<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-6830
FPA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-0874323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 Street Road, Bensalem, PA 19020
(Address of principal executive offices) (Zip Code)
(215) 947-8900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange on
Title which registered
----- ----------------
Common Stock, $.10 Par Value Per Share
(also formerly registered under
Section 12(g) of the Act)................ American
14 1/2% Subordinated Debentures due
September 1, 2000........................ American
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 twelve 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
Rule 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 voting stock held by nonaffiliates of the
registrant as of September 23, 1996 was approximately $2,200,000
Number of shares of outstanding Common Stock as of September 23, 1996 was
11,356,018, shares (excluding 1,342,113 shares held in Treasury).
Part III (except for information included under Part I relating to executive
officers of the registrant) is incorporated by reference from the proxy
statement for the annual meeting of Stockholders scheduled to be held in
December, 1996.
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TABLE OF CONTENTS
PART I
------
PAGE
ITEM 1. Business. ----
General 1
ITEM 2. Properties
Residential Community Development 3
Operating Policies 7
Government Regulation 11
Environmental Regulation and Litigation 13
Competition 13
Employees 14
Economic Conditions 14
Lease of Executive Offices 15
ITEM 3. Legal Proceedings 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
Executive Officers of the Registrant 16
PART II
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ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters 18
ITEM 6. Selected Financial Data 19
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
ITEM 8. Financial Statements and Supplementary Data 34
-i-
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PAGE
----
ITEM 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 61
PART III
--------
ITEM 10. Directors and Executive Officers of the Registrant 61
ITEM 11. Executive Compensation 61
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 61
ITEM 13. Certain Relationships and Related Transactions 61
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 62
-ii-
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Item l. Business.
General
The Registrant, FPA Corporation (the "Company"), develops residential
communities in Pennsylvania and New Jersey. The Company's operations in
Pennsylvania and New Jersey are in the Philadelphia metropolitan area, primarily
in Bucks County in Pennsylvania and in Burlington, Camden and Gloucester
counties in New Jersey. In fiscal 1997, the Company expects to acquire property
in Chester and Delaware Counties in Pennsylvania and is further endeavoring to
increase its scope of operations in these counties.
The Company operates as both a developer and builder. The Company
builds and sells condominiums, townhouses and single-family homes; and sells
land and developed homesites. During the fiscal year ended June 30, 1996, the
Company delivered 531 residential units as compared to 612 units in fiscal 1995.
Revenues earned from residential property activities during fiscal 1996 were
$86,061,000. During fiscal 1995 revenues earned from residential property
activities were $102,384,000. At June 30, 1996, the Company's backlog was
$40,206,000, representing 219 units, compared to $45,829,000 and 264 units, at
June 30, 1995. In addition, as of
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June 30, 1996, there were reservation deposits relating to 32 units at the
Company's various developments which had an aggregate sales value of $5,286,000
as compared to 15 units aggregating $2,562,000 at June 30, 1995.
The Company's predecessor, Florida Palm-Aire Corporation, was formed in
1959 and was merged into FPA Corporation, which had been incorporated in
Delaware on September 4, 1969. Unless otherwise indicated, the terms the
"Company" and "FPA" include FPA Corporation and all of its Subsidiaries.
In 1965, the late Marvin Orleans and Orleans Construction Co., a
general partnership substantially owned and controlled by Marvin Orleans and his
late father, A.P. Orleans, acquired the controlling interest in the Company.
Jeffrey P. Orleans, the son of Marvin Orleans and Chairman of the Board
and Chief Executive Officer of the Company, beneficially owns, directly or
indirectly, approximately 7,887,247 shares (including 1,179,501 shares held by
the Trust of Selma Orleans, the mother of Jeffrey P. Orleans, of which Jeffrey
P. Orleans, is a trustee) of Common Stock, par value $.10 per share ("Common
Stock"), which represents approximately 69.5% of the outstanding shares,
excluding treasury shares, as of September 23, 1996.
2
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Item 2. Properties
Residential Community Development
The Company's activities in developing residential communities include
the sale of residential properties and the sale of land and developed homesites
to independent builders. The Company participates in joint ventures in certain
of these activities.
The following table sets forth certain information as of June 30, 1996
with respect to the active communities of the Company under development and
those where construction is expected to commence in fiscal 1997.
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RESIDENTIAL
DEVELOPMENTS
UNDER CONSTRUCTION
<TABLE>
<CAPTION>
At June 30, 1996
--------------------------------------------------
Total units
Year delivered Total Dwelling
Name and construct- Total through units Reserva- unit Remaining
Location of ion units June 30, under tion price approved
development started approved 1996 contract deposits range(1) units(2)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Saddlebrook $154,990
Washington Township, NJ 1980 1,002 840 21 2 $199,240 139
===================================================================================================================================
Newtown Grant $142,490
Newtown Township, PA 1985 1,750 1,620 12 0 $179,990 118
===================================================================================================================================
Players Place $ 85,490
Gloucester Township, NJ 1987 470 435 15 4 $103,490 16
===================================================================================================================================
The Hills at Northampton $299,990
Northampton Township, PA 1990 397 275(3) 12 1 $412,490 109
===================================================================================================================================
Versailles at Europa $142,990
Cherry Hill Township, NJ 1993 102 62 8 5 $186,990 27
===================================================================================================================================
Mill Ridge/Deer Run $ 90,990
Warwick Township, PA 1994 330 177 43 4 $211,990 106
===================================================================================================================================
Lakes at Alluvium $175,000
Voorhees Township, NJ 1994 32 18 5 1 $190,490 8
===================================================================================================================================
Estates at Newtown Farms $223,990
Newtown Township, PA 1995 63 22 10 1 $260,990 30
===================================================================================================================================
Larchmont $ 92,990
Mount Laurel Township, NJ 1974 5,985 5,380 33 5 $160,490 567
===================================================================================================================================
Stonegate $ 98,490
Mount Laurel Township, NJ 1989 782 570 18 4 $185,000 190
===================================================================================================================================
Hidden Lake $259,990
Mount Laurel Township, NJ 1995 33 7 13 3 $335,990 10
===================================================================================================================================
Bridlewood $254,990
Mount Laurel Township, NJ 1991 103 95 2 0 $335,990 6
===================================================================================================================================
Union Mill $129,990
Mount Laurel Township, NJ 1995 240 22 27 2 $193,990 189
===================================================================================================================================
</TABLE>
Continued...
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RESIDENTIAL
DEVELOPMENTS
ANTICIPATED TO COMMENCE
IN FISCAL 1997
<TABLE>
<CAPTION>
At June 30, 1996
---------------------------------------------------
Total units
Year delivered Total Dwelling
Name and construct- Total through units Reserva- unit Remaining
Location of ion units June 30, under tion price approved
development started approved 1996 contract deposits range(1) units(2)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Jones Farm
Lumberton Township, NJ - 252 252
===================================================================================================================================
Newtown Ridge
Newtown Township, PA - 12 12
===================================================================================================================================
Piarulli Tract
Mount Laurel Township, NJ - 72 72
===================================================================================================================================
Weiland Farm
Mount Laurel Township, NJ - 90 90
===================================================================================================================================
</TABLE>
1. Range of base prices of residential dwelling units currently being
offered for sale by the Company. In addition, the Company sells homesites
from time to time at its various developments to unaffiliated builders at
prices substantially lower than its dwelling units.
2. Although zoning and certain preliminary master plan approvals have been
received for these units, final plans are subject to substantial review
and approval by appropriate governmental agencies. No assurance can be
given that the Company will be able to obtain the required final
approvals for the indicated units or will ultimately elect to develop the
properties in accordance with presently anticipated development plans.
3. Includes fiscal 1996 lot sales.
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The following table sets forth certain detail as to residential sales activity.
The FPA Corporation information provided is for the twelve months ended June 30,
1996, 1995 and 1994 in the case of revenues earned and new orders, and as of
June 30, 1996, 1995 and 1994 in the case of backlog.
Year Ended June 30,
--------------------------------
1996 1995 1994
--------------------------------
(Dollars in thousands)
Revenues earned $ 86,061 $102,384 $ 64,452
Units 531 612 378
Average price per unit $ 162 $ 167 $ 171
New orders* $ 80,438 $ 78,252 $104,104
Units 486 489 601
Average price per unit $ 166 $ 160 $ 173
Backlog $ 40,206 $ 45,829 $ 69,961
Units 219 264 387
Average price per unit $ 184 $ 174 $ 181
*FPA Corporation acquired Orleans Construction Corp.("OCC") on October 22, 1993.
Included in new orders for the year ended June 30, 1994 are 192 units totaling
$28,744,000 of OCC backlog units which existed as of October 22, 1993 which were
obtained as a result of the acquisition. If the Companies were combined as of
July 1, 1993, the combined proforma information would be as follows: Revenues
earned of $73,552,000 on deliveries of 445 units, new orders of $85,191,000 on
477 units and backlog of $69,961,000 consisting of 387 units.
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Operating Policies
Construction
The Company has historically designed its own products with the
assistance of unaffiliated architectural firms as well as supervised the
development and building of its projects. When the Company constructs units, it
acts as a general contractor and employs subcontractors at specified prices for
the installation of site improvements and construction of its residential units.
Agreements with subcontractors provide for a fixed price for work performed or
materials supplied and are generally short-term.
The Company does not manufacture any of the materials or other items
used in the development of its projects, nor does the Company maintain
substantial inventories of materials. Standard building materials, appliances
and other components are purchased in volume. The Company has not experienced
significant delays in obtaining materials needed by it to date and has
long-standing relationships with many of its major suppliers and contractors.
None of the Company's suppliers accounted for more than 10% of the Company's
total purchases in the fiscal year ended June 30, 1996.
Sales and Customer Financing
The Company conducts a marketing program that is directed to
purchasers of primary residences. In Pennsylvania and New Jersey,
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A.P. Orleans Inc., an affiliate of the Company controlled by Jeffrey P. Orleans,
is the exclusive sales agent. The Company believes that the compensation
arrangement with A.P. Orleans, Inc. is no less favorable to the Company that
could be obtained from an unaffiliated sales agent. This compensation includes
payment to A.P. Orleans, Inc. of $25.00 for each house settled in its
Pennsylvania and New Jersey communities.
Model homes and sales centers are constructed to promote sales. A
variety of custom changes are permitted at the request of purchasers. The
Company advertises extensively using newspapers, billboards and other types of
media. The Company also uses brochures to describe each community.
The Company's customers generally require mortgage financing to
complete their purchases. During fiscal 1996, the Company established a mortgage
department to assist its home buyers in obtaining financing from unaffiliated
lenders. The Company receives a fee of 1% of the mortgage amount for its
services.
The Company applies for project financing approvals from the Federal
Housing Administration, the Veterans Administration and the Federal National
Mortgage Association for many of its moderately priced communities. These
approvals assist customers in their ability to obtain competitive fixed and
adjustable rate mortgages
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with moderate down payments and liberal underwriting requirements. The Company
has obtained approvals for most projects and anticipates additional approvals
during fiscal 1997; however, there can be no assurance that additional approvals
will be obtained.
Land Policy
The Company acquires land in order to provide an adequate and
well-located supply for its residential building operations. In evaluating
possible opportunities to acquire land, the Company considers such factors as
the feasibility of development, proximity to developed areas, population growth
patterns, customer preferences, estimated cost of development and availability
and cost of financing.
Subsequent to June 30, 1996, the Company purchased three (3) tracts of
land (an aggregate of approximately 100 homesites) with an aggregate purchase
price of $3,600,000. As of June 30, 1996, the Company was committed to
purchasing an additional nine (9) tracts for an aggregate purchase price of
$24,000,000. The Company anticipates completing a majority of these acquisitions
in calendar 1998.
The Company will continue to monitor economic and market conditions for
residential units in each of its various communities in assessing the relative
desirability of constructing units or
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selling parcels to other builders.
The Company engages in many phases of development activity, including
land and site planning, obtaining environmental and other regulatory approvals,
construction of roads, sewer, water and drainage facilities, recreation
facilities and other amenities.
Joint Ventures
From time to time, the Company has developed and owned projects through
joint ventures with other parties.
As discussed in Note 1 to the Consolidated Financial Statements, the
Company, through a wholly owned subsidiary, is the General Partner in Versailles
Associates, L.P., a limited partnership with private investors to purchase and
develop a 102 multi-family unit community in Cherry Hill, New Jersey.
Construction of the development began in 1993.
As also discussed in Note 1 to the Consolidated Financial Statements,
Orleans Construction Corp. ("OCC") has entered into a joint venture with
Bridlewood Associates, L.P. OCC is the managing general partner in this limited
partnership formed to develop an 85 acre parcel of land in Mount Laurel, New
Jersey.
Determinations by the Company to enter into joint ventures have
traditionally been based upon a number of factors, including principally an
alternative source for land acquisition financing.
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At the present time joint venture activities do not constitute a material
portion of the Company's operations.
Government Regulation
The Company and its subcontractors are subject to continuing compliance
requirements of various Federal, state and local statutes, ordinances, rules and
regulations regarding zoning, plumbing, heating, air conditioning and electrical
systems, building permits and similar matters. The intensity of development in
recent years in areas in which the Company is actively developing real estate
has resulted in increased restrictive regulation and moratoriums by governments
with respect to density, sewer, water, ecological and similar matters. Further
expansion and development will require prior approval of Federal, state and
local authorities and may result in delay or curtailment of development
activities and costly compliance programs.
In January 1983, the New Jersey Supreme Court rendered a decision known
as the "Mount Laurel II" decision, which has the effect of requiring certain
municipalities in New Jersey to provide housing for persons of low and moderate
income. In order to comply with such requirements, municipalities in that state
may require the Company, in connection with its future residential communities,
to contribute funds, on a per unit basis, or
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otherwise assist in the achievement of a fair share of low or moderate housing
in such municipalities.
In recent years, regulation by Federal and state authorities relating
to the sale and advertising of condominium interests and residential real estate
has become more restrictive and intense. In order to advertise and sell
condominiums and residential real estate in many jurisdictions, including
Pennsylvania and New Jersey, the Company has been required to prepare a
registration statement or other disclosure document and, in some cases, to file
such materials with a designated regulatory agency.
Despite the Company's past ability to obtain necessary permits and
authorizations for its projects, more stringent requirements may be imposed on
developers and home builders in the future. Although the Company cannot predict
the effect of such requirements, they could result in time-consuming and
expensive compliance programs and substantial expenditures for environmental
controls which could have a material adverse effect on the results of operations
of the Company. In addition, the continued effectiveness of permits already
granted is subject to many factors, including changes in policies, rules and
regulations and their interpretation and application, which are beyond the
Company's control.
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Environmental Regulation and Litigation
Development and sale of real property creates a potential for
environmental liability on the part of the developer, owner or any mortgage
lender for its own acts or omissions as well as those of current or prior owners
of the subject property or adjacent parcels. If hazardous substances are
discovered on or emanating from any of the Company's properties, the owner or
operator of the property (including the prior owners) may be held strictly
liable for all costs and liabilities relating to such hazardous substances.
Environmental studies are undertaken in connection with property acquisitions by
the Company. Further governmental regulation on environmental matters affecting
residential development could impose substantial additional expense to the
Company, which could adversely affect the results of operations of the Company
or the value of properties owned, or under contract to purchase by the Company.
(See Note 14 of Notes to Consolidated Financial Statements for a discussion of
specific litigation.)
Competition
The real estate industry is highly competitive. The Company competes on
the basis of its reputation, location, design, price, financing programs,
quality of product and related amenities, with regional and national home
builders in its areas of development,
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some of which have greater sales, financial resources and geographical diversity
than the Company. Numerous local residential builders and individual resales of
residential units and homesites provide additional competition.
Employees
The Company, as of June 30, 1996, employed 158 persons, 62 of whom were
executive, administrative and clerical personnel, 33 were sales personnel, and
63 were construction supervisory personnel and laborers.
The level of construction and sales employees varies throughout the
year in relation to the level of activities at the Company's various
developments. The Company has had no major work stoppages and considers its
relations with employees to be good.
Economic Conditions
The Company's business is affected by general economic conditions in
the United States and its related regions and particularly by the level of
interest rates. The Company cannot predict whether interest rates will be at
levels attractive to prospective home buyers or whether mortgage and
construction financing will continue to be available. Further, the current
economic climate and lack of consumer confidence within the Company's customer
base have lessened the
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demand for new housing. In response to these conditions, the Company has
continued to offer incentives to increase sales activity. These actions have
reduced gross profits and cash proceeds from residential sales.
Lease of Executive Offices
The Company is currently leasing office space comprising approximately
12,000 square feet at One Greenwood Square at 3333 Street Road, Bensalem,
Pennsylvania. The annual rent is $213,000 with a lease expiring in March, 1997.
The Company is currently negotiating a new five year lease agreement under
similar terms with the lessor.
Item 3. Legal Proceedings.
The Company is a plaintiff or defendant in various cases arising out of
its usual and customary business. The Company believes that it has adequate
insurance or meritorious defenses in all pending cases in which it is a
defendant and that adverse decisions in any or all of the cases would not have a
material effect upon the Company. (See Note 14 of Notes to Consolidated
Financial Statements for a discussion of specific litigation).
Item 4.
Submission of Matters to a Vote of Security Holders.
There are no matters to be reported hereunder.
15
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Item A. Executive Officers of the Registrant.
The following list contains certain information relative to
executive officers of the Company. There are no family relationships among any
executive officers. The term of each executive officer expires at the next
annual meeting of the Board of Directors following the annual meeting of
Stockholders scheduled to be held in December, 1996 or until their successors
are duly elected and qualified.
Position Principal occupation and offices
Name Age or office past 5 years
- ----------- ----- ------------ ----------------------------------------
Jeffrey P. 50 Chairman of Served as Chairman of the Board
Orleans the Board and Chief Executive Officer since
and Chief September 1986. From September,
Executive 1986 to May 1992 he also served as
Officer President. In addition, Mr. Orleans
served for five years as Chief Executive
Officer of Orleans Construction
Corporation.
Benjamin D. 50 President, Elected President, Chief Operating
Goldman Chief Operating Officer and a Director of the
Officer and Company on May 27, 1992. From May,
Director 1989 to May 27, 1992 served as
Executive Vice President and
Secretary of the Company. In
addition, Mr. Goldman served as the
President of Orleans Construction
Corporation.
Michael T. 37 Executive Vice Elected Executive Vice President on
Vesey President- July 18, 1994. Since joining the
Project Company in July, 1987, he has been
Management responsible for project management of the
Company's Pennsylvania communities.
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Joseph A. 42 Chief Financial Elected Chief Financial Officer of the
Santangelo Officer, Company on July 18, 1994. Mr. Santangelo
Treasurer and was elected Secretary of the Company on
Secretary May 27, 1992 and has been Treasurer
since joining the Company in March 1987.
Mr. Santangelo is a Certified Public
Accountant. In addition, he served in an
executive capacity for Orleans
Construction Corporation.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
The principal market on which the Company's Common Stock is
traded is the American Stock Exchange, Inc. (Symbol: FPO)
The high and low sales prices on the Exchange (based on reports by
National Quotation Bureau, Inc.) for the periods indicated are as follows:
Fiscal year
ended June 30, High Low
---------------------- ------- -------
1995 First Quarter $ 2.250 $ 1.625
Second Quarter 1.812 1.250
Third Quarter 1.688 1.062
Fourth Quarter 1.625 1.000
1996 First Quarter $ 2.000 $ 1.000
Second Quarter 2.063 1.000
Third Quarter 1.188 .938
Fourth Quarter 1.500 .875
The number of common stockholders of record of the Company as of
September 23, 1996 was 346.
The Company has not paid a cash dividend since December 1982. Payment
of dividends will depend upon the earnings of the Company, its funds derived
from operations, its working capital needs, its debt service requirements, its
general financial condition and other factors, and no assurance can be given
that the Company will pay dividends in the future.
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Item 6. Selected Financial Data.
The following table sets forth selected financial data for the Company
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included under Item 8 of this Form 10-K.
(In thousands except per share data)
Year Ended June 30,
-------------------------------------------
Operating Data 1996 1995 1994(2) 1993 1992
- -------------- ------ ------ -------- ------ -----
Earned revenues $94,359 $107,840 $66,618 $42,584 $38,346
Income (loss) from
continuing operations 1,235 1,201 (766) (8,513) (2,634)
Primary income (loss) per
share from continuing
operations .10 .10 (.07) (1.32) (.55)
Fully-diluted income (loss)
per share from continuing
operations .10 .10 (.07) (1.27) (.34)
June 30,
--------------------------------------------
Balance Sheet Data(1) 1996 1995 1994(3) 1993 1992
- ------------------ ------ ------ -------- ------ -----
Residential properties $34,263 $ 35,757 $35,016 $12,863 $11,768
Land and improvements 46,654 52,921 46,681 32,389 42,087
Total assets 92,866 102,274 97,754 57,235 70,763
Mortgage and other
note obligations 42,807 40,721 36,806 25,097 33,425
Senior notes - 371 664 6,376 5,695
Subordinated
debentures 618 2,231 2,363 3,653 3,251
Other Notes Payable 9,473 9,455 10,509 2,761 2,559
Shareholders' equity
(deficit) 13,949 12,146 10,945 (403) 7,931
- ------------
(1) The Company has not paid a cash dividend since December 1982.
(2) Includes results of operations of OCC from October 22, 1993 (date of
acquisition) through June 30, 1994.
(3) Includes balance sheet data of OCC, acquired by the Company on October
22, 1993.
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Item 7. Management's Discussion and Analysis of Financial Condition And Results
of Operations
Liquidity and Capital Resources
The Company requires capital to purchase and develop land, to
construct units, fund related carrying costs and overhead and to fund various
advertising and marketing programs to facilitate sales. The Company's sources of
capital include funds derived from operations, sales of assets and various
borrowings, most of which are secured. At June 30, 1996, the Company had
approximately $47,500,000 available to be drawn under existing secured
improvement and construction loans for planned development expenditures. These
expenditures include site preparation, roads, water and sewer lines, impact fees
and earthwork, as well as the construction costs of the units and amenities.
During the second half of fiscal 1996, the Company implemented a
recapitalization plan to acquire land, to obtain more favorable pricing from the
Company's contractors by reducing outstanding accounts payable balances and
retire outstanding debt at a discount. Funding of this plan was obtained from
additional secured borrowings, land sales and an investment from Jeffrey P.
Orleans, aggregating approximately $18,000,000.
The Company entered into an agreement with an unaffiliated third
party to sell improved lots at its Northampton community for
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an aggregate sales price of approximately $9,000,000. The sale was structured in
two phases. The initial phase occurred in fiscal 1996 for a sales price of
approximately $4,700,000. The remaining lots are scheduled to be sold in fiscal
1997.
Mr. Orleans' investment is now evidenced by a $3,000,000
convertible Subordinated 7% Note dated August 8, 1996 due January 1, 2002 and an
agreement to defer payments due him under the terms of FPA's Series A and Series
B Notes of $1,350,000. Amounts outstanding as of June 30, 1996 under these
agreements totaled approximately $2,800,000 and $750,000, respectively. In
addition, Mr. Orleans has provided to the Company an additional source of
capital via a $2,000,000 variable rate note due September 30, 2000. No amounts
were outstanding under the variable rate note as of June 30, 1996.
As of September 1, 1996, the Company had reduced accounts payable
balances by approximately $9,200,000 compared to June 30, 1995, retired 14 1/2%
Subordinated Debenture debt of approximately $1,500,000, retired notes payable
of approximately $1,800,000 and acquired three new communities with an aggregate
purchase price of $3,600,000. The favorable pricing obtained from our
contractors increased gross profits by 1% in fiscal 1996 and is expected to
benefit the company in fiscal 1997 and beyond.
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During fiscal 1997, the Company expects to commence construction
at three new communities located in Delaware and Chester Counties in
Pennsylvania. This will mark the Company's entry into these counties south and
west of Philadelphia which are experiencing steady economic and job growth. The
Company is expanding its land acquisition efforts and is currently focusing on
this area along with central New Jersey and its traditional marketing areas. As
of June 30, 1996, the Company is committed to purchasing 9 additional tracts for
an aggregate purchase price of approximately $24,000,000. These purchase
agreements are subject to due diligence review and are contingent upon the
receipt of governmental approvals. The Company expects to utilize purchase money
mortgages to finance a majority of these acquisitions. The Company anticipates
completing a majority of these acquisitions in calendar 1998.
The Company believes that the funds generated from operations and
financing commitments from commercial lenders will provide the Company with
sufficient capital to meet its operating needs through fiscal 1997.
Economic Conditions
The sluggish growth of the general economy in the Northeastern
United States, contradictory economic data, and lack
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of consumer confidence caused primarily by the uncertainty of future employment
have continued to effect the homebuilding industry in the Company's marketing
areas during fiscal 1996. The Company has continued to feel the effects of the
increase in interest rates and lack of consumer confidence. In response to these
economic conditions, the Company has continued to offer various incentives at
certain communities to increase sales velocity. These actions continue to
suppress gross profits and cash proceeds from residential property sales. Any
significant further downturn in economic factors affecting the real estate
industry may require additional incentives or reductions in net sales prices.
The tables included in "Item 2 - Properties" summarize the
Company's revenues, new orders and backlog data for the year ended June 30, 1996
with comparable data for fiscal 1995 and 1994.
New orders for fiscal 1996 were 486 units totaling $80,438,000
compared with 489 units totaling $78,252,000 for 1995. At June 30, 1996, the
Company had a backlog of 219 units with a sales value of $40,206,000 compared to
264 units totaling $45,829,000 at June 30, 1995. The Company anticipates
delivering substantially all of its backlog units during fiscal 1997. The
decline in backlog is due to the substantial completion of a
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successful condominium community in Warwick Township, Bucks County, Pennsylvania
and slow sales activity in May, 1996. In addition, the Company did not commence
marketing at any new communities in fiscal 1996. The economic factors and the
severe winter weather both discussed previously adversely affected new orders
and revenues during fiscal 1996. While the company has maintained its market
share during fiscal 1996, management is focusing its efforts on geographic
diversification within the Pennsylvania and New Jersey markets to increase
volume in fiscal 1997.
Inflation
Inflation can have a significant impact on the Company's
liquidity. Rising costs of land, materials, labor, interest and administrative
costs have generally been recoverable in prior years through increased selling
prices. The Company has been able to increase prices to cover portions of the
significant increases in lumber and other building products in recent years.
However, there is no assurance the Company will be able to continue this
practice in the future due to the current sluggish growth in the general economy
in the Northeastern United States and the other factors discussed under economic
conditions.
Joint Ventures
The Company is a general partner in two joint ventures with
24
<PAGE>
private investors which are developing communities in Cherry Hill and Mt.
Laurel, New Jersey. These activities have provided additional operating funds to
the Company without the need for land acquisition funds.
Tax Matters
The Company adopted the accounting for income taxes prescribed by
SFAS 109 effective July 1, 1993. The cumulative effect of this change in
accounting principles was to increase net income by $3,970,000 in fiscal 1994.
(See Note 12 to the Consolidated Financial Statements.)
1993 Recapitalization Transactions
As part of its continuing efforts to restructure its operations,
eliminate high interest indebtedness, obtain new capital for operations and
improve its market share in its primary operating areas, the Company consummated
several transactions with various of its principal stockholders, creditors and
investors during fiscal 1994 (herein collectively called the "1993
Recapitalization Transactions"). The 1993 Recapitalization Transactions include:
(i) acquisition of Orleans Construction Corporation ("OCC"); (ii) issuance of
new notes by the Company and sale of Common Stock by Jeffrey P. Orleans ("Mr.
Orleans"); (iii) a corporate debt restructuring; (iv) capital transactions with
the
25
<PAGE>
Flora Group and (v) a mortgage debt restructuring. See Note 2 to Consolidated
Financial Statements for a complete discussion of these transactions.
Other Matters
In August, 1995, the Company's corporate offices were destroyed by
fire. These premises were under a long term operating lease from a related
party. The settlement of the claim with the insurance carrier is in
negotiations. The Company does not expect to incur a loss in connection with the
fire and the resolution of its insurance claim.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
The following important factors, among others, in some cases
have affected, and in the future could affect, FPA's actual results and could
cause FPA's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of FPA
Corporation:
o changes in consumer confidence due to perceived
uncertainty of future employment opportunities and
other factors;
o competition from national and local homebuilders in
the Company's market areas;
26
<PAGE>
o building material price fluctuations;
o changes in mortgage interest rates charged to buyers
of the Company's units;
o changes in the availability and cost of financing for
the Company's operations, including land acquisition;
o revisions in federal, state and local tax laws which
provide incentives for home ownership;
o delays in obtaining land development permits as a result
of (i) federal, state and local environmental and other
land development regulations, (ii) actions taken or
failed to be taken by governmental agencies having
authority to issue such permits, and (iii) opposition
from third parties; and
o increased cost of suitable development land.
27
<PAGE>
Fiscal Years Ended June 30, 1996 and 1995
Results of Operations
Operating Revenues
Revenues for fiscal 1996 decreased $13,481,000 as compared to
fiscal 1995. Revenues from the sale of residential units included 531 units
totaling $86,061,000 compared to 612 units totaling $102,384,000 during fiscal
1995. The reduction in units delivered is due primarily to the economic
conditions discussed previously and severe winter weather conditions experienced
in 1996 and 1994 which hampered construction activity and delayed deliveries at
all of the Company's communities. Revenues from land sales increased by
$2,799,000 primarily due to the consummation of land sale transactions at the
Company's Northampton, Pennsylvania community aggregating $4,700,000 during
fiscal 1996.
Costs and Expenses
Costs and expenses for the fiscal year ended June 30, 1996
decreased $12,863,000 as compared to fiscal 1995. The decrease in costs and
expenses is due primarily to decreases in the cost of real estate properties
sold (including land) and selling, general and administrative expenses of
$11,749,000 and $582,000, respectively. These decreases are consistent with the
decrease in earned revenues from real estate properties discussed under
28
<PAGE>
operating revenues. Overall gross profit on units sold during fiscal 1996
increased approximately 1% compared to fiscal 1995 due to more favorable pricing
obtained from contractors. The other expense increase of $131,000 from 1995 is
primarily an increase in snow removal costs of $240,000 due to severe weather
conditions in fiscal 1996 partially offset by other reductions. The fiscal 1995
accrual for environmental litigation expenses of $750,000 also contributed to
the overall decrease in costs and expenses.
Extraordinary Items
During the second quarter of fiscal 1996, the Company completed a
transaction to fully satisfy a note payable with an outstanding balance of
approximately $380,000 and reacquired 116,823 shares of Common Stock in exchange
for a cash payment of $235,000. These shares have been retained by the Company
as treasury stock. This transaction resulted in an extraordinary gain of
$170,000, net of income tax expense of $30,000.
In June, 1996, the Company satisfied $1,522,000 of its then
outstanding Subordinated Debentures and related accrued interest for a cash
payment of $907,000. This transaction resulted in an extraordinary gain of
$523,000, net of income tax expense of $92,000.
29
<PAGE>
Net Income (Loss)
Net income for fiscal 1996 was $1,928,000 ($.16 primary and fully
diluted earnings per share) compared to fiscal 1995 net income of $1,201,000
($.10 primary and fully diluted earnings per share). This increase is due to the
extraordinary items, a reduction in the deferred tax asset valuation account of
$527,000 and the fiscal 1995 environmental litigation accrual of $750,000 and
were offset by the reduction in real estate sold during fiscal 1996 compared to
fiscal 1995.
30
<PAGE>
Fiscal Years Ended June 30, 1995 and 1994
Results of Operations
Earned Revenues
The significant increase in revenues earned and units delivered
from the sale of residential properties of $37,932,000 and 234 units,
respectively, is due to the introduction of sales at the Company's Warwick
Township, Bucks County, Pennsylvania condominium community and increases in
deliveries at a majority of the Company's other communities coupled with the
inclusion of Orleans Construction Corp. ("OCC") operations for a full year in
fiscal 1995. In addition, the severe winter weather experienced during January
through March, 1994, which hampered construction activity, resulted in reduced
deliveries during the prior year. Revenue from land sales for the twelve months
ended June 30, 1995 increased $3,380,000 due to a second quarter fiscal 1995
land sale of $3,336,000. This land sale, to an unaffiliated third party, related
to property acquired by the Company upon exercise of its option to purchase a
section of land located in East Brunswick, New Jersey under an Option Agreement
with Orleans Builders and Developers.
Costs and Expenses
Costs and expenses for the fiscal year ended June 30, 1995
31
<PAGE>
increased $39,089,000 compared to fiscal 1994. The increase is primarily the
result of increases in costs of residential properties sold, and selling,
general and administrative expenses of $32,930,000 and $2,739,000, respectively.
The increase in costs of residential properties is directly correlated with the
increase in units sold. Overall gross profit on units sold during fiscal 1995 is
consistent with fiscal 1994. The increases in selling, general and
administrative expenses is consistent with both the increase in revenues from
residential property sales and the inclusion of the former OCC operations for a
full year in fiscal 1995. Moreover, the Company commenced marketing at six new
communities during fiscal 1995 which also contributed to the aforementioned
increase.
Extraordinary Items
As more fully discussed in Note 2 to Consolidated Financial
Statements, the Company had several extraordinary items during fiscal 1994, each
of which resulted from the early extinguishment of debt. These transactions are:
(i) the retirement of mortgage note obligations secured by real estate which
resulted in extraordinary gains of $3,622,000 net of related income tax expense
of $1,821,000, (ii) the Flora transactions which resulted in the extraordinary
gain on early extinguishment of the subordinated note
32
<PAGE>
payable of $616,000, net of income tax expense of $377,000 and (iii) the
extraordinary gain on the early extinguishment of Senior Notes and Subordinated
Debentures which resulted in an extraordinary gain of $3,718,000 net of related
income taxes of $1,989,000. The combined effect of these transactions resulted
in extraordinary gains aggregating $7,956,000 net of related income taxes for
the twelve months ended June 30, 1994.
Net Income (Loss)
Net income for fiscal 1995 of $1,201,000 ($.10 primary earnings
per share; $.10 fully diluted earnings per share) is a significant decrease from
the fiscal 1994 net income of $11,160,000 ($1.08 primary income per share; $1.05
fully diluted income per share). This decrease is due largely to the previously
discussed extraordinary gains of $7,956,000 ($.77 per primary share and $.75 per
fully diluted share) and the cumulative effect of the change in accounting
principle adjustment of $3,970,000 ($.38 per primary share and $.37 per fully
diluted share). Income from operations during fiscal 1995 of $1,201,000
represents a substantial improvement over the fiscal 1994 loss from operations
of $766,000. This improvement is directly attributable to the increase in
revenues previously discussed.
33
<PAGE>
Item 8. Financial Statements and Supplementary Data.
FPA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of independent accountants 35
Consolidated balance sheets at June 30, 1996
and June 30, 1995 36
Consolidated statements of operations and retained
earnings for the years ended June 30, 1996,
1995 and 1994 37-38
Consolidated statements of cash flows for the
years ended June 30, 1996, 1995 and 1994 39
Notes to consolidated financial statements 40-59
Financial statement schedule
Valuation and qualifying accounts (Schedule II) 60
All other schedules have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
The individual financial statements of the Registrant's
subsidiaries have been omitted since the Registrant is primarily an operating
company and all subsidiaries included in the consolidated financial statements,
in the aggregate, do not have minority equity interest and/or indebtedness to
any person other than the Registrant or its consolidated subsidiaries in amounts
which together exceed 5 percent of total consolidated assets at June 30, 1996,
excepting indebtedness incurred in the ordinary course of business.
34
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of FPA Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of FPA
Corporation and its subsidiaries at June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
September 23, 1996
35
<PAGE>
FPA Corporation and Subsidiaries
Consolidated Balance Sheets
June 30,
----------------
1996 1995
----------------
Assets (In thousands)
- ------ ----------------
Cash $ 2,617 $ 2,324
Receivables
Trade accounts 3,622 3,636
Mortgage and other notes 554 1,674
Real estate held for development and sale
Residential properties completed
or under construction 34,263 35,757
Land held for development or sale
and improvements 46,654 52,921
Property and equipment, at cost, less
accumulated depreciation 468 523
Deferred charges and other assets 4,688 5,439
------ -------
$92,866 $102,274
====== =======
Liabilities and Shareholders' Equity
Liabilities
Accounts payable $12,251 $ 21,445
Accrued expenses 5,389 6,246
Amounts due to related parties 3,026 3,657
Customer deposits 2,591 2,739
Mortgage and other note obligations
primarily secured by:
Mortgage notes receivable 283 1,419
Residential properties 24,232 27,998
Land held for development or sale
and improvements 18,292 11,304
Senior notes 371
Subordinated debentures 618 2,231
Other notes payable 9,473 9,455
Deferred income taxes 2,056 2,583
Minority interests 706 680
------ -------
Total liabilities 78,917 90,128
------ -------
Shareholders' equity
Preferred stock, $1 par, 500,000 shares
authorized
Common stock, $.10 par, 20,000,000 shares
authorized, 12,698,131 shares issued at
June 30, 1996 and 1995 1,270 1,270
Capital in excess of par value - common stock 17,726 17,726
Retained earnings (deficit) (4,176) (6,104)
Treasury stock, at cost (1,158,936 and
1,002,513 shares at
June 30, 1996 and 1995) (871) (746)
------ -------
Total shareholders' equity 13,949 12,146
------ -------
Commitments and contingencies
------ -------
$92,866 $102,274
====== =======
See notes to consolidated financial statements
36
<PAGE>
FPA Corporation and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings
For the year ended June 30,
----------------------------
1996 1995 1994
- ---------------------------------------------------------------
(In thousands, except per share data)
- ---------------------------------------------------------------
Earned revenues
Residential properties $ 86,061 $102,384 $ 64,452
Land sales 6,889 4,090 710
Other income 1,409 1,366 1,456
- ---------------------------------------------------------------
94,359 107,840 66,618
- ---------------------------------------------------------------
Costs and expenses
Residential properties 73,546 88,435 55,505
Land sales 6,520 3,380 570
Other 798 667 472
Selling, general and
administrative 11,316 11,898 9,159
Interest
Incurred 6,838 6,184 4,511
Less capitalized (5,538) (5,019) (3,503)
Environmental litigation
expenses 750
Minority interests 26 74 71
Recapitalization expenses 495
- ---------------------------------------------------------------
93,506 106,369 67,280
- ---------------------------------------------------------------
Income (loss) before income taxes 853 1,471 (662)
Income tax (expense) benefit 382 (270) (104)
- ---------------------------------------------------------------
Income (loss)from operations
before extraordinary items and
cumulative effect of change
in accounting principle 1,235 1,201 (766)
- ---------------------------------------------------------------
Extraordinary items, net 693 7,956
Cumulative effect of change in
accounting principle 3,970
- ---------------------------------------------------------------
Net income 1,928 1,201 11,160
Retained earnings (deficit)
at beginning of year (6,104) (7,305) (18,465)
- ---------------------------------------------------------------
Retained earnings (deficit) at
end of year $ (4,176) $ (6,104) $ (7,305)
- ---------------------------------------------------------------
Continued...
37
<PAGE>
FPA Corporation and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings
For the year ended June 30,
---------------------------
1996 1995 1994
- --------------------------------------------------------------
Primary earnings (loss) per share:
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
principle $ .10 $ .10 $ (.07)
Extraordinary gains .06 .77
Cumulative effect of change
in accounting principle .38
- ---------------------------------------------------------------
Total $ .16 $ .10 $ 1.08
- ---------------------------------------------------------------
Fully diluted earnings (loss)
per share:
Income (loss) before
extraordinary items and
cumulative effect of
change in accounting
principle $ .10 $ .10 $ (.07)
Extraordinary gains .06 .75
Cumulative effect of change
in accounting principle .37
- ---------------------------------------------------------------
Total $ .16 $ .10 $ 1.05
- ---------------------------------------------------------------
See notes to consolidated financial statements
38
<PAGE>
FPA Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended June 30,
---------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
(In thousands)
- ---------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,928 $ 1,201 $ 11,160
Adjustments to reconcile net income
to net cash used by operating
activities:
Extraordinary gains on early
extinguishments of debt (693) (7,956)
Reduction in deferred tax asset
valuation allowance (527)
Cumulative effect of change in
accounting principle (3,970)
Depreciation and amortization 128 205 116
Changes in operating assets and liabilities:
Receivables 1,134 2,778 1,700
Real estate held for development and
sale 7,761 (6,981) (7,981)
Deferred charges and other assets 751 (497) 614
Accounts payable and other liabilities (10,656) 3,010 2,731
Customer deposits (148) (2,172) 819
Deferred income taxes 45 (75)
- ---------------------------------------------------------------------------
Net cash used by operating
activities (322) (2,411) (2,842)
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (73) (207) (145)
Cash acquired from business combination 265
- ---------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (73) (207) 120
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings from loans secured by real
estate assets 78,567 81,709 60,205
Repayment of loans secured by real
estate assets (75,345) (77,313) (58,283)
Repayment of loans secured by mortgages
receivable (1,136) (481) (3,164)
Repayment of subordinated debentures and
senior notes payable (1,461) (425) (326)
Borrowings from other note obligations 5,597 1,127 6,144
Repayments of other note obligations (5,409) (2,181) (304)
Purchase of treasury stock (125)
- ---------------------------------------------------------------------------
Net cash provided by
financing activities 688 2,436 4,272
- ---------------------------------------------------------------------------
Net increase (decrease) in cash 293 (182) 1,550
Cash at beginning of year 2,324 2,506 956
- ---------------------------------------------------------------------------
Cash at end of year $ 2,617 $ 2,324 $ 2,506
===========================================================================
See notes to consolidated financial statements
39
<PAGE>
FPA Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
FPA Corporation and its subsidiaries (the Company) are currently engaged in
residential real estate development in Pennsylvania and New Jersey.
A summary of the significant accounting principles and practices used in the
preparation of the consolidated financial statements follows:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. The financial statements
include the consolidated financial position and results of operations of
Versailles Associates, L.P., and Bridlewood Associates, L.P., joint ventures in
which a subsidiary of the Company is the sole General Partner. The outside
limited partners have been allocated their portion of the income or loss and
equity. These amounts are presented as minority interests in the financial
statements. All material intercompany transactions and accounts have been
eliminated.
Earned revenues from real estate transactions
The Company recognizes revenues from sales of residential
properties at the time of closing except as discussed below.
The Company sells developed and undeveloped land in bulk and under option
agreements. Revenues from sales of land and other real estate are recognized
when the Company has received an adequate cash down payment and all other
conditions necessary for profit recognition have been satisfied. To the extent
that certain sales or portions thereof do not meet all conditions necessary for
profit recognition, the Company uses other methods to recognize profit,
including cost recovery and the deposit methods. These methods of profit
recognition defer a portion or all of the profit and recognition of the profit
is dependent upon the occurrence of future events.
40
<PAGE>
Real estate capitalization and cost allocation
Residential properties completed or under construction are stated at cost or
estimated net realizable value, whichever is lower. Costs include land and land
improvements, direct construction costs, construction overhead costs, interest
on indebtedness and real estate taxes. Selling and advertising costs are
expensed as incurred. Total estimated costs of multi-unit developments are
allocated to individual units based upon specific identification methods.
Land and improvement costs include land, land improvements, interest on
indebtedness and real estate taxes. Appropriate costs are allocated to projects
on the basis of acreage, dwelling units and relative sales value. Land held for
development or sale and improvements are stated at cost or estimated net
realizable value, whichever is lower.
In March, 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (SFAS No. 121). The provisions of
SFAS No. 121 must be implemented by the Company in fiscal 1997. The Company
believes that its current impairment policy is substantially similar to SFAS No.
121 and, accordingly, the adoption of SFAS No. 121 is not currently expected to
have a significant effect on the Company's financial position or results of
operations upon adoption.
Land and land improvements applicable to condominiums, townhomes, single-family
homes and other projects are transferred to construction in progress when
construction commences.
Interest costs included in Costs and Expenses for fiscal years 1996, 1995 and
1994 were $4,588,000, $5,236,000 and $4,473,000, respectively.
Depreciation, amortization and maintenance expense
Depreciation and amortization is primarily provided on the straight-line method
at rates calculated to amortize the cost of the assets over their estimated
useful lives. Expenditures for maintenance, repairs and minor renewals are
expensed as incurred; major renewals and betterments are capitalized. At the
time depreciable assets are retired or otherwise disposed of, the cost and the
accumulated depreciation of the assets are eliminated from the accounts and any
profit or loss is recognized.
41
<PAGE>
Leases
The Company's leasing arrangements as lessee include the leasing of certain
office space, residential units and equipment. These leases have been classified
as operating leases.
Income taxes
In February, 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". The Company has adopted the principles of SFAS 109, as required,
effective July 1, 1993 on a prospective basis. The cumulative effect of adoption
of SFAS 109 was approximately $3,970,000, as adjusted.
The Company and its subsidiaries file a consolidated federal income tax return.
See Note 12 for an additional discussion of income tax matters.
Earnings per share
Primary earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding and common
stock equivalents. The weighted average number of shares used to compute primary
earnings (loss) per common share was 11,781,425 shares in 1996, 11,974,618
shares in 1995 and 10,355,805 shares in 1994.
Fully diluted earnings per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding and
all potentially dilutive securities. There were 11,781,425 shares in 1996,
11,974,618 shares in 1995 and 10,644,693 shares in 1994.
The fiscal 1994 shares for both primary and fully diluted assume the conversion
of the Series C preferred stock effective October 22, 1993 and that the options
(as described in Note 13) were outstanding as of July 1, 1993.
On a proforma basis, if the $3,000,000 Convertible Subordinated Notes issued in
August, 1996 (See Note 9) were converted into 2,000,000 shares of common stock,
primary and fully diluted earnings per share have been $.16 and $.14 for the
fiscal year ended June 30, 1996.
42
<PAGE>
Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS 107), requires the Company to disclose the
estimated fair market value of its financial instruments. The Company believes
that the carrying value of its financial instruments (primarily mortgages
receivable and mortgage notes payable) approximate fair market value and that
any differences are not significant. This assessment is based upon substantially
all of the Company's debt obligations being based upon the prime rate of
interest which is a variable market rate.
Reclassifications
Certain amounts in the accompanying financial statements have been reclassified
for comparative purposes.
Management's Estimates and Assumptions
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidated Statements of Cash Flows
For purposes of reporting cash flows, short-term investments with original
maturities of ninety days or less are considered cash equivalents.
Supplemental disclosures of cash flow information:
(In thousands)
1996 1995 1994
----------------------
Cash paid during the year for:
Interest (net of amounts capitalized) $ 143 $ 205 $ 97
Income taxes 165 297 1,023
During the second quarter of fiscal 1996, the Company completed a transaction to
fully satisfy a note payable with an outstanding balance of approximately
$380,000 and reacquired 116,823 shares of Common Stock in exchange for a cash
payment of $235,000. These shares have been retained by the Company as treasury
stock. This transaction resulted in an extraordinary gain of approximately
$170,000, net of income tax expense of approximately $30,000.
43
<PAGE>
In June, 1996, the Company fully satisfied $1,522,000 of its then outstanding
Subordinated Debentures and related accrued interest for a cash payment of
$907,000. This transaction resulted in an extraordinary gain of $523,000, net of
income tax expense of $92,000.
The 1993 Recapitalization Transactions (Note 2) include significant
non-cash components. The following schedule summarizes these
items:
Acquisition Other 1993
of OCC Recapitalization
10/22/93 Transactions
-------- ------------
(in thousands)
Cash $ 265 $
Receivables 1,814 (223)
Real estate held for development
and sale 29,843 (1,379)
Property and equipment 447
Deferred charges and other assets 2,760 (10)
------ ------
$ 35,129 $ (1,612)
====== ======
Accounts payable and accrued
liabilities $ 12,768 $ (356)
Customer deposits 1,660
Mortgage and other note obligations
primarily secured by:
Real estate held for development
or sale 18,475 (5,524)
Senior notes (5,505)
Subordinated debentures (1,192)
Other notes payable 769 1,139
Deferred taxes 1,169
------ ------
$ 34,841 $(11,438)
------ ------
Mandatorily redeemable series
A preferred stock (2,000)
Series C preferred stock 50
Capital in excess of par -
preferred 238
Common stock
Capital in excess of par - common 646
Retained earnings 11,926
Treasury stock (746)
------ ------
288 9,826
------ ------
$ 35,129 $ (1,612)
====== ======
44
<PAGE>
On October 22, 1993, the Company acquired Orleans Construction Corporation as
more fully described in Note 2. The assets acquired, liabilities assumed and
other noncash effects of this transaction have not been reflected in the
Consolidated Statements of Cash Flows.
As discussed in Note 2, on October 22, 1993, a transaction was completed between
the Company and Jeffrey P. Orleans whereby the Company issued $1,800,000 of
Series B Notes in exchange for $6,331,000 aggregate principal and accrued
interest of 12 5/8% Senior Notes due August 15, 1996, and $1,371,000 aggregate
principal and accrued interest of 1991 Subordinated Debentures due September 1,
2000 owned by Mr. Orleans. This transaction resulted in an extraordinary gain of
$3,718,000, net of income taxes of $1,989,000.
The Flora transactions described in Note 2 include certain non cash items which
have not been reflected in the Consolidated Statements of Cash Flows. These
items include approximately $1,500,000 of real estate assets given in exchange
for the retirement of the Company's Subordinated Note payable with a principal
balance of $2,559,380 plus accrued interest. Further, $2,100,000 of new notes
payable were issued in exchange for 50,000 shares of Series A Preferred Stock,
which has been canceled, and the reacquisition of 1,002,513 shares of the
Company's Common Stock.
As discussed in Note 2, in September, 1993 the Company consummated an agreement
with the Federal Deposit Insurance Corporation ("FDIC") under which the Company
was able to fully satisfy mortgage obligations at less than the carrying value
of the debt. An extraordinary gain on early extinguishment of debt of $3,185,000
net of income tax expense of $1,821,000 is reflected in the fiscal 1994
financial statements.
Also discussed in Note 2, during fiscal 1994, the Company entered into an
agreement with one of its lenders to satisfy several mortgage obligations
aggregating $4,272,000 at less than the carrying value of the debt. An
extraordinary gain on early extinguishment of debt of $437,000, net of income
tax expense has been reflected in the fiscal 1994 financial statements.
During fiscal 1994, the Company issued payment-in-kind obligations to a majority
of its Senior Note holders in lieu of scheduled cash
45
<PAGE>
interest payments aggregating approximately $159,000.
Note 2. 1993 Recapitalization Transactions
As part of its continuing efforts to restructure its operations, eliminate high
interest indebtedness, obtain new capital for operations and improve its market
share in its primary operating areas, the Company consummated several
transactions with various of its principal stockholders, creditors and investors
during fiscal 1994 (herein collectively called the "1993 Recapitalization
Transactions"). The 1993 Recapitalization Transactions include: (i) acquisition
of Orleans Construction Corporation ("OCC"); (ii) issuance of new notes by the
Company and sale of Common Stock by Jeffrey P. Orleans ("Mr. Orleans");(iii) a
corporate debt restructuring; (iv) capital transactions with the Flora Group;
and (v) a mortgage debt restructuring.
Acquisition of Orleans Construction Corporation
On October 22, 1993, the Company completed a transaction among the Company, OCC,
a Pennsylvania corporation, and Mr. Orleans, Chairman of the Board and Chief
Executive Officer of the Company and formerly the owner of all of the
outstanding stock of OCC. Mr. Orleans exchanged his OCC stock for newly-created
Series C Preferred Stock, which was converted into 6,000,000 shares of Common
Stock in September, 1994. This acquisition was recorded at the OCC historical
cost basis at the date of the transfer, since it was conducted with an entity
deemed to be under common control. The total assets and liabilities assumed at
the date of the OCC acquisition were $35,129,000 and $34,841,000, respectively.
If the Companies were combined as of July 1, 1993, the proforma results would
have been as follows: Earned revenues $75,839,000, loss from continuing
operations $1,090,000 and net income of $10,836,000. Primary and fully diluted
earnings per share would have been $.75 and $.73, respectively.
Issuance of Series A Notes by the Company and Sale of Common Stock by
Jeffrey P. Orleans.
During the second quarter of fiscal 1994, the Company issued an aggregate
principal amount of $3,000,000 of newly-created Series A Notes to investors in
a private placement (the "Series A Investors"), including Mr. Orleans and other
executive officers,
46
<PAGE>
directors and key personnel of the Company for cash consideration. The Series A
Notes bear interest at 2% over the prime rate with a maturity date of September
15, 1998.
Contemporaneously with the sale by the Company of the Series A Notes, Mr.
Orleans sold 1,674,000 shares of Common Stock of the Company owned by him to the
other Series A Investors. The shares sold by Mr. Orleans were previously issued
shares. In addition, Mr. Orleans was issued $1,000,000 in new Series B Notes for
cash consideration. The Notes have similar terms to the Series A Notes.
Corporate Debt Restructuring.
During the second quarter of fiscal 1994, the Company issued $1,800,000 of
Series B Notes in exchange for $7,700,000 aggregate principal and accrued
interest of Senior Notes and Subordinated Debentures owned by Mr. Orleans. This
transaction resulted in a second quarter fiscal 1994 extraordinary gain of
$3,718,000, net of income taxes of $1,989,000.
Transactions with Flora Group.
On August 27, 1993, the Company consummated a Note and Stock Acquisition
Agreement with the Flora Group, a group of entities which were formerly
principal stockholders and creditors of the Company. The transactions included
the exchange of cash and certain real estate assets owned by the Company for the
retirement of subordinated notes, the retirement of the Series A mandatorily
redeemable Preferred Stock in exchange for new debt securities and the
repurchase of 1,002,513 shares of Common Stock in exchange for the issuance of
new debt securities.
The Company exchanged land in Florida with a carrying value of approximately
$1,500,000 and a cash payment of $250,000 for the retirement of the Company's
Subordinated Floating Rate Notes due April 1, 1997 with an aggregate unpaid
principal balance of $2,559,380 plus accrued interest. This transaction resulted
in an extraordinary gain of approximately $616,000, which is net of estimated
tax effect of $377,000.
The Company issued a Note to Flora in the original principal amount of
$1,100,000 due August 31, 2023, which accrued interest at 5.5% per annum until
December 31, 1995 and at 10% thereafter, in exchange for 50,000 shares of Series
A Preferred Stock held by Flora.
47
<PAGE>
Additionally, the Company issued new debt securities to the Flora Group in
exchange for the retirement of mandatorily redeemable preferred stock and the
repurchase of 1,002,513 shares of Common Stock. This stock is being retained by
the Company as treasury stock.
Mortgage Debt Restructuring.
On September 14, 1993, the Company consummated an agreement with the Federal
Deposit Insurance Corporation ("FDIC") under which the Company was able to fully
satisfy mortgage obligations aggregating approximately $10,700,000 in exchange
for a payment of approximately $5,700,000. An extraordinary gain on early
extinguishment of debt of $3,185,000, net of income tax expense of $1,821,000
has been reflected in the accompanying fiscal 1994 financial statements. The
Company also recognized an extraordinary gain on early extinguishment of debt of
$437,000, net of related income tax expense, during fiscal 1994, as a result of
a similar transaction with an unrelated lender.
Note 3. Joint Ventures
In October, 1992, a wholly owned subsidiary of the Company, Versailles at
Europa, Inc. was established to act as the General Partner in a newly formed
Versailles Associates, L.P. (the "Partnership"). The Partnership was formed to
purchase and develop a tract of land in Cherry Hill, New Jersey. The terms of
the Partnership Agreement provide that the General Partner be allocated 55% of
the net profits and losses of the Partnership and have exclusive management and
control over the development of the property. The financial statements of the
Partnership are included in the consolidated financial statements of the
Company. The limited partner's share of the income and capital from this entity
has been presented as minority interest in the accompanying consolidated
financial statements.
Orleans Construction Corporation (OCC) has entered into a joint venture
agreement with Bridlewood Associates, L.P., a limited partnership formed to
develop an 85 acre parcel of land in Mount Laurel, New Jersey. OCC is the
managing general partner. OCC and the limited partner share equally in the
profits or losses of the entity. The financial statements of the Partnership are
included in the consolidated financial statements of the Company. The limited
partner's share of the income and capital from this entity has been
48
<PAGE>
presented as minority interest in the accompanying consolidated financial
statements.
Note 4. Certain Transactions with Related Parties
Prior to October 22, 1993, OCC had advanced funds to, borrowed funds from, and
paid expenses and debt obligations on behalf of Orleans Builders and Developers
("OB&D"), a limited partnership whose partners include Jeffrey P. Orleans and
the Trust of Selma Orleans. At June 30, 1996 amounts owed by the Company to the
partnership aggregated $3,026,000. These advances are payable on demand and bear
interest at 7%. Interest incurred on these advances amounted to $236,000,
$369,000 and $168,000 for the twelve months ended June 30, 1996 and 1995 and
eight months ended June 30, 1994, respectively.
The Company has exercised its option to purchase sections of land from OB&D
under the terms of an existing option agreement. These parcels were subsequently
sold to an unaffiliated third party for a purchase price of $1,901,000 and
$3,336,000 during fiscal 1996 and 1995, respectively. These transactions
resulted in a profit before income taxes of $301,000 and $548,000, respectively.
The remaining real estate under the option agreement with OB&D is under an
option agreement of sale for approximately its option price plus current
carrying value with the above referenced buyer.
Note 5. Receivables
Trade accounts receivable result primarily from escrow deposits on residential
units, accrued interest and net proceeds due from residential closings. Mortgage
and other notes receivable, which are due in varying installments through 2017,
bear interest at rates from 8% to 12%. Mortgage and other notes receivable
consist of the following:
49
<PAGE>
June 30,
-------------------
1996 1995
-------------------
(In thousands)
- ----------------------------------------------------------------
Mortgage subsidiary receivables $ 290 $ 1,438
First mortgage notes, secured by
residential and other properties 264 266
- ----------------------------------------------------------------
554 1,704
Less: Deferred sales proceeds and allow-
ance for uncollectible accounts - (30)
- -----------------------------------------------------------------
$ 554 $ 1,674
- ----------------------------------------------------------------
Due within one year $ 147 $ 383
- ----------------------------------------------------------------
Note 6. Real Estate Held for Development and Sale
Residential properties consist of the following:
June 30,
-------------------
1996 1995
-------------------
(In thousands)
- ----------------------------------------------------------------
Condominiums and townhomes $20,293 $22,368
Single-family homes 13,970 13,389
- ----------------------------------------------------------------
$34,263 $35,757
- ----------------------------------------------------------------
Residential properties completed or under construction consist of the following:
June 30,
-------------------
1996 1995
-------------------
(In thousands)
- ----------------------------------------------------------------
Under contract for sale $21,243 $23,242
Unsold 13,020 12,515
- ----------------------------------------------------------------
$34,263 $35,757
- ----------------------------------------------------------------
Note 7. Mortgage Subsidiaries
The Company has a wholly-owned financing subsidiary which had been involved,
through unaffiliated companies, in issuing mortgage-collateralized bonds.
Condensed financial information for the finance subsidiary is as follows:
50
<PAGE>
June 30,
------------------
1996 1995
------------------
(In thousands)
- ---------------------------------------------------------------
Total assets, principally
mortgage notes receivable $ 351 $ 1,586
Total liabilities, principally
bonds payable 283 1,444
- ----------------------------------------------------------------
Advances from
parent company $ 68 $ 142
- ----------------------------------------------------------------
Net income for the year ended $ 32 $ 27
- ----------------------------------------------------------------
During fiscal 1996, the Company completed a transaction to sell approximately
$1,000,000 of the mortgage receivables without recourse for assumption of the
related bond liability and proceeds of approximately $100,000.
Note 8. Property and Equipment
Property and equipment consists of the following:
June 30,
------------------
1996 1995
------------------
(In thousands)
- ---------------------------------------------------------------
Equipment and fixtures $ 815 $ 1,151
Less accumulated depreciation (347) (628)
- -----------------------------------------------------------------
$ 468 $ 523
- ----------------------------------------------------------------
Depreciation expense was $128,000, $205,000 and $95,000 during fiscal 1996, 1995
and 1994, respectively.
In August, 1995, the Company's corporate offices were destroyed by fire. These
premises were under a long term operating lease from a related party. The claim
with the insurance carrier is being negotiated. The Company does not expect to
incur a loss in connection with the fire and the resolution of its insurance
claim.
Note 9. Mortgage and Other Note Obligations
The maximum balance outstanding under construction and inventory loan agreements
at any month end during fiscal 1996, 1995 and 1994 was $33,473,000, $27,998,000
and $19,835,000, respectively. The average month end balance during fiscal 1996,
1995 and 1994 was approximately $29,327,000, $22,940,000 and $12,100,000,
respectively, bearing interest at an approximate average annual rate of 9.5%,
9.2% and 7.2%, respectively. Mortgage obligations
51
<PAGE>
secured by land held for development or sale and improvements are due in varying
installments through fiscal 1999 with interest primarily at 1% above the prime
rate.
Maturities of land and improvement mortgage obligations, other than residential
property construction loans, during the next five fiscal years are: 1997 -
$3,119,000; 1998 - $10,121,000; 1999 - $2,112,000 and 2000 - $2,940,000.
Obligations under residential property and construction loans amounted to
$24,232,000 at June 30, 1996 and are repaid at a predetermined percentage of the
selling price of a unit when a sale is completed.
Included in the Other Notes Payable balance of $9,473,000 at June 30, 1996 are
cash advances made to the Company by Jeffrey P. Orleans aggregating
approximately $2,800,000. Upon an additional advance in August, 1996 of
$200,000, the Company issued Mr. Orleans a $3,000,000 Convertible Subordinated
7% Note dated August 8, 1996 which matures January 1, 2002. Pursuant to its
terms, this Note subject to approval for listing by the American Stock Exchange
of the underlying shares, would be convertible into FPA Corporation common stock
at $1.50 per share with quarterly interest payments and principal due in annual
installments of $1,000,000 beginning January 1, 2000.
Also included in the aggregate Other Note Payable balance of $9,473,000 are
Series A and Series B Notes Payable held by Mr. Orleans and other certain
officers, directors and key personnel of the Company (Note 2) of approximately
$3,525,000 which mature in fiscal 1999. Repayment of these obligations will be
from proceeds from the sale of units at certain residential properties. During
fiscal 1996, Mr. Orleans agreed to defer up to $1,350,000 of interest and
principal payments due him pursuant to the repayment terms of the Series A and B
Notes. As of June 30, 1996, the Company has deferred approximately $750,000 of
these payments which are also included in Other Notes Payable. Promissory Notes
issued in the Flora Group Transactions aggregated $1,649,000 at June 30, 1996
and were to be amortized over a 30 year term with a maturity date in fiscal
2024. As discussed in Note 1, the Company retired one of the Flora Group notes
with an outstanding balance of $380,000 for a cash payment of $235,000 resulting
in an extraordinary gain of $170,000 net of income tax expense of $30,000.
In July, 1996, the Company retired the remainder of the Flora Group
52
<PAGE>
notes for a cash payment of $1,061,000 resulting in a Fiscal 1997 extraordinary
gain of $594,000 net of income tax expense of $100,000. The Company also
reacquired 183,177 shares of its common stock in this transaction which will be
held as treasury stock.
In addition, the Company has various working capital and property and equipment
note obligations which require various monthly repayment terms with maturity
dates from 1996 through 1999.
Note 10. Senior Notes
The Company retired the remaining 125/8% Senior Notes pursuant to their terms on
February 15, 1996.
Note 11. Subordinated Debentures
On September 8, 1980, the Company sold 25,000 Units, each consisting of a $1,000
debenture bearing interest at 14 l/2% per annum and 5 shares of Common Stock.
The debentures, which are unsecured obligations and are subordinated to senior
indebtedness, as defined, mature September l, 2000 and require semi-annual
interest payments each September and March with the balance due on September 1,
2000. Optional prepayments may be made at 100% of the principal amount thereof.
The debentures contains certain default provisions and imposes restrictions on
the amount of dividends or distributions to shareholders. The debentures are
presented net of unamortized debt discount, which is being amortized as
additional interest over the life of the debentures. As of June 30, 1996, a
total principal amount of $575,000 of original subordinated debentures remain
outstanding.
Note 12. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
53
<PAGE>
For Year Ended June 30,
--------------------------
1996 1995 1994
--------------------------
(In Thousands)
- --------------------------------------------------------------
Continuing operations
Current $ 145 $ 270 $ 104
Deferred (527)
- --------------------------------------------------------------
$ (382) $ 270 $ 104
- --------------------------------------------------------------
Extraordinary Item
Current $ 117 $ 4,336
Deferred (149)
- ---------------------------------------------------------------
$ 117 $ $ 4,187
- --------------------------------------------------------------
The differences between taxes computed at federal income tax rates and amounts
provided for continuing operations are as follows:
For Year Ended June 30,
----------------------------
1996 1995 1994
----------------------------
(In thousands)
- ----------------------------------------------------------------
Amount computed at statutory rate $ 290 $ 500 $ (225)
State income taxes, net of federal
tax benefit 21 17 75
Unrealized (realized) benefits from
net operating loss carry forwards
and other tax credits (693) (247) 254
- -----------------------------------------------------------------
$ (382) $ 270 $ 104
- -----------------------------------------------------------------
Deferred income taxes reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. These "temporary differences"
are determined in accordance with Financial Accounting Standards Board Statement
No. 109 ("SFAS 109") (Note 1). The principal component of the Company's deferred
tax liability of $2,056,000 at June 30, 1996 are temporary differences arising
from interest and real estate taxes incurred prior to commencing active
construction being capitalized for book purposes while being expensed for tax
purposes. In addition, temporary differences arise from net realizable value
adjustments recognized for book purposes but not for tax purposes. These
temporary differences reverse ratably as the communities sellout. The principal
items making up the deferred income tax provisions from continuing operations
are as follows:
54
<PAGE>
For Year Ended June 30,
---------------------------
1996 1995 1994
---------------------------
(In thousands)
- ----------------------------------------------------------------
Interest and real estate taxes $ 238 $ 424 $ 461
Difference in tax accounting for
land and property sales (net) (29) 7 46
Unrealized (realized) tax net
operating loss carryforwards (435) (370) 1,430
Reserves for book not tax 142 (144) (129)
Gain (loss) from joint ventures 2
Deferred compensation 34 99
Depreciation and other 48 (16) 25
Debt redemption (1,919)
Recapitalization expenses 86
Reduction to deferred tax asset
valuation reserve (527)
- ---------------------------------------------------------------
$ (527) $ $
- ---------------------------------------------------------------
The Company adopted the principles of SFAS 109, as required, effective July 1,
1993 on a prospective basis. The cumulative effect of adoption of SFAS 109 was
approximately $3,970,000, as adjusted. This gain was primarily the result of the
effects of previously unrecognized net operating losses and other carryforward
tax benefits in excess of net deferred taxable items and net of a valuation
reserve of approximately $1,000,000. The valuation reserve reflected the excess
of the carryforwards over existing net deferred taxable items and expected
taxable gains on certain of the 1993 Recapitalization Transactions.
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns. SFAS 109 requires the Company to record a valuation allowance when
it is "more likely than not that some portion or all of the deferred tax assets
will not be realized." It further states that "forming a conclusion that a
valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years." The ultimate realization of certain
tax assets depends on the Company's ability to generate sufficient taxable
income in the future, including the effects of future anticipated
arising/reversing temporary differences. The Company has undergone substantial
capital and operational restructuring in recent years and currently anticipates
acquiring additional projects at favorable prices. Further, the Company reported
income from
55
<PAGE>
continuing operations in fiscal 1996 and 1995. While the Company anticipates
that total deferred tax assets will be fully realized by future operating
results and future tax planning strategies, losses in recent years along with
volatility in the real estate market make it appropriate to continue to record a
valuation allowance. Accordingly, the Company has provided a valuation allowance
equal to 50% and 100% of the total deferred income tax assets which are
dependent upon future taxable income for realization in certain tax
jurisdictions at June 30, 1996 and 1995, respectively.
As of June 30, 1996, the Company has deferred tax assets aggregating $1,055,000
and an offsetting valuation reserve of approximately $528,000 included in its
net deferred tax liability of $2,056,000.
At June 30, 1996, the Company had alternative minimum tax credits of
approximately $856,000 which may be used to reduce or eliminate ordinary federal
income taxes. These alternate minimum tax credits, which do not have an
expiration date, are part of the deferred tax assets discussed previously.
Note 13. Stock Option Plan
In December 1992, the Board of Directors adopted (i) the 1992 Stock Incentive
Option Plan relating to options for up to 560,000 shares (increased in August,
1994 to 660,000 shares) of Common Stock of the Company and (ii) the Non-Employee
Directors Stock Option Plan relating to a maximum of 100,000 shares. Prior to
fiscal 1995, the Stock Option Committee had granted options aggregating 540,000
shares to certain employees of the Company under the 1992 Incentive Stock Option
Plan and options aggregating 75,000 to three non-employee Directors. During
fiscal 1996, 80,000 options were granted at an exercise price of $1.25 to $2.00
per share and 50,000 options were granted at an exercise price of $1.25 or the
fair market value on the date of vesting, whichever is greater.
In February, 1995, the Board of Directors adopted the 1995 Stock Option Plan for
Non-Employee Directors which provides for options for up to 100,000 shares. On
February 28, 1995, 75,000 options were granted under this plan to three
additional non-employee Directors.
The option price per share under all plans was established at the
56
<PAGE>
fair market value at the dates of each grant which was $.69 to $2.81 per share.
Total outstanding options under all three plans aggregated 825,000 shares with
expiration dates between fiscal 2004 and 2006.
Note 14. Commitments and Contingencies
At June 30, 1996, the Company had outstanding bank letters of credit amounting
to $14,653,000 as surety for completion of improvements at various developments
of the Company.
At June 30, 1996 the Company had agreements to purchase land and approved
homesites aggregating approximately 1,100 building lots with purchase prices
totaling approximately $27,600,000. Purchase of the properties is contingent
upon obtaining all governmental approvals and satisfaction of certain
requirements by the Company and the Sellers. The Company expects to utilize
purchase money mortgages to finance a majority of these acquisitions. The
Company anticipates completing a majority of these acquisitions in calendar
1998. The Company has made deposits totaling approximately $1,100,000 under
these agreements which are included in deferred charges and other assets.
Development and sale of real property creates a potential for environmental
liability on the part of the developer, owner or any mortgage lender for its own
acts or omissions as well as those of current or prior owners of the subject
property or adjacent parcels. If hazardous substances are discovered on or
emanating from any of the Company's properties, the owner or operator of the
property (including the prior owners) may be held strictly liable for all costs
and liabilities relating to such hazardous substances. Environmental studies are
undertaken in connection with property acquisitions by the Company.
Pursuant to an Order dated February 6, 1996 issued by the New Jersey Department
of Environmental Protection ("NJDEP"), the Company submitted a
Closure/Post-Closure Plan ("Plan") and Classification Exception Area ("CEA") for
certain affected portions of Colts Neck Estates, a single family residential
development built by the Company in Washington Township, Gloucester County, New
Jersey. The affected areas include those portions of Colts Neck where solid
waste allegedly was deposited. NJDEP approved the Plan and CEA on July 22, 1996.
The Plan, in part, requires the Company to (i) perform gas monitoring for
methane on a quarterly basis for
57
<PAGE>
a period of one year; (ii) vegetate and cover with clean fill affected areas;
and (iii) deed restrict portions of the affected open space owned by it. NJDEP's
approval of the CEA imposes restrictions on the use of ground water within the
affected area. Neither the implementation of the Plan nor CEA is expected to
have a material adverse effect on the Company's results of operations or its
financial position although NJDEP as a standard condition of its approval of the
Plan and CEA reserves the right to amend its approval to require additional
remediation measures if warranted.
Approximately 145 homeowners at Colts Neck instituted three lawsuits against the
Company, which were separately filed in state and Federal courts between April
and November, 1993. These suits were consolidated in the United States District
Court for the District of New Jersey and were subject to court-sponsored
mediation. Asserting a variety of state and federal claims, the plaintiffs in
the consolidated action alleged that the Company and other defendants built and
sold them homes which had been constructed on and adjacent to land which had
been used as a municipal waste landfill and a pig farm. The complaints asserted
claims under the federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Solid Waste Disposal Act, the New Jersey Sanitary
Landfill Facility Closure and Contingency Act, the New Jersey Spill Compensation
and Control Act, as well as under theories of private nuisance, public nuisance,
common law fraud, latent defects, negligent misrepresentation, consumer fraud,
negligence, strict liability, vendor liability, and breach of warranty, among
others.
In September, 1993 the Company brought a state court action against more than 30
of its insurance companies seeking indemnification and reimbursement of costs of
defense in connection with the three Colts Neck actions referred to above. That
action has been stayed, and the Company's claims against its insurers have also
been brought as third-party claims in the consolidated Colts Neck litigation in
Federal court along with third-party claims against the former owners and
operators of the Colts Neck property as well as claims against the generator of
the municipal waste allegedly disposed on the property.
As a result of the court sponsored mediation, the Company and the plaintiffs in
the consolidated litigation entered into a settlement agreement. Under that
agreement, which has been approved by the Court, a $6,000,000 Judgment was
entered against the Company in
58
<PAGE>
favor of a class comprising most of the current and former homeowners. The
Company, which has paid $650,000 on August 28, 1996 to the class, has no
liability for the remainder of the Judgment. The remainder of the Judgment is to
be paid solely from the proceeds of the state and federal court litigation
against the Company's insurance companies. Although, under the settlement
agreement the Company is obligated to prosecute and fund the litigation against
its insurance companies, the Company is entitled to obtain some reimbursement of
those expenses. Specifically, under the settlement agreement, the Company may
obtain reimbursement of its aggregate litigation expenses in excess of $100,000
incurred in connection with its continued prosecution of the insurance claims to
the extent that settlements are reached and to the extent that the portion of
those settlement funds designated to fund the litigation are not exhausted. The
Company's right to reimbursement may, under certain circumstances, be limited to
a total of $300,000.
The Company has accrued estimated costs of environmental testing as well as all
other reasonably estimable future investigatory, engineering, legal and
litigation costs and expenses. During fiscal 1995, the Company increased its
recorded reserves to give effect to the net amounts to be paid under the
settlement agreement, and the anticipated unreimbursed costs to the Company of
the insurance litigation. The Company believes that neither the implementation
of the settlement agreement nor the resolution of the insurance claims through
further litigation will have a material effect on its results of operations or
its financial position.
The Company is not aware of any other environmental liabilities associated with
any of its other projects.
59
<PAGE>
FPA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the year ended June 30, 1996, 1995 and 1994
($000 omitted)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------------
Balance at Charged to costs Charged to other Deduc- Balance at
Description beginning of period and expenses accounts - describe tions end of period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for uncollectibility
of receivables:
Year ended June 30, 1996 $ 30 $ - $ 30 $ -
====== ====== ====== =====
Year ended June 30, 1995 $ 35 $ - $ 5 $ 30
====== ====== ====== ======
Year ended June 30, 1994 $ 55 $ - $ 20 $ 35
====== ====== ====== ======
</TABLE>
60
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There are no matters required to be reported hereunder.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated herein by reference from the Company's definitive
proxy statement for its annual meeting of Stockholders to be held in December,
1996. Information concerning the executive officers is included under the
separate caption Item A. "Executive Officers of the Registrant" under Part I of
this Form 10-K.
Item 11. Executive Compensation.
Incorporated herein by reference from the Company's definitive
proxy statement for its annual meeting of Stockholders to be held
in December, 1996.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Incorporated herein by reference from the Company's definitive proxy
statement for its annual meeting of Stockholders to be held in December, 1996.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the Company's definitive proxy
statement for its annual meeting of Stockholders to be held in December, 1996.
61
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) l. Financial Statements
The financial statements and schedule listed in the index on the
first page under Item 8 are filed as part of this Form 10-K.
(b) Reports on Form 8-K. The Company did not file a Form 8-K for the
quarter ended June 30, 1996.
(c) Exhibits
Exhibit
Number
3.l Certificate of Incorporation of the Company dated September 4,
1969 {incorporated by reference to Exhibit 2.l of the
Company's Registration Statement on Form S-7, filed with the
Securities and Exchange Commission (S.E.C. File No. 2-68662)
(herein referred to as "Form S-7")}.
3.2 Amendment to Certificate of Incorporation of the Company filed
July 25, 1983 {incorporated by reference to Exhibit 3.2 of
Amendment No. 2 to the Company's Registration Statement on
Form S-2 filed with the Securities and Exchange Commission
(S.E.C. File No. 2-84724)}.
3.3 Amendment to Certificate of Incorporation of the Company filed
May 27, 1992 (incorporated by reference to Exhibit 3.6 of
Amendment No. 2 to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission
(S.E.C. File No. 33-43943) (the "Form S-1")).
3.4 Agreement and Plan of Merger dated as of October 22, 1993, by
and among the Company, FPA Merger Subsidiary, Inc. a
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<PAGE>
Pennsylvania corporation; Orleans Construction Corp. ("OCC"); and
Jeffrey P. Orleans, including the Certificate of Designation respecting
the Series C Preferred Stock incorporated by reference to Exhibit 3.5
to the Company's Form 8-K dated October 22, 1993 filed with the
Securities and Exchange Commission (the "1993 Form 8-K").
3.5 Certificate of Designation filed by the Company on September 6, 1991
with the Secretary of State of Delaware respecting the Series A
Preferred Stock and Series B Junior Preferred Stock (incorporated by
reference to Exhibit 4.4 of the Company's Form 8-K dated September 11,
1991 ("1991 Form 8-K")).
3.6 Subsequent Certificate to Certificate of Designations, Preferences and
Rights of Series A Preferred Stock and Series B Junior Preferred Stock
of FPA Corporation adopted September 14, 1992 and filed with the
Secretary of State of Delaware. (incorporated by reference to Exhibit
4.19 to Registrant's Form 10-K for the fiscal year ended June 30,
1994.)
3.7 Subsequent Certificate to Certificate of Designations, Preferences and
Rights of Series A Preferred Stock and Series B Junior Preferred Stock
of FPA Corporation filed on September 2, 1993 with the Secretary of
State of Delaware.
3.8 Certificate of Designations, Preferences and Rights of Series C
Preferred Stock filed by the Company on October 21, 1993 with the
Secretary of State of Delaware respecting the Series C Preferred Stock.
(incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated October 22, 1993).
3.9 By-Laws, as last amended March 16, 1990 (incorporated by reference to
Exhibit 3.1 to the Company's Form 8-K dated April 11, 1990, filed with
the Securities and Exchange Commission (the "1990 Form 8-K")).
4.l Form of the Company's 14 l/2% Subordinated Debentures due September l,
2000 (contained in, and beginning on page 12 of, Exhibit 4.2).
4.2 Form of Indenture dated September l, 1980, between the Company and The
Fidelity Bank (the "Debenture Indenture"), relating to the Company's 14
l/2% Subordinated Debentures due September l, 2000 (incorporated by
reference to Exhibit 2.3 of Amendment
63
<PAGE>
No. 2 to the Company's Form S-7).
4.3 Form of Second Supplemental Indenture dated March 30, 1990 to the
Debenture Indenture (incorporated by reference to Exhibit 4.3 to the
1990 Form 8-K).
4.4 Note Exchange Agreement, dated September 11, 1991, respecting the
issuance of $5,032,935.38 aggregate principal amount of 12 5/8% Senior
Notes due February 15, 1996, with the form of the Company's 12 5/8%
Senior Notes due February 15, 1996 attached as Exhibit A thereto
(incorporated by reference to Exhibit 4.5
to the 1991 Form 8-K).
4.5 Debenture Exchange Agreement, dated September 11, 1991,
respecting the issuance of $2,356,282.50 aggregate principal
amount of 1991 14 1/2% Subordinated Debentures due September
1, 2000 with the form of the Company's 1991 14 1/2%
Subordinated Debentures due September 1, 2000 attached as
Exhibit A thereto (incorporated by reference to Exhibit 4.6 to
the 1991 Form 8-K).
4.6 Form of Note Purchase Agreement dated as of October 22, 1993, together
with form of Series A Variable Rate Notes due September 15, 1998 issued
by the Company attached thereto (incorporated by reference to Exhibit
4.2 to the 1993 Form 8- K).
4.7 Form of Note Purchase Agreement dated October 22, 1993, together with
form of Series B Variable Rate Mortgage Notes due September 15, 1998
issued by the Company attached thereto (incorporated by reference to
Exhibit 4.24 to the 1993 Form 8- K).
4.8 Form of Note Purchase Agreement, dated as of August 1, 1996, together
with form of $2,000,000 Variable Rate Note due September 30, 2000.
4.9 Form of Note Purchase Agreement, dated as of August 1, 1996, together
with form of $3,000,000 Convertible Subordinated 7% Note due January 1,
2002.
10.1 Form of Indemnity Agreement executed by the Company with Directors of
the Company (incorporated by reference to Exhibit B to the Company's
Proxy Statement respecting its 1986 Annual
64
<PAGE>
Meeting of Stockholders).
10.2 Employment Agreement between the Company and Jeffrey P. Orleans, dated
June 26, 1987 (incorporated by reference to Exhibit 10.2 to the Form
S-1.)
10.3 Mortgage dated March 17, 1992 granted by the Company to Jeffrey P.
Orleans, respecting property in Washington Township, Gloucester County,
New Jersey (incorporated by reference to Exhibit 10.3 to the 1992 Form
8-K).
22. Subsidiaries of Registrant.
25. Power of Attorney (included on Signatures page).
27. Financial Data Schedule (included in electronic filing format
only).
65
<PAGE>
Exhibit 4.8
____________________________________
FPA CORPORATION
___________________
$2,000,000
Variable Rate Note
due September 30, 2000
___________________
NOTE PURCHASE AGREEMENT
___________________
Dated as of August 1, 1996
____________________________________
<PAGE>
TABLE OF CONTENTS
Page
1. Authorization of Notes......................................... 1
2. Issuance of Notes.............................................. 2
3. Closing........................................................ 2
4. Conditions to Closing.......................................... 2
4.1 Representations and Warranties........................ 2
4.2 Performance; No Default............................... 2
4.3 Compliance Certificate................................ 2
4.4 Proceedings and Documents............................. 2
5. Representations and Warranties, etc............................ 3
5.1 Organization, Qualification Standing, etc............. 3
5.2 Authorization, Execution and Delivery................. 3
5.3 Tax Returns and Payments.............................. 4
5.4 Litigation, etc....................................... 4
5.5 Compliance with Other Instruments, etc................ 4
5.6 Governmental Consent.................................. 5
5.7 Offer of Notes........................................ 5
5.8 Federal Reserve Regulations........................... 5
5.9 Investment Company Act................................ 5
5.10 Public Utility Holding Company Act.................... 5
5.11 Authorization of Sale................................. 6
5.12 ERISA................................................. 6
6. Representations and Warranties of Purchaser.................... 6
6.1 Investment Representations............................ 6
6.2 No Contrary Knowledge................................. 6
7. Accounting, Financial Statements and Other Information......... 7
8. Inspection..................................................... 8
9. Payment and Prepayment of Notes................................ 8
9.1 Optional and Required Prepayments..................... 8
9.2 Maturity; Surrender, etc.............................. 8
10. Business and Financial Covenants............................... 9
10.1 Payment of Principal and Interest..................... 9
10.2 Maintenance of Office or Agency....................... 9
10.3 Corporate Existence................................... 9
10.4 Payment of Taxes and Other Claims..................... 9
10.5 Maintenance of Properties; Insurance.................. 10
10.6 Waiver of Covenants................................... 10
10.7 Company May Consolidate, etc., Only on Certain
Terms................................................. 10
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10.8 Effect of Consolidation, etc.......................... 11
11. Registration, Transfer and Substitution of Notes............... 11
11.1 Note Register; Ownership of Registered Notes.......... 11
11.2 Transfer and Exchange of Notes........................ 12
11.3 Replacement of Notes.................................. 12
12. Payments on Notes.............................................. 12
12.1 Place of Payment...................................... 12
12.2 Home Office Payment................................... 13
13. Events of Default: Acceleration................................ 13
13.1 Events of Default..................................... 13
13.2 Remedies Upon Default................................. 14
14. Enforcement.................................................... 15
15. Definitions.................................................... 16
16. Expenses, etc.................................................. 20
17. Survival of Representations and Warranties..................... 20
18. Amendments and Waivers......................................... 21
19. Notices, etc................................................... 21
20. Effectiveness.................................................. 22
21. Miscellaneous.................................................. 22
Exhibits
I. Form of $2,000,000 Variable Rate Note due September 30,
2000
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FPA CORPORATION
One Greenwood Square
3333 West Street Road
Suite 101
Bensalem, PA 19020
__________________________________
Note Purchase Agreement
__________________________________
$2,000,000 Variable Rate Note
due September 30, 2000
As of August 1, 1996
Jeffrey P. Orleans
Chairman and Chief Executive Officer
FPA Corporation
One Greenwood Square
3333 West Street Road
Suite 101
Bensalem, PA 19020
Dear Sir:
FPA Corporation, a Delaware corporation (the "Company"), agrees with
you as follows:
1. Authorization of Notes. The Company will authorize the issue and
delivery of its $2,000,000 Variable Rate Note due September 30, 2000 (the "VR
Note," the "Note" or the "Notes," such term to include any such Notes issued in
substitution therefor pursuant to Section 11 hereof). The VR Note shall be in
substantially the form of Exhibit I hereto, with such changes therein, if any,
as may be approved by you and the Company. Certain capitalized terms used in
this Agreement are defined in Section 15. References to an "Exhibit" are, unless
otherwise specified, to one of the Exhibits attached to this Agreement.
<PAGE>
2. Issuance of Notes. In exchange for the payment of cash in the amount
of $2,000,000 (the "Cash Consideration"), the Company will issue and deliver to
you and, subject to the terms and conditions of this Agreement, you will acquire
from the Company, the VR Note.
3. Closing. The delivery and issue of Notes by the Company to you shall
take place at the offices of the Company, at the address noted above, at 10:00
a.m., local time, September 3, 1996 or on such other business day as may be
agreed upon by the Company and you, but in no event later than December 31, 1996
(the "Closing"). Subject to and upon the terms and conditions set forth herein,
at the Closing the Company will deliver to you the VR Note, dated the date of
such Closing and registered in your name, against delivery by you to the Company
or its order of the Cash Consideration in the amount specified in Section 2
hereof. If, at the Closing, the Company shall fail to tender the VR Note to you
as provided above in this Section 3, or any of the conditions to be performed by
the Company specified in Section 4 shall not have been fulfilled to your
reasonable satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. Conditions to Closing. (A) Your obligation to deliver the Cash
Consideration for the VR Note to be issued and delivered to you at the Closing,
and to complete the Closing, is subject to the fulfillment to your reasonable
satisfaction, prior to or at such Closing, of the following conditions:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be correct in all
material respects when made and at the time of such Closing.
4.2 Performance; No Default. The Company shall have performed
and complied in all material respects with all agreements and conditions
contained in this Agreement required to be performed or complied with by it
prior to or at such Closing and at the time of such Closing no Event of Default
shall have occurred and be continuing.
4.3 Compliance Certificate. The Company shall have delivered
to you or your Counsel an Officers' Certificate, dated the date of such Closing,
certifying that the conditions specified in Sections 4.1 and 4.2 have been
fulfilled.
4.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory to you, and you shall have received all such counterpart
originals or certified or other copies of such documents as you or they may
reasonably request.
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(B) The Company's obligation to deliver the VR Note at the
Closing and to complete the Closing is subject to your performance and
compliance in all material respects with the agreements and conditions contained
in this Agreement required to be performed by you prior to or at such Closing.
5. Representations and Warranties, etc. The Company represents and
warrants that:
5.1 Organization, Qualification Standing, etc. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted, and the
Company has all requisite corporate power and authority to enter into this
Agreement, to issue and deliver the Notes in exchange for the Note Consideration
and the Cash Consideration, and to carry out the terms of this Agreement and the
Notes. Each of the Company and its Subsidiaries is duly qualified and in good
standing as a foreign corporation authorized to do business in each jurisdiction
(other than the jurisdiction of its incorporation) in which the nature of its
activities or the character of the properties it owns, leases or operates makes
such qualification necessary and in which the failure so to qualify would have a
materially adverse effect on the business of the Company and its Subsidiaries
taken as a whole. The current capitalization of the Company is as follows:
Preferred Stock, par value $1.00 per share; 500,000 shares
authorized; 100,000 shares of Series C Preferred Stock authorized.
Common Stock, par value $.10 per share; 20,000,000 shares
authorized; 12,698,131 shares issued; 11,695,618 shares
outstanding and 1,002,513 held as treasury stock.
5.2 Authorization, Execution and Delivery. The execution and
delivery of this Agreement and the VR Note by the Company has been duly
authorized by all necessary corporate action on behalf of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement, the Notes, and the transactions contemplated hereby
and thereby and this Agreement is (and, upon issuance, the VR Note will be)
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency, reorganization and similar laws affecting creditors
generally and by equitable principles of general applicability.
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5.3 Tax Returns and Payments. The Company and each of its
Subsidiaries have filed all tax returns required by law to be filed by them and
have paid all taxes, assessments and other governmental charges levied upon them
and any of their respective properties, assets, income or franchises which are
due and payable, other than those presently payable without penalty or interest.
The charges, accruals and reserves on the books of the Company and set forth on
the regularly-prepared balance sheets of the Company in respect of Federal and
state income and business and occupation taxes for all fiscal periods are
adequate in the opinion of the Company, and the Company knows, after making due
inquiry and reasonable investigation, of no unpaid assessment for additional
Federal or state income or business and occupation taxes for any period or any
basis for any such assessment for which adequate provision has not been made in
its accounts or in such balance sheet.
5.4 Litigation, etc. Except as described in the Company's 1995
Report on Form 10-K or as set forth on Schedule 5.4 hereto, there is no action,
investigation or proceeding pending or threatened (or any basis therefor known
to the Company) which questions the validity of this Agreement or the VR Note or
any action taken or to be taken pursuant to this Agreement or the VR Note, or
which might result, either in any case or in the aggregate, in any material
adverse change in the business, operations, affairs, condition, properties or
assets of the Company and its Subsidiaries taken as a whole or in any material
liability on the part of the Company and such Subsidiaries taken as a whole.
5.5 Compliance with Other Instruments, etc. Except as set forth on
Schedule 5.5 hereto, (i) neither the Company nor any of its Subsidiaries is in
violation of any term of its certificate or articles of incorporation or
by-laws, (ii) neither the Company nor any of its Subsidiaries is in material
violation of any term of any material agreement or instrument respecting
indebtedness for borrowed money to which it is a party or by which it is bound,
and (iii) neither the Company nor any of its Subsidiaries is in violation of any
term of any applicable law, statute, ordinance, license, franchise, rule or
regulation of any governmental authority or any term of any applicable order,
judgment or decree of any court, arbitrator or governmental authority
(including, without limitation, any law, ordinance, rule, regulation or order
relating to environmental or occupational health or safety standards and
controls, consumer protection or equal employment practices) applicable to the
Company or any Subsidiary, the consequences of which violation described in
(iii) above might have a material adverse effect on the business, operations,
affairs, condition, properties or assets of the Company and its Subsidiaries
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<PAGE>
taken as a whole; and the execution, delivery and performance of this Agreement
and the Notes will not result in any violation of or be in conflict with or
constitute a default under any term of any item referred to in this Section 5.5
or result in the creation of (or impose any obligation on the Company or any
Subsidiary to create) any lien, pledge, security interest or other encumbrance
upon any of the properties or assets of the Company or any Subsidiary pursuant
to any such term.
5.6 Governmental Consent. No consent, approval or authorization of,
or declaration or filing with, any governmental authority on the part of the
Company or any Subsidiary is required for the valid execution, delivery or
performance of this Agreement and the Notes, or the continued conduct by the
Company or any Subsidiary of its businesses as now conducted or as proposed to
be conducted as described in the 1995 Form 10-K.
5.7 Offer of Notes. The Company has not directly or indirectly
offered the VR Note or any part thereof for sale to, or solicited any offer to
buy, any of the same from, or otherwise approached or negotiated in respect
thereof with, anyone other than you.
5.8 Federal Reserve Regulations. Neither the Company nor any
Subsidiary will, directly or indirectly, use any of the proceeds of the issuance
of the VR Note for the purpose of purchasing or carrying any "margin security"
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System (12 C.F.R. 207, as amended), or otherwise take or permit to be
taken any action which would result in the issuance and delivery of the VR Note
or the carrying out of any of the other transactions contemplated hereby, being
violative of such Regulation G or of Regulation T (12 C.F.R. 220, as amended) or
of Regulation X (12 C.F.R. 224, as amended) or any other regulation of such
Board. To your knowledge, no Indebtedness being reduced or retired out of the
proceeds of the issuance of the Notes was incurred for the purpose of purchasing
or carrying any "margin security" within the meaning of such Regulation G, and
the Company does not own and does not have any present intention of acquiring
any such margin security.
5.9 Investment Company Act. Neither the Company nor any Subsidiary
is an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
5.10 Public Utility Holding Company Act. Neither the Company nor any
Subsidiary is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
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5.11 Authorization of Sale. The sale of the VR Note and compliance
by the Company with all of the provisions of this Agreement and the VR Note are
within the corporate powers of the Company and have been duly authorized by all
requisite corporate action on the part of the Company.
5.12 ERISA. The consummation of the transactions provided for in
this Agreement and compliance by the Company with the provisions hereof and of
the VR Note issued hereunder will not involve any prohibited transaction within
the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA") or
Section 4975 of the Internal Revenue Code. No "employee pension benefit plans,"
as defined in ERISA ("Plans"), maintained by the Company or any Person which is
under common control with the Company within the meaning of Section 4001(b) of
ERISA, nor any trusts created thereunder, have incurred any "accumulated funding
deficiency" as defined in Section 302 of ERISA.
6. Representations and Warranties of Purchaser. You hereby represent
and warrant to the Company as follows:
6.1 Investment Representations. You acknowledge that the VR Note
has not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and that the VR Note is being issued to you pursuant to an
exemption from registration contained in the Securities Act based in part upon
your representations and covenants contained in this Section. You are acquiring
the VR Note solely for your own account and with no intention of distributing or
reselling said securities or any part thereof, or interest therein, in any
transaction which would be in violation of the securities laws of the United
States or any state thereof. You are an "accredited investor" (as such term is
defined in Rule 501 of Regulation D under the Securities Act). You acknowledge
and agree that (i) the VR Note is subject to limitations on transferability
under the Securities Act and applicable state securities laws, (ii) the Company
has no obligation to effect registration of the VR Note under the Securities Act
or any applicable state securities laws or otherwise to comply with any
requirements necessary for transfer or assignment of the VR Note to be exempt
from such registration, and (iii) no transfer of the Notes shall be effected
unless an Opinion of Counsel acceptable to the Company shall be delivered to the
Company to the effect that such contemplated transfer may be effected without
registration under the Securities Act and any applicable state securities laws.
6.2 No Contrary Knowledge. You are the Chief Executive Officer of
the Company and have no knowledge that any of the representations and warranties
of the Company set forth in Section 5 hereof are not correct.
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<PAGE>
7. Accounting, Financial Statements and Other Information. The Company
will maintain and cause its Subsidiaries to maintain, a system of accounting
established and administered in accordance with generally accepted accounting
principles, and will set aside on its books, and will cause each of its
Subsidiaries to set aside on its books, all such proper reserves as shall be
required by generally accepted accounting principles. At any time the Company is
not required to file reports with the Commission pursuant to Section 13 of the
Exchange Act, the Company will deliver to you, so long as you shall be the
holder of the VR Note:
(a) within 60 days after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company,
consolidated balance sheets of the Company and its Subsidiaries as at
the end of such period and the related consolidated statements of
income, stockholders' equity and cash flows of the Company and its
Subsidiaries for such period and (in the case of the second and third
quarterly periods) for the period from the beginning of the current
fiscal year to the end of such quarterly period, setting forth in each
case in comparative form the consolidated figures for the corresponding
periods of the previous fiscal year (except for the comparative balance
sheet which is as of the end of the immediately preceding fiscal year),
all in reasonable detail and certified as complete by a principal
financial officer of the Company; it being understood that delivery to
Purchaser of a copy of the Form 10-Q for the respective fiscal period
as filed with the Commission shall fulfill the obligations of the
Company with respect to this subdivision (a);
(b) within 120 days after the end of each fiscal year of the
Company, consolidated balance sheets of the Company and its
Subsidiaries as at the end of such year and the related consolidated
statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal year, setting forth in
each case in comparative form the consolidated figures for the previous
fiscal year, all in reasonable detail and accompanied by a report
thereon of Price Waterhouse or other independent certified public
accountants of recognized national standing selected by the Company, so
long as you or your nominee shall be the holder of any of the Notes,
and to the Other Purchasers; it being understood that delivery to the
Purchaser of a copy of the Company's Form 10-K as filed with the
Commission respecting such fiscal year shall fulfill the obligations of
the Company with respect to this subdivision (b);
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(c) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available generally by the Company to its public security holders,
if any, of all regular and periodic reports and all registration
statements and prospectuses, if any, filed by the Company or any
Subsidiary with any securities exchange or with the Commission or any
governmental authority succeeding to any of its functions; and
(d) with reasonable promptness, such other information and
data with respect to the Company or any of its Subsidiaries as from
time to time may be reasonably requested.
8. Inspection. The Company will permit any authorized representatives
designated by the holders of a majority in aggregate principal amount
outstanding of the VR Note, without expense to the Company, to visit and inspect
any of the properties of the Company or any of its Subsidiaries, including its
and their books of account, and to make copies and take extracts therefrom, and
to discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants, all at such reasonable times during
regular business hours and upon reasonable notice and as often as may be
reasonably requested.
9. Payment and Prepayment of Notes.
9.1 Optional and Required Prepayments. The Company may, at its
option, upon not less than 30 days prior written notice to you, prepay at any
time all, or from time to time any part of, the VR Note, without premium, at a
price equal to the principal amount to be so prepaid; provided, however, for
purposes of this Section 9.1, any prepayment of less than all of the outstanding
VR Note shall be deemed to be applied first to the payment of accrued but unpaid
interest and then to the payment of the installments of principal in the order
in which such installments are due.
9.2 Maturity; Surrender, etc. In the case of each prepayment, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest, as aforesaid, interest on such principal amount
shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to
the Company and cancelled and shall not be reissued, and no Note shall be issued
in lieu of any prepaid principal amount of any Note.
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10. Business and Financial Covenants. The Company covenants that from
the date of this Agreement through the Closing and thereafter so long as any of
the Notes are outstanding:
10.1 Payment of Principal and Interest. The Company will duly and
punctually pay the principal of and interest on the VR Note in accordance with
the terms of the VR Note and this Agreement. Interest on the VR Note may be paid
by mailing checks for such interest payable to or upon the written order of the
Person entitled thereto, at the address of such Person as it appears on the Note
Register.
10.2 Maintenance of Office or Agency. The Company will maintain in
the Commonwealth of Pennsylvania, an office or agency where VR Notes may be
presented or surrendered for payment, where VR Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Agreement may be served. The
Company will give prompt written notice to each holder of any change in the
location of such office or agency. The initial office maintained by the Company
for such purpose shall be the executive offices of the Company set forth on page
1 hereof.
10.3 Corporate Existence. The Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and that of each Material Subsidiary and the rights (charter and
statutory) and franchises of the Company and its Material Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right or franchise if the Board of Directors shall determine, before or
following the termination thereof, that the preservation thereof is no longer
desirable in the conduct of the business of the Company or any Material
Subsidiary or that the loss thereof is not disadvantageous in any material
respect to the holders of the Notes.
10.4 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Material Subsidiary or upon the income, profits
or property of the Company or any Material Subsidiary, and (2) all lawful claims
or indebtedness for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or any Material Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and the Company shall have set aside on its books
adequate reserves, if appropriate, with respect thereto (segregated to the
extent required by generally accepted accounting principles), and failure to pay
is not prejudicial in any material respect to the holders of the VR Notes.
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<PAGE>
10.5 Maintenance of Properties; Insurance. The Company will cause
all properties used or useful in the conduct of its business or the business of
the Company or any Material Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 10.5 shall prevent the Company from discontinuing the
operation or maintenance of any of such properties, or disposing of any of them.
The Company will insure and keep insured, and will cause each
Material Subsidiary to insure and keep insured, with reputable insurance
companies, so much of their respective properties, to such an extent and against
such risks (including fire), as companies engaged in similar businesses
customarily insure properties of a similar character; or, in lieu thereof, in
the case of itself or of any one or more of its Material Subsidiaries, the
Company will maintain or cause to be maintained a system or systems of
self-insurance which will accord with the approved practices of companies owning
or operating properties of similar character and maintaining such systems, and,
in such cases of self-insurance, will maintain or cause to be maintained an
insurance reserve or reserves in adequate amounts.
10.6 Waiver of Covenants. The Company may omit in any particular
instance to comply with any covenant or condition set forth in Sections 10.2
through and including Section 10.7 hereof with respect to the VR Notes, if
before or after the time for such compliance, the holders of a majority in
aggregate principal amount of the VR Notes outstanding, as the case may be,
shall either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company in
respect of such covenant or condition shall remain in full force and effect.
10.7 Company May Consolidate, etc., Only on Certain Terms. The
Company shall not consolidate with or merge into any other corporation or convey
or transfer its properties and assets substantially as an entirety to any
Person, unless:
(1) either the Company shall be the continuing corporation,
or the corporation (if other than the Company) formed by such
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consolidation or into which the Company is merged or the Person
which acquires by conveyance or transfer the properties and assets
of the Company substantially as an entirety shall be a corporation
organized and existing under the laws of the United States of
America or any State thereof or the District of Columbia and shall
expressly assume, by an agreement supplemental hereto, the due and
punctual payment of the principal of and interest on all the Notes
and the performance of every covenant of this Agreement and the
Notes on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no
Event of Default which has not been waived shall have occurred and
be continuing; and
(3) the Company has delivered to the holder an Officers'
Certificate and an Opinion of Counsel, each stating (the Opinion of
Counsel to rely on the Officer's Certificate for factual matters)
that such consolidation, merger, conveyance or transfer and such
supplemental agreement comply with this Section 10.7 and that all
conditions precedent herein provided for relating to such
transaction have been complied with.
10.8 Effect of Consolidation, etc. Upon any consolidation or merger
or any conveyance or transfer of the properties and assets of the Company
substantially as an entirety in accordance with Section 10.7, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Agreement with the same effect as if such successor corporation had been
named as the Company herein, and thereafter the predecessor corporation shall be
relieved of all obligations and covenants under the Agreement and the VR Notes
and in the event of such conveyance or transfer any such predecessor corporation
may be dissolved and liquidated.
11. Registration, Transfer and Substitution of Notes.
11.1 Note Register; Ownership of Registered Notes. The Company will
keep at the office of its legal department a register (the "Note Register") in
which the Company will provide for the registration of VR Notes and the
registration of transfers of VR Notes. The Company may treat the Person in whose
name any VR Note is registered on such Note Register as the owner thereof for
the purpose of receiving payment of the principal of and interest on such Note
and for all other purposes, whether or not such Note shall be overdue, and the
Company shall not be affected by any notice to the contrary. All references in
this Agreement to a "holder" of any VR Note shall mean the Person in whose name
such VR Note is at the time registered on such register.
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11.2 Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for exchange to the Company at the office of its
legal department, the Company at its expense will execute and deliver in
exchange therefor a new Note or Notes of the same class in denominations of at
least $1,000,000 (except one Note may be issued in a lesser principal amount if
the unpaid principal amount of the surrendered Note is not evenly divisible by,
or is less than, $1,000,000), as requested by the holder or transferee, which
aggregate the unpaid principal amount of such surrendered Note. Each such new
Note shall be dated so that there will be no loss of interest on such
surrendered Note and otherwise of like tenor, and shall be registered in the
name or names of such Person or Persons as such holder or transferee may
request. Any Note in lieu of which any such new Note has been so executed and
delivered shall not be deemed to be an outstanding Note for any purpose of this
Agreement.
11.3 Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft or destruction of any Note, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine (or, in the case of any Note held by you or another institutional
holder or you or its nominee, of an indemnity agreement from you or such other
holder reasonably satisfactory to the Company), or, in the case of any such
mutilation, upon the surrender of such Note for cancellation to the Company at
its principal office, the Company at its expense will execute and deliver, in
lieu thereof, a new Note of the same class of like tenor, dated so that there
will be no loss of interest on such lost, stolen, destroyed or mutilated Note.
Any Note in lieu of which any such new Note of the same class has been so
executed and delivered by the Company shall not be deemed to be an outstanding
Note for any purpose of this Agreement.
12. Payments on Notes.
12.1 Place of Payment. Payments of principal, and interest becoming
due and payable on the Notes shall be made at the principal office of the
Company in Bensalem, Bucks County, Commonwealth of Pennsylvania, unless the
Company, by written notice to each holder of any Notes, shall designate another
address as its principal office in the Commonwealth of Pennsylvania, as such
place of payment, in which case such principal office shall thereafter be such
place of payment.
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12.2 Home Office Payment. So long as you or your nominee shall be
the holder of any Note, and notwithstanding anything contained in Section 12.1
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, and interest by the method and at the address specified
for such purpose in the Note Register, or by such other method or at such other
address as the holder shall have from, time to time specified to the Company in
writing for such purpose, without the presentation or surrender of such Note or
the making of any notation thereon, except that any Note paid or prepaid in full
shall be surrendered to the Company at its principal office or at the place of
payment maintained by the Company pursuant to Section 12.1 for cancellation.
Prior to any sale or other disposition of any Note held by you or your nominee
you will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to Section
11.2.
13. Events of Default: Acceleration.
13.1 Events of Default. "Event of Default," wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest upon any Note on
the Extension Date, and continuance of such default for a period of 10 days
after notice of default has been provided by any holder of outstanding Notes; or
(b) default in the payment of any installment of the principal
of any Note on the Extension Date; or
(c) default in the performance, or breach, of any covenant of
the Company in this Agreement (other than a covenant a default in the
performance of which or the breach of which is elsewhere in this Section 13.1
specifically addressed) or the Notes and continuance of such default or breach
for a period of 60 days after there has been given to the Company a written
notice by the holder of any of the Notes specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder and, if such default or breach is curable, such additional
period of time during which the Company shall be endeavoring diligently to cure
the same; or
(d) if an event of default, as defined in any mortgage,
indenture or instrument under which there may be issued, or by which there may
be secured or evidenced, any Indebtedness of the Company or of any Subsidiary
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in excess of $1,000,000, whether such Indebtedness now exists or shall hereafter
be created, shall happen and shall result in such Indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, unless (i) such acceleration shall have been rescinded
or annulled pursuant to the terms of such instrument or (ii) such Indebtedness
shall have been discharged within a period of 30 days after such acceleration;
provided, however, the term "Indebtedness," as used in this Section 13.1(e),
shall not include Non-Recourse Indebtedness; or
(e) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Material Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company or such Material Subsidiary under the Bankruptcy Law or any other
applicable Federal or State law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any Material
Subsidiary or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(f) the institution by the Company or any Material Subsidiary
of proceedings to be adjudicated a bankrupt or insolvent, or the consent by any
of the foregoing to the institution of bankruptcy or insolvency proceedings
against it, or the filing by any of the foregoing of a petition or answer or
consent seeking reorganization or relief under the Bankruptcy Law or any other
applicable Federal or State law, or the consent by any of the foregoing to the
filing of such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator or other similar official of any of the
foregoing or of any substantial part of its property, or the making by any of
the foregoing of an assignment for the benefit of creditors, or the admission by
any of the foregoing in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by any of the foregoing in
furtherance of any such action.
13.2 Remedies Upon Default. Upon the occurrence of any Event of
Default described in subdivisions (e) and (f) of Section 13.1 the unpaid
principal amount of and accrued interest on the Notes shall automatically become
due and payable. Upon the occurrence, and during the continuance, of any other
Event of Default, any holder or holders (other than the Company or any of its
Subsidiaries) of a majority in aggregate principal amount of any VR Notes at the
time outstanding may at any time (unless all defaults shall theretofore have
been remedied) at its or their option, by written notice or notices to the
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Company, declare all the VR Notes, to be due and payable, whereupon the same
shall forthwith mature and become due and payable, together with interest
accrued thereon, in either case without presentment, demand, protest or notice,
all of which are hereby waived provided that during the continuance of an Event
of Default described in subdivision (a) or (b) of Section 13.1, then,
irrespective of whether the holder or holders of a majority in aggregate
principal amount of the VR Notes then outstanding shall have declared all of the
VR Notes of such class to be due and payable pursuant to this Section 13.2, any
holder of the Notes may, at its option, by notice in writing to the Company,
declare the Notes then held by such holder to be due and payable, whereupon the
Notes then held by such holder shall forthwith mature and become due and
payable, together with interest accrued thereon, without presentment, demand,
protest or notice, all of which are hereby waived.
At any time after the principal of, and interest accrued on, all the
Notes are declared due and payable, the holders of not less than a majority in
aggregate principal amount of the Notes of such class then outstanding
(excluding any Notes owned by the Company or any of its Subsidiaries), by
written notice to the Company may rescind and annul any such declaration and its
consequences if (x) the Company has paid all overdue interest on such Notes, the
principal of any Notes which have become due otherwise than by reason of such
declaration, and interest on such overdue principal and (to the extent permitted
by applicable law) any overdue interest in respect of such Notes at the rate of
interest provided in such Notes in respect of overdue interest, (y) all Events
of Default, other than non-payment of amounts which have become due solely by
reason of such declaration, and all conditions and events which constitute
Events of Default have been cured or waived, pursuant to Section 18, and (z) no
judgment or decree has been entered for the payment of any monies due or
foreclosure pursuant to the Notes or this Agreement; but no such rescission and
annulment shall extend to or affect any subsequent Event of Default or impair
any right consequent thereon.
14. Enforcement. In case any one or more Events of Default shall occur
and be continuing, the holder of any Note at the time outstanding may proceed to
protect and enforce the rights of such holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in such Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise. In case of a default
in the payment of any principal of, or interest on any Note, the Company will
pay to the holder thereof such further amount as shall be sufficient to cover
the cost and expenses of collection, including, without limitation,
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reasonable attorneys' fees, expenses and disbursements. No course of dealing and
no delay on the part of any holder of any Note in exercising any right, power or
remedy shall operate as a waiver thereof or otherwise prejudice such holder's
rights, powers or remedies. No right, power or remedy conferred by this
Agreement or by any Note upon any holder thereof shall be exclusive of any other
right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise.
15. Definitions. As used herein the following terms have the following
respective meanings:
"Agreement" means this instrument as originally executed or as it
may from time to time be supplemented or amended.
"Applicable Grace Date" means the tenth calendar day following each
Interest Target Date and VR Principal Target Date.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or
State law for the relief of debtors.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Closing" has the meaning specified in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or any successor body perform the same or similar functions.
"Common Stock" or "common stock" means, when used with reference to
stock of the Company, the Common Stock of the Company presently authorized, par
value $.10 per share, and any other stock into which such presently authorized
stock may hereafter have been changed.
"Company" means the Person named as the "Company" in the first
paragraph of this Agreement and its assigns until a successor corporation shall
have become such pursuant to the applicable provisions of this Agreement, and
thereafter "Company" shall mean such successor corporation.
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"Cash Consideration" has the meaning specified in Section 2.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Event of Default" has the meaning specified in Section 13.1.
"Extension Date" means the one hundred, eightieth (180th) day
following each Interest Target Date and VR Principal Target Date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exhibit" has the meaning specified in Section 1.
"Holder" or "holder' means a Person in whose name a Note is
registered.
"Indebtedness" means all indebtedness of the Company, a corporate
Subsidiary or, to the extent set forth below, a partnership or joint venture
whether outstanding on the date of the Agreement or thereafter created or
incurred (a) for money borrowed, whether evidenced by bonds, notes or other
written obligations or debentures or evidenced by a loan agreement or an
indenture or similar agreement; (b) for money borrowed by others and assumed or
guaranteed, directly or indirectly, by the Company, a corporate Subsidiary or a
partnership or joint venture; (c) for deferrals, renewals, extensions or
refundings of, and amendments to, any such Indebtedness; and (d) for purchase
money obligations and obligations to public authorities as a result of their
involvement in mortgage financing. Indebtedness of a partnership or joint
venture shall be included, without duplication, for this purpose only to the
extent of the Pro Rata Interest of the Company or a Subsidiary (other than such
partnership or joint venture) therein.
"Interest Target Date" means the last day of each calendar quarter,
commencing on the first such date following the issuance of the VR Note.
"Material Subsidiary" has the meaning specified in the definition of
Subsidiary.
"Maturity" when used with respect to any Note means the date on
which all or a portion of the principal amount of such Note becomes due
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and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Non-Recourse Indebtedness" means Indebtedness secured by a lien on
property to the extent that the liability for such Indebtedness is limited to
the security of the property without liability of the Company or any Subsidiary
for any deficiency.
"Note Consideration" has the meaning specified in Section 2.
"Notes" has the meaning specified in Section 1.
"Note Register" has the meaning specified in Section 11.1.
"Notice of Default" has the meaning specified in Section 13.1(d).
"Officer's Certificate" means a certificate signed by the Chairman
of the Board, the President or any Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may
(except as otherwise expressly provided in this Agreement) be counsel for the
Company or who may be other counsel acceptable to (i) in the case of Section
10.7, the holders of a majority in principal amount of Notes then outstanding,
and (ii) in the case of Section 6.1, the Company.
"Outstanding" or "outstanding" when used with respect to Notes
means, as of the date of determination, all Notes theretofore delivered under
this Agreement, except:
(i) Notes theretofore cancelled by the Company or delivered
to the Company for cancellation;
(ii) Notes or portions thereof for the payment or redemption
of which money in the necessary amount has been theretofore
segregated in trust by the Company for the Holders of such Notes;
provided that, if such Notes or portions thereof are to be prepaid,
notice of such prepayment has been duly given pursuant to this
Agreement; and
(iii) Notes in exchange for or in lieu of which other Notes
have been issued and delivered pursuant to this Agreement;
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provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver or taken any other action
hereunder, Notes owned by the Company or any Subsidiary shall be disregarded and
deemed not to be Outstanding. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Company or any subsidiary.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Plans" has the meaning specified in Section 5.12.
"Preferred Stock" or "preferred stock" as applied to any
corporation, means shares of such corporation which shall be entitled to
preference or priority over any other shares of such corporation in respect of
either the payment of dividends or the distribution of assets upon liquidation.
"Registered Form" has the meaning specified in Section 11.1.
"Securities Act" has the meaning specified in Section 6.2.
"Stated Maturity" when used with respect to any Note or any
installment of interest thereon means the date specified in such Note as the
fixed date on which all or a portion of the principal amount of such Note or
such installment of interest is payable.
"Subsidiary" means (i) any corporation of which at least a majority
in interest of the outstanding stock having by the terms thereof voting power
under ordinary circumstances to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency, is at the time, directly or indirectly,
owned or controlled by the Company, or by one or more other corporations a
majority in interest of such stock of which is similarly owned or controlled, or
by the Company and one or more other corporations a majority in interest of such
stock of which is similarly owned or controlled, and (ii) any Person (other than
a corporation) in which the Company or any Subsidiary, directly or indirectly,
has an interest entitling the Company or any Subsidiary to receive at least 50%
of such person's income or an interest in at least 50% of such person's capital,
or both. "Material Subsidiary," as of the date of determination thereof,
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means any Subsidiary having total assets on such date in excess of $15,000,000;
provided, however, that Material Subsidiary shall include a Subsidiary if the
Company or any Material Subsidiary guarantees, assumes or otherwise is or
becomes liable for Indebtedness of such Subsidiary in excess of $15,000,000.
"VR Principal Target Date" means the last day of each calendar
quarter, commencing December 31, 1996.
"VR Note" has the meaning specified in Section 1.
16. Expenses, etc. The Company will pay all its expenses in connection
with the consummation of the transactions under the Agreement and in connection
with any amendments or waivers (whether or not the same become effective) under
or in respect of this Agreement or the Notes, including, without limitation:
(a) the cost and expenses of preparing and reproducing this
Agreement, the Notes, of furnishing all opinions by counsel for the
Company and all certificates on behalf of the Company, and of the
Company's performance of and compliance with all agreements and
conditions contained herein on its part to be performed or complied
with;
(b) the cost of delivering to your principal office, insured
to your reasonable satisfaction, the Notes hereunder and any Notes
delivered to you upon any substitution of Notes and of your delivering
any Notes, insured to your reasonable satisfaction, upon any such
substitution; and
(c) the reasonable out-of-pocket expenses incurred by you,
exclusive of counsel fees, in connection with such transactions and any
such amendments or waivers.
The Company also will pay, and will save you and each holder of any Notes
harmless from, all claims in respect of the fees, if any, of brokers and finders
and any and all liabilities with respect to any taxes (including interest and
penalties) (other than your taxes on income, personal property or revenues)
which may be payable in respect of the execution and delivery of this Agreement,
the issue of the Notes and any amendment or waiver under or in respect of this
Agreement or the Notes.
17. Survival of Representations and Warranties. All representations
and warranties contained in this Agreement or made in writing by or on behalf
of the Company or you in connection with the transactions contemplated by this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by the Company or you or on its or your behalf,
the acquisition of the Notes by you under this Agreement and any disposition or
payment of the Notes. All statements contained in any certificate or
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other instrument delivered by or on behalf of the Company pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement
shall be deemed representations and warranties of the Company under this
Agreement.
18. Amendments and Waivers. Any term of this Agreement or of the Notes
may be amended and the observance of any term of this Agreement or of the Notes
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of at least a majority in principal amount of the Notes at the time
outstanding (excluding any Notes directly or indirectly owned by the Company or
any of its Subsidiaries), provided, however, that, without the prior written
consent of the holders of all of the Notes at the time outstanding (excluding
any Notes owned by the Company or any of its Subsidiaries), no such amendment or
waiver shall
(a) change the fixed maturity or the principal amount of, or
reduce the rate or extend payment of interest on, or change the amount
or the time of payment of any principal payable on any prepayment of,
any Note,
(b) reduce the aforesaid percentage of the principal amount of the
Notes the holders of which are required to consent to any such
amendment or waiver,
(c) increase the percentage of the principal amount of the Notes
the holders of which may declare the Notes to be due and payable as
provided in Section 13,
(d) decrease the percentage of the principal amount of the Notes
the holders of which may rescind and annul any such declaration as
provided in Section 13.2, or
(e) amend the terms and conditions of this Section 18 or Section
10.6 hereof.
Any amendment or waiver effected in accordance with this Section 18 shall be
binding upon each holder of any Note at the time outstanding, each future holder
of any Note and the Company.
19. Notices, etc. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be mailed by registered or certified mail, return receipt requested, or
delivered by nationally recognized overnight air carrier that requires a receipt
against delivery or facsimile transmission addressed,
(a) if to you, at the address set forth in the Note Register or at
such other address as you shall have furnished to the Company in
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writing, except as otherwise provided in Section 12.2 with respect to
payments on Notes held by you or your nominee, or
(b) if to any other holder of any Note, at such address as
such other holder shall have furnished to the Company in writing, or,
until any such other holder so furnishes to the Company an address,
then to and at the address of the last holder of such Note who has
furnished an address to the Company as set forth in the Note Register,
or
(c) if to the Company, at its address set forth at the
beginning of this Agreement, to the attention of its President or
Treasurer, or with respect to matters arising under Section 12, at its
address set forth at the beginning of this Agreement, to the attention
of its General Counsel, or at such other address, or to the attention
of such other officer, as the Company shall have furnished to you and
each such other holder in writing.
Any notice so addressed and sent by such registered or certified mail, overnight
air carrier or facsimile transmission shall be deemed to be given when so sent.
20. Effectiveness. This Agreement shall become a binding agreement
between you and the Company upon the execution and delivery hereof by you and
the Company.
21. Miscellaneous. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, personal
representatives, successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by any holder or holders at the time of the Notes or any part
thereof. This Agreement and the Notes collectively embody the entire agreement
and understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof. This Agreement and the
Notes shall be construed and enforced in accordance with and governed by the law
of the Commonwealth of Pennsylvania. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter and return one of the
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same to the Company, whereupon this letter shall become a binding agreement
between you and the Company as provided in Section 20.
Very truly yours,
FPA CORPORATION
-----------------------------------------
By: Benjamin D. Goldman, President
The foregoing Agreement is hereby
agreed to as of the date hereof.
- --------------------------------
Jeffrey P. Orleans
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THIS NOTE HAS BEEN ISSUED PURSUANT TO A NOTE PURCHASE AGREEMENT DATED AS OF
AUGUST 1, 1996 (THE "AGREEMENT"), BETWEEN FPA CORPORATION AND THE ORIGINAL
PURCHASER OF THE NOTE CONTAINING SUBSTANTIAL RESTRICTIONS ON TRANSFER AND
ASSIGNMENT. IT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
CANNOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM.
FPA CORPORATION
Variable Rate Note Due September 30, 2000
Bensalem, Pennsylvania
$2,000,000.00 , 1996
FOR VALUE RECEIVED, and intending to be legally bound hereby,
FPA CORPORATION, a Delaware corporation (hereinafter referred to as the
"Company") hereby promises to pay in lawful money of the United States to the
order of JEFFREY P. ORLEANS (hereinafter referred to as "Holder"), the principal
sum of TWO MILLION DOLLARS ($2,000,000), together with interest on the daily
outstanding principal balance from time to time at a variable rate equal to two
percent (2%) in excess of the "prime rate" as announced from time to time by
CoreStates Bank, N.A. (the "Bank"). Each change in the interest rate applicable
to this Note will take place on the same date as the change in the Bank's
announced prime rate of interest becomes effective. Interest shall be computed
on the basis of a 365/366 day year and the actual number of days elapsed.
Accrued interest shall be payable not later than each Extension Date with
respect to each Interest Target Date during the term of this Note until the
obligation of the Company with respect to payment hereunder shall be discharged.
To the extent not prohibited by law, if interest in respect of any Interest
Target Date shall remain unpaid on the Applicable Grace Date, then interest
shall thereafter accrue on such unpaid interest from the Applicable Grace Date
until such interest is paid at a rate equal to three and one-half percent (3.5%)
in excess of the "prime rate" announced from time to time by the Bank.
Principal shall be payable in equal quarterly installments of
$125,000 each not later than each Extension Date with respect to each VR
Principal Target Date, commencing December 31, 1996. The entire unpaid principal
balance, plus all accrued and unpaid interest and other sums payable hereunder,
shall be due and payable not later than the Extension Date with respect to the
<PAGE>
VR Principal Target Date of September 15, 2000. To the extent not prohibited by
law, if any principal payment due on any VR Principal Target Date shall remain
unpaid on the Applicable Grace Date, then interest shall thereafter accrue on
such unpaid principal payment until paid at a rate equal to three and one-half
percent (3.5%) in excess of the "prime rate" announced from time to time by the
Bank.
Payments of principal and interest shall be made in such coin
or currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debt by check mailed and addressed
to the registered holder hereof at the address shown in the registrar maintained
by the Company for such purpose, or, at the option of the holder hereof, in such
manner and at such other place in the United States of America the holder hereof
shall have designated to the Company in writing pursuant to the provisions of
Section 19 of the Agreement (as hereinafter defined).
Unless this Note has been executed by officers of the Company
thereunto duly authorized by manual signature, this Note shall not be entitled
to any benefit under the Agreement, or to be valid or obligatory for any
purpose.
This Note is the VR Note issued by the Company under that
certain Note Purchase Agreement (the "Agreement"), dated as of August 1, 1996,
between the Company and the original purchaser hereof.
Reference is hereby made to the Agreement for a statement of
the respective Events of Default, rights, limitations of rights, obligations,
duties and immunities thereunder of the Company and the Holders of this Note.
All terms used in this Note which are defined in the Agreement shall have the
meanings assigned to them in the Agreement.
This Note is subject to prepayment at the option of the
Company at any time on the terms and conditions and in the amounts as set forth
in the Agreement. In the event of prepayment of this Note in part only, a new
Note or Notes for the unredeemed portion hereof shall be issued in the name of
the holder hereof upon the cancellation hereof.
The Agreement permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the holders of the VR Notes under
the Agreement at any time by the Company with the consent of the holders of a
majority in aggregate principal amount of the VR Notes at the time outstanding.
The Agreement also contains provisions permitting the holders of specified
percentages in aggregate principal amount of the VR Notes at the time
outstanding, on behalf of the holders of all
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the VR Notes, to waive compliance by the Company with certain provisions of the
Agreement and certain past defaults under the Agreement and their consequences.
Any such consent or waiver by the holder of this Note shall be conclusive and
binding upon such holder and upon all future holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Note.
No reference herein to the Agreement and no provision of this
Note or of the Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal and interest on this
Note at the times, place and rate, and in the coin or currency, herein
prescribed.
Prior to due presentment for registration of transfer, the
Company, and any agent of the Company, may treat the Person in whose name this
Note is registered as the owner hereof for all purposes, whether or not this
Note be overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
This Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed under its corporate seal by the manual signatures, of its officers
thereunto duly authorized all on the date first written above.
FPA CORPORATION
By:_____________________________________________
President
Attest:
- ---------------------
Secretary
(SEAL)
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<PAGE>
Exhibit 4.9
______________________________________________
FPA CORPORATION
__________________________
$3,000,000
Convertible Subordinated
7% Note due January 1, 2002
__________________________
NOTE PURCHASE AGREEMENT
__________________________
Dated as of August 1, 1996
______________________________________________
<PAGE>
TABLE OF CONTENTS
Page
1. Authorization of Note........................................... 1
2. Issuance of Notes............................................... 2
3. Closing......................................................... 2
4. Conditions to Closing........................................... 2
4.1 Representations and Warranties......................... 2
4.2 Performance; No Default................................ 2
4.3 Compliance Certificate................................. 2
4.4 Proceedings and Documents.............................. 3
4.5 Subordination Agreement................................ 3
4.6 Registration Rights Agreement.......................... 3
5. Representations and Warranties, etc............................. 3
5.1 Organization, Qualification Standing, etc.............. 3
5.2 Authorization, Execution and Delivery.................. 4
5.3 Tax Returns and Payments............................... 4
5.4 Litigation, etc........................................ 4
5.5 Compliance with Other Instruments, etc................. 5
5.6 Governmental Consent................................... 5
5.7 Offer of Notes......................................... 5
5.8 Federal Reserve Regulations............................ 5
5.9 Investment Company Act................................. 6
5.10 Public Utility Holding Company Act..................... 6
5.11 Authorization of Sale.................................. 6
5.12 ERISA.................................................. 6
6. Representations and Warranties of Purchaser..................... 6
6.1 Investment Representations............................. 6
6.2 No Contrary Knowledge.................................. 7
7. Accounting, Financial Statements and Other Information.......... 7
8. Inspection...................................................... 8
9. Payment and Prepayment of Notes................................. 9
9.1 Optional and Required Prepayments...................... 9
9.2 Maturity; Surrender, etc............................... 9
10. Business and Financial Covenants................................ 9
10.1 Payment of Principal and Interest...................... 9
10.2 Maintenance of Office or Agency........................ 9
10.3 Corporate Existence.................................... 9
10.4 Payment of Taxes and Other Claims...................... 10
10.5 Maintenance of Properties; Insurance................... 10
10.6 Waiver of Covenants.................................... 11
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Page
10.7 Company May Consolidate, etc., Only on Certain Terms.... 11
10.8 Effect of Consolidation, etc............................ 12
11. Registration, Transfer and Substitution of Notes................. 12
11.1 Note Register; Ownership of Registered Notes............ 12
11.2 Transfer and Exchange of Notes.......................... 12
11.3 Replacement of Notes.................................... 12
12. Payments on Notes................................................ 13
12.1 Place of Payment........................................ 13
12.2 Home Office Payment..................................... 13
13. Events of Default: Acceleration.................................. 13
13.1 Events of Default....................................... 13
13.2 Remedies Upon Default................................... 15
14. Enforcement...................................................... 16
15. Definitions...................................................... 16
16. Expenses, etc.................................................... 21
17. Survival of Representations and Warranties....................... 21
18. Amendments and Waivers........................................... 21
19. Notices, etc..................................................... 22
20. Concerning Conversion of the CS Notes............................ 23
20.1 Conversion Privilege.................................... 23
20.2 Manner of Exercise of Conversion Privilege.............. 23
20.3 Cash Adjustment Upon Conversion......................... 24
20.4 Adjustment of Conversion Price.......................... 24
20.5 Effect of Reclassification, Consolidations,
Mergers or Sales on Conversion Privilege................ 27
20.6 Taxes on Conversions.................................... 28
20.7 Company to Reserve Capital Stock........................ 29
20.8 Company to Give Notice of Certain Events................ 29
20.9 Effectiveness of Section 20............................. 30
21. Effectiveness.................................................... 30
22. Miscellaneous.................................................... 30
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<PAGE>
Exhibits
I. Form of $3,000,000 Convertible Subordinated 7%
Note due January 1, 2002
II. Form of Supplemental Subordination Agreement between
Jeffrey P. Orleans and CoreStates Bank, N.A.,
acknowledged and consented to by FPA Corporation
III. Form of Piggyback Registration Rights Agreement between
FPA Corporation and Jeffrey P. Orleans
IV. Form of Conversion Notice
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<PAGE>
FPA CORPORATION
One Greenwood Square
3333 West Street Road
Suite 101
Bensalem, PA 19020
_____________________________________
Note Purchase Agreement
_____________________________________
$3,000,000 Convertible Subordinated 7% Note
due January 1, 2002
As of August 1, 1996
Jeffrey P. Orleans
Chairman and Chief Executive Officer
FPA Corporation
One Greenwood Square
3333 West Street Road
Suite 101
Bensalem, PA 19020
Dear Sir:
FPA Corporation, a Delaware corporation (the "Company"), agrees with
you as follows:
1. Authorization of Note. The Company will authorize the issue and
delivery of its $3,000,000 Convertible Subordinated 7% Note, due January 1, 2002
(the "CS Note", the "Note" or the "Notes"), such term to include any such Notes
issued in substitution therefor pursuant to Section 11 hereof). The CS Note
shall be substantially in the form of Exhibit I hereto, with such changes
therein, if any, as may be approved by you and the Company. Certain capitalized
terms used in this Agreement are defined in Section 15. References to an
"Exhibit" are, unless otherwise specified, to one of the Exhibits attached to
this Agreement.
<PAGE>
2. Issuance of Notes. In exchange for the delivery by you for
cancellation of a note or notes of the Company in the aggregate principal amount
of $3,000,000 (the "Note Consideration"), the Company will issue and deliver to
you and, subject to the terms and conditions of this Agreement, you will acquire
from the Company, the CS Note.
3. Closing. The delivery and issue of CS Note by the Company to you
shall take place at the offices of the Company, at the address noted above, at
10:00 a.m., local time, August 19, 1996 or on such other business day as may be
agreed upon by the Company and you, but in no event later than August 31, 1996
(the "Closing"). Subject to and upon the terms and conditions set forth herein,
at the Closing the Company will deliver to you the CS Note, dated the date of
such Closing and registered in your name, against delivery by you to the Company
of the Note Consideration in the amount specified in Section 2 hereof. If, at
the Closing, the Company shall fail to tender the CS Note to you as provided
above in this Section 3, or any of the conditions to be performed by the Company
specified in Section 4 shall not have been fulfilled to your reasonable
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. Conditions to Closing. (A) Your obligation to deliver the Note
Consideration for the CS Note to be issued and delivered to you at the Closing,
and to complete the Closing, is subject to the fulfillment to your reasonable
satisfaction, prior to or at such Closing, of the following conditions:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be correct in all
material respects when made and at the time of such Closing.
4.2 Performance; No Default. The Company shall have performed
and complied in all material respects with all agreements and conditions
contained in this Agreement required to be performed or complied with by it
prior to or at such Closing and at the time of such Closing no Event of Default
shall have occurred and be continuing.
4.3 Compliance Certificate. The Company shall have delivered
to you or your Counsel an Officers' Certificate, dated the date of such Closing,
certifying that the conditions specified in Sections 4.1 and 4.2 have been
fulfilled.
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<PAGE>
4.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory to you, and you shall have received all such counterpart
originals or certified or other copies of such documents as you or they may
reasonably request.
4.5 Subordination Agreement. The parties thereto shall have
executed and delivered the Supplemental Subordination Agreement.
4.6 Registration Rights Agreement. The parties thereto shall have
executed and delivered the Registration Rights Agreement.
(B) The Company's obligation to deliver the CS Note at the
Closing and to complete the Closing is subject to your performance and
compliance in all material respects with the agreements and conditions contained
in this Agreement required to be performed by you prior to or at such Closing
and is also subject to the condition set forth in Section 4.5 hereof.
5. Representations and Warranties, etc. The Company represents and
warrants that:
5.1 Organization, Qualification Standing, etc. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted, and the
Company has all requisite corporate power and authority to enter into this
Agreement, to issue and deliver the CS Note in exchange for the Note
Consideration, and to carry out the terms of this Agreement, the CS Note, and
the Registration Rights Agreement. Each of the Company and its Subsidiaries is
duly qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction (other than the jurisdiction of its incorporation)
in which the nature of its activities or the character of the properties it
owns, leases or operates makes such qualification necessary and in which the
failure so to qualify would have a materially adverse effect on the business of
the Company and its Subsidiaries taken as a whole. The current capitalization of
the Company is as follows:
PreferredStock, par value $1.00 per share; 500,000 shares
authorized; 100,000 shares of Series C Preferred
Stock authorized.
Common Stock, par value $.10 per share;
20,000,000 shares authorized;
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<PAGE>
12,698,131 shares issued; 11,695,618 shares
outstanding and 1,002,513 held as
treasury stock.
5.2 Authorization, Execution and Delivery. The execution and
delivery of this Agreement, the CS Note, and the Registration Rights Agreement
by the Company has been duly authorized by all necessary corporate action on
behalf of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement, the CS Note, and the
transactions contemplated hereby and thereby and this Agreement is (and, upon
issuance, each of the CS Note will be) enforceable against the Company in
accordance with its terms except as limited by bankruptcy, insolvency,
reorganization and similar laws affecting creditors generally and by equitable
principles of general applicability. The shares of the Company's Common Stock
issuable upon conversion of the CS Note (the "Conversion Shares") have been duly
authorized and reserved for issuance and, upon issuance by the Company in
accordance with the provisions of the CS Note, will have been validly issued,
fully paid, and non-assessable shares of Common Stock of the Company.
5.3 Tax Returns and Payments. The Company and each of its
Subsidiaries have filed all tax returns required by law to be filed by them and
have paid all taxes, assessments and other governmental charges levied upon them
and any of their respective properties, assets, income or franchises which are
due and payable, other than those presently payable without penalty or interest.
The charges, accruals and reserves on the books of the Company and set forth on
the regularly-prepared balance sheets of the Company in respect of Federal and
state income and business and occupation taxes for all fiscal periods are
adequate in the opinion of the Company, and the Company knows, after making due
inquiry and reasonable investigation, of no unpaid assessment for additional
Federal or state income or business and occupation taxes for any period or any
basis for any such assessment for which adequate provision has not been made in
its accounts or in such balance sheet.
5.4 Litigation, etc. Except as described in the Company's 1995
Report on Form 10-K or as set forth on Schedule 5.4 hereto, there is no action,
investigation or proceeding pending or threatened (or any basis therefor known
to the Company) which questions the validity of this Agreement or the CS Note or
any action taken or to be taken pursuant to this Agreement or the CS Note, or
which might result, either in any case or in the aggregate, in any material
adverse change in the business, operations, affairs, condition, properties or
assets of the Company and its Subsidiaries taken as a whole or in any material
liability on the part of the Company and such Subsidiaries taken as a whole.
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<PAGE>
5.5 Compliance with Other Instruments, etc. Except as set forth on
Schedule 5.5 hereto, (i) neither the Company nor any of its Subsidiaries is in
violation of any term of its certificate or articles of incorporation or
by-laws, (ii) neither the Company nor any of its Subsidiaries is in material
violation of any term of any material agreement or instrument respecting
indebtedness for borrowed money to which it is a party or by which it is bound,
and (iii) neither the Company nor any of its Subsidiaries is in violation of any
term of any applicable law, statute, ordinance, license, franchise, rule or
regulation of any governmental authority or any term of any applicable order,
judgment or decree of any court, arbitrator or governmental authority
(including, without limitation, any law, ordinance, rule, regulation or order
relating to environmental or occupational health or safety standards and
controls, consumer protection or equal employment practices) applicable to the
Company or any Subsidiary, the consequences of which violation described in
(iii) above might have a material adverse effect on the business, operations,
affairs, condition, properties or assets of the Company and its Subsidiaries
taken as a whole; and the execution, delivery and performance of this Agreement,
the Notes and the Registration Rights Agreement will not result in any violation
of or be in conflict with or constitute a default under any term of any item
referred to in this Section 5.5 or result in the creation of (or impose any
obligation on the Company or any Subsidiary to create) any lien, pledge,
security interest or other encumbrance upon any of the properties or assets of
the Company or any Subsidiary pursuant to any such term.
5.6 Governmental Consent. No consent, approval or authorization of,
or declaration or filing with, any governmental authority on the part of the
Company or any Subsidiary is required for the valid execution, delivery or
performance of this Agreement, the CS Note and the Registration Rights
Agreement, or the continued conduct by the Company or any Subsidiary of its
businesses as now conducted or as proposed to be conducted as described in the
1995 Form 10-K.
5.7 Offer of Notes. The Company has not directly or indirectly
offered the CS Note or any part thereof for sale to, or solicited any offer to
buy, any of the same from, or otherwise approached or negotiated in respect
thereof with, anyone other than you.
5.8 Federal Reserve Regulations. Neither the Company nor any
Subsidiary will, directly or indirectly, use any of the proceeds of the issuance
of the CS Note for the purpose of purchasing or carrying any "margin security"
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System (12 C.F.R. 207, as amended), or otherwise take or permit
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<PAGE>
to be taken any action which would result in the issuance and delivery of the CS
Note or the carrying out of any of the other transactions contemplated hereby,
being violative of such Regulation G or of Regulation T (12 C.F.R. 220, as
amended) or of Regulation X (12 C.F.R. 224, as amended) or any other regulation
of such Board. To your knowledge, no Indebtedness being reduced or retired out
of the proceeds of the issuance of the CS Note was incurred for the purpose of
purchasing or carrying any "margin security" within the meaning of such
Regulation G, and the Company does not own and does not have any present
intention of acquiring any such margin security.
5.9 Investment Company Act. Neither the Company nor any Subsidiary
is an "investment company", or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
5.10 Public Utility Holding Company Act. Neither the Company nor any
Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
5.11 Authorization of Sale. The sale of the CS Note and compliance
by the Company with all of the provisions of this Agreement and the CS Note are
within the corporate powers of the Company and have been duly authorized by all
requisite corporate action on the part of the Company.
5.12 ERISA. The consummation of the transactions provided for in
this Agreement and compliance by the Company with the provisions hereof and of
the CS Note issued hereunder will not involve any prohibited transaction within
the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA") or
Section 4975 of the Internal Revenue Code. No "employee pension benefit plans,"
as defined in ERISA ("Plans"), maintained by the Company or any Person which is
under common control with the Company within the meaning of Section 4001(b) of
ERISA, nor any trusts created thereunder, have incurred any "accumulated funding
deficiency" as defined in Section 302 of ERISA.
6. Representations and Warranties of Purchaser. You hereby represent
and warrant to the Company as follows:
6.1 Investment Representations. You acknowledge that neither the CS
Note nor the Conversion Shares have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and that the Notes are being issued to
you and, if the CS Note is converted in whole or any part, the Conversion Shares
will be issued to you, pursuant to an exemption from registration contained in
the Securities Act based in part upon your representations and covenants
-6-
<PAGE>
contained in this section. You are acquiring the CS Note and any Conversion
Shares solely for your own account and with no intention of distributing or
reselling said securities or any part thereof, or interest therein, in any
transaction which would be in violation of the securities laws of the United
States or any state thereof. You are an "accredited investor" (as such term is
defined in Rule 501 of Regulation D under the Securities Act). You acknowledge
and agree that (i) the CS Note and the Conversion Shares are subject to
limitations on transferability under the Securities Act and applicable state
securities laws, (ii) except or set forth in the Registration Rights Agreement,
the Company has no obligation to effect registration of the CS Note or the
Conversion Shares under the Securities Act or any applicable state securities
laws or otherwise to comply with any requirements necessary for transfer or
assignment of the CS Note or the Conversion Shares to be exempt from such
registration, and (iii) no transfer of the CS Note or the Conversion Shares
shall be effected unless an Opinion of Counsel acceptable to the Company shall
be delivered to the Company to the effect that such contemplated transfer may be
effected without registration under the Securities Act and any applicable state
securities laws.
6.2 No Contrary Knowledge. You are the Chief Executive Officer of
the Company and have no knowledge that any of the representations and warranties
of the Company set forth in Section 5 hereof are not correct.
7. Accounting, Financial Statements and Other Information. The Company
will maintain and cause its Subsidiaries to maintain, a system of accounting
established and administered in accordance with generally accepted accounting
principles, and will set aside on its books, and will cause each of its
Subsidiaries to set aside on its books, all such proper reserves as shall be
required by generally accepted accounting principles. At any time the Company is
not required to file reports with the Commission pursuant to Section 13 of the
Exchange Act, the Company will deliver to you, so long as you shall be the
holder of the CS Note or the Conversion Shares:
(a) within 60 days after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company,
consolidated balance sheets of the Company and its Subsidiaries as at
the end of such period and the related consolidated statements of
income, stockholders' equity and cash flows of the Company and its
Subsidiaries for such period and (in the case of the second and third
quarterly periods) for the period from the beginning of the current
fiscal year to the end of such quarterly period, setting forth in each
case in comparative form the consolidated figures for the corresponding
periods of the previous fiscal year (except for the comparative balance
sheet which is as of the end of the immediately preceding fiscal year),
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<PAGE>
all in reasonable detail and certified as complete by a principal
financial officer of the Company; it being understood that delivery to
Purchaser of a copy of the Form 10-Q for the respective fiscal period
as filed with the Commission shall fulfill the obligations of the
Company with respect to this subdivision (a);
(b) within 120 days after the end of each fiscal year of the
Company, consolidated balance sheets of the Company and its
Subsidiaries as at the end of such year and the related consolidated
statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal year, setting forth in
each case in comparative form the consolidated figures for the previous
fiscal year, all in reasonable detail and accompanied by a report
thereon of Price Waterhouse or other independent certified public
accountants of recognized national standing selected by the Company, so
long as you or your nominee shall be the holder of any of the Notes,
and to the Other Purchasers; it being understood that delivery to the
Purchaser of a copy of the Company's Form 10-K as filed with the
Commission respecting such fiscal year shall fulfill the obligations of
the Company with respect to this subdivision (b);
(c) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available generally by the Company to its public security holders,
if any, of all regular and periodic reports and all registration
statements and prospectuses, if any, filed by the Company or any
Subsidiary with any securities exchange or with the Commission or any
governmental authority succeeding to any of its functions; and
(d) with reasonable promptness, such other information and
data with respect to the Company or any of its Subsidiaries as from
time to time may be reasonably requested.
8. Inspection. The Company will permit any authorized representatives
designated by the holders of a majority in aggregate principal amount
outstanding of the CS Note, without expense to the Company, to visit and inspect
any of the properties of the Company or any of its Subsidiaries, including its
and their books of account, and to make copies and take extracts therefrom, and
to discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants, all at such reasonable times during
regular business hours and upon reasonable notice and as often as may be
reasonably requested.
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<PAGE>
9. Payment and Prepayment of Notes.
9.1 Optional and Required Prepayments. The Company may, at its
option, upon not less than 30 days prior written notice to you, prepay at any
time all, or from time to time any part of, the CS Note, without premium, at a
price equal to the principal amount to be so prepaid; provided, however, for
purposes of this Section 9.1, any prepayment of less than all of the outstanding
CS Notes shall be deemed to be applied first to the payment of accrued but
unpaid interest and then to the payment of the installments of principal in the
order in which such installments are due.
9.2 Maturity; Surrender, etc. In the case of each prepayment, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest, as aforesaid, interest on such principal amount
shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to
the Company and cancelled and shall not be reissued, and no Note shall be issued
in lieu of any prepaid principal amount of any Note.
10. Business and Financial Covenants. The Company covenants that from
the date of this Agreement through the Closing and thereafter so long as any of
the Notes are outstanding:
10.1 Payment of Principal and Interest. The Company will duly and
punctually pay the principal of and interest on the CS Note in accordance with
the terms of the CS Note and this Agreement. Interest on the CS Note may be paid
by mailing checks for such interest payable to or upon the written order of the
Person entitled thereto, at the address of such Person as it appears on the Note
Register.
10.2 Maintenance of Office or Agency. The Company will maintain in
the Commonwealth of Pennsylvania, an office or agency where CS Notes may be
presented or surrendered for payment, where CS Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Agreement may be served. The
Company will give prompt written notice to each holder of any change in the
location of such office or agency. The initial office maintained by the Company
for such purpose shall be the executive offices of the Company set forth on page
1 hereof.
10.3 Corporate Existence. The Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and that of each Material Subsidiary and the rights (charter and
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<PAGE>
statutory) and franchises of the Company and its Material Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right or franchise if the Board of Directors shall determine, before or
following the termination thereof, that the preservation thereof is no longer
desirable in the conduct of the business of the Company or any Material
Subsidiary or that the loss thereof is not disadvantageous in any material
respect to the holders of the Notes.
10.4 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Material Subsidiary or upon the income, profits
or property of the Company or any Material Subsidiary, and (2) all lawful claims
or indebtedness for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or any Material Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and the Company shall have set aside on its books
adequate reserves, if appropriate, with respect thereto (segregated to the
extent required by generally accepted accounting principles), and failure to pay
is not prejudicial in any material respect to the holders of the CS Notes.
10.5 Maintenance of Properties; Insurance. The Company will cause
all properties used or useful in the conduct of its business or the business of
the Company or any Material Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 10.5 shall prevent the Company from discontinuing the
operation or maintenance of any of such properties, or disposing of any of them.
The Company will insure and keep insured, and will cause each
Material Subsidiary to insure and keep insured, with reputable insurance
companies, so much of their respective properties, to such an extent and against
such risks (including fire), as companies engaged in similar businesses
customarily insure properties of a similar character; or, in lieu thereof, in
the case of itself or of any one or more of its Material Subsidiaries, the
Company will maintain or cause to be maintained a system or systems of
self-insurance which will accord with the approved practices of companies
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<PAGE>
owning or operating properties of similar character and maintaining such
systems, and, in such cases of self-insurance, will maintain or cause to be
maintained an insurance reserve or reserves in adequate amounts.
10.6 Waiver of Covenants. The Company may omit in any particular
instance to comply with any covenant or condition set forth in Sections 10.2
through and including Section 10.7 hereof with respect to the CS Notes, if
before or after the time for such compliance, the holders of a majority in
aggregate principal amount of the CS Notes outstanding, as the case may be,
shall either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company in
respect of such covenant or condition shall remain in full force and effect.
10.7 Company May Consolidate, etc., Only on Certain Terms. The
Company shall not consolidate with or merge into any other corporation or convey
or transfer its properties and assets substantially as an entirety to any
Person, unless:
(1) either the Company shall be the continuing corporation,
or the corporation (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person
which acquires by conveyance or transfer the properties and assets
of the Company substantially as an entirety shall be a corporation
organized and existing under the laws of the United States of
America or any State thereof or the District of Columbia and shall
expressly assume, by an agreement supplemental hereto, the due and
punctual payment of the principal of and interest on all the Notes
and the performance of every covenant of this Agreement and the
Notes on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no
Event of Default which has not been waived shall have occurred and
be continuing; and
(3) the Company has delivered to the holder an Officers'
Certificate and an Opinion of Counsel, each stating (the Opinion of
Counsel to rely on the Officer's Certificate for factual matters)
that such consolidation, merger, conveyance or transfer and such
supplemental agreement comply with this Section 10.7 and that all
conditions precedent herein provided for relating to such
transaction have been complied with.
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10.8 Effect of Consolidation, etc. Upon any consolidation or merger
or any conveyance or transfer of the properties and assets of the Company
substantially as an entirety in accordance with Section 10.7, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Agreement with the same effect as if such successor corporation had been
named as the Company herein, and thereafter the predecessor corporation shall be
relieved of all obligations and covenants under the Agreement and the CS Notes
and in the event of such conveyance or transfer any such predecessor corporation
may be dissolved and liquidated.
11. Registration, Transfer and Substitution of Notes.
11.1 Note Register; Ownership of Registered Notes. The Company will
keep at the office of its legal department a register (the "Note Register") in
which the Company will provide for the registration of CS Notes and the
registration of transfers of CS Notes. The Company may treat the Person in whose
name any CS Note is registered on such Note Register as the owner thereof for
the purpose of receiving payment of the principal of and interest on such Note
and for all other purposes, whether or not such Note shall be overdue, and the
Company shall not be affected by any notice to the contrary. All references in
this Agreement to a "holder" of any CS Note shall mean the Person in whose name
such CS Note is at the time registered on such register.
11.2 Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for exchange to the Company at the office of its
legal department, the Company at its expense will execute and deliver in
exchange therefor a new Note or Notes of the same class in denominations of at
least $1,000,000 (except one Note may be issued in a lesser principal amount if
the unpaid principal amount of the surrendered Note is not evenly divisible by,
or is less than, $1,000,000), as requested by the holder or transferee, which
aggregate the unpaid principal amount of such surrendered Note. Each such new
Note shall be dated so that there will be no loss of interest on such
surrendered Note and otherwise of like tenor, and shall be registered in the
name or names of such Person or Persons as such holder or transferee may
request. Any Note in lieu of which any such new Note has been so executed and
delivered shall not be deemed to be an outstanding Note for any purpose of this
Agreement.
11.3 Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft or destruction of any Note, upon
delivery of an
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indemnity bond in such reasonable amount as the Company may determine (or, in
the case of any Note held by you or another institutional holder or you or its
nominee, of an indemnity agreement from you or such other holder reasonably
satisfactory to the Company), or, in the case of any such mutilation, upon the
surrender of such Note for cancellation to the Company at its principal office,
the Company at its expense will execute and deliver, in lieu thereof, a new Note
of the same class of like tenor, dated so that there will be no loss of interest
on such lost, stolen, destroyed or mutilated Note. Any Note in lieu of which any
such new Note of the same class has been so executed and delivered by the
Company shall not be deemed to be an outstanding Note for any purpose of this
Agreement.
12. Payments on Notes.
12.1 Place of Payment. Payments of principal, and interest becoming
due and payable on the Notes shall be made at the principal office of the
Company in Bensalem, Bucks County, Commonwealth of Pennsylvania, unless the
Company, by written notice to each holder of any Notes, shall designate another
address as its principal office in the Commonwealth of Pennsylvania, as such
place of payment, in which case such principal office shall thereafter be such
place of payment.
12.2 Home Office Payment. So long as you or your nominee shall be
the holder of any Note, and notwithstanding anything contained in Section 12.1
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, and interest by the method and at the address specified
for such purpose in the Note Register, or by such other method or at such other
address as the holder shall have from, time to time specified to the Company in
writing for such purpose, without the presentation or surrender of such Note or
the making of any notation thereon, except that any Note paid or prepaid in full
shall be surrendered to the Company at its principal office or at the place of
payment maintained by the Company pursuant to Section 12.1 for cancellation.
Prior to any sale or other disposition of any Note held by you or your nominee
you will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to Section
11.2.
13. Events of Default: Acceleration.
13.1 Events of Default. "Event of Default," wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
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(a) default in the payment of any interest upon any Note on the
Extension Date, and continuance of such default for a period of 10 days after
notice of default has been provided by any holder of outstanding Notes; or
(b) default in the payment of any installment of the principal
of any Note on the Extension Date; or
(c) default in the performance, or breach, of any covenant of
the Company in this Agreement (other than a covenant a default in the
performance of which or the breach of which is elsewhere in this Section 13.1
specifically addressed) or the Notes and continuance of such default or breach
for a period of 60 days after there has been given to the Company a written
notice by the holder of any of the Notes specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder and, if such default or breach is curable, such additional
period of time during which the Company shall be endeavoring diligently to cure
the same; or
(d) if an event of default, as defined in any mortgage,
indenture or instrument under which there may be issued, or by which there may
be secured or evidenced, any Indebtedness of the Company or of any Subsidiary in
excess of $1,000,000, whether such Indebtedness now exists or shall hereafter be
created, shall happen and shall result in such Indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, unless (i) such acceleration shall have been rescinded
or annulled pursuant to the terms of such instrument or (ii) such Indebtedness
shall have been discharged within a period of 30 days after such acceleration;
provided, however, the term "Indebtedness," as used in this Section 13.1(e),
shall not include Non-Recourse Indebtedness; or
(e) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Material Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company or such Material Subsidiary under the Bankruptcy Law or any other
applicable Federal or State law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any Material
Subsidiary or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
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(f) the institution by the Company or any Material Subsidiary
of proceedings to be adjudicated a bankrupt or insolvent, or the consent by any
of the foregoing to the institution of bankruptcy or insolvency proceedings
against it, or the filing by any of the foregoing of a petition or answer or
consent seeking reorganization or relief under the Bankruptcy Law or any other
applicable Federal or State law, or the consent by any of the foregoing to the
filing of such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator or other similar official of any of the
foregoing or of any substantial part of its property, or the making by any of
the foregoing of an assignment for the benefit of creditors, or the admission by
any of the foregoing in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by any of the foregoing in
furtherance of any such action.
13.2 Remedies Upon Default. Upon the occurrence of any Event of
Default described in subdivisions (e) and (f) of Section 13.1 the unpaid
principal amount of and accrued interest on the Notes shall automatically become
due and payable. Upon the occurrence, and during the continuance, of any other
Event of Default, any holder or holders (other than the Company or any of its
Subsidiaries) of a majority in aggregate principal amount of any CS Notes at the
time outstanding may at any time (unless all defaults shall theretofore have
been remedied) at its or their option, by written notice or notices to the
Company, declare all the CS Notes to be due and payable, whereupon the same
shall forthwith mature and become due and payable, together with interest
accrued thereon, in either case without presentment, demand, protest or notice,
all of which are hereby waived provided that during the continuance of an Event
of Default described in subdivision (a) or (b) of Section 13.1, then,
irrespective of whether the holder or holders of a majority in aggregate
principal amount of the CS Notes then outstanding shall have declared all the CS
Notes to be due and payable pursuant to this Section 13.2, any holder of the
Notes may, at its option, by notice in writing to the Company, declare the Notes
then held by such holder to be due and payable, whereupon the Notes then held by
such holder shall forthwith mature and become due and payable, together with
interest accrued thereon, without presentment, demand, protest or notice, all of
which are hereby waived.
At any time after the principal of, and interest accrued on,
all the Notes are declared due and payable, the holders of not less than a
majority in aggregate principal amount of the Notes then outstanding (excluding
any Notes owned by the Company or any of its Subsidiaries), by written notice to
the Company may rescind and annul any such declaration and its consequences if
(x) the Company has paid all overdue interest on such Notes, the principal of
any Notes which have become due otherwise than by reason of such declaration,
and interest on such overdue principal and (to the extent permitted by
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applicable law) any overdue interest in respect of such Notes at the rate of
interest provided in such Notes in respect of overdue interest, (y) all Events
of Default, other than non-payment of amounts which have become due solely by
reason of such declaration, and all conditions and events which constitute
Events of Default have been cured or waived, pursuant to Section 18, and (z) no
judgment or decree has been entered for the payment of any monies due or
foreclosure pursuant to the Notes or this Agreement; but no such rescission and
annulment shall extend to or affect any subsequent Event of Default or impair
any right consequent thereon.
14. Enforcement. In case any one or more Events of Default shall occur
and be continuing, the holder of any Note at the time outstanding may proceed to
protect and enforce the rights of such holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in such Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise. In case of a default
in the payment of any principal of, or interest on any Note, the Company will
pay to the holder thereof such further amount as shall be sufficient to cover
the cost and expenses of collection, including, without limitation, reasonable
attorneys' fees, expenses and disbursements. No course of dealing and no delay
on the part of any holder of any Note in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise prejudice such holder's rights,
powers or remedies. No right, power or remedy conferred by this Agreement or by
any Note upon any holder thereof shall be exclusive of any other right, power or
remedy referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise.
15. Definitions. As used herein the following terms have the following
respective meanings:
"Agreement" means this instrument as originally executed or as it
may from time to time be supplemented or amended.
"Applicable Grace Date" means the tenth calendar day following each
Interest Target Date and CS Principal Target Date.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or
State law for the relief of debtors.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
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"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Closing" has the meaning specified in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or any successor body perform the same or similar functions.
"Common Stock" or "common stock" means, when used with reference to
stock of the Company, the Common Stock of the Company presently authorized, par
value $.10 per share, and any other stock into which such presently authorized
stock may hereafter have been changed.
"Company" means the Person named as the "Company" in the first
paragraph of this Agreement and its assigns until a successor corporation shall
have become such pursuant to the applicable provisions of this Agreement, and
thereafter "Company" shall mean such successor corporation.
"Conversion Price" means, initially, $1.50 per share, subject to
adjustment from time to time as and to the extent set forth in Section 20
hereof.
"Conversion Shares" have the meaning specified in Section 5.2.
"CS Principal Target Date" means the first day of each calendar
year, commencing January 1, 2000.
"CS Note" has the meaning specified in Section 1.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Date of Conversion" means the date on which any CS Note shall be
surrendered for conversion and notice given as set forth in Section 20 hereof.
"Event of Default" has the meaning specified in Section 13.1.
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"Extension Date" means the one hundred, eightieth (180th) day
following each Interest Target Date and CS Principal Target Date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exhibit" has the meaning specified in Section 1.
"Holder" or "holder' means a Person in whose name a Note is
registered.
"Indebtedness" means all indebtedness of the Company, a corporate
Subsidiary or, to the extent set forth below, a partnership or joint venture
whether outstanding on the date of the Agreement or thereafter created or
incurred (a) for money borrowed, whether evidenced by bonds, notes or other
written obligations or debentures or evidenced by a loan agreement or an
indenture or similar agreement; (b) for money borrowed by others and assumed or
guaranteed, directly or indirectly, by the Company, a corporate Subsidiary or a
partnership or joint venture; (c) for deferrals, renewals, extensions or
refundings of, and amendments to, any such Indebtedness; and (d) for purchase
money obligations and obligations to public authorities as a result of their
involvement in mortgage financing. Indebtedness of a partnership or joint
venture shall be included, without duplication, for this purpose only to the
extent of the Pro Rata Interest of the Company or a Subsidiary (other than such
partnership or joint venture) therein.
"Interest Target Date" means the last day of each calendar quarter,
commencing September 30, 1996.
"Material Subsidiary" has the meaning specified in the definition of
Subsidiary.
"Maturity" when used with respect to any Note means the date on
which all or a portion of the principal amount of such Note becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Non-Recourse Indebtedness" means Indebtedness secured by a lien on
property to the extent that the liability for such Indebtedness is limited to
the security of the property without liability of the Company or any Subsidiary
for any deficiency.
"Note Consideration" has the meaning specified in Section 2.
"Notes" has the meaning specified in Section 1.
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"Note Register" has the meaning specified in Section 11.1.
"Notice of Default" has the meaning specified in Section 13.1(d).
"Officer's Certificate" means a certificate signed by the Chairman
of the Board, the President or any Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may
(except as otherwise expressly provided in this Agreement) be counsel for the
Company or who may be other counsel acceptable to (i) in the case of Section
10.7, the holders of a majority in principal amount of Notes then outstanding,
and (ii) in the case of Section 6.1, the Company.
"Outstanding" or "outstanding" when used with respect to Notes
means, as of the date of determination, all Notes theretofore delivered under
this Agreement, except:
(i) Notes theretofore cancelled by the Company or delivered to
the Company for cancellation;
(ii) Notes or portions thereof for the payment or redemption of
which money in the necessary amount has been theretofore segregated
in trust by the Company for the Holders of such Notes; provided
that, if such Notes or portions thereof are to be prepaid, notice of
such prepayment has been duly given pursuant to this Agreement; and
(iii) Notes in exchange for or in lieu of which other Notes have
been issued and delivered pursuant to this Agreement;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver or taken any other action
hereunder, Notes owned by the Company or any Subsidiary shall be disregarded and
deemed not to be Outstanding. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Company or any subsidiary.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Plans" has the meaning specified in Section 5.12.
"Preferred Stock" or "preferred stock" as applied to any
corporation, means shares of such corporation which shall be entitled to
preference or priority over any other shares of such corporation in respect of
either the payment of dividends or the distribution of assets upon liquidation.
"Registered Form" has the meaning specified in Section 11.1.
"Registration Rights Agreement" means that certain Piggyback
Registration Rights Agreement between FPA Corporation and Jeffrey P. Orleans in
the form annexed hereto as Exhibit III.
"Securities Act" has the meaning specified in Section 6.2.
"Stated Maturity" when used with respect to any Note or any
installment of interest thereon means the date specified in such Note as the
fixed date on which all or a portion of the principal amount of such Note or
such installment of interest is payable.
"Supplemental Subordination Agreement" means that certain
Supplemental Subordination Agreement between Jeffrey P. Orleans and CoreStates
Bank, N.A. in form annexed hereto as Exhibit II.
"Subsidiary" means (i) any corporation of which at least a majority
in interest of the outstanding stock having by the terms thereof voting power
under ordinary circumstances to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency, is at the time, directly or indirectly,
owned or controlled by the Company, or by one or more other corporations a
majority in interest of such stock of which is similarly owned or controlled, or
by the Company and one or more other corporations a majority in interest of such
stock of which is similarly owned or controlled, and (ii) any Person (other than
a corporation) in which the Company or any Subsidiary, directly or indirectly,
has an interest entitling the Company or any Subsidiary to receive at least 50%
of such person's income or an interest in at least 50% of such person's capital,
or both. "Material Subsidiary," as of the date of determination thereof, means
any Subsidiary having total assets on such date in excess of $15,000,000;
provided, however, that Material Subsidiary shall include a Subsidiary if the
Company or any Material Subsidiary guarantees, assumes or otherwise is or
becomes liable for Indebtedness of such Subsidiary in excess of $15,000,000.
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16. Expenses, etc. The Company will pay all its expenses in connection
with the consummation of the transactions under the Agreement and in connection
with any amendments or waivers (whether or not the same become effective) under
or in respect of this Agreement or the Notes, including, without limitation:
(a) the cost and expenses of preparing and reproducing this
Agreement, the Notes, of furnishing all opinions by counsel for the
Company and all certificates on behalf of the Company, and of the
Company's performance of and compliance with all agreements and
conditions contained herein on its part to be performed or complied
with;
(b) the cost of delivering to your principal office, insured to
your reasonable satisfaction, the Notes hereunder and any Notes
delivered to you upon any substitution of Notes and of your
delivering any Notes, insured to your reasonable satisfaction, upon
any such substitution; and
(c) the reasonable out-of-pocket expenses incurred by you,
exclusive of counsel fees, in connection with such transactions and
any such amendments or waivers.
The Company also will pay, and will save you and each holder of any Notes
harmless from, all claims in respect of the fees, if any, of brokers and finders
and any and all liabilities with respect to any taxes (including interest and
penalties) (other than your taxes on income, personal property or revenues)
which may be payable in respect of the execution and delivery of this Agreement,
the issue of the Notes and any amendment or waiver under or in respect of this
Agreement or the Notes.
17. Survival of Representations and Warranties. All representations and
warranties contained in this Agreement or made in writing by or on behalf of the
Company or you in connection with the transactions contemplated by this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by the Company or you or on its or your behalf,
the acquisition of the Notes by you under this Agreement and any disposition or
payment of the Notes. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
or in connection with the transactions contemplated by this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
18. Amendments and Waivers. Any term of this Agreement or of the Notes
may be amended and the observance of any term of this Agreement or of the Notes
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of at least a majority in principal amount of the
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Notes at the time outstanding (excluding any Notes directly or indirectly owned
by the Company or any of its Subsidiaries), provided, however, that, without the
prior written consent of the holders of all of the Notes at the time outstanding
(excluding any Notes owned by the Company or any of its Subsidiaries), no such
amendment or waiver shall
(a) change the fixed maturity or the principal amount of, or
reduce the rate or extend payment of interest on, or change the amount
or the time of payment of any principal payable on any prepayment of,
any Note,
(b) reduce the aforesaid percentage of the principal amount of the
Notes the holders of which are required to consent to any such amendment
or waiver,
(c) increase the percentage of the principal amount of the Notes
the holders of which may declare the Notes to be due and payable as
provided in Section 13,
(d) decrease the percentage of the principal amount of the Notes
the holders of which may rescind and annul any such declaration as
provided in Section 13.2, or
(e) amend the terms and conditions of this Section 18 or Section
10.6 hereof.
Any amendment or waiver effected in accordance with this Section 18 shall be
binding upon each holder of any Note at the time outstanding, each future holder
of any Note and the Company.
19. Notices, etc. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be mailed by registered or certified mail, return receipt requested, or
delivered by nationally recognized overnight air carrier that requires a receipt
against delivery or facsimile transmission addressed,
(a) if to you, at the address set forth in the Note Register
or at such other address as you shall have furnished to the Company in
writing, except as otherwise provided in Section 12.2 with respect to
payments on Notes held by you or your nominee, or
(b) if to any other holder of any Note, at such address as such
other holder shall have furnished to the Company in writing, or, until
any such other holder so furnishes to the Company an address, then to
and at the address of the last holder of such Note who has furnished an
address to the Company as set forth in the Note Register, or
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(c) if to the Company, at its address set forth at the beginning of
this Agreement, to the attention of its President or Treasurer, or with
respect to matters arising under Section 12, at its address set forth
at the beginning of this Agreement, to the attention of its General
Counsel, or at such other address, or to the attention of such other
officer, as the Company shall have furnished to you and each such other
holder in writing.
Any notice so addressed and sent by such registered or certified mail, overnight
air carrier or facsimile transmission shall be deemed to be given when so sent.
20. Concerning Conversion of the CS Notes.
20.1 Conversion Privilege. Subject to and upon compliance with the
provisions of this Section 20, including, without limitation, the conditions on
effectiveness of this Section 20 set forth in Section 20.9 hereof, at the option
of the Holder, the unpaid principal amount of any CS Note or any portion of the
unpaid principal amount thereof which is $1,000,000 or an integral multiple
thereof, may, at any time on or before the close of business on December 31,
2001, or in case the Company shall have given notice of its intent to optionally
prepay such CS Note or some portion thereof prior to such date then, with
respect to such portion to be so prepaid, at any time prior to the date
scheduled for prepayment, be converted at the principal amount thereof into
shares of Common Stock of the Company, as said shares shall be constituted at
the Date of Conversion, at the Conversion Price in effect at the Date of
Conversion.
20.2 Manner of Exercise of Conversion Privilege. In order to
exercise the conversion privilege, the Holder of any CS Note to be converted
shall surrender such CS Note to the Company at its office located at the address
set forth on the first page hereof or at such other office or agency of the
Company as may be maintained for such purpose, together with the conversion
notice in the form set forth on Exhibit IV hereto (or separate written notice)
duly executed, and, if so required by the Company, accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the Holder or by
his duly authorized attorney in writing. No adjustment shall be made for
interest accrued on any CS Note that shall be converted or for dividends on any
shares of Common Stock of the Company that shall be delivered upon the
conversion of such CS Note. As promptly as practicable after the surrender of
any such CS Note for conversion as aforesaid, the Company shall deliver at said
office or agency to such Holder, or on his written order, a certificate or
certificates for the number of full shares deliverable upon the conversion of
such CS Note or portion thereof and a check or cash in respect of any fraction
of a share of Common Stock otherwise deliverable upon such conversion, all as
provided in this Section 20, together with a CS Note in principal amount
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equal to the unconverted portion, if any, of the CS Note so converted. Such
conversion shall be deemed to have been effected on the date on which such
notice shall have been received at said office or agency and such CS Note shall
have been surrendered, and any required payment made, as aforesaid, and the
Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock shall be deliverable upon such conversion shall be deemed
to have become on said date the Holder or Holders of record of the shares
represented thereby; provided, however, that any such conversion on any date
when the stock transfer books of the Company shall be closed shall constitute
the Person or Persons in whose name or names the certificates are to be
delivered as the record Holder or Holders thereof for all purposes on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Price in effect on the date of such conversion.
20.3 Cash Adjustment Upon Conversion. The Company shall not be
required to deliver fractions of shares of Common Stock upon conversion of a CS
Note. If more than one CS Note shall be surrendered for conversion at one time
by the same Holder, the number of full shares which shall be deliverable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the CS Notes so surrendered. If any fractional interest in a share of
Common Stock of the Company would be deliverable upon the conversion of any CS
Note or CS Notes, the Company shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the amount of the principal amount
tendered for conversion which could not be applied to a full share of Common
Stock.
20.4 Adjustment of Conversion Price. The Conversion Price shall be
adjusted from time to time as follows:
(a) In case the Company shall, at any time or from time to time
while any of the CS Notes are outstanding, (i) pay a dividend on its
Common Stock in shares of Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding Common Stock
into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the Holder of any CS
Note thereafter surrendered for conversion shall be entitled to receive
the number of shares of Common Stock or other securities of the Company
which he would have owned or have been entitled to receive after the
effectiveness of any of the events described above, had such CS Note
been converted immediately prior to the effectiveness of such event. An
adjustment made pursuant to this subdivision (a) shall become effective,
in the case of a dividend, on the payment date retroactively to
immediately after the opening of business on the day following the
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record date for the determination of shareholders entitled to receive
such dividend, subject to the provisions of paragraph (f) of this
Section 20.4, and shall become effective in the case of a subdivision
or combination immediately after the opening of business on the day
following the day when such subdivision or combination, as the case may
be, becomes effective.
(b) In case the Company shall, at any time or from time to time
while any of the CS Notes are outstanding, issue rights or warrants to
all holders of its shares of Common Stock entitling them (for a period
expiring within 180 days of the record date mentioned below) to
subscribe for or purchase shares of Common Stock at a price per share
less than the current market price per share of Common Stock (as defined
in paragraph (d) below) on such record date, the Conversion Price in
effect immediately prior to the issuance of such rights or warrants
shall be adjusted as follows: the number of shares of Common Stock into
which $1,000,000 principal amount of CS Notes was theretofore
convertible shall be multiplied by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding immediately
prior to such record date plus the number of additional shares of Common
Stock offered for subscription or purchase, and of which the denominator
shall be the number of shares of Common Stock outstanding immediately
prior to such record date plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase
at such current market price; and the Conversion Price shall be adjusted
so that the same shall equal $1,000,000 divided by the new number of
shares into which $1,000,000 principal amount of CS Notes shall be
convertible as aforesaid. Such adjustment shall become effective on the
date of such issuance retroactively to immediately after the opening of
business on the day following the record date for the determination of
shareholders entitled to receive such rights or warrants, subject to the
provisions of paragraph (f) of this Section 20.4. In determining whether
any rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at less than such current market price, and in
determining the aggregate offering price of such shares, there shall be
taken into account any consideration received by the Company for such
rights or warrants, the value of such consideration, if other than cash,
to be conclusively determined by the Board of Directors. For purposes of
this paragraph (b), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will
not issue any rights or warrants in respect of shares of Common Stock
held in the treasury of the Company.
-25-
<PAGE>
(c) In case the Company shall, at any time or from time to time
while any of the CS Notes are outstanding, distribute to all holders of
shares of its Common Stock evidences of its indebtedness or securities
or assets (excluding cash dividends or cash distributions payable out of
consolidated net earnings or retained earnings, or dividends payable in
shares of Common Stock) or rights or warrants to subscribe for shares of
Common Stock at a price per share less than the current market price per
share of Common Stock (as defined in paragraph (d) below), but excluding
rights or warrants referred to in paragraph (b) above, the Conversion
Price in effect immediately prior to such distribution shall be adjusted
by multiplying the number of shares of Common Stock into which
$1,000,000 principal amount of Debentures was theretofore convertible by
a fraction, of which the numerator shall be the current market price per
share of Common Stock (as defined in paragraph (d) below) on the record
date for such distribution, and of which the denominator shall be such
current market price per share of the Common Stock, less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the portion of such evidences of
indebtedness, securities or assets or of such subscription rights or
warrants so distributed applicable to one share of Common Stock; and the
Conversion Price shall be adjusted so that the same shall equal
$1,000,000 divided by the new number of shares into which $1,000,000
principal amount of CS Notes shall be convertible as aforesaid. Such
adjustment shall become effective on the date of such distribution
retroactively to immediately after the opening of business on the day
following the record date for the determination of shareholders entitled
to receive such distribution, subject to the provisions of paragraph (f)
of this Section 20.4. For the purposes of this paragraph (c)
consolidated net earnings or retained earnings shall be computed by
adding thereto all charges against retained earnings on account of
dividends paid in shares of Common Stock in respect of which the
Conversion Price has been adjusted, all as determined by the independent
public accountants then regularly auditing the accounts of the Company,
whose determination shall be conclusive. Reference in this Section
20.4(c) or elsewhere in Section 20.4 to $1,000,000 principal amount of
Debentures shall not limit the conversion right to such amount in total,
but is intended to reflect only that, except as contemplated in Section
20.1 hereof, no less than $1,000,000 in principal amount may be
converted at any time.
-26-
<PAGE>
(d) For the purpose of any computation under paragraphs (b) and (c)
above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices of the
Common Stock on the principal exchange or in the principal market at
which it is trading then for the ten consecutive trading days
immediately preceding the day in question (irrespective of whether the
Common Stock actually traded on such days).
(e) Except as in this Agreement otherwise provided, no adjustment in
the Conversion Price shall be made by reason of the issuance, in
exchange for cash, property or services, of shares of Common Stock, or
any securities convertible into or exchangeable for shares of Common
Stock, or carrying the right to purchase any of the foregoing.
(f) If the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive any
dividend or any subscription or purchase rights or any distribution and
shall, thereafter and before the distribution to shareholders of any
such dividend, subscription or purchase rights or distribution, legally
abandon its plan to pay or deliver such dividend, subscription or
purchase fights or distribution, then no adjustment of the Conversion
Price shall be required by reason of the taking of such record.
(g) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in
such price; provided, however. that any adjustments which by reason of
this paragraph (g) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations
under this Section 20 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
(h) Whenever the Conversion Price is adjusted as herein provided,
the Company shall cause a notice stating that such adjustment has been
effected and the adjusted Conversion Price to be mailed to the holders
of CS Notes at their last addresses as they shall appear on the Note
Register.
20.5 Effect of Reclassification, Consolidations, Mergers or Sales on
Conversion Privilege. In case of any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of the CS Notes (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger or consolidation of the Company with one or more other corporations
(other than a merger or consolidation in which the Company is the
-27-
<PAGE>
continuing corporation and which does not result in any reclassification or
change of outstanding shares of Common Stock issuable upon conversion of the CS
Notes), or in case of the merger of the Company into another corporation, or in
case of any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, the holder of each CS
Note then outstanding shall have the right to convert such CS Note into the kind
and amount of shares of capital stock or other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which such
CS Note might have been converted immediately-prior to such reclassification,
change, consolidation, merger, sale or conveyance, assuming such holder of
Common Stock of the Company failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other property receivable upon
such reclassification, change, consolidation, merger, sale or conveyance
(provided that if the kind or amount of securities, cash and other property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance is not the same for each share of Common Stock of the Company in
respect of which such rights of election shall not have been exercised
("non-electing shares"), then for the purpose of this section the kind and
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by each
nonelecting share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). In any such case the Company,
or such successor or purchasing corporation as the case may be, shall execute
with the holders of the CS Notes on the effective date of such transaction a
supplement agreement to this Agreement containing provisions to the effect set
forth above in this Section 20.5 and providing further for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 20; and any such adjustment which shall be approved by the
Board of Directors and set forth in such supplemental agreement shall be
conclusive for all purposes of this section.
The above provisions of this Section 20.5 shall similarly
apply to successive reclassifications, changes, consolidations, mergers, sales
and conveyances.
20.6 Taxes on Conversions. Unless otherwise required by law, the
issue of stock certificates on conversions of CS Notes shall be made without
charge to the converting Noteholder for any tax in respect of the issue thereof.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares in any
name other than that of the Holder of any CS Note converted, and the Company
shall not be required to issue or deliver any such stock certificate unless
-28-
<PAGE>
and until the Person or Persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
20.7 Company to Reserve Capital Stock. The Company shall at all
times reserve and keep available out of the aggregate of its authorized but
unissued shares or its issued shares held in its treasury, or both, for the
purpose of effecting the conversion of the CS Notes, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding CS Notes.
The Company covenants that all shares of Common Stock which
may be delivered upon conversion of CS Notes, shall, upon delivery in accordance
with the terms of this Agreement, be fully paid and nonassessable by the Company
and free from all taxes, liens and charges with respect to the issue or delivery
thereof.
20.8 Company to Give Notice of Certain Events. In the event
(1) that the Company shall pay any dividend or make any distribution
to the holders of shares of Common Stock otherwise than in cash charged
against consolidated net earnings or retained earnings of the Company and
its consolidated subsidiaries or in Common Stock; or
(2) that the Company shall offer for subscription or purchase, pro
rata, to the holders of shares of Common Stock any additional shares of
stock of any class of the Company or any securities convertible into or
exchangeable for stock of any such class; or
(3) of any reclassification or change of outstanding shares of the
class of Common Stock issuable upon the conversion of the CS Notes (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination),
or of any merger or consolidation of the Company with, or merger of the
Company into, another corporation (other than a merger or consolidation in
which the Company is the continuing corporation and which does not result
in any reclassification or change of outstanding shares of Common Stock
issuable upon conversion of the Debentures), or of any sale or conveyance
to another corporation of the property of the Company as an entirety or
substantially as an entirety;
then, and in any one or more of such events, the Company shall mail written
notice thereof to the Holders of CS Notes at their last addresses as they shall
appear upon the Note Register, at least fifteen days prior to (i) the record
-29-
<PAGE>
date fixed with any of the events specified on (1) and (2) above, and (ii) the
effective date of any of the events specified in (3) above. Failure to give
such notice, or any defect therein, shall not affect the legality or validity
of such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
20.9 Effectiveness of Section 20. The provisions of this Section 20,
including, without limitation, the privilege to convert the CS Notes into the
Common Stock of the Company, shall not take effect, and no holder of the CS
Notes shall have any rights under Section 20, until approval by the American
Stock Exchange, Inc. of the Conversion Shares for listing on the American Stock
Exchange upon official notice of issuance. If the foregoing condition shall not
have been satisfied by June 30, 1997, this Section 20 shall have no further
force or effect.
21. Effectiveness. This Agreement shall become a binding agreement
between you and the Company upon the execution and delivery hereof by you and
the Company.
22. Miscellaneous. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, personal
representatives, successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by any holder or holders at the time of the Notes or any part
thereof. This Agreement and the Notes collectively embody the entire agreement
and understanding between you and the Company and supersede all prior agreements
and understandings relating to the subject matter hereof. This Agreement and the
Notes shall be construed and enforced in accordance with and governed by the law
of the Commonwealth of Pennsylvania. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter and return one of the
-30-
<PAGE>
same to the Company, whereupon this letter shall become a binding agreement
between you and the Company as provided in Section 21.
Very truly yours,
FPA CORPORATION
----------------------------------------
By: Benjamin D. Goldman, President
The foregoing Agreement is hereby
agreed to as of the date hereof.
- ---------------------------------
Jeffrey P. Orleans
-31-
<PAGE>
THE PAYMENT OF PRINCIPAL HEREUNDER IS EXPRESSLY SUBORDINATED TO THE CLAIMS OF
CORESTATES BANK, N.A. PURSUANT TO A SUBORDINATION AGREEMENT DATED APRIL 4, 1996
AND A SUPPLEMENTAL SUBORDINATION AGREEMENT OF EVEN DATE HEREWITH, EACH BY AND
BETWEEN JEFFREY P. ORLEANS AND CORESTATES BANK, N.A.
THIS NOTE HAS BEEN ISSUED PURSUANT TO A NOTE PURCHASE AGREEMENT DATED AS OF
AUGUST 1, 1996 (THE "AGREEMENT"), BETWEEN FPA CORPORATION AND THE ORIGINAL
PURCHASER OF THE NOTE CONTAINING SUBSTANTIAL RESTRICTIONS ON TRANSFER AND
ASSIGNMENT. IT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
CANNOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM.
FPA CORPORATION
Convertible Subordinated 7% Note Due January 1, 2002
Bensalem, Pennsylvania
$3,000,000.00 August 19, 1996
FOR VALUE RECEIVED, and intending to be legally bound hereby,
FPA CORPORATION, a Delaware corporation (hereinafter referred to as the
"Company") hereby promises to pay in lawful money of the United States to the
order of JEFFREY P. ORLEANS (hereinafter referred to as "Holder"), the principal
sum of THREE MILLION DOLLARS ($3,000,000), together with interest on the daily
outstanding principal balance from time to time at a rate equal to seven percent
(7%) per annum. Interest shall be computed on the basis of a 365/366 day year
and the actual number of days elapsed. Accrued interest shall be payable not
later than each Extension Date with respect to each Interest Target Date during
the term of this Note until the obligation of the Company with respect to
payment hereunder shall be discharged. To the extent not prohibited by law, if
any installment of interest in respect of any Interest Target Date shall remain
unpaid on the Applicable Grace Date, then interest shall thereafter accrue on
the unpaid installment of interest from the Applicable Grace Date until paid at
a rate equal to eight and one-half percent (8.5%) per annum.
Principal shall be payable in equal annual installments of
$1,000,000 each not later than each Extension Date with respect to each CS
Principal Target Date. The entire unpaid principal balance, plus all accrued and
unpaid interest and other sums payable hereunder, shall be due and payable not
later than the Extension Date with respect to the CS Principal Target Date of
January 1, 2002. To the extent not prohibited by law, if any
<PAGE>
principal payment due on any CS Principal Target Date shall remain unpaid on the
Applicable Grace Date, then interest shall thereafter accrue on such unpaid
principal payment until paid at a rate equal to eight and one-half percent
(8.5%) per annum.
Payments of principal and interest shall be made in such coin
or currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debt by check mailed and addressed
to the registered holder hereof at the address shown in the registrar maintained
by the Company for such purpose, or, at the option of the holder hereof, in such
manner and at such other place in the United States of America the holder hereof
shall have designated to the Company in writing pursuant to the provisions of
Section 19 of the Agreement (as hereinafter defined).
Unless this Note has been executed by officers of the Company
thereunto duly authorized by manual signature, this Note shall not be entitled
to any benefit under the Agreement, or to be valid or obligatory for any
purpose.
This Note is the CS Note issued by the Company under that
certain Note Purchase Agreement (the "Agreement"), dated as of August 1, 1996,
between the Company and the original purchaser hereof.
Reference is hereby made to the Agreement for a statement of
the respective Events of Default, rights, limitations of rights, obligations,
duties and immunities thereunder of the Company and the Holders of this Note.
All terms used in this Note which are defined in the Agreement shall have the
meanings assigned to them in the Agreement.
This Note is convertible into the Common Stock of the Company
to the extent set forth in, and subject to the provisions of the Agreement.
This Note is subject to prepayment at the option of the
Company at any time on the terms and conditions and in the amounts as set forth
in the Agreement. In the event of prepayment of this Note in part only, a new
Note or Notes for the unredeemed portion hereof shall be issued in the name of
the holder hereof upon the cancellation hereof.
The Agreement permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the holders of the CS Notes under
the Agreement at any time by the Company with the consent of the holders of a
majority in aggregate principal amount of the CS Notes at the time outstanding.
The Agreement also contains provisions permitting the holders of specified
percentages in aggregate principal amount of the CS
-2-
<PAGE>
Notes at the time outstanding, on behalf of the holders of all the CS Notes, to
waive compliance by the Company with certain provisions of the Agreement and
certain past defaults under the Agreement and their consequences. Any such
consent or waiver by the holder of this Note shall be conclusive and binding
upon such holder and upon all future holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Agreement and no provision of this
Note or of the Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal and interest on this
Note at the times, place and rate, and in the coin or currency, herein
prescribed.
Prior to due presentment for registration of transfer, the
Company, and any agent of the Company, may treat the Person in whose name this
Note is registered as the owner hereof for all purposes, whether or not this
Note be overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
This Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed under its corporate seal by the manual signatures, of its officers
thereunto duly authorized all on the date first written above.
FPA CORPORATION
By:______________________________________
President
Attest:
- ---------------------
Secretary
(SEAL)
-3-
<PAGE>
Exhibit 22
Subsidiaries of Registrant
The Company owns all of the outstanding stock of the subsidiaries
listed below, each of which is included in the Consolidated Financial Statements
of the Company. All other former subsidiaries of the Company were either merged
with and into the Company or a subsidiary of the Company listed below.
Name State of Incorporation
---- ----------------------
Fawn Hollow, Inc. Pennsylvania
FPA Mortgage Corporation Florida
FPA Mortgage Investments, Inc. Florida
FPA Voorhees, Inc. New Jersey
Orleans Construction Corporation Pennsylvania
Orleans Corporation Pennsylvania
Orleans Corporation of New Jersey New Jersey
Orleans Property Management Services Corp. Pennsylvania
Timber Glen, Inc. New Jersey
Versailles at Europa, Inc. New Jersey
66
<PAGE>
Exhibit 25
SIGNATURES
and
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jeffrey P. Orleans, Benjamin D. Goldman and Joseph A.
Santangelo and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or each of them, of their or his
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities 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:
/s/ JEFFREY P. ORLEANS September 23, 1996
- ------------------------------
Jeffrey P. Orleans
Chairman of the Board and
Chief Executive Officer
/s/ BENJAMIN D. GOLDMAN September 23, 1996
- ------------------------------
Benjamin D. Goldman
President, Chief Operating
Officer and Director
/s/ SYLVAN M. COHEN September 23, 1996
- ------------------------------
Sylvan M. Cohen
Director
67
<PAGE>
/s/ ROBERT N. GOODMAN September 23, 1996
- ------------------------------
Robert N. Goodman,
Director
/s/ ANDREW N. HEINE September 23, 1996
- ------------------------------
Andrew N. Heine
Director
/s/ DAVID KAPLAN September 23, 1996
- ------------------------------
David Kaplan
Director
/s/ LEWIS KATZ September 23, 1996
- ------------------------------
Lewis Katz
Director
/s/ JOSEPH A. SANTANGELO September 23, 1996
- -----------------------------
Joseph A. Santangelo
Chief Financial Officer,
Treasurer and Secretary
68
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,617
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<RECEIVABLES> 4,176
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0
0
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