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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8526
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McDonald & Company Investments, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 34-1391950
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114-2603
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code (216) 443-2300
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Not Applicable
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Former name, former address and former fiscal year, if changed since last report
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 8,955,358 shares of Common
Stock, par value $1.00 per share, were outstanding on February 3, 1997.
1
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McDONALD & COMPANY INVESTMENTS, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements -
Consolidated statements of financial condition (unaudited)-
December 31, 1996 and March 29, 1996...................................... 3
Consolidated statements of income (unaudited)-
Fiscal three and nine months ended December 31, 1996
and December 29, 1995..................................................... 4
Consolidated statements of cash flows (unaudited)-
Fiscal nine months ended December 31, 1996 and
December 29, 1995......................................................... 5
Notes to consolidated financial statements (unaudited)-
December 31, 1996......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 8
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings.....................................................12
Item 5. Other Information.....................................................12
Item 6. Exhibits and Reports on Form 8-K......................................13
SIGNATURES...........................................................................14
EXHIBIT INDEX........................................................................15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except for share amount)
December 31, March 29,
1996 1996
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,076 $ 12,376
Receivable from customers 198,517 175,973
Receivable from brokers and dealers 53,716 59,219
Securities purchased under agreements
to resell 90,668 50,052
Securities owned 128,583 102,202
Other receivables 27,751 18,368
Furniture, equipment and leasehold
improvements, at cost, less accumulated
depreciation and amortization 19,137 15,719
Other assets 41,187 37,192
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$ 565,635 $ 471,101
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 70,342 $ 77,024
Payable to customers 95,199 71,722
Payable to brokers and dealers 27,616 15,547
Securities sold under agreements to repurchase 75,865 67,135
Securities sold but not yet purchased 72,838 29,216
Accrued compensation 28,006 28,665
Accounts payable, accrued expenses and
other liabilities 25,078 25,969
Long-term borrowings 25,000 25,000
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$ 419,944 $ 340,278
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Stockholders' equity
Preferred Stock, without par value;
200,000 shares authorized; none issued
Common Stock, par value $1.00 per share;
15,000,000 shares authorized
(11,763,588 and 11,620,857 shares
issued respectively) 11,764 11,621
Additional paid-in capital 54,519 51,663
Retained earnings 108,386 93,808
Less treasury stock, at cost (2,808,230 and
2,691,495 shares, respectively) (28,978) (26,269)
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145,691 130,823
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$ 565,635 $ 471,101
========= =========
<FN>
See Notes to consolidated financial statements (unaudited).
</TABLE>
3
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MCDONALD & COMPANY INVESTMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Three Months Ended Fiscal Nine Months Ended
-------------------------------- ------------------------------
(In thousands, except for share and per share amounts)
Dec. 31, 1996 Dec. 29, 1995 Dec. 31, 1996 Dec. 29, 1995
(13 weeks) (13 weeks) (39 weeks) (39 weeks)
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<S> <C> <C> <C> <C>
Revenues:
Underwriting and investment banking $ 14,545 $ 13,283 $ 51,737 $ 39,746
Principal transactions 12,899 12,503 42,103 40,126
Commissions 20,592 16,193 57,226 46,917
Investment management fees 6,625 4,936 18,226 14,203
Interest and dividends 5,945 4,791 15,219 12,776
Other 2,357 1,715 5,401 5,115
---------- ---------- ---------- ----------
$ 62,963 $ 53,421 $ 189,912 $ 158,883
---------- ---------- ---------- ----------
Expenses:
Employee compensation and benefits $ 36,914 $ 30,646 $ 110,859 $ 92,193
Interest 2,899 1,947 7,248 5,534
Communications 3,453 3,345 10,937 9,898
Occupancy and equipment 4,345 4,178 13,012 10,960
Promotion and development 2,126 1,966 6,822 5,821
Floor brokerage and clearance 666 607 1,939 1,885
Taxes, other than income taxes 1,810 1,684 5,452 5,156
Other operating expenses 2,489 1,812 7,051 6,120
---------- ---------- ---------- ----------
$ 54,702 $ 46,185 $ 163,320 $ 137,567
---------- ---------- ---------- ----------
Income before income taxes $ 8,261 $ 7,236 $ 26,592 $ 21,316
Provision for income taxes 2,980 2,340 9,580 7,540
---------- ---------- ---------- ----------
Net income $ 5,281 $ 4,896 $ 17,012 $ 13,776
========== ========== ========== ==========
Net income per share $ 0.58 $ 0.55 $ 1.87 $ 1.52
========== ========== ========== ==========
Dividends per share $ .09375 $ .085 $ .2725 $ 0.25
========== ========== ========== ==========
Average number of shares and share
equivalents outstanding 9,113,000 9,034,000 9,110,000 9,085,000
========== ========== ========== ==========
<FN>
See Notes to consolidated financial statements (unaudited).
</TABLE>
4
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MCDONALD & COMPANY INVESTMENTS, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
(In thousands)
Fiscal Nine Months Ended
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Dec. 31, 1996 Dec. 29, 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
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Net Income $ 17,012 $ 13,776
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 5,074 3,672
Loss on disposal of property -- 541
Deferred compensation 402 318
Deferred income taxes (441) (217)
Increase in receivable from customers (22,544) (14,566)
Decrease (increase) in receivable from brokers and dealers 5,503 (19,180)
Increase in securities owned (26,381) (9,550)
Increase in other receivables (9,383) (1,790)
Increase in payable to customers 23,477 24,047
Increase (decrease) in payable to brokers and dealers 12,069 (14,465)
Increase (decrease) in securities sold but not yet purchased 43,622 (11,693)
Increase in accrued compensation 2,443 5,247
(Decrease) increase in accounts payable, accrued expenses and other (1,293) 4,158
-------- --------
Net cash provided by (used for) operating activities $ 49,560 $(19,702)
======== ========
INVESTING ACTIVITIES:
Purchase of furniture, equipment and leaseholds $ (8,160) $ (4,000)
Increase in other assets (3,886) (5,899)
======== ========
Net cash used for investing activities $(12,046) $ (9,899)
======== ========
FINANCING ACTIVITIES:
Increase (decrease) in securities purchased under agreement to sell $(40,616) $ 33,239
(Decrease) increase in short-term borrowings (6,682) 9,207
Increase in securities sold under agreements to repurchase 8,730 1,222
Cash dividends (2,434) (2,239)
Purchase of treasury stock (3,314) (4,196)
Proceeds from issuance of treasury stock 502 263
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Net cash (used for) provided by financing activities $(43,814) $ 37,496
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(Decrease) increase in cash and cash equivalents (6,300) 7,895
Cash and cash equivalents at beginning of period 12,376 2,850
-------- --------
Cash and cash equivalents at end of period $ 6,076 $ 10,745
======== ========
<FN>
See Notes to consolidated financial statements (unaudited).
</TABLE>
5
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McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1996
NOTE A - BASIS OF PRESENTATION
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The consolidated financial statements include the accounts of McDonald & Company
Investments, Inc. and its subsidiaries, collectively referred to as the
"Company". All significant intercompany accounts and transactions are eliminated
in consolidation.
The accompanying unaudited consolidated financial statements do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal and recurring adjustments, considered
necessary for a fair presentation of the financial condition and results of
operations for the periods presented have been included.
NOTE B - LONG-TERM BORROWINGS
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McDonald & Company Securities, Inc., ("McDonald Securities") has outstanding
$25,000,000 in aggregate principal amount of 8.24% Subordinated Notes due
January 15, 2002. McDonald Securities is required to prepay principal amounts of
$5,000,000 on January 15 in each year beginning in 1998. The notes are
subordinated in right of payment to all senior indebtedness of McDonald
Securities. The principal amount of the notes has been approved by the New York
Stock Exchange, Inc. for inclusion in the regulatory capital of McDonald
Securities.
NOTE C - NET INCOME PER SHARE
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Net income per share is based on the average number of share and share
equivalents outstanding during the periods. Share equivalents represent the
effect of shares issuable under the Company's stock option plans.
NOTE D - CONTINGENCIES
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As reported in prior Form 10-Q's filed during the current fiscal year, McDonald
Securities is a defendant in STEPHANIE TUBBS JONES ET. AL. V. MCDONALD & CO.
SECURITIES, INC., ET. AL., (the "Jones Litigation") a lawsuit currently pending
in Cuyahoga County Common Pleas Court. The action arose out of losses allegedly
incurred by Cuyahoga County's Secured Assets Fund Earnings Program ("SAFE").
McDonald Securities and six other defendants have been named in the lawsuit. The
complaint alleges that, in breach of various legal duties allegedly owed to the
plaintiff, McDonald Securities and/or the other defendants enabled, facilitated
and/or assisted the County's investment staff to engage in unsuitable and
inappropriate investment and trading activities and practices. The plaintiff
seeks to hold each of the defendants liable for compensatory and consequential
damages. In addition, the complaint contains allegations of fraud and negligent
misrepresentation against McDonald Securities and another defendant arising out
of their respective roles as underwriters of two issuances of tax and current
revenue anticipation notes ("TANS/CRANS") during 1993 and 1994. The plaintiff
seeks to hold McDonald Securities and the other defendant that participated as
an underwriter of the TANS/CRANS offerings liable for compensatory,
consequential and punitive damages. In February 1996, the Ohio Supreme Court
disqualified all Cuyahoga County Common Pleas judges from hearing the Jones
litigation and appointed an out-of-county judge to hear the case. In June 1996,
the court denied motions to dismiss the plaintiff's claims filed by McDonald
Securities and various other defendants. In October 1996, the defendants moved
to disqualify the Cuyahoga County Prosecutor's Office from the case on the
grounds of prosecutorial misconduct and because certain employees of that office
are witnesses to the events underlying the plaintiff's claims. The court has not
yet acted on this motion. On December 23, 1996,
6
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McDONALD & COMPANY INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1996
McDonald Securities filed an answer denying the allegations of liability made by
the plaintiff and raising a number of affirmative defenses to the plaintiff's
allegations. McDonald Securities also filed counterclaims against the Cuyahoga
County Board of Commissioners (the "Board"). McDonald Securities' counterclaims
consist of a breach of contract claim arising out of representations and
warranties made by the Board concerning the absence of material misstatements or
omissions in the Official Statements for the TANS/CRANS offerings, and an
estoppel claim arising out of McDonald Securities' justifiable reliance on
assurances provided by the Board concerning, among other things, the investment
experience of the Board's agents, the authorizations of the transactions in
question by the Board's Investment Committee and the conformity of such
transactions with the County's investment policies and procedures. The case is
currently in the discovery stage and no trial date has been set. Based on the
facts known to date, the Company believes that the plaintiff's claims against
McDonald Securities are without merit, and intends to contest vigorously the
allegations in the complaint.
The Company is a defendant in various other lawsuits incidental to its
securities business. In view of the number and diversity of claims against the
Company and the inherent difficulty of predicting the outcome of litigation and
other claims, the Company cannot state with certainty what the eventual outcome
of pending litigation or other claims will be. The Company provides for costs
relating to these matters when a loss is probable and the amount can be
reasonably estimated. The effect of the outcome of these matters on the
Company's future results of operations cannot be predicted because any such
effect depends on future results of operations and the amount and timing of the
resolution of such matters. While it is not possible to predict with certainty,
management believes that the ultimate resolution of such matters, including the
Jones' Litigation, will not have a material adverse effect on the consolidated
financial position, liquidity, or results of operations of the Company.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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BUSINESS ENVIRONMENT
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McDonald & Company Investments, Inc. (the "Company") operates a full-service
regional investment banking, investment advisory and brokerage business through
its principal subsidiary, McDonald & Company Securities, Inc. ("McDonald
Securities"). The Company is involved in the origination, underwriting,
distribution, trading and brokerage of fixed income and equity securities, and
provides investment advisory services.
The profitability of the Company is sensitive to many factors, including the
level of securities trading volume and the volatility and general level of
market prices. Many of its activities have high operating costs which do not
decrease with reduced levels of activity. Sustained periods of reduced volume,
or loss of clients, could have adverse effects upon profitability.
The Company faces increasing competition from commercial banks and thrift
institutions as these institutions offer certain investment banking and
corporate and individual financial services traditionally provided only by
securities firms. The Company anticipates regulation of the securities industry
to increase and that compliance with regulations may become more difficult. At
present, the Company is unable to predict the extent of changes that may be
enacted, or the effect on the Company's business.
The Company has formulated a comprehensive strategic plan which is periodically
reviewed and revised as business conditions dictate. The plan emphasizes the
Company's historical roots as a regional brokerage and investment banking firm.
The Company has focused on the Ohio, Michigan and Indiana markets by increasing
the number of sales representatives covering individual investors, as well as
increasing investment banking activities in this region. The Company's
institutional equity and fixed income sales departments cover accounts
throughout the United States and internationally.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The majority of the Company's assets are highly liquid and short-term in nature.
Cash and liquid assets, principally receivables from customers, brokers and
dealers, securities purchased under agreements to resell, and securities owned
approximate 89% of the Company's assets at December 31, 1996. These assets are
financed by a number of sources, including the Company's capital and short-term
borrowings.
At December 31, 1996, McDonald Securities had outstanding $25,000,000 in
aggregate principal amount of 8.24% Subordinated Notes due January 15, 2002.
McDonald Securities is required to pay principal amounts of $5,000,000 on
January 15 in each year beginning in 1998. The notes are subordinated in right
of payment to all senior indebtedness and general creditors of McDonald
Securities. In addition to providing long-term financing, the notes have been
approved by the New York Stock Exchange, Inc. for inclusion in McDonald
Securities' regulatory capital.
Changes in the levels of securities owned and in customer and broker receivables
directly affect the Company's financing arrangements. The Company has available
lines of credit of $303,000,000, of which $243,123,000 was unused at December
31, 1996. Management believes that funds from operations, available lines of
credit, and long-term borrowings provide sufficient resources to meet present
and anticipated financial needs.
Certain minimum amounts of capital must be maintained by the Company's principal
broker/dealer subsidiary, McDonald Securities, to satisfy the regulatory
requirements of the Securities and Exchange Commission and the New York Stock
Exchange. The regulatory requirements represent Uniform Net Capital Rules
designed to measure the general financial integrity and liquidity of registered
broker/dealers and provide minimum acceptable net capital levels to meet
continuing commitments to customers. Net capital, as defined, changes from day
to day. At December 31, 1996, McDonald Securities was in compliance with the
Uniform Net Capital Rules and had net capital of $60,099,000, which was
$55,420,000 in excess of the minimum required.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS (continued)
-------------------------
FISCAL THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1996 AND DECEMBER 29,
- ----------------------------------------------------------------------------
1995
- ----
Total revenues for the fiscal quarter ended December 31, 1996 were $62,963,000,
an increase of $9,542,000, or 18%, from revenues of $53,421,000 for the fiscal
quarter ended December 29, 1995.
For the fiscal nine months ended December 31, 1996, total revenues were
$189,912,000 compared to $158,883,000 for the first nine months of fiscal 1996,
an increase of $31,029,000, or 20%.
Net income for the fiscal quarter ended December 31, 1996 was $5,281,000, or
$.58 per share, compared with net income of $4,896,000, or $.55, per share, for
the fiscal quarter ended December 29, 1995, which represents an increase in net
income of 8%.
For the fiscal nine months ended December 31, 1996, net income was $17,012,000,
or $1.87 per share, compared to $13,776,000, or $1.52 per share, for the fiscal
nine months ended December 29, 1995, an increase in net income of 23%.
The average number of shares and share equivalents outstanding were 9,113,000
and 9,111,000, respectively, for the fiscal three and nine month periods ended
December 31, 1996 compared to 9,034,000 and 9,085,000, respectively, for the
fiscal three and nine months ended December 29, 1995.
Revenues from underwriting and investment banking increased $1,262,000, or 10%,
for the quarter and increased $11,991,000, or 30%, for the nine months ended
December 31, 1996 when compared to the same periods in the prior fiscal year.
Revenues from corporate underwriting and investment banking increased
$2,574,000, or 24%, for the third quarter and $14,427,000, or 42%, for the nine
month period. The increase in revenues from corporate underwriting and
investment banking for the three and nine month periods is due primarily to
increased revenues from public offerings and private placements of debt and
equity securities of $2,779,000, or 46%, for the third quarter and $13,651,000,
or 67%, for the first nine months. These increases reflect improved market
conditions for both the public and private offering of securities. Included in
private placement revenues during the first nine months of fiscal 1997 were fees
of $9,336,000 from a single $500 million private placement of debt and equity
securities. Revenues from municipal finance decreased $1,312,000, or 53%, for
the quarter and decreased $2,436,000, or 46%, for the nine months ended December
31, 1996 when compared to the same periods in the prior fiscal year, due to a
lower level of public finance offerings and a decreased emphasis in this area of
the finance business.
Revenues from underwriting and investment banking activities are highly
dependent on general market conditions for such business activities. Market
conditions for underwriting and investment banking services can be affected by
political and economic events both in the United States and abroad. To the
extent future events are unpredictable, uncertainty will be a factor in the
level of McDonald Securities' business activity. Also, competitive pressure from
other investment banking firms can and will have an effect on the success of
McDonald Securities in obtaining such business and on the prices which can be
charged for investment banking and underwriting services. The management of
McDonald Securities believes it can compete effectively in this segment of its
business activities.
Revenues from principal transactions increased $396,000, or 3%, for the third
quarter of fiscal 1997 and $1,977,000, or 5%, for the first nine months when
compared to the same periods in the prior fiscal year. Revenues from principal
transactions in equity securities increased $662,000, or 14%, for the third
quarter and $1,418,000, or 9%, for the first nine months primarily due to a
strong NASDAQ market and continued expansion of the Company's sales force.
Revenues from trading taxable fixed-income securities, including corporate
bonds, United States government bonds and mortgage-backed securities, decreased
$234,000, or 5%, for the third quarter and $408,000, or 2%, for the first nine
months of fiscal 1997. Revenues from trading municipal bonds decreased $32,000,
or 1%, for the third quarter but increased $967,000, or 14%, for the first nine
months. The increase in revenues from trading municipal bonds for the first nine
months of fiscal 1997 was due primarily to increased focus on secondary trading
in light of the decreased supply of originated public finance business.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (continued)
-------------------------
FISCAL THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1996 AND DECEMBER 29,
- ----------------------------------------------------------------------------
1995 (cont.)
- ------------
Commissions revenue increased $4,399,000, or 27%, in the current quarter and
$10,309,000, or 22%, in the first nine months when compared to the same periods
in fiscal 1996. Of these amounts, commissions revenues from agency transactions
in listed and over-the-counter stocks increased $2,390,000, or 23%, for the
quarter and $4,860,000, or 16%, for the nine month period. Commissions revenue
from non-proprietary mutual funds increased $1,125,000, or 36%, for the third
quarter and $3,144,000, or 34%, for the first nine months of fiscal 1997.
Commissions revenue from proprietary mutual funds increased $225,000, or 14%,
for the quarter and $894,000, or 20%, for the first nine months. The increase in
commissions revenue from both non-proprietary and proprietary mutual funds is
due to the increased popularity of mutual fund investments with individual
investors. Commissions revenue from annuity and life insurance products
increased $659,000, or 75%, for the quarter and $1,411,000, or 60%, for the
first nine months primarily due to increased marketing efforts for the sale of
these products.
Revenues from investment management fees include advisory fees from the
Company's mutual funds and money market funds and investment management fees
earned related to individually managed accounts. Revenues from investment
management fees increased $1,689,000, or 34%, and $4,023,000, or 28%, for the
fiscal quarter and nine month periods ended December 31, 1996 when compared to
the comparable fiscal 1996 periods. Of these amounts, increased revenues from
advisory fees related to individually managed accounts represented $1,381,000,
or 82%, and $3,338,000, or 83%, respectively, of the total increase for the
fiscal three and nine month periods.
Interest and dividend income increased $1,154,000, or 24%, and $2,443,000, or
19%, for the fiscal three and nine month periods ended December 31, 1996 when
compared to the same periods in the prior fiscal year. The increase was due
primarily to a higher level of customer margin loans and securities owned in the
current period when compared to the same periods in the prior fiscal year.
Other income increased $642,000, or 37%, for the current quarter and $286,000,
or 6%, for the nine month period ended December 31, 1996. The increase for the
current quarter is due primarily to a $492,000, or 126%, increase in income from
certain venture capital and other investments. The increase for the fiscal nine
months represents additional revenue of $165,000, or 8%, from service fees and
other retail revenues related to the continued expansion of the retail sales
force.
Operating expenses (total expenses before interest) increased $7,565,000, or
17%, for the third quarter and $24,039,000, or 18%, for the first nine months of
fiscal 1997, when compared to the same periods in the prior fiscal year.
Employee compensation and benefits increased $6,268,000, or 20%, for the third
quarter and $18,666,000, or 20%, for the first nine months. Commission and other
sales compensation expense increased $3,956,000, or 25%, for the quarter and
$9,030,000, or 19%, for the first nine months, primarily because of increased
revenues from commissions and principal sales credits. Other clerical and
administrative expenses increased $1,612,000, or 18%, for the quarter and
$4,236,000, or 16%, for the nine month period. The increase in other clerical
and administrative expenses represents compensation and employee benefit costs
related to an increase in the professional and support staff in the current
periods when compared to the same periods in the prior fiscal year. The
remaining increase in employee compensation and benefits of $700,000, or 13%,
for the quarter and $5,400,000, or 32%, for the nine month period represents
increases in incentive compensation and profit sharing accruals resulting from
an increase in pre-tax income before incentive compensation expense of 13% for
the quarter and 28% for the nine month period.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (continued)
-------------------------
FISCAL THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1996 AND DECEMBER 29,
- ----------------------------------------------------------------------------
1995 (cont.)
- ------------
All other operating expenses increased $1,297,000, or 10%, for the current
quarter and $5,373,000, or 13%, for the first nine months of fiscal 1997.
Communications expense increased $108,000, or 3%, for the current quarter and
$1,039,000, or 10%, for the first nine months. Of the increase for the nine
month period, approximately $495,000 represents expenses related to the
renovation of the Company's headquarters office and the recent company-wide
technology renovation. The remaining increase in communications expense reflects
higher telecommunications, quotation and information services costs due to both
higher volume and higher employee headcount. Occupancy and equipment costs
increased $167,000, or 4%, for the current quarter and $2,052,000, or 19%, for
the first nine months. Of the increase for the nine month period, approximately
$1,630,000 represents expenses related to the renovation of the Company's
headquarters office and the technology renovation. Without regard to these
items, occupancy and equipment costs increased 2% for the quarter and 4% for the
first nine months, reflecting increased costs related to headcount increases.
Promotional and business development expenses increased $160,000, or 8%, for the
current quarter and $1,001,000, or 17%, for the first nine months primarily due
to increased promotional, travel and business entertainment expenses resulting
from the continued expansion of the Company's business. The category of other
operating expenses increased $677,000, or 37%, for the current quarter and
$931,000, or 15%, for the first nine months of fiscal 1997, due primarily to an
increase of $505,000 for the current quarter and $778,000 for the nine month
period in legal costs related to pending litigation (see note D to the
Consolidated Financial Statements (unaudited)).
Interest expense increased $952,000, or 49%, and $1,714,000, or 31%, for the
fiscal three month and nine month periods in the current fiscal year when
compared to the same period in fiscal 1996. The increase in interest expense is
due to higher levels of short-term borrowings which increased primarily as a
result of higher customer margin borrowings and a higher level of securities
owned.
Income before income taxes for the fiscal quarter and fiscal nine months ended
December 31, 1996 was $8,261,000 and $26,592,000, resulting in a pre-tax return
on revenues of 13.12% and 14.00%, respectively. For the fiscal quarter and
fiscal nine months ended December 29, 1995, income before income taxes was
$7,236,000 and $21,316,000, resulting in a pre-tax return on revenues of 13.55%
and 13.42%, respectively.
11
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PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
As reported in prior Form 10-Q's filed during the current fiscal
year, McDonald Securities is a defendant in STEPHANIE TUBBS JONES
ET. AL. V. MCDONALD & CO. SECURITIES, INC., ET. AL., (the "Jones
Litigation") a lawsuit currently pending in Cuyahoga County Common
Pleas Court. The action arose out of losses allegedly incurred by
Cuyahoga County's Secured Assets Fund Earnings Program ("SAFE").
McDonald Securities and six other defendants have been named in
the lawsuit. The complaint alleges that, in breach of various
legal duties allegedly owed to the plaintiff, McDonald Securities
and/or the other defendants enabled, facilitated and/or assisted
the County's investment staff to engage in unsuitable and
inappropriate investment and trading activities and practices. The
plaintiff seeks to hold each of the defendants liable for
compensatory and consequential damages. In addition, the complaint
contains allegations of fraud and negligent misrepresentation
against McDonald Securities and another defendant arising out of
their respective roles as underwriters of two issuances of tax and
current revenue anticipation notes (TANS/CRANS") during 1993 and
1994. The plaintiff seeks to hold McDonald Securities and the
other defendant that participated as an underwriter of the
TANS/CRANS offerings liable for compensatory, consequential and
punitive damages. In February 1996, the Ohio Supreme Court
disqualified all Cuyahoga County Common Pleas judges from hearing
the Jones litigation and appointed an out-of-county judge to hear
the case. In June 1996, the court denied motions to dismiss the
plaintiff's claims filed by McDonald Securities and various other
defendants. In October 1996, the defendants moved to disqualify
the Cuyahoga County Prosecutor's office from the case on the
grounds of prosecutorial misconduct and because certain employees
of that office are witnesses to the events underlying the
plaintiff's claims. The court has not yet acted on this motion. On
December 23, 1996, McDonald Securities filed an answer denying the
allegations of liability made by the plaintiff and raising a
number of affirmative defenses to the plaintiff's allegations.
McDonald Securities also filed counterclaims against the Cuyahoga
County Board of Commissioners (the "Board"). McDonald Securities'
counterclaims consist of a breach of contract claim arising out of
representations and warranties made by the Board concerning the
absence of material misstatements or omissions in the Official
Statements for the TANS/CRANS offerings, and an estoppel claim
arising out of McDonald Securities' justifiable reliance on
assurances provided by the Board concerning, among other things,
the investment experience of the Board's agents, the
authorizations of the transactions in question by the Board's
Investment Committee and the conformity of such transactions with
the County's investment policies and procedures. The case is
currently in the discovery stage and no trial date has been set.
Based on the facts known to date, the Company believes that the
plaintiff's claims against McDonald Securities are without merit,
and intends to contest vigorously the allegations in the
complaint.
Item 5. Other Information
-----------------
On August 7, 1996, the Company announced the continuation of an
open market repurchase program originally instituted in July,
1987. The current program allows the Company to purchase up to
1,000,000 shares of its Common Stock at an aggregate price not to
exceed $25,000,000. Treasury shares may be used to satisfy options
exercised under the Company's stock option plans and shares
awarded under the Company's 1995 Stock Bonus Plan.
During the fiscal quarter ended December 31, 1996 the Company
utilized 9,144 shares of the Company's Common Stock held in
treasury to satisfy options exercised under the Stock Option Plan
for employees.
12
<PAGE> 13
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Sequential
(a.) The following exhibit is filed as part of this report: Page
----
Number
- ------
<S> <C>
Exhibit 10(q) Documents Reflecting Line of Credit with
Star Bank.................................................16
Exhibit 11 Statement re: Computation of Per Share Earnings ...................91
Exhibit 27 Financial Data Schedule BD ........................................
(b.) Reports on Form 8-K:
The Company did not file a Report on Form 8-K during the
fiscal quarter ended December 31, 1996.
<FN>
* Exhibit 27 is Furnished for Securities and Exchange Commission Purposes Only.
</TABLE>
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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.
McDonald & Company Investments, Inc.
------------------------------------
(Registrant)
Date: February 6, 1997 By: /s/ William B.Summers, Jr.
---------------- ------------------------------------------
William B. Summers, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 6, 1997 By: /s/Robert T. Clutterbuck
---------------- ------------------------------------------
Robert T. Clutterbuck
Treasurer
(Principal Financial Officer)
14
<PAGE> 15
McDonald & Company Investments, Inc.
Report on FORM 10-Q for the Fiscal Quarter ended December 31, 1996
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit No. Description Sequential Page
- ----------- ----------- ---------------
<S> <C> <C>
10(q) Document Reflecting Line of Credit With
Star Bank.............................................. 16
11 Statement Re: Computation of
Per Share Earnings................................... 91
27 Financial Data Schedule................................
<FN>
* Exhibit 27 is Furnished for Securities and Exchange Commission Purposes Only
</TABLE>
15
<PAGE> 1
Exhibit 10(q)
CREDIT AGREEMENT
BY AND BETWEEN
MCD PROPERTY ADVISORS 1996, INC.
AND
STAR BANK, NATIONAL ASSOCIATION
SEPTEMBER 9, 1996
16
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
<S> <C> <C>
ARTICLE I - DEFINITIONS; ACCOUNTING TERMS; AMENDMENTS......................................................1
Section 1.01 DEFINITIONS............................................................................1
Section 1.02 ACCOUNTING TERMS......................................................................11
Section 1.03 APPOINTMENT OF PROPERTY ADVISORS AS REPRESENTATIVE ...................................12
ARTICLE II - CREDIT FACILITY .............................................................................12
Section 2.01 AMOUNTS...............................................................................12
Section 2.02 REDUCTION.............................................................................12
Section 2.03 SINGLE LOAN...........................................................................12
Section 2.04 ADVANCES; LCs; REVOLVING PERIOD.......................................................13
Section 2.05 INTEREST ON THE REVOLVING LOAN........................................................13
Section 2.06 ELECTION OF OVERALL LIBOR RATE FOR REVOLVING LOAN.....................................13
Section 2.07 [Omitted].............................................................................14
Section 2.08 LIMITS ON OVERALL LIBOR RATE ELECTIONS................................................14
Section 2.09 COMPENSATION; ILLEGALITY..............................................................14
Section 2.10 INTEREST PAYMENT DATES................................................................16
Section 2.11 VOLUNTARY PREPAYMENTS.................................................................16
Section 2.12 APPLICATION OF PAYMENTS TO REVOLVING LOAN.............................................16
Section 2.13 OVERALL LIBOR RATE INDEMNITY..........................................................17
Section 2.14 INTEREST CALCULATIONS.................................................................17
Section 2.15 LATE CHARGE; POST-DEFAULT RATE........................................................17
Section 2.16 COMMITMENT FEE........................................................................17
Section 2.17 REPAYMENT OF BORROWINGS; REPAYMENT OF THE REVOLVING LOAN; THE REVOLVING NOTES.........18
Section 2.18 LETTERS OF CREDIT.....................................................................18
Section 2.19 [Omitted].............................................................................19
Section 2.20 MAXIMUM...............................................................................19
Section 2.21 TERM..................................................................................19
Section 2.22 FORM..................................................................................19
Section 2.23 STANDARD FEES.........................................................................19
Section 2.24 COMMISSIONS...........................................................................19
Section 2.25 REIMBURSEMENT.........................................................................19
Section 2.26 PURPOSE OF THE REVOLVING LOAN.........................................................20
Section 2.27 EVENT OF DEFAULT OR POSSIBLE DEFAULT..................................................20
ARTICLE III - COLLATERAL SECURITY.........................................................................20
Section 3.01 COLLATERAL FOR BANK'S BENEFIT.........................................................20
Section 3.02 DEBT SECURED..........................................................................20
Section 3.03 COLLATERAL............................................................................21
</TABLE>
17
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.04 COSTS.................................................................................22
Section 3.05 INCONSISTENT PROVISIONS...............................................................23
Section 3.06 COLLATERAL SECURITY DOCUMENTS.........................................................23
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF THE BORROWER......................................................................................23
Section 4.01 ORGANIZATION OF THE COMPANIES; BUSINESS AND PROPERTY..................................23
Section 4.02 AUTHORIZATION; VALIDITY...............................................................23
Section 4.03 PERMITS...............................................................................23
Section 4.04 FINANCIAL STATEMENTS..................................................................24
Section 4.05 FINANCIAL CONDITION...................................................................24
Section 4.06 NO ADVERSE CHANGES....................................................................24
Section 4.07 TITLE TO PROPERTIES...................................................................24
Section 4.08 LITIGATION............................................................................24
Section 4.09 NATURE OF BUSINESS OF BORROWER........................................................24
Section 4.10 COMPLIANCE WITH OTHER INSTRUMENTS.....................................................25
Section 4.11 MATERIAL RESTRICTIONS.................................................................25
Section 4.12 CORRECTNESS OF DATA FURNISHED.........................................................25
Section 4.13 REGULATION U, ETC.....................................................................25
Section 4.14 SECURITIES ACT, ETC...................................................................26
Section 4.15 NO DEFAULT............................................................................26
Section 4.16 PRINCIPAL PLACE OF BUSINESS...........................................................26
Section 4.17 BROKERS, ETC..........................................................................26
ARTICLE V - CONDITIONS TO BORROWING..........................................................................27
Section 5.01 REPRESENTATIONS AND WARRANTIES........................................................27
Section 5.02 NO DEFAULTS...........................................................................27
Section 5.03 PERFORMANCE...........................................................................27
Section 5.04 CLOSING CERTIFICATE...................................................................27
Section 5.05 REVOLVING NOTE; GUARANTY..............................................................27
Section 5.06 DISBURSEMENT INSTRUCTIONS; FUNDING DOCUMENTATION......................................27
Section 5.07 OPINIONS OF COUNSEL FOR THE BORROWERS.................................................27
Section 5.08 CORPORATE PROCEEDINGS.................................................................28
Section 5.09 PAYMENT OF EXPENSES...................................................................28
Section 5.10 AMENDMENT OF GOVERNING DOCUMENTS .....................................................28
Section 5.12 OTHER DOCUMENTS.......................................................................28
Section 5.13 ASSUMPTION DOCUMENTS .................................................................29
Section 5.14 NO DEFAULTS...........................................................................29
Section 5.15 PERFORMANCE...........................................................................29
Section 5.16 REPRESENTATIONS AND WARRANTIES........................................................29
Section 5.17 CERTIFICATE...........................................................................29
Section 5.18 DISBURSEMENT INSTRUCTIONS; FUNDING DOCUMENTATION .....................................29
</TABLE>
18
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.19 DOCUMENTATION RELATING TO OPERATING ENTITIES .........................................30
Section 5.20 CONSTRUCTION LOAN ....................................................................30
Section 5.21 GUARANTY REDUCTION ...................................................................30
ARTICLE VI - AFFIRMATIVE COVENANTS OF THE BORROWERS.........................................................30
Section 6.01 PAYMENT OF AMOUNTS DUE................................................................30
Section 6.02 EXISTENCE, BUSINESS, ETC..............................................................31
Section 6.03 CONDUCT OF BUSINESS...................................................................31
Section 6.04 PAYMENT OF TAXES, ETC.................................................................31
Section 6.05 ACCOUNTS AND REPORTS OF THE BORROWERS.................................................32
Section 6.06 INFORMATION AND INSPECTION............................................................33
Section 6.07 NOTICE OF LITIGATION..................................................................33
Section 6.08 BANK AS PRIMARY DEPOSITORY ...........................................................33
Section 6.09 PAYMENT OF GUARANTY FEE ..............................................................34
Section 6.10 FURTHER ASSURANCES....................................................................34
ARTICLE VII - NEGATIVE COVENANTS OF THE BORROWERS...........................................................34
Section 7.01 LIMITATION OF LIABILITIES.............................................................34
Section 7.02 LIMITATION ON LIENS...................................................................35
Section 7.03 GUARANTEES............................................................................35
Section 7.04 INVESTMENTS, REVOLVING LOAN, AND ADVANCES.............................................36
Section 7.05 ASSIGNMENT OR SALE OF ASSETS..........................................................36
Section 7.06 LIQUIDATION, MERGER, OR CONSOLIDATION.................................................36
Section 7.07 AMENDMENT OF ARTICLES OF INCORPORATION AND/OR CODE OF REGULATIONS.....................36
Section 7.08 DISTRIBUTIONS; PURCHASES OR REDEMPTION OF STOCK; DIVIDENDS............................36
Section 7.09 FISCAL YEAR...........................................................................36
Section 7.10 REGULATION U..........................................................................36
Section 7.11 TRANSACTIONS WITH AFFILIATES..........................................................37
ARTICLE VIII - WAIVERS......................................................................................37
ARTICLE IX - DEFAULTS.......................................................................................37
Section 9.01 PRINCIPAL DEFAULT.....................................................................37
Section 9.02 INTEREST DEFAULT......................................................................37
Section 9.03 OTHER PAYMENT DEFAULTS................................................................37
Section 9.04 CERTAIN ARTICLE VI AND VII............................................................38
Section 9.05 DEFAULTS UNDER ARTICLE VI.............................................................38
Section 9.06 OTHER PROVISION DEFAULT...............................................................38
Section 9.07 REPRESENTATION AND WARRANTY...........................................................38
Section 9.08 COLLATERAL SECURITY DOCUMENT OR OTHER LOAN DOCUMENT DEFAULT...........................38
Section 9.09 COLLATERAL SECURITY DOCUMENT REPRESENTATION AND WARRANTY..............................38
</TABLE>
19
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.10 GUARANTY DEFAULT......................................................................39
Section 9.11 GUARANTY REPRESENTATION AND WARRANTY..................................................39
Section 9.12 FINANCIAL DIFFICULTIES................................................................39
Section 9.13 ERISA TERMINATION.....................................................................40
Section 9.14 ACCUMULATED FUNDING DEFICIENCY........................................................40
Section 9.15 OWNERSHIP.............................................................................40
Section 9.16 BORROWER CROSS-DEFAULT................................................................40
Section 9.17 COMPANY CROSS-DEFAULT.................................................................41
Section 9.18 JUDGMENTS.............................................................................41
Section 9.19 MATERIAL ADVERSE CHANGE...............................................................41
Section 9.20 RESTRAINT ON BUSINESS.................................................................41
ARTICLE X -REMEDIES.........................................................................................41
Section 10.01 ACCELERATION..........................................................................41
Section 10.02 RECOVERY OF AMOUNTS ..................................................................42
Section 10.03 LCs...................................................................................42
Section 10.04 REMEDIES CUMULATIVE...................................................................42
Section 10.05 COST OF COLLECTION....................................................................43
Section 10.06 NO ADVANCES, ETC......................................................................43
Section 10.07 MANAGEMENT OF COLLATERAL AFTER EVENT OF DEFAULT.......................................43
ARTICLE XI - MISCELLANEOUS .................................................................................43
Section 11.01 PAYMENT OF EXPENSES...................................................................43
Section 11.02 NOTICES...............................................................................44
Section 11.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES............................................44
Section 11.04 ENTIRE AGREEMENT; AMENDMENT...........................................................45
Section 11.05 PARTIES IN INTEREST; BANK'S PURPOSE...................................................45
Section 11.06 WAIVER OF ASSERTION OF COUNTERCLAIMS; WAIVER OF JURY TRIAL............................45
Section 11.07 SET-OFF PROVISION.....................................................................46
Section 11.08 SEVERABILITY OF PROVISIONS............................................................46
Section 11.09 HEADINGS..............................................................................46
Section 11.10 CONSENT TO JURISDICTION...............................................................46
Section 11.11 GOVERNING LAW.........................................................................46
Section 11.12 NATURE OF THE BORROWERS' OBLIGATIONS AND MODIFICATION THEREOF.........................47
Section 11.13 COUNTERPARTS..........................................................................47
</TABLE>
20
<PAGE> 6
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT (the "Credit Agreement" or "Agreement"), dated as
of the 9th day of September, 1996, by and between MCD PROPERTY ADVISORS 1996,
INC., an Ohio corporation ("Property Advisors") and each Borrowing Fund (as
hereinafter defined) (Property Advisors and each Borrowing Fund being referred
to collectively as the "Borrowers") and STAR BANK, NATIONAL ASSOCIATION (the
"Bank").
WITNESSETH;
-----------
WHEREAS, the Borrowers desire to obtain from the Bank a secured
revolving credit facility (the "Credit Facility") in a principal amount not to
exceed TEN MILLION DOLLARS ($10,000,000) including both (i) advances that may be
borrowed and from time to time repaid and (ii) standby letters of credit
(collectively the "Revolving Loan"), all upon the terms and conditions set forth
hereafter.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
In addition to terms defined elsewhere in this Credit Agreement,
certain terms used herein are defined in Section 1.01.
ARTICLE I
---------
DEFINITIONS; ACCOUNTING TERMS; AMENDMENTS
-----------------------------------------
Section 1.01 DEFINITIONS. As used herein and in the Revolving Note and
the other Loan Documents, the following terms shall have the following meanings:
"Acceptable Marketable Securities" means securities that are direct
obligations of the United States of America or any agency thereof, or
certificates of deposit issued by the Bank, or any other money-market investment
if it carries the highest quality rating of any nationally-recognized rating
agency, provided that no such security shall mature more than ninety (90) days
after the date when made.
"Account Officer" means that officer of the Bank who at the time in
question is designated by the Bank as the officer having the primary
responsibility for giving consideration to the Borrowers' requests for credit
or, in that officer's absence, that officer's immediate superior or any other
officer who reports directly to that superior officer.
21
<PAGE> 7
"Acquisition Cost" means the purchase price of a Permitted Investment.
"Advances" means advances of cash proceeds obtained by the Borrowers in
respect of the Revolving Loan.
"Affiliate" means any director or principal officer of the Borrowers or
the Guarantor or shareholder owning more than five percent (5%) of any class of
outstanding securities of the Guarantor, or any corporation, partnership or
other business enterprise directly or indirectly controlled by, or under direct,
indirect or common control with, any one or more of such Persons and/or the
Borrowers.
"Assumption Agreement" means an agreement, in the form of Exhibit A
attached hereto, duly completed, pursuant to which a Fund Entity becomes a
Borrowing Fund and a Borrower under this Agreement and assumes the obligations
of a Borrower under this Agreement.
"Assumption Documents" means both an Assumption Agreement and a
Borrowing Fund Allonge.
"Authorized Officers" means the chief executive officer, chief
financial officer, chief accounting officer, president or treasurer of the
Guarantor or Property Advisors.
"Available Rates" shall have the meaning given to it in Section 2.05.
"Bank" shall have the meaning given to such term in the preamble of
this Agreement.
"Borrowers" shall have the meaning given to such term in the preamble
of this Agreement.
"Borrowing" means a series of the Revolving Loan obtained by the
Borrowers and includes, without limitation, an Advance or LC (as hereinafter
defined) part of the Revolving Loan the proceeds of which represent new money to
the Borrowers and part of the Revolving Loan the proceeds of which are applied
to any Advance bearing interest at an Overall Libor Rate at the end of the
applicable Libor Rate Period; to the extent that the term "borrowed money" is
used in this Agreement, it is used as a generic term and is not derived solely
from "Borrowing".
"Borrowing Fund" means a Fund Entity that has executed and delivered
Assumption Documents to the Bank and/or has received an Advance or an LC.
22
<PAGE> 8
"Borrowing Fund Allonge" means an allonge to the Revolving Note, in the
form of Exhibit B to this Agreement, duly completed, whereby a Borrowing Fund
executes and delivers the Revolving Note and becomes a maker of the Revolving
Note.
"Business Day" means any day on which dealings in United States Dollar
deposits in the London inter-bank market are carried out and which is not a
Saturday, Sunday or other day on which banks in Cincinnati, Ohio are authorized
or required to close.
"Capital Expenditures" means any and all amounts invested, expended or
incurred (including by reason of Capitalized Lease Obligations) in respect of
the purchase, acquisition, improvement, renovation or expansion of any
properties or assets of the Borrowers, including, without limitation,
expenditures required to be capitalized in accordance with GAAP, but excluding
in all cases Permitted Investments.
"Capitalized Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under leases of, or
other agreements conveying the right to use real and/or personal property, which
obligations are required to be classified and accounted for as capital leases on
a balance sheet of such Person, prepared in accordance with GAAP (including the
Financial Accounting Standards Board).
"Closing Date" means the date that the first Borrowing is made by the
Borrowers under this Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute, and the rules and regulations promulgated
thereunder.
"Collateral Security Documents" shall have the meaning set forth in
Section 3.06.
"Commitment" means the commitment of the Bank to extend credit to the
Borrowers pursuant to Section 2.01 of this Agreement and upon the terms, subject
to the conditions and in accordance with other provisions of this Agreement.
"Companies" means the Guarantor and its Subsidiaries.
"Conclusive" means that the calculation, determination or other matter
referred to is presumed for all purposes to be true and correct and absolutely
binding on the Borrowers except to the extent of manifest or obvious error (e.g.
arithmetic error or misplacement of decimal points).
"Consolidated" means on a consolidated basis for the Guarantor and all
of its Subsidiaries, as determined in accordance with GAAP.
23
<PAGE> 9
"Construction Loan Liens" shall have the meaning given to such term in
Section 7.02(ii).
"Credit Facility" shall have the meaning given to such term in the
recitals of this Agreement.
"Distribution" means any payment or distribution or transfer to,
redemption, acquisition or purchase from, or exchange with (directly or
indirectly), the Guarantor made in respect of its Equity Interest, of any
property, including, without limitation, cash, whether or not the same shall be
made from earnings of Property Advisors a redemption of such Equity Interest,
but, excluding in all cases, any of the foregoing made by Property Advisors to
the Guarantor or stock dividends or splits of the capital stock of the
Guarantor.
"Dollars" and "$" means United States dollars or such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts in the United States.
"Due Date" shall have the meaning set forth in Section 2.17.
"Effective Date" means the date on which the Bank makes an Advance,
issues on LC or the election by the Borrowers of any Interest Option becomes
effective.
"Environmental" means relating to pollution of the environment,
including air, soil, water and groundwater, and the effects of hazardous
substances or toxic and solid wastes.
"Environmental Matters" means (a) any injury to person or property
resulting or allegedly resulting from Environmental claims, (b) any suits,
investigations, notices, orders, decrees or proceedings and other acts and
actions arising under any existing or future environmental laws, rules,
regulations, orders, permits, decrees, notices of violation and other
environmental claims and (c) any compliance required under existing or future
environmental laws, orders, permits, decrees, notices of violations and other
Environmental claims.
"Equity Interests" means all capital stock and options, warrants and
rights to acquire or convert to capital stock of Property Advisors.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the regulations thereunder, each as amended from time to time.
"ERISA Affiliate" means, as applied to any Person, any trade or
business (whether or not incorporated) that would be aggregated with the
Companies for any purpose relevant to ERISA or the Code relating to any Plan.
24
<PAGE> 10
"Event of Default" shall have the meaning specified in Article X of
this Credit Agreement.
"Execution Date" means the date of this Credit Agreement first written
above.
"Exhibits" and "Schedules" means and refers collectively to the
documents attached to this Credit Agreement and labeled as Exhibits or Schedules
hereto.
"federal", "state", or "local" means and relates to the United States,
its political division of states, and the respective political subdivisions and
equivalents of such states.
"Fiscal Year" means a period consisting of four Quarters ending on the
last day in March that is a day that the New York Stock Exchange is open for
business, in the case of the Guarantor and Property Advisors, and December 31,
in the case of a Borrowing Fund.
"Fixed or Capital Assets" means and includes all assets which are
defined or classified as fixed or capital assets in accordance with GAAP, but
excluding any Permitted Investments.
"Fund Entity" means an entity organized by the Guarantor or a
Subsidiary for the purpose of acquiring Permitted Investments and includes,
without limitation McDonald Freedom Tax Credit Fund L.P., McDonald Corporate Tax
Credit Fund-1996 L.P., McDonald Ohio Tax Credit Fund L.P., McDonald Corporate
Tax Credit Fund 1996-P, McDonald Corporate Guaranteed Tax Credit Fund.
"GAAP" means generally accepted accounting principles as consistently
applied in the United States from time to time.
"Governing Documents" means each Fund Entity's respective Private
Placement Memorandum, Limited Partnership Agreement, Certificate of Limited
Partnership and any other similar documents pursuant to which such Fund Entity
is organized or governed.
"Guaranteed" or to "Guarantee" as applied to an obligation shall mean
and include (a) a guarantee or guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation and (b) an
agreement, direct or indirect, contingent or otherwise, and whether or not
constituting a guaranty, the practical effect of which is to assure the payment
or performance (or payment of damages in the event of non-performance) of any
part or all of such obligation whether by (i) the purchase of securities or
obligations, (ii) the purchase, sale or lease (as lessee or lessor) of property
or the purchase or sale of services primarily for the purpose of enabling the
obligor with respect to such obligation to make any payment or
25
<PAGE> 11
performance (or payment of damages in the event of nonperformance) of or on
account of any part or all of such obligation, or to assure the owner of such
obligation against loss, (iii) the supplying of funds to or in any other manner
investing in the obligor with respect to such obligation, (iv) repayment of
amounts drawn down by beneficiaries of letters of credit or (v) the supplying of
funds to or investing in a Person on account of all or any part of such Person's
obligation under a Guarantee of any obligation or indemnifying or holding
harmless, in any way such Person against any part or all of such obligation.
"Guarantor" means McDonald & Company Investments, Inc., a Delaware
corporation.
"Guaranty" means that certain Guaranty Agreement dated the date hereof
executed and delivered by the Guarantor in favor of the Bank and guaranteeing
repayment of the Obligations.
"Indebtedness for Borrowed Money" of any Person means at any date,
without duplication, (i) all obligations of such Person for borrowed money,
including, without limitation, all borrowings under insurance policies, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person to pay the deferred
purchase price for property or services, except accounts payable arising in the
ordinary course of business, (iv) all Capitalized Lease Obligations of such
Person, (v) all Indebtedness for Borrowed Money of others secured by a Lien on
any asset of such Person, whether or not such Indebtedness for Borrowed Money is
assumed by such Person and (vi) all Indebtedness for Borrowed Money of others
Guaranteed by such Person.
"Indemnified Liabilities" shall have the meaning given to it in Section
13.01.
"Interest Option" means any one or more of the Prime Rate or the
Overall Libor Rate.
"Investment" means any advance, extension of credit (excluding accounts
receivable arising in the ordinary course of business and endorsements of
negotiable instruments for collection in the ordinary course of business) or
contribution of capital to any Person or purchase or other acquisition of the
stock or any notes, debentures or other securities of, or any equity interest
in, any other person.
"LCs" means any letter of credit issued by the Bank for the account of
the Borrowers.
"Liabilities" as applied to the Borrowers, means:
(i) All items which in accordance with GAAP applied on a
consistent basis would be included in determining total liabilities as
shown on the liability side of a
26
<PAGE> 12
balance sheet of a Borrower as of the date on which Liabilities are
to be determined, regardless whether such items are recourse
indebtedness or otherwise; and
(ii) All liabilities of others within the meaning of (i) above
which a Borrower have directly or indirectly Guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of
business), discounted with recourse or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire or become
liable for, or in respect of which a Borrower have entered into any
agreement for the purchase or other acquisition of any product,
materials, or supplies, or for the making of shipments, or for the
payment for services, if in any such case payment therefor is to be
made regardless of the nondelivery of the product, materials, or
supplies or the nonfurnishing of the transportation or services.
"Libor Rate" means, with respect to any Effective Date, a rate per
annum equal to the quotient obtained (rounded upwards, if necessary, to the next
highest 1/100 of 1%) by dividing (i) the rate of interest determined by the Bank
three (3) Business Days prior to such Effective Date that it would have to pay
on such Effective Date in the London inter-bank market for inter-bank deposits
of United States Dollars with a maturity equal (or as nearly equal as possible)
to the Libor Rate Period selected by the Representative and in an amount equal
to such amount of the Revolving Loan on which interest will be determined by the
Libor Rate by (ii) 1.00 minus for the day the rate of interest is determined by
the Bank that percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board of Governors of the Federal Reserve System (or
any successor) for determining the reserve requirement for the Bank in respect
of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the Libor Rate is
determined or any category of extensions of credit or other assets which
includes loans by a non-United States office of the Bank to United States
residents). The Libor Rate will be increased by such amount as provided in
Section 2.09 to compensate the Bank for the changes in circumstances described
in Section 2.09 and if such changes in circumstances are no longer applicable or
are otherwise modified so that such increase is no longer required in whole or
in part, then the Libor Rate will be decreased on an equivalent basis (in whole
or in part), in each case, without duplication.
"Libor Rate Period" means the period for which an Overall Libor Rate is
in effect for the purpose of determining the rate of interest on all or any part
of the Revolving Loan.
"Lien" as applied to the property of any Person means: (a) any
mortgage, lien, pledge, charge, lease constituting a Capitalized Lease
Obligation, conditional sale or other title retention agreement, or other
security interest or encumbrance of any kind in respect of any property of such
Person, or upon the income or profits therefrom; (b) any arrangement,
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express or implied, under which any property of such Person is transferred,
sequestered or otherwise identified for the purpose of subjecting the same to
the payment of Indebtedness for Borrowed Money in priority to the payment of the
general, unsecured creditors of such Person; (c) any Liabilities which are
unpaid more than 60 days after the same shall have become due and payable and
which if unpaid would by law (including, but not limited to, bankruptcy and
insolvency laws), or otherwise, be given any priority whatsoever over general
unsecured creditors of such Person; and (d) the filing of, or any agreement to
give, any financing statement under the Uniform Commercial Code or its
equivalent of any jurisdiction in respect of Indebtedness for Borrowed Money.
"Loan Documents" means and includes this Credit Agreement, the
Revolving Note, the Guaranty, the Assumption Documents and the Collateral
Security Documents.
"MCD Securities" means McDonald & Company Securities, Inc., an Ohio
corporation.
"Material Adverse Effect" means a materially adverse effect on the
business, properties, operations or condition (financial or otherwise) of any
Borrower, or the Guarantor, except in the case of the Guarantor, determined on a
Consolidated basis, as applicable as determined by the context when used.
"Net Proceeds" means, with respect to the sale or disposition of any
asset, including but not limited to any Permitted Investment, the total proceeds
received in cash (from time to time, including, without limitation, any
installment, rental or other deferred payments) upon such sale or disposition
minus (i) any reasonable out-of-pocket expenses directly arising out of such
sale or disposition and (ii) Taxes payable in respect of such proceeds.
"Note Purchase Agreement" means that certain Note Purchase Agreement
dated as of January 15, 1993 executed and delivered by MCD Securities in favor
of the purchasers named therein and relating to MCD Securities' 8.24%
Subordinated Notes due January 15, 2002 issued in the original principal amount
of $25,000,000.
"Obligations" shall have the meaning given to such term in Section
4.02.
"Operating Entity" means an entity organized to construct, renovate,
acquire, operate or maintain housing projects that will qualify for tax credits
under the Code as historic or low income housing property and in which a
Borrower makes a Permitted Investment.
"Ordinary Course Liabilities" shall have the meaning given to such term
in Section 2.01(ii).
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"Outstanding Amount" means the sum of (i) the outstanding unpaid
principal of the Revolving Loan plus (ii) the outstanding stated amount of any
LCs.
"Overall Libor Rate" means the Libor Rate plus Seventy-Five (75) basis
points.
"Overall Libor Rate Indemnity" shall have the meaning specified in
Section 2.13 in respect of a Loan to the extent bearing interest at an Overall
Libor Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto.
"Permitted Investment" means an equity interest (which may be capital
stock, a limited or general partnership interest or a membership interest in a
limited liability company) in an Operating Entity.
"Permitted Liabilities" shall have the meaning given to such term in
Section 7.01.
"Permitted Liens" shall have the meaning given to such term in Section
7.02.
"Person" includes a corporation, an association, a partnership, an
organization, a trust or business trust, an individual, a government or
political subdivision thereof or a governmental agency or other entity.
"Plan" means any pension plan which is covered by Title IV of ERISA in
respect of which any of the Companies or any ERISA Affiliate is an "employer" as
defined in Section 3(5) of ERISA.
"Possible Default" means an event or condition which, after notice or
lapse of time, or both, would constitute an Event of Default.
"Post-Default Rate" means a per annum rate of interest equal to four
percent (4%) over the Available Rates.
"Property Advisors" shall have the meaning given to such term in the
preamble of this Agreement.
"Quarter" means one of the four periods comprising a Fiscal Year.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA or the regulations thereunder, in each case where reporting
requirements have not been
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waived and which event could or would give rise to the termination of any Plan,
the appointment of a trustee for such Plan or otherwise impose any liability on
any of the Companies, taken on a Consolidated basis, including, without
limitation, as described in Department of Labor Regulations sections 2615.11,
2615.12 or 2615.15 through 2615.17.
"Representative" shall have the meaning given to such term in Section
1.03.
"Revolving Loan" shall have the meaning given to such term in the
recitals of this Agreement.
"Revolving Note" means the promissory note executed jointly and
severally by the Borrowers in favor of the Bank to evidence the Borrowers'
indebtedness pursuant to the Credit Facility.
"Revolving Period" shall have the meaning given to such term in Section
2.04.
"Subsidiaries" means and includes any corporation, association, or
other business entity, the majority (by number of votes) of the stock of any
class or classes of which is at the time owned or controlled directly or
indirectly by the Borrowers, if the holders of the stock of such class or
classes (i) are ordinarily, in the absence of contingencies, entitled to vote
for the election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, even though the right so to vote has been
suspended by the happening of any contingency, or (ii) are at the time entitled,
as such holders, to vote for the election of a majority of the directors (or
persons performing similar functions) of the issuer thereof, whether or not the
right so to vote exists by reason of the happening of a contingency, but
excluding any Permitted Investment.
"Taxes" means all federal, state and local or foreign income, payroll,
withholding, excise, sales, use, real and personal property, use and occupancy,
business and occupation, mercantile, real estate, capital stock and franchise or
other taxes, including interest and penalties thereon, and including estimated
taxes thereof.
"Unfunded Liability" means, with regard to any Plan, the excess of the
present value of accrued benefits under the plan over the current value of the
Plan's assets. Whenever this Agreement requires the amount of any Unfunded
Liability to be determined, it shall be determined as of the beginning of the
most recent Plan year on the final actuarial valuation prepared for the Plan for
funding purposes.
Whenever any agreement, guaranty, mortgage, deed of trust, assignment
of lease, promissory note, subordination agreement, pledge agreement,
intercreditor agreement, or
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other instrument or document is defined in this Credit Agreement, such
definition shall be deemed to mean and include, from and after the date of an
amendment, restatement, or modification thereof, such agreement, mortgage,
subordination agreement, pledge agreement, assignment of sublease, promissory
note or other instrument or document as amended, restated or modified. To the
extent that the plural of any term defined herein is not defined in this Credit
Agreement, that usage of the plural in this Credit Agreement shall mean the
plural of the singular term so defined and if the defined term is plural, usage
of the singular of such term shall mean the singular thereof, in each case as
the context so requires. The words "hereof", "herein" or similar words shall
refer to this Credit Agreement and references to Sections or Articles shall mean
Sections or Articles of this Credit Agreement.
Section 1.02 ACCOUNTING TERMS Any accounting terms used herein and not
defined herein shall have the meaning ascribed to them by, and be determined in
accordance with, GAAP. All computations made pursuant to this Agreement shall be
made in accordance with GAAP consistently applied and all balance sheets and
other financial statements shall be prepared in accordance with GAAP
consistently applied except, with respect to interim financial statements, for
normal recurring year-end adjustments.
Section 1.03 APPOINTMENT OF PROPERTY ADVISORS AS REPRESENTATIVE. Each
of the Borrowers, jointly and severally, hereby appoints Property Advisors as
their respective agent and representative (the "Representative") for the purpose
of giving and receiving notice relating to this Credit Agreement, to receive the
proceeds of any advance of Loan, making any election of any Interest Option and
to do other things that any of the Borrowers may do under this Credit Agreement.
All references to the Representative and to Property Advisors in this Credit
Agreement when the context so indicates that it is acting as agent and
Representative for itself and the other Borrower shall be deemed to be a
reference to all of the Borrowers. Each of the Borrowers, jointly and severally,
agrees that each shall be bound and obligated by the acts of the Representative
relating to this Credit Agreement and hereby confirm and ratify any acts the
Representative shall make in such capacity. No revocation or modification of the
foregoing appointment of Property Advisors as Representative, the revocation or
acceptance of such appointment by Property Advisors as the Representative and
the effect thereof, shall be effective as to the Bank without the prior written
consent of the Bank thereto.
ARTICLE II
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CREDIT FACILITY
---------------
Section 2.01 AMOUNTS. The Bank hereby establishes its commitment (the
"Commitment") in respect of the Credit Facility. The aggregate amount of the
Commitment
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shall be TEN MILLION DOLLARS ($10,000,000), but that amount may be reduced from
time to time pursuant to Section 2.02 and the Commitment may be terminated
pursuant to Article 10. In no event shall the Outstanding Amount exceed the then
current Commitment.
Section 2.02 REDUCTION. The Borrowers shall have the right at all times
to permanently and irrevocably reduce the Commitment in whole or in part by
giving written notice of the reduction to the Bank at least one (1) Business Day
prior to the reduction, each such reduction to be equal to at least $1,000,000.
Concurrently with each reduction, the Borrowers shall prepay the amount, if any,
together with interest thereon, by which the Outstanding Amount exceeds the
Commitment as so reduced. Section 2.11 shall apply to each such prepayment.
Section 2.03 SINGLE LOAN. The Outstanding Amount borrowed by the
Borrowers from the Bank under the Commitment shall constitute a single loan from
the Bank regardless of how many Advances have been borrowed or repaid or LCs
have been issued or are outstanding.
Section 2.04 ADVANCES; LCs; REVOLVING PERIOD. The Borrowers may obtain
Borrowings consisting of (i) Advances in respect of the Revolving Loan or (ii)
LCs during a period (the "Revolving Period") commencing as of the Closing Date
until (i) the termination of the Commitment pursuant to any provision hereof or
(ii) September 15, 1998, whichever shall first occur, whereupon the Commitment
shall be terminated and no longer be in effect. All Borrowings shall be repaid
in accordance with Section 2.17. Each Borrowing shall be made solely to make
Permitted Investments as set forth in Section 2.26. Each Borrowing shall be in
an amount of not less than $250,000 nor more than the lesser of (i) $5,000,000
or (ii) one hundred percent (100%) of the Acquisition Cost of the Permitted
Investment. The Representative shall give the Bank notice on or before 12:00
noon Cleveland time on the date of a Borrowing, subject to Section 2.08. Subject
to the other provisions hereof, during the Revolving Period, Borrowings may be
borrowed and repaid (in accordance with Section 2.11) and new Borrowings
borrowed so long as the Outstanding Amount outstanding at any one time does not
exceed the Commitment.
Section 2.05 INTEREST ON THE REVOLVING LOAN. The Borrowers shall pay
interest on the Revolving Loan at the rate per annum determined on the basis of
either the (i) Prime Rate and/or (ii) the Overall Libor Rate, as applicable in
accordance with the other provisions of this Agreement (the "Available Rates").
Section 2.06 ELECTION OF OVERALL LIBOR RATE FOR REVOLVING LOAN. (i)
Subject to the terms and conditions stated in this Section 2.06 and otherwise in
this Article II, the Borrowers may elect to have interest on an Advance to be
determined on the basis of an
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Overall Libor Rate. In no event shall more than twenty Overall Libor Rates be in
effect for the Revolving Loan at any time. If no election is made by the
Borrowers as to the Interest Option for determination of interest on an Advance,
interest thereon will be determined at the Prime Rate.
(ii) The minimum principal amount of an Advance initially upon which
interest may be determined on an Overall Libor Rate shall be $250,000 and in
multiples of $100,000 in excess thereof. The Libor Rate Periods which the
Representative may elect for interest to be determined on an Overall Libor Rate
are approximately seven, fourteen or twenty-one days and one month, two month,
or three months. No Libor Rate Period shall end on a date after the due date of
the Advance for which an Overall Libor Rate is in effect. The Borrowers shall
have no right to elect the use of an Overall Libor Rate if any Event of Default
or Possible Default shall exist at the time of election or immediately upon the
effectiveness thereof.
(iii) Each election of an Overall Libor Rate shall be made by written
or telephonic notice (if telephonic, then promptly confirmed in writing) to the
Bank received by it not later than 11:00 a.m. Cleveland time three (3) Business
Days before the date the Representative desires to select as the Effective Date
for such Overall Libor Rate. The Representative, by giving a notice of election,
expressly accepts the particular Overall Libor Rate elected regardless of any
change in financial conditions or markets that may have affected such Overall
Libor Rate after the giving of notice but prior to the Effective Date thereof.
Each notice of election shall specify the principal amount of such Revolving
Loan to which such Overall Libor Rate is applicable and the period for which
such Overall Libor Rate shall be effective.
Section 2.07 [Omitted]
Section 2.08 LIMITS ON OVERALL LIBOR RATE ELECTIONS. The right of the
Borrowers to elect the use of an Overall Libor Rate for the purposes of
determining interest on the Revolving Loan shall at all times be subject to the
following:
(I) availability of funding or its functional equivalent
to the Bank to allow the election of such Overall
Libor Rate;
(II) that the basis for determining such Overall Libor
Rate will adequately and fairly reflect the cost to
the Bank of maintaining or funding the Overall Libor
Rate so elected; and
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(III) the Bank does not reasonably believe that it is
prohibited from or otherwise restricted by applicable
law or regulatory requirement in allowing the Bank to
elect such Overall Libor Rate.
Section 2.09 COMPENSATION; ILLEGALITY. (a) If, after the date hereof,
there shall be introduced or changed any treaty, statute, law, regulation or
other governmental requirement, or there shall be any change in the
interpretation or administration thereof by any governmental authority charged
with the administration or interpretation thereof, or there shall be made any
request from any central bank or other lawful governmental authority having
jurisdiction over the Bank, this Credit Agreement, the Revolving Loan or the
Revolving Note, which introduction, change or compliance shall, upon becoming
effective, (i) impose, modify or deem applicable any reserve or special deposit
or other requirements against assets held by or deposits in or loans by the Bank
or (ii) subject the Bank to any tax, duty, fee, deduction or withholding or
(iii) change the basis of taxation of payments due from the Borrowers (otherwise
than by a change in taxation of the overall net income of the Bank) or (iv)
impose on the Bank any penalty in respect of any maintaining the Revolving Loan,
and any such event increases the cost to the Bank to maintain the Revolving Loan
or reduces the amount of principal or interest received by the Bank in respect
of this Credit Agreement or the Revolving Loan, then upon the Bank's demand, the
Borrowers shall pay to the Bank from time to time such additional amounts as
will compensate and reimburse the Bank for such increased cost or reduced
amount. Each demand for compensation shall be accompanied by the Bank's
certificate setting forth in reasonable detail the amount to be paid by the
Borrowers and the computations used in determining the amount, which certificate
shall be Conclusive. In determining any such amount, the Bank may use any
reasonable averaging and attribution methods.
(b) In the event that any applicable law treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank or any interpretation or administration thereof
by any governmental authority charged with the interpretation or administration
thereof, or compliance by the Bank with any guideline, request or directive of
any such authority (whether or not having the force of law), affects or would
affect the amount of capital required or expected to be maintained by the Bank
or any corporation controlling the Bank, as the case may be, and the Bank
determines that the amount of such capital is increased by or based upon the
existence of the Bank's obligations under this Agreement and such increase has
the effect of reducing the rate of return on the Bank's or such controlling
corporation's capital as a consequence of its obligations hereunder to a level
below that which the Bank or such controlling corporation could have achieved
but for such circumstances (taking into consideration its policies with respect
to capital adequacy) by an amount deemed by the Bank to be material, then the
Borrower shall pay to the Bank, from time to time, upon request by the Bank
additional amounts sufficient to
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compensate the Bank for any increase in the amount of capital and reduced rate
of return which the Bank reasonably determine to be allocable to the existence
of the Bank's obligations hereunder.
(c) In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request or
directive of such authority (whether or not having the force of law), including,
without limitation, exchange controls, shall make it unlawful for the Bank to
maintain or offer the Revolving Loan under this Credit Agreement, the Bank may,
upon the occurrence of such an event, refuse to offer the Revolving Loan to the
Borrowers or to maintain the Revolving Loan and, in the event that the part of
the Revolving Loan that it is unlawful to maintain are only those Advances at an
Overall Libor Rate, the Borrower may convert such Advances to bear interest at
the Prime Rate subject to the provisions of Section 2.13.
Section 2.10 INTEREST PAYMENT DATES. Interest on the Advances that is
being determined by an Overall Libor Rate shall be paid in arrears to the Agent
at the end of each Libor Rate Period and on the Due Date. If any Libor Rate
Period for an Overall Libor Rate would end on a date that is not a Business Day
then such Libor Rate Period shall end on the next succeeding Business Day unless
such next succeeding Business Day would occur in the next succeeding calendar
month in which case the Libor Rate Period will end on the immediately preceding
Business Day. Interest on the Revolving Loan that is being determined on the
Prime Rate shall be paid in arrears to the Bank on the first day of each month
or the next succeeding Business Day if such date is not a Business Day, prior to
the payment in full of the Revolving Loan. All unpaid and accrued interest shall
be due and payable on the respective final maturity or acceleration of the
Revolving Loan.
Section 2.11 VOLUNTARY PREPAYMENTS. Subject to the provisions contained
in this Section 2.11, the Borrowers, at their option, may prepay without premium
or penalty all or any part of the Revolving Loan upon which interest is being
determined at Prime Rate. Upon any prepayment of any Advance (or any part
thereof) upon which interest is being determined in accordance with an Overall
Libor Rate, the Borrowers will pay to the Bank the Overall Libor Rate Indemnity.
The Borrower shall give the Bank notice on or before 1:00 p.m. Cleveland time
not less than one (1) Business Day prior to any voluntary prepayment of the
Revolving Loan. Any notice of payment or payment made after 1:00 p.m. Cleveland
time will be deemed made as of the next following Business Day.
Section 2.12 APPLICATION OF PAYMENTS TO REVOLVING LOAN. The payments of
principal required on the Revolving Loan will be applied in the following order
of priority:
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(A) to the principal amount of each Advance upon which
interest is determined in accordance with an Overall Libor Rate having
a Libor Rate Period ending on the date such payment of principal is
due;
(B) to the principal amount of each Advance upon which
interest is being determined in accordance with the Prime Rate; and
(C) lastly, any remaining amount shall be applied as a
prepayment to the principal amounts of Advances upon which interest is
being determined in accordance with an Overall Libor Rate that is in
excess of the amounts specified in clause (A) above.
Section 2.13 OVERALL LIBOR RATE INDEMNITY. The Borrowers shall
compensate and pay to the Bank any costs and expenses (whether internal or
external) (an "Overall Libor Rate Indemnity"), as determined by the Bank in its
sole discretion (including, without limitation, loss of profit, any interest
paid by the Bank to lenders of funds borrowed by it to fund and carry the
portion of the Revolving Loan upon which interest is being determined on an
Overall Libor Rate and any loss sustained by the Bank in connection with the
reemployment of such funds), which the Bank may sustain if: (1) any payment or
prepayment of any Advance bearing interest at the Overall Libor Rate (including,
without limitation, as a consequence of any conversion of an Advance bearing
interest at an Overall Libor Rate to an Advance bearing interest at an Prime
Rate or any Event of Default or Possible Default under this Agreement) occurs on
a date which is not the last day of a Libor Rate Period applicable thereto or
(2) any repayment of an Advance is not made on the Due Date or any date
specified in a notice of repayment given by the Borrowers.
Section 2.14 INTEREST CALCULATIONS. All of the interest payable on the
Revolving Loan shall be computed on a 360-day-per-year basis for the actual
number of days elapsed. All payments to be made by the Borrower under this
Credit Agreement and the Revolving Note shall be made in immediately available
funds by 1:00 p.m., Cincinnati time, to the Bank and any payment received after
such time shall be deemed received on the next following Business Day. Except as
set forth in Section 2.10 above, whenever any payment under this Credit
Agreement and the Revolving Note shall be due on any day that is not a Business
Day, the date for payment thereof shall be extended to the next succeeding
Business Day. If the due date for any such payment is so extended or extended
for any other reason, including operation of law, or any payment is received
after a due date, interest shall accrue and be payable on demand for such
extended time.
Section 2.15 LATE CHARGE; POST-DEFAULT RATE. In the event that any
payment of principal or interest on the Revolving Loan, including but not
limited to any Advance is not
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paid on the Due Date or the maturity date (including any applicable grace
period), the Borrowers agree to pay a late charge of $500. After the occurrence
and during the continuance of any Event of Default, the Revolving Loan shall
bear interest at a rate equal to the Post-Default Rate from and after the date
of such Event of Default, which interest shall be due on demand but paid not
less frequently than monthly on the first day of each calendar month.
Section 2.16 COMMITMENT FEE. The Borrowers shall pay to the Bank a
commitment fee for the Commitment as follows:
(i) the commitment fee will be based upon the average daily
difference between (A) the Outstanding Amount and (B) the Commitment in
effect;
(ii) the commitment fee will be computed at the rate of 1/4 of
1% per annum (computed on the basis of a 360 day year and the actual
number of days elapsed); and
(iii) the commitment fee will be paid monthly in arrears
commencing on September 30, 1996, thereafter on the last day of each
month and on the termination of the Commitment.
Section 2.17 REPAYMENT OF BORROWINGS; REPAYMENT OF THE REVOLVING LOAN;
THE REVOLVING NOTES. Each Borrowing may remain outstanding for a maximum period
of three hundred (300) days after the date (the "Due Date") the Borrowing is
obtained (the "Maximum Borrowing Term"); provided, however, that a Borrowing
Fund shall have become a Borrower in respect of each Borrowing (and have
executed and delivered to the Bank Assumption Documents in respect of such
Borrowing) on or before one hundred eighty (180) days after the date such
Borrowing has been obtained. In the event that a Borrowing Fund does not become
a Borrower within the one hundred eighty day period specified n the proviso to
the immediately preceding sentence, then the Due Date for such Borrowing shall
be the one hundred eighty-first day after the date such Borrowing was obtained.
Each Borrowing shall be repaid, in the case of Advances or any drawing made on
an LC with respect to any LC issued in respect of a Borrowing, on or prior to
the conclusion of the Maximum Borrowing Term applicable thereto. Each LC shall
be surrendered or otherwise unavailable for drawing on the conclusion of the
Maximum Borrowing Term applicable thereto. In no event shall any Maximum
Borrowing Term conclude after the end of the Revolving Period. The unpaid
principal balance of the Revolving Loan shall be due and payable on the last day
of the Revolving Period. In addition, at any time and from time to time, the
Borrowers shall no later than the next following Business Day repay the
Revolving Loan to the extent that the Outstanding Amount exceeds the Commitment.
The obligation
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of the Borrowers to pay the principal of and interest on the Revolving Loan to
the Bank shall also be evidenced by the Revolving Note to be issued to the Bank
and which shall be dated the Execution Date. The unpaid principal balance of and
interest accrued on the Revolving Loan shall be determined by the ledgers and
records of the Bank as accurately maintained in accordance with the Bank's
ordinary practices to reflect Borrowings and under this Credit Agreement and
shall be Conclusive.
Section 2.18 LETTERS OF CREDIT. The Bank agrees that so long as all of
the Commitment remain in effect, issue such letters of credit (each, an "LC")
for the account of the Borrowers, as it may from time to time request subject,
however, to the conditions of this Agreement.
Section 2.19 [OMITTED]
Section 2.20 MAXIMUM. The Bank shall not issue any LC if, after giving
effect thereto, the aggregate undrawn balance of all then outstanding LCs and
unpaid Advances would exceed Ten Million Dollars ($10,000,000).
Section 2.21 TERM. Each LC shall have a stated expiration date that is
not in excess of five (5) days fewer than the Maximum Borrowing Term applicable
thereto. No LC shall permit any draft to be drawn thereunder on a date that is
later than 290 days after the date of the LC nor later than the third (3rd)
banking day immediately preceding the end of the Revolving Period.
Section 2.22 FORM. Each LC shall be issued in such form as Bank may
reasonably require and shall be a standby letter of credit issued to acquire a
Permitted Investment.
Section 2.23 STANDARD FEES. The Borrowers agree, in respect of each LC
and the drafts thereunder, to pay the Bank such issuance, amendment,
negotiation, cancellation, draw, acceptance, telex and similar transactional
fees as are generally charged by the Bank under its standard fee schedule as in
effect from time to time.
Section 2.24 COMMISSIONS. The Borrowers agree, in respect of each LC
and the drafts thereunder, to pay the Bank a commission which shall be based on
the stated face amount, shall be computed at the rate of three-quarters percent
(.75%) per annum and shall be paid in advance on the date of issuance and shall
be non-refundable.
Section 2.25 REIMBURSEMENT. The Borrowers agree that whenever the Bank
pays any draft or other item pursuant to or otherwise in respect of any LC, the
Borrowers will reimburse the Bank for the amount so paid immediately. In the
event that any such
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reimbursement is not made, then the Borrowers shall be deemed to have made a
Borrowing of a Revolving Loan in a principal amount equal to the amount to be
reimbursed, subject to the terms and conditions of this Agreement, including,
but not limited to, the Due Date for such Borrowing being the Due Date
originally applicable to such LC. Prior to such Due Date, interest on such
Borrowing will be determined on the basis of the Prime Rate, and thereafter of
the Post-Default Rate.
Section 2.26 PURPOSE OF THE REVOLVING LOAN. The Revolving Loan, and
each Borrowing thereunder (whether an Advance or an LC), shall be used solely
and exclusively to acquire Permitted Investments and for no other purpose. Each
Borrowing shall be in an amount not in excess of the Acquisition Cost of a
Permitted Investment, and in no event not in excess of Five Million Dollars
($5,000,000). Each Borrowing will be reasonably concurrent with the acquisition
of the Permitted Investment for which such Borrowing is being used to pay the
Acquisition Cost. If such Permitted Investment is not acquired for any reason,
any Borrowing made in respect thereof shall be repaid immediately. All
conditions to Borrowing set forth in Section 5 shall have been complied with by
the Borrowers on or prior to the Effective Date.
Section 2.27 EVENT OF DEFAULT OR POSSIBLE DEFAULT. The Borrowers shall
not be entitled to obtain any Advances or LC, or elect an Overall Libor Rate if,
at the time of so obtaining or requesting such Advance or LC or electing any
Overall Libor Rate, an Event of Default or Possible Default shall then exist or
immediately thereafter exist. Receipt by the Borrowers of any Advances or LC, or
election by the Borrowers of an Overall Libor Rate shall, each in and of itself,
constitute a continuing representation and warranty by the Borrowers that the
representations and warranties in Article IV continue (except to the extent
given as of and limited to a specific date) to be accurate in all material
respects and that the Borrowers then are entitled under this Credit Agreement to
obtain the Advances or elect an Overall Libor Rate, as the case may be.
ARTICLE III
-----------
COLLATERAL SECURITY
-------------------
Section 3.01 COLLATERAL FOR BANK'S BENEFIT. All Collateral assigned,
pledged or otherwise granted under or in connection with this Credit Agreement
shall be granted to and/or held by, as the case may be, the Bank for its sole
benefit and not in trust or for the benefit for the Borrowers, any Affiliate or
any other Person.
Section 3.02 DEBT SECURED. All collateral and property assigned,
mortgaged, pledged or otherwise granted under or in connection with this Credit
Agreement shall secure:
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(i) the payment of all principal of and interest owing or
outstanding on any of the Revolving Note or the Revolving Loan,
including, without limitation, future advances made by the Bank which
are or may be evidenced by said Revolving Note, regardless of whether
the Bank was obligated to make such advances;
(ii) the payment of all amounts from time to time owing to the
Bank under or in connection with this Credit Agreement or any of the
Collateral Security Documents;
(iii) the payment by the Borrowers of all reasonable costs and
expenses (including attorneys' fees) incurred by the Bank in the
collection of the Revolving Loan or any of the Revolving Note or in the
enforcement of its rights under this Credit Agreement or the other Loan
Documents;
(iv) the payment by the Borrowers of all sums expended or
advanced by the Bank pursuant to the terms of this Credit Agreement,
any Collateral Security Document or any other Loan Document;
(v) the performance by the Borrowers of all their obligations
under this Credit Agreement, the Revolving Note, the Collateral
Security Documents and the other Loan Documents;
(vi) the performance by the Guarantor of all its obligations
under the Guaranty; and
(vii) the payment of any and all other indebtedness (including
principal, interest or fees, if any) of any kind or description now or
hereafter owing by the Borrowers to the Bank, including, without
limitation, overdrafts, amounts owing under other notes, bonds,
debentures, letters of credit, interest rate protection arrangements or
other evidences of indebtedness and contingent obligations.
All of the debt, liabilities and obligations described in clauses (i)
through (vii) above shall be sometimes hereinafter referred to as the
"Obligations."
Section 3.03 COLLATERAL. The Borrowers hereby grant and agree to grant
to the Bank a security interest and/or other lien in, and pledge and assignment
of, (i) all Permitted Investments, whether now owned or existing or hereafter
acquired or arising, which security interests, liens, pledges and assignments
shall have a first priority subject only to Construction Loan Liens and (ii) all
rights of the Borrowing Fund to receive capital contributions from any investor
therein, which security interest, lien, pledge and assignment
40
<PAGE> 26
shall have a first priority (collectively the "Collateral"). Upon the request
of the Bank at any time or from time to time, the Borrowers agree, (A) to
promptly execute and deliver all such agreements, documents and instruments as
the Bank shall from time to time reasonably request and (B) to take such other
actions (including, without limitation, delivering to the Bank stock
certificates, securities, chattel paper and other instruments or documents in
their possession or control) and to give such further assurances as the Bank
shall from time to time reasonably request to evidence, obtain and/or to
perfect the security interests, liens, pledges and assignments of such
Permitted Investments.
Upon the request of the Bank, the Borrowers will furnish to the Bank a
signed opinion of counsel (reasonably satisfactory to the Bank) licensed to
practice in the state where the real estate which is the subject of the
Permitted Investment is located as to: (1) the Bank's security interest in the
Permitted Investment is the legal, valid and binding obligation of the
Borrowers, enforceable in accordance with its terms, subject to such
assumptions, limitations and qualifications as counsel to the Bank may
reasonably approve, (2) the Bank is not required to qualify to do business in
such state or province solely as a result of such security interest or the
exercise of any remedies provided therein, (3) the Bank shall not be subject to
any taxes levied in such state or any political subdivision thereof solely by
reason of such security interest, (4) the Bank will not be barred from enforcing
such security interest because a tax, assessment or charge has not been paid,
and other matters as the Bank shall reasonably request.
Section 3.04 COSTS. The Borrowers shall pay, to the fullest extent
permitted by law, on demand all costs, fees and expenses incurred by the Bank
and paid to third Persons in connection with the taking and/or perfection of the
Bank's security interest in the Collateral, including, without limitation:
(i) fees and expenses incurred in preparing Collateral
Security Documents from time to time (including, without limitation,
reasonable attorneys' fees incurred in connection with preparing such
Collateral Security Documents);
(ii) all filing, recording and/or records search fees;
(iii) reasonable lawyers' fees in connection with all
legal opinions required pursuant to the terms of
this Agreement;
(iv) appraisal costs;
(v) all costs and expenses incurred in connection with
compliance with paragraph (1) of Section 3.03; and
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<PAGE> 27
(vi) all other related costs, fees and expenses.
Section 3.05 INCONSISTENT PROVISIONS. In the event that the provisions
of any Collateral Security Document directly conflict with any provisions of
this Credit Agreement, the provision of this Credit Agreement shall govern.
Section 3.06 COLLATERAL SECURITY DOCUMENTS. Each mortgage, security
agreement, pledge agreement, collateral assignment, other agreement, document or
instrument executed and/or delivered in connection with any of the foregoing
shall be referred to collectively as the "Collateral Security Documents" and
singly as a "Collateral Security Document."
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
The Borrowers represent and warrant to the Bank as follows:
Section 4.01 ORGANIZATION OF THE COMPANIES; BUSINESS AND PROPERTY.
Property Advisors is duly organized and validly existing corporation in good
standing under the laws of the State of Ohio. Each Borrowing Fund is or will be
duly formed and validly existing as a limited partnership in good standing under
the laws of the state of its formation. The Borrowers have or will have all
requisite power and authority to execute and deliver the Loan Documents executed
or to be executed by it and to carry out the provisions thereof. The Borrowers
have or will have full power, authority, and legal right to own and operate
their respective properties and to carry on the business in which they engage
and intend to engage. The Borrowers are qualified or otherwise entitled to do
business and are in good standing in the State of Ohio and each other state
where such qualification is required by reason of the Borrowers' business,
activities, or ownership of property, other than such jurisdictions in which the
failure to qualify would not have a Material Adverse Effect.
Section 4.02 AUTHORIZATION; VALIDITY. The Borrowers have or will have
taken all action necessary to authorize the execution, delivery and performance
by them of the Loan Documents executed and to be executed by them. This Credit
Agreement is, and each of the other Loan Documents when executed and delivered
will be, legal, valid and binding upon the Borrowers and enforceable against the
Borrowers in accordance with their respective terms. No consent, approval, or
authorization of, or registration or declaration with, any governmental
authority or other Person is required in connection with the execution, delivery
and performance by the Borrowers of any of the Loan Documents.
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<PAGE> 28
Section 4.03 PERMITS. The Borrowers require no permits, licenses or
authorizations from any federal, state or local governmental authority (a
"Governmental Authority") to conduct their business as it is presently conducted
or intend to be conducted and no default exists under any such permit, license
or authorization, which, either the failure of other Borrowers to have or the
default under, would have a Material Adverse Effect. No Borrower is subject to
any outstanding or, to the knowledge of the Borrowers, threatened citation by
any Governmental Authority which would have a Material Adverse Effect.
Section 4.04 FINANCIAL STATEMENTS. The Consolidated balance sheet of
the Guarantor as of June 30, 1996 and the related statements of revenues and
expenses and changes in financial position for the periods then ended and the
auditors' reports with respect to the fiscal year ended March 31, 1996, copies
of which have heretofore been furnished to the Bank, are complete and correct
and fairly present the Consolidated financial condition, changes in financial
position and results of operations of the Guarantor at such dates and for such
period, and were prepared in accordance with GAAP.
Section 4.05 FINANCIAL CONDITION. Except for Liabilities created
pursuant to this Credit Agreement and other Permitted Liabilities, the Borrowers
have no Liabilities, contingent or otherwise, whether or not required to be
reflected in accordance with GAAP, nor any outstanding or existing commitments
for the purchase of land, buildings, equipment, materials, or supplies, or any
contracts for services, except, in the case of Property Advisors, for its
obligations as the general partner and the manager of the Borrowing Funds.
Section 4.06 NO ADVERSE CHANGES. Since June 30, 1996, there has been no
Material Adverse Effect in the condition, financial or otherwise, of the
Borrowers or the Guarantor.
Section 4.07 TITLE TO PROPERTIES. The Borrowers will have at the time
of acquisition thereof good and marketable title to all Permitted Investments.
The Borrowers will not own any other properties and assets except, in the case
of Property Advisors, its interest as general partner and manager of the
Borrowing Funds. Except for Permitted Exceptions, there are no Liens of any
nature whatsoever on any of the properties or assets of the Borrowers.
Section 4.08 LITIGATION. There are no outstanding judgments against, or
actions, suits or proceedings pending, or to the best knowledge of the
Borrowers, threatened against or affecting any of the Companies, at law or in
equity or before or by any federal, state, local or other governmental
department, commission, board, bureau, agency or instrumentality, which, if
adversely determined, involves the possibility of any judgment or liability not
fully covered by insurance or which may result in any Material Adverse Effect.
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Section 4.09 NATURE OF BUSINESS OF BORROWER. Property Advisors has been
organized solely for the purposes of acting as general partner and manager of
Fund Entities and to acquire Permitted Investments for ultimate transfer to Fund
Entities. Property Advisors will be the sole general partner of each Borrowing
Fund. Each Borrowing Fund has been organized solely for purposes of investing in
Permitted Investments. The Borrowers do not, and have no intention, to conduct
any other business or activities. The Borrowers have no employees. The Borrowers
do not maintain any Plans. Any and all business activities conducted by the
Borrowers are undertaken by employees of the Guarantor or its other
Subsidiaries, for which the Borrowers reimburse them as Ordinary Course
Liabilities. The Borrowers have delivered true, correct and complete copies of
the Governing Documents to the Bank.
Section 4.10 COMPLIANCE WITH OTHER INSTRUMENTS. None of the Companies
is in material default in the performance, observance, or fulfillment of any of
the material obligations, covenants, or conditions contained in (i) any evidence
of Indebtedness for Borrowed Money, or (ii) any agreement, document, lease or
other instrument which a default under, violation of which or a failure to
perform on the part of the Companies would have a Material Adverse Effect.
Neither the execution and delivery of this Credit Agreement or the other Loan
Documents by the Borrowers or the Guarantor, nor the consummation of the
transactions contemplated thereby, nor will compliance with the terms and
provisions thereof violate the provisions of any applicable law or of any
material applicable order or regulations of any governmental authority having
jurisdiction of the Companies or, except where no Material Adverse Effect would
result therefrom, conflict with or result in a breach of any agreement or
instrument to which any of the Companies is now a party, or, except where no
Material Adverse Effect would result therefrom, will constitute a default
thereunder, or will result in the creation or imposition of any lien, charge, or
encumbrance of any nature whatsoever upon any of the properties or assets of any
of the Companies except in favor of the Bank.
Section 4.11 MATERIAL RESTRICTIONS. Except for the Loan Documents and
the Governing Documents, the Borrowers are not a party to any agreement or other
instrument or subject to any other restriction which causes a Material Adverse
Effect.
Section 4.12 CORRECTNESS OF DATA FURNISHED. This Credit Agreement and
all Schedules and Exhibits hereto do not contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein or herein not misleading; and there is no fact not otherwise disclosed
in writing to the Bank which, to the knowledge of the Borrowers, would cause a
Material Adverse Effect.
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<PAGE> 30
Section 4.13 REGULATION U, ETC. The Borrowers do not and will not own,
nor do they have any intention of acquiring, any "margin stock" within the
meaning of Regulation U (12 CFR Part 221) of the Board of Governors of the
Federal Reserve System (herein called "margin stock"). None of the proceeds of
any of the Revolving Loan will be used, directly or indirectly, by the Borrowers
for the purpose of purchasing or carrying, or for the purpose of reducing or
retiring any indebtedness or other liability which was originally incurred to
purchase or carry, any margin stock or for any other purpose which might cause
the transactions contemplated hereby to be considered a "purpose credit" within
the meaning of said Regulation U, or which might cause this Credit Agreement to
violate Regulation G, Regulation U, Regulation T, Regulation X, or other
regulation of the Board of Governors of the Federal Reserve System or the
Securities Exchange Act of 1934. Upon request, the Borrower will promptly
furnish the Bank with a statement in conformity with the requirements a Federal
Reserve Form U-I referred to in said Regulation U.
Section 4.14 SECURITIES ACT, ETC. Neither the registration of any
security under the Securities Act of 1933, as amended, or any other federal,
state, or local securities laws, nor the qualification of the Loan Documents, as
amended, is required in connection with the Revolving Loan or the issuance and
delivery of the Revolving Note pursuant hereto.
Section 4.15 NO DEFAULT. No Possible Default or Event of Default has
occurred and is continuing.
Section 4.16 PRINCIPAL PLACE OF BUSINESS. The principal places of
business and chief executive offices of the Borrowers are and will be at all
times located in Cuyahoga County, Ohio. The books and records of the Borrowers
and all records of Permitted Investments of the Borrowers are housed at such
chief executive offices.
Section 4.17 BROKERS, ETC. The Borrowers have not caused the Bank to be
under any obligation to pay any broker's fees, finder's fee or commission in
connection with the Revolving Loan or the transactions contemplated by the
Credit Agreement.
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ARTICLE V
---------
CONDITIONS TO BORROWING
-----------------------
Part I
CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE REVOLVING LOAN. The
obligation of the Bank to make the first Advance or issue the first LC shall be
subject to the satisfaction of the following conditions prior to or concurrently
therewith.
Section 5.01 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Article IV shall be true in all material respects on and
as of the time of the first Advance hereunder, with the same effect as if made
on and as of such date unless stated as of a specific date.
Section 5.02 NO DEFAULTS. There shall exist no condition or event
constituting an Event of Default or Possible Default.
Section 5.03 PERFORMANCE. The Borrowers shall have performed and
complied with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the time of the first Advance.
Section 5.04 CLOSING CERTIFICATE. The Borrowers shall have delivered to
the Bank a certificate dated the date of the first Advance and signed by an
Authorized Officer, certifying to the matters covered by the conditions
specified in Sections 5.01, 5.02 and 5.03.
Section 5.05 REVOLVING NOTE; GUARANTY. The Bank shall have received the
Revolving Note and the Guaranty, accompanied by all documents and instruments
required thereunder, duly executed and delivered by the parties thereto.
Section 5.06 DISBURSEMENT INSTRUCTIONS; FUNDING DOCUMENTATION. The Bank
shall have received disbursement instructions and funding documentation
described in Part III of this Article V from the Borrowers evidencing that the
first Borrowing is being used in accordance with Section 2.26 and otherwise
satisfies the conditions for funding.
Section 5.07 OPINIONS OF COUNSEL FOR THE BORROWERS. The Bank shall have
received the favorable opinion of Henry Kerr, general counsel of the Guarantor,
as counsel for the Borrowers, in form attached as SCHEDULE 5.07.
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Section 5.08 CORPORATE PROCEEDINGS. The Borrowers and the Guarantor
shall have delivered to the Bank, all dated as of the Closing Date (or as of a
date recent to the Closing Date):
(i) a copy of its articles or certificate of incorporation, or
partnership certificate certified by an authorized public officer of
the state of its incorporation/organization;
(ii) certificates of good standing from the state of its
incorporation;
(iii) a copy of its by-laws or Code of Regulations certified
by its secretary;
(iv) a copy of the Governing Documents certified by the
Secretary of the General Partner;
(v) resolutions of its Board of Directors and General Partner
authorizing the execution, delivery and performance of the Loan
Documents to which it is a party and the consummation of the
transactions contemplated thereby, certified by its secretary; and
(vi) an incumbency certificate certifying the names of its
officers and their signatures, certified by its secretary.
Section 5.09 PAYMENT OF EXPENSES. The Borrowers shall have paid the
fees and expenses of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
Section 5.10 AMENDMENT OF GOVERNING DOCUMENTS. If applicable, the
Borrowers shall have amended the Governing Documents to permit the Borrowing
Fund to be a Borrower under this Credit Agreement and to make Borrowings for the
purpose of acquiring Permitted Investments, all in form and substance
satisfactory to the Bank.
Section 5.11 GUARANTY FEE. The Borrowers shall have confirmed in
writing their agreement to pay the Guarantor an annual fee of $50,000 in
consideration of the Guarantor's execution and delivery of the Guaranty.
Section 5.12 OTHER DOCUMENTS. The Bank shall have received such other
certificates, opinions, agreements and documents as it shall reasonably request
and the Bank, in its sole discretion, shall be satisfied with the condition,
financial and otherwise, of the Borrowers.
Part II
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CONDITIONS PRECEDENT TO THE SUBSEQUENT ADVANCES OR OVERALL LIBOR RATE
ELECTION. Subsequent to the first Advance, the obligation of the Bank to make
additional Advances, issue an LC or implement the election of an Overall Libor
Rate shall be subject to the satisfaction of the following conditions prior to
or concurrently with such action:
Section 5.13 ASSUMPTION DOCUMENTS. To the extent that any Advance is
made to, or LC is issued on behalf of, a Borrowing Fund or any Fund Entity that
is not then a Borrowing Fund, such Borrowing Fund or Fund Entity will execute
and deliver to the Bank Assumption Documents in respect of such Advance or LC.
Additionally, if the Governing Documents for a Fund Entity have not been
previously delivered to the Bank, copies of such Governing Documents, certified
by an officer of Property Advisors, shall be delivered to the Bank, and if
requested by the Bank, accompanied by an opinion of counsel to the effect of the
opinion attached hereto as SCHEDULE 5.07 with regard to such Fund Entity.
Section 5.14 NO DEFAULTS. There shall exist no condition or event
constituting an Event of Default or Possible Default.
Section 5.15 PERFORMANCE. The Borrowers shall have performed and
complied with all material agreements and conditions contained herein required
to be performed or complied with by it prior to or at the time of such action.
Section 5.16 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Article IV shall be true in all material respects on and
as of the time of such action, with the same effect as if made on and as of such
date, unless stated as of a specific date, after giving effect to such updated
information, reflecting transactions not prohibited by the terms of this Credit
Agreement, as is necessary to make such representations and warranties true in
all material respects as of such date.
Section 5.17 CERTIFICATE. If requested by the Bank, the Borrowers shall
have delivered to the Bank a certificate dated the date of such action and
signed by an Authorized Officer, certifying to the matters covered by the
conditions specified in Sections 5.14, 5.15 and 5.16.
Section 5.18 DISBURSEMENT INSTRUCTIONS; FUNDING DOCUMENTATION. The Bank
shall have received disbursement instructions and documentation described in
Part III of this Article V from the Borrowers evidencing that the Borrowing is
being used in accordance with Section 2.26 and otherwise satisfies the
conditions for funding.
Part III
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<PAGE> 34
FUNDING DOCUMENTATION FOR PURCHASES OF PERMITTED INVESTMENTS.
------------------------------------------------------------
Section 5.19 DOCUMENTATION RELATING TO OPERATING ENTITIES. The
Borrowers shall deliver to the Bank the organizational documents (including but
not limited to partnership or operating agreement, management agreement and
similar documents) of each Operating Entity in which a Borrower is making a
Permitted Investment along with all documentation (including but not limited to
a duly completed subscription agreement) evidencing such Permitted Investment.
The Borrowers shall also deliver to the Bank a description of the project being
undertaken by the Operating Entity and any projections or analysis thereof
prepared by the Operating Entity or the Borrowers.
Section 5.20 CONSTRUCTION LOAN. If and when any construction loan is
being incurred by any Operating Entity, the Borrowers shall deliver to the Bank
a summary of the terms thereof, and to the extent that a Construction Loan Lien
is granted by the Borrowers to the Lender, then the Borrowers shall deliver to
the Bank a copy of all of the loan documents relating to such construction loan.
Section 5.21 GUARANTY REDUCTION. Upon the written request by the
Representative in conjunction with a specific Borrowing, the Bank agrees that it
will, on a case by case basis, determine, in its sole discretion, whether to
reduce the amount of the Obligations which are guaranteed by the Guaranty, which
reduction may be temporary or permanent. In connection with any such reduction,
the Borrowers and the Guarantor agree to execute such documents or instruments
requested by the Bank.
ARTICLE VI
----------
AFFIRMATIVE COVENANTS OF THE BORROWERS
--------------------------------------
Until all principal of and interest on the Revolving Loan and the
Revolving Note and all other obligations, liabilities and indebtedness of the
Borrowers to the Bank under this Credit Agreement have been paid in full,
including, without limitation, reimburse any drawing made or that may be made on
any LC, and the Commitment has expired:
Section 6.01 PAYMENT OF AMOUNTS DUE. The Borrowers will make all
payments of the principal of and interest on the Revolving Loan and the
Revolving Note promptly as the same become due under this Credit Agreement
and/or the Revolving Note.
Section 6.02 EXISTENCE, BUSINESS, ETC. The Borrowers will cause to be
done all things necessary to preserve and to keep in full force and effect its
corporate existence and rights. The Borrowers will comply in all material
respects with all federal, state, and local laws and
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<PAGE> 35
regulations material to their business now in effect or hereafter promulgated by
any properly constituted governmental authority having jurisdiction except to
the extent that compliance therewith is being contested in good faith by
appropriate proceedings or where the failure to comply would not have a Material
Adverse Effect.
Section 6.03 CONDUCT OF BUSINESS. The Borrowers will at all times
comply with the representations and warranties set forth in Section 4.09. Prior
to making any material change in the Governing Documents or any organizational
document governing any Fund Entity or creating any new Fund Entity, Property
Advisors will give the Bank reasonably timely written notice thereof to allow
the Bank to determine the effect, if any, thereof on the Borrowers' obligations
under this Agreement and the other Loan Documents. If the Bank determines, in
good faith, that such proposed change will adversely affect the repayment of the
Revolving Loan, the Borrowers' ability to perform its obligations hereunder or
under any other Loan Document, the Bank's consent to such change shall be
required prior to the effectiveness thereof. No Borrower will change the nature
of its business or the manner in which it conducts its business.
Section 6.04 PAYMENT OF TAXES, ETC. The Borrowers will pay and
discharge all lawful Taxes, assessments, and governmental charges or levies
imposed upon them, or upon their respective income or profits, or upon any of
their respective properties, before the same shall become in default, as well as
all lawful claims for labor, materials, and supplies which, if unpaid, might
become a lien or charge upon such properties or any part thereof; provided,
however, the Borrowers shall not be required to pay and discharge any such tax,
assessment, charge, levy, or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings and there shall be set aside
on their respective books such reserves with respect thereto as are required by
GAAP. The Borrowers will in all events pay such tax, assessment, charge, levy or
claim before the property subject thereto shall be sold to satisfy any lien
which has attached thereto. Without limiting the foregoing, each of the
Borrowers will (a) timely file all returns required to be filed by it with
respect to all Taxes, (b) pay all Taxes shown to have become due pursuant to
such returns, and (c) pay all other Taxes for which a notice of assessment or
demand for payment has been received by the Borrowers, in each case the failure
of which would have a Material Adverse Effect; provided, however, the Borrowers
shall not be required to pay and discharge any such tax, assessment, charge,
levy, or claim so long as the validity thereof shall be contested in good faith
by appropriate proceedings and there shall be set aside on its respective books
such reserves with respect thereto as are required by GAAP. The Borrowers will
not (i) file any consent or agreement under Section 341(f) of the Code, (ii)
execute a waiver or consent extending any statute of limitations for any Tax
liability which remains outstanding, (iii) enter into a closing agreement with
any taxing authority, or (vi) file an election under 338(g) or Section
50
<PAGE> 36
338(h)(10) of the Code or caused or permitted a deemed election under Section
338(e) thereof to occur, which, in any case, would have a Material Adverse
Effect.
Section 6.05 ACCOUNTS AND REPORTS OF THE BORROWERS. The Borrowers will
maintain a standard system of accounting in accordance with GAAP and furnish to
the Bank the following reports:
(i) As soon as available, and in any event within ninety
(90) days after the end of each Fiscal Year a
complete audited accountant's report with respect to
each Borrowing Fund only, including without
limitation, all financial statements of such
Borrowing Fund, together with all notes thereto,
prepared in reasonable detail and certified, without
qualification, by Hausser + Taylor or other
independent certified public accountants that are one
of the "Big 6" national firms (the "Accountant"), and
with respect to Property Advisors, unaudited
financial statements consisting of (x) a balance
sheet and (y) a statement of income and expense,
certified by an Authorized Officer. The Borrowers
shall also deliver or cause delivery to the Bank of
copies of any "management letters" issued by the
Accountant to the Borrowers, as soon as available,
and in any event within one hundred fifty (150) days
after the end of any Fiscal Year;
(ii) As soon as available, and in any event within
forty-five (45) days after the end of each Quarter,
an unaudited report for the most recently concluded
Quarter, certified by an Authorized Officer, which
report shall contain (v) a balance sheet of each
Borrower as at the end of such Quarter, (w) an income
and expense statement of each Borrower for such
Quarter, including a year to date income and expense
statement, all prepared in accordance with GAAP
subject to normal recurring year-end adjustments, (x)
a statement that the review made in preparing and
certifying such report has not disclosed the
existence of any condition or event which constitutes
an Event of Default or Possible Default, or, if such
a condition or event exists, specifying the nature
thereof, (y) a report of all Permitted Investments
purchased and/or sold during such Quarter and an
estimate of Permitted Investments that are to be
purchased or sold during the next following Quarter,
(iii) Immediately after a Borrower knows of, or shall have
knowledge of, the occurrence of any condition or
event which constitutes an Event of
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Default or Possible Default, notice of such condition
or event and the action which the Borrower proposes
to take with respect thereto;
(iv) Copies of all financial statements, audits, and
public reports which any of the Companies may have
made of or concerning their accounts, books, or
records, and which they have provided to any
non-affiliated third party, but excluding such items
furnished solely to an Affiliate;
(v) Promptly upon request, such other information
respecting the business, properties, operations or
condition (financial or otherwise) of the Borrowers
as the Bank may from time to time reasonably request
(all such information to be in such form and detail
as the Bank shall reasonably request).
Section 6.06 INFORMATION AND INSPECTION. The Borrowers will furnish to
the Bank, from time to time, upon the request of the Bank, full information
pertinent to any covenant, provision, or condition of this Credit Agreement or
of any other loan document or to any matter in connection with their activities
and business, and at all reasonable times and, prior to the occurrence of a
Possible Default or Event of Default, upon not less than one Business Day's
notice but with no prior notice after the occurrence of a Possible Default or
Event of Default, and as often as the Bank may reasonably request, permit any
authorized representative designated by the Bank to visit and inspect (which
visits and inspections shall be at the Borrowers' sole expense after the
occurrence and during the continuance of any Possible Default or Event of
Default and at the Bank's sole expense at any other time) during normal business
hours any of their properties, including their books (and to take extracts
therefrom) and to discuss their affairs, finances, and accounts with their
officers and employees.
Section 6.07 NOTICE OF LITIGATION. The Borrowers will promptly notify
the Bank in writing of any litigation, legal proceeding or threat of legal
proceeding (i) with any Person, including, without limitation, the Governmental
Authorities and any member of the staff or any representative of any such
Person, involving the Borrowers, any Fund Entity or any Permitted Investment,
unless fully covered by insurance without reservation with deductibles of less
than Ten Thousand Dollars ($10,000).
Section 6.08 BANK AS PRIMARY DEPOSITORY. The Borrowers will maintain
all their respective accounts and other banking relationships (including,
without limitation, all operating accounts, demand and time deposit accounts,
certificate of deposit accounts, and safekeeping accounts) at the Bank.
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Section 6.09 PAYMENT OF GUARANTY FEE. The Borrowers will pay to the
Guarantor the annual fee of $50,000 in consideration of its execution and
delivery of the Guaranty, and will provide evidence thereof to the Bank.
Section 6.10 FURTHER ASSURANCES. The Borrowers agree to execute and
deliver to the Bank any agreements, documents and instruments, including,
without limitation, additional Revolving Notes as replacement or substitutions
as may be required by the Bank, and to take such other actions as reasonably
requested by the Bank to effect the transactions contemplated hereby.
ARTICLE VII
-----------
NEGATIVE COVENANTS OF THE BORROWERS
-----------------------------------
Until all principal of and interest on the Revolving Loan and the
Revolving Note and all other obligations, liabilities, and indebtedness of the
Borrowers to the Bank under this Credit Agreement have been paid in full
including, without limitation, reimburse any drawing made or that may be made on
any LC, and the Commitment has expired:
Section 7.01 LIMITATION OF LIABILITIES. The Borrowers will not create,
incur, assume, become or be liable in any manner in respect of, any Liabilities
except:
(i) Liabilities in respect of the Credit Facility;
(ii) unsecured current Liabilities ("Ordinary Course
Liabilities") to reimburse the Guarantor for services
used by the Borrowers incurred in the ordinary course
of its business (excluding Indebtedness for Borrowed
Money or represented by bonds, notes, or other
securities);
(iii) unsecured Liabilities for the purchase of Permitted
Investments; provided, however, that the aggregate
purchase price thereof is not in excess of the
aggregate of (1) the amount of the Revolving Loan
that is available for Borrowing, (2) Net Proceeds
from the sale of Permitted Investments that are in
excess of the amount of any Borrowing made in respect
of such Permitted Investment and (3) equity
contributions (or commitments for such contributions)
made by investors in a Borrowing Fund;
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(iv) unsecured current Liabilities to the Fund Entities
arising solely as a result of Property Advisors'
obligations as general partner and manager of the
Fund Entities;
(v) Liabilities for Taxes, to the extent that payment
thereof shall not yet be due or if the obligation to
pay is being contested in good faith by appropriate
proceedings and adequate reserves with respect
thereto shall have been set aside on the books of the
Borrowers but in any event only so long as the sale
of property is not imminent by reason of non-payment;
Each of the foregoing types of indebtedness and liability
being referred to collectively as the "Permitted Liabilities."
Section 7.02 LIMITATION ON LIENS. The Borrowers will not create, incur,
assume, or suffer to be created, or incurred, or assumed, or to exist, any Lien
of any kind on any of its properties or assets, or own or acquire, or agree to
acquire any property of any character subject to or upon any mortgage,
conditional sale agreement, or other title retention agreement, except:
(i) any Lien granted to the Bank; and
(ii) a lien or security interest in the Permitted
Investment made in an Operating Entity that is
borrowing a construction loan to construct the
project for which such Permitted Investment is being
made with such lien or security interest being
granted to the lender of such construction loan (a
"Construction Loan Lien") and such Construction Loan
Lien is limited to the specific Permitted Investment
in the Operating Entity receiving such construction
loan and securing an amount not in excess of such
construction loan.
Each of the foregoing Liens being referred to collectively as the
"Permitted Liens".
Section 7.03 GUARANTEES. Except for Permitted Indebtedness and LCs
issued in connection with a Permitted Investment permitted pursuant to Section
7.05, the Borrowers will not Guarantee, or otherwise become surety in respect of
the obligations of, or lend its credit to, any other person, or enter into any
working capital maintenance or similar agreement.
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Section 7.04 INVESTMENTS, REVOLVING LOAN, AND ADVANCES. The Borrowers
will not purchase or otherwise acquire, hold or make any Investment, or enter
into any arrangement for the purpose of making any Investment, except for
Permitted Investments and the endorsement of a check or other medium of payment
for deposit or collection, or any similar transaction in the normal course of
business.
Section 7.05 ASSIGNMENT OR SALE OF ASSETS. The Borrowers will not
assign, sell, discount, or otherwise dispose of any assets, including without
limitation, Permitted Investments except for transfer of Permitted Investments
to Fund Entities for consideration equal to the greater of the Acquisition Cost
for such Permitted Investment or the outstanding principal balance (or stated
amount in the case of an LC) of the Borrowing made in respect of the purchase of
such Permitted Investment.
Section 7.06 LIQUIDATION, MERGER, OR CONSOLIDATION. The Borrowers will
not dissolve or liquidate, or consolidate with or merge with or into any person,
firm, corporation or entity or otherwise effect any business combination, joint
venture or partnership with any person, firm, corporation or entity except for
purchasing Permitted Investments.
Section 7.07 AMENDMENT OF ARTICLES OF INCORPORATION AND/OR CODE OF
REGULATIONS. Property Advisors will not materially amend, modify, or supplement
its Articles of Incorporation and/or its Code of Regulations. The Borrowers will
not materially amend, modify or supplement the Governing Documents, except in
complete compliance with Section 6.03.
Section 7.08 DISTRIBUTIONS; PURCHASES OR REDEMPTION OF STOCK;
DIVIDENDS. Property Advisors will not make or pay (or obligate itself to make or
pay) any dividend, Distribution or any other payment in respect of any of the
shares of its capital stock, or redeem, purchase, otherwise acquire for any
consideration (directly or indirectly) any of the shares of its capital stock.
Section 7.09 FISCAL YEAR. The Guarantor will not change its Fiscal Year
except as required by law.
Section 7.10 REGULATION U. The Borrowers shall not, directly or
indirectly, (a) apply any part of the proceeds of the Revolving Loan to the
purchasing or carrying of any "margin stock" within the meaning of Regulations
G, T, U or X of the Federal Reserve Board, or any regulations, interpretations
or rulings thereunder, (b) extend credit to others for the purpose of purchasing
or carrying any such margin stock, or (c) retire indebtedness which was incurred
to purchase or carry any such margin stock.
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Section 7.11 TRANSACTIONS WITH AFFILIATES. The Borrowers shall not,
directly or indirectly, pay (excluding in all cases salary, bonuses and other
similar compensation) any funds to or for the account of, make any Investment
in, purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, in the ordinary course of business or
otherwise, any Affiliate except for selling or purchasing Permitted Investments
as otherwise permitted pursuant to this Agreement and reimbursing the Guarantor
for services rendered to the Borrowers in the ordinary course of its business
and on terms that are no less favorable to the Borrowers than those terms which
might be obtained at the time from unrelated third parties.
ARTICLE VIII
------------
WAIVERS
-------
Any of the acts which the Borrowers are required or prohibited from
doing by any of the provisions of this Credit Agreement may, notwithstanding
such provisions, be omitted or done, as the case may be, only if consented to in
writing by the Bank.
ARTICLE IX
----------
DEFAULTS
--------
Each of the following events shall be termed "Events of Default":
Section 9.01 PRINCIPAL DEFAULT. Default shall be made in the payment of
any principal of any of the Revolving Note or the Revolving Loan when and as the
same shall become due and payable, whether at maturity or otherwise; or
Section 9.02 INTEREST DEFAULT. Default shall be made in the payment of
any interest on or with respect to the Revolving Note or the Revolving Loan when
the same shall become due and payable and such default shall continue for two
(2) consecutive Business Days; or
Section 9.03 OTHER PAYMENT DEFAULTS. Default shall be made in the
payment of any other amount when and as the same shall become due and payable
under this Credit Agreement or any of the Loan Documents and such default shall
continue for five (5) consecutive Business Days; or
Section 9.04 CERTAIN ARTICLE VI AND VII. Default shall be made in the
due observance or performance of any covenant, agreement, or provision contained
in Section 6.01, 6.03 or 6.08 or any provision of Article VII; or
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Section 9.05 DEFAULTS UNDER ARTICLE VI. Default shall be made in the
due observance or performance of any covenant, agreement, or provision contained
in Sections 6.02, 6.04, 6.05, 6.06, 6.07, 6.09 or 6.10, and such default shall
continue for ten (10) consecutive Business Days unless the Borrowers are
diligently pursuing a cure thereof and has advised the Bank of such cure and
only to the extent that such default has been cured within thirty (30)
consecutive days thereafter; or
Section 9.06 OTHER PROVISION DEFAULT. Default shall be made in the due
observance or performance of any other covenant, agreement, or provision of this
Credit Agreement, the Revolving Note or any other Loan Document to be performed
or observed by the Borrowers and such default shall not be corrected or cured
within twenty (20) consecutive calendar days; or
Section 9.07 REPRESENTATION AND WARRANTY. Any material representation
or warranty made by the Borrowers under this Credit Agreement or in any
certificate, report, instrument, financial statement or other document furnished
pursuant to this Credit Agreement shall prove to have been false or incorrect in
any material respect as of the date on which made; or
Section 9.08 COLLATERAL SECURITY DOCUMENT OR OTHER LOAN DOCUMENT
DEFAULT. Default shall be made in the due observance or performance of any
covenant, agreement, or provision of any Collateral Security Document or other
Loan Document (other than as provided elsewhere in this Section 10) to be
performed or observed by the Borrower and such default shall not be corrected or
cured within ten (10) consecutive Business Days; or
Section 9.09 COLLATERAL SECURITY DOCUMENT REPRESENTATION AND WARRANTY.
Any representation or warranty made by the Borrowers under any Collateral
Security Document, or in any certificate, report, instrument, financial
statement or other document furnished pursuant to any of the foregoing shall
prove to have been false or incorrect in any material respect as of the date on
which made and such representation or warranty shall continue to be material; or
Section 9.10 GUARANTY DEFAULT. Default shall be made in the due
observance or performance of any covenant, agreement, or provision of the
Guaranty (other than as provided elsewhere in this Section 9) to be performed or
observed by the Guarantor; or
Section 9.11 GUARANTY REPRESENTATION AND WARRANTY. Any representation
or warranty made by the Guarantor under the Guaranty, or in any certificate,
report, instrument, financial statement or other document furnished pursuant
thereto shall prove to have been false or incorrect in any material respect as
of the date on which made; or
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Section 9.12 FINANCIAL DIFFICULTIES. Any of the following events
evidencing the financial difficulties of any Borrower or Company shall occur:
(i) any admission in writing of inability to pay debts as
they become due or the failure to pay debts generally
as such debts become due; or
(ii) the entry of an order for relief in the name of such
Borrower or Company under Title 11 of the United
States Code or similar provisions of foreign law; or
(iii) such Borrower or Company shall make an assignment for
the benefit of creditors; or
(iv) such Borrower or Company shall consent to the
appointment of a trustee or receiver for all or a
major part of its property; or
(v) the commencement of a case by such Borrower or
Company under Title 11 of the United States Code or
similar provisions of foreign law; or
(vi) the commencement of a case under Title 11 of the
United States Code or similar provisions of foreign
law against such Borrower or Company, which case
shall not be dismissed within 60 days from the date
of commencement; or
(vii) the entry of a court order appointing a receiver or a
trustee for all or a major part of such Borrower or
Company's property without consent, which order shall
not be vacated, denied, set aside, or stayed within
60 calendar days from the date of entry; or
Section 9.13 ERISA TERMINATION. Any employee pension benefit plan of
any Company whose current value of benefits which are guaranteed by PBGC under
Title IV of ERISA (determined on the basis of assumptions prescribed by the
PBGC) exceeds the then current value of such plan's assets by more than
$500,000: (i) shall be terminated under Section 4041 of ERISA (unless the plan
is restored under Section 4047 of ERISA within ten (10) days of its
termination), (ii) shall be terminated under Section 4042 of ERISA, or (iii)
shall have a trustee appointed under Section 4042 of ERISA to administer the
Plan; or
Section 9.14 ACCUMULATED FUNDING DEFICIENCY. Any employee pension
benefit plan of any Company which is a single employer plan shall have an
accumulated funding deficiency of more than $500,000, except as set forth on
SCHEDULE 5.13 attached hereto (as
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defined in Section 302 of ERISA and Section 412 of the Code), as of the last day
of any plan year (determined after the period during which employer
contributions may be deemed to have been made on such last day under Section
302(c)(10) of ERISA and Section 412(c)(10) of the Code); or
Section 9.15 OWNERSHIP. (i) If any "person" or "group" shall become the
"beneficial owner" (as those terms are respectively used in the Securities and
Exchange Act of 1934, as amended, and the rules and regulations thereunder) of
more than fifty percent (50%) of the outstanding voting stock of the Guarantor
or shall otherwise require the power (whether by contract, by proxy or
otherwise) to elect a majority of the Guarantor's board of directors; provided,
that this Section 9.15 shall not apply to any transaction receiving the prior
approval by a majority of the then members of the Guarantor's board of
directors, (ii) the Guarantor shall cease to own one hundred percent (100%) of
the capital stock (and any and all rights or options to acquire such capital
stock) of both MCD Securities and Property Advisors, or any agreement shall have
been entered into by Guarantor with regard to the sale or disposition thereof,
or (iii) Property Advisors shall cease to be the sole general partner of each
Borrowing Fund; or
Section 9.16 BORROWER CROSS-DEFAULT. Default, after the expiration of
all applicable grace periods, if any, shall be made by a Borrower in the payment
when due of Liabilities, singly or in the aggregate in the amount of $50,000 or
more (whether principal, interest or premium) now or hereafter owing by it
(other than to the Bank under this Credit Agreement) or default shall be made by
a Borrower in the performance of any covenant or other obligation contained in
any agreement, indenture, lease or other instrument or document relating to,
evidencing, or securing such Liabilities if the effect of the default is to
permit the holder of such Liabilities (with or without the giving of notice or
the lapse of time or both) to accelerate the maturity thereof; or
Section 9.17 COMPANY CROSS-DEFAULT. Default, after the expiration of
all applicable grace periods, if any, shall be made by any Company in the
payment when due of Liabilities, singly or in the aggregate in the amount of
$250,000 or more (whether principal, interest or premium) now or hereafter owing
by it (other than accounts payable to trade creditors for amounts incurred in
the ordinary course of business and not evidenced by promissory notes, bonds or
similar instruments) or default shall be made by any Company in the performance
of any covenant or other obligation contained in any agreement, indenture, lease
or other instrument or document relating to, evidencing, or securing such
Liabilities if the effect of the default is to permit the holder of such
Liabilities (with or without the giving of notice or the lapse of time or both)
to accelerate the maturity thereof; or
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Section 9.18 JUDGMENTS. Entry of a final judgment (a final judgment
being one from which all available appeals have been exhausted or the time for
taking such appeal has lapsed) against a Borrower in the amount of $250,000 or
more which is not fully covered by insurance (subject to normal deductibles)
without reservation of rights and the same is not discharged or satisfied within
thirty (30) consecutive calendar days from the date of entry; or
Section 9.19 MATERIAL ADVERSE CHANGE. A Material Adverse Effect in the
Consolidated business, operations, management, or financial condition of the
Guarantor, as reasonably determined by the Bank in good faith, shall have
occurred; or
Section 9.20 RESTRAINT ON BUSINESS. Any court or administrative or
regulatory agency shall have issued an injunction or order that materially
restricts or enjoins the Borrowers from conducting any material part of their
respective business as proposed to be conducted on the Closing Date.
ARTICLE X
---------
REMEDIES
--------
Section 10.01 ACCELERATION. Upon (i) the occurrence of any Event of
Default described in Article IX, excluding Section 9.12, the Bank may, at any
time (unless all Events of Default shall theretofore have been remedied or
waived in accordance with the terms of this Credit Agreement), terminate the
Commitment and the right of the Borrowers to obtain Advances in respect of the
Revolving Loan and/or to obtain LCs, and/or declare the unpaid principal amount
of any or all of the Revolving Loan and/or Revolving Note, all interest accrued
thereon and all other amounts owing by the Borrowers to the Bank to be
immediately due and payable and (ii) upon the occurrence of any Event of Default
under Section 9.12, without further action by the Bank, the right of the
Borrowers to obtain Advances in respect of the Revolving Loan and/or LCs, and
the Commitment shall be immediately terminated and the Outstanding Amount,
including the unpaid principal of the Revolving Loan and/or Revolving Note and
interest accrued thereon and all other amounts owing by the Borrowers to the
Bank shall be immediately due and payable and, in either case, such principal,
interest and other amounts shall thereupon be immediately due and payable,
without presentment, demand, protest, notice of protest, or other notice of any
kind, all of which are hereby expressly waived by the Borrowers.
Section 10.02 RECOVERY OF AMOUNTS. In case any one or more Events of
Default shall happen and be continuing, the Bank shall be entitled to recover
judgment against the Borrowers for the amount due either before, or after, or
during the pendency of any
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proceedings for the enforcement of any security therefor, and, in the event of
realization of any funds from any security and application thereof to the
partial payment of the amounts due, the Bank shall be entitled to enforce
payment of and recover judgment for all amounts then remaining due and unpaid.
In case any one or more Events of Default shall happen and be continuing the
Bank may proceed to protect and enforce their rights by suit in equity, action
at law, and/or by any other appropriate proceeding, including, without
limitation, for the specific performance of any covenant or agreement or in aid
of the exercise of any power granted to the Bank, or may proceed to enforce
payment of the Revolving Note or to enforce any other legal or equitable right.
Section 10.03 LCs. If the maturity of the Revolving Loan shall be
accelerated pursuant to Section 10.01, the Borrowers shall immediately deposit
with the Bank, as security for the Borrowers' obligation to reimburse the Bank
for any then outstanding LC, cash or Acceptable Marketable Securities having a
fair cash value equal to the sum of the aggregate undrawn balance of any then
outstanding LCs.
Section 10.04 REMEDIES CUMULATIVE. Upon acceleration of the Obligations
pursuant to Section 11.01, the Bank may pursue its rights or remedies under the
Revolving Note, this Credit Agreement, the Guaranty or the other Loan Documents,
independently or concurrently. All rights, remedies, or powers herein conferred
upon the Bank shall, to the extent not prohibited by law, be deemed cumulative
and not exclusive of any other rights, remedies, or powers available to the
Bank. Without limiting the foregoing, the rights and remedies of the Bank under
this Credit Agreement, the Revolving Note and the other Loan Documents are
cumulative, may be exercised simultaneously or in such order and at such times
as the Bank may elect and are in addition to its rights and remedies at law or
equity. No delay or omission of the Bank to exercise any right, remedy, or power
shall impair the same or be construed to be a waiver of any Event of Default or
an acquiescence therein. No waiver of any Event of Default shall extend to or
affect any subsequent Event of Default or shall impair any rights, remedies, or
powers available to the Bank. No single or partial exercise of any right,
remedy, or power shall preclude other or further exercise thereof by the Bank.
Section 10.05 COST OF COLLECTION. The Borrowers agree that upon and
during the continuance of an Event of Default, they will pay to the Bank such
additional amount as shall be sufficient to cover the cost and expenses of
collection, including attorneys' fees, and any expenses or liabilities incurred
by the Bank in the collection thereof.
Section 10.06 NO ADVANCES, ETC. The Bank shall not be required to make
any Advances or issue any LC under this Credit Agreement if a Possible Default
or an Event of Default has occurred and is continuing.
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Section 10.07 MANAGEMENT OF COLLATERAL AFTER EVENT OF DEFAULT. Upon the
occurrence and during the continuance of an Event of Default, the Bank may at
any time and from time to time employ and maintain in the premises of the
Borrower custodians selected by the Bank who shall have full authority to do all
acts necessary to protect the Bank's interests and to report to the Bank
thereon. The Borrowers hereby agree to cooperate with any much custodians and to
do whatever the Bank may reasonably request to preserve the Collateral. All
reasonable expenses incurred by the Bank by reason of the employment of the
custodian shall be charged to the Borrowers' account and added to the
Obligations.
ARTICLE XI
----------
MISCELLANEOUS
-------------
Section 11.01 PAYMENT OF EXPENSES. If Taxes shall be payable, or ruled
to be payable, to any state, province or Federal authority, with respect to the
execution and delivery of this Credit Agreement or, the Revolving Note or any
Collateral Security Document, or other Loan Document by reason of any existing
or hereafter enacted Federal or state statutes, the Borrowers will pay all such
taxes in accordance with such statutes, including interest and penalties
thereon, excluding Taxes solely on income of the Bank if any, and will indemnify
and hold the Bank harmless against any liability in connection therewith. The
Borrowers will also reimburse the Bank the fees and disbursements incurred by
Messrs. Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. for their services to the
Bank in preparing, reviewing, closing, or enforcing this Credit Agreement and
the other documents executed in connection herewith, and will reimburse the Bank
for any out-of-pocket expenses incurred in connection therewith. The Borrowers
shall at all times protect, indemnify, defend and save harmless the Bank from
and against any and all claims, actions, suits and other legal proceedings and
liabilities, damages, costs, interest, charges, reasonable counsel fees and
other expenses and penalties but, prior to the occurrence of and during the
continuance of an Event of Default, excluding the Bank's ordinary course of
business internal and out of pocket costs and expenses (the "Indemnified
Liabilities"), which the Bank may, at any time, sustain or incur by reason or in
consequence of or arising out of the execution and delivery of this Credit
Agreement and the consummation of the transactions contemplated hereby except
for any such Indemnified Liabilities resulting from the gross negligence or
willful misconduct of the Bank. The Borrowers acknowledge that it is the
intention of the parties hereto that this Agreement shall be construed and
applied to protect and indemnify the Bank against any and all risks involved in
the execution and delivery of this Credit Agreement and the consummation of the
transactions contemplated hereby, all of which risks are hereby assumed by the
Borrowers, including, without limitation, any and all risks of the acts or
omissions, whether rightful or wrongful, or any present or future, DE JURE or DE
FACTO government or governmental authority. All amounts payable or reimbursable
by the
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Borrower under this Section 11.01 shall be due and payable on demand. The
obligations imposed upon the Borrowers by this Section 11.01 shall survive the
payment of the Revolving Loan and the Revolving Note.
Section 11.02 NOTICES. Any notice to or demand upon the Borrowers shall
be deemed to have been sufficiently given or served for all purposes hereof one
day after being sent by overnight express courier, three days after being
mailed, certified mail, return receipt requested or, when received during normal
business hours, by electronic facsimile (confirmed by subsequent delivery of
"hard copy"), addressed to the Representative at McDonald Investment Center, 800
Superior Avenue, Cleveland, Ohio 44114 Attn: President, or to such other address
as may be furnished in writing to the Bank for such purpose by the Borrowers.
Any notice to or demand upon the Bank shall be deemed to have been sufficiently
given or served for all purposes hereof one day after being sent by overnight
express courier or hand delivered to the Account Officer of the Bank at 1350
Euclid Avenue, Cleveland, Ohio 44115, Attn: John D. Barrett, Vice President, or
to such other address as may be furnished in writing to the Borrowers for such
purpose by the Bank.
Section 11.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall survive the execution and
delivery of this Credit Agreement, any investigation at any time made by the
Bank, and the execution and delivery of the Revolving Note and shall continue in
full force and effect so long as the Revolving Note is outstanding and unpaid.
Section 11.04 ENTIRE AGREEMENT; AMENDMENT. This Credit Agreement,
including all exhibits hereto, embodies the entire agreement and understanding
between the Borrowers and the Bank and supersedes all other prior agreements and
understandings relating to the subject matter hereof. The Borrowers and the Bank
may enter into further and additional written agreements to amend or supplement
this Credit Agreement and the terms and provisions of such further and
additional written agreements shall be deemed a part of this Credit Agreement as
though incorporated herein. Except as provided herein, the Bank has no
obligation to make loans or advances to the Borrowers.
Section 11.05 PARTIES IN INTEREST; BANK'S PURPOSE. All the terms and
provisions of this Credit Agreement shall inure to the benefit of and be binding
upon and be enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not and, in particular, shall inure to the
benefit of and be enforceable by any holder of the Revolving Note. The Borrowers
shall not assign their rights under this Credit Agreement without the prior
written consent of the Bank. The Bank, without the prior written consent of the
Borrowers, may assign, or sell participations in, all or part of the Revolving
Loan and its rights under the Credit Agreement and the other Loan Documents. The
Bank agrees that it
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will give the Borrowers prompt written notice of any assignment of all or part
of the Revolving Loan.
Section 11.06 WAIVER OF ASSERTION OF COUNTERCLAIMS; WAIVER OF JURY
TRIAL. Each and every right granted to the Bank hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Bank or any holder of the Revolving Note to exercise, and no
delay in exercising, any right shall operate as a waiver thereof nor shall any
single or partial exercise of any right preclude any other or future exercise
thereof or the exercise of any other right. The due payment and performance of
the Borrowers' indebtedness, liabilities and obligations under the Revolving
Note and this Credit Agreement shall be without regard to any counterclaim or
right of offset which the Borrowers may have against the Bank and without regard
to any other obligation of any nature whatsoever which the Bank may have to the
Borrowers, and no such counterclaim or offset shall be asserted by the Borrowers
in any action, suit or proceeding instituted by the Bank for payment or
performance of the Borrowers' indebtedness, liabilities or obligations under the
Revolving Note, this Credit Agreement, the Collateral Security Documents, or any
other Loan Documents.
THE BORROWERS AND THE BANK HEREBY WAIVE THEIR RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS CREDIT AGREEMENT, THE REVOLVING
NOTE OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATED THERETO.
Section 11.07 SET-OFF PROVISION. As security for the due payment and
performance of all the Obligations, the Borrowers hereby grant to the Bank a
lien on and security interest in any and all deposits or other sums at any time
credited by or due from the Bank to the Borrowers, whether in regular or special
depository accounts or otherwise, and any and all monies, securities and other
property of the Borrowers, and the proceeds thereof, now or hereinafter held or
received by or in transit to the Bank from or for the Borrowers, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and any
such deposits, sums, monies, securities and other property, may at any time
after the occurrence and during the continuance of any Event of Default be
set-off, appropriated and applied by the Bank against any of the Obligations,
whether or not any of such Obligations is then due or is secured by any
collateral, or, if it is so secured, whether or not the collateral held by the
Bank is considered to be adequate.
Section 11.08 SEVERABILITY OF PROVISIONS. Any provision of this Credit
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the
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remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.09 HEADINGS. Article and Section headings used in this
Credit Agreement are for convenience of reference only and are not a part of
this Agreement for any other purpose.
Section 11.10 CONSENT TO JURISDICTION. The Borrowers agree that any
action or proceeding to enforce or arising out of this Credit Agreement or any
of the other Loan Documents may be commenced in the Common Pleas Court of
Cuyahoga County, Ohio or in the District Court of the United States for the
Northern District of Ohio sitting in Cleveland, and the Borrowers waive personal
service of process and agree that a summons and complaint commencing an action
or proceeding in any such court shall be properly served and shall confer
personal jurisdiction if served to the persons and addresses listed in Section
11.02 in accordance with the provisions of this Section 11.10, or as otherwise
provided by the laws of the State of Ohio or the United States.
Section 11.11 GOVERNING LAW. This Credit Agreement, the Revolving Note
and each other Loan Document are and will be contracts made under the laws of
the State of Ohio (without regard to the laws regarding conflicts of laws) and
together with the rights and obligations of the parties hereunder shall be
construed and enforced in accordance with and governed by the laws of such
State.
Section 11.12 NATURE OF THE BORROWERS' OBLIGATIONS AND MODIFICATION
THEREOF. THE OBLIGATIONS OF THE BORROWERS UNDER THIS CREDIT AGREEMENT, THE
REVOLVING NOTE AND THE OTHER LOAN DOCUMENTS ARE JOINT AND SEVERAL. The
obligations of the Borrowers Group under this Credit Agreement are absolute and
unconditional and shall be irrevocable. The Borrowers agree that their
obligations hereunder shall not be impaired, modified, changed, released or
limited in any manner whatsoever by any impairment, modification, change,
release or limitation of the liability of any of the Borrowers by any bankruptcy
case or by any stay or other legal impediment in or arising from the operation
of any present or future provision of the Bankruptcy Code or other similar state
or federal statute, or from the decision of any court or any perfection or
failure to perfect any Lien upon any property of any of the Borrowers. The
Borrowers agree that the Bank may, in its discretion, (i) release, discharge,
compromise or settle with, or grant indulgences to, refuse to proceed or take
action against, any of the Borrowers with respect to its respective obligations
under this Credit Agreement, (ii) release, surrender, modify, impair, exchange,
substitute or extend the period or duration of time for the performance,
discharge or payment of, refuse to enforce, compromise or settle its respective
lien, security interest, pledge or assignment against, any and all deposits and
other
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property or assets on which the Bank may have a lien, security interest,
pledge or assignment or which secures any of the obligations of the Borrowers
under this Credit Agreement, and (iii) amend, modify, alter or restate, in
accordance with their respective terms, this Credit Agreement or any of the Loan
Documents or otherwise, accept deposits or other property from, or enter into
transactions of any kind or nature with, the Borrowers. Each of the Borrowers
confirms that it will be directly or indirectly benefitted by the Revolving Loan
and any and all other advances under this Credit Agreement or any of the Loan
Documents.
Section 11.13 COUNTERPARTS. This Credit Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.
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IN WITNESS WHEREOF, the parties have caused this Credit Agreement to be
executed as of the date first above written by their respective representatives
thereunto duly authorized.
MCD PROPERTY ADVISORS 1996, INC.
By:
STAR BANK, NATIONAL ASSOCIATION
By:
Vice President
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FIRST AMENDMENT
TO
CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "Amendment") is executed
at Cleveland, Ohio as of November 27, 1996 by and among MCD PROPERTY ADVISORS
1996, INC. (referred to hereinafter as "Property Advisors 1996") and each
Borrowing Fund (as hereinafter defined) (Property Advisors 1996 and each
Borrowing Fund being referred to collectively as the "Borrowers") and STAR BANK,
NATIONAL ASSOCIATION (the "Bank").
WHEREAS, the Borrowers and the Bank entered into a credit agreement
dated as of September 9, 1996, (the "Credit Agreement"; all terms used in the
Credit Agreement being used herein with the same meaning); and
WHEREAS, the Borrowers and the Bank want to make certain changes in the
Credit Agreement.
NOW, THEREFORE, the Borrowers and the Bank agree as follows:
1. AMENDMENT OF FIRST RECITAL. The first recital of the Credit
Agreement is amended in its entirety as follows:
WHEREAS, the Borrowers desire to obtain from the Bank a secured
revolving credit facility (the "Credit Facility") in a principal amount
not to exceed (a) THIRTEEN MILLION DOLLARS ($13,000,000), including
both (i) advances that may be borrowed, repaid and reborrowed from time
to time and (ii) standby letters of credit (collectively the "Revolving
Loan"), all upon the terms and conditions set forth hereafter; and
2. AMENDMENT TO SECTION 2.01.Section 2.01 is amended by amending the
words "TEN MILLION DOLLARS ($10,000,000)" to "THIRTEEN MILLION DOLLARS
($13,000,000)".
3. NO BORROWING FUND AS A BORROWER. As of the date hereof, the Bank and
Property Advisors 1996 acknowledge and agree that no Borrowing Fund has become a
Borrower under the Credit Agreement and Property Advisors 1996 is the sole
Borrower.
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4. CONDITIONS PRECEDENT. It is a condition precedent to the
effectiveness of this Amendment that, prior to or on the date hereof, the
following items shall have been delivered to the Bank:
(A) A Certificate, dated as of the date hereof, of the
secretary of Property Advisors 1996 certifying (l) that its articles of
incorporation and code of regulations have not been amended since the
execution of the Credit Agreement and (2) that copies of resolutions of
its Board of Directors are attached with respect to the approval of
this Amendment and of the matters contemplated hereby and authorizing
the execution, delivery and performance by the Borrowers of this
Amendment and each other document to be delivered pursuant hereto;
(B) The Guarantor shall have executed and delivered to the
Bank a First Amendment to Guaranty Agreement, in the form and substance
requested by the Bank;
(C) The Borrowers shall have executed and delivered to the
Bank a replacement Revolving Note in the principal amount of Thirteen
Million Dollars ($13,000,000).
(D) Such other documents as the Bank may request to implement
this Amendment and the transactions contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES. The Borrowers hereby represent and
warrant to Bank that:
(A) None of the representations and warranties made in Article
IV of the Credit Agreement has ceased to be true and complete in any
material respect as of the date hereof; and
(B) As of the date hereof no Possible Default or Event of
Default has occurred that is continuing.
6. ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS. The Borrowers
acknowledge and agree that, as of the date hereof, all of its outstanding
Obligations to the Bank are owed without any offset, defense, claim or
counterclaim of any nature whatsoever.
7. REFERENCES. On and after the effective date of this Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", or
words
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of like import referring to the Credit Agreement, and each reference in the
Revolving Note, the Guaranty or other Loan Documents to the "Credit Agreement",
"thereof", or words of like import referring to the Credit Agreement shall mean
and refer to the Credit Agreement as amended hereby. The Credit Agreement, as
amended by this Amendment, is and shall continue to be in full force and effect
and is hereby ratified and confirmed in all respects. The execution, delivery
and effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of the Bank under the Credit Agreement or constitute a waiver
of any provision of the Credit Agreement except as specifically set forth
herein.
8. COUNTERPARTS AND GOVERNING LAW. This Amendment may be executed in
any number of counterparts, each counterpart to be executed by one or more of
the parties but, when taken together, all counterparts shall constitute one
agreement. This Amendment, and the respective rights and obligations of the
parties hereto, shall be construed in accordance with and governed by Ohio law.
IN WITNESS WHEREOF, the Borrowers and the Bank have executed this
Amendment at the time and place first above mentioned.
MCD PROPERTY ADVISORS 1996, INC.
By:
------------------------------
Title:
---------------------------
As the sole Borrower
STAR BANK, NATIONAL
ASSOCIATION
By:
------------------------------
Vice President
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SECOND AMENDMENT
TO
CREDIT AGREEMENT
This Second Amendment to Credit Agreement (this "Amendment") is
executed at Cleveland, Ohio as of January 29, 1997 by and among MCD PROPERTY
ADVISORS 1996, INC. (referred to hereinafter as "Property Advisors 1996") and
each Borrowing Fund (as hereinafter defined) (Property Advisors 1996 and each
Borrowing Fund being referred to collectively as the "Borrowers") and STAR BANK,
NATIONAL ASSOCIATION (the "Bank").
WHEREAS, the Borrowers and the Bank entered into a credit agreement
dated as of September 9, 1996, and the Borrowers and the Bank executed and
delivered a First Amendment to Credit Agreement dated November 27, 1996 (said
Credit Agreement, as amended by said First Amendment, being herein called the
"Credit Agreement"; all terms used in the Credit Agreement being used herein
with the same meaning); and
WHEREAS, the Borrowers and the Bank want to make certain changes in the
Credit Agreement.
NOW, THEREFORE, the Borrowers and the Bank agree as follows:
1. AMENDMENT OF FIRST RECITAL. The first recital of the Credit
Agreement is amended in its entirety as follows:
WHEREAS, the Borrowers desire to obtain from the Bank a secured
revolving credit facility (the "Credit Facility") in a principal amount
not to exceed (a) for the period ending on June 30, 1997, TWENTY
MILLION DOLLARS ($20,000,000) and on July 1, 1997 and thereafter,
FIFTEEN MILLION DOLLARS ($15,000,000), including both (i) advances that
may be borrowed, repaid and reborrowed from time to time and (ii)
standby letters of credit (collectively the "Revolving Loan"), all upon
the terms and conditions set forth hereafter; and
2. AMENDMENT TO SECTION 2.01.Section 2.01 is amended by deleting the
words "TEN MILLION DOLLARS ($10,000,000)" and inserting in place thereof the
words "for the period from January 29, 1997 to June 30, 1997, TWENTY MILLION
DOLLARS ($20,000,000) and, on July 1, 1997 and thereafter, FIFTEEN MILLION
DOLLARS ($15,000,000)."
3. AMENDMENT TO SECTION 3.03. Section 3.03 is amended as follows:
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(i) by deleting the word "and" between clauses (i) and (ii)
of the first sentence thereof and inserting a comma in place thereof;
(ii) by adding the following clause (iii) after the word
"therein" in the first sentence:
"and (iii) all accounts, receivables, accounts receivable,
advances, loans, investments, rights to payment, instruments,
contract rights or general intangibles, now or hereafter
acquired or existing, including, but not limited to any of the
foregoing owing by a Fund Entity to Property Advisors"; and
(iii) by deleting the words "Permitted Investments" from the
end of the first paragraph and inserting the word "Collateral".
4. NO BORROWING FUND AS A BORROWER. As of the date hereof, the Bank
and Property Advisors 1996 acknowledge and agree that no Borrowing Fund has
become a Borrower under the Credit Agreement and Property Advisors 1996 is the
sole Borrower.
5. CONDITIONS PRECEDENT. It is a condition precedent to the
effectiveness of this Amendment that, prior to or on the date hereof, the
following items shall have been delivered to the Bank:
(A) A Certificate, dated as of the date hereof, of the
secretary of Property Advisors 1996 certifying (l) that its articles of
incorporation and code of regulations have not been amended since the
execution of the Credit Agreement and (2) that copies of resolutions of
its Board of Directors are attached with respect to the approval of
this Amendment and of the matters contemplated hereby and authorizing
the execution, delivery and performance by the Borrowers of this
Amendment and each other document to be delivered pursuant hereto;
(B) The Guarantor shall have executed and delivered to the
Bank a Second Amendment to Guaranty Agreement, in the form and
substance requested by the Bank;
(C) The Borrowers shall have executed and delivered to the
Bank a replacement Revolving Note in the principal amount of Twenty
Million Dollars ($20,000,000).
(D) Such other documents as the Bank may request to implement
this Amendment and the transactions contemplated hereby.
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6. REPRESENTATIONS AND WARRANTIES. The Borrowers hereby represent and
warrant to Bank that:
(A) None of the representations and warranties made in Article
IV of the Credit Agreement has ceased to be true and complete in any
material respect as of the date hereof; and
(B) As of the date hereof no Possible Default or Event of
Default has occurred that is continuing.
7. ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS. The Borrowers
acknowledge and agree that, as of the date hereof, all of its outstanding
Obligations to the Bank are owed without any offset, defense, claim or
counterclaim of any nature whatsoever.
8. REFERENCES. On and after the effective date of this Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", or
words of like import referring to the Credit Agreement, and each reference in
the Revolving Note, the Guaranty or other Loan Documents to the "Credit
Agreement", "thereof", or words of like import referring to the Credit Agreement
shall mean and refer to the Credit Agreement as amended hereby. The Credit
Agreement, as amended by this Amendment, is and shall continue to be in full
force and effect and is hereby ratified and confirmed in all respects. The
execution, delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of the Bank under the Credit Agreement or
constitute a waiver of any provision of the Credit Agreement except as
specifically set forth herein.
9. COUNTERPARTS AND GOVERNING LAW. This Amendment may be executed in
any number of counterparts, each counterpart to be executed by one or more of
the parties but, when taken together, all counterparts shall constitute one
agreement. This Amendment, and the respective rights and obligations of the
parties hereto, shall be construed in accordance with and governed by Ohio law.
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IN WITNESS WHEREOF, the Borrowers and the Bank have executed this
Amendment at the time and place first above mentioned.
MCD PROPERTY ADVISORS 1996, INC.
By:
--------------------------------
Title:
-----------------------------
As the sole Borrower
STAR BANK, NATIONAL
ASSOCIATION
By:
--------------------------------
Vice President
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GUARANTY AGREEMENT
GUARANTY, dated as of September 9, 1996, from McDONALD & COMPANY
INVESTMENTS, INC., a corporation organized and existing under the laws of the
State of Delaware (the "Guarantor"), in favor of STAR BANK, NATIONAL ASSOCIATION
(the "Bank").
WHEREAS, MCD Property Advisors 1996, Inc., an Ohio corporation
("Property Advisors 1996") is a wholly-owned subsidiary of the Guarantor;
WHEREAS, Property Advisors 1996 is or will be general partner of
various investment funds (the "Funds");
WHEREAS, Property Advisors 1996 have executed and delivered to the Bank
that certain Credit Agreement dated the date hereof (as such Credit Agreement
may be amended, modified, supplemented or restated from time to time, herein
called the "Credit Agreement") pursuant to which the Bank has agreed to make
loans and other extensions of credit in a maximum principal amount of TEN
MILLION DOLLARS ($10,000,000) to Property Advisors and certain of the Funds that
agree to become a "Borrower" (as defined in the Credit Agreement; Property
Advisors 1996 and such Funds being herein referred to collectively as the
"Borrower) from time to time to assist them in the making of investments, and
the Borrower's obligation to repay such loans and extensions of credit are
evidenced by a promissory note in a maximum principal amount of TEN MILLION
DOLLARS ($10,000,000) (said promissory note as the same may be modified,
amended, supplemented or restated from time to time being herein called the
"Revolving Note");
WHEREAS, to secure the payment and performance of the indebtedness and
obligations of the Borrower under the Credit Agreement and the Revolving Note,
the Borrower may from time to time execute and deliver to the Bank security
agreements, assignments and other documents and instruments (said security
agreements, assignments and other documents and instruments as they may be
amended, modified, supplemented or restated from time to time are hereinafter
referred to as the "Security Documents");
WHEREAS, the Borrower has agreed to pay to Guarantor an annual fee of
Fifty Thousand Dollars in consideration of Guarantor's execution and delivery of
this Guaranty;
WHEREAS, the Guarantor acknowledges the direct and indirect benefits
derived by it by reason of the Credit Agreement and is willing to enter into
this Guaranty in order
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to enhance the business of the Borrower which will inure to the benefit of the
Borrower and therefore to the Guarantor; and
WHEREAS, the Bank is willing to enter into the Credit Agreement with
the Borrower and make the loans and other extensions of credit thereto, but only
upon the condition, among others, that the Guarantor shall have executed and
delivered to the Bank this Guaranty.
NOW, THEREFORE, in consideration of the premises and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby agrees as follows:
SECTION 1. The Guarantor hereby unconditionally, absolutely and
irrevocably guarantees to the Bank, and its successors, endorsees, transferees
and assigns, (a) the full and prompt payment when due (whether by scheduled
maturity, redemption, acceleration, demand or otherwise) of all indebtedness,
obligations, responsibilities and liabilities of the Borrower owing from time to
time to the Bank arising out of or in connection with the Credit Agreement, the
Revolving Note and the Security Documents and (b) the prompt and complete
performance by the Borrower of all its obligations, covenants and agreements
under the Credit Agreement, the Revolving Note and the Security Documents (all
such indebtedness, obligations, liabilities, covenants and agreements, whether
heretofore or hereafter incurred, being herein called the "Obligations"). This
is a guaranty of payment and not collection and is absolute, unconditional and
continuing. The Guarantor further agrees to pay any and all expenses which may
be paid or incurred by the Bank in collecting any or all of the Obligations
and/or enforcing any rights under this Guaranty or under the Obligations.
SECTION 2. Upon, and to the extent of, any payment by the Guarantor
made hereunder, the Guarantor shall be entitled to be subrogated to any of the
rights of the Bank against the Borrower held by the Bank for the payment of the
Obligations. The Guarantor's right of subrogation shall not be exercised or
effective until such time as all Obligations have been paid or performed in
full.
SECTION 3. The Guarantor hereby acknowledges that (a) any demand for
payment of any of the Obligations made by the Bank may be rescinded by the Bank
and any of the Obligations continued, (b) the Obligations, or any part thereof,
and any collateral or security therefor, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered, released, substituted or exchanged, (c) the Credit Agreement, the
Revolving Note or the Security Documents may be amended, modified, supplemented
or terminated, in accordance with their respective terms, in whole or in part,
as the Bank may deem advisable from time to
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time, and (d) the Bank may pursuant to the Credit Agreement and the Security
Documents advance or expend additional funds creating additional Obligations
secured hereby; all without the necessity of any reservation of rights against
the Guarantor hereunder and without notice to or further assent by the
Guarantor, which will remain bound hereunder notwithstanding any such renewal,
extension, modification, acceleration, compromise, amendment, supplement,
termination, waiver, surrender or release. Nothing herein contained shall affect
any rights contained in any other documents or cause any termination,
modification, or amendment of any such document except pursuant to the terms
thereof or as the parties thereto may agree. When making any demand hereunder
against the Guarantor, the Bank shall be under no obligation to make a similar
demand on the Borrower or any collateral security for the Obligations and any
failure by the Bank to make any such demand or to collect any payments from the
Borrower or any collateral security for the Obligations or any release of the
Borrower shall not relieve the Guarantor of its obligations or liabilities
hereunder, and shall not impair or affect the rights and remedies, express or
implied, or as a matter of law, of the Bank against the Guarantor. For the
purposes hereof "demand" shall include the commencement and continuance of any
legal action or proceedings and the exercise or exhaustion of any remedies
against the Borrower or any collateral security for the Obligations.
SECTION 4. The Guarantor waives any and all notice of the creation,
renewal, extension or accrual of any of the Obligations and notice of or proof
of reliance by the Bank upon this Guaranty or acceptance of this Guaranty, and
the Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred in reliance upon this Guaranty, and all dealings
between the Borrower or the Guarantor and the Bank shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guaranty. The Guarantor waives presentment, protest, demand for payment and
notice of default or nonpayment to or upon the Guarantor with respect to the
Obligations. This Guaranty shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to the legality, validity,
regularity or enforceability of the Credit Agreement, the Revolving Note, the
Security Documents, or any of the Obligations at any time or from time to time
held by the Bank, without regard to any defense, set off or counterclaim which
may at any time be available to or be asserted by the Borrower against the Bank,
or by any other circumstance whatsoever (with or without notice to or knowledge
of the Borrower or the Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Obligations,
in bankruptcy or in any other instance, or an equitable or legal discharge of
the Guarantor under this Guaranty. The obligations and liabilities of the
Guarantor hereunder shall not be conditioned or contingent upon the pursuit by
the Bank or any other person at any time of any right or remedy against any
collateral or security for the Obligations or against the Borrower or any other
person which may be or
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become liable in respect of all or any part of the Obligations. This Guaranty
shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon the Guarantor and the successors and assigns
thereof, and shall inure to the benefit of the Bank, and its successors,
endorsees, transferees and assigns, until all the Obligations of the Guarantor
under this Guaranty shall have been satisfied by payment in full.
SECTION 5. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Bank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any substantial part of its property, or otherwise, all as though
such payments had not been made.
SECTION 6. The Guarantor hereby guarantees that the Obligations and
other amounts payable hereunder will be paid to the Bank without set-off or
counterclaim in lawful currency of the United States of America and in
immediately available funds, at the office of the Bank located at 1350 Euclid
Avenue, Cleveland, Ohio 44114 or such other office of the Bank as it shall
designate to the Borrower or the Guarantor in writing.
SECTION 7. Capitalized terms used in this Guaranty and not defined
herein shall have the respective meanings given to such terms in the Credit
Agreement.
SECTION 8. The Guarantor hereby represents and warrants that:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) It is not in default under any provision of the laws of the
State of Delaware or under its certificate of incorporation or by-laws.
(c) The execution, delivery and performance by the Guarantor of
this Guaranty are within the Guarantor's corporate powers, have been
duly authorized by all necessary corporate action, do not contravene
(i) the Guarantor's certificate of incorporation or by-laws on (ii) any
law or contractual restriction binding on or affecting the Guarantor,
and do not result in or require the creation of any lien, security
interest or other charge or encumbrance upon or with respect to any of
its properties.
(d) No consent, authorization or approval or other action by, and
no
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notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the
Guarantor of this Guaranty or of any other document prepared in
connection with the issuance and sale of the Bonds.
(e) This Guaranty is a legally valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its
terms.
(f) There are no outstanding judgments or awards or pending
actions or proceedings before any court, governmental agency or
arbitrator against or directly involving the Guarantor and, to the best
of the Guarantor's knowledge, there are no threatened actions or
proceedings affecting the Guarantor before any court, governmental
agency or arbitrator which, in any case, may materially and adversely
affect the financial condition or operations of the Guarantor.
(g) The consolidated balance sheets of the Guarantor as at March
31, 1996 and the related consolidated statements of income, retained
earnings and of changes in financial position of the Guarantor for the
fiscal years then ended, copies of which have been furnished to the
Bank, are complete and correct and present fairly the consolidated
financial position of the Guarantor and its subsidiaries as at such
dates and the consolidated results of its operations for the periods
ended on such dates, in accordance with generally accepted accounting
principles consistently applied, and since March 31, 1996 there has
been no material adverse change in such consolidated financial position
or operations.
(h) The Guarantor has delivered to the Bank a true, correct and
complete copy of that certain Note Purchase Agreement (the "Note
Purchase Agreement") dated as of January 15, 1993 executed and
delivered by McDonald & Company Securities, Inc. ("MCD Securities") in
favor of the purchasers named therein and relating to MCD Securities'
8.24% Subordinated Notes due January 15, 2002 issued in the original
principal amount of $25,000,000. The terms and provisions of the Note
Purchase Agreement are in full force and effect, and have not been
amended, modified, restated or supplemented in any manner.
(i) The Guarantor owns all of the outstanding and issued capital
stock of Property Advisors and MCD Securities, and no other person has
any right to acquire such capital stock.
(j) Each of the representations and warranties contained in Annex
I attached hereto and incorporated herein are true, correct and
complete.
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SECTION 9. So long as the Revolving Period remains in effect or any
Obligation remains unpaid or unperformed:
(a) The Guarantor will observe, perform and comply with each and
every covenant, term and provision contained in Sections 7.1, 7.2, 7.5,
7.6, 7.7, 7.8, 7.10, 7.11, 7.12, 8.1, 8.2, 8.3 and 8.4 of the Note
Purchase Agreement (the "Incorporated Provisions"), each of which,
including all defined terms used therein, is incorporated herein by
this reference as if fully rewritten at length herein, such covenants,
terms and provisions to continue in full force and effect with respect
to this Guaranty so long as it and/or the Credit Agreement is in effect
and until all of the Obligations are paid in full, without regard to
whether the Note Purchase Agreement remains in effect. For purposes of
the Guarantor's compliance with the Incorporated Provisions, the term
the "Company" will be deemed to refer to the Guarantor notwithstanding
the fact that such term as used in the Note Purchase Agreement refers
to MCD Securities, except in Section 7.7 where the word "MCD
Securities" will be inserted before the defined terms "NYSE Net
Capital", "SEC Net Capital" and "Excess Regulatory Capital" for
purposes of clarification. For purposes of the Guarantor's compliance
with the Incorporated Provisions, the Bank will be deemed to be one of
the Purchasers as referred to in the Note Purchase Agreement. It is
further agreed that no waiver or amendment with respect to the
Incorporated Provisions (or the defined terms used therein) of the Note
Purchase Agreement shall be effective as to this Agreement until
specifically agreed to in writing by the Bank.
(b) The Guarantor will continue to own one hundred percent (100%)
of all capital stock and any rights or options to acquire the same, of
Property Advisors 1996 and of MCD Securities.
(c) The Guarantor shall have and maintain at all times an
Effective Net Worth as hereinafter defined in an aggregate amount of
not less than One Hundred Thirty-Four Million Dollars ($134,000,000)
plus fifty percent (50%) of the Guarantor's Net Income on and after the
second Quarter of the Fiscal Year of the Borrower ending on March 31,
1996. For purposes of this subsection (c), the term "Effective Net
Worth" means the net worth of the Borrower determined in accordance
with GAAP, plus the outstanding principal amount of the Subordinated
Debt (as hereinafter defined). The term "Subordinated Debt" means
Indebtedness for Borrowed Money, the payment of which is subordinated
to the payment of the Obligations in form and substance satisfactory to
the Bank. The term "Net Income" means the Borrower's net income
determined in accordance with GAAP, and if such Net Income is zero or
less, it shall be considered to be zero.
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(d) The Guarantor will deliver to the Bank a statement (a
"Covenant Compliance Certificate) as to compliance with the covenants
set forth in Section 7.5, 7.6 and 7.7 of the Note Purchase Agreement
and subsection (c) of this Section 9 and containing appropriate
calculations demonstrating such compliance.
SECTION 10. No failure to exercise and no delay in exercising, on the
part of the Bank, any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof, or the exercise of any
other power, right or privilege. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by the Credit
Agreement, the Security Documents, and the other Basic Documents, at law or in
equity or otherwise.
SECTION 11. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, during the
continuance of any Event of Default hereunder the Bank is hereby authorized at
any time and from time to time, without notice to the Guarantor or to any other
person or entity, any such notice being hereby expressly waived by the
Guarantor, to setoff and to appropriate and apply any and all deposits (general
or special) and any other indebtedness at any time held or owing by the Bank to
or for the credit or the account of the Guarantor against and on account of the
obligations and liabilities of the Guarantor to the Bank under this Guaranty,
irrespective of whether or not the Bank shall have made any demand hereunder and
although said obligations, liabilities or claims, or any of them, shall be
contingent or unmatured.
SECTION 12. Any provision of this Guaranty which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or nonauthorization without invalidating the remaining provisions hereof or
affecting the validity, unenforceability or legality of such provision in any
other jurisdiction.
SECTION 13. No provision of this Guaranty shall be waived, amended or
supplemented except by a written instrument executed by the Guarantor and the
Bank. This Guaranty shall be governed by, and be construed, interpreted and
enforced in accordance with, the law of the State of Ohio, applicable to
contracts made and performed within the State of Ohio.
SECTION 14. Each and every right granted to the Bank hereunder or under
any other document delivered hereunder or in connection herewith, or allowed it
by law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of the Bank or any holder of the Revolving Note to exercise,
and no delay in exercising, any right shall operate as a waiver thereof nor
shall any single or partial
81
<PAGE> 67
exercise of any right preclude any other or future exercise thereof or the
exercise of any other right. The due payment and performance of the Obligations
shall be without regard to any counterclaim or right of offset which the
Guarantor may have against the Bank and without regard to any other obligation
of any nature whatsoever which the Bank may have to the Borrower or the
Guarantor, and no such counterclaim or offset shall be asserted by the
Guarantor in any action, suit or proceeding instituted by the Bank for payment
or performance of the Obligations.
THE GUARANTOR AND THE BANK HEREBY WAIVE THEIR RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS
RELATED THERETO.
SECTION 15. As security for the due payment and performance of all the
Obligations, the Guarantor hereby grants to the Bank a lien on and security
interest in any and all deposits or other sums at any time credited by or due
from the Bank to the Guarantor, whether in regular or special depository
accounts or otherwise, and any and all monies, securities and other property of
the Guarantor, and the proceeds thereof, now or hereinafter held or received by
or in transit to the Bank from or for the Guarantor, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and any such deposits,
sums, monies, securities and other property, may at any time after the
occurrence and during the continuance of any Event of Default be set-off,
appropriated and applied by the Bank against any of the Obligations, whether or
not any of such Obligations is then due or is secured by any collateral, or, if
it is so secured, whether or not the collateral held by the Bank is considered
to be adequate.
SECTION 16. The Guarantor agrees that any action or proceeding to
enforce or arising out of this Credit Agreement or any of the other Loan
Documents may be commenced in the Common Pleas Court of Cuyahoga County, Ohio or
in the District Court of the United States for the Northern District of Ohio
sitting in Cleveland, and the Guarantor waives personal service of process and
agrees that a summons and complaint commencing an action or proceeding in any
such court shall be properly served and shall confer personal jurisdiction if
served to the persons and addresses listed in Section 11.02 in accordance with
the provisions of this Section 11.10, or as otherwise provided by the laws of
the State of Ohio or the United States.
SECTION 17. All of the terms, provisions and agreements of this
Guaranty shall inure to the benefit of and be enforceable by the Bank, its
successors, transferees and assigns, and shall be binding upon the Guarantor and
its successors and assigns. The obligations of the Guarantor hereunder shall be
in addition to any other liability or obligation of the Guarantor to the Bank,
if any, and this Guaranty shall not affect or impair any other obligations,
debts or liabilities of the Guarantor to the Bank.
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<PAGE> 68
SECTION 18. Notices by the Bank to the Guarantor shall be deemed to be
effective upon delivery, mailing, telex or other transmission to the address
shown on the signature page hereof or such other place as the Guarantor shall
designate to the Bank in writing for such purpose.
SECTION 19. This Guaranty may be executed in any number of counterparts
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its duly authorized officers on the day and year first
above written.
McDONALD & COMPANY
INVESTMENTS, INC.
By:
-----------------------------------
Title:
And:
-----------------------------------
Title:
Address:
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attention: Patricia Jamison
83
<PAGE> 69
ANNEX I
ADDITIONAL REPRESENTATIONS AND WARRANTIES
1. ERISA. Every employee pension benefit plan, if any,
maintained by any of the Companies which has been treated for federal tax
purposes as a qualified plan (if any) under Section 401(a) of the Code is so
qualified (or an application for such qualification is pending and the Companies
know of no reason why such plan will not receive such qualification), and its
related funding vehicle is tax exempt to the extent provided by the Code, except
where such failure would not have a Material Adverse Effect. None of the
Companies has engaged in a transaction with respect to any Plan, or any other
employee benefit plan, which would or could subject any of the Companies to a
tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of
ERISA, except where no Material Adverse Effect would result therefrom. No Plan
has had an accumulated funding deficiency, whether or not waived, which would
have a Material Adverse Effect. No Reportable Event, which would have a Material
Adverse Effect, has occurred with respect to any Plan. No liability, which would
have a Material Adverse Effect, to the PBGC has been incurred and is unpaid, or
is expected to be incurred, by the Companies with respect to any Plan. No event
or condition referred to in Section 4042(a) of ERISA exists which presents a
material risk of termination of any Plan by the PBGC, which termination would
result in a Material Adverse Effect. No proceeding or other action, which would
have a Material Adverse Effect, has been initiated by the PBGC to terminate any
Plan nor has written notice been given to any of the Companies of an intention
to commence or seek the commencement of any such proceeding or action. None of
the Companies has withdrawn nor do they expect to withdraw from any
multi-employer plan or multiple employer plan, excluding any such withdrawal
that may be accomplished without any liability, which would have a Material
Adverse Effect, or any such withdrawal as to which any resulting liability has
been paid in full. The total potential withdrawal liability to the Companies
under all multi-employer plans, less the aggregate Unfunded Liabilities would
not have a Material Adverse Effect. Under each employee pension benefit plan (if
any) maintained by any of the Companies which is required to be funded under
ERISA, as of the last day of the most recent plan year, the then aggregate
current value of all accrued benefits under each such plan (as determined on the
basis of the actuarial assumptions and methods contained in the plan's most
recent actuarial valuation of liabilities) did not exceed the aggregate current
value of the assets of such plan, except Unfunded Liabilities which, in the
aggregate, would not have a Material Adverse Effect. Each employee benefit plan
(if any) maintained by the Companies has been administered in compliance with
its terms, except where the failure to do so would not have a Material Adverse
Effect The term "current value" has the same meaning as in Section 4062(b)(1) of
ERISA (as in effect prior to the amendment made by
84
<PAGE> 70
the Consolidated Omnibus Budget Reconciliation Act of 1985) and the term
"accrued benefit" has the same meaning specified in Section 3 of ERISA. As used
in this Agreement, (i) "accumulated funding deficiency" shall have the meaning
assigned to such term in Section 412 of the Code and Section 302 of ERISA; (ii)
"employee pension benefit plan," "employee benefit Plan," "multi-employer plan"
and "Plan Year" shall have the respective meanings assigned to such terms in
Sections 3 and 4001 of ERISA; (iii) "multiple employer plan" means a single
employer plan which has two or more contributing sponsors at least two of whom
are not under common control, within the contemplation of Sections 4063 and 4064
of ERISA; (iv) "single employer plan" shall have the meaning assigned to such
term in Section 4001 of ERISA; and (v) "withdrawal liability" shall include the
liabilities established by Sections 4063, 4064 and 4201 of ERISA.
2. TAXES. As of the date hereof, each of the Companies has (a) timely
filed all returns required to be filed by them with respect to all Taxes, (b)
paid all Taxes shown to have become due pursuant to such returns, and (c) paid
all other Taxes for which a notice of assessment or demand for payment has been
received by the Companies, except where the failure to do so would not have a
Material Adverse Effect. As of the date hereof, all tax returns of the Companies
have been prepared in accordance with all applicable laws and requirements and
accurately reflect the taxable income (or other measure of Tax) of the
Companies. As of the date hereof, each of the Companies has timely filed all
information returns or reports which are required to be filed and has accurately
reported all material information required to be included on such returns or
reports. As of the date hereof, there are no proposed assessments of Taxes
against the Companies nor any proposed adjustments to any Tax return filed. As
of the date hereof, none of the Companies has ever (i) filed any consent or
agreement under Section 341(f) of the Code, (ii) executed a waiver or consent
extending any statute of limitations for any Tax liability which remains
outstanding, (iii) joined in or been required to join in filing a consolidated
or combined Tax return, except that of the Guarantor, (iv) applied for a Tax
ruling other than a determination letter with respect to a qualified employee
benefit plan, (v) entered into a closing agreement with any taxing authority, or
(vi) filed an election under 338(g) or Section 338(h)(10) of the Code or caused
or permitted a deemed election under Section 338(e) thereof to occur.
3. HOLDING BORROWER ACT. The Guarantor is not a "Holding Borrower" or a
"Subsidiary Borrower" of a "Holding Borrower", or an "Affiliate" of a "Holding
Borrower", as such terms are defined in the Public Utility Holding Borrower Act
of 1935, as amended.
85
<PAGE> 71
FIRST AMENDMENT
TO
GUARANTY AGREEMENT
This First Amendment to Guaranty Agreement (this "Amendment") is
executed at Cleveland, Ohio as of November 27, 1996 by and among McDONALD &
COMPANY INVESTMENTS, INC. (referred to hereinafter as the "Guarantor") and STAR
BANK, NATIONAL ASSOCIATION (the "Bank").
WHEREAS, the Guarantor previously executed and delivered to the Bank a
guaranty Agreement dated as of September 9, 1996 (the "Guaranty Agreement")
pursuant to which the Guarantor guaranteed the payment and performance of the
indebtedness of MCD Property Advisors 1996, Inc. and certain other borrowers
(the "Borrowers") to the Bank incurred or arising pursuant to a Credit Agreement
dated September 9, 1996 (the "Credit Agreement"); and
WHEREAS, the Borrowers and the Bank want to increase the amount of the
Revolving Credit (as defined in the Credit Agreement) in the Credit Agreement
and the Guarantor approves of such increase; and
WHEREAS, to evidence such increase in the Revolving Credit, the
Borrowers and the Bank have executed and delivered a First Amendment to Credit
Agreement dated the date hereof (the "First Amendment"), and the execution and
delivery of this Amendment by the Guarantor is a condition to the effectiveness
of the First Amendment.
NOW, THEREFORE, the Guarantor and the Bank agree as follows:
1. AMENDMENT OF THIRD RECITAL. The third recital of the Guaranty
Agreement is amended by amending the words "TEN MILLION DOLLARS ($10,000,000)"
to "THIRTEEN MILLION DOLLARS ($13,000,000)".
2. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and
warrants to Bank that:
(A) None of the representations and warranties made in Section
8 of the Guaranty Agreement has ceased to be true and complete in any
material respect as of the date hereof; and
86
<PAGE> 72
(B) As of the date hereof no Possible Default or Event of
Default (both as defined in the Credit Agreement) has occurred that is
continuing.
3. ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS. The Guarantor
acknowledges and agrees that, as of the date hereof, there is no offset,
defense, claim or counterclaim of any nature whatsoever to any of the
Obligations (as defined in the Guaranty Agreement) to the Bank.
4. REFERENCES. On and after the effective date of this Amendment, each
reference in the Guaranty Agreement to "this Agreement", "hereunder", "hereof",
or words of like import referring to the Guaranty Agreement, or words of like
import referring to the Guaranty Agreement shall mean and refer to the Guaranty
Agreement as amended hereby. Each reference in the Guaranty Agreement to "the
Credit Agreement" or "therein", or words of like import referring to the Credit
Agreement, shall mean and refer to the Credit Agreement as amended by the First
Amendment. The Guaranty Agreement, as amended by this Amendment, is and shall
continue to be in full force and effect and is hereby ratified and confirmed in
all respects. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Bank under the
Guaranty Agreement or constitute a waiver of any provision of the Credit
Agreement except as specifically set forth herein.
5. COUNTERPARTS AND GOVERNING LAW. This Amendment may be executed in
any number of counterparts, each counterpart to be executed by one or more of
the parties but, when taken together, all counterparts shall constitute one
agreement. This Amendment, and the respective rights and obligations of the
parties hereto, shall be construed in accordance with and governed by Ohio law.
IN WITNESS WHEREOF, the Guarantor and the Bank have executed this
Amendment at the time and place first above mentioned.
MCDONALD & COMPANY
INVESTMENTS, INC.
By:
---------------------------------
Title:
------------------------------
STAR BANK, NATIONAL ASSOCIATION
By:
---------------------------------
Vice President
87
<PAGE> 73
SECOND AMENDMENT
TO
GUARANTY AGREEMENT
This Second Amendment to Guaranty Agreement (this "Amendment") is
executed at Cleveland, Ohio as of January 29, 1997 by and among McDONALD &
COMPANY INVESTMENTS, INC. (referred to hereinafter as the "Guarantor") and STAR
BANK, NATIONAL ASSOCIATION (the "Bank").
WHEREAS, the Guarantor previously executed and delivered to the Bank a
Guaranty Agreement dated as of September 9, 1996 (the "Guaranty Agreement")
pursuant to which the Guarantor guaranteed the payment and performance of the
indebtedness of MCD Property Advisors 1996, Inc. and certain other borrowers
(the "Borrowers") to the Bank incurred or arising pursuant to a Credit Agreement
dated September 9, 1996 (the "Credit Agreement");
WHEREAS, the Borrowers and the Bank previously executed and delivered a
First Amendment to Credit Agreement, dated November 27, 1996, and in connection
with said First Amendment to Credit Agreement, the Guarantor executed and
delivered a First Amendment to Guaranty Agreement;
WHEREAS, the Borrowers and the Bank want to increase again the amount
of the Revolving Credit (as defined in the Credit Agreement, as amended) in the
Credit Agreement and to amend certain other terms relating to collateral for the
Revolving Credit and the Guarantor approves of such increase and other
amendments; and
WHEREAS, to evidence such increase in the Revolving Credit, the
Borrowers and the Bank have executed and delivered a Second Amendment to Credit
Agreement dated the date hereof (the "Second Amendment"), and the execution and
delivery of this Amendment by the Guarantor is a condition to the effectiveness
of the Second Amendment.
NOW, THEREFORE, the Guarantor and the Bank agree as follows:
1. AMENDMENT OF THIRD RECITAL. The third recital of the Guaranty
Agreement is amended in its entirety as follows:
WHEREAS, Property Advisors 1996 has executed and delivered to the Bank
that
88
<PAGE> 74
certain Credit Agreement dated the date hereof (as such Credit
Agreement may be amended, modified, supplemented or restated from time
to time, herein called the "Credit Agreement") pursuant to which the
Bank has agreed to make loans and other extensions of credit in a
maximum principal amount of TWENTY MILLION DOLLARS ($20,000,000) for
the period ending on June 30, 1997 and on July 1, 1997 and thereafter
FIFTEEN MILLION DOLLARS ($15,000,000) to Property Advisors and certain
of the Funds that agree to become a "Borrower" (as defined in the
Credit Agreement; Property Advisors 1996 and such Funds being herein
referred to collectively as the "Borrower") from time to time to assist
them in the making of investments, and the Borrower's obligation to
repay such loans and extensions of credit are evidenced by a promissory
note in a maximum principal amount of TWENTY MILLION DOLLARS
($20,000,000) (said promissory note as the same may be modified,
amended, supplemented or restated from time to time being herein called
the "Revolving Note");
2. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and
warrants to Bank that:
(A) None of the representations and warranties made in Section
8 of the Guaranty Agreement has ceased to be true and complete in any
material respect as of the date hereof; and
(B) As of the date hereof no Possible Default or Event of
Default (both as defined in the Credit Agreement) has occurred that is
continuing.
3. ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS. The Guarantor
acknowledges and agrees that, as of the date hereof, there is no offset,
defense, claim or counterclaim of any nature whatsoever to any of the
Obligations (as defined in the Guaranty Agreement) to the Bank.
4. REFERENCES. On and after the effective date of this Amendment, each
reference in the Guaranty Agreement to "this Agreement", "hereunder", "hereof",
or words of like import referring to the Guaranty Agreement, or words of like
import referring to the Guaranty Agreement shall mean and refer to the Guaranty
Agreement as amended hereby. Each reference in the Guaranty Agreement to "the
Credit Agreement" or "therein", or words of like import referring to the Credit
Agreement, shall mean and refer to the Credit Agreement as amended by the Second
Amendment. The Guaranty Agreement, as amended by this Amendment, is and shall
continue to be in full force and effect and is hereby ratified and confirmed in
all respects. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Bank under the
Guaranty Agreement or constitute a waiver of any provision of the Credit
Agreement except as specifically set forth herein.
5. COUNTERPARTS AND GOVERNING LAW. This Amendment may be executed in
any number of counterparts, each counterpart to be executed by one or more of
the parties
89
<PAGE> 75
but, when taken together, all counterparts shall constitute one agreement. This
Amendment, and the respective rights and obligations of the parties hereto,
shall be construed in accordance with and governed by Ohio law.
IN WITNESS WHEREOF, the Guarantor and the Bank have executed this
Amendment at the time and place first above mentioned.
MCDONALD & COMPANY
INVESTMENTS, INC.
By:
-----------------------------------
Title:
--------------------------------
STAR BANK, NATIONAL ASSOCIATION
By:
-----------------------------------
Vice President
90
<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
- -----------------------------------------------
<TABLE>
<CAPTION>
Fiscal Three Months Ended Fiscal Nine Months Ended
------------------------------- --------------------------------
Dec. 31, 1996 Dec. 29, 1995 Dec. 31, 1996 Dec. 29, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Average shares outstanding 8,932,000 8,887,000 8,946,000 8,943,000
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 181,000 147,000 165,000 142,000
---------- ---------- ----------- -----------
TOTAL 9,113,000 9,034,000 9,111,000 9,085,000
========== ========== =========== ===========
Net income $5,281,000 $4,896,000 $17,012,000 $13,776,000
========== ========== =========== ===========
Net income per share $ .58 $ .55 $ 1.87 $ 1.52
========== ========== =========== ===========
FULLY DILUTED
- -------------
Average shares outstanding 8,932,000 8,887,000 8,946,000 8,943,000
Net effect of dilutive stock
options - based on the treasury
stock method using greater of average
or period - end market price 216,000 162,000 216,000 162,000
---------- ---------- ----------- -----------
TOTAL 9,148,000 9,049,000 9,162,000 9,105,000
========== ========== =========== ===========
Net income $5,281,000 $4,896,000 $17,012,000 $13,776,000
========== ========== =========== ===========
Net income per share $ .58 $ .54 $ 1.86 $ 1.51
========== ========== =========== ===========
</TABLE>
91
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION - DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-START> MAR-28-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,076
<RECEIVABLES> 252,233
<SECURITIES-RESALE> 90,668
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 128,583
<PP&E> 19,137
<TOTAL-ASSETS> 565,635
<SHORT-TERM> 70,342
<PAYABLES> 122,815
<REPOS-SOLD> 75,865
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 72,838
<LONG-TERM> 25,000
<COMMON> 11,764
0
0
<OTHER-SE> 133,927
<TOTAL-LIABILITY-AND-EQUITY> 565,635
<TRADING-REVENUE> 42,103
<INTEREST-DIVIDENDS> 15,219
<COMMISSIONS> 57,226
<INVESTMENT-BANKING-REVENUES> 51,737
<FEE-REVENUE> 18,226
<INTEREST-EXPENSE> 7,248
<COMPENSATION> 110,859
<INCOME-PRETAX> 26,592
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,012
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.86
</TABLE>
