FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 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 DECEMBER 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from TO
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Commission file number 1-10104
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UNITED CAPITAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2294493
- -------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 PARK PLACE, GREAT NECK, NEW YORK 11021
- ------------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 466-6464
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock (Par Value $.10 Per Share) American Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the shares of the voting stock held by
nonaffiliates of the Registrant as of March 5, 1998 was approximately
$41,138,000.
The number of shares of the Registrant's $.10 par value common stock outstanding
as of March 5, 1998 was 5,248,347.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K will be incorporated by
reference to certain portions of a definitive proxy statement which is expected
to be filed by the Registrant pursuant to Regulation 14A within 120 days after
the close of its fiscal year.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
United Capital Corp. (the "Registrant"), incorporated in 1980 in the State of
Delaware, currently has two industry segments:
1. Real Estate Investment and Management.
2. Manufacture and Sale of Engineered Products.
The Registrant also invests excess available cash in marketable securities and
other financial instruments.
On November 20, 1997, the Registrant signed a definitive agreement to sell the
stock of its Dorne & Margolin, Inc. ("D&M") subsidiary to AIL Systems Inc.
("AIL") for $16 million in cash. On January 2, 1998 the sale was completed and
will result in a pretax gain of approximately $9 million and have an estimated
$.92 per share effect on earnings on an after tax basis in the first quarter of
1998. The net assets and operating results of D&M are presented in the
accompanying consolidated financial statement as a discontinued operation. (See
Note 2 to Consolidated Financial Statements "Disposal of Operating Companies".)
DESCRIPTION OF BUSINESS
REAL ESTATE INVESTMENT AND MANAGEMENT
The Registrant is engaged in the business of investing in and managing real
estate properties and the making of high-yield, short-term loans secured by
desirable properties. Most real estate properties owned by the Registrant are
leased under net leases pursuant to which the tenants are responsible for all
expenses relating to the leased premises, including taxes, utilities, insurance
and maintenance. The Registrant also owns properties that it manages which are
operated by the City of New York as day-care centers and offices and other
properties leased as department stores, hotels and shopping centers around the
country. In addition, the Registrant owns properties available for sale and
lease with the assistance of a consultant or a realtor working in the locale of
the premises.
The majority of properties are leased to single tenants. Approximately 97% of
the total square footage of the Registrant's properties are currently leased.
ENGINEERED PRODUCTS
The Registrant's engineered products are manufactured through the Technical
Products Division of Metex Corporation ("Metex") and AFP Transformers, Inc.
("AFP Transformers"), wholly-owned subsidiaries of the Registrant. The knitted
wire products and components manufactured by Metex must function in adverse
environments and meet rigid performance requirements. The principal areas in
which these products have application are as high temperature gaskets, seals,
components for use in airbags, shock and vibration isolators, noise reduction
elements and air, liquid and solid filtering devices.
<PAGE>
Metex has been an original equipment manufacturer for the automobile industry
since 1974 and presently supplies many automobile manufacturers with exhaust
seals and components for use in exhaust emission control devices.
The Registrant also manufactures transformer products which are marketed under
several brand names including AFP Transformers, Field Transformer, ISOREG and
EPOXYCAST for a wide variety of industrial and research applications including
machine power transformers, rectifier and inverter transformers and transformers
for heating.
Sales by the Engineered Products segment to its three largest customers (each in
excess of 10% of the segment's net sales) accounted for approximately 39% of the
segment's sales for 1997. During 1996 sales to its three largest customers
accounted for approximately 40% of the segment's sales.
SUMMARY FINANCIAL INFORMATION
The following table sets forth the revenues, operating income and identifiable
assets of each continuing business segment of the Registrant for 1997, 1996 and
1995.
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(in thousands)
REAL ESTATE INVESTMENT AND MANAGEMENT-
<S> <C> <C> <C>
Rental revenues $24,042 $23,936 $22,652
============ ============ ============
Operating income $7,718 $6,195 $5,003
============ ============ ============
Identifiable assets $95,080 $99,292 $92,328
============ ============ ============
ENGINEERED PRODUCTS-
Net sales $36,204 $42,055 $41,688
============ ============ ============
Operating income $3,419 $3,792 $3,779
============ ============ ============
Identifiable assets $11,432 $12,174 $12,955
============ ============ ============
</TABLE>
DISTRIBUTION
The Registrant's manufactured products are distributed by a direct sales force
and through distributors to industrial consumers and original equipment
manufacturers.
PRODUCT METHODS AND SOURCES OF RAW MATERIALS
The Registrant's products are manufactured at its own facilities. The Registrant
purchases raw materials from a wide range of suppliers of such materials. Most
raw materials purchased by the Registrant are available from several suppliers.
The Registrant has not had and does not expect to have any problems fulfilling
its raw material requirements during 1998.
2
<PAGE>
PATENTS AND TRADEMARKS
The Registrant owns several patents, patent licenses and trademarks. While the
Registrant considers that in the aggregate its patents and trademarks used in
the engineered products operations are significant to this segment, it does not
believe that any of these patents or trademarks are of such importance that the
loss of one or more of such patents or trademarks would materially affect its
consolidated financial condition or results of operations.
EMPLOYEES
At March 5, 1998, the Registrant employed approximately 319 persons. Certain of
the Registrant's employees are represented by unions. The Registrant believes
that its relationships with its employees are good.
COMPETITION
The Registrant competes with at least 21 other companies in the sale of
engineered products. The Registrant stresses product performance and service in
connection with the sale of these products. The principal competition faced by
the Registrant results from the sales price of the products sold by its
competitors.
BACKLOG
The dollar value of unfilled orders of the Registrant's engineered products
segment was approximately $2.2 million at December 31, 1997 and 1996. It is
anticipated that substantially all such 1997 backlog will be filled in 1998. The
order backlog referred to above does not include any order backlog with respect
to sales of knitted wire mesh components for exhaust emission control devices or
exhaust seals because of the manner in which customer orders are received.
ENVIRONMENTAL REGULATIONS
Federal, state and local requirements regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment, have
had and will continue to have a significant impact upon the operations of the
Registrant. It is the policy of the Registrant to manage, operate and maintain
its facilities in compliance, in all material respects, with applicable
standards for the prevention, control and abatement of environmental pollution
to prevent damage to the quality of air, land and resources.
The Registrant has undertaken the completion of environmental studies and/or
remedial action at Metex' two New Jersey facilities.
The process of remediation has begun at one facility pursuant to a plan filed
with the New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Environmental experts engaged by the Registrant estimate that under
the most probable remediation scenario the remediation of this site is
anticipated to require initial expenditures of $860,000 including the cost of
capital equipment, and $86,000 in annual operating and maintenance costs over a
15-year period.
Environmental studies at the second facility indicate that remediation may be
necessary. Based upon the facts presently available, environmental experts have
advised the Registrant that under the most probable remediation scenario, the
estimated cost to remediate this site is anticipated to require
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<PAGE>
$2.3 million in initial costs, including capital equipment expenditures, and
$258,000 in annual operating and maintenance costs over a 10-year period. The
Registrant may revise such estimates in the future due to the uncertainty
regarding the nature, timing and extent of any remediation efforts that may be
required at this site, should an appropriate regulatory agency deem such efforts
to be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the NJDEPE or
other regulatory agencies require additional or alternative remediation efforts
in the future. It is not currently possible to estimate the range or amount of
any such liability.
Although the Registrant believes that it is entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Registrant's insurers have denied such
coverage. Accordingly, the Registrant has filed an action against certain
insurance carriers seeking defense and indemnification with respect to all prior
and future costs incurred in the investigation and remediation of these sites
(see Item 3, "Legal Proceedings"). Upon the advice of counsel, the Registrant
believes that based upon a present understanding of the facts and the present
state of the law in New Jersey, it is probable that the Registrant will prevail
in the pending litigation and thereby access all or a very substantial portion
of the insurance coverage it claims; however, the ultimate outcome of litigation
cannot be predicted.
At December 31, 1997 and 1996 a total of $2.9 million in anticipated insurance
recoveries is recorded in the accompanying consolidated financial statements,
and is included in other assets. Additionally, in 1995 the Company received $4.1
million of insurance recoveries. The remaining balance of $2.9 million at
December 31, 1997 (from a total of $7 million) is in dispute with the
Registrant's insurance carriers as more fully discussed in Item 3 "Legal
Proceedings" and Note 19 to Consolidated Financial Statements, "Contingencies."
Management believes that recoveries in excess of the amounts reflected in the
accompanying Consolidated Financial Statements are available under the insurance
policies but have not been recorded. There can be no assurance, however, that
the Registrant will prevail in its efforts to obtain amounts at or in excess of
the estimated recoveries.
In the opinion of management, these matters will be resolved favorably and such
amounts, if any, not recovered under the Registrant's insurance policies will be
paid gradually over a period of years and, accordingly, should not have a
material adverse effect upon the business, liquidity or financial position of
the Registrant. However, adverse decisions or events, particularly as to the
merits of the Registrant's factual and legal basis could cause the Registrant to
change its estimate of liability with respect to such matters in the future.
ITEM 2. PROPERTIES
REAL PROPERTY HELD FOR RENTAL
As of March 5, 1998 the Registrant owned 224 properties strategically located
throughout the United States. The properties are primarily leased under
long-term net leases. The Registrant's classification and gross carrying value
of its properties at December 31, 1997 are as follows (in thousands, except
number of property amounts):
4
<PAGE>
<TABLE>
<CAPTION>
Gross Carrying Number of
Description Value Percentage Properties
----------- ---------------- ---------------- -----------------
<S> <C> <C> <C>
Shopping centers and retail outlets $71,223 57.3% 31
Commercial properties 31,276 25.2% 136
Day-care centers and offices 7,561 6.1% 12
Hotel properties 2,916 2.3% 2
Other 11,370 9.1% 44
---------------- ------------ --------
Total $124,346 100.0% 225
================ ============ ========
</TABLE>
SHOPPING CENTERS AND RETAIL OUTLETS
Shopping centers and retail outlets include 21 department stores and other
properties which are primarily leased under net leases. Taxes, maintenance of
the properties and all other expenses are the responsibility of the tenants. The
leases for certain shopping centers and retail outlets provide for additional
rents based on sales volume and renewal options at higher rents. The department
stores include 11 K-Mart stores, three Macy's stores, one IKEA store and one
Office Depot with a total of approximately 1,064,000, 538,000, 160,000 and
111,000 square feet, respectively. The K-Mart stores are primarily located in
the Midwest region of the United States. The Macy's and IKEA stores are
primarily located in the Pacific Coast and Southwest regions of the United
States.
COMMERCIAL PROPERTIES
Commercial properties consist of properties leased as 93 restaurants, 27 Midas
Muffler Shops, three convenience stores, seven office buildings and
miscellaneous other properties. Commercial properties are primarily leased under
net leases which in certain cases, have renewal options at higher rents. Certain
of these leases also provide for additional rents based on sales volume. The 93
restaurants, located throughout the United States, include properties leased as
Boston Market, Roy Rogers, Pizza Hut, Hardee's, Wendy's and Kentucky Fried
Chicken. Included in commercial properties is the 90,000 square foot facility
previously utilized in the Registrant's D&M business. This facility was retained
by the Registrant and transferred to real property held for rental.
DAY-CARE CENTERS AND OFFICES
The 10 day-care centers and two offices, which are located in New York City, are
leased to the City of New York. The Registrant has negotiated with the City of
New York to extend, on a long-term basis, all 12 of these leases.
HOTEL PROPERTIES
The Registrant's two hotel properties are located in Georgia and California
which are managed through a local on-site management company that is responsible
for all day-to-day operations of the hotels.
5
<PAGE>
The following summarizes real property held for rental by geographic area at
December 31, 1997 (in thousands, except number of property amounts):
<TABLE>
<CAPTION>
Gross
Number of Carrying
Properties Value
--------------- ------------------
<S> <C> <C>
Northeast 116 $35,956
Southeast 41 24,305
Midwest 41 27,314
Southwest 9 9,811
Pacific Coast 7 21,581
Pacific Northwest 6 2,098
Rocky Mountain 5 3,281
--------- ------------------
225 $124,346
========= ==================
</TABLE>
MANUFACTURING FACILITIES
The Registrant's engineered products are manufactured at 970 New Durham Road,
Edison, New Jersey, in a one-story building having approximately 53,000 square
feet of floor space and also in a second facility at 206 Talmadge Road in
Edison, New Jersey which has approximately 54,500 square feet of space. The
Registrant owns these facilities together with the sites.
ITEM 3. LEGAL PROCEEDINGS
ROSATELLI VS. UNITED CAPITAL CORP.
In August 1996, Dennis Rosatelli, the Registrant's former Chief Financial
Officer commenced an action in Superior Court of New Jersey, Law Division,
Bergen County, seeking, among other things, payment under his employment
contract, and indemnification for claims against him by the Internal Revenue
Service and other matters in connection with his tenure. In March 1997, Mr.
Rosatelli amended his complaint to include Bank of America Illinois, Metex
Corporation, Kentile Inc., A.F. Petrocelli and another officer of Kentile as
additional defendants. The Registrant believes that as a result of Mr.
Rosatelli's gross negligence, recklessness and/or willful disregard of his
duties and responsibilities, Mr. Rosatelli is not entitled to the recoveries he
seeks. Mr. Rosatelli's employment was terminated by the Registrant in May 1996
for cause. The matter has been removed to the United States District Court,
District of New Jersey. This action is in the early stages of pretrial
discovery. The Registrant intends to vigorously defend this action and has
asserted counterclaims against Mr. Rosatelli for, among other things, the set
off of amounts by which he has damaged the Registrant against his claims under
his employment contract.
METEX CORPORATION VS. AFFILIATED FM INSURANCE CO., ET AL.
On June 27, 1990, Metex filed an action in the Superior Court of New Jersey,
Chancery Division, Middlesex County, against several insurance companies that
provided Metex with liability insurance between 1967 and 1986. To date, Metex
has reached settlements with several carriers. The action seeks both declaratory
relief and monetary damages in connection with reimbursement of the costs
incurred and to be incurred by Metex in connection with the completion of
environmental studies and remedial action required at its two Edison, New Jersey
facilities. The declaratory relief sought is a determination that the terms of
the liability insurance policies at issue obligate the defendants to defend and
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<PAGE>
indemnify Metex with respect to all costs and expenses related to these
environmental matters. Metex also seeks monetary damages in an unspecified
amount for breach of the defendants' duty to indemnify Metex.
In June 1995, the court dismissed, without prejudice, the New Durham site from
this action. The court ruled that without a governmental directive to remediate
the site no third-party liability exists and accordingly no coverage is
available under the policies. The Registrant appealed the decision to the New
Jersey Appellate Division which heard the case in February 1996. In April 1996,
the Appellate Division issued a published ruling in favor of the Registrant
reinstating the action as to the general liability insurance policies regarding
both sites and remanded to the trial court to determine whether the umbrella and
excess insurance policies should be similarly reinstated as to the New Durham
Road site. In November 1996, the umbrella and excess insurance companies once
again moved to dismiss the New Durham site. The motion to dismiss was argued and
denied by the trial court on January 24, 1997. Pretrial discovery is not yet
complete. The Registrant intends to continue to vigorously pursue this action.
OTHER LITIGATION
The Registrant is involved in various other litigation and legal matters which
are being defended and handled in the ordinary course of business.
None of the foregoing is expected to result in a judgment having a material
adverse effect on the Registrant's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Registrant's Common Stock is traded on the American Stock Exchange under the
symbol AFP. The table below shows the high and low sales prices as reported in
the composite transactions for the American Stock Exchange.
High Low
------------- -------------
1997 First quarter $12-7/8 $8-3/8
- ---- Second quarter 20-1/2 12-5/8
Third quarter 17-5/8 15
Fourth quarter 29 17-1/8
1996 First quarter $7-3/8 $6-1/2
- ---- Second quarter 8-3/4 7-1/8
Third quarter 10 7-1/2
Fourth quarter 9-5/8 8-1/2
7
<PAGE>
As of March 5, 1998, there were approximately 527 record holders of the
Registrant's Common Stock. The closing sales price for the Registrant's Common
Stock on such date was $23 5/8. The Registrant has never paid any cash dividends
on its Common Stock. The payment of dividends is within the discretion of the
Registrant's Board of Directors, however in view of potential working capital
needs and in order to finance future growth and as a result of certain
restrictions in the Registrant's Credit Agreement, it is unlikely that the
Registrant will pay any cash dividends on its Common Stock in the near future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with, and is qualified in its entirety by reference to, the
Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- ------------ ------------ ------------ ------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues (1) $60,246 $65,991 $64,340 $57,499 $48,458
============== ============ ============ ============ ============
Income from continuing operations $7,465 $6,634 $3,910 $4,158 $3,565
============== ============ ============ ============ ============
Income from continuing operations
per common share basic (2) $1.41 $1.21 $.67 $.68 $.58
============== ============ ============ ============ ============
Total assets, end of year $113,353 $116,761 $110,366 $120,404 $107,345
Total liabilities, end of year 75,873 87,186 84,137 87,623 77,167
Stockholders' equity, end of year 37,480 29,575 26,229 32,781 30,178
============== ============ ============ ============ ============
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Certain reclassifications have been reflected in the financial data to
conform prior years' data to the current classifications.
(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"). For further discussion of
earnings per share and the impact of SFAS No. 128, see Notes To
Consolidated Financial Statements beginning on page F-8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1997 AND 1996
GENERAL
The following discussion of the Registrant's financial condition and results of
operations should be read in conjunction with the description of the
Registrant's business and properties contained in Items 1 and 2 of Part I and
the consolidated financial statements and notes thereto, included elsewhere in
this report.
Total revenues generated by the Registrant during 1997 were $60.2 million a
decrease of $5.8 million from total 1996 revenues of $66 million. Income from
continuing operations for the period was $7.5 million or $1.41 per share as
compared to income from continuing operations of $6.6 million or $1.21 per share
for 1996. Income from discontinued operations for 1997 was $1 million or $.19
per share
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versus a loss of ($797,000) or ($.15) per share in 1996. Net income increased to
$8.5 million or $1.60 per share in 1997 versus $5.8 million or $1.06 per share
in 1996.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations during 1997 increased $106,000 or
less than 1% over those of the prior year. Revenues from new property additions
and a one-time adjustment for percentage rents on certain properties offset the
reduction in revenues resulting from properties sold.
Mortgage interest expense for 1997 decreased by $613,000 as compared to such
expense incurred during 1996. This decrease of 17% results from the continuing
amortization of mortgages which approximated $5.1 million during the current
year, including repayments associated with properties sold.
Depreciation expense associated with real properties held for rental decreased
approximately $521,000 or approximately 8% from such expense incurred in the
preceding year. This decrease is primarily attributable to properties sold in
1997 and 1996.
Other operating expenses associated with the management of real properties
decreased approximately $283,000 during 1997 versus such expenses incurred in
1996. This decrease is primarily attributable to costs associated with
properties sold, reductions in legal expenses from the prior year, and to
certain cost reductions and capital improvements implemented in 1996.
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation and AFP
Transformers, Inc. The operating results of the engineered products segment for
the years ended December 31 follows-
<TABLE>
<CAPTION>
1997 1996
------------- ------------
(in thousands)
<S> <C> <C>
Net sales $36,204 $42,055
============= ============
Cost of sales $25,972 $30,891
============= ============
Selling, general and administrative expenses $6,813 $7,372
============= ============
Income from operations $3,419 $3,792
============= ============
</TABLE>
Net sales of the engineered products segment were $36.2 million, a decrease of
$5.9 million versus such sales in 1996. This decrease resulted primarily from
increased price competition and declining worldwide automotive sales. This group
is continuing to pursue new revenue opportunities including new geographical
markets for its existing products as well as new applications for its core
technologies.
Cost of sales as a percentage of net sales decreased approximately 2% between
1997 and 1996. This decline is primarily due to continued management focus on
cost containment as well as product mix.
Selling, general and administrative expenses ("SG&A") of the engineered products
segment decreased $559,000 or 8% during 1997, as compared to such costs in 1996.
While sales decreased approximately 14% in 1997 as compared to 1996, the 8%
decline in selling, general and administrative expenses reflects management's
commitment to increasing sales in this segment.
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<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations decreased approximately $595,000 during 1997 as compared to such
expenses incurred in the preceding year. This decrease is primarily due to lower
compensation and related expenses.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net for 1997 decreased approximately $1.5 million from
$4.8 million in 1996 to $3.3 million in 1997. The decrease is principally due to
a non-recurring gain of $1.4 million in 1996 resulting from the settlement of
all claims from an investment that was principally written off in 1990 and a
reduction in gains on the sale of real estate properties of approximately
$438,000 partially offset by a reduction of other net expenses.
RESULTS OF OPERATIONS 1996 AND 1995
Total revenues generated by the Registrant during 1996 were $66 million, an
increase of $1.7 million from total 1995 revenues of $64.3 million. Income from
continuing operations for the period was $6.6 million or $1.21 per share as
compared to income from continuing operations of $3.9 million or $.67 per share
for 1995. Net loss in 1995 was ($1.9 million) or ($.33) per share as this period
included losses from the Registrant's discontinued resilient vinyl flooring
operations, the write-off of its investment in Kentile, Inc. and losses from the
Registrant's discontinued Antenna Systems segment. See Note 2 to Consolidated
Financial Statements, "Disposal of Operating Companies."
REAL ESTATE OPERATIONS
Rental revenues from real estate operations during 1996 increased $1.3 million
or 6% over those of the prior year primarily as a result of additional revenues
related to existing real estate properties and 1995 property acquisitions.
Mortgage interest expense for 1996 decreased by $747,000 as compared to such
expense incurred during 1995. This decrease of 17% results from the continuing
amortization of mortgages which approximated $9.4 million during 1996, including
repayments associated with properties sold.
Depreciation expense associated with real properties held for rental decreased
approximately $74,000 or approximately 1% from such expense incurred in 1995.
This decrease is primarily attributable to properties sold in 1996 and 1995.
Other operating expenses associated with the management of real properties
increased approximately $1.6 million during 1996 versus such expenses incurred
in 1995. This increase primarily results from the operating costs of additional
properties added by the Registrant in 1996, the reclassification of prior
manufacturing facilities to real property held for rental and operating costs
associated with existing real estate properties.
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation and AFP
Transformers, Inc. The operating results of the engineered products segment for
the years ended December 31, 1996 and 1995 are as follows-
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<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
(in thousands)
<S> <C> <C>
Net sales $42,055 $41,688
============== ==============
Cost of sales $30,891 $31,237
============== ==============
Selling, general and administrative expenses $7,372 $6,672
============== ==============
Income from operations $3,792 $3,779
============== ==============
</TABLE>
Net sales of the engineered products segment were $42.1 million, an increase of
$367,000 versus such sales in 1995. This growth resulted primarily from
increased transformer sales as sales of knitted wire products were consistent
with 1995 levels.
Cost of sales as a percentage of net sales decreased approximately 1% between
1996 and 1995. This decline is primarily a result of the mix of product sales.
SG&A of the engineered products segment increased $701,000 or 11% during 1996,
as compared to such costs in 1995. This increase primarily results from
additional selling related expenses, principally salary and travel related
expenses, associated with new product development and business development.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations decreased approximately $158,000 during 1996 as compared to such
expenses incurred in 1995. This decrease is primarily due to the
reclassification, in the current year, of costs associated with prior
manufacturing facilities to real estate operations. Such costs were included in
general and administrative expenses during 1995.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net for 1996 of approximately $4.8 million is
comprised of approximately $3.9 million in gains from the sales of real estate
assets and approximately $1.4 million in settlement of all claims from an
investment that was principally written off in 1990. These amounts were
partially offset by $561,000 of miscellaneous other expense.
The 1995 components of other income and expense, net were as follows: $865,000
in gains from the sale of real estate assets, $230,000 from realized gains on
the sale of marketable securities and approximately $550,000 in miscellaneous
other income.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Registrant's current liabilities exceeded current
assets by approximately $4.6 million. This shortfall in working capital results
from financing the purchase of long-term assets utilizing short-term borrowings
and from the classification of current mortgage obligations without the benefit
of a corresponding current asset for such properties.
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<PAGE>
On January 2, 1998, the Registrant sold its antenna business for $16 million in
cash, resulting in a pretax gain of approximately $9 million or $.92 per share
in the first quarter of 1998. Substantially all of the cash proceeds of this
transaction are available for general corporate purposes. Additionally,
effective September 30, 1997, the Registrant amended its January 15, 1997 Credit
Agreement with two banks to provide for both a $7 million term loan ("Term
Loan") and a $40 million revolving credit facility ("Revolver") and converted $7
million of amounts outstanding under the Revolver to borrowings under the Term
Loan. Under the terms of the Credit Agreement, the Registrant will be provided
with eligibility based upon the sum of (i) 50% of the aggregate annualized and
normalized year-to-date net operating income of eligible properties, as defined,
capitalized at 11.5% and (ii) the lesser of $12 million or the sum of 75% of
eligible accounts receivable and 50% of eligible inventory, as defined.
Eligibility is also limited by amounts outstanding under the Term Loan. At
December 31, 1997 eligibility under the Revolver was $40 million, based upon the
above terms. The Credit Agreement contains certain financial and restrictive
covenants, including minimum consolidated equity, interest coverage, debt
service coverage and capital expenditures (other then for real estate). The
Credit Agreement also contains provisions which allow the lenders to perfect a
security interest in certain operating and real estate assets in the event of a
default, as defined under the terms of the Credit Agreement. Borrowings under
the Revolver, at the Registrant's option, bear interest at the bank's prime
lending rate ("Prime") or at the London Interbank Offered Rate ("LIBOR") plus
1.75% while borrowings under the Term Loan bear interest at 90 day LIBOR plus
1.4%. The Term Loan is payable in quarterly principal installments of $350,000,
with a final payment on September 30, 2002. The Revolver expires on January 15,
2000. At December 31, 1997, approximately $4.6 million was outstanding under
this facility, which was repaid on January 2, 1998. The Registrant was in
compliance with all covenants.
Also, effective September 30, 1997, the Registrant entered into an interest-rate
swap agreement to effectively convert its floating rate Term Loan to a fixed
rate basis, thus reducing the impact of interest rate changes on future expense.
Under the swap agreement, the Registrant agreed to exchange with the
counterparty (a commercial bank ) the difference between the fixed and floating
rate interest amounts. The differential to be paid or received on the interest
rate swap is recognized over the term of the agreement as an adjustment to
interest expense. The fair value of the swap agreement is not recognized in the
financial statements. At December 31, 1997 approximately $40 million was
available to be borrowed under the Revolver.
Management is confident that with the available cash resources discussed above
and cash generated by operations, all obligations will be satisfied as they
become due.
The Registrant has undertaken the completion of environmental studies and
remedial action at Metex' two New Jersey facilities and has filed an action
against certain insurance carriers seeking recovery of costs incurred and to be
incurred in these matters. Based upon the advice of counsel, management believes
such recovery is probable and therefore should not have a material effect on the
liquidity or capital resources of the Registrant. However, the ultimate outcome
of litigation cannot be predicted. To date settlements have been reached with
several carriers in this matter.
At December 31, 1997 and 1996 a total of $2.9 million in anticipated insurance
recoveries is recorded in the accompanying Consolidated Financial Statements,
and is included in other assets. Additionally, in 1995 the Company received
approximately $4.1 million of insurance proceeds. The remaining balance of $2.9
million at December 31, 1997 (from a total of $7 million) is in dispute with the
Registrant's insurance carriers as more fully discussed in Item 3 "Legal
Proceedings" and Note 19 to Consolidated
12
<PAGE>
Financial Statements "Contingencies." Management believes that recoveries in
excess of the amounts reflected in the accompanying Consolidated Financial
Statements are available under the insurance policies but have not been
recorded. There can be no assurance, however, that the Registrant will prevail
in its efforts to obtain amounts at or in excess of the estimated recoveries.
The cash needs of the Registrant have been satisfied from funds generated by
current operations and additional borrowings. It is expected that future
operational cash needs will also be satisfied from ongoing operations,
additional borrowings on the Revolver and the proceeds from the sale of the
antenna business. The primary source of capital to fund additional real estate
acquisitions and to make additional high yield mortgage loans will come from the
sale, financing and refinancing of the Registrant's properties and from third
party mortgages and purchase money notes obtained in connection with specific
acquisitions.
In addition to the acquisition of properties for consideration consisting of
cash and mortgage financing proceeds, the Registrant may acquire real properties
in exchange for the issuance of the Registrant's equity securities. The
Registrant may also finance acquisitions of other companies in the future with
borrowings from institutional lenders and/or the public or private offerings of
debt or equity securities.
Funds of the Registrant in excess of that needed for working capital, purchasing
real estate and arranging financing for real estate acquisitions are invested by
the Registrant in corporate equity securities, other financial instruments,
certificates of deposit and government securities.
BUSINESS TRENDS
Total 1997 revenues of the Registrant decreased approximately $5.8 million from
1996 levels to $60.2 million. The reduction in revenues is attributable to
revenue reductions in the engineered products segment as real estate operations
posted an increase in revenues. Income from continuing operations increased to
$7.5 million in 1997 from $6.6 million in 1996 principally due to an increase in
operating profit of the Registrant's real estate operations and a reduction in
general corporate expenses, partially offset by reduced operating profit in the
engineered products segment resulting from the reduction in revenues, as well as
a reduction in other income, net.
The results of the Registrant's real estate operations reflect an increase in
operating profit of $1.5 million on a revenue increase of only $106,000.
Continuing lease renewals and mortgage amortization will continue to have a
positive effect upon the revenues and operating profit of this segment.
Sales in the Registrant's engineered products segment decreased 14% in 1997 from
1996 record levels. These reductions are principally due to continued price
competition and declining worldwide automotive sales. Sales in 1998 are
anticipated to approximate 1997 levels due to increased competition in a number
of markets for knitted wire product sales. Management continues to invest in new
product development and in new markets for its products and believes there is
future opportunity for growth in this segment.
YEAR 2000 CONVERSION
The Registrant currently believes that its essential processes, systems and
business functions will be ready for the millennium transition and is taking the
necessary steps to accomplish this objective. The Year 2000 issue is not
anticipated to have a material impact on the Registrant's results of operations,
financial position or its cash flows.
13
<PAGE>
FORWARD LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
intended to be covered by the safe harbors created thereby. All forward-looking
statements involve risks and uncertainty including without limitation the
statements expressed under "Business Trends" above. Although the Registrant
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Form 10-K will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Registrant or any other person that the objectives and
plans of the Registrant will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary information filed as part of this
Item 8 are listed under Part IV, Item 14, "Exhibits, Financial Statements and
Schedules and Reports on Form 8-K" and are contained in this Form 10-K at page
F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the captions "Election of
Directors" and "Executive Officers" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the caption "Executive
Compensation and Compensation of Directors" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the captions "Security Ownership"
and "Election of Directors" and is incorporated herein by reference.
14
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the caption "Certain Relationships
and Related Transactions" and is incorporated herein by reference. Also see Note
14, "Transactions with Related Parties," of Notes to Consolidated Financial
Statements, contained elsewhere in this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) CONSOLIDATED FINANCIAL STATEMENTS. The following Consolidated
Financial Statements and Consolidated Financial Statement Schedules of
the Registrant are included in this Form 10-K at the pages indicated:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the Years F-3
Ended December 31, 1997, 1996 and 1995 to F-4
Consolidated Statements of Stockholders' Equity for F-5
the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the F-6
Years Ended December 31, 1997, 1996 and 1995 to F-7
Notes to Consolidated Financial Statements F-8
to F-27
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II -- Allowance for Doubtful Accounts F-28
Schedule III -- Real Property Held for Rental and F-29
Accumulated Depreciation
Schedule IV -- Mortgage Loans on Real Estate F-30
(3) SUPPLEMENTARY DATA
Quarterly Financial Data (Unaudited) F-31 to F-32
Schedules not listed above are omitted as not applicable or the
information is presented in the financial statements or related notes.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last quarter of
fiscal 1997.
15
<PAGE>
(c) Exhibits
3.1. Amended and restated Certificate of Incorporation of the
Registrant (incorporated by reference to exhibit 3.1 filed with the Registrant's
report on Form 10-K for the fiscal year ended December 31, 1993).
3.2. By-laws of the Registrant (incorporated by reference to
exhibit 3 filed with the Registrant's report on Form 10-K for the fiscal year
ended December 31, 1980).
10.1. 1988 Incentive Stock Option Plan of the Registrant, as
amended (incorporated by reference to exhibit 10.1 filed with the Registrant's
report on Form 10-K for the fiscal year ended December 31, 1994).
10.2. 1988 Joint Incentive and Non-Qualified Stock Option
Plan, as amended (incorporated by reference to exhibit 10.2 filed with the
Registrant's report on Form 10-K for the fiscal year ended December 31, 1994).
10.3. Employment Agreement dated as of January 1, 1990 by and
between the Registrant and A. F. Petrocelli (incorporated by reference to
exhibit 10.9 filed with the Registrant's report on Form 10-K for the fiscal year
ended December 31, 1989).
10.4. Amendment dated as of December 3, 1990 to Employment
Agreement dated as of January 1, 1990, by and between the Registrant and A. F.
Petrocelli (incorporated by reference to exhibit 10.10 filed with the
Registrant's report on Form 10-K for the fiscal year ended December 31, 1990).
10.5. Amendment dated as of June 8, 1993 to Employment
Agreement dated as of January 1, 1990 by and between the Registrant and A. F.
Petrocelli (incorporated by reference to exhibit 10.5 filed with the
Registrant's report on Form 10-K for the fiscal year ended December 31, 1993).
*10.6 Revolving Credit Agreement dated as of January 15, 1997
and as amended September 29, 1997 and January 2, 1998, with the financial
parties thereto.
*10.7 Stock Purchase Agreement, dated as of November 20, 1997
by and among AIL Systems Inc., United Capital Corp. and Metex Corporation.
*21. Subsidiaries of the Registrant
*23. Accountants' consent to the incorporation by reference
in Registrant's Registration Statements on Form S-8 of the Report of Independent
Public Accountants included herein.
*27. Financial Data Schedule
- -----------------
* Filed herewith
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: MARCH 5, 1998 By: /S/ A.F. PETROCELLI
------------- -------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: MARCH 5, 1998 By: /S/ A.F. PETROCELLI
------------- -------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Dated: MARCH 5, 1998 By: /S/ HOWARD M. LORBER
------------- --------------------
Howard M. Lorber
Director
Dated: MARCH 5, 1998 By: /S/ ANTHONY J. MICELI
------------- ---------------------
Anthony J. Miceli
Chief Financial Officer,
Chief Accountant, Secretary and
Director
Dated: MARCH 5, 1998 By: /S/ ARNOLD S. PENNER
------------- --------------------
Arnold S. Penner
Director
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
United Capital Corp.:
We have audited the accompanying consolidated balance sheets of United Capital
Corp. (a Delaware Corporation) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Capital Corp. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements and schedules are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 17, 1998
F-1
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,250 $ 2,579
Marketable securities 355 313
Notes and accounts receivable, net of allowance for doubtful
accounts of $326 and $377, respectively 11,319 18,744
Inventories 3,693 4,352
Deferred income taxes 1,219 1,355
Net current assets of discontinued operations 4,492 3,312
Prepaid expenses and other current assets 292 706
-------- --------
Total current assets 26,620 31,361
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 4,299 4,114
REAL PROPERTY HELD FOR RENTAL, net 58,578 65,689
NONCURRENT NOTES RECEIVABLE 7,356 5,932
DEFERRED INCOME TAXES 2,966 1,886
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 2,349 1,983
OTHER ASSETS 11,185 5,796
-------- --------
Total assets $113,353 $116,761
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ -------- --------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,232 $ 6,326
Borrowings under credit facilities 6,000 10,031
Accounts payable and accrued liabilities 14,129 14,113
Income taxes payable 5,872 4,237
-------- --------
Total current liabilities 31,233 34,707
LONG-TERM LIABILITIES:
Borrowings under credit facilities 5,250 9,789
Long-term debt 26,560 31,670
Other long-term liabilities 12,830 11,020
-------- --------
Total liabilities 75,873 87,186
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.10 par value, authorized 7,500 shares; issued and
outstanding 5,286 and 5,346 shares, respectively 528 534
Additional paid-in capital 6,819 7,416
Retained earnings 29,997 21,516
Net unrealized gain on marketable securities, net of tax 136 109
-------- --------
Total stockholders' equity 37,480 29,575
-------- --------
Total liabilities and stockholders' equity $113,353 $116,761
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
REVENUES:
<S> <C> <C> <C>
Net sales $36,204 $42,055 $41,688
Rental revenues from real estate operations 24,042 23,936 22,652
----------- ------------ -----------
Total revenues 60,246 65,991 64,340
----------- ------------ -----------
COSTS AND EXPENSES:
Cost of sales 25,972 30,891 31,237
Real estate operations-
Mortgage interest expense 3,058 3,671 4,418
Depreciation expense 5,838 6,359 6,433
Other operating expenses 7,428 7,711 6,122
General and administrative expenses 5,038 5,798 6,534
Selling expenses 4,104 4,498 3,896
----------- ------------ -----------
Total costs and expenses 51,438 58,928 58,640
----------- ------------ -----------
Operating income 8,808 7,063 5,700
----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 2,613 1,108 709
Interest expense (1,408) (929) (974)
Other income and expense, net 3,262 4,801 1,645
----------- ------------ -----------
Total other income 4,467 4,980 1,380
----------- ------------ -----------
Income from continuing operations before
income taxes 13,275 12,043 7,080
Provision for income taxes 5,810 5,409 3,170
----------- ------------ -----------
Income from continuing operations 7,465 6,634 3,910
----------- ------------ -----------
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ----------------- -----------------
DISCONTINUED OPERATIONS:
<S> <C> <C> <C>
Operating income (loss), net of tax (provision)
benefit of ($635), $413 and $836, respectively $1,016 ($797) ($1,854)
Provision for disposition, net of tax benefit
of $2,040 0 0 (3,960)
--------------- ----------------- -----------------
Income (loss) from discontinued
operations 1,016 (797) (5,814)
--------------- ----------------- -----------------
Net income (loss) $8,481 $5,837 ($1,904)
=============== ================= =================
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $1.41 $1.21 $.67
Discontinued operations .19 (.15) (1.00)
--------------- ----------------- -----------------
Net income (loss) per common share $1.60 $1.06 ($.33)
=============== ================= =================
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $1.40 $1.20 $.66
Discontinued operations .19 (.14) (.98)
--------------- ----------------- -----------------
Net income (loss) per common share -
assuming dilution $1.59 $1.06 ($.32)
=============== ================= =================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Unrealized
Minimum Gain on
Common Stock Issued Additional Pension Marketable Total
------------------- Paid-in Retained Liability, Securities, Stockholders'
Shares Amount Capital Earnings Net of Tax Net of Tax Equity
------ ------ --------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- December 31, 1994 6,051 $ 605 $ 14,531 $ 17,583 $ 0 $ 62 $ 32,781
Purchase and retirement
of common shares (446) (45) (4,434) 0 0 0 (4,479)
Proceeds from the
exercise of stock
options 1 1 3 0 0 0 4
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 (7) (7)
Change in minimum
pension liability,
net of tax 0 0 0 0 (166) 0 (166)
Net loss 0 0 0 (1,904) 0 0 (1,904)
------ ----- -------- -------- ----- ----- --------
BALANCE -- December 31, 1995 5,606 561 10,100 15,679 (166) 55 26,229
------ ----- -------- -------- ----- ----- --------
Purchase and retirement
of common shares (425) (43) (3,575) 0 0 0 (3,618)
Proceeds from the
exercise of stock
options 165 16 891 0 0 0 907
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 54 54
Change in minimum
pension liability,
net of tax 0 0 0 0 166 0 166
Net income 0 0 0 5,837 0 0 5,837
------ ----- -------- -------- ----- ----- --------
BALANCE-- December 31, 1996 5,346 534 7,416 21,516 0 109 29,575
------ ----- -------- -------- ----- ----- --------
Purchase and retirement
of common shares (67) (7) (659) 0 0 0 (666)
Proceeds from the
exercise of stock
options 7 1 62 0 0 0 63
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 27 27
Net income 0 0 0 8,481 0 0 8,481
------ ----- -------- -------- ----- ----- --------
BALANCE-- December 31, 1997 5,286 $ 528 $ 6,819 $ 29,997 $ 0 $ 136 $ 37,480
====== ===== ======== ======== ===== ===== ========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F-5
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $8,481 $5,837 ($1,904)
------------- ------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation and amortization 6,657 7,246 7,413
Disposal of discontinued operations 0 0 1,869
Equity in net loss of affiliates 263 0 0
Net realized gains on marketable securities 0 0 (230)
Changes in assets and liabilities, net of effects from
business disposals (A) 11,313 (9,257) 5,641
------------- ------------ ------------
Total adjustments 18,233 (2,011) 14,693
------------- ------------ ------------
Net cash provided by operating activities 26,714 3,826 12,789
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in and advances to affiliates (5,395) 0 0
Purchase of marketable securities 0 (147) 0
Proceeds from sale of marketable securities 0 0 729
Acquisition of property, plant and equipment (806) (735) (1,634)
Investing activities of discontinued operations (569) (261) (886)
------------- ------------ ------------
Net cash used in investing activities (6,770) (1,143) (1,791)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage commitments, notes
and loans (6,715) (13,046) (8,996)
Proceeds from mortgage commitments, notes and loans 0 1,025 3,150
Net borrowings under credit facilities (8,570) 12,035 1,785
Purchase and retirement of common shares (666) (3,618) (4,479)
Proceeds from the exercise of stock options 63 907 4
Financing activities of discontinued operations (1,385) (582) (631)
------------- ------------ ------------
Net cash used in financing activities (17,273) (3,279) (9,167)
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents 2,671 (596) 1,831
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 2,579 3,175 1,344
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $5,250 $2,579 $3,175
============= ============ ============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $4,832 $4,734 $5,253
Taxes 3,655 2,876 1,874
============= ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Noncash Investing Activities-
Capital Lease Obligations $511 $0 $0
============= ============ ============
</TABLE>
(A) Changes in assets and liabilities for the
years ended December 31, 1997, 1996 and
1995, net of effects from business
disposals are as follows-
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Decrease (increase) in notes and accounts
receivable, net $7,425 ($7,597) ($659)
Decrease (increase) in inventories 659 (77) 1,378
Decrease (increase) in prepaid expenses and
other current assets 414 (173) 3,708
Increase in deferred income taxes (958) (1,115) (1,622)
Decrease (increase) in real property held for
rental, net 1,275 (228) (2,872)
Increase in noncurrent notes receivable (1,424) (2,308) (274)
Decrease (increase) in other assets (257) (1,464) 192
Increase (decrease) in accounts payable and
accrued liabilities 16 (665) 3,922
Increase (decrease) in income taxes payable 1,635 557 (39)
Increase in other long-term liabilities 1,810 3,184 73
Discontinued operations - noncash charges and working
capital changes 718 629 1,834
------------- ------------ ------------
Total $11,313 ($9,257) $5,641
============= ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
NATURE OF BUSINESS-
United Capital Corp. (the "Registrant") and its subsidiaries are
currently engaged in the investment and management of real estate and in
the manufacture and sale of engineered products.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the
Registrant and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The equity
method of accounting is used for investments in 50% or less owned
companies over which the Registrant has the ability to exercise
significant influence.
Income Recognition --
REAL ESTATE OPERATIONS-
The Registrant leases substantially all of its properties to tenants
under net leases. Under this type of lease, the tenant is obligated to
pay all operating costs of the property including real estate taxes,
insurance, repairs and maintenance. Rental income is recognized based on
the terms of the leases. Certain lease agreements provide for additional
rent based on a percentage of tenants' sales. Such additional rents are
recorded as income when they can be reasonably estimated. Gains on sales
of real estate assets are recorded when the gain recognition criteria
under generally accepted accounting principles have been met.
Revenue Recognition --
MANUFACTURING OPERATIONS-
Sales are recorded when products are shipped to the customer.
CASH AND CASH EQUIVALENTS-
The Registrant considers all highly liquid investments with a maturity,
at the purchase date, of three months or less to be cash equivalents.
F-8
<PAGE>
MARKETABLE SECURITIES-
All marketable debt and equity securities have been classified as
available-for-sale and, as a result, are stated at fair value. Unrealized
gains and losses on securities available-for-sale are recorded net, as a
separate component of stockholders' equity until realized. Management
determines the appropriate classification of securities at the time of
purchase and reassesses the appropriateness of the classification at each
reporting date.
INVENTORIES-
Inventories are stated at the lower of cost or market and include
material, labor and manufacturing overhead. The first-in, first-out
(FIFO) method is used to determine the cost of inventories.
The components of inventory at December 31, are as follows-
1997 1996
----------- ------------
Raw materials $1,959 $2,542
Work in process 265 397
Finished goods 1,469 1,413
----------- ------------
$3,693 $4,352
=========== ============
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization are provided on a straight-line basis over
the estimated useful lives of the related assets as follows-
Real property held for rental-
Buildings 5 to 39 years
Equipment 5 to 7 years
Property, plant and equipment-
Buildings and improvements 18 to 20 years
Machinery and equipment 3 to 10 years
REAL PROPERTY HELD FOR RENTAL-
Real property held for rental is carried at cost less accumulated
depreciation. Major renewals and betterments are capitalized. Maintenance
and repairs are expensed as incurred.
Certain mortgage obligations assumed by the Registrant contain provisions
whereby the mortgage holder may acquire, under certain conditions, an
interest in the properties securing the obligation, for a nominal amount.
The Registrant considers any costs incurred as a result of these
provisions to be a cost of acquisition and the basis in such properties
is adjusted accordingly.
F-9
<PAGE>
RESEARCH AND DEVELOPMENT-
The Registrant expenses research, development and product engineering
costs as incurred. Approximately $77, $112 and $85 of such costs were
incurred by the Registrant in 1997, 1996 and 1995, respectively.
COMMON STOCK-BASED COMPENSATION-
The Registrant accounts for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related Interpretations ("APB No.
25"). Under APB No. 25, when the exercise price of the Company's
employee stock options equals the market price of the underlying stock
on the date of grant, no compensation cost is recognized.
NET INCOME (LOSS) PER COMMON SHARE-
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the period. All earnings per
share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements.
PRIOR YEAR FINANCIAL STATEMENTS-
Certain amounts have been reclassified in the December 31, 1996 and
1995 financial statements and notes thereto to present them on a basis
consistent with the current year.
USE OF ESTIMATES-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS-
During 1996, the Registrant adopted Statement of Financial Accounting
Standards No. 121-"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. The adoption thereof had no material effect on the
Registrant's financial position or operating results.
F-10
<PAGE>
CHANGES IN ACCOUNTING POLICIES-
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes standards for reporting comprehensive income and its
components in annual and interim financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Registrant is in the process
of determining its preferred format. The adoption of SFAS No. 130 will
have no impact on the Registrant's consolidated results of operations,
financial position or cash flows.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which establishes standards for
the way that companies report information about operating segments in
annual financial statements and requires that companies report selected
information about operating segments in interim financial reports,
based on the approach that management utilizes to organize the segments
within the Registrant for management reporting and decision making. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after
December 15, 1997. Financial statement disclosures for prior periods
are required to be restated. The Registrant is in the process of
evaluating the disclosure requirements. The adoption of SFAS No. 131
will have no impact on the Registrant's consolidated results of
operations, financial position or cash flows.
(2) DISPOSAL OF OPERATING COMPANIES:
On November 20, 1997, the Registrant signed a definitive agreement to
sell the stock of its Dorne & Margolin, Inc. ("D&M") subsidiary to AIL
Systems Inc. ("AIL") for $16 million in cash. On January 2, 1998 the sale
was completed and will result in a pretax gain of approximately $9
million in the first quarter of 1998. The net assets and operating
results of D&M are presented in the accompanying consolidated financial
statements as a discontinued operation. At December 31, 1997, net current
assets of discontinued operations consist primarily of inventory and
accounts receivable, partially offset by accounts payable and accrued
expenses. Net noncurrent assets of discontinued operations consists
primarily of machinery and equipment. The Registrant retained D&M's
90,000 square foot manufacturing facility in Bohemia, New York, which has
been reclassified to real property held for rental in the accompanying
financial statements.
In August 1995, the operations of the Registrant's Kentile Inc.
("Kentile") subsidiary ceased when its raw material stocks were exhausted
resulting from an unwillingness of major trade suppliers of Kentile to
extend further credit. In December 1995, the assets of Kentile were
assigned for the benefit of creditors and are currently being liquidated.
In connection with the write-off of the Registrant's investment in
Kentile, a pretax charge of approximately $6 million, including estimated
costs of disposition was recorded in 1995. Additional costs could be
incurred by the Registrant as a result of this matter. Management will
continue to monitor this situation closely, including the values received
upon the disposition of the Kentile assets.
F-11
<PAGE>
In addition, the accompanying consolidated statements of operations
include operating losses of Kentile during 1995, incurred prior to its
closure, of approximately $2.3 million, on a pre-tax basis.
Revenues applicable to discontinued operations, which includes $19,613
for Kentile in 1995, were $19,985 in 1997, $18,883 in 1996 and $39,920 in
1995.
(3) REAL PROPERTY HELD FOR RENTAL:
The Registrant is the lessor of real estate under operating leases which
expire in various years through 2078.
The following is a summary of real property held for rental at December
31-
1997 1996
------------ -------------
Land $14,075 $12,462
Buildings 110,271 114,414
------------ -------------
124,346 126,876
Less- Accumulated depreciation (65,768) (61,187)
------------ -------------
$58,578 $65,689
============ =============
As of December 31, 1997, total minimum future rentals to be received
under noncancellable leases for each of the next five years and
thereafter are as follows-
Year Ended December 31-
1998 $17,276
1999 16,209
2000 14,566
2001 12,873
2002 11,226
Thereafter 54,822
-------------
Total Minimum Future Rentals $126,972
=============
Minimum future rentals do not include additional rentals that may be
received under certain leases which provide for such rentals based upon a
percentage of lessees' sales. Percentage rents included in the
determination of income from operations in 1997, 1996 and 1995 were
approximately $1,603, $1,045 and $1,029, respectively.
F-12
<PAGE>
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is principally used in the Registrant's
manufacturing operations and consists of the following at December 31-
1997 1996
----------- -----------
Land $37 $37
Buildings and improvements 963 894
Machinery and equipment 7,193 6,236
----------- -----------
8,193 7,167
Less- Accumulated depreciation (3,894) (3,053)
----------- -----------
$4,299 $4,114
=========== ===========
(5) MARKETABLE SECURITIES:
The aggregate market value of marketable securities, which are all equity
securities and available-for-sale, was $355 and $313 at December 31, 1997
and 1996, respectively, while gross unrealized holding gains were $136
and $109 on a net of tax basis, respectively.
There were no sales of marketable securities in 1997 or 1996. Proceeds
from the sales of securities, which were designated as available-for-sale
in all years presented and the resulting gross realized gains and losses
included in the determination of net income for the year ended December
31, 1995 are as follows-
1995
---------
Proceeds $729
=========
Realized gains $230
=========
Realized losses $0
=========
(6) NOTES RECEIVABLE:
Notes receivable consist of the following at December 31-
1997 1996
----------- -----------
High yield mortgage loans (a) $3,226 $13,499
Mortgage note receivable (b) 3,355 0
Mortgage note receivable (c) 3,249 3,249
Mortgage participation (d) 1,147 0
Mortgage notes receivable (e) 633 665
Due from related party (Note 14) 398 468
Other 255 299
----------- -----------
12,263 18,180
Less- Current portion included in notes
and accounts receivable 4,907 12,248
----------- -----------
$7,356 $5,932
=========== ===========
F-13
<PAGE>
(a) In 1997, the Registrant participated in several high yield
mortgage loans which in certain instances, may include related
party participants (see Note 14). At December 31, 1997 there are
four notes outstanding with balances ranging from $250 to
$1,851, with varying terms maturing from March 1998 to December
1998. The notes are secured by a first or second mortgage lien
on property which is generally fully leased with a substantial
value-to-loan ratio. Management believes that sufficient
collateral exists to satisfy the obligations. The notes are
interest bearing and in most cases, the Registrant receives a
commitment fee of 4%. The effective yields on these notes are
approximately 18%. High yield mortgage loans at December 31,
1996 consisted of nine notes (see Note 14). Seven of these notes
were fully satisfied in 1997 and two were extended to 1998.
(b) In September 1997, the Registrant purchased a non performing
mortgage secured by an office building in Great Neck, New York
for $3.4 million. The mortgage note had a face amount
outstanding of approximately $4.8 million and bears interest at
approximately 10% per annum. Management believes that the fair
value of the property exceeds the purchase price of the mortgage
note. The Registrant has commenced foreclosure proceedings and
expects to take title to the property unless the mortgage is
fully satisfied.
(c) In February 1994, the Registrant acquired the underlying
mortgage secured by Kentile Floors Inc.'s South Plainfield, New
Jersey facility for $2.25 million plus the assumption of certain
liabilities in connection with operating and maintaining the
property. The mortgage note has a face amount outstanding of
approximately $6.5 million plus delinquent accrued interest.
Included in the carrying value of the mortgage note receivable
are costs associated with readying the underlying property for
rental. Management believes that the fair value of the property
exceeds the carrying value of the mortgage note.
(d) In October 1997, the Registrant, together with two unrelated
participants, purchased an 8.5% interest ("the Participation")
in a portfolio of mortgage loans secured by first liens on 17
multi-tenanted residential properties. At the time of the
acquisition the portfolio had outstanding approximately $24.4
million in principal and stated interest rates ranging between
6.82% and 9.4%. The Participation, in which the Registrant holds
a 78% interest, was purchased for $2 million and is subordinate
to the interest of a bank who is the holder of the remaining
balance of the portfolio, which had been recently acquired at a
4% discount to face value. In exchange for a 50% interest in the
discount, upon collection, the holders of the Participation have
agreed, in the event of default, to indemnify the bank for
payments that come due on the underlying mortgages, as well as
costs incurred in the event of foreclosure, up to a limit of $5
million. The underlying mortgages, which had an outstanding
balance of approximately $18.1 million at December 31, 1997, are
scheduled to mature at varying dates through November 1998 and
are all expected to be satisfied through refinancings by such
time.
(e) As partial consideration in the sale of several properties, the
Registrant received mortgage notes in the aggregate amount of
$1.88 million. The notes, which are secured by the properties
sold, bore interest in 1997 and 1996 at various rates ranging
between 9% and 10.25% and bear interest in future periods at
rates ranging between 9% and 11%. Interest under the notes is
due monthly. Principal repayment terms vary with periodic
installments through December 2008.
F-14
<PAGE>
In accordance with generally accepted accounting principles, the
gains from the sales of certain of these properties are being
recognized under the installment method, and accordingly, the
carrying value of noncurrent notes receivable has been reduced
by deferred gains of approximately $799 and $849 at December 31,
1997 and 1996, respectively. The deferred gains are being
recognized as income as payments are received under the note.
(7) OTHER ASSETS:
Other assets consist of the following at December 31-
<TABLE>
<CAPTION>
1997 1996
---------- -------------
<S> <C> <C>
Anticipated insurance recoveries (a) $2,893 $2,893
Deposits 638 851
Pension (Note 17) 722 572
Cash surrender value of life insurance policies, net 245 236
Patents, net of accumulated amortization 140 157
Investments in and advances to affiliates (b) 1,510 1,307
Lease financing (c) 4,907 0
Other 422 486
---------- -------------
11,477 6,502
Less- Amounts included in prepaid expenses and
other current assets 292 706
---------- -------------
Total other assets $11,185 $5,796
========== =============
</TABLE>
(a) The Registrant has recorded the anticipated recoveries from its
insurance carriers in connection with the environmental
investigation and remediation costs to be incurred at two of its
manufacturing sites in New Jersey. ( See Note 19,
"Contingencies.")
(b) Through its subsidiaries, the Registrant owns a 50% interest in
Indian Creek Hotel, LLP, a Miami, Florida hotel operated as a
Holiday Inn. The hotel began operations in January 1997 and the
Registrant's share of losses incurred through December 31, 1997
was approximately $340, which have been recorded under the
equity method of accounting in other income and expense (See
Notes 14 and 16).
(c) Lease financing consists of a 50% interest in Net Lease
Management Partners, L.L.C., whose principal assets are two
leveraged leases with Kmart Corporation. Income on leveraged
leases is recognized by a method which produces a constant rate
of return on the outstanding investment in the lease net of the
related deferred tax liability in the years in which the
investment is positive. The components of the net investment in
the leveraged leases at December 31 consists of the following-
F-15
<PAGE>
1997
------------
Rentals receivable $97,630
Residual values 10,000
Non recourse debt service (75,470)
Unearned income (27,253)
----------
4,907
Less- Deferred taxes arising
from leveraged leases 268
==========
$4,639
==========
(8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following at
December 31-
1997 1996
---------- ------------
Accounts payable $3,768 $4,296
Accrued wages and benefits 2,056 1,993
Liabilities for discontinued operations 2,792 2,816
Other accrued expenses 5,513 5,008
---------- ------------
$14,129 $14,113
========== ============
(9) LONG-TERM DEBT:
Long-term debt consists of the following at December 31-
1997 1996
-------- ----------
First mortgages on real property (a) $29,332 $34,366
Second mortgages on real property (b) 273 316
Loan payable to bank (c) 1,733 2,363
Capital lease obligation 454 0
Loan payable to bank at 6.2% 0 741
Loan payable to bank at 6.3% 0 208
Other 0 2
--------- -----------
31,792 37,996
Less- Current maturities 5,232 6,326
--------- -----------
$26,560 $31,670
========= ===========
(a) First mortgages bearing interest at rates ranging from 4% to
10.5% per annum are collateralized by the related real property.
Such amounts are scheduled to mature at various dates from May
1998 through February 2010.
F-16
<PAGE>
(b) Second mortgages bearing interest at rates of approximately
10.125% per annum are collateralized by the related real
property. Such amounts are scheduled to mature at various dates
from October 2001 through November 2002.
(c) In August 1995, the Registrant converted $3.15 million
outstanding under its then existing revolving credit facility to
a fixed rate note at 7.94% per annum. The note is due in 60
equal principal installments, together with accrued interest
thereon, through September 2000. The loan agreement contains,
among other things, several financial covenants regarding net
worth and debt-to-equity ratios. The Registrant was in
compliance with all covenants.
The approximate aggregate maturities of these obligations at December
31, 1997 are as follows-
<TABLE>
<CAPTION>
Long-Term Capital Lease
Debt Obligation
--------------- --------------------
<S> <C> <C> <C>
1998 $5,141 $124
1999 4,625 124
2000 4,552 124
2001 3,939 124
2002 3,360 40
Thereafter 9,721 0
----------- ----------
Total minimum payments $31,338 536
===========
Less- Amount representing interest 82
----------
Total present value of minimum lease payments 454
Less- Current portion 91
----------
Total noncurrent portion $363
==========
</TABLE>
(10) CREDIT FACILITIES:
Effective September 30, 1997, the Registrant amended its January 15,
1997 Credit Agreement with two banks to provide for both a $7 million
term loan ("Term Loan") and a $40 million revolving credit facility
("Revolver") and converted $7 million of amounts outstanding under the
Revolver to borrowings under the Term Loan. Under the terms of the
Credit Agreement, the Registrant will be provided with eligibility
based upon the sum of (i) 50% of the aggregate annualized and
normalized year-to-date net operating income of eligible properties, as
defined, capitalized at 11.5% and (ii) the lesser of $12 million or the
sum of 75% of eligible accounts receivable and 50% of eligible
inventory, as defined. Eligibility is also limited by amounts
outstanding under the Term Loan. At December 31, 1997 the Registrant's
eligibility under the Revolver was $40 million, based upon the above
terms. The Credit Agreement contains certain financial and restrictive
covenants, including minimum consolidated equity, interest coverage,
debt service coverage and capital expenditures (other than for real
estate). The Credit Agreement also contains provisions which allow the
lenders to perfect a security interest in certain operating and real
estate assets in the event of a default, as defined under the terms of
the Credit Agreement. Borrowings under the Revolver, at the
registrant's option, bear interest at the bank's prime lending rate
("Prime") or at the London Interbank Offered Rate ("LIBOR") plus 1.75%
while borrowings under the Term Loan bear interest at 90 day LIBOR plus
1.4%. The Term Loan is payable in quarterly principal installments of
$350 with final payment on
F-17
<PAGE>
September 30, 2002. The Revolver expires on January 15, 2000. At
December 31, 1997 approximately $4.6 million was outstanding under the
Revolver at Prime (8.5%) and $6,650 was outstanding on the Term Loan.
Maturities under the Term Loan are $1.4 million per year for 1998
through 2001 and $1,050 in 2002. The Registrant was in compliance with
all covenants. All amounts outstanding under the Revolver were paid in
January 1998.
Effective September 30, 1997, the Registrant entered into an
interest-rate swap agreement to effectively convert its floating rate
Term Loan to a fixed rate basis, thus reducing the impact of interest
rate changes on future expense. Under the swap agreement, the
Registrant agreed to exchange with the counterparty (a commercial bank)
the difference between the fixed and floating rate interest amounts.
The differential to be paid or received on the interest rate swap is
recognized over the term of the agreement as an adjustment to interest
expense.
At December 31, 1996, $19.8 million was outstanding at Prime (8.25%)
under the Registrant's then existing unsecured line of credit
arrangement with a bank. On January 15, 1997 borrowings under this
facility were converted to borrowings under the Revolver portion of the
Credit Agreement discussed above. At December 31, 1996, the Registrant
classified approximately $9.8 million of borrowings under the Revolver
portion of the Credit Agreement, discussed above, as long-term debt.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Registrant has limited involvement with financial instruments and
does not use them for trading purposes. The following methods and
assumptions were used by the Registrant in estimating its fair value
disclosures for financial instruments-
The carrying amount reported in the consolidated balance sheets for
cash and cash equivalents and accounts receivable approximate their
fair value.
The fair value of fixed rate notes receivable are estimated using
discounted cash flow analyses, with interest rates comparable on
loans with similar terms and borrowers of similar credit quality. The
carrying amounts of notes receivable approximate fair value.
Marketable securities held for investment purposes are carried at
fair value based on quoted market prices or dealer quotes. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
Carrying amounts of borrowings under the revolving credit facilities
approximate their fair value. The fair value of the long-term debt
was calculated based on interest rates available for debt with terms
and due dates similar to the Registrant's existing debt arrangements.
The fair value of long-term debt at December 31, 1997 and 1996 was
approximately $32.2 and $38.2 million respectively, while the
carrying value was $31.8 and $37.9 million for the same periods.
The fair value of interest rate swaps (used for hedging purposes) is
the estimated amount that the bank would receive or pay to terminate
the swap agreements at the reporting date, taking into account
current interest rates and the current creditworthiness of the swap
counterparties. At December 31, 1997, the fair value of the swap was
estimated at ($63).
F-18
<PAGE>
(12) STOCKHOLDERS' EQUITY:
STOCK OPTIONS-
The Registrant has two stock option plans under which qualified and
nonqualified options may be granted to key employees to purchase the
Registrant's common stock at the fair market value at the date of
grant. Under both plans, the options typically become exercisable in
three equal installments, beginning one year from the date of grant.
The 1988 Incentive Stock Option Plan (the "Incentive Plan") provides
for the granting of incentive stock options not to exceed 325,000
options in the aggregate. The 1988 Joint Incentive and Non-Qualified
Stock Option Plan (the "Joint Plan") provides for the granting of
incentive or nonqualified stock options, also not to exceed 325,000
options in the aggregate.
At December 31, 1997, there were 262,130 and 216,751 options
outstanding under the Joint Plan and Incentive Plan, respectively. At
December 31, 1996, 118,367 and 51,061 options were outstanding under
the Joint Plan and Incentive Plan, respectively.
In addition to options outstanding under the Joint Plan and Incentive
Plan, at December 31, 1995 there were 180,000 options outstanding at
$5.50 per share. Such options were granted to Directors and certain
officers of the Registrant at $5.50 per share, which price was equal
to the market value per share on the date of grant. During 1996, all
such options were exercised. Approximately $490 of compensation
expense was recognized in 1996 resulting from the exercise and
repurchase of such options by two Directors of the Registrant.
A summary of the Registrant's stock options as of December 31, 1997,
1996 and 1995, and changes during the years then ended are summarized
below-
Weighted-
Average
Shares Exercise Price
----------- ---------------
Outstanding at December 31, 1994 349,110 $7.53
Exercised (700) $5.00
Forfeited (3,484) $10.51
---------
Outstanding at December 31, 1995 344,926 $7.51
Granted 20,000 $7.25
Exercised (185,250) $5.48
Forfeited (10,248) $7.49
---------
Outstanding at December 31, 1996 169,428 $9.45
Granted 319,381 $17.31
Exercised (6,700) $9.48
Forfeited (3,228) $10.88
=========
Outstanding at December 31, 1997 478,881 $14.68
=========
F-19
<PAGE>
The following table summarizes information about options outstanding
and exercisable at December 31, 1997-
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- ---------------------- ----------------- ----------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$5.00 - $7.25 49,500 4.18 years $5.91 49,500 $5.91
$10.875 - $11.00 110,000 5.96 years $11.00 110,000 $11.00
$17.00 - $18.75 319,381 9.47 years $17.31 0 $0
------------- ----------------
$5.00 - $18.75 478,881 8.11 years $14.68 159,500 $9.42
============= ================
</TABLE>
The Registrant applies APB No. 25 in accounting for stock-based
compensation plans. If stock-based compensation costs had been
recognized based on the estimated fair values at the dates of grant of
options awarded during 1997, as required by Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation
to Employees" ("SFAS No. 123") proforma net income and net income per
share (basic) would have been approximately $8,091 or $1.53 per share,
respectively. Proforma compensation costs for the Registrant's stock
option plans determined based on the fair value at the grant date for
1996 awards under those plans, consistent with the method of SFAS No.
123, were not material. There were no options granted in 1995. The SFAS
No. 123 method of accounting has not been applied to periods prior to
January 1, 1995 and the resulting proforma compensation expense may not
be indicative of proforma expense in future years. For purposes of
estimating the fair value of each option on the date of grant, the
Registrant utilized the Black-Scholes option pricing model with the
following assumptions for 1997 and 1996; risk free interest rates of
6.27% and 5.84%, respectively; no dividend yield; weighted average
expected option lives of 5 years and 3 years, respectively, and
expected volatility of 39% and 40%, respectively.
(13) EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share-
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ------------
Numerator-
<S> <C> <C> <C>
Income from continuing operations $7,465 $6,634 $3,910
----------- ------------ ------------
Denominator-
Denominator for basic earnings per
share--weighted-average shares 5,288 5,497 5,816
Effect of dilutive securities-
Employee stock options 51 10 77
----------- ------------ ------------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions 5,339 5,507 5,893
----------- ------------ ------------
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Basic earnings per share $1.41 $1.21 $.67
=========== ============ ============
Diluted earnings per share $1.40 $1.20 $.66
=========== ============ ============
</TABLE>
(14) TRANSACTIONS WITH RELATED PARTIES:
The Registrant has a 50% interest in an unconsolidated limited
liability corporation, whose principal assets are two leveraged leases
with Kmart. A group that includes the wife of the Board Chairman, two
Directors of the Registrant and the wife of one of the Directors have
an 8% interest in this entity (see Note 7).
In September 1996, the Registrant purchased a 50% interest in a limited
partnership that owns and operates a hotel in Miami Beach, Florida.
Through December 31, 1997, the Registrant has invested approximately
$1,168 for its equity interest. In September 1996, the Registrant
participated in a $2.5 million loan transaction to the limited
partnership secured by a mortgage lien against the property. The
Registrant advanced approximately $683 in connection with this note.
The remaining amounts were advanced by the following: a Director of the
Registrant, $250; the wife of the Board Chairman, $1 million; an
officer of the Registrant $100; and the balance by unrelated parties.
All amounts invested in and advanced to the partnership by the
Registrant have been classified as investments in and advances to
affiliate and are included in other assets in the consolidated
financial statements. The note bears interest at 14% per annum payable
monthly and the participants also received a commitment fee of 4%. This
note matured in September 1997 and was extended in accordance with
original terms of the note, for one year, in consideration of a 4%
commitment fee.
In 1996 and 1997, in order to effectively manage the cost to the
Registrant of the remediation efforts at Metex Corporation's ("Metex")
two New Jersey facilities (see Note 19), the Registrant sold, in total,
approximately a 4% interest for $40 in a subsidiary that manages the
Registrant's environmental remediation efforts to an Officer and
Director of the Registrant and other employees, as well as an interest
to the Registrant's environmental consulting company. These shares
contain certain restrictions on transfer and, under certain
circumstances, are redeemable at the net book value of the subsidiary.
In May 1995, the Registrant participated in a $4.5 million loan
transaction secured by an assignment of a mortgage note covering a
commercial office building in New York City. The Registrant advanced
approximately $2.5 million in connection with this loan. The remaining
amounts were advanced by the following: a Director of the Registrant,
$500; the wife of the Board Chairman, $1.45 million; and the balance by
unrelated parties. The note bore interest at 14% per annum, and was
fully satisfied together with accrued interest in August 1996. The
participants also received a commitment fee of 4% in connection with
the loan. A Director of the Registrant was a shareholder of the
borrower and also a guarantor under the note.
The Registrant's two hotel properties are managed by a publicly traded
company for which the Board Chairman and another Director of the
Registrant are directors. Fees paid for the management of these
properties is based upon a percentage of revenue and were approximately
$143, $159 and $120 for 1997, 1996 and 1995, respectively.
F-21
<PAGE>
During 1997 and 1996 the Registrant advanced, in the aggregate, $398
and $468, respectively, to the Board Chairman and $375 in 1997 to a
Director and Officer of the Registrant. Such advances bore interest at
the Registrant's borrowing rate under its revolving credit facility
which was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
Amounts outstanding at December 31, 1997 and 1996 of $398 and $468,
respectively, together with accrued interest thereon were repaid in
January 1998 and 1997, respectively.
(15) INCOME TAXES:
Deferred income taxes are determined on the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred
tax assets and liabilities are determined based on the difference
between the tax basis of an asset or liability and its reported amount
in the consolidated financial statements using enacted tax rates.
Future tax benefits attributable to these differences are recognized to
the extent that realization of such benefits is more likely than not.
Deferred tax assets primarily arose from basis differences of real
properties held for rental for financial statement and income tax
purposes. Based upon the Registrant's historical and projected levels
of pretax income, management believes it is more likely than not that
the Registrant will realize such benefits in the future and,
accordingly, no valuation reserve has been recorded.
The components of the net deferred tax asset (liability) at December
31, follows-
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Realization allowances related to
accounts receivable and inventories $259 $217
Net unrealized gain on marketable securities (70) (56)
Basis differences relating to real
property held for rental 3,990 3,292
Environmental accrual 2,380 2,380
Insurance proceeds (2,380) (2,380)
Accrued expenses, deductible when paid 2,476 2,587
Deferred revenue and profit (for tax purposes) 112 (163)
Basis differences relating to business acquisitions (1,859) (1,859)
Leveraged lease (268) 0
Property, plant and equipment (606) (610)
Pensions (49) (200)
Other, net 200 33
------------ -----------
Net deferred tax asset 4,185 3,241
Less- Current portion 1,219 1,355
------------ -----------
Noncurrent portion $2,966 $1,886
============ ===========
</TABLE>
F-22
<PAGE>
Income tax provision (benefit) reflected in the accompanying
consolidated statements of operations for the years ended December 31,
follows-
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ------------
<S> <C> <C> <C>
Current-
Federal $4,823 $4,589 $2,791
State 1,860 1,838 1,224
Deferred (873) (1,018) (845)
---------- ----------- ------------
$5,810 $5,409 $3,170
========== =========== ============
</TABLE>
A reconciliation of the tax provision computed at statutory rates to
the amounts shown in the accompanying consolidated statements of
operations for the years ended December 31, follows-
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ------------
<S> <C> <C> <C>
Computed Federal income
tax provision at statutory rates $4,513 $4,094 $2,407
State income taxes, net of
Federal income tax benefit 1,272 1,266 829
Other, net 25 49 (66)
---------- ----------- ------------
$5,810 $5,409 $3,170
========== =========== ============
</TABLE>
(16) OTHER INCOME AND EXPENSE, NET:
The components of other income and expense, net in the accompanying
consolidated statements of operations for the years ended December 31,
follows-
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Gain on sales of real estate assets $3,481 $3,919 $ 865
Net realized gains on marketable
securities 0 0 230
(Loss) income from equity investments (a) (263) 0 4
Settlement income (b) 0 1,443 0
Other, net (c) 44 (561) 546
----------- ----------- ------------
$3,262 $4,801 $1,645
=========== =========== ============
</TABLE>
(a) Loss from equity investments principally represents the
Registrant's share of losses incurred by Indian Creek Hotel, LLP
(See Note 7), partially offset by nonrecurring cash
distributions received by the Registrant in connection with
interests held in certain real estate ventures which were
acquired in the 1991 merger with BMG Equities Corp. Such
investments were valued at historical cost at the date of
acquisition.
(b) In December 1996, the Registrant received approximately $1.4
million in settlements of all claims from an investment that was
principally written off in 1990.
F-23
<PAGE>
(c) In March 1991, the Registrant was named as a defendant in a suit
by certain investors and limited partners seeking actual,
punitive and treble damages in a total unspecified amount. While
management continued to believe that the allegations of the
action were false and without merit, as a result of escalating
defense costs and the continued likelihood of extended
litigation, the Registrant settled this matter in April 1996 for
approximately $425, after taxes.
(17) RETIREMENT PLAN:
The Registrant has a noncontributory defined benefit pension plan that
covers substantially all full-time employees of the engineered products
segment and the former employees of the Registrant's discontinued
resilient vinyl flooring segment.
The following table sets forth the funded status of the plan and
amounts recognized in the Registrant's consolidated financial
statements as of December 31-
<TABLE>
<CAPTION>
1997 1996
------------ --------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $8,696 $8,659
Nonvested 187 171
------------ --------------
$8,883 $8,830
============ ==============
Plan assets at fair value, primarily U. S. bonds,
government-backed mortgage obligations and stocks $12,643 $12,904
Projected benefit obligation (9,052) (8,983)
------------ --------------
Plan assets in excess of projected benefit obligation 3,591 3,921
Effect of purchase accounting (156) (156)
Unrecognized net gain, net of amortization (2,713) (3,193)
------------ --------------
Prepaid pension obligation $722 $572
============ ==============
</TABLE>
Net periodic pension (income) expense for the years ended December 31
includes the following components-
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ---------
<S> <C> <C> <C>
Service cost $325 $230 $197
Interest cost 626 643 145
Actual return on plan assets (1,013) (883) (199)
Net amortization and deferral (87) (102) 63
---------- ----------- ---------
Net periodic pension (income) expense ($149) ($112) $206
========== =========== =========
</TABLE>
In determining the projected benefit obligation for 1997 and 1996, the
weighted average assumed discount rate was 7.5%, while the rate of
expected increases in future salary levels was 3.5%. The expected
long-term rate of return on assets used in determining net periodic
pension cost for all years presented was 9%. No contributions were made
during 1997 or 1996.
F-24
<PAGE>
(18) BUSINESS SEGMENTS:
At December 31, 1997, the Registrant had two business segments: real
estate investment and management and the manufacture and sale of
engineered products. Information on the Registrant's business segments
for the years ended December 31 follows-
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
Net revenues and sales-
Real estate investment and management $24,042 $23,936 $22,652
Engineered products 36,204 42,055 41,688
------------- -------------- -------------
$60,246 $65,991 $64,340
============= ============== =============
Operating income (loss)-
Real estate investment and management $7,718 $6,195 $5,003
Engineered products 3,419 3,792 3,779
------------- -------------- -------------
11,137 9,987 8,782
General corporate expenses (2,329) (2,924) (3,082)
Other income, net 4,467 4,980 1,380
------------- -------------- -------------
Income from continuing
operations before income taxes $13,275 $12,043 $7,080
============= ============== =============
Identifiable assets-
Real estate investment and management $95,080 $99,292 $92,328
Engineered products 11,432 12,174 12,955
Discontinued operations 6,841 5,295 5,083
------------- -------------- -------------
$113,353 $116,761 $110,366
============= ============== =============
</TABLE>
Sales by the Registrant's engineered products segment to automobile
original equipment manufacturers accounted for approximately 31%, 32%
and 31% of 1997, 1996 and 1995 consolidated revenues, respectively.
Included in the identifiable assets of the real estate investment and
management segment for 1997, 1996 and 1995 are approximately $5.1,
$13.5 and $3.0 million, respectively, of high yield mortgage notes
receivable (see Note 6). Income generated by these notes receivable is
included in interest income. Also included in the identifiable assets
of the real estate investment and management segment for 1997, 1996 and
1995 are approximately $1.8, $1.8 and $1.9 million, respectively,
related to the former manufacturing facility of the Registrant's
antenna segment which has been reclassified to real property held for
rental. Operating expenses associated with this facility have also been
reclassified to this segment, but were not material to any of the years
presented.
(19) CONTINGENCIES:
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities.
F-25
<PAGE>
The process of remediation has begun at one facility pursuant to a plan
filed with the New Jersey Department of Environmental Protection and
Energy ("NJDEPE"). Environmental experts engaged by the Registrant
estimate that under the most probable remediation scenario the
remediation of this site is anticipated to require initial expenditures
of $860, including the cost of capital equipment, and $86 in annual
operating and maintenance costs over a 15-year period.
Environmental studies at the second facility indicate that remediation
may be necessary. Based upon the facts presently available,
environmental experts have advised the Registrant that under the most
probable remediation scenario, the estimated cost to remediate this
site is anticipated to require $2.3 million in initial costs, including
capital equipment expenditures, and $258 in annual operating and
maintenance costs over a 10-year period. The Registrant may revise such
estimates in the future due to the uncertainty regarding the nature,
timing and extent of any remediation efforts that may be required at
this site, should an appropriate regulatory agency deem such efforts to
be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the
NJDEPE or other regulatory agencies require additional or alternative
remediation efforts in the future. It is not currently possible to
estimate the range or amount of any such liability.
Although the Registrant believes that it is entitled to full defense
and indemnification with respect to environmental investigation and
remediation costs under its insurance policies, the Registrant's
insurers have denied such coverage. Accordingly, the Registrant has
filed an action against certain insurance carriers seeking defense and
indemnification with respect to all prior and future costs incurred in
the investigation and remediation of these sites. Upon the advice of
counsel, the Registrant believes that based upon a present
understanding of the facts and the present state of the law in New
Jersey, it is probable that the Registrant will prevail in the pending
litigation and thereby access all or a very substantial portion of the
insurance coverage it claims; however, the ultimate outcome of
litigation cannot be predicted.
At December 31, 1997 and 1996, a total of $2.9 million in anticipated
insurance recoveries is recorded in the accompanying consolidated
financial statements and is included in other assets. Additionally, in
1995 the Company received approximately $4.1 million of insurance
recoveries. The remaining balance of $2.9 million at December 31, 1997
(from a total of $7 million) is in dispute with the Registrant's
insurance carriers. Management believes that recoveries in excess of
the amounts reflected in the accompanying consolidated financial
statements are available under the insurance policies but have not been
recorded. There can be no assurances, however, that the Registrant will
prevail in its efforts to obtain amounts at or in excess of the
estimated recoveries.
In the opinion of management, these matters will be resolved favorably
and such amounts, if any, not recovered under the Registrant's
insurance policies will be paid gradually over a period of years and,
accordingly, should not have a material adverse effect upon the
business, liquidity or financial position of the Registrant. However,
adverse decisions or events, particularly as to the merits of the
Registrant's factual and legal basis could cause the Registrant to
change its estimate of liability with respect to such matters in the
future.
F-26
<PAGE>
The Registrant is involved in various other litigation and legal
matters which are being defended and handled in the ordinary course of
business. None of these matters are expected to result in a judgment
having a material adverse effect on the Registrant's consolidated
financial position or results of operations.
F-27
<PAGE>
SCHEDULE II
UNITED CAPITAL CORP. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Write-offs
Net of
Recoveries
Balance Charged of Accounts Balance
at to Previously at
Beginning Costs and Written End of
of Period Expenses Off Period
---------------- ------------- ----------------- ------------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
Year ended December 31, 1997 $377 $0 $51 $326
Year ended December 31, 1996 332 46 1 377
Year ended December 31, 1995 373 54 95 332
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these schedules.
F-28
<PAGE>
SCHEDULE III
UNITED CAPITAL CORP. AND SUBSIDIARIES
REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
Mortgage Initial Cost To Registrant Costs Capitalized
Loans -------------------------------------- Subsequent to
Payable Building and Acquisition/
Description (Gross) Land Improvements Improvements
----------- ------------- --------------- ------------------- -----------------
Shopping Centers and Retail Outlets-
<S> <C> <C> <C> <C>
Culver, CA $4,630 $842 $7,576 $0
Northbrook, IL 5,112 898 8,075 0
Miscellaneous Investments 16,365 5,377 47,516 938
---------- --------------- ------------------- -------------------
26,107 7,117 63,167 938
---------- --------------- ------------------- -------------------
Commercial Properties-
Miscellaneous Investments 2,102 2,997 27,666 613
Day Care Centers and Offices-
Miscellaneous Investments 512 643 5,786 1,133
Hotel Properties-
Miscellaneous Investments 0 0 2,868 48
Other-
Miscellaneous Investments 884 3,318 7,473 579
---------- --------------- ------------------- -------------------
$29,605 $14,075 $106,960 $3,311
========== =============== =================== ===================
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried at Close of Period
------------------------------------------------
Accumulated
Building and Total Depreciation
Description Land Improvements (a) (c) (b)
----------- --------------- ------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Shopping Centers and Retail Outlets-
Culver, CA $842 $7,576 $8,418 $4,623
Northbrook, IL 898 8,075 8,973 4,776
Miscellaneous Investments 5,377 48,454 53,831 30,433
--------------- ------------------- ---------------- ------------------
7,117 64,105 71,222 39,832
--------------- ------------------- ---------------- ------------------
Commercial Properties-
Miscellaneous Investments 2,997 28,279 31,276 15,714
Day Care Centers and Offices-
Miscellaneous Investments 643 6,919 7,562 5,918
Hotel Properties-
Miscellaneous Investments 0 2,916 2,916 2,868
Other-
Miscellaneous Investments 3,318 8,052 11,370 1,436
------------- ---------------- -------------- ---------------
$14,075 $110,271 $124,346 $65,768
============= ================ ============== ===============
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation
in Latest
Statement of
Operations is
Date of Date Computed
Description Construction Acquired (Years)
----------- ---------------- -------------- ----------------
<S> <C> <C> <C>
Shopping Centers and Retail Outlets-
Culver, CA N/A 1986 18
Northbrook, IL N/A 1987 18
Miscellaneous Investments N/A 1986-97 10-39
Commercial Properties-
Miscellaneous Investments N/A 1986-97 12-39
Day Care Centers and Offices-
Miscellaneous Investments N/A 1986-91 7-39
Hotel Properties-
Miscellaneous Investments N/A 1986-96 10-39
Other-
Miscellaneous Investments N/A 1986-97 10-39
</TABLE>
Notes:
(a) Reconciliations of the carrying value of real property held for rental for
the three years ended December 31, 1997 are as follows-
<TABLE>
<CAPTION>
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Real property held for rental at beginning of period $126,876 $128,135 $128,283
Additions during the period-
Acquisitions and improvements 2,276 3,480 3,189
Transfers from property, plant and equipment 0 2,195 0
Transfer to noncurrent notes receivable 0 0 (2,683)
------------- ---------- ----------
129,152 133,810 128,789
Deductions during period-
Cost of real estate sold 4,806 6,934 654
------------- ---------- ----------
$124,346 $126,876 $128,135
============= ========== ==========
</TABLE>
<PAGE>
(b) Reconciliations of accumulated depreciation for the three years ended
December 31, 1997 are as follows-
<TABLE>
<CAPTION>
1997 1996 1995
------------- ---------- ---------
<S> <C> <C> <C>
Accumulated depreciation at beginning of period $61,187 $58,122 $51,718
Additions during the period-
Provision for depreciation 5,836 6,588 6,770
Transfers from property, plant and equipment 0 159 0
Transfer to noncurrent notes receivable 0 0 (29)
------------- ---------- ---------
67,023 64,869 58,459
Deductions during period-
Accumulated depreciation of real estate sold 1,255 3,682 337
------------- ---------- ---------
$65,768 $61,187 $58,122
============= ========== =========
</TABLE>
(c) The aggregate cost for Federal income tax purposes is approximately $175,000
The accompanying notes to consolidated financial statements are an integral part
of these schedules.
F-29
<PAGE>
SCHEDULE IV
UNITED CAPITAL CORP. AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Description Interest Rate Final Maturity Date
----------- ------------- -------------------
<S> <C> <C>
Mortgage loans secured by Commercial Property-
Deer Park, NY 14% March 1998
Other - Two loans - Face amounts $325 or less Varies from 9% - 10% From August 2000 - December 2008
Mortgage loans secured by Hotels- Varies from 10% - 11% November 2001
Montgomery, AL
Beaumont, TX Varies from 8%-11% February 2002
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ 14% August 1998
Mortgage loans secured by Residential Property-
Miami Beach, FL 14% November 1998
Bronx, NY 7.44% June 1998
Brooklyn, NY 7.25% June 1998
Brooklyn, NY 7.64% April 1998
Other - Four loans - Face amounts $45 to $75 Varies from 7% - 9% From April 1998 - November 1998
Other - Four loans - Face amounts $90 to $140 Varies from 7% - 9% From April 1998 - November 1998
Mortgage loans secured by Mortgage Notes
Long Beach, NY 14% December 1998
</TABLE>
<TABLE>
<CAPTION>
Description Periodic Payment Terms
----------- ----------------------
<S> <C>
Mortgage loans secured by Commercial Property-
Deer Park, NY Interest due monthly; with principal due at maturity
Other - Two loans - Face amounts $325 or less Principal and interest due monthly
Mortgage loans secured by Hotels- Principal and interest due monthly, additionally,
Montgomery, AL there is a principal payment of $153 due in November 1998
Principal and interest due monthly, additionally, there
Beaumont, TX is a principal payment $773 due in February 2002
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ Interest due monthly, with principal due at maturity
Mortgage loans secured by Residential Property-
Miami Beach, FL Interest due monthly, with principal due at maturity
Bronx, NY Interest due monthly, with principal due at maturity
Brooklyn, NY Interest due monthly, with principal due at maturity
Brooklyn, NY Interest due monthly, with principal due at maturity
Other - Four loans - Face amounts $45 to $75 Interest due monthly, with principal due at maturity
Other - Four loans - Face amounts $90 to $140 Interest due monthly, with principal due at maturity
Mortgage loans secured by Mortgage Notes
Long Beach, NY Interest due monthly, with principal due at maturity
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
of Loans Subject
Carrying to Delinquent
Prior Face Amount Amount of Principal or
Description Liens of Mortgages Mortgages (b) Interest
----------- ------------ --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Mortgage loans secured by Commercial Property-
Deer Park, NY $3,550 $300 $250 $0
Other - Two loans - Face amounts $325 or less 0 370 62 0
------------ --------------- --------------- ---------
3,550 670 312 0
------------ --------------- --------------- ---------
Mortgage loans secured by Hotels-
Montgomery, AL 0 610 207 0
Beaumont, TX 0 900 365 0
------------ --------------- --------------- ---------
0 1,510 572 0
------------ --------------- --------------- --------
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ 4,500 1,851 1,851 0
------------ --------------- --------------- --------
Mortgage loans secured by Residential Property-
Miami Beach, FL 15,500 525 525 0
Bronx, NY 0 163 157 0
Brooklyn, NY 0 182 175 0
Brooklyn, NY 0 168 161 0
Other - Four loans - Face amounts $45 to $75 0 257 247 0
Other - Four loans - Face amounts $90 to $140 0 426 406 0
------------ --------------- --------------- --------
15,500 1,721 1,671 0
Mortgage loans secured by Mortgage Notes
Long Beach, NY 0 600 600 0
------------ --------------- --------------- --------
$23,550 $6,352 $5,006 (a)(c) $0
============ =============== =============== ========
</TABLE>
NOTES:
(a) A reconciliation of mortgage loans on real estate for the year ended
December 31, 1997-
Balance at beginning of period $14,164
Additions during period-
New mortgage loans 3,681
Deductions during period-
Collection of principal (12,839)
----------
Balance at end of period $5,006
==========
(b) In accordance with generally accepted accounting principles certain gains
from the sale of real property are being recognized under the installment
method and, accordingly, notes receivable have been reduced by the
following deferred gains at December 31, 1997:
Mortgage note receivable in connection with sale of property in:
Montgomery, Alabama $227
Beaumont, Texas 447
Waterbury, Connecticut 101
Augusta, Georgia 24
----------
$799
==========
(c) The carrying value for Federal income tax purposes is substantially equal
to the carrying amount for book purposes.
The accompanying notes to consolidated financial statements are an integral part
of these schedules.
F-30
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
FOR THE YEAR 1997:
<S> <C> <C> <C> <C>
Revenues $15,200 $16,092 $14,379 $14,575
============= ============= ============= =============
Costs and expenses $13,640 $13,274 $12,523 $12,001
============= ============= ============= =============
Other income $2,789 $523 $233 $922
============= ============= ============= =============
Income from continuing operations $2,386 $1,886 $1,071 $2,122
============= ============= ============= =============
Income from discontinued operations,
net of tax $249 $104 $448 $215
============= ============= ============= =============
Net income $2,635 $1,990 $1,519 $2,337
============= ============= ============= =============
Per share data:
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $.45 $.36 $.20 $.40
Discontinued operations, net of tax $.05 $.02 $.09 $.04
------------- ------------- ------------- -------------
Net income per common share $.50 $.38 $.29 $.44
============= ============= ============= =============
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $.45 $.35 $.20 $.39
Discontinued operations, net of tax $.05 $.02 $.08 $.04
------------- ------------- ------------- -------------
Net income per common share assuming
dilution $.50 $.37 $.28 $.43
============= ============= ============= =============
FOR THE YEAR 1996:
Revenues $16,967 $16,893 $16,818 $15,313
============= ============= ============= =============
Costs and expenses $15,647 $15,723 $14,852 $12,706
============= ============= ============= =============
Other income $463 $2,564 $430 $1,523
============= ============= ============= =============
Income from continuing operations $1,028 $2,221 $1,408 $1,977
============= ============= ============= =============
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income (loss) from discontinued operations,
net of tax ($82) ($321) ($421) $27
============= ============= ============= =============
Net income $946 $1,900 $987 $2,004
============= ============= ============= =============
Per share data:
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $.18 $.40 $.26 $.37
Discontinued operations, net of tax ($.01) ($.06) ($.08) $.00
------------- ------------- ------------- -------------
Net income per common share $.17 $.34 $.18 $.37
============= ============= ============= =============
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $.18 $.40 $.26 $.37
Discontinued operations, net of tax ($.01) ($.06) ($.08) $.00
------------- ------------- ------------- -------------
Net income per common share --
assuming dilution $.17 $.34 $.18 $.37
============= ============= ============= =============
</TABLE>
Notes to quarterly financial data
(1) The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards
No. 128, "Earnings per Share".
F-32
$40,000,000
REVOLVING CREDIT AGREEMENT
dated as of January 15, 1997
among
UNITED CAPITAL CORP., as Borrower,
and
THE CHASE MANHATTAN BANK and
FLEET BANK, NATIONAL ASSOCIATION, as Banks
and
THE CHASE MANHATTAN BANK, as Administrative Agent
and
FLEET BANK, NATIONAL ASSOCIATION, as Syndication Agent
<PAGE>
LIST OF EXHIBITS
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C FORM OF ENVIRONMENTAL INDEMNITY
EXHIBIT D FORM OF GUARANTY
EXHIBIT E FORM OF SECURITY AGREEMENT
EXHIBIT F FORM OF OPINION
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Page
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS 1
Section 1.1. Definitions 1
Section 1.2. Accounting Terms 13
ARTICLE 2. CREDIT FACILITY 13
Section 2.1. Loans 13
Section 2.2. The Notes 13
Section 2.3. Use of Proceeds 13
Section 2.4. Borrowing Procedure for Loans; Rate
and Interest Period Selection; Conversions 14
Section 2.5. Minimum Amounts of Loan 15
Section 2.6. Reduction of Commitments 15
ARTICLE 3. GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS 16
Section 3.1. Certain Notices 16
Section 3.2. Prepayments 16
Section 3.3. Interest on Loans 17
Section 3.4. Commitment Fee 18
Section 3.5. Administrative Fee 18
Section 3.6. Syndication Fee 18
Section 3.7. Payments Generally 18
Section 3.8. Interim Adjustments to Borrowing Base. 19
ARTICLE 4. YIELD PROTECTION, ETC. 20
Section 4.1. Certain Compensation 20
Section 4.2. Additional Costs 21
Section 4.3. Limitation on Types of Loans 23
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Section 4.4. Illegality 23
Section 4.5. Certain LIBOR Loans
Pursuant To Sections 4.2. 4.3 and 4.4 23
Section 4.6. Survival 24
ARTICLE 5. CONDITIONS PRECEDENT 24
Section 5.1. Documentary Conditions Precedent 24
Section 5.2. Additional Conditions Precedent 27
ARTICLE 6. REPRESENTATIONS AND WARRANTIES 28
Section 6.1. Incorporation, Good Standing and Due
Qualifications; Compliance with Law 28
Section 6.2. Power and Authority; No Conflicts 28
Section 6.3. Legally Enforceable Agreements 29
Section 6.4. Litigation 29
Section 6.5. Financial Statements; Other Liabilities 29
Section 6.6. Ownership and Liens 30
Section 6.7. Taxes 30
Section 6.8. ERISA 30
Section 6.9. Subsidiaries 30
Section 6.10. Credit Arrangements 30
Section 6.11. Operation of Business 30
Section 6.12. Hazardous Substances. 31
Section 6.13. No Default on Outstanding Judgments or Orders 31
Section 6.14. Labor Disputes and Acts of God 31
Section 6.15. Governmental Regulation 31
Section 6.16. Partnership, Etc. 31
Section 6.17. No Forfeiture Proceedings 31
Section 6.18. No Default or Event of Default 32
Section 6.19. Solvency 32
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Section 6.20. Name 32
Section 6.21. Other Agreements 32
Section 6.22. Eligible Properties 32
Section 6.23. Title Insurance 32
ARTICLE 7. AFFIRMATIVE COVENANTS 32
Section 7.1. Maintenance of Existence 33
Section 7.2. Conduct of Business 33
Section 7.3. Maintenance of Properties 33
Section 7.4. Maintenance of Records 33
Section 7.5. Maintenance of Insurance 33
Section 7.6. Compliance with Laws 33
Section 7.7. Right of Inspection 33
Section 7.8. Reporting Requirements 34
Section 7.9. Payment of Obligations 37
Section 7.12. Condemnation. 39
Section 7.13. Subsidiaries 39
ARTICLE 8. NEGATIVE COVENANTS 39
Section 8.1. Indebtedness 39
Section 8.2. Liens 40
Section 8.3. Investments 41
Section 8.4. Sale of Assets 41
Section 8.5. Transactions with Affiliates 42
Section 8.6. Mergers, Etc. 42
Section 8.7. Acquisitions 42
Section 8.8. No Activities Leading to Forfeiture 42
Section 8.9. Corporate Documents; Fiscal Year 42
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Section 8.10. Hazardous Substances; Use of Real Property 42
Section 8.11. Dividends, etc. 43
Section 8.12. Other Material Adverse Change 43
Section 8.13. Sales of Receivables; Sale-Leasebacks 43
Section 8.14. Leases of Eligible Properties 43
Section 8.15. Maintenance of Real Estate Assets. 43
ARTICLE 9. FINANCIAL COVENANTS 43
Section 9.1. Limitation on Indebtedness. 44
Section 9.2. Minimum Equity Value 44
Section 9.3. Minimum Interest Coverage Ratio 44
Section 9.4. Minimum Debt Service Coverage Ratio 44
Section 9.5. Minimum Eligible Properties Debt Service Coverage Ratio 44
Section 9.6. Limitation of Capital Expenditures 44
Section 9.7. Limitation on Operating Leases 44
ARTICLE 10. EVENTS OF DEFAULT 44
Section 10.1. Events of Default 44
Section 10.2. Remedies 46
ARTICLE 11. THE AGENT; RELATIONS AMONG BANKS 47
Section 11.1. Appointment, Powers and Immunities of Agent 47
Section 11.2. Reliance by Agent 47
Section 11.3. Defaults 48
Section 11.4. Rights of Agent as a Bank 48
Section 11.5. Indemnification of Agent 48
Section 11.6. Documents 49
Section 11.7. Non-Reliance on Agent and Other Banks 49
Section 11.8. Failure of Agent to Act 49
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Section 11.9. Resignation or Removal of Agent 49
Section 11.10. Amendments Concerning Agency Function 50
Section 11.11. Liability of Agent 50
Section 11.12. Transfer of Agency Function 50
Section 11.13. Non-Receipt of Funds by the Agent 50
Section 11.14. Withholding Taxes 50
Section 11.15. Several Obligations and Rights of Banks 51
Section 11.16. Pro Rata Treatment of Loans, Etc. 51
Section 11.17. Sharing of Payments Among Banks 51
ARTICLE 12. MISCELLANEOUS 52
Section 12.1. Amendments and Waivers 52
Section 12.2. Usury 52
Section 12.3. Expenses and Indemnification 53
Section 12.4. Special Provisions Regarding Collateral. 53
Section 12.5. Survival 54
Section 12.6. Assignment; Participation 54
Section 12.7. Notices 54
Section 12.8. Setoff 55
Section 12.9. Jurisdiction; Immunities 55
Section 12.10. Table of Contents; Headings 56
Section 12.11. Severability 56
Section 12.12. Counterparts 56
Section 12.13. Integration 56
Section 12.14. Governing Law 56
Section 12.15. Relief from Bankruptcy Stay 56
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REVOLVING CREDIT AGREEMENT (the "Agreement") dated as of January 15,
1997 among UNITED CAPITAL CORP., a corporation organized under the laws of the
State of Delaware (the "Borrower") and THE CHASE MANHATTAN BANK, a New York
banking corporation ("Chase") and FLEET BANK, NATIONAL ASSOCIATION, a national
bank association organized under the laws of the United States of America
("FLEET"; collectively with Chase, the "Banks"); THE CHASE MANHATTAN BANK, as
administrative agent for the Banks (in such capacity, the "Agent") and FLEET
BANK, NATIONAL ASSOCIATION, as syndication agent (in such capacity, the
"Syndication Agent').
The Borrower desires each of the Banks to extend credit to the Borrower
and the Banks are willing to extend such credit on the terms and conditions set
forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS; ACCOUNTING TERMS.
Section 1.1. Definitions. As used in this Agreement the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Acquisition" means any transaction pursuant to which the Borrower or
any of the Guarantors, (a) acquires, or enters into an agreement to acquire,
equity securities (or warrants, options or other rights to acquire such
securities) of any Person which is not then a Subsidiary of the Borrower,
pursuant to a solicitation of tenders therefor, or in one or more negotiated
block, market or other transactions not involving a tender offer, or a
combination of any of the foregoing, or (b) makes, or enters into any agreement
to make, any Person not then a Subsidiary of the Borrower a Subsidiary of the
Borrower, or causes any such Person to be merged into the Borrower or any of the
Guarantors, or vice versa in any case pursuant to a merger, purchase of assets
or any reorganization providing for the delivery or issuance to the holders of
such Person's then outstanding securities, in exchange for such securities, of
cash or securities of the Borrower or any of the Guarantors, or a combination
thereof, or (c) purchases, or enters into an agreement to purchase, all or
substantially all of the business or assets of any Person. For purposes hereof,
the term "Acquisition" shall include any transaction in which the Borrower or
any of its Subsidiaries makes a loan or otherwise extends credit secured by an
interest in real property. For purposes hereof, the term "Acquisition" shall not
include the formation by the Borrower or any of the Guarantors of a new
Subsidiary that does not involve any of the transactions referred to in the
immediately preceding sentence.
"Additional Costs" shall have the meaning given to such term in Section
4.2 hereof.
"Adjusted Real Estate Borrowing Base" means, at the time of
calculation, 80% of the annualized and normalized actual year-to-date Net
Operating Income of Eligible Properties,
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other than Eligible Properties which are operated as day care facilities,
divided by eleven and one-half percent (11.5%).
"Administrative Fee" means the agency fee payable by the Borrower to
the Agent pursuant to Section 3.5 hereof.
"Affiliate" means, with respect to any Person, any Person: (a) which
directly or indirectly controls, or is controlled by, or is under common control
with, such Person; (b) which directly or indirectly beneficially owns or holds
25% or more of any class of voting stock of such Person; (c) 25% or more of the
voting stock or other voting interests of which is directly or indirectly
beneficially owned or held by such Person; (d) which is a partnership in which
such Person is a general partner (e) which is a limited liability company in
which such Person is a member and in which such Person owns, directly or
indirectly, 25% of the equity of such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Aggregate Outstandings" means, at a particular time, the aggregate
outstanding principal amount of the Loans at such time.
"Agreement" means this Agreement, as amended or supplemented from time
to time pursuant to the terms hereof. References to Articles, Sections,
Exhibits, Schedules and the like refer to the Articles, Sections, Exhibits,
Schedules and the like of this Agreement unless otherwise indicated.
"Amortization" means amortization as determined or calculated in
accordance with GAAP.
"Assignment" means each Assignment of Leases and Rents dated the date
hereof and executed by the Borrower or a Guarantor in favor of the Banks
hereunder.
"Banking Day" means any day on which commercial banks are not
authorized or required to close in New York City, provided that whenever such
day relates to a LIBOR Loan or notice with respect to any LIBOR Loan, such term
shall mean any such day on which dealings in Dollar deposits are also carried
out in the London interbank market.
"Base Rate" means the rate of interest determined by the Agent to be
the higher of (i) the Federal Funds Rate plus 1/2 of 1% per annum or (ii) the
Prime Rate.
"Base Rate Loan" means any Loan when and to the extent that the
interest rate for such Loan is determined on the basis of the Base Rate.
"Borrowing Base" means, at any time, the sum of (i) the lesser of the
Real Estate Borrowing Base or the Adjusted Real Estate Borrowing Base plus (ii)
the Non-Real Estate Borrowing Base.
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"Borrowing Base Certificate" means a certificate signed by the Chief
Executive Officer or the Chief Financial Officer of the Borrower in the form of
Exhibit "B" annexed hereto with such changes as the Banks may require from time
to time.
"Capital Expenditures" means the sum of (a) expenditures for any fixed
assets or improvements, replacements, substitutions, or additions thereto which
would be treated as capital expenditures in accordance with GAAP and (b) the
portion of all payments with respect to Capital Leases which are required to be
capitalized on the balance sheet of the lessee in accordance with GAAP.
"Capitalization Value" means, at the time of calculation, (i)
annualized and normalized actual year to date Consolidated EBITDA capitalized at
10% plus (ii) cash and cash equivalents on a consolidated basis and (iii)
aggregate acquisition costs for real properties of the Borrower and the
Guarantors subject to the provisions of the last sentence hereof. For purposes
hereof, "acquisition costs" for any real property shall mean the contractual
purchase price for such property and such closing costs as are customarily paid
by purchasers in real estate transactions. For purposes hereof, clause (iii)
shall include acquisition costs for any property only until such property has
been owned by the Borrower or any Guarantor for one full fiscal quarter.
"Capital Lease" means any lease which is required to be capitalized on
the balance sheet of the lessee in accordance with GAAP.
"Change in Control" means any event or condition which results in any
Person or "group" other than a Person or group that is actively involved in the
day to day management of the Borrower and the Guarantors on the date of this
Agreement: (i) having acquired beneficial ownership of 35% or more of any
outstanding class of capital stock of the Borrower or any Guarantor having
ordinary voting power in the election of directors of the Borrower or such
Guarantor or (ii) obtaining the power (whether or not exercised) to elect a
majority of the directors of the Borrower or any Guarantor; provided, however,
that any transfer from any Person that is actively involved in the day to day
management of the Borrower and the Guarantors to any Person in his or her
immediate family shall not constitute a "Change in Control" if the Bank
continues to be satisfied in its sole discretion, with the management of the
Borrower and the Guarantors after such transfer.
"Closing Date" means the date this Agreement has been executed by the
Borrower and each of the Banks.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means with respect to each Bank, the obligation of such
Bank to extend credit to the Borrower hereunder and, subject to the terms
hereof, in the following aggregate amounts as such amounts may be reduced in
accordance with the terms of this Agreement:
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Chase $20,000,000
Fleet $20,000,000
"Commitment Fee" means the commitment fee payable by the Borrower to
each of the Banks pursuant to Section 3.4 hereof
"Commitment Proportion" means, with respect to each Bank at the time of
determination, that proportion that its Commitment bears to the Total
Commitment.
"Consolidated Debt Service" means, for any fiscal period, interest
expense (accrued, paid or capitalized) plus scheduled principal amortization
(excluding balloon payments due at maturity) on all (a) Indebtedness of the
Borrower and the Guarantors, on a consolidated basis, and (b) the Borrower's and
the Guarantor's pro rata share of Indebtedness from unconsolidated joint
ventures other than non-recourse Indebtedness on properties owned by such
ventures.
"Consolidated EBITDA" means, for any fiscal period, Consolidated Net
Income of the Borrower and the Guarantors, before provision for federal and
state income taxes, minus all extraordinary gains; plus (i) Consolidated
Interest Expense; plus (ii) Depreciation and Amortization plus (iii) cash
distributions (after debt service) from unconsolidated joint ventures to the
Borrower and the Guarantors, all on a consolidated basis, and all as determined
in accordance with GAAP.
"Consolidated Interest Expense" means, for a particular period, the
consolidated interest expense (accrued, paid or capitalized) of the Borrower and
the Guarantor as reflected in the Borrower's consolidated financial statements
for such period and calculated in accordance with GAAP and shall in any event
include, without limitation, (i) the amortization of debt discounts, (ii) the
amortization of all fees payable in connection with the incidence of
Indebtedness, and (iii) the portion of any Capital Lease obligation allocable to
interest expense plus the Borrower's and the Guarantors' pro rata share of
interest expense on Indebtedness from unconsolidated joint ventures, other than
non-recourse Indebtedness on properties owned by such ventures.
"Consolidated Net Income" means, for a particular period, the
consolidated net income of the Borrower and the Guarantors for such period
determined in accordance with GAAP.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
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"Default Rate" means a rate per annum equal to 2% above the rate of
interest that would then be applicable to Base Rate Loans under this Agreement.
"Depreciation" means depreciation as determined or calculated in
accordance with GAAP.
"Dividends" means, for any period, dividends paid by the applicable
Person.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Eligible Inventory" means, on a combined basis for the Operating
Companies the gross amount of the inventory less the following items: any
packaging materials and supplies, supplies (other than supplies held for sale),
damaged or unsalable goods, damaged or unsalable goods returned or rejected by
such entities' customers; obsolete goods; goods to be returned to such entities'
suppliers; goods in transit to third parties; consigned inventory.
"Eligible Properties" means, at any time, those properties of the
Borrower and of the Guarantors which are leased to non-affiliated third parties
and which are unencumbered or are encumbered by Liens securing debt of less than
10% of the annualized and normalized year-to-date Net Operating Income for such
property capitalized at 11.5%, together with the property located in Dallas,
Texas which is leased to the estate of AJ Schecter and subleased to a discount
store and the Lowe's Home Centers property in North Charleston, South Carolina.
In addition, Eligible Properties shall include such additional properties as may
in the discretion of the Banks be included on Schedule 1.1 from time to time.
The Agent shall have the right to conduct a site inspection of any property
before such property is included as an "Eligible Property" hereunder. As of the
date hereof, "Eligible Properties" shall mean those properties listed on
Schedule 1.1(a) hereto. In no event will mortgage loans or any similar
transactions between the Borrower or any Guarantor and any third party
constitute an "Eligible Property".
"Eligible Property EBITDA" means, for any fiscal period, net income, on
a combined basis, for the Eligible Properties before provision for federal or
state income taxes minus all extraordinary gains; plus interest expense for the
Eligible Properties, plus Depreciation and Amortization attributable to the
Eligible Properties, all on a combined basis and all as determined in accordance
with GAAP. For purposes hereof, Eligible Properties with EBITDA of less than $0
will be assigned a value of $0.
"Eligible Receivables" means, on a combined basis, the amount of the
accounts receivable of the Operating Companies arising out of sales in the
ordinary course of business of the Operating Companies net of any credits,
rebates or off-sets owed by the Operating Companies to the respective account
debtor and net of any commissions payable by the Operating Companies to third
parties, which accounts receivable are not in dispute or subject to credit,
allowance, defense, off-set, counterclaim or adjustment and for which records
are maintained at a location of the Operating Companies in the United States;
provided, however, that the following items shall not be deemed Eligible
Receivables: credit balances over 90 days' from invoice date; contra accounts
receivable; receivables owing from account debtors determined by the Agent in
its sole discretion to be unacceptable for credit reasons; receivables from
Affiliates; accounts receivable with respect to which the account debtor is
subject to any bankruptcy or insolvency proceeding; accounts receivable where
the account debtor's obligation
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to pay is conditional or subject to a repurchase obligation or right of return;
and all current receivables due from account debtors of which more than 50% of
the total accounts receivable from such debtors is more than 90 days from
invoice date.
"Environmental Indemnity Agreement" means that certain environmental
indemnity agreement substantially in the form of Exhibit C annexed hereto, dated
the date hereof, and executed by the Borrower and each of the Guarantors in
favor of the Banks and their respective directors, officers, employees,
affiliates, agents or other representatives.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals, or industrial, toxic substances or
Hazardous Substances or wastes.
"Equity Value" means Capitalization Value less Total Adjusted
Outstanding Funded Indebtedness.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Event of Default" shall have the meaning given such term in Section
10.01 hereof.
"Eurocurrency Reserve Requirements" means, with respect to each
Interest Period for each LIBOR Loan, the aggregate (without duplication) of the
maximum rates (expressed as a percentage and rounded upward, if necessary, to
the nearest 1/100 of 1%) of reserve requirements current on the date two Banking
Days prior to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves under
Regulation D or any other regulations of the Board of Governors of the Federal
Reserve System or other governmental authority having jurisdiction with respect
thereto), as now and/or from time to time hereafter in effect, dealing with
reserve requirements prescribed for eurocurrency funding maintained by a member
bank of such system.
"Existing Bank Debt" means Indebtedness of the Borrower to Fleet,
existing on the date hereof and arising pursuant to the terms of that certain
line letter dated as of August 2,
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1995 between Fleet and Metex Corporation and that certain line letter, dated as
of August 4, 1995 between Fleet and the Borrower, as each of such documents may
have been amended, supplemented or modified through the date hereof.
"Facility Documents" means this Agreement, the Notes, the Guarantees,
the Assignments, the Security Agreements and all other agreements, documents and
instruments executed in connection herewith or therewith including, but not
limited to, all documents and instruments executed by the Borrower or any
Guarantor, at any time, in favor of any Bank in connection with this Agreement
and the Loans made hereunder.
"Federal Funds Rate" means, for any day, the rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Banking Day, for the next
preceding Banking Day) by the Federal Reserve Bank of New York, or, if such rate
is not so announced or published for any day which is a Banking Day, the average
of quotations for the day of such transactions received by the Agent from three
federal funds brokers of recognized standing selected by it.
"Forfeiture Proceeding" means the commencement of any action or
proceeding affecting the Borrower or any of the Guarantors before any court,
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign which would result in the seizure or forfeiture of any of
their property which would cause a material adverse effect upon the operations,
business, properties or financial condition of the Borrower or any Operating
Company or of the Borrower and the Guarantors, taken as a whole.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied with
respect to the financial statements of the Borrower, the Guarantors, and
Affiliates or any Guarantor which are the subject of Section 6.5 hereof.
"Guarantees" means the guarantees to be delivered on the Closing Date
to the Banks by each of the Guarantors and the guarantees to be delivered to the
Banks from time to time hereafter by Persons that become Guarantors subsequent
to the Closing Date, all in the form(s) attached hereto as Exhibit D.
"Guarantors" means each of the parties listed on Schedule 5.1(a) hereto
and all Post-Closing Guarantors.
"Hazardous Substance" or "Hazardous Substances" means any material,
including, without limitation, raw, processed or waste by-product materials,
which in itself or as found or used, is toxic, noxious or harmful to the health
or safety of human or animal life or vegetation, regardless of whether such
material be found on or below the surface of the ground, in any surface or
underground water, or airborne in ambient air or in the air inside of any
structure built or located upon or below the surface of the ground, or in any
machinery, equipment or inventory located or used in any such structure,
including, but in no event limited
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to, all hazardous materials, hazardous wastes, toxic substances, infectious
wastes, pollutants and contaminants from time to time defined or classified as
such under any Environmental Law, regardless of the quantity found, used,
manufactured or removed from a given location.
"Indebtedness" means, without duplication, with respect to any Person,
(a) all obligations of such Person for borrowed money or with respect to
deposits or advances made to it of any kind, (b) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (c) all
obligations of such Person for the deferred purchase price of property or
services, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all payment obligations of such Person with respect to interest rate or currency
protection agreements, (f) all obligations of such Person as an account party
under any letter of credit or in respect of bankers' acceptances, (g) all
obligations of any third party secured by property or assets of such Person
(regardless of whether or not such Person is liable for repayment of such
obligations), (h) all guarantees of such Person and (i) the redemption price of
all redeemable preferred stock of such Person, but only to the extent that such
stock is redeemable at the option of the holder or requires sinking fund or
similar payments at any time prior to the Termination Date.
"Interest Period" means the period commencing on the date of making,
renewal or conversion of a Loan to a LIBOR Loan and expiring one, two, three or
six months (as available) thereafter, as designated by the Borrower in the
notice given to the Agent under Section 2.4 hereof; provided that:
(a) the initial Interest Period for any LIBOR Loan shall commence on
the date of the making of such Loan (including the date of any conversion from a
Base Rate Loan) and each Interest Period occurring thereafter in respect of such
Loan shall commence on the date on which the next preceding Interest Period
expires;
(b) if any Interest Period would otherwise expire on a day which is not
a Banking Day, such Interest Period shall expire on the next succeeding Banking
Day, provided, however, that if any Interest Period would otherwise expire on a
day which is not a Banking Day but is a day of a calendar month after which no
further Banking Day occurs (in such month), such Interest Period shall expire on
the next preceding Banking Day;
(c) no Loan shall be continued as or converted to a LIBOR Loan if at
the time of any such continuation or conversion a Default or an Event of Default
exists; and
(d) no Interest Period for a Loan shall extend beyond the Termination
Date.
"Lending Office" means, for each Bank, the lending office of such Bank
(or of an affiliate of such Bank) designated as such on its signature page
hereof or such other office of such Bank (or of an affiliate of such Bank) as
such Bank may from time to time specify to the Borrower as the office by which
its Loans are to be made and maintained.
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"LIBOR" means, for any LIBOR Loan, the rate per annum (rounded upwards,
if necessary, to the nearest 1/16 of 1%) at which Dollar deposits approximately
equal in principal amount to the requested LIBOR Loan and for a maturity equal
to the requested Interest Period are offered in immediately available funds to
the principal London branch of the Agent by leading banks in the London
interbank market for Dollar deposits at approximately 10:00 a.m. London time two
Banking Days prior to the first day of the Interest Period for such Loan.
"LIBOR Loan" means any Loan when and to the extent the interest rate
therefor is determined on the basis of Reserve Adjusted LIBOR Rate.
"Lien" means any mortgage, pledge, security interest, hypothecation,
assignment, deposit arrangement, encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).
"Loan" means any extension of credit made by the Banks pursuant to
Section 2.1 hereof.
"Margin" means, with respect to LIBOR Loans, one and three-quarters
percent (1.75%) per annum.
"Multiemployer Plan" means a Plan defined as such in Section 400(a)(3)
of ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"Net Operating Income" means, with respect to any parcel of real
property, the rents received by the Borrower or any Guarantor with respect
thereto less any expenses of such Borrower or Guarantor with respect to such
property which are ordinary expenses and are not capitalized expenses, excluding
Depreciation, Amortization, income taxes and debt service.
"Non-Real Estate Borrowing Base" means, at any time, the lesser of (i)
$12,000,000 and (ii) the sum of 75% of Eligible Receivables and 50% of Eligible
Inventory.
"Notes" means collectively the promissory notes of the Borrower in the
form of Exhibit A hereto evidencing the Loans made by a Bank hereunder.
"Obligations" means all of the obligations of the Borrower or any
Guarantor to the Banks under or in relation to this Agreement, the Notes, any
Loans, or any of the other Facility Documents, as such agreements, documents and
instruments are originally executed or as modified, amended, restated,
supplemented or extended from time to time, and all obligations of the Borrower
or any Guarantor to the Banks arising out of any extension, refinancing or
refunding of any of the foregoing obligations, whether such obligations are now
existing or hereafter acquired or arising, direct or indirect, joint or several,
absolute or contingent, due or to
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become due, matured or unmatured, liquidated or unliquidated, arising by
contract, operation of law or otherwise.
"Operating Companies" means the Borrower's subsidiaries, (i) Metex
Corporation, a Delaware corporation, (ii) AFP Transformers, Inc., a Delaware
corporation; (iii) Dorne & Margolin, Inc., a Delaware Corporation, and (iv) any
Subsidiary of the Borrower which is or may hereafter be engaged in any business
other than holding Real Estate Assets and which has assets having a value in
excess of $100,000. Notwithstanding the foregoing, the term "Operating
Companies" shall not include the following entities provided that they continue
to engage in substantially the same business as they are engaged in on the date
hereof: Metex International Sales Corp., Metex Enviroco Corp., Ancom
Electromagnetique Ltd. and Metex Europe S.A.R.L.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" means any of the following investments: (I)
obligations issued or guaranteed by states or municipalities within the United
States of America; (ii) obligations issued or guaranteed by the United States of
America or any agency or subdivision thereof; (iii) certificates of deposit,
time deposits, Eurodollar certificates of deposit, bankers acceptances and other
"money market instruments" issued by any bank, trust company or financial
institution organized under the laws of the United States of America or any
state thereof (or, in the case of Eurodollar certificates of deposit, a branch
of any such bank, trust company or financial institution) having capital and
surplus in an aggregate amount not less than $1,000,000,000; (iv) commercial
paper rated at least Prime-1 by Moody's Investors Service, Inc. or A-1 by
Standard & Poors Corporation; (v) securities issued by money market funds with
asset of $2,500,000,000 or more, and (vi) repurchase agreements with a term of
not more than seven days entered into with any bank, trust company or financial
institution organized under the laws of the United States of America or any
state thereof having capital and surplus in an aggregate amount not less than
$1,000,000,000 and relating to any of the obligations referred to in clauses
(i), (ii), (iii) above; in each case maturing or being due or payable in full
not more than one year after the acquisition thereof such entity.
"Permitted Liens" means those certain Liens defined in Section 8.2
hereof.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA or to which Section
412 of the Code applies provided that such term shall not include plans
terminated prior to the date hereof.
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"Post-Closing Guarantor" means each Subsidiary of the Borrower or of
any Guarantor which is created after the date of this Agreement and which shall,
simultaneously with its creation, become a Guarantor hereunder in accordance
with Section 7.13 hereof.
"Prime Rate" means the rate of interest from time to time announced by
the Agent at its Principal Office as its prime commercial lending rate.
"Principal Office" means, with respect to the Agent and each Bank, its
principal office as announced by such entity from time to time.
"Real Estate Assets" means, with respect to any entity, such entity's
real properties for which the fee interests or, with the prior consent of the
Banks, ground lease interests, are wholly-owned plus all loans and other forms
of indebtedness owing to such entity which are secured by first liens upon real
property.
"Real Estate Borrowing Base" means, at the time of calculation, 50% of
the aggregate annualized and normalized actual year-to-date Net Operating
Incomes of the Eligible Properties capitalized at 11.5%.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Bank, any change after
the Closing Date in United States federal, state, municipal or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests applying to a class of banks
including such Bank under any United States, federal, state, municipal or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event.
"Required Banks" means, at any time, with respect to any decisions to
be made by the Banks hereunder, Banks having at least 66 2/3% of the sum of
aggregate of the Commitments hereunder.
"Reserve Adjusted LIBOR Rate" means, with respect to the Interest
Period for each LIBOR Loan, the rate per annum (rounded upwards to the nearest
whole multiple of 1/100th of one percent) equal to the following:
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LIBOR
-------------------------------
1.00 - Eurocurrency Reserve Requirements.
"Revolving Credit Loan Debt Service" means, for any period, the
interest paid or accrued hereunder for such period.
"Security Agreement" means each security agreement, substantially in
the form of Exhibit E, to be dated the date hereof and delivered by each of the
Operating Companies to the Bank.
"Solvent" means when used with respect to any Person on a particular
date, that on such date: (a) the fair saleable value of its assets is in excess
of the total amount of its liabilities, including, without limitation, the
reasonably expected amount of such Persons obligations with respect to
contingent liabilities, (b) the present fair saleable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its Indebtedness as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur Indebtedness or liabilities beyond such Person's ability to pay as
such Indebtedness and liabilities mature and (d) such Person is not engaged in
business or a transaction for which such Person's property would constitute an
unreasonably small capital.
"Subsidiary," with respect to any Person, means any corporation or
other entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are, at the
relevant time, owned directly or indirectly by such Person.
"Syndication Fee" means the syndication fee payable by the Borrower to
the Syndication Agent for the benefit of the Banks pursuant to Section 3.6
hereof.
"Taxes" means any and all levies due and payable to any federal, state,
municipality or other governmental authority under the laws of the United States
of America, any state of the United States and any municipality or other
governmental authority thereof.
"Termination Date" means the earlier to occur of (a) the date on which
the Commitments shall terminate hereunder and (b) January 15, 2000.
"Total Adjusted Outstanding Funded Indebtedness" means, at any time,
the sum of (i) all outstanding secured and unsecured funded Indebtedness of the
Borrower and the Guarantors on a consolidated basis plus (ii) the Borrower's and
the Guarantor's pro rata share of Indebtedness from unconsolidated joint venture
properties, other than non-recourse indebtedness on such properties.
"Total Commitments" means, at any time, the aggregate of the
Commitments in effect at such time.
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"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under the Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP.
ARTICLE 2.
CREDIT FACILITY.
Section 2.1. Loans. Subject to the terms and conditions of this
Agreement, each Bank severally agrees to make revolving credit loans in Dollars
(the "Loans"), and all Loans shall be made by the Banks, on a pro-rata basis in
accordance with their respective Commitment Proportions, to the Borrower from
time to time, from and including the date hereof to but excluding the
Termination Date, up to but not exceeding at any one time outstanding the amount
of its Commitment; provided, that no Loan shall be made if after giving effect
to such Loan the Aggregate Outstandings at the time of such Loan would exceed
the lesser of (i) the Total Commitments or (ii) the Borrowing Base in effect on
such date. The Loans may be outstanding as Base Rate Loans or LIBOR Loans;
provided, however, that during the occurrence and continuance of an Event of
Default, the Borrower may not elect and the Banks shall have no obligation to
make LIBOR Loans. Subject to the foregoing limits, the Borrower may borrow,
repay and reborrow, on or after the date hereof and prior to the Termination
Date, all or a portion of the Total Commitments as Loans hereunder. Any amount
of any Loan not paid when due (at maturity, on acceleration or otherwise) shall
bear interest thereafter until paid at the rate set forth in Section 3.3(c)
hereof.
Section 2.2. The Notes. The Loans of each Bank shall be evidenced by a
single promissory note in favor of such Bank substantially in the form of
Exhibit A hereto with appropriate insertions, duly executed and completed by the
Borrower. Each Bank is hereby authorized to record the date, type and amount of
each Loan, the date and amount of each payment of principal thereof, and the
principal amount subject thereto and interest rate with respect thereto in such
Banks' records and/or on the schedules annexed to and constituting a part of its
Note, and, absent manifest error, any such recordation shall constitute
conclusive evidence of the information so recorded; provided that the failure to
make any such recordation shall not in any way affect the obligation of the
Borrower to repay the Loans in accordance with the terms of this Agreement
(without giving effect to any such error made in the Note). Each Note (a) shall
be dated the date hereof, (b) be stated to mature on the Termination Date and
(c) shall bear interest on the unpaid principal amount thereof from time to time
outstanding as provided herein.
Section 2.3. Use of Proceeds.
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(a) The Borrower shall use the proceeds of the Loans on the date of
this Agreement to repay in full Existing Bank Debt and may use the proceeds of
the Loans on the date of this Agreement and from time to time thereafter prior
to the Termination Date (i) for general corporate and working capital purposes;
(ii) to finance the acquisition of Real Estate Assets or to make mortgage loans
or similar loans that constitute Real Estate Assets; (iii) to repurchase stock
of the Borrower in an amount not to exceed $2,000,000 in any fiscal year or
$5,000,000 during the term of this Agreement; and (iv) to make advances to the
Operating Companies in an aggregate amount not to exceed $10,000,000 at any
time. No part of the proceeds of any of the Loans will be used (i) for any
purpose which violates the provisions of Regulations G, T, U or X of the Board
of Governors of the Federal Reserve System as in effect on the date of making
such Loans or (ii) to permit the Borrower or any Guarantor to acquire equity
securities in any third party except as permitted pursuant to the provisions of
Section 8.7 hereof.
(b) The Borrower agrees to indemnify the Banks and their respective
directors, officers, employees, affiliates, agents or other representatives and
hold the Banks and their respective directors, officers, employees, affiliates,
agents or other representatives, harmless from and against any and all
liabilities, losses, damages, costs and expenses of any kind (including, without
limitation, the reasonable fees and expenses of counsel for any such Person in
connection with any investigative, administrative, judicial proceeding, whether
or not such Person shall be designated a party thereto) which may be incurred by
any such Person, relating to or arising out of this Agreement or any actual or
proposed use of any proceeds of Loans hereunder.
Section 2.4. Borrowing Procedure for Loans; Rate and Interest Period
Selection; Conversions.
(a) The Borrower may request a borrowing under the Commitments
hereunder as provided in Section 3.1. Each Bank will make its share of such
borrowing available to Fleet at Fleet's office located at 1133 Avenue of the
Americas, 40th Floor, New York, New York 10036 not later than 2:00 p.m. New York
City time on the date of such borrowing in immediately available funds. Unless
any applicable condition specified in Article 5 has not been satisfied, not
later than 3:00 p.m. New York City time on the date of such borrowing, Fleet
shall, through its Lending Office and subject to the conditions of this
Agreement, make the amount of the Loan to be made on such date available to the
Borrower, in immediately available funds, by crediting an account of the
Borrower designated by the Borrower and maintained with Fleet.
(b) In the case of each Loan which is a LIBOR Loan, the Borrower shall
select an Interest Period of any duration in accordance with the definition of
Interest Period in Section 1. 1, subject to the limitations that no Interest
Period for a LIBOR Loan shall have a duration less that one month, and if any
such proposed Interest Period would otherwise be for a shorter period, such
Interest Period shall not be available.
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(c) Upon the expiration of an Interest Period for any Loan, or any
portion thereof, such Loan or portion thereof shall be automatically continued
as a Base Rate Loan except to the extent that such Loan shall be repaid
hereunder or unless the Borrower shall have notified the Banks, as provided in
Section 3.1 hereof, of its intention to select a different interest rate option
with respect to such Loan or any portion thereof. Subject to the following
conditions and to the terms and conditions of this Agreement, the Borrower shall
have the right to convert any Loan or portion thereof to a different type of
Loan (i.e., from a Base Rate Loan to a LIBOR Loan or vice versa):
(i) if less than all Loans at the time outstanding shall be
converted, the notice given by the Borrower to the Banks shall specify
the aggregate amount of Loans in each case to be converted and such
conversion shall be made ratably among the Banks in accordance with
their respective Commitment Proportions;
(ii) in the case of a conversion of less than all outstanding
Loans, the aggregate principal amount of Loans to be converted shall
not be less than (1) $200,000 (and if greater in integral multiples of
$50,000) in the case of conversions to or into LIBOR Loans or (2)
$200,000 (and if greater in integral multiples of $50,000) in the case
of conversions to or into Base Rate Loans;
(iii) no Loan may be converted to a LIBOR Loan less than one
month before the Termination Date;
(iv) a LIBOR Loan may be converted to a different type of
Loan only on the last day of the then applicable Interest Period with
respect thereto; and
(v) no Loan or portion thereof may be converted to a LIBOR
Loan during the occurrence and continuance of an Event of Default.
Notwithstanding anything to the contrary herein, after giving effect to
any Loan, unless consented to by the Required Banks in their sole discretion,
there shall not be more than six (6) different Interest Periods in effect in
respect of all Loans then outstanding.
Section 2.5. Minimum Amounts of Loan. Except for borrowings which
involve or utilize the full remaining amount of the Commitments and payments
which result in the prepayment of all Base Rate Loans, each borrowing and
payment of a Base Rate Loan shall be in an amount at least equal to $200,000
and, if greater, integral multiples of $50,000 in excess thereof. Each borrowing
and payment of a LIBOR Loan shall be in an amount at least equal to $200,000
and, if greater, in integral multiples of $ 50,000 in excess thereof.
Section 2.6. Reduction of Commitments.
(a) The Borrower shall have the right to reduce or terminate the amount
of the unused Commitments at any time and from time to time provided that: (i)
the Borrower shall give notice of each such reduction or termination to the
Banks as provided in Section 3.1, and (ii)
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each partial reduction shall be allocated pro rata between the Commitments of
each Bank in accordance with their respective Commitment Proportions and shall
be in an aggregate amount at least equal to $3,000,000 or, if greater, in
integral multiples of $1,000,000.
(b) The Commitments, once reduced or terminated may not be reinstated.
ARTICLE 3.
GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS.
Section 3.1. Certain Notices. Except as otherwise provided in this
Agreement, notices by the Borrower to the Banks of each borrowing pursuant to
Sections 2.4, each prepayment pursuant to Section 3.2, each reduction or
termination of the Commitments pursuant to Section 2.6 and each conversion of
Loans pursuant to Sections 2.4 shall be irrevocable and shall be effective on
the date of receipt only if received by the Banks by not later than 11:00 a.m.,
New York City time, and (a) in the case of borrowings and prepayments of (i)
Base Rate Loans, if given the date thereof and (ii) LIBOR Loans, if given three
(3) Banking Days prior thereto; (b) in the case of reductions or terminations of
the Commitments, given five (5) Banking Days prior thereto; and (c) in the case
of conversions or continuations pursuant to Sections 2.4, if given three (3)
Banking Days prior thereto in the case of conversions to or continuations of
LIBOR Loans and if given on the date thereof in the case of conversions to Base
Rate Loans. Each such notification which relates to a borrowing, continuation or
conversion shall specify the amount and the type of Loan (i.e., Base Rate Loan
or LIBOR Loan), the date of the proposed borrowing, whether such Loan represents
an additional borrowing, a continuation or a conversion, and in the case of a
LIBOR Loan, the Interest Period to be used in the computation of interest with
respect thereto. Each such notice relating to a reduction or termination of the
Commitments shall specify the amount of the Commitments to be reduced or
terminated.
Section 3.2. Prepayments.
(a) The Borrower shall have the right at any time and from time to time
to prepay any Base Rate Loan, in whole or in part; provided, however, that each
such partial prepayment of a Base Rate Loan shall be in a minimum aggregate
principal amount of $200,000 or, if greater in amounts which are integral
multiples of $50,000. Except as required by paragraph (b) or (c) below or on the
last day of an Interest Period with respect thereto, the Borrower shall not be
permitted to prepay LIBOR Loans.
(b) In the event that the Aggregate Outstandings exceed the lesser of
the Total Commitments or the then applicable Borrowing Base at any time prior to
the Termination Date, the Borrower shall promptly pay or prepay so much of the
Loans outstanding as shall be necessary in order that the Aggregate Outstandings
will not exceed the lesser of Total Commitments or the Borrowing Base then in
effect. All prepayments under this subparagraph shall be subject to Section 4.1.
(c) Unless otherwise agreed by the Banks in writing, the Borrower shall
be required to pay or prepay Loans outstanding with (i) 80% of the proceeds of
the issuance by the
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Borrower or any Guarantor of additional equity; (ii) 100% of the net proceeds of
the sale by the Borrower or any Guarantor of any Real Estate Assets; (iii) 100%
of the net proceeds resulting from the repayment of mortgages constituting Real
Estate Assets or (iv) such proceeds as may be paid as a result of a casualty or
condemnation, all in accord with Sections 7.11 or 7.12 of this Agreement;
provided, however, that the Borrower shall have no obligation under clause (i)
above until the aggregate net proceeds of any and all additional equity
issuances during the term of this Agreement shall equal or exceed $1,000,000.00.
All prepayments under this paragraph shall be subject to Section 4.1.
(d) All payments required by paragraphs (b) or (c) above shall be made
to the Banks pro rata in accordance with their respective Commitment Proportions
and shall be applied as follows: first, to outstanding Base Rate Loans up to the
full amount thereof and second, to outstanding LIBOR Loans up to the full amount
thereof.
(e) All prepayments made pursuant to this Section 3.2 shall be
accompanied by the payment of all accrued interest on the amount so prepaid and
by all amounts required to be paid pursuant to Section 4.1 in connection
therewith.
Section 3.3. Interest on Loans.
(a) Base Rate Loans. The Borrower shall pay interest on the outstanding
and unpaid principal amount of each Base Rate Loan made under this Agreement at
a fluctuating rate per annum equal to the Base Rate from time to time in effect.
Each change in the interest rate shall take effect simultaneously with the
corresponding change in the Prime Rate or the Federal Funds Rate, as the case
may be. Interest shall be calculated on the basis of the actual number of days
elapsed divided by a year of three hundred sixty (360) days and shall be paid to
the Agent for the account of the Banks quarterly, in arrears, on March 31, June
30, September 30 and December 31 in each year and on the Termination Date.
(b) LIBOR Loans The Borrower shall pay interest on the outstanding and
unpaid principal amount of each LIBOR Loan made under this Agreement for each
Interest Period applicable to such LIBOR Loan at a rate per annum equal to the
Reserve Adjusted LIBOR Rate in effect with respect thereto, plus the Margin.
Interest shall be calculated on the basis of the actual number of days elapsed
divided by a year of three hundred sixty (360) days and shall be paid to the
Banks, in arrears on the last day of the Interest Period applicable to such
LIBOR Loan; provided, however, that if such Interest Period is longer than three
months, interest shall be paid on the last day of each three-month period
following the commencement of such Interest Period and on the last day of such
Interest Period.
(c) Post-Default. If any Default or Event of Default has occurred and
is continuing hereunder, all Loans, and all interest, fees or other amounts due
hereunder, to the extent permitted by applicable law, shall bear interest
(payable on demand, and in any event on the last day of each month, and computed
daily on the basis of a 360-day year for actual days elapsed) (i) in all cases
other than LIBOR Loans, at the Default Rate until paid and (ii) in the case of
LIBOR Loans, at a rate which shall be the greater of (x) the Default Rate or (y)
2% per
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annum in excess of the rate applicable to such LIBOR Loan, until the expiration
of the Interest Period applicable to such Loan, at which time the Loan will
automatically be converted into a Base Rate Loan, and until paid, shall bear
interest at the Default Rate. In no event, however, shall interest payable
hereunder be in excess of the maximum rate of interest permitted under
applicable law. The obligation to so pay interest upon any reimbursement
obligation of the Borrower to the Banks shall not be construed so as to waive
the requirement for reimbursement on the same date that payment is made by the
Banks as set forth in this Agreement.
Section 3.4. Commitment Fee. The Borrower shall pay to the Agent for
the ratable benefit of the Banks a commitment fee for the period from and
including the date hereof to and excluding the Termination Date equal to 1/4 of
1% of the average daily unused portion of the Total Commitment during the
applicable period. The commitment fee shall be calculated on the basis of a year
of 360 days for the actual number of days elapsed. The commitment fee shall be
due and payable quarterly in arrears on the last day of each calendar quarter
and on the Termination Date.
Section 3.5. Administrative Fee. The Borrower shall pay to the Agent
for its own account an annual fee of $25,000. The administrative fee shall be
due and payable quarterly in advance on or before the date hereof and on each
April 1, July 1, October 1, January 1 thereafter during the term of this
Agreement. Any payment made on or before the date hereof shall be pro rated for
the number of days from the date hereof through March 31, 1997.
Section 3.6. Syndication Fee.. The Borrower shall pay to the Agent, for
the ratable benefit of the Banks, a syndication fee of $100,000. This fee shall
be due and payable on the Closing Date.
Section 3.7. Payments Generally.
(a) All payments under this Agreement or the Notes, shall be made in
Dollars in immediately available funds to the Banks, in accordance with the
respective obligations of the Borrower then due and payable to each of them not
later than 1:00 p.m. New York City time on the relevant dates specified above
(each such payment made after such time on such due date is to be deemed to have
been made on the next succeeding Banking Day), to the Bank's Lending Office. The
Borrower will notify the Banks of any payment pursuant to the provisions of this
Section at the same time it makes any such payment. Each Bank may (but shall not
be obligated to) debit the amount of any such payment to any ordinary deposit
account of the Borrower with such Bank; provided, however, that the Banks shall
not be permitted to debit any funds which are not available to the Borrower
other than on an overdraft basis. The Borrower shall, at the time of making each
payment under this Agreement or the Notes, specify to the Banks the principal or
other amount payable by the Borrower under this Agreement or the Notes to which
such payment is to be applied; provided, however, that in the event that the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Banks shall apply such payment as they may elect in their sole
discretion. If the due date of any payment under this Agreement or the Notes
would otherwise fall on a day which is not a Banking Day, such date shall be
extended to the next succeeding Banking Day and interest shall be payable for
any principal so extended for the
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period of such extension. Except to the extent otherwise provided herein, it is
the intention of the parties that all payments hereunder be made to the Banks
pro rata in accordance with their respective Commitment Proportions.
(b) All payments made by the Borrower under this Agreement, the Notes
or the other Facility Documents shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any governmental or taxing authority of any jurisdiction located outside of
the United States, excluding, (x) in the case of each Bank, income taxes and
franchise taxes (imposed in lieu of income taxes) imposed on such Bank as a
result of a present or former connection between the jurisdiction of the
government or the taxing authority imposing such tax and such Bank (excluding a
connection arising solely from such Bank having executed, delivered, or
performed its obligations or received a payment under, or enforced, this
Agreement, the Notes or the other Facility Documents) or any political
subdivision or taxing authority thereof or therein, and (y) taxes (including
withholding taxes) imposed by reason of the failure of the Agent or any Bank, in
either case that is organized outside the United States, to comply with Section
3.7(c) hereof (or the inaccuracy at any time of the certificates, documents and
other evidence delivered thereunder) (all such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions and withholdings being hereinafter
called "Taxes"). If any Taxes are withheld from any amounts payable to any Bank
hereunder or under the Facility Documents, the amounts so payable to such Bank
shall be increased to the extent necessary to yield to such Bank (after payment
of all Taxes) interest or any such other amounts payable hereunder at the rates
or in the amounts specified in this Agreement, the Notes and the other Facility
Documents. Whenever any Taxes are payable by the Borrower, the Borrower shall
send to such Bank within 30 days after the date of any payment, a certified copy
of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Banks the required receipts or other
required documentary evidence, the Borrower shall indemnify the Banks for any
incremental taxes, interest or penalties that may become payable by any Bank as
a result of any such failure. This indemnification shall be made within 30 days
from the date such Bank or the Agent (as the case may be) makes written demand
therefor. If any Bank receives a refund in respect of any Taxes for which such
Bank has received payment from the Borrower hereunder, such Bank shall promptly
notify the Borrower of such refund and such Bank shall, within 30 days of
receipt of a request by the Borrower repay such refund to the Borrower, provided
that the Borrower, upon the request of such Bank, agrees to return such refund
(plus any penalties, interest or other charges) to such Bank in the event such
Bank is required to repay such refund. The agreements in this subsection shall
survive the termination of this Agreement and the Facility Documents and the
payment of the Notes and all other amounts payable hereunder or thereunder.
Section 3.8. Interim Adjustments to Borrowing Base.
(a) The Borrowing Base shall be adjusted periodically as follows:
The Borrowing Base shall be increased to include:
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(A) Real Estate Assets that are acquired by the Borrower
and/or the Guarantors and that satisfy the definition of "Eligible Properties"
hereunder; and
(B) Real Estate Assets that do not qualify as "Eligible
Properties" but subsequently satisfy the requirements of "Eligible Properties";
provided, however, that in either case with respect to any such property, the
Agent, on behalf of the Banks, shall be permitted to conduct such due diligence
investigations as the Banks deem appropriate prior to including such property as
an "Eligible Property" and the Banks shall be satisfied in all respects with the
results of such investigation.
(ii) Conversely, the Borrowing Base shall be decreased to exclude:
(A) Real Estate Assets that are sold by the Borrower or any
Guarantor or that become subject to liens securing Indebtedness which exceed 10%
of the annualized and normalized actual year-to-date Net Operating Income for
such property capitalized at 11.5%; and
(B) Any Real Estate Asset that satisfies the definition of
"Eligible Property," (i) if the tenant at such property has delivered a
termination notice, or (ii) 60 days prior to the termination of the lease with
respect to such property or (iii) if the tenant otherwise ceases paying rent
with respect to such property.
(b) Upon the happening of any of the events described above, the
Borrower shall deliver to the Banks a notice thereof as required pursuant to
Section 7.8 hereof. In addition, the Borrower shall deliver to the banks a new
Borrowing Base Certificate within five (5) Banking Days after the happening of
any such event; provided, however, that in the case of clause (i) above, the
Borrower shall not deliver a new Borrowing Base Certificate including any such
property until the Agent shall have completed its due diligence investigation
and the Banks shall have been satisfied with the results thereof. The Agent
agrees to use all reasonable efforts to complete any such due diligence
investigation within 20 Business Days of receiving notice from the Borrower
thereof.
ARTICLE 4.
YIELD PROTECTION, ETC.
Section 4.1. Certain Compensation.
(a) The Borrower hereby agrees to indemnify the Banks against any loss
or expense which the Banks or any one of them may sustain or incur as a
consequence of any of the following:
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(i) the receipt or recovery by a Bank, whether by voluntary
prepayment, acceleration or otherwise, of all or any part of a LIBOR
Loan prior to the last day of an Interest Period applicable thereto;
(ii) the conversion, prior to the last day of an applicable
Interest Period, of a LIBOR Loan into a Base Rate Loan;
(iii) the failure by the Borrower to borrow any LIBOR Loan,
convert any Base Rate Loan to a LIBOR Loan or continue any LIBOR Loan
on the date of borrowing, conversion or continuation set forth in the
notice delivered by the Borrower pursuant to the provisions hereof,
unless such failure to borrow results from the Banks' failure to fund
such borrowing when the Banks are required to do so under the terms of
this Agreement; or
(iv) the failure by the Borrower to pay, punctually on the
due date thereof, any amount payable by the Borrower with respect to or
on account of any LIBOR Loan.
Without limiting the effect of the foregoing, the amount to be paid by
the Borrower to any Bank in order to so indemnify such Bank for any loss
occasioned by any of the events described in the preceding paragraph, and as
liquidated damages therefor, shall be equal to the excess, discounted to its
present value as of the date paid to such Bank, of (i) the amount of interest
which otherwise would have accrued on the principal amount so received,
recovered, converted or not borrowed during the period (the "Indemnity Period")
commencing with the date of such receipt, recovery, conversion, or failure to
borrow to the last day of the applicable Interest Period for such LIBOR Loan at
the rate of interest applicable to such LIBOR Loan (or the rate of interest
agreed to in the case of a failure to borrow) provided for herein (prior to
default) over (ii) the amount of interest which would be earned by such Bank
during the Indemnity Period if it invested the principal amount so received,
recovered, converted or not borrowed at the rate per annum approximately equal
to LIBOR, as the case may be, on an amount approximately equal to such principal
amount for a period of time comparable to such Indemnity Period.
Any Bank requesting indemnification pursuant to this Section 4.1 shall
deliver to Agent and to the Borrower a certificate as to any additional amounts
payable pursuant to this Section 4.1 setting forth the basis and method of
determining such amounts shall be conclusive, absent manifest error, as to the
determination by each Bank set forth therein if made reasonably and in good
faith. The Borrower shall pay to each Bank any amounts so certified by such Bank
within 10 days of receipt of any such certificate. For purposes of this Section
4.1, all references to the "Bank" shall be deemed to include any participant in
this Agreement and/or the Loans.
Section 4.2. Additional Costs.
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(a) The Borrower shall pay to each Bank, from time to time, on demand
of any such Bank, such amounts as such Bank may reasonably determine to be
necessary to compensate it for any costs which Bank reasonably determines are
attributable to its obligation to make any Loan hereunder, or any reduction in
any amount receivable by such Bank hereunder in respect of any such Loans or
such obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any Regulatory Change
which: (i) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or its Note in respect of any such obligations (other than
taxes imposed on the overall net income of such Bank for any of such obligations
by the jurisdiction in which such Bank has its principal office or Lending
Office or franchise taxes imposed in lieu of income taxes); or (ii) imposes or
modifies any reserve, special deposit, deposit insurance or assessment, minimum
capital, capital ratio or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, such
Bank (including any of such Loans or any deposits referred to in the definitions
of "LIBOR Loans"); or (iii) imposes any other condition affecting this
Agreement, or its Note (or any of such extensions of credit or liabilities) and
such Bank's obligations with respect thereto. Each Bank will notify the Agent
and the Borrower of any event occurring after the date of this Agreement which
will entitle such Bank to compensation pursuant to this Section 4.2(a) as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Notwithstanding anything herein to the contrary, no
provision of this Section 4.2(a) shall be deemed to require the Borrower to make
any payment of any amount to the extent that such payment would duplicate any
payment made by the Borrower pursuant to Section 3.7 hereof.
(b) Without limiting the effect of the foregoing provisions of this
Section 4.2, in the event that, by reason of any Regulatory Change, any Bank
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes LIBOR Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so elects by notice
to the Borrower, the obligation of such Bank to make LIBOR Loans hereunder shall
be suspended until the date such Regulatory Change ceases to be in effect (in
which case the provisions of Section 4.5 shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 4.2 (but without duplication), the Borrower shall pay to each Bank from
time to time on request such amounts as such Bank may reasonably determine to be
necessary to compensate such Bank for any costs which it reasonably determines
are attributable to the maintenance by it or any of its Affiliates pursuant to
any law or regulation of any jurisdiction or any interpretation, directive or
request (whether or not having the force of law and whether in effect on the
date of this Agreement or thereafter) of any court or governmental or monetary
authority, of capital in respect of its Loans or other obligations hereunder
(such compensation to include, without limitation, an amount equal to any
reduction in return on assets or equity of such Bank to a level below that which
it could have achieved but for such law, regulation, interpretation, directive
or request). Each Bank will notify the Agent and the Borrower if it is entitled
to compensation
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pursuant to this Section 4.2(c) as promptly as practicable after it determines
to request such compensation.
(d) A statement of any Bank setting forth such amount or amounts,
supported by calculations in reasonable detail, as shall be necessary to
compensate such Bank as specified in paragraphs (a), (b) and (c) above shall be
delivered to the Borrower and shall be conclusive absent demonstrable error. The
Borrower shall pay each such Bank the amount shown as due on any such statement
within ten (10) days after its receipt of the same.
(e) Any Bank claiming any additional amounts payable pursuant to this
Section 4.2 agrees to use reasonable efforts (consistent with legal and
regulatory restrictions) to designate a different Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, any
such additional amounts and would not, in the reasonable judgment of such Bank,
be otherwise disadvantageous to such Bank.
Section 4.3. Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if:
(a) any Bank determines (which determination shall be conclusive) that
quotations of interest rates for the relevant deposits referred to in the
definition of "LIBOR Loans" in Section 1.1 are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest for any LIBOR Loans as provided in this Agreement; or
(b) any Bank determines (which determination shall be conclusive) and
notifies the Agent and the Borrower that the relevant rates of interest referred
to in the definition of "LIBOR Loans" in Section 1.1 upon the basis of which the
rate of interest for any type of LIBOR Loans is to be determined do not
adequately cover the cost to such Bank of making or maintaining such Loans,
then, such Bank shall as soon as practicable thereafter give written notice (or
facsimile notice promptly confirmed in writing) of such determination to the
Agent and the Borrower, and any request by the Borrower for the making of a
LIBOR Loan or conversion or continuation of any Loan into a LIBOR Loan, in each
case, pursuant to the provisions hereof shall, until the circumstances giving
rise to such notice no longer exist, be deemed to be a request for a Base Rate
Loan. Each determination by a Bank made hereunder shall be conclusive absent
manifest error.
Section 4.4. Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for any Bank or its Lending
Office to honor its obligation to make or maintain LIBOR Loans hereunder, then
such Bank shall promptly notify the Agent and the Borrower thereof and such
Bank's obligation to make or maintain LIBOR Loans hereunder shall be suspended
until such time as such Bank may again make and maintain such affected Loans (in
which case the provisions of Section 4.5 shall be applicable).
Section 4.5. Certain LIBOR Loans Pursuant To Sections 4.2. 4.3 and 4.4.
If an event referred to in Section 4.2, 4.3 or 4.4 has occurred, the affected
Bank shall be required to
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make Base Rate Loans in accordance with this Agreement, and all LIBOR Loans of
such Bank then outstanding shall be automatically converted into Base Rate Loans
on the date specified by such Bank in such notice (which shall be, for each
LIBOR Loan, the last day of the Interest Period applicable thereto unless such
Bank determines that it is required by law to convert such LIBOR Loan on an
earlier date in which case such earlier date shall be the date of conversion),
and, to the extent that LIBOR Loans are so made as (or converted into) Base Rate
Loans, all payments of principal which would otherwise be applied to such Bank's
LIBOR Loans shall be applied instead to its Base Rate Loans. In the event of any
conversion of any LIBOR Loan to a Base Rate Loan pursuant to Section 4.5 prior
to the maturity date with respect to such LIBOR Loan the Borrower shall pay to
the relevant Bank all amounts required to be paid pursuant to Section 4.1
hereof.
Section 4.6. Survival. The indemnities and other obligations set forth
in this Article 4 shall survive payment in full of all Loans or extensions of
credit made pursuant to this Agreement and the Termination Date.
ARTICLE 5.
CONDITIONS PRECEDENT.
Section 5.1. Documentary Conditions Precedent. The obligations of the
Banks to make the Loans on or after the date hereof are subject to the
conditions precedent that:
(a) each Bank shall have received on or before the date hereof each of
the following, in form and substance reasonably satisfactory to such Bank and
its counsel:
(i) this Agreement and the Note executed in favor of such
Bank duly executed by the Borrower;
(ii) a certificate of the Secretary of the Borrower and each
of the Guarantors listed on Schedule 5.1A, dated the Closing Date,
attesting to all corporate action taken by such entity, including
resolutions of its Board of Directors authorizing the execution,
delivery and performance of the Facility Documents and each other
document to be delivered pursuant to this Agreement, together with
certified copies of the certificate or articles of incorporation and
the by-laws of the Borrower and each of such Guarantors; and, such
certificate shall state that the resolutions and corporate documents
thereby certified have not been amended, modified, revoked or rescinded
as of the date of such certificate;
(iii) a certificate of the Secretary of the Borrower and each
of the Guarantors (which in the case of Guarantors may be in the form
of an omnibus certificate), dated the Closing Date, certifying the
names and true signatures of the officers of such entity authorized to
sign the Facility Documents and the other documents to be delivered by
such entity under this Agreement;
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(iv) a certificate of a duly authorized officer of the
Borrower, dated the Closing Date, stating that the representations and
warranties in Article 6 are true and correct on such date as though
made on and as of such date and that no event has occurred and is
continuing which constitutes a Default or Event of Default;
(v) Guarantees, duly executed by each Guarantor;
(vi) Security Agreements, duly executed by each of the
Operating Companies, together with fully executed and completed
financing statements on form UCC-1, in proper form for filing in all
jurisdictions necessary or, in the reasonable discretion of the Agent,
desirable to perfect the security interests granted under the Security
Agreements;
(vii) UCC search results identifying all financing statements
on file with respect to the Borrower or the Guarantor in such
jurisdictions as the Agent requires indicating that no party claims any
interest in the property of the Borrower or the Guarantors other than
the holders of Permitted Liens;
(viii) results of title searches with respect to such
properties of the Borrower and the Guarantor as the Agent requires
which shall be satisfactory to the Banks in all respects;
(ix) the Assignments, duly executed by each of the Borrower
and the Guarantors in proper form for filing in all jurisdictions
necessary or in the reasonable discretion of the Agent, desirable to
record the Banks' interest in the leases on the Real Estate Assets;
(x) the Environmental Indemnity Agreement, duly executed by
the Borrower and each Guarantor;
(xi) an opinion of counsel for the Borrower and Guarantors,
dated the Closing Date, in substantially the form of Exhibit F;
(xii) satisfactory evidence that the Borrower and the
Guarantors listed on Schedule 5.1A are duly organized, validly existing
and in good standing under the laws of their respective jurisdictions
of incorporation;
(xiii) audited consolidated balance sheets of the Borrower
and the Guarantors as of December 31, 1995, and consolidated income
statements and statements of cash flows of the Borrower and the
Guarantors for the fiscal year then ended, all prepared in accordance
with GAAP, together with the unqualified opinion thereon of Arthur
Andersen, LLP, independent certified public accountants, together with
management prepared consolidating balance sheets, income statements and
statements of cash flows as of the same date and covering the same
fiscal period, and unaudited consolidated and consolidating balance
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sheet of the Borrower and the Guarantors as at September 30, 1996,
together with income statements and statements of cash flows of the
Borrower and the Guarantors for the fiscal quarter ended September 30,
1996 and for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, each prepared by or under
the supervision of the chief financial officer of the Borrower in
accordance with GAAP;
(xiv) evidence that the Borrower and the Guarantors maintain
such insurance with respect to their business and properties as would
customarily be maintained by similar businesses which are similarly
situated;
(xv) satisfactory evidence that neither the Borrower nor any
Guarantor is in default with respect to any contractual obligations to
which it is a party, the effect of which may be material and adverse to
the Borrower or any Operating Company, or the Borrower and the
Guarantors, taken as a whole, or to the ability of the Borrower or any
Guarantor to perform its obligations hereunder or under the other
Facility Documents;
(xvi) a duly executed Borrowing Base Certificate containing
information as of September 30, 1996, in form and substance
satisfactory to the Banks;
(xvii) a property cash flow analysis in the form of the
property cash flow analysis previously delivered to the Banks
confirming information as of June 1, 1996, which shall in all respects
be satisfactory to the Banks, together with a certification of a duly
authorized officer of the Borrower (A) that no event or circumstance
has occurred since June 1, 1996 which would have a material adverse
effect on the information contained in such analysis or (B) describing
all material changes in such analysis from the date thereof through the
date hereof;
(xviii) such other documents, instruments, approvals,
opinions and evidence as the Banks may reasonably require.
(b) the Borrower shall have paid or caused to be paid to the Banks in
full all fees and expenses required to be paid hereunder or in connection
herewith, and including all fees and expenses of the Banks incurred in
connection with the preparation, execution and delivery of this Agreement and
the other Facility Documents and the consummation of the transactions
contemplated thereby and all expenses incurred by the Agent pursuant to
Subparagraph (g) below;
(c) the Borrower and the Guarantors shall have obtained all consents,
permits and approvals required in connection with the execution, delivery and
performance by the Borrower and the Guarantors of their obligations hereunder
and such consents, permits and approvals shall continue in full force and
effect;
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(d) the Banks shall be satisfied that the proceeds of the initial Loans
hereunder shall be applied to pay the Borrower's Existing Bank Debt in full on
the date hereof, that all UCC-1 financing statements filed to secure the
Borrower's obligations with respect to the Existing Bank Debt shall have been
terminated, and that all existing lines of credit in demand facilities of the
Borrower and the Guarantor shall be terminated;
(e) the Agent shall have been provided with copies of all credit
agreements, loan agreements, indentures, mortgages and other documents relating
to the extension of credit to the Borrower and shall be satisfied with its
review of the foregoing;
(f) the Banks shall be satisfied with the form and content of all
Schedules delivered by the Borrower pursuant to this Agreement or any document
delivered in connection herewith;
(g) the Agent shall have conducted a physical inspection of no fewer
than twenty (20) Eligible Properties and shall be satisfied that such properties
are occupied as represented by the Borrower, are in good and workmanlike
condition and are otherwise in conformance with the Agent's minimal lending
requirements;
(h) the Agent shall have received copies of owner's title insurance
policies on each of the properties referred to in subparagraph (g) above;
(i) the Agent shall have verified the nine month Net Operating Income
at September 30, 1996 (which shall be annualized and normalized) for each of the
properties referred to in subparagraph (g) above, including analysis of future
contractual income stream and verification of revenues and expenses;
(j) the Agent shall have completed a review of all leases relating to
each of the properties referred to in subparagraph (g) above;
(k) all legal matters in connection with this financing shall be
reasonably satisfactory to the Banks and their counsel.
Section 5.2. Additional Conditions Precedent. The obligations of the
Banks to make any Loan shall be subject to the further conditions precedent
(which shall be in addition to, and shall not be deemed to limit or modify, any
of the other terms and conditions hereunder) that on the date of such Loan the
Banks shall have received the following:
(a) a certificate executed by the Chief Financial Officer or the Chief
Executive Officer of the Borrower dated as of such date, stating that (i) the
representations and warranties contained in Article 6 hereof, which for purposes
of this Section, shall be deemed to relate to the Borrower and to each Guarantor
as if each Person where the subject of each such representation and warranty,
are true and correct in all material respects on and as of the date of such Loan
as though made on and as of such date (except when such representation or
warranty by its terms relates to the date hereof or another specific date; (ii)
no Default or Event of Default has occurred
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and is continuing or would result from any such Loan, (iii) since the date of
the most recent Borrowing Base Certificate there has been no material adverse
change in the Borrowing Base; and (iv) since the date of the most recent
financial statements delivered hereunder there has been no material adverse
change in the business, properties, prospects, financial or other condition of
the Borrower or any Guarantor;
(b) a certificate executed by the Chief Financial Officer or the Chief
Executive Officer of the Borrower, dated as of such date, in form and substance
satisfactory to the Banks stating that after giving effect to the proposed
borrowing, Aggregate Outstandings, will not exceed the lesser of (i) the total
Commitments or (ii) the Borrowing Base then in effect; and
(c) a copy of the Borrower's most recent Borrowing Base Certificate
delivered pursuant to Section 7.8 hereof.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES.
The Borrower and, where applicable, each Guarantor, hereby represents
and warrants that:
Section 6.1. Incorporation, Good Standing and Due Qualifications;
Compliance with Law. Each of the Borrower and the Guarantors is duly
incorporated, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, has the corporate power and authority
to own its assets and to transact the business in which it is now engaged or
presently proposes to be engaged, and is duly qualified as a foreign corporation
and in good standing under the laws of each other jurisdiction in which such
qualification is required except where the failure to so qualify would not cause
a material adverse effect upon the operations, business, properties or financial
condition of the Borrower or any Operating Company or of the Borrower and the
Guarantors, taken as a whole. In addition, the Borrower and each of the
Guarantors is in compliance in all material respects with all laws, treaties,
rules or regulations, and determinations or orders of or with respect to all
arbitrators, courts or other governmental authorities applicable to it.
Section 6.2. Power and Authority; No Conflicts. The execution, delivery
and performance by the Borrower and the Guarantors of each of the Facility
Documents to which it is a party have been duly authorized by all necessary
corporate action and do not and will not: (a) require any consent or approval of
the stockholders of the Borrower or any of the Guarantors; (b) contravene the
charter or by-laws of the Borrower or any of the Guarantors; (c) violate any
provision of, or require any filing, registration, consent or approval under,
any law, rule, regulation (including, without limitation, the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve system
as in effect from time to time), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the Borrower;
(d) result in a breach of or constitute a default or require any consent under
any indenture or loan agreement or any other agreement, lease or instrument to
which the Borrower or any of the Guarantors is a party or by which properties of
the Borrower or any of the
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Guarantors may be bound or affected; (e) result in or require the creation or
imposition of any Lien upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower or any of the Guarantors except in favor
of the Banks as herein provided; or (f) cause the Borrower or any of the
Guarantors to be in default under any such rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
Section 6.3. Legally Enforceable Agreements. Each Facility Document is,
or when delivered under this Agreement will be, a legal, valid and binding
obligation of the Borrower and each Guarantor (if such entity or Person is a
party thereto) enforceable against such entities or Person in accordance with
its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance and other similar laws
affecting creditors' rights generally or by the effect of general principles of
equity which may limit the availability of equitable remedies (whether in a
proceeding at law or in equity).
Section 6.4. Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened, against or affecting
the Borrower or any of the Guarantors before any court, governmental agency or
arbitrator, which would, in any one case or in the aggregate, materially
adversely affect the financial condition, operations, properties or business of
the Borrower or any of the Guarantors, or the ability of the Borrower or any
Guarantor to perform its obligations hereunder.
Section 6.5. Financial Statements; Other Liabilities. The consolidated
balance sheet of the Borrower and the Guarantors as at December 31, 1995, and
the related income statements and statements of cash flow of the Borrower and
the Guarantors for the fiscal year then ended, and the accompanying notes,
together with the unqualified opinion thereon of Arthur Andersen, LLP,
independent certified public accountants, and the interim financial statements
of the Borrower and the Guarantors as at and as of (as the case may be)
September 30, 1996, copies of which have been furnished to each of the Banks,
fairly present the financial condition of the Borrower and the Guarantors as at
such dates and the results of the operations of the Borrower and the Guarantors
for the periods covered by such statements, all in accordance with GAAP
consistently applied (subject, in the case of interim financial statements, to
year-end adjustments and except, in the case of such interim financial
statements, for the absence of notes thereto prepared in accordance with GAAP).
As of the date hereof, there are no liabilities or obligations of the Borrower
or any of the Guarantors , whether direct or indirect, absolute or contingent,
or matured or unmatured, other than (a) as disclosed or provided for in the
financial statements and notes thereto which are referred to above or which are
not required to be so disclosed, or (b) which are disclosed elsewhere in this
Agreement or in the Schedules hereto or which are not required to be so
disclosed, or (c) arising in the ordinary course of business since December 31,
1995 or (d) created by this Agreement. The written information, exhibits and
reports furnished by the Borrower to the Banks in connection with the
negotiation of this Agreement are complete and correct in all material respects.
No event has occurred which would constitute a material adverse change in the
business, financial or other condition or prospects of the Borrower and the
Guarantors taken as a whole.
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Section 6.6. Ownership and Liens. The Borrower and the Guarantors have
title to, or valid leasehold interests in, all of its properties and assets,
real and personal, including the properties and assets, and leasehold interests
reflected in the financial statements referred to in Section 6.5, and none of
the properties and assets owned by the Borrower or the Guarantors, and none of
their respective leasehold interests is subject to any Lien, except for
Permitted Liens.
Section 6.7. Taxes. The Borrower and each of the Guarantors have filed
all tax returns (foreign, federal, state and local) required to be filed
(including, without limitation, with respect to payroll and sales taxes) and the
Borrower and each of the Guarantors have paid all taxes (including, without
limitation, all payroll and sales taxes), assessments and governmental charges
and levies shown thereon to be due, including interest and penalties, other than
taxes, assessments and governmental charges and levies being contested in good
faith by appropriate proceedings and with respect to which adequate reserves in
conformity with GAAP shall have been provided on the books of the Borrower and
the Guarantors.
Section 6.8. ERISA. As of the date hereof, the Borrower and its ERISA
Affiliates are in compliance in all material respects with all applicable
provisions of ERISA. No Reportable Event has occurred with respect to any Plan;
no notice of intent to terminate a Plan has been filed nor has any Plan been
terminated; no circumstance exists which constitutes grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings;
neither the Borrower, nor any ERISA Affiliate has completely or partially
withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; the
Borrower and each of its ERISA Affiliates have met their minimum funding
requirements under ERISA with respect to all of their Plans and there are no
Unfunded Vested Liabilities, and neither the Borrower nor any ERISA Affiliate
has incurred any material liability to the PBGC under ERISA.
Section 6.9. Subsidiaries. As of the date hereof, Schedule 6.9 is a
complete and correct list of all Subsidiaries of the Borrower.
Section 6.10. Credit Arrangements. Schedule 6.10 is a complete and
correct list of all agreements, indentures, purchase agreements, guaranties,
Capital Leases and other investments, agreements and arrangements in effect on
the date of this Agreement providing for or relating to extensions of credit in
the aggregate amounts of $250,000 or more to the Borrower or any of the
Guarantors for borrowed money (including agreements and arrangements for the
issuance of letters of credit or for acceptance financing but excluding
indebtedness which is non-recourse to the Borrower or the Guarantors) in respect
of which the Borrower or any of the Guarantors is in any manner directly or
contingently obligated; and the maximum principal or face amounts of the credit
in question, outstanding and which can be outstanding, are correctly stated, and
all Liens of any nature given or agreed to be given as security therefor are
correctly described or indicated in such Schedule.
Section 6.11. Operation of Business. The Borrower and the Guarantors
possess all licenses, permits, franchises, patents, copyrights, trademarks and
trade names, or rights thereto, to conduct their respective businesses
substantially as now conducted and as presently
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proposed to be conducted except where the failure to obtain any of the foregoing
would not result in a material adverse effect upon the operations, business,
properties, or financial condition of the Borrower or any Operating Company or
of the Borrower and the Guarantors, taken as a whole.
Section 6.12. Hazardous Substances. Except as disclosed in the
Borrower's most recent report on Form 10-K (a copy of which has been provided to
the Banks), (i) the Borrower and the Guarantors are in material compliance with
all applicable Environmental Laws, and have obtained all necessary licenses and
permits required to be issued pursuant to any applicable Environmental Law and
(ii) as of the date hereof, neither the Borrower nor any of the Guarantors has
received any notice or communication from any governmental agency with respect
to (a) any Hazardous Substance relative to its operations, property or acts, or
(b) any investigation, demand or request pursuant to or enforcing any
Environmental Law relating to it or its operations, properties or acts, and no
such investigation is pending or, to the knowledge of the Borrower or any
Guarantor, threatened.
Section 6.13. No Default on Outstanding Judgments or Orders. Each of
the Borrower and the Guarantors has satisfied all judgments, orders, notices of
violation and decrees and neither the Borrower nor any of the Guarantors is in
default with respect to any judgment, writ, injunction, decree, notice of
violation, rule or regulation of any court, arbitrator or federal, state,
municipal or other governmental authority, commission, board, bureau, agency or
instrumentality, domestic or foreign applicable to it.
Section 6.14. Labor Disputes and Acts of God. As of the date hereof,
neither the business nor the properties of the Borrower or any of the Guarantors
are affected by any fire, explosion, accident, strike, lockout or other labor
dispute, drought, storm, hail, earthquake, embargo, act of God or of the public
enemy or other casualty (whether or not covered by insurance), materially and
adversely affecting such business or properties or the operations of the
Borrower and the Guarantors taken as a whole, or the ability of the Borrower or
any Guarantor to perform its obligations hereunder (in each case, after giving
effect to insurance).
Section 6.15. Governmental Regulation. Neither the Borrower nor any of
the Guarantors is subject to regulation under the Public Utility Holding Company
Act of 1935, the Investment Company Act of 1940 or any other statute or
regulation limiting its ability to incur indebtedness for money borrowed as
contemplated hereby.
Section 6.16. Partnership, Etc. Except as disclosed in Schedule 6.16,
neither the Borrower nor any Guarantor is a partner in any partnership or a
member in any limited liability partnership or company.
Section 6.17. No Forfeiture Proceedings. Neither the Borrower nor any
of the Guarantors is engaged in or proposes to be engaged in the conduct of any
business or activity which is likely to result in a Forfeiture Proceeding, and
no Forfeiture Proceeding against any of them is pending or, to the best
knowledge of the Borrower and the Guarantors as of the date hereof, threatened.
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Section 6.18. No Default or Event of Default. No Default or Event of
Default has occurred and is continuing under this Agreement.
Section 6.19. Solvency. Without giving effect to any Guarantee executed
in connection with this Agreement, each of the Borrower and the Guarantors is
Solvent. After giving effect to any such Guarantee, the Borrower and the
Guarantors, taken as a whole, are Solvent.
Section 6.20. Name. Except as set forth on Schedule 6.20, during the
five years prior to the making of this Agreement, neither the Borrower nor any
Guarantor has been known under, or transacted business using, any name or trade
style except for the name set forth above such entity's signature on this
Agreement.
Section 6.21. Other Agreements. Neither the Borrower nor any Guarantor,
is a party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate restriction which
would, in any case or in the aggregate have a material adverse effect on its
ability to carry out its obligations hereunder or under the Facility Documents.
Neither the Borrower, nor any of the Guarantors, is in default in any respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument material to its business
to which it is a party.
Section 6.22. Eligible Properties. The Borrower and the Guarantors own
each of the Eligible Properties free and clear of all liens or encumbrances
other than liens or encumbrances that secure indebtedness aggregating, in the
case of any such Eligible Property, less than 10% of the annualized and
normalized year-to-date Net Operating Income for such property capitalized at
11.5% at the time of determination. The Borrower has provided to the Banks true,
correct and complete copies of all leases applicable to the Eligible Properties
and neither the Borrower, nor any Guarantor, knows of any present default
(whether monetary or non-monetary) under or with respect to any of such leases.
Each of such leases is in full force and effect and has not been modified or
otherwise amended.
Section 6.23. Title Insurance. The Borrower and the Guarantors have
with respect to each Real Property Asset that is an owned property a fully paid
owner's title insurance policy and with respect to each Real Property Asset that
is a loan secured by a mortgage on real property a fully paid owner's title
insurance policy and with respect to each Real Property Asset that is a loan
secured by a mortgage on real property a fully paid mortgagee's title insurance
policy.
ARTICLE 7.
AFFIRMATIVE COVENANTS
So long as any of the Notes or any other Obligations shall remain
unpaid or any Bank shall have any Commitment hereunder, the Borrower and each
Guarantor shall:
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Section 7.1. Maintenance of Existence. Except as otherwise provided in
this Agreement, preserve and maintain its corporate existence and remain in good
standing in the jurisdiction of its organization, and qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is required.
Section 7.2. Conduct of Business. Continue to engage principally in the
principal businesses conducted by it on the date hereof.
Section 7.3. Maintenance of Properties. Maintain, keep and preserve,
all of its properties (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition, ordinary
wear and tear excepted.
Section 7.4. Maintenance of Records. Keep, adequate records and books
of account, in which complete entries, reflecting all financial transactions of
such Person, will be made.
Section 7.5. Maintenance of Insurance.
(a) With respect to each Operating Company, maintain insurance covering
its assets and its business with financially sound and reputable insurance
companies or associations properly licensed to do business in New York and in
the other jurisdictions where inventory is located in such amounts and covering
such risks (including, without limitation, products liability) as are usually
carried by companies engaged in the same or a similar business and similarly
situated and as are required by the Facility Documents. The Borrower shall
provide the Banks notice that such policies have been paid in full and shall
deliver certified copies of the policy or policies of such insurance or
certificates of insurance to the Banks if the Banks so request.
(b) With respect to the Borrower or any Guarantor that is not an
Operating Company, provide copies of evidence of insurance provided by any
tenant of a Real Estate Asset as required by the lease relating to such property
and, if any tenant is in default of its obligation to maintain insurance or if
any Real Estate Asset becomes vacant, the Borrower or the Guarantor, as the case
may be, shall maintain such insurance as is required by Section 7.11 hereof.
Section 7.6. Compliance with Laws. Comply and cause each tenant of the
Eligible Properties to comply with all applicable laws, rules, regulations and
orders.
Section 7.7. Right of Inspection. (a) Subject to the terms of any lease
relating to any Real Estate Asset, at any reasonable time upon reasonable notice
during normal business hours and from time to time, permit any Agent or any
agent or representative thereof, to make physical inspections of each Real
Estate Asset and to examine and make copies and abstracts from the records and
books of account of, and visit the properties of, such Person and to discuss the
affairs, finances and accounts of such Person with any of its officers and
directors and such entity's independent accountants. In addition, if during the
course of any such examination hereunder, anything comes to the Agent's
attention which causes the Agent to be concerned that there may be an
environmental condition at any Real Estate Asset that is an Eligible Property,
the
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Agent may require the Borrower to permit the Agent to conduct such environmental
inspections as the Agent shall deem necessary with respect to such property at
the Borrower's expense; provided, however that the Borrower may, within 10 days
of receipt of notice from the Agent of its intention to so inspect such Eligible
Property, elect not to permit the Agent to conduct such examination in which
event such Real Estate Asset shall no longer be considered an Eligible Property
for purposes of calculating the Borrowing Base;
(b) In addition to the inspection rights of the Agent pursuant to
subparagraph (a) of this Section, the Agent shall be permitted to conduct annual
due diligence investigations (which may include site inspections) of the
Eligible Properties. The scope of such investigations shall be determined by the
Agent and the costs of such investigations up to $15,000 per year, shall be
borne by the Borrower and shall be paid out of the Administrative Fee.
Section 7.8. Reporting Requirements. Furnish directly to each of the
Banks:
(a) (1) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, audited, consolidated financial
statements of the Borrower and the Guarantors, which shall include consolidated
balance sheets of the Borrower and the Guarantors as of the end of such fiscal
year, together with consolidated income statements and statements of cash flows
of the Borrower and the Guarantors for such fiscal year and as of the end of and
for the prior fiscal year, all prepared in accordance with GAAP and accompanied
by an unqualified opinion on such consolidated financial statements by a
nationally recognized independent certified public accountants reasonably
acceptable to the Banks, together with management prepared corresponding
consolidating financial statements, all prepared by or under the supervision of
the Chief Financial Officer of the Borrower in accordance with GAAP;
(b) as soon as available and in any event within 45 days after the end
of each of the first, second and third quarters of each fiscal year of the
Borrower, Consolidated and Consolidating financial statements of the Borrower
and the Guarantors, which shall include consolidated and consolidating balance
sheets of the Borrower and the Guarantors as of the end of each such quarter,
together with consolidated and consolidating income statements and statements of
cash flows of the Borrower and the Guarantors for each such quarterly period and
for the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, all in reasonable detail and stating in comparative
form the respective figures for the corresponding date and period in the
previous fiscal year and all prepared by or under the supervision of the chief
financial officer of the Borrower in accordance with GAAP (subject to year-end
adjustments and except for the absence of notes thereto prepared in accordance
with GAAP);
(c) simultaneously with the delivery of the financial reporting
statements referred to in (a) and (b) above, a certificate of the Chief
Executive Officer or the Chief Financial Officer of the Borrower, certifying
that to the best of his knowledge (i) no Default or Event of Default has
occurred and is continuing or, if a Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto, with computations demonstrating
compliance (or non-compliance, as the case
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may be) with the covenants contained in Article 9, and (ii) such financial
statements have been prepared in accordance with GAAP (subject, in the case of
interim statements, to year end adjustments and except for the absence of notes
thereto prepared in accordance with GAAP);
(d) simultaneously with the delivery of the annual financial statements
referred to in Section 7.8(a) above, a certificate of the independent public
accountants who audited such statements to the effect that, in making the
examination necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or Event of
Default, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or event
of which they have knowledge and the nature and status thereof;
(e) Quarterly, as soon as available and, in any event, not later than
the dates financial statements are required to be delivered pursuant to (a) and
(b) above, a Borrowing Base Certificate;
(f) Annually, not later than February 15 of each year, the Borrower's
business plan and projections of financial statements for the immediately
succeeding year illustrating the projected income statements, balance sheets and
statement of cash flows, each in form and substance satisfactory to the Banks;
(g) Quarterly, as soon as available and, in any event, not later than
the dates financial statements are required to be delivered pursuant to (a) and
(b) above, a report detailing the performance of all operations of the Borrower
and the Guarantors by business segment, in form and substance satisfactory to
the Banks;
(h) Property financial information in a form consistent with the form
of information provided on Schedule 7.8(h) hereto;
(i) promptly after the Borrower or any Guarantor becomes aware of the
commencement thereof, notice of (a) all actions, suits, and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any Guarantor,
including, without limitation, any such proceeding relating to any alleged
violation of any Environmental Law and including any proceedings relating to any
matter if a determination adverse to the Borrower and the Guarantors in such
proceeding would have a material adverse effect upon the operations, business,
properties or financial condition of the Borrower or any Operating Company or of
the Borrower and the Guarantors, taken as a whole or (b) default under any lease
or mortgage with respect to any Real Estate Asset which would have a material
adverse effect upon the operations, business, properties or financial condition
of the Borrower or any Operating Company or on the Borrower and the Guarantors,
taken as a whole;
(j) immediately after the Borrower or any Guarantor has knowledge of
any Default or Event of Default has occurred, a written notice setting forth the
details of such Default
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or Event of Default and the action which is proposed to be taken by the Borrower
with respect thereto;
(k) as soon as possible and in any event within five Banking Days after
the Borrower knows that any of the events or conditions specified below with
respect to any Plan or Multiemployer Plan have occurred or exist, a statement
signed by a Chief Executive Officer or the Chief Financial Officer of the
Borrower setting forth details respecting such event or condition and the
action, if any, which the Borrower or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Borrower or an ERISA Affiliate with respect to such event
or condition):
(i) any Reportable Event;
(ii) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) receipt by the Borrower or ERISA Affiliate of notice
from a Multiemployer Plan of the complete or partial withdrawal by the
Borrower or any ERISA Affiliate under Section 4201 or 4204 of ERISA
from a Multiemployer Plan imposing withdrawal liability (as of the date
of such notification) exceeding $250,000 or requiring payments
exceeding $250,000 per annum;
(v) receipt by the Borrower or any ERISA Affiliate of notice
from a Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA if the
aggregate annual contributions of the Borrower and all ERISA Affiliates
to all Multiemployer Plans which are then in reorganization or being
terminated have been increased by over amounts contributed to such
Multiemployer Plans for the plan year immediately preceding the plan
year in which the reorganization or termination occurs by an amount
exceeding $250,000; and
(vi) the institution of a proceeding by a fiduciary or any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA for delinquent contributions in excess of
$100,000 which proceeding is not dismissed within 30 days;
(l) annually, not later than June 1 of each year, a property cash flow
analysis for the Borrower and the Guarantors, which shall be in form and
substance satisfactory to the Banks;
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(m) upon the request of the Banks, promptly after the furnishing
thereof, copies of any reports or records required to be filed with or furnished
to any insurance carriers or governmental authorities relating to Hazardous
Substances located on any of real properties owned or occupied by the Borrower
or any Guarantor ;
(n) promptly after the Borrower or any Guarantor knows of the
commencement or threat thereof, notice of any Forfeiture Proceeding;
(o) promptly after such judgment, decree or order is entered, notice of
any judgment, decree or order entered against the Borrower or any of the
Guarantors;
(p) promptly and, in any event, within 5 Banking Days, notice of any
event which would (i) require an interim adjustment of $500,000 or more to the
Borrowing Base in accordance with the provisions of Section 3.8 hereof or (ii)
would require an interim adjustment of the Borrowing Base, regardless of amount,
if as a result of such adjustment Aggregate Outstandings would exceed the
Borrowing Base; and
(q) such other information respecting the condition or operations,
financial or otherwise of the Borrower or any of the Guarantors or ERISA
Affiliates, including copies of other reports filed from time to time within the
Securities and Exchange Commission, as the Banks may from time to time
reasonably request.
Section 7.9. Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all material Indebtedness and other material obligations of whatever nature.
Section 7.10. Payment of Taxes.
(a) From time to time when the same shall become due and payable, pay
and discharge all taxes of every kind and nature, all general and special
assessments, levies, permits, inspection and license fees, all water and sewer
rents and charges, and all other public charges whether of a like or different
nature, imposed upon or assessed against the Eligible Properties, or any part
thereof, or upon the revenues, rents, issues, income and profits of the Eligible
Properties, or any part thereof, or arising in respect of the occupancy, use of
possession thereof unless such claims are being contested in good faith by
appropriate proceedings provided that adequate reserves in conformity with GAAP
shall have been provided on the books of the Borrower and/or such Guarantor(s).
Borrower and each Guarantor shall, upon the request of the Agent, deliver to the
Agent receipts evidencing the payment of all such taxes, assessments, levies,
fees, rents and other public charges imposed upon or assessed against the
Eligible Properties or any part thereof, or the revenues, rents, issues, income
or profits thereof.
(b) Pay from time to time when the same shall become due, all lawful
claims and demands of mechanics, materialmen, laborers and others, which claims
and demands, if unpaid, might result in, or permit the creation of, a lien on
the Eligible Properties or any part
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thereof, or on the revenues, rents, issues, income and profits arising
therefrom, unless such claims are being contested in good faith by appropriate
proceedings provided that adequate reserves in conformity in the GAAP shall have
been provided on the books of the Borrower and/or the Guarantors.
Section 7.11. Insurance
(a) Keep or enforce the obligation of tenants to keep, the Real Estate
Assets insured against damage by fire and other hazards covered by the standard
extended coverage insurance policy. Subject to the terms of the applicable
leases, all insurance policies and endorsements required pursuant to this
Section shall be fully paid for, nonassessable and contain such provisions and
expiration dates and be in such form and amounts and issued by such insurance
companies satisfactory to the Banks. In addition, after the occurrence of an
Event of Default hereunder, the Banks may require the Borrower and the
Guarantors to carry or to require their respective tenants to carry such other
insurance on the Real Estate Assets including oil storage tank insurance, in
such amounts as may from time to time be required by institutional lenders,
against insurable casualties which at the time are commonly insured against in
the case of premises similarly situated.
(b) Subject to the terms of the applicable leases, if any Eligible
Property or any part thereof, is located in an area which has been identified by
the Secretary of housing and Urban Development as a flood hazard area, the
Borrower and the Guarantors shall keep, or cause their respective tenants to
keep, for as long as any Indebtedness remains unpaid, such Eligible Property
covered by flood insurance in an amount at least equal to the value assigned to
such Eligible Property in the Borrowing Base.
(c) The Borrower shall give the Agent prompt notice of any loss to any
Real Estate Asset covered by insurance if such loss would decrease the value of
such Real Estate Asset by $500,000 or more or (ii) would have a material adverse
affect on the Borrowing Base or upon the Borrower and its Subsidiaries on a
consolidated basis. For so long as no Event of Default has occurred and is
continuing, (i) the Borrower shall have the sole right to adjust losses covered
by insurance, (ii) the proceeds from any adjusted insurance claim shall be paid
to the Borrower, which proceeds shall be used by the Borrower for the
restoration, rebuilding, renovation and/or repair of the property so requiring
same. If, at the time of any loss, an Event of Default has occurred and is
continuing, (i) the Borrower shall not adjust said loss without the prior
written consent of the Banks; and (ii) any and all insurance proceeds shall be
paid to the Agent and the Agent, with the consent of the Required Banks, in its
sole discretion, may use such proceeds to either (i) repay all or any portion of
the Loans or (ii) restore, rebuild, renovate and/or repair the damaged property.
In the event the Agent makes the insurance proceeds available to the Borrower,
the Borrower agrees to promptly commence and diligently continue to perform the
repairs, restoration, renovation or rebuilding of the damaged property so as to
restore such property to be in full compliance with all laws and so that such
property shall be at least equal in value and general utility as prior to such
damage or destruction. All provisions of this Section 7.11(c) and the Banks
rights and remedies hereunder are subject to the insurance provisions of the
applicable leases on the Real Estate Assets.
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Section 7.12. Condemnation. The Borrower, immediately upon obtaining
knowledge of the institution of any proceedings for the condemnation of any of
the Real Estate Assets or any part of any Real state Assets that may materially
effect the value of the Borrowing Base or that may materially adversely effect
the Borrower and its Subsidiaries, on a consolidated basis, will notify the
Agent of the pendency of such proceeding. Subject to the provisions of the
applicable leases, after the occurrence of an Event of Default hereunder, the
Agent may participate in any such proceeding and the Borrower, from time to
time, will deliver to the Agent all instruments requested by it to permit such
participation. In the event of such condemnation proceeding after the occurrence
of an Event of Default hereunder, the award or compensation payable is hereby
assigned to and shall be paid to the Agent. The Agent shall be under no
obligation to question the amount of any such award or compensation. In any such
condemnation proceedings after the occurrence of an Event of Default hereunder,
the Agent may be represented by counsel selected by the Agent. The Borrower,
upon request by the Agent, shall make, execute and deliver any and all
instruments requested for the purpose of confirming the assignment of the
aforesaid awards and compensation to the Agent free and clear of any liens,
charges or encumbrances of any kind or nature whatsoever. All provisions of this
Section 7.12 and the Banks rights and remedies hereunder are subject to the
condemnation provisions of the applicable leases on the Real Estate Assets.
Section 7.13. Subsidiaries. Simultaneously with their creation, cause
all Subsidiaries to become Guarantors hereunder and, in connection therewith to
execute and deliver to the Banks, Guarantees.
ARTICLE 8.
NEGATIVE COVENANTS.
So long as any of the Notes or other Obligations shall remain unpaid or
any Bank shall have any Commitment hereunder, neither the Borrower nor any
Guarantor shall:
Section 8.1. Indebtedness. Create, incur, assume or suffer to exist, or
permit any Subsidiary to create, incur, assume or suffer to exist any
Indebtedness, except for any of the following types of Indebtedness:
(a) Indebtedness of the Borrower under this Agreement or the Notes;
(b) Indebtedness described in Schedule 8.1 and any other existing
Indebtedness of any Guarantor relating to extensions of credit of less than
$250,000 that is non-recourse to the Borrower or any other Guarantor and any
refinancing of any such Indebtedness secured by a mortgage on any real property
of the Borrower or any Guarantor provided that such refinancing does not
increase the principal amount of such Indebtedness;
(c) Provided that no Event of Default then exists or would result
therefrom, Indebtedness of the Borrower, or any such Guarantor, secured by
purchase money Liens permitted by Section 8.2 provided that the maximum amount
of such Indebtedness incurred
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during any fiscal year (excluding non-recourse indebtedness secured by real
property) shall not exceed $500,000 provided, however, that no provision of this
Section 8.1(c) shall prohibit the Borrower from entering into an operating lease
for computer equipment having a value of up to $1,500,000 during 1997 and
provided that the obligations of the Borrower under such lease shall be
permitted in addition to the $500,000 annual limit provided for in this
subsection;
(d) unsecured trade indebtedness and customer deposits incurred in the
ordinary course of business;
(e) in the case of the Guarantors the guarantees of the Obligations
pursuant to the Guarantees; and
(f) Indebtedness of any Post-Closing Guarantor provided that such
Indebtedness is non-recourse to the Borrower or to any other Guarantor.
Section 8.2. Liens. Create, incur, assume or suffer to exist or permit
any Subsidiary to create, incur or suffer to exist, any Lien upon or with
respect to any of its properties, now owned or hereafter acquired, or grant to
any third party any rights to enforce a "negative pledge" with respect to its
properties or assets, except the following liens ("Permitted Liens"):
(a) Liens in favor of the Banks securing the Obligations pursuant to
the provisions hereof;
(b) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained in conformity with GAAP;
(c) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than 30 days, or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves in accordance with
GAAP have been established, including, without limitation, any landlord's lien
which is being contested in good faith by appropriate proceedings and for which
appropriate reserves in accordance with GAAP have been established;
(d) Liens under workers' compensation, unemployment insurance, social
security or similar legislation (other than ERISA);
(e) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the ordinary course
of business;
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easements, rights-of-way, restrictions and other similar encumbrances which, in
the aggregate, do not materially interfere with the occupation, use and
enjoyment by the Borrower of the property or assets encumbered thereby in the
normal course of its business or materially impair the value of the property
subject thereto;
(g) judgment and other similar Liens securing claims aggregating not
more than $250,000 arising in connection with court proceedings; provided that
the execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings;
(h) subject to the provisions of Section 8.1(c) hereof, (i) purchase
money Liens on any property heretofore or hereafter acquired or the assumption
of any Lien on any property existing at the time of such acquisition, or (ii) a
Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided, that in the case of any of (i)-(ii)
above, (i) the creation or occurrence of any such Lien shall not otherwise
result in a Default or Event of Default with respect to any of the other
provisions of this Agreement, (ii) the Indebtedness secured by such Lien shall
not exceed 100% of the fair market value of the property encumbered by such
Lien, and (iii) such Lien shall not encumber any property of the Borrower and
their Subsidiaries other than the property so acquired;
(i) Liens arising by virtue of any statutory or common law provision
relating to banker's liens, rights of set off or similar rights with respect to
deposit accounts of the Borrower or any Subsidiary; and
(j) Liens securing Indebtedness permitted by Section 8.1 hereof.
Section 8.3. Investments. Make or permit any Subsidiary to make any
loan or advance to any Person or purchase or otherwise acquire or permit any
Subsidiary to purchase or otherwise acquire, any capital stock, obligations or
other securities of, make any capital contribution to, or otherwise invest in,
or acquire any interest in any Person (each of the foregoing, an "Investment"),
except (i) Permitted Investments; (ii) Investments permitted under Section 8.7
hereof; the Borrower may make loans or advances to the Operating Companies
provided that the outstanding principal balance of such loans or advances may
not exceed $10,000,000 at any one time; and (iii) subject to the provisions of
Section 8.7 hereof, the Borrower or any Subsidiary may make loans secured by
mortgages on real property in the ordinary course of their business consistent
with past practices.
Section 8.4. Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of or permit any Subsidiary to sell, lease, assign, transfer or
otherwise dispose of any of its now owned or hereafter acquired assets (except
to the Borrower), except for: (a) assets disposed of in the ordinary course of
business (it being understood that the Borrower and the Guarantors sell Real
Estate Assets in the ordinary course of business); or (b) the sale or other
disposition of assets no longer used or useful in the conduct of its business.
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Section 8.5. Transactions with Affiliates. Enter into or permit any
Subsidiary to enter into any transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with any
Affiliate, except (unless elsewhere restricted hereunder) (a) for transactions
between the Borrower and any Subsidiary or any Subsidiary with any other
Subsidiary, (b) upon fair and reasonable terms, in the ordinary course of and
pursuant to the reasonable requirements of, the relevant Person's business and
upon fair and reasonable terms no less favorable to the relevant Person than
would obtain in a comparable arm's length transaction with a Person not an
Affiliate; provided that, after giving effect to any such transaction (i.e., any
of the transactions referred to in any of (a)-(b) above), no Default or Event of
Default shall have occurred.
Section 8.6. Mergers, Etc. Merge or consolidate with, or sell, assign,
lease or otherwise dispose of or permit any Subsidiary to merge or consolidate
with, or sell, assign, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to, any Person, or acquire, all or
substantially all of the assets or the business of any Person, except that any
Guarantor may merge with or into any other Guarantor or the Borrower hereunder,
provided that, in the case of a transaction that involves the Borrower, the
Borrower is the surviving entity, and provided further that, after giving effect
to any such transaction, no Default or Event of Default shall have occurred.
Section 8.7. Acquisitions. Make an Acquisition or permit any Subsidiary
to make an Acquisition, except that (i) the Borrower or any Guarantor may
acquire Real Estate Assets provided that the aggregate consideration paid or to
be paid (in the case of a purchase), including all indebtedness assumed by the
Borrower or any Guarantor in connection with such Acquisition, or advanced (in
the case of a loan) in connection with any such transaction, shall not exceed
$15,000,000; and (ii) the Borrower or any Guarantor may acquire property or
assets other than Real Estate Assets provided that the aggregate consideration
paid in connection with any such transaction shall not exceed $5,000,000 and the
aggregate consideration paid in connection with all such transactions permitted
by this clause (ii) during the term hereof shall not exceed $10,000,000.
Section 8.8. No Activities Leading to Forfeiture. Engage or permit any
Subsidiary to engage in the conduct of any business or activity which would be
reasonably likely to result in a Forfeiture Proceeding.
Section 8.9. Corporate Documents; Fiscal Year. Amend, modify or
supplement or permit any Subsidiary to amend, modify or supplement its
certificate or articles of incorporation or by-laws or, in the case of any
partnership, its partnership agreement, in any way which would materially
adversely affect the ability of the Borrower or any Subsidiary to perform its
obligations hereunder or change its fiscal year.
Section 8.10. Hazardous Substances; Use of Real Property. Use, or
permit the use of, or permit any Subsidiary to use or permit the use of any of
its real properties for conducting any manufacturing, industrial, commercial or
retail business which involves in any
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way the introduction, manufacture, generation, processing or storage of any
Hazardous Substance in violation, in any material respect, of any applicable
Environmental Law.
Section 8.11. Dividends, etc. Declare or pay any dividends on its
capital stock or purchase, redeem, retire or otherwise acquire any of its
capital stock at any time outstanding, except that any Subsidiary wholly owned
by the Borrower may declare and pay dividends to the Borrower, and except that
the Borrower may repurchase its capital stock in amounts not to exceed
$2,000,000 in any fiscal year or $5,000,000 during the term of this Agreement.
Section 8.12. Other Material Adverse Change. Suffer or permit any other
material adverse change in the business, properties, financial condition,
prospects or operations of the Borrower or any Subsidiary; in the business,
properties, financial condition, prospects or operations of the Borrower and the
Guarantors taken as a whole; or in the ability of the Borrower or any Guarantor
to perform its obligations under this Agreement or under any of the Facility
Documents.
Section 8.13. Sales of Receivables; Sale-Leasebacks. Sell, discount or
otherwise dispose of or permit any Subsidiary to sell, discount or otherwise
dispose of notes, accounts receivable or other obligations owing to such entity,
with or without recourse, except for purposes of collection in the ordinary
course of business; or sell or permit any Subsidiary to sell any asset pursuant
to an arrangement to thereafter lease such asset from the purchaser thereof.
Section 8.14. Leases of Eligible Properties. Enter into leases with
respect to Eligible Properties on terms and conditions which are not
commercially reasonable within the markets in which such properties are located.
Section 8.15. Maintenance of Real Estate Assets. Subject to the terms
of any leases with respect to any Real Estate Assets, commit any waste, or
permit any tenant to commit any waste on the Real Estate Assets, or any part
thereof, or make any change, or permit any tenant to make any change, in the use
of the Real Estate Assets or any part thereof, which shall in any way increase
any ordinary fire or other hazard arising out of construction or operation. The
Borrower and the Guarantors shall, at all times, maintain or cause any tenants
to maintain the Real Estate Assets in good operating order and condition and
shall promptly make or cause any tenants to make, from time to time, all
repairs, renewals, replacements, additions and improvements in connection
therewith which are needful or desirable to such end.
ARTICLE 9.
FINANCIAL COVENANTS.
So long as any of the Notes or other Obligations shall remain unpaid,
or any Bank shall have any Commitment under this Agreement, the Borrower and the
Guarantors shall:
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Section 9.1. Limitation on Indebtedness. Not permit Total Adjusted
Outstanding Funded Indebtedness of the Borrower and the Guarantors, on a
consolidated basis, to exceed 50% of the Capitalization Value of the Borrower
and the Guarantors, on a consolidated basis.
Section 9.2. Minimum Equity Value. Maintain, on a consolidated basis, a
minimum Equity Value of $60,000,000.
Section 9.3. Minimum Interest Coverage Ratio. Maintain quarterly, on a
consolidated basis, a ratio of (i) annualized and normalized Consolidated EBITDA
to (ii) annualized and normalized Consolidated Interest Expense of not less than
2.00:1.00.
Section 9.4. Minimum Debt Service Coverage Ratio. Maintain quarterly,
on a consolidated basis, a ratio of (i) annualized and normalized Consolidated
EBITDA less gains from the sale of properties and other non-recurring income to
(ii) annualized an normalized Consolidated Debt Service of not less than
1.10:1.00.
Section 9.5. Minimum Eligible Properties Debt Service Coverage Ratio.
Maintain quarterly, on a consolidated basis, a ratio of (i) annualized and
normalized Eligible Property EBITDA to (ii) Revolving Credit Loan Debt Service
of not less than 2.25:1.00.
Section 9.6. Limitation of Capital Expenditures. Not make Capital
Expenditures, excluding expenditures for the acquisition of Real Estate Assets,
in excess of $3,000,000 in any fiscal year on a consolidated basis.
Section 9.7. Limitation on Operating Leases Not enter into operating
leases requiring the Borrower and the Guarantors to make more than $500,000 in
lease payments in any calendar year, on a consolidated basis.
ARTICLE 10.
EVENTS OF DEFAULT.
Section 10.1. Events of Default. Any of the following events shall be
an "Event of Default":
(a) The Borrower shall (A)(i) fail to pay the principal of or interest
on any Loan or Note as and when due and payable fail to pay any fee or other
amount due hereunder as and when due and payable; or (B) fail to make any
required prepayment as and when due and payable in accordance with the terms of
this Agreement;
(b) Any representation or warranty made or deemed made by the Borrower
or by any Guarantor in this Agreement or in any other Facility Document or which
is contained in any certificate, document, opinion, financial or other statement
furnished to the Banks at any
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time pursuant to any Facility Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made;
(c) The Borrower shall: (i) fail to perform or observe any term,
covenant or agreement contained in Section 2.3, in Articles 4, 8 or 9 or
Sections 7.7 (subject to the provisions of the leases relating to the Real
Estate Assets), 7.8 or 12.3; or (ii) fail to perform any other term, covenant or
agreement on its part to be performed or observed (other than obligations
specifically referred to in Section 10.1(a)) in any Facility Document and, in
the case of this clause (ii) only, such failure shall continue for 10
consecutive business days;
(d) The Borrower or any of the Guarantors shall: (i) fail to make when
due any payments with respect to any Indebtedness, including but not limited to
indebtedness for borrowed money (other than the payment obligations described in
Section 10.1 (a) above), of the Borrower or such Subsidiary, as the case may be,
or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) or, if such Indebtedness
has no stated due date, before an action for collection is commenced; or (ii)
fail to perform or observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument relating to any
Indebtedness when required to be performed or observed, if the effect of such
failure to perform or observe is to accelerate, or to permit the acceleration
of, after the giving of notice or passage of time, or both, the maturity of such
Indebtedness, whether or not such failure to perform or observe shall be waived
by the holder of such Indebtedness (unless such waiver shall be absolute and
unconditional); or (iii) any Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof; provided, however that it
shall not constitute an Event of Default hereunder unless the aggregate
principal amount of the Indebtedness referred to in clauses (i), (ii) and (iii)
above equals or exceeds (x) $500,000 in the case of recourse Indebtedness of the
Borrower or in the case of Indebtedness relating to Eligible Properties or (y)
$1,000,000 in the case of Indebtedness of any Guarantors that is non-recourse to
the Borrower or any other Guarantor which relates to assets other than Eligible
Properties; provided, however, that it shall not constitute an Event of Default
hereunder if any of the events described above occurs with respect to that
certain promissory note of D&M/Chiu Technology, Inc. (the "Maker") dated as of
May 7, 1992 and payable to Ivan M. Faigen, as representative for so long (x) as
the Maker is contesting its obligations with respect to such note by appropriate
proceedings (y) adequate reserves in conformity with GAAP shall be provided in
the books of the Maker and (z) no judgment has been entered in favor of the
holder of such note;
(e) The Borrower or any of the Guarantors (i) shall generally not, or
be unable to, or shall admit in writing its or their inability to, pay its or
their debts as such debts become due; or (ii) shall make an assignment for the
benefit of creditors, petition or apply to any court or otherwise for the
appointment of a custodian, receiver or trustee for it or a substantial part of
its assets; or (iii) shall, as debtor, commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (iv) shall have had any such petition or application filed or any
such proceeding shall have been commenced, against it or them, in which an
adjudication or appointment is made or order for relief is entered, or which
petition, application or proceeding
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remains undismissed for a period of 30 days or more; or (v) by any act or
omission shall indicate its or their consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any substantial part
of its property; (vi) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of 30 days or more; or (vii)
on a consolidated basis, shall cease to be Solvent;
(f) One or more judgments, decrees or orders for the payment of money
in excess of $250,000 in the aggregate in respect of uninsured or unbonded
claims shall be rendered against the Borrower, or any of the Guarantors and such
judgments, decrees or orders shall continue unsatisfied and in effect for a
period of 30 consecutive days without being vacated, discharged, satisfied or
stayed or bonded pending appeal;
(g) An event or condition specified in Section 7.8(k) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
the Borrower or any ERISA Affiliate shall incur or in the opinion of the Bank
shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan
or PBGC (or any combination of the foregoing) which is, in the determination of
the Bank, material in relation to the financial condition, operations, business
or prospects of the Borrower or any Subsidiary;
(h) Any Forfeiture Proceeding shall have been commenced with respect to
the Borrower or any Subsidiary;
(i) Any of the Assignments, the Security Agreements or Guarantees shall
at any time after its execution and delivery and for any reason, cease to be in
full force and effect or shall be declared null and void, or the validity or
enforceability thereof shall be contested by the Borrower or the Guarantors or
any of them, or any of the Borrower or the Guarantors shall deny that it has any
further liability or obligation under an Assignment, a Security Agreement or a
Guarantee to which it is a party, or any of such parties shall fail to perform
any of its material obligations under any such document; or
(j) a Change in Control shall occur.
Section 10.2. Remedies. Upon the occurrence of any Event of Default
hereunder, the Required Banks may, by notice to the Borrower, (i) declare the
Commitments to be terminated, whereupon the same shall forthwith terminate, and
(ii) declare the outstanding principal of the Notes, all interest thereon and
all other Obligations to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided that, in the case
of an Event of Default referred to in Section 10.1(e) or Section 10.1(h) above,
the Commitments shall be immediately terminated, and the Notes, all interest
thereon and all other amounts payable under this Agreement or the Notes shall be
immediately due and payable without notice, presentment,
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demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE 11.
THE AGENT; RELATIONS AMONG BANKS.
Section 11.1. Appointment, Powers and Immunities of Agent. Each Bank
hereby irrevocably (but subject to removal by the Required Banks pursuant to
Section 11.9) appoints and authorizes the Agent to act as its agent hereunder
and under any other Facility Document with such powers as are specifically
delegated to the Agent by the terms of this Agreement and any other Facility
Document, together with such other powers as are reasonably incidental thereto.
The Agent shall have no duties or responsibilities except those expressly set
forth in this Agreement and any other Facility Document, and shall not by reason
of this Agreement be a trustee for any Bank. The Agent shall not be responsible
to the Banks for any recitals, statements, representations or warranties made by
the Borrower, or any officer or official of the Borrower, or any other Person
contained in this Agreement or any other Facility Document, or in any
certificate or other document or instrument referred to or provided for in, or
received by any of them under, this Agreement or any other Facility Document, or
for the value, legality, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Facility Document or any other
document or instrument referred to or provided for herein or therein, or for the
failure by the Borrower to perform any of its obligations hereunder or
thereunder. The Agent may employ agents and attorneys-in-fact and shall not be
responsible, except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder or under any other Facility
Document or in connection herewith or therewith, except for its or their own
gross negligence or willful misconduct. The Borrower shall pay any fee agreed to
by the Borrower and the Agent with respect to the Agent's services hereunder.
Section 11.2. Reliance by Agent. The Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telephone, telefax, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. The Agent may deem and
treat each Bank as the holder of the Loans made by it for all purposes hereof
unless and until a notice of the assignment or transfer thereof satisfactory to
the Agent signed by such Bank shall have been furnished to the Agent but the
Agent shall not be required to deal with any Person who has acquired a
participation in any Loan from a Bank. As to any matters not expressly provided
for by this Agreement or any other Facility Document, the Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by the Required Banks, and such instructions
of the Required Banks and any action taken or failure to act pursuant thereto
shall be binding on all of the Banks and any other holder of all or any portion
of any Loan.
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Section 11.3. Defaults. The Agent shall not be deemed to have knowledge
of the occurrence of a Default or Event of Default (other than the non-payment
of principal of or interest or fees on the Loans to the extent the same is
required to be paid to the Agent for the account of the Banks) unless the Agent
has received notice from a Bank or the Borrower specifying such Default or Event
of Default. In the event that the Agent receives such a notice of the occurrence
of a Default or Event of Default, the Agent shall give prompt notice thereof to
the Banks (and shall give each Bank prompt notice of each such non-payment). The
Agent shall (subject to Section 11.8) take such action with respect to such
Default or Event of Default which is continuing as shall be directed by the
Required Banks; provided that, unless and until the Agent shall have received
such directions, the Agent may take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Banks; and provided further that the Agent
shall not be required to take any such action which it determines to be contrary
to law.
Section 11.4. Rights of Agent as a Bank. With respect to its Commitment
and the Loans made by it, the Agent in its capacity as a Bank hereunder shall
have the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not acting as the Agent, and the term "Bank" or "Banks"
shall, unless the context otherwise indicates, include the Agent in its capacity
as a Bank. The Agent or any Bank and their respective Affiliates may (without
having to account therefor to any other Bank) accept deposits from, lend money
to (on a secured or unsecured basis as otherwise permitted hereunder), and
generally engage in any kind of banking, trust or other business with, the
Borrower or any of the Guarantors (and any of their Affiliates). In the case of
the Agent, it may do so as if it were not acting as the Agent, and the Agent may
accept fees and other consideration from the Borrower or any of the Guarantors
for services in connection with this Agreement or otherwise without having to
account for the same to the Banks. Although the Agent or a Bank or their
respective Affiliates may in the course of such relationships and relationships
with other Persons acquire information about the Borrower or any of the
Guarantors or Affiliates and such other Persons, neither the Agent nor such Bank
shall have any duty to disclose such information to the other Banks except as
otherwise required pursuant to Facility Documents.
Section 11.5. Indemnification of Agent. The Banks agree to indemnify
the Agent (to the extent not reimbursed under Section 12.3 or under the
applicable provisions of any other Facility Document, but without limiting the
obligations of the Borrower under Section 12.3 or such provisions), ratably in
accordance with the respective Obligations of the Borrower then due and payable
to each of them (or, if no Loans are at the time outstanding, ratably in
accordance with their respective Commitments), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of this Agreement, any other Facility Document or any other documents
contemplated by or referred to herein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses which the
Borrower is obligated to pay under Section 12.3 or under the applicable
provisions of any other Facility Document but excluding, unless a Default or
Event of Default has occurred, normal administrative costs and expenses
incidental to the performance of its agency duties hereunder) or the enforcement
of any
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of the terms hereof or thereof or of any such other documents or instruments;
provided that no Bank shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the party to be
indemnified.
Section 11.6. Documents. The Agent will forward to each Bank, promptly
after the Agent's receipt thereof, a copy of each report, notice or other
document required by this Agreement or any other Facility Document to be
delivered to the Agent for such Bank.
Section 11.7. Non-Reliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and the Guarantors and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any other
Facility Document. The Agent shall not be required to keep itself informed as to
the performance or observance by the Borrower of this Agreement or any other
Facility Document or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Borrower or any Subsidiary.
Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder, the Agent shall
not have any duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of the
Borrower or any Subsidiary (or any of their Affiliates) which may come into the
possession of the Agent or of its Affiliates. The Agent shall not be required to
file this Agreement, any other Facility Document or any document or instrument
referred to herein or therein, for record or give notice of this Agreement, any
other Facility Document or any document or instrument referred to herein or
therein, to anyone.
Section 11.8. Failure of Agent to Act. Except for action expressly
required of the Agent hereunder, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder unless it shall have received further
assurances (which may include cash collateral) of the indemnification
obligations of the Banks under Section 11.5 in respect of any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.
Section 11.9. Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving written notice thereof at least thirty Banking Days
prior thereto to the Banks and the Borrower, the Agent may be removed at any
time with cause by the Required Banks and the Agent may be removed at any time
without cause by the Required Banks if with the prior written consent of the
Borrower; provided that the Borrower and the other Banks shall be promptly
notified thereof. Upon any such resignation or removal, the Required Banks shall
have the right to appoint a successor Agent. If no successor Agent shall have
been so appointed by the Required Banks and shall have accepted such appointment
within 30 days after the retiring Agent's giving of notice of resignation or the
Required Banks' removal of the retiring Agent, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a Bank. The
Required Banks or
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the retiring Agent, as the case may be, shall upon the appointment of a
Successor Agent promptly so notify the Borrower and the other Banks. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The
retiring Agent shall execute all documents or instruments of assignment as shall
be necessary to vest in the successor Agent all rights of the retiring Agent
hereunder. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article 11 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
Section 11.10. Amendments Concerning Agency Function. The Agent shall
not be bound by any waiver, amendment, supplement or modification of this
Agreement or any other Facility Document which affects its duties hereunder or
thereunder unless it shall have given its prior consent thereto.
Section 11.11. Liability of Agent. The Agent shall not have any
liabilities or responsibilities to the Borrower on account of the failure of any
Bank to perform its obligations hereunder or to any Bank on account of the
failure of the Borrower to perform its obligations hereunder or under any other
Facility Document.
Section 11.12. Transfer of Agency Function. Without the consent of the
Borrower or any Bank, the Agent may at any time or from time to time transfer
its functions as Agent hereunder to any of its offices wherever located,
provided that the Agent shall promptly notify the Borrower and the Banks
thereof.
Section 11.13. Non-Receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Bank or the Borrower (either one as appropriate
being the "Payor") prior to the date on which such Bank is to make payment
hereunder to the Agent of the proceeds of a Loan or the Borrower is to make
Payment to the Agent, as the case may be (either such payment being a "Required
Payment"), which notice shall be effective upon receipt, that the Payor does not
intend to make the Required Payment to the Agent, the Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption (but
shall not be required to), make the amount thereof available to the intended
recipient on such date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient of such payment shall, on demand, repay to
the Agent the amount made available to it together with interest thereon for the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to the
Federal Funds Rate for such day (when the Agent recovers such amount from a
Bank) or equal to the rate of interest applicable to such Loan (when the Agent
recovers such amount from the Borrower) and, if such recipient shall fail to
make such payment promptly, the Agent shall be entitled to recover such amount,
on demand, from the Payor, with interest as aforesaid.
Section 11.14. Withholding Taxes. Each Bank represents that it is
entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will
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furnish to the Agent such forms, certifications, statements and other documents
as the Agent may request from time to time to evidence such Bank's exemption
from the withholding of any tax imposed by any jurisdiction or to enable the
Agent to comply with any applicable laws or regulations relating thereto.
Without limiting the effect of the foregoing, if any Bank is not created or
organized under the laws of the United States of America or any state thereof,
in the event that the payment of interest by the Borrower is treated for U.S.
income tax purposes as derived in whole or in part from sources from within the
U.S., such Bank will furnish to the Agent, no less frequently than annually,
Form 4224 or Form 1001 of the Internal Revenue Service, or such other forms,
certifications, statements or documents, duly executed and completed by such
Bank as evidence of such Bank's exemption from the withholding of U.S. tax with
respect thereto. The Agent shall not be obligated to make any payments hereunder
to such Bank in respect of any Loan or such Bank's Commitment until such Bank
shall have furnished to the Agent the requested form, certification, statement
or document.
Section 11.15. Several Obligations and Rights of Banks. The failure of
any Bank to make any Loan to be made by it on the date specified therefor shall
not relieve any other Bank of its obligation to make its Loan on such date, but
no Bank shall be responsible for the failure of any other Bank to make a Loan to
be made by such other Bank. The amounts payable at any time hereunder to each
Bank shall be a separate and independent debt, and each Bank shall be entitled
to protect and enforce its rights arising out of this Agreement, and it shall
not be necessary for any other Bank to be joined as an additional party in any
proceeding for such purpose.
Section 11.16. Pro Rata Treatment of Loans, Etc. Except to the extent
otherwise provided: (a) each borrowing under Section 2.4 or Section 3.1 shall be
made from the Banks, each reduction or termination of the amount of the
Commitments under Section 2.8 shall be applied to the Commitments of the Banks,
and each payment of the fees referenced in Article 3, shall be made by and held
for the account of the Banks, pro rata in accordance with their respective
Commitment Proportions; (b) each prepayment and payment of principal of or
interest on Loans of a particular type and a particular Interest Period shall be
made to the Agent for the account of the Banks holding Loans of such type and
Interest Period pro rata in accordance with the respective unpaid principal
amounts of such Loans of such Interest Period held by such Banks.
Section 11.17. Sharing of Payments Among Banks. If a Bank shall obtain
payment of any principal of or interest on any Loan made by it through the
exercise of any right of setoff, banker's lien, counterclaim, or by any other
means, it shall promptly purchase from the other Banks a participation in the
Loans made by the other Banks in such amounts, and make such other adjustments
from time to time as shall be equitable to the end that all the Banks shall
share the benefit of such payment (net of any expenses which may be incurred by
such Bank in obtaining or preserving such benefit) pro rata in accordance with
the unpaid principal and interest on the Loans held by each of them. To such end
the Banks shall make appropriate adjustments among themselves (by the resale of
any such participation sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Bank so purchasing a
participation in the Loans made by other Banks may exercise all rights of
setoff, banker's lien,
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counterclaim or similar rights with respect to such participation. Nothing
contained herein shall require any Bank to exercise any such right or shall
affect the right of any Bank to exercise, and retain the benefits of exercising,
any such right with respect to any other indebtedness of the Borrower.
ARTICLE 12.
MISCELLANEOUS.
Section 12.1. Amendments and Waivers. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may be amended or
modified only by an instrument in writing signed by the Borrower and the
Required Banks, and any provision of this Agreement may be waived by the
Borrower and by an instrument signed by the Required Banks (if such provision
requires performance by the Borrower), including, but not limited to, any Event
of Default; provided that no amendment, modification or waiver shall, unless by
an instrument signed by all of the Banks: (a) increase or extend the term, or
extend the time or waive any requirement for the reduction or termination of or
otherwise change the Commitment or the obligation to make Term Loans of any
Bank, (b) extend the date fixed for the payment of principal of or interest on
any Loan, (c) reduce the amount of any payment of principal thereof or the rate
at which interest is payable thereon or any fee payable hereunder, (d) alter the
terms of this Section 12.1, (e) change the fees payable to any Bank except as
expressly otherwise provided herein, (f) permit the Borrower, or any of the
Guarantors, to transfer or assign any of its obligations hereunder or under the
Facility Documents, (g) release the security interest in and Lien on or the
right to a security interest in and Lien, any collateral securing the Borrower's
obligations thereunder, or (h) change the definition of the term "Required
Banks." No failure on the part of any Bank to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 12.2. Usury. Anything herein to the contrary notwithstanding,
the Obligations shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt thereof would be contrary to
provisions of law applicable to a Bank limiting rates of interest which may be
charged or collected by such Bank. If any of the above-referenced payments of
interest, together with any other charges or fees deemed in the nature of
interest, exceed the maximum legal rate, then the Banks shall have the right to
make such adjustments as are necessary to reduce any such aggregate interest
rate (based on the foregoing aggregate amount) to the maximum legal rate, and if
any Bank ever receives, collects or applies any such excess, it shall be deemed
a partial repayment of principal and treated as such; and if principal is paid
in full, any remaining excess shall be refunded to the Borrower. The Borrower
waives any right to prior notice of such adjustment and further agrees that any
such adjustment may be made by the Banks subsequent to notification from the
Borrower that such aggregate interest charged exceeds the maximum legal rate.
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Section 12.3. Expenses and Indemnification. The Borrower shall
reimburse each of the Banks on demand for all reasonable costs, expenses and
charges (including, without limitation, reasonable fees and charges of such
Banks' special counsel, Rivkin, Radler & Kremer up to a cap of $45,000, plus
disbursements of such counsel up to a cap of $15,000, incurred by such Bank in
connection with the preparation, review, execution and delivery of this
Agreement and the Facility Documents. Without limiting the generality of the
foregoing, the Borrower shall pay all recording fees and charges and recording
taxes incurred by any of the Banks hereunder or in connection herewith. In
addition, the Borrower shall reimburse each Bank for all of its reasonable costs
and expenses incurred from and after the occurrence of an Event of Default in
connection with the perfection, protection, enforcement or preservation of any
rights under this Agreement, the Notes or the other Facility Documents. The
Borrower agrees to indemnify each Bank and their respective directors, officers,
employees, representatives and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses of any
kind (including, without limitation, the reasonable fees and expenses of counsel
for such Person in connection with any investigative, administrative or judicial
proceeding, whether or not such Person shall be designated a party thereto)
incurred by any of them arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to or arising out of this Agreement,
any actual or proposed use by the Borrower of the proceeds of the Loans, or to
the failure of the Borrower to perform or observe any of the terms, covenants or
conditions on its part to be performed or observed under this Agreement or under
any of the Facility Documents. The indemnity provided in this Section shall not
extend to any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence, willful misconduct or bad faith of the Person to
be indemnified.
Section 12.4. Special Provisions Regarding Collateral. Simultaneously
with the execution and delivery of this Agreement, the Borrower and the
Guarantors have deposited with the Agent, for the benefit of the Banks, the
Assignments duly executed and in proper form for recording in each of the
jurisdictions where Eligible Properties are located. In addition, the Operating
Companies have deposited with the Agent for the benefit of the Banks the
Security Agreements, together with UCC-1 financing statements, each duly
executed and in proper form for recording in each of the jurisdictions in which
the Operating Companies maintain assets. The Agent agrees to hold such documents
and not to file or record such documents unless and until any Event of Default
shall occur hereunder. The Agent further agrees that upon the happening of an
Event of Default hereunder, other than an Event of Default referred to in
Section 10.1 (e) hereof (in which case no notice shall be required), the Agent
shall give the Borrower fourteen (14) days' prior written notice before
recording any of such documents. The costs incurred after the occurrence of an
Event of Default in connection with recording any such document shall be borne
by the Borrower whether or not any such document is recorded by the Agent. If
any of the Assignments or financing statements require amendment, re-execution
or any revision prior to being in a form acceptable to be recorded, the Borrower
shall be responsible for all costs incurred from and after the occurrence of an
Event of Default in connection with such amendment, re-execution or revision and
the Borrower shall do all things necessary at the request of the Agent in order
to permit such documents to be filed or recorded whether or not any such
documents are
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filed or recorded. To the extent that the Agent or any Bank incurs any of such
costs directly, such costs shall be reimbursed by the Borrower on demand.
Section 12.5. Survival. The obligations of the Borrower under Section
2.3(b), Article 4 and Section 12.3 shall survive the repayment of the Loans and
the Termination Date for a period corresponding to the maximum applicable
statute of limitations in effect in the State of New York from time to time.
Section 12.6. Assignment; Participation. This Agreement shall be
binding upon, and shall inure to the benefit of Borrower, the Banks and their
respective successors and assigns, except that the Borrower may not assign or
transfer its rights or obligations hereunder. Each Bank may sell participations
in or, with the prior written consent of the Borrower which shall not be
unreasonably withheld and which shall not be required during the occurrence and
continuance of an Event of Default, assign all or any part of any Loan to
another bank or other entity, in which event (a) in the case of an assignment,
upon notice thereof by the Bank to the Borrower, the assignee shall have, to the
extent of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations (including, without limitation, a ratable assumption of
the assigning Bank's Commitment and Commitment Proportion hereunder) as it would
have if it were a Bank hereunder; and (b) in the case of a participation, the
participant shall have no rights under the Facility Documents and all amounts
payable by the Borrower under Articles 2 and 3 shall be determined as if such
Bank had not sold such participation. Such Bank may furnish any information
concerning the Borrower in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants);
provided that such Bank shall require any such prospective assignee or such
participant (prospective or otherwise) to agree in writing to maintain the
confidentiality of such information. There shall be no limit on the number of
assignments or participants that may be granted by any Bank. Notwithstanding any
such assignment, any rights and remedies available to the Borrower for any
breaches by an assigning Bank of its obligations hereunder while a Bank shall be
preserved after such assignment and such Bank shall not be relieved of any
liability to the Borrower due to such breach. Each Bank will have the right to
pledge and assign as collateral to a Federal Reserve Bank all or a portion of
its interests hereunder.
Section 12.7. Notices. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given to the Borrower by
certified or registered mail or by recognized overnight delivery services to
such party at its address on the signature page of this Agreement. In addition,
notices of borrowing pursuant to Section 2.4 may be delivered by telecopier,
provided that such telecopied notices shall be confirmed by sending the original
signed copy of such notice to the Banks by certified or registered mail or by
recognized overnight delivery services. Initially, notice shall be delivered to
each party hereto at the addresses set forth on the signature page hereof.
Notices shall be effective: (a) if given by registered or certified mail, 72
hours after deposit in the mails with postage prepaid, addressed as aforesaid;
or (b) if given by recognized overnight delivery service, on the Banking Day
following deposit with such service addressed as aforesaid; or (c) if given by
telecopy, when the telecopy is transmitted to the telecopy number as aforesaid
and confirmed with a confirmation receipt.
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Section 12.8. Setoff. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim a Bank
may otherwise have, each Bank shall be entitled, at its option without any prior
notice to the Borrower (any such notice being expressly waived by the Borrower
to the extent permitted by applicable law), to offset balances (general or
special, time or demand, provisional or final) held by it for the account of the
Borrower at any offices of such Bank or any of its Affiliates, in Dollars or in
any other currency, against any amount payable by the Borrower to such Bank
under this Agreement or such Bank's Note which is not paid when due (regardless
of whether such balances are then due to the Borrower), in which case it shall
promptly notify the Borrower thereof; provided that such Bank's failure to give
such notice shall not affect the validity thereof. Payments by the Borrower
thereof hereunder shall be made without setoff or counterclaim.
Section 12.9. Jurisdiction; Immunities.
(a) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK, NASSAU OR
SUFFOLK COUNTIES OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE NOTES, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR FEDERAL COURT. THE BORROWER IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
(BY CERTIFIED OR REGISTERED MAIL) OF COPIES OF SUCH PROCESS TO THE BORROWER AT
THE ADDRESS SPECIFIED IN SECTION 12.6. THE BORROWER AGREES THAT A FINAL JUDGMENT
(INCLUDING ANY APPLICABLE APPEALS) IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER FURTHER WAIVES ANY OBJECTION
TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH
STATE ON THE BASIS OF FORUM NON CONVENIENS. THE BORROWER FURTHER AGREES THAT ANY
ACTION OR PROCEEDING BROUGHT AGAINST ANY BANK SHALL BE BROUGHT ONLY IN NEW YORK
STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK, NASSAU OR SUFFOLK
COUNTY. EACH OF THE BANKS AND THE BORROWER WAIVE ANY RIGHT THEY MAY HAVE TO JURY
TRIAL WITH RESPECT TO THIS AGREEMENT AND THE OTHER FACILITY DOCUMENTS.
(b) NOTHING IN THIS SECTION 12.8 SHALL AFFECT THE RIGHT OF ANY BANK TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER, OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTIONS.
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(c) TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER FROM
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE NOTES.
Section 12.10. Table of Contents; Headings. Any table of contents and
the headings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.
Section 12.11. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 12.12. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
Section 12.13. Integration. The Facility Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect to such transactions.
Section 12.14. Governing Law. This Agreement shall be governed by, and
interpreted and construed in accordance with, the law of the State of New York.
Section 12.15. Relief from Bankruptcy Stay. The Borrower agrees that,
in the event that such Borrower, any Guarantor or any of the persons or parties
constituting the Borrower or a Guarantor shall (i) file with any bankruptcy
court of competent jurisdiction or be the subject of any petition under Title 11
of the U.S. Code, as amended ("Bankruptcy Code"), (ii) be the subject of any
order for relief issued under the Bankruptcy Code, (iii) file or be the subject
of any petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future federal or state act or law relating to bankruptcy, insolvency, or other
relief for debtors, (iv) have sought or consented to or acquiesced in the
appointment of any trustee, receiver, conservator, or liquidator, or (v) be the
subject of any order, judgment, or decree entered by any court of competent
jurisdiction approving a petition filed against such readjustment, liquidation,
dissolution, or similar relief under any present or future federal or state act
or law relating to bankruptcy, insolvency, or relief for debtors, the Banks
shall thereupon be entitled and the Borrower irrevocably consents to immediate
and unconditional relief from automatic stay by Section 362 of the Bankruptcy
Code, or otherwise available to the Banks as provided for herein, in the Notes,
other Facility Documents delivered in connection herewith and as otherwise
provided by law, and the Borrower hereby irrevocably
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waives any right to object to such relief and will not contest any motion by the
Banks seeking relief from the automatic stay and the Borrower will cooperate
with the Banks, in any manner requested by the Banks, in their efforts to obtain
relief from any such stay or other prohibition.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
UNITED CAPITAL CORP.
By: _______________________
Name: Anthony J. Miceli
Title: Vice President
Address for Notices: _______________
United Capital Corp.
United Capital Building
9 Park Place
Great Neck, N.Y. 11021
Telephone No.: (516) 466-6464
Telefax No.: (516) 829-4301
BANKS:
THE CHASE MANHATTAN BANK
By: _____________________
Name: William A. DeMilt, Jr.
Title: Assistant Vice President
Lending Office and Address for Notices:
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: William A. DeMilt, Jr.
Telephone: (516) 755-5066
Telefax: (516) 755-5144
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FLEET BANK, NATIONAL ASSOCIATION
By: _____________________
Name: David T. Sunderwirth
Title: Vice President
Lending Office and Address for Notices:
Fleet Bank, National Association
1133 Avenue of the Americas, 40th Floor
New York, New York 10036
Attention: David T. Sunderwirth,
Vice President
Telephone No.: (212) 703-1707
Telefax No.: (212) 703-1724
<PAGE>
AMENDMENT, WAIVER AND RELEASE
This Agreement (this "Agreement") is made the __ day of December, 1997
by and among:
UNITED CAPITAL, CORP., a corporation organized under the laws of the
State of Delaware (the "Borrower"), and
THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase") and
FLEET BANK, N.A., a national banking association organized under the laws of the
United States of America ("Fleet" collectively with Fleet, the "Banks"), on the
other hand.
RECITALS:
(A) The Borrower and the Banks are parties to a Revolving Credit
Agreement dated as of January 15, 1997 (the "Credit Agreement");
(B) The Borrower has entered into a Stock Purchase Agreement, dated as
of November 20, 1997 and executed by and among AIL Systems, Inc. and the
Borrower and Metex Corporation (the "Stock Purchase Agreement");
(C) The Borrower has requested the Banks to consent to the transactions
contemplated by the Stock Purchase Agreement pursuant to which, among other
things, the stock of the Borrower's subsidiary, Dorne & Margolin, Inc. will be
sold to AIL Systems, Inc. for a cash purchase price of $16,000,000;
(D) In addition, the Borrower has requested that the Credit Agreement
and the Facility Documents be amended to release Dorne & Margolin, Inc. and
Ancom Electromagnetique, Ltd. from their respective obligations thereunder;
(E) The Banks are willing to consent to such transactions and are
willing to amend the Credit Agreement as set forth herein.
(F) Any capitalized terms not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE 1.
Amendments to Revolving Credit Agreement.
This Agreement shall be deemed to be an amendment to the Credit
Agreement and shall not be construed in any way as a replacement or substitute
therefore. All of the terms and provisions of this Agreement are hereby
incorporated by reference into the Credit Agreement as if such terms and
provisions were set forth in full herein.
Section 1.1. Subject to the provisions of Section 1.2, the Credit
Agreement is hereby amended by deleting all references to "Dorne & Margolin,
Inc., a Delaware corporation," to "Dorne & Margolin, Inc" or to "Ancom
Electromagnetique Ltd."
Section 1.2. The amendment provided for in Section 1.1 hereof shall
become effective in consummation of the transactions contemplated by the Stock
Purchase Agreement.
ARTICLE 2.
Release.
Section 2.1. Subject to the provisions of Section 2.2 hereof, the Banks
hereby release each of Dorne & Margolin, Inc. and Ancom Electromagnetique, Ltd.
from all of their obligations under the Credit Agreement and each other Facility
Document to which it is a party.
Section 2.2. The release provided for in Section 2.1 hereof shall
become effective upon consummation of the transactions contemplated by the Stock
Purchase Agreement.
ARTICLE 3.
Waiver.
Section 3.1. The Banks hereby waive compliance with the provisions of
Section 8.4 and Section 8.6 of the Credit Agreement only to the extent necessary
to permit the sale of the stock of Dorne & Margolin, Inc. pursuant to the terms
of the Stock Purchase Agreement
Section 3.2. This Waiver does not constitute a waiver of any other
provision of the Credit Agreement or a waiver of any other right, power or
privilege of the Banks or of any future or other present breach of the Credit
Agreement. Furthermore, this Waiver shall not entitle the Borrower to any future
waiver, whether similar in nature to the waiver granted herein or otherwise and
the Banks specifically reserve the right to withhold any such waivers that may
be requested in the future.
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ARTICLE 4.
Representations and Warranties.
The Borrower hereby represents and warrants to the Banks that:
Section 4.1. Each and every one of the representations and warranties
set forth in the Credit Agreement is true as of the date hereof with respect to
the Borrower with the same effect as though made on the date hereof, and is
hereby incorporated herein in full by reference as if fully restated herein in
its entirety.
Section 4.2. No Default or Event of Default, as defined in the Credit
Agreement now exists.
Section 4.3. The Borrower is not in default with respect to any
agreement to which it is a party or by which it is bound.
Section 4.4. No representation, warranty or statement by the Borrower
contained herein or in any other document to be furnished by the Borrower in
connection herewith contains, or at the time of delivery shall contain, any
untrue statement of material fact, or omits or at the time of delivery shall
omit to state a material fact necessary to make such representation, warranty or
statement not misleading.
Section 4.5. Except as explicitly terminated hereby, each of the
Facility Documents, including, without limitation, the Security Agreements and
the Guarantees, continue to be in full force and effect and secure all payment
and other obligations of the Borrower under the Agreement. The Borrower has not
located assets in any new locations since the execution and delivery of the
Security Agreements.
ARTICLE 5.
Miscellaneous.
Section 5.1. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has executed or caused to
be duly executed this Amendment, Waiver and Release as of the date first above
written.
UNITED CAPITAL CORP.
By: /s/ Anthony Miceli
------------------------------
Name: Anthony Miceli
Title: VP & CEO
3
<PAGE>
THE CHASE MANHATTAN BANK
By:________________________________
Name:
Title: Vice President
FLEET BANK, N.A.
By:________________________________
Name:
Title: Vice President
4
<PAGE>
THE CHASE MANHATTAN BANK
-with-
UNITED CAPITAL CORP.
AMENDMENT NO. 1 TO CREDIT AGREEMENT
Respectfully Submitted,
RIVKIN, RADLER & KREMER
EAB Plaza
Uniondale, New York
<PAGE>
INDEX TO DOCUMENTATION
----------------------
I. FINANCING DOCUMENTATION DOCUMENT
----------------------- NUMBER
------
Amendment No. 1 to Credit Agreement with
Exhibits attached thereto...................................................1
$20,000,000 Substitute Revolving Credit
Note - The Chase Manhattan Bank.............................................2
$3,500,000 Term Promissory Note - The
Chase Manhattan Bank........................................................3
$20,000,000 Substitute Revolving Credit
Note - The Fleet Bank, N.A..................................................4
$3,500,000 Term Promissory Note - Fleet
Bank, N.A...................................................................5
Guarantor's Affirmation and Ratification....................................6
Security Agreement Affirmation of Metex
Corporation.................................................................7
Security Agreement of AFP Transformers,
Inc.........................................................................8
Security Agreement Affirmation of Dorne &
Margolin, Inc...............................................................9
II. MISCELLANEOUS DOCUMENTATION
---------------------------
Secretary's Certificate together with Board of
Director's Resolution of United Capital
Corp.......................................................................10
Opinion Letter of Reid & Priest LLP........................................11
i
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AMENDMENT NO. 1 TO REVOLVING CREDIT AGREEMENT
This Agreement (this "Agreement") is made the 5th day of September,
1997 by and among:
UNITED CAPITAL CORP., a corporation organized under the laws of the
State of Delaware (the "Borrower"); and
THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase") and
FLEET BANK, N.A., a national banking association organized under the laws of the
United States ("Fleet"); collectively with Chase, the "Banks").
(A) The Borrower and the Banks are parties to a Revolving Credit
Agreement dated as of January 15, 1997 (the "Credit Agreement");
(B) The Borrower has requested that the Banks extend a $7,000,000 Term
Loan to the Borrower and that Credit Agreement be amended to incorporate such
Term Loan and in certain other respects as provided herein and the Banks are
willing to extend such Term Loan amend the Credit Agreement as set forth herein;
(C) Any capitalized terms not defined herein shall have the meanings
ascribed thereto in the Credit Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE 1. AMENDMENTS TO REVOLVING CREDIT AGREEMENT.
This Agreement shall be deemed to be an amendment to the Credit
Agreement and shall not be construed in any way as a replacement or substitute
therefore. All of the terms and provisions of this Agreement are hereby
incorporated by reference into the Credit Agreement as if such terms and
provisions were set forth in full herein.
SECTION 1.1. Section 1.1 of the Credit Agreement is hereby amended by
inserting the following definitions therein in alphabetical order:
"Aggregate Revolving Credit Outstandings" means, at a particular time,
the aggregate outstanding principal amount of Revolving Credit Loans at such
time.
"Aggregate Term Loan Outstandings" means, at a particular time, the
aggregate outstanding principal amount of Term Loans at such time.
"Revolving Credit Loan" means any extension of credit made by the Banks
pursuant to Section 2.1 hereof.
<PAGE>
"Revolving Credit Notes" means, collectively, the promissory notes of
the Borrower in the form of Exhibit A hereto evidencing the Revolving Credit
Loans made by a Bank hereunder.
"Revolving Credit Termination Date" means the earlier to occur of (a)
the date on which the commitments shall terminate hereunder; and (b) January 15,
2000.
"Term Loan" means the $7,000,000 Term Loan advanced by the Banks to the
Borrower pursuant to the provisions of Section 2-A.1 hereof.
"Term Loan Maturity Date" means September 30, 2002 or such earlier date
on which the Borrower's obligations pursuant to Article 2-A hereof have been
paid in full.
"Term Note" means each promissory note of the Borrower, substantially
in the form of Exhibit A-1 hereto, evidencing the Term Loan made by each Bank
hereunder.
SECTION 1.2. The definition of the term "Aggregate Outstandings"
contained in Section 1.1 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Aggregate Outstandings" means the sum of Aggregate Revolving Credit
Outstandings and Aggregate Term Loan Outstandings.
SECTION 1.3. The definition of the term "Commitment" is hereby amended
by deleting the phrase "the obligation of such Bank to extend credit to the
Borrower hereunder" therefrom and substituting the following in its place: "the
obligation of such Bank to extend Revolving Credit Loans to the Borrower
pursuant to Article 2 hereof".
SECTION 1.4. The definition of the term "Loan" contained in Section 1.1
of the Credit Agreement is hereby amended to read in its entirety as follows:
"Loan" means any Revolving Credit Loan or any Term Loan.
SECTION 1.5. The definition of the term "Margin" contained in Section
1.1 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"Margin" means (i) with respect to LIBOR Loans that are Revolving
Credit Loans, one and three quarters percent (1.75%) per annum and (ii)
with respect to LIBOR Loans that are Term Loans, 1.40% per annum.
SECTION 1.6. The definition of the term "Notes" contained in Section
1.1 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"Notes" means, collectively, the Revolving Credit Notes and the Term
Notes.
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SECTION 1.7. Article 2 of the Credit Agreement is hereby amended and
restated in its entirety to provide as follows:
ARTICLE 2. REVOLVING CREDIT FACILITY.
SECTION 2.1. REVOLVING CREDIT LOANS. Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make
revolving credit loans in Dollars (the "Revolving Credit Loans"), and
all Revolving Credit Loans shall be made by the Banks, on a pro-rata
basis in accordance with their respective Commitment Proportions, to
the Borrower from time to time, from and including the date hereof to
but excluding the Revolving Credit Termination Date, up to but not
exceeding at any one time outstanding the amount of its Commitment;
PROVIDED, that no Revolving Credit Loan shall be made if after giving
effect to such Loan the Aggregate Revolving Credit Outstandings at the
time of such Revolving Credit Loan would exceed the Total Commitments
or if the Aggregate Outstandings would exceed the Borrowing Base in
effect on such date. The Revolving Credit Loans may be outstanding as
Base Rate Loans or LIBOR Loans; provided, however, that during the
occurrence and continuance of an Event of Default, the Borrower may not
elect and the Banks shall have no obligation to make LIBOR Loans.
Subject to the foregoing limits, the Borrower may borrow, repay and
reborrow, on or after the date hereof and prior to the Revolving Credit
Termination Date, all or a portion of the Total Commitments as
Revolving Credit Loans hereunder. Any amount of any Revolving Credit
Loan not paid when due (at maturity, on acceleration or otherwise)
shall bear interest thereafter until paid at the rate set forth in
Section 3.3(c) hereof.
SECTION 2.2. THE REVOLVING CREDIT NOTES. The Revolving Credit
Loans of each Bank shall be evidenced by a single promissory note in
favor of such Bank substantially in the form of Exhibit A hereto with
appropriate insertions, duly executed and completed by the Borrower.
Each Bank is hereby authorized to record the date, type and amount of
each Revolving Credit Loan, the date and amount of each payment of
principal thereof, and the principal amount subject thereto and
interest rate with respect thereto in such Banks' records and/or on the
schedules annexed to and constituting a part of its Revolving Credit
Note, and, absent manifest error, any such recordation shall constitute
conclusive evidence of the information so recorded; provided that the
failure to make any such recordation shall not in any way affect the
obligation of the Borrower to repay the Revolving Credit Loans in
accordance with the terms of this Agreement (without giving effect to
any such error made in the Revolving Credit Note). Each Revolving
Credit Note (a) be stated to mature on the Revolving Credit Termination
Date and (b) shall bear interest on the unpaid principal amount thereof
from time to time outstanding as provided herein.
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SECTION 2.3. USE OF PROCEEDS.
(a) The Borrower shall use the proceeds of the Revolving
Credit Loans on the date of this Agreement to repay in full Existing
Bank Debt and may use the proceeds of the Revolving Credit Loans on the
date of this Agreement and from time to time thereafter prior to the
Revolving Credit Termination Date (i) for general corporate and working
capital purposes; (ii) to finance the acquisition of Real Estate Assets
or to make mortgage loans or similar loans that constitute Real Estate
Assets; (iii) to repurchase stock of the Borrower in an amount not to
exceed $2,000,000 in any fiscal year or $5,000,000 during the term of
this Agreement; and (iv) to make advances to the Operating Companies in
an aggregate amount not to exceed $10,000,000 at any time. No part of
the proceeds of any of the Revolving Credit Loans will be used (i) for
any purpose which violates the provisions of Regulations G, T, U or X
of the Board of Governors of the Federal Reserve System as in effect on
the date of making such Loans or (ii) to permit the Borrower or any
Guarantor to acquire equity securities in any third party except as
permitted pursuant to the provisions of Section 8.7 hereof.
(b) The Borrower agrees to indemnify the Banks and their
respective directors, officers, employees, affiliates, agents or other
representatives and hold the Banks and their respective directors,
officers, employees, affiliates, agents or other representatives,
harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (including, without limitation, the
reasonable fees and expenses of counsel for any such Person in
connection with any investigative, administrative, judicial proceeding,
whether or not such Person shall be designated a party thereto) which
may be incurred by any such Person, relating to or arising out of this
Agreement or any actual or proposed use of any proceeds of Revolving
Credit Loans hereunder.
SECTION 2.4. BORROWING PROCEDURE FOR REVOLVING CREDIT LOANS; RATE
AND INTEREST PERIOD SELECTION; CONVERSIONS.
(c) The Borrower may request a borrowing under the Commitments
hereunder as provided in Section 3.1. Each Bank will make its share of
such borrowing available to Fleet at Fleet's office located at 1185
Avenue of the Americas, 3rd Floor, New York, New York 10036 not later
than 2:00 p.m. New York City time on the date of such borrowing in
immediately available funds. Unless any applicable condition specified
in Article 5 has not been satisfied, not later than 3:00 p.m. New York
City time on the date of such borrowing, Fleet shall, through its
Lending Office and subject to the conditions of this Agreement, make
the amount of the Loan to be made on such date available to the
Borrower, in immediately available funds, by crediting an account of
the Borrower designated by the Borrower and maintained with Fleet.
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(d) In the case of each Revolving Credit Loan which is a LIBOR
Loan, the Borrower shall select an Interest Period of any duration in
accordance with the definition of Interest Period in Section 1. 1,
subject to the limitations that no Interest Period for a LIBOR Loan
shall have a duration less that one month, and if any such proposed
Interest Period would otherwise be for a shorter period, such Interest
Period shall not be available.
(e) Upon the expiration of an Interest Period for any
Revolving Credit Loan, or any portion thereof, such Revolving Credit
Loan or portion thereof shall be automatically continued as a Base Rate
Loan except to the extent that such Revolving Credit Loan shall be
repaid hereunder or unless the Borrower shall have notified the Banks,
as provided in Section 3.1 hereof, of its intention to select a
different interest rate option with respect to such Revolving Credit
Loan or any portion thereof. Subject to the following conditions and to
the terms and conditions of this Agreement, the Borrower shall have the
right to convert any Revolving Credit Loan or portion thereof to a
different type of Loan (i.e., from a Base Rate Loan to a LIBOR Loan or
VICE VERSA):
(i) if less than all Revolving Credit Loans at the
time outstanding shall be converted, the notice given by the
Borrower to the Banks shall specify the aggregate amount of
Loans in each case to be converted and such conversion shall
be made ratably among the Banks in accordance with their
respective Commitment Proportions;
(ii) in the case of a conversion of less than all
outstanding Revolving Credit Loans, the aggregate principal
amount of Revolving Credit Loans to be converted shall not be
less than (1) $200,000 (and if greater in integral multiples
of $50,000) in the case of conversions to or into LIBOR Loans
or (2) $200,000 (and if greater in integral multiples of
$50,000) in the case of conversions to or into Base Rate
Loans;
(iii) no Loan may be converted to a LIBOR Loan less
than one month before the Revolving Credit Termination Date;
(iv) a LIBOR Loan may be converted to a different
type of Loan only on the last day of the then applicable
Interest Period with respect thereto; and
(v) no Loan or portion thereof may be converted to a
LIBOR Loan during the occurrence and continuance of an Event
of Default.
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Notwithstanding anything to the contrary herein, after giving
effect to any Revolving Credit Loan, unless consented to by the
Required Banks in their sole discretion, there shall not be more than
six (6) different Interest Periods in effect in respect of all
Revolving Credit Loans then outstanding.
SECTION 2.5. MINIMUM AMOUNTS OF REVOLVING CREDIT LOAN.
Except for borrowings which involve or utilize the full
remaining amount of the Commitments and payments which result in the
prepayment of all Base Rate Loans, each borrowing and payment of a Base
Rate Loan shall be in an amount at least equal to $200,000 and, if
greater, integral multiples of $50,000 in excess thereof. Each
borrowing and payment of a LIBOR Loan shall be in an amount at least
equal to $200,000 and, if greater, in integral multiples of $ 50,000 in
excess thereof.
SECTION 2.6. REDUCTION OF COMMITMENTS.
(f) The Borrower shall have the right to reduce or terminate
the amount of the unused Commitments at any time and from time to time
provided that: (i) the Borrower shall give notice of each such
reduction or termination to the Banks as provided in Section 3.1, and
(ii) each partial reduction shall be allocated PRO RATA between the
Commitments of each Bank in accordance with their respective Commitment
Proportions and shall be in an aggregate amount at least equal to
$3,000,000 or, if greater, in integral multiples of $1,000,000.
(g) The Commitments, once reduced or terminated may not be
reinstated.
SECTION 1.8. The Credit Agreement is hereby amended by inserting the
following Article 2-A therein immediately before Article 3 thereof:
ARTICLE 2-A. THE TERM LOAN.
SECTION 2-A.1. THE TERM LOAN.
Subject to the terms and conditions hereof, each Bank agrees
to make the Term Loan to the Borrower on September 30, 1997 and the
Term Loan shall be made by the Banks on a pro-rata basis in accordance
with their respective Commitment Proportions.
SECTION 2-A.2. THE TERM NOTES
The Term Loan made by each Bank hereunder shall be evidenced
by a single promissory note substantially in the form of Exhibit A-1
hereto, with appropriate insertions, payable to the order of such Bank
and representing the obligation of the Borrower to pay the unpaid
principal balance of such Term
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Loan, with interest thereon as provided herein. Each Bank is hereby
authorized to record the date or amount of each payment or prepayment
of principal thereof and the date and amount of each payment of
interest thereon in the Bank's records and/or on a schedule annexed to
its Term Note and, absent manifest error, any such recordation shall
constitute conclusive evidence of the accuracy of the information so
recorded; PROVIDED, however, that the failure to record such
information shall not affect the Borrower's obligations to repay the
Term Loans. Each Term Note (a) shall be dated the date such Term Loan
is made (b) shall be stated to mature on the Term Loan Maturity Date,
(c) shall bear interest for a period from the date such Loan is made
until it is paid in full on the unpaid principal amount thereof at the
applicable rates per annum specified herein.
SECTION 2-A.3. USE OF PROCEEDS.
(a) The Borrower shall use the proceeds of the Term Loan to
repay existing indebtedness owing to the Banks under Article 2 of this
Agreement and for general working capital purposes. No part of the
proceeds of any of the Term Loans will be used for any purpose which
violates the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System as in effect on the date of
making such Loans.
(b) The Borrower agrees to indemnify the Banks and their
respective directors, officers, employees, affiliates, agents or other
representatives and hold the Banks and their respective directors,
officers, employees, affiliates, agents and other representatives,
harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (including, without limitation, the
reasonable fees and expenses of counsel for any such Person in
connection with any investigative, administrative, or judicial
proceeding, whether or not such Person shall be designated a party
thereto) which may be incurred by any such Person, relating to or
arising out of this Agreement or any actual or proposed use of any
proceeds of Term Loan hereunder.
SECTION 2-A.4. AMORTIZATION OF TERM LOANS.
The Term Loan made hereunder shall have a term of five (5)
years. The principal balance of the Term Loan shall be paid in equal
consecutive quarterly installments of $350,000 commencing on the last
day of December 1997 and continuing on the last day of each March,
June, September, and December thereafter with the final installment
thereof being due on the Term Loan Maturity Date. All installments of
principal on the Term Loan shall be paid to the Agent for the ratable
benefit the Banks in accordance with their respective Commitment
Proportions.
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SECTION 2-A.5. BORROWING PROCEDURE FOR TERM LOANS; INTEREST RATE AND
INTEREST PERIOD SELECTION.
(a) Each Bank shall make its share of the Term Loan available
to Fleet at Fleet's office located at 1185 Avenue of the Americas, 3rd
Floor, New York, New York 10036, not later than 2:00 p.m. New York City
time on September 30, 1997 in immediately available funds. Unless any
applicable condition specified in Article 5 has not been satisfied, not
later than 3:00 p.m. New York City time on such date, Fleet shall,
through its lending officer and subject to the conditions of this
Agreement, make the amount of the Term Loan available to the Borrower
in immediately available funds by crediting on account of the Borrower
designated by the Borrower and maintained with Fleet.
(b) The Term Loan shall initially be made as a LIBOR Loan
having an Interest Period of three (3) months. Upon expiration of any
Interest Period applicable to the Term Loan, the Borrower shall pay the
next installment of principal on the Term Loan, and the balance of the
Term Loan shall be continued as a LIBOR Loan having a three (3) month
Interest Period. Notwithstanding the foregoing, the Term Loan may not
be continued as a LIBOR Loan during the occurrence and continuance of
an Event of Default.
SECTION 1.9. Article 3 of the Agreement is hereby amended and restated
in its entirety to provide as follows:
ARTICLE 3. GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS.
SECTION 3.1. CERTAIN NOTICES.
Except as otherwise provided in this Agreement, notices by the
Borrower to the Banks of each borrowing pursuant to Sections 2.4, each
prepayment pursuant to Section 3.2, each reduction or termination of
the Commitments pursuant to Section 2.6 and each conversion of
Revolving Credit Loans pursuant to Sections 2.4 shall be irrevocable
and shall be effective on the date of receipt only if received by the
Banks by not later than 11:00 a.m., New York City time, and (a) in the
case of borrowings and prepayments of (i) Base Rate Loans, if given the
date thereof and (ii) LIBOR Loans, if given three (3) Banking Days
prior thereto; (b) in the case of reductions or terminations of the
Commitments, given five (5) Banking Days prior thereto; and (c) in the
case of conversions or continuations pursuant to Sections 2.4, if given
three (3) Banking Days prior thereto in the case of conversions to or
continuations of LIBOR Loans and if given on the date thereof in the
case of conversions to Base Rate Loans. Each such notification which
relates to a borrowing, continuation or conversion shall specify the
amount and the type of Revolving Credit Loan (i.e., Base Rate Loan or
LIBOR Loan), the date of the proposed borrowing, whether such Revolving
Credit Loan represents an additional borrowing, a continuation or a
conversion,
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and in the case of a LIBOR Loan, the Interest Period to be used in the
computation of interest with respect thereto. Each such notice relating
to a reduction or termination of the Commitments shall specify the
amount of the Commitments to be reduced or terminated.
SECTION 3.2. PREPAYMENTS.
(a) The Borrower shall have the right at any time and from
time to time to prepay any Base Rate Loan, in whole or in part;
PROVIDED, however, that each such partial prepayment of a Base Rate
Loan shall be in a minimum aggregate principal amount of $200,000 or,
if greater in amounts which are integral multiples of $50,000. Except
as required by paragraph (b) or (c) below or on the last day of an
Interest Period with respect thereto, the Borrower shall not be
permitted to prepay LIBOR Loans.
(b) In the event that the Aggregate Outstandings exceed the
then applicable Borrowing Base or the Aggregate Revolving Credit
Outstandings exceed the Total Commitments at any time prior to the
Revolving Credit Termination Date, the Borrower shall promptly pay or
prepay so much of the Revolving Credit Loans outstanding as shall be
necessary in order that the Aggregate Outstandings will not exceed the
Borrowing Base then in effect and Aggregate Revolving Credit
Outstandings will not exceed the Total Commitment. All prepayments
under this subparagraph shall be subject to Section 4.1.
(c) Unless otherwise agreed by the Banks in writing, the
Borrower shall be required to pay or prepay Revolving Credit Loans
outstanding with (i) 80% of the proceeds of the issuance by the
Borrower or any Guarantor of additional equity; (ii) 100% of the net
proceeds of the sale by the Borrower or any Guarantor of any Real
Estate Assets; (iii) 100% of the net proceeds resulting from the
repayment of mortgages constituting Real Estate Assets or (iv) such
proceeds as may be paid as a result of a casualty or condemnation, all
in accord with Sections 7.11 or 7.12 of this Agreement; provided,
however, that the Borrower shall have no obligation under clause (i)
above until the aggregate net proceeds of any and all additional equity
issuances during the term of this Agreement shall equal or exceed
$1,000,000.00. All prepayments under this paragraph shall be subject to
Section 4.1.
(d) All payments required by paragraphs (b) or (c) above shall
be made to the Banks PRO RATA in accordance with their respective
Commitment Proportions and shall be applied as follows: first, to
outstanding Revolving Credit Loans that are Base Rate Loans up to the
full amount thereof; second, to outstanding Revolving Credit Loans that
are LIBOR Loans up to the full amount thereof; and, third, to Term
Loans.
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(e) All prepayments made pursuant to this Section 3.2 shall be
accompanied by the payment of all accrued interest on the amount so
prepaid and by all amounts required to be paid pursuant to Section 4.1
in connection therewith.
SECTION 3.3. INTEREST OF LOANS.
(f) BASE RATE LOANS. The Borrower shall pay interest on the
outstanding and unpaid principal amount of each Base Rate Loan made
under this Agreement at a fluctuating rate per annum equal to the Base
Rate from time to time in effect. Each change in the interest rate
shall take effect simultaneously with the corresponding change in the
Prime Rate or the Federal Funds Rate, as the case may be. Interest
shall be calculated on the basis of the actual number of days elapsed
divided by a year of three hundred sixty (360) days and shall be paid
to the Agent for the account of the Banks quarterly, in arrears, on
March 31, June 30, September 30 and December 31 in each year and on the
Termination Date.
(g) LIBOR LOANS The Borrower shall pay interest on the
outstanding and unpaid principal amount of each LIBOR Loan made under
this Agreement for each Interest Period applicable to such LIBOR Loan
at a rate per annum equal to the Reserve Adjusted LIBOR Rate in effect
with respect thereto, plus the Margin. Interest shall be calculated on
the basis of the actual number of days elapsed divided by a year of
three hundred sixty (360) days and shall be paid to the Banks, in
arrears on the last day of the Interest Period applicable to such LIBOR
Loan; PROVIDED, however, that if such Interest Period is longer than
three months, interest shall be paid on the last day of each
three-month period following the commencement of such Interest Period
and on the last day of such Interest Period.
(h) POST-DEFAULT. If any Default or Event of Default has
occurred and is continuing hereunder, all Loans, and all interest, fees
or other amounts due hereunder, to the extent permitted by applicable
law, shall bear interest (payable on demand, and in any event on the
last day of each month, and computed daily on the basis of a 360-day
year for actual days elapsed) (i) in all cases other than LIBOR Loans,
at the Default Rate until paid and (ii) in the case of LIBOR Loans, at
a rate which shall be the greater of (x) the Default Rate or (y) 2% per
annum in excess of the rate applicable to such LIBOR Loan, until the
expiration of the Interest Period applicable to such Loan, at which
time the Loan will automatically be converted into a Base Rate Loan,
and until paid, shall bear interest at the Default Rate. In no event,
however, shall interest payable hereunder be in excess of the maximum
rate of interest permitted under applicable law. The obligation to so
pay interest upon any reimbursement obligation of the Borrower to the
Banks shall not be construed so as to waive the requirement for
reimbursement on the same date that payment is made by the Banks as set
forth in this Agreement.
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SECTION 3.4. COMMITMENT FEE.
The Borrower shall pay to the Agent for the ratable benefit of
the Banks a commitment fee for the period from and including the date
hereof to and excluding the Revolving Credit Termination Date equal to
1/4 of 1% of the average daily unused portion of the Total Commitment
during the applicable period. The commitment fee shall be calculated on
the basis of a year of 360 days for the actual number of days elapsed.
The commitment fee shall be due and payable quarterly in arrears on the
last day of each calendar quarter and on the Revolving Credit
Termination Date.
SECTION 3.5. ADMINISTRATIVE FEE.
The Borrower shall pay to the Agent for its own account an
annual fee of $25,000. The administrative fee shall be due and payable
quarterly in advance on or before the date hereof and on each April 1,
July 1, October 1, January 1 thereafter during the term of this
Agreement. Any payment made on or before the date hereof shall be pro
rated for the number of days from the date hereof through March 31,
1997.
SECTION 3.6. SYNDICATION FEE.
The Borrower shall pay to the Agent, for the ratable benefit
of the Banks, a syndication fee of $100,000. This fee shall be due and
payable on the Closing Date.
SECTION 3.7. PAYMENTS GENERALLY.
(a) All payments under this Agreement or the Notes, shall be
made in Dollars in immediately available funds to the Banks, in
accordance with the respective obligations of the Borrower then due and
payable to each of them not later than 1:00 p.m. New York City time on
the relevant dates specified above (each such payment made after such
time on such due date is to be deemed to have been made on the next
succeeding Banking Day), to the Bank's Lending Office. The Borrower
will notify the Banks of any payment pursuant to the provisions of this
Section at the same time it makes any such payment. Each Bank may (but
shall not be obligated to) debit the amount of any such payment to any
ordinary deposit account of the Borrower with such Bank; provided,
however, that the Banks shall not be permitted to debit any funds which
are not available to the Borrower other than on an overdraft basis. The
Borrower shall, at the time of making each payment under this Agreement
or the Notes, specify to the Banks the principal or other amount
payable by the Borrower under this Agreement or the Notes to which such
payment is to be applied; provided, however, that in the event that the
Borrower fails to so specify, or if an Event of Default has occurred
and is continuing, the Banks shall apply such payment as they may elect
in their
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sole discretion. If the due date of any payment under this Agreement or
the Notes would otherwise fall on a day which is not a Banking Day,
such date shall be extended to the next succeeding Banking Day and
interest shall be payable for any principal so extended for the period
of such extension. Except to the extent otherwise provided herein, it
is the intention of the parties that all payments hereunder be made to
the Banks PRO RATA in accordance with their respective Commitment
Proportions.
(b) All payments made by the Borrower under this Agreement,
the Notes or the other Facility Documents shall be made free and clear
of, and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any governmental or
taxing authority of any jurisdiction located outside of the United
States, excluding, (x) in the case of each Bank, income taxes and
franchise taxes (imposed in lieu of income taxes) imposed on such Bank
as a result of a present or former connection between the jurisdiction
of the government or the taxing authority imposing such tax and such
Bank (excluding a connection arising solely from such Bank having
executed, delivered, or performed its obligations or received a payment
under, or enforced, this Agreement, the Notes or the other Facility
Documents) or any political subdivision or taxing authority thereof or
therein, and (y) taxes (including withholding taxes) imposed by reason
of the failure of the Agent or any Bank, in either case that is
organized outside the United States, to comply with Section 3.7(c)
hereof (or the inaccuracy at any time of the certificates, documents
and other evidence delivered thereunder) (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings
being hereinafter called "Taxes"). If any Taxes are withheld from any
amounts payable to any Bank hereunder or under the Facility Documents,
the amounts so payable to such Bank shall be increased to the extent
necessary to yield to such Bank (after payment of all Taxes) interest
or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, the Notes and the other Facility
Documents. Whenever any Taxes are payable by the Borrower, the Borrower
shall send to such Bank within 30 days after the date of any payment, a
certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Taxes when
due to the appropriate taxing authority or fails to remit to the Banks
the required receipts or other required documentary evidence, the
Borrower shall indemnify the Banks for any incremental taxes, interest
or penalties that may become payable by any Bank as a result of any
such failure. This indemnification shall be made within 30 days from
the date such Bank or the Agent (as the case may be) makes written
demand therefor. If any Bank receives a refund in respect of any Taxes
for which such Bank has received payment from the Borrower hereunder,
such Bank shall promptly notify the Borrower of such refund and such
Bank shall, within 30 days of receipt of a request by the Borrower
repay such refund to the Borrower, provided that the Borrower, upon the
request of such Bank, agrees to
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return such refund (plus any penalties, interest or other charges) to
such Bank in the event such Bank is required to repay such refund. The
agreements in this subsection shall survive the termination of this
Agreement and the Facility Documents and the payment of the Notes and
all other amounts payable hereunder or thereunder.
SECTION 3.8. INTERIM ADJUSTMENTS TO BORROWING BASE.
(a) The Borrowing Base shall be adjusted periodically as
follows:
(i) The Borrowing Base shall be increased to include:
(A) Real Estate Assets that are acquired by
the Borrower and/or the Guarantors and that satisfy the definition of
"Eligible Properties" hereunder; and
(B) Real Estate Assets that do not qualify
as "Eligible Properties" but subsequently satisfy the requirements of
"Eligible Properties";
PROVIDED, HOWEVER, that in either case with respect to any such
property, the Agent, on behalf of the Banks, shall be permitted to
conduct such due diligence investigations as the Banks deem appropriate
prior to including such property as an "Eligible Property" and the
Banks shall be satisfied in all respects with the results of such
investigation.
(i) Conversely, the Borrowing Base shall be decreased
to exclude:
(A) Real Estate Assets that are sold by the
Borrower or any Guarantor or that become subject to liens securing
Indebtedness which exceed 10% of the annualized and normalized actual
year-to-date Net Operating Income for such property capitalized at
11.5%; and
(B) Any Real Estate Asset that satisfies the
definition of "Eligible Property," (i) if the tenant at such property
has delivered a termination notice, or (ii) 60 days prior to the
termination of the lease with respect to such property or (iii) if the
tenant otherwise ceases paying rent with respect to such property.
Upon the happening of any of the events described above, the Borrower
shall deliver to the Banks a notice thereof as required pursuant to
Section 7.8 hereof. In addition, the Borrower shall deliver to the
banks a new Borrowing Base Certificate within five (5) Banking Days
after the happening of any such event; PROVIDED, HOWEVER, that in the
case of clause (i) above, the Borrower shall not deliver a new
Borrowing Base Certificate including any such property until the Agent
shall have completed its due diligence investigation and the Banks
shall
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have been satisfied with the results thereof. The Agent agrees to use
all reasonable efforts to complete any such due diligence investigation
within 20 Business Days of receiving notice from the Borrower thereof.
SECTION 1.10. The Agreement is hereby amended (i) by deleting Exhibit A
therefrom and by substituting Exhibit A hereto in its place and (ii) by
inserting Exhibit A-1 hereto as a new Exhibit A-1 to the Agreement.
ARTICLE 2. CONDITIONS PRECEDENT.
SECTION 2.1. CONDITIONS TO EFFECTIVENESS.
The amendments to the Credit Agreement described in Article 1 above are
subject to the following conditions precedent and shall have no force or effect
until the following conditions are satisfied:
(a) each Bank shall have received each of the following, in form and
substance reasonably satisfactory to such Bank and its counsel:
(i) its Substitute Revolving Credit Note substantially in
the form of Exhibit A hereto, duly executed by the
Borrower;
(ii) its Term Note, duly executed by the Borrower;
(iii) a certificate of the Secretary of the Borrower
attesting to all corporate action taken by such
entity, including resolutions of its Board of
Directors authorizing the execution, delivery and
performance of this Amendment and each other document
to be executed by such entity, together with a
certification that copies of the certificate or
articles of incorporation and the by-laws of such
entity that were delivered to the Banks on the
Closing Date have not been amended, modified, revoked
or rescinded as of the date of such certificate;
(iv) a certificate of the Secretary of the Borrower
certifying the names and true signatures of the
officers of such entity authorized to sign this
Amendment and other documents to be signed by such
entity hereunder;
(v) satisfactory evidence that the Borrower is duly
organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation
and each other jurisdiction where qualification is
necessary;
(vi) Guarantee Affirmations, duly executed by each
Guarantor;
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(vii) Security Agreement Affirmations, duly executed by
each of the operating companies;
(viii) an opinion of counsel for the Borrower and the
Guarantors as to such matters as the Banks deem
necessary; and
(ix) such other documents instruments, approvals, opinions
and evidence as the Banks reasonably require.
ARTICLE 3. REPRESENTATION AND WARRANTIES.
The Borrower hereby represents and warrants to the Banks that:
SECTION 3.1. Each and every one of the representations and warranties
set forth in the Credit Agreement is true as of the date hereof with respect to
the Borrower and the Guarantors with the same effect as though made on the date
hereof, and is hereby incorporated herein in full by reference as if fully
restated herein in its entirety.
SECTION 3.2. No Default or Event of Default, as defined in the Credit
Agreement now exists.
SECTION 3.3. No representation, warranty or statement by the Borrower
or the Guarantors contained herein or in any other document to be furnished by
the Borrower or the Guarantors in connection herewith contains, or at the time
of delivery shall contain, any untrue statement of material fact, or omits or at
the time of delivery shall omit to state a material fact necessary to make such
representation, warranty or statement not misleading.
SECTION 3.4. Each of the Facility Documents continues to be in full
force and effect and secure all payment and other obligations of the Borrower
under the Credit Agreement.
ARTICLE 4. MISCELLANEOUS.
SECTION 4.1. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 4.2. Except as specifically amended hereby, the Credit
Agreement shall remain in full force and effect.
15
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed or caused to
be duly executed this Amendment as of the date first above written.
UNITED CAPITAL CORP.
By: /s/____________________
Name: _______________________
Title: _______________________
THE CHASE MANHATTAN BANK
By: /s/_____________________
Name: ________________________
Title: Vice President
FLEET BANK, N.A.
By: /s/_____________________
Name: ________________________
Title: Vice President
EXECUTION COPY
STOCK PURCHASE AGREEMENT
By and Among
AIL SYSTEMS INC.
and
UNITED CAPITAL CORP.
and
METEX CORPORATION
Dated as of November 20, 1997
<PAGE>
DISCLOSURE SCHEDULE
The Disclosure Schedule shall include the following Sections1:
3.02 Organization and Qualification of the Company
3.04 Subsidiaries
3.06 No Conflict
3.07 Government Consents and Approvals
3.08 Reference Balance Sheet
3.09 No Undisclosed Liabilities
3.10 Receivables
3.11 Acquired Assets
3.11 Sales and Purchase Order Backlog
3.13 Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions
3.14 Litigation
3.15 Certain Interests
3.16 Compliance with Laws
3.17 Environmental and Other Permits and Licenses; Related Matters
3.18 Material Contracts
3.19 Intellectual Property Rights
3.21 Employee Benefit Matters
3.22 Labor Matters
3.23 Taxes
3.24 Insurance
3.25 Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney
5.01 Conduct of Business Prior to the Closing
5.07 Use of Intellectual Property
- ------------------------
1 Notwithstanding any other provisions of this Agreement (including the
Disclosure Schedule), information disclosed in one section or
subsection of the Disclosure Schedule will be deemed disclosed for
purposes of such section or subsection only, unless a specific
cross-reference to another section or subsection is made.
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS.................................................................-1-
1.01. Certain Defined Terms.................................................-1-
ARTICLE II
PURCHASE AND SALE
2.01. Purchase and Sale of the Shares....................................-8-
2.02. Purchase Price.....................................................-9-
2.03. Closing............................................................-9-
2.04. Closing Deliveries by the Seller...................................-9-
2.05. Closing Deliveries by the Purchaser................................-9-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PARENT
3.01. Organization, Authority and Qualification of the Seller............-9-
3.02. Organization, Authority and Qualification of the Company..........-10-
3.03. Capital Stock of the Company; Ownership of the Shares.............-10-
3.04. Subsidiaries......................................................-11-
3.05. Corporate Books and Records.......................................-11-
3.06. No Conflict.......................................................-11-
3.07. Governmental Consents and Approvals...............................-12-
3.08. Financial Information, Books and Records,
Projections and Operating Data....................................-12-
3.09. No Undisclosed Liabilities........................................-13-
3.10. Receivables.......................................................-13-
3.11. Acquired Assets...................................................-13-
3.12. Sales and Purchase Order Backlog..................................-13-
3.13. Conduct in the Ordinary Course;
Absence of Certain Changes, Events and Conditions.................-13-
3.14. Litigation........................................................-16-
3.15. Certain Interests.................................................-17-
3.16. Compliance with Laws..............................................-17-
3.17. Environmental Matters.............................................-18-
3.18. Material Contracts................................................-19-
3.19. Intellectual Property.............................................-20-
3.20. Real Property.....................................................-20-
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<PAGE>
3.21. Employee Benefit Matters..........................................-20-
3.22. Labor Matters.....................................................-23-
3.23. Taxes.............................................................-24-
3.24. Insurance.........................................................-26-
3.25. Accounts; Lockboxes; Safe Deposit Boxes; Powers of Attorney.......-27-
3.26. Brokers...........................................................-28-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.01. Organization and Authority of the Purchaser.......................-28-
4.02. No Conflict.......................................................-28-
4.03. Governmental Consents and Approvals...............................-28-
4.04. Investment Purpose................................................-29-
4.05. Litigation........................................................-29-
4.06. Brokers...........................................................-29-
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Conduct of Business Prior to the Closing..........................-29-
5.02. Access to Information.............................................-30-
5.03. Confidentiality...................................................-31-
5.04. Regulatory and Other Authorizations; Notices and Consents.........-31-
5.05. Notice of Developments............................................-32-
5.06. No Solicitation or Negotiation....................................-33-
5.07. Use of Intellectual Property......................................-33-
5.08. Non-Competition...................................................-33-
5.09. Release of Indemnity Obligations..................................-35-
5.10. Further Action....................................................-35-
5.11. Transfer of Business..............................................-35-
5.12. Unaudited Financial Statements....................................-35-
ARTICLE VI
EMPLOYEE MATTERS
6.01. Transferred Employees.............................................-36-
6.02. Non-Transferred Employees.........................................-36-
6.03. WARN Act Information..............................................-37-
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<PAGE>
ARTICLE VII
TAX MATTERS
7.01. Indemnity.........................................................-37-
7.02. Returns and Payments..............................................-38-
7.03. Refunds...........................................................-38-
7.04. Contests..........................................................-39-
7.05. Time of Payment...................................................-40-
7.06. Cooperation and Exchange of Information...........................-40-
7.07. Conveyance Taxes..................................................-41-
7.08. Section 338(h)(10) Election.......................................-41-
7.09. Miscellaneous.....................................................-41-
ARTICLE VIII
CONDITIONS TO CLOSING
8.01. Conditions to Obligations of the Seller and the Parent............-42-
8.02. Conditions to Obligations of the Purchaser........................-43-
ARTICLE IX
INDEMNIFICATION
9.01. Survival of Representations and Warranties........................-45-
9.02. Indemnification by the Seller and the Parent......................-45-
9.03. Limits on Indemnification.........................................-47-
9.04. Tax Matters.......................................................-47-
ARTICLE X
TERMINATION AND WAIVER
10.01. Termination.......................................................-48-
10.02. Effect of Termination.............................................-48-
10.03. Waiver............................................................-49-
ARTICLE XI
GENERAL PROVISIONS
11.01. Expenses..........................................................-49-
11.02. Notices...........................................................-49-
11.03. Public Announcements..............................................-50-
11.04. Headings..........................................................-51-
11.05. Severability......................................................-51-
11.06. Entire Agreement..................................................-51-
11.07. Assignment........................................................-51-
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<PAGE>
11.08. No Third Party Beneficiaries......................................-51-
11.09. Amendment.........................................................-51-
11.10. Governing Law.....................................................-51-
11.11. Counterparts......................................................-52-
11.12. Specific Performance..............................................-52-
EXHIBIT 8.02(f)
FORM OF OPINION OF THE SELLER'S AND THE PARENT'S COUNSEL..........-54-
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT, dated as of November 20, 1997, by and among
AIL SYSTEMS INC., a Delaware corporation (the "Purchaser"), UNITED CAPITAL
CORP., a Delaware corporation the "Parent"), and METEX CORPORATION, a Delaware
corporation and wholly-owned, direct subsidiary of the Parent (the "Seller").
W I T N E S S E T H:
WHEREAS, the Seller owns all the issued and outstanding shares (the
"Shares") of common stock, $0.10 par value per share (the "Common Stock"), of
DORNE & MARGOLIN, INC., a Delaware corporation (the "Company"); and
WHEREAS, the Seller wishes to sell to the Purchaser, and the Purchaser
wishes to purchase from the Seller, the Shares, upon the terms and subject to
the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Purchaser, the Parent and
the Seller hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Acquisition Documents" has the meaning specified in Section
9.01.
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Stock Purchase
Agreement, dated as of November 20, 1997, between the Seller and the Purchaser
(including the Exhibits hereto and the Disclosure Schedule) and all amendments
hereto made in accordance with the provisions of Section 11.09.
"Assets" means all the properties and assets, including, without
limitation, the Owned Intellectual Property, the Licensed Intellectual Property,
and the Tangible Personal Property, used or intended to be used in the conduct
of the Business or otherwise owned, leased or used by the Company or any
Subsidiary and the benefits of all contracts,
<PAGE>
agreements and other arrangements used or intended to be used by the Company or
any Subsidiary or in or relating to the conduct of the Business
"Business" means the business of designing, developing and
manufacturing antennas and all other business which within three years prior to
the date hereof has been conducted by the Company and the Subsidiaries.
"Business Day" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by law to be closed in The
City of New York.
"Closing" has the meaning specified in Section 2.03.
"Closing Date" has the meaning specified in Section 2.03.
"Code" means the Internal Revenue Code of 1986, as amended
through the date hereof.
"Common Stock" has the meaning specified in the recitals to this
Agreement.
"Company" has the meaning specified in the recitals to this
Agreement.
"Confidentiality Agreement" means the letter agreement dated as
of April 9, 1997 between the Seller and the Purchaser.
"control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Disclosure Schedule" means the Disclosure Schedule attached
hereto, dated as of the date hereof, and forming a part of this Agreement.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.
"Environment" means surface waters, groundwaters, surface water
sediment, soil, subsurface strata and ambient air.
"Environmental Claims" means any and all actions, suits, demands,
demand letters, claims, liens, notices of non-compliance or violation, notices
of liability or potential
-2-
<PAGE>
liability, investigations, proceedings, consent orders or consent agreements
relating in any way to any Environmental Law, any Environmental Permit or any
Hazardous Material or arising from any alleged injury or threat of injury to
health, safety or the Environment.
"Environmental Law" means any Law, now or hereafter in effect and
as amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
pollution or protection of the Environment, health or safety or to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required to operate the Business or the
Real Property under any applicable Environmental Law.
"ERISA" has the meaning specified in Section 3.21(a).
"Financial Statements" has the meaning specified in Section
3.08(a).
"Governmental Authority" means any United States federal, state
or local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or arbitral
body.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"Hazardous Materials" means (a) petroleum and petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials and polychlorinated biphenyls, and (b) any other chemicals, materials
or substances regulated as toxic or hazardous or as a pollutant, contaminant or
waste under any applicable Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with U.S. GAAP,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, decrease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such
-3-
<PAGE>
capital stock, valued, in the case of redeemable preferred stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through (f)
above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for property
or services irrespective of whether such property is received or such services
are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all
Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness.
"Indemnified Party" has the meaning specified in Section 9.02(a).
"Intellectual Property" means (a) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications, (b) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications, (c) national (including the United States) and multinational
statutory invention registrations, patents, patent registrations and patent
applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights therein
provided by international treaties or conventions and all improvements to the
inventions disclosed in each such registration, patent or application, (d)
trademarks, service marks, trade dress, logos, trade names and corporate names,
whether or not registered, including all common law rights, and registrations
and applications for registration thereof, including, but not limited to, all
marks registered in the United States Patent and Trademark Office, the Trademark
Offices of the States and Territories of the United States of America, and the
Trademark Offices of other nations throughout the world, and all rights therein
provided by international treaties or conventions, (e) copyrights (registered or
otherwise) and registrations and applications for registration thereof, and all
rights therein provided by international treaties or conventions, (f) moral
rights (including, without limitation, rights of paternity and integrity), and
waivers of such rights by others, (g) computer software, including, without
limitation, source code, operating systems and specifications, data, data bases,
files, documentation and other materials related thereto, data and
documentation, (h) trade secrets and confidential, technical and business
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or not
reduced to practice), (i) whether or not confidential, technology (including
know-how and show-how), manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing and
business data,
-4-
<PAGE>
pricing and cost information, business and marketing plans and customer and
supplier lists and information, (j) copies and tangible embodiments of all the
foregoing, in whatever form or medium, (k) all rights to obtain and rights to
apply for patents, and to register trademarks and copyrights, and (1) all rights
to sue or recover and retain damages and costs and attorneys' fees for present
and past infringement of any of the foregoing.
"Inventories" means all inventory, merchandise, finished goods,
and raw materials, packaging, supplies and other personal property related to
the Business maintained, held or stored by or for the Company or any Subsidiary
on the date of this Agreement or the Closing Date and any prepaid deposits for
any of the same.
"IRS" means the Internal Revenue Service of the United States.
"Leased Real Property" means the real property leased by the
Company or any Subsidiary, as tenant, together with, to the extent leased by the
Company or any Subsidiary, all buildings and other structures, facilities or
improvements currently or hereafter located thereon, all fixtures, systems,
equipment and items of personal property of the Company or any Subsidiary
attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation, those
arising under any Law (including, without limitation, any Environmental Law),
Action or Governmental Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Licensed Intellectual Property" means all Intellectual Property
licensed or sublicensed to the Company or any Subsidiary from a third party.
"Loss" has the meaning specified in Section 9.02.
"Material Adverse Effect" means any circumstance, change in, or
effect on the Business, the Company or any Subsidiary that, individually or in
the aggregate with any other circumstances, changes in, or effects on, the
Business, the Company or any Subsidiary: (a) is, or could be, materially adverse
to the business, operations, assets or Liabilities, employee relationships,
customer or supplier relationships, prospects, results of operations or the
condition (financial or otherwise) of the Company or any Subsidiary or (b) could
materially and adversely affect the ability of the Purchaser, the Company or any
Subsidiary to operate or conduct the Business in the manner in which it is
currently operated or conducted by the Seller, the Company and the Subsidiaries.
"Material Contracts" has the meaning specified in Section
3.18(a).
-5-
<PAGE>
"Multiemployer Plan" has the meaning specified in Section
3.21(b).
"Multiple Employer Plan" has the meaning specified in Section
3.21(b).
"Non-Transferred Employees" means all the employees of the
Company and the Subsidiaries as of the date of this Agreement (including those
employees on vacation, leave of absence, sick leave, layoff (whether or not such
employees return to active employment with the Seller or any Affiliate), or
disability (work-related or otherwise)) other than the Transferred Employees.
"Owned Intellectual Property" means all Intellectual Property in
and to which the Company or any Subsidiary holds, or has a right to hold, right,
title and interest.
"Owned Real Property" means the real property owned by the
Company or any Subsidiary, together with all buildings and other structures,
facilities or improvements currently or hereafter located thereon, all fixtures,
systems, equipment and items of personal property of the Company or any
Subsidiary attached or appurtenant thereto and all easements, licenses, rights
and appurtenances relating to the foregoing.
"Parent" has the meaning specified in the recitals hereto.
"Permitted Encumbrances" means such of the following as to which
no enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable accrued on the Reference Balance Sheet or
incurred since the date thereof in the ordinary course of business consistent
with past practice; (b) Encumbrances imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other similar liens
arising in the ordinary course of business securing obligations that (i) are not
overdue for a period of more than 30 days and (ii) are not in excess of $5,000
in the case of a single property or $50,000 in the aggregate at any time; (c)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and (d) minor
survey exceptions, reciprocal easement agreements and other customary
encumbrances on title to real property that (i) were not incurred in connection
with any Indebtedness, (ii) do not render title to the property encumbered
thereby unmarketable and (iii) do not, individually or in the aggregate,
materially adversely affect the value or use of such property for its current
and anticipated purposes.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
"Plans" has the meaning specified in Section 3.21(a).
"Purchase Price" has the meaning specified in Section 2.02.
-6-
<PAGE>
"Purchase Price Bank Account" means a bank account in the United
States to be designated by the Seller in a written notice to the Purchaser at
least five Business Days before the Closing.
"Purchaser" has the meaning specified in the recitals to this
Agreement.
"Real Property" means the Leased Real Property and the Owned Real
Property.
"Receivables" means any and all accounts receivable, notes and
other amounts receivable by the Company or any Subsidiary from third parties,
including, without limitation, customers, arising from the conduct of the
Business or otherwise before the Closing Date, whether or not in the ordinary
course, together with all unpaid financing charges accrued thereon.
"Reference Balance Sheet" means the consolidated balance sheet of
the Company, dated as of September 30, 1997, a copy of which is set forth in
Section 3.08(a) of the Disclosure Schedule.
"Reference Balance Sheet Date" means September 30, 1997.
"Regulations" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"Release" means disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like into or upon any land or water or air or otherwise entering into the
Environment.
"Remedial Action" means any investigation, assessment,
monitoring, treatment, excavation, removal, remediation or cleanup of Hazardous
Materials in the Environment.
"Restricted Period" has the meaning specified in Section 5.10.
"Returns" has the meaning specified in Section 7.02.
"Seller" has the meaning specified in the recitals to this
Agreement.
"Seller's Knowledge" means the actual knowledge of the officers
of the Seller or the Parent.
"Subsidiaries" means any and all corporations, partnerships,
joint ventures, associations and other entities controlled by the Company
directly or indirectly through one or more intermediaries.
-7
<PAGE>
"Tangible Personal Property" means each item or distinct group of
machinery, equipment, tools, supplies, furniture, fixtures, personalty,
vehicles, rolling stock and other tangible personal property used in the
Business or owned or leased by the Company or any Subsidiary.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority or taxing authority,
including, without limitation: taxes or other charges on or with respect to
income, franchise, alternative minimum, estimated, windfall or other profits,
gross receipts, real property, personal property sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added, or gains taxes; license,
registration and documentation fees; and customs duties, tariffs, and similar
charges.
"Third Party Claims" has the meaning specified in Section
9.02(b).
"Transferred Employees" means all "touch" or production employees
of the Company and the Subsidiaries and other employees of the Company and the
Subsidiaries deemed by Purchaser necessary to the continued operation of the
Business and others, all as set forth in a writing to be delivered to the Seller
at least 5 days prior to Closing. The Transferred Employees shall, in the
aggregate, number not less than two-thirds of the sum of the numbers of
Transferred Employees and Non-Transferred Employees employed by the Company and
the Subsidiaries, whether in the aggregate or at any single site of employment
to which 50 or more employees are assigned, as of the Closing Date.
"U.S. GAAP" means United States generally accepted accounting
principles and practices as in effect from time to time and applied consistently
throughout the periods involved.
"Vendors" means any and all vendors who are unaffiliated with the
Seller or the Company and who supply raw materials, components, spare parts,
supplies, goods, merchandise or services to the Company or any Subsidiary.
"WARN Act" means the Worker Adjustment and Retraining Act of
1988, as amended, and the rules and regulations promulgated thereunder.
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Shares. Upon the terms and
subject to the conditions of this Agreement, at the Closing, the Seller shall
sell to the Purchaser, and the Purchaser shall purchase from the Seller, the
Shares.
-8-
<PAGE>
SECTION 2.02. Purchase Price. The aggregate purchase price for the
Shares shall be $16,000,000 (the "Purchase Price"), all of which will be paid by
the Purchaser to the Seller in immediately available funds at the Closing.
SECTION 2.03. Closing. Upon the terms and subject to the
conditions of this Agreement, the sale and purchase of the Shares contemplated
by this Agreement shall take place at a closing (the "Closing") to be held at
the offices of Reid & Priest LLP, 40 W. 57th Street, New York, New York 10019 at
10:00 A.M. New York time on the fifth Business Day following the later to occur
of (A) expiration or termination of all applicable waiting periods under the HSR
Act and (B) satisfaction or waiver of all other conditions to the obligations of
the parties set forth in Article VIII, or at such other place or at such other
time or on such other date as the Seller, the Parent and the Purchaser may
mutually agree upon in writing (the day on which the Closing takes place being
the "Closing Date").
SECTION 2.04. Closing Deliveries by the Seller. At the Closing, the
Seller shall deliver or cause to be delivered to the Purchaser:
(a) stock certificates evidencing the Shares duly endorsed in
blank, or accompanied by stock powers duly executed in blank, in form
satisfactory to the Purchaser and with all required stock transfer tax stamps
affixed;
(b) a receipt for the Purchase Price; and
(c) the opinions, certificates and other documents required to be
delivered pursuant to Section 8.02.
SECTION 2.05. Closing Deliveries by the Purchaser. (a) At the Closing,
the Purchaser shall deliver to the Seller:
(i) the Purchase Price by wire transfer in immediately available
funds to the Purchase Price Bank Account; and
(ii) the certificates and other documents required to be
delivered pursuant to Section 8.01.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PARENT
As an inducement to the Purchaser to enter into this Agreement, the
Seller and the Parent each hereby jointly and severally represents and warrants
to the Purchaser as follows:
SECTION 3.01. Organization, Authority and Qualification of the Seller
and the Parent. Each of the Seller and the Parent is a corporation duly
organized, validly existing
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and in good standing under the laws of the State of Delaware and has all
necessary power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby. No
failure on the part of the Seller or the Parent to be duly licensed or qualified
to do business, and be in good standing in all jurisdictions in which it is
required to be so licensed, qualified and in good standing will adversely affect
(i) the ability of the Seller or the Parent to carry out its obligations under,
and to consummate the transactions contemplated by, this Agreement and (ii) the
ability of the Company and the Subsidiaries to conduct the Business. The
execution and delivery of this Agreement by the Seller and the Parent, the
performance by the Seller and the Parent of its obligations hereunder and the
consummation by the Seller and the Parent of the transactions contemplated
hereby have been duly authorized by all requisite action on the part of the
Seller and the Parent. This Agreement has been duly executed and delivered by
the Seller and the Parent, and (assuming due authorization, execution and
delivery by the Purchaser) this Agreement constitutes the legal, valid and
binding obligation of the Seller and the Parent enforceable against the Seller
in accordance with its terms.
SECTION 3.02. Organization, Authority and Qualification of the Company.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power and
authority to own, operate or lease the properties and assets now owned, operated
or leased by it and to carry on the Business as it has been and is currently
conducted. The Company is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which to Seller's knowledge the properties
owned or leased by it or the operation of its business makes such licensing or
qualification necessary or desirable except to the extent that the failure to be
so licensed or qualified would not adversely affect the ability of the Company
to conduct the Business and all such jurisdictions are set forth in Section 3.02
of the Disclosure Schedule. To the Seller's knowledge all corporate actions
taken by the Company have been duly authorized, and the Company has not taken
any action that in any respect conflicts with, constitutes a default under or
results in a violation of any provision of its Certificate of Incorporation or
By-laws. True and correct copies of the Certificate of Incorporation and By-laws
of the Company, each as in effect on the date hereof, have been delivered by the
Seller to the Purchaser.
SECTION 3.03. Capital Stock of the Company; Ownership of the Shares.
(a) The authorized capital stock of the Company consists of
10,000 shares of Common Stock. As of the date hereof, 1,000 shares of Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable. None of the issued and outstanding shares of Common Stock was
issued in violation of any preemptive rights. There are no options, warrants,
convertible securities or other rights, agreements, arrangements or commitments
of any character relating to the capital stock of the Company or obligating the
Seller or the Company to issue or sell any shares of capital stock of, or any
other interest in, the Company. There are no outstanding contractual obligations
of the Company to repurchase, redeem or otherwise acquire any shares of Common
Stock or to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person. The Shares constitute
all the issued and outstanding capital stock of the Company and are owned of
record and beneficially solely by the Seller free and clear of all Encumbrances.
Upon consummation of the transactions contemplated by this Agreement and
registration of the Shares in the name of the Purchaser in the stock records of
the Company, the Purchaser, assuming it shall have purchased the Shares for
value in good faith and without notice of any adverse claim, will own all the
issued and outstanding capital
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stock of the Company free and clear of all Encumbrances (except those if any
which may be imposed as a result of Purchaser's ownership thereof). Upon
consummation of the transactions contemplated by this Agreement, the Shares will
be fully paid and nonassessable. There are no voting trusts, stockholder
agreements, proxies or other agreements or understandings in effect with respect
to the voting or transfer of any of the Shares.
(b) The stock register of the Company accurately records: (i) the
name and address of each Person owning shares of capital stock of the Company
and (ii) the certificate number of each certificate evidencing shares of capital
stock issued by the Company, the number of shares evidenced by each such
certificate, the date of issuance thereof and, in the case of cancellation, the
date of cancellation.
SECTION 3.04. Subsidiaries.
(a) Section 3.04(a) of the Disclosure Schedule sets forth a true
and complete list of all Subsidiaries, listing for each Subsidiary its name,
type of entity, the jurisdiction and date of its incorporation or organization.
None of the Subsidiaries is active or has any material assets or liabilities.
The Company is not subject to any claims or liability as a result of its
ownership of the Subsidiaries.
(b) Other than the Subsidiaries, there are no other corporations,
partnerships, joint ventures, associations or other entities in which the
Company owns, of record or beneficially, any direct or indirect equity or other
interest or any right (contingent or otherwise) to acquire the same. Other than
the Subsidiaries, the Company is not a member of (nor is any part of the
Business conducted through) any partnership. Except as set forth in Section
3.04(b) of the Disclosure Schedule, the Company is not a participant in any
joint venture or similar arrangement.
SECTION 3.05. Corporate Books and Records. The minute books of the
Company contain accurate records of all meetings and accurately reflect all
other actions taken by the stockholders, Boards of Directors and all committees
of the Boards of Directors of the Company and the Subsidiaries. Complete and
accurate copies of all such minute books and of the stock register of the
Company have been provided by the Seller to the Purchaser.
SECTION 3.06. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 3.07 have been obtained
and all filings and notifications listed in Section 3.07 of the Disclosure
Schedule have been made, the execution, delivery and performance of this
Agreement by the Seller and the Parent, respectively, does not and will not (a)
violate, conflict with or result in the breach of any provision of the charter
or by-laws (or similar organizational documents) of the Seller and
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the Parent, the Company or any Subsidiary, (b) conflict with or violate (or
cause an event which could have a Material Adverse Effect as a result of) any
Law or Governmental Order applicable to the Seller and the Parent, or the
Company, any Subsidiary or any of their respective assets, properties or
businesses, including, without limitation, the Business, or (c) except as set
forth in Section 3.06(c) of the Disclosure Schedule, conflict with, result in
any breach of, constitute a default (or event which with the giving of notice or
lapse of time, or both, would become a default) under, require any consent
under, or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any
Encumbrance on any of the Shares or on any of the assets or properties of the
Seller, the Company or any Subsidiary pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument or arrangement to which the Seller or the Parent, the Company
or any Subsidiary is a party or by which any of the Shares or any of such assets
or properties is bound or affected, except for such conflicts, breaches or
defaults described in Section 3.06(c) as would not (with respect to the Company
or any Subsidiary only) have a Material Adverse Effect.
SECTION 3.07. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by the Seller and the Parent do not
and will not require any consent, approval, authorization or other order of,
action by, filing with or notification to any Governmental Authority, except (a)
as described in Section 3.07 of the Disclosure Schedule, and (b) the
notification requirements of the HSR Act.
SECTION 3.08. Financial Information, Books and Records, Projections and
Operating Data.
(a) True and complete copies of (i) the unaudited consolidated
balance sheet of the Company as of December 31, 1996 and the consolidated
statements of income of the Company for the years ended December 31, 1996 and
1995, (collectively referred to herein as the "Financial Statements") and (ii)
the unaudited consolidated balance sheet of the Company as of September 30,
1997, and the related consolidated statement of income for the nine months ended
September 30, 1997 (collectively referred to herein as the "Interim Financial
Statements") have been delivered by the Seller to the Purchaser. The Financial
Statements, the Interim Financial Statements and the Reference Balance Sheet (i)
were prepared in accordance with the books of account and other financial
records of the Company, (ii) present fairly the consolidated financial condition
and results of operations of the Company and the Subsidiaries as of the dates
thereof or for the periods covered thereby, (iii) have been prepared in
accordance with U.S. GAAP applied on a basis consistent with the past practices
of the Seller, the Parent and the Company and (iv) include all adjustments
(consisting only of normal recurring accruals) that are necessary for a fair
presentation of the consolidated financial condition of the Company and the
Subsidiaries and the results of the operations of the Company and the
Subsidiaries as of the dates thereof or for the periods covered thereby;
provided, however, that the Financial Statements and Interim Financial
Statements and the Reference Balance Sheet do not contain notes and schedules
and the Interim Financial Statements are subject to normal year-end adjustments
consistent with past practice.
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(b) The books of account and other financial records of the
Company and the Subsidiaries: (i) fairly reflect all items of income and expense
and all assets and Liabilities required to be reflected therein in accordance
with U.S. GAAP applied on a basis consistent with the past practices of the
Company and the Subsidiaries, respectively, (ii) are in all material respects
complete and correct, and do not contain or reflect any material inaccuracies or
discrepancies and (iii) have been maintained in accordance with good business
and accounting practices.
(c) No representations are being made or are to be implied with
respect to any financial projections regarding the Company.
SECTION 3.09. No Undisclosed Liabilities. There are no Liabilities of
the Company or any Subsidiary in excess of $100,000 in the aggregate which, in
accordance with U.S. GAAP would be required to be disclosed on a balance sheet,
other than Liabilities (i) reflected or reserved against on the Reference
Balance Sheet, or (ii) disclosed in Section 3.09 of the Disclosure Schedule or
incurred since the Reference Balance Sheet Date in the ordinary course of
business consistent with past practice. Reserves are reflected on the Reference
Balance Sheet against all Liabilities of the Company and the Subsidiaries in
amounts that have been established on a basis consistent with the past practices
of the Company and the Subsidiaries and in accordance with U.S. GAAP.
SECTION 3.10. Receivables. Section 3.10 of the Disclosure Schedule sets
forth an aged list of the Receivables of the Company and the Subsidiaries as of
a current date. Except to the extent, if any, reserved for on the Reference
Balance Sheet, all Receivables reflected on the Reference Balance Sheet arose
from, and the Receivables existing on the Closing Date will have arisen from,
the sale of Inventory or services to Persons not affiliated with the Seller, the
Company or any Subsidiary and in the ordinary course of the Business consistent
with past practice and to Seller's knowledge, except as reserved against on the
Reference Balance Sheet, constitute or will constitute, as the case may be, only
valid, undisputed claims of the Company or a Subsidiary not subject to valid
claims of set-off or other defenses or counterclaims other than normal cash
discounts accrued in the ordinary course of the Business consistent with past
practice. Neither the Seller nor the Parent is aware of reasons why the
Receivables reflected on the Reference Balance Sheet or arising from the date
thereof until the Closing (subject to the reserve for bad debts, if any,
reflected on the Reference Balance Sheet) are not or will not be good and
collectible, without resort to litigation or extraordinary collection activity,
except as set forth on Section 3.10 of the Disclosure Schedule.
SECTION 3.11. Acquired Assets. Except as disclosed in Section 3.11 of
the Disclosure Schedule, each asset of the Company and the Subsidiaries
(including, without limitation, the benefit of any licenses, leases or other
agreements or arrangements) acquired since the Reference Balance Sheet Date has
been acquired for consideration not less than or substantially more than the
fair market value of such asset at the date of such acquisition.
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SECTION 3.12. Sales and Purchase Order Backlog. Section 3.12(a) of the
Disclosure Schedule lists all sales orders which have been accepted by the
Company or any Subsidiary, and which were open as of October 1, 1997.
SECTION 3.13. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Since the Reference Balance Sheet Date, except
as disclosed in Section 3.13 of the Disclosure Schedule, to Seller's knowledge,
the business of the Company and the Subsidiaries has been conducted in the
ordinary course and consistent with past practice. As amplification and not
limitation of the foregoing, except as disclosed in Section 3.13 of the
Disclosure Schedule, since the Reference Balance Sheet Date, neither the Company
nor any Subsidiary has:
(i) permitted or allowed any of the assets or properties (whether
tangible or intangible) of the Company or any Subsidiary to be subjected to any
Encumbrance, other than Permitted Encumbrances;
(ii) except in the ordinary course of business consistent with
past practice, discharged or otherwise obtained the release of any Encumbrance
or paid or otherwise discharged any Liability, other than current liabilities
reflected on the Reference Balance Sheet and current liabilities incurred in the
ordinary course of business consistent with past practice since the Reference
Balance Sheet Date;
(iii) made any loan to, guaranteed any Indebtedness of or
otherwise incurred any Indebtedness on behalf of any Person;
(iv) failed to pay any creditor any material amount owed to such
creditor when due;
(v) redeemed any of the capital stock or declared, made or paid
any dividends or distributions (whether in cash, securities or other property)
to the holders of capital stock of the Company or any Subsidiary or otherwise,
other than (A) dividends, distributions and redemptions declared, made or paid
by any Subsidiary solely to the Company or (B) dividends and distributions
through the cancellation of not more than $18,500,000 of indebtedness owed by
such holders to the Company;
(vi) made any material changes in the customary methods of
operations of the Company or any Subsidiary, including, without limitation,
practices and policies relating to manufacturing, purchasing, Inventories,
marketing, selling and pricing;
(vii) merged with, entered into a consolidation with or acquired
an interest of 1% or more in any Person or acquired a substantial portion of the
assets or business of any Person or any division or line of business thereof, or
otherwise acquired any material assets other than in the ordinary course of
business consistent with past practice;
(viii) made any capital expenditure or commitment for any capital
expenditure in excess of $50,000 individually or $100,000 in the aggregate;
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(ix) issued any sales orders or otherwise agreed to make any
purchases involving exchanges in value in excess of $500,000 individually or
$6,000,000 in the aggregate;
(x) sold, transferred, leased, subleased, licensed or otherwise
disposed of any properties or assets, real, personal or mixed (including,
without limitation, leasehold interests and intangible assets), other than the
sale of Inventories in the ordinary course of business consistent with past
practice;
(xi) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire, exchange for or
convert into the same, of, or any other interest in, the Company or any
Subsidiary;
(xii) entered into or modified any agreement, arrangement or
transaction with any of its directors, officers, employees or shareholders (or
with any relative, beneficiary, spouse or Affiliate of such Person);
(xiii) (A) except in the ordinary course of business consistent
with past practice granted any increase, or announced any increase, in the
wages, salaries, compensation, bonuses, incentives, pension or other benefits
payable by the Company or any Subsidiary to any of its employees, including,
without limitation, any increase or change pursuant to any Plan or (B)
established or increased or promised to increase any benefits under any Plan, in
either case except as required by Law or any collective bargaining agreement, or
involving ordinary increases consistent with the past practices of the Company
or such Subsidiary;
(xiv) written down or written up (or failed to write down or
write up in accordance with U.S. GAAP consistent with past practice) the value
of any Inventories or receivables or revalued any assets of the Company or any
Subsidiary other than in the ordinary course of business consistent with past
practice and in accordance with U.S. GAAP;
(xv) amended, terminated, cancelled or compromised any material
claims of the Company or any Subsidiary or waived any other rights of
substantial value to the Company or any Subsidiary;
(xvi) made any change in any method of accounting or accounting
practice or policy used by the Company or any Subsidiary, other than such
changes required by U.S. GAAP or disclosed in Section 3.13 of the Disclosure
Schedule;
(xvii) failed substantially to maintain the Assets in accordance
with past practice and in reasonable operating condition and repair;
(xviii) allowed any material Permit or Environmental Permit that
was issued or relates to the Company or any Subsidiary or otherwise relates to
any Asset to lapse or terminate or failed to renew any such Permit or
Environmental Permit or any insurance policy that is scheduled to terminate or
expire prior to the Closing Date;
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(xix) incurred any Indebtedness (exclusive of the Company's and
any Subsidiary's guaranty of Indebtedness in connection with the revolving
credit facility identified in Section 3.06(c) of the Disclosure Schedule, which
guaranty will be released and terminated prior to Closing without cost to the
Company or any Subsidiary), in excess of $50,000 individually or $150,000 in the
aggregate;
(xx) amended, modified or consented to the termination of any
Material Contract or the Company's or any Subsidiary's rights thereunder;
(xxi) amended or restated the Certificate of Incorporation or the
By-laws (or other organizational documents) of the Company or any Subsidiary;
(xxii) terminated, discontinued, closed or disposed of any plant,
facility or other business operation, or laid off any employees (other than
layoffs of less than 50 employees in any six-month period in the ordinary course
of business consistent with past practice) or implemented any early retirement,
separation or program providing early retirement window benefits within the
meaning of Section 1.401(a)-4 of the Regulations or announced or planned any
such action or program for the future;
(xxiii) made any charitable contribution;
(xxiv) disclosed any secret or confidential Intellectual Property
(except by way of issuance of a patent) which is material or permitted to lapse
or go abandoned any Intellectual Property which is material (or any registration
or grant thereof or any application relating thereto) to which, or under which,
the Company or any Subsidiary has any right, title, interest or license;
(xxv) made any express or deemed election or settled or
compromised any material liability, with respect to Taxes of the Company or any
Subsidiary;
(xxvi) suffered any casualty loss or damage with respect to any
of the Assets which in the aggregate have a replacement cost of more than
$50,000 whether or not such loss or damage shall have been covered by insurance;
(xxvii) suffered any Material Adverse Effect or any change or
event that with notice or the passage of time or both is reasonably likely to
result in a Material Adverse Effect; or
(xxviii) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 3.13 or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights or
commitments with respect to any of the actions specified in this Section 3.13,
except as expressly contemplated by this Agreement.
SECTION 3.14. Litigation. Except as set forth in Section 3.14 of the
Disclosure Schedule (which, with respect to each Action disclosed therein, sets
forth: the parties, nature of the proceeding, date and method commenced, amount
of damages or other relief sought and, if applicable, paid or granted), there
are no Actions by or against the Company or any
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Subsidiary (or by or against the Seller, the Parent or any Affiliate thereof and
relating to the Business, the Company or any Subsidiary), or affecting any of
the Assets, pending before any Governmental Authority (or, to the Seller's
knowledge, threatened to be brought by or before any Governmental Authority).
None of the matters disclosed in Section 3.14 of the Disclosure Schedule has or
has had a Material Adverse Effect or could affect the legality, validity or
enforceability of this Agreement or the consummation of the transactions
contemplated hereby. Except as set forth in Section 3.14 of the Disclosure
Schedule, none of the Company, the Subsidiaries nor any of the Assets nor the
Seller or the Parent is subject to any Governmental Order (nor, to the Seller's
knowledge, are there any such Governmental Orders threatened to be imposed by
any Governmental Authority) which has or has had a Material Adverse Effect.
SECTION 3.15. Certain Interests.
(a) Except as disclosed in Section 3.15(a) of the Disclosure
Schedule, no officer or director of the Seller, the Parent, the Company or any
Subsidiary and no relative or spouse (or relative of such spouse) who resides
with, or is a dependent of, any such officer or director:
(i) has any direct or indirect financial interest in any
competitor, supplier or customer of the Company or any Subsidiary,
provided, however, that the ownership of securities representing no
more than one percent of the outstanding voting power of any
competitor, supplier or customer, and which are listed on any national
securities exchange or traded actively in the national over-the-counter
market, shall not be deemed to be a "financial interest" so long as the
Person owning such securities has no other connection or relationship
with such competitor, supplier or customer;
(ii) owns, directly or indirectly, in whole or in part, or
has any other interest in any tangible or intangible property which the
Company or any Subsidiary uses or has used in the conduct of the
Business or otherwise; or
(iii) has outstanding any Indebtedness to the Company or any
Subsidiary.
(b) Except as disclosed in Section 3.15(b) of the Disclosure
Schedule, no officer or director of the Company or any Subsidiary and no
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such officer or director has outstanding any Indebtedness to
the Seller.
(c) Except as disclosed in Section 3.15(c) of the Disclosure
Schedule, neither the Company nor any Subsidiary has any Liability or any other
obligation of any nature whatsoever to any officer, director or shareholder of
the Seller, the Company or any Subsidiary or to any relative or spouse (or
relative of such spouse) who resides with, or is a dependent of, any such
officer, director or shareholder.
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SECTION 3.16. Compliance with Laws.
(a) Except as set forth in Section 3.16(a) of the Disclosure
Schedule, the Company and the Subsidiaries have each conducted and continue to
conduct the Business in accordance with all Laws and Governmental Orders
applicable to the Company or any Subsidiary or any of the Assets or the
Business, and neither the Company nor any Subsidiary is in violation of any such
Law (except for such violations as individually or in the aggregate would not
exceed $100,000 to correct or as a fine or penalty) or Governmental Order. None
of the Seller, the Parent, the Company, any Subsidiary nor any officer,
director, employee, agent or representative of the Seller, the Parent, the
Company or any Subsidiary has furthered or supported any foreign boycott in
violation of the Anti-Boycott laws and regulations promulgated pursuant to the
Export Administration Act of 1979 (50 U.S.C.A. Appx ss. 2407, and regulations
promulgated thereunder).
(b) To Seller's knowledge, Section 3.16(b) of the Disclosure
Schedule sets forth a brief description of each Governmental Order applicable
exclusively to the Company or any Subsidiary or any of the Assets or the
Business, and no such Governmental Order has or has had a Material Adverse
Effect.
SECTION 3.17. Environmental Matters.
(a) Except as disclosed in Section 3.17(a) of the Disclosure
Schedule:
(i) The Company and the Subsidiaries are in compliance with,
and for the past three years have been in compliance in all material
respects with, all applicable Environmental Laws and all Environmental
Permits. All past non-compliance with Environmental Laws or
Environmental Permits has been resolved without any pending, on-going
or future obligation, cost or liability, and there is no requirement
proposed for adoption or implementation under any Environmental Law or
Environmental Permit that is reasonably expected to be adverse to the
Company or any Subsidiary.
(ii) There are no underground or aboveground storage tanks
or any surface impoundments, septic tanks, pits, sumps or lagoons in
which Hazardous Materials are being or have been treated, stored or
disposed on any of the Real Property or on any property formerly
owned, leased or occupied by the Company or any Subsidiary.
(iii) The Company and the Subsidiaries have not, and no
other Person has, Released Hazardous Materials on any of the Real
Property or on any property formerly owned, leased or occupied by the
Company or the Subsidiaries.
(iv) The Company and the Subsidiaries are not conducting,
and have not undertaken or completed, any Remedial Action relating to
any Release or threatened Release at the Real Property or at any other
site, location or operation, either voluntarily or pursuant to the
order of any Governmental Authority or the requirements of any
Environmental Law or Environmental Permit.
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(v) There is no asbestos or asbestos-containing material on
any of the Real Property.
(vi) None of the Real Property adjoins any property that is
listed or proposed for listing on the National Priorities List under
the federal Comprehensive Environmental Response, Compensation, and
Liability Act.
(vii) There are no Environmental Claims pending or
threatened against the Company, the Subsidiaries, the Business or the
Real Property, and there are no circumstances that can reasonably be
expected to form the basis of any such Environmental Claim, including
without limitation with respect to any off-site disposal location
currently or formerly used by the Company or any Subsidiary or any of
their predecessors or with respect to any previously owned or operated
facilities.
(b) Except as disclosed in Section 3.17(b) of the Disclosure
Schedule, neither the execution of this Agreement nor the consummation of the
transactions contemplated in this Agreement will require any Remedial Action or
notice to or consent of Governmental Authorities or any third party pursuant to
any applicable Environmental Law or Environmental Permit.
SECTION 3.18. Material Contracts.
(a) To Seller's knowledge, Section 3.18(a) of the Disclosure
Schedule lists each of the following contracts and agreements (including,
without limitation, oral and informal arrangements) of the Company and the
Subsidiaries (such contracts and agreements, and all agreements relating to
Intellectual Property set forth in Section 3.19(a) of the Disclosure Schedule,
being "Material Contracts"):
(i) all management contracts and contracts with independent
contractors or consultants requiring a payment of more than $25,000
(or similar arrangements to which the Company or any Subsidiary is a
party and which are not cancelable without penalty or further payment
and without more than 30 days' notice;
(ii) all contracts and agreements relating to Indebtedness
of the Company or any Subsidiary;
(iii) all contracts and agreements that limit or purport to
limit the ability of the Company or any Subsidiary to compete in any
line of business or with any Person or in any geographic area or
during any period of time;
(iv) all contracts and agreements between or among the
Company or any Subsidiary and the Seller or any Affiliate of the
Seller;
(v) all contracts and agreements providing for benefits
under any Plan; and
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(vi) all employment contracts and agreements with employees
of the Company or any Subsidiary providing for the payment of at least
$75,000 in annual compensation, copies of which have previously been
provided to the Purchaser.
For purposes of this Section 3.18 and Section 3.20, the term
"lease" shall include any and all leases, subleases, sale/leaseback agreements
or similar arrangements.
(b) To Seller's knowledge, except as disclosed in Section 3.18(b)
of the Disclosure Schedule, each Material Contract: (i) is valid and binding on
the respective parties thereto and is in full force and effect and (ii) upon
consummation of the transactions contemplated by this Agreement, except to the
extent that any consents set forth in Section 3.07 of the Disclosure Schedule
are not obtained, shall continue in full force and effect without penalty or
other adverse consequence. To Seller's knowledge, neither the Company nor any
Subsidiary is in breach of, or default under, any Material Contract.
(c) To Seller's knowledge, except as disclosed in Section 3.18(c)
of the Disclosure Schedule, no other party to any Material Contract is in breach
thereof or default thereunder.
(d) Except as disclosed in Section 3.18(d) of the Disclosure
Schedule, there is no contract, agreement or other arrangement granting any
Person any preferential right to purchase, other than in the ordinary course of
business consistent with past practice, any of the properties or assets of the
Company or any Subsidiary.
SECTION 3.19. Intellectual Property.
(a) To Seller's knowledge, except as disclosed in Section
3.19(a)(iii) of the Disclosure Schedule, the rights of the Company or any
Subsidiary, as the case may be, in or to such Intellectual Property do not
conflict with or infringe on the rights of any other Person, and none of the
Seller, the Parent, the Company nor any Subsidiary has received any claim or
written notice from any Person, to such effect.
(b) Except as disclosed in Section 3.19(b) of the Disclosure
Schedule: (i) all the Owned Intellectual Property is owned by either the Company
or a Subsidiary, as the case may be, free and clear of any Encumbrance and (ii)
no Actions have been made or asserted or are pending (nor, to Seller's
knowledge, has any such Action been threatened) against the Company or any
Subsidiary either (A) based upon or challenging or seeking to deny or restrict
the use by the Company or any Subsidiary of any of the Owned Intellectual
Property or (B) alleging that any services provided, or products manufactured or
sold by the Company or any Subsidiary are being provided, manufactured or sold
in violation of any patents or trademarks, or any other rights of any Person. To
Seller's knowledge, no Person is using any patents, copyrights, trademarks,
service marks, trade names, trade secrets or similar property that are
confusingly similar to the Owned Intellectual Property or that infringe upon the
Owned Intellectual Property or upon the rights of the Company or any Subsidiary
therein. Except as disclosed in Section 3.19(b) of the Disclosure Schedule, to
Seller's knowledge, none of the Seller, the Parent, the Company nor any
Subsidiary has
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granted any license or other right to any other Person with respect to the Owned
Intellectual Property.
SECTION 3.20. Real Property. As of the date of this Agreement, the
Company owns the real property located at 2950 Veterans Memorial Highway,
Bohemia, NY 11716, and neither the Company nor any Subsidiary owns or leases
(other than a testing antenna on the rooftop of the Radisson Hotel) any other
Real Property.
SECTION 3.21. Employee Benefit Matters.
(a) Plans and Material Documents. Section 3.21(a) of the
Disclosure Schedule lists (i) all employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements, whether legally enforceable or not, to which the Company or any
Subsidiary is a party, with respect to which the Company or any Subsidiary has
any obligation or which are maintained, contributed to or sponsored by the
Company or any Subsidiary for the benefit of any current or former employee,
officer or director of the Company or any Subsidiary (except for such of the
above-described plans, programs, contracts and arrangements as do not have,
individually or in aggregate, termination costs or underfunding liabilities in
excess of $100,000), (ii) each employee benefit plan for which the Company or
any Subsidiary could incur liability under Section 4069 of ERISA in the event
such plan has been or were to be terminated, (iii) any plan in respect of which
the Company or any Subsidiary could incur liability under Section 4212(c) of
ERISA and (iv) any contracts, arrangements or understandings between the Seller
or any of its Affiliates and any employee of the Company or of any Subsidiary,
including, without limitation, any contracts, arrangements or understandings
relating to the sale of the Company (collectively, the "Plans"). Neither the
Company nor any Subsidiary has any pension plan (except for a 401(k) plan) or
post-retirement healthcare plan. Each Plan is in writing and the Seller has
furnished the Purchaser with a complete and accurate copy of each Plan and a
complete and accurate copy of each material document prepared in connection with
each such Plan including, without limitation, (i) a copy of each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed Internal Revenue Service ("IRS")
Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Plan. Except as disclosed on Section
3.21(a) of the Disclosure Schedule, there are no other employee benefit plans,
programs, arrangements or agreements, whether formal or informal, whether in
writing or not, to which the Company or any Subsidiary is a party, with respect
to which the Company or any Subsidiary has any obligation or which are
maintained, contributed to or sponsored by the Company or any Subsidiary for the
benefit of any current or former employee, officer or director of the Company or
any Subsidiary. Neither the Company nor any Subsidiary has any express or
implied commitment, whether legally enforceable or not, (i) to create, incur
liability with respect to or cause to exist any other employee benefit plan,
program or arrangement, (ii) to
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enter into any contract or agreement to provide compensation or benefits to any
individual or (iii) to modify, change or terminate any Plan, other than with
respect to a modification, change or termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Plans is a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
(a "Multiemployer Plan") or a single employer pension plan (within the meaning
of Section 4001(a)(15) of ERISA) for which the Company or any Subsidiary could
incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer
Plan"). None of the Plans provides for the payment of separation, severance,
termination or similar-type benefits to any Person or obligates the Company or
any Subsidiary to pay separation, severance, termination or similar-type
benefits solely as a result of any transaction contemplated by this Agreement or
as a result of a "change in control", within the meaning of such term under
Section 280G of the Code. None of the Plans provides for or promises retiree
medical, disability or life insurance benefits to any current or former
employee, officer or director of the Company or any Subsidiary. Each of the
Plans is subject only to the laws of the United States or a political
subdivision thereof.
(c) Compliance with Applicable Law. Each Plan is now and always
has been operated in all respects in accordance with the requirements of all
applicable Law, including, without limitation, ERISA and the Code, and all
persons who participate in the operation of such Plans and all Plan
"fiduciaries" (within the meaning of Section 3(21) of ERISA) have always acted
in accordance with the provisions of all applicable Law, including, without
limitation, ERISA and the Code. The Company and each Subsidiary has performed
all obligations required to be performed by it under, is not in any respect in
default under or in violation of, and has no knowledge of any default or
violation by any party to, any Plan. No legal action, suit or claim is pending
or threatened with respect to any Plan (other than claims for benefits in the
ordinary course) and no fact or event exists that could give rise to any such
action, suit or claim.
(d) Qualification of Certain Plans. Each Plan which is intended
to be qualified under Section 401(a) of the Code or Section 401(k) of the Code
has received a favorable determination letter from the IRS that it is so
qualified and each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that it is so exempt, and
no fact or event has occurred since the date of such determination letter from
the IRS to adversely affect the qualified status of any such Plan or the exempt
status of any such trust. Each trust maintained or contributed to by the Company
or any Subsidiary which is intended to be qualified as a voluntary employees'
beneficiary association and which is intended to be exempt from federal income
taxation under Section 501(c)(9) of the Code has received a favorable
determination letter from the IRS that it is so qualified and so exempt, and no
fact or event has occurred since the date of such determination by the IRS to
adversely affect such qualified or exempt status.
(e) Absence of Certain Liabilities and Events. There has been no
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the
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Code) with respect to any Plan. Neither the Company nor any Subsidiary has
incurred any liability for any penalty or tax arising under Section 4971, 4972,
4980, 4980B or 6652 of the Code or any liability under Section 502 of ERISA, and
no fact or event exists which could give rise to any such liability. Neither the
Company nor any Subsidiary has incurred any liability under, arising out of or
by operation of Title IV of ERISA (other than liability for premiums to the
Pension Benefit Guaranty Corporation arising in the ordinary course), including,
without limitation, any liability in connection with (i) the termination or
reorganization of any employee benefit plan subject to Title IV of ERISA or (ii)
the withdrawal from any Multiemployer Plan or Multiple Employer Plan, and no
fact or event exists which could give rise to any such liability. No complete or
partial termination has occurred within the five years preceding the date hereof
with respect to any Plan. No reportable event (within the meaning of Section
4043 of ERISA) has occurred or is expected to occur with respect to any Plan
subject to Title IV of ERISA. No Plan had an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived, as of the most recently ended plan year of such Plan. None of the
assets of the Company or any Subsidiary is the subject of any lien arising under
Section 302(f) of ERISA or Section 412(n) of the Code; neither the Company nor
any Subsidiary has been required to post any security under Section 307 of ERISA
or Section 401(a)(29) of the Code; and no fact or event exists which could give
rise to any such lien or requirement to post any such security.
(f) Plan Contributions and Funding. All contributions, premiums
or payments required to be made with respect to any Plan have been made on or
before their due dates. All such contributions have been fully deducted for
income tax purposes and no such deduction has been challenged or disallowed by
any government entity and no fact or event exists which could give rise to any
such challenge or disallowance. As of the Closing Date, no Plan which is subject
to Title IV of ERISA will have an "unfunded benefit liability" (within the
meaning of Section 4001(a)(18) of ERISA).
(g) Certain Employee-Benefits Assets. Each of the guaranteed
investment contracts and other funding contracts with any insurance company that
are held by any of the Plans and any annuity contracts purchased by (i) any of
the Plans or (ii) any pension benefit plans (as defined in Section 3(2) of
ERISA) that provided benefits to any current or former employees of the Company
or any Subsidiary was issued by an insurance company which carried the highest
rating from each of Duff & Phelps Credit Rating Co., Standard & Poor's Insurance
Rating Services, A.M. Best Company and Moody's Investors Service, as of the date
such contract was issued, the date hereof and the Closing Date.
(h) Americans With Disability Act. The Company and each
Subsidiary are in compliance in all material respects with the requirements of
the Americans With Disabilities Act.
(i) WARN Act. Subject to performance by Purchaser of its
obligations as set forth in Section 6.01 and elsewhere, the Company and the
Subsidiaries are in compliance with the requirements of the WARN Act, and have
no liabilities pursuant to the WARN Act based on events occurring prior to the
Closing.
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(j) Employee Numbers. As of the date of this Agreement, the Total
number of people employed by the Company and the Subsidiaries (inclusive of all
employees (i) on leave, disability, vacation or out sick or (ii) terminated with
the expectation of rehire) is approximately 180 full-time, 5 part-time and 15
temporary employees, all of whom are employed at the location specified in
Section 3.20.
SECTION 3.22. Labor Matters. Except as set forth in Section 3.22 of the
Disclosure Schedule, (a) neither the Company nor any Subsidiary is a party to
any collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any Subsidiary and currently there are no
organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit which could affect the Company or
any Subsidiary; (b) there are no controversies, strikes, slowdowns or work
stoppages pending or, to the Seller's knowledge, threatened between the Company
or any Subsidiary and any of their respective employees, and neither the Company
nor any Subsidiary has experienced any such controversy, strike, slowdown or
work stoppage within the past three years; (c) neither the Company nor any
Subsidiary has breached or otherwise failed to comply with the provisions of any
collective bargaining or union contract and there are no grievances outstanding
against the Company or any Subsidiary under any such agreement or contract which
could have a Material Adverse Effect; (d) there are no unfair labor practice
complaints pending against the Company or any Subsidiary before the National
Labor Relations Board or any other Governmental Authority or any current union
representation questions involving employees of the Company or any Subsidiary
which could have a Material Adverse Effect; (e) to Seller's knowledge the
Company and each Subsidiary is currently in material compliance with all
applicable Laws relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by the appropriate Governmental Authority and has
withheld and paid to the appropriate Governmental Authority or is holding for
payment not yet due to such Governmental Authority all amounts required to be
withheld from employees of the Company or any Subsidiary and is not liable for
any arrears of wages, taxes, penalties or other sums for failure to comply with
any of the foregoing; (f) the Company and each Subsidiary has paid in full to
all their respective employees or adequately accrued for in accordance with U.S.
GAAP all wages, salaries, commissions, bonuses, benefits and other compensation
due to or on behalf of such employees; (g) there is no claim with respect to
payment of wages, salary or overtime pay that has been asserted or to Seller's
knowledge is now pending or threatened before any Governmental Authority with
respect to any Persons currently or formerly employed by the Company or any
Subsidiary; (h) neither the Company nor any Subsidiary is a party to, or
otherwise bound by, any consent decree with, or citation by, any Governmental
Authority relating to employees or employment practices; (i) there is no charge
or proceeding with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened with respect to
the Company or any Subsidiary; and j) there is no charge of discrimination in
employment or employment practices, for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or to Seller's knowledge is now pending or threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Authority in any jurisdiction in which the Company or any
Subsidiary has employed or currently employs any Person.
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SECTION 3.23. Taxes.
(a) (i) All returns and reports in respect of Taxes required to
be filed with respect to the Company and each Subsidiary (including the
consolidated federal income tax return of the Seller and any state Tax return
that includes the Company or any Subsidiary on a consolidated or combined basis)
have been timely filed; (ii) all Taxes required to be shown on such returns and
reports or otherwise due have been timely paid; (iii) all such returns and
reports are true, correct and complete in all material respects; (iv) no
adjustment relating to such returns has been proposed formally or informally by
any Tax authority (insofar as either relates to the activities or income of the
Company or any Subsidiary or could result in liability of the Company or any
Subsidiary on the basis of joint and/or several liability) and, to the best
knowledge of the Seller, the Company and the Subsidiaries (after due inquiry),
no basis exists for any such adjustment; (v) there are no pending or, to the
best knowledge of the Seller, the Company and the Subsidiaries (after due
inquiry), threatened actions or proceedings for the assessment or collection of
Taxes against the Company or any Subsidiary or (insofar as either relates to the
activities or income of the Company or any Subsidiary or could result in
liability of the Company or any Subsidiary on the basis of joint and/or several
liability) any corporation that was included in the filing of a return with the
Seller on a consolidated or combined basis; (vi) no consent under Section 341(f)
of the Code has been filed with respect to the Company or any Subsidiary; (vii)
there are no Tax liens on any assets of the Company or any Subsidiary; (viii)
neither the Seller nor any Subsidiary or Affiliate of the Seller is a party to
any agreement or arrangement that would result, separately or in the aggregate,
in the payment of any "excess parachute payments" within the meaning of Section
280G of the Code; (ix) no acceleration of the vesting schedule for any property
that is unvested within the meaning of the regulations under Section 83 of the
Code will occur in connection with the transactions contemplated by this
Agreement; (x) for the last five years, the Company and each Subsidiary has been
and continues to be a member of the affiliated group (within the meaning of
Section 1504(a)(1) of the Code) for which the Seller files a consolidated return
as the common parent, and has not been includible in any other consolidated
return for any taxable period for which the statute of limitations has not
expired; and (xi) neither the Company nor any Subsidiary has been at any time a
member of any partnership or joint venture or the holder of a beneficial
interest in any trust for any period for which the statute of limitations for
any Tax has not expired; and (xii) neither the Company nor any Subsidiary has
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; and (xiii) no claim has ever been made by an
authority in a jurisdiction where any of the Company and its Subsidiaries does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; and (xiv) none of the Company and its Subsidiaries has any
liability for the Taxes of any Person other than the Company and its
Subsidiaries (A) under Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), (B) as a transferee or successor, (C) by contract, or
(D) otherwise.
(b) Except as disclosed with reasonable specificity in Section
3.23 of the Disclosure Schedule: (i) there are no outstanding waivers or
agreements extending the statute of limitations for any period with respect to
any Tax to which the Seller, any affiliate of the Seller, Company or any
Subsidiary may be subject; (ii) neither the Company nor any
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Subsidiary (A) has or is projected to have an amount includible in its income
for the current taxable year under Section 951 of the Code, (B) has been a
passive foreign investment company within the meaning of Section 1296 of the
Code, (C) has an unrecaptured overall foreign loss within the meaning of Section
904(f) of the Code or (D) has participated in or cooperated with an
international boycott within the meaning of Section 999 of the Code; (iii)
neither the Company nor any Subsidiary has any (A) income reportable for a
period ending after the Closing Date but attributable to a transaction (e.g., an
installment sale) or a change in accounting method occurring in or made for a
period ending on or prior to the Closing Date which resulted in a deferred
reporting of income from such transaction or from such change in accounting
method (other than a deferred intercompany transaction), or (B) deferred gain or
loss arising out of any deferred intercompany transaction; (iv) there are no
requests for information currently outstanding that could affect the Taxes of
the Company or any Subsidiary; (v) there are no proposed reassessments of any
property owned by the Company or any Subsidiary or other proposals that could
increase the amount of any Tax to which the Company or any Subsidiary would be
subject; (vi) neither the Company nor any Subsidiary is obligated under any
agreement with respect to industrial development bonds or similar obligations,
with respect to which the excludability from gross income of the holder for
federal income tax purposes could be affected by the transactions contemplated
hereunder; and (vii) no power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes that could affect the
Company or a Subsidiary.
(c) (i) Section 3.23 of the Disclosure Schedule lists all income,
franchise and similar Tax Returns (federal, state, local and foreign) filed with
respect to each of the Company and the Subsidiaries for taxable periods ended on
or after December 31, 1995, indicates for which jurisdictions Returns have been
filed on the basis of a unitary group, indicates the most recent income,
franchise or similar Tax Return for each relevant jurisdiction for which an
audit has been completed or the statute of limitations has lapsed and indicates
all Tax Returns that currently are the subject of audit; (ii) the Seller has
delivered to the Purchaser correct and complete copies of all federal, state,
local and foreign income, franchise and similar tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by the
Company or any Subsidiary since December 31, 1995; (iii) the Seller has
delivered to the Purchaser a true and complete copy of any tax-sharing or
allocation agreement or arrangement involving the Company or any Subsidiary and
a true and complete description of any such unwritten or informal agreement or
arrangement; (iv) Section 3.23 of the Disclosure Schedule sets forth the
following information with respect to each of the Company and the Subsidiaries
as of the most recent practicable date: (A) the tax basis of the Company and the
Subsidiaries in the Assets reflected on the Reference Balance Sheet, (B) the tax
basis of the stockholder(s) of each Subsidiary in its stock (or the amount of
any excess loss account), and (C) the amount of any net operating loss, net
capital loss, unused credit, unused foreign tax, or excess charitable
contribution allocable to each of the Company and the Subsidiaries; and (v) the
Seller has delivered to the Purchaser complete and correct copies of all pro
forma federal income Tax Returns of the Subsidiaries, prepared in connection
with the Seller's or any other consolidated federal income Tax Return,
accompanied by a schedule reconciling the items in the pro forma Return to the
items as included in the consolidated Tax Return for all taxable years ending on
or after December 31, 1995.
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(d) Each of the Company and its Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
SECTION 3.24. Insurance.
(a) Section 3.24(a) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, workers' compensation, and bond and
surety arrangements) under which the Company or any Subsidiary has been an
insured, a named insured or otherwise the principal beneficiary of coverage at
any time within the past three years:
(i) the name, address and telephone number of the agent or
broker;
(ii) the name of the insurer and the names of the principal
insured and each named insured;
(iii) the policy number and the period of coverage;
(iv) the type, scope (including an indication of whether the
coverage was on a claims made, occurrence or other basis) and
amount (including a description of how deductibles, retentions
and aggregates are calculated and operate) of coverage; and
(v) the premium charged for the policy, including, without
limitation, a description of any retroactive premium adjustments
or other loss-sharing arrangements.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding and enforceable in accordance with its terms and, except
for policies that have expired under their terms in the ordinary course, is in
full force and effect; (ii) neither the Company nor any Subsidiary is in breach
or default (including any breach or default with respect to the payment of
premiums or the giving of notice), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default or permit
termination or modification, under the policy; and (iii) no party to the policy
has repudiated, or given notice of an intent to repudiate, any provision
thereof.
(c) At no time since December 31, 1995 has the Company or any
Subsidiary (i) been denied any insurance or indemnity bond coverage which it has
requested, (ii) made any material reduction in the scope or amount of its
insurance coverage, or, except as set forth in Section 3.24(e) of the Disclosure
Schedule, received notice from any of its insurance carriers that any insurance
premiums will be subject to increase in an amount materially disproportionate to
the amount of the increases with respect thereto (or with respect to similar
insurance) in prior years or that any insurance coverage listed in Section
3.24(a) of the Disclosure Schedule will not be available in the future
substantially on the same terms as are now in effect or (iii) suffered any
extraordinary increase in premium for renewed coverage. Since December 1995, no
insurance carrier has cancelled, failed to
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renew or materially reduced any insurance coverage for the Company or any
Subsidiary or given any notice or other indication of its intention to cancel,
not renew or reduce any such coverage.
(d) No insurance policy listed in Section 3.24(a) of the
Disclosure Schedule will cease to be legal, valid, binding, enforceable in
accordance with its terms and in full force and effect on terms identical to
those in effect as of the date hereof as a result of the consummation of the
transactions contemplated by this Agreement. No representation is made regarding
the availability of continued coverage for the Company on policies where it is
jointly covered with Seller.
SECTION 3.25. Accounts; Lockboxes; Safe Deposit Boxes; Powers of
Attorney. Section 3.25 of the Disclosure Schedule is a true and complete list of
(a) the names of each bank, savings and loan association, securities or
commodities broker or other financial institution in which the Company or any
Subsidiary has an account, including cash contribution accounts, and the names
of all persons authorized to draw thereon or have access thereto, (b) the
location of all lockboxes and safe deposit boxes of the Company and each
Subsidiary and the names of all Persons authorized to draw thereon or have
access thereto and (c) the names of all Persons, if any, holding powers of
attorney from the Seller or the Parent relating to the Company, any Subsidiary
or the Business, or from the Company or any Subsidiary. At the time of the
Closing, without the prior written consent of the Purchaser, neither the Company
nor any Subsidiary shall have any such account, lockbox or safe deposit box
other than those listed in Section 3.25 of the Disclosure Schedule, nor shall
any additional Person have been authorized, from the date of this Agreement, to
draw thereon or have access thereto or to hold any such power of attorney
relating to the Company, any Subsidiary or the Business or from the Company or
any Subsidiary. Since the Reference Balance Sheet Date, except as disclosed in
Section 3.25 of the Disclosure Schedule or to the extent permitted under Section
5.01(iv), the Seller has not commingled monies or accounts of the Company or any
Subsidiary with other monies or accounts of the Seller or relating to its other
businesses nor has the Seller transferred monies or accounts of the Company or
any Subsidiary other than to an account of the Company or such Subsidiary. At
the time of the Closing, all monies and accounts of the Company and each
Subsidiary shall be held by, and be accessible only to, the Company or such
Subsidiary.
SECTION 3.26. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Seller or the Parent or, to the Seller's knowledge,
the Company.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Seller and the Parent to enter into this
Agreement, the Purchaser hereby represents and warrants to the Seller and the
Parent as follows:
SECTION 4.01. Organization and Authority of the Purchaser. The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all necessary corporate power
and authority to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Purchaser, the performance by the
Purchaser of its obligations hereunder and the consummation by the Purchaser of
the transactions contemplated hereby have been duly authorized by all requisite
action on the part of the Purchaser. This Agreement has been duly executed and
delivered by the Purchaser, and (assuming due authorization, execution and
delivery by the Seller and the Parent) this Agreement constitutes, the legal,
valid and binding obligation of the Purchaser enforceable against the Purchaser
in accordance with its terms.
SECTION 4.02. No Conflict. Assuming compliance with the notification
requirements of the HSR Act and the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 4.03, except as may result from any facts or circumstances relating
solely to the Seller, the execution, delivery and performance of this Agreement
by the Purchaser do not and will not (a) violate, conflict with or result in the
breach of any provision of the Certificate of Incorporation or By-laws of the
Purchaser, (b) conflict with or violate any Law or Governmental Order applicable
to the Purchaser or (c) conflict with, or result in any breach of, constitute a
default (or event which with the giving of notice or lapse or time, or both,
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation, or
cancellation of, or result in the creation of any Encumbrance on any of the
assets or properties of the Purchaser pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument or arrangement to which the Purchaser is a party or by which
any of such assets or properties are bound or affected which would have a
material adverse effect on the ability of the Purchaser to consummate the
transactions contemplated by this Agreement.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by the Purchaser do not and will not
require any consent, approval, authorization or other order of, action by,
filing with, or notification to, any Governmental Authority, except (a) as
described in a writing given to the Seller by the Purchaser on the date of this
Agreement and (b) the notification requirements of the HSR Act.
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SECTION 4.04. Investment Purpose. The Purchaser is acquiring the Shares
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof.
SECTION 4.05. Litigation. Except as disclosed in a writing given to the
Seller by the Purchaser on the date of this Agreement, no claim, action,
proceeding or investigation is pending or, to the knowledge of the Purchaser,
threatened, which seeks to delay or prevent the consummation of, or which would
be reasonably likely to materially adversely affect the Purchaser's ability to
consummate, the transactions contemplated by this Agreement.
SECTION 4.06. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing.
(a) The Seller and the Parent each covenants and agrees that,
except as described in Section 5.01(a) of the Disclosure Schedule and except
that prior to Closing the Company will release the Seller from any obligation to
repay Indebtedness in an amount not to exceed $18,500,000 owed by the Seller or
its Affiliates to the Company reflected on the Reference Balance Sheet or
incurred since the date thereof in the ordinary course of business consistent
with past practice, between the date thereof and the time of the Closing, none
of the Seller, the Parent, the Company nor any Subsidiary shall conduct its
business other than in the ordinary course and consistent with the Company's and
such Subsidiary's prior practice, except for the transfer of the Real Property
contemplated in Section 8.02(n) and the transfer of the accounting computer
system and software referred to in Section 5.11. Without limiting the generality
of the foregoing, except as described in Section 5.01(a) of the Disclosure
Schedule, the Seller and the Parent each shall not cause the Company and each
Subsidiary to (i) fail to continue its advertising and promotional activities,
and pricing and purchasing policies, in accordance with past practice; (ii)
shorten or lengthen the customary payment cycles for any of its payables or
receivables; (iii) fail to (A) preserve intact their business organizations and
the business organization of the Business, (B) keep available to the Purchaser
the services of the Transferred Employees, (C) fail to continue in full force
and effect without material modification all existing policies or binders of
insurance currently maintained in respect of the Company, each Subsidiary and
the Business and (D) fail to preserve its current relationships with its
customers, suppliers and other persons with which it has significant business
relationships; (iv) transfer any cash out of the Company or the Subsidiaries,
except for reimbursements to the Seller of usual and customary third party costs
(including income taxes in the ordinary course of business) expended by the
Seller on behalf of the business consistent with past practice, each of which
costs shall be identified and
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explained to the Purchaser in writing; and (v) engage in any practice, take any
action, fail to take any action or enter into any transaction which could cause
any representation or warranty of the Seller or the Parent to be untrue or
result in a breach of any covenant made by the Seller or the Parent in this
Agreement.
(b) Except as described in Section 5.01(b) of the Disclosure
Schedule, the Seller covenants and agrees that, prior to the Closing, without
the prior written consent of the Purchaser, neither the Company nor any
Subsidiary will do any of the things enumerated in the second sentence of
Section 3.13 (including, without limitation, clauses (i) through (xxviii)
thereof).
(c) For the period from the date hereof through the time of the
Closing, the Seller and the Parent each covenants and agrees to cause the
Company and each Subsidiary to maintain the level, mix and quality of the
Inventories consistent with the past practice of the Business.
SECTION 5.02. Access to Information.
(a) From the date hereof until the Closing, upon reasonable
notice, the Seller and the Parent each shall cause the Company and the
Subsidiaries and each of the Company's and the Subsidiaries' officers,
directors, employees, agents, representatives, accountants and counsel to: (i)
afford the officers, employees and authorized agents, accountants, counsel,
financing sources and representatives of the Purchaser complete and unrestricted
access (to the extent permitted by U.S. government security restrictions),
during normal business hours, to the offices, properties, plants, other
facilities, books and records of the Company and each Subsidiary and to those
officers, directors, employees, agents, accountants and counsel of the Company
and of each Subsidiary who have any knowledge relating to the Company, any
Subsidiary or the Business and (ii) furnish to the officers, employees and
authorized agents, accountants, counsel, financing sources and representatives
of the Purchaser such additional financial and operating data and other
information regarding the assets, properties and goodwill of the Company, the
Subsidiaries and the Business (or legible copies thereof) as the Purchaser may
from time to time request.
(b) In order to facilitate the resolution of any claims made
against or incurred by the Seller prior to the Closing, for a period of seven
years after the Closing, the Purchaser shall (i) retain the books and records of
the Company and the Subsidiaries relating to periods prior to the Closing in a
manner reasonably consistent with the prior practice of the Company and the
Subsidiaries and (ii) upon reasonable notice, afford the officers, employees and
authorized agents and representatives of the Seller reasonable access (including
the right to make, at the Seller's expense, photocopies), during normal business
hours, to such books and records.
(c) In order to facilitate the resolution of any claims made by
or against or incurred by the Purchaser, the Company or any Subsidiary after the
Closing or for any other reasonable purpose, for a period of seven years
following the Closing, the Seller and the Parent shall (i) retain the books and
records of the Seller and the Parent, as the case may be,
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which relate to the Company and the Subsidiaries and their operations for
periods prior to the Closing and which shall not otherwise have been delivered
to the Purchaser, the Company or any Subsidiary and (ii) upon reasonable notice,
afford the officers, employees and authorized agents and representatives of the
Purchaser, the Company or any Subsidiary reasonable access (including the right
to make photocopies, at the expense of the Purchaser, the Company or such
Subsidiary), during normal business hours, to such books and records.
SECTION 5.03. Confidentiality. The Seller and the Parent each agrees
to, and shall cause its agents, representatives, Affiliates, employees, officers
and directors to: (i) treat and hold as confidential (and not disclose or
provide access to any Person to) all information relating to trade secrets,
processes, patent and trademark applications, product development, price,
customer and supplier lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Business, the Company and each Subsidiary, (ii) in the event that the Seller or
the Parent each or any such agent, representative, Affiliate, employee, officer
or director becomes legally compelled to disclose any such information, provide
the Purchaser with prompt written notice of such requirement so that the
Purchaser, the Company or any Subsidiary may seek a protective order or other
remedy or waive compliance with this Section 5.03, (iii) in the event that such
protective order or other remedy is not obtained, or the Purchaser waives
compliance with this Section 5.03, furnish only that portion of such
confidential information which is legally required to be provided and exercise
its best efforts to obtain assurances that confidential treatment will be
accorded such information, (iv) promptly furnish (prior to, at, or as soon as
practicable following, the Closing) to the Company or the Purchaser any and all
copies (in whatever form or medium) of all such confidential information then in
the possession of the Seller or the Parent each or any of its agents,
representatives, Affiliates, employees, officers and directors and, except as
otherwise required by Section 5.02(c), destroy any and all additional copies
then in the possession of the Seller or the Parent each or any of its agents,
representatives, Affiliates, employees, officers and directors of such
information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
this sentence shall not apply to any information that, at the time of
disclosure, is available publicly and was not disclosed in breach of this
Agreement by the Seller or the Parent each, its agents, representatives,
Affiliates, employees, officers or directors; provided further that, with
respect to Intellectual Property, specific information shall not be deemed to be
within the foregoing exception merely because it is embraced in general
disclosures in the public domain. In addition, with respect to Intellectual
Property, any combination of features shall not be deemed to be within the
foregoing exception merely because the individual features are in the public
domain unless the combination itself and its principle of operation are in the
public domain. The Seller and the Parent each agrees and acknowledges that
remedies at law for any breach of its obligations under this Section 5.03 are
inadequate and that in addition thereto the Purchaser shall be entitled to seek
equitable relief, including injunction and specific performance, in the event of
any such breach.
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SECTION 5.04. Regulatory and Other Authorizations; Notices and
Consents.
(a) The Seller and the Parent each shall use its best efforts to
obtain (or cause the Company and the Subsidiaries to obtain) all authorizations,
consents, orders and approvals of all Governmental Authorities and officials
that may be or become necessary for its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement and will cooperate
fully with the Purchaser in promptly seeking to obtain all such authorizations,
consents, orders and approvals. Each party hereto agrees to make an appropriate
filing, if necessary, pursuant to the HSR Act with respect to the transactions
contemplated by this Agreement as promptly as practicable after, but in any
event within ten Business Days of, the date hereof and to supply as promptly as
practicable to the appropriate Governmental Authorities any additional
information and documentary material that may be requested pursuant to the HSR
Act.
(b) The Seller and the Parent each shall or shall cause the
Company and the Subsidiaries to give promptly such notices to third parties and
use its or their best efforts to obtain such third party consents and estoppel
certificates as the Purchaser may in its sole and absolute discretion deem
necessary or desirable in connection with the transactions contemplated by this
Agreement.
(c) The Purchaser shall cooperate and use all reasonable efforts
to assist the Seller and the Parent in giving such notices and obtaining such
consents and estoppel certificates; provided, however, that the Purchaser shall
have no obligation to give any guarantee or other consideration of any nature in
connection with any such notice, consent or estoppel certificate or to consent
to any change in the terms of any agreement or arrangement which the Purchaser
in its sole and absolute discretion may deem adverse to the interests of the
Purchaser, the Company, any Subsidiary or the Business.
(d) Neither the Seller nor the Parent knows of no reason why all
the consents, approvals and authorizations necessary for the consummation of the
transactions contemplated hereby will not be received.
(e) The Seller, the Parent and the Purchaser agree that, in the
event any consent, approval or authorization necessary or desirable to preserve
for the Business, the Company or any Subsidiary any right or benefit under any
lease, license, contract, commitment or other agreement or arrangement to which
the Seller, the Company or any Subsidiary is a party is not obtained prior to
the Closing, the Seller and the Parent each will, subsequent to the Closing,
cooperate with the Purchaser and the Company in attempting to obtain such
consent, approval or authorization as promptly thereafter as practicable. If
such consent, approval or authorization cannot be obtained, the Seller and the
Parent each shall use its best efforts to provide the Company or such
Subsidiary, as the case may be, with the rights and benefits of the affected
lease, license, contract, commitment or other agreement or arrangement for the
term of such lease, license, contract or other agreement or arrangement, and, if
the Seller or the Parent provides such rights and benefits, the Company or such
Subsidiary, as the case may be, shall assume the obligations and burdens
thereunder.
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(f) The Seller and the Parent shall cause the Company and the
Subsidiaries to be released from all guarantees of the obligations of the
Seller, the Parent and the Affiliates of either.
SECTION 5.05. Notice of Developments. Prior to the Closing, the Seller
shall promptly notify the Purchaser in writing of (i) all events, circumstances,
facts and occurrences arising subsequent to the date of this Agreement which
could result in any breach of a representation or warranty or covenant of the
Seller in this Agreement or which could have the effect of making any
representation or warranty of the Seller in this Agreement untrue or incorrect
in any respect and (ii) all other material developments affecting the assets,
Liabilities, business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Company, any Subsidiary or the Business.
SECTION 5.06. No Solicitation or Negotiation. The Seller and the Parent
agrees that between the date of this Agreement and the earlier of (i) the
Closing and (ii) the termination of this Agreement, none of the Seller, the
Parent, the Company, the Subsidiaries nor any of their respective Affiliates,
officers, directors, representatives or agents will (a) solicit, initiate,
consider, encourage or accept any other proposals or offers from any Person (i)
relating to any acquisition or purchase of all or any portion of the capital
stock of the Company or any Subsidiary or assets of the Company or any
Subsidiary (other than Inventory to be sold in the ordinary course of business
consistent with past practice), (ii) to enter into any business combination with
the Company or any Subsidiary or (iii) to enter into any other extraordinary
business transaction involving or otherwise relating to the Company or any
Subsidiary, or (b) participate in any discussions, conversations, negotiations
and other communications regarding, or furnish to any other Person any
information with respect to, or otherwise cooperate in any way, assist or
participate in, facilitate or encourage any effort or attempt by any other
Person to seek to do any of the foregoing. The Seller and the Parent each
immediately shall cease and cause to be terminated all existing discussions,
conversations, negotiations and other communications with any Persons conducted
heretofore with respect to any of the foregoing. The Seller and the Parent each
shall notify the Purchaser promptly if any such proposal or offer, or any
inquiry or other contact with any Person with respect thereto, is made and
shall, in any such notice to the Purchaser, indicate in reasonable detail the
identity of the Person making such proposal, offer, inquiry or contact and the
terms and conditions of such proposal, offer, inquiry or other contact. The
Seller and the Parent each agrees not to, and to cause the Company and each
Subsidiary not to, without the prior written consent of the Purchaser, release
any Person from, or waive any provision of, any confidentiality or standstill
agreement to which the Seller, the Parent, the Company or any Subsidiary is a
party.
SECTION 5.07. Use of Intellectual Property.
(a) The Seller and the Parent each acknowledges that from and
after the Closing, the name "Dorne & Margolin" and "DM/CHU Technology" and all
similar or related names, marks and logos (all of such names, marks and logos
being the "Names") shall be owned by the Company or a Subsidiary, that neither
the Seller nor any of its
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Affiliates shall have any rights in the Names, and that neither the Seller nor
any of its Affiliates will contest the ownership or validity of any rights of
the Purchaser, the Company or any Subsidiary in or to the Names.
(b) From and after the Closing, none of the Seller, the Parent
nor any of its Affiliates shall use any of the Owned Intellectual Property or
any of the Licensed Intellectual Property.
SECTION 5.08. Non-Competition.
(a) For a period of three (3) years after the Closing (the
"Restricted Period"), each of the Seller and the Parent shall not engage,
directly or indirectly, in any business anywhere in the world that manufactures,
produces or supplies products or services of the kind manufactured, produced or
supplied by the Business, the Company or any Subsidiary as of the Closing Date
or, without the prior written consent of the Purchaser, directly or indirectly,
own an interest in, manage, operate, join, control, lend money or render
financial or other assistance to or participate in or be connected with, as an
officer, employee, partner, stockholder, consultant or otherwise, any Person
that competes with the Purchaser, the Business, the Company or any Subsidiary in
manufacturing, producing or supplying products or services of the kind
manufactured, produced or supplied by the Business, the Company or any
Subsidiary as of the Closing; provided, however, that, for the purposes of this
Section 5.08, ownership of securities having no more than three percent of the
outstanding voting power of any competitor which are listed on any national
securities exchange or traded actively in the national over-the-counter market
shall not be deemed to be in violation of this Section 5.08 so long as the
Person owning such securities has no other connection or relationship with such
competitor.
(b) As a separate and independent covenant, the Seller and the
Parent each agrees with the Purchaser that, for a period of three (3) years
following the Closing, the Seller and the Parent each will not in any way,
directly or indirectly, for the purpose of conducting or engaging in any
business that manufactures, produces or supplies products or services of the
kind manufactured, produced or supplied by the Business, the Company or any
Subsidiary as of the Closing, call upon, solicit, advise or otherwise do, or
attempt to do, business with any customers of the Business, the Company or any
Subsidiary with whom the Business, the Company, any Subsidiary or the Seller or
the Parent had any dealings during the period of time in which the Company was
an Affiliate of the Seller and the Parent, or take away or interfere or attempt
to interfere with any custom, trade, business or patronage of the Business, the
Company or any Subsidiary, or interfere with or attempt to interfere with any
officers, employees, representatives or agents of the Business, the Company or
any Subsidiary, or induce or attempt to induce any of them to leave the employ
of the Company or any Subsidiary or violate the terms of their contracts, or any
employment arrangements, with the Company or any Subsidiary.
(c) The Restricted Period shall be extended by the length of any
period during which the Seller is in breach of the terms of this Section 5.08.
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(d) The parties further acknowledge that the time, scope,
geographic area and other provisions of Section 5.08 have been specifically
negotiated by sophisticated commercial parties and agree that all such
provisions are reasonable under the circumstances of the transactions
contemplated by this Agreement. In the event that agreements in Section 5.08
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of their extending for too great a period of time or over too great a
geographical area or by reason of their being too extensive in any other
respect, they shall be interpreted to extend only over the maximum period of
time for which they may be enforceable and/or over the maximum geographical area
as to which they may be enforceable and/or to the maximum extent in all other
respects as to which they may be enforceable, all as determined by such court in
such action.
(e) The existence of any claim or cause of action which any party
may have against another party shall not constitute a defense or bar to the
enforcement of any of the provisions of this Section 5.08, but such claim or
cause of action may be pursued through separate court action by such party.
(f) The Seller and the Parent acknowledges that the covenants of
the Seller and the Parent set forth in this Section 5.08 are an essential
element of this Agreement and that, but for the agreement of the Seller and the
Parent each to comply with these covenants, the Purchaser would not have entered
into this Agreement. The Seller and the Parent each acknowledges that this
Section 5.08 constitutes an independent covenant and shall not be affected by
performance or nonperformance of any other provision of this Agreement by the
Purchaser. The Seller and the Parent have independently consulted with their
counsel and after such consultation agrees that the covenants set forth in this
Section 5.08 are reasonable and proper.
SECTION 5.09. Release of Indemnity Obligations. The Seller and the
Parent each covenants and agrees, on or prior to the Closing, to execute and
deliver to the Company, for the benefit of the Company and each Subsidiary, a
general release and discharge, in form and substance satisfactory to the
Purchaser releasing and discharging the Company and each Subsidiary from any and
all obligations to indemnify the Seller, the Parent or their Affiliates or
otherwise hold any of them harmless pursuant to any agreement or other
arrangement entered into prior to the Closing; provided, however, that such
release shall not be deemed to affect the right of the transferee of the Real
Property who is an Affiliate of the Seller or the Parent, to pursue a claim
under the Company's insurance for any matter covered by insurance to the extent
of such coverage.
SECTION 5.10. Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable Law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement.
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SECTION 5.11. Transfer of Business. Promptly after the Closing, the
Purchaser will move (at the Purchaser's cost) all the Assets of the Business
(including the test range but exclusive of the single accounting computer system
and the software related exclusively thereto) to the Purchaser's Deer Park, New
York facility. The Seller will cooperate in all respects with such transfer.
Such move is to be completed within 60 days of the Closing and during the period
of continued occupancy the Purchaser shall be responsible for all costs of
occupancy. At the termination of such occupancy, the premises will be left
"broom clean". If such occupancy extends beyond 60 days, the Purchaser shall pay
the Seller during the continued occupancy, which will continue thereafter as a
month-to-month tenancy, rent on a "triple net basis" at the rate of $400,000 per
annum.
SECTION 5.12. Unaudited Financial Statements. The Seller will, and the
Parent will cause the Seller to, deliver to the Purchaser monthly unaudited
financial statements of the Company and the Subsidiaries as promptly as possible
after the end of each calendar month, which financial statements will be
accompanied by a certificate of each the Seller's and the Parent's chief
financial officers certifying that they: (i) were prepared in accordance with
the books of account and other financial records of the Company, (ii) present
fairly the consolidated financial condition and results of operations of the
Company and the Subsidiaries as of the dates thereof or for the periods covered
thereby,(iii) have been prepared in accordance with U.S. GAAP applied on a basis
consistent with the past practices of the Seller, the Parent and the Company and
(iv) include all adjustments (consisting only of normal recurring accruals) that
are necessary for a fair presentation of the consolidated financial condition of
the Company and the Subsidiaries and the results of the operations of the
Company and the Subsidiaries as of the dates thereof or for the periods covered
thereby.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Transferred Employees. Commencing on the Closing Date,
the Purchaser agrees to provide, or to cause the Companies or the Subsidiaries
to provide, the Transferred Employees with terms and conditions of employment,
including, without limitation, wages and employee benefits that in the aggregate
are reasonably equivalent to, and generally no less favorable than, those
provided by the Company to the Transferred Employees immediately prior to
Closing. Purchaser agrees to maintain such terms and conditions for not less
than 90 days. In the event Purchaser or the Company or any of the Subsidiaries
separates from employment any of the Transferred Employees, or any other
employee, at any time subsequent to the Closing such as to trigger or give rise
to an obligation on the part of the Company or any of the Subsidiaries to
provide, or to have provided, including, without limitation, at a date prior to
the Closing, advance notice under or pursuant to the WARN Act, such notice
obligation, and any obligation, relating thereto, including, without limitation,
back pay, attorneys' fees, interest, penalties, or fines, shall be the sole
responsibility of Purchaser and Purchaser shall indemnify Seller with respect
thereto. Without limiting the foregoing, prior to the Closing the Seller shall
cause the Company to satisfy the obligations of the Company under the bonus plan
to the extent accrued for on the
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Reference Balance Sheet or accrued after the date thereof per the formula
specified in such bonus plan, all in an amount not to exceed $200,000 in the
aggregate.
SECTION 6.02. Non-Transferred Employees. Prior to the Closing the
Seller or the Parent will either terminate all Non-Transferred Employees or
transfer them to the Seller or its Affiliates (other than the Company or the
Subsidiaries). The Seller or the Parent (and not the Company or any Subsidiary)
will pay and be responsible for all costs and expenses (including but not
limited to severance, pension, and post-retirement healthcare costs) related to
or arising from the transfer or termination of the Non-Transferred Employees.
The Company and not the Seller will be responsible for other accrued employee
benefit expenses related to the Non-Transferred Employees. To the extent any
claims in respect of such costs and expenses are made against the Purchaser, the
Company, any Subsidiary or any of their Affiliates after Closing, the Seller and
the Parent will fully indemnify the Purchaser against, and promptly reimburse
the Purchaser for any Losses resulting from, such claims. The Seller and the
Parent jointly and severally will be solely responsible for all change in
control payments, if any, relating to the transactions contemplated hereby,
whether payable to Transferred Employees or Non-Transferred Employees, and will
fully indemnify the Purchaser against, and promptly reimburse the Purchaser for
any Losses resulting from, claims arising from such payments. Purchaser agrees
to select the Transferred Employees in compliance with applicable laws and
regulations, and to defend and indemnify the Seller and the Parent from and
against any claim to the extent resulting from such selection.
SECTION 6.03. WARN Act Information. Between the date of this Agreement
and the Closing Date, each party to this Agreement will promptly notify the
other parties hereto of any events or changes (including changes in the number
of employees employed by the Company and the Subsidiaries) that reasonably could
result in WARN Act obligations or liabilities for any of the parties to this
Agreement.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Indemnity.
(a) The Parent agrees to indemnify and hold harmless the
Purchaser, the Company and each Subsidiary against the following income and real
estate Taxes (except to the extent current taxes on income in respect of the
current year, which, to the extent unpaid on the Closing Date, shall be paid to
Seller by the Purchaser at an imputed rate of 34% (but only to the extent that
such taxes are accrued for on the Reference Balance Sheet and accrued after the
date thereof in ordinary course of business consistent with past practice and
the Parent, on its income tax returns to the federal government for the current
year (which tax returns will be prepared on a basis consistent with past tax
returns of the Parent) makes actual tax payments in respect of the Business),
and, except as otherwise provided in Section 7.04, against any loss, damage,
liability or expense, including reasonable fees for attorneys and other outside
consultants, incurred in contesting or otherwise in connection with any such
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income and real estate Taxes: (i) income and real estate Taxes imposed on the
Company or any Subsidiary with respect to taxable periods of such Person ending
on or before the Closing Date; (ii) with respect to taxable periods beginning
before the Closing Date and ending after the Closing Date, income and real
estate Taxes imposed on the Company or any Subsidiary which are allocable,
pursuant to Section 7.01(b), to the portion of such period ending on the Closing
Date; (iii) income and real estate Taxes imposed on or with respect to any
member of any affiliated group with which any of the Company and the
Subsidiaries file or have filed a Return on a consolidated or combined basis for
a taxable period ending on or before the Closing Date or which includes the
Closing Date; and (iv) income and real estate Taxes imposed on the Purchaser or
the Company or any Subsidiary as a result of any breach of warranty or
misrepresentation under Section 3.23. The Purchaser shall be responsible for
Taxes and associated expenses not allocated to the Seller pursuant to the
preceding sentence hereof. It is agreed that Purchaser shall not make an
election permitted by Section 338 of the Code.
(b) In the case of Taxes that are payable with respect to a
taxable period that begins before the Closing Date and ends after the Closing
Date, the portion of any such Tax that is allocable to the portion of the period
ending on the Closing Date shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible) (other than conveyances pursuant to this
Agreement, which are covered under Section 7.07), deemed equal to the
amount which would be payable if the taxable period ended with the
Closing Date; and
(ii) in the case of Taxes imposed on a periodic basis with
respect to the assets of the Company or any Subsidiary, or otherwise
measured by the level of any item, deemed to be the amount of such
Taxes for the entire period (or, in the case of such Taxes determined
on an arrears basis, the amount of such Taxes for the immediately
preceding period) multiplied by a fraction the numerator of which is
the number of calendar days in the period ending on the Closing Date
and the denominator of which is the number of calendar days in the
entire period.
SECTION 7.02. Returns and Payments. From the date of this Agreement
through and after the Closing Date, the Seller or the Parent shall prepare and
file or otherwise furnish in proper form to the appropriate Governmental
Authority (or cause to be prepared and filed or so furnished) in a timely manner
all Tax returns, reports and forms ("Returns") relating to the Company and the
Subsidiaries that are due on or before or relate to any taxable period ending on
or before the Closing Date (and the Purchaser shall do the same with respect to
any taxable period ending after the Closing Date). Returns of the Company and
the Subsidiaries not yet filed for any taxable period that begins before the
Closing Date shall be prepared in a manner consistent with past practices
employed with respect to the Company and the Subsidiaries (except to the extent
counsel for the Seller, the Parent or the Company renders a legal opinion that
there is no reasonable basis in law therefor or determines that a Return cannot
be so prepared and filed without being subject to
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penalties). With respect to any Return required to be filed by the Purchaser,
the Parent or the Seller with respect to the Company and the Subsidiaries and as
to which an amount of Tax is allocable to the other party under Section 7.01(b),
the filing party shall provide the other party and its authorized
representatives with a copy of such completed Return and a statement certifying
the amount of Tax shown on such Return that is allocable to such other party
pursuant to Section 7.01(b), together with appropriate supporting information
and schedules, at least 20 Business Days prior to the due date (including any
extension thereof) for the filing of such Return, and such other party and its
authorized representatives shall have the right to review and comment on such
Return and statement prior to the filing of such Return.
SECTION 7.03. Refunds. Any Tax refund (including any interest with
respect thereto) relating to the Company or any Subsidiary for any taxable
period ending on or before the Closing Date (except for any refund included on
the Reference Balance Sheet, which shall be the property of the Purchaser and if
paid to the Seller or the Parent, shall be paid over promptly to the Purchaser)
shall be the property of the Seller or the Parent, and if received by the
Purchaser or the Company or any Subsidiary shall be paid over promptly to the
Seller or the Parent. Notwithstanding the foregoing sentence, any Tax refund (or
equivalent benefit to the Seller through a reduction in Tax liability)
(including any interest with respect thereto) for a period on or before the
Closing Date arising out of the carryback of a loss or credit incurred by the
Company or any Subsidiary in a taxable year ending after the Closing Date shall
be the property of the Purchaser and, if received by the Seller or the Parent,
shall be paid over promptly to the Purchaser.
SECTION 7.04. Contests.
(a) After the Closing, the Purchaser shall promptly notify the
Seller in writing of any written notice of a proposed assessment or claim in an
audit or administrative or judicial proceeding of the Purchaser or of any of the
Company and the Subsidiaries which, if determined adversely to the taxpayer,
would be grounds for indemnification under this Article VII; provided, however,
that a failure to give such notice will not affect the Purchaser's right to
indemnification under this Article VII except to the extent, if any, that, but
for such failure, the Seller or the Parent could have avoided all or a portion
of the Tax liability in question.
(b) In the case of an audit or administrative or judicial
proceeding that relates to periods ending on or before the Closing Date,
provided that the Seller acknowledges in writing its liability under this
Agreement to hold the Purchaser, the Company and the Subsidiaries harmless
against the full amount of any adjustment which may be made as a result of such
audit or proceeding that relates to periods ending on or before the Closing Date
(or, in the case of any taxable year that includes the Closing Date, against an
adjustment allocable under Section 7.01(b) to the portion of such year ending on
or before the Closing Date), the Seller and the Parent each shall have the right
at its expense to participate in and control the conduct of such audit or
proceeding but only to the extent that such audit or proceeding relates solely
to a potential adjustment for which the Seller and the Parent each has
acknowledged its liability; the Purchaser also may participate in any such
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audit or proceeding and, if the Seller or the Parent does not assume the defense
of any such audit or proceeding, the Purchaser may defend the same in such
manner as it may deem appropriate, including, but not limited to, settling such
audit or proceeding after giving five days' prior written notice to the Seller
or the Parent setting forth the terms and conditions of settlement. In the event
that issues relating to a potential adjustment for which the Seller and the
Parent each has acknowledged its liability are required to be dealt with in the
same proceeding as separate issues relating to a potential adjustment for which
the Purchaser would be liable, the Purchaser shall have the right, at its
expense, to control the audit or proceeding with respect to the latter issues.
(c) With respect to issues relating to a potential adjustment for
which both the Seller and/or the Parent (as evidenced by its acknowledgment
under this Section 7.04) and the Purchaser or the Company or any Subsidiary
could be liable, (i) each party may participate in the audit or proceeding, and
(ii) the audit or proceeding shall be controlled by that party which would bear
the burden of the greater portion of the sum of the adjustment and any
corresponding adjustments that may reasonably be anticipated for future Tax
periods. The principle set forth in the immediately preceding sentence shall
govern also for purposes of deciding any issue that must be decided jointly
(including, without limitation, choice of judicial forum) in situations in which
separate issues are otherwise controlled under this Article VII by the Purchaser
and the Seller and/or the Parent.
(d) None of the Purchaser, the Parent or the Seller shall enter
into any compromise or agree to settle any claim pursuant to any Tax audit or
proceeding which would adversely affect the other party for such year or a
subsequent year without the written consent of the other party, which consent
may not be unreasonably withheld. The Purchaser, the Parent and the Seller agree
to cooperate, and the Purchaser agrees to cause the Company and the Subsidiaries
to cooperate, in the defense against or compromise of any claim in any audit or
proceeding.
SECTION 7.05. Time of Payment. Payment by the Seller or the Parent of
any amounts due under this Article VII in respect of Taxes shall be made (i) at
least three Business Days before the due date of the applicable estimate,
extension or Return required to be filed by the Purchaser on which is required
to be reported income for a period ending after the Closing Date for which the
Seller or the Parent is responsible under Sections 7.01(a) and 7.01(b) without
regard to whether the Return shows overall net income or loss for such period,
and (ii) within three Business Days following an agreement between the Seller or
the Parent and the Purchaser that an indemnity amount is payable, an assessment
of a Tax by a taxing authority, or a "determination" as defined in Section
1313(a) of the Code. If liability under this Article VII is in respect of costs
or expenses other than Taxes, payment by the Seller or the Parent of any amounts
due under this Article VII shall be made within five Business Days after the
date when the Seller or the Parent has been notified by the Purchaser that the
Seller or the Parent has a liability for a determinable amount under this
Article VII and is provided with calculations or other materials supporting such
liability.
SECTION 7.06. Cooperation and Exchange of Information. The Seller, the
Parent and the Purchaser will provide each other with such cooperation and
information as
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any of them reasonably may request of the other in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes, participating in or conducting any audit or other proceeding in
respect of Taxes or making representations to or furnishing information to
parties subsequently desiring to purchase any of the Company or the Subsidiaries
or any part of the Business from the Purchaser. Such cooperation and information
shall include providing copies of relevant Returns or portions thereof, together
with accompanying schedules, related work papers and documents relating to
rulings or other determinations by Tax authorities. The Seller and the Parent
shall make its employees available on a basis mutually convenient to both
parties to provide explanations of any documents or information provided
hereunder. Each of the Seller and the Purchaser shall retain all Returns,
schedules and work papers, records and other documents in its possession
relating to Tax matters of the Company and the Subsidiaries for each taxable
period first ending after the Closing Date and for all prior taxable periods
until the later of (i) the expiration of the statute of limitations of the
taxable periods to which such Returns and other documents relate, without regard
to extensions except to the extent notified by the other party in writing of
such extensions for the respective Tax periods, or (ii) six years following the
due date (without extension) for such Returns. The Seller, the Parent and the
Purchaser agree to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, the Purchaser and its Subsidiaries or the Seller or the
Parent, as the case may be, shall allow the other party to take possession of
such books and records. Any information obtained under this Section 7.06 shall
be kept confidential in accordance with Section 5.02 except as may be otherwise
necessary in connection with the filing of Returns or claims for refund or in
conducting an audit or other proceeding.
SECTION 7.07. Conveyance Taxes. The Seller and the Parent shall be
jointly and severally liable for and shall hold the Purchaser harmless against
any real property transfer, sales, use, transfer, value added, stock transfer,
and stamp taxes, any transfer, recording, registration, and other fees, and any
similar Taxes which become payable in connection with the transactions
contemplated by this Agreement, and shall prepare and file such applications and
documents as shall permit any such Tax to be assessed and paid on or prior to
the Closing Date in accordance with any available pre-sale filing procedure. The
Purchaser, upon request by the Seller or the Parent and as required by Law,
shall execute and deliver all instruments and certificates necessary to enable
the Seller or the Parent to comply with the foregoing.
SECTION 7.08. Section 338(h)(10) Election. No election shall be made
under Section 338(h)(10) of the Code with respect to the purchase and sale of
the Shares.
SECTION 7.09. Miscellaneous.
(a) The Seller and the Parent, on the one hand, and the
Purchaser, on the other hand, agree to treat all payments made by either of them
to or for the benefit of the other (including any payments to the Company or any
Subsidiary) under this Article VII, under other indemnity provisions of this
Agreement and for any misrepresentations or
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breaches of warranties or covenants as adjustments to the Purchase Price or as
capital contributions for Tax purposes and that such treatment shall govern for
purposes hereof.
(b) From and after the date of this Agreement, neither the Seller
nor the Parent shall, without the prior written consent of the Purchaser (which
may, in its sole and absolute discretion, withhold such consent), make, or cause
or permit to be made, any Tax election that would affect the Company or any
Subsidiary.
(c) For purposes of this Article VII, "the Purchaser," "the
Parent" and "the Seller", respectively, shall include each member of the
affiliated group of corporations of which it is or becomes a member (other than
the Company and the Subsidiaries, except to the extent expressly referenced).
SECTION 7.10. Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving the Company and its Subsidiaries
shall be terminated as of the Closing Date and, after the Closing Date, the
Company and its Subsidiaries shall not be bound thereby or have any liability
thereunder for any taxable year (past, current or future).
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.01. Conditions to Obligations of the Seller and the Parent.
The obligations of the Seller and the Parent to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to the Closing, of each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Purchaser contained in this Agreement
shall have been true and correct when made and shall be true and correct in all
material respects as of the Closing, with the same force and effect as if made
as of the Closing Date, other than such representations and warranties as are
made as of another date, which shall be true and correct as of such date
(provided, however, that if any portion of any representation or warranty is
already qualified by materiality, for purposes of determining whether this
Section 8.01(a) has been satisfied with respect to such portion of such
representation or warranty, such portion of such representation or warranty as
so qualified must be true and correct in all respects), and the covenants and
agreements contained in this Agreement to be complied with by the Purchaser on
or before the Closing shall have been complied with, and the Seller shall have
received a certificate from the Purchaser to such effect signed by a duly
authorized officer thereof;
(b) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated;
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(c) No Proceeding or Litigation. No Action shall have been
commenced by or before any Governmental Authority against either the Seller or
the Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated by this Agreement which, in the reasonable, good faith
determination of the Seller, is likely to render it impossible or unlawful to
consummate such transactions; provided, however, that the provisions of this
Section 8.01(c) shall not apply if the Seller or the Parent has directly or
indirectly solicited or encouraged any such Action;
(d) Resolutions. The Seller shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of the
Purchaser, of the resolutions duly and validly adopted by the Board of Directors
of the Purchaser evidencing its authorization of the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby; and
(e) Incumbency Certificate. The Seller shall have received a
certificate of the Secretary or an Assistant Secretary of the Purchaser
certifying the names and signatures of the officers of the Purchaser authorized
to sign this Agreement and the other documents to be delivered hereunder.
SECTION 8.02. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Seller and the Parent contained in this
Agreement shall have been true and correct when made and shall be true and
correct in all material respects as of the Closing with the same force and
effect as if made as of the Closing, other than such representations and
warranties as are made as of another date, which shall be true and correct as of
such date (provided, however, that if any portion of any representation or
warranty is already qualified by materiality or dollar amount, for purposes of
determining whether this Section 8.02(a) has been satisfied with respect to such
portion of such representation or warranty, such portion of such representation
or warranty as so qualified must be true and correct in all respects and;
provided, further that the accuracy of the representations and warranties
contained in Section 3.17 will not operate as a condition to Closing), and the
covenants and agreements contained in this Agreement to be complied with by the
Purchaser on or before the Closing shall have been complied with in all material
respects, and the covenants and agreements contained in this Agreement to be
complied with by the Seller on or before the Closing shall have been complied
with, and the Purchaser shall have received certificates of the Seller and the
Parent to such effect signed by a duly authorized officer thereof;
(b) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall have been
commenced or threatened by or before any Governmental Authority against any of
the Seller, the Parent
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or the Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated hereby which in the reasonable, good faith
determination of the Purchaser, is likely to render it impossible or unlawful to
consummate the transactions contemplated by this Agreement or which could have a
Material Adverse Effect; provided, however, that the provisions of this Section
8.02(c) shall not apply if the Purchaser has solicited or encouraged any such
Action;
(d) Resolutions of the Seller and the Parent. The Purchaser shall
have received a true and complete copy, certified by the Secretary or an
Assistant Secretary of each of the Seller and the Parent, of the resolutions
duly and validly adopted by the Board of Directors of the Seller and the Parent
evidencing its authorization of the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby;
(e) Secretary's Certificate of the Seller and the Parent. The
Purchaser shall have received a certificate of the Secretary or an Assistant
Secretary of each of the Seller and the Parent certifying the names and
signatures of the officers of the Seller and the Parent authorized to sign this
Agreement and the other documents to be delivered hereunder and also certifying,
as the case may be, the Seller's and the Parent's Certificate of Incorporation
and Bylaws.
(f) Legal Opinion. The Purchaser shall have received from Reid &
Priest LLP, a legal opinion, addressed to the Purchaser and dated the Closing
Date, substantially in the form of Exhibit 8.02(f);
(g) Consents and Approvals. The Purchaser and the Seller shall
have received, each in form and substance reasonably satisfactory to the
Purchaser, all authorizations, consents, orders and approvals of all
Governmental Authorities and officials and all third party consents (other than
such authorizations, consents, orders or approvals of Governmental Authorities
and third parties which, if not obtained, would not individually or in the
aggregate have a Material Adverse Effect on the Company), including but not
limited to the consents identified in Schedules 3.06(c) and 3.07;
(h) Resignations of the Company's Directors. The Purchaser shall
have received the resignations, effective as of the Closing, of all the
directors and officers of the Company and each Subsidiary;
(i) Organizational Documents. The Purchaser shall have received a
copy of (i) the Certificates of Incorporation, as amended (or similar
organizational documents), of the Company, certified by the secretary of state
of the jurisdiction in which each such entity is incorporated or organized, and
accompanied by a certificate of the Secretary or Assistant Secretary of each
such entity, dated as of the Closing Date, stating that no amendments have been
made to such Certificate of Incorporation (or similar organizational documents)
since such date, and (ii) the By-laws (or similar organizational documents) of
the Company and of each Subsidiary, certified by the Secretary or Assistant
Secretary of each such entity;
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(j) Minute Books. The Purchaser shall have received a copy of the
minute books and stock register of the Company and each Subsidiary, certified by
their respective Secretaries or Assistant Secretaries as of the Closing Date;
(k) Good Standing; Qualification to Do Business. The Purchaser
shall have received good standing certificates for the Company and for each
Subsidiary from the secretary of state of the jurisdiction in which each such
entity is incorporated or organized and from the secretary of state in each
other jurisdiction in which the Company is qualified to do business as a foreign
corporation, in each case dated as of a date not earlier than five Business Days
prior to the Closing Date and accompanied by bring-down telegrams or other
similar advice dated the Closing Date;
(l) Release of Indemnity Obligations. The Purchaser shall have
received the general release and discharge from the Seller referred to in
Section 5.10 in form and substance satisfactory to the Purchaser in its sole and
absolute discretion;
(m) No Material Adverse Effect. No event or events shall have
occurred, or be reasonably likely to occur, which, individually or in the
aggregate, have, or could have, a Material Adverse Effect;
(n) Real Property. The Seller and the Parent shall have caused
all Real Property to be transferred out of the Company and the Subsidiaries, and
shall have executed documents (acceptable to the Purchaser and its counsel in
form and substance) retaining all liability for the Real Property;
(o) Non-Transferred Employees. The Seller and the Parent shall
have caused all Non-Transferred Employees to be terminated or transferred to the
Seller, the Parent or their Affiliates, and shall have executed documents
(acceptable in form and substance to the Purchaser and its counsel) retaining
all liability for the Non-Transferred Employees.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival of Representations and Warranties. The
representations and warranties of the Parent and the Seller contained in this
Agreement, and all statements contained in this Agreement, the Exhibits to this
Agreement, the Disclosure Schedule and any certificate, Financial Statement,
Interim Financial Statement or report or other document delivered pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement (collectively, the "Acquisition Documents"), shall survive the Closing
until the 15 month anniversary of the Closing Date; provided, however, that (a)
the representations and warranties dealing with Tax matters shall until the
expiration of the applicable statute of limitations, and (b) insofar as any
claim is made by the Purchaser for the breach of any representation or warranty
of the Seller or the Parent contained herein
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relating to environmental matters, such representations and warranties shall,
for purposes of such claims by the Purchaser, survive the Closing Date until the
tenth anniversary of the Closing Date. Neither the period of survival nor the
liability of the Parent with respect to the Seller's and the Parent's
representations and warranties shall be reduced by any investigation made at any
time by or on behalf of the Purchaser. If written notice of a claim has been
given prior to the expiration of the applicable representations and warranties
by the Purchaser to the Parent, then the relevant representations and warranties
shall survive as to such claim, until such claim has been finally resolved.
SECTION 9.02. Indemnification by the Parent.
(a) The Purchaser, its Affiliates and their successors and
assigns, and the officers, directors, employees and agents of the Purchaser, its
Affiliates and their successors and assigns (each an "Indemnified Party") shall
be indemnified and held harmless by the Parent (but not the Seller) for any and
all Liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable attorneys'
and consultants' fees and expenses) actually suffered or incurred by them
(including, without limitation, any Action brought or otherwise initiated by any
of them) (hereinafter a "Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty made by the
Seller or the Parent contained in the Acquisition Documents; or
(ii) the breach of any covenant or agreement by the Seller
or the Parent contained in the Acquisition Documents; or
(iii) [Intentionally Left Blank]
(iv) (A) any and all Remedial Actions before or after the
Closing relating to any Release of Hazardous Materials into the
Environment or on or about the Real Property prior to the Closing to
the extent any such Remedial Action is required under any
Environmental Law or by any Governmental Authority or is necessary to
prevent or abate a significant risk to human health or the
environment; (B) any and all Environmental Claims arising at any time
that relate to the Business or the operation of the Company or the
Subsidiaries prior to the Closing; or (C) any and all noncompliances
with or violations of any applicable Environmental Law or
Environmental Permit by the Company or the Subsidiaries prior to the
Closing; or
(v) any and all losses and liabilities relating to the Real
Property, whether arising before or after the Closing (except as a
result of the Company's continued occupancy thereof after the
Closing).
The parties will cooperate fully in seeking insurance recovery, and the
indemnification, payments due from the Parent will be reduced by any amounts
actually recovered by the Purchaser under the Company's insurance in respect of
the subject matter of such indemnification. The Purchaser agrees to cause the
Company to continue in force liability
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insurance with coverage substantially equivalent to the coverage the Company has
historically maintained. The Parent will be subrogated to the rights of the
Company against its insurance carriers to the extent of its indemnity payments.
To the extent that the Parent's undertakings set forth in this Section 9.02 may
be unenforceable, the Parent shall contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and satisfaction of
all Losses incurred by the Purchaser, the Company and the Subsidiaries.
(b) An Indemnified Party shall give the Parent notice of any
matter which an Indemnified Party has determined has given or could give rise to
a right of indemnification under this Agreement, promptly but in any event
within 20 days of such determination, stating the amount of the Loss, if known,
and method of computation thereof, and containing a reference to the provisions
of this Agreement in respect of which such right of indemnification is claimed
or arises. The obligations and Liabilities of the Parent under this Article IX
with respect to Losses arising from claims of any third party which are subject
to the indemnification provided for in this Article IX ("Third Party Claims")
shall be governed by and contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Parent notice of such Third Party
Claim within 10 days of the receipt by the Indemnified Party of such notice;
provided, however, that the failure to provide such notice shall not release the
Parent from any of its obligations under this Article IX except to the extent
the Parent is materially prejudiced by such failure and shall not relieve the
Parent from any other obligation or Liability that it may have to any
Indemnified Party otherwise than under this Article IX. If the Parent
acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder against any Losses that may result from such Third Party Claim, then
the Parent shall be entitled to assume and control the defense of such Third
Party Claim at its expense and through counsel of its choice if it gives notice
of its intention to do so to the Indemnified Party within twenty days of the
receipt of such notice from the Indemnified Party. In the event the Parent
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Indemnified Party shall cooperate with the Parent
in such defense and make available to the Parent, at the Parent's expense
(exclusive of overhead costs or employee time), all witnesses, pertinent
records, materials and information in the Indemnified Party's possession or
under the Indemnified Party's control relating thereto as is reasonably required
by the Parent. Similarly, in the event the Indemnified Party is, directly or
indirectly, conducting the defense against any such Third Party Claim, the
Seller and the Parent shall cooperate with the Indemnified Party in such defense
and make available to the Indemnified Party, at the Parent's expense, all such
witnesses, records, materials and information in the Seller's or the Parent's
possession or under the Seller's or the Parent's control relating thereto as is
reasonably required by the Indemnified Party. No such Third Party Claim may be
settled by the Parent without the prior written consent of the Indemnified
Party, which consent shall not be unreasonably withheld.
SECTION 9.03. Limits on Indemnification. Notwithstanding anything to
the contrary contained in this Agreement, the maximum amount of indemnifiable
Losses which
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may be recovered from the Seller arising out of or resulting from the causes
enumerated in Section 9.02 shall be an amount equal (exclusive of insurance
recoveries) to $6 million and that no claim may be made against Seller in
respect of the first $400,000 of Losses for which Seller would otherwise be
responsible hereunder; provided, however, that indemnifiable Losses (a) relating
to the Seller's obligations to employees of the Company and the Subsidiaries
other than Transferred Employees or (b) arising under Sections 9.02(a)(iv) or
9.02(a)(v) will not be subject to the limitations of this Section 9.03.
SECTION 9.04. Tax Matters. Anything in this Article IX (except for the
specific reference to Tax matters in Section 9.01) to the contrary
notwithstanding, the rights and obligations of the parties with respect to
indemnification for any and all Tax matters shall be governed by Article VII.
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by the Purchaser if, between the date hereof and the time
scheduled for the Closing: (i) an event or condition occurs that has resulted in
or that may be expected to result in a Material Adverse Effect, (ii) any
representation or warranty of the Seller or the Parent contained in this
Agreement shall not have been true and correct when made, (iii) the Seller or
the Parent shall not have complied with any covenant or agreement to be complied
with by it and contained in this Agreement after notice of breach shall have
been given to the Seller and the Seller shall have failed to cure such breach
within 10 days of such notice; or (iv) the Seller, the Parent, the Company or
any Subsidiary makes a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against the Seller, the Parent, the Company
or any Subsidiary seeking to adjudicate any of them a bankrupt or insolvent, or
seeking liquidation, winding up or reorganization, arrangement, adjustment,
protection, relief or composition of its debts under any Law relating to
bankruptcy, insolvency or reorganization; or
(b) by any of the Seller, the Parent or the Purchaser if the
Closing shall not have occurred by January 15, 1998; provided, however, that the
right to terminate this Agreement under this Section 10.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have contributed to, the
failure of the Closing to occur on or prior to such date; or
(c) by any of the Purchaser, the Parent or the Seller in the
event that any Governmental Authority shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable; or
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(d) by the mutual written consent of the Seller, the Parent and
the Purchaser.
SECTION 10.02. Effect of Termination.
(a) In the event of termination of this Agreement as provided in
Section 10.01, this Agreement shall forthwith become void and there shall be no
liability on the part of either party hereto except (a) as set forth in Sections
5.03 and 10.02(b), and (b) that nothing herein shall relieve either party from
liability for any breach of this Agreement. Purchaser acknowledges that the loss
associated with Purchaser's failure to consummate the transactions contemplated
by this Agreement, will result in substantial damages to Seller. Purchaser
acknowledges that, in the event that this Agreement is terminated due to a
breach hereof by Purchaser, the actual damages incurred by Seller resulting from
such breach and other factors would be extremely impractical or impossible to
determine accurately or with certainty. Accordingly, after full negotiation, all
parties being represented by counsel and having equal bargaining power in such
negotiations, the parties hereto agree that Purchaser shall pay Seller Two
Million Dollars as liquidated damages to Seller, and such is not a penalty and
reflects a good faith and reasonable attempt to estimate the actual damages of
Seller which would accrue due to such breach. In the event the Purchaser is
obligated to pay such liquidated damages to the Seller as a result of the
Purchaser's breach of this Agreement (all parties hereto acknowledging that no
liquidated damages will be payable to the Seller as a result of a termination of
this Agreement pursuant to Section 10.01), then neither the Seller nor the
Parent will have any claim, cause of action or right of recovery against the
Purchaser beyond or in excess of such liquidated damages.
(b) Notwithstanding the foregoing, if the Closing does not occur
because of the failure to satisfy the conditions to the Purchaser's obligation
to effect the Closing contained in Section(s) 8.02 (a), (d), (e), (f), (h), (i),
(j), (k), and (l), then the Seller and the Parent jointly and severally shall
reimburse the Purchaser for its out of pocket costs and expenses, including,
without limitation, fees and disbursements of counsel, financing sources,
consultants and accountants, incurred by the Purchaser in connection with the
preparation, negotiation and performance of this Agreement, the Acquisition
Documents and the transactions contemplated hereby and the diligence performed
in connection therewith.
SECTION 10.03. Waiver. Either party to this Agreement may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
-50-
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred. The Seller and the Parent will not pass any of their
expenses on to the Company or the Subsidiaries.
SECTION 11.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
11.02):
(a) if to the Seller or the Parent:
United Capital Corp.
9 Park Place
Great Neck, New York 11021
Facsimile: (516) 829-4301
Attention: Mr. Anthony J. Miceli, Chief Financial Officer
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Facsimile: (212) 603-2001
Attention: Gregory Katz, Esq.
(b) if to the Purchaser:
AIL Systems Inc.
455 Commack Road
Deer Park, New York 11729
Facsimile: (516) 595-4945
Attention: Mr. Darrell L. Reed, Vice President
and Chief Financial Officer
-51-
<PAGE>
with a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Facsimile: (212) 986-8866
Attention: Harold I. Steinbach, Esq.
SECTION 11.03. Public Announcements. Except as required by law or by
the requirements of any stock exchange on which the securities of a party (or
its parent) are listed, no party to this Agreement shall make, or cause to be
made, any press release or public announcement in respect of this Agreement or
the transactions contemplated hereby or otherwise communicate with any news
media without the prior written consent of the other party, and the parties
shall cooperate as to the timing and contents of any such press release or
public announcement.
SECTION 11.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 11.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 11.06. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, between the Seller and the Purchaser with respect to the subject matter
hereof and thereof.
SECTION 11.07. Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the Seller
and the Purchaser (which consent may be granted or withheld in the sole
discretion of the Seller or the Purchaser); provided, however, that the
Purchaser may assign this Agreement to an Affiliate of the Purchaser without the
consent of the Seller, without in any way relieving Purchaser of any liability
hereunder.
SECTION 11.08. No Third Party Beneficiaries. Except for the provisions
of Article IX relating to Indemnified Parties, this Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein,
-52-
<PAGE>
express or implied, is intended to or shall confer upon any other Person any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 11.09. Amendment. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the Seller
and the Purchaser or (b) by a waiver in accordance with Section 10.03.
SECTION 11.10. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts executed and to be performed solely within such State.
All actions and proceedings arising out of or relating to this Agreement shall
be heard and determined in any New York state or federal court sitting in the
County of Nassau, New York.
SECTION 11.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 11.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
[Signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the Seller, the Parent and the Purchaser have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto, duly authorized.
AIL SYSTEMS INC.
By:/s/ Darrell L. Reed
--------------------
Darrell L. Reed
Vice President and
Chief Financial Officer
METEX CORPORATION
By: /s/ Anthony J. Miceli
---------------------
Anthony J. Miceli
Chief Financial Officer
UNITED CAPITAL CORP.
By: /s/ Anthony J. Miceli
---------------------
Anthony J. Miceli
Chief Financial Officer
-54-
<TABLE>
<CAPTION>
<S> <C> <C>
140 Corporation EKM Corporation AFP Seven Corp.
147 Corporation Fern Corporation AFP Eight Corp.
150 Corporation Franklin 850 Corporation AFP Nine Corp.
1690 Lex. Corp. Greenvale Enterprises Corp. AFP Eleven Corp.
2911 Corporation Hadley Corporation AFP Twenty Corp.
47 Boundary Corp. HHKM Realty Corp. AFP Twenty One Corp.
521 W. 146 Corp. HJA Realty Corporation AFP Twenty Two Corp.
627 Second Corp. HJB Corporation AFP Twenty Three Corp.
629 Second Corp. HJM Corporation AFP Twenty Four Corp.
747 Middleneck Corp. HJSC Corporation AFP Twenty Five Corp.
860 Franklin Associates, Inc. HR-Twenty Corp. AFP Twenty Six Corp.
9 Park Place Corp. Ives Corporation AFP Twenty Seven Corp.
95 Perry Corp. JKM Corporation AFP Twenty Eight Corp.
AFP Financial Corp. K-South Corp. AFP Twenty Nine Corp.
AFP Five Corp. Kentile Inc. AFP Thirty Corp.
AFP Four Corp. Kings County Corp. AFP Thirty One Corp.
AFP One Corp. L C Corporation AFP Thirty Two Corp.
AFP Realty Corp. Land & Leases Corp. AFP Thirty Three Corp.
AFP Six Corp. Madison Corporation AFP Thirty Four Corp.
AFP Technologies, Inc. Melancon Corporation AFP Thirty Five Corp.
AFP Three Corp. Metex Corporation AFP Thirty Six Corp.
AFP Transformers, Inc. Metex Enviroco Corp. AFP Thirty Seven Corp.
AFP Two Corp. Metex Export Corporation AFP Thirty Eight Corp.
AKM Corp. Metex International Sales Corp. AFP Thirty Nine Corp.
Alba Corporation Metex Liquidation Co., Inc. AFP Forty Corp.
Ancom Electromagnetique, Ltd. Nemo Acquisition Corp. AFP Forty One Corp.
Avalon Corp. Northbrook Enterprises Corp. AFP Forty Two Corp.
Beekman Corp. Northwood Corporation
Belmont Corporation PDK Corporation
BKM Corp. Pine Equities Corporation
BPI Corp. Prospect Center Corp.
Busch Realty Corp. RBS Realty Corporation
C.P. Manufacturing, Inc. Schuller Corporation
Cambreleng Corp. Second CEW Properties, Inc.
Cedar Enterprises Corp. Sunrise Equities Corp.
CEW Properties, Inc. Sutton Realty Corporation
Cleethorpes Properties, Inc. Third CEW Properties, Inc.
Clinton-Bush Corp. Toledo Corporation
Cortland Enterprises Corp. Tri-Mart Corporation
Culver Corporation Twenty-M Corporation
D&M/Chu Technology, Inc. Twin II Realty Corporation
Dallas Enterprises Corp. Various Equities Corp.
Del-Metex Corporation Waverly Corporation
Dorne & Margolin, Inc. Wellford Corporation
Eastside Corporation West 145 Corporation
EBMO Corporation
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 17, 1998, which is included in this Form
10-K for the year ended December 31, 1997, into United Capital Corp.'s
previously filed Registration Statements, File Numbers 33-28045, 33-65140 and
333-28395.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
CAPITAL CORP.'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES, THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,250
<SECURITIES> 355
<RECEIVABLES> 11,645
<ALLOWANCES> 326
<INVENTORY> 3,693
<CURRENT-ASSETS> 26,620
<PP&E> 8,193
<DEPRECIATION> 3,894
<TOTAL-ASSETS> 113,353
<CURRENT-LIABILITIES> 31,233
<BONDS> 0
0
0
<COMMON> 528
<OTHER-SE> 36,952
<TOTAL-LIABILITY-AND-EQUITY> 113,353
<SALES> 36,204
<TOTAL-REVENUES> 60,246
<CGS> 25,972
<TOTAL-COSTS> 51,438
<OTHER-EXPENSES> (3,262)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,408
<INCOME-PRETAX> 13,275
<INCOME-TAX> 5,810
<INCOME-CONTINUING> 7,465
<DISCONTINUED> 1,016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,481
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.59
</TABLE>
