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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-4923
WESTMINSTER CAPITAL, INC.
(Exact name of the Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Delaware 95-2157201
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
9665 Wilshire Boulevard, M-10, Beverly Hills, California 90212
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (310) 278-1930
<TABLE>
<S> <C>
Title of Each Class
Common Stock, Name of Each Exchange on which Registered
$1.00 Par Value Per Share Pacific Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non affiliates of the
Registrant, based upon the closing sale price on the Pacific Stock Exchange of
its common stock on March 20, 1997 was approximately $7,624,000. For purposes
of the foregoing calculation, certain persons that have filed reports on
Schedule 13D with the Securities and Exchange Commission with respect to the
beneficial ownership of more than 5% of the Registrant's outstanding voting
stock and directors and executive officers of the Registrant have been excluded
from the group of stockholders deemed to be nonaffifliates of the Registrant.
The number of shares of common stock, $1.00 par value per share, of the
Registrant outstanding as of March 20, 1997, was 7,834,607.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for 1997 Annual Meeting of Stockholders is incorporated in Part
III of this Report.
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WESTMINSTER CAPITAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
CONTENTS
PART I
<TABLE>
<S> <C> <C> <C>
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 6
PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 7
ITEM 6. SELECTED FINANCIAL DATA 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
CORPORATION 27
ITEM 11. EXECUTIVE COMPENSATION 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 28
Index to Exhibits 31
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Until 1991 the business of Westminster Capital, Inc. (the
"Corporation") primarily consisted of the operations of a subsidiary, FarWest
Savings and Loan Association (the "Association"). In January, 1991 the
Resolution Trust Corporation (hereafter RTC) took possession of the Association
as sole conservator. The conservatorship did not apply to the Corporation.
Subsequently, the conservatorship was converted to a receivership and the
assets and liabilities of the Association were liquidated.
Since 1991, the Corporation has sought to acquire substantial
interests in operating businesses. The Corporation owns a majority interest in
a local telephone company (See "Telephone Company," below) and a substantial
interest in a home delivery shopping company (See "Pink Dot," below). The
Corporation intends to pursue the aquisition of substantial interests in other
operating businesses. However, no assurances can be given that the Corporation
will be able to identify attractive opportunities, or if it does, that it will
be able to acquire interests on acceptable terms. The Corporation also engages
in lending activity, originating or purchasing secured loans that generally do
not exceed thirty-six months in duration. The Corporation invests its assets
not employed in its operations in securities available for sale. These
securities consist principally of U.S. Government securities, but also include
investments in common and preferred stocks, warrants, convertible debentures
and interests in limited partnerships that invest in securities. As the
Corporation acquires interests in other operating businesses or originates or
purchases loans, it intends to liquidate securities available for sale as may
be necessary to consummate such acquisitions or fund such loans.
The Corporation is a Delaware corporation formed in 1959. The
executive office of the Corporation is located at 9665 Wilshire Boulevard,
Suite M-10, Beverly Hills, California 90212 and its telephone number is (310)
278-1930.
TELEPHONE COMPANY
Pursuant to contracts with four military bases, Global
Telecommunications Systems, LTD ("Global Telecommunications") operates
telephone network systems to serve officers and enlisted personnel with local
and long distance telephone service. Global Telecommunications installed and
owns the switches, wiring and individual telephone equipment at each of the
bases, and maintains and operates that equipment with its personnel. Telephone
system revenue is generated through the use of the system by the individual
military personnel who are subscribers. Revenue is partially offset by time
charges from the long distance telephone provider to Global Telecommunications.
The Corporation acquired a limited partnership interest in Global
Telecommunications in October, 1993. All four systems were completed and have
been operating since 1994. Under the Global Telecommunications partnership
agreement the Corporation is entitled to 75% of the partnership distributions
(which is proportional to its investment). The consolidated financial
statements include this investment on a consolidated basis.
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PINK DOT
Pink Dot provides home delivery service of grocery, delicatessen,
bakery, salad bar, pasta bar, liquor, video and non-prescription pharmacy items
through company-owned stores. Pink Dot accepts orders from customers by
telephone, fax, or the Internet and delivers the orders within 30 minutes.
Pink Dot charges a delivery fee in addition to the price of the goods
delivered. Pink Dot opened its first store in 1988 and its second store in
1995 in the west Los Angeles area.
Following the opening of the second store, Pink Dot and the
Corporation entered into a Loan and Stock Purchase Agreement in November, 1995,
which was amended in September, 1996. Under the Agreement, the Corporation
committed to provide up to $3 million to Pink Dot to open additional stores in
the Los Angeles area beyond the two stores then open and to establish
infrastructure necessary for the growth of Pink Dot. The terms of the
Agreement call for the Corporation to make loans of up to $2.5 million and to
invest $500,000 in common stock representing 40% of the issued and outstanding
shares of Pink Dot. Pursuant to the Agreement, the Corporation advanced $1
million in loans in 1996 for three additional stores that were opened during
1996, so that at December 31, 1996, Pink Dot had five stores open and
operating. In September, 1996, the Corporation made the $500,000 investment in
40% of the common stock of Pink Dot and advanced an additional $500,000 in
loans to fund the opening of additional stores during the first quarter of
1997. Pink Dot is currently completing improvements for two additional stores
and negotiating leases for additional stores. The Corporation advanced the
remaining $1 million in loans in the first quarter of 1997 to fund costs of
opening additional stores during 1997. The Corporation has no current plans to
provide loans or equity investment to Pink Dot beyond the amounts committed
pursuant to the Agreement. The consolidated financial statements include this
investment on the equity basis.
LOANS
The Corporation originates and, from time to time, purchases loans
that are secured by real estate, personal property or other collateral. In
connection with each loan proposal, the Corporation considers the value and
quality of the real estate or other collateral available to secure the loan
compared to the loan amount requested, the proposed interest rate and repayment
terms and the quality of the borrower. The Corporation holds the loans it
originates or purchases in its portfolio to maturity or earlier payoff.
At December 31, 1996, the Corporation's loans outstanding consisted of
loans secured by automobile leases in the amount of $742,000, net of the
discount at which the loans were purchased, loans secured by trust deeds or
mortgages in the principal amount of $1,570,000, and loans secured by other
collateral in the principal amount of $2,002,000. In addition, during 1996 the
Corporation originated loans secured by real estate in the amount of $1,250,000
and loans secured by other collateral in the amount of $2,850,000, all of which
were repaid prior to December 31, 1996.
The loans secured by automobile leases were purchased in 1995 for a
purchase price of $3,551,000 net of a discount of $742,000. The remaining
average maturity of these loans is nine months at December 31, 1996. The loans
secured by real estate outstanding at December 31, 1996 have maturities of less
than two years and interest rates of 15%. The loans secured by other
collateral, except for the loan made to Pink Dot, mature in less than twelve
months and bear interest at 12%.
The loan to Pink Dot, of which the principal amount of $1,500,000 had
been advanced at December 31, 1996, and a commitment to advance an additional
$1,000,000 remained outstanding, is secured by the tangible and intangible
assets of Pink Dot. The loan bears interest at
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a variable rate equal to the lesser of Bank of America's "prime rate" or the
rate established by the Federal Reserve Bank of San Francisco for member banks
plus 5%. Interest accrues and is added to the principal amount of the note
until 2000, at which time principal and interest are payable in quarterly
installments based on a 15 year amortization, with the entire unpaid principal
amount due December, 2001, or on the earlier occurrence of sale of Pink Dot or
a public offering or private placement of its equity securities. (See "Pink
Dot," above).
From 1993 to 1995, the Corporation made loans to a single borrower
secured by mortgages and deeds of trust on residential and commercial
properties. At December 31, 1995, the entire principal and accrued interest on
these loans and certain loan fees had been paid in full. However,
approximately $1,200,000 in unrecognized loan fees and penalties remained
unpaid. The Corporation reached agreement with the borrower during 1996 to
accept payments of approximately $700,000 in full satisfaction of the fees and
penalties due. These fees and penalties were recognized as income in 1996
because the collectibility was in doubt until payment was received.
SECURITIES AVAILABLE FOR SALE
The Corporation invests its assets not employed in its operations in
securities available for sale. These securties consist principally of U.S.
Government securities, but also include investments in common and preferred
stocks, warrants, convertible debentures and limited partnerships that invest
in securities. The Corporation does not actively engage in investing in equity
securities but from time to time makes moderate investments as opportunities
arise which the Corporation believes are consistent with its operations.
Certain of the equity securities owned by the Corporation were received by it
as additional compensation for loans extended by the Corporation.
EMPLOYEES
As of December 31, 1996, the Corporation had fourteen salaried
employees (including ten Global Telecommunications employees). Two of the
Corporation's employees are executive officers.
ITEM 2. PROPERTIES
The executive office of the Corporation is located at 9665 Wilshire
Boulevard, Suite M-10, Beverly Hills, California 90212, telephone (310)
278-1930. The Corporation's executive office is leased for a five year term
ending in November, 1997.
ITEM 3. LEGAL PROCEEDINGS
During 1996, the Corporation received approximately $813,000 in net
proceeds from a settlement of claims asserted on behalf of the Corporation
against Drexel Burnham Lambert Inc. ("Drexel"), Michael Milken ("Milken") and
other related parties in an action filed in the Los Angeles County Superior
Court in 1989. The action involved claims of various violations of federal and
state securities laws by Drexel, Milken and the other parties. The $813,000
represents a recovery of approximately $1.25 million, less court directed
attorneys' fees of approximately $438,000. From 1993 through 1995, the
Corporation received approximately $21.5 million in net proceeds, which
represents a recovery of approximately $33.2 million, less court directed
attorneys' fees of approximately $11.7 million. The Corporation received an
additional payment of
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approximately $522,000, net of court directed attorneys' fees, in the first
quarter of 1997, which will be reflected in the Corporation's first quarter
1997 consolidated financial statements.
A wholly-owned subsidiary of the Corporation is a party to litigation
entitled BURES V. SILVER RIDGE APARTMENTS, LTD. filed in March, 1993 pending in
the Eighth Judicial District Court of Clark County, Nevada. The case relates
to an apartment house project which was sold in October, 1993 by the
Corporation's wholly-owned subsidiary, as successor general partner. The prior
general partner had conveyed a security interest in its partnership interest to
the Corporation's wholly-owned subsidiary. After a default on the secured
obligation, the Corporation's wholly-owned subsidiary exercised its rights as a
secured creditor, and, as a result, the partnership interest was acquired by
the Corporation's wholly-owned subsidiary, which became the successor general
partner. The plaintiff, who is a creditor of the prior general partner,
alleges that he acquired a 69% interest in the partnership prior to the sale of
the project as a result of judgment enforcement proceedings against the prior
general partner. The Corporation believes that the judicial enforcement
proceedings brought by the plaintiff were improper and had no legal effect on
the ownership of the general partnership interest and that the security
interest held by the Corporation's wholly-owned subsidiary was senior in
priority to the interest claimed by the plaintiff. The plaintiff is seeking an
order declaring that he is the general partner of the partnership and entitled
to possession of its property, a judgment quieting title to general and limited
partnership interests representing a 69% interest in the partnership and other
relief determined by the court to be appropriate. No trial date has been set
for the matter in State District Court but such a date may be set at any time
prior to May, 1998. The Corporation believes that the claims asserted are
without merit and intends to vigorously contest the case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
NONE
EXECUTIVE OFFICERS OF REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following
information is included as an unnumbered item in part I of the Report in lieu
of being included in the Proxy Statement for the Annual Meeting of Stockholders
to be held on May 15, 1997.
The following table sets forth certain information with respect to the
executive officers of the Corporation:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William Belzberg 64 Chairman of the Board
Chief Executive Officer
Keenan Behrle 54 Executive Vice President
Chief Financial Officer
</TABLE>
The term of office of the officers may be terminated at any time by
the Board of Directors.
Mr. William Belzberg has served as chairman of the Board of Directors
of the Corporation since 1977. Mr. Belzberg was also President and Chief
Executive Officer of the Corporation in 1987 and 1988 and has served as Chief
Executive Officer since September, 1990.
Mr. Keenan Behrle became Executive Vice President and Chief Financial
Officer of the Corporation on February 10, 1997. From November, 1993 to
February, 1997, Mr. Behrle was
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engaged in real estate development activities for his own account. From 1991
to November, 1993, Mr. Behrle was President and Chief Executive Officer of
Metropolitan Development, Inc., a real estate development company located in
Los Angeles, California. Mr. Behrle has been a director of the Corporation
since 1985.
PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock is traded on the Pacific Stock Exchange
under the symbol "WI." The following table sets forth the range of high and low
sales prices for the Common Stock of the Corporation for the periods indicated,
as reported by the Pacific Stock Exchange.
<TABLE>
<CAPTION>
High Low
---- ---
1996
- ----
<S> <C> <C>
First Quarter $ 2 3/16 $ 1 5/8
Second Quarter 2 1/16 1 7/8
Third Quarter 2 1/16 1 15/16
Fourth Quarter 2 1 3/4
1995
- ----
First Quarter $ 1 15/16 $ 1 1/8
Second Quarter 1 15/16 1 5/8
Third Quarter 2 1/4 1 1/2
Fourth Quarter 2 5/16 2
</TABLE>
The Corporation had approximately 1,032 holders of record of its
Common Stock as of March 12, 1997.
The Corporation has not paid cash dividends since 1989 and intends to
retain all excess cash resulting from its business operations, if any, for
future acquisitions and investments.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Total assets $33,212 $28,199 $29,473 $27,311 $29,058
Cash and cash
equivalents 2,310 1,715 845 23,257 6,166
Loans receivable, net 4,636 2,513 716 1,410 92
Securities available
for sale 24,162 21,747 25,402 - 1
Telephone systems, net 1,080 1,333 1,579 546 -
Investment in real estate - - - - 18,757
Total liabilities 7,745 5,099 7,990 4,015 18,196
Shareholders' equity 25,467 23,100 21,483 23,296 10,862
======= ======= ======= ======= =======
EARNINGS DATA:
Interest income $ 2,228 $ 1,467 $ 1,139 $ 219 $ 277
Loan fees 751 320 75 - -
Lawsuit settlement, net 813 1,209 3,528 16,819 -
Telephone system revenue 1,528 1,522 1,102 14 -
Gain (loss) on sale
of securities (3) 15 - - -
Gain on sale of loans - - - 150 -
Loss from equity investment (169) - - - -
Refund of litigation costs - - 757 - -
Income (loss) from
continuing operations 1,571 1,308 (1,608) 12,844 (2,874)
(Loss) from discontinued
operations - - - (410) (151)
Net income (loss) 1,571 1,308 (1,608) 12,434 (3,025)
======= ======= ======= ======= =======
PER SHARE DATA:
Net income (loss) per share
from continuing operations $ .20 $ .17 $ (.21) $ 1.64 $ (.37)
Net (loss) per share from
discontinued operations - - - $ (.05) $ (.02)
Net income (loss) per
share $ .20 $ .17 $ (.21) $ 1.59 $ (.39)
Book value per share
(end of period) $ 3.25 $ 2.96 $ 2.75 $ 2.98 $ 1.39
Weighted average fully diluted
shares outstanding 7,844 7,880 7,815 7,815 7,815
Cash dividends per share - - - - -
======= ======= ======= ======= =======
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
At December 31, 1996, the Corporation's principal assets consisted of
a majority ownership interest in Global Telecommunications, a limited
partnership engaged in constructing and operating local telephone services for
military residential quarters (See "Business - Telephone Company"), a
substantial ownership interest in a home delivery shopping company (See
"Business-Pink Dot"), loans secured by real estate, personal property or other
collateral, securities available for sale and cash or cash equivalents.
The Corporation's major sources of on-going income include the
interest earned on its cash and cash equivalent position, interest on
securities available for sale, interest on its loan portfolio, income from
Global Telecommunications and income from its equity investment in Pink Dot,
although this investment recorded a loss in 1996.
RESULTS OF OPERATIONS
Revenues for 1996 were $5,234,000 compared to $4,596,000 for 1995.
The increase primarily resulted from an increase of $566,000 in interest on
loans, a $431,000 increase in loan fees and a $195,000 increase in interest on
securities available for sale and money market funds.
The increase in revenues was partially offset by a decrease of
$396,000 in the amount received from the Drexel, Milken litigation (See "Legal
Proceedings") and a loss of $169,000 in 1996 from an equity investment in Pink
Dot.
Interest on loans increased in 1996 compared to 1995 because of the
large increase in average loans outstanding. Loan fees increased primarily as
a result of recognizing $700,000 of previously unrecognized loan fees.
Although these fees were due in 1995 and 1994, they were not recognized as
income because of severe delinquency problems and doubt as to ultimate
collectibility.
Interest on securities available for sale increased in 1996 as the
Corporation sold its state and municipal securities in April, 1996 and invested
the funds in higher yielding (pre-tax) U.S. Government Securities and Agencies.
In 1996, the Corporation received $813,000, net of attorneys' fees
from the Drexel, Milken litigation as compared to $1,209,000, net of attorneys'
fees in 1995. Although the Corporation expects to receive additional
settlement payments in the future, the timing and amounts of such revenues are
not determinable and monies received will not be as great as previously
recognized. The Corporation did receive an additional payment of approximately
$522,000, net of court directed attorneys' fees, in the first quarter of 1997
which will be reflected in the Corporation's first quarter 1997 consolidated
financial statements.
Telephone system revenue was comparable for 1996 and 1995 as expected
since there were full years of operations for both years with the same number
of operating bases.
The loss on sale of securities for 1996 was $3,000 compared to a gain
of $15,000 in 1995. During 1996, the Corporation recorded a permanent
impairment write-down of $150,000 on an equity security and recorded a gain of
$147,000 on the sale of other securities available for sale.
The loss from the equity investment of $169,000, resulted from the
Corporation's share of Pink Dot's loss from the date of its investment. The
loss was attributable to the opening of several new stores in 1996 which had
not yet reached a break even point.
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Revenues for 1995 were $4,596,000 compared to $6,706,000 for 1994.
The decrease primarily resulted from a significant reduction in the amounts
received from the Drexel, Milken litigation. See "Legal Proceedings." In
1995, the Corporation received $1,209,000 net of attorneys' fees as compared to
$3,528,000 net of attorneys' fees in 1994. The decrease in 1995 also resulted
from a refund of litigation costs incurred in prior years which was recognized
in 1994. There was no such refund in 1995.
The decrease in lawsuit settlement revenues in 1995 was partially
offset by increases in interest on loans of $196,000, loan fees of $245,000,
interest on securities of $132,000 and telephone system revenue of $420,000.
Interest on loans and securities increased because of higher interest rates
during 1995 which were only partially offset by lower average principal
balances outstanding. Loan fees increased because they are recognized on the
cash basis as received due to the uncertainty of collectibility. Telephone
system revenue, which consists entirely of billings for telephone charges,
increased due to the fact that 1995 was the first full year of operations for
all four bases.
Total expenses for 1996 were $2,763,000 and dropped slightly when
compared to $2,819,000 for 1995. Telephone time charges and other telephone
system charges were comparable from year to year as expected since there were
full years of operations for both years with the same number of operating
bases.
General and administrative expenses of $1,424,000 for 1996 were
comparable to such expenses of $1,460,000 in 1995. All expense categories
included in general and administrative expenses were comparable from year to
year.
Total expenses for 1995 were $2,819,000 compared to $6,422,000 for
1994. The decrease was due to a $4,000,000 settlement in 1994 of certain
litigation threatened by the RTC. There was no such settlement in 1995.
General and administrative expenses also decreased $162,000 in 1995. The
decreases were partially offset by increases of $204,000 in telephone time
charges and $355,000 of telephone system expenses in 1995. Telephone time
charges and telephone system expenses increased because 1995 was the first full
year of operations for all four bases.
The decrease in general and administrative expenses for 1995 compared
to 1994 primarily resulted from a reduction of legal expenses of approximately
$400,000 during 1995. This decrease was partially offset by an increase in
most other expense categories due to the continued increase in the
Corporation's activities during 1995. Legal expenses decreased because
threatened litigation with the RTC was settled in 1994.
General and administrative expenses for the years 1994 through 1996
consisted of salaries, occupancy expense and other costs and in 1994 included
substantial legal fees incurred in connection with threatened litigation
against the Corporation, its officers and directors by the RTC.
The 1996 and 1995 provisions for income taxes primarily reflect
deferred provisions for income before taxes less non taxable interest for
federal income tax purposes and a deferred provision for income before taxes
for state income tax purposes. The 1994 provision for income taxes primarily
reflects a provision for unresolved tax issues.
The income tax provisions reflect effective rates of 34%, 24% and 626%
for the years ended December 31, 1996, 1995 and 1994. The 1996 effective rate
increased from 1995 due to a lesser proportion of tax free state and municipal
securities outstanding during the year. The 1995 effective rate decreased
significantly because of the provision for unresolved tax issues in 1994.
In the fourth quarter of 1994, the Corporation received the
preliminary results provided by the Franchise Tax Board with respect to its
refund claim for approximately $3.9 million (including
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accrued interest of $1.2 million at the date of the claim). Those audit
findings propose to deny the refund claim. The Corporation has filed a protest
with the California Franchise Tax Board which sets forth its position with
respect to the refund claims. While the Corporation remains convinced that it
will eventually recover all or a substantial portion of its refund claim, in
1992 the Corporation established a valuation allowance of 50%, adjusting the
carrying value of this asset to $1,954,000 at December 31, 1992, to reflect the
uncertainties attributable to the California Franchise Tax Board's position.
Due to continuing uncertainties and the length of time it will take to resolve
this matter, management recorded an additional provision for unresolved tax
issues of $1,954,000 during 1994. The provision is included in the provision
for income taxes in the 1994 Consolidated Statement of Operations.
PAST DUE LOANS, INTEREST AND LOAN FEES
During the period from September, 1993 through July, 1995 the
Corporation made several loans which aggregated approximately $7,313,000 to one
party which were secured by mortgages or deeds of trust on residential and
commercial properties as well as notes secured by mortgages and deeds of trust
on residential and commercial properties. At December 31, 1995 the entire
principal balance and accrued interest thereon had been paid in full. However,
there were also approximately $1,500,000 in loan fees and penalties which were
due at various dates during 1995 and 1994.
During 1995, the Corporation received approximately $320,000 of the
fees and penalties due. The balance of $1,180,000 plus accrued interest of
$70,000 was all past due at December 31, 1995. During 1996, the Corporation
reached a settlement agreement with the party in regard to the balances
outstanding. The final settlement required the borrower to remit a total of
approximately $700,000 by December 31, 1996. The Corporation did receive these
fees during 1996. Due to the past due nature of these fees, penalties and
interest and the questionable collectibility, amounts were recognized in the
financial statements only as cash was received.
At December 31, 1996 all loans outstanding were current as to principal
and interest.
LIQUIDITY
The principal changes in the Corporation's financial condition at
December 31, 1996 as compared to December 31, 1995 are the decrease of
$1,571,000 in the accumulated deficit resulting from the net income for the
year ended December 31, 1996 and increases in cash and cash equivalents,
securities available for sale and loans receivable. U.S. Government and Agency
securities with a market value of $16,758,000 have a weighted average maturity
of approximately eleven months, and therefore the Corporation continues to
maintain a very strong liquidity position. The securities are pledged as
collateral against the Corporation's line of credit.
The Corporation's financial position at December 31, 1996 remained
strong. Shareholders' equity was $25,467,000 (as compared to $23,100,000 at
December 31, 1995), and the Corporation had no outstanding debt, although it
did have $6,058,000 in income tax liabilities, $77,000 in accounts payable,
$56,000 in accrued expenses and $1,200,000 due a broker. The income tax
liabilities primarily consist of tax provisions for the settlements received in
connection with the Drexel and related litigation (partially offset by net
operating loss carryfowards).
The Corporation continues to seek investments in or acqusitions of one
or more businesses, although no assurances can be given that any such
acquisitions or investments will be made or, if made, that they will be
successful.
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RECENT ACCOUNTING DEVELOPMENT
In June, 1996, the Financial Accounting Standards Board issued SFAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be applied prospectively. This Statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. Management of the Corporation does not expect that
adoption of SFAS No. 125 will have a material impact on the Corporation's
financial position, results of operations, or liquidity.
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<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Westminster Capital, Inc.
Beverly Hills, California:
We have audited the accompanying consolidated statements of financial condition
of Westminster Capital, Inc. and subsidiaries (the "Corporation") as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Westminster
Capital, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
March 1, 1997
13
<PAGE> 14
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- ------------
<S> <C> <C>
Cash and cash equivalents $ 2,310,000 $ 1,715,000
Securities available for sale, at market 24,162,000 21,747,000
Loans receivable, net 4,636,000 2,513,000
Accounts receivable 225,000 321,000
Income tax refunds receivable 1,954,000 1,954,000
Less: allowance for doubtful receivable (1,954,000) (1,954,000)
----------- -----------
Income tax refunds receivable, net - -
Accrued interest receivable 422,000 522,000
Telephone systems, net 1,080,000 1,333,000
Office furniture and equipment, net 48,000 45,000
Goodwill, net 278,000 -
Other assets 51,000 3,000
----------- -----------
TOTAL ASSETS $33,212,000 $28,199,000
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 77,000 $ 181,000
Accrued expenses 56,000 104,000
Due to broker 1,200,000 -
Income taxes 6,058,000 4,349,000
Minority interest in limited partnership 354,000 465,000
----------- -----------
TOTAL LIABILITIES 7,745,000 5,099,000
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value: 30,000,000 shares
authorized: 7,835,000 and 7,815,000 shares
issued and outstanding in 1996 and 1995,
respectively 7,835,000 7,815,000
Capital in excess of par value 55,943,000 55,946,000
Accumulated deficit (39,194,000) (40,765,000)
Unrealized holding gains on securities
available for sale, net of taxes 883,000 104,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 25,467,000 23,100,000
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,212,000 $28,199,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 15
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INCOME: 1996 1995 1994
- ------- ---- ---- ----
<S> <C> <C> <C>
Interest on loans $1,184,000 $ 618,000 $ 422,000
Loan fees 751,000 320,000 75,000
Interest on securities available
for sale and money market funds 1,044,000 849,000 717,000
Gain (loss) on sale of securities
available for sale (3,000) 15,000 -
Lawsuit settlement, net 813,000 1,209,000 3,528,000
Telephone system revenue 1,528,000 1,522,000 1,102,000
Refund of litigation costs - - 757,000
Loss from equity investment (169,000) - -
Other 86,000 63,000 105,000
---------- ---------- -----------
Total Income 5,234,000 4,596,000 6,706,000
---------- ---------- -----------
EXPENSES:
- ---------
Regulatory settlement - - 4,000,000
Telephone time charges 725,000 723,000 519,000
Other telephone system charges 614,000 636,000 281,000
General and administrative 1,424,000 1,460,000 1,622,000
---------- ---------- -----------
Total Expenses 2,763,000 2,819,000 6,422,000
---------- ---------- -----------
INCOME BEFORE INCOME
TAXES AND MINORITY INTEREST 2,471,000 1,777,000 284,000
INCOME TAX PROVISION (840,000) (420,000) (1,778,000)
MINORITY INTEREST IN INCOME
OF CONSOLIDATED PARTNERSHIP (60,000) (49,000) (114,000)
---------- ---------- -----------
NET INCOME (LOSS) $1,571,000 $1,308,000 $(1,608,000)
========== ========== ===========
Net Income (loss) Per Common Share:
Primary $.20 $ .17 $(.21)
Fully Diluted $.20 $ .17 $(.21)
========== ========== ===========
Weighted Average Shares Outstanding:
Primary 7,842,000 7,850,000 7,815,000
Fully Diluted 7,844,000 7,880,000 7,815,000
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
15
<PAGE> 16
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED HOLDING
GAINS (LOSSES)
CAPITAL IN ON SECURITIES
COMMON EXCESS OF ACCUMULATED AVAILABLE FOR SALE,
STOCK PAR VALUE DEFICIT NET OF TAXES
---------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $7,815,000 $55,946,000 $(40,465,000) $ -
Net loss - - (1,608,000) -
Unrealized holding losses on securities
available for sale, net of taxes - - - (205,000)
---------- ----------- ------------ ---------
BALANCE, DECEMBER 31, 1994 7,815,000 55,946,000 (42,073,000) (205,000)
Net income - - 1,308,000 -
Change in unrealized holding gains
on securities available for sale,
net of taxes - - - 309,000
---------- ----------- ------------ ---------
BALANCE, DECEMBER 31, 1995 $7,815,000 $55,946,000 $(40,765,000) $ 104,000
Net income - - 1,571,000 -
Change in unrealized holding gains
on securities available for sale,
net of taxes - - - 779,000
Exercise of stock options 20,000 (3,000) - -
---------- ----------- ------------ ---------
BALANCE, DECEMBER 31, 1996 $7,835,000 $55,943,000 $(39,194,000) $ 883,000
========== =========== ============ ========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 17
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS/OPERATING ACTIVITIES:
Net income (loss) $ 1,571,000 $ 1,308,000 $ (1,608,000)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Provision for loan losses and doubtful
receivables 50,000 30,000 31,000
Depreciation, amortization and
accretion, net 40,000 264,000 354,000
Decrease (Increase) in accounts receivable 46,000 (64,000) (245,000)
Decrease (Increase) in accrued interest 100,000 89,000 (572,000)
receivable
Loss (Gain) on sales of securities
available for sale 3,000 (15,000) -
Loss from equity investment 169,000 - -
Net change in income taxes 1,190,000 935,000 (176,000)
Decrease (increase) in other assets (2,000) 2,000 32,000
Net change in accounts payable (104,000) 116,000 65,000
Net change in accrued expenses (48,000) (4,119,000) 5,811,000
Net change in minority interest (111,000) (30,000) 366,000
------------ ------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 2,904,000 (1,484,000) 4,058,000
------------ ------------ ------------
CASH FLOWS/INVESTING ACTIVITIES
Purchase of securities (44,981,000) (15,999,000) (58,958,000)
Proceeds from maturities of securities 2,010,000 5,519,000 11,795,000
Proceeds from sales of securities 41,659,000 14,456,000 21,247,000
Loan originations and purchases (7,760,000) (4,687,000) (5,247,000)
Principal collected on loans receivable 6,046,000 3,065,000 5,910,000
Net change in due to broker 1,200,000 - -
Proceeds from exercise of options 17,000 - -
Purchase of equity investment (500,000) - -
Purchase of telephone systems and office
equipment - - (1,217,000)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (2,309,000) 2,354,000 (26,470,000)
------------ ------------ ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 595,000 870,000 (22,412,000)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,715,000 845,000 23,257,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 2,310,000 $ 1,715,000 $ 845,000
============ ============ ============
Supplemental schedule of non cash
investing and financing activities:
Tax effect of unrealized gains (losses)
on securities available for sale $ 519,000 $ 207,000 $ (137,000)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 18
WESTMINSTER CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(See Independent Auditors' Report)
1. BASIS OF PRESENTATION
In 1991, the Resolution Trust Corporation (the "RTC") took possession of
FarWest Savings and Loan Association (the "Association"), the Corporation's
wholly owned subsidiary, as sole conservator and subsequently was appointed
receiver of the Association. In 1995, a Settlement Agreement and Release was
entered into by and between the RTC, the Corporation, and three of its present
and former directors ("Directors"). The Settlement Agreement provided for
payment of $4 million by the Corporation to the RTC, requires the RTC to
cooperate with the Corporation in connection with the pending proceedings to
recover tax payments made by the Corporation to the State of California, and
releases all claims among the parties. The $4 million settlement was provided
for in the 1994 consolidated financial statements.
The Corporation acquired a limited partnership interest in Global
Telecommunications in October 1993 and as of December 31, 1996 has invested
$1,265,000 in that partnership to fund a telephone accessing network on four
military bases. Under the Global Telecommunications partnership agreement, the
Corporation is entitled to 75% of the partnership distributions (which is
proportional to its investment).
On September 23, 1996 the Corporation acquired a 40% interest in Pink Dot,
Inc., a home delivery shopping company. The Corporation accounts for the
investment under the equity method of accounting. Under the equity method of
accounting, income or loss is recognized in the Corporation's Statement of
Operations based on its proportionate share of Pink Dot's income or loss.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF ACCOUNTING AND CONSOLIDATION - The consolidated financial
statements include the accounts of the Corporation and its wholly owned
subsidiaries, FarWest Financial Insurance Agency, Silver Ridge Apartments,
G.P., Inc. and Silver Ridge Apartments, L.P., Inc. FarWest Financial Insurance
Agency has been inactive since 1991 and Silver Ridge Apartments G.P., Inc., and
Silver Ridge Apartments L.P., Inc., have been inactive since 1993. The
consolidated financial statements also include the accounts of Global
Telecommunications, a limited partnership in which the Corporation has a 75%
limited partnership interest. All material intercompany accounts and
transactions have been eliminated in consolidation. References to the
Corporation may include one or more of its wholly owned subsidiaries.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents are short-term, highly
liquid investments with original maturities of three months or less. They are
readily convertible to known amounts of cash and are so near maturity that no
significant risk of changes in value exists because of changes in interest
rates.
SECURITIES AVAILABLE FOR SALE - The Corporation classifies its securities as
held to maturity securities, trading securities and available for sale
securities, as applicable. The Corporation did not hold any held to maturity
securities or trading securities at December 31, 1996 or 1995.
18
<PAGE> 19
Securities available for sale are carried at estimated fair value. The
Corporation classifies investments as available for sale when it determines
that such securities may be sold at a future date or if there are foreseeable
circumstances under which the Corporation would sell such securities.
Changes in the estimated fair value of securities available for sale are
included in shareholders' equity as unrealized holding gains or losses, net of
the related tax effect. Declines in the fair value of individual securities
available for sale below their cost that are other than temporary are
written-down to their estimated fair value with the resulting write-down
included in net income as realized losses. Realized gains or losses on
available for sale securities are computed on a specific identification basis.
Amortized premiums and accreted discounts are included in interest income using
the interest method.
WARRANTS - In connection with the funding of loans and purchase of securities,
the Corporation has received warrants to purchase common stock of the debtor.
Certain warrants are not assigned a value as no estimated fair value is readily
obtainable. Such warrants are recorded at their estimated fair value when a
market is established.
PURCHASE DISCOUNT ON AUTOMOBILE LEASING PORTFOLIO - The discount received on
the purchase of the automobile leasing portfolio is recognized in income over
the lives of the loans using a method which approximates the interest method.
TELEPHONE SYSTEMS - Telephone systems are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets which is seven years. Telephone system
revenue is recognized on the accrual basis for charges incurred on a monthly
basis.
GOODWILL - Goodwill represents the excess of the purchase price over the
estimated fair value of net assets associated with investments using the equity
method of accounting. Goodwill is amortized over a ten year period and is
evaluated periodically for other than temporary impairment. During this
evaluation, Management takes into consideration the value of the recorded
goodwill and any event or circumstances that might have diminished fair value.
Should such an assessment indicate permanent impairment the net book value
would be adjusted accordingly.
LOAN FEES - Loan Fees are deferred net of direct incremental loan origination
costs. Net deferred fees are accreted into income using the interest method or
straight line method if not materially different. Loan fees due at the
maturity of a loan are also deferred and accreted to income unless
collectibility is in doubt in which case they are then recognized on the cash
basis.
INCOME (LOSS) PER SHARE - Income (loss) per share is computed on the basis of
the weighted average number of common shares outstanding during each period
plus the additional dilutive effect of common stock equivalents. The dilutive
effect of outstanding stock options is calculated using the treasury stock
method.
INCOME TAX MATTERS - The Corporation joins with its subsidiaries in filing
consolidated federal income and state franchise tax returns. In the tax
returns, taxable income or loss is consolidated with the taxable income or loss
of the subsidiaries.
Under the asset and liability method of accounting for income taxes, income tax
expense (benefit) is recognized by establishing deferred tax assets and
liabilities for the estimated future tax consequences attributable to the
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
Corporation's
19
<PAGE> 20
evaluation of the realizability of deferred tax assets includes consideration
of the amount and timing of future reversals of existing temporary differences.
STOCK OPTION PLAN - Prior to January 1, 1996, the Corporation accounted for its
stock option plan in accordance with the provision of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Corporation adopted
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting
for Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
income per share disclosures for employee stock option grants issued in 1995
and future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Corporation has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure of SFAS No. 123.
USE OF ESTIMATES - Management of the Corporation has made certain estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principals. Actual results could differ from these estimates. Material
estimates that are particularly susceptible to significant changes relate to
the estimated fair value of certain securities available for sale.
RECLASSIFICATION - Certain reclassifications have been made to the prior years'
financial statements to conform with the 1996 presentation.
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale are carried at estimated fair value. The
amortized cost and estimated fair value of securities available for sale at
December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
1996: -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and Agency
Securities $16,723 $ 35 -- $16,758
Equity and Debt Securities 4,307 1,322 -- 5,629
Investments in Limited
Partnerships which invest
in Securities 1,660 115 -- 1,775
------- ------ ---- -------
Total $22,690 $1,472 $ -- $24,162
======= ====== ==== =======
1995:
State, Municipal and other
Obligations $20,623 $ 55 $ 13 $20,665
Equity Securities 950 173 41 1,082
------- ------ ---- -------
Total $21,573 $ 228 $ 54 $21,747
======= ====== ==== =======
</TABLE>
U.S. Teasury and Agency Securities at December 31, 1996 are pledged against the
Corporation's line of credit.
20
<PAGE> 21
Maturities of securities available for sale were as follows at December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------- --------
<S> <C> <C>
Due after one year through
five years $20,483 $21,909
Equity securities 2,207 2,253
------- -------
$22,690 $24,162
======= =======
</TABLE>
All of the investments in limited partnerships which invest in securities are
classified in the due after one year through five years category as they have
redemption rights exercisable by the Corporation.
Gross unrealized gains include the value ascribed to warrants which have a
readily determinable value, whether detached or attached to securities.
Proceeds from sales of securities available for sale during 1996 and 1995 were
approximately $41,659,000 and $14,456,000, respectively. Gross gains (losses)
of $221,000 and ($224,000) were realized on these sales in 1996, and $16,000
and ($1,000) in 1995, respectively. During 1996, the market price of one
readily tradeable security declined below its cost to a level that was
considered to be other than temporary. A resulting write-down of $150,000 was
recorded by the Corporation as a realized loss on sale of securities.
4. LOANS RECEIVABLE
The composition of the Corporation's loans receivable at December 31, 1996 and
1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Loans secured by automobile
leases, net of discount $ 742 $2,448
Loans, including loan fees, secured
by trust deeds or mortgages 1,892 -
Loans secured by other collateral 2,002 65
------ ------
Total $4,636 $2,513
====== ======
</TABLE>
The loans secured by automobile leases represent a portfolio of loans purchased
by the Corporation in 1995. The purchase price was $3,551,000 net of discount
of $742,000. The remaining average maturity of the portfolio is approximately
nine months at December 31, 1996. At December 31, 1996 all loans were
performing in accordance with their contractual terms.
The loans secured by trust deeds or mortgages made by the Corporation from 1993
to 1995 were collateralized by residential and commercial properties. These
loans and loan fees bear interest rates which approximate 15% and all matured
during 1994 and 1995. All of the principal balances were paid off in 1995, and
loan fees of $700,000 and $320,000 were recognized as income in 1996 and 1995,
respectively.
The loans secured by trust deeds or mortgages originated in 1996 have
maturities of less than two years and interest rates of 15%. The loans secured
by other collateral include a $500,000 note that matures in 1997 and has a 12%
interest rate and a $1,500,000 note which commences quarterly installment
payments on April 15, 2000 based on a 15 year amortization, with the entire
unpaid
21
<PAGE> 22
principal amount due December, 2001. The interest rate is equal to the lessor
of Bank of America's "prime rate" or the rate established by the Federal
Reserve Bank of San Francisco on advances to member banks plus 5%. Such rate
was 8.25% at December 31, 1996.
5. TELEPHONE SYSTEMS, NET
The following is a summary of telephone systems, net at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Telephone systems $1,746 $1,746
Less accumulated depreciation (666) (413)
------ ------
Telephone systems, net $1,080 $1,333
====== ======
</TABLE>
Depreciation expense of telephone systems was approximately $253,000, $246,000
and $164,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
6. EQUITY INVESTMENT
On September 23, 1996 the Corporation acquired a 40% interest in Pink Dot, Inc.
("Pink Dot"), a home delivery shopping company for $500,000. The excess of the
cost of the investment over 40% of equity at the date of investment has been
recorded as goodwill and is being amortized over a ten year period. The
Corporation's portion of results of operations for Pink Dot are included in the
Consolidated Statements of Operations since the date of investment. The equity
investment, net of current period losses, of $46,000 at December 31, 1996 is
included in other assets in the Consolidated Statements of Financial Condition.
The summarized assets and liabilities of Pink Dot on September 23, 1996, the
date of the Company's investment and December 31, 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
September 23, 1996 December 31, 1996
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Total Assets $2,545 $2,300
====== ======
Total Liabilities 2,007 1,985
====== ======
Total Liabilities and
Shareholders' Equity $2,545 $2,300
====== ======
</TABLE>
Included in liabilities at December 31, 1996 is a $1,500,000 note payable to
the Corporation.
For the year ended December 31, 1996, Pink Dot had revenues of $5,922,000 and
expenses of $6,492,000 resulting in a pre-tax loss of $570,000.
7. INCOME TAXES
The Corporation made no income tax payments during 1996, 1995 or 1994, except
for the minimum state franchise tax.
22
<PAGE> 23
The provision (benefit) for income taxes for the years ended December 31, 1996,
1995, and 1994 includes the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current tax provision $ - $ - $ -
Deferred tax provision (benefit)
Federal 610 255 (171)
State 230 165 (5)
------ ---- ------
Total 840 420 (176)
Provision for unresolved tax issues - - 1,954
------ ---- ------
Total provision for income taxes $ 840 $420 $1,778
====== ==== ======
Total allocated to operations $ 840 $420 $1,778
Total allocated to equity 519 207 (137)
------ ---- ------
Total income taxes $1,359 $627 $1,641
====== ==== ======
</TABLE>
The Corporation's deferred tax receivables resulting from the utilization of
net operating loss carryforwards are offset in future years by deferred tax
payables. The Corporation's tax net operating loss carryforwards of
$10,152,000 and $3,862,000 for federal and state purposes, respectively, expire
at various dates through 2011 for federal income tax purposes and through 2001
for state income tax purposes.
The income tax provision reflects effective rates of 34%, 24%, and 626% for the
years ended December 31, 1996, 1995, and 1994 on income before income taxes,
respectively. The income tax provision differed from the amounts computed by
applying the statutory federal income tax rate of 34% to the income before
income taxes for the following reasons (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -------
<S> <C> <C> <C>
Tax expense at statutory Federal income tax rate $ 840 $ 588 $ 97
California franchise tax, net of Federal benefit 144 109 9
State and municipal securities interest (148) (289) (243)
Minority interest (24) (17) (39)
Provision for unresolved tax issues - - 1,954
Other, net 28 29 -
----- ----- ------
$ 840 $ 420 $1,778
----- ----- ------
</TABLE>
In the fourth quarter of 1994, the Corporation received preliminary results
from the California Franchise Tax Board with respect to its refund claim for
approximately $3.9 million (including accrued interest of $1.2 million). Those
audit findings propose to deny the refund claim. The Corporation has filed a
protest with the California Franchise Tax Board which sets forth its position
with respect to the refund claims. While the Corporation remains convinced
that it will eventually recover all or a substantial portion of its refund
claim, in 1992 the Corporation established a valuation allowance of 50%,
adjusting the carrying value of this asset to $1,954,000 at December 31, 1992,
to reflect the uncertainties attributable to the California Franchise Tax
Board's position. Due to continuing uncertainties and the length of time it
will take to resolve this
23
<PAGE> 24
matter, management established an additional provision for unresolved tax issues
of $1,954,000 during 1994.
At December 31, 1996 and 1995 the Corporation had cumulative deferred taxes
payable of $6,058,000 and $4,349,000, respectively. The Corporation had no
current taxes payable at December 31, 1996 and 1995. Tabulated below are the
significant components of the net deferred tax liability at December 31, 1996
and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Components of the deferred tax asset:
Net operating loss carryforward $(3,793) $(4,329)
State taxes (516) (467)
Loan fee income (28) (277)
Equity in Pink Dot (109) --
Other (69) (86)
------- -------
Deferred tax asset (4,515) (5,159)
------- -------
Components of the deferred tax liability:
Legal settlements 9,987 9,438
Unrealized holding gains on
securities available for sale 586 70
------- -------
Deferred tax liability 10,573 9,508
------- -------
Net deferred tax liability $ 6,058 $ 4,349
======= =======
Net state deferred tax liability $ 1,639 $ 1,387
Net federal deferred tax liability 4,419 2,962
------- -------
$ 6,058 $ 4,349
======= =======
</TABLE>
In evaluating the realizability of its deferred tax assets, management has
considered the turnaround of deferred tax liabilities during the periods in
which those temporary differences become deductible. Additionally, the
Corporation has not considered income from future operations in evaluating
realizability of its deferred tax assets.
8. LAWSUIT SETTLEMENT
During 1996, the Corporation received approximately $800,000 in net proceeds
from the settlement of claims asserted on behalf of the Corporation against
Drexel Burnham Lambert, Inc. and Michael Milken and other related parties. In
1995 and 1994, the Corporation received approximately $1.2 million and $3.5
million, respectively in net proceeds from the same settlement.
24
<PAGE> 25
9. STOCK OPTION PLAN
The Corporation maintains two stock option plans: the 1986 Incentive Stock
Option Plan and the 1986 Non-statutory Stock Option Plan (the "Plans"). An
aggregate of one million shares of the Corporation's common stock may be issued
under both Plans, provided that no more than 750,000 shares may be issued to
directors.
During 1995, the Chairman of the Board and Chief Executive Officer was granted
an option to purchase up to 250,000 shares of Common Stock under the Company's
Incentive Stock Option Plan at $1.99 per share, which is equal to 110% of the
market price on the date of grant as specified in the Plan. The option is
exercisable in four equal annual installments commencing with the first
anniversary of the grant date. The option expires five years from the date of
grant. At December 31, 1996, the option was exercisable as to 62,500 shares.
During 1995, five outside Directors of the Corporation were granted options to
purchase up to 10,000 shares each under the Corporation's Non-Statutory Stock
Option Plan at $1.8125 per share, which is equal to the market price on the
date of grant as specified in the Plan. The options are exercisable in four
equal annual installments commencing with the first anniversary of the grant
date. The options expire five years from the date of grant. At December 31,
1996, these options were exercisable as to an aggregate of 12,500 shares.
The per share weighted-average fair value of stock options granted during 1995
was $.50 on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 6.25%, and an expected life of 5 years.
The Corporation applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Corporation determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Corporation's net income would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income As reported $1,571 $1,308
Pro forma $1,548 $1,285
Net income per share
(fully diluted) As reported $ .20 .17
Pro forma .20 .17
</TABLE>
Pro forma net income reflects only options granted in 1995. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma amounts presented above because
compensation cost is reflected over the option's vesting period of four years
and compensation cost for options granted prior to January 1, 1995 is not
considered.
25
<PAGE> 26
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted Avg.
Number of Option Option Price
Shares Price Per Share
------- ------------ -----------
<S> <C> <C> <C>
Balance at December 31, 1994 245,000 $ .88 - 12.88 $10.43
Granted 300,000 1.81 - 1.99 1.96
Exercised -- -- --
Cancelled (195,000) 12.88 12.88
Expired --
------- ------------ ------
Balance at December 31, 1995 350,000 .88 - 1.99 1.81
Granted -- --
--
Exercised (20,000) .88 .88
Cancelled (30,000) .88 .88
Expired -- --
--
------- ------------ ------
Balance at December 31, 1996 300,000 $1.81 - 1.99 $ 1.96
======= ============ ======
</TABLE>
At December 31, 1996, the weighted-average remaining contractual life of
outstanding options was 3.3 years.
At December 31, 1996 and 1995, the number of options exercisable was 75,000 and
10,000 respectively, and the weighted-average exercise price of those options
was $1.96 and $.88, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Corporation has a $10 million line of credit ("LC") with a bank which
expires on April 15, 1997. Interest on the LC is equal to the lesser of the
banks' prime rate or 1.75% above the bank's LIBOR rate. Proceeds drawn on the
LC are required to be used for working capital requirements. The Company did
not utilize the LC during 1996.
The Corporation had outstanding loan commitments at December 31, 1996 totaling
$1 million and a commitment to invest an additional $125,000 in a Limited
Partnership which invests in securities. There were no outstanding commitments
at December 31, 1995.
The Corporation is a defendant in various lawsuits arising from the normal
course of business. Management believes, based upon the opinion of legal
counsel, that the ultimate resolution of the pending litigation will not have a
material effect upon the financial condition or results of operations of the
Corporation.
11. LEASE COMMITMENTS
The Corporation leases office space for its corporate offices under a non-
cancelable operating lease which expires in 1997. Minimum rental commitments
under this lease $56,434 for the year ending December 31, 1997. The
Corporation recorded $62,365, $67,784 and $73,364 in rent expense for the years
ended December 31, 1996, 1995 and 1994, respectively.
26
<PAGE> 27
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107 requires disclosures of
fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value. Fair
value amounts represent estimates of value at a point in time. Significant
estimates regarding economic conditions, loss experience, risk characteristics,
and other factors are used in estimating fair value. These estimates can be
subjective in nature and involve matters of judgment. Changes in the
assumptions could have a material impact on the amounts disclosed. The methods
and assumptions for determining fair value of the Corporation's financial
instruments are as follows:
Cash and Cash Equivalents
The carrying amount is a reasonable estimate of fair value.
Securities Available for Sale
Fair value has been determined based on quoted market prices, when available.
If a quoted market price is not available, recent market trading prices or the
value at which interests may currently be redeemed are used to estimate fair
value.
Loans receivable, net
Loans held by the Corporation are homogeneous in nature and are performing in
accordance with their contractual terms. Based on the type of loans, interest
rate characteristics, credit risk, and maturity, the carrying value of the
loans has been determined to be a reasonable estimate of fair value.
13. RECENT ACCOUNTING DEVELOPMENT
In June, 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996 and is to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. The Corporation does not expect that adoption of SFAS No. 125 will
have a material impact on the Corporation's financial position, results of
operations, or liquidity.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
CORPORATION.
Incorporated by reference to the Corporation's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders pursuant to
instruction G(3) to Form 10-K.
27
<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Corporation's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders pursuant to
instruction G(3) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Incorporated by reference to the Corporation's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders pursuant to instruction
G(3) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Corporation's definitive Proxy
Statement for its 1997 Annual Meeting of Stockholders pursuant to
instruction G(3) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Item 8:
Consolidated Statements of Financial
Condition as of December 31, 1996 and 1995
Consolidated Statements of Operations
for the Three Years Ended December 31, 1996
Consolidated Statements of Shareholders'
Equity for the Three Years Ended December 31, 1996
Consolidated Statements of Cash Flows
for the Three Years Ended December 31, 1996
Notes to Consolidated Financial Statements
for the Three Years Ended December 31, 1996
(a)(2) Financial Statement Schedules
All schedules are omitted as the required information is inapplicable
or is presented in the consolidated financial statements or related notes.
(b) Reports of Form 8-K
No reports were filed on Form 8-K during the fourth quarter of 1996.
(c) Exhibits
See "Index to Exhibits."
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WESTMINSTER CAPITAL, INC.
March 24, 1997 By: /s/ William Belzberg
--------------------
William Belzberg,
Chairman of the Board
Chief Executive Officer
By: /s/ Keenan Behrle
------------------------
Keenan Behrle,
Executive Vice President,
Chief Financial Officer, and
Principal Accounting Officer
29
<PAGE> 30
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY DATE
<S> <C> <C>
/s/William Belzberg Chairman of the Board March 24, 1997
- -------------------------- of Directors and
William Belzberg Chief Executive Officer
/s/Dwight C. Baum Director March 24, 1997
- --------------------------
Dwight C. Baum
/s/Keenan Behrle Director March 24, 1997
- --------------------------
Keenan Behrle
/s/Hyman Belzberg Director March 24, 1997
- --------------------------
Hyman Belzberg
/s/Samuel Belzberg Director March 24, 1997
- --------------------------
Samuel Belzberg
/s/Barbara C. George Director March 24, 1997
- --------------------------
Barbara C. George
/s/Monty Hall Director March 24, 1997
- --------------------------
Monty Hall
/s/Lester Ziffren Director March 24, 1997
- --------------------------
Lester Ziffren
</TABLE>
30
<PAGE> 31
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. SEQUENTIALLY NUMBERED DESCRIPTION
<S> <C>
3.1 Certificate of Incorporation of the Registrant as amended through
July 12, 1992 (filed as Exhibit 3.1 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 and incorporated
herein by this reference).
Certificate of amendment of Certificate of Incorporation of the
Registrant dated July 13, 1992 (filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by this reference).
3.2 By-Laws of the Registrant as amended in their entirety effective
April 4, 1995 (filed as Exhibit 4.4 to the Registrant's Post Effective
Amendment No. 1 to Form S-8 filed on June 23, 1995 as Registration No.
33-21177 and incorporated herein by this reference).
10.1 Sales Agreement between The Sumitomo Bank of California and Purchasers
dated August 17, 1995 (filed as Exhibit 10.1 to the Registrant's
Annual Report on 10-K for the year ended December 31, 1995 and
incorporated herein by this reference).
10.2 1986 Incentive Stock Option Plan and 1986 Nonstatutory Stock Option
Plan (filed as Exhibit 4.1 to the Registrants' Post Effective Amendment
No.1 to Form S-8 filed on June 23, 1995 as Registration No. 33-21177
and incorporated herein by this reference).
10.3 Form of Stock Option Agreement (filed as Exhibit 4.2 to the
Registrants' Post Effective Amendment No.1 to Form S-8 filed on June
23, 1995 as Registration No. 33-21177 and incorporated herein by this
reference).
10.4 Restated and Amended Limited Partnership Agreement for Global
Telecommunications Systems, Ltd. dated December 31, 1993 (filed as
Exhibit 10.4 to the Registrant's Annual Report on 10-K for the year
ended December 31, 1993 and incorporated herein by this reference).
10.5 Loan and Stock Purchase Agreement dated November 20, 1995 between the
Corporation and Pink Dot, Inc., a California Corporation ("Pink
Dot").
10.6 Amendment to Loan and Stock Purchase Agreement dated September 20,
1996 between the Corporation and Pink Dot.
21 Subsidiaries of Registrant.
23 Independent Auditors' Consent
27 Financial Data Schedule.
</TABLE>
31
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Westminster Capital, Inc.
Beverly Hills, California:
We have audited the accompanying consolidated statements of financial condition
of Westminster Capital, Inc. and subsidiaries (the "Corporation") as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in a material respects, the financial position of Westminster Capital,
Inc. and subsidiaries as of December 3 1, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Los Angeles, California
March 1, 1997
13
<PAGE> 1
ORIGINAL
LOAN AND STOCK PURCHASE AGREEMENT
Exhibit 10.5
THIS LOAN AND STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into this 20th day of November, 1995, by and between WESTMINSTER
CAPITAL, INC., a California Corporation ("Westminster"), and PINK DOT, INC., a
California Corporation ("Pink Dot").
RECITALS
A. Pink Dot conducts business as a discount retailer of liquor
and other grocery products. Pink Dot currently operates two retail stores, one
at 8049 Sunset Boulevard, West Hollywood, California, and one at 11266 Santa
Monica Boulevard, Los Angeles, California.
B. Pink Dot desires to expand its retail business by opening
additional stores, with the ultimate expectation of taking the company public.
C. Westminster is interested in loaning Pink Dot funds for
expansion and Pink Dot is interested in borrowing funds from Westminster, on
the terms and conditions set forth herein.
NOW, THEREFORE in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Westminster agrees to loan up to Two Million Five Hundred
Thousand Dollars ($2,500,000) (the "Loan") to Pink Dot on the terms and
conditions set forth in this Agreement.
2. Westminster will advance the first One Million Dollars
($1,000,000) of the Loan to Pink Dot at such times and in such amounts as Pink
Dot shall request. Westminster shall fund each advance within two (2) business
days after receipt of a written request from Pink Dot, which request shall
identify the intended use of the funds. Such requests may not be made more
frequently than once each week, and the minimum amount of each advance
requested shall be Ter, Thousand Dollars ($10,000). The Loan will be evidenced
by a Promissory Note (the "Note") in the form of Exhibit "A" attached hereto
and made a part hereof by reference. The Note will be secured as provided in
this Agreement.
3. The One Million Dollar ($1,000,000) advance shall be used
solely for the purpose of opening three (3) additional stores, similar in size,
design and layout to the two (2) existing stores. The location of the
additional stores shall be subject to the reasonable approval of Westminster.
Pink Dot agrees to use best efforts to open all three (3) additional stores
within one (1) year after the date of this Agreement.
4. At such time as the third (3rd) additional store has been
opened and is conducting regular business operations, Westminster shall have
the following options:
(a) To advance an additional One Million Five Hundred
Thousand Dollars ($1,500,000) of the Loan; or
(b) To decline to advance any additional amount of the
Loan.
The election of option (a) or (b) may be made any time after the
funding of the first $1,000,000 advance. However, such election must be made
by Westminster within ten (10) business days after Pink Dot notifies
Westminster that the third (3rd) additional store has been opened and is
conducting regular business (the "Notification Date"). If Westminster fails to
elect either option (a) or (b) by written notice to Pink Dot within ten (10)
business days after the Notification Date, then Westminster shall be deemed to
have elected option (b).
<PAGE> 2
5. Immediately upon execution of this Agreement, Westminster
shall be issued common stock of Pink Dot in an amount such that after the
issuance Westminster will own thirty-two and one-half percent (32 1/2%) of the
total issued and outstanding shares of common stock Pink Dot. In consideration
of the issuance of such stock, Westminster shall concurrently pay to Pink Dot
the sum of One Hundred Dollars ($100). Pink Dot agrees that until such time as
Westminster has made (or is deemed to have made) its election under Paragraph
4, Pink Dot will not issue any additional capital stock or other equity
interest in Pink Dot stock) to any other person or entity, nor will Pink Dot
issue options, warrants, convertible securities or any other instrument which
is convertible into capital stock of Pink Dot. Concurrently with the issuance
of stock to Westminster, Westminster, Pink Dot and all shareholders of Pink Dot
will execute a Shareholders Agreement in the form of EXHIBIT "B" attached
hereto and made a part hereof by reference. The obligation of Westminster to
fund the Loan is conditioned upon the issuance oil common stock to Westminster
and the execution of the Shareholders Agreement.
6. Notwithstanding that shares of Pink Dot will be immediately
issued to Westminster, the share certificate evidencing Westminster's shares,
together with a stock power duly executed by Westminster assigning such shares
back to Pink Dot, shall be delivered to Bruce R. Greene, Esq., who shall serve
as escrow holder pursuant to escrow instructions to be executed by Westminster
and Pink Dot. Such escrow instructions will provide that escrow holder is to
hold the share certificate and stock power until it is authorized to release
same to either Westminster or Pink Dot, as the case may be, in accordance with
the provisions of this Agreement. The escrow instructions will further provide
that Westminster will retain all rights of ownership of such shares while they
are held in escrow, including, but not limited to, the right to vote same, but
Westminster will not have the power to sell, transfer or otherwise dispose of
or encumber Such shares while they are held in escrow.
7. If Westminster timely elects option (a) under Paragraph 4,
then the escrow shall be immediately terminated and the share certificate and
stock power will be delivered to Westminster, provided that Westminster
concurrently makes an additional capital contribution to Pink Dot in the amount
of Five Hundred Thousand Dollars ($500,000). Additional advances of the Loan
shall be made in the same manner as set forth in Paragraph 2.
8. If Westminster elects (or is deemed to have elected) option
(b) under Paragraph 4, then the Note will be repayable in accordance with its
terms. In such event Westminster agrees to immediately reassign and transfer
all of its shares of common stock to Pink Dot and Pink Dot agrees to repurchase
such shares for the sum of One Hundred Dollars ($100), and to that end the
escrow shall be immediately terminated the share certificate and stock power
will be delivered to Pink Dot.
9. The Note will be secured by a first priority security interest
in certain assets of Pink Dot, as set forth in the Security Agreement, a copy
of which is attached hereto, marked EXHIBIT "C" and made a part hereof by
reference. Pink Dot represents and warrants to Westminster that it is the
owner of all of the assets described in the Security Agreement and that such
assets are not subject to any other liens, encumbrances or security interests.
10. The Note will be further secured by leasehold deeds of trust
("Deeds of Trust"), in the form of EXHIBIT "D" attached hereto and made a part
hereof by reference, covering Pink Dot's leasehold interest in all existing
stores and all stores which it may open hereafter. Pink Dot will obtain the
written consent of each of its landlords to the execution and recordation of
the Deeds of Trust. Concurrently with the execution of this Agreement, Pink
Dot will execute and deliver to Westminster Deeds of Trust covering the two (2)
existing stores. Within five (5) business days after the commencement date of
each lease with respect to additional stores, Pink Dot will execute and deliver
a Deed of Trust therefor.
11. All notices required or permitted to be given pursuant to this
Agreement shall be in writing, and shall be delivered either personally, by
overnight delivery service or by U.S. certified or registered mail, postage
prepaid, return-receipt requested and addressed to the parties at their
respective addresses as they appear below their signatures hereon. Notices may
also be given by facsimile transmission to the facsimile telephone numbers
which appear below the parties' respective signatures hereon, provided that
either (a)
<PAGE> 3
receipt of the facsimile transmission is acknowledged in writing by the
receiving party, which may also be by a facsimile transmission, or (b) the
transmitting party obtains a written confirmation from its own facsimile
machine showing that the entire transmission was transmitted to the receiving
party, without interruption, and a copy of the notice is also sent by one of
the other above-described methods of service. The parties may change their
addresses or facsimile telephone numbers for notice by giving notice of such
change in accordance with this section. Notices sent by overnight delivery
service shall be deemed received on the business day following the date of
deposit with the delivery service. Mailed notices shall be deemed received
upon the earlier of the date of delivery shown on the return-receipt, or the
second business day after the date of mailing. Notices sent by facsimile
transmission shall be deemed served on the date of transmission, provided that
such notices are sent during regular business hours, otherwise on the next
business day.
12. This Agreement has been executed in and is to be performed in
the State of California, and this Agreement shall be interpreted in accordance
with the laws of the State of California.
13. This Agreement shall be binding upon and inure to the benefit
of the parties hereto, and their respective heirs, assigns, successors-in-
interest, and legal representatives.
14. This Agreement may not be amended, modified or altered except
by a written instrument executed by all parties hereto.
15. No party has made any representations, warranties, covenants
or promises relating to the subject matter of this Agreement except as set
forth herein, and any prior agreements or understandings not specifically set
forth herein shall be of no force or effect. This Agreement constitutes the
entire agreement of the parties relative to the subject matter hereof. Without
limiting the generality of the foregoing, it is understood and agreed that this
Agreement supersedes that written letter of intent dated September 15, 1995.
16. If any provision of this Agreement is declared by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall nevertheless be given full force and effect.
17. As used herein, the masculine, feminine or neuter gender, and
the singular or plural number, shall each be deemed to include the others
whenever the context so indicates.
18. Should any party be required to bring legal action (including
arbitration) to enforce his rights under this Agreement, the prevailing party
in such action shall be entitled to recover from the losing party his
reasonable attorneys' fees and costs in addition to any other relief to which
he is entitled. Such recovery of attorneys' fees shall include any attorneys'
fees incurred in connection with any bankruptcy or reorganization proceeding,
including stay litigation. The parties further agree that any attorneys' fees
incurred in enforcing any judgment are recoverable as a separate item, and that
this provision is intended to be severable from the other provisions of this
Agreement, shall survive the judgment, and is not to be deemed merged into the
judgment.
19. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by binding arbitration in Los
Angeles, California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, and judgment upon the award
rendered by the arbitrators) may be entered in any court of competent
jurisdiction. The cost of arbitration shall be borne by the losing party, or,
if there is no losing party, as the arbitrator(s) shall determine.
In any arbitration proceedings relative to this Agreement, or breach
thereof, all parties shall have the right to take depositions and to obtain
discovery regarding the subject matter of the arbitration pursuant to
California Code of Civil Procedure Section 1283.05, or any successor statute.
Service of any Petition to confirm or vacate the Arbitration award
and Notice of Hearing thereon may be made by certified or registered mail,
return-receipt requested, or by personal delivery.
- 3 -
<PAGE> 4
The arbitrator(s) shall apply California substantive law and
California Evidence Code to the proceeding. The arbitrators shall have the
power to grant all legal and equitable remedies, including the power to award
punitive damages. Upon request of either party, the arbitrators shall prepare
a written statement of his decision and the award, including factual findings
and legal reasoning. The arbitrator(s) shall not have the power to commit
errors of law or legal reasoning, and the commission of an error of law or
legal reasoning shall be grounds for vacating or correcting the award pursuant
to California Code of Civil Procedure Sections 1286.2 or 1286.6.
20. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one (1) and the same instrument.
21. The failure of any party, at any time, to require timely
performance by any other party of any provision of this Agreement shall not
affect such party's rights thereafter to enforce the same, nor shall the waiver
by any party of any breach of any provision of this Agreement, whether or not
agreed to in writing, be taken or held to be a waiver of the breach of any
other provision or a waiver of any subsequent breach of the same provision of
this Agreement. No extension of time for the performance of any obligation or
act hereunder shall be deemed to be an extension of time for the performance of
any other obligation or act hereunder.
22. The parties agree to perform such further acts and to execute,
acknowledge and deliver such documents as may be necessary to effectuate the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
<TABLE>
<S> <C>
WESTMINSTER CAPITAL, INC., a California PINK DOT, INC., a California Corporation
Corporation
By /s/ W BELZBERG By [SIG]
------------------------------- --------------------------------
William Belzberg, President William Toro, President
Address: Address:
9665 Wilshire Boulevard, Mezzanine Suite 12658 Washington Boulevard, Suite 201
Beverly Hills, California 90212 Los Angeles, California 90066
Fax No.: (310) 271-6274 Fax No.: (310) 306-8675
</TABLE>
- 4 -
<PAGE> 5
EXHIBIT "A"
PROMISSORY NOTE
EXHIBIT "B"
SHAREHOLDERS AGREEMENT
EXHIBIT "C"
SECURITY AGREEMENT
EXHIBIT "D"
DEEDS OF TRUST
- 5 -
<PAGE> 6
SECURED PROMISSORY NOTE
$2,500,000 _________________ , 1995
Los Angeles, California
FOR VALUE RECEIVED, the undersigned PINK DOT, INC., a California
Corporation ("Maker"), promises to pay to the order of WESTMINSTER CAPITAL,
INC., a California Corporation ("Holder", which term shall include any
subsequent holder of this Note), at 9665 Wilshire Boulevard, Mezzanine, Beverly
Hills, California 90212 (or at such other place as Holder shall designate in
writing) in lawful money of the United States of America, the aggregate
principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000), or so
much thereof as shall be advanced by Holder to Maker, with interest from the
date of each Advance (as defined herein) at the rate (the "Interest Rate")
described below.
1. INTEREST RATE. The Interest Rate shall be a variable rate of
interest equal to the lesser of (a) the "Prime Rate" as publicly announced from
time to time by Bank of America, or (b) the greater of ten percent (10%) per
annum or the rate established by the Federal Reserve Bank of San Francisco on
advances to member banks under Section 13 and 13(a) of the Federal Reserve Act
in effect on the twenty-fifth (25th) day of the month immediately preceding the
date of this Note plus five percent (5%) per annum. Any change in the Interest
Rate resulting from a change in the Prime Rate shall be effective on the first
(1st) day of the fourth (4th month) after the date of such change. If the
Prime Rate of Bank of America is no longer available, then the Interest Rate
shall be determined by reference to the Prime Rate of another nationally
recognized bank selected by Holder. Maker acknowledges that the Prime Rate is
a discretionary rate publicly announced by Bank of America from time to time
and does not necessarily reflect the rate of interest that Bank of America
charges to its best or most credit-worthy customers. Interest shall be
computed at the Interest Rate on the basis of the actual number of days which
the Outstanding Principal Balance (as defined herein) is outstanding divided by
three hundred sixty (360), which shall, for the purposes of this Note, be
considered to be one (1) year.
2. OUTSTANDING PRINCIPAL BALANCE. All references to the
"Outstanding Principal Balance" shall mean the aggregate amount of all Advances
of principal made under this Note, less any principal repaid.
3. INSTALLMENT PAYMENTS. Interest shall accrue on the
Outstanding Principal Balance and there shall be no payments of principal or
interest due under this Note for a period of three (3) years from the date of
this Note. All accrued interest during such time period shall become part of
the Outstanding Principal Balance. Commencing on the first (1st) day of the
first (1st) month immediately following a date which is three (3) years after
the date of this Note and continuing on the first (1st) day of each third (3rd)
month thereafter, this Note shall be payable in installments ("Installments")
of principal and interest in an amount which will fully amortize the
Outstanding Principal Balance over a fifteen (15) year period. Installments
will continue to be payable until the Maturity Date (as defined herein).
4. LATE CHARGE. In the event that Maker fails to pay any
Installment due hereunder, or any portion thereof, within Ten (10) days after
the due date thereof, Maker agrees to pay a late charge equal to five percent
(5%) of the overdue amount. Maker acknowledges that it would be extremely
difficult or impracticable to determine Holder's actual damages resulting from
any late payment, and this late charge is a reasonable estimate of those
damages. Acceptance of any late charge shall not limit any of Holder's other
rights or remedies under this Note, or under any other documents or agreements
securing or evidencing the indebtedness evidenced by this Note (the "Loan
Documents").
5. APPLICATION OF PAYMENTS. All payments on this Note shall be
applied first to the payment of any sums advanced by Holder pursuant to the
Loan Documents (other than Advances of principal), together with interest
thereon from the date of advance until repaid at the Default Rate (as defined
herein), then to
EXHIBIT A
<PAGE> 7
the payment of any late charges, then to the payment of accrued and unpaid
interest, and then to the reduction of the Outstanding Principal Balance.
6. PREPAYMENT RIGHT. Maker shall have the right to prepay at any
time, in whole or in part, the Outstanding Principal Balance of this Note,
without premium or penalty.
7. MATURITY. Notwithstanding anything in this Note to the
contrary, the entire Outstanding Principal Balance shall become immediately due
and payable upon the earliest to occur of the following (the "Maturity Date"):
(a) date which is six (6) years after the date of this Note; (b) the sale of
all or substantially all of the assets of Maker or the common stock of Maker to
a third party; (c) the consummation of a private or public offering of stock of
Maker; or (d) if Holder has elected not to fund in excess of One Million
Dollars ($1,000,000), as provided in the Loan Agreement (as defined herein), a
date which is two (2) years after the Notification Date (as defined in the Loan
Agreement).
8. MODIFICATIONS. From time to time, without affecting the
obligation of Maker to pay the Outstanding Principal Balance or to observe the
covenants of Maker contained herein, without affecting the guaranty of any
person for payment of this Note, and without giving notice to or obtaining the
consent of Maker or any guarantor of this Note, Holder may, at the option of
Holder, extend the time for payment of the Outstanding Principal Balance or any
part thereof, reduce the Installments or other payments hereunder, release any
person liable hereunder, accept a renewal or extension of this Note, join in
any extension or subordination agreement, release any security given herefor,
take or release other or additional security, or agree in writing with Maker to
modify the Interest Rate or any other provision of this Note.
9. EVENTS OF DEFAULT. Time is of the essence hereof. Upon the
occurrence of any of the following events (the "Events of Default"), payment of
the entire Outstanding Principal Balance and accrued interest on this Note
shall, at the option of Holder, be accelerated and shall be immediately due and
payable without notice or demand. In such event, Holder shall have the right,
in addition to all other rights and remedies hereunder or under the Loan
Documents, to foreclose or to require foreclosure of any or all liens securing
the payment hereof:
(a) Failure of Maker to pay any Installment within ten
(10) days after the due date thereof;
(b) Failure of Maker to pay the Outstanding Principal
Balance in full on the Maturity Date;
(c) Default by Maker in the performance of any other
obligation of Maker under this Note, which is not cured within any applicable
grace period specified herein; or
(d) Default by Maker under any provision of the Security
Agreement (as defined herein) or any of the other Loan Documents, which is not
cured within any applicable grace period specified therein;
10. DEFAULT RATE. In the event that Maker (a) fails to pay any
Installment within ten (10) days after the due date thereof, or (b) fails to
pay the Outstanding Principal Balance in full on the Maturity Date, the amount
past due (including any acceleration of the Outstanding Principal Balance), and
unpaid shall bear interest at an annual rate equal to the lesser of (i) the
then applicable Interest Rate plus five percent (5%), or (ii) the greater of
ten percent (10%) per annum or the rate established by the Federal Reserve Bank
of San Francisco on advances to member banks under Section 13 and 13 (a) of the
Federal Reserve Act in effect on the twenty-fifth (25th) day of the month
immediately preceding the date of this Note plus five percent (5%) per annum
(the "Default Rate"), computed from the date on which said amount was due and
payable until paid. The charging or collecting of interest at the Default Rate
shall not limit any of Holder's other rights or remedies under this Note, or
under any of the Loan Documents.
- 2 -
<PAGE> 8
11. SECURITY. The payment of this Note is secured by, among other
things, a security agreement (the "Security Agreement") liening and encumbering
certain personal property of Maker, as more particularly described therein.
12. GOVERNING LAW. Maker, and each endorser, cosigner and
guarantor of this Note, acknowledges and agrees that this Note is made and is
intended to be paid and performed in the State of California and the provisions
hereof will be construed in accordance with the laws of the State of California
and, to the extent that federal law may preempt the applicability of state
laws, federal law. Maker, and each endorser, cosigner and guarantor of this
Note further agree that upon the occurrence of an Event of Default, this Note
may be enforced in any court of competent jurisdiction in the State of
California, and they do hereby submit to the jurisdiction of such courts
regardless of their residence.
13. REMEDIES CUMULATIVE; WAIVER. The remedies of Holder, as
provided herein or in the Security Agreement or any other Loan Documents, shall
be cumulative and concurrent, and may be pursued singularly, successively or
together, in the sole discretion of Holder, and may be exercised as often as
occasion therefor shall arise. No act of omission or commission of Holder,
including specifically any failure to exercise any right, remedy or recourse,
shall be deemed to be a waiver or release of the same; such waiver or release
to be affected only through a written document executed by Holder and then only
to the extent specifically recited therein. Without limiting the generality of
the preceding sentence, acceptance by Holder of any payment with knowledge of
the occurrence of an Event of Default by Maker shall not be deemed a waiver of
such Event of Default, and acceptance by Holder of any payment in an amount
less than the amount then due hereunder or under the other Loan Documents shall
be an acceptance on account only and shall not in any way affect the existence
of an Event of Default hereunder or under any of the other Loan Documents. A
waiver or release with reference to any one event shall not be construed as
continuing, as a bar to, or as a waiver or release of, any subsequent right,
remedy or recourse as to a subsequent event.
14. NOTICES. Any notices required or permitted under this Note
shall be given in accordance with the notice provisions contained in the
Security Agreement.
15. NO USURY INTENDED. All agreements between Maker and Holder
are expressly limited so that in no contingency or event whatsoever, whether by
reason of: error of fact or law; payment, prepayment or advancement of the
proceeds hereof; acceleration of maturity of the Outstanding Principal Balance,
or otherwise, shall the amount paid or agreed to be paid to Holder hereof for
the use, forbearance or retention of the money to be advanced hereunder,
including any charges collected or made in connection with the indebtedness
evidenced by this Note which may be treated as interest under applicable law,
if any, exceed the maximum legal limit (if any such limit is applicable) under
United States federal law or state law (to the extent not preempted by federal
law, if any), now or hereafter governing the interest payable in connection
with such agreements. If, from any circumstances whatsoever, fulfillment of any
provision hereof at the time performance of such provision shall be due shall
involve transcending the limit of validity (if any) prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if from any circumstances, Holder shall ever receive as interest an amount
which would exceed the maximum legal limit (if any such limit is applicable),
such amount which would be excessive interest shall be applied to the reduction
of the Outstanding Principal Balance due hereunder and not to the payment of
interest or, if necessary, rebated to Maker. This provision shall control
every other provision of all agreements between Maker and Holder.
16. PURPOSE OF LOAN. Maker certifies that the loan evidenced by
this Note is obtained for business or commercial purposes and that the proceeds
thereof shall not be used for personal, family, household or agricultural
purposes.
17. MISCELLANEOUS PROVISIONS.
(a) Maker, and each endorser, cosigner and guarantor of
this Note expressly grants to Holder the right to release or to agree not to
sue any other person, or to suspend the right to enforce this Note against such
other person or to otherwise discharge such person; and Maker, and each
endorser, cosigner
- 3 -
<PAGE> 9
and guarantor agrees that the exercise of such rights by Holder will have no
effect on the liability of any other person, primarily or secondarily liable
hereunder. Maker, and each endorser, cosigner and guarantor of this Note
waives, to the fullest extent permitted by law, demand for payment, presentment
for payment, protest, notice of protest, notice of dishonor, notice of
nonpayment, notice of acceleration of maturity, diligence in taking any action
to collect sums owing hereunder, any duty or obligation of Holder to effect,
protect, perfect, retain or enforce any security for the payment of this Note
or to proceed against any collateral before otherwise enforcing this Note, and
the right to plead as a defense to the payment hereof any statute of
limitations.
(b) This Note and each payment of principal and interest
hereunder shall be paid when due without deduction or setoff of any kind or
nature whatsoever.
(c) Maker agrees to reimburse Holder for all costs,
including, without limitation, reasonable attorneys' fees, incurred to collect
this Note if this Note is not paid when due, including, but not limited to,
attorneys' fees incurred in connection with any bankruptcy proceedings
instituted by or against Maker (including relief from stay litigation).
(d) If Maker shall fail to perform or cause to be
performed any of the terms, agreements or covenants of Maker contained in this
Note or in any of the other Loan Documents, Holder may, in Holder's sole
discretion, but without any duty to do so and without waiving any default,
perform any of such terms, agreements or covenants, and all sums advanced or
expended by Holder in the performance thereof, together with interest thereon
from the date of the respective advance or expenditure at the Default Rate,
shall be due and payable on demand and such sums and interest thereon shall be
secured by the Security Agreement and the other Loan Documents securing this
Note.
(e) If any provision hereof or of any of the other Loan
Documents is, for any reason and to any extent, invalid or unenforceable, then
neither the remainder of the document in which such provision is contained, nor
the application of the provision to other persons, entities or circumstances,
nor any of the other Loan Documents, shall be affected thereby, but instead
shall be enforceable to the maximum extent permitted by law.
(f) This Note shall be a joint and several obligation of
each person comprising Maker, and of all endorsers and cosigners hereof and
shall be binding upon them and their respective heirs, personal
representatives, successors and assigns.
(g) This Note may not be modified or amended orally, but
only by a modification or amendment in writing signed by Holder and Maker.
(h) When the context and construction so require, all
words used in the singular herein shall be deemed to have been, used in the
plural and the masculine shall include the feminine and neuter and vice versa.
The word "person" as used herein shall include any individual, company, firm,
association, partnership, corporation, trust or other legal entity of any kind
whatsoever.
(i) The headings of the paragraphs and sections of this
Note are for convenience of reference only, are not to be considered a part
hereof and shall not limit to otherwise affect any of the terms hereof.
(j) In the event that at any time any payment received by
Holder hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance under
the bankruptcy or insolvency laws of the United States, or shall otherwise be
deemed to be due to any party other than Holder, then, in any such event, the
obligation to make such payment shall survive any cancellation of this Note
and/or return thereof to Maker and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Note, but shall remain a
valid and binding obligation enforceable in accordance with the terms and
provisions hereof, and the amount of such payment shall bear interest at the
Default Rate from the date of such final order until repaid hereunder.
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<PAGE> 10
(k) This Note is the same Note that is described in that
certain Loan and Stock Purchase Agreement (the "Loan Agreement") of even date
herewith between Maker and Holder.
IN WITNESS WHEREOF Maker has executed this Promissory Note as of the
day and year first above written.
PINK DOT, INC., a California Corporation
By [SIG]
-----------------------------------
William Toro, President
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<PAGE> 11
SHAREHOLDERS AGREEMENT
OF
PINK DOT, INC.
THIS SHAREHOLDERS AGREEMENT OF PINK DOT, INC. ("Agreement") is made
and entered into as of the ____________ day of November ____, by and among
WESTMINSTER CAPITAL INC., a California Corporation ("Westminster"), WILLIAM
TORO ("Toro"), ARTHUR J. ZONNEVELD ("Zonneveld"), RUSSELL R. STRATTON
("Stratton"), ALEX ROSENBERG ("Rosenberg"), and PINK DOT, INC., a California
Corporation ("Corporation").
RECITALS
A. The Corporation is authorized to issue
________________________ (_________________) shares of common stock ("Shares"),
of which ___________________ (_________________) Shares are issued and
outstanding as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES SHAREHOLDER INTEREST
<S> <C> <C>
Westminster ___________________ 32 1/2%
Toro ___________________ ____%
Zonneveld ___________________ 2%
Stratton ___________________ 2%
Rosenberg ___________________ ____%
</TABLE>
Westminster, Toro, Zonneveld, Stratton, and Rosenberg are sometimes
collectively referred to herein as the "Shareholders". As used herein, the
term "Shareholder Interest" shall mean, at any time, the number of Shares of
the Corporation owned by a Shareholder divided by the total number of Shares of
the Corporation then issued and outstanding. The Shareholder interest of each
of the Shareholders is set forth above.
B. The Shareholders desire, for their mutual benefit, to place
certain transfer restrictions on the Shares, and to define certain of their
rights and obligations as shareholders of the Corporation.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
1. BUSINESS OF THE CORPORATION. The business of the Corporation
shall be the discount retail sale of liquor and other grocery products.
2. TRADEMARK. All rights to the tradename/trademark "Pink Dot"
shall be owned by the Corporation, and Toro hereby assigns to the Corporation
all of his right, title and interest in such tradename/trademark.
3. Shares.
3.1 All shares of the Corporation owned by the Shareholders are
fully paid and non-assessable.
3.2 The Articles of Incorporation of Pink Dot shall be immediately
amended duly establish Pink Dot as a statutory close corporation under
California Corporations Code section 158.
EXHIBIT B
<PAGE> 12
3.3 Subject to the provisions of this paragraph, the
holders of common shares of the Corporation shall have the right to purchase,
during the period or periods, at the prices and on the other terms and
conditions fixed by the Board of Directors of the Corporation, any common
shares of the Corporation, and any rights, options, warrants, or other
instruments or securities exchangeable for or convertible into common shares or
evidencing any right to subscribe for, purchase, or otherwise acquire common
shares, which may be issued from time to time for cash or evidences of
indebtedness.
The portion of the securities each holder of common shares shall have
the initial right to purchase in any issuance subject to this paragraph shall
be in the same ratio to the total number of securities to be issued as the
number of common shares held of record by that shareholder on the date set for
the determination of shares entitled to that right bears to the total number of
common shares at the time outstanding.
Any offering of common shares pursuant to the right set forth in this
paragraph shall provide that shareholders who have purchased securities in any
such offering shall have the additional right also to purchase any securities
not purchased by other shareholders. The portion of the unsold securities each
purchasing shareholder shall have the right to purchase pursuant to the
additional right shall be in the same ratio to the total number of unsold
securities as the number of common shares purchased by that shareholder
pursuant to the initial right bears to the total number of common shares
initially purchased by all shareholders. Unpurchased securities shall be
re-offered to purchasing shareholders so that holders of common shares have a
reasonable opportunity to purchase all securities subject to those holders'
purchase rights. Any shares then remaining unsold may be sold by the
Corporation on the terms and conditions set forth in the notice without further
offering them to holders of common shares.
4. MANAGEMENT AND CONTROL.
4.1 The Corporation shall be managed and all corporate
powers shall be exercised by a Board of Directors, which shall consist of four
(4) persons. Notwithstanding the Shareholder Interests, two (2) members of the
Board of Directors shall be elected by Westminster, and the two (2) members of
the Board of Directors shall be elected by Toro.
4.2 Each director shall have one (1) vote and all
decisions made by three (3) or more of the directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of the Board of
Directors. Three (3) directors shall constitute a quorum.
4.3 The Corporation shall have the following officers,
who shall be elected by and subject to the direction of the Board of Directors.
Until changed by the vote of the board of directors, the officers of the
Corporation shall be as follows:
<TABLE>
<S> <C> <C>
Toro - President
___________ - Secretary
___________ - Chief Financial Officer
</TABLE>
4.4 Subject to the control of the Board of Directors,
Toro, in his capacity as President of the Corporation, shall be responsible for
the day-to-day management of the Corporation, including, but not limited to,
primary responsibility for all sourcing and quality control of merchandise,
supervision of all employees and contractors, and overseeing marketing, sales,
advertising and all other aspects of business operations.
4.5 There shall be no regular meetings of the
Shareholders or the Board of Directors, but special meetings may be called at
any time in accordance with the Bylaws of the Corporation.
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<PAGE> 13
5. RESTRICTIONS ON TRANSFER.
5.1 No Shareholder shall Sell, assign, transfer or
otherwise dispose of, or encumber or otherwise pledge or hypothecate (any of
the foregoing being referred to herein as a "Transfer") any of his Shares,
except (a) to another Shareholder, or (b) with the prior written consent of the
other Shareholders, or (c) as expressly authorized by this Agreement.
5.2 Any Shareholder ("Transferor") who has received a
bona fide offer, whether or not solicited by him, to Transfer any or all of his
Shares, other than to another Shareholder or to a trust described in Paragraph
5.7, and who intends to accept such offer, shall first give the other
Shareholders and the Corporation written notice ("Transfer Notice") of his
intention to do so. The Transfer Notice shall specify the name and address of
the offeror, the number of Shares proposed to be transferred, the price, and
all other terms of the offer. For a period of thirty (30) days following
receipt of the Transfer Notice, the other Shareholders shall have the option,
pro rata according to their respective Shareholder Interests, to purchase all
of the Shares (including any Shares which may be owned or held by a spouse as
provided in Paragraph 7) specified in the Transfer Notice on the following
terms and conditions:
(a) Each Shareholder electing to purchase shall
give the Transferor, the Corporation and the other Shareholders
written notice of the exercise of his option and the number of Shares
desired to be purchased.
(b) The purchase price of the Shares and terms of
purchase shall be the same as set forth in the Transfer Notice, except
that the closing shall not be less than sixty (60) days after the date
of the Transfer Notice.
(c) At the closing, the Transferor shall tender
his certificates representingthe Shares to be purchased, appropriately
endorsed, and the purchasing Shareholders shall deliver the
consideration therefor.
5.3 If any Shareholder fails to exercise his option to
purchase Shares of the Transferor as provided in Paragraph 5.2, the other
Shareholders electing to purchase shall have the option to purchase such
Shares, pro rata according to their respective Shareholder Interests, which
options must be exercised within fifteen (15) days after the expiration of the
thirty (30) day period within which the Shareholders may exercise their options
under Paragraph 5.2. Such options shall be exercised on the same terms and
conditions set forth in Paragraph 5.2.
5.4 If the other Shareholders collectively do not
exercise their options as to all Shares set forth in the Transfer Notice by the
expiration of said fifteen (15) day period set forth in Paragraph 5.3, then for
period of an additional ten (10) days following the expiration of such fifteen
(15) day period, the Corporation shall have the option to purchase the
Transferor's Shares which were not elected to be purchased by the other
Shareholders, on the same terms and conditions as set forth in Paragraph 5.2.
The Corporation may purchase only that number of Shares it is permitted
lawfully to purchase pursuant to California Corporations Code sections 500 and
501.
5.5 It is the intent of the parties that the Shareholders
and the Corporation collectively must purchase all or none of the Shares
offered by the Transferor pursuant to the Transfer Notice. Therefore, if
options to purchase all of the Shares of the Transferor specified in the
Transfer Notice are not exercised either by the Corporation and/or by the other
Shareholders, all of the foregoing options shall lapse as to the proposed
Transfer (and any exercise of an option shall be of no force or effect), and
the Transferor may Transfer the Shares specified in the Transfer Notice, but
only to the person or persons, at the price and on the terms specified in the
Transfer Notice, and provided further that the closing occurs within sixty days
following the expiration of the last of such options. However, as a condition
precedent to any Transfer permitted by this Paragraph 5.5, the recipient of the
Transfer must agree in writing to be bound by all of the provisions of this
Agreement. If any such Transfer is not consummated in strict compliance with
this
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<PAGE> 14
Paragraph 5.5., all of the restrictions, terms and conditions of Paragraph 5
shall be automatically reinstated as to the Shares in question.
5.6 Any Transfer or purported Transfer of Shares which is
not in full compliance with the provisions of this Agreement, shall be void and
of no effect whatsoever.
5.7 The Transfer of Shares by an individual Shareholder
to a revocable, inter vivos trust of which such Shareholder (and/or his spouse)
is the trustor, trustee and beneficiary, or by such trust to the Shareholder,
shall not be subject to the restrictions of Paragraph 5 of this Agreement.
However, as a condition to any such Transfer, the trustee of such trust shall
agree in writing to be bound by all of the provisions of this Agreement.
Further, in such event the death, Default or Incompetency (as defined herein)
of the Trustor who was the original Shareholder shall be considered an Exercise
Event, as described in Paragraph 6.
6. PURCHASE AND SALE ON OCCURRENCE OF EXERCISE EVENTS.
6.1 For the purposes of this Agreement, any one of the
following shall constitute an "Exercise Event":
(a) Death of an individual Shareholder.
(b) Dissolution of a corporate Shareholder.
(c) Default by a Shareholder. As used herein,
"Default" shall mean any of the following: (i) any material breach of
this Agreement or the Corporation's Articles of Incorporation or
Bylaws which is not cured within ten (10) days after notice from any
other Shareholder or the Corporation; or (ii) the bankruptcy or
insolvency of a Shareholder, or an assignment for the benefit of his
creditors or the filing of an involuntary bankruptcy petition against
a Shareholder, which is not dismissed within thirty (30) days; or
(iii) the appointment of a custodian, trustee or receiver for a
Shareholder or substantially all of the assets of a Shareholder, which
is not released within thirty (30) days; or (iv) the enforcement of
ally writ of attachment, execution or other similar process on the
Shares, which is not released within thirty (30) days; or (v) any
other act, voluntary or involuntary, which results or is likely to
result in the Transfer of Shares to a person other than a Shareholder
and not otherwise permitted by this Agreement.
(d) Incompetency of an individual Shareholder.
As used herein, "Incompetency" shall mean the inability of an
individual Shareholder to attend competently to his own business or
financial affairs, including, but not limited to, situations in which
a conservator is appointed for a Shareholder. The determination of
whether a Shareholder is Incompetent shall be made by the
Shareholder's regularly attending physician; provided, however, that
at their option the other Shareholders and/or the Corporation may
select a physician and have the Shareholder examined by a physician of
their choice in order to determine whether a Shareholder is
Incompetent. If the Shareholder's regularly attending physician and
the physician selected by the Corporation and/or the other
Shareholders are not in agreement as to such determination, they shall
jointly select third physician, who shall examine the Shareholder and
make a final determination which shall be binding on all parties.
6.2 Upon the occurrence of any Exercise Event, the other
Shareholders shall have the option, pro rata according to their respective
Shareholder Interests, to purchase from the Shareholder affected by the
Exercise Event or his legal representatives) ("Affected Shareholder") and the
Affected Shareholder shall sell to the Shareholders electing to purchase, that
number of the Affected Shareholder's Shares as such Shareholders shall
determine (including any Spouse's Interest). If the Exercise Event is the
death, dissolution or Incompetency of a Shareholder, the option must be
exercised within twelve (12) months after the Exercise Event. If the Exercise
Event is a Default by a Shareholder, the option shall be a continuing option
and may
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<PAGE> 15
be exercised at any time. If there is a disagreement among the Shareholders as
to whether or not the option is to be exercised or the number of Shares to be
purchased, the decision of the Shareholder owning the greatest number of Shares
shall control. The Shareholders shall exercise the option by giving written
notice to the Affected Shareholder and the Corporation specifying the number of
Shares that they elect to purchase. The terms and conditions of the purchase
and sale shall be as provided in Paragraph 8. If the other Shareholders do not
elect to purchase all of the Affected Shareholder's Shares, the Corporation
shall have the option, exercisable by notice to the Affected Shareholder and
the other Shareholders, within fifteen (15) days after receipt of the notice of
election of the option by the other Shareholders, to purchase any of the
Affected Shareholder's Shares not purchased by the other Shareholders. The
Corporation may purchase only that number of Shares it is permitted lawfully to
purchase pursuant to California Corporations Code sections 500 and 501. Should
all of the Affected Shareholder's Shares not be purchased by the other
Shareholders and/or the Corporation, then any such Shares not purchased shall
be held by the Affected Shareholder free of the restrictions of this Paragraph
6 insofar as they relate to the specific Exercise Event which resulted in the
exercise of the option.
6.3 The rights of the Shareholders and the Corporation
under this Paragraph 6 are in addition to and not by limitation of any other
rights and remedies which are available at law resulting from the occurrence of
an Exercise Event.
7. TERMINATION OF MARRIAGE OF A SHAREHOLDER. In the event of the
death of an individual Shareholder's spouse, or if the divorce, dissolution of
marriage, annulment, legal separation or any other event results, directly or
indirectly, in the Transfer of any Shares or any interest in the Shares to such
Shareholder's spouse ("Spouse's Interest'), then for a period of one hundred
eighty (180) days following the death of such spouse or date of the court order
or other event resulting in the Transfer of the Spouse's Interest to the
spouse, such Shareholder shall have the option to purchase from the spouse, or
the deceased spouse's personal representative, heirs, legatees or successors-
in-interest (collectively, "Successors"), all or any portion of the Spouse's
Interest on the following terms:
7.1 The Shareholder shall give the spouse or the
Successors notice of the exercise of his option and the number of Shares
desired to be purchased.
7.2 The purchase price and the terms of payment shall be
as set forth in Paragraph 8.
7.3 At the closing, the spouse or the Successors shall
tender certificates representing the Shares, appropriately endorsed, or such
other instruments of transfer as shall be requested by the Shareholder, and the
spouse or the Successors shall deliver the consideration therefor.
7.4 To the extent that a Shareholder does not exercise
his option as set forth in this Paragraph 7 as to the entire Spouse's Interest,
then for a period of ninety (90) days following the expiration of such option,
the other Shareholders shall have the option, pro rata according to their
respective Shareholder Interests, to purchase all or any portion of the
Spouse's Interest not purchased by such Shareholder, on the same terms and
conditions as set forth in this Paragraph 7.
7.5 To the extent that the other Shareholders do not
exercise their options as set forth in this Paragraph 7 as to the entire
Spouse's Interest, then for an additional period of thirty (30) days following
the expiration of all previous options, the Corporation shall have the option
to purchase all or any portion of the Spouse's Interest not purchased by the
other Shareholders on the same terms and conditions as set forth in this
Paragraph 7. The Corporation may purchase only that number of Shares it is
permitted lawfully to purchase pursuant to California Corporations Code
sections 5OO and 501.
8. TERMS OF PURCHASE. Any purchase of Shares required or
permitted to be made pursuant to Paragraphs 6 or 7 shall be on the following
terms and conditions:
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<PAGE> 16
8.1 The purchase price for the Shares shall be the "fair
market value" of the Corporation determined as of the date of the Exercise
Event, multiplied by the Shareholder Interest of the Shareholder whose Shares
are being purchased. The parties shall attempt to mutually agree on the
purchase price within thirty (30) days after the Exercise Event. If the
parties cannot mutually agree within such time period, the purchase price shall
be determined by an independent business appraiser acceptable to the selling
party and the purchasing parry or parties. If the parties are unable to agree
on an appraiser within thirty (30) days following the Exercise Event, then
within fifteen (15) days thereafter the selling parry shall select one
appraiser and the purchasing party shall select one appraiser. If either the
selling party or the purchasing party fails to select an appraiser within the
specified time period, then the sole appraiser selected shall determine the
purchase price. If the lower of the two resulting purchase prices determined
by the two appraisers is less than ninety percent (90%) of the higher purchase
price, the two appraisers shall appoint a third independent appraiser within
fifteen (15) days thereafter, whose determination of the purchase price shall
be final. Otherwise, the purchase price shall be the average of the two
purchase prices determined by the two original appraisers. The parties shall
share equally the fees and expenses of the appraiser jointly named, but each
parry shall be responsible for the fees and expenses of any appraiser named
solely by him. Each party shall bear his own expenses in presenting evidence
to the two appraisers.
In determining the purchase price, the appraisers appointed under this
Agreement shall consider all relevant evidence submitted to them by the
parties, or otherwise obtained by them, and shall set forth their determination
of the purchase price in writing, which shall be delivered to each party within
ninety (90) days of their appointment. The closing of the transaction shall
take place is soon as possible after the determination of the purchase price
for the Shares.
8.2 If the Exercise Event giving rise to the purchase is
the death, dissolution or Incompetency of the Affected Shareholder, the
purchase price shall be paid in cash upon the consummation of the purchase of
the Shares.
8.3 If the Exercise Event giving rise to the purchase is
a Default or results from the purchase of a Spouse's Interest, there shall be
no down payment and the entire purchase price shall be payable in one hundred
twenty (120) equal monthly installments of principal only, with no interest,
which shall be evidenced by one or more promissory notes, executed by the
purchasing party.
8.4 If the Corporation or any other Shareholder is
indebted to the Affected Shareholder at the time of the purchase of his Shares,
such indebtedness shall not be affected by such purchase and shall continue to
be paid on terms previously agreed upon.
8.5 If the Affected Shareholder is indebted to the
Corporation or to any other Shareholder at the time of the purchase of his
Shares by the Corporation or by the other Shareholders, the party to whom the
indebtedness is owed shall have the option to offset all or any portion of such
indebtedness against the purchase price of the Shares.
8.6 Any promissory note or notes given as part of the
purchase price of any Shares pursuant to Paragraphs 8.2 or 8.3 shall be secured
by the pledge of the Shares being purchased, pursuant to a Pledge Agreement in
form reasonably acceptable to the parties to the sale, and shall be a full
recourse obligation of the maker. Any promissory note or other obligation of
the Corporation executed pursuant to Paragraph 8.2 shall be personally
guaranteed by the other Shareholders to the extent of their proportionate
Shareholder Interests.
9. NON-COMPETITION AND NON-SOLICITATION.
9.1 Each Shareholder agrees that during the period that
he is a Shareholder of the Corporation, and for the thirty-six (36) month
period immediately following the sale or other disposition of all of his Shares
to the Corporation or to the other Shareholders pursuant to Paragraphs 5 or 6
he will not, directly or indirectly, in an), state or country in which the
Corporation then conducts business ("Restricted Area"), engage in, or have any
interest in, any person, company, firm or organization (whether as an employee,
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<PAGE> 17
employer, officer, director, representative, trustee, contractor, salesman,
agent, shareholder, partner, beneficiary, proprietor, member, security holder,
creditor, consultant or otherwise) that engages in any business or activity
which is the same as or directly competitive with the business then conducted
by the Corporation.
9.2 Each Shareholder agrees that he will not at any time
during the time periods referred to in Paragraph 9.1 solicit, take away, or
attempt to solicit or take away any employees of the Corporation, or any sales
representatives, customers, prospective customers, suppliers, vendors,
purchasing agents or referral sources with which the Corporation does or has
done business.
9.3 The parties intend that the covenants contained in
this Paragraph 9 shall be construed as a series of separate covenants, one for
each city in the Restricted Area. Except for geographic coverage, each such
separate covenant shall be deemed identical in terms to the covenants contained
in this Paragraph 9. If, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants deemed included in this Paragraph, then
the unenforceable covenant shall be deemed eliminated from this Agreement for
the purpose of those proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.
9.4 Each Shareholder acknowledges that the breach by a
Shareholder of his agreements under this Paragraph 9, would cause irreparable
damage to the Corporation and the other Shareholders and that it would be
extremely difficult and impractical to measure such damages in money.
Accordingly, each Shareholder expressly agrees that the Corporation and the
other Shareholders, in addition to any other available rights or remedies, may
seek injunctive relief in the event of such breach, and in furtherance of this
agreement each Shareholder waives the defense that a remedy at law or damages
is adequate. The Corporation also shall have the right to require the
Shareholder to account for and pay over to the Corporation all compensation,
profits, monies, accruals, increments or other benefits (collectively,
'Benefits") derived or received by the Shareholder as the result of any
transaction constituting a breach of this Paragraph 9 and each Shareholder
agrees to account for and pay over such Benefits to the Corporation.
9.5 The provisions of this Paragraph 9 shall also apply
to all Shareholders in the event of the dissolution and liquidation of the
Corporation (except as to any Shareholder who acquires the assets of the
Corporation in any judicial dissolution proceeding), except in the event of the
dissolution and liquidation results from the occurrence of any event which is
classified as a "Default" under Paragraph 6(c) (in such event only the
Shareholder who did not cause the Default shall not be bound by the provisions
of this Paragraph 9).
10. NO EMPLOYMENT RIGHTS.
10.1 No employment agreement is created hereby, and
nothing contained in this Agreement shall be construed as creating in any
Shareholder a right to employment with the Corporation. However, the board of
directors may, in its discretion, hire any Shareholder as an employee or
independent contractor. The employment of any Shareholder by the Corporation
shall be "at will", and subject to termination at any time, with or without
cause, by the Board of Directors, unless otherwise specified in a written
employment agreement between the Corporation and a Shareholder.
10.2 Notwithstanding the provisions of Paragraph 10.1, it
is agreed that Toro will be an employee of the Corporation, provided that his
total compensation (including expense reimbursement) shall not exceed Five
Thousand Dollars ($5,000) per month, subject to periodic review and adjustment
as determined by the Board of Directors.
11. LEGEND. Each certificate representing Shares in the
Corporation shall bear a legend in substantially the following form:
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<PAGE> 18
"The shares of this Corporation are restricted and subject to
the provisions of a Shareholders Agreement dated as of
_____________________________, 1995, a copy of which is on
file at the office of the Corporation, all of this provisions
of which are incorporated herein by reference.'
12. DIVIDENDS.
12.1 Dividends shall be declared and distributed as
determined by the Board of Directors.
12.2 Not-withstanding the foregoing, no dividends will be
distributed to the Shareholders until the loan in the original principal amount
of Two Million Five Hundred Thousand Dollars ($2,500,000) by Westminster to
the Corporation has been repaid in full.
13. MISCELLANEOUS PROVISIONS.
13.1 Notices. All notices required or permitted to be
given pursuant to this Agreement shall be in writing, and shall be delivered
either personally, by overnight delivery service or by U.S. certified or
registered mail, postage prepaid, return-receipt requested and addressed to the
parties at their respective addresses as they appear below their signatures
hereon. Notices may also be given by facsimile transmission to the facsimile
telephone numbers which appear below the parties' respective signatures hereon,
provided that either (a) receipt of the facsimile transmission is acknowledged
in writing by the receiving party, which may also be by a facsimile
transmission, or (b) the transmitting party obtains a written confirmation from
its own facsimile machine showing that the entire transmission was transmitted
to the receiving party, without interruption, and a copy of the notice is also
sent by one of the other above-described methods of service. The parties may
change their addresses or facsimile telephone numbers for notice by giving
notice of such change in accordance with this section. Notices sent by
overnight delivery service shall be deemed received on the business day
following the date of deposit with the delivery service. Mailed notices shall
be deemed received upon the earlier of the date of delivery shown on the
return-receipt, or the second business day after the date of mailing. Notices
sent by facsimile transmission shall be deemed served on the date of
transmission, provided that such notices are sent during regular business
hours, otherwise on the next business day.
13.2 Construction. This Agreement has been executed in and
is to be performed in the State of California, and this Agreement shall be
interpreted in accordance with the laws of the State of California.
13.3 Benefit. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective heirs,
assigns, successors-in-interest, and legal representatives, subject to any
restrictions on assignment set forth herein.
13.4 Amendments. This Agreement may not be amended,
modified or altered except by a written instrument executed by Shareholders
owning one hundred percent (100%) of the Shareholder Interests.
13.5 Assignment. None of the rights of any party
hereunder (except the right to receive money) may be assigned without the prior
written consent of the non-assigning party. None of the duties of any party
hereunder may be delegated by either party without the prior written consent of
the nondelegating party.
13.6 Entire Agreement. No party has made any
representations, warranties, covenants or promises relating to the subject
matter of this Agreement except as set forth herein and in any other documents
or agreements specifically referred to herein, and any prior agreements or
understandings no
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<PAGE> 19
specifically set forth herein shall be of no force or effect. This Agreement
(together with any other documents specifically referred to herein) constitutes
the entire agreement of the parties relative to the subject matter hereof.
13.7 Invalidity. If any provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable,
the remaining provisions hereof shall nevertheless be given full force and
effect.
13.8 Captions. Captions are for convenience only and
shall not be considered in interpreting any of the provisions hereof.
13.9 Gender; Number. As used herein, the masculine,
feminine or neuter gender, and the singular or plural number, shall each be
deemed to include the others whenever the context so indicates.
13.10 Attorneys' Fees. Should any party be required to
bring legal action (including arbitration) to enforce his rights under this
Agreement, the prevailing party in such action shall be entitled to recover
from the losing party his reasonable attorneys' fees and costs in addition to
any other relief to which he is entitled. Such recovery of attorneys' fees
shall include any attorneys' fees incurred in connection with any bankruptcy or
reorganization proceeding, including stay litigation. The parties further
agree that any attorneys' fees incurred in enforcing any judgment are
recoverable as a separate item, and that this provision is intended to be
severable from the other provisions of this Agreement, shall survive the
judgment, and is not to be deemed merged into the judgment.
13.11 Arbitration. Any controversy or claim arising out of
or relating to this Agreement, or breach thereof (except for an action for
involuntary dissolution of the Corporation or the seeking of injunctive relief
pursuant to Paragraph 4 hereof), shall be settled by arbitration in Los
Angeles, California, in accordance with the Commercial Arbitration Rules of The
American Arbitration Association then in effect, and judgment upon the award
rendered by the arbitrators) may be entered in any court of competent
jurisdiction. The cost of arbitration shall be borne by the losing party or,
if there is no losing party, as the arbitrators) shall determine.
In any arbitration proceedings relative to this Agreement, or breach
thereof, all parties shall have the right to take depositions and to obtain
discovery regarding the subject matter of the arbitration pursuant to
California Code of Civil Procedure section 1283.05, or any successor statute.
Service of any Petition to confirm or vacate the Arbitration award and
Notice of Hearing thereon may be made by certified or registered mail, return
receipt requested, or by personal delivery.
The arbitrator(s) shall apply California substantive law and
California Evidence Code to the proceeding. The arbitrators) shall have the
power to grant all legal and equitable remedies, including the power to award
punitive damages. Upon request of either party, the arbitrators) shall prepare
a written statement of his decision and the award, including factual findings
and legal reasoning. The arbitrators) shall not have the power to commit
errors of law or legal reasoning, and the commission of an error of law or
legal reasoning shall be grounds for vacating or correcting the award pursuant
to California Code of Civil Procedure sections 1286.2 or 1286.6.
13.12 Counterparts. This Agreement may be executed in one
(1) or more counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one (1) and the same instrument.
13.13 Additional Acts. The parties agree to perform such
further acts and to execute, acknowledge and deliver such documents as may be
necessary to effectuate the provisions of this Agreement.
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<PAGE> 20
13.14 Effect of Bvlaws and Articles. To the extent that
this Agreement conflicts or is inconsistent with any provisions of the Articles
of Incorporation or Bylaws of the Corporation, the provisions of this Agreement
shall control.
13.15 Filing of Agreement. A copy of this Agreement as
amended from time to time, shall be filed with the Secretary of the
Corporation.
13.16 Termination. This Agreement will automatically
terminate upon (a) the consummation of a public offering of the capital stock
of Pink Dot, or (b) the re-assignment by Westminster of its shares of common
stock to the Corporation pursuant to that certain Loan and Stock Purchase
Agreement of even date herewith, executed by Westminster and the Corporation.
Paragraphs ____________________ of this Agreement shall become null and void
upon the repayment in full of the loan evidenced by the above described Loan
and Stock Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
<TABLE>
<S> <C>
WESTMINSTER CAPITAL INC., a California
Corporation
By
------------------------- ----------------------------
William Belzberg, President WILLIAM TORO
Address: Address:
c/o Pink Dot, Inc.
966S Wilshire Boulevard, Mezzanine Suite 12658 Washington Boulevard, Suite 201
Beverly Hills, California 90212 Los Angeles, California 90066
Fax No.: (310) 271-6274 Fax No.: (310) 306-867S
PINK DOT, INC., a California Corporation
----------------------------
ARTHUR J. ZONNEVELD
Address:
By
-------------------------
William Toro, President
-----------------------------
-----------------------------
Address:
Fax No.:
-------------------
12658 Washington Boulevard, Suite 201
Los Angeles, California 90066
-----------------------------
Fax No.: (310) 306-8675 RUSSELL R. STRATTON
Address:
-----------------------------
------------------------------
Fax No.:
----------------------
</TABLE>
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<PAGE> 21
SPOUSAL CONSENTS
The undersigned, ____________________________ is the spouse of
_____________________________. The undersigned does hereby certify that she
has read the terms and conditions of the attached Shareholders Agreement of
Pink Dot, Inc., and understands and consents to each and every one of the
terms and conditions thereof.
___________________________
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<PAGE> 22
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement") is made and
entered into this ____ day of ________________, 1995 by PINK DOT, INC., a
California corporation ("Debtor"), in favor of WESTMINSTER CAPITAL, INC., a
California corporation ("Secured Party").
ARTICLE 1
DEFINITIONS
The following definitions shall be applicable to both the
singular and plural forms of the defined terms:
1.1 "COLLATERAL" means (a) the Debtor's Inventory (b) the
Debtor's furniture, furnishings, fixtures and equipment, (c) all tradenames,
trademarks and servicemarks under which Debtor conducts Debtor's business
(including, but not limited to, the tradename and/or trademark "Pink Dot"),
supplier lists, customer lists, licenses, permits, telephone numbers, goodwill
and other intangible assets, (d) all of Debtor's accounts receivable, (e) all
other tangible personal property of the Debtor used in connection with the
operation of the Debtor's business, and (f) all accessions and additions to
each of the foregoing, substitutions therefor, and replacements, products,
insurance proceeds and other proceeds thereof.
1.2 "EVENT OF DEFAULT" means an event described in
Article 5.
1.3 "INDEBTEDNESS" means all debts, obligations and
liabilities of Debtor to Secured Party arising under or pursuant to the Note.
1.4 "INVENTORY" means any and all goods now owned or
hereafter acquired by the Debtor (wherever located, whether in the possession
of the Debtor or of a bailee or other person for Storage, transit, processing,
use or otherwise), which are held for resale and shall include such property
the sale or other disposition of which his given rise to accounts and which has
been returned to or repossessed or stopped in transit by the Debtor.
1.5 "NOTE" means that certain promissory note of even
date herewith executed by Debtor in favor of Secured Parry in the original
stated principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000).
1.6 "SECURITY AGREEMENT" means this Security Agreement,
as it may be amended from time to time.
1.7 "UNIFORM COMMERCIAL CODE" means the Uniform
Commercial Code of California.
Terms not specifically defined in this Security Agreement have
the meanings prescribed in the Uniform Commercial Code.
ARTICLE 2
GRANT OF SECURITY INTEREST
To secure the timely payment of the Indebtedness and the
performance of all obligations of the Debtor to Secured Party under the Note,
the Debtor hereby grants to Secured Parry a security interest in the
Collateral.
EXHIBIT C
<PAGE> 23
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Debtor represents and warrants that:
3.1 NO CONFLICT. The execution, delivery and performance
by the Debtor of this Security Agreement is not in conflict with any law, rule,
regulation, order or directive, or any indenture, agreement, or undertaking to
which the Debtor is a party or by which the Debtor may be bound or affected;
and
3.2 TITLE. The Debtor is the lawful owner of the
Collateral. Except for the security interests created or permitted by this
Security Agreement, the Collateral is free and clear of all liens, security
interests and other encumbrances, and of 211 adverse claims or charges.
3.3 AUTHORITY. The execution, delivery and performance
by the Debtor of this Security Agreement has been duly authorized by all
necessary action of the Debtor's board of directors.
ARTICLE 4
COVENANTS
4.1 FINANCING STATEMENTS. During the term of this
Security Agreement and until payment of all the Indebtedness and performance of
all obligations to Secured Party, the Debtor will execute and deliver to
Secured Party, and file or record all financing statements, notices and other
documents from time to time requested by Secured Party to maintain a perfected
security interest in the Collateral in favor of Secured Party.
4.2 RESTRICTIONS ON SALE OF COLLATERAL. During the term
of this Security Agreement and until payment of all the Indebtedness and
performance of all obligations to Secured Party, the Debtor will not, without
the prior written consent of Secured Party, sell, lease, transfer, assign,
pledge, mortgage, encumber, hypothecate or otherwise dispose of or abandon any
or all of the Collateral; provided, however, that the Inventory may be sold in
the ordinary course of business.
4.3 REPORTS. From time to time upon Secured Party's
request, the Debtor. shall deliver to Secured Party such reports and
information concerning the Collateral and the business and affairs of the
Debtor as Secured Party may reasonable request, including but not limited to
financial statements. Such reports shall be in such form, for such periods,
contain such information, and shall be rendered with such frequency as Secured
Party may reasonably designate. All reports and information provided to
Secured Party by the Debtor shall be complete and accurate in all respects at
the time provided.
4.4 BOOKS AND RECORDS. The Debtor shall maintain
complete and accurate books and records which contain full and correct entries
of all transactions relating to the business of the Debtor in accordance with
good accounting practices and principles consistently applied from year to
year. All such books and records shall be kept at the Debtor's chief executive
office, and the Debtor shall not remove such books and records without Secured
Party's prior written consent.
4.5 INSPECTION. Secured Party and his representatives
shall have access to all of the Debtor's books and records relating to the
Collateral at all reasonable times for the purposes of examination, inspection,
verification, copying and for any other reasonable purpose. Secured Party and
his representatives shall have the right at all reasonable times to discuss the
respective affairs, finances, books, and records of the Debtor with its
shareholders, directors, officers, employees, and independent public
accountants, and the Debtor authorizes such persons and entities to discuss
such matters with Secured Party at such reasonable times as Secured Parry may
request.
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<PAGE> 24
4.6 NOTICE OF ADVERSE CLAIMS. The Debtor shall
immediately notify Secured Party in writing of (a) any claim, demand, right,
lien, security interest or encumbrance arising with respect to any or all of
the Collateral which may be materially adverse to Secured Party's security
interest therein; (b) any material adverse change in the value of the
Collateral; (c) any material adverse change in the Debtor's financial
condition, business, properties or the Debtor's ability to perform its
obligations under this Security Agreement; and (d) any event or condition which
constitutes an Event of Default under this Security Agreement.
4.7 INSURANCE. The Debtor shall take all actions which
may be reasonably necessary or appropriate to maintain insurance against such
risks and liabilities, in such forms, and for such amounts as are customarily
maintained by entities engaged in the same or similar business and similarly
situated. Such insurance shall be maintained with financially sound and
reputable insurers. Upon Secured Party's request, the Debtor shall provide
Secured Party with evidence satisfactory to Secured Party regarding the
maintenance of the insurance required by this Section. Secured Party shall be
named as a loss payee on all policies of hazard insurance covering the
Collateral, and such policies shall provide that they will not be cancelled or
materially modified without it least ten (10) days' prior written notice to
Secured Party. Debtor shall furnish Secured Party with a certificate of
insurance within ten (10) days after execution of this Security Agreement, and
upon each renewal of such policies.
4.8 COMPLIANCE WITH LAW. The Debtor shall comply with
all applicable provisions of all foreign, federal, state and local laws,
ordinances, rules, and regulations, including without limitation those relating
to the ownership of real or personal property, the conduct and licensing of
their respective businesses, the employment of their respective personnel, and
the filing of tax returns and reports.
ARTICLE 5
EVENTS OF DEFAULT
5.1 EVENTS OF DEFAULT. The occurrence of any of the
following events or conditions shall constitute and is hereby defined to be an
"Event of Default":
(a) The failure of Debtor to timely perform any
of its obligations under the Note, subject to any applicable notice and/or
"grace" periods set forth therein.
(b) The failure Debtor to perform any of its
obligations under this Security Agreement (other than as described in (a)
above) which is not cured within ten (10) days after written notice has been
given by Secured Party to Debtor.
(c) The filing by the Debtor (or against the
Debtor in which the Debtor acquiesces or which is not dismissed within thirty
(30) days after the filing thereof) of any proceeding under the federal
bankruptcy laws now or hereafter existing or any other similar statute now or
hereafter in effect; the entry of an order for relief under such laws with
respect to the Debtor; or the appointment of a receiver, trustee, custodian or
conservator of all or any part of the assets of the Debtor.
(d) The insolvency of the Debtor; or the
execution by the Debtor of an assignment for the benefit of creditors; or the
convening by the Debtor of a meeting of its creditors, or any class thereof,
for purposes of effecting a moratorium upon or extension or composition of its
debts; or the failure of the Debtor to pay its debts as they mature; or if the
Debtor is generally not paving its debts as they mature.
(e) The sale, lease, transfer, assignment,
pledge, mortgage, encumbrance, hypothecation or other disposal or abandonment
of all or substantially all of the Debtor's assets.
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<PAGE> 25
(f) The Debtor shall (i) consolidate or merge
with any other entity such that the value of the security interest in the
Collateral may, in the sole discretion of Secured Party, be impaired, (ii)
suspend, cease or substantially alter the nature of the business in which it is
engaged, or (iii) Initiate or have initiated against it, any act, process or
proceeding for liquidation or dissolution.
(g) The institution of any legal action or
proceedings to enforce a lien or security interest in any portion of the
Collateral that is not dismissed within thirty (30) days of such institution.
5.2 ACCELERATION AND REMEDIES. Secured Party shall, in
addition to all other rights and remedies provided hereunder or any document or
agreement referred to herein, hive the following rights and remedies:
(a) Uniform Commercial Code. Secured Party shall
have all of the rights and remedies of a secured party under the Uniform
Commercial Code and under all other applicable laws;
(b) Acceleration. Secured Party may declare an),
or all of the obligations under the Note or this Security Agreement to be
immediately due and payable, to the extent that such obligations are not
already due and payable by their terms (and without regard to whether recovery
of such obligations may be or become barred by bankruptcy, insolvency or
reorganization law, an), statute of limitation or otherwise unenforceable);
(c) Possession. Secured Party, without a breach
of the peace, may enter any of the premises of the Debtor and search for, take
possession of, remove, keep or store any or all of the Collateral. if Secured
Party seeks to take possession of any or all of the Collateral by court
process, the Debtor irrevocably and unconditionally agrees that a receiver may
be appointed by a court for such purpose without regard to the adequacy of the
security for the obligations under the Note or this Security Agreement;
(d) Sale of Collateral. Secured Party may sell
or dispose of the Collateral at public or private sale, in one or more sales,
as a unit or in parcels, at wholesale or retail, and at such time and place and
on such terms as Secured Party may determine. Secured Party may be the
purchaser of any or all of the Collateral at any public or private sale. Any
public sale of any or all of the Collateral may be postponed from time to time
by public announcement at the time and place last scheduled for the sale;
(e) Commercially Reasonable Sale. Without
limiting the generality of this Section 5.2, Secured Party shall conclusively
be deemed to have made a commercially reasonable disposition of any or all of
the Collateral if (i) Secured Party holds a public or private sale of such
Collateral at least (5) five days after notice is given to the Debtor of de
date fixed for any public sale or the date on or after which any private sale
or other disposition of the Collateral is to be made by Secured Party; (ii)
with respect to any public sale, the sale is held at least five (5) days after
notice is published in a newspaper of general circulation in the County of Los
Angeles, including without limitation the Los Angeles Daily Journal; and (iii)
without respect to any public disposition, the sale is held any time between
the hours of 8 a.m. and 5 p.m. in Los Angeles County at any place designated by
Secured Party. Without limiting the generality of this Section 5.2, it shall
conclusively be deemed to be commercially reasonable for Secured Party to
direct any prospective purchaser of any or all of the Collateral to the Debtor
to ascertain all information concerning the status of the Collateral. Secured
Party's disposition of any or all of the Collateral in any manner which differs
from the procedures specified in this Section 5.2 shall not be deemed to be
commercially unreasonable;
(f) Protection of Collateral. Secured Party may
discharge claims, demands, liens, security interests, encumbrances and taxes
affecting any or all of the Collateral and take such other actions as Secured
Party determines to be necessary or appropriate to protect the Collateral and
Secured Party's security interest therein. Secured Party, without releasing
the Debtor or any other party from any of the obligations under the Note or
this Security Agreement and without any obligation to do so, may perform any
such obligations in such manner and to such extent as Secured Party determines
to be necessary or appropriate to protect the Collateral and Secured Party's
security interest therein; and
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<PAGE> 26
(g) Proceeds. The proceeds of any sale or
disposition of the Collateral by Secured Party shall be applied in the
following order of priority:
(i) First, to all liabilities,
obligations, costs, and expenses, including without limitation reasonable
attorneys' fees and costs, incurred by Secured Party in exercising any of his
rights or remedies under this Security Agreement, including without limitation
the costs and expenses of retaking, holding, and selling any or all of the
Collateral and the costs and expenses of enforcing and collecting upon any or
all of the Collateral;
(i) Second, to the payment of the
obligations under the Note or this Security Agreement in such order and amounts
as Secured Party may determine in its sole and absolute discretion; and
(iii) Third, the surplus, if any, shall be
paid to the Debtor or any other party legally entitled thereto.
5.3 LIABILITY FOR DEFICIENCY. The Debtor shall at all
times remain liable for any deficiency remaining on the obligations under the
Note or this Security Agreement after any disposition of any or all of the
Collateral.
ARTICLE 6
SPECIAL PROVISIONS
6.1 POWER OF ATTORNEY. The Debtor irrevocably appoints
Secured Party, with full power of substitution, as the Debtor's
attorney-in-fact, coupled with an interest, with full power, in Secured Party's
own name or in the name of the Debtor:
(a) Upon the occurrence of any Event of Default,
to endorse any checks, drafts, money orders, notes, and other instruments or
documents representing Collateral proceeds or evidencing payment on account of
any or all of the Collateral;
(b) Upon the occurrence of any Event of Default,
to pay or discharge claims, demands, liens, security interests, encumbrances,
or taxes affecting or threatened against any or all of the Collateral;
(c) Upon the occurrence of any Event of Default,
to receive payment of all Collateral proceeds;
(d) To commence, prosecute or defend any suit,
action or proceeding relating to any or all of the Collateral;
(e) Upon the occurrence of any Event of Default,
to sell, transfer, pledge, make any agreement with respect to, or otherwise
deal with any or all of the Collateral as though Secured Party were the owner
thereof for all purposes; and
(f) To execute any financing statement,
continuation financing statement, financing statement amendment, security
agreement, assignment, notice, or other document which Secured Party, in its
sole and absolute discretion, determines to be necessary or appropriate in
order to perfect or maintain Secured Party's security interest in the
Collateral.
Buyer acknowledge that Secured Party shall have no obligation to exercise any
of the foregoing rights.
- 5 -
<PAGE> 27
6.2 CUMULATIVE REMEDIES. Secured Party's rights and
remedies under this Security Agreement are cumulative with and in addition to
all other rights and remedies which Secured Party may have in connection with
the obligations under the Note or this Security Agreement. Secured Party may
exercise any one or more of his rights and remedies under this Security
Agreement at Secured Party's option and in such order as Secured Party may
determine in its sole and absolute discretion.
6.3 ACTIONS. Secured Party shall have the right, but not
the obligation, to commence, appear in, or defend any action or proceeding
which affects or which Secured Party determines may affect (a) the Collateral;
(b) the Debtor's or Secured Party's obligations under this Security Agreement;
or (c) the obligations under the Note or this Security Agreement. Whether or
not the Debtor is in default under this Security Agreement, Secured Party shall
at all times have the right to take any and all actions which Secured Party
determines to be necessary or appropriate to protect Secured Party's interest
in connection with such obligations.
ARTICLE 7
NOTICES
All notices required or permitted to be given pursuant to this
Security Agreement shall be in writing, and shall be delivered either
personally, by overnight delivery service or by U.S. certified or registered
mail, postage prepaid, return-receipt requested and addressed to the parties at
their respective addresses as they appear below the Debtor's signature hereon.
Notices may also be given by facsimile transmission to the facsimile telephone
numbers which appear below the parties' respective signatureshereon, provided
that either receipt of the facsimile transmission is acknowledged in writing by
the receiving party, which may also be by a facsimile transmission, or the
transmitting party obtains a written confirmation from its own facsimile
machine showing that the entire transmission was transmitted to the receiving
party, without interruption, and a copy of the notice is also sent by one of
the other above-described methods of service. The parties may change their
addresses or facsimile telephone numbers for notice by giving notice of such
change in accordance with this section. Notices sent by overnight delivery
service shall be deemed received on the business day following the date of
deposit with the delivery service. Mailed notices shall be deemed received
upon the earlier of the date of delivery shown on the return-receipt, or the
second business day after the date of mailing. Notices sent by facsimile
transmission shall be deemed served on the date of transmission, provided that
such notices are sent during regular business hours, otherwise on the next
business day.
ARTICLE 8
MISCELLANEOUS
8.1 GOVERNING LAW. This Securiry Agreement shall be
construed in accordance with and governed by the laws of the State of
California.
8.2 TIME OF ESSENCE. Time is of the essence of each
provision of this Security Agreement.
8.3 DESCRIPTIVE HEADINGS. The headings to articles and
sections of this Security Agreement are for convenience only, and they do not
in any way limit or amplify any of the terms of this Security Agreement and
shall not be used in interpreting this Security Agreement.
8.4 ENTIRE AGREEMENT. This Security Agreement hereto
contains the entire agreement between Secured Party and the Debtor concerning
the subject matter of this Security Agreement.
8.5 SEVERABILITY. If any provision of this Security
Agreement shall be held by any court of competent jurisdiction to be unlawful,
void, voidable, or unenforceable for any reason, such provision shall be deemed
severable from and shall in no way affect the validity or enforceability of the
remaining provisions of this Security Agreement. Without limiting the
generality of the preceding sentence, if Secured Party's security interest in
any or all of the Collateral is held to be unlawful, void, voidable or
unenforceable for any
- 6 -
<PAGE> 28
reason, such defect shall in no way affect the validity or enforceability of
the remaining terms and conditions of this Security Agreement.
8.6 NO WAIVER BY SECURED PARTY. No waiver by Secured
Party of any of rights or remedies in connection with the obligations under the
Note or this Security Agreement or of any of the terms or conditions of this
Security Agreement shall be effective unless such waiver is in writing and
signed by Secured Party. Without limiting the generality of the preceding
sentence, (a) no delay or omission by Secured Party in exercising any of his
rights or remedies in connection with such obligations shall constitute or be
construed as a waiver of such rights and remedies; (b) no waiver by Secured
Party of any default by the Debtor this Security Agreement or consent by
Secured Party to any act or omission by the Debtor shall constitute or be
construed as a waiver of or consent to any other or subsequent default, act, or
omission by the Debtor; and (c) Secured Party's acceptance of any partial
payment on account of such obligations, including without limitation Secured
Party's acceptance and application of any Collateral proceeds to the
obligations under the Note or this Security Agreement, shall not constitute or
be construed as a waiver by Secured Party of any default by the Debtor under
this Security Agreement or any other agreement between Secured Party and the
Debtor.
8.7 AMENDMENT. This Security Agreement may be modified
only by a written agreement signed by the Debtor and Secured Party.
8.8 SUCCESSORS. This Security Agreement shall be binding
upon and inure to the benefit of the Debtor and Secured Part), and their
respective successors and assigns.
8.9 TERMINATION. Upon payment in full of the
indebtedness, this Security Agreement shall automatically terminate and be of
no further force or effect and Secured Party shall execute any termination
statements required to be filed with the California Secretary of State.
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first above written.
PINK DOT, INC., a California Corporation
By
-----------------------------
William Toro, President
Address:
12658 Washington Boulevard, Suite 201
Los Angeles, California 90066
Fax No.: (310) 306-8675
Address for Notices to Secured Party:
Westminster Capital, Inc.
9665 Wilshire Boulevard, Mezzanine Suite
Beverly Hills, California 90212
Fax No.: (310) 271-6274
- 7 -
<PAGE> 29
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO
NAME
ADDRESS
CITY &
STATE
Title Order No. Escrow No.
------------------- -----------------------
___________________________________________________________________________
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST WITH ASSIGNMENT OF RENTS AS ADDITIONAL SECURITY
This DEED OF TRUST, made , between PINK DOT,
INC., a California Corporation herein called TRUSTOR, whose address is
(Number and Street) (City) (State) (Zip Code)
CHICAGO TITLE COMPANY, a California Corporation, herein called TRUSTEE, and
WESTMINSTER CAPITAL, INC., a California Corporation, herein called BENEFICIARY,
Trustor irrevocably grants, transfers and assigns to Trustee in Trust, with
Power of Sale that property in County , California,
described as:
Together with the rents, issues and profits thereof, subject, however, to the
right, power and authority hereinafter given to and conferred upon Beneficiary
to collect and apply such rents, issues and profits.
For the Purpose of Securing (1) payment of the sum of $2,500,000.00 with
interest thereon according to the terms of a promissory note or notes of even
date herewith made by Trustor, payable to order of Beneficiary, and extensions
or renewals thereof; (2) the performance of each agreement of Trustor
incorporated by reference or contained herein or reciting it is so secured; (3)
Payment of additional sums and interest thereon which may hereafter be loaned
to Trustor, or his or her successors or assigns, when evidenced by a promissory
note or notes reciting that they are secured by this Deed of Trust.
To protect the security of this Deed of Trust, and with respect to the property
above described, Trustor expressly makes each and all of the agreements, and
adopts and agrees to perform and be bound by each and all of the terms and
provisions set forth in subdivision A of that certain Fictitious Deed of Trust
referenced herein, and it is mutually agreed that all of the provisions set
forth in subdivision B of that certain Fictitious Deed of Trust recorded in the
book and page of Official Records in the office of the county recorder of the
county where said property is located, noted below opposite the name of such
county, namely: SEE ADDENDUM ATTACHED HERETO AND MADE A PART HEREOF BY
REFERENCE.
<TABLE>
<CAPTION>
COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALAMEDA 1288 556 KINGS 858 713 PLACER 1028 379 SIERRA 38 187
ALPINE 3 130-31 LAKE 437 110 PLUMAS 166 1307 SISKIYOU 506 762
AMADOR 133 438 LASSEN 192 367 RIVERSIDE 3778 347 SOLANO 1287 621
BUTTE 1330 513 LOS ANGELES T-3878 874 SACRAMENTO 71-10-26 615 SONOMA 2067 427
CALAVERAS 185 338 MADERA 911 136 SAN BENITO 300 405 STANISLAUS 1970 56
COLUSA 323 391 MARIN 1849 122 SAN BERNARDINO 6213 768 SUTTER 655 585
CONTRA COSTA 4684 1 MARIPOSA 90 453 SAN FRANCISCO A-804 596 TEHAMA 457 183
DEL NORTE 101 549 MENDOCINO 667 99 SAN JOAQUIN 2855 283 TRINITY 108 595
EL DORADO 704 635 MERCED 1660 753 SAN LUIS OBISPO 1311 137 TULARE 2530 108
FRESNO 5052 623 MODOC 1919 3 SAN MATEO 4778 175 TUOLUMNE 177 160
GLENN 469 76 MONO 69 302 SANTA BARBARA 2065 881 VENTURA 2607 237
HUMBOLDT 801 83 MONTEREY 357 239 SANTA CLARA 6626 664 YOLO 769 16
IMPERIAL 1189 701 NAPA 704 742 SANTA CRUZ 1638 607 YUBA 398 693
INYO 165 672 NEVADA 363 94 SHASTA 800 633
KERN 3756 690 ORANGE 7182 18 SAN DIEGO SERIES 5 BOOK 1964. PAGE 149774
</TABLE>
T 365 Legal (12-94)
<TABLE>
<S> <C>
D/T With Assignment of Rents EXHIBIT D
</TABLE>
<PAGE> 30
shall inure to and bind the parties hereto, with respect to the property above
described. Said agreements, terms and provisions contained in said
subdivisions A and B, (identical in all counties) are preprinted on the
following pages hereof and are by the within reference thereto, incorporated
herein and made a part of this Deed of Trust for all purposes as fully as if
set forth at length herein, and Beneficiary may charge for a statement
regarding the obligation secured hereby, provided the charge thereof does not
exceed the maximum allowed by laws.
The undersigned Trustor, requests that a copy of any notice of default and any
notice of sale hereunder be mailed to him at his address hereinbefore set
forth.
<TABLE>
<CAPTION>
<S> <C>
STATE OF CALIFORNIA ) Signature of Trustor
COUNTY OF ) S.S.
--------------------- -----------------------------
On before me,
----------------------- -----------------------------
- -------------------------------------- -----------------------------
a Notary Public in and for said County
and State, personally appeared personally
known to me (or proved to me on the basis
of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me
that he/she/they executed the same in
his/her/their authorized capacity(ies), and
that by his/her/their signatures) on the
instrument THE person(s), or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal
Signature
--------------------------
(This area for official notarial seal)
</TABLE>
T 365 Legal (6-94)
D/T With Assignment of Rents
Page 2
<PAGE> 31
DO NOT RECORD
The following is a copy of Subdivisions A and B of the fictitious Deed of Trust
recorded in each county in California as stated in the foregoing Deed of Trust
and incorporated by reference in said Deed of Trust as being a part thereof as
if set forth at length therein.
A. To protect the security of this Deed of Trust, Trustor agrees:
(1) To keep said property in good condition and repair; not to remove
or demolish any building thereon; to complete or restore promptly and in good
and workmanlike manner any building which may be constructed, damaged or
destroyed thereon and to pay when due all claims for labor performed and
materials furnished therefor; to comply with all laws affecting said property
or requiring any alterations or improvements to be made thereon; not to commit
or permit waste thereof; not to commit, suffer or permit any act upon said
property in violation of law; to cultivate, irrigate, fertilize, fumigate,
prune and do all other acts which from the character or use of said property
may be reasonably necessary, the specific enumerations herein not excluding the
general.
(2) To provide, maintain and deliver to Beneficiary fire insurance
satisfactory to and with loss payable to Beneficiary. The amount collected
under any fire or other insurance policy may be applied by Beneficiary upon any
indebtedness secured hereby and in such order as Beneficiary may determine, or
at option of Beneficiary the entire amount so collected or any part thereof may
be released to Trustor. Such application or release shall not cure or waive
any default or notice of default hereunder or invalidate any act done pursuant
to such notice.
(3) To appear in and defend any action or proceeding purporting lo
affect the security hereof or the rights or powers of Beneficiary or Trustee;
and to pay all costs and expenses, including cost of evidence of title and
attorney's fees in a reasonable sum, in any action or proceeding in which
Beneficiary or Trustee may appear. and in any suit brought by Beneficiary to
foreclose this Deed.
(4) To pay: at least ten days before delinquency all taxes and
assessments affecting said property, including assessments on appurtenant water
stock; when due, all encumbrances, charges and liens, with interest, on said
property or any part thereof, which appear to be prior or superior hereto; all
costs, fees and expenses of this Trust.
Should Trustor fail to make any payment or to do any act as herein provided,
then Beneficiary or Trustee, but without obligation so to do and without notice
to or demand upon Trustor and without releasing Trustor from any obligation
hereof, may, make or do the same in such manner and to such extent as either
may deem necessary to protect the security hereof, Beneficiary or Trustee being
authorized to enter upon said property for such purposes; appear in and defend
any action or proceeding purporting to affect the security hereof or the rights
or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any
encumbrance, charge, or lien which in the judgement of either appears to be
prior or superior hereto; and, in exercising any such powers, pay necessary
expenses, employ counsel and pay his or her reasonable fees.
(5) To pay immediately and without demand all sums so expended by
Beneficiary or Trustee, with interest from date of expenditure at the amount
allowed by law in effect at the date hereof. and to pay for any statement
provided for by law in effect at the date hereof regarding the obligation
secured hereby, any amount demanded by the Beneficiary not to exceed the
maximum allowed by law at the time when said statement is demanded.
B. It is mutually agreed:
(1) That any award of damages in connection with any condemnation for
public use of or injury to said property or any part thereof is hereby assigned
and shall be paid to Beneficiary who may apply or release such moneys received
by him or her in the same manner and with the same effect as above provided for
regarding disposition of proceeds of fire or other insurance.
(2) That by accepting payment of any sum secured hereby after its due
date, Beneficiary does not waive his or her right either to require prompt
payment when due of all other sums so secured or to declare default for failure
so to pay.
(3) That at any time or from time to time, without liability therefor
and without notice, upon written request of Beneficiary and presentation of
this Deed and said note for endorsement, and without affecting the personal
liability of any person for payment of the indebtedness secured hereby, Trustee
may: reconvey any part of said property; consent to the making of any map or
plat thereof; join in granting any easement thereon; or join in any extension
agreement or any agreement subordinating the lien or charge hereof.
(4) That upon written request of Beneficiary stating that all sums
secured hereby have been paid, and upon surrender of this Deed and said note to
Trustee for cancellation and retention or other disposition as Trustee in its
sole discretion may choose and upon payment of its fees, Trustee shall
reconvey, without warranty, the property then held hereunder. The recitals in
such reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The Grantee in such reconveyance may be described as
"the person or persons legally entitled thereto."
(5) That as additional security, Trustor hereby gives to and confers
upon Beneficiary the right, power and authority, during the continuance of
these Trusts, to collect the rents, issues and profits of said property,
reserving unto Trustor the right, prior to any default by Trustor in payment of
any indebtedness secured hereby or in performance of any agreement hereunder,
to collect and retain such rents, issues and profits as they become due and
payable. Upon any such default, Beneficiary may at any time without notice,
either in person, by agent, or by a receiver to be appointed by a court, and
without regard to the adequacy of any security for the indebtedness hereby
secured, enter upon and take possession of said property or any part thereof,
in his or her own name sue for or otherwise collect such rents, issues, and
profits, including those past due and unpaid, and apply the same, less costs
and expenses of operation and collection, including reasonable attorney's fees,
upon any indebtedness secured hereby, and in such order as Beneficiary may
determine. The entering upon and taking possession of said property, the
collection of such rents, issues and profits and the application thereof as
aforesaid, shall not cure or waive any default or notice of default hereunder
or invalidate any act done pursuant to such notice.
(6) That upon default by Trustor in payment of any indebtedness
secured hereby or in performance of any agreement hereunder, Beneficiary may
declare all sums secured hereby immediatly due and payable by delivery to
Trustee of written declaration of default and demand for sale and of written
notice of default and of election to cause to be sold said property, which
notice Trustee shall cause to be filed for record. Beneficiary also shall
deposit with Trustee this Deed, said note and all documents evidencing
expenditures secured hereby.
After the lapse of such time as may then be required by law following
the recordation of said notice of default, and notice of sale having been given
as then required by law. Trustee, without demand on Trustor, shall sell said
property at the time and place fixed by it in said notice of sale, either as a
whole or in separate parcels, and in such order as it may determine, at public
auction to the highest bidder for cash in lawful money of the United States,
payable at time of sale. Trustee may postpone sale of all or any portion of
said property by public announcement at such time and place of sale, and from
time to time thereafter may postpone such sale by public announcement at the
time fixed by the preceding postponement. Trustee shall deliver to such
purchaser its deed conveying the property so sold, but without any covenant or
warranty, express or implied. The recitals in such deed of any matters or
facts shall be conclusive proof of the truthfulness thereof. Any person,
including Trustor, Trustee, or Beneficiary as hereinafter defined, may purchase
at such sale.
After deducting all costs, fees and expenses of Trustee and of this
Trust, including cost of evidence of title in connection with sale, Trustee
shall apply the proceeds of sale to payment of: all sums expended under the
terms hereof, not then repaid, with accrued interest at the amount allowed by
law in effect at the date hereof; all other sums then secured hereby; and the
remainder, if any, to the person or persons legally entitled thereto.
(7) Beneficiary, or any successor in ownership of any indebtedness
secured hereby, may from time to time, by instrument in writing, substitute a
successor or successors to any Trustee named herein or acting hereunder, which
instrument, executed by the Beneficiary and duly acknowledged and recorded in
the office of the recorder of the county or counties where said property is
situated, shall be conclusive proof of proper substitution of such successor
Trustee or Trustees, who shall, without conveyance from the Trustee
predecessor, succeed to all its title, estate, rights. powers and duties. Said
instrument must contain the name of the original Trustor, Trustee and
Beneficiary hereunder, the book and page where this Deed is recorded and the
name and address of the new Trustee.
(8) That this Deed applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors, and assigns. The term Beneficiary shall mean the owner and holder,
including pledgees, of the note secured hereby, whether or not named as
Beneficiary herein. In this Deed, whenever the context so requires, the
masculine gender includes the feminine and/or the neuter, and the singular
number includes the plural.
<TABLE>
<S> <C>
T 365 Legal (6-94) Page 3
</TABLE>
<PAGE> 32
(9) The Trustee accepts this Trust when this Deed, duly executed and
acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other Deed of
Trust or of any action or proceeding in which Trustor, Beneficiary or Trustee
shall be a party unless brought by Trustee.
DO NOT RECORD REQUEST FOR FULL RECONVEYANCE
TO CHICAGO TITLE COMPANY
The undersigned is the legal owner and holder of the note or notes,
and of all other indebtedness secured by the foregoing Deed of Trust. Said note
or notes, together with all other indebtedness secured by said Deed of Trust,
have been fully paid and satisfied and you are hereby requested and directed,
on payment to you of any sums owing to you under the terms of said Deed of
Trust, to cancel said note or notes above mentioned, and all other evidence of
indebtedness secured by said Deed of Trust delivered to you herewith, together
with the said Deed of Trust, and 10 reconvey, without warranty. to the parties
designated by the terms of said Deed of Trust, all the estate now held by you
under the same.
Dated ___________________________ ____________________________
____________________________
Please mail Deed of Trust,
Note and Reconveyance to ___________________________________________________
Do not lose or destroy this Deed of Trust OR THE NOTE which it secures. Both
must be delivered to the Trustee for cancellation before reconveyance will be
made
[DEED OF TRUST, CHICAGO TITLE COMPANY GRAPHIC]
T 365 Legal (6-94)
D/T With Assignment of Rents
Page 4
<PAGE> 33
ADDENDUM TO DEED OF TRUST
(ADDING LEASEHOLD DEED OF TRUST PROVISIONS)
This Addendum to Deed of Trust ("Addendum") is attached to and made a
part of that certain Deed of Trust dated ___________________, 1995 ("Trust
Deed") executed by PINK DOT, INC., A CALIFORNIA CORPORATION ("Trustor") in
favor of WESTMINSTER CAPITAL, INC., A CALIFORNIA CORPORATION ("Beneficiary").
1. LEASEHOLD DEED OF TRUST. Subject to the provisions of
Paragraph 11 hereof, the Trust Deed constitutes a leasehold deed of trust. The
real property defined in the Trust Deed ("Property") is limited to all of
Trustor's present and future right, title and interest in the leasehold estate
created by that certain lease dated _____________________ 19__ ("Lease")
entered into between as landlord ("Landlord"), and Trustor, as tenant,
pertaining to the premises commonly known as _______________________________.
2. PERFORMANCE OF LEASE OBLIGATIONS. Trustor will fully perform
all of its obligations under the Lease in a timely fashion.
3. BENEFICIARY'S RIGHT TO CURE DEFAULT. If Trustor fails to
timely perform any of its obligations under the Lease or commits an event of
default under the Lease, then Beneficiary shall have the right (but not the
obligation), without notice to Trustor, to take such action as Beneficiary
deems necessary or desirable to prevent or cure any such failure or default,
and Beneficiary shall have the right to enter all or any portion of the
Property at such times and in such manner as Beneficiary deems necessary in
order to prevent or cure any such failure or default. The curing by
Beneficiary of any failure or default by Trustor under the Lease shall not cure
or waive, as between Trustor and Beneficiary, the default which occurred
hereunder by virtue of Trustor's default under the Lease. All reasonable
amounts expended by Beneficiary in curing any such failure or default shall be
paid by Trustor to Beneficiary within five (5) days following Beneficiary's
demand therefor. All such indebtedness shall be secured by the Trust Deed and
shall bear interest, commencing upon Beneficiary's demand therefor, at the
highest rate permitted by law.
4. NOTICE OF DEFAULT. Trustor shall notify Beneficiary promptly
in writing of (a) the occurrence of any default by Landlord under the Lease or
the occurrence of any event which, with the passage of time or the giving of
notice or both, would constitute a default by Landlord under the Lease, and (b)
the receipt by Trustor of any notice from Landlord under the Lease claiming the
occurrence of any default by Trustor under the Lease or the occurrence of any
event which, with the passage of time or the giving of notice or both, would
constitute a default by Trustor under the Lease (and Trustor shall also
promptly deliver a copy of any such notice to Beneficiary).
5. ESTOPPEL CERTIFICATES. Promptly upon demand by Beneficiary,
Trustor shall use its best efforts to obtain from Landlord and furnish to
Beneficiary Landlord's estoppel certificate stating the date through which rent
has been paid, whether or not there ire any defaults under such Lease, the
specific nature of any claimed defaults, and any other matters reasonably
requested by Beneficiary.
6. LEGAL. Trustor shall notify Beneficiary promptly in writing
of the institution of any legal proceedings (including arbitration) involving
obligations under the Lease, and Beneficiary may intervene in any such legal
proceedings and be made a parry to them. Trustor shall promptly provide
Beneficiary with a copy of any decision rendered in connection with any such
proceedings.
7. EXECUTION OF DOCUMENTS. Trustor shall promptly execute,
acknowledge and deliver to Beneficiary such instruments as may reasonably be
required to permit Beneficiary to cure a default under the Lease or permit
Beneficiary to take such other action as may enable Beneficiary to cure or
remedy the matter in default and preserve the security interest of Beneficiary
in and to the Lease. Trustor hereby irrevocably
<PAGE> 34
appoints Beneficiary its true and lawful attorney-in-fact in its name or
otherwise to do any and all acts and execute any and all documents which
Beneficiary deems necessary to preserve any rights of Trustor under the Lease,
including without limitation the right to effectuate any extension or renewal
of the Lease, or to preserve any rights of Trustor whatsoever in respect of any
part of the Lease. The powers granted to Beneficiary in this Section are
coupled with an interest and shall be irrevocable.
8. NO LIMITATION ON BENEFICIARY'S RIGHTS. The generality of the
provisions of this Addendum shall not be limited by any provision of the Trust
Deed that sets forth particular obligations of Trustor as the tenant under the
Lease.
9. NO MERGER OF ESTATES. Unless Beneficiary otherwise consents
in writing, so long as any obligation secured bv the Trust Deed remains unpaid
or unperformed, as the case may be, neither the fee title to, nor any other
estate, title or interest in, the Property shall merge with the leasehold
estate under the Lease but shall always remain separate and distinct therefrom,
notwithstanding the union of such estate either in Landlord, the Trustor or any
other tenant under the Lease, or in a third party, by purchase or otherwise.
10. NO TERMINATION OR MODIFICATION OF LEASE. Trustor shall not,
without Beneficiary's prior written consent, surrender, terminate, forfeit, or
suffer or permit the surrender, termination or forfeiture of, or materially
modify or amend, the Lease. Any acquisition of Landlord's interest in the
Lease by Trustor or any affiliate of Trustor shall be accomplished by Trustor
in such a manner as to avoid a merger of the interests of lessor and lessee in
the Lease unless prior written consent to Such merger is granted by
Beneficiary. Any consent of Beneficiary hereunder may be withheld by
Beneficiary in its sole and absolute discretion.
11. LIEN ON FEE TITLE. If Trustor acquires fee title to all or
any part of the Property, the Trust Deed shall automatically be a lien on the
fee interest of Trustor therein.
12. BANKRUPTCY OF LANDLORD. Notwithstanding anything to the
contrary contained in the Trust Deed with respect to the Lease, and to the
extent permitted by law:
(a) The lien of the Trust Deed attaches to all of
Trustor's rights and remedies at any time arising under or pursuant to
Subsection 365(h) of the 1978 Bankruptcy Code, as amended, 11 U.S.C. sections
101 et sea. (the "Bankruptcy Code"), including without limitation all of
Trustor's rights to remain in possession of the Property.
(b) Trustor shall not, without Beneficiary's prior
written consent, elect to treat the Lease as terminated under Subsection
365(h)(1) of the Bankruptcy Code. Any such election made without Beneficiary's
prior written consent shall be void.
(c) Trustor hereby unconditionally assigns, transfers and
sets over to Beneficiary all of Trustor's claims and rights to the payment of
damages arising from any rejection by the Landlord of the Lease under the
Bankruptcy Code. Beneficiary and Trustor shall proceed jointly or in the name
of Trustor in respect of any claim, suit, action or proceeding relating to the
rejection of the Lease, including without limitation the right to file and
prosecute any proofs of claim, complaints, motions, applications, notices and
other documents in any case in respect of Landlord under the Bankruptcy Code.
This assignment constitutes a present, irrevocable and unconditional assignment
of the foregoing claims, rights and remedies, and shall continue in effect
until all of the Obligations secured by the Trust Deed have been satisfied and
discharged in full. Any amounts received by Beneficiary or Trustor as damages
arising out of the rejection of the Lease as aforesaid shall be applied first
to all costs and expenses of Beneficiary (including without limitation
attorneys' fees) incurred in connection with the exercise of any of its rights
or remedies under this subsection and then in accordance with the other
applicable provisions of The Trust.
(d) If, pursuant to Subsection 365(h)(1)(B) of the
Bankruptcy Code, Trustor seeks to offset against the rent reserved in the Lease
the amount of any damages caused by the nonperformance of any of Landlord's
obligations under the Lease after the rejection by Landlord of the Lease under
Subsection 365(h)(1)(A) of the Bankruptcy Code, Trustor shall, prior to
effecting such offset, notify Beneficiary in writing
- 2 -
<PAGE> 35
of its intent to do so, setting forth the amounts proposed to by offset and, in
the event Beneficiary objects, Trustor shall not effect any offset of the
amounts to which Beneficiary objects. If Beneficiary fails to object as
aforesaid within ten (10) days following Beneficiary's receipt of written
notice from Trustor in accordance with the first sentence of this subsection,
Trustor may proceed to offset the amounts set forth in Trustor's notice.
(e) If any action, proceeding, motion or notice shall be
commenced or filed in respect of the Landlord or the Property in connection
with any case under the Bankruptcy Code, Beneficiary and Trustor shall
cooperatively conduct and control any such litigation with counsel agreed upon
between Trustor and Beneficiary in connection therewith. Trustor shall, upon
demand, pay to Beneficiary all reasonable costs and expenses (including
reasonable attorneys' fees) paid or incurred by Beneficiary in connection with
the cooperative prosecution or conduct of any such proceedings. All such costs
and expenses shall be secured by the Trust Deed and shall be payable on demand,
and shall bear interest at the highest legal rate.
(f) Trustor shall promptly, after obtaining knowledge
thereof, notify Beneficiary orally Of any filing by or against Landlord of a
petition under the Bankruptcy Code. Trustor shall thereafter immediately give
written notice of such filing to Beneficiary, setting forth any information
available to Trustor with respect to the date of such filing, the court in
which such petition was filed, and the relief sought therein. Trustor shall
promptly deliver to Beneficiary, following its receipt thereof, any and all
notices, summonses, pleadings, applications and other documents received by
Trustor in connection with any such petition and any proceedings relating
thereto.
13. ADDITIONAL EVENTS OF DEFAULT. In addition to any and all
other defaults described in the Trust Deed, the occurrence of any of the
following events shall be a default under the Trust Deed:
(a) A breach or default by Trustor with respect to any
condition or obligation contained in the Lease not cured within any applicable
grace period;
(b) The occurrence of any event or condition which gives
Landlord a right to terminate or cancel the Lease not cured within any
applicable grace period; and
(c) Trustor's failure to permit Beneficiary and/or its
representatives at all reasonable times to make such investigation or
examination concerning Trustor's performance and observance of the terms,
covenants and conditions of the Lease as Beneficiary deems necessary or
desirable.
14. AMOUNTS ADVANCED BV BENEFICIARY. To the extent permitted by
law, the price payable by Trustor or any other party in the exercise of the
right of redemption, if any, from any sale under, or decree of foreclosure of,
the Trust Deed shall include all rents and other amounts paid and other sums
advanced by Beneficiary on behalf of Trustor as the tenant under the Lease.
15. PREPAID RENTS AND SECURITY DEPOSITS. Trustor hereby assigns
to Beneficiary a security interest in all prepaid rents and security deposits
and all other security which Landlord now or hereafter holds for the
performance of Trustor's obligations tinder the Lease.
16. RENEWAL OR EXTENSION OF THE LEASE. If requested by
Beneficiary, Trustor shall exercise any option or right to renew or extend the
term of the Lease at least six months prior to the date of termination of any
such option or right, shall give immediate written notice thereof to
Beneficiary, and shall execute, acknowledge, deliver and record any documents
requested by Beneficiary to evidence the lien of the Trust Deed on such
extended or renewed lease term. If Trustor fails to exercise any such option
or right as required herein, Beneficiary may exercise the option or right as
Trustor's agent and attorney-in-fact pursuant to the Trust Deed, or in
Beneficiary's own name or in the name of and on behalf of a nominee of
Beneficiary, as Beneficiary may determine in its sole and absolute discretion.
- 3 -
<PAGE> 36
17. NO SUBLEASE OR ASSIGNMENT. Trustor may not enter into any
sublease or assignment agreement with respect to all or any portion of the
Property without the prior written consent of Beneficiary, which consent shall
not be unreasonably withheld.
18. SUBORDINATION OF SUBLEASES. All subleases entered into by
Trustor with respect to all or any portion of the Property shall provide that
(a) such subleases are subordinate to the lien of the Trust Deed, as amended
from time to time, and (b) if Beneficiary forecloses under the Trust Deed or
enters into a new lease with Landlord under the Lease pursuant to the
provisions for a new lease, if any, contained in the Lease, each sublease
shall, if Beneficiary so elects, remain in full force and effect and the
subtenant shall attorn to Beneficiary or its assignee.
19. COPY OF LEASE. Trustor shall deposit with Beneficiary a fully
executed copy of the Lease, as further security to Beneficiary, until all of
the obligations secured by the Trust Deed have been fully paid and performed.
20. NO WAIVER. Trustor shall not waive, excuse, condone or in any
way release or discharge Landlord under the Lease of or from any material
obligation, covenant and/or condition under the Lease without the prior written
consent of Beneficiary, which consent may be withheld or denied by Beneficiary
in its sole and absolute discretion.
21. NO SUBORDINATION OF LEASE. Trustor shall not subordinate the
Lease or any leasehold estate created thereunder to any mortgage, deed of trust
or other encumbrance of, or lien on, the fee interest of any owner of the real
property subject to such leasehold estate without the prior written consent of
Beneficiary, which consent may be withheld or denied in Beneficiary'ssole and
absolute discretion. Any such attempted subordination shall be void and of no
force or effect if the prior written consent of Beneficiary has not first been
obtained.
22. REPRESENTATIONS AND WARRANTIES AS TO LEASE. Trustor hereby
represents and warrants to Beneficiary, with respect to the Lease, as follows:
(a) The Lease is in full force and effect;
(b) Trustor owns the entire tenant's interest in and
under the Lease, and has the right and authority under the Lease to execute the
Trust Deed as modified by this Addendum;
(c) All rents and other charges payable under the Lease
have been fully paid; and
(d) No default under the Lease remains uncured, nor has
any event occurred which, with the passage of time or service of notice or
both, would constitute such a default.
23. DEFINED TERMS. All capitalized terms used in this Addendum
shall have the same meanings ascribed to them in the Trust Deed, unless
otherwise defined herein.
24. INTERPRETATION OF TRUST DEED AND ADDENDUM. The agreements set
forth in this Addendum are intended to and shall have the same force and effect
as if set forth at length in the Trust Deed. To the extent that any terms or
provisions of this Addendum are inconsistent with any of the terms or
provisions of the Trust Deed, the terms and provisions of this Addendum shall
prevail and control for all purposes.
25. AFFIRMATION OF TRUST DEED. Except as specifically modified by
this Addendum, all provisions of the Trust Deed shall remain in full force and
effect.
- 4 -
<PAGE> 1
AMENDMENT TO LOAN AND STOCK PURCHASE AGREEMENT
EXHIBIT 10.6
THIS AMENDMENT TO LOAN AND STOCK PURCHASE AGREEMENT ("Amendment") is
made and entered into this 20th day of September, 1996 by and between
WESTMINSTER CAPITAL, INC., a Delaware Corporation ("Westminster"') and PINK
DOT, INC., a California Corporation ("Pink Dot").
RECITALS
A. On or about November 20, 1995, Westminster and Pink Dot
entered into a certain Loan and Stock Purchase Agreement (the "Agreement").
B. Pursuant to the Agreement, Westminster advanced to Pink Dot
the sum of One Million Dollars ($1,000,000), and has an option to advance to
Pink Dot another One Million Five Hundred Thousand Dollars ($1,5OO,000).
C. Westminster is willing to advance the additional One Million
Five Hundred Thousand Dollars ($1,5OO,000) to Pink Dot only if the Agreement is
amended in certain respects.
NOW, THEREFORE, in consideration of the Premises and the mutual
covenants set forth herein, the parties agree as follows:
1. All references in the Agreement to "Westminster Capital, Inc.,
a California Corporation" are hereby amended to read "Westminster Capital,
Inc., a Delaware Corporation". The foregoing corrects a clerical error.
2. Immediately upon execution of this Amendment, Westminster
shall receive from Pink Dot additional common stock of Pink Dot such that
immediately thereafter Westminster will own forty percent (40%) of the total
issued and outstanding shares of common stock of Pink Dot.
3. Immediately upon execution of this Amendment, Westminster
shall make an additional capital contribution to Pink Dot in the amount of Five
Hundred Thousand Dollars ($500,000), as provided in Paragraph 7 of the
Agreement, and the escrow established pursuant to Paragraph 6 of the Agreement
shall be terminated and the stock certificate being held pursuant to such
escrow shall be delivered to Westminster.
4. Immediately upon execution of this Amendment, Westminster
shall advance an additional Five Hundred Thousand Dollars ($500,000) of the
Loan to Pink Dot. Such advance, and all future advances of the Loan, shall be
used by Pink Dot solely for the purpose of funding the cost of opening
additional stores (starting with the sixth (6th) store). Within five (5) days
after Pink Dot notifies Westminster that the additional Five Hundred Thousand
Dollars ($500,000) has been expended for the purpose stated above, and
documents such expenditures to Westminster, Westminster shall advance an
additional Five Hundred Thousand Dollars ($500,000) of the Loan to Pink Dot.
Within five (5) days after Pink Dot notifies Westminster that the second
additional Five Hundred Thousand Dollars ($5OO,000) has been expended for the
purpose stated above, and documents such expenditures to Westminster,
Westminster shall advance the final Five Hundred Thousand Dollars ($500,000) of
the Loan.
5. In all other respects the Agreement shall remain in full force
and effect as originally written.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
<TABLE>
<S> <C>
PINK DOT, INC., a California Corporation WESTMINSTER CAPITAL, INC., a Delaware
Corporation
By /s/ WILLIAM TORO By /s/ W BELZBERG
-------------------------- -----------------------------
William Toro, President William Belzberg, Chairman of the Board
</TABLE>
- 2 -
<PAGE> 3
MODIFICATION OF SECURED PROMISSORY NOTE
THIS MODIFICATION OF SECURED PROMISSORY NOTE ("Modification") is made
and entered into this 20th day of September, 1996 by and between PINK DOT,
INC., a California Corporation ("Maker") and WESTMINSTER CAPITAL, INC., a
Delaware Corporation ("Holder").
WHEREAS, Maker executed a certain Secured Promissory Note dated
December 21, 199S (the "Note") in the stated principal amount of Two Million
Five Hundred Thousand Dollars ($2,500,000) in favor of Holder, and
WHEREAS, Maker and Holder desire to modify and amend the terms of the
Note as set forth herein.
NOW, THEREFORE, for a good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Maker and Holder hereby agree as
follows:
1. All references in the Note to "Westminster Capital, Inc., a
California Corporation" are hereby modified and amended to read "Westminster
Capital, Inc., a Delaware Corporation". The foregoing corrects a clerical
error.
2. Paragraph 3 of the Note is hereby modified and amended to read
as follows:
"3. INSTALLMENT PAYMENTS. Interest shall accrue on the
Outstanding Principal Balance and there shall be no payments of
principal or interest due under this Note until April 15, 2000. All
accrued interest during such time period shall become part of the
Outstanding Principal Balance. Commencing on April 15, 2000, and
continuing on the fifteenth (15th) day of each third (3rd) month
thereafter, this Note shall be payable in installments
("Installments") of principal and interest in an amount which will
fully amortize the Outstanding Principal Balance over a fifteen (15)
year period. Installments will continue to be payable until the
Maturity Date (as defined herein)."
3. In all other respects the Note shall remain in full force and
effect as originally written.
IN WITNESS WHEREOF, the parties have executed this Modification as of
the date first above written.
<TABLE>
<S> <C>
"MAKER" "HOLDER"
PINK DOT, INC., A CALIFORNIA CORPORATION WESTMINSTER CAPITAL, INC., A DELAWARE
CORPORATION
BY /s/ WILLIAM TORO BY /s/ W BELZBERG
---------------------------- -----------------------------------------
WILLIAM TORO, PRESIDENT WILLIAM BELZBERG, CHAIRMAN OF THE BOARD
THE FOREGOING MODIFICATION IS
HEREBY APPROVED.
/s/ WILLIAM TORO
- --------------------------------
GUILLERMO (WILLIAM) TORO, GUARANTOR
</TABLE>
<PAGE> 4
WESTMINSTER CAPITAL, INC.
9665 Wilshire Boulevard, Suite M-10
Beverly Hills, California 90212
September 20, 1996
Pink Dot, Inc.
12658 Washington Boulevard
Suite 201
Los Angeles, California 90066
Attention: Mr. William Toro
Dear Bill:
This letter confirms that Westminster Capital, Inc. has exercised its
option to advance an additional $1,5OO,000 to Pink Dot, Inc. pursuant to
Paragraph 4 of the Loan and Stock Purchase Agreement dated November 20, 1995,
as amended by an Amendment of even date herewith.
Very truly yours,
WESTMINSTER CAPITAL, INC.
/s/ WILLIAM BELZBERG
---------------------------------------
William Belzberg, Chairman of the Board
<PAGE> 5
ESCROW INSTRUCTIONS
Date: September 20, 1996
TO: BRUCE R. GREENE, ESQ.
RICHMAN, LAWRENCE, MANN, GREENE, CHIZEVER
FRIEDMAN & PHILLIPS
9601 WILSHIRE BOULEVARD, PENTHOUSE SUITE
BEVERLY HILLS, CALIFORNIA 90210
Re: Escrow Agreement Dated December 12, 1995
Pink Dot, Inc./Westminster Capital, Inc.
You are hereby instructed to deliver the Shares (as defined in the
above-referenced Escrow Agreement) to Westminster Capital, Inc. and to
terminate the escrow established pursuant to said Escrow Agreement.
<TABLE>
<S> <C>
PINK DOT, INC., A CALIFORNIA CORPORATION WESTMINSTER CAPITAL, INC., A DELAWARE
CORPORATION
BY /s/ WILLIAM TORO BY /s/ W BELZBERG
----------------------------- -----------------------------
WILLIAM TORO, PRESIDENT WILLIAM BELZBERG, CHAIRMAN OF THE BOARD
</TABLE>
<PAGE> 6
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
BRUCE R. GREENE, ESQ.
RICHMAN, LAWRENCE, MANN, GREENE,
CHIZEVER, FRIEDMAN & PHILLIPS
9601 WILSHIRE BOULEVARD
PENTHOUSE SUITE
BEVERLY HILLS, CALIFORNIA 90210
APN: 4157-001-023
MODIFICATION OF LEASEHOLD DEED OF TRUST WITH
ASSIGNMENT OF RENTS AS ADDITIONAL SECURITY
THIS MODIFICATION OF LEASEHOLD DEED OF TRUST WITH ASSIGNMENT OF RENTS
AS ADDITIONAL SECURITY ("Modification") is made this 20th day of September,
1996, by PINK DOT, INC., A CALIFORNIA CORPORATION ("Trustor") , CHICAGO TITLE
COMPANY, A CALIFORNIA CORPORATION ("Trustee") , and WESTMINSTER CAPITAL, INC.,
A DELAWARE CORPORATION ("Beneficiary").
RECITALS
A. On or about March 8, 1996, Trustor executed a certain
Leasehold Deed of Trust With Assignment of Rents as Additional Security ("Trust
Deed") in favor of Beneficiary, encumbering a leasehold interest of Trustor in
the premises commonly known as 2500 Artesia Boulevard, Redondo Beach,
California, more fully described in EXHIBIT "A" attached hereto and made a part
hereof by reference.
B. The Trust Deed was recorded on July 5, 1996 as Instrument No.
96-1066969 in the Official Records of the Los Angeles County Recorder.
C. The parties desire to modify and amend the Trust Deed as set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
1. All references to Beneficiary in the Trust Deed as being
"Westminster Capital, Inc., a California Corporation" are hereby modified and
amended to read "Westminster Capital Corporation, a Delaware Corporation". The
foregoing corrects a clerical error.
2. In all other respects, the Trust Deed shall remain in full
force and effect as originally written.
<PAGE> 7
IN WITNESS WHEREOF, the undersigned Trustor has executed this
Modification as of the date first above written.
TRUSTOR
PINK DOT, INC., A CALIFORNIA
CORPORATION
BY /s/ WILLIAM TORO
--------------------------
STATE OF CALIFORNIA ) WILLIAM TORO, PRESIDENT
) ss.
COUNTY OF LOS ANGELES)
On September 20, 1996, before me, BJ. W. Mercadante, Notary Public,
personally appeared WILLIAM TORO, personally known to me to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ BJ. W. MERCADANTE
------------------------------
BJ. W. Mercadante
[NOTARY PUBLIC SEAL] NOTARY PUBLIC
(SEAL]
-2-
<PAGE> 8
LEGAL DESCRIPTION
LOTS 12 AND 13 IN BLOCK 3 OF REDONDO VILLA TRACT, IN THE CITY OF REDONDO BEACH,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 10
PAGES 82 AND 83 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT THE NORTHERLY 20 FEET OF LOT 12 IN ARTESIA BOULEVARD, FORMERLY REDONDO
BEACH BOULEVARD.
ALSO EXCEPT FROM LOT 12 ONE-HALF OF ALL OIL, GAS AND MINERALS AS RESERVED BY
ISSAC J. STRIER AND POLLY STRIER, HIS WIFE, IN DEED RECORDED JULY 30, 1946, IN
BOOK 23530, PAGE 97, OFFICIAL RECORDS.
ALSO EXCEPT THE SOUTHERLY 85 FEET OF LOT 13.
-3-
<PAGE> 9
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
BRUCE R. GREENE, ESQ.
RICHMAN, LAWRENCE, MANN, GREENE,
CHIZEVER, FRIEDMAN & PHILLIPS
9601 WILSHIRE BOULEVARD
PENTHOUSE SUITE
BEVERLY HILLS, CALIFORNIA 90210
APN: 4237-024-001
4237-024-(18)
4237-024-(19)
4237-024-(20)
MODIFICATION OF LEASEHOLD DEED OF TRUST WITH
ASSIGNMENT OF RENTS AS ADDITIONAL SECURITY
THIS MODIFICATION OF LEASEHOLD DEED OF TRUST WITH ASSIGNMENT OF RENTS
AS ADDITIONAL SECURITY ("Modification") is made this 20th day of September,
1996, by PINK DOT, INC., A CALIFORNIA CORPORATION ("Trustor"), CHICAGO TITLE
COMPANY, A CALIFORNIA CORPORATION ("Trustee"), and WESTMINSTER CAPITAL, INC., A
DELAWARE CORPORATION ("Beneficiary").
RECITALS
A. on or about March 8, 1996, Trustor executed a certain
Leasehold Deed of Trust With Assignment of Rents as Additional Security ("Trust
Deed") in favor of Beneficiary, encumbering a leasehold interest of Trustor in
the premises commonly known as 2499 Lincoln Boulevard, Los Angeles, California,
more fully described in EXHIBIT "A" attached hereto and made a part hereof by
reference.
B. The Trust Deed was recorded on July 5, 1996 as Instrument No.
96-1066968 in the Official Records of the Los Angeles County Recorder.
C. The parties desire to modify and amend the Trust Deed as set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
1. All references to Beneficiary in the Trust Deed as being
"Westminster Capital, Inc. , a California Corporation" are hereby modified and
amended to read "Westminster Capital Corporation, a Delaware Corporation". The
foregoing corrects a clerical error.
<PAGE> 10
2. In all other respects, the Trust Deed shall remain in full
force and effect as originally written.
IN WITNESS WHEREOF, the undersigned Trustor has executed this
Modification as of the date first above written.
TRUSTOR
PINK DOT, INC., A CALIFORNIA
CORPORATION
BY /s/ WILLIAM TORO
----------------------------
WILLIAM TORO, PRESIDENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On September 20, 1996, before me, BJ. W. Mercadante, Notary Public,
personally appeared WILLIAM TORO, personally known to me to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ BJ W. MERCADANTE
------------------------------
BJ W. Mercadante
[NOTARY PUBLIC SEAL] NOTARY PUBLIC
[SEAL]
-2-
<PAGE> 11
LEGAL DESCRIPTION
PARCEL 1: LOT 1 OF TRACT 15740 AS PER MAP RECORDED IN BOOK 394, PAGES 11 AND 12
OF MAPS IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
PARCEL 2: LOTS 33, 36 AND 37 OF TRACT 5809 IN THE CITY OF LOS ANGELES AS PER
MAP RECORDED IN BOOK 63, PAGES 40 AND 41 OF MAPS IN THE OFFICE OF THE COUNTY
RECORDER OF SAID COUNTY.
-3-
<PAGE> 12
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
BRUCE R. GREENE, ESQ.
RICHMAN, LAWRENCE, MANN, GREENE,
CHIZEVER, FRIEDMAN & PHILLIPS
9601 WILSHIRE BOULEVARD
PENTHOUSE SUITE
BEVERLY HILLS, CALIFORNIA 90210
APN: 5087-010-022
5087-010-023
5087-010-024
MODIFICATION OF LEASEHOLD DEED OF TRUST WITH
ASSIGNMENT OF RENTS AS ADDITIONAL SECURITY
THIS MODIFICATION OF LEASEHOLD DEED OF TRUST WITH ASSIGNMENT OF RENTS
AS ADDITIONAL SECURITY ("Modification") is made this 20th day of September,
1996, by PINK DOT, INC., A CALIFORNIA CORPORATION ("Trustor"), CHICAGO TITLE
COMPANY, A CALIFORNIA CORPORATION ("Trustee"), and WESTMINSTER CAPITAL, INC., A
DELAWARE CORPORATION ("Beneficiary").
RECITALS
A. On or about April 3, 1996, Trustor executed a certain
Leasehold Deed of Trust With Assignment of Rents as Additional Security ("Trust
Deed") in favor of Beneficiary, encumbering a leasehold interest of Trustor in
the premises commonly known as 6075-77 Pico Boulevard, Los Angeles, California,
more fully described in EXHIBIT "A" attached hereto and made a part hereof by
reference.
B. The Trust Deed was recorded on July 5, 1996 as Instrument No.
96-1066967 in the Official Records of the Los Angeles County Recorder.
C. The parties desire to modify and amend the Trust Deed as set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
1. All references to Beneficiary in the Trust Deed as being
"Westminster Capital, Inc., a California Corporation" are hereby modified and
amended to read "Westminster Capital Corporation, a Delaware Corporation". The
foregoing corrects a clerical error.
2. In all other respects, the Trust Deed shall remain in full
force and effect as originally written.
<PAGE> 13
IN WITNESS WHEREOF, the undersigned Trustor has executed this
Modification as of the date first above written.
TRUSTOR
PINK DOT, INC., A CALIFORNIA
CORPORATION
BY /s/ WILLIAM TORO
-----------------------------
WILLIAM TORO, PRESIDENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On September 20, 1996, before me, BJ. W. Mercadante, Notary Public,
personally appeared WILLIAM TORO, personally known to me to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ BJ W. MERCADANTE
-----------------------------
BJ W. Mercadante
[NOTARY PUBLIC SEAL] NOTARY PUBLIC
[SEAL]
-2-
<PAGE> 14
LEGAL DESCRIPTION
LOTS 70, 71, 72, 73 AND 74 OF TRACT NO. 8109, IN THE CITY OF LOS ANGELES, AS
PER MAP RECORDED IN BOOK 182 PAGES 33 TO 35 INCLUSIVE OF MAPS, IN THE OFFICE OF
THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT THEREFROM "ALL NATURAL RIGHTS" AS RETAINED BY NORBERTA C. MCGUIRE, IN
DEEDS RECORDED JANUARY 4, 1977 AS INSTRUMENT NO. 77-7863 AND FEBRUARY 14, 1977
AS INSTRUMENT NO. 77-157635.
-3-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
FarWest Financial Insurance Agency
Silver Ridge Apartments G.P., Inc.
Silver Ridge Apartments L.P., Inc.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Westminster Capital, Inc.:
We consent to incorporation by reference in the registration statement No.
33-21177 on Form S-8 of Westminster Capital, Inc. of our report dated March 1,
1997, relating to the consolidated statements of financial condition of
Westminster Capital, Inc. and subsidiary as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996, annual report on Form 10-K
of Westminster Capital, Inc.
KPMG Peat Marwick LLP
Los Angeles, California
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION OF REGISTRANT AS OF DECEMBER 31,
1996 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS OF REGISTRANT FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,310,000
<SECURITIES> 24,162,000
<RECEIVABLES> 4,861,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,818,000
<DEPRECIATION> 690,000
<TOTAL-ASSETS> 33,212,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 7,835,000
<OTHER-SE> 17,632,000
<TOTAL-LIABILITY-AND-EQUITY> 33,212,000
<SALES> 0
<TOTAL-REVENUES> 5,234,000
<CGS> 0
<TOTAL-COSTS> 2,763,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,471,000
<INCOME-TAX> 840,000
<INCOME-CONTINUING> 1,571,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,571,000
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
