There are no federal income tax consequences to the Optionee
by reason of the grant of an Option under the 1996 Option Plan.
Upon exercise of the Option, the Optionee will generally
recognize ordinary income in an amount equal to the excess of the
fair market value of the shares of Common Stock at the time of
exercise over the amount paid as the exercise price. The
Committee shall have the authority to establish a procedure
whereby a number of shares of Common Stock or other securities
may be withheld from the total number of shares of Common Stock
or other securities to be issued upon exercise of an Option to
meet the obligation of withholding for taxes incurred by the
Optionee upon such exercise.
The Optionee's tax basis in the shares acquired pursuant to
the exercise of an Option will be the amount paid on exercise,
plus the amount of any ordinary income recognized by the Optionee
upon exercise.
If an Optionee disposes of shares of the Company's Common
Stock acquired upon exercise of an Option in a taxable
transaction, the Optionee will recognize capital gain or loss in
an amount equal to the difference between his basis (as discussed
above) in the shares sold and the amount realized upon
disposition. Any such capital gain or loss will be long-term or
short-term depending on whether the shares of the Company's
Common Stock were held for more than one year from the date such
shares were transferred to the Optionee.
Consequences to the Company
There are no federal income tax consequences to the Company
by reason of the grant of Options.
At the time the Optionee recognizes ordinary income from the
exercise of an Option, the Company will be entitled to a federal
income tax deduction in the amount of the ordinary income so
recognized (as described above) so long as it timely reports to
the IRS the ordinary income recognized by the Optionee by reason
of the exercise of the Option.
Other Tax Consequences
The foregoing discussion is not a complete description of
the federal income tax aspects of Options issued pursuant to the
1996 Option Plan. In addition, administrative and judicial
interpretations of the application of the federal income tax laws
are subject to change. Furthermore, the foregoing discussion
does not address state or local tax consequences.
GRANT OF OPTIONS IN EXCHANGE FOR PERFORMANCE UNITS
Pursuant to the 1996 Option Plan, Options to purchase an
aggregate of 673,131 shares of Common Stock will be granted to
those persons exchanging presently outstanding performance units
for Options concurrently with the ratification and approval by
stockholders, at the Meeting, of the 1996 Option Plan. These
Options will have a $0.21 per share exercise price.
OTHER CONSIDERATIONS
Ratification and approval by stockholders of the 1996 Option
Plan as contemplated in this Proposal No. 5 is required as a
condition (which may be waived or modified) to the closing of the
Loan Transaction.
VOTE NEEDED FOR APPROVAL
Approval of the 1996 Option Plan requires the affirmative
vote of a majority of the shares of Common Stock voting, in
person or by proxy, at the Meeting. Insofar as the Non-Employee
Directors of the Company will personally benefit from the
adoption of the 1996 Option Plan, there may be an inherent
conflict of interest in any recommendation made by the Board of
Directors with respect thereto.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION
APPROVING THE 1996 OPTION PLAN AND DECLARING ITS ADVISABILITY,
AND HEREBY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
FOR RATIFICATION AND ADOPTION OF THE 1996 OPTION PLAN.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
P&A Associates, a Pennsylvania general partnership of which
Mr. Casnoff, President and a Director of the Company, is a
partner, provided management services for certain properties
located in Philadelphia, Pennsylvania which are owned by
partnerships affiliated with the Company. During 1995, these
properties were transferred to unrelated parties and no
management fees were paid to P&A Associates. Further, since
February 1992, the Company and related entities have used a
partner of Mr. Casnoff in P&A Associates to perform legal
services for the Company and affiliates in connection with
certain real estate transactions. Mr. Casnoff's partner earned
$2,775 in legal fees from the Company and affiliates in 1995.
Certain officers and directors of the Company serve as
officers and directors of Kenbee, which was the Company's largest
debtor and previous manager, and control over which has been
given to Mr. Casnoff by virtue of certain voting trust
agreements. Mr. Casnoff, who also serves as President of Kenbee,
acquired sole voting power over the shares of capital stock of
R&M Holding, a Delaware corporation and the sole stockholder of
Kenbee, pursuant to the terms of a Voting Trust Agreement dated
May 15, 1991, between R&M Holding and Mr. Casnoff, as trustee.
The shares subject to the Agreement are owned by Roger D. Stern
and Martin Wright, each a 50% owner of the shares of capital
stock of R&M Holding, and each a former officer and director of
the Company. The term of the Voting Trust Agreement expires on
January 1, 2000 as to 50% of the shares of capital stock owned by
Mr. Stern and on February 28, 2001 as to 50% of the shares of
capital stock owned by Mr. Wright.
Rosenthal & Rosenthal Inc., a commercial finance concern of
which Mr. Rosenberg, a Director of the Company, is Executive Vice
President, made a loan to the Company in 1990 in the aggregate
principal amount of $1,331,700, secured by the assignment of a
certain promissory note and mortgage executed by the Company.
Regular payments of principal and interest on this loan were made
through September 1990. In 1992, the Company completed a
settlement in which this loan was exchanged for the assignment to
Rosenthal & Rosenthal, Inc. of a wraparound mortgage, certain
limited partnership units and options to acquire 600,000 shares
of the Company's Common Stock for $1.00 per share. Rosenthal &
Rosenthal, Inc. was also provided with a note with a face value
of $107,000 bearing interest at 10% per annum and 214,000
warrants to purchase Common Stock for $1.00 per share, which
warrants would have expired in April 1998. Rosenthal &
Rosenthal, Inc. had an option to return either the wraparound
mortgage or the notes and warrants within five years of the
settlement. In February 1996, the settlement agreement with
Rosenthal & Rosenthal was amended whereby the Company agreed to
issue to Rosenthal & Rosenthal warrants to purchase 800,000
shares of the Company's Common Stock at $.50 per share in
consideration of Rosenthal & Rosenthal's surrender of all options
to purchase common stock of the Company for $1.00 per share, the
return of $107,000 of Company debentures accompanied by 214,000
warrants to purchase the Company's Common Stock at $1.00 per
share and the release of the Company from certain contingent
obligations. Rosenthal & Rosenthal's interests in the promissory
note and mortgage and in certain partnership units were not
effected by this amendment.
Since June 1992, the Company and affiliates have
periodically retained Fox, Rothschild, O'Brien & Frankel to
perform certain legal services in connection with various
matters. Mr. Casnoff, director and President, serves
as Of Counsel to Fox, Rothschild, O'Brien & Frankel.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board has selected the firm of Richard A. Eisner &
Company LLP, independent auditors, as auditors of the Company for
the next fiscal year. The Company has been advised by such firm
that neither it nor any member or associate of such firm has any
relationship with the Company or with any of its affiliates other
than as independent accountants and auditors.
Representatives of Richard A. Eisner & Company LLP will be
present at the Meeting, will have an opportunity to make any
statement they may desire to make, and will be available to
answer appropriate questions from stockholders.
MISCELLANEOUS
All of the costs and expenses in connection with the
solicitation of proxies with respect to the matters described
herein will be borne by the Company. In addition to solicitation
of proxies by use of the mails, Directors, officers and employees
(who will receive no compensation therefor in addition to their
regular remuneration) of the Company may solicit the return of
proxies by telephone, telegram or personal interview.
The Company intends to retain a proxy solicitation firm to
assist the Company in its solicitation of proxies in connection
with the Meeting.
The Company will request banks, brokerage houses and other
custodians, nominees and fiduciaries to forward copies of the
proxy material to their principals and to request instructions
for voting the proxies. The Company may reimburse such banks,
brokerage houses and other custodians, nominees and fiduciaries
for their expenses in connection therewith.
Action may be taken on the business to be transacted at the
Meeting on the date specified in the Notice of Meeting or on any
date or dates to which such Meeting may be adjourned.
IMPORTANT NOTE: STOCKHOLDERS WHO HOLD SHARES OF COMMON
--------------
STOCK IN THE NAME OF ONE OR MORE BROKERAGE FIRMS, BANKS OR
NOMINEES CAN ONLY VOTE THEIR SHARES OF COMMON STOCK WITH RESPECT
TO THE MATTERS SET FORTH IN PROPOSAL NOS. 2 THROUGH 5 IF SUCH
BROKERAGE FIRMS, BANKS OR NOMINEES GIVE SUCH STOCKHOLDERS A LEGAL
PROXY TO VOTE SUCH SHARES OF COMMON STOCK OR IF SUCH STOCKHOLDERS
GIVE SUCH BROKERAGE FIRMS, BANKS OR NOMINEES SPECIFIC
INSTRUCTIONS AS TO HOW TO VOTE SUCH STOCKHOLDERS' COMMON STOCK.
ACCORDINGLY, IT IS CRITICAL THAT STOCKHOLDERS WHO HOLD SHARES OF
COMMON STOCK IN THE NAME OF ONE OR MORE BROKERAGE FIRMS, BANKS OR
NOMINEES PROMPTLY CONTACT THE PERSON RESPONSIBLE FOR SUCH
STOCKHOLDERS' ACCOUNTS AND GIVE SPECIFIC INSTRUCTIONS AS TO HOW
SUCH SHARES OF COMMON STOCK SHOULD BE VOTED WITH RESPECT TO THE
MATTERS SET FORTH IN PROPOSAL NOS. 2 THROUGH 5.
STOCKHOLDER PROPOSALS
Any stockholder of the Company may present a proposal for
consideration at a future meeting of the stockholders of the
Company. Any proposal for consideration at the next meeting must
be received by the Company at its principal offices, 24 River
Road, Bogota, New Jersey 07603, Attention: Robert W. LoSchiavo,
Vice President and General Counsel, no later than January 1,
1997.
ADDITIONAL FINANCIAL INFORMATION
Stockholders desiring additional information about the
Company and its operations should refer to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995,
a copy of which constitutes a portion of the Annual Report to
Stockholders being mailed concurrently with this Proxy Statement.
Please relay any questions to the Company at 201-487-1300.
By Order of the Board of Directors
Robert W. LoSchiavo
Secretary
. ,1996
<PAGE>
EXHIBIT A
AMENDED AND RESTATED LOAN AGREEMENT
by and between
DVL, INC.,
as Borrower
and
NPM CAPITAL LLC,
as Lender
Dated as of March 27, 1996
<PAGE>
TABLE OF CONTENTS
Section Page
1. DEFINITIONS...................................... 1
2. TERMS OF ACQUISITION OF EXISTING LOANS AND TERMS
OF AMENDED AND RESTATED NOTE; AND PAYMENTS ON
ACCOUNT OF THE MERIDIAN DEBT AND/OR FEDERAL
INSURANCE COMPANY DEBT........................... 20
2.1 Existing Loans and the Meridian Debt and
Federal Insurance Company Debt.............. 20
2.2 Existing Loans and Existing Loan Documents.. 22
2.3 Cross Collateralization..................... 22
2.4 Single Loan................................. 23
2.5 Note........................................ 23
2.6 Mandatory Payments of Principal and Accrued
Interest on the Note........................ 23
2.7 Application of Payments..................... 24
2.8 Other Payments.............................. 25
2.9 Maximum Lawful Rate......................... 25
2.10 Receipt of Payments......................... 25
2.11 Optional Prepayment......................... 26
2.12 No Advances................................. 26
2.13 Taxes....................................... 26
2.14 Cure and Reinstatement in Chapter 11
Bankruptcy Proceeding....................... 26
2.15 Access...................................... 27
2.16 Indemnity................................... 27
3. CONDITIONS PRECEDENT............................. 27
3.1 Conditions Precedent to Effectiveness of
Lender's Obligations Under This Agreement... 27
3.2 Conditions Precedent to Funding of
Meridian/Federal Payment Amount............. 30
3.3 Deliveries Upon Execution of this
Agreement................................... 30
3.4 Deliveries at Closing....................... 31
3.5 Closing Date................................ 33
3.6 Payment of Lender Expenses and Break-Up
Fee......................................... 33
3.7 Obligations of Borrower..................... 34
3.8 Right of Lender to Terminate This
Agreement................................... 34
4. REPRESENTATIONS AND WARRANTIES................... 35
4.1 Corporate Existence; Compliance with
Law......................................... 35
4.2 Executive Offices........................... 35
4.3 Subsidiaries................................ 35
4.4 Corporate Power; Authorization; Enforceable
Obligations................................. 36
4.5 Financial Matters/Liabilities/Material
Adverse Effect.............................. 36
4.6 Borrower's Ownership of Property; Liens..... 37
4.7 Affiliate Partnerships' Ownership of
Property; Liens............................. 38
4.8 Other Transactions, Agreements and Liens.... 39
4.9 No Material Default......................... 40
4.10 No Burdensome Restrictions.................. 40
4.11 Labor Matters............................... 40
4.12 Investment Company Act...................... 40
4.13 Margin Regulations.......................... 41
4.14 Taxes....................................... 41
4.15 ERISA....................................... 42
4.16 No Litigation............................... 43
4.17 Brokers..................................... 43
4.18 Outstanding Stock; Options; Warrants, Etc... 44
4.19 Patents, Trademarks, Copyrights and
Licenses.................................... 44
4.20 Intentionally Omitted....................... 44
4.21 Environmental Protection.................... 44
4.22 Real Estate Mortgages....................... 45
4.23 Existing Loan Documents..................... 45
4.24 Wrap Notes and Wrap Mortgages............... 45
4.25 Underlying Notes and Underlying Mortgages... 46
4.26 Investor Notes.............................. 47
4.27 Affiliate Partnerships...................... 47
4.29 GP Fees/General Partner Advances/Limited
Partnership Loans........................... 48
4.30 Assets of Borrower Pledged to Secure Other
Secured Debt................................ 48
4.31 Securities Acts............................. 48
4.32 Governmental Regulation..................... 48
4.33 No Operating Subsidiaries................... 49
4.34 Non-Settling Stockholders................... 49
4.35 Non-Settling Limited Partners............... 49
4.36 Non-Settling Partnerships................... 49
4.37 Settlement Agreement Obligations............ 49
4.38 Full Disclosure............................. 49
5. FINANCIAL STATEMENTS AND INFORMATION............. 49
5.1 Reports and Notices......................... 49
5.2 Communication with Accountants.............. 52
6. AFFIRMATIVE COVENANTS............................ 52
6.1 Maintenance of Existence and Conduct of
Business.................................... 52
6.2 Payment of Obligations...................... 52
6.3 Books and Records........................... 53
6.4 Litigation.................................. 53
6.5 Insurance................................... 53
6.6 Compliance with Law......................... 53
6.7 Agreements.................................. 53
6.8 Supplemental Disclosure..................... 54
6.9 Employee Plans.............................. 54
6.10 SEC Filings; Certain Other Notices.......... 55
6.11 Refinancing of Underlying Notes............. 55
6.12 Sale of Certain Assets...................... 55
6.13 Collection of Investor Notes................ 55
6.14 Leases; New Real Estate..................... 56
6.15 Environmental Matters....................... 57
6.16 Taxes....................................... 58
6.17 Cooperation................................. 58
6.18 Stockholder Approval........................ 58
6.19 Equity Documents............................ 59
7. NEGATIVE COVENANTS............................... 59
7.1 Mergers, Etc................................ 60
7.2 Investments; Loans and Advances............. 60
7.3 Indebtedness................................ 60
7.4 Employee Loans.............................. 61
7.5 Capital Structure........................... 61
7.6 No Change in Fiscal Year.................... 61
7.7 Restricted Payments......................... 61
7.8 No Restrictions on Subsidiary Distributions
to Borrower................................. 61
7.9 Disposal of Subsidiary Stock................ 61
7.10 Maintenance of Business..................... 62
7.11 Transactions with Affiliates or Other
Entities.................................... 62
7.12 Management/Servicing Fees................... 62
7.13 Guaranteed Indebtedness..................... 62
7.14 Liens....................................... 62
7.15 No Negative Pledge.......................... 62
7.16 Payment or Modification of Restricted Debt.. 63
7.17 Cancellation of Indebtedness................ 63
7.18 Capital Expenditures........................ 63
7.19 Lease Obligations........................... 63
7.20 Sales of Assets............................. 63
7.21 Acquisition of Assets....................... 64
7.22 Leases...................................... 64
7.23 Events of Default........................... 64
7.24 Hedging Transactions........................ 64
7.25 Compensation................................ 64
7.26 Employee Plans.............................. 65
7.27 Environmental Liabilities................... 65
7.28 Disposal of Investor Loan Documents......... 65
7.29 Modification of Affiliate Partnership
Agreement................................... 65
7.30 Modification of Settlement Agreements....... 65
7.31 Replacement Public Accounting Firm.......... 66
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES........... 66
8.1 Events of Default........................... 66
8.2 Remedies.................................... 68
8.3 Waivers by Borrower......................... 69
9. MISCELLANEOUS.................................... 69
9.1 Complete Agreement; Modification of
Agreement; Sale of Interest................. 69
9.2 Fees and Expenses........................... 70
9.3 No Waiver by Lender......................... 71
9.4 Remedies.................................... 72
9.5 Waiver of Jury Trial........................ 72
9.6 Severability................................ 72
9.7 Parties..................................... 72
9.8 Conflict of Terms........................... 72
9.9 Governing Law............................... 72
9.10 Notices..................................... 73
9.11 Equitable Relief............................ 74
9.12 Release of Claims........................... 74
9.13 No Novation................................. 74
9.14 Negation of Partnership..................... 74
9.15 Federal Income Tax Disclosure............... 74
9.16 Disclosure by Lender of Affiliate Status of
Servicer and Permitted Stockholders/
Acknowledgment and Waiver by Borrower....... 75
9.17 Termination of Letter of Intent............. 75
9.18 Survival.................................... 75
9.19 Reliance.................................... 76
9.20 Enforcement................................. 76
9.21 Counterparts................................ 76
9.22 Further Assurances.......................... 76
SIGNATURES............................................
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
LIST OF EXHIBITS
Exhibit A - Note
Exhibit B - Primary Collateral
Exhibit C - Balance of Existing Loans, Meridian Debt and
Federal Insurance Company Debt
Exhibit D - Existing Loan Transfer Documents
Exhibit E - Intentionally Omitted
Exhibit F-1 - Amended Articles of Incorporation
Exhibit F-2 - Intentionally Omitted
Exhibit G - Amendment to Limited Partner Settlement
Agreement
Exhibit H - Intentionally Omitted
Exhibit I - Non-Qualified Stock Option Plan of Borrower
Exhibit J - Security Agreement
Exhibit K - Intentionally Omitted
Exhibit L - Stock Pledge Agreement
<PAGE>
LIST OF SCHEDULES
Schedule 4.1 - Qualified To Do Business Locations
Schedule 4.2 - Executive Offices
Schedule 4.3 - Subsidiaries
Schedule 4.4 - Consents
Schedule 4.5.c. - Liabilities Not Listed on Balance
Sheet
Schedule 4.5.d. - Material Events
Schedule 4.5.e - Material Adverse, Effect
Schedule 4.5.f - Agreement between Borrower and
Federal Deposit Insurance
Corporation
Schedule 4.6, Part One - Real Estate, Leases and Third Party
Liens for properties held by
Borrower or any Subsidiary as
Lessee Real Estate, Leases and
Third Party Liens for properties
held by
Schedule 4.6, Part Two - Borrower or any Subsidiary as
Lessor
Schedule 4.7 - Partnership Real Estate,
Partnership Leases and Third Party
Real Estate Liens
Schedule 4.8 - Other Transactions, Agreements and
Liens
Schedule 4.11 - Labor Matters
Schedule 4.14 - Tax Matters
Schedule 4.15 - ERISA Plans
Schedule 4.16 - Litigation
Schedule 4.17 - Brokers
Schedule 4.18 - Stock Ownership and Equity
Documents
Schedule 4.21 - Environmental Protection
Schedule 4.22 - Real Estate Mortgages
Schedule 4.24 - Wrap Notes and Wrap Mortgages
Schedule 4.25 - Underlying Notes and Underlying
Mortgages
Schedule 4.26 - Investor Loan Documents
Schedule 4.27 - Affiliate Partnerships/Agreements
Schedule 4.28 - Limited Partnership
Interests/Agreements
Schedule 4.29 - GP Fees/General Partner
Advances/Limited Partnership Loans
Schedule 4.30 - Other Secured Debt Collateral
Schedule 4.32 - Governmental Regulation
Schedule 4.33 - Assets of PSC and DVC
Schedule 4.34 - Non-Settling Stockholders of
Borrower
Schedule 4.35 - Non-Settling Limited Partners
Schedule 4.36 - Non-Settling Affiliate Partnerships
Schedule 4.37 - Settlement Agreements
Schedule 6.1 - "Transacting Business" Names
Schedule 6.11 - Underlying Notes To Be Refinanced
Schedule 7.3 - Permitted Indebtedness
Schedule 7.14 - Permitted Liens
Schedule 7.16.b - Modification of Westrock Loan and
Westrock Loan Documents
Schedule 7.25 - Severance and Termination Payments
* * * * * * * *
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
AMENDED AND RESTATED LOAN AGREEMENT, dated as of
March 27, 1996, between DVL, INC., a Delaware corporation having
an office at 24 River Road, Bogota, New Jersey 07603
("Borrower"), and NPM CAPITAL LLC, a Delaware limited liability
--------
company, with an address c/o National Financial Corporation, 621
N.W. 53rd Avenue, Boca Raton, Florida 33487 ("Lender").
------
W I T N E S S E T H:
- - - - - - - - - -
A. Lender intends to acquire or to lend funds to
Borrower which shall be used to satisfy certain indebtedness
owing by Borrower constituting the Existing Loans and on account
of the Meridian Debt and/or the Federal Insurance Company Debt
(as hereinafter defined).
B. In the event Lender acquires the Existing Loans,
Borrower has requested Lender to consolidate and amend the terms
and provisions of such indebtedness and Lender has agreed to do
so, but only upon the terms, and subject to the conditions,
contained herein.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter contained, the parties hereto
agree as follows:
1. DEFINITIONS
-----------
Each capitalized term used in this Agreement shall have
(unless otherwise provided elsewhere in this Agreement) the
following respective meaning when used herein:
"Affiliate" shall mean, with respect to any Person, (i)
each other Person that directly or indirectly owns or holds five
percent (5%) or more of any class of voting stock or partnership
or other voting interests of such Person or a Subsidiary of such
Person or (ii) each Person of which five percent (5%) or more of
the voting stock or partnership or other voting interests is
directly or indirectly beneficially owned or held by such Person
or a Subsidiary of such Person, (iii) each Person that, directly
or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person or any
Affiliate of such Person or (iv) each of such Person's officers,
directors, employees, joint venturers and partners. For the
purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of its management or policies, whether
through the ownership of voting securities, partnership or other
voting interests by contract or otherwise. For the purposes of
this Agreement, Servicer and Permitted Stockholders shall not be
deemed to be Affiliates of Borrower or any Subsidiary of
Borrower.
"Affiliate Partnerships" shall mean the collective
reference to all limited partnerships in which Borrower is now,
or shall hereafter be, a general partner.
"Affiliate Mortgage Partnerships" shall mean the
collective reference to those Affiliate Partnerships which own
Partnership Real Estate that is covered by a Lien in favor of, or
for the benefit of, Borrower or any of its Subsidiaries.
"Affiliate Non-Mortgage Partnerships" shall mean the
collective reference to those Affiliate Partnerships which own
Partnership Real Estate that is not covered by a Lien in favor
of, or for the benefit of, Borrower or any of its Subsidiaries.
"Affiliate Partnership Agreements" shall mean the
collective reference to all limited partnership agreements, and
all amendments, modifications and supplements thereto, with
respect to each of the Affiliate Partnerships.
"Agreement" shall mean this Amended and Restated Loan
Agreement, including all amendments, modifications and
supplements hereto and any appendices, exhibits or schedules to
any of the foregoing, and shall refer to the Agreement as the
same may be in effect at the time such reference becomes
operative.
"A.I. Credit Loan" shall mean the Indebtedness of
Borrower evidenced by that certain Loan and Security Agreement,
dated September 29,1987, by and between Borrower and A.I. Credit
Corp., as amended, with respect to a loan in the original
principal amount of $6,966,990.16.
"A.I. Credit Loan Documents" shall mean the collective
reference to all promissory notes, loan agreements, security
agreements, mortgages, assignments, title insurance policies and
other documents evidencing, securing or executed in connection
with, the A.I. Credit Loan.
"A.I. Credit Loan Transfer Documents" shall mean the
collective reference to the documents executed and delivered by
the holder of the A.I. Credit Loan and Lender in connection with
the acquisition of the A.I. Credit Loan by Lender.
"Amsave Debt" shall mean the Indebtedness of Borrower
evidenced by that certain Revolving Line of Credit and Security
Agreement, dated November 29, 1989, by and between Borrower and
American Savings Bank (now Federal Deposit Insurance Corporation,
as receiver for American Savings Bank), as amended, with respect
to a line of credit in the original principal amount of up to
$13,000,000, together with all other documents securing,
evidencing or executed in connection with such Indebtedness, as
the foregoing may be amended, modified and supplemented from time
to time in accordance with this Agreement.
"Annual Minimum Interest Payment" shall have the
meaning assigned to it in Section 2.6.b.
-------------
"Applicable Percentage Reduction" shall have the
meaning assigned to it in Section 2.6.c.
-------------
"Borrower" shall have the meaning assigned to it in the
Preamble to this Agreement.
"Break-Up Fee" shall have the meaning assigned to in
Section 3.6.
-----------
"Business Day" shall mean any day that is not a
Saturday, a Sunday or a day on which banks are required or
permitted to be closed in the State of New York.
"Cadle Loan" shall mean the Indebtedness of Borrower to
The Cadle Company evidenced by that certain Credit Agreement,
dated as of January 11,1993, by and between Apple Bank for
Savings, a New York savings bank, the predecessor-in-interest to
The Cadle Company and Del-Val Financial Corporation (now known as
DVL, Inc.), with respect to a line of credit up to a principal
amount of $7,000,000, together with all other documents securing,
evidencing or executed in connection with such Indebtedness, as
the foregoing may be amended, modified and supplemented from time
to time in accordance with this Agreement.
"Capital Expenditures" shall mean all payments for any
fixed assets or improvements or for replacements, substitutions
or additions thereto, that have a useful life of more than one
year or which are required to be capitalized under GAAP. Capital
Expenditures shall not include payments made with respect to
assets that have suffered a casualty, loss or condemnation to the
extent such expenditures were funded with insurance or
condemnation proceeds received as a result of such casualty, loss
or condemnation.
"Cash Flow" shall mean, with respect to Borrower and
each of its Subsidiaries for any period, the collective reference
to the sum of (1) the gross proceeds generated by the Primary
Collateral (including, without limitation, all payments of
interest and principal, all proceeds from the refinancing of any
notes and mortgages (including without limitation the Underlying
Mortgages and the Wrap Mortgages) and all proceeds of any payoff
of, or sale of, or with respect to, any of the Primary
Collateral), plus (2) the excess of (A) the gross proceeds
---- -------------
generated by all of the Wrap Notes and Wrap Mortgages included
within the collateral securing the Other Secured Debt (including,
without limitation, all payments of interest and principal, all
proceeds from the refinancing of any notes and mortgages
(including without limitation the Underlying Mortgages and the
Wrap Mortgages included within such collateral) and all proceeds
of any payoff of, or sale of, or with respect to such collateral)
over (B) any and all payments then due and payable under, or with
----
respect to, such Other Secured Debt plus (3) from and after the
----
occurrence of an Event of Default, any and all cash and other
proceeds received by Borrower and/or Lender on account of the
Collateral or from the sale, collection or other realization of
or upon the Collateral.
"Change of Ownership" shall occur on the date that any
Person together with and including any Affiliate (other than a
Permitted Stockholder) acquires or has the right to acquire
(whether through the right to acquire options or warrants,
through the ownership of options or warrants or otherwise) legal
or beneficial ownership (whether direct, indirect or otherwise)
of more than 4.5% by value of the then existing or fully diluted
capital stock of Borrower.
"Charney Obligations" shall mean the collective
reference to all Indebtedness or other obligations owing by
Borrower or any Affiliate of Borrower to Leon Charney, including,
without limitation, any obligations described in that certain
letter agreement, dated September 5, 1995, by and between
Borrower and Leon Charney, as the same may be amended, modified,
supplemented and cancelled from time to time, in accordance with
this Agreement, and any put rights granted by Borrower to Leon
Charney.
"Closing" shall have the meaning assigned to it in
Section 3.5 hereof.
-----------
"Closing Date" shall mean that date on which each of
the conditions precedent to the effectiveness of Lender's
obligations under this Agreement as set forth in Section 3.1
-----------
shall have been satisfied to the satisfaction of Lender.
"Code" shall mean the Uniform Commercial Code of the
jurisdiction with respect to which such term is used, as in
effect from time to time.
"Collateral" shall mean the collective reference to:
(i) the collateral covered by the Security Agreement, including,
without limitation, (a) the Other Notes and the Other Notes
Documents, (b) the Investor Notes and the Investor Loan
Documents, (c) the Wrap Notes and the Wrap Loan Documents
(including, without limitation, the Primary Collateral), (d) the
other Instruments, (e) the Leasehold Estate, (fl the Partnership
Interests, (g) all Proceeds from Partnership Interests, (h) all
Proceeds from any refinancings of any Indebtedness of Borrower
and any of its Subsidiaries, (i) the GP Fees, and (j) all other
payments and proceeds payable to Borrower, as the general partner
of the Affiliate Partnerships, which are not required to be
deposited by Borrower into the settlement account established
pursuant to the Limited Partnership Settlement Agreement;
(ii) the Pledged Collateral covered by the Stock Pledge
Agreement; (iii) the real and personal properties covered by the
Mortgages; (iv) the Other Secured Debt Released Collateral;
(v) all of the other assets or property (real or personal,
tangible or intangible, whether now existing or hereafter
acquired) of Borrower or any of the Subsidiaries of Borrower; and
(vi) all proceeds and products of the foregoing.
"Collateral Assignments" shall mean the collective
reference to the collateral assignments, each in form and
substance acceptable to Lender, which shall be executed and
delivered by Borrower and its Subsidiaries with respect to the
Collateral.
"Collateral Documents" shall mean the collective
reference to (i) the Security Agreement, (ii) the Stock Pledge
Agreement, (iii) the Mortgages and (iv) the Collateral
Assignments.
"Common Stock" shall mean the common stock, $0.01 par
value per share, of Borrower.
"Compensation" shall mean, with respect to any Person,
all payments commonly considered to be compensation, including,
without limitation, all wages, salary, deferred payment
arrangements, bonus payments, incentive payments, or similar cash
payments, made to, or for the account of, such Person or
otherwise for the direct or indirect benefit of such Person;
provided however that any payments to Servicer or Millennium
----------------
shall not constitute "Compensation" under this definition.
"CRT" shall mean Banca CRT S.p.A.
"CRT Loan" shall mean the Indebtedness of Borrower
evidenced by certain promissory notes payable to CRT each dated
September 8, 1986, as amended and restated by those certain six
promissory notes each dated September 21, 1990, in the aggregate
sum of $2,000,000.
"CRT Loan Documents" shall mean the collective
reference to all promissory notes, loan agreements, security
agreements, mortgages, assignments, title insurance policies and
other documents evidencing, securing or executed in connection
with, the CRT Loan.
"CRT Loan Transfer Documents" shall mean the collective
reference to the documents executed and delivered by the holder
of the CRT Loan and Lender in connection with the acquisition of
the CRT Loan by Lender.
"Default" shall mean any event which, with the passage
of time or notice or both, would, unless cured or waived, cause
or become an Event of Default.
"Default Rate" shall mean a rate of interest equal to
five percent (5%) per annum, compounded monthly, plus the Stated
----
Rate.
"DOL" shall mean the United States Department of Labor
or any successor thereto.
"DVC" shall mean Del Val Capital Corp., a Delaware
corporation, and a wholly owned subsidiary of Borrower.
"Environmental Laws" shall mean all Laws relating to
human health and safety or the pollution, protection or
regulation of the environment and natural resources (including,
without limitation, ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation). Environmental Laws include but are not
limited to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C.
Section 9601 et seq.); the Hazardous Material Transportation Act,
-- ----
as amended (49 U.S.C. Section 1801 et seq.); the Federal
-- ----
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.
Section 136 et seq.); the Resource Conservation and Recovery Act,
-- ----
as amended (42 U.S.C. Section 6901 et seq.); the Toxic Substance
-- ----
Control Act, as amended (15 U.S.C. Section 2601 et seq.); the
-- ----
Clean Air Act, as amended (42 U.S.C. Section 740 et seq.); the
-- ----
Federal Water Pollution Control Act, as amended (33 U.S.C.
Section 1251 et seq.); the Occupational Safety and Health Act, as
-- ----
amended (29 U.S.C. Section 651 et seq.); and the Safe Drinking
-- ----
Water Act, as amended (42 U.S.C. Section 300f et seq.), and any
-- ----
and all regulations promulgated thereunder, and all state and
local counterparts, equivalents or similar environmental laws and
any such laws or regulations relating to the transfer of
ownership notification or approval by regulatory entities.
"Environmental Liabilities" shall mean all liabilities,
obligations, responsibilities, remedial actions, losses, damages,
punitive damages, consequential damages, treble damages, costs
and expenses (including, without limitation, all fees,
disbursements and expenses of counsel, experts and consultants
and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any
claim, suit, action or demand by any person or entity, whether
based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law (including,
without limitation, any thereof arising under any Environmental
Law, permit, order or agreement with any Governmental Authority)
and which relate to any health or safety condition regulated
under any Environmental Law or in connection with any other
environmental matter or Spill or the presence of a hazardous
substance or threatened Spill or hazardous substance.
"Equity Documents" shall mean the collective reference
to the documents and agreements listed on Schedule 4.18.
-------------
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974 (or any successor legislation thereto), as
amended from time to time and any regulations promulgated
thereunder.
"ERISA Affiliate" shall mean, with respect to Borrower,
any trade or business (whether or not incorporated) under common
control with Borrower and which, together with Borrower, is
treated as a single employer within the meaning of Section
414(b), (c), (m) or (o) of the IRC.
"Event of Default" shall have the meaning assigned to
it in Section 8.1
-----------
"Existing Lenders" shall mean the collective reference
to the holders and payees of the Existing Loans.
"Existing Loans" shall mean the collective reference to
the Indebtedness of Borrower under, and with respect to, (i) the
A.I. Credit Loan, (ii) the CRT Loan and (iii) the Westrock Loan.
"Existing Loan Documents" shall mean the collective
reference to the following: (i) the A.I. Credit Loan Documents,
(ii) the CRT Loan Documents, (iii) the Westrock Loan Documents
and (iv) the Guaranty Agreements.
"Existing Loan Transfer Documents" shall mean the
collective reference to the (i) A.I. Credit Transfer Documents,
(ii) the CRT Transfer Documents and (iii) the Westrock Transfer
Documents attached as Exhibit D hereto.
---------
"Federal Insurance Company Debt" shall mean that
certain Indebtedness of Borrower evidenced by that certain Loan
and Security Agreement and Release, dated June 28,1995, by and
between Borrower and Federal Insurance Company with respect to a
loan in the original principal amount of $2,300,000, together
with all other documents securing, evidencing or executed in
connection with such Indebtedness, as the foregoing may be
amended, modified and supplemented from time to time in
accordance with this Agreement.
"Financial Institutions" shall mean the collective
reference to all (i) banks and their Affiliates, (ii) insurance
companies and their Affiliates, (iii) finance companies and their
Affiliates, and (iv) other financial institutions or other
commercial entities and their Affiliates which are regularly
engaged in the business of investing in, or providing, debt or
equity corporate financing, real estate financing, extensions of
credit and/or credit enhancements and which lend or invest more
than $50,000,000 per year.
"Fiscal Year" shall mean the calendar year.
"GAAP" shall mean generally accepted accounting
principles in the United States of America consistently applied
and maintained throughout the-period indicated.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof, and
any agency, department, court or other entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any department,
agency or instrumentality thereof.
"GP Fees" shall have the meaning set forth in the
Security Agreement.
"Guaranteed Indebtedness" shall mean, as to any Person,
any obligation of such Person guaranteeing any Indebtedness,
lease, dividend, or other obligation ("primary obligations") of
any other Person (the "primary obligor") in any manner (or
otherwise providing any other assurance to or on behalf of the
primary obligor that such primary obligations will be paid,
discharged or performed) including, without limitation, any
obligation or arrangement of such Person, (a) to purchase or
repurchase any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor,
(c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such
primary obligation, or (d) to indemnify the owner of such primary
obligation against loss in respect thereof.
"Guaranty Agreements" shall mean the collective
reference to each of the guaranty agreements which have been
executed and delivered by, inter alia, Subsidiaries of Borrower
----- ----
in connection with any of the Existing Loans, together with all
amendments, modifications and supplements thereto in accordance
with this Agreement.
"Hazardous Substances" shall have the meaning assigned
to it in Section 4.21 hereof.
------------
"Indebtedness" of any Person shall mean (i) all
indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (including,
without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured, but not including
obligations to trade creditors incurred in the ordinary course of
business), (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention
agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or
sale of such property), (iv) all obligations of any Person under
any lease of property (whether real, personal or mixed) by such
Person as lessee that, in accordance with GAAP, either would be
required to be classified and accounted for as a capital lease on
a balance sheet of such Person or otherwise disclosed as such in
a note to such balance sheet, (v) all Guaranteed Indebtedness,
and (vi) all Indebtedness referred to in clause (i), (ii), (iii),
(iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including, without
limitation, accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Indemnitees" shall have the meaning assigned to it in
Section 2.16 hereof.
------------
"Instruments" shall have the meaning set forth in the
Security Agreement.
"Investor Loan Documents" shall mean, with respect to
each loan evidenced by an Investor Note, the collective reference
to the Investor Note and each of the other documents executed by
the Obligor with respect to such Indebtedness evidenced by such
Investor Note, together with all amendments, modifications and
supplements thereto in accordance with this Agreement.
"Investor Notes" shall mean the collective reference to
the promissory notes executed by Persons which are, or were,
limited partners in the Affiliate Partnerships, payable to the
order of the Affiliate Partnership or Borrower, which Investor
Notes may or may not be secured by Liens covering the limited
partnership interests owned by such Person in such Affiliate
Partnership.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any
successor thereto.
"Law" shall mean the collective reference to all
federal, state, and local laws, statutes, ordinances,
regulations, rules, orders, decrees, injunctions, judgments,
writs, permits or authorizations of any Governmental Authority,
now or hereafter in effect, and in each case, as amended,
supplemented or modified from time to time, and any judicial or
administrative interpretation thereof.
"Leasehold Estate" shall have the meaning assigned to
it in the Security Agreement.
"Leases" shall mean the collective reference to (i) all
of those leasehold estates in real property now owned or
hereafter acquired by Borrower or any of its Subsidiaries, as
landlord and (ii) all of those leasehold estates in real property
now owned or hereafter acquired by Borrower or any of its
Subsidiaries as tenant.
"Lender" shall mean NPM Capital LLC, a limited
liability company organized under the laws of the State of
Delaware and, if at any time NPM Capital LLC shall cease to be a
holder of the Note, any subsequent holder(s) of the Note.
"Lender Default" shall mean, in the event, and only in
the event, that, after each of the conditions precedent to
Lender's obligations under this Agreement set forth in Section
-------
3.1 have been satisfied as provided therein on or before
---
September 1, 1996, Lender thereafter refuses to close the
transactions contemplated by this Agreement in accordance with
the terms of this Agreement and such refusal to close continues
for a period of fifteen (15) days after written notice by
Borrower to Lender.
"Lender Entities" shall have the meaning assigned to it
in Section 6.18.d.
--------------
"Lender Expenses" shall mean the collective reference
to the excess of (A) the sum of (1) the actual costs and expenses
-------------
incurred by Lender (including, without limitation, all fees and
disbursements of Lender's outside legal counsel, in-house legal
counsel (charged or allocated based on an hourly allocation of
such counsel's total compensation package), accountants,
consultants and other professionals (other than employees of
Lender, National Financial Corp., Pembroke Companies, Inc.,
Millennium Financial Services, Inc., or any of their Affiliates),
all recording fees and expenses, all filing fees and expenses,
all travel expenses, and all other costs and expenses) in
connection with this Agreement and the transactions contemplated
hereby, the Closing, the Loan Documents, the Collateral, the
Existing Loans, the Meridian Debt and the Federal Insurance
Company Debt, including without limitation, the drafting and
negotiation of this Agreement and the other Loan Documents and of
each of the other documents referenced in this Agreement and the
due diligence performed by Lender and its representatives with
respect to Borrower, its Subsidiaries, the Existing Loans, the
Meridian Debt, the Federal Insurance Company Debt and the
Collateral (collectively, "Lender Transaction Expenses") plus (2)
--------------------------- ----
in the event the Closing fails to occur, for any reason or for no
reason (other than due to a Lender Default), any and all costs
and expenses incurred by Lender or any of Lender's Affiliates in
connection with the following (collectively, "Lender Litigation
-----------------
Expenses"):
--------
(i) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender,
Borrower, any Subsidiary of Borrower or any other Person) in
any way relating to the Collateral, any of the Loan
Documents or any other agreements to be executed or
delivered in connection herewith;
(ii) any attempt to enforce any rights of Lender
against Borrower, any Subsidiary of Borrower or any other
Person, that may be obligated to any Lender by virtue of any
of the Loan Documents;
(iii) any attempt to verify, protect, collect,
sell, liquidate or otherwise dispose of the Collateral
covered by the Special Security Agreement;
(iv) all expenses, costs, charges and other fees
incurred by such counsel and others in any way or respect
arising in connection with or relating to any of the events
or actions described in this definition. Without limiting
the generality of the foregoing, such expenses, costs,
charges and fees may include: fees and disbursements of
Lender's outside legal counsel and in-house counsel (charged
or allocated on the basis of a comparable market rate);
paralegal fees, costs and expenses; accountants' and
investment bankers' fees, costs and expenses; court costs
and expenses; photocopying and duplicating expenses; court
reporter fees, costs and expenses; long distance telephone
charges; air express charges; telegram charges; secretarial
overtime charges; and expenses for travel, lodging and food
paid or incurred in connection with the foregoing.
over (B) the sum of $175,000.
----
"Lender Litigation Expenses" shall have the meaning
assigned to it in the Definitional Section "Lender Expenses".
-------------------------------------
"Lender Transaction Expenses" shall have the meaning
assigned to it in the Definitional Section "Lender Expenses".
-------------------------------------
"Lien" shall mean the collective reference to any
mortgage or deed of trust (including any Mortgage), pledge,
hypothecation, assignment, deposit arrangement, lien, charge,
claim, security interest, easement or encumbrance, or preference,
priority or other security agreement or preferential arrangement
of any kind or nature whatsoever that has the practical effect of
creating a security interest in an asset (including, without
limitation, any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing
statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
"Limited Partnership Interests" shall mean the
collective reference to the limited partnership interests owned
by Borrower as a limited partner.
"Limited Partner Settlement Agreement" shall mean that
certain Stipulation of Settlement agreement, August 12, 1992 of
that certain class action litigation, In re Kenbee Limited
-------
Partnerships Litigation, as amended.
-----------------------
"Loan Documents" shall mean the collective reference to
this Agreement, the Note, the Collateral Documents, and all other
agreements, instruments, documents and certificates, including,
without limitation, pledges, powers of attorney, consents,
assignments, contracts, notices, and all other written matter
whether heretofore, now or hereafter executed by or on behalf of
Borrower or any of its Affiliates, or any employee of Borrower or
any of its Affiliates, and delivered to Lender in connection with
this Agreement, the Note, the Collateral Documents or the
transactions contemplated hereby, together with all amendments,
modifications and supplements to such Loan Documents.
"Loan Party" shall mean Borrower and each Subsidiary of
Borrower.
"Material Adverse Effect" shall mean a material adverse
effect on (i) the business, assets, operations, properties,
prospects or financial or other condition of Borrower and its
Subsidiaries taken as a whole, (ii) Borrower's and its
Subsidiaries' collective ability to pay the Obligations in
accordance with the terms thereof, (iii) all or any portion of
the Collateral, whether individually or as a whole, (iv) all or
any portion of Lender's Liens covering any portion of the
Collateral, whether individually or as a whole, or (v) the
priority of any of Lender's Liens, whether individually or as a
whole.
"Maximum Lawful Rate" shall have the meaning assigned
to it in Section 2.9 hereof.
-----------
"Meridian Debt" shall mean the Indebtedness of Borrower
evidenced by that certain Repurchase Agreement, dated June 25,
1989, by and between Borrower and Meridian Bank, with respect to
a loan in the original principal amount of $5,000,000, together
with all other documents securing, evidencing or executed in
connection with such Indebtedness, as the foregoing may be
amended, modified and supplemented from time to time in
accordance with this Agreement.
"Meridian/Federal Payment Amount" shall have the
meaning assigned to it in Section 2.1.e.
-------------
"Millennium" shall mean Millennium Financial Services,
Inc., a Delaware corporation.
"Millennium Agreement" shall mean that certain letter
agreement, dated November 28, 1995, by and between Millennium
and Borrower, together with all amendments, modifications and
supplements thereto which, in each case, are approved in writing
by Lender.
"Mortgage" shall mean each mortgage, deed of trust or
similar security agreement made or to be made by Borrower and
each of its Subsidiaries having an interest in the Real Estate to
be encumbered in favor of Lender, creating a first priority lien
on any portion of the real estate described in Schedule 4.6
------------
hereto to secure the payment of the Obligations, in form and
substance acceptable to Lender, including, without limitation,
all amendments, modifications and supplements thereto and shall
refer to each Mortgage as the same may be in effect at the time
such reference becomes operative.
"Multiemployer Plan" shall mean a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA, and to which Borrower,
any of its Subsidiaries or any ERISA Affiliate is making, is
obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed
by any of them.
"Non-Qualified Stock Option Plan" shall have the
meaning assigned to it in Section 3.1.g hereof.
-------------
"Note" shall mean the meaning ascribed to it in Section
-------
2.5 hereof.
---
"Obligations" shall mean all loans, advances, debts,
liabilities, and obligations, for monetary amounts (whether or
not such amounts are liquidated or determinable) owing by
Borrower or any of its Subsidiaries, or all of them, to Lender or
any Subsidiary of Lender, whether now existing or hereafter
arising, and all covenants and duties regarding such amounts, of
any kind or nature, present or future, whether or not evidenced
by any note, agreement or other instrument, arising under (i) any
of the Loan Documents and (ii) any other document evidencing any
other Indebtedness of Borrower or any of its Subsidiaries which
is acquired by Lender after the date hereof, including, without
limitation, any of the Senior Debt acquired by Lender after the
date hereof. The term "Obligations" includes, without
limitation, the Indebtedness evidenced by the Note, the
obligation of Borrower to pay the Break-Up Fee, the Lender
Expenses, all accrued interest, fees, charges, expenses,
attorneys' fees and any other sum chargeable to Borrower or any
or all of its Subsidiaries under any of the Loan Documents.
"Obligors" shall mean the collective reference to
makers of, and all other Person(s) obligated to the payee under
or with respect to, as the context requires, (i) the Investor
Notes, (ii) the Underlying Notes, (iii) the Wrap Notes or (iv)
the Other Notes.
"Other Entities" shall mean the collective reference to
the following: (1) Kenbee Management, Inc., (2) Kenbee
Management-New York, Inc., (3) Kenbee Management-Oklahoma, Inc.,
(4) NorthLake Corporation, (5) Delaware Valley Consumer Discount
Company, (6) RW&K Realty, Inc., (7) K.M. Realty Corporation, and
(8)1315 Walnut Street Corporation.
"Other Notes" shall mean the collective reference to
the promissory notes executed by Persons (other than the
Affiliate Partnerships or limited partners of the Affiliate
Partnerships) and payable to the order of Borrower or a
predecessor-in-interest of Borrower.
"Other Notes Documents" shall mean, with respect to
each loan evidenced by an Other Note, the collective reference to
the Other Note and each of the other documents executed by the
Obligor with respect to the Indebtedness evidenced by such Other
Note, together with all amendments, modifications and supplements
thereto in accordance with this Agreement.
"Other Secured Debt" shall mean the collective
reference to (i) the Amsave Debt, (ii) the Cadle Debt, (iii) the
Federal Insurance Company Debt, (iv) the Meridian Debt, (v) the
Scheinberg Debt, (vi) the Textron Debt, (vii) the Zyncon Debt and
(viii) other funded long term debt as reflected on the audited
consolidated balance sheet as at December 31,1995 of Borrower and
its Subsidiaries.
"Other Secured Debt Documents" shall mean the
collective reference to all promissory notes, loan agreements,
mortgages, deeds of trust, security agreements and other
documents evidencing, securing or executed in connection with any
of the Other Secured Debt.
"Other Secured Debt Released Collateral" shall have the
meaning assigned to it in Section 2.3.b.
-------------
"Partnership Distributions" shall have the meaning
assigned to it in the Security Agreement.
"Partnership Interests" shall have the meaning assigned
to it in the Security Agreement.
"Partnership Leases" shall mean the collective
reference to (i) all of those leasehold estates in real property
now owned or hereafter acquired by any Affiliate Partnership, as
landlord, and (ii) all of those leasehold estates in real
property now owned or hereafter acquired by any Affiliate
Partnership, as tenant.
"Partnership Real Estate" shall mean the collective
reference to all of the plots, pieces or parcels of land now
owned or leased or hereafter acquired or leased by any Affiliate
Partnership (collectively, the "Partnership Land"), together with
any buildings, structures or other improvements thereon or
thereunder and all the rights, titles and interests of any
Affiliate Partnership in any way related to the Partnership Land,
buildings, structures and other improvements.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.
"Pension Plan" shall mean an employee pension benefit
plan, as defined in Section (3)(2) of ERISA (other than a
Multiemployer Plan), which is subject to the funding requirements
of Section 412(c) of the IRC or Section 302 of ERISA, and which
Borrower, any of its Subsidiaries or, if a Title IV Plan, any
ERISA Affiliate maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed
by any of them.
"Permitted Encumbrances" shall mean the following
encumbrances: (i) Liens created for the benefit of Lender or
assigned to Lender under the terms of the Loan Documents, (ii)
Liens for taxes or assessments or other governmental charges or
levies, either not yet due or payable; (iii) pledges or deposits
securing obligations under workers' compensation, unemployment
insurance, social security or public liability laws or similar
legislation; (iv) deposits securing public or statutory
obligations of Borrower or any of its Subsidiaries which are
otherwise permitted by this Agreement; (v) workers', mechanics',
suppliers', carriers', warehousemen's or other similar liens
arising in the ordinary course of business and securing
indebtedness aggregating not in excess of $10,000 at any time
outstanding, not yet due and payable; and (vi) zoning
restrictions, easements, licenses, or other recorded written
restrictions on the use of real property or minor irregularities
in title (including leasehold title) thereto, (but excluding any
security interests or Liens for borrowed money), so long as the
same do not materially impair the use, value, or marketability of
such real property, leases or leasehold estates.
"Permitted Stockholders" shall mean the parties to the
Securities Purchase Agreement, the Permitted Stockholder Warrant
and the Stock Purchase Agreement, other than Borrower, and such
parties' respective successors and assigns.
"Permitted Stockholder Documents" shall mean the
collective reference to (1) the Stock Purchase Agreement, (2) the
Securities Purchase Agreement, (3) the Permitted Stockholder
Warrant, (4) all other documents, certificates and instruments
executed and delivered by Borrower in connection with any of the
foregoing and (5) all amendments, modifications and supplements
to any of the foregoing. The Permitted Stockholder Documents
shall not be included within the "Loan Documents."
"Permitted Stockholder Warrant" shall mean the
collective reference to each of the Common Stock Warrants, each
dated as of the date hereof, executed by Borrower in favor of a
Permitted Stockholder, together with all amendments,
modifications and supplements thereto.
"Person" shall mean any individual, sole
proprietorship, partnership, limited liability company, joint
venture, unincorporated organization, association, corporation,
institution, public benefit corporation, bank, trust company,
trust or other organization, whether or not a legal entity, or
government instrumentality, division, subdivision, body or
department thereof (whether federal, state, county, city,
municipal or otherwise).
"Plan" shall mean, with respect to Borrower or any
ERISA Affiliate, at any time, an employee benefit plan, as
defined in Section 3(3) of ERISA, which Borrower or any of its
Subsidiaries maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed
by any of them.
"Preferred Stock" shall mean the new class of preferred
stock to be created as contemplated by the Securities Purchase
Agreement which will provide for the election of one director by
the holders of such class of preferred stock.
"Primary Collateral" shall mean the collective
reference to (1) the Wrap Notes and the Wrap Mortgages which are
listed on Exhibit B attached hereto plus (2) all of the Wrap
--------- ----
Notes and the Wrap Mortgages hereafter included within the Other
Secured Debt Released Collateral.
"Proceeds" shall have the meaning assigned to it in the
Security Agreement.
"PSC" shall mean Professional Service Corporation, a
Delaware corporation which is a wholly owned Subsidiary of
Borrower.
"Qualified Plan" shall mean an employee pension benefit
plan, as defined in Section 3(2) of ERISA, which is intended to
be tax-qualified under Section 401(a) of the IRC, and which
Borrower, any of its Subsidiaries or any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to
on behalf of participants who are or were employed by any of
them.
"Real Estate" shall mean the collective reference to
all plots, pieces or parcels of land now owned or leased or
hereafter acquired or leased by Borrower or any of its
Subsidiaries (the "Land"), including, without limitation, those
listed on Schedule 4.6 hereto and more particularly described in
------------
the Mortgages, together with any buildings, structures or other
improvements on or under the Land and all the rights, titles and
interests of Borrower or any of its Subsidiaries, if any, in any
way related to the Land, buildings, structures and other
improvements.
"Reportable Event" shall mean any of the events
described in Section 4043(b)(1), (2), (3), (5), (6), (8) or (9)
of ERISA.
"Restricted Debt" shall mean the collective reference
to (1) the Other Secured Debt, and (2) the Indebtedness of
Borrower created pursuant to the Shareholder Settlement Agreement
or the Limited Partner Settlement Agreement.
"Restricted Debt Documents" shall mean the collective
reference to any and all documents evidencing the Restricted Debt
together with all amendments, modifications and supplements
thereto in accordance with the terms of this Agreement.
"Retiree Welfare Plan" shall refer to any Welfare Plan
providing for continuing coverage or benefits for any participant
or any beneficiary of a participant after such participant's
termination of employment or any "post-retirement benefits other
than pensions" as such term is used in the Statement of Financial
Accounting Standards No. 106, other than continuation coverage
provided pursuant to Section 4980B of the IRC and at the sole
expense of the participant or the beneficiary of the participant.
"Scheinberg Debt" shall mean that certain Indebtedness
of Borrower evidenced by that certain Loan and Security
Agreement, dated September 23,1994, by and between Borrower and
Martin Scheinberg, with respect to a loan in the original
principal amount of $250,000, together with all other documents
securing, evidencing or executed in connection with such
Indebtedness, as the foregoing may be amended, modified and
supplemented from time to time in accordance with this Agreement.
"SEC" shall mean the Securities and Exchange
Commission.
"Securities Purchase Agreement" shall mean that certain
Securities Purchase Agreement dated as of the date hereof by and
between Borrower and the Permitted Stockholders relating to the
purchase of Preferred Stock and Permitted Stockholder Warrants,
together with all amendments, modifications and supplements
thereto as the same may be in effect at the time such reference
becomes operative.
"Security Agreement" shall mean the security agreement
entered into between Lender and Borrower and its Subsidiaries
pursuant to which Borrower and its Subsidiaries pledge certain
collateral, in substantially the form attached hereto as
Exhibit J, including all amendments, modifications and
---------
supplements thereto, and shall refer to the Security Agreement as
the same may be in effect at the time such reference becomes
operative.
"Senior Debt" shall mean the collective reference to
all principal of, interest on, and all other amounts of any
nature whatsoever owing in respect of, the Loan Documents.
"Servicer" shall mean NPO Management LLC, a limited
liability company organized under the laws of the State of
Delaware.
"Servicing Agreement" shall mean that certain Asset
Servicing Agreement dated the date hereof by and among, inter
-----
alia, Servicer and Borrower, together with all amendments,
----
modifications, and supplements thereto.
"Shareholder Settlement Agreement" shall mean that
certain Stipulation of Partial Settlement, dated September 10,
1993, that certain class action litigation, In re Del-Val
-------------
Financial Corp. Securities Litigation.
-------------------------------------
"Spill" shall have the meaning assigned to it in
Section 4.21.
------------
"Stated Rate" shall mean a rate of interest equal to
ten and twenty-five one hundredths percent (10.25%) per annum,
compounded monthly.
"Stock" shall mean all shares, options, warrants,
general or limited partnership interests, participations or other
equivalents (regardless of how designated) of or in a
corporation, partnership or equivalent entity whether voting or
nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in
Rule 3all-1 of the General Rules and Regulations promulgated by
the SEC under the Securities Exchange Act of 1934, as amended).
"Stock Appreciation Rights" shall mean the collective
reference to the stock appreciation rights, or the rights to
acquire such stock appreciation rights, with respect to the Stock
of Borrower for the benefit of any prior or current officer or
employee of Borrower or any other Person, a true and complete
schedule of which is set forth on Schedule 4.18.
-------------
"Stockholder Approval" shall have the meaning assigned
to it in Section 3.1.c.
-------------
"Stock Pledge Agreement" shall mean the agreement
entered into between Lender and Borrower pursuant to which
Borrower and its Subsidiaries pledges the Stock of Borrower and
its Subsidiaries, in substantially the form attached hereto as
Exhibit L attached hereto, including all amendments,
---------
modifications and supplements thereto, and shall refer to the
Stock Pledge Agreement as the same may be in effect at the time
such reference becomes operative.
"Stock Purchase Agreement" shall mean that certain
Stock Purchase Agreement dated as of the date hereof relating to
the purchase of Common Stock together with all amendments,
modifications and supplements thereto and shall refer to the
Stock Purchase Agreement as the same may be in effect at the time
such reference becomes operative.
"Stockholders" shall mean, with respect to any Loan
Party, all of the holders of Stock of such Loan Party immediately
following the Closing Date.
"Subsidiary" shall mean, with respect to any Person,
(a) any corporation in which such Person and/or one or more
Subsidiaries of such Person, directly or indirectly, owns legally
or beneficially an aggregate of more than fifty percent (50%) of
any class of the outstanding Stock having ordinary voting power
to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) or (b) any
partnership or other Person in which such Person and/or one or
more Subsidiaries of such Person shall have an interest (whether
in the form of voting or participation in profits or capital
contribution) of more than fifty percent (50%) or (c) any Person
of which such Person has the right to control the operating or
financial decisions of such Person.
"Taxes" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental (including,
without limitation, PBGC) taxes, levies, imports, fees,
assessments, duties, deductions, charges or withholdings of any
kind, together with any penalties, additions to tax, fines or
interest thereon and all liabilities with respect thereto at the
time due and payable.
"Textron Debt" shall mean the Indebtedness of Borrower
evidenced by that certain Secured Loan Agreement, by and between
Del-Val Financial Corporation, Mortgage Financing Partners,
Kenbee Management Inc. and Signal Capital Corporation, the
predecessor-in-interest to Textron Financial Corporation, with
respect to a loan in the original principal amount of $8,700,000,
together with all other documents securing, evidencing or
executed in connection with such Indebtedness, as the foregoing
may be amended, modified and supplemented from time to time in
accordance with this Agreement.
"Termination Date" shall mean the date on which all
Senior Debt and any other Obligations hereunder have been
completely satisfied and discharged.
"Title IV Plan" shall mean a Pension Plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA.
"Underlying Loan Documents" shall mean, with respect to
each loan evidenced by an Underlying Note, the collective
reference to the Underlying Note, the Underlying Mortgage and
each of the other documents executed by the Obligor with respect
to the Indebtedness evidenced by such Underlying Note, together
with all amendments, and modifications and supplements thereto.
"Underlying Mortgages" shall mean the collective
reference to the mortgages, deeds of trust and similar security
agreements executed by Affiliate Partnerships covering real
property owned by such Affiliate Partnership to secure the
Underlying Note executed by such Affiliate Partnership.
"Underlying Notes" shall mean the collective reference
to the promissory notes executed by an Affiliate Partnership
payable to the order of any Person evidencing Indebtedness
secured by corresponding Underlying Mortgages.
"Welfare Plan" shall mean any welfare plan, as defined
in Section 3(1) of ERISA, which is maintained or contributed to
by Borrower, any of its Subsidiaries or any ERISA Affiliate.
"Westrock" shall mean Westrock Island Fund, LLC.
"Westrock Loan" shall mean the Indebtedness of Borrower
evidenced by that certain Amended and Restated Loan Agreement,
dated August 22, 1979, by and between Borrower and Westrock with
respect to certain loans in the evidenced by (1) that certain
Amended and Restated Substitute and Supplemental Promissory Note,
dated July 16, 1986 in the original principal amount of
$17,000,000, (2) that certain Secured Promissory Note, dated
December 4, 1986 in the original principal amount of $2,500,000,
and (3) that certain Secured Promissory Note, dated March 1987 in
the original principal amount of $1,150,000.
"Westrock Loan Documents" shall mean the collective
reference to all promissory notes, loan agreements, security
agreements, mortgages, assignments, title insurance policies and
other documents evidencing, securing or executed in connection
with the Westrock Loan.
"Westrock Loan Transfer Documents" shall mean the
collective reference to the documents executed and delivered by
the holder of the Westrock Loan and Lender in connection with the
acquisition of the Westrock Loan by Lender.
"Withdrawal Liability" means, at any time, the
aggregate amount of the liabilities, if any, pursuant to
Section 4201 of ERISA, and any increase in contributions pursuant
to Section 4243 of ERISA with respect to all Multiemployer Plans.
"Wrap Loan Documents" shall mean, with respect to each
loan evidenced by a Wrap Note, the collective reference to the
Wrap Note, the Wrap Mortgage and each of the other documents
executed by the Affiliate Partnerships with respect to the
Indebtedness evidenced by such Wrap Note, together with all
amendments, modifications and supplements thereto.
"Wrap Mortgages" shall mean the collective reference to
the mortgages and deeds of trust executed by Affiliate
Partnerships in favor of Borrower (whether first or junior liens)
covering real property owned by such Affiliate Partnership to
secure the Wrap Note executed by such Affiliate Partnership or
such other Person.
"Wrap Notes" shall mean the collective reference to (A)
the promissory notes executed by Affiliate Partnerships payable
to the order of Borrower, which evidences Indebtedness that
includes the Indebtedness evidenced by the corresponding
Underlying Note and is secured by the corresponding Wrap
Mortgages and (B) the promissory notes executed by any Person
which are held by, or payable to the order of, Borrower and
secured by deeds of trust or mortgages securing such Indebtedness
in favor of, or for the benefit of, Borrower or any of its
Subsidiaries.
"Zyncon Debt" shall mean that certain Indebtedness of
Borrower evidenced by that certain Purchase and Sale Deposit,
dated November 11,1994, by and between Borrower and Zyncon of
North Carolina, Inc., in the original principal amount of
$285,000, together with all other documents securing, evidencing
or executed in connection with such Indebtedness, as the
foregoing may be amended, modified and supplemented from time to
time in accordance with this Agreement.
* * * * * * *
Each of the undefined terms contained in this Agreement shall,
unless the context indicates otherwise, have the meaning provided
for by the Code as in effect in the State of New York to the
extent the same are used or defined therein. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer
to this Agreement as a whole, including the Exhibits and
Schedules hereto, as the same may from time to time be amended,
modified or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from
the context it appears appropriate, each term stated in either
the singular or plural shall include the singular and the plural,
and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, the feminine and the neuter.
2. TERMS OF ACQUISITION OF EXISTING LOANS AND TERMS OF AMENDED
-----------------------------------------------------------
AND RESTATED NOTE; AND PAYMENTS ON ACCOUNT OF THE MERIDIAN
----------------------------------------------------------
DEBT AND/OR FEDERAL INSURANCE COMPANY DEBT.
------------------------------------------
2.1 Existing Loans and the Meridian Debt and Federal
------------------------------------------------
Insurance Company Debt.
----------------------
a. Existing Loans and Meridian Debt and Federal
--------------------------------------------
Insurance Company Debt Loan Balances. Borrower represents and
------------------------------------
warrants to Lender as of February 29,1996, that the outstanding
principal balance of each of the Existing Loans, Meridian Debt
and Federal Insurance Company Debt, the accrued but unpaid
interest on each of the Existing Loans, Meridian Debt and Federal
Insurance Company Debt and the payment terms, interest rates and
amortization and scheduled debt service therefor are set forth on
Exhibit C attached hereto.
---------
b. Acquisition of A.I. Credit Loan. Subject to the
-------------------------------
terms and conditions of this Agreement, on the Closing Date,
Lender shall acquire 100% of the A.I. Credit Loan from the
current holder thereof and assume the A.I. Credit Loan Documents
upon such terms, and pursuant to such documents, as are
acceptable to Lender.
c. Acquisition of CRT Loan. Subject to the terms and
-----------------------
conditions of this Agreement, on the Closing Date, Lender shall
acquire 100% of the CRT Loan from the current holder thereof and
assume the CRT Loan Documents upon such terms, and pursuant to
such documents, as are acceptable to Lender.
d. Acquisition of Westrock Loan. Subject to the
----------------------------
provisions of Section 7.16.b and the other terms and conditions
--------------
of this Agreement, on the Closing Date, Lender shall acquire 100%
of the Westrock Loan from the current holder thereof and assume
the Westrock Loan Documents upon such terms, and pursuant to such
documents, as are acceptable to Lender.
e. Meridian Debt and Federal Insurance Company Debt
------------------------------------------------
Payments. Provided that no Event of Default has occurred or then
--------
exists under this Agreement, Lender agrees to advance to Borrower
up to, but not exceeding, the sum of $600,000 (such actual amount
--------
advanced by Lender, the "Meridian/Federal Payment Amount"), which
shall be used by Borrower, as required from time to time by
Borrower therefor, for the sole purpose of prepaying principal,
and not interest or any other fees or charges, on account of the
Meridian Debt and/or the Federal Insurance Company Debt. Lender
shall not be obligated to fund the Meridian/Federal Payment
Amount unless and until each of the conditions precedent to the
funding of the Meridian/Federal Payment Amount set forth in
Section 3.2 shall have been satisfied to the satisfaction of
-----------
Lender. In the event such conditions precedent are so satisfied,
Lender shall fund the Meridian/Federal Payment Amount directly to
the holder(s) of the Meridian Debt and/or the Federal Insurance
Company Debt. The portion of the Meridian/Federal Payment Amount
to be paid to the respective holders thereof shall be determined
by Borrower and Borrower shall give Lender notice thereof at
least ten (10) days prior to the payment thereof, which shall be
made on a scheduled principal amortization date (after the
Closing) for the Meridian Debt or the Federal Insurance Company
Debt, as the case may be.
f. No Obligation by Lender to Acquire Existing Loans
-------------------------------------------------
or Advance to Borrower the Meridian/Federal Payment Amount.
----------------------------------------------------------
Notwithstanding anything to the contrary set forth in this
Agreement, Borrower acknowledges and agrees that Lender shall not
be obligated (in any way whatsoever) to acquire any of the
Existing Loans or advance to Borrower the Meridian/Federal
Payment Amount, unless and until each of the conditions precedent
to the effectiveness of Lender's obligations under this Agreement
set forth in Sections 3.1 and 3.2 of this Agreement have been
------------ ---
satisfied to Lender's satisfaction.
2.2 Existing Loans and Existing Loan
--------------------------------
Documents. Subject to the terms and conditions of this
---------
Agreement, effective on the Closing Date, Lender and Borrower
hereby covenant and agree that the Existing Loans are hereby
consolidated, amended and restated in their entirety in
accordance with the terms and provisions of the Note, this
Agreement and the other Loan Documents. Borrower hereby
acknowledges and agrees that each of the Existing Loans are valid
and binding obligations of Borrower, enforceable against Borrower
in accordance with the terms and provisions of the Existing Loan
Documents, and there are no claims or offsets against, or
defenses or counterclaims to, the Existing Loans or other
obligations arising out of, or relating to, the Existing Loan
Documents and the transactions evidenced thereby. Borrower
acknowledges and agrees that Lender has no duty or obligation
(express or implied) to advance or loan any additional funds to
Borrower or any other Person under the Existing Loan Documents,
under this Agreement and/or under any of the other Loan
Documents. In no event shall the Note, this Agreement or any of
the other Loan Documents constitute, or be deemed in any way to
constitute, a novation of any of the Existing Loans or Existing
Loan Documents or any of the Liens granted by or under any of the
Existing Loan Documents.
2.3 Cross Collateralization.
-----------------------
a. Borrower acknowledges and agrees that the
collateral securing each of the Existing Loans, together with all
other assets and properties (real or personal, tangible or
intangible, whether now owned or hereafter acquired) of Borrower
and its Subsidiaries which are not covered by Liens securing the
Other Secured Debt, shall secure, all of the Obligations.
Effective on the Closing Date, Borrower shall ratify and confirm
that, all existing Liens granted by or under any of the Existing
Loan Documents and Borrower shall grant to Lender first priority
Liens in and to all of the collateral securing the Existing Loans
and the other Collateral to secure the Obligations. Without
limiting the foregoing, on the Closing Date, Borrower shall, and
shall cause each of its Subsidiaries to, execute and deliver each
of the Loan Documents and each document, agreement, security
agreement, mortgage, deed of trust, assignment, financing
statement or any other document required by Lender in order for
Lender to obtain a fully perfected first priority Lien, securing
all of the Obligations, in and to all of the Collateral.
b. Subject to the provisions of Section 7.16. of this
------------
Agreement, in the event any of the assets or properties covered
by the Liens securing any of the Other Secured Debt is released
by any of the holders of such Other Secured Debt and thereby
becomes free and clear of all Liens (except Permitted
Encumbrances) for any reason or for no reason (collectively, the
"Other Secured Debt Released Collateral"), then, Borrower
--------------------------------------
covenants and agrees that as to each such release the Liens
securing the Obligations shall simultaneously with such release
automatically (and without the need to execute any other
document) cover the Other Secured Debt Released Collateral for
all purposes and Borrower shall simultaneously with such release
execute and deliver any and all mortgages, security, security
agreements, collateral assignments, financing statements and
other documents in order to grant first priority, perfected Liens
in such Other Secured Debt Released Collateral.
2.4 Single Loan. The Senior Debt and all of the other
-----------
Obligations of Borrower arising under this Agreement and the
other Loan Documents shall constitute one general obligation and
loan of Borrower secured by all of the Collateral.
2.5 Note. Contemporaneously with the execution of
----
this Agreement, Borrower shall execute and deliver to Lender a
single promissory note in consolidation, amendment and
restatement of the promissory notes evidencing the Indebtedness
under the Existing Loans and with respect to the Meridian/Federal
Payment Amount, in the form attached hereto as Exhibit A (the
"Note"). The original principal amount of the Note shall be the
sum of (1) the aggregate purchase price paid by Lender for the
Existing Loans, plus (2) $3,150,000, plus (3) the Lender
Expenses, plus (4), when and to the extent funded by Lender, the
Meridian/Federal Payment Amount. All outstanding principal of,
and accrued interest on, the Note shall become due and payable,
without notice or demand, on the sixth (6th) anniversary date of
the Closing Date or such earlier date pursuant to the terms of
this Agreement. Notwithstanding anything to the contrary set
forth in this Agreement or in any other Loan Documents, from and
after the occurrence of an Event of Default, the outstanding
principal balance of the Note shall bear interest at the Default
Rate until such time as all of the Obligations are paid in full.
2.6 Mandatory Payments of Principal and Accrued
-------------------------------------------
Interest on the Note.
--------------------
a. Borrower shall pay Lender, on or before the tenth
(1Oth) day of each calendar month, an amount equal to 100% of
Cash Flow during the preceding calendar month; provided, however,
-----------------
that in the event Borrower has received in excess of $10,000 of
Cash Flow at any time, Borrower shall immediately pay all of such
Cash Flow to Lender. All such payments shall be applied to
accrued interest and then to principal in the priority provided
in Section 2.7.
-----------
b. Interest on the outstanding principal balance of
the Note shall accrue at the Stated Rate based on a year of 360
days for the actual number of days elapsed, and shall be payable
as and when payments out of Cash Flow are made by Borrower as
provided in Section 2.6.a. In the event that, for any Fiscal
--------------
Year, Borrower fails to pay Lender accrued interest at a rate of
at least five percent (5%) per annum, compounded monthly, based
on a year of 360 days for the actual number of days elapsed (the
"Annual Minimum Interest Payment"), then Borrower shall make a
-------------------------------
further mandatory payment of accrued interest to Lender in an
amount equal to such shortfall on or before the thirtieth day
after the expiration of such Fiscal Year.
c. In addition to the foregoing mandatory payments,
Borrower shall pay to Lender, on or before the last day of the
applicable calendar month set forth in the following chart, a
sufficient amount of principal of, and accrued interest on, the
Note in order (A) to reduce the then outstanding principal
balance of the Note (when combined with all other reductions of
principal by Borrower pursuant to this Agreement) by an amount
equal to the applicable percentage of the original principal
balance of the Note set forth in the following chart ("Applicable
Percentage Reduction") and (B) to pay in full the accrued and
unpaid interest on the entire outstanding principal balance of
the Note as of such last day of such calendar month.
Calendar Month After Closing Date Applicable
---------------------------------- Percentage
Reduction
----------
Last Day of 18th Calendar Month 15%
Last Day of 27th Calendar Month 33%
Last Day of 36th Calendar Month 50%
Last Day of 42nd Calendar Month 67%
Last Day of 48th Calendar Month 72.5%
Last Day of 54th Calendar Month 80%
Last Day of 60th Calendar Month 85%
Last Day of 66th Calendar Month 92%
Last Day of 72nd Calendar Month 100%
For example, for illustrative purposes only under this clause c.,
on or before the end of the 54th calendar month after the Closing
Date, Borrower must reduce the original principal balance of the
Note by an amount equal to at least 80% of such original
principal amount (plus all accrued interest on the entire
principal balance of the Note).
2.7 Application of Payments. Prior to the occurrence
-----------------------
of an Event of Default, all payments by Borrower to Lender under
the Note, this Agreement or any of the other Loan Documents shall
be applied in the following order:
(i) to accrued and unpaid interest on the Senior Debt;
(ii) to then due and payable fees and expenses payable
to Lender under any of the Loan Documents;
(iii) to the then outstanding principal on the
Senior Debt.
From and after the occurrence of an Event of Default, Lender is
authorized to, and at its option may, make advances on behalf of
Borrower for payment of all fees, expenses, charges, costs,
principal and interest incurred by Borrower hereunder when and as
Borrower fails to promptly pay any such amounts. At Lender's
option and to the extent permitted by law, any advances so made
by Lender under this Agreement shall automatically be added to
the principal balance of the Note and shall constitute a portion
of the Indebtedness evidenced by the Note for all purposes. From
and after the occurrence of an Event of Default, Lender shall
apply all payments by Borrower to Lender under the Note, this
Agreement or any of the other Loan Documents as Lender may
determine.
2.8 Other Payments. In addition to the foregoing
--------------
payments by Borrower to Lender on account of the Indebtedness
evidenced by the Note, Borrower shall pay Lender any and all cash
and cash equivalents as and when received by Borrower from the
sale, issuance, conversion, transfer or distribution of Stock of
Borrower, or rights, options, warrants or agreements with respect
thereto, in excess of $250,000 in the aggregate at any time or
from time to time prior to the full payment of the Note and all
of the Obligations under this Agreement and the other Loan
Documents, including but not limited to cash received from the
Permitted Stockholders upon the exercise of the Permitted
Stockholder Warrants. Lender shall apply such payments as
follows: (i) first, to any interest due and not yet paid under
the Note and (ii) then, to the extent of any excess after payment
pursuant to clause (i) hereof, (A) in order of maturity, fifty
percent (50%) of such excess to the outstanding principal
installments under the Note payable under Section 2.6.c hereof
-------------
and (B), in inverse order of maturity (without premium or
penalty), the remaining fifty percent (50%) of such excess to the
next mandatory payment due under Section 2.6.c hereof.
-------------
2.9 Maximum Lawful Rate. Notwithstanding anything to
-------------------
the contrary set forth in this Agreement, if at any time until
payment in full of all of the Obligations in respect of the
Senior Debt, the Stated Rate and Default Rate, as applicable,
exceeds the highest rate of interest permissible under any law
which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto (the "Maximum Lawful
Rate"), then in such event and so long as the Maximum Lawful Rate
would be so exceeded, the rate of interest payable hereunder
shall be equal to the Maximum Lawful Rate; provided, however,
-------- -------
that if at any time thereafter the Stated Rate or the Default
Rate, as applicable, is less than the Maximum Lawful Rate,
Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by
Lender paid on account of the Obligations hereunder is equal to
the total interest which Lender would have received had the
Stated Rate or the Default Rate, as applicable, been (but for the
operation of this paragraph) the interest rate payable since the
Closing Date. Thereafter, the interest rate payable hereunder
shall be the Stated Rate or the Default Rate, as applicable,
unless and until the Stated Rate or the Default Rate, as
applicable, again exceeds the Maximum Lawful Rate, in which event
this paragraph shall again apply. In no event shall the total
interest received by Lender pursuant to the terms hereof or the
terms of any of the other Loan Documents exceed the amount which
Lender could lawfully have received had the interest due
hereunder been calculated for the full term hereof at the Maximum
Lawful Rate. In the event that a court of competent
jurisdiction, notwithstanding the provisions of this Section 2.9,
-----------
shall make a final determination that Lender has received
interest hereunder or under any of the Loan Documents in excess
of the Maximum Lawful Rate, Lender shall, to the extent permitted
by applicable law, promptly apply such excess first to any
interest due and not yet paid under the Note, then to the
outstanding principal installments of the Note in inverse order
of maturity (without premium or penalty), then to other unpaid
Obligations and thereafter shall refund any excess to Borrower or
as a court of competent jurisdiction may otherwise order.
2.10 Receipt of Payments. Borrower shall make each
-------------------
payment under this Agreement not later than 11:00 A.M. (New York
City time) on the day when due in lawful money of the United
States of America in immediately available funds to Lender's
depositary bank as designated by Lender from time to time for
deposit in Lender's depositary account.
2.11 Optional Prepayment. Borrower shall have the
-------------------
right at any time, after prior written notice to Lender, to
voluntarily prepay all or any portion of the Note, if any,
without premium or penalty. Each prepayment shall be accompanied
by the payment of accrued and unpaid interest on the amount being
prepaid, through the date of prepayment.
2.12 No Advances. Except as set forth in Section
----------- -------
2.1.e, Borrower acknowledges and agrees that Lender shall not be
-----
obligated to advance any additional funds under the Note, this
Agreement, any of the other Loan Documents or otherwise.
2.13 Taxes. Borrower agrees to pay any present or
-----
future Taxes or any other sales, transfer, excise, mortgage
recording or property Taxes, charges or similar levies that arise
from any payment made under this Agreement or under the Note or
other Loan Documents or from the execution, sale, transfer,
delivery or registration of, or otherwise with respect to, this
Agreement or the Note, the Loan Documents and any other
agreements and instruments contemplated hereby and thereby.
2.14 Cure and Reinstatement in Chapter 11 Bankruptcy
-----------------------------------------------
Proceeding. In the event Borrower is a debtor in a bankruptcy
----------
case under Chapter 11 of Title 11 of the United States Code and a
plan of reorganization is proposed which seeks to cure and
reinstate the obligations under the Note, this Agreement and the
other Loan Documents in accordance with 11 U.S.C. Section
1123(d), then Borrower shall, on the effective date of such plan
----
of reorganization, pay to Lender an amount equal to the sum of
(i) all scheduled principal payments and mandatory prepayments
under the Note, this Agreement and the other Loan Documents
required to bring Borrower current on such obligations on the
effective date of such plan of reorganization as if the
bankruptcy case had not been filed plus (ii) notwithstanding 11
----
U.S.C. Section 506(b), the accrued interest (including interest
accruing at the Default Rate from and during the existence of a
Default or an Event of Default) and fees (including, without
limitation, all late fees) that would have accrued or been due
and payable under the Note, this Agreement and the other Loan
Documents if the bankruptcy case had not been filed plus (iii)
----
notwithstanding 11 U.S.C. Section 506(b), the costs and expenses
(including, without limitation, the actual attorneys' fees due to
Lender in accordance with any of the Loan Documents whether such
fees are incurred before or after the commencement of such case)
that would be due and payable if the bankruptcy case had not been
filed plus (iv) notwithstanding 11 U.S.C. Section 506(b), an
----
amount equal to the interest that has accrued on the amounts
outstanding under clauses (ii) and (iii) of this Section 2.14,
------------
such interest to be calculated in accordance with the Note and
this Agreement and to start accruing on the date that each such
payment was due and payable in accordance with the Note, this
Agreement and the other Loan Documents and continuing until the
effective date of such.plan of reorganization.
2.15 Access. Lender and any of its officers, employees
------
and/or agents shall have the right, exercisable as frequently as
Lender determines to be appropriate, during normal business hours
to inspect the properties and facilities of Borrower and any of
its Subsidiaries and to inspect, audit and make extracts from all
of Borrower's and any of its Subsidiaries' records, files and
books of account. Borrower shall instruct its and its
Subsidiaries' banking and other financial institutions to make
available to Lender such information and records as Lender may
request.
2.16 Indemnity. Whether or not the transactions
---------
contemplated hereby shall be consummated, Borrower shall
indemnify, defend, pay and hold harmless Lender and any members
of Lender and the members, officers, directors, employees and
agents of Lender and any members of Lender and any Affiliate of
any of the foregoing (collectively, the "Indemnitees") from and
-----------
against any and all suits, actions, proceedings, claims, damages,
losses, liabilities, obligations, penalties, judgments,
disbursements, costs and expenses, including, without limitation,
reasonable attorneys' fees and disbursements for each Indemnitee,
including those incurred upon any appeal, the allocation of
in-house legal fees (based on a comparable market rate) and
expenses, expenses of engineering, environmental and other
consultants in connection with any investigative or judicial
proceeding, whether or not such Indemnitee shall be designated a
party thereto, arising from or relating to any of the Existing
Loan Transfer Documents, any of the Loan Documents, any of the
Indebtedness evidenced thereby or any of the transactions
described in, or contemplated by, this Agreement or any of the
other Loan Documents or Permitted Stockholder Documents;
provided, however, that Borrower shall not be liable for such
-------- -------
indemnification to such Indemnitee to the extent that any such
suit, action, proceeding, claim, damage, loss, liability,
obligation, penalty, judgment, disbursement, cost or expense
results from (1) such Indemnitee's gross negligence or willful
misconduct, or (2) any claim by any loan broker or finder
claiming by, through or under Lender.
3. CONDITIONS PRECEDENT
--------------------
3.1 Conditions Precedent to Effectiveness of Lender's
-------------------------------------------------
Obligations Under This Agreement. Notwithstanding any other
--------------------------------
provision of this Agreement and without affecting in any manner
the rights of Lender hereunder, Borrower shall have no rights
under this Agreement (but shall have all applicable obligations
hereunder), and Lender shall not be obligated hereunder, unless
and until (i) Borrower or the applicable Person shall have
executed and delivered to Lender each document referred to in
Sections 3.3 and 3.4 and (ii) each of the other conditions
--------------------
precedent to the effectiveness of Lender's obligations under this
Agreement referred to below shall be satisfied to the
satisfaction of Lender, on or before the Closing Date:
a. Each of the conditions precedent to the closing of
the acquisition of the A.I. Credit Loan, the CRT Loan and the
Westrock Loan by Lender which are set forth in each of the
Existing Loan Transfer Documents by and between such selling
lender and Lender shall have been satisfied to Lender's
satisfaction.
b. Each of the conditions precedent to the
effectiveness of Lender's obligations under this Agreement shall
have been satisfied to Lender's satisfaction.
c. A valid meeting of the stockholders of Borrower
shall have been duly called and held, and the holders of the
requisite number of shares of Borrower shall have approved this
Agreement, each of the other Loan Documents, the Servicing
Agreement (and the documents referenced in such Servicing
Agreement), the Permitted Stockholder Documents, the transactions
contemplated hereby and thereby and the amendment to the articles
of incorporation and bylaws of Borrower as provided in Section
-------
3.1.d hereof, and each of the other matters set forth in the
-----
proxy solicitation prepared by Borrower (collectively, the
"Stockholder Approval").
--------------------
d. The articles of incorporation and bylaws of
Borrower shall have been amended and restated, in their entirety
(with respect to the articles of incorporation in substantially
the form attached hereto as Exhibit F-1) to address, inter alia,
-----------
the following issues in a manner and form satisfactory to Lender:
(i) the issuance of the Warrants; (ii) the limitation on change
of ownership; (iii) certain bankruptcy remote provisions
acceptable to Lender; (iv) the designation of Preferred Stock and
the statement of powers, privileges and rights and the
qualifications, limitations or restrictions thereof; (v) the
Servicing Agreement; (vi) the Permitted Stockholder Documents;
(vii) taxation of Borrower; (viii) investments by Borrower; (ix)
to make the bylaws consistent with the articles of incorporation;
(x) affiliated transactions; and (xi) such other issues as Lender
may determine to address.
e. The Limited Partner Settlement Agreement shall
have been amended by all of the parties thereto in substantially
the form attached hereto as Exhibit G and such amendment shall be
---------
finally approved by the courts having jurisdiction thereof.
f. The Equity Documents shall have been amended by
the parties thereto named on, and in substantially the form of,
Schedule 4.18 attached hereto.
-------------
g. The Stock Appreciation Rights shall have been
cancelled and rendered null and void and a non-qualified stock
option plan, in the form attached hereto as Exhibit I (the
---------
"Non-Qualified Stock Option Plan"), shall have been duly
-------------------------------
authorized and established by Borrower.
h. The Charney Obligations shall have been discharged
in accordance with the terms of that certain letter agreement by
and between Borrower and Leon Charney, dated September 5, 1995.
All Indebtedness of Borrower to Rosenthal & Rosenthal Inc. and
(without limiting the foregoing) all obligations under warrants
issued to Rosenthal & Rosenthal Inc. for the purchase of Stock of
Borrower shall have been discharged in accordance with the terms
of that certain letter agreement by and between Borrower and
Rosenthal & Rosenthal Inc. dated February 21, 1996.
i. Each of the representations and warranties of the
Loan Parties contained herein or in any of the Loan Documents
shall be true and correct on and as of the Closing Date as though
made on and as of such date, except for changes therein permitted
or contemplated by this Agreement. Without limiting the
foregoing, there shall be no action, claim or proceeding pending
or threatened against or affecting Borrower, any of its
Subsidiaries, or any Affiliate Partnership, at law, in equity or
otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of
any agency or subdivision thereof, or before any arbitrator or
panel of arbitrators, in connection with any of the transactions
contemplated by this Agreement, the other Loan Documents, the
Permitted Stockholder Documents, the Servicing Agreement (and the
agreements referred to therein), any of the agreements,
modifications or requirements under any of the foregoing or
actions taken or to be taken pursuant to any of the foregoing.
j. Each of the covenants set forth herein which were
to be satisfied as of the Closing Date have been fully satisfied
to the satisfaction of Lender.
k. No event shall have occurred and be continuing
which constitutes or would constitute, with the passage of time
or the giving of notice or both, a Default or an Event of
Default.
l. There shall have occurred no Material Adverse
Effect since December 31, 1995.
m. Borrower shall have executed and delivered, and
caused each of its Subsidiaries to have executed and delivered,
to Lender all documents required to have been executed and
delivered to Lender upon the execution of this Agreement pursuant
to Section 3.3.
-----------
n. Borrower shall have executed and delivered, and
caused each of its Subsidiaries to execute and deliver, to Lender
all documents required to be executed and delivered to Lender at
Closing pursuant to Section 3.4.
-----------
o. Borrower shall have obtained, and shall have
provided Lender with, copies of all consents, licenses, waivers
and approvals, in form and substance acceptable to Lender, that
are required, or deemed by Lender to be required, in connection
with the execution, delivery, performance, validity and
enforceability of this Agreement, the Note, the other Loan
Documents, the Permitted Stockholder Documents, the amended
certificate of incorporation and amended bylaws of Borrower, the
Servicing Agreement (and the documents referenced therein), the
modification of the Limited Partner Settlement Agreement, the
modification of the Equity Documents, the elimination of the
Stock Appreciation Rights, the creation of the Non-Qualified
Stock Option Plan, the discharge of the Charney Obligations and
any transactions or other agreements contemplated under any of
the foregoing, and all such consents, licenses and approvals
shall be in full force and effect.
p. Borrower shall have delivered to Lender within ten
(10) days after execution of this Agreement (i) revised Schedule
--------
4.24, in form and substance satisfactory to Lender, which shall
----
list all of the Wrap Loan Documents, (ii) revised Schedule 4.25,
in form and substance satisfactory to Lender, which shall list
all of the Underlying Loan Documents, (iii) revised Schedule
--------
4.27, in form and substance satisfactory to Lender, which shall
----
list all of the Affiliate Partnership Agreements and (iv) revised
Schedule A-1 to Schedule A of each of the Security Agreement and
------------ ----------
the Security, Pledge and Guaranty Agreement dated as of March 27,
1996 in connection with the Servicing Agreement, in form and
substance satisfactory to Lender and Servicer.
q. Borrower shall have delivered a ratification
confirming that 100% of the economic interest of the Kearny
Associates ground lease has been transferred to Borrower;
provided that Borrower shall not be required to record such
agreement.
3.2 Conditions Precedent to Funding of
----------------------------------
Meridian/Federal Payment Amount. Without limiting the generality
-------------------------------
of Section 3.1 above, Lender shall, among other things, not be
-----------
obligated to fund the Meridian/Federal Payment Amount until such
time as each of the conditions precedent to the effectiveness of
Lender's obligations under this Agreement shall have been
satisfied in accordance with their terms to the satisfaction of
Lender.
3.3 Deliveries Upon Execution of this Agreement. Upon
-------------------------------------------
the execution of this Agreement by each of the parties hereto,
Borrower shall, and shall cause its Subsidiaries to, deliver, and
to the extent applicable, execute and deliver in recordable form,
each of the following documents:
a. This Agreement;
b. The Security Agreement;
c. Execute and deliver each instrument, document,
agreement, security agreement, mortgage, deed of trust,
assignment, financing statement or any other document required by
Lender in order for Lender to obtain, except with respect to
property subject to existing Liens securing Other Secured Debt
under and in accordance with Other Secured Debt Documents, a
fully perfected first priority Lien, securing all of the
Obligations, in and to all of the Collateral described on
Schedule A to the Security Agreement.
----------
d. Borrower and Servicer shall have executed and
delivered the Servicing Agreement, the security agreement
referenced therein and each of the other documents which are
contemplated to be executed and delivered in connection with such
Servicing Agreement as set forth therein, each in form and
substance satisfactory to Lender.
e. Borrower and the Permitted Stockholders shall have
executed and delivered each of the Permitted Stockholder
Documents other than the Permitted Stockholder Warrant, each in
form and substance acceptable to Lender.
f. Resolutions of the boards of directors of each
Loan Party, certified by the Secretary or Assistant Secretary of
such Loan Party, duly adopted and in full force and effect on and
as of the date' hereof authorizing (i) the consummation of each
of the transactions contemplated by the Note, this Agreement and
the other Loan Documents,(ii) specific officers to execute and
deliver the Note, this Agreement and the other Loan Documents,
subject to Stockholder Approval to the extent provided therein.
3.4 Deliveries at Closing. On the Closing Date,
---------------------
Borrower shall, and shall cause its Subsidiaries to, deliver, and
to the extent applicable, execute and deliver in recordable form,
each of the following documents:
a. The Note;
b. The Stock Pledge Agreement, duly executed and
delivered by Borrower and each Subsidiary owning Stock of
Borrower and other Subsidiaries of Borrower.
c. Certificates representing the Pledged Shares,
defined to in the Stock Pledge Agreement and undated stock powers
for such certificates executed in blank.
d. Execute and deliver each instrument, document,
agreement, security agreement, mortgage, deed of trust,
assignment, financing statement or any other document required by
Lender in order for Lender to obtain a fully perfected first
priority Lien, securing all of the Obligations, in and to all of
the Collateral described in the Security Agreement.
e. Borrower shall have executed and delivered to the
Permitted Stockholders (i) the Permitted Stockholder Warrants,
(ii) the Preferred Stock pursuant to the Securities Purchase
Agreement and (iii) the Common Stock pursuant to the Stock
Purchase Agreement.
f. Favorable legal opinions of legal counsel to
Borrower and the other Loan Parties, in form and substance
acceptable to Lender, it being understood that to the extent that
such opinions of counsel to the Loan Parties shall rely upon any
other opinion of counsel, each such other opinion shall be in
form and substance satisfactory to Lender and shall provide that
Lender may rely thereon.
g. Favorable legal opinions of legal counsel to
Borrower acceptable to Lender, which opinions shall be in form
and substance acceptable to Lender, with respect to the net
operating loss carryforward of Borrower, it being understood that
to the extent that such opinions of counsel to the Loan Parties
shall rely upon any other opinion of counsel, each such other
opinion shall be in form and substance satisfactory to Lender and
shall provide that Lender may rely thereon.
h. Governmental certificates, dated the most recent
practicable date prior to the Closing Date, with telegram updates
where available, showing that each Loan Party is organized and in
good standing in the jurisdiction of its organization and is
qualified as a foreign corporation and in good standing in each
jurisdiction in which it is currently doing business.
i. Lender shall have received a confirmation letter
from Richard A. Eisner & Co. regarding the amount of the net
operating loss carryforward of Borrower after giving effect to
the transactions contemplated by this Agreement, the other Loan
Documents and the Permitted Stockholder Documents, which letter
shall be in form and substance acceptable to Lender.
j. A copy of the organizational charter and all
amendments thereto of each Loan Party, certified as of a recent
date by the Secretary of State of the jurisdiction of its
organization, and copies of each Loan Party's bylaws, certified
by the Secretary or Assistant Secretary of such Loan Party as
true and correct as of the Closing Date.
k. Acknowledgment copies of proper financing
statements (Form UCC-1) duly filed under the Uniform Commercial
Code of each jurisdiction as may be necessary or, in the opinion
of Lender, desirable to perfect the security interests created by
the Security Agreement.
l. Certified copies of Requests for Information or
Copies (Form UCC-11), or equivalent reports, listing the
Financing Statements referred to in paragraph (k) above and all
-------------
other effective financing statements which name Borrower or any
of its Subsidiaries (under its present name and any previous
name) as debtor and which are filed in the jurisdictions referred
to in said paragraph (k), together with copies of such other
-------------
financing statements (none of which shall cover the Collateral
purported to be covered by the Security Agreement).
m. Title abstracts or title reports with respect to
each Wrap Mortgage and each asset included within the Primary
Collateral showing that, upon recordation of the documents to be
delivered by Borrower at the Closing Date, Lender shall have a
perfected, first priority lien in and to all of the Wrap
Mortgages and Primary Collateral.
n. A certificate of the chief executive officer of
Borrower and the chief financial officer of Borrower,
satisfactory in form and substance to Lender, stating that, as of
the Closing Date, (1) to the best of their knowledge, there has
been no Material Adverse Effect since December 31, 1995, (2) each
of the representations and warranties of the Loan Parties
contained herein or in any of the Loan Documents are correct, in
all material respects, on and as of the Closing Date as though
made on and as of such date, each of the covenants of the Loan
Parties to be performed hereunder, or under any of the other Loan
Documents, on or prior to the Closing Date have been fully and
timely performed and no event has occurred and is continuing,
which constitutes or would constitute a Default or an Event of
Default and (3) each of the conditions precedent set forth in
this Section 3.1 and Section 3.2 have been satisfied and
----------- -----------
fulfilled.
o. Evidence that the insurance policies provided for
in Section 6.5 are in full force and effect, certified by the
-----------
insurer thereof, together with appropriate evidence showing a
loss payable clause in favor of Lender and showing Lender as an
additional assured thereunder.
p. Certificates of the Secretary or an Assistant
Secretary of each Loan Party, dated the Closing Date, as to the
incumbency and signatures of the officers of such Loan Party
executing this Agreement, the Note, any of the Loan Documents and
any other certificate or other document to be delivered pursuant
hereto or thereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary.
q. Such additional information and materials as
Lender may reasonably request, including, without limitation,
copies of any debt agreements, security agreements and other
material contracts.
3.5 Closing Date. Provided that each of the
------------
conditions precedent to Lender's obligations under this Agreement
shall have occurred to Lender's satisfaction, the Closing shall
occur on or before five (5) Business Days after the date Borrower
receives Stockholder Approval; provided however that, in the
-------- -------
event that the Closing fails to occur, for any reason or for no
reason, on or before September 1,1996 or Lender reasonably
determines that one or more conditions to the Closing will not
occur by such date, then, either Lender or Borrower (provided
that Borrower is not in breach of the provisions of this
Agreement) shall be entitled to terminate this Agreement by
giving written notice to the other party, subject to the rights
and remedies of the parties in the event of a breach of the terms
and provisions of this Agreement by either party. The closing of
the transactions contemplated by this Agreement and each of the
other Loan Documents (the "Closing") shall occur at 10:00 A.M. at
-------
the offices of Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York 10036 or such other location in New
York City as soon as practicable after the conditions to Closing
have been fully satisfied. At the sole election of Lender,
Lender may waive all or any portion of the conditions precedent
set forth in Sections 3.1 and 3.2 (other than the requirement to
--------------------
obtain the Stockholder Approval), by giving written notice to
Borrower.
3.6 Payment of Lender Expenses and Break-Up Fee. In
-------------------------------------------
the event that the Closing fails to occur, for any reason or for
no reason, then, Borrower shall pay to Lender all Lender
Expenses, provided, that the aggregate amount that Borrower shall
pay to Lender for the actual costs and expenses incurred by
Lender for Lender Transaction Expenses shall be $100,000.
Subject to the rights of Lender set forth in Section 9.11, in the
------------
event of a breach by Borrower or any of its Subsidiaries of any
of the terms or provisions of this Agreement, in the event that
any of the conditions precedent to the effectiveness of Lender's
obligations under this Agreement set forth in Section 3.1. are
------------
not satisfied on or before SEPTEMBER 1, 1996 or it is reasonably
determined by Lender that any such condition cannot be fulfilled
by SEPTEMBER 1, 1996 to the satisfaction of Lender, and this
Agreement is terminated, then, Borrower shall also pay to Lender
----
an amount equal to $300,000 (the "Break-Up Fee"). In the event
that each of the conditions precedent to the effectiveness of
Lender's obligations under this Agreement are satisfied to the
satisfaction of Lender on or before SEPTEMBER 1, 1996, but,
thereafter, a Lender Default occurs, then, no Break-Up Fee shall
----
be payable by Borrower to Lender. Borrower and Lender agree
that, in the event that the conditions precedent are not
satisfied to Lender's satisfaction for reasons other than a
breach by Borrower or any of its Subsidiaries of any of the terms
and provisions of this Agreement, and the Closing fails to occur,
Lender shall be damaged in a manner which is not reasonably
capable of calculating at this time, but, the parties hereby
agree that the Break-Up Fee is a reasonable approximation of such
damages, subject to Lender's rights under Section 9.11. The
-------------
aggregate amount of the Lender Transaction Expenses and Break-Up
Fee shall be paid by Borrower to Lender in installments as
follows: (a) within one hundred eighty (180) days after the
earlier of (i) the date that either Lender or Borrower shall
terminate this Agreement in accordance with the provisions hereof
or (ii) SEPTEMBER 1, 1996, Borrower shall pay to Lender the sum
of $200,000, (b) within ninety (90) days after the expiration of
such one hundred eighty (180) day period, Borrower shall pay to
Lender the sum of $100,000 and (c) within ninety (90) days after
the expiration of such ninety (90) day period, Borrower shall pay
to Lender the sum of $100,000. If the Closing fails to occur,
then all Lender Litigation Expenses, if any, shall be payable by
Borrower to Lender upon demand therefor. In order to provide
security to Lender for the payment of the Lender Expenses and the
Break-Up Fee, upon execution and delivery of this Agreement, the
Liens covering the Collateral described in Schedule A to the
Security Agreement granted by Borrower thereunder shall secure
the payment of the Lender Expenses and the Break-Up Fee, for all
purposes, from and after the date hereof.
3.7 Obligations of Borrower. All undertakings,
-----------------------
agreements, covenants, warranties and representations of Borrower
contained in the Loan Documents shall continue in full force and
effect until such time as all of the Obligations have been paid
in full in accordance with the terms of the agreements creating
such Obligations, at which time the same shall terminate.
Borrower shall use Borrower's best efforts to satisfy, and to
cause to be satisfied, fully and promptly each of the conditions
set forth in Sections 3.1 and 3.2 hereof and to consummate each
--------------------
of the transactions contemplated by this Agreement. Subject to
Section 3.8, each of the representations, warranties, covenants
-----------
and agreements of Borrower shall be legally binding, enforceable
and effective, for all purposes as of the date hereof, regardless
of whether the Closing Date occurs, for any reason or for no
reason.
3.8 Right of Lender to Terminate This Agreement. In
-------------------------------------------
the event that the Closing Date shall not have occurred on or
prior to SEPTEMBER 1, 1996, for any reason or for no reason,
Lender may, upon notice to Borrower, terminate all of Lender's
obligations hereunder by giving written notice to Borrower;
provided, however, that upon any such termination by Lender of
-------- -------
Lender's obligations hereunder, Borrower (i) shall be and remain
liable to Lender for any damages which Lender may suffer as a
result of any breach by Borrower of any obligation under Section
-------
2.16 and (ii) Borrower shall perform the obligations of Borrower
----
set forth in Section 3.6 hereof.
-----------
4. REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Lender to execute and deliver this Agreement
and the other Loan Documents, each as herein provided for,
Borrower hereby makes the following representations and
warranties to Lender, each and all of which shall be true and
correct as of the date of execution and delivery of this
Agreement and as of the Closing Date and shall survive the
execution and delivery of this Agreement. Each of the exceptions
to and information regarding the following representations and
warranties set forth on the Schedules set forth below shall
reference the applicable subsections hereof and each of the
exceptions and the information set forth thereon shall constitute
representations and warranties as if set forth in this Section 4.
---------
4.1 Corporate Existence; Compliance with Law. Except
----------------------------------------
as set forth on Schedule 4.1 attached hereto, each of Borrower
------------
and each Subsidiary of Borrower (i) is a corporation duly
organized, validly existing and in good standing under the laws
of the state of its incorporation; (ii) is duly qualified as a
foreign corporation and in good standing under the laws of each
jurisdiction set forth in Schedule 4.1 attached hereto, which
------------
Schedule lists all jurisdictions where Borrower or any of its
Subsidiaries owns or leases property or where the conduct of its
business otherwise requires such qualification; (iii) has the
requisite corporate power and authority and the legal right to
own, pledge, mortgage or otherwise encumber and operate its
properties, to lease the property it operates under lease, and to
conduct its business as now, heretofore and proposed to be
conducted; (iv) has, or will by the Closing Date have, all
material licenses, permits, consents or approvals from or by, and
has made all material filings with, and has given all material
notices to, all Governmental Authorities having jurisdiction, to
the extent required for such ownership, operation and conduct;
(v) is in compliance with its certificate or articles of
incorporation and bylaws; and (vi) is in compliance with all
applicable provisions of Law. Prior to the Closing, Borrower and
each of its Subsidiaries shall qualify and be in good standing in
each jurisdiction set forth on Schedule 4.1 attached hereto,
------------
except as otherwise set forth in Schedule 4.1 to the extent that
------------
qualification in a given jurisdiction is, in Borrower's
reasonable business judgment, prohibitively expensive.
4.2 Executive Offices. The current locations of
-----------------
Borrower's and each of its Subsidiary's executive offices and
principal place of business are set forth in Schedule 4.2
------------
attached hereto.
4.3 Subsidiaries. There currently exist no
------------
Subsidiaries of Borrower other than as set forth on Schedule 4.3
------------
attached hereto, which Schedule sets forth such Subsidiaries,
together with their respective jurisdictions of organization, the
authorized and outstanding Stock of each such Subsidiary by class
and number and the names of the stockholders of each Subsidiary
and their respective holdings, as of the Closing Date. There are
no options, warrants, rights to purchase or similar rights
covering Stock for any such Subsidiary. Except as set forth in
Schedule 4.3, neither Borrower nor any Subsidiary is engaged in
------------
any joint venture or partnership with any other Person or has any
other equity interest of any kind whatsoever in any Person,
except Borrower's interest in such Subsidiary.
4.4 Corporate Power; Authorization; Enforceable
-------------------------------------------
Obligations. The execution, delivery and performance of the Note
-----------
by Borrower and its Subsidiaries, this Agreement and the other
Loan Documents and all instruments and documents to be delivered
by Borrower and its Subsidiaries hereunder and thereunder, to the
extent they are parties thereto, and the creation of all Liens
provided for herein and therein: (i) are within Borrower's and
its Subsidiaries' respective corporate power; (ii) subject to
Stockholder Approval (except with regard to the Liens granted in
favor of Lender under the Security Agreement covering the
Collateral described in Schedule A thereto and the Obligations
secured thereby, all of which require only Board approval which
has been obtained), have been, or by the Closing Date will be,
duly authorized by all necessary or proper corporate action;
(iii) are not in contravention of any provision of Borrower's or
its Subsidiaries' respective certificates or articles of
incorporation or bylaws; (iv) will not violate any Law or any
order or decree of any court of Governmental Authority; (v) will
not conflict with or result in the breach or termination of,
constitute a default under or accelerate any performance required
by, any indenture, mortgage, deed of trust, lease, agreement or
other instrument to which Borrower or any of its Subsidiaries is
a party or by which Borrower or any of its Subsidiaries or any of
their property is bound; (vi) will not result in the creation or
imposition of any Lien upon any of the property of Borrower or
any of its Subsidiaries other than those in favor of Lender, all
pursuant to the Loan Documents; and (vii) do not require the
consent or approval of any Governmental Authority or any other
Person, except for those consents and approvals listed on
Schedule 4.4 attached hereto. At or prior to the Closing Date,
------------
each of the Loan Documents shall have been duly executed and
delivered by or on behalf of Borrower or its Subsidiaries, as the
case may be, and each shall then constitute a legal, valid and
binding obligation of Borrower and of each of its Subsidiaries,
to the extent they are parties thereto, enforceable against
Borrower and of each of its Subsidiaries, to the extent they are
parties thereto, in accordance with its respective terms.
4.5 Financial Matters/Liabilities/Material Adverse
----------------------------------------------
Effect.
------
a. Each of the balance sheets and other financial
information set forth in each of the Form 10-Ks and Form 10-Qs,
which were timely filed by Borrower with the SEC in 1993,1994,
and 1995, a copy of which has been furnished to Lender prior to
the date of this Agreement, was prepared in accordance with GAAP
consistently applied throughout the period involved and presents
fairly the consolidated financial position of Borrower and its
Subsidiaries at such dates and consolidated results of operations
and cash flow for the period then ended and for such periods
represented thereby.
b. The audited consolidated balance sheets as at
December 31,1995 and statements of income, retained earnings and
cash flows of Borrower and its Subsidiaries for the year ending
on December 31,1995, true, correct and complete copies of which
have been furnished to Lender prior to the date of this
Agreement, have been prepared in conformity with GAAP
consistently applied throughout the periods involved and present
fairly the consolidated financial position of Borrower and its
Subsidiaries, as at the dates thereof, and the consolidated
results of operations and cash flows for the period then ended.
c. Borrower and its Subsidiaries, as of December
31,1995, directly or indirectly, had no Indebtedness, liabilities
under Title IV of ERISA, material contracts (including without
limitation long term leases or commitments) or any liabilities,
fixed or contingent, in excess of $10,000, other than as set
forth on Schedule 4.5.c attached hereto, which are not reflected
--------------
in the consolidated balance sheet of Borrower and its
Subsidiaries or the notes thereto.
d. Schedule 4.5.d sets forth a true and complete list
--------------
of all liabilities of Borrower and its Subsidiaries (whether
fixed or contingent, choate or inchoate) in excess of $10,000 as
of December 31, 1995, including without limitation, all existing
Indebtedness, or liabilities under Title IV of ERISA of Borrower
or any of its Subsidiaries. Since December 31,1995, neither
Borrower nor any of its Subsidiaries has incurred any liability
out of the ordinary course of business.
e. There has been no Material Adverse Effect, and to
the best of Borrower's knowledge, no action or event threatened
or pending which could result in a Material Adverse Effect, since
December 31,1995, except as set forth in Schedule 4.5.e attached
--------------
hereto. No dividends or other distributions have been declared,
paid or made upon any shares of capital Stock of Borrower or any
of its Subsidiaries nor have any shares of capital Stock of
Borrower or any of its Subsidiaries been redeemed, retired,
purchased or otherwise acquired for value by Borrower or any of
the Subsidiaries since December 31, 1995.
f. Borrower and the Federal Deposit Insurance
Corporation have entered into the agreement described on Schedule
--------
4.5.f.
-----
4.6 Borrower's Ownership of Property; Liens. Each of
---------------------------------------
Borrower or any of its Subsidiaries owns, and has provided Lender
with evidence that it holds, good and marketable fee simple title
to all of its Real Estate and good, valid and marketable
leasehold interests in its Leases and good and marketable title
to, or valid leasehold interests in, all of its other properties
and assets and none of its properties and assets including,
without limitation, the Real Estate and Leases is subject to any
Liens, except (i) Permitted Encumbrances, (ii) the Liens in favor
of third party lenders (other than Liens securing Other Secured
Debt pursuant to, and in accordance with, the Other Secured Debt
Documents), all of which from and after Closing shall be subject
and subordinate to Lender's Liens, and Servicer's Liens to the
extent provided in the Collateral Documents and the security
agreement(s) executed by and between Borrower and Servicer, and
(iii) from and after the Closing Date, the Liens in favor of
Lender pursuant to the Collateral Documents and Servicer pursuant
to the security agreement(s) executed in connection with the
Servicing Agreement; and each of Borrower and its Subsidiaries
have received all deeds, assignments, waivers, consents,
non-disturbance and recognition or similar agreements, bills of
sale and other documents, and duly effected all recordings,
filings and other actions necessary to establish, protect and
perfect its right, title and interest in and to all such
property. All real property owned or leased by Borrower and its
Subsidiaries is set forth on Part One of Schedule 4.6. Neither
------------
Borrower nor any of its Subsidiaries owns any other real property
or is lessee or lessor under any Leases other than as set forth
therein. Part One of Schedule 4.6 hereto sets forth
------------
all Leases of real property held by Borrower or any Subsidiary as
lessee and Part Two of Schedule 4.6 sets forth all Leases of real
------------
property held by Borrower or any Subsidiary as lessor together
with information regarding the commencement date, termination
date, renewal options (if any) and annual base rents for the term
of each of the Leases. Each of such Leases is valid and
enforceable in accordance with its terms and is in full force and
effect. Borrower has delivered to Lender true and complete
copies of each of such Leases (and all amendments and
modifications thereto) and all documents affecting the rights or
obligations of Borrower or any Subsidiary which is a party
thereto, including, without limitation, any non-disturbance and
recognition agreements, subordination agreements, attornment
agreements and agreements regarding the term or rental of any of
the leases. Except as set forth in Schedule 4.6, neither Borrower
------------
nor the applicable Subsidiary nor any other party to any such
Lease is in default of its obligations thereunder or has
delivered or received any notice of default under any such Lease,
nor has any event occurred which, with the giving of notice, the
passage of time or both, would constitute a default by Borrower
or any of its Subsidiaries under any such lease. Neither
Borrower nor any of its Subsidiaries owns or holds, or is
obligated under or a party to, any option, right of first refusal
or any other contractual right to purchase, acquire, sell, assign
or dispose of any real property owned or leased by Borrower or
any of its Subsidiaries. No portion of any Real Estate has
suffered any material damage by fire or other casualty loss which
has not heretofore been completely repaired and restored to its
original condition.
4.7 Affiliate Partnerships' Ownership of Property;
----------------------------------------------
Liens.
-----
a. Each Affiliate Mortgage Partnership owns good and
marketable fee simple title to all of its Partnership Real Estate
and good, valid and marketable leasehold interests in the
Partnership Leases (a true and complete list of which is set
forth on Schedule 4.7), and good and marketable title to, or
------------
valid leasehold interests in, all of its other properties and
assets. None of the properties and assets of the Affiliate
Mortgage Partnerships, including, without limitation, the
Partnership Real Estate and Partnership Leases is subject to any
Liens, except (i) Permitted Encumbrances, or (ii) the Liens
evidenced by the Underlying Mortgages or the Wrap Mortgages.
b. To the best of Borrower's knowledge after due
investigation, each Affiliate Non-Mortgage Partnership owns good
and marketable fee simple title to all of its Partnership Real
Estate and good, valid and marketable leasehold interests in its
Partnership Leases, and good and marketable title to, or valid
leasehold interests in, all of its other properties and assets.
None of the properties and assets of the Affiliate Non-Mortgage
Partnerships, including, without limitation, the Partnership Real
Estate and Partnership Leases is subject to any Liens, except (i)
Permitted Encumbrances or (ii) the Liens evidenced by the
Underlying Mortgages.
c. Each Affiliate Partnership has received all deeds,
assignments, waivers, consents, non-disturbance and recognition
or similar agreements, bills of sale and other documents, and
duly effected all recordings, filings and other actions necessary
to establish, protect and perfect such Affiliate Partnership's
right, title and interest in and to its Partnership Real Estate
and Partnership Leases. No Affiliate Partnership owns any other
Partnership Real Estate or is lessee or lessor under any
Partnership Leases other than as set forth on Schedule 4.7. Part
------------
One of Schedule 4.6 sets forth all Partnership Leases in which
------------
such Affiliate Partnership is tenant and Schedule 4.7 sets forth
------------
all Partnership Leases in which such Affiliate Partnership is
landlord, together with information regarding the commencement
date, termination date, renewal options (if any) and annual base
rents for the term of the Partnership Lease. Each of such
Partnership Leases is valid and enforceable in accordance with
its terms and is in full force and effect. No Affiliate
Partnership nor any other party to any such Partnership Lease is
in default of its obligations thereunder or has delivered or
received any notice of default under any such Partnership Lease,
nor has any event occurred which, with the giving of notice, the
passage of time or both, would constitute a default under any
such Partnership Lease. Except for certain purchase option
rights granted to certain tenants (which are not Affiliates of
Borrower, any Other Entity or any Affiliate Partnership) set
forth in the lease agreements between the Affiliate Partnerships
and such tenants with respect to certain Partnership Real Estate
(true, correct and complete copies of which have been provided to
Lender), no Affiliate Partnership owns or holds, or is obligated
under or a party to, any option, right of first refusal or any
other contractual right to purchase, acquire, sell, assign or
dispose of any Partnership Real Estate or Partnership Lease. No
portion of any Partnership Real Estate or any real property
covered by any Partnership Lease has suffered any material damage
by fire or other casualty loss which has not heretofore been
completely repaired and restored to its original condition.
4.8 Other Transactions, Agreements and Liens. Except
----------------------------------------
as set forth in Schedule 4.8, no Person (including, without
------------
limitation, none of the Other Entities) (i) has any option, right
of first refusal or other contractual right to purchase, acquire,
sell, assign, or dispose of any Real Estate, Lease, Partnership
Real Estate, Partnership Lease or any other asset, property or
right of Borrower, any Subsidiary of Borrower or any Affiliate
Partnership, or (ii) has the right to receive any payment,
commission, finder's fee or other Compensation from Borrower, any
Subsidiary of Borrower or any Affiliate Partnership or (iii) is
owed any Indebtedness by Borrower, any Subsidiary of Borrower or
Affiliate Partnership or (iv) is the owner of any Lien covering
any Real Estate, Lease, Partnership Real Estate, Partnership
Lease or any other asset, property or right of Borrower, any
Subsidiary of Borrower or any Affiliate Partnership.
4.9 No Material Default. None of Borrower, any of
-------------------
its Subsidiaries or, to the best of Borrower's knowledge, any
Affiliate Partnership is in default or has received notice from
any Person alleging the existence of a default, nor is any third
party in default in any material respect, under or with respect
to any contract, agreement, lease or other instrument to which it
is a party or by which its property is bound or affected. No
Default or Event of Default has occurred and is continuing.
4.10 No Burdensome Restrictions. No contract, lease,
--------------------------
agreement or other instrument to which Borrower or any of its
Subsidiaries or any Affiliate Partnership is a party or any of
its respective assets is bound and no provision of Law has a
Material Adverse Effect, or, insofar as Borrower can reasonably
foresee, may have a Material Adverse Effect.
4.11 Labor Matters. There are no strikes or other
-------------
labor disputes against Borrower or any of its Subsidiaries or any
Affiliate Partnership pending or, to Borrower's knowledge,
threatened. Except as set forth in Schedule 4.11, there are no
-------------
lawsuits, arbitration proceedings or grievances filed by any
employee of Borrower, any of its Subsidiaries or any of the
Affiliate Partnerships against Borrower, any of its Subsidiaries
or any of the Affiliate Partnerships. Hours worked by and
payment made to employees of Borrower and its Subsidiaries have
not been in violation of the Fair Labor Standards Act or any
other applicable law dealing with such matters. All payments due
from and all pending claims for payment asserted against Borrower
or any of its Subsidiaries or any Affiliate Partnership on
account of employee health and welfare insurance or for any other
compensation, have been paid or accrued as a liability or
reserves created on the books of Borrower, such Subsidiary or
such Affiliate Partnership. None of Borrower, any of its
Subsidiaries or any Affiliate Partnership is a party to, or has
any obligation under, any collective bargaining agreement or
other labor agreement. There is no organizing activity involving
Borrower or any of its Subsidiaries or any Affiliate Partnership
pending or threatened by any labor union or group of employees.
There are no representation proceedings pending or threatened
with the National Labor Relations Board, and no labor
organization or group of employees of Borrower or any of its
Subsidiaries or any Affiliate Partnership has made a pending
demand for recognition. There are no lawsuits, complaints or
charges against Borrower, any of its Subsidiaries or any of the
Affiliate Partnerships pending or threatened to be filed with any
federal, state, local or foreign court, governmental agency or
arbitrator based on, arising out of, in connection with, or
otherwise relating to, the employment or termination of
employment of any individual by Borrower, any of its Subsidiaries
or any of the Affiliate Partnerships. Except as set forth on
Schedule 4.11 attached hereto, there are no employment,
-------------
consulting or management agreements (other than the Servicing
Agreement) covering management of Borrower, any of its
Subsidiaries or any Affiliate Partnership. A true and complete
copy of each such agreement, with any amendments or supplements
thereto, has been furnished to Lender.
4.12 Investment Company Act. Neither Borrower nor any
----------------------
Subsidiary is an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act
of 1940, as amended. The funding of the Note by Lender, the
application of the proceeds and repayment thereof by Borrower and
the consummation of the transactions contemplated by this
Agreement and the other Loan Documents will not violate any Law,
including, without limitation, any provision of such Act or any
rule, regulation or order issued by the SEC thereunder.
4.13 Margin Regulations. Neither Borrower nor any of
------------------
its Subsidiaries owns any "margin security," as that term is
defined in Regulation G (12 C.F.R. Part 207) and "margin stock,"
as that term is defined in Regulation U (12 C.F.R. Part 221) of
the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), and the proceeds of the Note shall be
---------------------
used only for the purposes contemplated hereunder. The Note has
not been, and will not be, used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or margin
stock, for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin
security or margin stock or for any other purpose which might
cause any of the loans under this Agreement to be considered a
"purpose credit" within the meaning of Regulations G, T, U or X
of the Federal Reserve Board. Borrower will not take or permit
any agent acting on its behalf to use proceeds of the Note,
directly or indirectly, or take any other action which might
cause this Agreement or any document or instrument delivered
pursuant hereto to violate any regulation of the Federal Reserve
Board or the Securities and Exchange Act of 1934, as amended, and
any rules and regulations promulgated thereunder.
4.14 Taxes. Except as set forth on Schedule 4.14, all
----- -------------
federal, state, local and foreign Tax returns, reports, forms,
estimates, information returns and statements ("Returns")
-------
required to be filed prior to the date hereof by Borrower, its
Subsidiaries and the Affiliate Partnerships have been, and
Returns required to be filed between the date hereof and the
Closing Date, shall be, timely filed with the appropriate
Governmental Authority (except where the only reason for filing
such Return in a particular jurisdiction is that one or more
limited partner(s) of an Affiliate Partnership reside in such
jurisdiction), including without limitation any consolidated,
combined or similar Return and all Taxes and other impositions
shown and to be shown thereon to be due and payable have been
paid prior to the date on which any fine, penalty, interest or
late charge may be added thereto for nonpayment thereof, or any
such fine, penalty, interest, late charge or loss has been paid.
All such Returns are true and accurate in all material respects.
Each of Borrower, its Subsidiaries and the Affiliate Partnerships
has paid when due and payable all Taxes required to be paid by
it. All additional Taxes claimed by any Governmental Authority
with respect to any such Return have been paid as of the date
hereof (together with interest and any fine or penalty), other
than Taxes which are being contested in good faith and which are
set forth on Schedule 4.14 hereto. No tax liability has been
-------------
asserted by the IRS or any state or local authority against
Borrower, any of its Subsidiaries or any Affiliate Partnerships.
Proper and accurate amounts have been withheld by Borrower, its
Subsidiaries and the Affiliate Partnerships from their respective
employees for all periods in full and complete compliance with
the tax, social security and unemployment withholding provisions
of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective governmental
agencies. Schedule 4.14 sets forth, for each of Borrower, its
-------------
Subsidiaries and the Affiliate Partnerships, those taxable years
for which its tax returns are currently being audited by the IRS
or any other applicable Governmental Authority and information
regarding any other tax proceeding involving Borrower, any of its
Subsidiaries or the Affiliate Partnerships. Except as described
in Schedule 4.14 hereto, neither Borrower nor any of its
-------------
Subsidiaries nor any Affiliate Partnership has executed or filed
with the IRS or any other Governmental Authority any agreement or
other document extending, or having the effect of extending, the
period for assessment or collection of any Taxes. There are no
Liens for any Tax on the assets of Borrower, any of its
Subsidiaries or Affiliate Partnerships. To the knowledge of
Borrower, no claim has been made by any Governmental Authority
where Returns are not filed that any of Borrower, its
Subsidiaries or Affiliate Partnership may be subject to taxation.
Neither Borrower nor any of its Subsidiaries nor any Affiliate
Partnership has any agreement or consent pursuant to IRC Section
341(f). None of the property owned by Borrower or any of its
Subsidiaries or any Affiliate Partnership is property which such
entity is required to treat as being owned by any other Person
pursuant to the provisions of Section 168(fl(8) of the Internal
Revenue Code of 1954, as amended, and in effect immediately prior
to the enactment of the Tax Reform Act of 1986 or is "tax-exempt
use property" within the meaning of IRC Section 168(h). Except
as set forth on Schedule 4.14 hereto, neither Borrower nor any of
-------------
its Subsidiaries nor any Affiliate Partnership has ever agreed or
has been requested to make any adjustment under IRC Section
481(a) by reason of a change in accounting method or otherwise.
Except as set forth on Schedule 4.14 hereto, neither Borrower nor
-------------
any of its Subsidiaries nor any Affiliate Partnership has any
obligation under any written tax sharing agreement. Except as
reflected on Schedule 4.14, none of Borrower, its Subsidiaries or
-------------
Affiliate Partnerships has made or is obligated to make, or will
as a result of any covenant connected with the transactions
contemplated by this Agreement become obligated to make any
"excess parachute payment" as defined in IRC Section 280G (with
regard to subsection (b)(4) thereof).
4.15 ERISA.
-----
a. Schedule 4.15 lists all Plans maintained or
-------------
contributed to by Borrower and its Subsidiaries and all Qualified
Plans maintained or contributed to by any ERISA Affiliate with
the past six (6) years. Neither Borrower nor any Subsidiary nor
any ERISA Affiliate now maintains or contributes to, or has
within the last six (6) years maintained or contributed to any
Title IV Plan, Multiemployer Plan, any multiple employer plan
subject to Section 4064 of ERISA, funded or unfunded Pension Plan
or Retiree Welfare Plan.
b. Each Qualified Plan has been determined by the IRS
pursuant to IRS Revenue Procedure 93-39 to qualify under Section
401 of the IRC, and the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section
501 of the IRC, and nothing has occurred which could cause the
loss of such qualification or tax-exempt status.
c. Each Plan, and Borrower, each of its Subsidiaries
and each ERISA Affiliate in connection with each Plan, are in
compliance in all material respects with the applicable
provisions of ERISA, the IRC, the Family and Medical Leave Act of
1993 and all other applicable provisions of federal, state and
local law governing employee benefits including the filing of
reports required under the IRC or ERISA, all of which are true
and correct in all material respects as of the date filed, and
with respect to each Plan, all required contributions and
benefits have been paid in accordance with the provisions of each
such Plan.
d. There are no pending or, to the knowledge of
Borrower or any of its Subsidiaries, threatened claims, actions
or lawsuits (other than non-material claims for benefits in the
normal course), asserted or instituted against (i) any Plan or
its assets, (ii) any fiduciary with respect to any Plan or (iii)
Borrower, any of its Subsidiaries or any ERISA Affiliate with
respect to any Plan.
e. Neither Borrower nor any of its Subsidiaries has
engaged in a prohibited transaction, as defined in Section 4975
of the IRC or Section 406 of ERISA, in connection with any Plan,
which would subject Borrower, any of its Subsidiaries or any
ERISA Affiliate (after giving effect to any exemption) to a
material tax on prohibited transactions imposed by Section 4975
of the IRC or any other material liability.
f. Except as set forth on Schedule 4.15, no liability
-------------
under any Plan has been funded, nor has such obligation been
satisfied with, the purchase of a contract from an insurance
company that is not rated AAA by Standard & Poor's Corporation
and the equivalent by each other nationally recognized rating
agency.
4.16 No Litigation. Except as set forth on Schedule
------------- --------
4.16 hereto, no action, claim or proceeding is now pending or, to
----
the knowledge of Borrower, threatened against or affecting
Borrower, any of its Subsidiaries, or any Affiliate Partnership,
or any of their respective assets at law, in equity or otherwise,
before any court, board, commission, agency or instrumentality of
any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of
arbitrators, nor to the knowledge of Borrower does a state of
facts exist which is reasonably likely to give rise to any such
action, claim, investigation or proceeding. None of the matters
set forth on Schedule 4.16 questions the validity of this
-------------
Agreement or any of the other Loan Documents or any action taken
or to be taken pursuant hereto or thereto, or would have either
individually or in the aggregate a Material Adverse Effect.
4.17 Brokers. Except as set forth on Schedule 4.17
------- -------------
(which broker set forth on such Schedule shall be paid by
Borrower), no broker or finder acting on behalf of Borrower
brought about the obtaining, making or closing of the loans made
pursuant to this Agreement and Borrower has no obligation to any
Person except as set forth on Schedule 4.17 in respect of any
-------------
finder's or brokerage fees in connection with the transactions
contemplated by this Agreement or otherwise.
4.18 Outstanding Stock; Options; Warrants, Etc.
------------------------------------------
a. Schedule 4.18 sets forth a true, complete and
-------------
correct list of all authorized, issued and outstanding Stock
(including treasury shares) of Borrower and all other outstanding
rights, options, warrants or agreements pursuant to which
Borrower (1) may be required to issue or sell any Stock or other
equity security or (2) may affect, in any way whatsoever, the
redemption, conversion, issuance, cancellation or ownership of or
subscription for any of the Stock of Borrower. All such shares
of Stock issued and outstanding have been duly and validly
issued, fully paid and nonassessable and free of preemptive
rights. Also set forth on Schedule 4.18 is a true, complete and
-------------
correct list of any and all Stock Appreciation Rights and Equity
Documents. Other than as set forth on Schedule 4.18 there are no
-------------
other rights, options, warrants or agreements with respect to the
Stock of Borrower.
b. On the Closing Date all issued and outstanding
shares of Stock will be duly and validly issued, fully paid and
non-assessable and free of preemptive rights.
c. The authorized capital stock of each of the
Subsidiaries of Borrower is set forth on Schedule 4.18 attached
-------------
hereto. All such outstanding shares of Stock of such
Subsidiaries have been duly and validly authorized and issued,
are fully paid and nonassessable and are free of preemptive
rights. On the date hereof, none of the Subsidiaries of Borrower
have, and on the Closing Date none of the subsidiaries of
Borrower shall have, outstanding any securities convertible into
or exchangeable for its Stock or outstanding any rights to
subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any
character relating to, its Stock.
4.19 Patents, Trademarks, Copyrights and
-----------------------------------
Licenses. None of Borrower or any of its Subsidiaries owns
--------
licenses, patents, patent applications, copyrights, service
marks, trademarks, trademark applications, and trade names.
Borrower and its Subsidiaries conduct their respective businesses
without infringement or claim of infringement of any license,
patent, copyright, service mark, trademark, trade name, trade
secret or other intellectual property right of others, except
where such infringement or claim of infringement would not have a
Material Adverse Effect.
4.20 Intentionally Omitted.
---------------------
4.21 Environmental Protection. Except as set forth in
------------------------
Schedule 4.21, to the best of Borrower's knowledge, all Real
-------------
Estate owned and leased pursuant to the Leases by Borrower or any
of its Subsidiaries and all Partnership Real Estate owned and
leased pursuant to the Partnership Leases is free of material
contamination any substance, material or waste regulated under
the Environmental Laws, including, without limitation, any
asbestos, pcb, radioactive substance, methane, organics,
industrial solvents, petroleum, petroleum products, lead or any
other material, substance or waste which has in the past or could
at any time in the future cause or constitute a health, safety,
or environmental hazard or impairment to any Person or property
("Hazardous Substances"). To the best of Borrower's knowledge,
--------------------
none of Borrower, any of its Subsidiaries or any of the Affiliate
Partnerships has caused or suffered to occur any material
discharge, disposal, spillage, uncontrolled loss, seepage, or
filtration of Hazardous Substances in violation of the
Environmental Laws (a "Spill") at, under, from or within any Real
-----
Estate or Partnership Real Estate owned or leased by any such
Person. To the best of Borrower's knowledge, none of Borrower,
any of its Subsidiaries or any of the Affiliate Partnerships is
involved in operations or activities which could lead to the
imposition of any material Environmental Liabilities or Lien on
any Real Estate or Partnership Real Estate or on any such Person
or any owner of any premises occupied by such Person under the
Environmental Laws and none of Borrower, any of its Subsidiaries
nor any of the Affiliate Partnerships permitted any tenant or
occupant of such premises to engage in any such activity.
4.22 Real Estate Mortgages. Schedule 4.22 hereto sets
--------------------- -------------
forth with respect to any Real Estate or Partnership Real Estate
(i) the amount of existing Indebtedness secured by a Lien on each
property, (ii) the current monthly payment of interest and
principal in respect of such Indebtedness, and (iii) the current
interest payable in respect of such Indebtedness. Neither
Borrower nor any Affiliate Partnership is in default of its
obligations under any such Indebtedness nor has any event
occurred which, with the giving of notice, the passage of time or
both, would constitute a default under any such Indebtedness.
4.23 Existing Loan Documents. Borrower has delivered
-----------------------
to Lender true, correct and complete copies of all of the
Existing Loan Documents. Each of the Existing Loans and Existing
Loan Documents are genuine and Borrower had authority and
capacity to contract with respect to such Existing Loan Document
and the Existing Loan Documents are legal, valid and binding
obligations of Borrower enforceable in accordance with their
respective terms. Each of the Existing Loans and Existing Loan
Documents has continuously been in compliance with all applicable
Laws concerning such Existing Loans, including, but not limited
to, all state and federal usury laws. All Liens purported to be
created by or arising under the Existing Loan Documents have been
duly and validly created, perfected and recorded, and constitute
a fully perfected first Lien on the property described therein,
subject only to the Permitted Encumbrances. No default or event
of default (or other event which, with the passage of time, the
giving of notice, or both, would constitute an event of default)
has occurred with respect to or under any of the Existing Loan
Documents.
4.24 Wrap Notes and Wrap Mortgages.
-----------------------------
a. Borrower has delivered to Lender true, correct and
complete copies of all of the Wrap Notes and the Wrap Mortgages.
Schedule 4.24 hereto sets forth (i) a true, correct and complete
-------------
list of each Wrap Note and Wrap Mortgage owned or held by
Borrower, (ii) the amount of existing Indebtedness evidenced by
such Wrap Note and secured by a Lien of the Wrap Mortgage, (iii)
the current monthly payment of interest and principal under such
Wrap Note, (iv) the current interest payable in respect of such
Wrap Note, (v) the maturity date of the Indebtedness evidenced by
the Wrap Note, (vi) the discounted payoff schedule and the
discounted payoff amount with respect to each Wrap Note as of
December 31, 1995 and (vii) a description and explanation of the
methodology utilized by Borrower to calculate the discounts set
forth in clause (vi).
b. Borrower is the legal and beneficial owner and
holder of 100% of each of the Wrap Notes and the other Wrap Loan
Documents, (i) each of which constituting Primary Collateral
(except as described on Exhibit B hereto) is free and clear of
---------
any and all Liens, other than the Liens to be granted in favor of
Lender, and (ii) each of the other Wrap Notes and the other Wrap
Loan Documents is free and clear of any and all Liens, except the
Liens set forth on Schedule 4.24 hereto. Each of the Wrap Notes
-------------
and Wrap Mortgages are genuine and all Obligors thereunder had
authority and capacity to contract to become such Obligors and
are currently obligated on each Wrap Note and Wrap Mortgage as
they appear to be from such documents. Each of the Wrap Loan
Documents has continuously been in compliance with all applicable
Laws concerning such Wrap Notes and the form, content and manner
of preparation and execution of the Wrap Loan Documents,
including, but not limited to, all state and federal usury laws.
All Liens purported to be created by or arising under the Wrap
Loan Documents have been duly and validly created, perfected and
recorded, and constitute a fully perfected second Lien on the
property described therein, subject only to the first lien of the
applicable Underlying Mortgage and to the Permitted Encumbrances.
The Wrap Notes, the Wrap Mortgages and the Wrap Loan Documents
are legal, valid and binding obligations of the Obligors
thereunder enforceable in accordance with their terms. No default
or event of default (or other event which, with the passage of
time, the giving of notice, or both, would constitute an event of
default) has occurred with respect to or under any of the Wrap
Loan Documents.
4.25 Underlying Notes and Underlying Mortgages.
-----------------------------------------
a. Borrower has delivered to Lender true, correct and
complete copies of all of the Underlying Notes and the Underlying
Mortgages. Schedule 4.25 hereto sets forth (i) a true, correct
-------------
and complete list of each Underlying Note and Underlying Mortgage
executed by any Affiliate Partnership, (ii) the amount of
existing Indebtedness evidenced by such Underlying Note and
secured by a Lien of the applicable Underlying Mortgage, (iii)
the current interest rate and the current monthly payment of
interest and principal under such Underlying Note, (iv) the
current interest payable in respect of such Underlying Note, (v)
the maturity date of the Indebtedness evidenced by the Underlying
Note, (vi) any prepayment rights under each Underlying Note, and
(vii) any prepayment premium or penalty under each Underlying
Note.
b. Each of the Underlying Notes and Underlying
Mortgages are genuine and all Obligors thereunder had authority
and capacity to contract to become such Obligors and are
currently obligated on each Underlying Note and Underlying
Mortgage as they appear to be from such documents. Each of the
Underlying Loan Documents has continuously been in compliance
with all applicable Laws concerning such Underlying Notes and the
form, content and manner of preparation and execution of the
Underlying Loan Documents, including, but not limited to, all
state and federal usury laws. All Liens purported to be created
by or arising under the Underlying Loan Documents have been duly
and validly created, perfected and recorded, and constitute a
fully perfected first Lien on the property described therein,
subject only to the Permitted Encumbrances. The Underlying
Notes, the Underlying Mortgages and the Underlying Loan Documents
are legal, valid and binding obligations of the Obligors
thereunder enforceable in accordance with their terms. Except as
set forth on Schedule 4.25, no default or event of default (or
-------------
other event which, with the passage of time, the giving of
notice, or both, would constitute an event of default) has
occurred with respect to or under any of the Underlying Loan
Documents.
4.26 Investor Notes.
--------------
a. Borrower has delivered to Lender true, correct and
complete copies of all of the Investor Notes and the other
Investor Loan Documents. Schedule 4.26 hereto sets forth (i) a
-------------
true, correct and complete list of each Investor Note owned or
held by Borrower, any Subsidiary of Borrower or any Affiliate
Partnership, (ii) the amount of outstanding principal balance of
such Investor Note as of the date set forth on such Schedule,
(iii) the accrued interest due under such Investor Note as of the
date set forth on such Schedule, (iv) whether such Investor Note
has been pledged to any lender, and if so, the name of such
lender and the amount of such loan, and (v) the name of the
Obligor under such Investor Note. Each of the Investor Notes are
secured by the pledge by the maker of such Investor Note of not
less than all of such maker's initial right, title and interest
in and to the limited partnership set forth in Schedule 4.26 in
-------------
which such maker is a limited partner.
b. Except as set forth on Schedule 4.26, Borrower is
-------------
the legal and beneficial owner and holder of 100% of each of the
Investor Notes and the other Investor Loan Documents, free and
clear of any and all encumbrances, other than the Liens granted
in favor of Lender.
4.27 Affiliate Partnerships. Set forth on Schedule
---------------------- --------
4.27 is a true, correct and complete list of (i) each Affiliate
----
Partnership and (ii) each Affiliate Partnership Agreement. Each
Affiliate Partnership was duly formed as a limited partnership
under the laws of the state of its formation, and has all
requisite partnership power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted. Borrower is the sole general partner in each of the
Affiliate Partnerships. There are no amendments, modifications
or supplements to any of the Affiliate Partnership Agreements
which are not reflected on Schedule 4.27.
-------------
4.28 Limited Partnership Interests.
-----------------------------
a. Set forth on Schedules 4.27 and 4.28 is a true,
-----------------------
correct and complete list of (i) each Limited Partnership
Interest, (ii) the limited partnership agreement, together with
all amendments, modifications and supplements thereto, related to
each Limited Partnership Interest,(such agreement, the "Limited
-------
Partnership Agreement"), (iii) the date Borrower acquired such
---------------------
Limited Partnership Interest and (iv) the total amount of
distributions received by Borrower or any Affiliate of Borrower
with respect to such Limited Partnership Interests during
calendar years 1994,1995 and 1996 year to date.
b. Borrower has no obligation to contribute any
additional amounts, or pay any amounts, with respect to any
Limited Partnership Interest or any of the limited partnerships
related thereto, other than with respect to the following: (1)
----------------------------------------
the deficit make-up obligation of Borrower and each of the other
Limited partners as set forth in each Limited Partnership
Agreement, (2) any liability of Borrower, as a limited partner,
to make a capital contribution to such limited partnership which
arises solely under the applicable limited partnership law and
not from the terms of the applicable Limited Partnership
Agreement,(3) any distributions received by Borrower, as a
limited partner with respect to any Limited Partnership Interest,
from any such limited partnerships which are subject to recall
pursuant to applicable limited partnership law and (4) the
obligations set forth on Schedule 4.28. Borrower has not received
-------------
any notice or demand with respect to any obligations that it may
have as described in clauses (1) through (4) of this Section
-------
4.28.b.
------
4.29 GP Fees/General Partner Advances/Limited
----------------------------------------
Partnership Loans. Set forth on Schedule 4.29 is a true, correct
----------------- -------------
and complete list of (i) all GP Fees, set forth for each
Affiliate Partnership, which have accrued during, and/or have
been received by, Borrower or any Affiliate of Borrower during
calendar years 1994,1995 and 1996 year to date, (ii) all loans
and other advances made by Borrower to any Affiliate Partnership
since the inception of such Affiliate Partnership which have not
been paid in full or otherwise fully satisfied by such Affiliate
Partnership and (iii) all loans and other advances made by any
Affiliate Partnership to Borrower since the inception of such
Affiliate Partnership which have not been satisfied or paid in
full by Borrower.
4.30 Assets of Borrower Pledged to Secure Other Secured
--------------------------------------------------
Debt. Schedule 4.30 is a true, correct and complete list of all
---- -------------
of the assets and properties of Borrower or any Subsidiary of
Borrower which are pledged to secure any of the Other Secured
Debt.
4.31 Securities Acts. None of Borrower, any of its
---------------
Subsidiaries or Affiliate Partnerships has issued any
unregistered securities in violation of the registration
requirements of Section 5 of the Securities Act of 1933, as
amended, or any other federal Law or, to the best of Borrower's
knowledge, any state blue sky laws and is not and has not been in
violation of any rule, regulation or requirement under the
Securities Act of 1933, as amended, or the Securities and
Exchange Act of 1934, as amended or any state blue sky laws.
None of Borrower, any of its Subsidiaries or Affiliate
Partnerships is required to qualify any indenture under the Trust
Indenture Act of 1939, as amended, in connection with the
execution and delivery of the Note, this Agreement and the other
Loan Documents.
4.32 Governmental Regulation. Except as set forth on
-----------------------
Schedule 4.32, none of Borrower, any of its Subsidiaries or any
-------------
of the Affiliate Partnerships is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act
or the Interstate Commerce Act or to any federal or state Laws
limiting its ability to incur Obligations.
4.33 No Operating Subsidiaries. None of the
-------------------------
Subsidiaries of Borrower owns any assets or have any operations,
other than PSC and DVC. Each of the assets owned by PSC and DVC
is set forth on Schedule 4.33 attached hereto.
-------------
4.34 Non-Settling Stockholders. Schedule 4.34 sets
------------------------- -------------
forth a true, correct and complete list of each of the
Stockholders of Borrower which "opted out" and did not join in
the Shareholder Settlement Agreement.
4.35 Non-Settling Limited Partners. Schedule 4.35 sets
----------------------------- -------------
forth a true, correct and complete list of each of the limited
partners of any Affiliate Partnerships which "opted out" and did
not join in the Limited Partner Settlement Agreement.
4.36 Non-Settling Partnerships. Schedule 4.36 sets
------------------------- -------------
forth a true, correct and complete list of each of the Affiliate
Partnerships which "opted out" and did not join in the Limited
Partner Settlement Agreement.
4.37 Settlement Agreement Obligations. Each of
--------------------------------
Borrower, each of the Subsidiaries of Borrower, each of the
Affiliate Partnerships and each of the other parties thereto has
performed (to the extent required to be performed as of the date
hereof), and continues to perform (to the extent such obligations
continue to be performed after the date hereof), each of its
obligations under, or set forth in, (i) the Limited Partner
Settlement Agreement, (ii) the Shareholder Settlement Agreement
and (iii) the other settlement agreements described on Schedule
--------
4.37. To the best of Borrower's knowledge, no default or event
----
of default exists under the Limited Partner Settlement Agreement
or the Shareholder Settlement Agreement.
4.38 Full Disclosure. No information contained in this
---------------
Agreement, the other Loan Documents, the financial information
described in Section 4.5 or any written statement furnished by or
-----------
on behalf of Borrower or its Subsidiaries pursuant to the terms
of this Agreement or in Borrower's Form 10-K dated December 31,
1994 or in Borrower's Form 10-Q dated September 30,1995 contains
any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein
or therein not misleading.
5. FINANCIAL STATEMENTS AND INFORMATION
------------------------------------
5.1 Reports and Notices. Borrower covenants and
-------------------
agrees that from and after the date hereof and, if there is a
Closing, from and after the Closing Date, until all Obligations
are paid in full, it shall deliver to Lender:
a. Within thirty (30) days after the end of each
fiscal month (or, with respect to January and February of each
calendar year, within sixty (60) days after the end of such
fiscal months), (i) a copy of the unaudited consolidated balance
sheets of Borrower and its Subsidiaries as of the end of such
month and the related consolidated statements of income and list
of cash receipts and disbursements for that portion of the Fiscal
Year ending as of the end of such month, and (ii) a report of the
Cash Flow for the previous fiscal month, setting forth the amount
of Cash Flow generated by each asset or property constituting a
source of such Cash Flow.
b. Within forty-five (45) days after the end of each
fiscal quarter, (i) a copy of the unaudited consolidated balance
sheets of Borrower and its Subsidiaries as of the close of such
quarter and the related consolidated statements of income and
cash flows for that portion of the Fiscal Year ending as of the
close of such quarter, (ii) a copy of the unaudited consolidated
statements of income of Borrower and its Subsidiaries for such
quarter, all prepared in accordance with GAAP (subject to normal
year-end adjustments) and accompanied by the certification of the
chief executive officer or chief financial officer of Borrower
that all such financial statements are complete and correct and
present fairly in accordance with GAAP (subject to normal
year-end adjustments), the consolidated financial position,
results of operations and statements of cash flows of Borrower
and its Subsidiaries as at the end of such quarter and for the
period then ended, and that there was no Event of Default under
this Agreement in existence as of such time and (iii) a report of
the Cash Flow for the previous fiscal quarter, setting forth the
amount of Cash Flow generated by each asset or property
constituting a source of such Cash Flow.
c. Within ninety (90) days after the close of each
Fiscal Year, a copy of the annual audited consolidated and
consolidating financial statements of Borrower and its
Subsidiaries, consisting of consolidated balance sheets and
consolidated and consolidating statements of income and retained
earnings and cash flows, setting forth in comparative form in
each case the consolidated figures for the previous fiscal year,
which financial statements shall be prepared in accordance with
GAAP, certified (only with respect to the consolidated financial
statements) by the independent certified public accountants
regularly retained by Borrower, and accompanied by (i) a report
from such accountants to the effect that in connection with their
audit examination, nothing has come to their attention to cause
them to believe that a Default or Event of Default under this
Agreement had occurred and (ii) a certification of the chief
executive officer and chief financial officer of Borrower that
all such financial statements are complete and correct and
present fairly in accordance with GAAP the consolidated and
consolidating financial position, the consolidated and
consolidating results of operations and the consolidated and
consolidating statements of cash flows of Borrower and its
Subsidiaries as at the end of such year and for the period then
ended, that no Default or Event of Default under this Agreement
or the other Loan Documents, or default or event of default under
the Permitted Stockholder Documents or the Servicing Agreement
(and agreements referred to therein), occurred during such year
or during the period then ended and that no Default or Event of
Default under this Agreement or the other Loan Documents, or
default or event of default under the Permitted Stockholder
Documents or the Servicing Agreement (and agreements referred to
therein), then exists.
d. Within forty-five (45) days after the close of
each Fiscal Year, a report of the Cash Flow for the previous
Fiscal Year, certified by the chief financial officer of
Borrower, setting forth the amount of Cash Flow generated by each
asset or property constituting a source of such Cash Flow and
setting forth whether Borrower has paid to Lender the Annual
Minimum Interest Payment during such prior Fiscal Year.
e. As soon as practicable, but in any event within
two (2) Business Days after Borrower becomes aware of the
existence of any Default or Event of Default under this Agreement
or the other Loan Documents, or any default or event of default
under the Permitted Stockholder Documents or the Servicing
Agreement (and agreements referred to therein), or any
development or other information which could or could reasonably
be expected to have a Material Adverse Effect, telephonic or
telegraphic notice specifying the nature of such Default or Event
of Default or development or information, including the
anticipated effect thereof, which notice shall be promptly
confirmed in writing within five (5) days in accordance with the
notice provisions of Section 9.10 hereof.
------------
f. If requested by Lender in connection with any
sale, assignment, transfer, mortgage, hypothecation, or pledge of
all or any portion of Lender's rights and obligations under the
Senior Debt, the Note, this Agreement, and the other Loan
Documents in accordance with the provisions of Section 9.1.c or
----------------
9.1.d, or any proposal to do so, Borrower shall execute and
-----
deliver to Lender within fifteen (15) days of each request, for
the benefit of each Financial Institution holding a Lien in any
portion of the Senior Debt and any participant in any portion of
the Senior Debt, an estoppel certificate, executed by the chief
executive officer and chief financial officer of Borrower,
certifying as to the following: (i) the then current outstanding
principal balance of the Note; (ii) the then accrued and unpaid
interest on the Note; (iii) whether a Default or Event of Default
has occurred and is continuing under any of the Loan Documents;
(iv) that, as of the date of such estoppel certificate, Borrower,
on behalf of itself and its Affiliates, hereby RELEASES, ACQUITS
AND FOREVER DISCHARGES Lender, its members, officers, directors,
employees, agents, attorneys and their respective Affiliates from
any and all liabilities, claims, demand, actions or causes or
actions of any kind whatsoever (if any), whether absolute or
contingent, disputed or undisputed, at law or in equity, or known
or unknown that any one or more of them now have or ever had
against the holder of any of the Existing Loans against Lender or
Financial Institution, its members, officers, directors,
employees, agents, attorneys and their respective Affiliates
arising under or in connection with any of the Existing Loans,
the Existing Loan Documents, the Existing Loan Transfer
Documents, the Loan Documents or otherwise and (v) such other
information as may be reasonably requested by Lender.
g. If requested by Lender, copies of all federal,
state, local and foreign Tax returns and reports in respect of
income, franchise or other Taxes on or measured by income
(excluding sales, use of like taxes) filed by Borrower or any of
its Subsidiaries.
h. All notices, reports and other information which
is provided to, or by, Servicer under the Servicing Agreement
shall also be provided to Lender. In addition, Borrower shall
within five (5) days provide to Lender such other information
respecting Borrower's or any of its Subsidiaries' business,
financial condition or prospects as Lender may, from time to
time, request.
5.2 Communication with Accountants. Borrower
------------------------------
authorizes Lender to communicate directly with its independent
certified public accountants and tax advisors and authorizes
those accountants to disclose to Lender any and all financial
statements and other supporting financial documents and schedules
including copies of any management letter with respect to the
business, financial condition and other affairs of Borrower and
any of its Subsidiaries. At or before the Closing Date, Borrower
shall deliver a letter addressed to such accountants and tax
advisors instructing them to comply with the provisions of this
Section 5.2.
-----------
6. AFFIRMATIVE COVENANTS
---------------------
Borrower, in its individual capacity and in its
capacity as the general partner of each of the Affiliate
Partnerships, covenants and agrees that, unless Lender shall
otherwise consent in writing, from and after the date hereof and
until the Termination Date:
6.1 Maintenance of Existence and Conduct of
---------------------------------------
Business. Subject to the second sentence of this Section 6.1,
-------- -----------
Borrower shall, and shall cause each of its Subsidiaries to: (a)
do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, and its rights
and franchises; (b) continue to conduct its business
substantially as now conducted or as otherwise permitted
hereunder; (c) at all times maintain, preserve and protect all of
its trademarks and trade names, and preserve all the remainder of
its property, in use or useful in the conduct of its business and
keep the same in good repair, working order and condition (taking
into consideration ordinary wear and tear) and from time to time
make, or cause to be made, all needful and proper repairs,
renewals and replacements, betterments and improvements thereto
consistent with industry practices, so that the business carried
on in connection therewith may be properly and advantageously
conducted at all times; and (d) transact business only in such
names set forth on Schedule 6.1, or such other names as Borrower
------------
or any Subsidiary of Borrower shall specify to Lender in writing
not less than thirty (30) days prior to the first date such name
is used by Borrower or any Subsidiary of Borrower.
6.2 Payment of Obligations. Borrower shall, and shall
----------------------
cause each of its Subsidiaries, to use their respective available
cash flows from all sources to: (i) if prior to Closing, (a)
first, pay and discharge or cause to be paid and discharged all
amounts then due and payable, in accordance with its
Indebtedness, including, without limitation, the obligations with
respect to the Restricted Debt, as and when due and payable; and,
(b) second, pay and discharge or cause to be paid and discharged
promptly all other obligations of Borrower as they become due and
payable; and (ii) if after Closing, (a) first, pay and discharge
or cause to be paid and discharged all amounts then due and
payable, in accordance with its Obligations under this Agreement
and the other Loan Documents, (b) second, pay and discharge or
cause to be paid and discharged all amounts then due and payable,
in accordance with its Indebtedness, including, without
limitation, the obligations with respect to the Restricted Debt,
as and when due and payable, and (c) third, pay and discharge or
cause to be paid and discharged promptly all other obligations of
Borrower as they become due and payable.
6.3 Books and Records. Borrower shall, and shall
-----------------
cause each of its Subsidiaries to, keep adequate records and
books of account with respect to its business activities, in
which proper entries, reflecting all of their financial
transactions, are made in accordance with GAAP and on a basis
consistent with the financials referred to in Section 4.5 hereof.
-----------
6.4 Litigation. Borrower shall notify Lender in
----------
writing, promptly upon learning thereof, of any litigation
commenced against or by Borrower and/or any of the Subsidiaries
and/or any of the Affiliate Partnerships, and of the institution
against any of them of any case, lawsuit, zoning (or other land
use) hearing or proceeding, arbitration proceeding, equitable
proceeding, administrative proceeding or other proceeding.
6.5 Insurance. Borrower shall, and shall cause each
---------
of its Subsidiaries and each Affiliate Partnership to, maintain
insurance covering, without limitation, fire, theft, burglary,
public liability, property damage, workers' compensation,
insurance on all property and assets, all in amounts customary
for the financial services industry and under policies issued by
insurers and pursuant to policies satisfactory to Lender and in
any event in compliance with any insurance requirements under any
Loan Documents or any other agreements and, from and after the
Closing Date, with a lender's loss payable clause for the benefit
of Lender. Borrower shall, and shall cause each of its
Subsidiaries and each Affiliate Partnership to, pay all insurance
premiums payable by them. Borrower shall, and shall cause each
of its Subsidiaries and each Affiliate Partnership to, provide to
Lender, copies of all termination, modification and other notices
sent by policy issuers in respect of the foregoing insurance
policies.
6.6 Compliance with Law. Borrower shall, and shall
-------------------
cause each of its Subsidiaries and each of the Affiliate
Partnerships, to comply with all Laws applicable to each of them
and their respective properties and operations, including,
without limitation, ERISA, those regarding the collection,
payment and deposit of employees' income, unemployment and social
security taxes and those relating to environmental matters.
6.7 Agreements. Borrower shall, and shall cause each
----------
of its Subsidiaries and each of the Affiliate Partnerships to,
perform, within all required time periods (after giving effect to
any applicable grace periods), all of its obligations and enforce
all of its rights under each agreement to which it is a party,
including, without limitation, any leases to which any such
entity is a party, including without limitation, the Shareholder
Settlement Agreement and the Limited Partner Settlement
Agreement. Borrower shall not and shall cause each of its
Subsidiaries and each of the Affiliate Partnerships not to,
terminate or modify in any manner adverse to any such entity any
provision of any agreement to which it is a party.
6.8 Supplemental Disclosure. From time to time as may
-----------------------
be necessary (in the event that such information is not otherwise
delivered by Borrower to Lender pursuant to this Agreement), so
long as there are Obligations outstanding hereunder, Borrower
will supplement each Schedule or representation herein with
respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required
to be set forth or described in such Schedule or as an exception
to such representation or which is necessary to correct any
information in such Schedule or representation which has been
rendered inaccurate thereby; provided, however, that such
-------- -------
supplement to such Schedule or representation shall not be deemed
an amendment thereof unless otherwise consented to by the Lender
in writing.
6.9 Employee Plans.
--------------
a. With respect to other than a Multiemployer Plan,
for each Qualified Plan hereafter adopted or maintained by
Borrower, any of its Subsidiaries or any ERISA Affiliate,
Borrower shall (i) seek, or cause its Subsidiaries or ERISA
Affiliates to timely seek, and receive determination letters from
the IRS to the effect that such Qualified Plan is qualified
within the meaning of Section 401(a) of the IRC; and (ii) from
and after the adoption of any such Qualified Plan, timely cause
such plan to be qualified within the meaning of Section 401(a) of
the IRC and to be administered in all material respects in
accordance with the requirements of ERISA and the IRC.
b. With respect to each Plan hereafter adopted or
maintained by Borrower, any of its Subsidiaries or any ERISA
Affiliate, Borrower shall comply, or cause its Subsidiaries or
ERISA Affiliates to comply, with the applicable provisions of
ERISA, the IRC, the Family and Medical Leave Act of 1993 and all
other applicable provisions of federal, state and local law
governing employee benefits.
c. Upon request by Lender, promptly and in any event
within thirty (30) days after the filing thereof by Borrower, any
of its Subsidiaries or any ERISA Affiliate, Borrower shall
furnish to Lender a copy of each annual report (Form 5500 Series,
including Schedule B thereto) with respect to each Plan.
d. Promptly and in any event within thirty (30) days
after receipt thereof, Borrower shall furnish to Lender a copy of
any adverse notice, determination letter, ruling or opinion
Borrower, any of its Subsidiaries or any ERISA Affiliate receives
from the PBGC, DOL or IRS with respect to any Qualified Plan.
e. Promptly and in any event after receipt of written
notice of commencement thereof, Borrower shall furnish to Lender
notice of any action, suit or proceeding before any court or
other governmental authority affecting Borrower, any of its
Subsidiaries or any ERISA Affiliate with respect to any Plan.
f. Promptly and in any event within thirty (30) days
after notice or knowledge thereof, Borrower shall furnish to
Lender notice that Borrower, any of its Subsidiaries or any ERISA
Affiliate becomes subject to the tax on prohibited transactions
imposed by Section 4975 of the IRC, together with a copy of Form
5330.
6.10 SEC Filings; Certain Other Notices. Borrower
----------------------------------
shall furnish to Lender (i) promptly after the filing thereof
with the SEC and any stock exchange, a copy of each report,
notice or other filing, if any, by Borrower with the SEC or any
stock exchange and (ii) a copy of each written communication
received by Borrower from, or delivered by Borrower to, (1) the
SEC or any stock exchange or (2) any holder of publicly held
subordinated debt of Borrower, in each case promptly after each
such receipt or delivery or (3) any holder of any Stock of
Borrower.
6.11 Refinancing of Underlying Notes. Borrower has
-------------------------------
informed Lender that Borrower intends to actively seek to
refinance the Underlying Notes in order to maximize the
generation of Cash Flow. Accordingly, Borrower shall engage
Servicer, pursuant to the terms of the Servicing Agreement, and
shall direct Servicer to use commercially reasonable efforts to
actively seek to refinance the Underlying Notes listed on
Schedule 6.11 as soon as reasonably practicable upon terms
-------------
reasonably acceptable to Borrower.
6.12 Sale of Certain Assets. Borrower has informed
----------------------
Lender that Borrower intends to actively seek to sell certain
assets of Borrower in order to maximize the generation of cash
flow. Accordingly, Borrower shall engage Servicer, pursuant to
the terms of the Servicing Agreement, and shall direct Servicer
to use commercially reasonable efforts to actively seek to obtain
offers to purchase, as soon as reasonably practicable upon terms
reasonably acceptable to Borrower, (1) the Limited Partnership
Interests, (2) the Leases, and (3) the Real Estate. At least
fifteen (15) days prior to consummation of any such asset sale,
Borrower shall give to Lender notice of such sale, setting forth
the terms of the proposed transaction.
6.13 Collection of Investor Notes. Borrower shall use
----------------------------
Borrower's best efforts to collect the amounts owing under each
of the Investor Notes and the other Investor Loan Documents.
Until the Obligations are paid in full and provided that
Millennium performs its obligations to Borrower in accordance
with the terms of the Millennium Agreement, Borrower shall
continue to engage Millennium, pursuant to the Millennium
Agreement to use commercially reasonable efforts to collect the
Investor Notes. In the event that, in accordance with the terms
of the Millennium Agreement, Borrower is entitled to, and does,
terminate the Millennium Agreement, then, Borrower shall be
----
entitled to replace Millennium with a Person which is not an
Affiliate of Borrower or any Other Entity and to execute and
deliver with such Person an agreement to replace the Millennium
Agreement, in each case, subject to the prior written consent of
Lender. Without limiting the foregoing, Borrower shall use
Borrower's best efforts to enforce any and all remedies available
to Borrower under each of the Investor Loan Documents in
connection with the collection of the Indebtedness evidenced by
the Investor Loan Documents, provided, however, that, if Borrower
-------- -------
elects to foreclose the Liens securing any Investor Note, then,
----
Borrower shall not take beneficial or legal title to any of the
collateral securing such Investor Note if (1) the Obligor under
such Investor Note is a limited partner in a limited partnership,
and (2) any real property owned by such limited partnership is
encumbered by a Wrap Mortgage.
6.14 Leases; New Real Estate.
-----------------------
a. Subject to Section 7.22, Borrower shall provide,
------------
or shall cause the applicable Subsidiary or Affiliate Partnership
to provide, access to Lender to review, at the offices of
Borrower during normal business hours, true, correct and complete
copies of all leases of real property or similar agreements (and
all amendments thereto) entered into by Borrower or any
Subsidiary or any Affiliate Partnership after the date hereof,
whether as lessor or lessee. At the request of Lender, Borrower
shall provide to Lender copies of any lease documentation so
requested, from time to time. Borrower shall comply, and shall
cause each of its Subsidiaries and each of the Affiliate
Partnerships to comply, in all material respects with all of its
and their obligations under all Leases and all Partnership
Leases, as the case may be, now existing or hereafter entered
into by it or them with respect to, real property. Borrower
shall, or shall cause the appropriate Subsidiary and each
Affiliate Partnership to, (i) provide Lender with a copy of each
notice of default received or given by Borrower or such
Subsidiary or any Affiliate Partnership under any such lease
immediately upon receipt of any such notice and deliver to Lender
a copy of each notice of default sent by Borrower or such
Subsidiary or any Affiliate Partnership under any such lease
simultaneously with its delivery of such notice under such lease;
(ii) notify Lender, not later than thirty (30) days prior to the
date of the expiration of the term of any such lease, of its
intention either to renew or not renew any such lease, and, if
Borrower or such Subsidiary or any Affiliate Partnership shall
intend to renew such lease, the terms and conditions of such
renewal lease; (iii) notify Lender at least fourteen (14) days
prior to the date Borrower or such Subsidiary or any Affiliate
Partnership takes possession of or becomes liable under any new
leased premises or lease, whichever is earlier; (iv) obtain and
deliver to Lender a non-disturbance agreement, in form and
substance satisfactory to Lender, prior to entering into any new
lease covering any Real Estate.
b. From time to time at the request of Lender,
Borrower and its Subsidiaries shall execute a first priority
Mortgage (subordinate only to such mortgages as are necessary to
permit Borrower or such Subsidiary to purchase such Real Estate)
in favor of Lender covering any Real Estate and Leases now or
hereafter owned or held by Borrower or its Subsidiaries, in form
and substance satisfactory to Lender, and provide Lender with
title insurance satisfactory to Lender covering such Real Estate
or Lease in an amount equal to the purchase price of such Real
Estate (or in the case of a material Lease, the amount reasonably
requested by Lender) as well as a current ALTA survey thereof,
together with a surveyor's certificate in form and substance
satisfactory to Lender.
6.15 Environmental Matters. Borrower shall and shall
---------------------
cause each of its Subsidiaries and each of the Affiliate
Partnerships to (i) comply in all material respects with the
Environmental Laws applicable to it, (ii) notify Lender promptly
after knowledge in the event of any activity or condition on or
affecting the Real Estate that could reasonably give rise to
Environmental Liabilities including any Spill upon any Real
Estate, and (iii) promptly forward to Lender a copy of any order,
notice, permit, application, or any other communication or report
received by Borrower or any of its Subsidiaries in connection
with any such activities, conditions or Spill or any other matter
relating to the Environmental Laws as they may affect the Real
Estate or Partnership Real Estate. Borrower shall indemnify
Lender and hold Lender harmless from and against any loss,
liability, damage, or expense, including attorneys' fees,
suffered or incurred by Lender, whether or not as mortgagee in
possession, or as successor in interest to Borrower or any of its
Subsidiaries or any Affiliate Partnership as owner or lessee of
any premises owned or occupied by Borrower or any of its
Subsidiaries or any Affiliate Partnership by virtue of
foreclosure or acceptance in lieu of foreclosure (i) under or on
account of or arising from the Environmental Laws or any
Environmental Liabilities, including the assertion of any Lien
thereunder; (ii) with respect to any Spill affecting such
premises, whether or not the same originates or emanates from
such premises or any contiguous real estate, including any loss
of value of such premises as a result of a Spill; (iii) with
respect to any Environmental Liabilities, including any liability
for personal injury or property damage arising under any
statutory or common law tort theory and including, without
limitation, damages assessed for the maintenance of public or
private nuisance of the carrying on of an abnormally dangerous
activity at or near any Real Estate or Partnership Real Property;
and (iv) with respect to any other Environmental Liabilities and
Costs with respect to any other matter affecting such premises
within the jurisdiction of any federal, state, or municipal
official administering the Environmental Laws. In the event of
any activity, condition or Spill adversely affecting any premises
owned, used or occupied by Borrower or any of its Subsidiaries or
any Affiliate Partnership, whether or not the same originated or
emanates from such premises or any contiguous real estate, and if
Borrower or such Subsidiary or any Affiliate Partnership shall
fail to comply with any of the requirements of the Environmental
Laws, if required to do so under the applicable lease, Lender
may, but shall not be obligated to, give such notices or cause
such work to be performed or take any and all actions deemed
necessary or desirable to remedy such Spill or cure such failure
to comply and any amounts paid as a result thereof, together with
interest thereon at the Default Rate, shall be immediately due
and payable by Borrower and, until paid, shall be added to the
Obligations. The provisions of this Section 6.15 shall apply
whether or not any Governmental Authority including any federal
agency or any state or local environmental agency, has taken or
threatened any action in connection with any Spills or the
presence of Hazardous Substances or any non-compliance with or
violation of Environmental Laws or permits issued thereunder.
6.16 Taxes. Borrower shall, and cause its Subsidiaries
-----
and the Affiliate Partnerships to, duly and timely file all
federal, state, local and foreign Returns required to be filed by
Borrower, its Subsidiaries and the Affiliate Partnerships with
the appropriate Governmental Authority including without
limitation any consolidated, combined or similar Return and all
Taxes and other impositions shown thereon to be due and payable.
Borrower shall pay, and shall cause its Subsidiaries and the
Affiliate Partnerships to pay, when due and payable all Taxes
required to be paid by it. Without limiting the foregoing,
Borrower shall, as soon as reasonably practicable, cause to be
filed all Returns listed on Schedule 4.14 as not having been
-------------
filed, and cause all Taxes payable by it in respect of such
Returns to be paid if and when due.
6.17 Cooperation. In addition to, and not in
-----------
limitation of, Borrower's other obligations hereunder, from the
date hereof through the Closing Date, Borrower will (i) advise
Lender immediately, in reasonable detail, of the occurrence of
(A) any Material Adverse Effect, (B) any material change in the
composition of the Collateral, and (C) any default or event of
default with respect to any Indebtedness of Borrower or any of
its Subsidiaries, or any Default or Event of Default under this
Agreement, the other Loan Documents, the Permitted Stockholder
Documents or the Servicing Agreement (and any agreements referred
to therein) and (ii) cooperate fully with Lender's requests for
information and documentation and assurances concerning, inter
-----
alia, the Collateral and the satisfaction of the conditions
----
precedent to Lender's obligations hereunder and under the other
Loan Documents.
6.18 Stockholder Approval
--------------------
a. Stockholder Meeting. Borrower shall cause a
-------------------
meeting of its stockholders to be duly called and held in
accordance with applicable laws to consider and vote upon, among
other things, this Agreement and each of the other Loan
Documents, the Servicing Agreement (and the documents referenced
in such Servicing Agreement), the Permitted Stockholder
Documents, the transactions contemplated hereby and thereby and
the amendment to the articles of incorporation and bylaws of
Borrower as provided in Section 3.1.c and 3.1.d.
-----------------------
b. Proxy Material. In connection with Borrower's
--------------
stockholders' meeting referred to in Section 6.18.a, Borrower
--------------
will prepare a preliminary proxy statement and will file the same
with the SEC and will use its best efforts to respond to the
comments of the SEC and to cause the definitive proxy statement
to be mailed to stockholders, all at the earliest practical time.
Borrower shall consult with Lender in connection with the
preparation and filing of the preliminary and definitive proxy
statements. Borrower will notify Lender promptly of the receipt
of the comments of the SEC, and of any request by the SEC for
amendments to the preliminary proxy statement or for additional
information and will supply Lender with copies of all
correspondence between Borrower or its representatives, on the
one hand, and the SEC or members of its staff, on the other hand,
with respect to the preliminary proxy statement. If at any time
prior to the stockholders' meeting, any event should occur
relating to Borrower which in the opinion of counsel for Borrower
should be set forth in an amendment of the definitive proxy
statement, the Borrower will promptly prepare and mail such
amendment; provided that prior to such mailing the Borrower shall
consult with Lender with respect to such amendment and shall
afford Lender reasonable opportunity to comment thereon.
c. Proxy Materials and Disclosure. Borrower hereby
------------------------------
represents and warrants to Lender that the information contained
in the definitive proxy statement will not, at the date the
definitive proxy statement is first mailed to stockholders, and
will not, as the definitive proxy statement is then amended, at
the date of the stockholders' meeting referred to in Section
-------
6.18.a, or at the Closing Date contain any statement which, at
------
the time and in the light of the circumstances under which it is
made, is false or misleading with respect to any material fact or
omits to state any material fact required to be stated therein or
necessary in order to make the statement therein not false or
misleading.
d. Proxy Indemnification by Borrower. Borrower
---------------------------------
agrees to indemnify and hold harmless Lender, each member of
Lender, and any member, shareholder, officer, director,
principal, employee, agent or Affiliate of any of the foregoing
(individually, a "Lender Entity" and, collectively, the "Lender
------------- ------
Entities"), from and against any losses, claims, damages or
--------
liabilities, joint or several, to which any Lender Entity may
become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in the definitive proxy statement,
or (ii) the omission or alleged omission to state in the
definitive proxy statement a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and will reimburse each Lender Entity for any legal
or other expenses reasonably incurred by each Lender Entity in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that Borrower
will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with
written information furnished to Borrower by or on behalf of
Lender for use with reference to Lender in preparation of the
definitive proxy statement. This indemnity will be in addition
to any liability which Borrower may otherwise have.
6.19 Equity Documents. Borrower shall use its best
----------------
efforts to cause the conversion into common stock of the
outstanding convertible securities and warrants set forth as
Equity Documents on Schedule 4.18.
-------------
7. NEGATIVE COVENANTS
------------------
Borrower, in its individual capacity and in its
capacity as general partner of each of the Affiliate
Partnerships, covenants and agrees that, without Lender's prior
written consent, from and after the date hereof and until the
Termination Date:
7.1 Mergers, Etc. Neither Borrower nor any Subsidiary
------------
of Borrower shall directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, acquire all or
substantially all of the assets or capital stock of, or otherwise
combine with, any Person or form any Subsidiary.
7.2 Investments; Loans and Advances. Except as
-------------------------------
otherwise permitted by Section 7.3 or 7.4 hereof, Borrower shall
------------------
not and shall not permit any Subsidiary of Borrower to make any
investment in, or make or accrue loans or advances of money to,
lend money to, any Person, through the direct or indirect holding
of securities or otherwise, or purchase or acquire, directly or
indirectly, any stock, obligations or securities of, or any other
interest in, or make any capital contribution or advance to, any
Person (including, without limitation, any Affiliate Partnership)
or purchase or own a futures contract or otherwise become liable
for the purchase or sale of currency or other commodities at a
future date in the nature of a futures contract or hold any cash
or cash equivalents; provided, that Borrower and its Subsidiaries
--------
may make and own investments in (i) marketable direct obligations
issued or unconditionally guaranteed by the United States of
America or any agency thereof maturing within one year from the
date of acquisition thereof; (ii) commercial paper maturing no
more than one year from the date of creation thereof and at the
time of their acquisition having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) certificates of deposit, maturing no more
than one year from the date of creation thereof, issued by
commercial banks incorporated under the laws of the United States
of America, each having combined capital, surplus and undivided
profits of not less than $500,000,000 and having a rating of "A"
or better by a nationally recognized rating agency; and (iv)
Affiliate Partnerships in the form of Indebtedness of such
Affiliate Partnerships, not to exceed $25,000 per Affiliate
Partnership at any one time outstanding (which funds shall be
used by such Affiliate Partnership to pay accounts payable of
such Affiliate Partnership arising in the ordinary course of
business of such Affiliate Partnership and payable to Persons
which are not Affiliates of Borrower, any of Borrower's
Subsidiaries, any Other Entity or such Affiliate Partnership).
7.3 Indebtedness.
------------
a. Borrower shall not and shall not permit any of its
Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, or any other liabilities, except (i) Indebtedness
------
secured by Liens permitted under Section 7.14 hereof, (ii) the
------------
Note, (iii) all deferred taxes, (iv) intercompany debt to
Borrower, (v) Indebtedness owing to Servicer under the Servicing
Agreement, (vi) accounts payable (not an Indebtedness) incurred
by any Loan Party in the ordinary course of business payable to
bona fide third parties which are not Affiliates of any Loan
Party or any Other Entity, and (vii) Indebtedness listed on
Schedule 7.3.
------------
b. Except as otherwise expressly permitted by
Sections 6.11, 6.12, 6.13 and 7.20 hereof, Borrower shall not and
----------------------------------
shall not permit any Subsidiary of Borrower (i) to sell or
transfer, either with or without recourse, any properties or
assets, of any nature whatsoever (tangible or intangible, real or
personal, whether now owned or acquired in the future), or (ii)
engage in any sale-leaseback or similar transaction involving any
of such properties or assets.
7.4 Employee Loans. Borrower shall not and shall not
--------------
permit any Subsidiary of Borrower to make or accrue any loans or
other advances of money to any employee of Borrower or such
Subsidiary; provided, however, that Borrower shall be entitled to
-------- -------
lend up to $1,500, in the aggregate, to non-executive employees
of Borrower.
7.5 Capital Structure. Borrower shall not, and shall
-----------------
not permit any Subsidiary of Borrower to, issue or agree to issue
any of their respective authorized but not outstanding shares of
Stock (including treasury shares) except as permitted by the
Permitted Stockholder Documents. Borrower shall not make or
permit any Subsidiary of Borrower to make any changes in its
capital structure (including, without limitation, in the terms of
its outstanding Stock), amend its certificate of incorporation or
bylaws, or make or permit any Subsidiary of Borrower to make any
changes in any of its business objectives, purposes, or
operations, except as required hereunder.
7.6 No Change in Fiscal Year. Borrower shall not
------------------------
change its Fiscal Year without the consent of Lender.
7.7 Restricted Payments. Borrower shall not declare
-------------------
any dividend, incur any liability to make any other payment or
distribution of cash or other property or assets in respect of
Borrower's Stock or on account of the purchase, redemption or
other retirement of Borrower's Stock or any other payment or
distribution made in respect thereof, either directly or
indirectly.
7.8 No Restrictions on Subsidiary Distributions to
----------------------------------------------
Borrower.
--------
Borrower shall not, and shall not permit any of its Subsidiaries
directly or indirectly to, create or otherwise cause or suffer to
exist or become effective any consensual Lien or restriction of
any kind on the ability of any such Subsidiary to: (i) pay
dividends or make any other distribution of any of such
Subsidiary's capital stock owned by Borrower or any Subsidiary of
Borrower, (ii) pay any Indebtedness owed to Borrower or any other
Subsidiary of Borrower, (iii) make loans or advances to Borrower
or any Subsidiary of Borrower or (iv) transfer any of its
properties or assets to Borrower or any Subsidiary of Borrower.
7.9 Disposal of Subsidiary Stock. Borrower shall not,
----------------------------
and shall not permit any of its Subsidiaries directly or
indirectly to, sell, assign, pledge, otherwise encumber, grant
any Lien on or dispose of any shares of Stock in Borrower or any
such Subsidiary, including warrants, rights, or options to
acquire shares or other equity securities of any of its
Subsidiaries, except as permitted in connection with the
Permitted Stockholder Documents or in the Pledge Agreement.
7.10 Maintenance of Business. Borrower shall not and
-----------------------
shall not permit any Subsidiary of Borrower to engage in any
business other than the business currently engaged in by Borrower
or such Subsidiary.
7.11 Transactions with Affiliates or Other
-------------------------------------
Entities. Borrower shall not and shall not permit any Subsidiary
--------
of Borrower to enter into or be a party to any transaction (or
series of transactions) with any Affiliate of Borrower or such
Subsidiary or any Other Entity, other than the existing
agreements by and between Borrower and K.M. Realty Corporation
(true, correct and complete copies of which have been provided to
Lender), which agreements with K.M. Realty Corporation shall not
be amended or modified without the prior written consent of
Lender.
7.12 Management/Servicing Fees. Except for the
-------------------------
Servicing Agreement, Borrower shall not and shall not permit any
Subsidiary of Borrower to enter into any agreement or transaction
to pay to any Person any servicing or management fee based on or
related to Borrower's or any of its Subsidiaries' operating
performance or income or any percentage thereof, or pay any
servicing or management fee to an Affiliate of Borrower or a
Subsidiary of Borrower.
7.13 Guaranteed Indebtedness. Borrower shall not, and
-----------------------
shall not permit any of its Subsidiaries to, create, incur,
assume or permit to exist any Guaranteed Indebtedness except (i)
by endorsement of instruments or items of payment for deposit to
the general account of Borrower or such Subsidiary in the
ordinary course of business, and (ii) for Guaranteed Indebtedness
incurred for the benefit of Borrower or any Subsidiary of
Borrower if the primary obligation is permitted by this
Agreement.
7.14 Liens. Borrower shall not, and shall not permit
-----
any Subsidiary of Borrower to, create, incur, assume, suffer, or
permit any Lien on any of its properties or assets (real or
personal, tangible or intangible) whether now owned, or hereafter
acquired, except:
a. Presently existing or hereafter created Liens in
favor of Lender;
b. Permitted Encumbrances;
c. The Liens granted to the holders of the Other
Secured Debt in property of Borrower, none of which constitutes a
portion of the Primary Collateral; and
d. The Liens listed on Schedule 7.14 attached hereto.
-------------
7.15 No Negative Pledge. Neither Borrower nor any
------------------
Subsidiary of Borrower shall enter into or assume any agreement
prohibiting the creation or assumption of any Lien upon its
properties or assets (real or personal, tangible or intangible),
whether now owned or hereafter acquired.
7.16 Payment or Modification of Restricted Debt.
------------------------------------------
a. Borrower shall not, and shall not permit any of
its Subsidiaries to, make any payments on, or with respect to any
Restricted Debt, including any payments in redemption or
repurchase thereof, except mandatory payments of principal,
interest, fees and expenses required by the terms of the
agreement governing or instrument evidencing such Indebtedness.
Borrower shall not, and shall not permit any Subsidiary of
Borrower to, amend, supplement or otherwise modify any of the
provisions of the Restricted Debt Documents or Existing Loan
Documents, provided however, that Borrower shall be entitled to
(1) modify the Existing Loans, as contemplated by this Agreement
and (2) extend the time to make any payment under any of the
Restricted Debt and/or extend the maturity date for such
Indebtedness, provided however that the Indebtedness evidenced by
such Restricted Debt is not increased, the interest rate with
respect to the Indebtedness is not increased and no other changes
are made to the loan documents evidencing such Indebtedness,
including but not limited to an acceleration of, or increase in,
debt service with respect to the Indebtedness.
b. Borrower may, at its election, modify the Westrock
Loan and the Westrock Loan Documents prior to the Closing in
order to obtain an extension beyond June 30,1996 of the agreement
described on Schedule 7.16.b and to retain the discount described
---------------
therein, provided, that as a condition precedent to any such
modification, such modification shall be made solely in
accordance with the terms and conditions set forth on Schedule
--------
7.16.b.
------
7.17 Cancellation of Indebtedness. Borrower shall not
----------------------------
and shall not permit any Subsidiary of Borrower to cancel any
claim or Indebtedness owing to it, other than compromises and
settlements of Investor Notes by Borrower in the exercise of
Borrower's reasonable business judgment.
7.18 Capital Expenditures. Borrower shall not, and
--------------------
shall not permit any of its Subsidiaries to, make any Capital
Expenditures that, in the aggregate, shall exceed $10,000 for the
period from and after the date hereof through and including
December 31,1996 and for each calendar year thereafter.
7.19 Lease Obligations. Borrower shall not and shall
-----------------
not permit any of its Subsidiaries to incur any obligation to pay
for any tenant inducements or tenant improvements with respect to
any real property owned by Borrower or any of its Subsidiaries
without the prior written consent of Lender.
7.20 Sales of Assets. Except as otherwise provided in
---------------
Sections 6.11, 6.12 and 6.13, Borrower shall not, and shall not
----------------------------
permit any Subsidiary of Borrower to, sell, transfer, lease,
sublease, assign, convey or otherwise dispose of any assets or
properties (real or personal, tangible or intangible), whether
now owned or hereafter acquired (or agreed to do any of the
foregoing at a future time); provided, however that prior to an
--------- -------
Event of Default the foregoing shall not prohibit (i) sales of
surplus or obsolete equipment and fixtures and (ii) transfers in
exchange for fair value approved by Lender resulting from any
casualty or condemnation of assets or properties.
7.21 Acquisition of Assets. Without the prior written
---------------------
consent of Lender, Borrower shall not and shall not permit any
Subsidiary of Borrower to buy, purchase or acquire (or execute
any agreement or contract to buy, purchase or acquire), (i) any
tract of real property, (ii) any leasehold estate or (iii) any
other asset or property (whether personal, real, tangible or
intangible property).
7.22 Leases. Without the prior written consent of
------
Lender, neither Borrower nor any Subsidiary of Borrower shall
execute and deliver (i) any new Lease covering real property or
(ii) any amendment or modification to any existing Lease or (iii)
any sublease or assignment of any Lease.
7.23 Events of Default. Borrower shall not and shall
-----------------
not permit any Subsidiary of Borrower to take or omit to take any
action, which act or omission would constitute (i) a default or
an event of default pursuant to, or noncompliance with any of,
the terms of any of (a) this Agreement and the Other Loan
Documents or (b) the Underlying Loan Documents, or (c) the Wrap
Loan Documents or (d) the Investor Loan Documents or (e) the
Affiliate Partnership Agreements or (f) the Servicing Agreement
or (g) the Permitted Stockholder Documents or (ii) a material
default or an event of default pursuant to, or noncompliance with
any other contract, lease, mortgage, deed of trust or instrument
to which it is a party or by which it or any of its property is
bound, or any document creating a Lien on any of its property.
7.24 Hedging Transactions. Borrower shall not and
--------------------
shall not permit any of its Subsidiaries to engage in any
speculative interest rate hedging swaps, caps or similar
transaction.
7.25 Compensation. Borrower shall not, and shall not
------------
permit any Subsidiary of Borrower to, (a) hire during 1996 any
new employees (other than replacements), representatives, agents
or consultants or (b) pay, accrue, or agree to pay an aggregate
amount of salary, benefits (including, but not limited to medical
benefits), bonus and other Compensation (excluding severance and
other termination payments listed on Schedule 7.25 and excluding
-------------
any other severance and other termination payments which are
expressly approved by Lender in writing after the date hereof)
during (i) 1996 in excess of Compensation currently being paid to
its and their respective employees and (ii) in any year
thereafter to the employees of Borrower and its Subsidiaries, in
excess of the amounts set forth below:
Aggregate Compensation Amount Year
----------------------------- ----
$620,000 1997
$500,000 1998
$500,000 1999
$500,000 2000
$500,000 2001
$500,000 2002
Borrower shall not pay any severance or other termination payment
to any Person (other than the severance and other termination
payments listed on Schedule 7.25), unless such payment is first
approved in writing by Lender.
7.26 Employee Plans. Neither Borrower nor any of its
--------------
Subsidiaries shall maintain, sponsor or contribute to any
Multiemployer Plan, any Title IV Plan, any Retiree Welfare Plan
or any funded or unfunded Pension Plan. Borrower shall not
directly or indirectly, and shall not permit any of its
Subsidiaries or any ERISA Affiliate to, (a) satisfy any liability
under any Qualified Plan by purchasing annuities from an
insurance company or (b) invest the assets of any Qualified Plan
with an insurance company, unless, in each case, such insurance
company is rated AAA by Standard & Poor's Corporation and the
equivalent by each other nationally recognized rating agency at
the time of the investment.
7.27 Environmental Liabilities. Borrower will not and
-------------------------
will not permit any Loan Party to: (a) violate any applicable
Environmental Law; or (b) dispose of any Hazardous Substance (or
any other result or product of any Spill) at, into or onto or
from, any Real Estate owned, leased or operated by any Loan
Party; or (c) permit any Lien imposed pursuant to any
Environmental Law to be imposed or to remain on any Real Estate,
Partnership Real Estate or other real property owned, leased, or
operated by any Loan Party.
7.28 Disposal of Investor Loan Documents. Borrower
-----------------------------------
shall not, and shall not permit any of its Subsidiaries directly
or indirectly to, sell, assign, pledge, otherwise encumber, grant
any Lien or dispose of all or any portion of any of the Investor
Notes or other Investor Loan Documents.
7.29 Modification of Affiliate Partnership
-------------------------------------
Agreement. Borrower shall not, and shall not permit any
---------
Subsidiary of Borrower to, amend, supplement or otherwise modify
any of the provisions of any Affiliate Partnership Agreement.
7.30 Modification of Settlement Agreements. Borrower
-------------------------------------
shall not, and shall not permit any Subsidiary of Borrower to,
amend, supplement or otherwise modify any of the provisions of
any of the Limited Partner Settlement Agreement, Shareholder
Settlement Agreement or the agreements listed on Schedule 4.37.
-------------
7.31 Replacement Public Accounting Firm. Borrower
----------------------------------
shall not designate a replacement public accounting firm unless
such firm is (1) independent certified public accountants of
recognized national standing and (2) Borrower has received the
prior written approval of Lender of such replacement firm.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
--------------------------------------
8.1 Events of Default. The occurrence of any one or
-----------------
more of the following events (regardless of the reason therefor)
shall constitute an "Event of Default" therein so called)
----------------
hereunder:
a. Borrower shall fail to make any payment of
principal of, or interest on or any other amount owing in respect
of, the Note or any of the other Obligations when due and payable
or declared due and payable, except that (1) with respect to any
-----------
mandatory payment of principal or interest owing under Section
-------
2.6 and Section 2.8 of this Agreement, such failure shall have
--- -----------
remained unremedied for a period of ten (10) days after notice by
Lender to Borrower (provided that Lender shall only be required
to send two such notices to Borrower in any calendar year, and
after two such notices in such calendar year, merely the passage
of ten days shall be required to cause the occurrence of an
Ever,lt of Default during such calendar year), and (2) with
respect to any other amount payable to Lender under any Loan
Document, such failure to pay shall have remained unremedied for
a period of fifteen (15) days after Borrower has received notice
of such failure from Lender.
b. Borrower shall fail or neglect to perform, keep or
observe any of the provisions of Article 7 of this Agreement.
---------
c. Borrower or any other Loan Party shall fail or
neglect to perform, keep or observe any provision of this
Agreement (other than the provisions described in Sections 8.1.a
--------------
or 8.1.b) or of any of the other Loan Documents and such failure
--------
or neglect shall remain unremedied for a period ending on the
first to occur of ten (10) days after Borrower shall receive
written notice of any such failure from any Lender or ten (10)
days after Borrower or such Loan Party shall become aware
thereof.
d. A default shall occur under any other agreement,
document or instrument to which any Loan Party is a party or by
which any Loan Party or any Loan Party's property is bound, and
such default (i) involves the failure to make any payment
(whether of principal, interest or otherwise) due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) in respect of any Indebtedness of any Loan Party in an
aggregate amount exceeding $10,000, or (ii) causes (or permits
any holder of such Indebtedness or a trustee to cause) such
Indebtedness or a portion thereof in an aggregate amount
exceeding $50,000 to become due prior to its stated maturity or
prior to its regularly scheduled dates of payment.
e. Any representation or warranty herein or in any
Loan Document or in any written statement pursuant thereto or
hereto, report, financial statement or certificate made or
delivered to Lender by any Loan Party shall be untrue or
incorrect in any respect, as of the date when made or deemed
made.
f. Any of the assets of Borrower shall be attached,
seized, levied upon or subjected to a writ or distress warrant,
or come within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors of Borrower and shall
remain unstayed or undismissed for thirty (30) consecutive days;
or any Person other than Borrower shall apply for the appointment
of a receiver, trustee or custodian for any of the assets of
Borrower and shall remain unstayed or undismissed for thirty (30)
consecutive days; or Borrower shall have concealed, removed or
permitted to be concealed or removed, any part of its property,
with intent to hinder, delay or defraud its creditors or any of
them or made or suffered a transfer of any of its property or the
incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent conveyance or other similar law.
g. A case or proceeding shall have been commenced
against Borrower in a court having competent jurisdiction seeking
a decree or order in respect of such Borrower (i) under title 11
of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign
bankruptcy or other similar law, (ii) appointing a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or
similar official) of Borrower or of any substantial part of its
properties, or (iii) ordering the winding-up or liquidation of
the affairs of Borrower and such case or proceeding shall remain
undismissed or unstayed for ninety (90) consecutive days or such
court shall enter a decree or order granting the relief sought in
such case or proceeding.
h. Borrower shall (i) file a petition seeking relief
under title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any
such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Borrower or of any
substantial part of its properties, (iii) fail generally to pay
its debts as such debts become due, or (iv) take for any
corporate action in furtherance of any such action.
i. Final judgment or judgments (after the expiration
of all times to appeal therefrom) for the payment of money in
excess of $50,000 in the aggregate shall be rendered against
Borrower or any of its Subsidiaries and the same shall not be (i)
fully covered by insurance in accordance with Section 6.5 hereof,
-----------
or (ii) vacated, stayed, bonded, paid or discharged for a period
of fifteen (15) days.
j. Any other event shall have occurred which could
have, or could reasonably be expected to have, a Material Adverse
Effect, and such event shall not be cured or remedied by Borrower
after the expiration of sixty (60) days after written notice is
delivered by Lender to Borrower.
k. With respect to any Plan, a prohibited transaction
within the meaning of Section 4975 of the IRC or Section 406 of
ERISA occurs which in the reasonable determination of Lender
could result in direct or indirect liability to Borrower or any
of its Subsidiaries; provided, however, that such prohibited
-------- -------
transaction shall constitute an Event of Default only if the
liability, deficiency or waiver request of Borrower, any of its
Subsidiaries or any ERISA Affiliate, whether or not assessed,
exceeds $10,000 in any such case or exceeds $25,000 in the
aggregate for all such cases.
l. Any provision of any Collateral Document after
delivery thereof pursuant to Section 3.3 or 3.4, as applicable,
------------------
shall for any reason cease to be valid or enforceable in
accordance with its terms, or any security interest created under
any Collateral Document shall cease to be a valid and perfected
first priority security interest or Lien (except as otherwise
stated therein) in any of the Collateral purported to be covered
thereby.
m. Any of the Liens covering any Wrap Mortgages
granted to the predecessor-in-interest to Lender pursuant to the
Existing Loan Documents shall cease to be fully perfected first
priority Liens in and to the assets covered by such Wrap
Mortgages; provided, however, that if such liens cease to be
-------- -------
fully perfected first priority Liens in no more than three (3)
Wrap Mortgages, and provided that the aggregate discounted payoff
amount therefor as set forth on Schedule 4.24 shall not exceed
-------------
$5,000,000, then, no Event of Default shall exist under this
----
Section 8.1.m.
-------------
n. Any of the Liens covering any of the Primary
Collateral granted to Lender pursuant to the Collateral Documents
shall cease to be fully perfected first priority Liens in and to
such Primary Collateral.
o. Any Change of Ownership shall occur.
p. Any default or event of default by Borrower shall
occur under the Servicing Agreement and/or the security agreement
between Borrower and Servicer in connection therewith.
8.2 Remedies. If any Event of Default shall have
--------
occurred and be continuing, Lender shall, without notice, declare
all Obligations to be forthwith due and payable, whereupon all
Obligations shall become and be due and payable, without
presentment, demand, protest or further notice of any kind, all
of which are expressly waived by Borrower; provided, however,
-------- -------
that upon the occurrence of an Event of Default specified in
Section 8.1.f, 8.1.g or 8.1.h hereof, the Obligations shall
-----------------------------
become due and payable without declaration, notice or demand by
Lender. Lender may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the
best interests of Lender, including any action (or the failure to
act) available to Lender pursuant to the Loan Documents, in
equity or under applicable Law.
8.3 Waivers by Borrower. Except as otherwise provided
-------------------
for in this Agreement and applicable law, Borrower waives (i)
presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration,
protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper
and guaranties at any time held by Lender on which Borrower may
in any way be liable and hereby ratifies and confirms whatever
Lender may do in this regard, (ii) all rights to notice and a
hearing prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, the Collateral or any
bond or security which might be required by any court prior to
allowing Lender to exercise any of its remedies, and (iii) the
benefit of all valuation, appraisal and exemption laws. Borrower
acknowledges that it has been advised by counsel of its choice
with respect to this Agreement, the other Loan Documents and the
transactions evidenced by this Agreement and the other Loan
Documents.
9. MISCELLANEOUS
-------------
9.1 Complete Agreement; Modification of Agreement;
----------------------------------------------
Sale of Interest.
----------------
a. The Loan Documents constitute the complete
agreement between the parties with respect to the subject matter
hereof and may not be modified, altered or amended except by an
agreement in writing signed by Borrower and Lender in accordance
with Section 9.1.d hereof. Borrower may not sell, assign or
-------------
transfer any of the Loan Documents or any portion thereof,
including, without limitation, Borrower's rights, title,
interests, remedies, powers and duties hereunder or thereunder.
Borrower hereby consents to Lender's sale of participations,
assignment, transfer or other disposition, at any time or times,
of any of the Loan Documents or of any portion thereof or
interest therein, including, without limitation, Lender's rights,
title, interests, remedies, powers or duties thereunder, whether
evidenced by a writing or not. Borrower agrees that it will use
its best efforts to assist and cooperate with Lender in any
manner reasonably requested by Lender to effect the sale of
participations in or assignments of any of the Loan Documents or
of any portion thereof or interest therein, including, without
limitation, assistance in the preparation of appropriate
disclosure documents or placement memoranda and as provided in
Section 5.1.f.
-------------
b. In the event Lender assigns or otherwise transfers
all or any part of the Note, Borrower shall, upon the request of
Lender issue a new Note or Notes, as the case may be, to
effectuate such assignment or transfer.
c. Subject to the provisions of Section 9.1.d below,
-------------
provided Lender acts as agent with respect to the Senior Debt,
Lender may sell, assign, transfer, or negotiate to any Person up
to 49.9% of Lender's rights and obligations under the Note, this
Agreement and the other Loan Documents; provided, however, that
-------- -------
(i) each such sale, assignment, transfer or negotiation shall be
of a constant, and not a varying, percentage of all of Lender's
rights and obligations under such Note and this Agreement, (ii)
any such sale, assignment, transfer or negotiation shall not
require Borrower to file a registration statement with the SEC or
apply to qualify the Note under the blue sky law of any state,
(iii) any such sale, assignment or transfer shall be in an
aggregate principal amount of not less than $100,000, (iv)
acceptance of such assignment by any assignees shall constitute
the agreement of such assignee to be bound by the terms of this
Agreement applicable to Lender and (v) from and after the
occurrence of an Event of Default, Lender may sell, assign,
transfer or negotiate to any Person up to 90% of Lender's rights
and obligations under the Note, this Agreement and the other Loan
Documents. From and after the effective date of such assignment,
(x) the assignees thereunder shall, in addition to the rights and
obligations hereunder held by it immediately prior to such
effective date, have the rights and obligations hereunder that
have been assigned to it pursuant to such assignment, and (y) the
assignor shall relinquish its rights and be released from its
obligations under the Agreement (and, in the case of an
assignment and acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto).
d. Notwithstanding Section 9.1.c above, Lender may
-------------
mortgage, hypothecate and pledge to one or more Financial
Institutions all or any portion of the Senior Debt, the Note,
this Agreement and the other Loan Documents in one or more
transactions or a series of transactions. In connection with
such transactions, Lender may grant to such Financial
Institutions such Liens in the Senior Debt and the Loan Documents
as Lender or such Financial Institution deems to be necessary or
appropriate. In the event such Financial Institutions foreclose
upon, or receive a deed-in-lieu of foreclosure with respect to,
the pledged Senior Debt and Loan Documents, then, such Financial
----
Institutions shall have all the rights and remedies of Lender
under, and with respect to, the Senior Debt and Loan Documents.
e. No amendment or waiver of any provision of this
Agreement or the Note or any other Loan Document, nor consent to
any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by
Lender, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which
given.
9.2 Fees and Expenses. In the event the Closing
-----------------
occurs and, at any time or times, regardless of the existence of
an Event of Default (except with respect to paragraphs (iii) and
(iv), which shall be subject to an Event of Default having
occurred and be continuing), Lender shall employ or use counsel
(whether in-house counsel or other legal counsel, provided, that
-------- ----
the allocated cost of in-house counsel shall not be applicable to
paragraph (i) below unless a default or Event of Default under,
or written amendment or modification relating to, the Loan
Documents is involved in such transaction) or other advisors for
advice or other representation or shall incur reasonable legal or
other costs and expenses in connection with:
(i) any default under, or amendment,
modification, waiver or consent with respect to, any of
the Loan Documents or advice in connection with the
administration of the loans made pursuant hereto or its
rights hereunder or thereunder;
(ii) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender,
Borrower, any Subsidiary of Borrower or any other
Person) in any way relating to the Collateral, any of
the Loan Documents or any other agreements to be
executed or delivered in connection herewith (provided
that Lender prevails in such litigation, contest,
dispute, suit, proceeding or action if same is solely
with respect to claims asserted by Lender against
Borrower and does not include in whole or in part
claims by or against third parties);
(iii) any attempt to enforce any rights of
Lender against Borrower, any Subsidiary of Borrower or
any other Person, that may be obligated to any Lender
by virtue of any of the Loan Documents;
(iv) any attempt to verify, protect, collect,
sell, liquidate or otherwise dispose of the Collateral;
then, and in any such event, the attorneys' and other parties'
fees arising from such services, including those of any appellate
proceedings, and all expenses, costs, charges and other fees
incurred by such counsel and others in any way or respect arising
in connection with or relating to any of the events or actions
described in this Section shall be payable, on demand, by
Borrower to Lender and shall be additional Obligations secured
under this Agreement and the other Loan Documents. Without
limiting the generality of the foregoing, such expenses, costs,
charges and fees may include: fees and disbursements of Lender's
outside legal counsel and in-house counsel (charged or allocated
on the basis of a comparable market rate); paralegal fees, costs
and expenses; accountants' and investment bankers' fees, costs
and expenses; court costs and expenses; photocopying and
duplicating expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram
charges; secretarial overtime charges; and expenses for travel,
lodging and food paid or incurred in connection with the
performance of such legal services.
9.3 No Waiver by Lender. Lender's failure, at any
-------------------
time or times, to require strict performance by any Loan Party of
any provision of this Agreement and any of the other Loan
Documents shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by Lender of an Event of Default by any
Loan Party under the Loan Documents shall not suspend, waive or
affect any other Event of Default by any Loan Party under this
Agreement and any of the other Loan Documents whether the same is
prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements,
warranties, covenants and representations of any Loan Party
contained in this Agreement or any of the other Loan Documents
and no Event of Default by Borrower under this Agreement and no
defaults by any Loan Party under any of the other Loan Documents
shall be deemed to have been suspended or waived by Lender,
unless such suspension or waiver is by an instrument in writing
signed by an officer of Lender and directed to such Loan Party
specifying such suspension or waiver.
9.4 Remedies. Lender's rights and remedies under this
--------
Agreement shall be cumulative and nonexclusive of any other
rights and remedies which Lender may have under any other
agreement, including without limitation, the Loan Documents, in
equity, by operation of Law or otherwise. Recourse to the
Collateral shall not be required.
9.5 Waiver of Jury Trial. The parties hereto waive
--------------------
all right to trial by jury in any action or proceeding to enforce
or defend any rights under the Loan Documents.
9.6 Severability. Wherever possible, each provision
------------
of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
9.7 Parties. This Agreement and the other Loan
-------
Documents shall be binding upon, and inure to the benefit of, the
successors of Borrower and Lender and the successors, assigns,
transferees, and endorsees of Lender.
9.8 Conflict of Terms. Except as otherwise provided
-----------------
in this Agreement or any of the other Loan Documents by specific
reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict with, or
inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern
and control.
9.9 Governing Law. Except as otherwise expressly
-------------
provided in any of the Loan Documents, in all respects, including
all matters of construction, validity and performance, this
Agreement and the Obligations arising hereunder shall be governed
by, and construed and enforced in accordance with, the laws of
the STATE OF NEW YORK applicable to contracts made and performed
in such state, without regard to the principles thereof regarding
conflict of laws, and any applicable laws of the United States of
America. Lender and Borrower agree to submit to personal
jurisdiction and to waive any objection as to venue in the County
of New York, State of New York Borrower hereby appoints CSC
Corporation, at its office in New York County, New York, to
accept service of process on behalf of Borrower for all purposes
under this Agreement. Without in any way limiting applicable
law, service of process on Borrower or Lender in any action
arising out of or relating to any of the Loan Documents shall be
effective if serviced upon and received by CSC Corporation at its
offices in New York County, New York or if mailed to such party
at the address listed in Section 9.10 hereof. Nothing herein
------------
shall preclude Lender or Borrower from bringing suit or taking
other legal action in any other jurisdiction.
9.10 Notices. Except as otherwise provided herein,
-------
whenever it is provided herein that any notice, demand, request,
consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or
whenever any of the parties desires to give or serve upon another
any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed given only
if (i) delivered in person, or (ii) sent by Federal Express or
nationally recognized overnight courier service, and addressed as
follows:
a. If to Lender at:
National Financial Corporation
621 N.W. 53rd Avenue
Boca Raton, Florida 33487
Attention: Mr. Gary L. Shapiro
with a copy to:
Millennium Financial Services, Inc.
70 East 55th Street
6th Floor
New York, New York 10022
Attn: Mr. Jay Chazanoff
Pembroke Companies, Inc.
One Park Avenue
12th Floor
New York, New York 10016
Attn: Mr. Lawrence J. Cohen
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attn: Herbert T. Weinstein, Esq.
b. If to Borrower, at:
DVL, Inc.
24 River Road
Bogota, New Jersey 07603
Attn: President
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such
notice. Every notice, demand, request, consent, approval,
declaration or other communication hereunder shall be deemed
effective upon receipt.
9.11 Equitable Relief. Except as provided in Section
----------------
3.6 hereof, Lender and Borrower acknowledge and agree that it
will be impossible to measure in money the damage in the event of
a breach of any of the terms and provisions of this Agreement by
Borrower or any Subsidiary of Borrower and that, in the event of
any such breach, there will not be an adequate remedy at law,
although the foregoing shall not constitute a waiver of Lender's
rights, powers, privileges, and remedies against or in respect of
such breach by Borrower, any other Person or thing under this
Agreement, or applicable law. It is therefore agreed that, in
addition to all other such rights, powers, privileges, and
remedies that Lender may have, Lender shall be entitled to
injunctive relief, specific performance, or such other equitable
relief as Lender may request to exercise or otherwise enforce any
of the terms and provisions of this Agreement and to enjoin or
otherwise restrain any act prohibited thereby, and neither
Borrower nor any Subsidiary of Borrower will urge, and Borrower
and each Subsidiary of Borrower hereby waives, any defense that
there is an adequate remedy available at law.
9.12 Release of Claims. To induce Lender to enter into
-----------------
this Agreement, Borrower, on behalf of itself and its affiliates,
hereby RELEASES, ACQUITS AND FOREVER DISCHARGES Lender, its
members, officers, directors, employees, agents, attorneys and
their respective affiliates from any and all liabilities, claims,
demand, actions or causes or actions of any kind whatsoever (if
any), whether absolute or contingent, disputed or undisputed, at
law or in equity, or known or unknown that any one or more of
them now have or ever had against the holder of any of the
Existing Loans or against Lender, its members, officers,
directors, employees, agents, attorneys and their respective
Affiliates arising under or in connection with any of the
Existing Loans, the Existing Loan Documents, the Existing Loan
Transfer Documents, the Loan Documents or otherwise.
9.13 No Novation. This Agreement is not intended to
-----------
be, nor shall it be construed to create, a novation or accord and
satisfaction with respect to the Existing Loans or the Existing
Loan Documents.
9.14 Negation of Partnership. Nothing contained in
-----------------------
this Agreement is intended to create any partnership, joint
venture or association between Lender and Borrower or in any way
make Lender a co-principal with Borrower with reference to the
Loan or the agreements referenced herein and any inferences to
the contrary are hereby expressly negated.
9.15 Federal Income Tax Disclosure. Each of the
-----------------------------
parties acknowledges that the transactions contemplated by this
Agreement may have federal income tax consequences to such party.
Each of the parties have urged each of the other parties to
obtain independent tax counsel. Each of the parties acknowledges
that although the parties hereto may have discussed the tax
consequences of such transactions, none of the parties undertaken
to advise any of the other parties with respect to such parties'
taxes.
9.16 Disclosure by Lender of Affiliate Status of
-------------------------------------------
Servicer and Permitted Stockholders/Acknowledgment and Waiver by
----------------------------------------------------------------
Borrower. Borrower acknowledges and agrees that Lender has
--------
disclosed to Borrower that Servicer and the Permitted
Stockholders are Affiliates of Lender. Borrower covenants and
agrees that, notwithstanding that such Servicer and such
Permitted Stockholders are Affiliates of Lender, none of the
obligations, covenants and agreements of Borrower under this
Agreement or any of the other Loan Documents shall be waived,
excused or limited, in any way whatsoever, even though such
Servicer and the Permitted Stockholders are Affiliates of Lender.
Each of the Loan Documents, the Servicing Agreement (and the
documents referenced in the Servicing Agreement) and the
Permitted Stockholder Documents have been reviewed by Borrower
and Borrower acknowledges and agrees that Borrower (i)
understands fully the terms of this Agreement, the other Loan
Documents, the Servicing Agreement and the Permitted Stockholder
Documents and the consequences of the delivery thereof, (ii) has
been afforded an opportunity to have the Loan Documents, the
Servicing Agreement (and the documents referenced in Servicing
Agreement) and the Permitted Stockholder Documents reviewed by
and to discuss all such documents with such attorneys and other
persons as Borrower may wish, and (iii) has executed and
delivered the Loan Documents, the Servicing Agreement (and the
documents referenced in the Servicing Agreement) and the
Permitted Stockholder Documents of Borrower's own free will and
accord and without threat or duress.
9.17 Termination of Letter of Intent. On and as of the
-------------------------------
date hereof, the letter of intent, dated November 20,1995, as
amended December 6,1995, by and among Borrower, National
Financial Corporation, Pembroke Companies, Inc. and Millennium
Financial Services, Inc. (together with the letters and offers
referenced therein) shall terminate and be NULL AND VOID for all
purposes.
9.18 Survival. The representations and warranties of
--------
Borrower in this Agreement shall survive the execution, delivery
and acceptance hereof by the parties hereto and the closing of
the transactions described herein or related hereto. Each of the
covenants and other agreements of the parties contained in this
Agreement shall be absolute and, except as otherwise expressly
provided, unconditional, shall survive the execution and delivery
of this Agreement and any partial exercise of it, shall remain
and continue in full force and effect without regard to any full,
partial, or nonexercise of any other party's rights, powers,
privileges, remedies, and interests hereunder, shall not be
subject to any defense, counterclaim, set-off, right of
recoupment, abatement, reduction, or other agreement or
determination that one party may have against the other party or
any other Person, shall not be diminished or qualified by the
dissolution, reorganization, insolvency, bankruptcy,
custodianship, or receivership of any party, and shall remain and
continue in full force and effect until termination of this
Agreement, and thereafter with respect to events occurring prior
to such termination.
9.19 Reliance. Each party to this Agreement shall be
--------
entitled to rely upon any notice, consent, certificate,
affidavit, statement, paper, document, writing, or other
communication (which to the extent permitted hereunder may be by
telegram, cable, telex, or telecopier) reasonably believed by
such party to be genuine and to have been signed, sent, or made
by the proper Person, and upon opinions and advice of legal
counsel (including counsel for any other party hereto),
independent public accountants, and other experts selected by
such party.
9.20 Enforcement. Lender, in Lender's sole discretion,
-----------
may proceed to exercise or enforce any right, power, privilege,
remedy, or interest that Lender may have under this Agreement or
applicable Law without notice except as otherwise expressly
provided herein, without pursuing, exhausting, or otherwise
exercising or enforcing any other right, power, privilege,
remedy, or interest that Lender may have against or in respect of
Borrower or any Subsidiary of Borrower or any other Person or
thing, and without regard to any act or omission of Borrower, any
Subsidiary of Borrower or any other Person. Lender may institute
separate proceedings with respect to this Agreement in such order
and at such times as Lender may elect in its sole and absolute
discretion.
9.21 Counterparts. This Agreement may be executed in
------------
any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same agreement.
9.22 Further Assurances. Upon the request of Lender,
------------------
from time to time under this Agreement, Borrower shall, and shall
cause each of its Subsidiaries to, execute and deliver, if
applicable, in recordable form, such other instruments, security
agreements, mortgages, deeds of trusts, collateral assignments,
financing statements, pledges and other documents and agreements
as Lender may deem necessary or appropriate, in order to, ratify,
confirm and accomplish further the covenants and agreements of
Borrower set forth in this Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
DVL, INC., a Delaware corporatoin
By: /s/ Alan E. Casnoff
--------------------------------
Name: Alan E. Casnoff
Title: President
NPM CAPITAL LLC
by: Millenium Capital Management LLC, Member
By: /s/ Jay D. Chazanoff
--------------------------------
Name: Jay D. Chazanoff
Title: Managing Member
<PAGE>
EXHIBIT B
AMENDED AND RESTATED
NEGOTIABLE PROMISSORY NOTE
--------------------------
New York, New York
$__________ ____________ __, 1996
FOR VALUE RECEIVED, the undersigned, DVL, INC., a
Delaware corporation, with an address at 24 River Road, Bogota,
New Jersey 07603 (hereinafter "Borrower"), hereby unconditionally
--------
PROMISES TO PAY to the order of NPM CAPITAL LLC, a Delaware
limited liability company, with an address c/o National Financial
Corporation 621 N.W. 53rd Avenue Boca Raton, Florida 33487,
("Lender") and its successors or assigns (together with Lender,
------
"Holder"), the principal sum of DOLLARS
------
($____,___,_____) (the "Loan"), together with interest from and
----
after the date hereof on the principal balance from time to time
outstanding from and after the date hereof as provided herein.
This Promissory Note is made in accordance with the
Amended and Restated Loan Agreement dated as of March 15, 1996
between Borrower and Lender (the "Loan Agreement"). The Holder is
--------------
entitled to the benefits and security of the Loan Agreement and
the other Loan Documents, including but not limited to the
Security Agreement and the Stock Pledge Agreement. Capitalized
terms used herein shall have the meanings assigned to such terms
on Schedule 1 hereto or, if not defined thereon, then as such
----------
terms are defined in the Loan Agreement.
The principal amount of the Loan, and accrued interest
thereon hereunder, shall be payable in installments in the
amounts and on the dates specified herein and (unless sooner paid
by pre-payment, acceleration or otherwise as provided in the Loan
Agreement) shall be paid in full on [______ __, 2002].
Borrower shall pay to Holder, on or before the tenth
(10th) day of each calendar month, an amount equal to 100% of
Cash Flow during the preceding calendar month; provided, however,
in the event Borrower has received in excess of $10,000 of Cash
Flow at any one time, Borrower shall immediately pay all such
Cash Flow to Holder. Payments shall be applied as set forth
below.
Interest on the outstanding principal balance of this
Promissory Note shall accrue at ten and twenty-five one
hundredths percent (10.25%) per annum, compounded monthly (the
"Stated Rate"), based on a year of 360 days for the actual number
-----------
of days elapsed, and shall be payable as and when payments out of
Cash Flow are made by Borrower. In the event that, for any fiscal
year of Borrower (the "Fiscal Year"), Borrower fails to pay
-----------
Holder accrued interest at a rate of at least five percent (5%)
per annum, compounded monthly, based on a year of 360 days for
the actual number of days elapsed (the "Annual Minimum Interest
-----------------------
Payment"), then Borrower shall make a further mandatory payment
-------
of accrued interest to Holder in an amount equal to such
shortfall on or before the thirtieth day after the expiration of
such Fiscal Year; provided, however, that in no event shall the
interest or other amounts payable hereunder exceed the highest
rate of interest permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem
applicable hereto.
In addition to the foregoing mandatory payments,
Borrower shall pay to Holder, on or before the last day of the
applicable calendar month set forth in the following chart, a
sufficient amount of principal of, and accrued interest on, the
Loan evidenced by this Promissory Note in order (A) to reduce the
then outstanding principal balance of this Promissory Note (when
combined with any other reductions of principal hereof by
Borrower) by an amount equal to the applicable percentage of the
original principal balance of this Promissory Note set forth in
the following chart ("Applicable Percentage Reduction") and (B)
-------------------------------
to pay in full the accrued and unpaid interest on the entire
outstanding principal balance of this Promissory Note as of such
last day of such calendar month. The payments set forth in the
chart below shall sometimes be referred to herein as "Installment
-----------
Payments."
--------
Calendar Month After Closing Date Applicable
--------------------------------- ----------
Percentage
----------
Reduction
---------
Last Day of 18th Calendar Month 15%
Last Day of 27th Calendar Month 33%
Last Day of 36th Calendar Month 50%
Last Day of 42nd Calendar Month 67%
Last Day of 48th Calendar Month 72.5%
Last Day of 54th Calendar Month 80%
Last Day of 60th Calendar Month 85%
Last Day of 66th Calendar Month 92%
Last Day of 72nd Calendar Month 100%
For example, for illustrative purposes only, on or before
the end of the 54th calendar month after the date hereof;
Borrower must reduce the original principal balance of this
Promissory Note by an amount equal to at least 80% of such
original principal amount (plus all accrued interest on the
entire principal balance of this Promissory Note).
Except as otherwise provided in this Promissory Note,
prior to the occurrence of an Event of Default, all payments by
Borrower to Holder under this Promissory Note shall be applied in
the following order:
(i) to accrued and unpaid interest on the Loan;
(ii) to then due and payable fees and expenses payable
to Holder; and
(iii) to the then outstanding principal of the
Loan.
In addition to the foregoing Installment Payments by
Borrower to Holder on account of the Indebtedness evidenced by
this Promissory Note, Borrower shall pay Holder any and all cash
and cash equivalents as and when received by Borrower from the
sale, issuance, conversion, transfer or distribution of capital
stock of Borrower, or rights, options, warrants or agreements
with respect thereto, in excess of $250,000 in the aggregate at
any time or from time to time prior to the full payment of this
Promissory Note, including but not limited to cash received from
the Permitted Stockholders upon the exercise of the Permitted
Stockholder Warrants. Holder shall apply such payments as
follows: (i) first, to any interest due and not yet paid under
this Promissory Note and (ii) then, to the extent of any excess
after payment pursuant to clause (i) hereof, (A) in order of
maturity, fifty percent (50%) of such excess to the unpaid
Installment Payments due under this Promissory Note, and (B) in
inverse order of maturity (without premium or penalty), the
remaining fifty percent (50%) of such excess to the unpaid
Installment Payments due under this Promissory Note.
This Promissory Note is subject to voluntary prepayment
in whole or in part and to acceleration on default at the times
and in the manner specified in the Loan Agreement.
Borrower shall make each payment under this Promissory
Note not later than 11:00 A.M. (New York City time) on the day
when due in lawful money of the United States of America and in
immediately available funds to Holder's depositary bank as
designated by Holder from time to time for deposit in Holder's
depositary account.
BORROWER HEREBY EXPRESSLY WAIVES PRESENTMENT FOR
PAYMENT, DEMAND, PROTEST, NOTICE OF PROTEST, NOTICE OF DISHONOR,
NOTICE OF OCCURRENCE OF AN EVENT OF DEFAULT, NOTICE OF
ACCELERATION AND NOTICE OF NON-PAYMENT HEREOF.
BORROWER HEREBY VOLUNTARILY AND KNOWINGLY WAIVES THE
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE
OR DEFEND ANY RIGHTS UNDER THIS PROMISSORY NOTE, THE LOAN
AGREEMENT, AND THE OTHER LOAN DOCUMENTS.
This Promissory Note has been executed, delivered and
accepted at New York, New York and shall be interpreted, governed
by, and construed in accordance with, the laws of the State of
New York (without regard to conflict of laws rules thereof).
This Promissory Note may not be changed orally, but
only by a writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
IN WITNESS WHEREOF, Borrower has executed this
Promissory Note as of the day and year first above written.
ATTEST: DVL, Inc.
By:
----------------------- ----------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
DEFINITIONS
-----------
"Affiliate Partnerships" shall mean the collective
----------------------
reference to all limited partnerships in which Borrower is now,
or shall hereafter be, a general partner.
"A.I. Credit Loan" shall mean the Indebtedness of
----------------
Borrower evidenced by that certain Loan and Security Agreement,
dated September 29, 1987, by and between Borrower and A.I. Credit
Corp., as amended, with respect to a loan in the original
principal amount of $6,966,990.16.
"Amsave Debt" shall mean the Indebtedness of Borrower
-----------
evidenced by that certain Revolving Line of Credit and Security
Agreement, dated November 29, 1989, by and between Borrower and
American Savings Bank (now Federal Deposit Insurance Corporation,
as receiver for American Savings Bank), as amended, with respect
to a line of credit in the original principal amount of up to
$13,000,000.
"Cadle Loan" shall mean the Indebtedness of Borrower to
----------
The Cadle Company evidenced by that certain Credit Agreement,
dated as of January 11, 1993, by and between Apple Bank for
Savings, a New York savings bank, the predecessor-in-interest to
The Cadle Company and Del-Val Financial Corporation (now known as
DVL, Inc.), with respect to a line of credit up to a principal
amount of $7,000,000.
"Cash Flow" shall mean, with respect to Borrower and
---------
each of its Subsidiaries for any period, the collective reference
to the sum of (1) the gross proceeds generated by the Primary
Collateral (including, without limitation, all payments of
interest and principal, all proceeds from the refinancing of any
notes and mortgages (including without limitation the Underlying
Mortgages and the Wrap Mortgages) and all proceeds of any payoff
of, or sale of, or with respect to, any of the Primary
Collateral), plus (2) the excess of (A) the gross proceeds
---- -------------
generated by all of the Wrap Notes and Wrap Mortgages included
within the collateral securing the Other Secured Debt (including,
without limitation, all payments of interest and principal, all
proceeds from the refinancing of any notes and mortgages
(including without limitation the Underlying Mortgages and the
Wrap Mortgages included within such collateral) and all proceeds
of any payoff of, or sale of, or with respect to such collateral)
over (B) any and all payments then due and payable under, or with
----
respect to, such Other Secured Debt.
"CRT Loan" shall mean the Indebtedness of Borrower
--------
evidenced by certain promissory notes payable to Banca CRT S.p.A.
each dated September 8, 1986, as amended and restated by those
certain six promissory notes each dated September 21, 1990, in
the aggregate sum of $2,000,000.
"Federal Insurance Company Debt" shall mean that
------------------------------
certain Indebtedness of Borrower evidenced by that certain Loan
and Security Agreement and Release, dated June 28, 1995, by and
between Borrower and Federal Insurance Company with respect to a
loan in the original principal amount of $2,300,000.
"GAAP" shall mean generally accepted accounting
----
principles in the United States of America consistently applied
and maintained throughout the period indicated.
"Guaranteed Indebtedness" shall mean, as to any Person,
-----------------------
any obligation of such Person guaranteeing any Indebtedness,
lease, dividend, or other obligation ("primary obligations") of
any other Person (the "primary obligor") in any manner (or
otherwise providing any other assurance to or on behalf of the
primary obligor that such primary obligations will be paid,
discharged or performed), including, without limitation, any
obligation or arrangement of such Person, (a) to purchase or
repurchase any such primary obligation, (b) to advance or supply
funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor,
(c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such
primary obligation, or (d) to indemnify the owner of such primary
obligation against loss in respect thereof.
"Indebtedness" of any Person shall mean (i) all
------------
indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (including,
without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured, but not including
obligations to trade creditors incurred in the ordinary course of
business), (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention
agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or
sale of such property), (iv) all obligations of such Person under
any lease of property (whether real, personal or mixed) by such
Person as lessee that, in accordance with GAAP, either would be
required to be classified and accounted for as a capital lease on
a balance sheet of such Person or otherwise disclosed as such in
a note to such balance sheet, (v) all Guaranteed Indebtedness,
and (vi) all Indebtedness referred to in clause (i), (ii), (iii),
(iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including, without
limitation, accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Lien" shall mean the collective reference to any
----
mortgage or deed of trust (including any Mortgage), pledge,
hypothecation, assignment, deposit arrangement, lien, charge,
claim, security interest, easement or encumbrance, or preference,
priority or other security agreement or preferential arrangement
of any kind or nature whatsoever that has the practical effect of
creating a security interest in an asset (including, without
limitation, any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing
statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
"Meridian Debt" shall mean the Indebtedness of Borrower
-------------
evidenced by that certain Repurchase Agreement, dated June 25,
1989, by and between Borrower and Meridian Bank, with respect to
a loan in the original principal amount of $5,000,000.
"Mortgage" shall mean each mortgage, deed of trust or
--------
similar security agreement made or to be made by Borrower and
each of its Subsidiaries having an interest in the Real Estate to
be encumbered in favor of Lender, creating a first priority lien
on any portion of the Real Estate to secure the payment of the
Obligations, including, without limitation, all amendments,
modifications and supplements thereto and shall refer to each
Mortgage as the same may be in effect at the time such reference
becomes operative.
"Other Secured Debt Released Collateral" shall mean any
--------------------------------------
of the assets or properties covered by the Liens securing any of
the Other Secured Debt is released by any of the holders of such
Other Secured Debt and thereby becomes free and clear of all
Liens (except Permitted Encumbrances) for any reason or for no
reason.
"Other Secured Debt" shall mean the collective
------------------
reference to: (i) the Amsave Debt, (ii) the Cadle Debt, (iii) the
Federal Insurance Company Debt, (iv) the Meridian Debt, (v) the
Scheinberg Debt, (vi) the Textron Debt, (vii) the Zyncon Debt
[Westrock if not an Existing Loan] and (viii) other funded long
term debt of Borrower as reflected on the audited consolidated
balance sheet as at December 31, 1995 of Borrower and its
Subsidiaries set forth on Schedule 2 hereto.
----------
"Permitted Encumbrances" shall mean the following
----------------------
encumbrances: (i) Liens created for the benefit of Lender or
assigned to Lender under the terms of the Loan Documents, (ii)
Liens for taxes or assessments or other governmental charges or
levies, either not yet due or payable; (iii) pledges or deposits
securing obligations under workers' compensation, unemployment
insurance, social security or public liability laws or similar
legislation; (iv) deposits securing public or statutory
obligations of Borrower or any of its Subsidiaries which are
otherwise permitted by the Loan Agreement; (v) workers',
mechanics', suppliers', carriers', warehousemen's or other
similar liens arising in the ordinary course of business and
securing indebtedness aggregating not in excess of $10,000 at any
time outstanding, not yet due and payable; and (vi) zoning
restrictions, easements, licenses, or other recorded written
restrictions on the use of real property or minor irregularities
in title (including leasehold title) thereto, (but excluding any
security interests or Liens for borrowed money), so long as the
same do not materially impair the use, value, or marketability of
such real property, leases or leasehold estates.
"Permitted Stockholders" shall mean the parties to the
----------------------
Securities Purchase Agreement, the Permitted Stockholder Warrant
and the Stock Purchase Agreement, other than Borrower, and such
parties respective successors and assigns.
"Permitted Stockholder Documents" shall mean the
-------------------------------
collective reference to (1) the Stock Purchase Agreement, (2) the
Securities Purchase Agreement, (3) the Permitted Stockholder
Warrant, (4) all other documents, certificates and instruments
executed and delivered by Borrower in connection with any of the
foregoing and (5) all amendments, modifications and supplements
to any of the foregoing.
"Permitted Stockholder Warrant" shall mean the
-----------------------------
collective reference to each of the Common Stock Warrants, each
dated as of the date hereof, executed by Borrower in favor of a
Permitted Stockholder, together with all amendments,
modifications and supplements thereto.
"Person" shall mean any individual, sole
------
proprietorship, partnership, limited liability company, joint
venture, unincorporated organization, association, corporation,
institution, public benefit corporation, bank, trust company,
trust or other organization, whether or not a legal entity, or
government instrumentality, division, subdivision, body or
department thereof (whether federal, state, county, city,
municipal or otherwise).
"Primary Collateral" shall mean the collective
------------------
reference to (I) the Wrap Notes held by Borrower as payee and the
Wrap Mortgages held by Borrower as wrap mortgagee which are not
Other Secured Debt plus (2) all of the Wrap Notes and the Wrap
----
Mortgages included within the Other Secured Debt Released
Collateral.
"Real Estate" shall mean the collective reference to
-----------
all plots, pieces or parcels of land now owned or leased or
hereafter acquired or leased by Borrower or any of its
Subsidiaries (the "Land") and more particularly described in the
Mortgages, together with any buildings, structures or other
improvements on or under the Land and all the rights, titles and
interests of Borrower or any of its Subsidiaries, if any, in any
way related to the Land, buildings, structures and other
improvements.
"Scheinberg Debt" shall mean that certain Indebtedness
---------------
of Borrower evidenced by that certain Loan and Security
Agreement, dated September 23, 1994, by and between Borrower and
Martin Scheinberg, with respect to a loan in the original
principal amount of $250,000.
"Securities Purchase Agreement" shall mean that certain
-----------------------------
Securities Purchase Agreement dated as of the date hereof by and
between Borrower and the Permitted Stockholders relating to the
purchase of Preferred Stock and Permitted Stockholder Warrants,
together with all amendments, modifications and supplements
thereto as the same may be in effect at the time such reference
becomes operative.
"Stock Purchase Agreement" shall mean that certain
------------------------
Stock Purchase Agreement dated as of the date hereof relating to
the purchase of Common Stock together with all amendments,
modifications and supplements thereto and shall refer to the
Stock Purchase Agreement as the same may be in effect at the time
such reference becomes operative.
"Subsidiary" shall mean, with respect to any Person,
----------
(a) any corporation in which such Person and/or one or more of its
Subsidiaries, directly or indirectly, owns legally or
beneficially an aggregate of more than fifty percent (50%) of any
class of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, capital stock
of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any
contingency) or (b) any partnership or other Person in which such
Person and/or one or more of its Subsidiaries shall have an interest
(whether in the form of voting or participation in profits or
capital contribution) of more than fifty percent (50%) or (c) any
Person of which such Person has the right to control the
operating or financial decisions.
"Textron Debt" shall mean the Indebtedness of Borrower
------------
evidenced by that certain Secured Loan Agreement, by and between
Del-Val Financial Corporation, Mortgage Financing Partners,
Kenbee Management Inc. and Signal Capital Corporation, the
predecessor-in-interest to Textron Financial Corporation, with
respect to a loan in the original principal amount of $8,700,000.
"Underlying Mortgages" shall mean the collective
--------------------
reference to the mortgages, deeds of trust and similar security
agreements executed by Affiliate Partnerships covering real
property owned by such Affiliate Partnership to secure the
Underlying Note executed by such Affiliate Partnership.
"Underlying Notes" shall mean the collective reference
----------------
to the promissory notes executed by an Affiliate Partnership
payable to the order of any Person evidencing Indebtedness
secured by corresponding Underlying Mortgages.
"Westrock Loan" shall mean the Indebtedness of Borrower
-------------
evidenced by that certain Amended and Restated Loan Agreement,
dated August 22, 1979, by and between Borrower and Westrock
Island Fund, LLC, with respect to certain loans evidenced
by (1) that certain Amended and Restated Substitute and
Supplemental Promissory Note, dated July 16, 1986 in the original
principal amount of $17,000,000, (2) that certain Secured
Promissory Note, dated December 4, 1986 in the original principal
amount of $2,500,000, and (3) that certain Secured Promissory
Note, dated March 1987 in the original principal amount of
$1,150,000.
"Wrap Mortgages" shall mean the collective reference to
--------------
the mortgages and deeds of trust executed by Affiliate
Partnerships in favor of Borrower (whether first or junior liens)
covering real property owned by such Affiliate Partnership to
secure the Wrap Note executed by such Affiliate Partnership or
such other Person.
"Wrap Notes" shall mean the collective reference to (A)
----------
the promissory notes executed by Affiliate Partnerships payable
to the order of Borrower, which evidences Indebtedness that
includes the Indebtedness evidenced by the corresponding
Underlying Note and is secured by the corresponding Wrap
Mortgages and (B) the promissory notes executed by any Person
which are held by, or payable to the order of, Borrower and
secured by deeds of trust or mortgages securing such
Indebtednesses in favor of, or for the benefit of, Borrower or
any of its Subsidiaries.
"Zyncon Debt" shall mean that certain Indebtedness of
-----------
Borrower evidenced by that certain Purchase and Sale Deposit,
dated November 11, 1994, by and between Borrower and Zyncon of
North Carolina, in the original principal amount of $285,000.
<PAGE>
EXHIBIT C
ASSET SERVICING AGREEMENT
-------------------------
ASSET SERVICING AGREEMENT, dated as of March 27,1996 (the
"Effective Date") among DVL, INC., a Delaware corporation ("DML"), having
--------------
an office at 24 River Road, Bogota, New Jersey 07603, PROFESSIONAL SERVICE
CORPORATION, a Delaware corporation ("PSC"), having an office at 24 River
---
Road, Bogota, New Jersey 07603, KM REALTY CORPORATION, a North Carolina
corporation ("KMR"), having an office at 24 River Road, Bogota, New Jersey
---
07603 (DVL, PSC and KMR are sometimes collectively referred to herein as
the "Companies" and individually, the "Company") and NPO MANAGEMENT LLC, a
--------- -------
Delaware limited liability company, having an office at 24 River Road,
Bogota, New Jersey 07603 ("NPO").
---
RECITALS:
--------
A. DVL is the general partner of certain limited partnerships
listed on Exhibit A attached hereto (DVL's interest as a general partner in
---------
such partnerships, now existing or hereafter acquired in any other limited
partnerships, collectively, the "GP Interests"). As used herein, the
------------
limited partnerships related to such GP Interests are collectively referred
to as the "Partnerships."
------------
B. DVL is the limited partner in certain limited partnerships
listed on Exhibit B attached hereto (DVL's interest as a limited partner in
---------
such partnership's, now existing or hereafter acquired in any other limited
partnerships, collectively, the "LP Interests").
------------
C. DVL is the fee owner of the parcel(s) of land listed on
Exhibit C attached hereto (such land, together with any other land
---------
hereafter acquired by DVL or any subsidiary of DVL, are hereinafter
collectively referred to as the "Land") and DVL has leased such Land under
----
certain ground leases to certain third parties.
D. DVL is the owner of certain promissory notes executed by
certain limited partners in certain Partnerships and other loan documents
related to such promissory notes listed on Exhibit D attached hereto (such
---------
promissory notes and loan documents, together with all of other promissory
notes and other loan documents hereafter acquired by DVL or any subsidiary
of DVL, together with all amendments and modifications to any of the
foregoing, collectively, the "Investor Notes") and DVL has retained
--------------
Millennium Financial Services, Inc. ("Millennium") pursuant to that certain
----------
letter agreement, dated as of November 28,1995, to collect and service such
Investor Notes for the account of DVL (as amended, the "Millennium
----------
Agreement").
---------
E. DVL is the owner of certain promissory notes and wrap
promissory notes executed by the Partnerships or other third parties
secured by mortgages or deeds of trust covering Partnership Property (as
hereinafter defined), land and other loan documents related to such
promissory notes, mortgages and deeds of trusts listed on Exhibit E
---------
attached hereto (such promissory notes and loan documents, together with
all other promissory notes and other loan documents hereafter acquired by
DVL or any subsidiary of DVL (except the Investor Notes), together with all
amendments and modifications to any of the foregoing, collectively, the
"Mortgages"). The Mortgages which constitute "wrap mortgages" wrap around
---------
certain other indebtedness secured by underlying first mortgages covering
the same Partnership Property (hereinafter defined) covered by the
Mortgages (collectively, the "Underlying Mortgages").
--------------------
F. DVL desires to obtain assistance in (1) servicing, managing,
leasing and refinancing DVL's mortgage portfolio and other assets, (2)
maximizing, to the extent reasonably practicable, DVL's investment in the
LP Interests and (3) enhancing the performance of DVL in connection with
the performance of certain obligations of DVL as general partner of the
Partnerships.
G. DVL desires to engage NPO to assist DVL to perform certain
services with respect to the ownership, sale, financing and asset
management of the DVL Assets (hereinafter defined) and the mortgage
servicing of the Mortgages. NPO's management personnel has significant
experience in performing the tasks and services described in this Agreement
and the professional and experienced personnel to accomplish the tasks and
perform the services contemplated by this Agreement. Accordingly, NPO has
agreed to perform such tasks and services in accordance with and subject to
the terms and conditions set forth herein. As used herein, the term "DVL
---
Assets" shall mean the collective reference to the following: (1) the LP
------
Interests, (2) the Investor Notes, (3) the Land and (4) the Mortgages.
H. PSC is a wholly-owned subsidiary of DVL.
I. KMR is a wholly-owned subsidiary of Kenbee Management, Inc.
("Kenbee").
------
J. Each of PSC and KMR has leased certain commercial space from
certain limited partnerships of which Kenbee or an affiliate thereof is the
general partner under certain master leases listed on Exhibit F
---------
(collectively, as amended from time to time, the "PSC/KMR Master Leases")
---------------------
and each of PSC and KMR, as master lessee, has leased such space covered by
such respective PSC/KMR Master Leases to certain third parties pursuant to
certain sublease agreements.
K. KMR and Kenbee have each assigned and transferred to DVL all
of their respective right title and interest in the economic benefits in
certain of the KMR Master Leases described on Exhibit F hereto.
L. As used herein, the term "PSC Assets" shall mean the
----------
collective reference to the PSC Master Leases pursuant to which PSC holds
the master lessee interest. As used herein , the term "KMR Assets" shall
----------
mean the collective reference to the KMR Master Leases pursuant to which
KMR holds the master lessee interest. (DVL Assets, PSC Assets and KMR
Assets are sometimes collectively referred to as the "Assets".) Each of PSC
------
and KMR desires to engage NPO to manage the properties subject to its
PSC/KMR Master Lease(s) and NPO has agreed to perform such tasks and
services in accordance with and subject to the terms and conditions set
forth herein.
M. In addition, DVL may, from time to time, engage NPO to
assist DVL to perform certain other designated services with respect to the
DVL Assets and assets of the Partnerships in accordance with the requests
of DVL, and the terms of this Agreement and, if and only if NPO agrees to
perform such designated services in accordance with the terms of this
Agreement, then NPO will perform such agreed designated services in
accordance with and subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the parties hereto for themselves and their
respective successors and assigns, covenant and agree as follows:
1. General Partner Administrative Services. Subject to the
---------------------------------------
terms and provisions of this Agreement, DVL hereby engages NPO as an
independent contractor (and NPO hereby accepts such engagement) to assist
DVL to perform the following partnership administration services, on behalf
of DVL, in DVL's capacity as general partner with respect to the
Partnerships. At the request and under the supervision of the Board of
Directors of DVL, NPO shall:
PARTNERSHIP PROPERTY LEVEL SERVICES
-----------------------------------
a. take the action required to be performed by NPO as set forth
in Section 5 of this Agreement;
---------
b. coordinate all aspects of the refinancing of the
indebtedness of the Partnerships (other than the Mortgages and the
Underlying Mortgages, which are subject to the provisions of Section
-------
2.a) upon terms acceptable to DVL and, when applicable, the Limited
---
Partner Oversight Committee (the "Oversight Committee"), including,
-------------------
without limitation, recommending the timing of such refinancing,
negotiating with mortgage loan brokers, coordinate the obtaining of
appraisals, environmental reports, surveys and title insurance
reports, negotiating with lenders, soliciting and obtaining the
consent of the limited partners of such Partnership with respect to
such refinancing, and engaging Consultants (hereinafter defined) with
respect to the foregoing;
c. provide assistance to DVL when necessary with respect to
obtaining and reviewing insurance certificates delivered by the
tenants (collectively, the "Partnership Tenants") of the real and
-------------------
personal property now or hereafter owned by any Partnership
(collectively, the Partnership Property") and confirming that the
--------------------
insurance required to be maintained by such Partnership Tenants is in
full force and effect and, to the extent required, deliver all such
insurance certificates to the Partnerships' lenders;
d. provide assistance to DVL when necessary with respect to
obtaining annual financial statements from the Partnership Tenants;
e. prepare reports and make recommendations to DVL with respect
to any bankruptcy or similar proceeding of any Partnership Tenant and
coordinate the activities of DVL's counsel and accountants (NPO shall
be entitled to an Additional Services Fee (hereinafter defined), such
fee to be mutually agreed upon between the parties hereto, in the
event NPO is required to perform any Additional Services (hereinafter
defined) with respect to any such bankruptcy or similar proceeding
which exceed the services described above);
f. provide assistance to DVL when necessary in monitoring that
the debt service on any Partnership indebtedness, real estate taxes,
insurance and other monetary obligations are paid on a current basis
by the Partnerships and, to the extent applicable, the Partnership
Tenants;
g. review and make recommendations with respect to any
condemnation proceedings filed against or affecting any Partnership
Property and assist in the condemnation procedure with the lenders of
the applicable Partnerships and other necessary parties;
h. provide assistance to DVL when necessary in reviewing and
making recommendations to DVL with respect to any proposed alterations
to any Partnership Property, including review of tenant requests,
lease documentation, construction contracts, including management of
legal and architectural review of such alterations and assistance in
obtaining any necessary consents;
i. provide assistance to DVL when necessary in reviewing and
auditing the percentage rent calculations, certifications and reports
provided by the Partnership Tenants to DVL under their respective
leases and in collecting the rental payments under such leases;
j. provide assistance to DVL and DVL's legal counsel when
necessary in enforcing the terms and provisions of the leases with
respect to any Partnership Tenant;
k. after any Partnership Tenant vacates its leased space in any
Partnership Property, retain a Consultant with respect to such vacant
space and coordinate the releasing of such leased space upon terms
acceptable to DVL and, if applicable, the Oversight Committee and
coordinate the solicitation of the approval of the limited partners of
the Partnerships, if applicable;
PARTNERSHIP ADMINISTRATIVE SERVICES
-----------------------------------
l. maintain dual records with DVL containing a current listing
of the names, addresses and unit sizes of the limited partners in each
Partnership in order to assist DVL in facilitating and maintaining
documentation for (1) transfers of partnership interests, (2) changes
of addresses of limited partners in each Partnership, and (3) other
similar transactions;
m. coordinate, together with DVL, the relationships with DVL's
accountants including coordination of the preparation and distribution
of tax returns and annual financial statements for the Partnerships
utilizing the accounting systems and data which are maintained and
compiled by the employees of DVL;
n. assist DVL in upgrading and redeveloping DVL's management
information system, including, without limitation, recommending
appropriate hardware and software systems;
o. in conjunction with DVL's counsel, assist DVL to prepare and
submit solicitations to limited partners in any Partnership to obtain
any required consents to any sale, financing, refinancing, leasing,
re-leasing or renovation of the Partnership Property or any other
consent which may be required from such limited partners;
p. assist DVL and its legal counsel in analyzing the federal
income tax consequences of the sale of any of the Partnership
Property;
q. act as a liaison and assist DVL in communications with the
Partnerships, the limited partners under the Partnerships, the
Partnership Tenants and the Oversight Committee, including without
limitation, (1) communications with limited partners of the
Partnerships in response to their routine telephone and written
inquiries regarding the property and operation of the Partnerships and
the availability of the Partnership tax information, (2) an annual
mailing to limited partners of the Partnerships with respect to
Partnership operations, (3) a single combined mailing to each limited
partner of the Partnerships of the Partnerships' annual financial
statements and limited partner tax information (Form K-1) and (4)
periodic mailings to limited partners of the Partnerships of
Partnership distributions checks, if any;
r. provide assistance to DVL when necessary with respect to
providing cash management services for DVL's account and each
Partnership account with banking institutions designated by DVL,
including initiation and confirmation of wire transfers between
accounts of DVL;
s. provide assistance to DVL when necessary with respect to
providing cash management services for the Partnerships' accounts with
banking institutions designated by DVL, including initiation and
confirmation of wire transfers between accounts of DVL; and
t. upon request of DVL, provide assistance when necessary with
respect to managing the distribution of funds to the limited partners
of the Partnerships as instructed and approved by DVL.
2. Asset Services. Subject to the terms and provisions of this
--------------
Agreement, DVL hereby engages NPO as an independent contractor (and NPO
hereby accepts such engagement) to assist DVL to perform the following
asset management and mortgage servicing services, on behalf of DVL, with
respect to the DVL Assets:
MORTGAGES
---------
a. coordinate all aspects of the refinancing of Underlying
Mortgages upon terms acceptable to DVL, including, without limitation,
recommending the timing of such refinancing, negotiating with mortgage
loan brokers, managing the obtaining of appraisals, environmental
reports, surveys and title insurance reports, negotiating with
lenders, and engaging Consultants with respect to the foregoing;
b. engage Consultants to list and offer for sale the Mortgages
for prices and upon terms which are approved by DVL and negotiate the
appropriate documents and manage all aspects of such sale to the
extent approved by DVL and, if applicable, the Oversight Committee;
c. provide assistance to DVL when necessary in collecting the
payments due under the Mortgages and provide the specific loan
servicing services agreed to by DVL and NPO with respect to the
Mortgages;
d. act as liaison and coordinate all communications between DVL
and the obligor under the Mortgages;
LP INTERESTS
------------
e. engage Consultants to list and offer for sale the LP
Interests for prices approved by DVL and manage the sale of such LP
Interests to the extent approved by DVL;
f. [INTENTIONALLY OMITTED]
INVESTOR NOTES
--------------
g. assist in monitoring the collection and reporting services
provided by Millennium under the Millennium Agreement with respect to
the Investor Notes;
h. act as liaison and manage all communication between DVL and
Millennium with respect to the Investor Notes;
LAND
----
i. provide assistance when necessary with respect to the
administration of the Land.
3. Operating Properties/Master Leases Services. Subject to the
-------------------------------------------
terms and provisions of this Agreement, each of the Companies hereby
engages NPO as an independent contractor (NPO hereby accepts such
engagement) to assist it to perform the following asset management, on its
behalf, with respect to the applicable Assets.
OPERATING PROPERTIES/MASTER LEASES
----------------------------------
j. assist DVL, PSC and KMR with respect to, or engage
Consultants to, supervise, manage and make recommendations to DVL, PSC
and KMR with respect to the property management of the PSC/KMR Master
Leases (collectively, the "Master Leases") and any other real property
-------------
owned by the Partnerships or any Land which are not covered by a
"triple net" lease, including, without limitation, (1) engaging and
overseeing the work of asset managers, property managers and other
Consultants to manage the day-to-day affairs of the DVL Assets, (2)
any proposed alterations to any Land, including the review and
recommendation to DVL, PSC and KMR with respect to tenant requests,
lease documentation, construction contracts, including management of
legal and architectural review of such alterations, (3) monitoring the
performance of the Master Leases, obtaining from the on-site property
and asset managers retained by NPO and delivering to DVL, PSC or KMR,
as applicable, status reports and recommendations regarding
appropriate leasing, management and development strategies for the DVL
Assets and (4) with respect to any real property owned by the
Partnerships and any Land, which in either case, are not covered by
"triple net" leases, recommend to DVL, PSC and KMR the level of
reserves to be maintained to pay for the operating expenses of such
properties;
k. monitor and supervise the services provided by the
Consultants with respect to the implementation of the operating,
leasing, re-leasing, expansion, and renovation of the space covering
any of the Land and the collection of rent and the enforcement of the
obligations of the subtenants covering any of the Land;
l. manage, as appropriate, the Consultants in performing
services with respect to the administration of the Partnership and the
ownership of the Master Leases and the DVL Assets;
m. act as liaison and manage all communications between DVL and
the landlords under the Master Leases; and
4. Authority of NPO to Engage Consultants. At DVL's sole cost
--------------------------------------
and expense, NPO is hereby authorized to engage, in the name and on behalf
of the Companies at rates of compensation which do not exceed the market
rate for such services, attorneys, accountants, appraisers, mortgage
brokers, real estate brokers, property managers, asset managers, finders,
engineers, independent contractors and other consultants (collectively, the
"Consultants") which NPO deems are necessary or appropriate in order to
-----------
assist NPO in performing the services required of NPO under this Agreement.
Notwithstanding the foregoing, (1) to the extent that the in-house counsel
of DVL is available and, with respect to the nature of the transaction, is
capable of consummating such transaction without "outside legal"
assistance, then, NPO shall use DVL's in-house legal counsel in connection
with any sale of Partnership Property and (2) in no event shall NPO grant
to one broker or finder the exclusive right to list for sale all or
substantially all of the DVL Assets.
5. Procedure for Marketing Partnership Property by NPO. In
---------------------------------------------------
order to fulfill its fiduciary duties to the limited partners in the
Partnerships, DVL has informed NPO that DVL desires to implement a
strategic asset evaluation and disposition program to maximize the current
value of the Partnership Property by selling those properties which will
provide the best price reasonably obtainable, as soon as reasonably
practicable. Accordingly, DVL hereby directs NPO to evaluate each
Partnership Property, advise DVL of potential price ranges NPO deems
appropriate for each such property, list those properties which in the
judgment of NPO appear to be saleable at the highest current return to the
respective Partnerships and obtain offers to purchase such Partnership
Property using Consultants selected by NPO. All bona fide written offers to
purchase any Partnership Property received by NPO shall be delivered to
DVL. DVL shall deliver all written offers to purchase any Partnership
Property to NPO upon receipt by DVL. NPO shall use NPO's reasonable
business judgment to negotiate with potential purchasers with respect to
any offers received by NPO until NPO is prepared, in the exercise of NPO's
reasonable business judgment, to recommend that a particular offer to
purchase should be considered by DVL as general partner of such Partnership
and also should be considered by the Oversight Committee and the applicable
Partnership as a reasonable offer to purchase (each such reasonable offer,
the "Reasonable Offer"). Upon NPO's receipt of a Reasonable Offer, NPO
----------------
shall notify DVL of the Reasonable Offer and request that DVL inform NPO of
the payoff amount (and any discount thereto, if applicable) under any
Mortgage covering such Partnership Property held by DVL or any of its
affiliates (the "Payoff Amount"). NPO is hereby directed to present each
-------------
Reasonable Offer and, if provided by DVL, the Payoff Amount with respect to
such Reasonable Offer, to the Oversight Committee for its review and input.
In the event the Oversight Committee approves, or fails to reject, such
Reasonable Offer (and, if provided by DVL, such Payoff Amount), then, NPO
----
is hereby directed to (1) coordinate the solicitation of the required
consents of the limited partners in such Partnership in order to sell such
Partnership Property and (2) coordinate all aspects of the sale transaction
on behalf of DVL, including, without limitation, the negotiation and
closing of all transaction documents with respect to such sale. In order to
ensure that the marketing and sale of the Partnership Property is carried
out in a uniform and efficient basis, during the term of this Agreement,
NPO shall have the exclusive right to list, market and obtain offers to
purchase of all the Partnership Property, utilizing Consultants retained by
NPO on behalf of DVL.
6. Limited Authority of NPO. NPO shall use commercially
------------------------
reasonable efforts to perform the obligations of NPO set forth in this
Agreement pursuant to a standard of professional service provided by other
asset management firms in the industry providing the types of asset
management and partnership administration services which are similar to the
services described in this Agreement. In no event shall this Agreement
constitute, or be deemed to constitute, a delegation (express or implied)
by DVL to NPO of any of the duties and responsibilities of DVL, in its
capacity as a general partner or as a limited partner, under any of the
Partnerships or DVL's Board's, or its executive officers' legal
responsibilities to DVL or its stockholders. In no event shall any limited
partner or lender of any Partnership or any other person or entity
constitute a third party beneficiary of this Agreement. NPO shall have no
duty or obligation (express or implied) to assure compliance (or report the
non-compliance to any person or entity) with respect to (1) the provisions
of the partnership agreements of the Partnerships with respect to any
transaction contemplated by this Agreement or any of such partnership
agreements, (2) the provisions of the Master Leases, the Mortgages, the
Millennium Agreement, or any other agreement or documents or (3) applicable
federal, state, or local securities or other applicable laws or
regulations. All duties and responsibilities with respect to the
Partnerships arising under applicable federal, state or local securities or
other applicable laws and regulations shall remain at all times with DVL.
7. Enforcement of Lease Obligations. To the extent that NPO is
---------------------------------
informed by DVL or becomes aware of any material violation of any material
obligation of any Partnership Tenant or any person or entity with respect
to the Land or the Master Leases, then, NPO shall retain the appropriate
Consultants to enforce DVL's, PSC's, KMR's or the applicable Partnership's
rights and remedies with respect to such material violation.
Notwithstanding the foregoing, in no event shall NPO have any express or
implied obligation to audit the compliance of such Partnership Tenant and
other persons and entities with the terms and provisions of such lease or
other agreements or to discover any violations under such leases or other
agreements.
8. Additional Services. Upon the request of DVL and, subject to
--------------------
mutual agreement by DVL and NPO with respect to (1) the nature and scope of
any additional services which are not expressly set forth in this Agreement
(collectively, the "Additional Services") and (2) the amount of any fees
-------------------
(such agreed upon fees for each Additional Service, the "Additional
----------
Services Fees") to be paid to NPO in connection with such Additional
-------------
Services, then, NPO shall also perform the Additional Services on behalf of
DVL. Notwithstanding anything to the contrary set forth in this Agreement,
in the event such service is not expressly set forth in Sections 1, 2 or 3
------------------
of this Agreement, then, such service shall constitute an Additional
Service for all purposes. DVL shall pay the Additional Services Fees on or
before ten (10) days after written invoice is delivered to DVL by NPO. In
no event shall any portion of the Additional Services Fees be deferred by
DVL. Any unpaid Additional Services Fee shall bear interest at the same
rate of interest with respect to unpaid Servicing Fees until paid in full.
9. Servicing Fees.
---------------
a. In consideration of the services to be provided by NPO
pursuant to this Agreement, and in addition to any fees or other
compensation NPO may be entitled to receive pursuant to any other
agreements, commencing on the Effective Date until the expiration or
earlier termination of this Agreement, DVL shall pay to NPO a
servicing fee at the rate of $600,000 per 12-calendar month time
period less the 20% Collection Amount (hereinafter defined) for each
----
such 12-calendar month time period, payable in 12 equal monthly
installments of $50,000 per month during the term of this Agreement
(such fee, the "Servicing Fee"); provided however that such Servicing
------------- -------- -------
Fee shall be increased annually, commencing on the third anniversary
of the date of this Agreement (each, an "Anniversary Date") hereof by
----------------
the percentage increase, if any, in the Consumer Price Index
(hereinafter defined) from that in effect on January 1,1999. To the
extent Non-Primary Collateral Cash Flow (hereinafter defined) is
available on such monthly payment date, DVL shall pay the Servicing
Fee monthly, in arrears, on the last day of each calendar month, and
continuing on the last day of each calendar month thereafter until the
expiration of the Term of this Agreement. In the event Non-Primary
Collateral Cash Flow is not sufficient to pay the entire fee due on
such monthly payment date, then, any unpaid portion of such monthly
----
Servicing Fee shall be deferred by DVL and shall bear interest at the
rate of fifteen percent (15%) per annum, compounded monthly, until the
---
earlier to occur of (i) sufficient Non-Primary Collateral Cash Flow
-------------------
exists to pay (1) all deferred Servicing Fees, plus, all accrued
interest thereon, and (2) all Servicing Fees then due and owing or
(ii) the expiration or earlier termination of this Agreement in
accordance with the terms hereof; provided, however, that in no event
-------- -------
shall (A) deferred Servicing Fees (excluding any accrued and unpaid
interest thereon) exceeding the sum of $600,000 exist and remain
unpaid at any time prior to the second Anniversary Date nor (B)
deferred Servicing Fees (excluding any accrued and unpaid interest
thereon) exceeding the following sums exist and remain unpaid as
follows: (i) $450,000 in the aggregate during the time period
commencing on the second Anniversary Date and ending ninety (90) days
thereafter; (2) $300,000 in the aggregate during the time period
commencing ninety-one (91) days after the second Anniversary Date and
ending one hundred eighty (180) days after the second Anniversary
Date; and (3) $150,000 in the aggregate during the time period
commencing one hundred eighty-one (181) days after the second
Anniversary Date and ending two hundred seventy (270) days after the
second Anniversary Date.
Notwithstanding anything to the contrary set forth in this
Agreement, if at any time until payment in full of all of the
obligations in respect of the Servicing Fee, the applicable interest
rate provided for herein exceeds the highest rate of interest
permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto (the "Maximum
-------
Lawful Rate"), then in such event and so long as the Maximum Lawful
-----------
Rate would be so exceeded, the rate of interest payable hereunder
shall be equal to the Maximum Lawful Rate; provided, however, that if
-------- -------
at any time thereafter the applicable interest rate provided for
herein is less than the Maximum Lawful Rate, DVL shall continue to pay
interest hereunder at the Maximum Lawful Rate until such time as the
total interest received by Servicer paid on account of the obligations
hereunder is equal to the total interest which Servicer would have
received had the applicable interest rate provided for herein been
(but for the operation of this paragraph) the interest rate payable
since the Effective Date. Thereafter, the interest rate payable
hereunder shall be the applicable interest rate provided for herein
unless and until the applicable interest rate provided for herein
again exceeds the Maximum Lawful Rate, in which event this paragraph
shall again apply. In no event shall the total interest received by
Servicer pursuant to the terms hereof or the terms of any related
documents exceed the amount which Servicer could lawfully have
received had the interest due hereunder been calculated for the full
term hereof at the Maximum Lawful Rate. In the event that a court of
competent jurisdiction, notwithstanding the provisions of this
paragraph, shall make a final determination that Servicer has received
interest hereunder or under any related agreements in excess of the
Maximum Lawful Rate, Servicer shall, to the extent permitted by
applicable law, promptly apply such excess first to any interest due
and not yet paid hereunder, then to the outstanding principal
installments of the Servicing Fee in inverse order of maturity
(without premium or penalty), then to other unpaid obligations and
thereafter shall refund any excess to DVL or as a court of competent
jurisdiction may otherwise order.
b. In the event that this Agreement is terminated pursuant to
Sections 14 or 43 hereof, other than on a date that is an Anniversary
-----------------
Date, then, the Servicing Fee for such partial 12-calendar month
----
period shall be prorated on a per day basis, and all such fees accrued
and unpaid through such date of termination shall (i) be payable in
six equal consecutive monthly installments commencing on the Effective
Termination Date, if such termination is pursuant to Section 14 hereof
----------
and (ii) shall be payable in accordance with the provisions of Section
-------
43 hereof, if such termination is pursuant thereto.
--
c. As used herein, the term "20% Collection Amount" shall mean
---------------------
the twenty percent (20%) of all "net amounts" collected on each
Investor Note which is actually received and retained by Millennium
under the Millennium Agreement for the time period in question as set
forth in Section 6.a of the Millennium Agreement.
d. As used herein, the term "Loan Agreement" shall mean that
--------------
certain Amended and Restated Loan Agreement by and between DVL, as
borrower thereunder, and NPM Capital LLC ("Lender"), dated as of March
------
15,1996, as the same may be amended from time to time.
e. As used herein, the term "Consumer Price Index" shall mean
--------------------
the Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics of the United States Department of Labor,
New York, New York - Northeastern N.J. Area, All Items (1988-84 = 100)
or any successor index thereto, appropriately adjusted. In the event
that the Consumer Price Index is converted to a different standard
reference base or otherwise revised, the determination of adjustments
provided for herein shall be made with the use of such conversion
factor, formula or table for converting the Consumer Price Index as
may be published by the Bureau of Labor Statistics or, if said Bureau
shall not publish the same, then with the use of such conversion
factor, formula or table as may be published by Prentice-Hall, Inc. or
any other nationally recognized publisher of similar statistical
information. If the Consumer Price Index ceases to be published, and
there is no successor thereto, such other index as DVL and NPO shall
agree upon in writing shall be substituted for the Consumer Price
Index. If DVL and NPO are unable to agree as to such substituted
index, such matter shall be submitted to the American Arbitration
Association or any successor organization for determination in
accordance with the regulations and procedures thereof then obtaining
for commercial arbitration.
f. As used herein, the term "Non-Primary Collateral Cash Flow"
--------------------------------
shall mean the excess of (1) all cash flow generated by DVL from all
---------
of the assets and properties of DVL (other than from the Primary
Collateral and the Other Secured Debt Released Collateral (as such
terms are defined in the Loan Agreement)) for the prior calendar month
over (2) the sum of (A) the bona fide expenses incurred by DVL to bona
----
fide third parties in the operation of the business of DVL, in the
ordinary course of business plus (B) a reasonable reserve maintained
----
by DVL to pay the operating expenses of DVL which are described in
clause (2)(A) of this definition for the succeeding sixty (60) day
period.
g. NPO shall not have to apportion fees or other compensation
earned hereunder among the Companies and, for purposes of payment to
NPO, NPO shall receive any and all remuneration solely and directly
from DVL.
10. Office Facilities. In addition to the payment by DVL of the
-----------------
Reimbursable Expenses (hereinafter defined), at NPO's request, DVL shall
furnish, at no cost to NPO, suitable office space and services (including,
without limitation, the use, without cost to NPO, of office space,
telephone, telecopy, computer data processing, copying, mailing, overnight
delivery services and other services provided by DVL to NPO) at the offices
of DVL for certain of NPO's employees devoting a substantial portion of
their time in the performance of the duties and obligations of NPO under
this Agreement. NPO has informed DVL that NPO currently anticipates that
NPO will require office space and related services for such NPO personnel
actively engaged in the provision of management services hereunder.
11. Reimbursement of Expenses by DVL. In performing its duties
--------------------------------
hereunder NPO shall act solely for the account of DVL and all out-of-pocket
expenses incurred by NPO, on behalf of, and in the name of, DVL in
connection with this Agreement and the performance of NPO's
responsibilities hereunder (including, without limitation, any costs or
expenses incurred by, and/or owing to, any Consultant, any affiliate of any
Consultant, and any affiliates of NPO, but expressly excluding (1) general
office overhead of NPO in excess of the costs and expenses described in
Section 10 and (2) any compensation expenses of the employees of NPO)
----------
(collectively, the "Reimbursable Expenses") shall be borne exclusively by
---------------------
DVL and shall not be included in the calculation of the Servicing Fee or
the Additional Services Fee. DVL shall reimburse NPO on or before ten (10)
days after NPO delivers to DVL an invoice with respect to such Reimbursable
Expenses. In no event shall any portion of the Reimbursable Expenses be
deferred by DVL. NPO shall in no event be required to advance any of its
own funds under or in connection with this Agreement nor to incur any
personal liability in connection therewith unless DVL shall have furnished
NPO with funds necessary for the discharge thereof. If NPO shall at any
time advance any funds in payment of any such Reimbursable Expenses, which
NPO shall have the right but not the obligation to do, DVL shall repay NPO
for such advance on or before fifteen (15) days after written demand, with
interest at the rate of fifteen percent (15%) per annum, compounded
monthly. All debts and liabilities incurred by NPO in the course of the
performance of NPO's duties under this Agreement (including, without
limitation, all Reimbursable Expenses) shall be the debts and liabilities
of DVL only, and NPO shall not be liable for any such obligations by reason
of this Agreement or for any other reason whatsoever; NPO may so inform
third parties with whom it deals on behalf of DVL and may take any other
steps to carry out the intent of this provision.
12. Grant of Security Interest and Contractual Lien. DVL has
-----------------------------------------------
advised NPO that, as a result of DVL's projected restricted cash flow, DVL
may not be able to pay the Servicing Fee on a current basis. As an
accommodation to DVL, and subject to the rights and remedies of NPO which
are otherwise set forth in this Agreement, NPO has agreed to a limited
deferral of such fees in accordance with Section 9 of this Agreement,
---------
provided that the obligation of DVL to pay such fees and the other amounts
set forth in this Agreement are secured by a perfected security interest
and contractual lien. Accordingly, contemporaneous with the execution of
this Agreement, DVL shall execute and deliver each of the documents listed
on Exhibit G attached hereto (as modified and amended from time to time,
---------
collectively, the "Servicing Security Documents").
----------------------------
13. Term. The term of this Agreement shall be for a period
----
commencing on the Effective Date and ending on the seventh (7th)
anniversary of the Closing Date (as defined in the Loan Agreement; such
period being herein called the "Initial Term") and thereafter the term of
------------
this Agreement shall be automatically renewed for successive periods of
three (3) years each (each an "Extended Term") unless sooner terminated in
-------------
accordance with the terms and conditions hereof. The Initial Term and, to
the extent applicable, the Extended Term, are sometimes called the "Term."
----
14. Permitted Termination by DVL/Binding Arbitration/Escrow of
----------------------------------------------------------
Fees.
----
a. Except as otherwise provided in Section 43, as DVL's sole
----------
and exclusive right and remedy under this Agreement, DVL shall be
entitled to terminate this Agreement effective thirty (30) days after
the latest to occur of (the "Effective Termination Date"): (1) the
--------------------------
receipt by NPO of written notice by DVL of the good faith assertion by
DVL of the existence of a NPO Default (hereinafter defined) and
continuance of such alleged NPO Default after the expiration of the
applicable cure periods set forth in Section 14.e. (such notice, the
-------------
"DVL Default Notice") or (2) the date the arbitrator(s) deliver(s) his
------------------
or their final decision in connection with any arbitration commenced
pursuant to this Section 14 which decision finds that a NPO Default
----------
alleged in a DVL Default Notice existed as of the date of such notice.
Except as expressly set forth in the previous sentence, until the
Effective Termination Date, DVL shall not be entitled to terminate
this Agreement or withhold payment under this Agreement prior to the
expiration of the Term of this Agreement. In no event shall the
obligations of DVL and NPO under this Agreement be limited,
terminated, suspended or affected, in any way whatsoever, by the
delivery of a DVL Default Notice until the occurrence of the Effective
Termination Date.
b. In the event DVL delivers a DVL Default Notice and NPO
disputes the allegation that a NPO Default exists, then, NPO shall
----
give written notice to DVL on or before five (5) business days after
the receipt of such DVL Default Notice. If the parties fail to resolve
such dispute on or before ten (10) business days after such DVL
Default Notice is received by NPO, the parties shall resolve such
dispute pursuant to the Federal Arbitration Act (9 U.S.C. Section 1 et
--
seq.) (or under any other form of arbitration mutually acceptable to
----
the parties so involved). Any award rendered shall be final and
conclusive upon the parties and a judgment thereon may be entered in
the highest court of the forum, state or federal, having jurisdiction.
In the event that a matter is to be submitted to arbitration hereunder
the parties shall mutually agree upon a qualified person who shall
serve as arbitrator. If the parties cannot mutually agree upon an
arbitrator within ten (10) days after written notice from any party
requesting that a matter be submitted to arbitration, then each party
shall select one qualified person to serve as an arbitrator and the
arbitrators so selected shall then mutually select an additional
qualified person to serve as an arbitrator. The arbitrators so chosen
shall serve as a panel to hear the case and the decision of a majority
of the arbitrators on such panel (or the decision of the sole
arbitrator, as the case may be) shall be binding upon the parties to
the dispute. The expenses of the arbitration shall be borne equally by
the parties to the arbitration, provided that each party shall pay for
and bear the cost of its own experts, evidence and counsel's fees.
c. The sole issue that shall be the subject of such arbitration
is whether the alleged NPO Default described in the DVL Default Notice
existed as of the date of such notice. The arbitration shall be held
in New York, New York, or such other place as the parties may agree.
d. The arbitrators' award shall be enforceable against a party
in the courts of any jurisdiction in accordance with its laws. Except
as otherwise provided, herein, this arbitration clause constitutes an
explicit waiver of defenses against enforcement and execution of any
judgment on the arbitrators' award; provided, however, the parties
-------- -------
shall not be deemed to have waived defenses based upon: (i) fraud or
corruption in the procuring of an award, (ii) misconduct on the part
of an arbitrator, or (iii) action by an arbitrator in excess of his
authority. Defenses relating to the validity or scope of this
arbitration clause will be deemed waived unless raised during
arbitration. The arbitrators' decision regarding any issue,
controversy, dispute, claim or counterclaim involving the validity or
scope of this arbitration clause shall be final and binding upon the
parties; provided, however, in no event shall the arbitrators have the
-------- -------
right, power or authority to award any money damages or any other
damages or relief (whether legal, equitable or otherwise) to any
party.
e. As used herein, the term "NPO Default" shall mean the
-----------
occurrence of any of the following: (1) the fraud, gross negligence or
felony conviction of, or by, an executive officer of NPO in connection
with the performance of NPO's duties under this Agreement or the
felony conviction of either Jay Chazanoff or Lawrence J. Cohen;
provided, however, in the event such alleged conduct is determined to
-------- -------
constitute "gross negligence of, or by, an executive officer of NPO",
then, such conduct shall not constitute a "NPO Default" unless such
----
conduct is not cured on or before thirty (30) days after NPO's receipt
of the applicable DVL Default Notice or (2) if NPO shall file a
voluntary petition in bankruptcy or for arrangement, reorganization or
other relief under any chapter of title 11 of the United States Code,
11 U.S.C. Section 101 et seq. (the "Federal Bankruptcy Code") or any
-- ---- -----------------------
similar law, state or federal, now or hereafter in effect, or shall
file an answer or other pleading in any proceeding admitting
insolvency, bankruptcy or inability to pay its debts as they mature;
or (3) if any involuntary petition against NPO under the Federal
Bankruptcy Code or similar law, state or federal, now or hereafter
in effect, has been granted; or (4) if all or a substantial part of
NPO's assets are attached, seized, subjected to a writ or distress
warrant, or are levied upon, unless such attachment, seizure, writ,
warrant or levy is vacated within ninety (90) days; or if NPO shall
be adjudicated a bankrupt; or (5) if NPO shall make an assignment
for the benefit of creditors or shall admit in writing its inability
to pay its debts generally as they become due or shall consent to the
appointment of a receiver or trustee or liquidator of all or the
major part of its property; or (6) if any order appointing a receiver,
trustee or liquidator of NPO or all or a major part of the property
of NPO is not vacated within ninety (90) days following the entry
thereof.
f. From and after the date that a DVL Default Notice is
delivered by DVL to NPO until the Effective Termination Date with
respect to such DVL Default Notice (the "Escrow Termination Date"),
-----------------------
DVL shall continue to pay the Servicing Fee in accordance with the
terms of this Agreement, except that DVL shall be entitled to deposit
such fee into an interest-bearing joint bank account (the "Escrow
------
Account"), in the names of both DVL and NPO, with Citibank, N.A. or
-------
some other banking institution located in the State of New York
reasonably acceptable to NPO, pending the Escrow Termination Date.
Upon the occurrence of the Escrow Termination Date, all of the funds
in the Escrow Account, plus all accrued interest thereon, shall be
paid to the party designated by such arbitrator(s) in the final
decision or, in the event DVL withdraws such DVL Default Notice, to
NPO. In no event shall any of the amounts owing by DVL to pay the
Reimbursable Expenses be escrowed following the delivery of a DVL
Default Notice or otherwise. In the event such arbitrator(s)
determine(s) in a final decision that there was no NPO Default as
described in the Default Notice as of the date of such notice, then
NPO shall receive (i) the funds in the Escrow Account, plus all
accrued interest thereon, plus (ii) the difference between (A) the
amount of interest that would have otherwise accrued and been payable
to NPO under Section 9.a for the period commencing on the date of the
-----------
Default Notice and ending on the Escrow Termination Date and (B) the
amount of accrued interest that NPO received on the funds in the
Escrow Account.
15. Event of Default by DVL.
-----------------------
a. As used herein, the term "Event of Default" shall mean the
----------------
occurrence of any of the following events:
i. The termination by DVL of this Agreement, for any
reason other than for a NPO Default or as provided in Section 43;
----------
ii. (a) If any representation or warranty made by DVL or
PSC herein shall be untrue or incorrect in any material respect
as of the date hereof; (b) the failure by DVL to pay to NPO when
due and payable any Servicing Fees, Additional Services Fees,
Reimbursable Expenses, or other amounts due NPO under, or in
connection with, this Agreement or the deferral of any Servicing
Fees in excess of the amounts permitted under Section 9; or (c)
---------
if DVL or PSC fail or neglect to perform, keep or observe any
other provisions of this Agreement.
iii. If DVL shall file a voluntary petition in bankruptcy or
for arrangement, reorganization or other relief under any chapter
of the Federal Bankruptcy Code or any similar law, state or
federal, now or hereafter in effect, or shall file an answer or
other pleading in any proceeding admitting insolvency, bankruptcy
or inability to pay its debts as they mature; or if any
involuntary petition is filed against DVL under the Federal
Bankruptcy Code or similar law, state or federal, now or
hereafter in effect, has been granted; or if all or a substantial
part of the DVL's assets are attached, seized, subjected to a
writ or distress warrant, or are levied upon, unless such
attachment, seizure, writ, warrant or levy is vacated within
ninety (90) days; or if DVL shall be adjudicated a bankrupt; or
if DVL shall make an assignment for the benefit of creditors or
shall admit in writing its inability to pay its debts generally
as they become due or shall consent to the appointment of a
receiver or trustee or liquidator of all or the major part of its
property; or if any order appointing a receiver, trustee or
liquidator of DVL or all or a major part of the property of DVL
is not vacated within ninety (90) days following the entry
thereof; or
iv. The occurrence of an Event of Default (as defined in
the Loan Agreement) that is not also an Event of Default
hereunder;
v. The occurrence of an event of default, after the
expiration of the applicable notice and cure periods, under the
Servicing Security Documents.
b. Upon the occurrence of an Event of Default other than as set
forth in Section 15.a.iv of this Agreement, NPO shall be entitled to
---------------
terminate this Agreement by giving written notice to DVL and, upon
such termination, NPO shall be entitled to receive from DVL, as and
for liquidated damages, an amount equal to the sum of (1) all unpaid
Servicing Fees, Additional Services Fees, Reimbursement Expenses, any
other costs and expenses accrued or incurred by NPO under this
Agreement prior to the date of such termination, plus all accrued
----
interest calculated pursuant to Section 9 of this Agreement with
---------
respect to the foregoing unpaid amounts plus (2) an amount equal to
----
the present value (using a discount rate of six percent (6%) per
annum) of all unpaid Servicing Fees which would have been payable by
DVL to NPO for the remaining Term of this Agreement had this Agreement
not been terminated early plus (3) all attorneys' fees and costs
----
incurred by NPO to collect the amounts described in this Section 15
----------
plus (4) interest on the sum set forth in clauses (1), (2) and (3),
----
from the date of such Event of Default until to the date such full
amount is paid in full to NPO, at the rate of the lesser of (A) the
maximum rate of interest which may be contracted for, charged or
received by DVL with respect to such amounts due and owing and (B)
eighteen percent (18%) per annum, compounded monthly.
c. Upon the occurrence of an Event of Default described in
Section 15.a.iv of this Agreement, NPO shall be entitled to terminate
------- -------
this Agreement by giving written notice to DVL and, upon such
termination, NPO shall be entitled to receive from DVL, as and for
liquidated damages, an amount equal to the sum of (1) all unpaid
Servicing Fees, Additional Services Fees, Reimbursement Expenses, any
other costs and expenses accrued or incurred by NPO under this
Agreement prior to the date of such termination, plus all accrued
----
interest calculated pursuant to Section 9 of this Agreement with
---------
respect to the foregoing unpaid amounts plus (2) an amount equal to
----
the present value (using a discount rate of six percent (6%) per
annum) of one-half of all unpaid Servicing Fees which would have been
payable by DVL to NPO for the remaining Term of this Agreement had
this Agreement not been terminated early plus (3) all attorneys' fees
----
and costs incurred by NPO to collect the amounts described in this
Section 15 plus (4) interest on the sum set forth in clauses (1), (2)
---------- ----
and (3), from the date of such Event of Default to the date such full
amount is paid in full to NPO, at the rate of the lesser of (A) the
maximum rate of interest which may be contracted for, charged or
received by DVL with respect to such amounts due and owing and (B)
eighteen percent (18%) per annum, compounded monthly.
d. The parties acknowledge and agree that NPO's damages
occasioned by DVL's default are difficult to ascertain, but agree that
such amounts set forth hereunder represent a reasonable estimate of
NPO's damages.
16. Termination Right of NPO. In addition to the other
------------------------
termination rights of NPO set forth in this Agreement, NPO shall be
entitled, at any time, to terminate this Agreement after thirty (30) days'
written notice to DVL, for any reason or for no reason. Commencing on the
expiration of such thirty (30) day period, DVL shall pay to NPO, in twelve
(12) equal monthly installments, the amounts owing by DVL to NPO which are
set forth in Section 15.b(1), plus all attorneys' fees and costs incurred
--------------- ----
by NPO to collect the amounts described in Section 15.b (1).
----------------
17. Cumulative Remedies. All remedies of NPO set forth in this
--------------------
Agreement and in the Servicing Security Documents are cumulative of any and
all other remedies available to NPO existing at law or in equity and are
cumulative of any and all other remedies available to NPO as may now or
hereafter exist under this Agreement, under the Servicing Security
Documents, at law or in equity for the enforcement of the covenants of DVL
herein and the resort to any remedy of NPO provided for hereunder or under
any such other instrument or provided for by law or equity shall not
prevent the concurrent or subsequent employment by NPO of any other
appropriate remedy or remedies.
18. Indemnity by DVL PSC and KMR.
----------------------------
a. Each of DVL and PSC hereby, jointly and severally, covenants
and agrees: (i) to hold and save NPO, each member of NPO, and any
member, shareholder, officer, director, principal, employee, agent or
affiliate of any of the foregoing (collectively, the "NPO Entities")
------------
free and harmless and to defend from any claim, loss, damage,
liability, action, proceeding, or otherwise for damages or injuries to
legal entities, persons or property, cost or expense, including
reasonable fees and expenses of counsel (whether in-house counsel or
other legal counsel), (a) when NPO is carrying out or taking action in
connection with any of the provisions of this Agreement or acting
under the express or implied directions of either DVL or PSC (the "DVL
Companies") or acting in the good faith belief that NPO is carrying
out or taking action pursuant to the terms of this Agreement or (b)
asserted by any person or entity against NPO arising out of or
relating to any agreement, action or failure to act by DVL or PSC, or
any allegations thereof, or (c) due to a failure or refusal by either
of the DVL Companies to comply with or abide by any rule, order,
determination, ordinance or law of any federal, state or municipal
authority; (ii) to reimburse NPO upon demand for any monies which NPO
advances or pays out under this Agreement, (iii) to reimburse NPO upon
demand for any monies which NPO advances or pays out under this
Agreement in connection with or as an expense in defense of, any claim
or civil action, proceeding, charge or prosecution made, instituted or
maintained against NPO or either of the DVL Companies and NPO, jointly
or severally, affecting or due to the conditions or use of any of the
Assets or Partnership Property, or any acts or omissions of employees
of either of the DVL Companies or of NPO; and (iv) to defend promptly
and diligently with counsel approved by NPO, at DVL's sole expense,
any claim, action or proceeding brought against NPO and/or either of
the DVL Companies and NPO, jointly or severally, arising out of or
connected with any of the foregoing, and to hold harmless and fully
indemnify NPO from any judgment, loss or settlement on account
thereof. The foregoing provisions of this Section 18.a shall survive
------------
the expiration or termination of NPO's appointment pursuant to this
Agreement, but this shall not be construed to mean that DVL's or PSC's
liability does not survive as to other provisions of this Agreement.
b. KMR hereby covenants and agrees: (i) to hold and save NPO
and each NPO Entity, free and harmless and to defend from any claim,
loss, liability, action, proceeding, or otherwise for damages or
injuries to legal entities, persons or property (a) when NPO is
carrying out or taking action in connection with any of the provisions
of this Agreement or acting under the express or implied directions of
either DVL or KMR or acting in the good faith belief that NPO is
carrying out or taking action pursuant to the terms of this Agreement
or (b) asserted by any person or entity against NPO arising out of or
relating to any agreement, action or failure to act by KMR, or any
allegations thereof, or (c) due to a failure or refusal by KMR to
comply with or abide by any rule, order, determination, ordinance or
law of any federal, state or municipal authority; (ii) to reimburse
NPO upon demand for any monies which NPO advances or pays out under
this Agreement, (iii) to reimburse NPO upon demand for any monies
which NPO advances or pays out under this Agreement in connection with
or as an expense in defense of, any claim or civil action, proceeding,
charge or prosecution made, instituted or maintained against NPO or
KMR and NPO, jointly or severally, affecting or due to the conditions
or use of any of the KMR Assets, or any acts or omissions of employees
of KMR or of NPO; and (iv) to defend promptly and diligently with
counsel approved by NPO, at KMR's sole expense, any claim, action or
proceeding brought against NPO and/or KMR and NPO, jointly or
severally, arising out of or connected with any of the foregoing, and
to hold harmless and fully indemnify NPO from any judgment, loss or
settlement on account thereof. The foregoing provisions of this
Section 18.b shall survive the expiration or termination of NPO's
------------
appointment pursuant to this Agreement, but this shall not be
construed to mean that KMR's liability does not survive as to other
provisions of this Agreement.
19. Assignment by NPO. NPO shall have the right to assign,
-----------------
hypothecate, mortgage or pledge all or any portion of its right to receive
payments and reimbursements under this Agreement, without the prior
approval of any of DVL, PSC or KMR. In addition, NPO shall be entitled to
assign all or any portion of this Agreement to any legal entity which is
owned, controlled or under common control with NPO. Except as set forth in
the previous sentences, NPO shall not have the right to assign this
Agreement or any interest therein, without the prior written consent of
DVL.
20. Assignment by DVL. None of DVL, PSC or KMR shall have the
-----------------
right to assign this Agreement, or any interest therein, without the prior
written approval of NPO.
21. Further Documents. Each party hereto shall execute and
-----------------
deliver all such other appropriate supplemental agreements and other
instruments and take such other action as may be necessary to make this
Agreement fully and legally effective, binding and enforceable as between
the parties hereto and as against third parties, as the other party may
reasonably request.
22. Survival. If, pursuant to the terms of this Agreement, this
--------
Agreement is terminated or the term of this Agreement shall expire, (a)
DVL's obligations to pay to NPO any amounts due to NPO hereunder shall
survive such termination or expiration and shall continue until all such
amounts, with interest as set forth herein, are paid in full, and (b) all
terms, provisions and obligations of each party contained herein which, in
order to give them effect and accomplish their intent and purpose, need to
survive such termination shall survive and continue until they have been
fully satisfied or performed.
23. Insurance.
---------
a. DVL shall maintain, and cause PSC and KMR to maintain, at
all times during the term of this Agreement, the following insurance
in amounts and with responsible and properly licensed companies as
approved by NPO:
(i) Comprehensive public liability insurance for injury to
or death of persons and damage to or loss of property, including
automobile liability and liquor liability, with limits of
liability and such other terms as may be approved by NPO;
(ii) Insurance, at full replacement value, against all risk
of direct physical loss and damage, including fire and extended
coverage and also including business interruption, boiler and
machinery and use and occupancy, and such other risks and perils
approved by NPO; and
(iii) Any other insurance which is required to be
maintained pursuant to the Mortgages, the Underlying Mortgages
and/or the Master Leases, together with such other insurance for
protection against claims, liabilities and losses as is approved
by NPO.
All policies evidencing the foregoing insurance shall name DVL, PSC or KMR,
as appropriate, as the principal insured and shall name NPO and each of the
NPO Entities as additional insureds thereunder by endorsement.
b. All insurance required by this Section 23 shall be in such
----------
form and with such companies as shall be reasonably satisfactory to
DVL, PSC or KMR, as applicable, and NPO. Any insurance may be provided
under blanket policies of insurance. All property damage insurance
maintained by each of the Companies pursuant to this Section 23 shall
----------
name NPO and each of the NPO Entities as additional insureds. All
other insurance shall be in the name of DVL, PSC and KMR, as
applicable, and NPO and each of the NPO Entities. All policies of
insurance shall provide that (A) the insurance company will have no
right of subrogation against the holder of any Mortgage, DVL, NPO, the
NPO Entities or any of their respective affiliates or the agents or
employees thereof, and (B) that the proceeds thereof in the event of
loss or damage shall, to the extent payable to any insured, be payable
notwithstanding any act of negligence or breach of warranty by any
other insured which might otherwise result in the forfeiture or
nonpayment of such insurance proceeds. Notwithstanding the foregoing,
the parties acknowledge that Walmart is a primary tenant of many of
the Partnership Properties and that Walmart self-insures and does not
maintain property and casualty insurance. Nothing in this Agreement
shall require DVL to maintain property and casualty insurance covering
such Walmart-leased properties or any other leased properties where
tenant has the right to self-insure.
c. Certificates of all policies shall be delivered to the party
hereunder who is not required to purchase the insurance prior to the
Effective Date and thereafter certificates of renewal shall be so
delivered not less than thirty (30) days prior to the expiration date
of such policies. All insurance policies required to be carried
hereunder shall have attached thereto an endorsement that the same
shall not be canceled or changed without at least thirty (30) days'
prior written notice to all named insureds and additional insureds.
For the purpose of evidencing compliance with the provisions of this
Section 23, each of the Companies shall from time to time furnish to
----------
NPO certified duplicate policies of all insurance required to be
maintained by it pursuant to this Section 23.
----------
24. Information to be Provided by DVL. DVL agrees to make
---------------------------------
available, or cause to be made available, to NPO and, if requested by NPO
from time to time, to provide copies of the following information to NPO on
or as soon as reasonably practicable after the Effective Date:
a. A copy of each of the material documents with respect to the
Master Leases, the Mortgages, the Underlying Mortgages, and the
Investor Notes;
b. A current copy of each partnership agreement for each of the
Partnerships, together with all amendments thereto;
c. The name, address and unit size of each limited partner of
the Partnerships on computer diskette and in hard copy form;
d. All other historical and current information as to each
limited partner necessary to administer its, his or her partnership
account as contemplated by such partnership agreement, including
without limitation microfilm or other copies of all relevant
information;
e. On a regular basis, sufficient written information about the
Partnership Property and operations, including all available financial
statements and information, valuations and other material information;
f. On a regular basis, copies of all requests from limited
partners of the Partnerships for information regarding the
Partnerships promptly after they are submitted and promptly refer all
telephone inquiries to NPO;
g. On a regular basis, all annual financial statements, annual
income tax information and periodic Partnership distributions checks,
if any, for mailing to the limited partners of the Partnerships; and
h. On a regular basis, all requests from limited partners of
the Partnerships and other persons for changes of address, transfers
of limited partnership interests, valuations of limited partnership
interests and similar transactions.
25. Status Reports to the Board of Directors of DVL. At the
-----------------------------------------------
request of the Board of Directors of DVL, NPO shall, from time to time,
make periodic status reports to the Board of Directors of DVL of the status
of the applicable Assets and the services provided by NPO pursuant to this
Agreement.
26. Notices. Except as otherwise provided herein, whenever it is
--------
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by any other party, or whenever any of the parties
desires to give or serve upon any other communication with respect to this
Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be given
only if (i) delivered in person, or (ii) sent by Federal Express or a
nationally recognized overnight courier service, and addressed as follows:
If to NPO, at:
24 River Road
Bogota, New Jersey 07603
With a copy to:
Millennium Financial Services, Inc.
70 East 55th Street
6th Floor
New York, New York 10022
Attention: Mr. Jay D. Chazanoff
National Financial Corporation
621 N.W. 53rd Avenue
Boca Raton, Florida 33487
Attention: Mr. Gary L. Shapiro
Pembroke Companies Inc.
One Park Avenue
12th Floor
New York, New York 10016
Attention: Mr. Lawrence J. Cohen
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attention: Herbert T. Weinstein, Esq.
If to DVL, PSC or KMR, at the addresses set forth
hereinabove.
With a copy to:
DVL, Inc.
24 River Road
Bogota, New Jersey 07603
Attention: President
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such
notice. Every notice, demand, request, consent, approval,
declaration or other communication hereunder shall be deemed to
be effective on receipt.
27. Representations by the Companies. In order to
--------------------------------
induce NPO to enter into this Agreement, each of DVL, PSC and KMR
does hereby make the following representations, warranties and
covenants to NPO (such representations, warranties and covenants
being several and being made by each such party solely with
respect to itself) as follows:
a. Each of the Companies represents and warrants to
NPO that it is a validly organized corporation under the
laws of the State of Delaware with full power and authority
to enter into this Agreement and to carry out the
transactions herein contemplated and the president or any
vice president of such Company has all necessary authority
to execute and deliver this Agreement, all of which has been
duly authorized by all necessary or proper corporate action.
DVL further represents and warrants that it has full power
and authority to enter into the Servicing Security Documents
and to carry out the transactions therein contemplated and
the president or any vice president of DVL has all necessary
authority to execute and deliver the Servicing Security
Documents on behalf of DVL, all of which has been duly
authorized by all necessary or proper corporate action.
b. Each of the Companies covenants and agrees that
this Agreement has been duly executed and delivered by its
duly authorized officers and constitutes the legal, valid
and binding obligation of such Company enforceable in
accordance with its terms, subject to laws applicable
generally to creditors' rights. DVL further covenants and
agrees that each of the Servicing Security Documents has
been duly executed and delivered by DVL and constitutes the
legal, valid and binding obligation of DVL enforceable in
accordance with its terms, subject to laws applicable
generally to creditors' rights.
c. There is no claim, litigation, proceedings or
government investigation pending, or as far as is known to
DVL, threatened, against or relating to DVL, PSC or KMR, any
of the Assets, the properties or business of DVL or the
transactions contemplated by this Agreement or any of the
Servicing Security Documents which does, or may reasonably
be expected to, affect the ability of DVL, PSC or KMR to
enter into this Agreement, any of the Servicing Security
Documents, as applicable, or to carry out its obligations
hereunder or thereunder, and there is no basis for any such
claim, litigation, proceedings or governmental
investigation.
d. Neither the consummation of the actions
contemplated by this Agreement or any of the Servicing
Security Documents on the part of DVL to be performed, nor
the fulfillment of the terms, conditions and provisions of
this Agreement or any of the Servicing Security Documents,
conflicts with or will result in the breach of any of the
terms, conditions or provisions of, or constitute a default
under, any agreement, indenture, instrument or undertaking
to which any of the Companies is a party or by which it is
bound.
e. The recitals set forth in this Agreement and the
information set forth on the Exhibits annexed hereto are
true and correct as of the date hereof.
28. Representations by NPO. In order to induce DVL to
----------------------
enter into this Agreement, NPO does hereby make the following
representations, warranties and covenants:
a. NPO represents and warrants to DVL that NPO is a
validly organized limited liability company under the laws
of the State of Delaware with full power and authority to
enter into this Agreement and to carry out the transactions
herein contemplated and any member has all necessary
authority to execute and deliver this Agreement on behalf of
NPO.
b. NPO covenants and agrees that the Agreement has
been duly executed and delivered by NPO and constitutes the
legal, valid and binding obligations of NPO enforceable in
accordance with their terms, subject to laws applicable
generally to creditors' rights.
c. There is no claim, litigation, proceedings or
governmental investigation pending, or as far as is known to
NPO, threatened, against or relating to NPO, the properties
or business of NPO or the transactions contemplated by this
Agreement which does, or may reasonably be expected to,
affect the ability of NPO to enter into this Agreement or to
carry out its obligations hereunder, and there is no basis
for any such claim, litigation, proceedings or governmental
investigation.
d. Neither the consummation of the actions
contemplated by this Agreement on the part of NPO to be
performed, nor the fulfillment of the terms, conditions and
provisions of this Agreement, conflicts with or will result
in the breach of any of the terms, conditions or provisions
of, or constitute a default under, any agreement, indenture,
instrument or undertaking to which NPO is a party or by
which it is bound.
29. Legal Opinion of DVL's Counsel. Contemporaneous
------------------------------
with the execution and delivery of this Agreement and the
Servicing Security Documents, DVL shall deliver to NPO a
favorable legal opinion, in form and substance acceptable to NPO,
addressing each of the matters set forth in the representations
set forth in Section 27 of this Agreement, the perfection of the
----------
liens and security interests granted by the Servicing Security
Documents and such other matters as may be reasonably requested
by NPO.
30. Confidential Information. DVL, PSC, KMR and NPO
------------------------
hereby agree to treat this Agreement and all information relating
hereto as confidential and not to disclose any such information
without the prior written consent of the other party, except that
the foregoing limitation shall not apply to information requested
by, or disclosed to, the holder of the indebtedness described in
the Loan Agreement, any Consultant, any NPO Entity, any
prospective lender, any affiliate of NPO, any governmental
authority having or asserting jurisdiction over NPO, DVL, PSC,
KMR or one or more of the Consultants.
31. Reliance by NPO. NPO shall be entitled to rely,
---------------
without independent investigation, on the accuracy, completeness
and timeliness of the information DVL, PSC or KMR provides to NPO
in performing NPO's services under this Agreement. NPO shall have
no duty or responsibility to DVL, PSC, KMR any Partnership, any
limited partner or any other person or entity to review, audit or
verify any of the information or documents that are furnished to
NPO by DVL, PSC, KMR or any other person or entity.
32. Notices to Lender. NPO shall deliver to Lender or
-----------------
the then current holder of the indebtedness under the Loan
Agreement, all reports, notices and other information supplied by
NPO to DVL under this Agreement and shall provide such other
information to Lender or such holder as may be requested by
Lender or such holder from time to time.
33. Independent Contractor Status. At all times under
-----------------------------
this Agreement, NPO shall be an independent contractor of DVL,
PSC and KMR and NPO shall never be a partner, venturer, employee
or agent of DVL, PSC or KMR.
34. Entire Agreement. This Agreement and the Servicing
----------------
Security Documents contain the entire understanding of the
parties with respect to the subject matter hereof and shall
supersede any and all other agreements between the parties with
respect to the subject matter hereof. This Agreement may not be
changed or modified orally but only by written instrument signed
by duly authorized officers of the parties hereto.
35. Successors. This Agreement shall be binding on the
----------
parties hereto, their respective successors and assigns.
36. Governing Law. In all respects, including all
-------------
matters of construction, validity and performance, this Agreement
shall be governed by, and construed and enforced in accordance
with, the laws of the STATE OF NEW YORK applicable to contracts
made and performed in such state, without regard to the
principles thereof regarding conflict of laws, and any applicable
laws of the United States of America. DVL, PSC, KMR and NPO
hereby submit to personal jurisdiction and hereby waive any
objection as to venue in the County of New York, State of New
York. Each of DVL, PSC and KMR hereby appoints CSC Corporation,
at its offices in New York County, New York, as its agent to
receive service of process under this Agreement for all purposes.
Service of process on DVL, PSC, KMR or NPO in any action arising
out of or relating to this Agreement or any of the Servicing
Security Documents shall be effective if mailed to such party at
the address listed in Section 26 or, with respect to each of DVL,
----------
PSC and KMR, if CSC Corporation is serviced with service of
process in New York County, New York. Nothing shall preclude
DVL, PSC, KMR or NPO from bringing suit or taking other legal
action in any other jurisdiction.
37. Particular Services. Nothing contained in this
-------------------
Agreement shall be deemed or construed to require NPO to perform
the services of any Consultants or other professions requiring
special licenses or make NPO responsible for the failure of the
various Consultants hired by DVL or by NPO on behalf of DVL to
properly perform or provide their services.
38. Limited Liability of NPO and NPO Entities.
-----------------------------------------
Regardless of the claim or form in which any legal or equitable
action may be brought against NPO as a result of this Agreement
or any services performed by NPO, NPO's liability, if any,
arising out of, or resulting from, this Agreement or any services
performed by NPO shall be limited to actual damages (and shall
expressly exclude any consequential, special, or punitive
damages) and such actual damages shall not exceed the amount paid
to NPO by DVL for the limited and particular service that gave
rise to the particular claim asserted. Notwithstanding any
provision of this Agreement to the contrary, no NPO Entity shall
have any personal liability (in any way whatsoever) under,
arising out of, or in connection with, this Agreement, any
default by NPO under this Agreement or any breach by NPO of any
representation or warranty set forth in this Agreement, under any
circumstances whatsoever. Notwithstanding any provision of this
Agreement to the contrary, no officer, director, employee,
representative or shareholder of any of the Companies (except DVL
as a shareholder of PSC) shall have any personal liability (in
any way whatsoever) under, arising out of, or in connection with,
this Agreement, any default by any of the Companies under this
Agreement or any breach by any of the Companies of any
representation or warranty set forth in this Agreement, under any
circumstances whatsoever.
39. Exclusivity. During the Initial Term and any
-----------
Extended Term, NPO will be retained by DVL to perform the
services contemplated or described by this Agreement, or any
other partnership administration or asset management services
with respect to any of the assets (whether now existing or
hereafter acquired) of the Partnerships or any of the assets
(whether now existing or hereafter acquired) of each of DVL, PSC
and KMR, respectively, on an exclusive basis (collectively, the
"Covered Services"). None of DVL, PSC or KMR nor any of their
respective affiliates will contract with, obtain, or attempt to
contract with or obtain, any Covered Services from any person or
entity (other than NPO) during such time period. None of DVL, PSC
or KMR shall, nor shall any of them permit any of their
respective affiliates to, interfere with, or not cooperate with,
NPO in connection with the performance of NPO's duties under this
Agreement. Without limiting the foregoing, in order to ensure
that the marketing and sale of the DVL Assets is carried out on a
uniform and efficient basis, during the term of this Agreement,
NPO shall have the exclusive right to list, market and obtain
offers for the DVL Assets, utilizing Consultants retained on
behalf of DVL. However, in the event that any Consultant has not
obtained offers reasonably acceptable to DVL for fifty percent
(50%) of the DVL Assets then listed for sale with such
Consultant, then upon the end of any exclusive listing period
granted to such Consultant (not more than one hundred eighty
(180) days) DVL shall have the right to require NPO to list DVL
Assets with a different Consultant. Immediately after the
execution and delivery of this Agreement by DVL and NPO, DVL
shall terminate all brokerage and finder agreements and
arrangements (whether oral or written) for all purposes.
40. Other Activities by NPO. NPO shall devote the
-----------------------
personnel, time and resources which are reasonably necessary or
appropriate in order to perform the services of NPO required by
this Agreement. In no event shall NPO, any NPO Entity or any of
their respective affiliates be prohibited, and nothing in this
Agreement shall prevent, NPO or any NPO Entity from engaging in
any other activity, business or venture (including, without
limitation, any activity, business or venture which competes with
DVL, PSC, KMR or any of the Partnerships).
41. Conflict Resolution. In the event that a conflict
-------------------
exists or may exist between (1) the interests of DVL and (2) the
interests of any Partnership, with respect to any matter or
issue, DVL recognizes that its primary duty and responsibility
shall be to the applicable Affiliate Partnership and hereby
irrevocably directs NPO that NPO shall act accordingly hereunder.
In no event shall NPO be obligated (in any way whatsoever) to
attempt to discover any conflicts of interest or potential
conflicts of interest between or among the Partnerships, DVL or
any other person or entity.
42. Disclosure Regarding Affiliates. DVL acknowledges
-------------------------------
and agrees that NPO has disclosed to DVL that NPO is an affiliate
of Lender and the Permitted Stockholders (as defined in the Loan
Agreement). DVL covenants and agrees that, notwithstanding the
foregoing, none of the obligations, covenants and agreements of
DVL under this Agreement shall be, or shall be deemed, waived,
excused, limited or affected in any way whatsoever, even though
NPO is an affiliate of Lender and the Permitted Stockholders.
DVL, PSC and KMR have reviewed this Agreement and the Servicing
Security Documents, as applicable, and each of DVL, PSC and KMR
acknowledges and agrees that it (1) understands fully the terms
of this Agreement, and in the case of DVL, the Servicing Security
Documents, and the consequences of the delivery thereof, (2) has
been afforded an opportunity to have this Agreement and, in the
case of DVL, the Servicing Security Documents, reviewed by and to
discuss all such documents with such attorneys and other persons
as such Company may wish, and (3) has executed and delivered this
Agreement and, in the case of DVL, the Servicing Security
Documents, of such Company's own free will and accord and without
threat or duress.
43. Effectiveness of this Agreement/Limited DVL
-------------------------------------------
Termination Right. The terms and provisions of this Agreement
-----------------
shall be a legally binding and enforceable obligation of DVL,
PSC, KMR and NPO from and after the Effective Date for all
purposes. Notwithstanding the foregoing, in the event that the
Closing (as defined in the Loan Agreement) fails to occur for any
reason or for no reason in accordance with the provisions
thereof, then DVL shall be entitled to terminate this Agreement
----
by giving written notice to NPO within thirty (30) days after the
termination of the Loan Agreement. In such event, NPO shall be
entitled to payment of all fees accrued and unpaid hereunder
(prorated through the date of such termination in accordance with
the provisions of Section 9.b hereof) as of the date of such
-----------
termination. All payments to be made by DVL to NPO pursuant to
this Section 43 shall be made in six equal consecutive monthly
----------
installments commencing thirty (30) days after such date of
termination.
In the event DVL fails to give to NPO such written
termination notice, then the limited termination right in favor
----
of DVL set forth in the previous sentence shall terminate and be
NULL AND VOID for all purposes.
44. Authority of DVL. DVL and PSC covenant and agree
----------------
that DVL shall have full and complete authority to act for PSC
under this Agreement without the joinder of PSC. All obligations
of DVL under this Agreement shall constitute the joint and
several obligations of DVL and PSC for all purposes. It is agreed
that NPO shall only be required to deal with DVL with respect to
all matters under this Agreement involving DVL and PSC. The
obligations hereunder of DVL and PSC, on the one hand, and KMR,
on the other hand, shall be several.
45. Miscellaneous. This Agreement may not be modified
-------------
or amended except by written agreement duly executed by each of
the parties hereto. In the event that any legal action or
proceeding is commenced by either party hereto in connection with
this Agreement, the prevailing party in such action or proceeding
shall be entitled to reimbursement from the other party in an
amount equal to reasonable attorney's fees and expenses incurred
by the prevailing party in such action or proceeding.
IN WITNESS WHEREOF, the parties have hereunto set their
hands the day and year first above written.
DVL, INC., a Delaware corporation
By: /s/ Alan E. Casnoff
---------------------------------
Name: Alan E. Casnoff
Title: President
PROFESSIONAL SERVICE CORPORATION,
a Delaware corporation
By: /s/ Alan E. Casnoff
---------------------------------
Name: Alan E. Casnoff
Title: President
KM REALTY CORPORATION, a North
Carolina corporation
By: /s/ Alan E. Casnoff
---------------------------------
Name: Alan E. Casnoff
Title: President
NPO MANAGEMENT LLC, a Delaware
limited liability company
by Pembroke Companies, Inc., a Member
By: /s/ Lawrence J. Cohen
---------------------------------
Name: Lawrence J. Cohen
Title: President
<PAGE>
EXHIBIT D
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of March 27, 1996,
between DVL, INC., a Delaware corporation having an office at 24
River Road, Bogota, New Jersey 07603 ("Company"), and NPO
-------
HOLDINGS LLC, a Delaware limited liability company "Purchaser").
---------
W I T N E S S E T H:
- - - - - - - - - -
Purchaser desires to subscribe for and purchase from
Company, and Company desires to issue and sell to Purchaser, the
number of shares of Company's common stock, par value $0.01 per
share ("Common Stock") set forth below, on the terms and
------------
conditions set forth below.
NOW, THEREFORE, in consideration of the premises and
the covenants hereinafter contained, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed as follows:
I. DEFINITIONS
-----------
Each of the following terms shall have the meaning set
forth below:
"Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
"Action" shall mean any action, suit, arbitration,
------
proceeding, investigation or approval process.
"Agreement" shall mean this Securities Purchase
---------
Agreement, together with all amendments, modifications and
supplements and any exhibits or schedules to any of the
foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.
"Approved Securities" shall mean the securities
-------------------
described on Schedule A hereto that shall be issued on the
----------
Closing Date.
"Common Stock" shall have the meaning set forth in the
------------
recital of this Agreement, but shall also include any common
stock resulting from the recapitalization contemplated by Section
-------
5.1 below.
---
"Contract" shall mean any contract, agreement, note,
--------
instrument, franchise, lease, license, commitment, arrangement or
understanding, whether written or oral.
"Existing Options" shall mean the options, convertible
----------------
securities and other securities described on Schedule B hereto.
----------
"Governmental Authority" shall mean any court or
----------------------
governmental authority, department, commission, board, bureau,
agency or instrumentality.
"Law" shall mean any statute, law, ordinance, rule,
---
regulation or policy of any Governmental Authority.
"Material Adverse Effect" shall mean a material adverse
-----------------------
effect on the business, assets, operations, properties, prospects
or financial or other condition of Borrower and its Subsidiaries
taken as a whole.
"Order" shall mean any order, judgment, writ,
-----
injunction, decree, ruling or decision of any Governmental
Authority.
"Permit" shall mean any license, order, certificate,
------
authorization or approval of any Governmental Authority.
"Person" shall mean any individual, partnership,
------
corporation, unincorporated organization or association, limited
liability company, trust or other legal entity.
"Subsidiary" shall mean, with respect to any Person,
----------
(a) any corporation in which such Person and/or one or more of
its Subsidiaries, directly or indirectly, owns legally or
beneficially an aggregate of more than fifty percent (50%) of any
class of the outstanding common stock, or (b) any partnership or
other Person in which such Person and/or one or more of its
Subsidiaries shall have an interest (whether voting or economic)
of more than fifty percent (50%), or (c) any Person of which such
Person has the direct or indirect right to control the operating
or financial decisions.
The words "herein," "hereof" and "hereunder" and other
------ ------ ---------
words of similar import refer to this Agreement as a whole, and
not to any particular section, subsection or clause contained in
this Agreement.
II. PURCHASE OF SECURITIES
----------------------
2.1. Purchase of Securities. Subject to the terms and
----------------------
conditions set forth in this Agreement, Purchaser agrees to
subscribe for and purchase from Company at the Closing, and
Company agrees to issue and sell to Purchaser at the Closing,
1,000,000 shares of Common Stock (the "Purchased Stock"), for an
---------------
aggregate purchase price of $200,000.
2.2. Closing. The closing of the issuance of the
-------
Purchased Stock (the "Closing") shall be simultaneous with the
-------
fulfillment or waiver of all the conditions set forth in Article
-------
VI below. The Closing shall take place on such date (the "Closing
-- -------
Date") at time and place as shall be mutually agreed to by the
----
parties hereto, but in no event later than September 1, 1996. On
the Closing Date, Company will deliver to Purchaser and/or its
assigns duly issued certificates representing the Purchased
Stock, against delivery by Purchaser and/or its assigns of the
issuance price therefor by wire transfer of funds into an account
of Company previously designated by Company.
III. COMPANY'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
Company makes the following representations, warranties
and covenants to Purchaser, each and all of which shall survive
the execution and delivery of this Agreement and the Closing
hereunder:
3.1. Organization: Authorization. Company is duly
---------------------------
organized, validly existing and in good standing under the laws
of Delaware, and has full corporate or other power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. Subject to shareholder approval, the
execution and delivery of this Agreement and the consummation by
it of the transactions contemplated hereby and thereby, has been
authorized by all necessary corporate or over action by Company.
3.2. Binding Agreement. Subject to shareholder
-----------------
approval, this Agreement has been duly executed and delivered by
Company, and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as
may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights generally.
3.3. Requisite Consents; Nonviolation. Subject to
--------------------------------
shareholder approval, the execution and delivery of this
Agreement by Company and the consummation by it of the
transactions contemplated hereby, do not: (a) require any
consent, authorization or other action of, or any filing with,
any Governmental Authority or any other Person, (b) violate or
conflict with any provision of Company's certificate of
incorporation, by-laws or other governing documents, or (c)
constitute a default under, conflict with, violate, or give rise
to a right of termination, cancellation or acceleration or to
loss of a material benefit under, any Law (including, without
limitation, the Act), Contract, Permit or Order to which Company
is or hereafter may be a party or by which it or its properties
are or hereafter may be bound.
3.4. Litigation. There is no Action pending or, to the
----------
best knowledge of Company, threatened against Company or its
Subsidiaries that relate to, or could reasonably be expected to
affect, the transactions contemplated by this Agreement.
3.5. Authorized and Outstanding Shares of Capital
--------------------------------------------
Stock. After giving effect to the Closing, the authorized capital
-----
stock of Company consists of forty million one hundred
(40,000,100) shares, of which forty million (40,000,000) are
shares of Common Stock, and one hundred (100) are shares of the
Company's Class A Preferred Stock, par value $10.00 per share.
Except for the Existing Options, the Approved Securities and
other securities approved by Purchaser in writing, there are
currently no, and immediately after the Closing shall be no (a)
subscription, warrant, option or other right to purchase or
acquire any shares of any class of capital stock of Company or
securities convertible into such capital stock authorized or
outstanding, and (b) commitment of Company to issue sell or
transfer any such shares, warrants, options or other such rights
or securities.
3.6. Authorization and Issuance of Purchased Stock.
---------------------------------------------
Subject to shareholder approval, the issuance of the Purchased
Stock has been duly authorized and, upon delivery to Purchaser of
certificates therefor against payment in accordance with the
terms hereof, shall be validly issued and fully paid and
non-assessable, free and clear of all rights, options, pledges,
liens, encumbrances, rights of redemption and preemptive rights.
3.7. Securities Laws. The offer, issuance, sale and
---------------
delivery of the Purchased Stock, as provided in this Agreement,
are exempt from the registration requirements of the Act and all
applicable state securities laws.
3.8. Financial Statements; No Other Liabilities.
------------------------------------------
(a) Each of the balance sheets and other
financial information set forth in each of the Form 10-Ks and
Form 10-Qs filed by Company with the Securities and Exchange
Commission in 1993, 1994, and 1995, each of which was timely
filed and a copy of which has been furnished to Purchaser prior
to the date of this Agreement, was prepared in accordance with
generally accepted accounting principles ("GAAP") consistently
applied throughout the period involved and presents fairly the
consolidated financial position of Company and its Subsidiaries
at such dates and consolidated results of operations and cash
flows for the period then ended and for such periods represented
thereby, except that all Form 10-Qs are subject to normal
year-end adjustments none of which have been, or will be,
materially adverse to the business, properties, operations,
earnings, assets, liabilities, condition (financial or otherwise)
or prospects of the Company and its subsidiaries taken as a
whole.
(b) The audited consolidated balance sheets as at
December 31, 1995 and statements of income, retained earnings and
cash flows of Company and its Subsidiaries for the year ending on
December 31, 1995, true, correct and complete copies of which
have been furnished to Purchaser prior to the date of this
Agreement, have been prepared in conformity with GAAP
consistently applied throughout the period involved and present
fairly the consolidated financial position of Company and its
Subsidiaries, as at the dates thereof, and the consolidated
results of operations and cash flows for the period then ended.
(c) Company and its Subsidiaries, as of December
31, 1995, directly or indirectly, had no material Contracts or
any liabilities, fixed or contingent, in excess of $10,000, other
than as set forth on Schedule 3.8 attached hereto which are not
------------
reflected in the consolidated balance sheet of Company and its
Subsidiaries or the notes thereto.
3.9. No Material Adverse Effect. There has been no
--------------------------
Material Adverse Effect, and to the best of Company's knowledge,
no action or event threatened or pending which could result in a
Material Adverse Effect since December 31, 1995, except as set
forth in Schedule 3.9 attached hereto. No dividends or other
------------
distributions have been declared, paid or made upon any shares of
capital stock of Company or any of its Subsidiaries nor have any
shares of capital stock of Company or any of its Subsidiaries
been redeemed, retired, purchased or otherwise acquired for value
by Company or any of the Subsidiaries since December 31, 1995.
3.10. Investment Company Act. Neither Company nor
----------------------
any Subsidiary is an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
IV. PURCHASER'S REPRESENTATIONS AND WARRANTIES
------------------------------------------
Purchaser makes the following representations,
warranties and covenants to Company, each and all of which shall
survive the execution and delivery of this Agreement and the
Closing hereunder:
4.1. No Intended Resale. The Purchased Stock is being
------------------
acquired for investment for Purchaser's own account (except as
otherwise disclosed in writing to Company prior to the Closing)
and not with a view to the resale or distribution thereof in
violation of applicable securities laws.
4.2. Investment Experience. Purchaser is an "accredited
---------------------
investor," as defined in Rule 501 promulgated under the Act
(except as otherwise disclosed in writing to Company prior to the
execution of this Agreement), can bear the economic risk of its
investment for an indefinite period of time, and has such
knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of its investment
in the Company.
4.3. No Agency Relationship. Purchaser is not acting as
----------------------
a nominee or agent for and does not have any contracts,
understandings, agreements or arrangements with any Person to
sell, transfer or grant participation in the Purchased Stock to
any Person, other than as disclosed in writing to Company.
V. COVENANTS
---------
Company covenants and agrees that from and after the
date hereof (except as otherwise provided herein, or unless
Purchaser has given its prior written consent):
5.1. Best Efforts. Company shall use all best efforts
-------------
in taking any action required to be taken that is not
specifically set forth herein in order to proceed to the Closing,
including, without limitation, its recapitalization so as to
ensure that its authorized capital shall be sufficient in order
to issue and sell the Purchased Stock to Purchaser and that the
par value of the Common Stock to be issued and sold hereunder
shall not be greater than the issuance price to be paid therefor.
In addition, Company shall not take any action or fail to take
any action that would cause any of its representations,
warranties or covenants contained herein to be untrue in any
material respect on and as of the Closing.
5.2. Maintenance of Existence; Compliance with Law.
---------------------------------------------
Company shall preserve and maintain in good standing its
corporate legal existence and all of its rights, privileges and
franchises which are necessary to conduct its business as
currently being conducted and will comply with any Law
(including, without limitation, the Act), Contract, Permit or
Order to which Company is or hereafter may be a party, by which
it or its properties are or hereafter may be bound or which is
necessary for the conduct of its business as presently conducted.
5.3. Conduct of Business. Company shall, and shall
-------------------
cause each of its Subsidiaries to, engage only in such lines of
business as are currently engaged in by Company or such
Subsidiary, shall expand only into new markets or product lines
in which Company or such Subsidiary is presently engaged, will
maintain, preserve and protect their assets and goodwill, and
prior to the Closing, shall conduct its business only in the
ordinary course and consistent with past practice.
5.4. Books and Records. Company shall, and shall cause
-----------------
its Subsidiaries to, keep adequate records and books of account
with respect to their business activities, in which proper
entries, reflecting all of their financial transactions, are made
in accordance with GAAP, consistently applied.
5.5. Tax Compliance. Company shall pay all transfer,
--------------
excise or similar taxes (not including income or franchise taxes)
in connection with the issuance, sale, delivery or transfer by
Company to Purchaser of the Purchased Stock and shall save
Purchaser and any other holder of the Purchased Stock harmless
without limitation as to time against any and all liabilities
with respect to such taxes. Company shall not be responsible for
any taxes in connection with the transfer of the Purchased Stock
by the holder thereof. The obligations of Company under this
Section 5.5 shall survive the payment, prepayment or redemption
-----------
of the Purchased Stock and the termination of this Agreement.
VI. CONDITIONS PRECEDENT
--------------------
6.1. Purchaser's Conditions. The obligation of
----------------------
Purchaser to subscribe to and purchase the Purchased Stock
hereunder is subject to the following conditions, any or all of
which may be waived in writing by Purchaser:
(a) the Company shall have obtained all requisite
approvals of its shareholders to the transactions contemplated
hereunder;
(b) the closing of the transactions contemplated
by the Loan Agreement dated of even date herewith, between
Company and NPM Capital LLC shall have occurred;
(c) Purchaser's receipt of duly issued
certificates registered in Purchaser's name representing the
Purchased Stock;
(d) Purchaser's receipt of a copy of Company's
certificate of incorporation, certified as of a recent date by
the Secretary of State of the State of Delaware, and a copy of
the by-laws, certified by the Secretary or Assistant Secretary of
Company as true and correct and as to their continuing effect as
of the Closing Date;
(e) Company's performance of all covenants to be
performed by it at or prior to the Closing and the accuracy in
all material respects of Company's representations and warranties
contained in this Agreement as of the Closing Date as if they had
been made by Company on and as of such date;
(f) Purchaser's receipt of a certificate, in form
and signed by a person reasonably satisfactory to Purchaser,
certifying as to the matters set forth in Section 6.1(e);
--------------
(g) Purchaser's receipt of governmental
certificates or telegrams evidencing that Company is organized
and in good standing in the State of Delaware as of the Closing
Date; and
(h) Purchaser's receipt of a favorable legal
opinion from legal counsel of Purchaser in form and substance
acceptable to Purchaser.
6.2. Company's Conditions. The obligation of Company to
--------------------
issue and sell the Purchased Stock hereunder, is subject to the
following conditions, any or all of which may be waived in
writing by Company:
(a) Company shall have obtained all requisite
approvals of its shareholders to the transactions contemplated
hereunder;
(b) the closing of the transactions contemplated
by the Loan Agreement dated of even date herewith, between
Company and NPM Capital LLC shall have occurred;
(c) Company's receipt of the purchase price for
the Purchased Stock;
(d) Purchaser's performance of all covenants to
be performed by it at or prior to the Closing and the accuracy in
all material respects of Company's representations and warranties
contained in this Agreement as of the Closing Date as if they had
been made by Purchaser on and as of such date; and
(e) Company's receipt of a certificate, in form
and signed by a person reasonably satisfactory to Company,
certifying as to the matters set forth in Section 6.2(d).
--------------
VII. SECURITIES LAW MATTERS
----------------------
7.1. Legends. Each certificate representing the
-------
Purchased Stock shall bear a legend substantially in the
following form:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED BY PURCHASER
FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO THE DISTRIBUTION OF
SUCH SECURITIES. THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
("THE ACT") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION THEREFROM."
VIII. INDEMNIFICATION
---------------
8.1. By Company. Company agrees to indemnify, defend
----------
and hold harmless Purchaser, each of its members, officers,
employees, agents and their respective affiliates (collectively,
the "Purchaser Parties") from and against any liabilities,
-----------------
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements
of any kind which may be imposed upon, incurred by or asserted
against any of the Purchaser Parties in any manner relating to or
arising out of any untrue representation, breach of warranty or
failure to perform any covenants by Company contained herein or
in any certificate or document delivered pursuant hereto.
8.2. By Purchaser. Purchaser agrees to indemnify,
------------
defend and hold harmless Company, each of its members, officers,
employees, agents and their respective affiliates (collectively,
the "Company Parties") from and against any liabilities,
---------------
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements
of any kind which may be imposed upon, incurred by or asserted
against any of the Company Parties in any manner relating to or
arising out of any untrue representation, breach of warranty or
failure to perform any covenants by Purchaser contained herein or
in any certificate or document delivered pursuant hereto.
IX. MISCELLANEOUS
-------------
9.1. Notices. Except as otherwise provided herein,
-------
whenever it is provided herein that any notice, demand, request,
consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or
whenever any of the parties desires to give or serve upon another
any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed given only
if (i) delivered in person, or (ii) sent by Federal Express or
nationally recognized overnight courier service, and addressed as
follows:
1. If to Purchaser, at the address set forth on
the books of Company with a copy to:
National Financial Corporation
621 N.W. 53rd Avenue
Boca Raton, Florida 33487
Attention: Mr. Gary L. Shapiro
Millennium Financial Services, Inc.
70 East 55th Street
6th Floor
New York, New York 10022
Attn: Mr. Jay D. Chazanoff
Pembroke Companies, Inc.
One Park Avenue
12th Floor
New York, New York 10016
Attn: Mr. Lawrence J. Cohen
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attn: Herbert T. Weinstein, Esq.
2. If to Company, at:
DVL, Inc.
24 River Road
Bogota, New Jersey 07603
Attn: President
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such
notice. Every notice, demand, request, consent, approval,
declaration or other communication hereunder shall be deemed
effective upon receipt.
9.2. Binding Effect; Benefits. Except as otherwise
------------------------
provided herein, this Agreement shall be binding upon and inure
to the benefit of the parties to this Agreement and their
respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended or shall be construed
to give any person other than the parties to this Agreement or
their respective successors or assigns any legal or equitable
right, remedy or claim under or in respect of any agreement or
any provision contained herein.
9.3. Waiver. Either party hereto may by written notice
------
to the other (a) extend the time for the performance of any of
the obligations or other actions of the other under this
Agreement; (b) waive compliance with any of the conditions or
covenants of the other contained in this Agreement; and (c) waive
or modify performance of any of the obligations of the other
under this Agreement. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking
such action, of compliance with any representations, warranties,
covenants or agreements contained herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any preceding or
succeeding breach and no failure by either party to exercise any
right or privilege hereunder shall be deemed a waiver of such
party's rights or privileges hereunder or shall be deemed a
waiver of such party's rights to exercise the same at any
subsequent time or times hereunder.
9.4. Amendment. This Agreement may be amended, modified
---------
or supplemented only by a written instrument executed by
Purchaser and Company.
9.5. Assignability. Neither this Agreement nor any
-------------
right, remedy, obligation or liability arising hereunder or by
reason hereof shall be assignable by the Company without the
prior written consent of Purchaser. Purchaser may assign this
Agreement and any right, remedy, obligation or liability arising
hereunder, in each case in whole or in part, to one or more
persons or entities, without the consent of the Company.
9.6. Applicable Law. This Agreement shall be governed
--------------
by and construed in accordance with the laws of the State of New
York, without regard to the principles thereof regarding conflict
of laws.
9.7. Severability. In the event that any one or more of
------------
the provisions contained in this Agreement shall be determined to
be invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such
provision or provisions in every other respect and the remaining
provisions of this Agreement shall not be in any way impaired.
9.8. 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 together shall be deemed to be one
and the same instrument.
<PAGE>
SIGNATURES ON NEXT PAGE
<PAGE>
IN WITNESS WHEREOF, Company and Purchaser have executed
this Agreement as of the day and year first above written.
DVL, INC., a Delaware corporation
By:
----------------------------------
Name:
Title:
NPO HOLDINGS LLC, a Delaware
limited liability company
By:
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
SECURITIES PURCHASE AGREEMENT
-----------------------------
(Preferred Stock and Warrants)
SECURITIES PURCHASE AGREEMENT, dated as of March 27,
1996, between DVL, INC., a Delaware corporation having an office
at 24 River Road, Bogota, New Jersey 07603 ("Company"), and NPM
CAPITAL LLC, a limited liability company ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
A. Company and Lender have entered into that certain
Amended and Restated Loan Agreement dated as of March 27, 1996
(as the same may be supplemented, modified and amended from time
to time, the "Loan Agreement"), pursuant to which certain
--------------
indebtedness owing to Lender has been consolidated, amended and
modified (collectively, the "Loan").
B. Simultaneously with the consummation of the
transactions under the Loan Agreement and in consideration of the
execution and delivery by Lender of the Loan Agreement and
certain other documents referenced therein and for other good and
valuable consideration, Company has agreed, upon the terms and
conditions hereinafter provided, to issue to an affiliate of
Lender ("Holder") (1) certain shares of preferred stock and (2)
certain warrants for the purchase of certain shares of common
stock in Company.
NOW, THEREFORE, in consideration of the premises and
the covenants hereinafter contained, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed as follows:
I. DEFINITIONS
-----------
Terms used herein which are defined in the Loan
Agreement shall have the meanings assigned to them therein,
unless the context otherwise requires or unless otherwise defined
herein. Each of the following terms shall have the meaning set
forth below:
"Act" shall mean the Securities Act of 1933, as amended
---
and the rules and regulations thereunder.
"Agreement" shall mean this Securities Purchase
---------
Agreement, together with all supplements, modifications and
amendments thereto and any exhibits or schedules to any of the
foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.
"Closing" shall have the meaning set forth in
-------
Section 2.2.
-----------
"Closing Date" shall have the meaning set forth in
------------
Section 2.2.
-----------
"Common Stock" shall have the meaning set forth in
------------
Section 2.1.
-----------
"Existing Options" shall mean the options, convertible
----------------
securities and other securities described on Schedule A hereto.
----------
"Preferred Stock" shall have the meaning set forth in
---------------
Section 2.1.
-----------
"Warrants" shall have the meaning set forth in
--------
Section 2.1.
-----------
The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole,
including the schedules and exhibits hereto, as the same may from
time to time be supplemented, modified or amended and not to any
particular section, subsection or clause contained in this
Agreement.
II. THE PURCHASE OF SECURITIES
--------------------------
2.1. Purchase of Securities. Holder agrees to
----------------------
subscribe for and purchase from Company, and Company agrees to
issue and sell to Holder, (1) 100 shares of Company's preferred
stock, $10.00 par value per share, containing the terms,
preferences and limitations set forth in Exhibit A attached
---------
hereto (the "Preferred Stock") and (2) warrants, in the form
---------------
attached hereto as Exhibit B (the "Warrants"), for shares of
Company's common stock, $0.01 par value per share (the "Common
Stock"), in consideration of the execution and delivery by Lender
of the Loan Agreement and the other documents referenced therein
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Company for all
purposes.
2.2. Closing. The closing of the purchase and sale of
-------
the Preferred Stock and the Warrants (the "Closing") shall be
-------
simultaneous with the closing under the Loan Agreement. The
Closing shall take place at such date and time (the "Closing
-------
Date"), but in any event on or before September 1, 1996, and
----
place as shall be mutually agreed to by the parties hereto. On
the Closing Date, Company will deliver to Holder and/or its
assigns certificates for the Preferred Stock and the Warrants and
Holder and/or its assigns shall deliver the purchase price for
the Preferred Stock by wire transfer of funds into the account of
Company.
III. COMPANY'S REPRESENTATIONS AND WARRANTIES
----------------------------------------
Company makes the following representations and
warranties to Holder, each and all of which shall survive the
execution and delivery of this Agreement and the Closing
hereunder:
3.1. Authorized and Outstanding Shares of Capital
--------------------------------------------
Stock. After giving effect to the Closing, the authorized capital
-----
stock of Company consists of forty million one hundred
(40,000,100) shares, of which forty million (40,000,000) are
shares of Common Stock and one hundred (100) are shares of
Preferred Stock. Except for the Warrants, the Existing Options
and such other securities as Lender may approved in writing, (a)
no subscription, warrant, option or other right to purchase or
acquire any shares of any class of capital stock of Company or
securities convertible into such capital stock is authorized or
outstanding, and (b) there is no commitment of Company to issue
any such shares, warrants, options or other such rights or
securities. Except as provided for in the Certificate of
Incorporation, Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or to
make any other distribution in respect thereof. Except as
described in the Loan Agreement, there are no voting trusts or
agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights, proxies
or registration rights relating to any securities of Company
(whether or not either of Companies is a party thereto).
3.2. Authorization and Issuance of Securities. Upon
----------------------------------------
approval by the stockholders of Company, (i) the issuance of the
Preferred Stock and the Warrants will be duly authorized and,
upon delivery to Holder of certificates therefor in accordance
with the terms hereof, the Preferred Stock and the Warrants will
have been validly issued and fully paid and non-assessable, free
and clear of all rights, options, pledges, liens, encumbrances
and preemptive rights, (ii) the issuance of the shares of Common
Stock subject to the Warrants will be duly authorized and, when
issued upon exercise of the Warrants, will have been validly
issued and fully paid and non-assessable, free and clear of all
rights, options, pledges, liens, encumbrances and preemptive
rights and (iii) there shall be initially duly reserved for
issuance pursuant to the Warrants such number of shares as shall,
together with the Base Shares (as defined in the Warrants), equal
49% of the issued and outstanding shares of Common Stock after
giving effect to the issuance of the Base Shares and all the
shares of Common Stock purchasable under the Warrant, subject to
adjustment as provided therein.
3.3. Securities Laws. The offer, issuance, sale and
---------------
delivery of the Preferred Stock and the Warrants (and the Common
Stock issued upon exercise of the Warrants), as provided in this
Agreement, are exempt from the registration requirements of the
Act and all applicable state securities laws.
3.4. Loan Agreement Representations. Each of the
------------------------------
representations and warranties of Company contained in the Loan
Agreement (Company is referred to therein as "Borrower") is true
and correct in all respects and each such representation and
warranty is incorporated herein by reference in its entirety.
3.5. Consents Waivers. Subject to approval by the
----------------
stockholders of Company, Company has obtained all approvals,
consents and waivers that are necessary with respect to
consummation of the purchase and sale contemplated herein.
3.6. Validity. Subject to approval by the stockholders
---------
of Company, this Agreement has been duly executed and delivered
by Company and constitutes the legal, valid and binding
obligation of Company, enforceable in accordance with its terms.
IV. COVENANTS
---------
Company covenants and agrees that from and after the
date hereof (except as otherwise provided herein, or unless
Holder has given its prior written consent) so long as any of the
Warrants is outstanding or remains unexercised:
4.1. Loan Agreement Covenants. Company shall comply
------------------------
with its covenants set forth Sections 6.1. 6.3. 6.4. 6.5. 6.6.
---------------------------------
6.8. 6.9. 6.10. 6.15. 6.16. 7.1. 7.3. 7.5. 7.10. 7.11. 7.26 and
---------------------------------------------------------------
7.27 of the Loan Agreement as in effect on the Closing Date, the
----
terms of which are incorporated herein by reference in their
entirety.
4.2. No Modifications of Charter. Without the prior
---------------------------
written consent of Holder, no modification shall be made to the
provisions of its certificate of incorporation or by-laws
concerning voting rights of Preferred Stock, voting rights of
director appointed by Holder, or its successors or assigns, and
restrictions on transfer of ownership of Common Stock, the
substance of which provisions are provided on Exhibit C hereto.
---------
4.3. Conduct of Business. Except as otherwise
-------------------
permitted by the terms of the Loan Agreement, Company shall, and
shall cause each of its Subsidiaries to, engage only in such
lines of business as are currently engaged in by Company or such
Subsidiary, shall expand only into new markets or product lines
in which Company or such Subsidiary is presently engaged, and
will maintain, preserve and protect their assets and goodwill.
4.4. Books and Records. Company shall, and shall cause
-----------------
its Subsidiaries to, keep adequate records and books of account
with respect to their business activities, in which proper
entries, reflecting all of their financial transactions, are made
in accordance with generally accepted accounting principles,
consistently applied.
4.5. Issuance of Additional Preferred Stock. Company
--------------------------------------
shall not issue any shares of any preferred stock except as
provided in this Agreement.
4.6. Redemptions of Preferred Stock. Company shall not
------------------------------
purchase, redeem or retire any shares of the Preferred Stock,
without the prior written consent of Holder, except as
mandatorily required by the terms of the Preferred Stock.
4.7. Tax Compliance. Company shall pay all transfer,
--------------
excise or similar taxes (not including income or franchise taxes)
in connection with the issuance, sale, delivery or transfer by
Company to Holder of the Preferred Stock and the Warrants (and
the Common Stock issued upon the exercise of the Warrants) and
shall save Holder and any other holder of the Preferred Stock and
the Warrants harmless without limitation as to time against any
and all liabilities with respect to such taxes. Company shall
not be responsible for any taxes in connection with the transfer
of the Preferred Stock and the Warrants by the holder thereof.
The obligations of Company under this Section 4.7 shall survive
-----------
the payment, prepayment or redemption of the Preferred Stock and
the Warrants and the termination of this Agreement.
4.8. Reserve of Common Stock. Company shall at times
-----------------------
reserve and keep available out of its authorized but unissued
shares of Common Stock, such number of its duly authorized shares
of Common Stock as shall be sufficient for issuance upon the
exercise by Holder of the Warrants. If at any time the number of
authorized but unissued shares of Common Stock shall not be
sufficient for issuance upon the exercise by Holder of the
Warrants or otherwise to comply with the terms of this Agreement,
Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes. Company will obtain any authorization, consent,
approval or other action by or make any filing with any court or
administrative body that may be required under applicable state
securities laws in connection with the issuance of shares of
Common Stock upon exercise of the Warrants.
4.9. No Breach. Company shall not take or omit, or
---------
cause to be taken or omitted any action, which action or
omission, either by itself or in conjunction with any other
actions or omissions, would cause or result in a breach of the
representations and warranties made by Company hereunder.
V. CONDITIONS PRECEDENT
--------------------
5.1. The obligation of Holder to purchase the Preferred
Stock and the Warrants pursuant to Section 2.1 hereof, is subject
-----------
to the following conditions:
(a) the closing under the Loan Agreement shall have
occurred;
(b) the representations and warranties of Company
contained herein shall be true, complete and correct on and as of
the Closing Date with the same effect as though such
representations and warranties had been made on and as of such
date;
(c) Company shall have performed and complied with all
agreements referred to herein required to be performed or
complied with by it prior to or at the Closing;
(d) all authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the
lawful issuance and sale of the Preferred Stock and the Warrants
pursuant to this Agreement shall have been duly obtained and
shall be effective as of the Closing;
(e) all corporate and other proceedings to be taken by
Company in connection with the transactions contemplated hereby
shall have been duly taken;
(f) Company shall have obtained the approval of the
stockholders of the Company and all other approvals, consents and
waivers that are necessary with respect to the purchase of the
Preferred Stock and the Warrants;
(g) Holder's receipt of certificates registered in
Holder's name representing the Preferred Stock and the Warrants;
(h) Holder's receipt of a copy of Company's
certificate of incorporation, certified as of a recent date by
the Secretary of State of the State of Delaware, and a copy of
the by-laws, certified by the Secretary or Assistant Secretary of
Company as true and correct and as to its continuing effect as of
the Closing Date;
(i) Holder's receipt of governmental certificates or
telegrams evidencing that Company is organized and in good
standing in the State of Delaware as of the Closing Date; and
(j) Holder's receipt of a favorable legal opinion from
legal counsel of Holder in substantially the form annexed hereto
as Exhibit D.
---------
5.2. The obligation of Company to issue the Preferred
Stock and the Warrants pursuant to Section 2.1 hereof, is subject
-----------
to the condition that the closing under the Loan Agreement shall
have occurred.
VI. SECURITIES LAW MATTERS
----------------------
Each certificate representing the Warrants shall bear
the legend provided for therein and each certificate representing
the Common Stock and the Preferred Stock shall bear a legend
substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER
FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TOWARD THE DISTRIBUTION
OF SUCH SECURITIES. THE SECURITIES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 ("THE ACT") AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT OR AN EXEMPTION THEREFROM."
VII. INDEMNIFICATION
---------------
Company agrees to indemnify, defend and hold harmless
Holder, each of its members, officers, employees, agents and
their respective affiliates (collectively, the "Holder Parties")
------ -------
from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys'
fees, expenses and disbursements of any kind which may be imposed
upon, incurred by or asserted against any of the Holder Parties
in any manner relating to or arising out of any untrue
representation, breach of warranty or failure to perform any
covenants by Company contained herein or in any certificate or
document delivered pursuant hereto.
VIII. MISCELLANEOUS
-------------
8.1. Notices. Except as otherwise provided herein,
-------
whenever it is provided herein that any notice, demand, request,
consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or
whenever any of the parties desires to give or serve upon another
any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed given only
if (i) delivered in person, or (ii) sent by Federal Express or
nationally recognized overnight courier service, and addressed as
follows:
1. If to Holder, at its address as shown on the books
of Company.
with a copy to:
National Financial Corporation
621 N.W. 53rd Avenue
Boca Raton, Florida 33487
Attention: Mr. Gary L. Shapiro
Millennium Financial Services, Inc.
70 East 55th Street
6th Floor
New York, New York 10022
Attn: Mr. Jay D. Chazanoff
Pembroke Companies, Inc.
One Park Avenue
12th Floor
New York, New York 10016
Attn: Mr. Lawrence J. Cohen
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attn: Herbert T. Weinstein, Esq.
2. If to Company, at:
DVL, Inc.
24 River Road
Bogota, New Jersey 07603
Attn: President
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such
notice. Every notice, demand, request, consent, approval,
declaration or other communication hereunder shall be deemed
effective upon receipt.
8.2. Binding Effect; Benefits. Except as otherwise
------------------------
provided herein, this Agreement shall be binding upon and inure
to the benefit of the parties to this Agreement and their
respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended or shall be construed
to give any person other than the parties to this Agreement or
their respective successors or assigns any legal or equitable
right, remedy or claim under or in respect of any agreement or
any provision contained herein.
8.3. Waiver. Either party hereto may by written notice
------
to the other (a) extend the time for the performance of any of
the obligations or other actions of the other under this
Agreement; (b) waive compliance with any of the conditions or
covenants of the other contained in this Agreement; and (c) waive
or modify performance of any of the obligations of the other
under this Agreement. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking
such action, of compliance with any representations, warranties,
covenants or agreements contained herein. The waiver by any party
hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any preceding or
succeeding breach and no failure by either party to exercise any
right or privilege hereunder shall be deemed a waiver of such
party's rights or privileges hereunder or shall be deemed a
waiver of such party's rights to exercise the same at any
subsequent time or times hereunder.
8.4. Amendment. This Agreement may be amended, modified
---------
or supplemented only by a written instrument executed by Holder
and Company.
8.5. Assignability. Neither this Agreement nor any
-------------
right, remedy, obligation or liability arising hereunder or by
reason hereof shall be assignable by the Company without the
prior written consent of Holder. Holder may assign this
Agreement and any right, remedy, obligation or liability arising
hereunder, in each case in whole or in part, to one or more
persons or entities, without the consent of the Company.
8.6. Applicable Law. This Agreement shall be governed
--------------
by and construed in accordance with the laws of the State of New
York, without regard to the principles thereof regarding conflict
of laws.
8.7. Severability. In the event that any one or more
------------
of the provisions contained in this Agreement shall be determined
to be invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability, of any such
provision or provisions in every other respect and the remaining
provisions of this Agreement shall not be in any way impaired.
8.8. 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 together shall be deemed to be one
and the same instrument.
SIGNATURES ON NEXT PAGE
<PAGE>
IN WITNESS WHEREOF, Company and Holder have executed
this Agreement as of the day and year first above written.
DVL, INC., a Delaware corporation
By:
--------------------------------
Name:
Title:
NPM CAPITAL LLC
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT F
-------------------------------------------------------------------------
COMMON STOCK WARRANT
-------------------------------------------------------------------------
DVL, INC.
COMMON STOCK WARRANT
THE TRANSFERABILITY OF THIS WARRANT IS
RESTRICTED AS PROVIDED IN SECTION 2.
VOID AFTER DECEMBER 31, 2007 RIGHT TO PURCHASE 11,981,013<FN1>
OF THE AGGREGATE SHARES OF
COMMON STOCK OF THE COMPANY
(SUBJECT TO ADJUSTMENT)
NO. W-001
--------------------------------------------------------------------------
PREAMBLE
--------------------------------------------------------------------------
DVL, INC., a Delaware corporation (the "Company"), for value
-------
received, hereby certifies that NPO HOLDINGS LLC, a Delaware limited
liability company (such entity, and its successors, assigns and
transferees, the "holder of this Warrant", or the "holder hereof") is
---------------------- -------------
entitled, subject to the terms set forth below, to purchase from the
Company at any time or from time to time before 5:00 P.M. New York time,
December 31, 2007 (the "Expiration Date"), fully paid and nonassessable
shares of Common Stock, par value $0.01 per share (collectively, the
"Common Stock") of the Company, at a purchase price of $0.l6<FN2>
------------
per share (such price, the "Initial Purchase Price"). The number and
----------------------
character of such shares of Common Stock and the Initial Purchase Price are
subject to adjustment as provided herein.
This Warrant (the "Warrant") evidencing the right to purchase
-------
shares of Common Stock of the Company, is issued pursuant to a certain
Securities Purchase Agreement (as amended, the "Agreement"), dated as of
---------
March 27, 1996, between the Company and the holder of this Warrant, copies
of which are on file at the principal office of the Company.
---------------
<FN1> Note: the aggregate number of shares initially covered by this
Warrant shall, together with the Base Shares, equal 49% of the issued and
outstanding Common Stock after giving effect to the issuance of the Base
Shares and all the shares under this Warrant, subject to adjustment as
provided herein.
<FN2> Note: the purchase price per share shall be subject to adjustment
as provided herein.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
BY THE HOLDER HEREOF FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION THEREFROM.
<PAGE>
DEFINITIONS
1. Definitions. As used herein, each of the following terms, unless
-----------
the context otherwise requires, shall have the meaning set forth below:
"Business Day" shall mean any day that is not a Saturday, a
------------
Sunday, or a day on which banks are required or permitted to be closed
in the State of New York.
"Company" means the Company and any corporation or other legal
-------
entity which shall succeed to or assume the obligations of the Company
hereunder in compliance with Section 6 hereof.
---------
"Common Stock" means all stock of any class or classes (however
------------
designated) of the Company, authorized on or after the date hereof,
the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends
and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies,
be entitled to vote for the election of a majority of directors of
the Company (even though the right so to vote has been suspended
by the happening of such a contingency).
"Convertible Securities" shall mean any indebtedness, shares of
----------------------
stock or other securities convertible into or exchangeable for
Common Stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations
of the Commission hereunder, all as the same shall be in effect from
time to time.
"Fair Value" shall mean with respect to Common Stock the current
----------
Market Price per share of such Common Stock at any date and, with
respect to any other assets, shall be deemed to be the fair market
value as determined, in good faith, by the Board of Directors of the
Company (such value, the "Board Valuation"); provided, however, that
--------------- -------- -------
if the holders of Warrants entitled to a majority of the Shares
dispute the Board Valuation on or before 20 Business Days after the
date the Board of Directors of the Company notifies such holder in
writing of such Board Valuation, then, the such holders shall be
----
entitled to retain an investment banker, at the expense of the
Company, to determine such fair market value (such value, the
"Independent Valuation"). It is agreed that the lower of (1) the
---------------------
Board Valuation and (2) the Independent Valuation shall constitute
such "Fair Value" for all purposes.
"Initial Purchase Price" shall have the meaning set forth in the
----------------------
Preamble to this Warrant.
"Lender" shall have the meaning set forth in the Agreement.
------
"Loan Agreement" shall have the meaning set forth in the
--------------
Agreement.
"Market Price" shall, at any given time, mean the average closing
------------
price, during the prior 30 Business Days, for a share of Common Stock
as listed on any public exchange or automated quotation system, or the
average bid price during such 30 Business Days for a share of Common
Stock as traded in the over-the-counter market. In the event that the
Common Stock is no longer listed on any public exchange or automated
quotation system or traded in the over-the-counter market, then, the
----
"Market Price" shall be equal to the "Fair Value."
"NASD" shall mean the National Association of Securities Dealers,
----
Inc, or any successor corporation thereto.
"Net Consideration Per Share" shall mean the amount equal to the
---------------------------
total amount of consideration received by the Company for the sale or
issuance of Common Stock, Options or Convertible Securities plus, in
----
the case of Options or Convertible Securities, the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such Options or Convertible
Securities were exercised, exchanged or converted.
"Options" shall mean any rights, warrants or options to subscribe
-------
for or purchase Common Stock or Convertible Securities.
"Other Securities" means any stock (other than Common Stock) and
----------------
other securities of the Company or any other person (corporate or
otherwise) which the holders of the Warrants at any time shall be
entitled to receive, or shall have received, on the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 6
---------
or otherwise.
"Person" shall mean any natural or legal person.
------
"Purchase Price" shall mean the Initial Purchase Price, as
--------------
adjusted in accordance with this Warrant.
"Registrable Securities" shall mean the collective reference to
----------------------
(1) the shares of Common Stock issued hereunder to the holder of this
Warrant, (2) this Warrant, and (3) the Shares.
"Securities Act" means the Securities Act of 1933, or any
--------------
successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities and Exchange Commission" or "Commission" means the
---------------------------------- ----------
Securities and Exchange Commission or any other federal agency then
administering the Securities Act.
"Shares" means the Common Stock and Other Securities issued or
------
issuable upon exercise of this Warrant.
"Warrant" shall have the meaning set forth in the Preamble to
-------
this Warrant.
2. Restricted Stock.
----------------
2.1 If, at the time of any transfer or exchange (other than a
transfer or exchange not involving a change in the beneficial ownership of
this Warrant or Shares) of all or any portion of this Warrant or Shares,
this Warrant or such Shares shall not be registered under the Securities
Act, the Company may require, as a condition of allowing such transfer or
exchange, that the holder of this Warrant or such Shares, as the case may
be, furnish to the Company an opinion of counsel reasonably acceptable to
the Company or, at the election of the holder of this Warrant, a "no
action" or similar letter from the Securities and Exchange Commission to
the effect that such transfer or exchange may be made without registration
under the Securities Act. In the case of such a transfer or exchange and
in the case of an exercise of this Warrant if the Shares to be issued
thereupon are not registered pursuant to the Securities Act, the Company
may require a written statement that such Warrant or Shares, as the case
may be, are being acquired for investment and not with a view to the
distribution thereof. The certificates evidencing the Shares issued on the
exercise of this Warrant shall, if such Shares are being sold or
transferred without registration under the Securities Act, bear a legend to
the effect that the Shares evidenced by such certificates have not been so
registered.
2.2 (a) The Company shall at all times maintain and keep
available adequate public information, as those terms are understood and
defined in Rule 144 under the Securities Act.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe
under Section 13(a) or 15(d) of the Exchange Act.
(c) The Company shall furnish to the holder hereof and/or a
prospective purchaser designated by such holder of this Warrant or Shares,
forthwith upon request, (i) a written statement by the Company certifying
as to its full compliance with the reporting requirements of Rule 144 under
the Securities Act and of the reporting requirements of the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company,
(iii) any other reports and documents necessary to satisfy the
information-furnishing condition to offers and sales under Rule 144A under
the Securities Act, and (iv) such other reports and documents as the holder
of this Warrant or Shares or any prospective purchaser thereof reasonably
requests to avail itself of any rule or regulation of the Commission
allowing such holder to sell any such securities without registration.
3. Exercise of Warrant.
-------------------
3.1 Exercise in Full. The holder of this Warrant may at its
----------------
option not later than the Expiration Date exercise it in full by
surrendering this Warrant, with the form of subscription at the end hereof
duly executed by such holder, to the Company at its principal office,
attention the Secretary of the Company. The surrendered Warrant shall be
accompanied by payment of the Purchase Price as set forth below for the
number of shares of Common Stock which may be purchased hereunder. At the
option of the holder of this Warrant, payment of the Purchase Price shall
be made by (a) wire transfer of funds to an account in a bank located in
the United States designated by the Company for such purpose, (b) certified
or official bank check payable to the order of the Company, (c) delivery to
the Company of a number of shares of Common Stock having an aggregate
Market Price on the date of exercise equal to the aggregate Purchase Price
for all shares as to which the Warrant is then being exercised, (d)
deducting from the number of Shares to be delivered upon exercise of the
Warrant a number of Shares which has an aggregate Market Price on the date
of exercise equal to the aggregate Purchase Price for all Shares as to
which the Warrant is then being exercised, or (e) any combination of such
methods.
3.2 Partial Exercise. The holder of this Warrant may at its
----------------
option at any time or from time to time, but not later than the Expiration
Date, exercise this Warrant in part by surrender of this Warrant in the
manner and at the place provided in Section 3.1, except that the amount
-----------
obtained shall be designated by the holder of this Warrant in the
subscription at the end hereof as provided herein The Purchase Price shall
be payable by the holder of this Warrant in accordance with Section 3.1.
-----------
On any such partial exercise the Company at its expense will forthwith
issue and deliver to or upon the order of the holder hereof a new Warrant
or Warrants of like tenor, in the name of the holder hereof or as such
holder may request, calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock equal to the number of such shares
called for on the face of this Warrant minus the number of such shares
designated by the holder of this Warrant in the subscription at the end
hereof, subject to adjustment as provided herein.
3.3 Shares to be Fully Paid. The Company covenants and agrees
-----------------------
that all Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable and free from all preemptive
rights of any stockholder and free of all taxes, liens and charges with
respect to the issue thereof. The Company will take all such action as may
be necessary to assure that such shares of Common Stock may be issued as
provided herein without violation of any applicable law or regulation, or
of any requirements of any domestic securities exchange or automated
quotation system upon which the Common Stock may be listed.
3.4 Company Acknowledgment. The Company will, at the time of
----------------------
the exercise, exchange or transfer of this Warrant, upon the request of the
holder hereof acknowledge in writing its continuing obligation to afford to
such holder any rights (including, without limitation, any right to
registration of the Shares) to which such holder shall continue to be
entitled after such exercise, exchange or transfer in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such
rights.
3.5 Limitation on Exercise of Warrant. Notwithstanding anything
---------------------------------
to the contrary set forth in this Warrant, this Warrant may not be
exercised, in full or in part, on or before January 1, 1999, unless (i) the
Company obtains a favorable legal opinion, reasonably acceptable in form
and substance to the Company and the holder hereof, to the effect that the
exercise of the Warrant by such holder of this Warrant shall not result in
a limitation of the Company's use of any net operating loss carryforwards
solely by reason of the applicability of Section 382 of the Code; or (ii)
as provided in Section 6.
---------
4. Delivery of Stock Certificates, Etc. on Exercise. As soon as
------------------------------------------------
practicable after the exercise of this Warrant in full or in part, and in
any event within 15 Business Days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to
be issued in the name of and delivered to the holder hereof, or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
nonassessable Shares to which such holder shall be entitled on such
exercise. The Company agrees that the Shares purchased under this Warrant
shall be and are deemed to be issued to the holder hereof as the record
owner of such Shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such Shares. Each
stock certificate so delivered shall be in such denominations of Common
Stock as may be requested by holder hereof and shall be registered in the
name of the holder hereof or such other name as shall be designated by the
holder hereof.
5. Adjustment of Initial Purchase Price and Number of Shares.
---------------------------------------------------------
5.1 Except as otherwise provided in Section 5.3, the Initial
-----------
Purchase Price hereof shall be subject to adjustment from time to time as
follows:
(a) In case the Company shall (i) at any time declare or pay a
dividend on its Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, or
(iii) combine its outstanding shares of Common Stock into a smaller number
of shares, then, in such an event, the Purchase Price in effect immediately
prior thereto shall be adjusted proportionately so that the adjusted
Purchase Price will be equal to the Purchase Price immediately prior to
such event multiplied by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately prior to such event and
the denominator of which is the number of shares outstanding immediately
after such event. An adjustment made pursuant to this subdivision (a), (i)
shall become effective retroactively immediately after the record date in
the case of a dividend and (ii) shall become effective immediately after
the effective date in the case of a subdivision or combination. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described herein.
(b) (i) In the event that the Company shall sell or issue (or
shall be deemed pursuant to this Subsection to sell or issue), at any time
after March 27, 1996, shares of Common Stock for Net Consideration Per
Share that is less than the Purchase Price in effect on the date of and
immediately prior to such sale or issuance, then, upon such sale or
issuance (or deemed sale or issuance), the Purchase Price shall be reduced
concurrently with such sale or issuance (or deemed sale or issuance) to a
Purchase Price (calculated to the nearest one hundredth of a cent)
determined by dividing:
(a) an amount equal to (x) the total number of shares of
Common Stock outstanding immediately prior to such sale or
issuance multiplied by the Purchase Price, plus (y) such Net
Consideration Per Share, if any, received or deemed received,
multiplied by the number of shares of Common Stock sold or issued
(or deemed to be sold or issued), by
(b) the total number of shares of Common Stock outstanding
immediately after such sale or issuance.
No adjustment in the Purchase Price shall be made which would increase the
Purchase Price in effect immediately prior to such adjustment, except as
provided in Section 5.1(b)(iii).
-------------------
(ii) In case the Company shall, at any time after March 27,
1996, in any manner issue or grant any Options or any Convertible
Securities or shall fix a record date for the determination of holders of
any class of securities entitled to receive any such Options or Convertible
Securities, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities at the time such
Convertible Securities first become convertible or exchangeable shall (as
of the date of issue or grant of such Options or, in the case of the issue
or sale of Convertible Securities, as of the date of such issue or sale or,
in the case such a record date shall have been fixed, as of the close of
business on such record date) be deemed to be issued and to be outstanding
for the purposes of this Section 5 (except that shares of Common Stock
---------
shall not be deemed to have been issued and to be outstanding unless the
Net Consideration Per Share of such shares of Common Stock would be less
than the Purchase Price in effect immediately prior to such issuance, or
such record date, as the case may be); provided that, subject to the
provisions of Section 5.1(b)(iii), no further adjustment of the Purchase
-----------
Price shall be made upon the actual issuance of any such Common Stock or
upon the exercise of any such Option or upon the conversion or exchange
of any such Convertible Securities.
(iii) (a) If the purchase price provided for in
any Option referred to in Section 5.1(b)(ii) or the additional
------------------
consideration (if any) payable upon the conversion or exchange
of any Convertible Securities referred to in subsection
5.1(b)(ii) or the rate at which any Convertible Securities
referred to in subsection 5.1(b)(ii) are convertible into or
exchangeable for shares of Common Stock, shall change at any
time (other than under or by reason of weighted average
antidilution provisions, but including changes under or by
reason of all other types of provisions designed to protect
against dilution), then the Purchase Price in effect at the
time of such event shall forthwith be readjusted to the
Purchase Price that would have been in effect at such time
had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that if such
readjustment is an increase in the Purchase Price, such
readjustment shall not exceed the amount (as adjusted by
Sections 5.1(a) and (b)) by which the Purchase Price was
decreased pursuant to Section 51(b) upon the issuance of
the Option or Convertible Security.
(b) In the event of the termination or expiration of any
right to purchase Common Stock under any Option granted after the
date of this Warrant or of any right to convert or exchange
Convertible Securities issued after the date of this Warrant, the
Purchase Price shall, upon such termination, be readjusted to the
Purchase Price that would have been in effect at the time of such
expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the shares of
Common Stock issuable thereunder shall no longer be deemed to be
Common Stock outstanding; provided, that if such readjustment is
an increase in the Purchase Price, such readjustment shall not
exceed the amount (as adjusted by Sections 5.1(a) and (b), by
----------------------
which the Purchase Price was decreased pursuant to Section 5.1(b)
--------------
upon the issuance of the Option or Convertible Security.
(c) In case the Company shall distribute to holders of
shares of Common Stock any of the following: any Other
Securities, evidences of its indebtedness or assets (excluding
cash dividends or cash distributions) or purchase rights, options
or warrants to subscribe for or purchase such Other Securities,
then, in each such case the Purchase Price in effect thereafter
----
shall be determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, of which the numerator
shall be the total number of outstanding shares of Common Stock
multiplied by the current Market Price per share of Common Stock
on the record date mentioned below, less the Fair Value of the
Other Securities, assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the
denominator shall be the total number of outstanding shares of
Common Stock multiplied by such current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) No adjustment of the Purchase Price shall be made if
the amount of such adjustment shall be less than one hundredth of
one cent per share, but 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, which, together with any adjustment so
carried forward, shall amount to not less than one hundredth of
one cent per share. In case the Company shall at any time issue
Common Stock by way of dividend on any stock of the Company or
subdivide or combine the outstanding shares of the Common Stock,
said amount of one hundredth of one cent per share (as
theretofore increased or decreased, if the same amount shall have
been adjusted in accordance with the provisions of this
subparagraph) shall forthwith be proportionately increased in the
case of a combination or decreased in the case of such a
subdivision or stock dividend so as appropriately to reflect the
same.
5.2 Upon each adjustment of the Purchase Price pursuant to
Section 5.1, the number of shares of Common Stock purchasable upon exercise
-----------
of this Warrant shall be adjusted to the number of shares of Common Stock,
calculated to the nearest one hundredth of a share, obtained by multiplying
the number of shares of Common Stock purchasable immediately prior to such
adjustment upon the exercise of this Warrant by the Purchase Price in
effect prior to such adjustment and dividing the product so obtained by the
new Purchase Price.
5.3 (a) Upon the sale or issuance of shares of Common Stock
upon the exercise of any of the Options described on Exhibit A hereto or
---------
the conversion or exchange of any of the Convertible Securities described
on Exhibit A hereto (collectively, the "Existing Options and Convertible
---------
Securities"), the number of shares of Common Stock purchasable upon the
exercise of this Warrant shall be increased so that the total percentage of
all outstanding shares of Common Stock on a fully diluted basis represented
by shares of Common Stock (a) purchasable upon the exercise of this
Warrant, plus (b) the number of shares previously purchased upon the
exercise(s) of this Warrant, plus (c) the Base Shares (as defined below),
shall be the same immediately before and after any such issuance. The term
"Base Shares" shall mean 1,000,000 shares of Common Stock.
(b) The Purchase Price in effect immediately prior to any such
sale or issuance shall be adjusted proportionately so that the adjusted
Purchase Price will be equal to (x) the product of the Purchase Price
immediately prior to such event and the number of shares of Common Stock
purchasable by the holder hereof upon the exercise of this Warrant
immediately prior to such event, divided by (y) the number of shares of
Common Stock purchasable by the holder hereof upon the exercise of this
Warrant immediately after such event.
(c) Examples of the effect of Sections 5.3(a) and (b) are set
forth, for illustration purposes only, on Exhibit B hereto.
---------
5.4 In case of any capital reorganization of the Company, or of
any reclassification of the Common Stock, this Warrant shall be exercisable
after such capital reorganization or reclassification upon the terms and
conditions specified in this Warrant, for the number of shares of stock or
other securities which the Common Stock issuable (at the time of such
capital reorganization or reclassification) upon the full exercise of this
Warrant would have been entitled to receive upon such capital
reorganization or reclassification if such exercise had taken place
immediately prior to such action. The subdivision or combination of shares
of Common Stock at any time outstanding into a greater or lesser number of
shares of Common Stock shall not be deemed to be a reclassification of the
Common Stock of the Company for the purposes of this Section 5.3.
-----------
5.5 Whenever the Purchase Price is adjusted as herein provided,
the Company shall compute the adjusted Purchase Price in accordance with
Section 5.1 and shall prepare a certificate signed by its Chairman of the
-----------
Board, President or Vice President and its chief financial officer setting
forth the adjusted Purchase Price and shall state the effective date of the
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, and showing in
reasonable detail the method of such adjustment and the fact requiring the
adjustment and upon which such calculation is based, and such certificate
shall forthwith be forwarded to the holder of this Warrant within 30 days
after the event giving rise to such event.
5.6 The form of this Warrant need not be changed because of any
change in the Purchase Price pursuant to Section 5 and any Warrant issued
---------
after such change may state the same Purchase Price and the same number of
shares of Common Stock as are stated in this Warrant.
6. Other Notices; Adjustment for Reorganization Consolidation,
-----------------------------------------------------------
Merger, Etc.:
------------
If at any time:
(a) the Company shall propose to declare any cash dividend upon
its Stock;
(b) the Company shall propose to declare or make any dividend or
other distribution to the holders of its Common Stock, whether in cash,
property or other securities;
(c) the Company shall propose to effect any reorganization or
reclassification of the capital stock of the Company or any consolidation
or merger of the Company with or into another corporation or any sale,
lease or conveyance of all or substantially all of the assets of the
Company; or
(d) the Company shall propose to effect a voluntary or
involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by
certified or registered mail, postage prepaid, addressed to the holder of
this Warrant at the address of such holder as shown on the books of the
Company, (i) at least 30 days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend or distribution or for determining rights to vote in respect of
any such reorganization, reclassification, consolidation, merger, sale,
lease, conveyance, dissolution, liquidation or winding-up, and (ii) in the
case of any such reorganization, reclassification, consolidation, merger,
sale, lease, conveyance, dissolution, liquidation or winding-up, at least
30 days' written notice of the date when the same shall take place. Upon
receipt of a notice of an event described in clauses (a) through (d), the
holder of this Warrant may, at its option, exercise this Warrant in whole
or in part. Upon the occurrence of an event described in clause (c), the
holder of this Warrant shall be entitled thereafter to receive upon
exercise of this Warrant the kind and amount of shares of stock or other
securities or assets which the holder would have been entitled to receive
after the occurrence of such event had this Warrant been exercised
immediately prior to such event; and in any such case, appropriate
provision shall be made with respect to the rights and interests of the
holder to the end that the provisions of this Warrant (including, without
limitation, provisions with respect to changes in and adjustments of the
Purchase Price and the number of shares purchasable upon the exercise of
this Warrant) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, or other securities or assets, thereafter
deliverable upon the exercise of this Warrant. The Company will not effect
any of the transactions described in clause (c) above unless, prior to the
consummation thereof, each person (other than the Company) that may be
required to deliver any cash, stock, securities or other assets upon the
exercise of this Warrant as provided herein shall assume, by written
instrument delivered to, and reasonably satisfactory to, the holder of this
Warrant, (x) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of any such transaction, such
assumption shall be in addition to, and shall not release the Company from,
any continuing obligations of the Company under this Warrant) and (y) the
obligation to deliver to such holder such cash, stock, securities or other
assets as such holder may be entitled to receive in accordance with the
provisions of Sections 5 and 6. The provisions of this Section 6 shall
---------------- ---------
similarly apply to successive transactions.
6.1 Dissolution. Except as otherwise expressly provided in
-----------
Section 6.1, in the event of any dissolution of the Company following the
-----------
transfer of all or substantially all of its properties or assets, the
Company, prior to such dissolution, shall at its expense deliver or cause
to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holder of this Warrant after the
effective date of such dissolution pursuant to this Section 6 to a bank or
---------
trust company having its principal office in the State of New York or the
State of Delaware, as trustee for the holder of this Warrant.
6.2 Continuation of Terms. Except as otherwise expressly
---------------------
provided in Section 6.1, upon any reorganization, consolidation, merger or
-----------
transfer (and any dissolution following any transfer) referred to in this
Section 6, this Warrant shall continue in full force and effect and the
---------
terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case
may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the
Company.
7. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its certificate of incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant to be observed or performed by it, but
will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) will not increase the par value of any
shares of stock receivable on the exercise of this Warrant, or permit such
par value to be, above the amount payable therefor on such exercise, (b)
will at all times reserve and keep available out of its authorized capital
stock, solely for the purpose of issue upon exercise of this Warrant as
herein provided, such number of shares of Common Stock and Other Securities
as shall then be issuable upon exercise of this Warrant in full and shall
take all such action as may be necessary or appropriate in order that all
shares of Common Stock and Other Securities that shall be so issuable shall
be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, (c) will
not effect a subdivision or split up of shares or similar transaction with
respect to any class of the Common Stock without effecting an equivalent
transaction with respect to all other classes of Common Stock, and (d) will
not issue any capital stock of any class which is preferred as to dividends
or as to the distribution of assets upon voluntary or involuntary
dissolution, liquidation or winding up, unless the rights of the holders
thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of
assets. If any event shall occur as to which the provisions of Sections
--------
5, 6 and 7 hereof shall not be strictly applicable, but with respect to
----------
which the failure to make any adjustment to the Purchase Price and the
number of shares purchasable upon exercise of this Warrant would not fairly
protect the purchase rights represented by this Warrant in accordance with
the intent and principles of Sections 5, 6 and 7 upon request of the holder
-------------------
of this Warrant, the Company shall appoint a firm of independent public
accountants reasonably acceptable to the holder of this Warrant which shall
give its opinion upon the adjustments, if any, consistent with the intent
and principles established in Sections 5, 6 and 7, necessary to preserve
-------------------
without dilution the purchase rights represented by this Warrant. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described
therein.
8. Accountant's Certificate as to Adjustments. In case there is any
------------------------------------------
bona fide dispute regarding any adjustment or readjustment in the Shares
issuable on the exercise of this Warrant, the Company at its expense will
promptly cause independent certified public accountants of recognized
standing selected by the Company (and not objected to by the holders of
25% or more of the Shares) to compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including a statement of
(a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or
deemed to have been issued or sold, (b) the number of shares of Common
Stock (or Other Securities) outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect and number and type of Shares for which
this Warrant was exercisable immediately prior to such issue or sale and as
each is adjusted and readjusted on account thereof. The Company will
forthwith mail a copy of each such certificate to the holder of this
Warrant, and will, on the written request at any time of such holder,
furnish to such holder a like certificate setting forth the Purchase Price
and the number and type of Shares at the time in effect and showing how it
was calculated.
9. Reporting Requirements. Prior to the exercise or expiration of
----------------------
the right to exercise this Warrant, the Company shall furnish to such
holder simultaneously with the first transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange Commission or with
any securities exchange on which any of the Company's securities are then
listed, and copies of all press releases and other statements made
available generally by the Company to the public concerning material
developments in the Company's business; and with reasonable promptness,
such other information and financial data concerning the Company and its
subsidiaries and affiliates as any person entitled to receive information
under this Section 9 may reasonably request. The Company shall permit the
---------
holder of this Warrant, or agents thereof, at any reasonable time and from
time to time to examine and make copies of and extracts from the records
and books of account of, and visit the properties of, the Company and any
of its subsidiaries, and to discuss the affairs, finances, and accounts of
the Company and any of the subsidiaries with any of their officers or
directors and independent accountants.
10. Exchange of Warrants. On surrender for exchange of this Warrant,
--------------------
properly endorsed, to the Company, the Company at its expense will issue
and deliver to or (subject to Section 2) on the order of the holder thereof
---------
a new Warrant or Warrants of like tenor, in the name of such holder or as
such holder (on payment by such holder or any applicable transfer taxes)
may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of this
Warrant so surrendered.
11. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant and, in the case of any such loss, theft or destruction of
this Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
12. Stamp and Transfer Taxes, etc. The Company agrees to pay any and
-----------------------------
all stamp, transfer and other similar taxes payable or determined to be
payable in connection with the original issuance of this Warrant.
13. Warrant Agent. The Company may, by written notice to the holder
-------------
of this Warrant, appoint an agent having an office in New York, New York,
for the purpose of issuing Shares on the exercise of this Warrant pursuant
to Section 3, exchanging this Warrant pursuant to Section 10, and replacing
---------
this Warrant pursuant to Section 11, or any of the foregoing, and
----------
thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
14. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of
this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
15. Required Registration. After receipt of a written request from
---------------------
the holders of Registrable Securities representing at least an aggregate of
ten percent (10%) of the total of all Registrable Securities then
outstanding, requesting that the Company effect the registration of
Registrable Securities under the Securities Act and specifying the intended
method or methods of disposition thereof, the Company shall promptly notify
all holders of Registrable Securities in writing of the receipt of such
request and each such holder, in lieu of exercising its rights under
Section 16 may elect (by written notice sent to the Company within ten
----------
Business Days from the date of such holder's receipt of the aforementioned
Company's notice) to have Registrable Securities, together with all
other shares of Common Stock owned by such holders (collectively, the
"Registrable Securities"), included in such registration thereof pursuant
----------- ----------
to this Section 15. Thereupon the Company shall, as expeditiously as is
----------
possible, use its best efforts to effect the registration under the
Securities Act of all shares of Registrable Securities which the Company
has been so requested to register by such holders for sale, all to the
extent required to permit the disposition (in accordance with the intended
method or methods thereof, as aforesaid) of the Registrable Securities so
registered; provided, however, that the Company shall not be required to
-------- -------
effect more than three (3) registrations of any Registrable Securities
pursuant to this Section 15, unless the Company shall be eligible to file a
----------
registration statement on Form S-3 (or other comparable short form) under
the Securities Act, in which event there shall be no limit on the number of
such registrations pursuant to this Section 15.
----------
16. Incidental Registration. If the Company at any time proposes to
-----------------------
file on its behalf and/or on behalf of any of its security holders ("the
---
demanding security holders") a Registration Statement under the Securities
--------------------------
Act on any form (other than a Registration Statement on Form S-4 or S-8 or
any successor form for securities to be offered in a transaction of the
type referred to in Rule 145 under the Securities Act or to employees of
the Company pursuant to any employee benefit plan, respectively) for the
general registration of securities to be sold for cash with respect to its
Common Stock or any other class of equity security (as defined in Section
3(a)(11) of the Exchange Act) of the Company, it will give written notice
to all holders of Registrable Securities at least 60 days before the
initial filing with the Commission of such Registration Statement, which
notice shall set forth the intended method of disposition of the securities
proposed to be registered by the Company. The notice shall offer to
include in such filing the aggregate number of shares of Registrable
Securities as such holders may request. Each holder of any such
Registrable Securities desiring to have Registrable Securities registered
under this Section 16 (each a "registering holder") shall advise the
---------- ------------------
Company in writing within thirty (30) days after the date of receipt of
such offer from the Company, setting forth the amount of such Registrable
Securities for which registration is requested. The Company shall
thereupon include in such filing the number of shares of Registrable
Securities for which registration is so requested, subject to the next
sentence, and shall use its best efforts to effect registration under the
Securities Act of such shares. If the managing underwriter of a proposed
public offering shall advise the Company in writing that, in its opinion,
the distribution of the Registrable Securities requested to be included in
the registration concurrently with the securities being registered by the
Company or such demanding security holder would materially and adversely
affect the distribution of such securities by the Company or such demanding
security holder, then the Company and the demanding security holders and
the registering holders (collectively, "selling security holders") shall
------------------------
reduce the amount of securities each intended to distribute through such
offering on a pro rata basis; provided, however, that if the Company
-------- -------
initially proposed to file a registration statement with respect to Common
Stock that it has elected to issue or sell in connection with a conversion
of the Existing Convertible Securities described on Exhibit C hereto, and
---------
in connection with such conversion the Company is required to file a
registration statement because no applicable exemption from the Securities
Act is available, then all selling security holders except the holders of
such Common Stock shall reduce the amount of securities each intended to
distribute through such offering on a pro rata basis.
17. Registration Procedures. If the Company is required by the
-----------------------
provisions of Section 15 or 16 to use its best efforts to effect the
----------------
registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause
such Registration Statement to become and remain effective for a period of
time required for the disposition of such securities by the holders
thereof, but not to exceed 180 days; provided that before filing such
-------- ----
registration statement, the Company will furnish to the selling security
holders copies of all such documents proposed to be filed;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities covered by
such Registration Statement until the earlier of such time as all of such
securities have been disposed of in a public offering or the expiration of
180 days; provided that before filing such amendments and supplements, the
-------- ----
Company will furnish to the selling security holders copies of ail such
documents proposed to be filed;
(c) furnish to all selling security holders such number of
copies of the Registration Statement (together, with all such amendments
thereto) and the summary or each other prospectus, including each
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such selling security holders
may reasonably request;
(d) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or blue
sky laws of such jurisdictions within the United States and Puerto Rico as
each holder of such securities shall request (provided, however, that the
-------- -------
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then
qualified or to file any general consent to service or process), and do
such other reasonable acts and things as may be required of it to enable
such holder to consummate the disposition in such jurisdiction of the
securities covered by such Registration Statement;
(e) notify each holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing;
(f) notify each holder of Registrable Securities covered by such
registration statement and such holder's underwriters, if any, and confirm
such advice in writing: (i) when the registration statement has become
effective, (ii) when any post-effective amendment to the registration
statement becomes effective and (iii) of any request by the Commission for
any amendment or supplement to the Registration Statement or prospectus or
for additional information;
(g) notify each holder of Registrable Securities if at any time
the Commission should institute or threaten to institute any proceedings
for the purpose of issuing, or should issue, a stop order suspending the
effectiveness of the Registration Statement. Upon the occurrence of any of
the events mentioned in the preceding sentence, the Company will use
diligent efforts to prevent the issuance of any such stop order or to
obtain the withdrawal thereof as soon as possible. The Company will advise
each holder of Registrable Securities promptly of any order or
communication of any public board or body addressed to the Company
suspending or threatening to suspend the qualification of any Registrable
Securities for sale in any jurisdiction;
(h) furnish, at the request of any holder requesting
registration of Registrable Securities pursuant to Section 15, on the date
----------
that such shares of Registrable Securities are delivered to the
underwriters for sale pursuant to such registration or, if such Registrable
Securities are not being sold through underwriters, on the date that the
Registration Statement with respect to such shares of Registrable
Securities becomes effective, (1) an opinion, dated such date, of the
independent counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and if such
Registrable Securities are not being sold through underwriters, then to the
holders making such request, in customary form and covering matters of the
type customarily covered in such legal opinions; and (2) a comfort letter
dated such date, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and if such Registrable
Securities are not being sold through underwriters, then to the holder
making such request in a customary form and covering matters of the type
customarily covered by such comfort letters and as the underwriters or such
holder shall reasonably request and, if such securities are being sold
through underwriters, a reaffirmation of such letter on the date that such
Registrable Securities are delivered to the underwriters for sale. Such
opinion of counsel shall additionally cover such other legal matters with
respect to the registration in respect of which such opinion is being given
as such holders of Registrable Securities may reasonably request. Such
letter from the independent certified public accountants shall additionally
cover such other financial matters (including information as to the period
ending not more than five (5) Business Days prior to the date of such
letter) with respect to the registration in respect of which such letter is
being given as the holders holding a majority of the Registrable Securities
being so registered may reasonably request;
(i) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Securities; and
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders (as understood under Rule 158 of the Securities Act), as soon as
reasonably practicable, but not later than sixteen (16) months after the
effective date of the Registration Statement, an earning statement covering
the period of at least twelve (12) months beginning with the first full
month after the effective date of such Registration Statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act.
(k) It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Agreement in respect of the
securities which are to be registered at the request of any holder of
Registrable Securities that such holder shall furnish to the Company such
information regarding the securities held by such holder and the intended
method of disposition thereof as the Company shall reasonably request and
as shall be required in connection with the action taken by the Company. If
any Registration Statement or comparable statement under the Securities
Act refers to any registering holder or any of its affiliates, by name or
otherwise, as the holder of any securities of the Company then, unless
counsel to the Company advises the Company that the Securities Act requires
that such reference be included in any such statement, each such holder
shall have the right to require the deletion of such reference to itself
and its affiliates.
18. Registration Expenses. All expenses incurred in complying with
---------------------
Sections 15, 16 and 17 of this Agreement, including, without limitation,
----------------------
all registration and filing fees (including all expenses incident to filing
with the NASD), printing expenses, fees and disbursements of counsel for
the Company, the reasonable fees and expenses of counsel for the selling
security holders (selected by those holding a majority of the shares being
registered), expenses of any special audits incident to or required by any
such registration and expenses of complying with the securities or blue sky
laws of any jurisdictions pursuant to Section 4(d), shall be paid by the
Company, except that:
(a) all such expenses in connection with any amendment or
supplement to the Registration Statement or prospectus filed more than 180
days after the effective date of such Registration Statement solely because
any holder of Registrable Securities has not effected the disposition of
the securities requested to be registered shall be paid by such holder; and
(b) the Company shall not be liable for any fees, discounts or
commissions to any underwriter or any fees or disbursements of counsel for
any underwriter in respect of the securities sold by such holder of
Registrable Securities.
19. Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, the Company
shall indemnify and hold harmless the holder of such Registrable
Securities, such holder's directors and officers, and each other Person
(including each underwriter) who participated in the offering of such
Registrable Securities and each other Person, if any, who controls such
holder or such participating Person within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several,
to which such holder or any such director or officer or participating
Person or controlling Person may become subject under the Securities Act or
any other statute or at common law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any alleged untrue statement of any material fact contained, on
the effective date thereof, in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or (ii) any alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and shall reimburse such holder or such director,
officer or participating Person or controlling Person for any legal or any
other expenses reasonably incurred by such holder or such director, officer
or participating Person or controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such
-------- -------
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus or
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such holder specifically for use
therein or (in the case of any registration pursuant to Section 15) so
----------
furnished for such purposes by any underwriter. Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of such holder or such director, officer or participating Person
or controlling Person, and shall survive the transfer of such securities by
such holder.
(b) Each holder of any Registrable Securities, by acceptance
thereof, agrees to indemnify and hold harmless the Company, its directors
and officers and each other Person, if any, who controls the Company within
the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director or
officer or any such Person may become subject under the Securities Act or
any other statute or at common law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based
upon information in writing provided to the Company by such holder of such
Registrable Securities specifically for use in the following documents and
contained, on the effective date thereof, in any Registration Statement
under which securities were registered under the Securities Act at the
request of such holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto.
(c) If the indemnification provided for in this Section 19 from
----------
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties in connection with
the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 19(c) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
20. Certain Limitations on Registration Rights. Notwithstanding the
------------------------------------------
other provisions of this Agreement, the Company shall not be obligated to
register the Registrable Securities of any holder pursuant to Section 15,
----------
if the Company has had a registration statement, under which such holder
had a right to have its Registrable Securities included pursuant to Section
-------
15 or 16, declared effective within one year prior to the date of the
--------
request pursuant to Section 15; provided, however, that if any holder
---------- -------- -------
elected to have shares of its Registrable Securities included under such
registration statement but some or all of such shares were excluded
pursuant to the penultimate sentence of Section 16, then such one-year
----------
period shall be reduced to six (6) months.
21. Selection of Managing Underwriters. The managing underwriter or
----------------------------------
underwriters for any offering of Registrable Securities to be registered
pursuant to Section 15 shall be selected by the holders of a majority of
----------
the shares being so registered (other than any shares being registered
pursuant to Section 16) and shall be reasonably acceptable to the Company.
----------
22. No Inconsistent Agreements. The Company will not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Securities in this
Warrant. The Company has not previously entered into any agreement with
respect to any of its securities granting any registration rights to any
Person, other than registration rights granted in respect of this Warrant,
the Shares and those agreements set forth on Schedule 22 annexed hereto.
23. Remedies. Each holder of Registrable Securities, in addition to
--------
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate. In
any action or proceeding brought to enforce any provision of this Agreement
or where any provision hereof is validly asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys' fees in
addition to any other available remedy.
24. Negotiability, Etc. This Warrant is issued upon the following
-------------------
terms, to all of which the holder hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred by endorsement (by
the holder hereof executing the form of assignment at the end hereof) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or owner
waives and renounces all of his equities or rights in this Warrant in favor
of each such bona fide purchaser, and each such bona fide purchaser shall
acquire absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
25. No Voting Rights; Limitation of Liability. Nothing contained in
-----------------------------------------
this Warrant shall be construed as conferring upon the holder hereof the
right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of the
Company or any other matters or any rights whatsoever as a stockholder of
the Company. No provisions hereof, in the absence of affirmative action by
the holder to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to
any liability of such holder for the Purchase Price or as a shareholder of
the Company whether such liability is asserted by the Company or by its
creditors.
26. Notices. Except as otherwise provided herein, whenever it is
-------
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by another, or whenever any of the parties desires to
give or serve upon another any communication with respect to this
Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed
given only if (i) delivered in person, or (ii) sent by Federal Express or
nationally recognized overnight courier service, and addressed as follows:
1. If to the holder of this Warrant, at its address as
shown on the books of the Company
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway New York, New York 10036
Attn: Herbert T. Weinstein, Esq.
2. If to Company, at:
DVL, Inc.
24 River Road
Bogota, New Jersey 07603
Attn: President
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication
hereunder shall be deemed effective upon receipt.
27. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant is being delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
its laws. The headings in this Warrant are for purposes of reference only,
and shall not limit or otherwise affect any of the terms hereof. This
Warrant is being executed as an instrument under seal. All nouns and
pronouns used herein shall be deemed to refer to the masculine, feminine or
neuter, as the identity of the person or persons to whom reference is made
herein may require.
28. Expiration. The right to exercise this Warrant shall expire at
----------
5:00 P.M., New York time, on December 31, 2007.
Dated: DVL, INC., a Delaware corporation
(Corporate Seal) By:__________________________
Its
Attest:
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To:______________________________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder,
__________________________ (______) shares of Common Stock, par value
[$.__] per share (the "Stock"), of DVL, Inc. (the "Company") and herewith
makes payment of ____________________ Dollars ($______) therefor and
requests that the certificates for such shares be issued in the name of,
and delivered to, _________________________________________________
_____________________________________________________________, whose
address is
____________________________________________.
The undersigned represents, unless the exercise of this Warrant
has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), that the undersigned is acquiring such Stock for his own
account for investment and not with a view to or for sale in connection
with any distribution thereof (except for any resale pursuant to a
Registration Statement under the Securities Act).
DATED: _______________
______________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
______________________________________________________
______________________________________________________
(Address)
<PAGE>
EXHIBIT G
[Duff & Phelps Capital Markets Co. letterhead]
March 27, 1996
Board of Directors
DVL, Inc.
24 River Road
Bogota, NJ 07603
National Financial Corporation
1 Park Avenue
New York, NY 10016
Attn: Mr. Lawrence J. Cohen
Dear Gentlemen:
Duff & Phelps Capital Markets Co. ("Duff & Phelps") has been
retained as independent financial advisor to provide an opinion
(the "Opinion") as to whether, as of the date hereof, the
exercise price of the warrants to be issued by DVL, Inc. ("DVL"
or the "Company") in connection with a proposed transaction (the
"Warrants") of $0.16 per share is greater than the fair market
value of the underlying stock specific to the Warrants on such
date. The proposed transaction is described more fully in the
Loan Agreement, Stock Purchase Agreement, Securities Purchase
Agreement, and the Form of Common Stock Warrant. Previously,
Duff & Phelps has not provided any professional services to
National Financial Corporation ("NFC") or the Company.
Scope of Analysis
-----------------
In conducting our analysis and arriving at our Opinion, we have
reviewed and analyzed, among other things: (1) the Securities
Purchase Agreement, dated as of March 27, 1996, between the
Company and PNO Joint Venture; (2) the Stock Purchase Agreement
dated as of March 27, 1996 between the Company and PNO Joint
Venture; (3) the Form of Common Stock Warrant, dated as of
March 27, 1996; (4) the Loan Agreement, dated as of March 15,
1996, between the Company and NPM Capital LLC; (5) audited
financial statements for the Company for the three years ended
December 31, 1994; (6) unaudited interim financial statements for
the year ended December 31, 1995; (7) Form 10-K filed with the
Securities and Exchange Commission ("SEC") for the year ended
December 31, 1994 and a draft of Form 10-K filed with the SEC for
the year ended December 31, 1995; (8) Form 10-Q filed with the
SEC for the three months ended September 30, 1995; (9) Documents
relating to the settlement of the In re Kenbee Limited
Partnerships Litigation,
<PAGE>
DVL, Inc.
National Financial Corporation
March 27, 1996
Page 2
the settlement of the In re Del-Val Financial Corp. Securities
Litigation, and the various other settlement agreements of loans
and litigation to which the Company is a party; (10) conditions
and trends with respect to the markets where the Company has
operated and currently operates; (11) publicly available
information concerning other companies deemed comparable, in
whole or in part, to the Company; and (12) such other documents,
financial studies and analyses deemed appropriate by Duff &
Phelps.
As background for its analysis, Duff & Phelps held discussions
with members of the senior management of the Company, NFC, and an
affiliate of NFC regarding the history, current business
operations, financial condition, future prospects and strategic
objectives of the Company.
Assumptions and Reliances
-------------------------
In performing its analysis and rendering its Opinion, Duff &
Phelps relied upon the accuracy and completeness of all
information provided to it, whether obtained from public or
private sources, and did not attempt to independently verify any
such information. Duff & Phelps also took into account its
assessment of general economic, market and financial conditions
as well as its experience in securities and business valuation,
in general, and with respect to similar transactions, in
particular. Duff & Phelps did not make any independent
appraisals of the assets or liabilities of the Company.
Duff & Phelps has prepared its Opinion effective as of March 27,
1996. Its Opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be evaluated
as of such date.
We understand that the Company may refer to, summarize and/or
publish the Opinion in whole or in party, in connection with
certain filings to be made with the SEC and in certain materials
to be distributed to the Company's shareholders. Duff & Phelps
shall have the right to review and to comment on that portion of
any such materials that refer to its Opinion.
Conclusion
----------
Based upon and subject to the foregoing, Duff & Phelps is of the
opinion that as of the date hereof, the exercise price of the
Warrants of $0.16 per share is greater than the fair market value
of the underlying stock specific to the Warrants on such date.
Respectfully submitted,
/s/ Duff & Phelps Capital Markets Co.
Duff & Phelps Capital Markets Co.
<PAGE>
EXHIBIT H
DRAFT
ANALYSIS OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS AFFECTING
THE COMPANY'S NET OPERATING LOSSES
The following is an analysis concerning the potential
application of Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code") with respect to the Company's net
operating losses ("NOLs") as a result of the Company entering
into the Loan Agreement and the Asset Servicing Agreement, the
purchase by NPM Capital of Warrants and Preferred Stock, the
purchase by NPO Holdings of Common Stock and Warrants, and the
amendment to the Certificate of Incorporation (the "Loan
Transaction"). This analysis does not discuss the application of
Code Section 382 to transactions that occurred prior to the date
hereof or to transactions other than the Loan Transaction. For
purposes of this analysis, NPM Capital, NPO Management, NPO
Holdings and their respective affiliates are hereinafter referred
to as the "Lender Entities."
This analysis is based on federal income tax law in effect
as of the date of this Proxy Statement, which law is comprised of
the current provisions of the Code, existing and proposed
treasury regulations promulgated thereunder ("Treasury
Regulations"), and current administrative rulings and court
decisions, all of which are subject to change. Existing
statutory, judicial, or administrative authority under Code
Section 382 is, generally, uncertain in many respects and such
authority does not directly address many of the aspects of the
Loan Transaction. Consequently, as discussed more fully below,
the application of Code Section 382 to the Loan Transaction is
not certain. No advance income tax ruling has been sought or
obtained from the Internal Revenue Service (the "IRS") regarding
the federal income tax consequences of any of the transactions
described herein.
This analysis is also based upon certain factual
representations made by the Company and the following factual
assumptions:
1. Except for the Common Stock, the Preferred Stock and
Warrants to be issued pursuant to the Loan Transaction, (i) the
Lender Entities do not own, directly or indirectly (taking into
account all family members, all entities or persons who are
related to the Lender Entities pursuant to section 267(b) or
707(b) of the Code, and affiliates and unaffiliated associates
who are acting in concert (the "Affiliates")) any additional
Common Stock or options to acquire such Common Stock, and (ii)
the Lender Entities and the Affiliates do not intend to purchase
additional shares of Common Stock.
2. The Lender Entities (and/or each of their respective
members or Affiliates) have no formal or informal agreement with
any other stockholder of the Company as to voting for members of
the Board of Directors. Further, no current member of the Board
of Directors is and no member to be elected pursuant to the Proxy
Statement, dated July ., 1996 (excluding for his purpose, the
member of the Board of Directors to be elected by the holders of
the Preferred Stock) will act as nominee or agent of any
stockholder group, including for this purpose the Lender
Entities.
3. The services rendered under the Asset Services
Agreement by NPO Management are services that the
principals/entities of NPO Management have rendered, and are
currently rendering, in the ordinary course of their business to
third parties, many of which, members of NPO Management and its
Affiliates have no beneficial interest.
4. The compensation to be paid NPO Management for its
services under the Asset Services Agreement constitutes
reasonable compensation for such services.
5. The term of the Asset Services Agreement and the
termination provisions therein are in all material respects
substantially consistent with the terms usually found in
comparable outsourcing agreements entered into by similar service
providers under similar circumstances.
6. The Preferred Stock, the limited voting power of the
Director chosen by the holder of the Preferred Stock, and the
terms of the Preferred Stock were solely designed to protect the
Lender Entities as creditors.
Some of such factual representations and assumptions involve
matters of interpretation which, if not correct in all material
respects, would require the analysis set forth herein to be
modified and, possibly, any favorable conclusions set forth
herein to be altered.
COUNSEL'S OPINION
Subject to the analysis, qualifications, risks and
conclusions contained herein, it is the opinion of Reid & Priest
LLP, counsel to the Company ("Counsel"), that the Loan
Transaction should not subject the Company's NOLs to an annual
limitation under Code Section 382, although such opinion may be
subject to challenge. Counsel's opinion set forth above is based
on a reasoned analysis because, as noted above, existing
authority does not directly address many of the aspects of the
Loan Transaction and, the authority under Code Section 382 is in
many other respects uncertain. Further, Counsel's reasoning (and
ultimate conclusions derived therefrom) relies upon the accuracy
of certain factual representations and assumptions, some of which
are set forth herein, and a number of which involve matters that
are subject to interpretation, which interpretation may be
challenged. As a consequence, the IRS could disagree with
Counsel's reasoning and assert that Code Section 382 is
applicable to the Company to limit the utilization of the
Company's NOLs based on a different interpretation of the tax law
in this uncertain area or based on a different interpretation of
the facts.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
REVIEW THE ANALYSIS SET FORTH BELOW AND WEIGH THE BUSINESS
BENEFITS TO THE COMPANY OF THE LOAN TRANSACTION AGAINST THE
FEDERAL INCOME TAX RISKS TO THE COMPANY RELATED TO THE POSSIBLE
LIMITATION ON THE COMPANY'S UTILIZATION OF ITS NOLS IF THE
COMPANY SHOULD GENERATE TAXABLE INCOME SUFFICIENT TO ABSORB PART,
OR ALL OF SUCH NOLS, NOTED BELOW. SEE DESCRIPTION UNDER
"PROPOSAL NO. 2." IF THE IRS SHOULD CHALLENGE THE ABOVE-NOTED
ANALYSIS AND PREVAIL, THEN THE ABILITY OF THE COMPANY TO UTILIZE
ITS NOLS WILL BE SUBSTANTIALLY LOST WHICH, IN TURN, MAY
SIGNIFICANTLY IMPAIR THE VALUE OF THE COMPANY'S COMMON STOCK. NO
AUDIT BY THE IRS OF THE LOAN TRANSACTION CAN CREATE OR RESULT IN
ANY TAX LIABILITY TO ANY STOCKHOLDER.
THE RULES UNDER CODE SECTION 382
1. General Rules
-------------
In general, Code Section 382 limits the amount of NOLs a
corporation may use to offset its income in any year following an
"ownership change" (as described below) to the product of the
fair market value of the corporation's outstanding stock
immediately before the ownership change and a rate published
monthly by the Treasury Department which is intended to represent
current interest rates on long-term tax-exempt debt obligations.
The current Treasury Department Rate is . percent. An "ownership
change" occurs under Code Section 382 if the percentage of stock
of the corporation owned actually or constructively by one or
more "5-percent Shareholders" increases by more than 50
percentage points relative to the lowest percentage of stock of
the corporation owned by those 5-percent Shareholders at any time
during the statutory "testing period" (generally, the past three
years). A "5-percent Shareholder" is a person who, at any time
during the testing period, owns at least five percent of the
stock of the corporation (not including certain nonvoting,
nonparticipating preferred stock), and all stock owned by
shareholders who are not 5-percent Shareholders (hereinafter
referred to as "public Shareholders") is generally treated as
being owned by one 5-percent Shareholder.
2. Definition of Stock
-------------------
For purposes of Code Section 382, "stock" means stock other
than stock described under Code Section 1504(a)(4), which refers
to stock that is not entitled to vote, is limited and preferred
as to dividends and does not participate in corporate growth to
any significant extent, has redemption and liquidation rights
that do not exceed the issue price of such stock (except for a
reasonable redemption or liquidation premium), and is not
convertible into another class of stock. The determination of
the percentage of stock of any corporation owned by any person
shall be made on the basis of the relative fair market value of
the stock owned by such person to the total fair market value of
the outstanding stock of the corporation.
Pursuant to Treasury Regulations, interests (other than
options) that are not "stock" can be treated as stock for
purposes of Code Section 382, if, among other requirements, as of
the date of issuance to a 5-percent Shareholder (or person who
would be a 5-percent Shareholder if the interest not constituting
stock were treated as stock), such interest offers a potential
significant participation in the growth of the corporation.
While there is no published authority as to what constitutes an
interest that "offers a potential significant participation in
the growth of the corporation," the legislative history relating
to an analogous part of Code Section 382 concerning excluded
preferred stock suggests that a "potential significant
participation" exists where the interest earns income at a rate
materially in excess of a market rate, and does not in any way
suggest that "participation" should be measured with reference to
the earnings of the corporation. See H.R. Rep. No. 841 (Conf.),
---
99th Cong., 2d Sess. at II-173 (1986). However, in commenting on
the lack of clarity in this language, the New York State Bar
Association (Tax Section) noted the distinction between the terms
"growth" and "earnings," and suggested that the use of the former
term may mean that an open-ended participation right is required
before an interest is treated as stock. See New York State Bar
---
Association, Supplemental Report on Section 382, at 25 (February
22, 1988). In any event, the Preamble to the Treasury
Regulations clearly contemplates that under this provision, debt
of a corporation can be treated as stock. The IRS has taken the
position in Private Letter Rulings(1) that an instrument does not
significantly participate in growth provided, generally, that
such instrument can be repaid from existing assets and current
levels of earnings with respect to existing assets. In addition,
in determining that an instrument does not participate in growth
to any significant extent, the IRS has taken into account the
projected participation of the debtholder in the cumulative
taxable income of an insolvent loss corporation, although such
level of acceptable participation was not disclosed (consistent
with the Freedom of Information Act).
Based on the legislative history relating to Code Section
382, Counsel reasonably concludes that a debt obligation payable
out of current assets with an interest rate not exceeding the
market rate that would be charged to similar corporate borrowers
under similiar circumstances should not be viewed as offering a
"potential
---------------
1. Private Letter Rulings cannot be cited as precedent, but are
discussed herein to show the IRS administrative policy
concerning certain issues, which policy is subject to
change. See Code Section 6110(j)(3).
---
<PAGE>
DRAFT
significant participation in the growth of the corporation."
However, the IRS may assert that "significant participation" is
present where the lender participates in a significant percentage
of the loss corporation's cumulative income.
3. The Option Rules
----------------
For purposes of Code Section 382, an option to acquire stock
is generally not treated as exercised. For this purpose, an
option is any contingent purchase, warrant, convertible debt,
put, stock subject to a risk of forfeiture, contract to acquire
stock, or similar interest, regardless of whether it is
contingent or otherwise not currently exercisable. An option to
acquire an option with respect to stock of a loss corporation,
and each one of a series of such options, is treated as an option
to acquire such stock.
An option, however, is treated as exercised on the date of
its issuance or transfer, if on that date, the option satisfies
either the ownership test, or the control test or the income test
under Treasury Regulation Section 1.382-4. In general, the
Treasury Regulation sets forth the characteristics of the
ownership test, the control test and the income test and
thereafter sets forth certain factors that are to be taken into
account with respect to each test. An option can only satisfy
the ownership, control or income test, if the option was issued
with the principal purpose to avoid or ameliorate an ownership
change that would have occurred if the underlying stock (rather
than the option) was issued. In making this determination, all
the facts and circumstances and the enumerated factors under the
Treasury Regulations are to be taken into account. Among the
factors relevant in applying all three tests are any business
purposes for the issuance or structure of the option, the
likelihood of exercise of the option (taking into account, for
example, any contingencies to its exercise), transactions related
to the issuance or transfer of the option, and the consequences
of treating the option as exercised.
a. Ownership Test
--------------
An option satisfies the ownership test if a principal
purpose of the issuance or structuring of the option (alone or in
combination with other arrangements) is to avoid or ameliorate
the impact of an ownership change of the loss corporation by
providing the holder of the option, prior to its exercise, with
"a substantial portion of the attributes of ownership of the
underlying stock." Among the factors that are taken into account
in applying the ownership test are the relationship, at the time
of issuance of the option, between the exercise price of the
option and the value of the underlying stock, and "whether the
option provides its holder or a related person with the right to
participate in the management of the loss corporation or with
other rights that ordinarily would be afforded to owners of the
underlying stock." The ability of the holder with a fixed
exercise price to share in future appreciation of the underlying
stock is a relevant factor, but is not itself sufficient for the
option to satisfy the ownership test.
The ownership test, in effect, attempts to insure that the
purported option is in fact an option and not a contractual
arrangement that provides the holder with substantially the same
rights that a holder would have if he exercised the option and
owned the underlying stock. The factors seem to reflect this
concern by addressing whether the option (or other arrangement)
provides the holder with a right to participate in management or
with other rights afforded owners of the underlying stock. In
this regard, Counsel believes that management activities include
the principal day to day business (profit making) decisions of a
loss corporation, but do not include the provision of services
that are ministerial or "back-office" activities, or activities
that are generally provided by independent contractors. In
addition, the factors set forth in the Treasury Regulations
express concern about the value of the option. If the exercise
price of the option is well below the value of the stock, the IRS
may assert that the optionholder should be treated as the holder
of the underlying stock.
b. Control Test
------------
An option satisfies the control test if (i) a principal
purpose of the issuance or structuring of the option (alone or in
combination with other arrangements) is to avoid or ameliorate
the impact of an ownership change of the loss corporation, and
(ii) the holder of the option and any persons related to the
holder have, in the aggregate, a direct and indirect ownership
interest in the loss corporation of more than 50 percent
(determined as if the increase in such persons' percentage
ownership interest that would result from the exercise of the
option in question and any other options to acquire stock held by
such persons, and any other intended increases in such persons'
percentage ownership interest, actually occurred on the date the
option is issued). For purposes of the control test, (i) a
person includes an individual or entity, but not a public group,
as defined in Treasury Regulation Section 1.382-2T(f)(13), and
(ii) persons are related if they bear certain relationships or if
they have a formal or informal understanding among themselves to
make a coordinated acquisition of stock, within the meaning of
Treasury Regulation Section 1.382-3(a)(1)(i). A coordinated
acquisition of stock is made if the investment decision of each
member of a group is based upon the investment decision of one or
more other members. Among the additional factors that are taken
into account in applying the control test are the economic
interests of the optionholder or related persons and the
influence of these persons over the management of the loss
corporation (in either case, through the option or a related
arrangement, or through rights in stock).
The control test, in effect, attempts to insure that an
optionholder does not indirectly become a controlling person by
virtue of its substantial, actual and potential, stock position
(i.e., more than 50 percent) in the loss corporation. The
control test presumes that the optionholder with such potential
control necessarily exercises actual control over the loss
corporation. The factors set forth in the Treasury Regulation
look to the optionholders' economic interests and influence over
the management of the loss corporation. Counsel reasonably
concludes that the influence that the control test is concerned
with is the influence that would be exercised by a shareholder
that has a controlling (i.e., more than 50 percent) interest.
c. Income Test
-----------
An option satisfies the income test if a principal purpose
of the issuance, transfer or structuring of the option (alone or
in combination with other arrangements) is to avoid or ameliorate
the impact of an ownership change of the loss corporation by
facilitating the creation of income (including accelerating
income or deferring deductions) or value (including unrealized
built-in-gains) prior to the exercise or transfer of the option.
Among the additional factors that are taken into account in
applying the income test are whether, in connection with the
issuance of the option, the loss corporation engages in income
acceleration transactions or the holder of the option purchases
stock from, or makes a capital contribution or loan to, the loss
corporation that can reasonably be expected to avoid or
ameliorate the impact of an ownership change. Examples of income
acceleration transactions are those outside the ordinary course
of the loss corporation's business that accelerate income or gain
into the period prior to the exercise of the option (or defer
deductions to the period after the exercise of the option). A
stock purchase, capital contribution, or loan is more probative
toward an option satisfying the income test the larger the amount
received by the loss corporation in the transaction or related
transactions. However, a stock purchase, capital contribution,
or loan is generally not taken into account in applying the
income test if it is to enable the loss corporation to continue
basic operations of its business (e.g., to meet the monthly
payroll or fund other operating expenses of the loss
corporation).
The income test, in effect, attempts to insure that an
option is not merely a device to permit the acceleration of
income into the period prior to the exercise of the holder's
option so that the loss corporation's NOLs can be used to offset
such income without limitation. Counsel reasonably concludes,
without any direct authority, that the income test is not
satisfied and therefore options would not be treated as exercised
if the sum of the loss corporation's (i) NOLs (after the
application of Code Section 382 as if the loss corporation issued
stock on the date of the issuance of the option, and after offset
by the Company's "built-in gains" determined as of the date of
such issuance), and (ii) actual current losses, are in the
aggregate sufficient to offset any income that would be
considered to be accelerated pursuant to this test.
APPLICATION TO THE LOAN TRANSACTION
1. The Issues
----------
Pursuant to the Loan Transaction, the Company will issue
shares of the Common Stock of the Company that will constitute
seven percent of the outstanding Common Stock of the Company and
will issue Warrants that will permit the Lender Entities to own
an additional 42 percent of the outstanding Common Stock upon
exercise. The original principal amount of the Note is
anticipated to be $9,450,000. As of May 24, 1996, we have been
advised by the Company the percentage of the stock of the Company
owned by 1 or more "5-percent Shareholders" has increased by
approximately 35 percentage points over the lowest percentage of
stock of the Company owned by such shareholders at any time
during the applicable Code Section 382 testing period.
If the Warrants were treated as exercised options or if the
Note and the rights, duties and obligations under the Asset
Servicing Agreement were treated as stock, then the Company would
undergo an "ownership change" under Code Section 382. As a
result of such ownership change, the Company's utilization of its
NOLs would be dramatically and adversely affected. The Company
would be permitted to use approximately $ . million of its NOLs
each year to reduce its taxable income, instead of having, absent
the Code Section 382 limitation, $70 million of NOLs to reduce
its taxable income. Further, if an ownership change were to
occur and the annual limitation were to apply, at least . million
of the NOLs would expire unutilized. However, in assessing the
Loan Transaction, it should be kept in mind that the amount of
the Company's NOL's has not been passed upon by the IRS.
2. The Analysis
------------
This section will examine the Loan Transaction (and its
elements) under Code Section 382. This analysis assumes that the
Lender Entities are one person, because the members of such group
are acting in concert. See Treas. Reg. Section 1.382-3(a)(1)(i).
---
a. Whether the Note and Asset Servicing
Agreement are Treated as Stock
------------------------------------
The Note and the Asset Servicing Agreement reasonably should
be treated as a debt obligation and servicing arrangement,
respectively, between the Lender Entities and the Company. Such
non-stock interests are required to be treated as stock under the
Treasury Regulations if such interests "offer a potential
significant participation in the growth of the corporation," in
addition to satisfying certain other requirements. As discussed
above, there is no published authority as to what constitutes a
potential significant participation in the growth of the
corporation under the Treasury Regulations. As discussed above,
the legislative history relating to Code Section 382, discussing
the same language, makes no reference to the earnings of the
corporation and instead would suggest by analogy that the
proscribed level of participation is present where the debt being
tested earns income at a rate exceeding the market rate
applicable to similar corporate borrowers under similar
circumstances.
The Company has prepared financial projections which, based
on the Company's existing assets, reflect that the Company
reasonably anticipates retiring the principal and interest of the
Note and its obligations under the Asset Servicing Agreement
according to their terms, taking into account all other
obligations of the Company. [Furthermore, it is Counsel's
understanding that the Note provides the Lender Entities with an
internal rate of return of approximately 27 percent, which
reflects the discount on issuance of the Note.] Moreover, the
Company has represented to Counsel: (i) that the yield and other
terms of the Note (including for this purpose, the discount in
the yield) are similar to the terms that would be required by an
unrelated third-party lender under similar circumstances, (ii)
that substantially all of the assets proposed to secure the Note
currently secure the 1996 Loans or other obligations, and (iii)
that the assets proposed to secure the Note will be sufficient to
satisfy the principal and interest of the Note. The Company has
represented to Counsel that the amounts to be paid to the Lender
Entities under the Note would not, in the absence of such
arrangement, inure to the benefit of the Company's stockholders;
either the Company would have to pay the full outstanding balance
of the 1996 Loans owed to the Lenders, or in order to replace
such loans with a term obligation, the Company would have to pay
amounts under and charges related to the term obligation. The
Company has also represented to Counsel that the amounts to be
paid to the Lender Entities under and over the term of the Asset
Servicing Agreement would not, in the absence of such
arrangement, inure to the benefit of the Company's stockholders.
Therefore, based on the foregoing, it is the opinion of
Counsel that the Note and the Asset Servicing Agreement should
not be treated as stock under Treasury Regulations under Code
Section 382. The foregoing opinion, however, may be subject to
challenge in light of the lack of supporting authority and the
possibility that the IRS may assert that "significant
participation" is present where the lender participates in a
significant percentage of the loss corporation's cumulative net
income. If such analysis were applied, the Note could be treated
as stock.
b. Whether Warrants Will be Treated as Exercised
---------------------------------------------
(i) Whether the Ownership Test is Satisfied.
----------------------------------------
The Warrants do not in form provide the Lender Entities with
any of the attributes of ownership of the underlying stock. The
Lender Entities will hold Preferred Stock which will permit it to
elect a member of the Board of Directors that will vote solely on
whether Company will file voluntarily a bankruptcy petition
seeking protection from creditors or otherwise in the context of
the Company's insolvency compromise substantially all the
Company's indebtedness. Such Director will not vote on any other
matter. Counsel has received the representation from the Company
that the Preferred Stock, the limited voting power of the
Director chosen by the holder of the Preferred Stock and the term
of the Preferred Stock were solely designed to protect the Lender
Entities as creditor. Thus, the Preferred Stock is essentially a
creditor's protection. Thus, the Preferred Stock should not
reflect a voting power right indicative of ownership of more than
seven percent of the Common Stock, which is the percentage
actually owned by the Lender Entities. Based on the opinion of
Duff & Phelps, the exercise price of the Warrants will be in
excess of the fair market value of the Common Stock of the
Company. Finally, the Lender Entities will enter into an Asset
Servicing Agreement with the Company. The Company has
represented to Counsel that: (i) the principal officers of the
Company are as follows: President, Chief Financial Officer, and
General Counsel; (ii) that such principal officer positions will
after the closing of the Loan Transaction continue to make the
management decisions and exercise the same managerial authority
that was exercised prior to the closing of the Loan Transaction;
(iii) the services rendered to the Company under the Asset
Servicing Agreement are not management services, but are
administrative, "back-office" services, as well as advisory
services which are typically provided by independent contractors;
(iv) the services rendered under the Asset Servicing Agreement by
NPO Management are services that the principals/entities of NPO
Management have rendered and are currently rendering in the
ordinary course of their business to third parties; (v) the
compensation to be paid NPO Management for its services under the
Asset Servicing Agreement constitutes reasonable compensation for
such services; (vi) the term of the Asset Servicing Agreement and
the termination provisions therein are in all material respects
substantially consistent with the terms usually found in
comparable outsourcing agreements entered into by similar service
providers under similar circumstances; and (vii) the Company is
benefitting from the Asset Servicing Agreement such that the
Company would enter into such Agreement without regard to any and
all other aspects of the Loan Transaction. Based on the
foregoing, it is the opinion of Counsel that the Loan Transaction
should not satisfy the ownership test, although such opinion may
be subject to challenge.
(ii) Whether the Control Test is Satisfied
-------------------------------------
Based upon the assumption noted above, the Lender Entities
will not, taking into account its Common Stock and the Preferred
Stock, own more than 50 percent of the Company's stock upon the
exercise of the Warrants. Further, the Lender Entities will at
first only own seven percent of the outstanding Common Stock that
will be voted in the election of members of the Board of
Directors. Such ownership interest will not control the Board of
Directors. As discussed above, Counsel believes that the factors
to be taken into account under the control test are to determine
whether in fact the option holder, through other means, has the
equivalent control of a person who owns more than 50 percent
ownership interest in a loss corporation. In this regard, the
Company has represented to Counsel that the Lender Entities has
no formal or informal agreement with any other stockholder of the
Company as to voting for the members of the Board of Directors.
Finally, the Lender Entities has entered into the Asset Servicing
Agreement with the Company. As discussed above, based on
representations received by Counsel, NPO Management should not be
treated as rendering "management" type functions under such
Agreement. Based on the foregoing, it is the opinion of Counsel
that the Loan Transaction does not satisfy the control test,
although such opinion may be subject to challenge.
(iii) Whether the Income Test is Satisfied
------------------------------------
The Loan Transaction involves the purchase of certain
outstanding debts of the Company and a consolidation of such debt
obligations. Except for $201,000 paid for the Common Stock,
Preferred Stock and Warrants and $600,000 advanced as part of the
Advance, no funds will actually be transferred to the Company.
Based on certain representations, the consolidation of such
obligations may involve approximately [$ .] of cancellation of
indebtedness income ("COD") for the Company, [which does not
include the discount on issuance of the Note.] The payment of
the Advance will not result in the Company's satisfaction of the
indebtedness to the Other Lender at a discount. The Company has
represented that the Company's (i) NOLs (after the application of
Code Section 382 as if the Company issued stock on the date of
the execution of the agreements related to, and the closing of,
the Loan Transaction, and after offset by the loss corporation's
"built-in gains" determined as of the same dates), and
(ii) actual current losses, are in the aggregate sufficient to
offset such income (including for this purpose the discount).
Further, the Company entered into a settlement agreement with the
FDIC in December 1995 regarding the Amsave Loan pursuant to which
the Company paid the FDIC in 1995 $400,000 for cancellation of
approximately $4 million of the Company's debt obligation to
Amsave and the Company will pay to the FDIC over the next 18
months $600,000 for the cancellation of $7 million of the
Company's debt obligation to Amsave. Prior to this date (and
prior to the execution of the Loan Agreement), the Company paid
the $400,000 to the FDIC and the Company gave as a security
interest to the FDIC collateral sufficient to repay the $600,000
amount. In this regard, the Company has represented to Counsel
that (i) the collateral is sufficient to repay the $600,000, (ii)
the Company could from such collateral or other revenue sources
pay the $600,000 to the FDIC as required pursuant to the FDIC
Agreement, and (iii) the Company can pay the $600,000 of payments
to the FDIC without regard to the Lender Entities' purchase of
the 1996 Loans and the consolidation of such indebtedness, the
Advance, any amounts paid by the Lender Entities for the Common
Stock, Preferred Stock and Warrants, and expenses paid or
deferred under the Asset Servicing Agreement. Since no
substantial amount of funds of the Lender Entities was
contributed or transferred to the Company to be used to
accelerate income, and since any income that is created due to
the consolidation of such indebtedness will be offset by the
Company's operating losses and any income created under the
settlement with the FDIC concerning the Amsave Loan would have
been created without regard to the Loan Transaction and would not
be accelerated by the Loan Transaction, it is the opinion of
Counsel that the Loan Transaction should not satisfy the income
test, although such opinion may be subject to challenge. To the
extent such built-in gain and operating losses are not sufficient
to offset such income (including for this purpose the discount),
it is the opinion of Counsel that if the IRS should assert that
the Loan Agreement involved transfer of funds to the Company,
the terming out of the loans of the Lenders essentially permits
the Company to continue its business operations, although such
opinion may be subject to challenge. In this regard, Counsel has
received the representation from the Company that in light of the
various factors that affect the ability of the Company as a going
concern, the consummation of the Loan Transaction permits the
Company to continue to operate its current business avoiding an
outright liquidation, and thus, continue its basic business
operations. Notwithstanding such good business reasons, the IRS
could challenge Counsel's opinion by asserting that the avoidance
of a potential liquidation is outside of the scope of continuing
business operations exception under the income test which refer
solely to operating costs.
<PAGE>
EXHIBIT I
TEXT OF PROPOSED NEW ARTICLE FOURTH TO THE
COMPANY'S CERTIFICATE OF INCORPORATION
"FOURTH: The total number of shares of capital
stock which the Corporation shall have the authority to
issue is Forty Million and One Hundred (40,000,100)
shares, of which Forty Million (40,000,000) shares
shall be Common Stock, par value $.01 per share (the
"Common Stock") and One Hundred (100) shares shall be
Class A Preferred Stock, par value $10.00 per share
(the "Preferred Stock").
A. Provisions Relating to the Common Stock.
---------------------------------------
(i) Dividends. The holders of shares of
---------
Common Stock shall be entitled to receive such
dividends as may be declared by the Board of Directors
of the Corporation, if any, out of funds legally
available therefor.
(ii) Liquidation Rights. Subject to the
------------------
preferential liquidation rights of the holders of the
shares of the Preferred Stock described in subparagraph
B.(iv) below, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of,
or any distribution of the assets of, the Corporation,
the holders of shares of Common Stock shall be entitled
to receive all of the assets of the Corporation
available for distribution to its stockholders ratably
in proportion to the number of shares of Common Stock
held by them.
(iii) Voting Rights. The holders of the
-------------
shares of Common Stock shall be entitled to vote on all
matters at all meetings of the stockholders of the
Corporation, and shall be entitled to one vote for each
share of Common Stock entitled to vote at such meeting
as a class separate from the holders of the shares of
Preferred Stock.
B. Provisions Relating to the Preferred
------------------------------------
Stock.
-----
(i) Designation and Amount. The distinctive
----------------------
designation of this class of Preferred Stock is "Class
A Preferred Stock" (hereinafter in this resolution
called "Preferred Stock") and the number of shares
constituting such class shall be One Hundred (100).
(ii) Rank. The Preferred Stock shall, with
----
respect to dividend rights and rights on liquidation,
winding up and dissolution, rank junior to all Senior
Securities and senior to all Junior Securities, all as
more fully set forth herein. For the purposes of this
Article FOURTH, "Senior Securities" shall mean all
classes and series of stock of the Corporation
hereafter authorized, issued or outstanding, other than
Junior Securities. For the purposes of this Article
FOURTH, "Junior Securities" shall mean the Common Stock
of the Corporation, par value $.01 per share, any other
class or series of the Corporation's common equity, and
such other classes or series of stock of the
Corporation as shall be designated as junior to the
Preferred Stock with respect to dividend rights and
rights on liquidation, winding up and dissolution by
the Board of Directors of the Corporation or by
amendment to the Certificate of Incorporation of the
Corporation, duly adopted by the Corporation and its
stockholders as provided pursuant to the General
Corporation Law of the State of Delaware (the "DGCL").
(iii) Dividends. The holders of the shares
---------
of Preferred Stock shall be entitled to receive such
dividends as may be declared by the Board of Directors
of the Corporation, if any, out of funds legally
available therefor.
(iv) Liquidation Preference. In the event
----------------------
of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation, the holders of the shares of Preferred
Stock then outstanding shall be entitled to be paid out
of the assets of the Corporation available for
distribution to its stockholders, prior and in
preference to any distribution of any of the assets of
the Corporation, an amount in cash equal to $10.00 for
each share outstanding (the "Liquidation Preference").
If the assets of the Corporation are not sufficient to
pay in full the Liquidation Preference payable to the
holders of outstanding shares of Preferred Stock, then
the holders of all such shares shall share ratably in
such distribution of assets in proportion to the amount
which would be payable on such distribution if the
Liquidation Preference to which the holders of
outstanding shares of Preferred Stock are entitled were
paid in full. Upon any such liquidation, dissolution
or winding up of the Corporation, after the holders of
Preferred Stock shall have been paid in full their
Liquidation Preference, the remaining assets of the
Corporation may be distributed to the holders of shares
of Common Stock, and the holders of shares of Preferred
Stock shall not be entitled to share therein. For the
purposes of this Article FOURTH, neither the voluntary
sale, lease, conveyance, exchange or transfer (for
cash, shares of stock, securities or other
consideration) of all or any part of the property or
assets of the Corporation nor the merger or
consolidation of the Corporation with one or more
corporations nor the reduction of the capital stock of
the Corporation shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of
the Corporation. Written notice of any voluntary or
involuntary liquidation, dissolution or winding up of
the affairs of the Corporation, stating the payment
date and the place where the distributable amount shall
be payable, shall be given by mail, postage prepaid,
not less than thirty (30) days prior to the payment
date stated therein, to the holders of record of
Preferred Stock at their respective addresses as the
same shall then appear on the books of the Corporation.
(v) Voting Rights.
-------------
(a) Special Purpose Director. The holders of
------------------------
shares of Preferred Stock shall be entitled to nominate
and elect one director (the "Special Purpose Director")
to the Board of Directors of the Corporation by a vote
of a majority of the then outstanding shares of
Preferred Stock voting as one class at a meeting of
such holders or by written consent of the holders of a
majority of such shares then outstanding, provided,
--------
however, that such Special Purpose Director, in
-------
accordance with Section 141(d) of the General
Corporation Law of the State of Delaware, shall have no
right to vote on matters presented for a vote at
meetings of the Board of Directors of the Corporation
other than with respect to matters relating to (i) the
filing by the Corporation of a petition in bankruptcy
pursuant to Title 11 of the United States Code and (ii)
in connection with the insolvency of the Company, the
dissolution or liquidation of the Corporation or the
making of a compromise or arrangement under applicable
state law between the Corporation and its creditors who
hold a substantial portion of the Corporation's
indebtedness (collectively, the "Bankruptcy Matters").
As to any Bankruptcy Matter, only the unanimous vote of
the fully constituted Board of Directors of the
Corporation (including, without limitation, the Special
Purpose Director) will be required to constitute an act
of the Board of Directors of the Corporation.
(b) Board Observation Rights. For so long as
------------------------
there shall be a Special Purpose Director, and
notwithstanding the limitation upon the voting rights
of the Special Purpose Director contained herein:
(1) The Corporation shall give to
the Special Purpose Director notice of each
meeting of the Board of Directors of the
Corporation at the same time and in the same
manner as notice is given to the other
directors;
(2) The Special Purpose Director
shall be entitled to attend in person all
meetings held in person and to participate in
telephone or other meetings of the Board of
Directors of the Corporation;
(3) The Corporation shall provide
to the Special Purpose Director in connection
with each meeting of the Board of Directors
(whether in person or otherwise), copies of
all notices, minutes, consents, and all other
materials or information that the Corporation
provides to the other directors of the
Corporation with respect to such meeting or
otherwise, at the same time such materials
and information are given to the other
directors of the Corporation (except that
materials and information provided to other
directors at meetings of the Board of
Directors of the Corporation at which the
Special Purpose Director is not present shall
be provided to him or her promptly after the
meetings);
(4) If the Board of Directors
proposes to take any action by written
consent in lieu of a meeting, the Corporation
shall give written notice thereof to the
Special Purpose Director prior to the
effective date of such consent describing in
reasonable detail the nature and substance of
such action; and
(5) Except as otherwise provided
herein, the Special Purpose Director shall
otherwise enjoy all rights, privileges and
benefits conferred upon directors of the
Corporation by the Certificate of
Incorporation, the By-Laws of the Corporation
or by law, including, without limitation,
with respect to indemnification and
advancement of expenses.
(c) Removal and Vacancy. The Special Purpose
-------------------
Director may be removed without cause only by the
holders of the then outstanding shares of
Preferred Stock. Any vacancy in the position of
Special Purpose Director shall be filled only by
the holders of the then outstanding shares of
Preferred Stock. The Special Purpose Director
shall be paid $100 per year by the Corporation for
his services.
(d) No Additional Voting Rights. Except as
---------------------------
otherwise expressly provided herein or as required
by law, holders of shares of Preferred Stock shall
not have any voting rights.
(e) Amendments Affecting Preferred Stock. So
------------------------------------
long as any shares of Preferred Stock are
outstanding, the written consent or the
affirmative vote at a meeting called for that
purpose of the holders of a majority of the votes
of the shares of Preferred Stock then outstanding,
voting separately as a class, shall be necessary
to validate or effectuate any amendment,
alteration or repeal of the Certificate of
Incorporation of the Corporation so as to affect
adversely the powers, preferences or special
rights of such Preferred Stock.
(vi) Redemption by Corporation.
-------------------------
(a) The Corporation shall have the right,
commencing on the date that is three years
following the date that the Corporation's
obligations to NPM Capital LLC and its
affiliates are satisfied in full, to redeem
out of funds legally available therefor all
or any part of the shares of Preferred Stock
at its election expressed by resolution of
the Board of Directors of the Corporation,
upon not less than thirty (30) days' prior
notice to the holders of record of the
Preferred Stock to be redeemed, given by
mail, at the Redemption Price (as hereinafter
defined) on the Redemption Date (as
hereinafter defined).
(b) The "Redemption Date" shall be the date
fixed for redemption in the notice of
redemption.
(c) The price at which outstanding shares of
Preferred Stock shall be redeemed pursuant to
subsection (vi)(a) shall be $10.00 per share
(the "Redemption Price").
(d) If less than all outstanding Preferred
Stock is to be redeemed, the redemption may
be made either pro rata or by lot or in some
other equitable manner as may be prescribed
by resolution of the Board of Directors.
(e) Any notice of redemption mailed to a
holder of Preferred Stock at his or her
address as the same shall appear on the books
of the Corporation shall be conclusively
presumed to have been given whether or not
the holder receives the notice. Each such
notice shall state: the Redemption Date; the
number of shares of Preferred Stock to be
redeemed, and, if less than all shares of
Preferred Stock held by such holder are to be
redeemed, the number of such shares to be
redeemed from him or her and the fact that a
new certificate or certificates representing
any unredeemed shares shall be issued without
cost to such holder; the Redemption Price
applicable to the shares to be redeemed; and
the place or places where such shares are to
be surrendered. No defect in any such notice
to any holder of Preferred Stock shall affect
the validity of the proceedings for the
redemption of any other shares of such
Preferred Stock.
(f) From and after the Redemption Date, all
rights of the holders of shares of Preferred
Stock as stockholders of the Corporation,
except the right to receive the Redemption
Price, shall terminate. Any moneys set aside
by the Corporation on account of the
Redemption Price and unclaimed by the end of
three years from the Redemption Date shall
revert to the general funds of the
Corporation.
(g) Any shares of Preferred Stock redeemed
pursuant to the provisions of this subsection
(vi) shall be retired and given the status of
authorized and unissued Preferred Stock,
undesignated as to series, and subject to
reissuance by the Corporation as shares of
Preferred Stock of one or more series, as may
be determined from time to time by the Board
of Directors of the Corporation.
(h) No shares of Preferred Stock shall be
redeemed in whole or in part under this
subsection (vi): (1) at any time that such
redemption is prohibited by the DGCL; (2) at
any time that the terms and provisions of any
contract or other agreement of the
Corporation or any of its directly or
indirectly owned subsidiaries specifically
prohibits such redemption or provides that
such redemption would constitute a breach
thereof or a default thereunder; (3) unless,
prior to or concurrently with such
redemption, all unpaid dividends on all
Senior Securities for periods preceding or
ending on the Redemption Date have been paid
in full or have been declared and set aside
for payment in full; or (4) at any time that
the Corporation shall be in default in
respect of any redemption obligations on or
under Senior Securities.
(vii) No Conversion Rights. The
--------------------
holders of shares of Preferred Stock shall not
have any rights to convert such shares into shares
of any other class or series of capital stock or
into any other securities of, or any other
interest in, the Corporation.
(viii) No Sinking Fund. No sinking
---------------
fund shall be established for the payment of
dividends on shares of Preferred Stock, if any, or
the liquidation of shares of Preferred Stock.
(ix) No Preemptive or Subscription
-----------------------------
Rights. No holder of shares of Preferred Stock
------
shall have any preemptive or subscription rights
in respect of any securities of the Corporation
that may be issued.
(x) No Other Rights. The shares of
---------------
Preferred Stock shall not have any designations,
preferences or relative, participating, optional
or other special rights except as expressly set
forth in this Article FOURTH of the Certificate of
Incorporation of the Corporation or as otherwise
required by law.
(xi) Legend. All certificates for
------
shares of Preferred Stock issued by the
Corporation shall conspicuously bear the following
legend:
The Corporation will furnish without
charge to the holder of record of this
certificate a copy of the Certificate of
Incorporation of the Corporation,
containing the powers, designations,
preferences and relative, participating,
optional or other special rights of each
class of stock of the Corporation or
series thereof and the qualifications,
limitations or restrictions of such
preferences and/or rights, upon written
request to the Corporation at its
principal place of business."
<PAGE>
EXHIBIT J
TEXT OF PROPOSED NEW ARTICLE ELEVENTH TO THE COMPANY'S
CERTIFICATE OF INCORPORATION AND ARTICLE XII TO THE COMPANY'S BY-
LAWS
"Limitation on Transfer of Shares. Except as
--------------------------------
expressly provided below in this Article ELEVENTH [ARTICLE
XII], shares of capital stock of the Corporation are fully
and freely transferable.
A. Certain Transfers Prohibited.
----------------------------
(i) Until ., 1999 (the "Restriction Period"), no
individual, partnership, firm, corporation,
association, trust, unincorporated organization or
other entity, as well as any syndicate or group deemed
to be a person under Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended (each a "Person"), who
(i) purports to purchase or acquire any shares of
capital stock of the Corporation from the Corporation
by the exercise of a warrant or option or otherwise or
(ii) beneficially owns directly or through attribution
(as determined under Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code")) five
percent or more of the value of the outstanding shares
of capital stock of the Corporation or who, upon the
acquisition of any shares of capital stock of the
Corporation, would beneficially own directly or through
attribution (as determined under Code Section 382) five
percent or more of the value of the outstanding shares
of capital stock of the Corporation (each such Person
described in (i) or (ii) above being a "Restricted
Holder"), shall sell, transfer, or dispose, or purchase
or acquire in any manner whatsoever, whether
voluntarily or involuntarily, by operation of law or
otherwise (any such sale, transfer, disposition,
purchase, acquisition or contract being a "Transfer"),
any shares of capital stock of the Corporation or any
option, warrant or other right to purchase or acquire
capital stock of the Corporation (such warrant, option
or security being an "Option") or any securities
convertible into or exchangeable for capital stock of
the Corporation, except as authorized pursuant to this
Article ELEVENTH [ARTICLE XII]. For purposes of this
Article ELEVENTH [ARTICLE XII], "capital stock" shall
include the Common Stock and the Preferred Stock of the
Corporation and any Option. Notwithstanding the
preceding sentence, for purposes of determining whether
a Person owns five percent or more of the value of the
outstanding shares of capital stock of the Corporation,
Options shall be taken into account to the extent
taking such Options into account would cause a Person
to become a Restricted Holder. Notwithstanding the
provisions of this clause (i), nothing herein shall
prohibit the acquisition by NPM Capital LLC, a Delaware
limited liability company, and its affiliates,
including NPO Holdings LLC, a Delaware limited
liability company, of 1,000,000 shares of the
Corporation's Common Stock pursuant to the terms of
that certain Stock Purchase Agreement dated as of March
27, 1996 between the Corporation and NPO Holdings LLC.
(ii) The restrictions contained in this Article
ELEVENTH [ARTICLE XII] are for the purpose of reducing
the risk that any change in stock ownership may
jeopardize the preservation of the Corporation's
federal income tax attributes. In connection
therewith, and to provide for the effective policing of
these provisions, a Restricted Holder who proposes to
Transfer shares of capital stock shall, prior to the
date of the proposed Transfer, request in writing (a
"Request") that the Board of Directors of the
Corporation review the proposed Transfer and authorize
or not authorize the proposed Transfer pursuant to
subsection C. hereof. A Request shall be mailed or
delivered to the President of the Corporation at the
Corporation's principal place of business or telecopied
to the Corporation's telecopier number at its principal
place of business. Such Request shall be deemed to
have been delivered when actually received by the
Corporation. A Request shall include (a) the name,
address and telephone number of the Restricted Holder,
(b) a description of the shares of capital stock
proposed to be Transferred by or to the Restricted
Holder, (c) the date on which the proposed Transfer is
expected to take place, (d) the name of the proposed
transferor and transferee of the capital stock to be
Transferred by or to the Restricted Holder, and (e) a
Request that the Board of Directors authorize, if
appropriate, the Transfer pursuant to subsection C.
hereof and inform the Restricted Holder of its
determination regarding the proposed Transfer. If the
Restricted Holder seeks to sell or dispose of shares of
capital stock, then, within five business days of
receipt by the President of a Request, a meeting of the
Board of Directors shall be held to determine whether
to authorize the proposed Transfer described in the
Request under subsection C. hereof. If the Restricted
Holder seeks to purchase or acquire shares of capital
stock, at the next regularly scheduled meeting of the
Board of Directors following the fifth business day
after receipt by the President of a Request, the Board
of Directors will meet to determine whether to
authorize the proposed Transfer described in the
Request under subsection C. hereof. The Board of
Directors shall conclusively determine whether to
authorize the proposed Transfer, in its sole discretion
and judgment, and shall immediately cause the
Restricted Holder making the Request to be informed of
such determination.
B. Effect of Unauthorized Transfer. Any Transfer
-------------------------------
attempted to be made in violation of this Article ELEVENTH
[ARTICLE XII] will be null and void. In the event of an
attempted or purported Transfer involving a sale or
disposition of capital stock in violation of this Article
ELEVENTH [ARTICLE XII], the Restricted Holder shall remain
the owner of such shares. In the event of an attempted or
purported Transfer involving the purchase or acquisition by
a Restricted Holder in violation of this Article ELEVENTH
[ARTICLE XII], the Corporation shall be deemed to be the
exclusive and irrevocable agent for the transferor of such
capital stock. The Corporation shall be such agent for the
limited purpose of consummating a sale of such shares to a
Person who is not a Restricted Holder (an "eligible
transferee"), which may include, without limitation, the
transferor. The record ownership of the subject shares
shall remain in the name of the transferor until the shares
have been sold by the Corporation or its assignee, as agent,
to an eligible transferee. The Corporation shall be
entitled to assign its agency hereunder to any person or
entity including, but not limited to, the intended
transferee of the shares, for the purpose of effecting a
permitted sale of such shares. Neither the Corporation, as
agent, nor any assignee of its agency hereunder, shall be
deemed to be a stockholder of the Corporation nor be
entitled to any rights of a stockholder of the Corporation,
including, but not limited to, any right to vote such
capital stock or to receive dividends or liquidating
distributions in respect thereof, if any, but the
Corporation or its assignee shall only have the right to
sell and transfer such shares on behalf of and as agent for
the transferor to another person or entity; provided,
--------
however, that a Transfer to such other person or entity does
-------
not violate the provisions of this Article ELEVENTH [ARTICLE
XII]. The rights to vote and to receive dividends and
liquidating distributions with respect to such shares shall
remain with the transferor. The intended transferee shall
not be entitled to any rights of stockholders of the
Corporation, including, but not limited to, the rights to
vote or to receive dividends and liquidating distributions
with respect to such shares. In the event of a permitted
sale and transfer, whether by the Corporation or its
assignee, as agent, the proceeds of such sale shall be
applied first to reimburse the Corporation or its assignee
for any expenses incurred by the Corporation acting in its
role as the agent for the sale of such shares, second to the
extent of any remaining proceeds, to reimburse the intended
transferee for any payments made to the transferor by such
intended transferee for such shares, and the remainder, if
any, to the original transferor.
C. Authorization of Transfer of Capital Stock by
---------------------------------------------
a Restricted Holder. The Board of Directors shall authorize
-------------------
a Transfer by a Restricted Holder, or to a Restricted
Holder, if, in its sole discretion and judgment it
determines that the Transfer will not jeopardize the
Corporation's preservation of its federal income tax
attributes pursuant to Code Section 382. In deciding
whether to approve any proposed Transfer of capital stock by
or to a Restricted Holder, the Board of Directors may seek
the advice of counsel with respect to the Corporation's
preservation of its federal income tax attributes pursuant
to Code Section 382 and may request all relevant information
from the Restricted Holder with respect to all capital stock
directly or indirectly owned by such Restricted Holder. Any
Person who makes a Request of the Board of Directors
pursuant to this subsection C to Transfer shares of capital
stock shall reimburse the Corporation, on demand, for all
costs and expenses incurred by the Corporation with respect
to any proposed Transfer of capital stock, including,
without limitation, the Corporation's costs and expenses
incurred in determining whether to authorize that proposed
Transfer.
D. Legend on Certificates. All certificates for
----------------------
shares of Common Stock, except for such certificates for
shares of Common Stock issued to the NPM Parties, issued by
the Corporation shall conspicuously bear the following
legend:
"Each of the Certificate of Incorporation
(the "Certificate") and the By-laws (the "By-
laws") of the Corporation contains
restrictions prohibiting the sale, transfer,
disposition, purchase or acquisition of any
capital stock until . 1999, without the
authorization of the Board of Directors of
the Corporation (the "Board of Directors"),
by or to any holder (a) who beneficially owns
directly or through attribution (as generally
determined under Section 382 of the Internal
Revenue Code of 1986, as amended (the
"Code")) five percent or more of the value of
the then issued and outstanding shares of
capital stock of the Corporation or (b) who,
upon the sale, transfer, disposition, pur-
chase or acquisition of any capital stock of
the Corporation would beneficially own
directly or through attribution (as generally
determined under Section 382 of the Code)
five percent or more of the value of the then
issued and outstanding capital stock of the
Corporation, if that sale, transfer,
disposition, purchase or acquisition would,
in the sole discretion and judgment of the
Board of Directors, jeopardize the
Corporation's preservation of its federal
income tax attributes pursuant to Section 382
of the Code. The Corporation will furnish
without charge to the holder of record of
this certificate a copy of the Certificate
and/or By-laws, containing the above-
referenced restrictions on transfer of stock,
upon written request to the Corporation at
its principal place of business."
<PAGE>
EXHIBIT K
DVL, INC.
1996 STOCK OPTION PLAN
_______________
EFFECTIVE AS OF ., 1996
<PAGE>
DVL, INC.
1996 STOCK OPTION PLAN
INTRODUCTION
DVL, Inc., a Delaware corporation (hereinafter referred
to as the "Corporation"), hereby establishes an incentive plan to
be known as the "DVL 1996 Stock Option Plan" (hereinafter
referred to as the "Plan") as set forth in this document. The
Plan permits the grant of Non-Qualified Stock Options only.
The Plan shall become effective upon approval of the
Plan by the Board of Directors of the Corporation. However, it
shall be rendered null and void and have no effect, and all
awards granted hereunder shall be canceled, if the Plan is not
approved by a majority vote of the Corporation's stockholders
within twelve (12) months of such date.
The purpose of the Plan is to promote the success and
enhance the value of the Corporation by linking the personal
interests of Participants to those of the Corporation's
stockholders.
<PAGE>
DEFINITIONS
For purposes of this Plan, the following terms shall be
defined as follows unless the context clearly indicates
otherwise:
(a) "Board of Directors" shall mean the Board of
------------------
Directors of the Corporation.
(b) "Code" shallmean the Internal RevenueCode of 1986,
----
as amended, and the rules and regulations thereunder.
(c) "Committee" shall mean the Compensation Committee of
---------
the Board of Directors.
(d) "Common Stock" shall mean the common stock, par
------------
value $.01 per share, of the Corporation.
(e) "Corporation" shall mean DVL, Inc., a Delaware
-----------
corporation.
(f) "Employee" shall mean any officer or full-time
--------
employee of the Corporation, including any officer or full-time
employee who also serves as a director of the Corporation, and
any consultant of the Corporation.
(g) "Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as amended, and the rules and regulations
thereunder.
(h) "Fair Market Value" of the Corporation's Common
-----------------
Stock on a Trading Day shall mean the last reported sale price
for Common Stock or, in case no such reported sale takes place on
such Trading Day, the average of the closing bid and asked prices
for the Common Stock for such Trading Day, in either case on the
principal national securities exchange on which the Common Stock
is listed or admitted to trading, or if the Common Stock is not
listed or admitted to trading on any national securities
exchange, but is traded in the over-the-counter market, the
closing sale price of the Common Stock or, if no sale is publicly
reported, the average of the closing bid and asked quotations for
the Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or any
comparable system or, if the Common Stock is not listed on NASDAQ
or a comparable system, the closing sale price of the Common
Stock or, if no sale is publicly reported, the average of the
closing bid and asked prices, as furnished by two members of the
National Association of Securities Dealers, Inc. who make a
market in the Common Stock selected from time to time by the
Corporation for that purpose. In addition, for purposes of this
definition, a "Trading Day" shall mean, if the Common Stock is
listed on any national securities exchange, a business day during
which such exchange was open for trading and at least one trade
of Common Stock was effected on such exchange on such business
day, or, if the Common Stock is not listed on any national
securities exchange but is traded in the over-the-counter market,
a business day during which the over-the-counter market was open
for trading and at least one "eligible dealer" quoted both a bid
and asked price for the Common Stock. An "eligible dealer" for
any day shall include any broker-dealer who quoted both a bid and
asked price for such day, but shall not include any broker-dealer
who quoted only a bid or only an asked price for such day. In
the event the Corporation's Common Stock is not publicly traded,
the Fair Market Value of such Common Stock shall be determined by
the Committee in good faith.
(i) "Non-Employee Director" shall mean a member of the
---------------------
Board of Directors who is not an officer of the Corporation and
who is not regularly employed on a salaried basis as an employee
of the Corporation.
(j) "Non-Qualified Option" or "Option" shall mean a
-------------------- ------
stock option which does not satisfy the requirements for, or
which is not intended to be eligible for, tax-favored treatment
under Section 422 of the Code.
(k) "Optionee" shall mean a Participant who is granted
--------
an Option under the terms of this Plan.
(l) "Participant" shall mean any Employee or Non
-----------
-Employee Director participating under the Plan.
(m) "Section 16" shall mean Section 16 of the Exchange
----------
Act and the rules and regulations promulgated thereunder.
(n) "Securities Act" shall mean the Securities Act of
--------------
1933, as amended, and the rules and regulations thereunder.
<PAGE>
SECTION I
ADMINISTRATION
The Plan shall be administered by the Committee, which
shall be composed of at least two directors who meet the
requirements of disinterested administrators under Section 16.
Subject to the provisions of the Plan, the Committee may
establish from time to time such regulations, provisions,
proceedings and conditions of awards which, in its opinion, may
be advisable in the administration of the Plan. A majority of
the Committee, or in the event that the Committee is composed of
only two directors, both directors of the Committee, shall
constitute a quorum, and, subject to the provisions of Section IV
of the Plan, the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing
by a majority of the Committee, shall be the acts of the
Committee as a whole. The references to Section 16 contained
herein are intended to apply only to the extent necessary for the
Plan to comply with Rule 16b-3 under Section 16 and only as to
those insiders of the Corporation who are deemed to be Section 16
insiders.
SECTION II
SHARES AVAILABLE
Subject to the adjustments provided in Section VII of
the Plan, the aggregate number of shares of the Common Stock
which may be issued for all purposes under the Plan shall be one
million five hundred thousand (1,500,000) shares. Shares of
Common Stock underlying awards of Options shall be counted
against the limitation set forth in the immediately preceding
sentence and may be reused to the extent that an Option awarded
under the Plan expires, is terminated unexercised, or is
forfeited. The shares so issued may be authorized but unissued
shares, Treasury shares or previously issued shares purchased for
purposes of the Plan.
SECTION III
ELIGIBILITY
Employees and Non-Employee Directors shall be eligible
to participate in the Plan.
SECTION IV
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the
direction of, the Committee, which shall administer the Plan so
as to comply at all times with Section 16 of the Exchange Act, to
the extent such compliance is required, and shall otherwise have
plenary authority to interpret the Plan and to make all
determinations specified in or permitted by the Plan or deemed
necessary or desirable for its administration or for the conduct
of the Committee's business. All interpretations and
determinations of the Committee may be made on an individual or
group basis and shall be final, conclusive, and binding on all
interested parties. Subject to the express provisions of the
Plan, including the provisions of Section VI hereof relating to
the grant of Options to Non-Employee Directors, the Committee
shall have authority, in its discretion, to determine the persons
to whom Options shall be granted, the times when such Options
shall be granted, the number of Options, the exercise price of
each Option (subject to the requirement, however, that the
exercise price of the Option, other than Options to be granted
upon stockholder ratification and approval of the Plan to
individuals who will be granted Options in exchange for
outstanding performance units, not be less than the fair market
value for one share of the Company's Common Stock as of the date
of grant of the Option), the period(s) during which such Option
shall be exercisable (whether in whole or in part), the
restrictions to be applicable to Options and the other terms and
provisions thereof (which need not be identical). In addition,
the authority of the Committee shall include, without limitation,
the following:
(a) Procedures for Exercise of Option. The
---------------------------------
establishment of procedures for an Optionee (i) to exercise an
Option by payment of cash, (ii) to have withheld from the total
number of shares of Common Stock to be acquired upon the exercise
of an Option that number of shares having a Fair Market Value,
which, together with such cash as shall be paid in respect of
fractional shares, shall equal the Option exercise price of the
total number of shares of Common Stock to be acquired, (iii) to
exercise all or a portion of an Option by delivering that number
of shares of Common Stock already owned by him having a Fair
Market Value which shall equal the Option exercise price for the
portion exercised and, in cases where an Option is not exercised
in its entirety, and subject to the requirements of the Code, to
permit the Optionee to deliver the shares of Common Stock thus
acquired by him in payment of shares of Common Stock to be
received pursuant to the exercise of additional portions of such
Option, the effect of which shall be that an Optionee can in
sequence utilize such newly acquired shares of Common Stock in
payment of the exercise price of the entire Option, together with
such cash as shall be paid in respect of fractional shares and
(iv) to engage in any form of "cashless" exercise;
(b) Tax Withholding. The establishment of a procedure
---------------
whereby a number of shares of Common Stock or other securities
may be withheld from the total number of shares of Common Stock
or other securities to be issued upon exercise of an Option or
for the tender of shares of Common Stock owned by the Participant
to meet the obligation of withholding for taxes incurred by the
Optionee upon such exercise.
SECTION V
TERMS OF OPTIONS GRANTED TO EMPLOYEES
The Committee shall have the authority, in its
discretion, to grant Options to Employees. The terms and
conditions of the Options granted to Employees shall be
determined from time to time by the Committee; provided, however,
-------- -------
that such Options shall be subject to the following:
(a) Approval of Board of Directors Prior to Exercise.
------------------------------------------------
Any Employee wishing to exercise his Option must, prior to
exercising such Option, furnish to the Board of Directors notice
(the "Notice") of such intent to exercise his Option. Upon
receipt of the Notice, the Board of Directors will have five (5)
days in which to determine whether exercise of such Option by the
Employee will cause an "ownership change" (as such term is
defined in Section 382 of the Code) in the Corporation which
would have an adverse effect on the Corporation's use of its "net
operating loss carryforwards" (as such term is defined in Section
382 of the Code) (an "Adverse Ownership Change"). If the Board
of Directors, in its reasonable discretion, determines that such
exercise would cause an Adverse Ownership Change, the Board of
Directors shall deny approval for the exercise and such Employee
shall not be permitted to exercise the Option. If, however, the
Board of Directors determines, in its reasonable discretion, that
such exercise would not cause an Adverse Ownership Change, the
Board of Directors shall approve the exercise of the Option. In
either case, the Board of Directors shall provide to the Employee
notice of its approval or denial within five (5) days of receipt
of the Notice;
(b) Exercise Price. The Committee shall establish the
--------------
exercise price at the time any Option is granted at such amount
as the Committee shall determine, subject to the fair market
value requirement set forth in Section IV hereof;
(c) Payment of Exercise Price. The price per share of
-------------------------
Common Stock with respect to each Option shall be payable at the
time the Option is exercised. Such price shall be payable in
cash or, upon the discretion of the Committee, pursuant to any of
the methods set forth in Section IV(a) hereof. Shares of Common
Stock delivered to the Corporation in payment of the exercise
price shall be valued at the Fair Market Value of the Common
Stock on the date preceding the date of the exercise of the
Option;
(d) Exercisability of Options. Each Option shall be
-------------------------
exercisable in whole or in installments, and at such time(s), and
subject to the fulfillment of any conditions on exercisability,
in addition to the restriction set forth in Section V(a) hereof,
as may be determined by the Committee at the time of the grant of
such Options. The right to purchase shares of Common Stock shall
be cumulative so that when the right to purchase any shares of
Common Stock has accrued such shares of Common Stock or any part
thereof may be purchased at any time thereafter until the
expiration or termination of the Option;
(e) Termination of Employment. The Committee shall have
-------------------------
the discretion either (i) to establish provisions relating to the
forfeiture of Options upon the Employee's termination of
employment with the Corporation or (ii) to grant Options not
subject to any forfeiture provisions upon the Employee's
termination of employment with the Corporation.
(f) Expiration of Options. No Option shall be granted
---------------------
under this Section V with a term longer than ten (10) years from
the date of grant of the Option.
SECTION VI
TERMS OF OPTIONS GRANTED TO NON-EMPLOYEE DIRECTORS
(a) Stock Option Grant. Subject to the terms and
------------------
conditions of this Section VI, each Non-Employee Director shall
automatically be granted Options to purchase shares of Common
Stock, subject to availability under the Plan, as follows: (i)
upon the person's becoming a Non-Employee Director, an Option to
purchase 15,000 shares of Common Stock (the "Initial Grant") and
(ii) on the anniversary in each calendar year of the Initial
Grant, or, if the person is a Non-Employee Director at the time
of stockholder ratification and approval of the Plan, then, on
the anniversary date in each subsequent calendar year of the
stockholders' ratification and approval of the Plan, an Option to
purchase 15,000 additional shares of Common Stock (the "Annual
Grant"). The exercise price of the shares of Common Stock
underlying the Initial Grant and the Annual Grant shall be the
Fair Market Value of such shares on the date of each respective
grant.
(b) Approval of Board of Directors Prior to Exercise.
------------------------------------------------
Any Non-Employee Director wishing to exercise his Option must,
prior to exercising such Option, furnish to the Board of
Directors notice (the "Notice") of such intent to exercise his
Option. Upon receipt of the Notice, the Board of Directors will
have five (5) days in which to determine whether exercise of such
Option by the Non-Employee Director will cause an "ownership
change" (as such term is defined in Section 382 of the Code) in
the Corporation which would have an adverse effect on the
Corporation's use of its "net operating loss carryforwards" (as
such term is defined in Section 382 of the Code) (an "Adverse
Ownership Change"). If the Board of Directors, in its reasonable
discretion, determines that such exercise would cause an Adverse
Ownership Change, the Board of Directors shall deny approval for
the exercise and such Non-Employee Director shall not be
permitted to exercise the Option. If, however, the Board of
Directors determines, in its reasonable discretion, that such
exercise would not cause an Adverse Ownership Change, the Board
of Directors shall approve the exercise of the Option. In either
case, the Board of Directors shall provide to the Non-Employee
Director notice of its approval or denial within five (5) days of
receipt of the Notice.
(c) Vesting of Stock Options. Each Option granted
------------------------
pursuant to this Section VI shall vest immediately.
(d) Expiration of Options. Subject to Sections VI(b)
---------------------
and VII(b) hereof, all Options granted under this Section VI
shall be exercisable for a term of ten (10) years from the date
of grant of the Option.
(e) Ineligibility for Other Grantsunder Plan. The Non
-----------------------------------------
-Employee Directors shall be ineligible to receive any other
grant or award under any other Section of this Plan.
(f) Payment of Exercise Price. The price per share of
-------------------------
Common Stock with respect to each Option shall be payable at the
time the Option is exercised. Such price shall be payable in
cash or pursuant to any of the methods set forth in Section IV(a)
hereof. Shares of Common Stock delivered to the Corporation in
payment of the exercise price shall be valued at the Fair Market
Value of the Common Stock on the date preceding the date of the
exercise of the Option.
(g) Exercisability of Options. Each Option shall be
-------------------------
exercisable in whole or in installments subject to the
fulfillment of the restriction set forth in Section VI(b) hereof.
The right to purchase shares of Common Stock shall be cumulative
so that when the right to purchase any shares of Common Stock has
accrued such shares of Common Stock or any part thereof may be
purchased at any time thereafter until the expiration or
termination of the Option. If a Non-Employee Director holding an
outstanding Option dies before having exercised such Option, such
Option shall remain exercisable by his estate (or other
beneficiaries, as designated in writing by such Non-Employee
Director) until the expiration of the term of the Option.
(h) Amendments. The provisions of this Section VI shall
----------
not be amended more than one time in any six month period, other
than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or any rules or
regulations promulgated thereunder.
SECTION VII
ADJUSTMENT OF SHARES; MERGER OR
CONSOLIDATION, ETC. OF THE CORPORATION
(a) Recapitalization, Etc. In the event there is any
----------------------
change in the Common Stock of the Corporation by reason of any
reorganization, recapitalization, stock split, stock dividend or
otherwise, there shall be substituted for or added to each share
of Common Stock theretofore appropriated or thereafter subject,
or which may become subject, to any Option the number and kind of
shares of stock or other securities into which each outstanding
share of Common Stock shall be so changed or for which each such
share shall be exchanged, or to which each such share be
entitled, as the case may be, and the per share price thereof
also shall be appropriately adjusted.
(b) Merger or Consolidation of Corporation. Upon (i)
--------------------------------------
the merger or consolidation of the Corporation with or into
another corporation, if the agreement of merger or consolidation
does not provide for (1) the continuance of the Options granted
hereunder or (2) the substitution of new Options of equivalent
value for Options granted hereunder, or for the assumption of
such Options by the surviving corporation or (ii) the
dissolution, liquidation, or sale of substantially all the
assets, of the Corporation, the holder of any such Option
theretofore granted and still outstanding (and not otherwise
expired) shall have the right immediately prior to the effective
date of such merger, consolidation, dissolution, liquidation or
sale of assets to exercise such Option(s) in whole or in part
without regard to any installment provision that may have been
made part of the terms and conditions of such Option(s); provided
that any conditions precedent to the exercise of such Options,
other than the passage of time, have occurred. The Corporation,
to the extent practicable, shall give advance notice to affected
Optionees of such merger, consolidation, dissolution, liquidation
or sale of assets. All such Options which are not so exercised
shall be forfeited as of the effective time of such merger,
consolidation, dissolution, liquidation or sale of assets.
SECTION VIII
MISCELLANEOUS PROVISIONS
(a) Assignment or Transfer. No grant or award of any
----------------------
Option made under the Plan or any rights or interests therein
shall be assignable or transferable by a Participant except by
will or the laws of descent and distribution. During the
lifetime of a Participant Options granted hereunder shall be
exercisable only by the Participant.
(b) Investment Representation. The Committee may
-------------------------
require, as a condition of receiving shares of Common Stock upon
the exercise of an Option, that the Participant furnish to the
Corporation such written representations and information as the
Committee deems appropriate to permit the Corporation, in light
of the existence or nonexistence of an effective registration
statement under the Securities Act, to deliver such securities in
compliance with the provisions of the Securities Act. The
Committee may also impose such restrictions on any shares of
Common Stock acquired pursuant to the exercise of an Option
granted under the Plan that it may deem advisable.
(c) Costs and Expenses. The costs and expenses of
------------------
administering the Plan shall be borne by the Corporation and
shall not be charged against any award nor to any Participant
receiving an Option.
(d) Other Incentive Plans. The adoption of the Plan
---------------------
does not preclude the adoption by appropriate means of any other
incentive plan for the Participants.
(e) Plurals and Gender. Where appearing in the Plan,
------------------
masculine gender shall include the feminine and neuter genders,
and the singular shall include the plural, and vice versa, unless
the context clearly indicates a different meaning.
(f) Headings. The headings and sub-headings in this
--------
Plan are inserted for the convenience of reference only and are
to be ignored in any construction of the provisions hereof.
(g) Severability. In case any provision of this Plan
------------
shall be held illegal or void, such illegality or invalidity
shall not affect the remaining provisions of this Plan, but shall
be fully severable, and the Plan shall be construed and enforced
as if said illegal or invalid provisions had never been inserted
herein.
(h) Liability and Indemnification. (1) The Corporation
-----------------------------
shall not be responsible in any way for any action or omission of
the Committee, or any other fiduciaries in the performance of
their duties and obligations as set forth in this Plan.
Furthermore, the Corporation shall not be responsible for any act
or omission of any of their agents, or with respect to reliance
upon advice of their counsel provided that the Corporation relied
in good faith upon the action of such agent or the advice of such
counsel.
(2) Except for their own gross negligence or
willful misconduct regarding the performance of the duties
specifically assigned to them under, or their willful breach of
the terms of, this Plan, the Corporation and the Committee shall
be held harmless by the Participants, beneficiaries and their
representatives against liability or losses occurring by reason
of any act or omission. Neither the Corporation, the Committee,
nor any agents, employees, officers, directors or shareholders of
any of them, nor any other person shall have any liability or
responsibility with respect to this Plan, except as expressly
provided herein.
(i) Cooperation of Parties. All parties to this Plan
----------------------
and any person claiming any interest hereunder agree to perform
any and all acts and execute any and all documents and papers
which are necessary or desirable for carrying out this Plan or
any of its provisions.
(j) Governing Law. All questions pertaining to the
-------------
validity, construction and administration of the Plan shall be
determined in accordance with the laws of the State of New York.
(k) Nonguarantee of Employment. Nothing contained in
--------------------------
this Plan shall be construed as a contract of employment between
the Corporation and any Participant, as a right of any
Participant to be continued in the employment of the Corporation,
or as a limitation on the right of the Corporation to discharge
any of its employees, with or without cause.
(l) Notices. Each notice relating to this Plan shall be
-------
in writing and delivered in person or by certified mail to the
proper address. All notices to the Corporation or the Committee
shall be addressed to it at DVL, Inc., 24 River Road, Bogota, New
Jersey 07603, Attn: Alan Casnoff, President. All notices to
Participants, beneficiaries or other persons acting for or on
behalf of such Participants shall be addressed to such person at
the last address for such person maintained in the Committee's
records.
(m) Written Agreements. Each Option shall be evidenced
------------------
by a signed written agreement between the Corporation and the
Participant containing the terms and conditions of the award.
SECTION IX
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors may, at any time and from time
to time, subject to the restrictions on amendment set forth in
Section VI hereof, alter, amend, suspend or terminate the Plan in
whole or in part; provided, however, that no amendment which
requires stockholder approval in order for the Plan to continue
to comply with Rule 16b-3 under the Exchange Act, including any
successor to such Rule, shall be effective unless such amendment
shall be approved by the requisite vote of the stockholders of
the Corporation entitled to vote thereon. Except as otherwise
provided herein, no amendment, suspension or termination of the
Plan shall alter or impair any Options previously granted under
the Plan without the consent of the holder thereof.
SECTION X
TERM OF PLAN
The Plan shall remain in effect until the earlier of
March 31, 2006, or the tenth anniversary of the date the Plan was
adopted by the Board of Directors, unless sooner terminated by
such Board of Directors. No Options may be granted under the
Plan subsequent to the termination of the Plan.
<PAGE>
DVL, INC.
1996 ANNUAL MEETING OF STOCKHOLDERS
., 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of DVL, INC., a Delaware
corporation (the "Company"), acknowledges receipt of the Notice
of Annual Meeting of Stockholders and Proxy Statement, dated .,
1996 and hereby constitutes and appoints Alan E. Casnoff and
Frederick E. Smithline, or either of them acting singly in the
absence of the other, with the power of substitution in either of
them, the proxies of the undersigned to vote with the same force
and effect as the undersigned all shares of Common Stock of the
Company held by the undersigned at the Annual Meeting of
Stockholders of the Company to be held at the Company's corporate
headquarters, 24 River Road, Bogota, New Jersey 07603, on ., .,
1996 at 10:00 a.m., local time, and at any adjournment thereof,
hereby revoking any proxy or proxies heretofore given and
ratifying and confirming all that said proxies may do or cause to
be done by virtue thereof with respect to the following matters:
The undersigned hereby instructs said proxies or their
substitutes:
1. The election of three Directors nominated by the Board
of Directors:
FOR all nominees listed below WITHHOLD AUTHORITY
(except as indicated) [ ] to vote for all
nominees listed
below [ ]
NOMINEES: Myron Rosenberg, Frederick E. Smithline,
Alan Yudell
(INSTRUCTION: To withhold authority to vote for any individual
nominee or nominees, write such nominee's or
nominees' name(s) in the space provided below.)
2. To approve a certain loan agreement and the
consummation of the transactions contemplated thereby
(the "Loan Transaction") pursuant to which, among other
things, an independent third party lender (the "New
Lender") will acquire certain outstanding indebtedness
of the Company and simultaneously consolidate this
indebtedness into a new long term loan to the Company
and, in connection therewith, the Company will (i)
issue and sell to the New Lender and its affiliates
1,000,000 shares of Common Stock of the Company at
$0.20 per share, (ii) issue to affiliates of the New
Lender warrants to purchase such additional shares of
Common Stock of the Company at $0.16 per share which,
when added to the aforementioned 1,000,000 shares (and
any other shares of Common Stock then owned by such
warrantholders and their affiliates), will represent,
on a fully diluted basis, 49% of the outstanding Common
Stock of the Company, and (iii) enter into an Asset
Servicing Agreement with an affiliate of the New
Lender;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve an amendment to the Company's Certificate of
Incorporation, as amended (the "Certificate"), to
create a class of 100 shares of Preferred Stock to be
issued in connection with the Loan Transaction at
$10.00 per share entitling the holders thereof to elect
a special purpose Director to the Company's Board of
Directors (the "Preferred Stock");
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To approve amendments to the Company's Certificate and
By-laws to create certain restrictions on the
transferability of shares of the Company's Common Stock
to help preserve the utilization of the Company's
carryforwards of net operating losses and credits for
federal income tax purposes;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. To ratify and approve the 1996 Stock Option Plan of the
Company which will replace the Company's Performance
Unit (Stock Appreciation Rights) Plan; and
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Meeting or
any adjournment thereof.
The proxy, when properly executed, will be voted as
directed. If no direction is indicated, the proxy will be voted
FOR the election of the three named individuals as Director and
FOR each of the matters set forth in Proposals Nos. 2 through 5
above.
PLEASE SIGN, DATE AND MAIL THIS PROXY
IMMEDIATELY IN THE ENCLOSED ENVELOPE.
Dated . . . . . . . . . . . . . . ,1996
. . . . . . . . . . . . . . . . (L.S.)
. . . . . . . . . . . . . . . . (L.S.)
Please sign your name exactly as it
appears hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title as it appears hereon. When
signing as joint tenants, all parties in
the joint tenancy must sign. When a
proxy is given by a corporation, it
should be signed by an authorized
officer and the corporate seal affixed.
No postage is required if returned in
the enclosed envelope and mailed in the
United States.
