UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number 0-11331
PERFORMANCE INDUSTRIES, INC.
----------------------------
(Exact name of Registrant as Specified in its Charter)
Ohio 34-1334199
- -------------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2425 E. Camelback Road, Suite 620
Phoenix, Arizona 85016
(Address of principal executive offices and zip code)
(602) 912-0100
(Registrant's telephone number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ---------------------------------- --------------------------------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of Registrant's voting stock held by nonaffiliates as
of March 31, 1997 (based upon closing price) was $1,188,034.
At March 31, 1997, 2,481,264 shares of Registrant's Common Stock were
outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS
--------
The Company currently operates in three primary business segments for which it
has formed the following subsidiaries; restaurants, factoring, and real estate
development.
Performance Restaurants Group, Inc. (Restaurants)
Restaurants was formed in 1993 to acquire six operating restaurants in
California. Four of the restaurants operate under the trade name Bobby McGee's
and are full service restaurants/nightclubs. The fifth was converted to a sports
bar/nightclub concept operating under the trade name McGee's Grill. In 1995, a
sixth restaurant was acquired in Scottsdale, Arizona. It is a full service
restaurant and bar operating under the trade name Buster's Restaurant Bar &
Grill. In 1996, the Company acquired two Carlos Murphy's restaurants in San
Diego, California, with rights to open other Carlos Murphy's Restaurants in the
San Diego and Los Angeles, Metropolitan areas and Maricopa County, Arizona. In
1996, the Company sold one of the original Bobby McGee's locations.
The Bobby McGee's concept is a full service restaurant using costumed servers
and a lounge offering music and dancing at the same location. The restaurant
appeals to a wide range of diners as a special event restaurant. Diners come to
the restaurant to celebrate birthdays, anniversaries, graduations, and other
special occasions.
McGee's Grill was opened in 1994. It features pool tables and television screens
for the viewing of sports events and a limited menu for dinner and lunch in the
sports bar. The sports bar is combined with the more traditional nightclub
offered at other Bobby McGee's restaurants.
During 1996, the company bought two Carlos Murphy's Mexican Restaurants in the
San Diego, California area. Carlos Murphy's is in the casual dining restaurant
segment and features an extensive menu of Mexican Food choices. Limited
renovations to these locations is expected. Part of the renovations will be to
upgrade the lounge by adding a dance floor and a D.J. playing recorded music.
This will help increase sales in the later hours when their are fewer diners.
Restaurants has developed a franchising package for its concept domesticaly and
internationally. The franchisees will pay a fee for each restaurant they
develop, plus a royalty based upon gross sales of each location. Area
Development Agreements will cover multi unit franchises in a specific geographic
area. Restaurants will offer assistance to the franchisee in training employees,
advertising, site selection, and operation of a franchised location. Restaurants
has not actively marketed any franchises.
Performance Funding Corp. (Funding)
This subsidiary was formed in Arizona and is engaged in the factoring business.
Factoring is the purchase of accounts receivable at a discount from face value.
All purchases are full recourse against the seller. This means that, after a
predetermined period, the seller must either repurchase the invoice at full face
value or substitute an invoice for the face value, plus accrued fees.
At the time of purchase of the invoice, Funding purchases the invoice at a
discount from the face value of the invoice. The discount is set at the maximum
fees possible, plus a reserve for bad debt. Upon collection of the invoice, the
seller is paid the difference between the fee holdback and earned fees to the
date of payment. Funding receives a security interest in other receivable, of
the seller to further secure payment of fees and to secure performance of the
recourse provision of the contract.
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Funding looks for sellers with annual sales between $250,000 and $15,000,000.
The decision to purchase any receivable is based upon the financial condition of
the client, the profitability of the seller, payment terms of the receivable,
and the credit worthiness of the account debtors.
Performance Development Corp. (Development)
Camelback Plaza Development, L.C.
Development was formed in Arizona in 1993 to act as managing member of Camelback
Plaza Development, L.C. with a 71.6% ownership, which was developing and leasing
Camelback Plaza, a retail/restaurant development in Phoenix, Arizona. The retail
phase of the project opened in late 1994 with Just for Feet and Blockbuster
Music as its first tenants.
The restaurant phase, consisting of a free standing building for the Hard Rock
Cafe, was constructed in 1995. The Hard Rock Cafe opened for business in October
1995.
In 1996, one of the tenants in the retail area, a full service restaurant opened
and closed, vacating the premises. The company is taking action against the
tenant for breach of the lease, while actively seeking a new tenant for the
space.
In January 1997, Blockbuster Music closed its store and is seeking a subtenant
for the space. They continue to meet all of their financial obligations under
the terms of the lease.
Fabricaciones Metalicas Mexicanas, S.A. (FMMSA)
The company sold the subsidiary in July, 1996 for $1,000,000 and a note payable
to the company for $2,000,000. The note is to be paid, inclusive of interest in
18 payments of $120,000 each.
Ixtapa
The Company purchased land for development as a condominium complex. At the time
of purchase, the seller had committed to construction financing for the project.
As discussed further below, the Company has indefinitely delayed the project due
to the continuing financial situation in Mexico. Currently, the Company has the
property listed for sale with a broker.
A. Competition
The factoring business is a niche market for financing. Funding competes with
several companies that have greater financial resources than Funding. Funding
competes on the basis of rates, service and market concentration.
The restaurant business is highly competitive. Restaurants competes in the
restaurant business with a number of chains and restaurants owned by
substantially larger companies with greater financial resources than
Restaurants. Restaurants competes on the basis of name recognition, concept of
restaurants, location, quality of product and other intangible elements.
Restaurants believes that the costume concept, along with the adjoining
nightclub, offers a unique experience for the consumer that has a broad appeal.
Restaurants further believes its present locations offer a competitive advantage
over other areas.
The real estate development business is highly competitive. Development competes
with several other development companies in the Phoenix market that are more
experienced and have greater financial resources. However, Development feels the
location of the development is highly desirable to the high volume tenants who
have signed leases.
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B. Trademarks and Patents
The Company's registered trademark for restaurants is an important factor in
marketing for this group due to the high degree of name recognition in its
geographical area and general market. The name Bobby McGee's is federally
trademarked.
C. Environmental Matters
An investigation of environmental matters related to facilities and property
owned and leased by the Company was performed to determine contingencies that
may have affected the Company's emergence from Chapter 11. Certain reports
received by the Company have identified areas of environmental contamination and
potential environmental contamination. Management believes that certain
predecessors-in-interest may bear either full or partial liability for
remediation of affected areas. Certain predecessors-in-interest and governmental
agencies have been notified by the Company of the related possible liabilities.
In addition, the Company notified its insurance carriers of potential claims
under its general liability and property insurance coverage from prior years.
a. Reyes Ave Compton, CA
This facility housed the manufacturing plant of the former Wheel business which
was sold in 1992.
In 1991 possible contamination at the site was discovered. The Richter Family
Trust, the owner of this facility, filed an action against the Company and
others in the U.S. District Court for the Central District of California and
served it on the Company in April 1995. The Company responded to the complaint
on its behalf and on behalf of Joe Hrudka as an officer of the Company. The
complaint seeks damages of an unspecified amount for environmental contamination
at the site under several theories. Currently, the action is stayed by
stipulation of the parties, so that further testing to determine the extent of
the contamination can be completed.
The Company tendered defense of the action to several insurance carriers under
policies in force for the periods when it owned and operated its wheel division
at the site. Two insurers have agreed to pay some legal costs of defending the
action under their policies, although they have reserved the right to ultimately
deny coverage.
b. Warehousing and Office Facility in Ohio
In 1990, potential contamination was discovered at this location. Environmental
studies performed to date have determined that the contamination is confined to
the site with no evidence of migration to groundwater or surrounding properties.
At the present time, analysis of the potential remediation alternatives has not
been completed, nor has a plan been submitted for approval by the Ohio EPA.
As part of the sale of the Performance Division to Echlin, Inc., the Company
entered into an indemnity agreement with a predecessor-in-interest at the site.
The predecessor-in-interest and the buyer of the Performance division have
agreed to pay for the remediation of the major known environmental contamination
at the site. However, the Company was required to guarantee the obligations of
the purchaser.
The Company had to agree to remove two above ground storage tanks, an
underground storage tank, and to submit a closure plan to the State for a drum
storage area. In March, 1995, the State of Ohio EPA accepted the company's
closure of the drum storage area as being in compliance with the previously
filed closure plan. This was the last requirement for the release of the escrow
funds held by Echlin, Inc., from the sale proceeds of the Brookpark Road
facility. The Company had also completed the removal of an underground storage
tank at the Brookpark Road facility in 1994. With this closure, the Company
believes it has no further expense for environmental contamination related to
the Brookpark Road facility.
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ITEM 2. PROPERTIES
As of December 31, 1996, the Company and its subsidiaries owned and leased a
total of approximately 104,402 square feet of restaurant, office, and other
space for its principal facilities. Management believes that the Company's and
its subsidiaries' facilities and equipment are modern and well maintained.
The locations and general description of the principal properties owned and
leased by the Company and its subsidiaries are as follows:
<TABLE>
<CAPTION>
Approximate Area
Location Primary Functions in Square Feet Lease Expiration
<S> <C> <C> <C>
Phoenix, Office 6,314 7/31/97
Arizona
Scottsdale, Buster's Restaurant Bar & Grill 9,123 4/31/2000
Arizona
Brea, Restaurant/Nightclub 11,000 6/30/2005
California
Burbank, Restaurant/Nightclub 11,000 6/30/2010
California
Burlingame, Restaurant/Nightclub 9,000 12/31/2006
California
Citrus Heights, Restaurant/Nightclub 10,600 9/14/2005
California
San Bernardino, Restaurant/Nightclub 10,500 11/13/2002
California
San Ramon, Restaurant/Nightclub 9,980 6/30/2002
California (2)
Ixtapa Raw Land 8,748 sq. meters Owned
Phoenix, Development Project 5 Acres ((1)) Land Lease
Arizona 2/28/2052
Las Vegas, Restaurant/Nightclub 9,185 12/31/2005
Nevada
La Mesa, Restaurant/Nightclub 8,700 12/31/2005
California
La Jolla, Restaurant/Nightclub 9,000 1/15/2000
California
</TABLE>
5
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((1)) The real property of five (5) acres is subject to a long term land
lease. The subsidiary has the option to purchase the real property
after the year 2015 at its fair market value without consideration of
value added for any improvements on the property.
((2)) This property is currently subleased to an unrelated third party. The
Company is a guarantor of the lease.
ITEM 3. LEGAL PROCEEDINGS
A. On January 6th, 1994, the Company filed an action in the Superior Court
of Arizona for the County of Maricopa to determine the fair cash value
of its shares held by shareholders who dissented from the sale of the
Exhaust business. The dissenting shareholders are as follows: Ecco
Sales, Inc., Defined Benefit Plan and Mr. David E. Miller, its trustee;
Murray & Murray Co., L.P.A. Profit-Sharing Plan and Trust and Dennis E.
Murray., its trustee; and Murray and Murray Co., L.P.A. - Dennis Murray
Voluntary Account and Dennis E. Murray, Sr., its trustee; Monumental
Life Insurance Company, a Maryland Corporation; Ince & Co., a foreign
Corporation; The Travelers Corporation, a foreign corporation; The
Travelers Insurance Company, a Connecticut Corporation; Provident
Mutual Life Insurance Company, a foreign corporation; New England
Mutual Life Insurance Company, a Massachusetts Corporation; Angelo M.
Alesci, an individual; William R. Bagger, an individual:
All of the dissenting shareholders, except Ecco Sales and Murray &
Murray, LPA, agreed to accept and were paid $.75 per share, as the fair
market value, for their stock.
Two of the dissenting shareholders made a special appearance by Motion
to Dismiss for lack of personal jurisdiction, Murray & Murray Co.,
L.P.A. Profit Sharing Plan, and Murray & Murray Co., L.P.A. After the
remand from the Arizona Court of Appeals, the Maricopa County Superior
Court held it had jurisdiction over the defendants in February, 1995.
The defendants appealed the trial court decision to the Arizona Court
of Appeals. The court again upheld the trial court decision. The
defendants then appealed to the Arizona Supreme Court, which upheld the
Court of Appeals' decision.
The defendants sought review by the U.S. Supreme Court under a Writ of
Certiorari. The Writ was denied in February 1996. The matter will now
proceed to establish the fair market value of the defendants' shares as
of the date of their dissent. The matter was remanded to the Superior
Court County of Maricopa, State of Arizona for further proceedings in
the Fall, 1996. The Company requested a hearing pursuant to statute to
determine if the shareholders are entitled to receive the fair cash
value of their shares and to appoint an appraiser(s) to determine the
fair cash value.
The Court held a status conference with all parties in January, 1997.
The Court requested that each side submit the lists of appraisers from
whom the Court could appoint two appraisers. All other matters before
the Court were taken under advisement.
B. On January 26, 1994, an action filed by Murray & Murray in the Court of
Common Please, County of Cuyahoga, State of Ohio, was served on the
Company and three former or present officers and/or directors of the
Company; Joe Hrudka, Tom Hrudka and Howard B. Gardner. The action
against the Company seeks declaratory judgment holding that the fair
cash value determination be heard in the State of Ohio. The action
against the directors and officers alleges a breach of fiduciary duty
involving the negotiation of consulting and non-competition agreements
in connection with the Company's sale of its former businesses. The
Company has filed a motion to dismiss the action which motion has not
yet been decided.
6
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C. In April 1995, the Company was served with an action filed by the
Richter Family Trust in the U.S. District Court for the Central
District of California against the Company and others for unspecified
damages for the remediation of the site of the Company's former wheel
manufacturing plant. The Company responded to the suit on its own
behalf and on behalf of Joe Hrudka, an officer and director of the
Company, who was sued personally. Currently, the case has been stayed
by stipulation of the parties, so that further testing can be conducted
on site to determine the extent of the contamination.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business, including product liability
claims. In the opinions of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the range of high and low closing bid prices for
the Company's common stock as reported by the NASDAQ National Market System for
the past two calendar years: (1)
BID ASK
1996
Quarter ended March 31, 1996 5/8 1 3/8
Quarter ended June 30, 1996 5/8 1 3/8
Quarter ended September 30, 1996 5/8 1 3/8
Quarter ended December 31, 1996 3/4 1 3/8
1995 ((2))
Quarter ended March 31, 1995 2 1/2 3
Quarter ended June 30, 1995 2 2 1/4
Quarter ended September 30, 1995 1 1/2 2
Quarter ended December 31, 1995 3/4 1 1/4
((1)) All quotations represent inter-dealer prices, without retail mark-up,
markdown or commission, and may not necessarily represent actual
trades.
((2)) Restated to reflect 4 for 1 reverse stock split effective June, 1996.
As of March 31, 1997, there were 790 holders of record of the Company's common
stock. No dividends have been declared since December 1984, nor does the Company
anticipate that any dividends will be declared in the foreseeable future.
The Company's shares are traded over the counter.
During 1994, the Company purchased approximately 558,500 shares of stock from
dissenters due to the sale of the Company's Exhaust division to Walker
Manufacturing. In addition, the Company purchased approximately 50,500 shares on
the open market in 1994.
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During 1996, the Company effected a 4 for 1 reverse stock split and an odd lot
tender offer. Approximately 8200 shares were tendered to the Company.
ITEM 6. SELECTED FINANCIAL DATE (in thousands, except per share data).
The Company's selected consolidated financial data has been prepared in
accordance with generally accepted accounting principles applicable to a going
concern, which principles, except as otherwise disclosed, assume that assets
will be realized and liabilities will be discharged in the normal course of
business.
The following table sets forth selected consolidated financial data of the
Company for the five years ended December 31, 1992 through 1996. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes thereto included elsewhere herein. The selected
consolidated financial data for the years ended December 31, 1992 through 1996
are derived from the audited financial statements of the Company.
Year Ended December 31
<TABLE>
<CAPTION>
OPERATING RESULTS: 1992 1993 1994 1995 1996
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $ 78,478 $ 360 $ 19,004 $ 21,598 $ 22,407
Net income (loss) ($ 5,711) $ 27,623 $ 435 $ 294 (3,723)
Net income (loss) per ($ 2.16) $ 9.36 $ .17 $ .12 (1.50)
common share
Weighted average number of common 2,631 2,947 2,458 2,489 2,486
stock outstanding
Year Ended December 31
FINANCIAL POSITION: 1992 1993 1994 1995 1996
- ------------------- ---- ---- ---- ---- ----
Working capital
(deficiency) ($ 35,609) $ 2,636 $ 574 $ 2,424 $ 1,344
Total assets $ 68,320 $ 23,126 $ 24,108 $ 24,878 $ 21,971
Long term debt, excluding $ 955 $ 515 $ 5,962 $ 7,345 $ 8,950
current installments and
amount subject to compromise
Shareholders' equity ($ 16,108) $ 12,824 $ 11,494 $ 13,061 $ 8,530
(deficiency)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated
For the year ended December 31, 1996, the Company had a consolidated loss from
continuing operations of ($3,723,000) compared to a loss of ($144,000) for the
same period in 1995.
During 1995 the Company had income from discontinued operations of approximately
$438,000, as a result of "changes in accounting estimates," and adjustments to
reserve accounts for claims and bad debt expense that offset the loss from
continuing operations yielding net income of $294,000. There were no such
adjustments in 1996.
The Company's general, and administrative expenses were $3,465,000, an increase
of $624,000 from 1995. The increase is a result of nonrecurring charges for the
closure of two restaurants, Las Vegas and San Ramon (See note #17 to
Consolidated Financial Statements), and an increase in bad debt expense of
$139,000.
Interest expense was $754,000 in 1996 compared to $533,000 in 1995. This
increase is attributable to the use of the factoring line of credit for a full
year and an increase in borrowing by the parent to meet the cash needs while the
Development subsidiary negotiated a long term third party financing for its
project and interest expense of the Development subsidiary that had been
capitalized during construction of the project.
The Company has an investment in shares of a publicly traded stock, Western
Pacific Airlines. These securities are subject to a restriction on sale limiting
the number of shares that can be sold by the Company during any quarter. As a
result of a change in the securities rules covering restricted stock, this
restriction should be lifted as of April 29, 1997 and the shares become free
trading (see Note 3 to Consolidated Notes to the Financial Statements). The
company realized a net gain of $387,000 on sale of a portion of this stock in
1995.
Performance Restaurants Group, Inc.
Revenues
Total revenues increased 5 % to $20,344,000 for 1996 compared to $19,357,000 for
1995. The increase in revenue is a result of the addition of two restaurants
during part of the year. Same store sales for stores open at least one year did
not increase or decrease significantly.
Stores closed during the year accounted for revenues of $1,734,000 and
$2,115,000 during 1996 and 1995 respectively.
Cost and Expenses
Cost of sales, consisting of food and beverage cost, increased in 1996 to 28.5%
of sales compared to 27.6% in 1995. This increase is partially attributable to a
higher percentage of sales being food which has a higher cost than beverages.
The restaurant division recorded a loss from operations of $2,774,000 for 1996
as compared to a loss from operations of $166,000 for 1995. The loss is
attributed to higher depreciation charges, increased advertising and for closure
of the Las Vegas and San Ramon restaurants. In addition $360,000 is attributed
to operating losses at the Las Vegas store (see Note #17 to Consolidated
Financial Statements).
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Carlos Murphy's
The Company purchased two Carlos Murphy's restaurants in August and December,
1996. These are a mid-priced family oriented Mexican Food restaurant. Both
restaurants are located in San Diego, California.
The restaurants have not been part of the Company's operations long enough to
contribute significantly to income. Some limited renovations have been made to
the restaurants to add late night lounge business to the regular restaurant
business.
Restaurant Outlook
The Company has made some changes to the menu at the Bobby McGee's restaurants
which are aimed at increasing the per check average of sales. Initial results at
test restaurants have been promising and the Company will expand the new menu
throughout its operations over the next six months.
The Company plans on expansion throughout 1996 by acquiring operating
restaurants that could be converted to one of its concepts; Bobby McGee's,
McGee's Grill, or Carlos Murphy's; at minimal expense. The Company has the
rights to Bobby McGee's and McGee's Grill nationwide except the state of
Arizona, and to Carlos Murphy's for San Diego and Los Angeles, California and
Maricopa County (Phoenix) Arizona.
The Company hopes that the new menu and additional stores will significantly add
to revenues for 1997 and expects to be profitable by year end, however, there
can be no assurance that the Company's strategy will be successful.
Performance Funding Corp. (Funding)
Gross Revenues for the year ended December 31, 1996 were $623,000 including an
intercompany charge for interest to the Company which is eliminated in
consolidation, as compared to $896,000 in 1995, a decrease of approximately 30%.
The decrease was a result of increased competition from banks for customers
resulting in a lowering of rates for factored accounts and directly from a
reduction from in gross fees of non-performing customers. Funding has added new
clients during the year, but none with the volume for years past.
Funding had a loss from continuing operations of $30,000 in 1996 as compared to
net earnings before taxes of $676,000 in 1995. This has resulted from lower
volume of business in 1996, increase of bad debt, and interest increase
associated with the use of the line of credit for a full year in 1996 as
compared to 5 months in 1995.
At December 31, 1996, funding had $1,270,000 invested in assets and
approximately $1,556,000 earning fees compared to $1,697,000 and $2,070,000,
respectively in 1995. The decline is based mainly on increased competition for
quality customers.
Most major banks, in the past year or two, have established divisions which are
allowed to finance somewhat higher risk companies. These are the companies
Funding seeks as clients. These are companies that almost qualify for
conventional financing but may not have enough history or are experiencing fast
paced growth. Funding cannot or will not compete with these divisions on
interest rates. But Funding can and does compete by offering a close personal
interest and understanding of the client's business. The ability to quickly
respond to the client's changing financing needs has also been a good selling
tool.
In July 1995, Funding obtained a line of credit from a financial institution in
the amount of $2,000,000. This has allowed the Company to lessen its cash
investment in Funding while providing capital for future growth. Under the
agreement, the Company must maintain an equity position of $1,000,000. The line
of credit expires in July 1997, and Funding is negotiating a reduced line of
credit for the future. Management believes, but there can be no assurance, that
the line of credit will be renewed in 1997.
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<PAGE>
Performance Development Corp. (Development)
Gross rent received for the year ending December 31, 1996, was approximately
$1,142,000 compared to approximately $770,000 for 1995. Development recorded a
net loss of approximately $153,000 for the year ended December 31, 1996, as
compared to a loss of $30,000 for 1995. This loss includes a charge for
intercompany interest that is eliminated in consolidation. The increase in the
loss is attributable to certain expenses including interest that had been
capitalized in prior years during construction of the project which are now
operating expenses. The rental increase is primarily a result of the opening of
the Hard Rock Cafe in 1995.
In November 1996, Development refinanced the property. The loan from a mortgage
company was for $7,250,000 amortized over 25 years with a balloon payment due at
the end of 7 years. Funds from the loan were used to payoff the mini-permanent
loan, repay loans from the Company to Development and to meet certain expenses
for the operation of the Plaza which were due.
One of the tenants has defaulted on its leases for restaurant space. A
replacement tenant has signed a lease which will commence on or before January
1, 1998, at a lower base rent, but with percentage rent clauses.
The Company does not currently have the property listed with a broker for sale.
Ixtapa, Mexico
At the present time the Company has placed the property in Ixtapa, Mexico with a
broker for sale. There are no future plans to develop this property.
Fabricaciones Metalicas Mexicanas, S.A. (FMMSA)
FMMSA had gross rental income of $384,000 for the year ended December 31, 1996
as compared to $524,000 for the year ending December 31, 1995. The decrease is a
result of the sale of the subsidiary in July, 1996. Income from operations
before income taxes for FMMSA was $219,000 in 1996 compared to $195,000 in 1995.
The increase was a result of lower expenses due to completion of renovations at
the property in 1995 (see Note #6 to Consolidated Financial Statements).
During 1996, the Company sold the stock it held in FMMSA for $1,000,000 plus a
promissory note to the Company for $2 million dollars. The Company's net gain on
sale was $1.2 million dollars (see Notes #4 and 6 to Consolidated Financial
Statements).
Liquidity and Capital Resources
Short Term
The Company's cash and cash equivalents increased to $1,136,000 at December 31,
1996 from $411,000 in 1995. This increase is attributed mainly to the cash
realized from the sale of the Mexican subsidiary and the release of cash from
restricted accounts. Working Capital decreased significantly from $2,400,000 as
of December 31, 1995 to $1,329,000 at December 1996. This decrease is primarily
a result of a decrease in the value of securities available for sale during
1996.
The Funding line of credit expires in July 1997. The Company is negotiating for
an extension of the line of credit at a reduced amount in keeping with its
current outlook for the Funding division. Management believes but there can be
no assurance that the line of credit will be extended.
11
<PAGE>
The Company has securities available for sale in the market value of $727,000 as
of December 31, 1996. Due to a change in the Rule 144 regarding Sale of
Securities, a restriction on the sale of these securities on the open market
will end on April 29, 1997.
Management believes that its short term cash requirements can be met with
available cash and cash equivalents.
Long Term
The Development subsidiary obtained a long term loan on the property from a
mortgage broker in 1996. The Company was repaid a portion of its loan to the
subsidiary but is still owed approximately $1.0 Million dollars for loans to the
subsidiary. The Company expects that the project will provide sufficient cash
flow in 1998 to reduce this indebtedness.
The Restaurant division is expected to add several locations over the next
several years. Expansion will be by purchasing operating restaurants that can be
converted into one of the Company's concepts with minimal renovation and costs.
The Company will only consider restaurants which will generate immediate
revenues and where costs associated with conversion can be controlled. The
Restaurant division is not looking to expand by opening new restaurants. The
Restaurants division does not expect to incur material costs in purchasing new
restaurants.
Restaurant expansion will be completed through cash on hand or by cash provided
by operations. The Company will seek Seller financing where appropriate and
available. It is not anticipated that the Company will need to borrow funds for
expansion of the Restaurant subsidiary.
The Restaurant and Factoring divisions are poised to realize income during 1997.
Management believes that, but there can be no assurance, that both will show
significantly improved results from operations during the year.
The development subsidiary should meet all of its obligations without a material
increase in the investment by the Company, although some costs associated with
Lessee Improvements for a new restaurant tenant may be advanced. The Development
is not expected to have positive cash flow until the restaurant tenant commences
operation in 1998.
Inflation
Management does not believe that inflation will have a material effect on the
results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditors' report on the Consolidated Financial Statements and
Schedules listed in the accompanying index are filed as part of this report. See
Index to Audited Consolidated Financial Statements and Schedules on page ___.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Executive Officers of the Company as of December 31, 1996 were
as follows:
12
<PAGE>
Name Age Position
Joe Hrudka 58 Chief Executive Officer
Edmund L. Fochtman, Jr. ((1)) 59 President/Director
Allen L. Haire ((1)) 54 Director
Jonathan Tratt ((1)) 38 Director
James W. Brown ((2)) 48 Chief Financial Officer/Director
Robert A. Cassalia 44 Secretary
All Directors are elected annually by the Company's shareholders and hold office
until their successors are duly elected and qualified.
((1)) Member of the Audit Committee
((2)) Mr. Brown tendered his resignation as an officer and director of the
company effective April 4, 1997.
Joe Hrudka is the founder and principal shareholder of the Company. Since 1981
he has served as the Chairman of the Board and a Director. Mr. Hrudka has served
as Chief Executive Officer of the Company since November 1993. In 1964, Mr.
Hrudka founded the original Mr. Gasket Company and served as Chairman of the
Board and President until the Company was purchased by W.R. Grace in 1971. He
was then employed as a Vice President of the Automotive Division of W.R. Grace
from 1972 to 1974 and as a consultant to W.R. Grace during 1975 and 1976. From
1977 until the formation of the Company in 1981, Mr. Hrudka was a private
investor. Mr. Hrudka had served as a director of Action Products, Inc., from
1987, and served as Secretary of Action Products, Inc., from October 1990 to May
1992. In November 1991, a receiver was appointed by the Maricopa County Superior
Court, State of Arizona, to manage the assets of Action Products, Inc., at the
request of a secured party. Action's assets were sold in May 1992 by the
receiver. Mr. Hrudka has served as a Director of each of the subsidiaries since
they have been formed.
Edmund L. Fochtman, Jr., has been President of the Company since May, 1993. He
was an executive Vice President of the Company since January, 1992. He was
Chairman of the Board of Directors and Chief Executive Officer of Action
Products, Inc., a company engaged in manufacture and sale of fiberglass bodied
mini-cars and sales of other promotional products from October 1986 until
January 1992. From 1984 to 1986, Mr. Fochtman was a private investor. From 1976
to 1984, her served as Vice President of F.W. & Associates, Inc. In November
1991, a receiver was appointed by the Maricopa County Superior Court, State of
Arizona, to manage the assets of Action Products, Inc., at the request of a
secured party. Action's assets were sold in May 1992 by the receiver. Mr.
Fochtman was elected a Director of the Company in June 1988 and as a director of
each of the subsidiaries since 1993.
Allen L. Haire has been chairman and Chief Executive Officer of Enerco Technical
Products, a manufacturer of gas-fired infra-red heating equipment, since July
1984. He was a manufacturer's representative from 1977 to 1984. Mr. Haire was
elected a Director in June 1988.
Jonathan Tratt has been President and Director of Industrial Brokerage, Inc., an
investment and commercial real estate brokerage company since 1992. Prior to
1992, Jonathan Tratt was a general investor and real estate agent in Phoenix,
Arizona. Mr. Tratt was elected a director of the Company in May, 1993.
James W. Brown, a certified public accountant, has been Chief Financial Officer
and Director since December 1993. From 1989 until joining the Company in May,
1993, Mr. Brown was CFO of RACAM Amusements Group. From 1985 to 1988 he was the
Chief Operating Officer of American Educational Computers, Inc., a publicly
traded software and video publisher. Prior to 1985 he was Vice President of
13
<PAGE>
Finance of National Zinc Company, a primary metals manufacturer. Mr. Brown has
served as a Director of the subsidiaries since 1993. Mr. Brown resigned as an
officer and director effective April 4, 1997.
Robert A. Cassalia was hired by the Company as Assistant Secretary, in January
of 1991. On May 4, 1993, he was elected Secretary. Before joining the Company
Mr. Cassalia was General Counsel of Action Products, Inc., a manufacturer of
fiberglass bodied mini-cars since October, 1986, he was in private practice in
Phoenix, Arizona and Syracuse, New York.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein from the Company's
proxy statement to be filed pursuant to Regulation 14(a) under the Securities
Exchange Act of 1934, within 120 days from December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following tables sets forth the number and percentage of the outstanding
shares of common stock beneficially owned as of March 29, 1996, by the only
persons known to the Company to own beneficially more than 5% of the outstanding
shares of common stock.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
- ------------------- ------------------ --------
Joe Hrudka
9716 N. 71st Street Paradise Valley, AZ 85253 1,689,241 69%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information contained in Note 19 to the Consolidated
Financial Statements herein, which Information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES...AND REPORTS ON FORM 10-K
(1) Index to Consolidated Financial Statements:
Independent Auditors' Reports
Consolidated Balance Sheets - December 31, 1996
and 1995
Consolidated Statements of Operations - Years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements - Years
14
<PAGE>
ended December 31, 1996, 1995 and 1994
(2) Index to Consolidated Financial Statement Schedules:
All schedules have been omitted because the material
is not applicable or is not required as permitted by
the rules and regulations of the Commission, or the
required information is included in Notes to the
Consolidated Financial Statements.
(3) Exhibits:
Exhibit No.
- -----------
2.1 Disclosure Statement and Plan of Reorganization filed on July
21, 1992 by the Official Creditors' Committee. Incorporated by
reference to the Company's Report on Form 10- Q filed on
August 12, 1992.
2.2 Amended Plan of Reorganization filed by the Company on August
3, 1992. Incorporated by reference to the Company's Report on
Form 10-Q filed on august 12, 1992.
2.3 Amended Disclosure Statement including a Joint Plan of
Reorganization approved by the Court to be distributed to
interested parties on October 27, 1992. Incorporated by
reference to the Company's Report on Form 10-Q filed on
November 10, 1992.
2.4 The Confirmed Joint Plan of Reorganization, approved by the
United States Bankruptcy Court, Central District of California
on April 21, 1993, as filed with the Company's report on Form
10-Q for the period ended March 31, 1993.
2.5 Notice of satisfaction to all conditions precedent to
implementation of Option "A" of the Joint Plan of
Reorganization dated September 30, 1992, as filed with the
Company's report on Form 10-Q for the period ended March 31,
1993.
3.3 Amended and Restated Articles of Incorporation of the Company.
Incorporated by reference to Exhibit 3.3 of the Company's
Annual Report on Form 10-K, dated March 29, 1988.
3.4 Revised Code of Regulations, as amended, of the Company.
Incorporated by reference to Exhibit 3.4 of the Company's
Annual Report on Form 10-K, dated March 29, 1988.
10.45 Asset purchase agreements relating to the sale of the Wheel
and Tire business dated December 31, 1992 by and between
Cragar Industries, Inc., and the Company. Incorporated by
reference to the Company's report on Form 8-K filed on January
12, 1993.
10.46 The following exhibits relate to the sale of the Performance
business on May 4, 1993 as filed with the Company's report on
Form 10-Q for the period ended March 31, 1995 and incorporated
herein by reference:
10.47 The following documents related to the sale of the Company's
Exhaust Division to Walker Manufacturing Company as filed with
Notice of Annual Meeting of shareholders dated November 8,
1994 and incorporated herein by reference.
15
<PAGE>
10.48 1993 Stock Option Plan of Performance Industries, Inc. filed
with the Company's Notice of Annual Meeting of shareholders
dated November 8, 1993 and incorporated herein by reference.
10.49 Documents relating to its purchase of operating assets from
Bobby McGee's USA, Inc., effective December 20, 1993, which
were filed with the Company's report on Form 10-K for the
period ended December 31, 1993, and are incorporated herein by
reference.
10.50 The following documents relating to the purchase of the ground
lease for 2671 E. Camelback Road, Phoenix, Arizona, effective
December 30, 1993, as filed with the Company's report on Form
10-K for the year ended December 31, 1993, and are
incorporated herein by reference:
10.51 Lease dated May 9, 1994, by and between Just for Feet, Inc.
(Lessee) and Camelback Development L.C. (Lessor) dated May 9,
1994. Which were filed with the Company's report on form 10-K
for the year ended December 31, 1994, and are incorprated
herein by reference.
10.52 Lease dated June 30, 1994, by and between Blockbuster Music
Retail, Inc. (Lessee) and Camelback Plaza Development, L.C.
(Lessor). Which were filed with the Company's report on form
10-K for the year ended December 31, 1994, and are incorprated
herein by reference.
10.53 Lease dated January 17, 1995 by and between Restaurants of
America, Inc. (Lessee) and Camelback Plaza Development, L.C.
(Lessor). Which were filed with the Company's report on form
10-K for the year ended December 31, 1995, and are incorprated
herein by reference.
10.54 Design Build Lease Agreement dated December 18, 1992, by and
between Hard Rock Cafe Investors, Ltd., XIV (Lessee) and
Imprimis Partners II (Lessor) and amendment thereto dated
September 26, 1995. Which were filed with the Company's report
on form 10-K for the year ended December 31, 1995, and are
incorprated herein by reference.
10.55 Offer to purchase Buster's Restaurant, Bar and Grill dated
February 25, 1995, including a first assignment and Assumption
of Lease and landlord's consent dated March 15, 1995, by and
between Mercado Del Lago, L.L.C., Buster's & Company, Inc. and
Performance Restaurants Group, Inc., and lease dated the 20th
of November 1989 by and between Mercado Project Group, Inc.,
and lease dated the 20th of November 1989 by and between
Mercado Project Limited (Lessor) and Buster's & Company, Inc.
(Lessee), and Bill of Sales dated March 15, 1995. Which were
filed with the Company's report on form 10-K for the year
ended December 31, 1995, and are incorprated herein by
reference.
10.56 Documents from the Caliber Bank loan dated June 24, 1994, as
amended September 21, 1994. Which were filed with the
Company's report on form 10-K for the year ended December 31,
1995, and are incorprated herein by reference.
- Restaurant Phase Construction Agreement,
dated June 24, 1994.
- Restaurant Phase Promissory Note.
- Irrevocable Letter of Credit - $1,900,000.
- Environmental Indemnification Agreement.
- Amendment to Restaurant Phase Construction
Loan Agreement, Restaurant Phase Promissory
Note, and Restaurant Phase Deed of Trust,
dated September 21, 1994.
- Restaurant Phase Leasehold Construction Deed
of Trust and Security Agreement with
Assignment of Rents and Fixtures Filing.
- Assignment of Hard Rock Cafe Lease.
16
<PAGE>
- Retail Phase Construction Loan Agreement,
dated June 24, 1994.
- Retail Phase Promissory Note.
- Amendment to Retail Phase Construction Loan
Agreement, Retail Phase Promissory note, and
Retail Phase Deed of Trust, dated September
21, 1994.
- Retail Phase Leasehold Construction Deed of
Trust and Security Agreement with Assignment
of Rents and Fixtures Filing.
- Assignment of Retail Leases.
10.57 Line of Credit Agreement dated July 19, 1995, by and between
Performance Funding Corp. and Capital Factors, Inc., and
Guarantee of Performance Industries, Inc. Which were filed
with the Company's report on form 10-K for the year ended
December 31, 1995, and are incorprated herein by reference.
10.58 Lease dated September 1, 1995, between Performance Restaurants
of Nevada, Inc. and 1030 East Flamingo, L.L.C. Which were
filed with the Company's report on form 10-K for the year
ended December 31, 1995, and are incorprated herein by
reference.
10.59 Second Amendment to Retail Phase Construction Loan Agreement
dated October 31, 1995 by and between Camelback Plaza
Development, L.C. and Norwest Bank. Which were filed with the
Company's report on form 10-K for the year ended December 31,
1995, and are incorprated herein by reference.
10.60 Tenth Amendment to Restaurant Phase Construction Loan
Agreement dated October 31, 1995, by and between Camelback
Plaza Development, L.C. and Norwest Bank. Which were filed
with the Company's report on form 10-K for the year ended
December 31, 1995, and are incorprated herein by reference.
10.61 Cash Collateral Agreement by and between Performance
Industries, Inc., and Norwest Bank dated October 31, 1995.
Which were filed with the Company's report on form 10-K for
the year ended December 31, 1995, and are incorprated herein
by reference.
10.62 Promissory Note, Deed of Trusts, Assignment of Lease and Rents
by and between the Camelback Plaza Development L.C. and Boston
Capital Mortgage dated as of November 1, 1996 for the sum of
$7,250,000 on the property of the subsidiary at 2621 E.
Camelback Rd., Phoenix, AZ.
10.63 Stock Purchase Agreement, dated February 28, 1996, Letter
Amendment there to dated March 20, 1996, Letter Amendment
there to dated July 15, 1996, and Deposit Escrow Agreement
between Markwood L.L.C. as Buyer and the Company as seller of
stock in its wholly owned subsidiary Fabricaciones Metalicas
Mexicanas - S.A.
22. Subsidiaries of the Registrant. Which were filed with the
Company's report on form 10-K for the year ended December 31,
1995, and are incorprated herein by reference.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 14, 1997 Performance Industries, Inc.
By: /s/ Edmund L. Fochtman, Jr.
Edmund L. Fochtman, Jr.
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 29th day of March, 1996, by the following persons
on behalf of the Registrant in the capacities indicated:
/s/ Joe Hrudka Chairman of the Board and Director
Joe Hrudka (Chief Executive Officer)
/s/ Edmund L. Fochtman, Jr. President and Director
Edmund L. Fochtman, Jr.
/s/ Allen L. Haire Director
Allen L. Haire
/s/ Jonathan Tratt Director
Jonathan Tratt
/s/ James W. Brown Chief Financial Officer and Director
James W. Brown (principal Accounting Officer)
/s/ Robert A. Cassalia Secretary
Robert A. Cassalia
18
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
19
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
CONTENTS
Page
Independent auditor's report 21
Consolidated financial statements:
Balance sheets 22
Statements of operations 23
Statements of shareholders' equity 24
Statements of cash flow 25 - 26
Notes to financial statements 27 - 48
20
<PAGE>
Board of Directors and Shareholders
Performance Industries, Inc.
Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of
Performance Industries, Inc. and subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of operations, shareholders' equity and
cash flows for the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Performance Industries, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
TOBACK CPAs, P.C.
Phoenix, Arizona
March 26, 1997
21
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,136 $ 411
Restricted cash (Note 2) 409 1,267
Securities available for sale (Note 3) 727 1,783
Accounts and other receivables, less allowance for
doubtful accounts of $25 and $25, respectively (Note 5) 503 416
Current portion of receivables from sale of businesses,
net of allowance (Notes 4 and 5) 1,356 480
Factored accounts receivable, net of allowance for
doubtful accounts of $417 and $201, respectively (Notes 5 and 9) 1,139 1,868
Inventories 328 293
Prepaid expenses and other current assets 192 322
Other assets held for sale 206 212
-------------- -------------
Total current assets 5,996 7,052
Receivables from sale of businesses, less current portion,
net of allowance (Notes 4 and 5) 119 520
Investment in real estate (Notes 6 and 9) 9,481 11,073
Deferred income taxes (Note 13) 1,460 1,734
Property and equipment (Notes 7 and 9) 3,084 3,578
Other assets (Notes 8 and 9) 1,831 921
-------------- -------------
Total assets $ 21,971 $ 24,878
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations (Note 9) $ 547 $ 594
Accounts payable 1,000 1,260
Accrued employment costs 491 288
Accrued expenses and other current liabilities (Note 10) 1,339 1,366
Factored receivables reserve 286 390
Liabilities subject to compromise (Note 11) 754 754
Foreign tax liability 250 -
-------------- ------------
Total current liabilities 4,667 4,652
Long-term debt and capital lease obligations, less current portion (Note 9) 8,403 6,751
Commitments and contingencies (Notes 12, 18, 19 and 20)
Minority interest (Notes 6, 12 and 19) 371 414
Shareholders' equity:
Preferred stock, par value $1.00 per share; authorized
100,000 shares; none issued - -
Common stock, no par value; authorized 5,000,000
shares; issued 3,157,332 shares; outstanding 2,481,264
and 2,489,530, respectively (Notes 15 and 16) 31,202 31,202
Accumulated deficit (20,139) (16,416)
Unrealized holding gains on securities available for sale,
net of income taxes (Note 3) 443 1,226
-------------- -------------
11,506 16,012
Treasury stock at cost (Note 16) (2,976) (2,951)
-------------- -------------
Total shareholders' equity 8,530 13,061
-------------- -------------
Total liabilities and shareholders' equity $ 21,971 $ 24,878
============== =============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements. 22
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- -------------- ------------
<S> <C> <C> <C>
Revenues $ 22,407 $ 21,598 $ 19,004
Cost of revenues (20,715) (19,403) (16,356)
Selling, general and administrative expenses (Note 21) (3,465) (2,841) (3,500)
Interest expense (754) (533) (18)
Other income (expenses), net 132 1,012 420
Gain on sale of subsidiary (Note 6) 1,224 - -
Loss on closure of restaurants (Note 17) (1,795) - -
------------- -------------- -------------
Loss from continuing operations
before income taxes (2,966) (167) (450)
Income tax (expense) benefit (Note 13) (800) 21 161
-------------- -------------- -------------
Loss from continuing operations before minority interest (3,766) (146) (289)
Minority interest in loss from subsidiary 43 2 -
------------- -------------- -------------
Loss from continuing operations (3,723) (144) (289)
Income from discontinued operations (Note 14) - 438 724
------------- -------------- -------------
Net (loss) income $ (3,723) $ 294 $ 435
============= ============== =============
Income (loss) per common share:
Continuing operations $ (1.50) (.06) $ (.12)
Discontinued operations - .18 .29
------------ ------------- -------------
Net income (loss) per common share $ (1.50) $ .12 $ .17
============ ============= =============
Average number of shares outstanding 2,486,086 2,489,530 2,458,280
============ ============= =============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements. 23
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Treasury Unrealized
Stock Stock holding gains
--------------------- --------------------- on securities
Number Number Accumulated available for
Amount of shares Amount of shares Deficit sale
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 31,202 3,157,332 $ (1,233) 89,939 $ (17,145) $ --
Net income -- -- -- -- 435 --
Treasury stock purchased -- -- (1,765) 609,113 -- --
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1994 31,202 3,157,332 (2,998) 699,052 (16,710) --
Net income -- -- -- -- 294 --
Adjustment to treasury stock purchased -- -- 47 (31,250) -- --
Holding gain on securities available
for sale, net of income taxes -- -- -- -- -- 1,226
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 31,202 3,157,332 (2,951) 667,802 (16,416) 1,226
Net loss -- -- -- -- (3,723) --
Treasury stock purchased -- -- (25) 8,266 -- --
Holding loss on securities
available for sale, net of
income taxes (Note 3) -- -- -- -- -- (783)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 $ 31,202 3,157,332 $ (2,976) 676,068 $ (20,139) $ 443
========= ========= ========= ========= ========= =========
</TABLE>
See Note 16 regarding a one-for-four reverse stock split which occurred in 1996.
The accompanying notes are an integral
part of these consolidated financial statements. 24
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- ---------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (3,723) $ 294 $ 435
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation 1,020 788 348
Gain on sale of securities available for sale - (343) -
Loss on settlement of receivables from sale of
business 99 - -
Loss on disposal of restaurants 1,795 - -
Gain on sale of Mexican subsidiary (1,219) - -
Minority interest in loss from subsidiary (43) (2) -
Adjustments and changes in estimates for
receivables related to previously
discontinued businesses - (480) (1,225)
(Gain) loss on sale of property and equipment 70 - (93)
Provision for allowance for doubtful accounts 408 133 113
Changes in:
Accounts receivable (86) (62) 258
Factored accounts receivable, net of reserve 276 1,836 (3,310)
Refundable income taxes - - 100
Inventories (6) (17) (35)
Prepaid expenses and other current assets (305) (121) 114
Other assets held for sale - 19 -
Other assets (321) (94) 57
Accounts payable (260) (214) 366
Foreign tax liability 250 - -
Other current liabilities, net 205 (1,450) (1,408)
Deferred income taxes 548 3 317
--------------- -------------- ---------------
Net cash (used in)
provided by operating activities (1,292) 290 (3,963)
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements. 25
<PAGE>
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from investing activities:
Changes in restricted cash $ 1,358 $ 1,633 $ (2,900)
Payments received on receivables from sale
of businesses 1,305 709 4,153
Proceeds from sale of securities available for sale - 387 -
Investment in real estate (283) (3,250) (3,684)
Purchase of property and equipment (1,486) (960) (1,666)
Net proceeds from sale of:
Mexican subsidiary 837 - -
Property and equipment 147 - 2,206
Other assets held for sale 6 - 34
Payment for purchase of restaurant assets (240) (450) -
Investment in preferred stock (120) - -
Loan to officer (150) - -
Repayment of officer loan 150 - -
Other, net (192) (5) (250)
--------------- -------------- ---------------
Net cash provided by (used in)
investing activities 1,332 (1,936) (2,107)
--------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings 2,659 1,115 4,151
Repayments of borrowings (1,949) (247) (185)
Changes in treasury stock (25) 47 (1,765)
--------------- -------------- ---------------
Net cash provided by
financing activities 685 915 2,201
--------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents 725 (731) (3,869)
Cash and cash equivalents, beginning of year 411 1,142 5,011
--------------- -------------- ---------------
Cash and cash equivalents, end of year $ 1,136 $ 411 $ 1,142
=============== ============== ===============
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities
See notes to financial statements for noncash investing and financing
activities.
The accompanying notes are an integral
part of these consolidated financial statements. 26
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies:
Business:
Performance Industries, Inc. has three primary subsidiaries:
o Performance Restaurants Group, Inc. (restaurant operations)
o Performance Funding Corp. (receivable factoring)
o Performance Camelback Development Corp. (real estate operations)
These subsidiaries conduct business primarily in Arizona and California.
Prior to 1994, Performance Industries, Inc. operated in the general and
specialty automotive parts and accessory businesses as Mr. Gasket
Company. During 1993, the Company completed the disposition of those
operations. Any gains, losses or activity related to these operations
have been accounted for as income from discontinued operations.
Performance Camelback Development Corp. has a 72% ownership interest in
Camelback Plaza Development Corp., L.L.C., an Arizona limited liability
company.
Principles of consolidation:
The consolidated financial statements include the accounts of Performance
Industries, Inc., its wholly-owned subsidiaries and its majority owned
real estate limited liability company. All significant intercompany
balances and transactions are eliminated in consolidation.
Cash equivalents:
The Company considers all highly liquid debt instruments with a maturity
of three months or less when purchased to be cash equivalents.
Fair value of financial instruments:
The carrying amount of cash values and cash equivalents approximates fair
value because of the short maturity of those instruments.
The carrying amount of other financial instruments including accounts
receivable, receivables from sale of business, factored receivables and
current liabilities approximate the fair value of these instruments
because of the short-term nature of the instruments.
The carrying amount of long-term debt approximates fair value because the
interest rates on debt are comparable to current market rates on debt
with similar terms.
27
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Organization and summary of significant accounting policies, continued:
Advertising:
Advertising costs are charged to operations as incurred.
Accounting estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The Company's significant estimates relate to the realizability of certain
receivables, valuation of net deferred tax assets, estimates of
liabilities subject to compromise, and certain litigation
contingencies.
Inventory:
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory consists of food
and beverages at restaurant locations.
Property and equipment:
Property and equipment are stated at cost and depreciated using the
straight-line method over the following estimated useful lives;
buildings, 35 years; machinery and equipment, furniture and fixtures
and vehicles, 5 to 10 years; land improvements, 10 years. Leasehold
improvements are depreciated over the term of the related lease.
Restaurant equipment available for sale:
Restaurant equipment available for sale represents assets removed from
closed restaurants and is reported at the lower of carrying amount or
fair value less costs of disposal.
28
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Organization and summary of significant accounting policies, continued:
Securities available for sale:
Securities available for sale are reported at fair value. Unrealized
holding gains, net of income tax, on securities available for sale are
reported as a net amount in a separate component of shareholders'
equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
Fair values for securities available for sale are determined using quoted
market prices.
Income taxes:
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year end based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax benefit (expense) is the tax
receivable (payable) for the period and the change during the period in
deferred tax assets and liabilities excluding the tax effect on
unrealized holding gains on securities available for sale.
Factoring operations:
The Company recognizes fees based upon a percentage of the gross factored
receivables. The Company makes advances of up to 80% of the face amount
of factored receivables. The remaining balance is held as a reserve for
fees and charge-backs for uncollected receivables. Management's policy
is to obtain a security interest in all borrowers' receivables and
obtain personal guarantees, when deemed necessary.
29
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Organization and summary of significant accounting policies, continued:
Investment in real estate:
Rental real estate:
Rental real estate is stated at cost, which principally represents land
lease costs, capitalized carrying costs, offsite improvements and
building construction costs. Rental real estate is being depreciated
using the straight-line method over the estimated useful life of the
properties of approximately 35 years.
Rental income is recognized on the straight-line basis over the life of
the related leases. Lease incentives are recognized as reductions of
rental income over the terms of the related leases.
Undeveloped real estate:
Undeveloped real estate represents the cost of certain real estate held
for future development or sale.
Income (loss) per common share:
Income (loss) per common share is based upon the weighted average number
of shares outstanding. The assumed exercise of employee stock options
does not result in material dilution.
Reclassifications:
Certain reclassifications have been made to the financial statements for
1995 and 1994 to conform to the financial statement classifications for
1996.
2. Restricted cash:
In November 1996, the Company entered into an agreement with the minority
shareholders in the Camelback Plaza Development, L.C. (see Note 19).
The agreement contains a provision that restricts the use of a portion
of the proceeds from the refinancing of the real estate project. The
cash is to be used to fund operating expenses and shortfalls of the
project, if necessary.
The restrictions are partially released on February 1, 1997 and entirely
released on April 1, 1997.
30
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Securities available for sale:
During 1995, the Company implemented SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, related to the Company's
investment in certain equity securities.
In 1995, a portion of the securities became marketable as a result of a
public stock offering, and were sold for a gain of approximately
$343,000. The remaining securities became available for sale in May,
1996 subject to certain SEC limitations. As a result, the Company
considers its investments in marketable equity securities to be
available for sale as of December 31, 1996.
At December 31, 1996, the aggregate fair value of securities available for
sale was approximately $727,000, with unrealized holding gains of
$516,000 and a cost basis of $211,000.
Unrealized holding gains decreased in 1996 by $783,000, net of income
taxes of approximately $274,000.
4. Receivables from sale of businesses:
Receivables from sale of businesses consist of the following (in
thousands):
1996 1995
------ ------
Note receivable, interest at 10%, principal and
interest payments due in monthly installments of
approximately $120,000 through January, 1998,
secured by stock of former Mexican subsidiary (See
Note 6) 1,475 -
Note receivable, former employee, interest at 12.5%,
principal and interest payments due in monthly
installments of approximately $6,600 through July,
1998, unsecured. During 1996 the former employee
stopped making payments on the note. The note is
fully allowed for in the allowance for doubtful
accounts as of December 31, 1996. 123 126
Notes settled during 1996 - 1,154
------ ------
1,598 1,280
Less allowance for doubtful accounts (123) (280)
------ ------
$1,475 $1,000
====== ======
31
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Receivables from sale of businesses:
Approximate future maturities of receivables from sale of businesses at
December 31, 1996 are as follows (in thousands):
1997 $ 1,433
1998 165
5. Allowances for doubtful accounts:
The changes in allowances for doubtful accounts are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Balance at beginning of year $ 506 $ 1,016 $ 4,186
Additions charged to cost and expenses 408 133 113
Reduction of estimated allowances from
discontinued operations - (480) (1,225)
Accounts written off (349) (163) (2,058)
------------ ------------ ------------
Balance at end of year $ 565 $ 506 $ 1,016
============ ============ ============
</TABLE>
The allowances for doubtful accounts include allowances for accounts and
other receivables, receivables from sale of business, and factored
accounts receivable.
6. Investment in real estate:
Investment in real estate included in the 1996 and 1995 balance sheets is
as follows:
1996 1995
----------------- ----------------
Rental real estate $ 8,742 $ 10,980
Less accumulated depreciation (430) (1,076)
----------------- ----------------
8,312 9,904
Undeveloped real estate 1,169 1,169
----------------- ----------------
$ 9,481 $ 11,073
================= ================
32
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investment in real estate, continued:
Summaries of real estate transactions and related accumulated
depreciation are as follows (in thousands):
Real estate:
<TABLE>
<CAPTION>
1996 1995
----------------- ----------------
<S> <C> <C>
Balance at beginning of year $ 12,149 $ 8,435
----------------- ----------------
Additions during the year: -
Construction costs - 3,663
Ground lease fees 99 -
Tenant improvements 291 -
Other - 51
----------------- ----------------
Total additions 390 3,714
----------------- ----------------
Reductions during the year:
Cost of real estate sold (2,619) -
Other (9) -
----------------- ----------------
Total reductions (2,628) -
----------------- ----------------
Balance at end of year $ 9,911 $ 12,149
================= ================
Accumulated depreciation: 1996 1995 1994
----------------- ---------------- ----------------
Balance at beginning of year $ 1,076 $ 862 $ 887
Additions during the year:
Depreciation 320 214 68
Reductions during the year:
Disposals (966) - (93)
----------------- ---------------- ----------------
Balance at end of year $ 430 $ 1,076 $ 862
================= ================ ================
</TABLE>
The Company's real estate subsidiary owns a retail and restaurant project
in Phoenix, Arizona. The subsidiary completed the project in 1995. The
subsidiary has entered into lease agreements with the various tenants
of the project (see Note 12).
During 1996, the Company sold its stock in its Mexican subsidiary,
Fabricaciones Metalicas Mexicanas, S. A. (FMMSA). The total sales price
for the shares was $3,000,000, including $1,000,000 in cash and a note
receivable of $2,000,000 (See Note 4). The significant assets disposed
of by the Company for which the subsidiary held an ownership interest
included rental real estate with a carrying value of approximately
$1,500,000. The gain on the sale, net of selling costs, was
approximately $1,200,000 for 1996.
33
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Investment in real estate, continued:
FMMSA had gross rental revenues of approximately $524,000 and $544,000 and
net income of approximately $195,000 and $20,000 for the years ending
December 31, 1995 and 1994, respectively. For the seven months prior to
the sale in 1996, FMMSA had gross rental revenue of approximately
$384,000 and income from operations before income taxes of
approximately $219,000.
7. Property and equipment:
The components of property and equipment consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
Machinery and equipment $ 1,315 $ 1,222
Furniture and fixtures 678 684
Transportation equipment 400 493
Leasehold improvements 1,783 1,958
Equipment held under capital leases 219 134
-------------- ---------------
4,395 4,491
Less accumulated depreciation (1,311) (913)
--------------- ---------------
$ 3,084 $ 3,578
============== ===============
</TABLE>
8. Other assets:
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
Deposits and other $ 309 $ 232
Investment in preferred stock 120 -
Lease incentives, net of accumulated
amortization of $9 117 -
Liquor licenses 191 183
Loan acquisition costs, net of accumulated
amortization of $87 and $26, respectively 360 79
Restaurant small wares 404 425
Restaurant equipment available for sale 330 2
-------------- ---------------
$ 1,831 $ 921
============== ===============
</TABLE>
During 1996, the Company invested $120,000 in the preferred stock of a
closely held regional airline. There currently is no public market for
the preferred stock. The investment is recorded at cost.
Loan acquisition costs are being amortized over the 84 month term of the
debt and are shown net of accumulated amortization.
34
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Long-term debt and capital lease obligations:
Long-term debt and capital lease obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Note payable, limited partnership, non-recourse, with interest at 8.86%,
principal and interest due in monthly installments of approximately
$60,000 with a final balloon payment of approximately $6,500,000 due
November, 2003, secured by rental real estate. $ 7,243 $ -
Note payable, Mexican corporation, with interest at prime plus 3-7/8%,
with monthly principal payments of $6,000 plus interest through
December, 2006, secured by undeveloped real estate. 720 792
Unsecured note payable, State of California, with interest at 6%, with
monthly principal payments of $25,000 plus interest through June,
1999 750 1,050
Revolving line of credit, finance company, allows for advances up to $
2,000,000, with interest at prime plus 4% (12.25% at December 31,
1996), payable monthly, maturing July, 1997, secured by factored
receivables and a personal guarantee of the Company's principal
shareholder. - 367
Note payable, unrelated corporation, with interest at 10%, principal and
interest due April, 1997, secured by restaurant assets and other
assets held for sale 50 -
Capital lease obligations (Note 12) 187 130
Notes paid in full during 1996 - 5,006
--------------- --------------
8,950 7,345
Less current portion (547) (594)
--------------- --------------
$ 8,403 $ 6,751
=============== ==============
</TABLE>
Cash paid for interest was approximately $818,000, $700,000, and $70,000
during 1996, 1995 and 1994, respectively.
Approximately $273,000 of interest costs were capitalized as construction
period interest on the real estate project during 1995.
35
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Long-term debt and capital lease obligations:
Approximate future maturities of long-term debt, excluding capital lease
obligations, for the next five years as of December 31, 1996 are as
follows (in thousands):
1997 $505
1998 463
1999 321
2000 181
2001 191
10. Accrued expenses and other current liabilities:
At December 31, 1996 and 1995, the components of accrued expenses and
other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
Gift certificates and advance
customer deposits $ 86 $ 83
Litigation settlements and estimated claims (Note 18) 619 60
Product liability costs 85 350
Reserve for environmental remediation
and property restoration - 261
Sales taxes payable 133 156
Deferred rental income - 150
Other accruals 416 306
-------------- ---------------
$ 1,339 $ 1,366
============== ===============
</TABLE>
11. Liabilities subject to compromise:
From April 21, 1991 through May 4, 1993, Performance Industries, Inc.
(formerly Mr. Gasket Company) operated as debtor-in-possession under
the supervision of the Bankruptcy Court. In Chapter 11, the
shareholders' interests and substantially all liabilities as of the
filing date were subject to compromise.
Additions or deletions to the claims (liabilities subject to compromise)
may arise from the determination by the Bankruptcy Court or agreement
by parties in interest of allowed claims for contingencies and disputed
collateral and amounts. The Company is in the process of negotiating
settlements of the final claims outstanding. Liabilities subject to
compromise consist primarily of environmental remediation and tax
liabilities.
36
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Leases:
As lessee:
----------
The Company's restaurant subsidiary leases ten restaurant locations under
operating leases including one restaurant location which closed prior
to year end. These leases expire at various dates through 2010 and
require aggregate annual payments of approximately $1,400,000. The
leases also contain provisions for contingent rental payments ranging
from 5% to 9% of sales. During 1996 and 1995, the restaurants incurred
contingent rentals of approximately $358,000 and $332,000,
respectively.
The Company's restaurant subsidiary also leases certain equipment under
capital leases. The leases require aggregate monthly payments of
approximately $4,600 through May, 2001.
The Company's real estate subsidiary leases land under an operating lease.
The lease requires annual payments of approximately $200,000 through
2052.
The Company and its subsidiaries also lease their office space and two
warehouse facilities under operating leases. These leases require
aggregate monthly payments of approximately $15,000 and expire at
various dates through 1997.
Future minimum lease payments for capital leases and noncancellable
operating leases as of December 31, 1996 are as follows (in thousands):
Capital Operating
leases leases
------------ -------------
1997 $ 56 $ 1,704
1998 56 1,621
1999 56 1,506
2000 47 1,381
2001 9 1,359
Thereafter - 14,932
------------ -------------
224 $ 22,503
=============
Less amount representing interest (37)
------------
Present value of future minimum lease
payments on capital leases $ 187
============
Rent expense for operating leases was approximately $1,818,000, $1,723,000
and $1,398,000 for 1996, 1995 and 1994, respectively.
37
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Leases, continued:
As lessor:
----------
The Company's real estate subsidiary has entered into operating leases for
its rental real estate with four primary tenants. The leases call for
aggregate monthly rental payments of approximately $78,000. The leases
are for periods of 5 to 25 years and include rent escalation clauses
every 3 to 5 years tied to the consumer price index. Certain leases
also include percentage rent charges based on gross revenues of the
tenants.
Aggregate minimum future rentals under the lease agreements as of December
31, 1996 are as follows (in thousands):
1997 932
1998 932
1999 942
2000 1,036
2001 1,086
Thereafter 12,654
--------------
$ 17,582
==============
Percentage rental income earned was approximately $173,000 and $80,000 for
1996 and 1995, respectively. There was no percentage rental income
earned in 1994.
13. Income taxes:
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes as of January 1, 1994. There was no
cumulative effect on prior years from the change in accounting for
income taxes.
38
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Income taxes, continued:
The provision for income taxes expense consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Federal:
Current $ - $ - $ -
Deferred (548) (3) (317)
Foreign (250) (16) (23)
State and local (2) (2) -
---------------- -------------- ---------------
$ (800) $ (21) $ (340)
================ ============== ===============
Allocated to:
Continuing operations $ (800) $ 21 $ 161
Discontinued operations - (42) (501)
--------------- -------------- ---------------
$ (800) $ (21) $ (340)
================ ============== ===============
</TABLE>
Foreign income taxes represent an estimate of the Mexican income tax on
the sale of the Company's Mexican subsidiary.
The following is a reconciliation between the income tax (expense) benefit
from continuing operations and income taxes calculated at the statutory
federal income tax rate of 34% for continuing operations (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Income tax benefit at statutory rate $ 1,008 $ 58 $ 158
Foreign and state income taxes (252) (18) (23)
Tax effect of change in valuation
allowance on deferred tax assets (1,556) (25) 26
Other - 6 -
------------- ------------- -------------
Income tax (expense) benefit from
continuing operations $ (800) $ 21 $ 161
============= ============= =============
</TABLE>
39
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Income taxes, continued:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes and
operating loss and tax credit carry forwards. Significant components of
the Company's net deferred tax assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Current deferred tax assets (liabilities):
Reserves not currently deductible $ 332 $ 552
Unrealized holding gain on investment (72) (346)
Valuation allowance (260) (206)
---------------- ---------------
Net current deferred tax asset $ - $ -
=============== ===============
Non-current deferred tax assets (liabilities):
Difference between book and tax bases of assets $ 255 $ (144)
Capital loss and contribution carryforwards 24 9
Net operating loss carryforwards 9,477 8,662
General business credit carryforwards 414 444
--------------- ---------------
10,170 8,971
Valuation allowance (8,710) (7,237)
---------------- ---------------
Net non-current deferred tax asset $ 1,460 $ 1,734
=============== ===============
</TABLE>
The deferred income tax liability related to unrealized holding gains on
securities available for sale decreased by $274,000 during 1996 as a
result of a decrease in the unrealized holding gain during 1996.
The Company has recorded a net deferred tax asset as of December 31, 1996,
of $1,460,000 primarily reflecting the benefit of net operating loss
carryforwards. Realization is dependent upon generating sufficient
taxable income prior to the expiration of the carryforwards. Although
realization is not assured, management believes it is more likely than
not that all of the net deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
40
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Income taxes, continued:
The Company has available at December 31, 1996, federal net operating loss
carryforwards and unused general business credits, which may provide
future tax benefits as follows (in thousands):
Unused Unused federal
federal net general
Year of operating loss business
expiration carryforwards credits
-------------------- ----------------- ----------------
1997 $ - $ 318
1998 - -
2003 - 37
2005 2,585 -
2006 3,866 -
2007 7,015 -
2008 2,997 -
2009 3,257 29
2010 1,862 30
2011 3,790 -
----------------- ----------------
$ 25,372 $ 414
================= ================
The Company has net operating carryforwards for state income tax purposes
of approximately $14,000,000 which expire through 2001.
14. Discontinued operations:
Income from discontinued operations consists of adjustments for estimated
allowances and reserves on receivables and liabilities of previously
discontinued business segments, net of income taxes.
15. Stock option plans:
The Company has a stock option plan which provides for a maximum of
500,000 shares of common stock that may be issued to employees,
directors, or consultants of the Company and its subsidiaries.
The option price for options granted to eligible employees must be at
least 100% of the fair market value of the stock at the time the
options are granted. The option price for options granted to
non-employees is determined by the Board of Directors. Options granted
to employees are not exercisable after ten years. Restrictions on the
time to exercise options given to non-employees are set forth in the
options agreements.
41
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Stock option plans:
At December 31, 1996, all outstanding options were exercisable and 192,500
shares were available for future grant. All outstanding options expire
through 2005.
A summary of transactions with respect to the stock option plan follows:
<TABLE>
<CAPTION>
Number Range of Weighted average
of shares exercise prices exercise price
------------- --------------- ----------------
<S> <C> <C> <C>
Balance at January 1, 1996 438,750 $ .88 to $.96 .90
Issued -
Exercised -
Cancelled (131,250) $ .88 to $.96 .88
-------------
Balance at December 31, 1996 307,500 $ .88 to $.96 . .90
=============
</TABLE>
16. Reverse stock split:
During the year, the Company approved a one-for-four reverse stock split
of its issued and outstanding common stock. In conjunction with the
reverse stock split, the Company also approved an offer to purchase
shares of the Company's stock held by shareholders with holdings of
less than 100 shares. The Company ultimately purchased 8,266 treasury
shares as a result of the offer.
17. Restaurant closures:
During the year, the Company opened a new restaurant in Las Vegas, Nevada.
The Company incurred total costs of approximately $1,500,000 related to
the restaurant, including leasehold improvements, restaurant equipment
and pre-opening costs. The Company also has a lease obligation for the
restaurant building which requires annual payments totalling
approximately $180,000 per year through December, 2005. Operations of
the restaurant included sales of approximately $809,000 and losses of
approximately $360,000 during 1996. In October, 1996, management
determined that the location could not generate sufficient revenue to
become a profitable operation and closed the restaurant. Accordingly,
the Company recorded a loss resulting from the closure of the
restaurant of approximately $1,255,000 in 1996. At December 31, 1996,
management has estimated future costs of the disposal for additional
rental liabilities to be $80,000. These costs are included in the
recorded loss on closure of restaurants and in accrued expenses and
other current liabilities on the accompanying balance sheet for 1996.
42
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. Restaurant closures:
During 1996, the Company also closed a restaurant in San Ramon, California
due to the inability of the restaurant operation to generate positive
cash flow. Operations of the restaurant included sales of approximately
$925,000 and losses of approximately $144,000 during 1996. The Company
recorded a loss related to the closure of the restaurant of
approximately $540,000 in 1996. Sales from the San Ramon restaurant
were approximately $2,116,000 and $2,257,000 during 1995 and 1994,
respectively. Losses from operations of the restaurant were
approximately $9,000 and $10,000 during 1995 and 1994, respectively.
Subsequent to year end, the Company sold its interest in the restaurant
property for $50,000 and the buyer assumed the lease commitment related
to the property.
18. Litigation:
In November, 1993, certain shareholders dissented from the sale of one of
the Company's automotive products business. As a result, the company
filed an action to obtain a determination of the "fair cash value" of
shares held by those shareholders as of November 28, 1993, as if the
sale had not occurred. The Company settled with the majority of the
dissenting shareholders during 1994 for $.75 a share. The remaining
dissenting shareholders, who hold 461,500 shares, are entitled to
payment of "fair cash value" of the shares within 30 days of the
determination of the value by the court.
During 1993, two of the remaining dissenting shareholders filed an action
against the Company and certain current and former directors, alleging
that certain actions taken by the Company and management have lowered
the value of the Company's stock. Management is aggressively defending
this action and does not currently expect to incur any material
liability at its conclusion.
In another matter, an insurance carrier has filed an action against the
Company alleging that Company representatives failed to notify the
insurance carrier of a product liability claim in a timely manner. The
accident occurred in 1990 and the carrier voluntarily paid out
approximately $1,700,000 in benefits to settle the claim in January
1995. Management believes the action to be without merit and intends to
vigorously defend the suit.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business, including product liability claims
and employment disputes.
Accrued liabilities at December 31, 1996, include approximately $600,000
for potential litigation settlements on various claims. (See Note 10).
In the opinion of management, any additional liabilities related to
legal actions will not have a material adverse effect on the Company's
consolidated financial condition.
43
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Commitments:
During 1993, Performance Restaurant Group, Inc. (PRG) entered into a
consulting agreement with the previous owner of six restaurants in
California. The agreement provides for payments of $90,000 annually
through 1999. The agreement also restricts disclosure of information
and includes restrictive competition clauses.
During 1996, Camelback Plaza Development Corp., L.C. entered into an
agreement with a property manager to direct the operations of the
Company's Camelback rental real estate property. The agreement requires
a monthly payment of the greater of $1,600 or 2% of gross revenue
collected. The agreement is effective through July, 1997 with a one
year renewal option.
The Company entered into a Purchase and Sale and Settlement Agreement with
the minority members of Camelback Plaza Development, L.C. The agreement
provides that the minority members can purchase the Company's interest
in the L.C. for $1,150,000 which approximates the net carrying value of
the assets of the L.C. The agreement also contains provisions to settle
certain disputes between the parties. The agreement terminates if the
sale of the Company's interest is not completed by April 1, 1997.
20. Contingencies:
An investigation of environmental matters related to facilities and
property previously owned and leased by the Company was performed
during 1992 to determine contingencies that would affect the Company's
emergence from Chapter 11. Certain reports received by the Company
identified areas of environmental contamination and potential
environmental contamination. Management believes that certain
predecessors-in-interest may bear either full or partial liability for
remediation of affected areas. Certain predecessors-in-interest and
governmental agencies were notified by the Company of the related
possible liabilities. In addition, the Company notified its insurance
carriers of potential claims under its general liability and property
insurance coverage from prior years.
Locations reviewed for potential environmental liability included the
following:
Manufacturing facility in California:
This facility housed the manufacturing plant of a wheel business
formerly owned by the Company. All assets at this facility were sold
and the buyer vacated the premises in a prior year.
44
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. Contingencies, continued:
An environmental survey was conducted in the fall of 1991. Two areas
for further investigation were identified. Further investigation in the
spring of 1992 disclosed ground contamination and possible seepage into
groundwater. Management believed the contamination to have existed
prior to its purchase of the business in 1982 and has notified its
predecessor-in-interest. The Company has accrued the estimated minimum
remediation costs of approximately $500,000. These costs are included
as liabilities subject to compromise in the accompanying consolidated
balance sheets.
All appropriate county, state and federal agencies were notified
regarding contamination at this site. To management's knowledge, no
response was made by any notified governmental agency nor was the
facility inspected by any such agency. However, the Company may, at a
later date, be ordered to undertake further testing and/or remediation
at the location.
Warehousing and office facility in Ohio:
In 1990, potential contamination was discovered at this location.
Consultants were retained to perform testing and investigation of the
site to determine the extent of the contamination. In compliance with
bankruptcy statutes, rules and regulations regarding the
dischargeability of claims, in January, 1993, the Company notified the
Ohio Environmental Protection Agency (EPA) of contamination at the
site.
Environmental studies performed determined that the contamination is
confined to the site with no evidence of migration to groundwater or
surrounding properties. Management estimated the costs of remediation
to be as much as $5,600,000. The Company believed that a former
owner/operator of the site, which is a Fortune 500 company, caused the
contamination. The Company negotiated an agreement with the former
owner/operator regarding indemnification for the costs of remediation.
The agreement required that remediation costs be shared by the Company,
the Fortune 500 company and the successor to the Company as owner of
the property. The Company's responsibility with respect to the
agreement was to pay remediation costs and to guarantee payment of
costs by the successor related to clean-up areas pursuant to a "Final
Closure Plan" approved by the Ohio EPA. The "Closure Plan" was approved
by Ohio EPA in February, 1995. The Company incurred approximately
$170,000 of costs related to this clean-up in 1994.
45
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. Related party transactions:
The Company leased two buildings in Cleveland, Ohio, used predominately
for manufacturing, from Joe Hrudka, the Company's principal shareholder
and Chairman of the Board, as successor in interest to Hrudka Realty
Company. The buildings were vacated as of May, 1992. Under the lease,
the Company was required to return the building in essentially the same
state of repair as the building was in upon the signing of the lease.
The Company expended approximately $137,000 for repairs in 1994.
Howard Gardner Consultants received $30,000 in 1996 from the Company for
consulting services on financial and general business matters. Howard
B. Gardner is a former officer and director of the Company. The fees
are included in selling, general and administrative expenses in the
statement of operations.
A Director of the Company earned a 3% commission of $90,000 from the sale
of the Company's stock in its Mexican subsidiary during 1996. The
commission is included in selling, general and administrative expenses
in the accompanying statement of operations. Of the commission earned,
$45,000 was paid during 1996 and the remaining $45,000 is included in
accounts payable on the accompanying balance sheet for 1996.
During 1996, the Company approved a short term loan of $150,000 to the
principal shareholder. The loan was repaid to the Company prior to
December 31, 1996.
46
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. Principal business segments:
The Company has three primary business segments, its restaurant,
factoring, and real estate operations.
Operating income by segment represents revenues less costs of revenues,
selling, general and administrative expenses, interest expense, plus
other income, net before allocation of corporate general and
administrative expense, interest and other corporate income.
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenues:
Restaurants $ 20,344 $ 19,357 $ 17,350
Factoring 623 896 1,065
Real estate 1,555 1,345 589
--------------- -------------- ---------------
$ 22,522 $ 21,598 $ 19,004
=============== ============== ===============
Operating income (loss):
Restaurants $ (2,774) $ (166) $ 105
Factoring (31) 676 895
Real estate 374 221 291
--------------- -------------- ---------------
Total principal business segments (2,431) 731 1,291
Unallocated corporate general and
administrative expenses (535) (898) (1,741)
--------------- -------------- ---------------
$ (2,966) $ (167) $ (450)
=============== ============== ===============
Depreciation:
Restaurants $ 651 $ 506 $ 194
Factoring - - -
Real estate 313 214 67
Corporate and other 56 68 87
--------------- -------------- ---------------
$ 1,020 $ 788 $ 348
=============== ============== ===============
</TABLE>
Revenues for factoring for 1996 include approximately $115,000 of interest
revenue from other segments.
47
<PAGE>
PERFORMANCE INDUSTRIES , INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. Principal business segments, continued:
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
--------------- -------------- ---------------
<S> <C> <C> <C>
Capital expenditures:
Restaurants $ 1,830 $ 1,441 $ 1,652
Factoring - - -
Real estate 283 3,448 4,548
Corporate and other 9 5 14
--------------- -------------- ---------------
$ 2,122 $ 4,894 $ 6,214
=============== ============== ===============
Identifiable assets:
Restaurants $ 4,805 $ 4,932
Factoring 1,191 1,978
Real estate 9,285 12,418
Corporate and other 6,690 5,550
--------------- --------------
$ 21,971 $ 24,878
=============== ==============
</TABLE>
The Company's restaurant subsidiary incurred approximately $408,000,
$425,000 and $334,000 of advertising expense in 1996, 1995 and 1994,
respectively.
48
PROMISSORY NOTE
$7,250,000.00 New York, New York
As of November 1, 1996
FOR VALUE RECEIVED CAMELBACK PLAZA DEVELOPMENT L.C., an
Arizona limited liability company, as maker, having its principal place of
business c/o Performance Industries, Inc., 2425 Camelback Road, Suite 620,
Phoenix, Arizona 85016 ("Borrower"), hereby unconditionally promises to pay to
the order of BOSTON CAPITAL MORTGAGE COMPANY LIMITED PARTNERSHIP, a
Massachusetts limited partnership, as payee, having an address at One Boston
Place, Suite 2100, Boston, Massachusetts 02108 ("Lender"), or at such other
place as the holder hereof may from time to time designate in writing, the
principal sum of SEVEN MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS
($7,250,000.00), in lawful money of the United States of America with interest
thereon to be computed from the date of this Note at the Applicable Interest
Rate (defined below), and to be paid in installments as follows:
ARTICLE 1: PAYMENT TERMS
(a) A payment of interest only on November 1, 1996;
(b) A constant payment of $60,148.19 on the first day of
December, 1996 and on the first day of each calendar month thereafter up to and
including the first day of October, 2003;
each of the payments to be applied as follows:
(i) first, to the payment of interest computed at the
Applicable Interest Rate; and
(ii) the balance toward the reduction of the principal
sum;
and the balance of the principal sum and all interest thereon shall be due and
payable on the first day of November, 2003 (the "Maturity Date"). Interest on
the principal sum of this Note shall be calculated on the basis of a three
hundred sixty (360) day year based on twelve (12) thirty (30) day months except
that interest due and payable for a period of less than a full month shall be
calculated by multiplying the actual number of days elapsed in such period by a
daily rate based on said 360-day year.
ARTICLE 2: INTEREST
The term "Applicable Interest Rate" as used in the Security
Instrument (defined below) and this Note shall mean an interest rate equal to
eight and eighty-six hundredths percent (8.86%) per annum.
<PAGE>
ARTICLE 3: DEFAULT AND ACCELERATION
(a) The whole of the principal sum of this Note, (b) interest,
default interest, late charges and other sums, as provided in this Note, the
Security Instrument or the Other Security Documents (defined below), (c) all
other monies agreed or provided to be paid by Borrower in this Note, the
Security Instrument or the Other Security Documents, (d) all sums advanced
pursuant to the Security Instrument to protect and preserve the Property
(defined below) and the lien and the security interest created thereby, and (e)
all sums advanced and costs and expenses incurred by Lender in connection with
the Debt (defined below) or any part thereof, any renewal, extension, or change
of or substitution for the Debt or any part thereof, or the acquisition or
perfection of the security therefor, whether made or incurred at the request of
Borrower or Lender (all the sums referred to in (a) through (e) above shall
collectively be referred to as the "Debt") shall without notice become
immediately due and payable at the option of Lender if any payment required in
this Note is not paid prior to the tenth (10th) day after the date when due or
on the Maturity Date or on the happening of any other default, after the
expiration of any applicable notice and grace periods, herein or under the terms
of the Security Instrument or any of the Other Security Documents (collectively,
an "Event of Default").
ARTICLE 4: DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an
Event of Default, Lender shall be entitled to receive and Borrower shall pay
interest on the entire unpaid principal sum at a rate equal to the lesser of (a)
five percent (5%) plus the Applicable Interest Rate and (b) the maximum interest
rate which Borrower may by law pay (the "Default Rate"). The Default Rate shall
be computed from the occurrence of the Event of Default until the earlier of the
date upon which the Event of Default is cured or the date upon which the Debt is
paid in full. Interest calculated at the Default Rate shall be added to the
Debt, and shall be deemed secured by the Security Instrument. This clause,
however, shall not be construed as an agreement or privilege to extend the date
of the payment of the Debt, nor as a waiver of any other right or remedy
accruing to Lender by reason of the occurrence of any Event of Default.
ARTICLE 5: PREPAYMENT
(a) The principal balance of this Note may be prepaid, in whole, but
not in part, at anytime during the term of the Loan, provided the Borrower has
not breached any covenant or agreement of the Borrower in the Instrument. The
principal balance of this Note may be prepaid on any scheduled payment date
under this Note upon not less than thirty (30) days' prior written notice to
Lender specifying the scheduled payment date on which prepayment is to be made
(the "Prepayment Date") and the amount which is to be prepaid and upon payment
of (a) interest accrued and unpaid on the principal balance of this Note to and
including the Prepayment Date, (b) all other sums then due under this Note, the
Instrument and any of the other Loan Documents, and (c) a prepayment
consideration in an amount equal to the product of (A) the ratio of the amount
of the principal balance of the Note being prepaid over the outstanding
principal balance of the Note on the Prepayment Date (after subtracting the
scheduled principal payment on such Prepayment Date), multiplied by (B) the
present value as of the Prepayment
-2-
<PAGE>
Date of the remaining scheduled payments of principal and interest from the
Prepayment Date through the Maturity Date (including any balloon payment)
determined by discounting such payments at the Discount Rate (as hereinafter
defined) less the amount of the outstanding principal balance of the Note on the
Prepayment Date (after subtracting the scheduled principal payment on such
Prepayment Date). The "Discount Rate" is the rate which, when compounded
monthly, is equivalent to the Treasury Rate (as hereinafter defined), when
compounded semi-annually. The "Treasury Rate" is the yield calculated by the
linear interpolation of the yields, as reported in Federal Reserve Statistical
Release H.15-Selected Interest Rates under the heading U.S. Government
Securities/Treasury constant maturities for the week ending prior to the
Prepayment Date, of U.S. Treasury constant maturities for the week ending prior
to the Prepayment Date, of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating the Maturity Date. (In
the event Release H.15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate). Lender shall notify Borrower of the
amount and the basis of determination of the required prepayment consideration.
Notwithstanding the foregoing, Borrower shall have the additional privilege to
prepay the entire principal balance of this Note, together with all interest
accrued and unpaid thereon and all other sums due under this Note, the
Instrument and any of the other Loan Documents, on any date during the six (6)
months preceding the Maturity Date without any fee or consideration for such
privilege. If any notice of prepayment is given, the amount specified in such
notice and the other sums required under this paragraph shall be due and payable
on the Prepayment Date. Lender shall not be obligated to accept any prepayment
of the principal balance of this Note unless it is accompanied by the prepayment
consideration due in connection therewith.
(b) If any notice of prepayment is given under this Section 5, the
principal balance of this Note and the other sums required under this prepayment
section shall be due and payable on the Prepayment Date. Lender shall not be
obligated to accept any prepayment of the principal balance of this Note unless
it is accompanied by all sums due in connection therewith. Notwithstanding
anything contained in this Section 5 to the contrary, provided no Event of
Default exists, no Prepayment Consideration shall be due in connection with a
complete or partial prepayment resulting from the application of insurance
proceeds or condemnation awards pursuant to Sections 3.3 and 3.6 of the Security
Instrument, but Borrower shall be required to pay all other sums due hereunder.
(c) If a Default Prepayment (defined below) occurs, Borrower shall pay
to Lender the entire Debt, including, without limitation, the Prepayment
Consideration.
For purposes of this Note, the term "Default Prepayment" shall mean a prepayment
of the principal amount of this Note made after the occurrence of any Event of
Default or an acceleration of the Maturity Date under any circumstances,
including, without limitation, a prepayment occurring in connection with
reinstatement of the Security Instrument provided by statute under foreclosure
proceedings or exercise of a power of sale, any statutory right of redemption
exercised by Borrower or any other party having a statutory right to redeem or
prevent foreclosure, any sale in foreclosure or under exercise of a power of
sale or otherwise.
-3-
<PAGE>
ARTICLE 6: SECURITY
This Note is secured by the Security Instrument and the Other
Security Documents. The term "Security Instrument" as used in this Note shall
mean the deed of trust and security agreement dated the date hereof in the
principal sum of $7,250,000.00 given by Borrower to (or for the benefit of)
Lender covering the leasehold estate of Borrower in certain premises located in
Maricopa County, State (Commonwealth) of Arizona, and other property, as more
particularly described therein (collectively, the "Property") and intended to be
duly recorded in said County. The term "Other Security Documents" as used in
this Note shall mean all and any of the documents other than this Note or the
Security Instrument now or hereafter executed by Borrower and/or others and by
or in favor of Lender, which wholly or partially secure or guarantee payment of
this Note. Whenever used, the singular number shall include the plural, the
plural number shall include the singular, and the words "Lender" and "Borrower"
shall include their respective successors, assigns, heirs, executors and
administrators.
All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents are hereby made part of this Note to
the same extent and with the same force as if they were fully set forth herein.
ARTICLE 7: SAVINGS CLAUSE
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate or the Default Rate, as the case may
be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
ARTICLE 8: LATE CHARGE
If any sum payable under this Note is not paid prior to the tenth
(10th) day after the date on which it is due, Borrower shall pay to Lender upon
demand an amount equal to the lesser of five percent (5%) of the unpaid sum or
the maximum amount permitted by applicable law to defray the expenses incurred
by Lender in handling and processing the delinquent payment and to compensate
Lender for the loss of the use of the delinquent payment and the amount shall be
secured by the Security Instrument and the Other Security Documents.
-4-
<PAGE>
ARTICLE 9: NO ORAL CHANGE
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
ARTICLE 10: JOINT AND SEVERAL LIABILITY
If Borrower consists of more than one person or party, the obligations
and liabilities of each person or party shall be joint and several.
ARTICLE 11: WAIVERS
Borrower and all others who may become liable for the payment of all or
any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment and
all other notices of any kind. No release of any security for the Debt or
extension of time for payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note, the Security
Instrument or the Other Security Documents made by agreement between Lender or
any other person or party shall release, modify, amend, waive, extend, change,
discharge, terminate or affect the liability of Borrower, and any other person
or entity who may become liable for the payment of all or any part of the Debt,
under this Note, the Security Instrument or the Other Security Documents. No
notice to or demand on Borrower shall be deemed to be a waiver of the obligation
of Borrower or of the right of Lender to take further action without further
notice or demand as provided for in this Note, the Security Instrument or the
Other Security Documents. If Borrower is a partnership, the agreements contained
herein shall remain in full force and effect, notwithstanding any changes in the
individuals or entities comprising the partnership, and the term "Borrower," as
used herein, shall include any alternate or successor partnership, but any
predecessor partnership and its partners shall not thereby be released from any
liability. If Borrower is a corporation, the agreements contained herein shall
remain in full force and effect notwithstanding any changes in the shareholders
comprising, or the officers and directors relating to, the corporation, and the
term "Borrower" as used herein, shall include any alternate or successor
corporation, but any predecessor corporation shall not be relieved of liability
hereunder. If Borrower is a limited liability company, the agreements herein
contained shall remain in full force and effect, notwithstanding any changes in
the individuals or entities comprising the limited liability company and the
term "Borrower," as used herein, shall include any alternate or successor
limited liability company, but any predecessor limited liability company and its
members shall not be released from any liability. (Nothing in the foregoing
sentence shall be construed as a consent to, or a waiver of, any prohibition or
restriction on transfers of interests in such partnership, corporation or
limited liability company which may be set forth in the Security Instrument or
any Other Security Document.)
-5-
<PAGE>
ARTICLE 12: TRANSFER
Upon the transfer of this Note, Borrower hereby waiving notice of any
such transfer, Lender may deliver all the collateral mortgaged, granted, pledged
or assigned pursuant to the Security Instrument and the Other Security
Documents, or any part thereof, to the transferee who shall thereupon become
vested with all the rights herein or under applicable law given to Lender with
respect thereto, and Lender shall thereafter forever be relieved and fully
discharged from any liability or responsibility in the matter; but Lender shall
retain all rights hereby given to it with respect to any liabilities and the
collateral not so transferred.
ARTICLE 13: WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN
EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE,
THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS
OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN
CONNECTION THEREWITH.
ARTICLE 14: EXCULPATION
(a) Except as otherwise provided herein, in the Security Instrument or
in the Other Security Documents, Lender shall not enforce the liability and
obligation of Borrower to perform and observe the obligations contained in this
Note or the Security Instrument by any action or proceeding wherein a money
judgment shall be sought against Borrower, except that Lender may bring a
foreclosure action, action for specific performance or other appropriate action
or proceeding to enable Lender to enforce and realize upon this Note, the
Security Instrument, the Other Security Documents, and the interest in the
Property, the Rents (as defined in the Security Instrument) and any other
collateral given to Lender created by this Note, the Security Instrument and the
Other Security Documents; provided, however, that any judgment in any such
action or proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the Property, in the Rents and in any other collateral
given to Lender. Lender, by accepting this Note and the Security Instrument,
agrees that it shall not, except as otherwise provided in Section 11.10 of the
Security Instrument, sue for, seek or demand any deficiency judgment against
Borrower in any such action or proceeding, under or by reason of or under or in
connection with this Note, the Other Security Documents or the Security
Instrument. The provisions of this Section shall not, however, (i) constitute a
waiver, release or impairment of any obligation evidenced or secured by this
Note, the Other Security Documents or the Security Instrument; (ii) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under the Security Instrument; (iii) affect the
validity or enforceability of any indemnity, guaranty, master lease or similar
instrument made in connection with this Note, the Security Instrument, or the
Other Security Documents; (iv) impair the right of Lender to obtain the
appointment of a receiver; (v) impair the enforcement of the Assignment
-6-
<PAGE>
of Leases and Rents executed in connection herewith; or (vi) impair the right of
Lender to enforce the provisions of Sections 11.10, 13.2, 13.3 and 13.4 of the
Security Instrument.
(b) Notwithstanding the provisions of this Article to the contrary,
Borrower and Joseph Hrudka shall be personally liable to Lender for the Losses
(as defined in the Security Instrument) it incurs due to: (i) fraud or
intentional misrepresentation by Borrower or any other person or entity in
connection with the execution and the delivery of this Note, the Security
Instrument or the Other Security Documents; (ii) Borrower's misapplication or
misappropriation of Rents received by Borrower after the occurrence of an Event
of Default; (iii) Borrower's misapplication or misappropriation of tenant
security deposits or Rents collected in advance; (iv) the misapplication or the
misappropriation of insurance proceeds or condemnation awards; (v) Borrower's
failure to pay Taxes (as defined in the Security Instrument), Insurance Premiums
(as defined in the Security Instrument), Other Charges (as defined in the
Security Instrument) (except to the extent that sums sufficient to pay such
amounts have been deposited in escrow with Lender pursuant to the terms of the
Security Instrument), charges for labor or materials or other charges that can
create liens on the Property; (vi) Borrower's failure to maintain, repair or
restore the Property in accordance with the Security Instrument and the Other
Security Documents; (vii) Borrower's failure to return or to reimburse Lender
for all Personal Property (as defined in the Security Instrument) taken from the
Property by or on behalf of Borrower and not replaced with Personal Property of
the same utility and of the same or greater value; (viii) any act of actual
waste or arson by Borrower, any principal, affiliate, member or general partner
thereof or by any Indemnitor (as defined in the Security Instrument) or
Guarantor (as defined in the Security Instrument); (ix) any fees or commissions
paid by Borrower to any principal, affiliate, member or general partner of
Borrower, Indemnitor or Guarantor in violation of the terms of this Note, the
Security Instrument or the Other Security Documents; or (x) Borrower's failure
to comply with the provisions of Sections 4.2, 7.1, 12.1 and 12.2 of the
Security Instrument.
(c) Notwithstanding the foregoing, the agreement of Lender not to
pursue recourse liability as set forth in Subsection (a) above SHALL BECOME NULL
AND VOID and shall be of no further force and effect in the event of Borrower's
default under Sections 3.11, 4.3 or 8.1, 8.2, 8.3 or 8.4 of the Security
Instrument, or if the Property or any part thereof shall become an asset in (i)
a voluntary bankruptcy or insolvency proceeding, or (ii) an involuntary
bankruptcy or insolvency proceeding which is not dismissed within ninety (90)
days of filing.
(d) Nothing herein shall be deemed to be a waiver of any right which
Lender may have under Section 506(a), 506(b), 1111(b) or any other provision of
the U.S. Bankruptcy Code to file a claim for the full amount of the indebtedness
secured by the Security Instrument or to require that all collateral shall
continue to secure all of the indebtedness owing to Lender in accordance with
this Note, the Security Instrument and the Other Security Documents.
ARTICLE 15: AUTHORITY
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security
-7-
<PAGE>
Instrument and the Other Security Documents and that this Note, the Security
Instrument and the Other Security Documents constitute valid and binding
obligations of Borrower.
ARTICLE 16: APPLICABLE LAW
This Note shall be deemed to be a contract entered into pursuant to the
laws of the State of New York and shall in all respects be governed, construed,
applied and enforced in accordance with the laws of the State of New York.
ARTICLE 17: SERVICE OF PROCESS
(a) (i) Borrower will maintain a place of business or an agent for
service of process in New York, New York and give prompt notice to Lender of the
address of such place of business and of the name and address of any new agent
appointed by it, as appropriate. Borrower further agrees that the failure of its
agent for service of process to give it notice of any service of process will
not impair or affect the validity of such service or of any judgment based
thereon. If, despite the foregoing, there is for any reason no agent for service
of process of Borrower available to be served, and if it at that time has no
place of business in New York, New York, then Borrower irrevocably consents to
service of process by registered or certified mail, postage prepaid, to it at
its address given in or pursuant to the first paragraph hereof.
(ii) Borrower initially and irrevocably designates C.T.
Corporation, with offices on the date hereof at 1633 Broadway, New York, New
York 10019, to receive for and on behalf of Borrower service of process in New
York, New York with respect to this Note.
(b) With respect to any claim or action arising hereunder or under the
Security Instrument or the Other Security Documents, Borrower (a) irrevocably
submits to the nonexclusive jurisdiction of the courts of the State of New York
and the United States District Court located in the Borough of Manhattan in New
York, New York, and appellate courts from any thereof, and (b) irrevocably
waives any objection which it may have at any time to the laying on venue of any
suit, action or proceeding arising out of or relating to this Note brought in
any such court, irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
(c) Nothing in this Note will be deemed to preclude Lender from
bringing an action or proceeding with respect hereto in any other jurisdiction.
-8-
<PAGE>
ARTICLE 18: COUNSEL FEES
In the event that it should become necessary to employ counsel to
collect the Debt or to protect or foreclose the security therefor, Borrower also
agrees to pay all reasonable fees and expenses of Lender, including, without
limitation, reasonable attorney's fees for the services of such counsel whether
or not suit be brought.
ARTICLE 19: NOTICES
All notices or other written communications hereunder shall be deemed
to have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged by the recipient thereof and
confirmed by telephone by sender, (ii) one (1) Business Day (defined below)
after having been deposited for overnight delivery with any reputable overnight
courier service, or (iii) three (3) Business Days after having been deposited in
any post office or mail depository regularly maintained by the U.S. Postal
Service and sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to Borrower: Camelback Plaza Development L.C.
2401 West 1st Street
Tempe, Arizona 85281
Attention: James W. Brown
Facsimile No. (602) 912-0480
With a copy to: Ridenour, Swenson, Cleere & Evans, P.C.
302 North First Avenue, Suite 900
Phoenix, Arizona 85003
Attention: Gerard R. Cleere, Esq.
Facsimile No. (602) 254-8670
If to Lender: Boston Capital Mortgage Company Limited Partnership
One Boston Place, Suite 2100
Boston, Massachusetts 02108
Attention: Ms. Kathie Valyeau
Facsimile No. (617) 624-8999
With a copy to: Thacher Proffitt & Wood
2 World Trade Center, 40th Floor
New York, New York 10048
Attention: Donald F. Simone, Esq.
Facsimile No. (212) 912-7751
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional
or different addresses for subsequent notices or communications.
-9-
<PAGE>
"Business Day" shall mean a day upon which commercial banks
are not authorized or required by law to close in New York, New York.
ARTICLE 20: MISCELLANEOUS
(a) Wherever pursuant to this Note (i) Lender exercises any
right given to it to approve or disapprove, (ii) any arrangement or term is to
be satisfactory to Lender, or (iii) any other decision or determination is to be
made by Lender, the decision of Lender to approve or disapprove, all decisions
that arrangements or terms are satisfactory or not satisfactory and all other
decisions and determinations made by Lender, shall be in the sole and absolute
discretion of Lender and shall be final and conclusive, except as may be
otherwise expressly and specifically provided herein.
(b) Wherever pursuant to this Note it is provided that Borrower pay any
costs and expenses, such costs and expenses shall include, but not be limited
to, legal fees and disbursements of Lender, whether with respect to retained
firms, the reimbursement for the expenses of in-house staff, or otherwise.
ARTICLE 21: DEFINITIONS
The terms set forth below are defined in the following
Sections of this Note:
(a) Applicable Interest Rate: Article 2;
------------------------
(b) Borrower: Preamble, Articles 6 and 11;
--------
(c) Business Day: Article 19;
------------
(d) Calculated Payments: Article 5, Section (b);
-------------------
(e) Debt: Article 3;
----
(f) Default Prepayment: Article 5, Section (d);
------------------
(g) Default Rate: Article 4;
------------
(h) Discount Rate: Article 5, Section (b);
-------------
(i) Event of Default: Article 3;
----------------
(j) Interest Shortfall Payment: Article 5, Subsection (a)(ii);
--------------------------
(k) Lender: Preamble and Article 6;
------
(l) Loan Year: Article 5, Section (b);
---------
-10-
<PAGE>
(m) Maturity Date: Article 1, Section (b);
-------------
(n) Other Security Documents: Article 6;
------------------------
(o) Prepayment Consideration: Article 5, Subsection (a)(iv);
------------------------
(p) Prepayment Date: Article 5, Section (a);
---------------
(q) Property: Article 6;
--------
(r) Security Instrument: Article 6; and
-------------------
(s) Treasury Rate: Article 5, Section (b).
-------------
-11-
<PAGE>
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day
and year first above written.
CAMELBACK PLAZA DEVELOPMENT L.C., an
Arizona limited liability company
By: PERFORMANCE CAMELBACK
DEVELOPMENT CORP., an Arizona
corporation, its managing member
By: _____________________________
Name:
Title:
-12-
<PAGE>
STATE OF_______ )
SS.
COUNTY OF_________ )
This instrument was acknowledged before me the undersigned
notary public this ____day of_____________, 1996, by______________________as
President of PERFORMANCE CAMELBACK DEVELOPMENT CORP., an Arizona corporation, as
Managing Member of CAMELBACK PLAZA DEVELOPMENT, L.C., an Arizona limited
liability company with full powers to so do.
-------------
Notary Public
My commission expires:___________________
-13-
<PAGE>
================================================================================
CAMELBACK PLAZA DEVELOPMENT L.C., as grantor
(Borrower)
to
LAWYERS TITLE OF ARIZONA, INC., as trustee
(Trustee)
and
BOSTON CAPITAL MORTGAGE COMPANY LIMITED PARTNERSHIP, as beneficiary
(Lender)
-----------------------------------
DEED OF TRUST AND
SECURITY AGREEMENT
-----------------------------------
Dated: As of November 1, 1996
Location: Camelback Plaza
2621 East Camelback Road
Phoenix, Arizona
County: Maricopa
PREPARED BY AND UPON
RECORDATION RETURN TO:
MESSRS. THACHER PROFFITT & WOOD
Two World Trade Center
New York, New York 10048
Attention: Donald F. Simone, Esq.
File No.: 18001-00003
Title No.: 601228
================================================================================
<PAGE>
THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Security
Instrument") is made as of the first day of November, 1996, by CAMELBACK PLAZA
DEVELOPMENT L.C., an Arizona limited liability company, having its principal
place of business c/o Performance Industries, Inc., 2425 Camelback Road, Suite
620, Phoenix, Arizona 85016, as grantor ("Borrower") and LAWYERS TITLE OF
ARIZONA, INC., an Arizona corporation, having its principal place of business at
40 East Mitchell Drive, Phoenix, Arizona 85011, as trustee ("Trustee") for the
benefit of BOSTON CAPITAL MORTGAGE COMPANY LIMITED PARTNERSHIP, a Massachusetts
limited partnership, having its principal place of business at One Boston Place,
Suite 2100, Boston, Massachusetts 02108 as beneficiary ("Lender").
RECITALS:
Borrower by its promissory note of even date herewith given to
Lender is indebted to Lender in the principal sum of SEVEN MILLION TWO HUNDRED
FIFTY THOUSAND AND 00/100 DOLLARS ($7,250,000.00) in lawful money of the United
States of America (the note together with all extensions, renewals,
modifications, substitutions and amendments thereof shall collectively be
referred to as the "Note"), with interest from the date thereof at the rates set
forth in the Note, principal and interest to be payable in accordance with the
terms and conditions provided in the Note.
Borrower desires to secure the payment of the Debt (as defined
in Article 2) and the performance of all of its obligations under the Note and
the Other Obligations (as defined in Article ).
Article 1 - GRANTS OF SECURITY
Section 1.1 PROPERTY MORTGAGED. Borrower does hereby
irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer
and convey to Trustee, its successors and assigns, for the benefit of Lender,
and grant a security interest to Lender and Trustee in, the following property,
rights, interests and estates (including the leasehold interest in the Land
(defined below) created by that certain instrument dated December 15, 1976
between Bill J. Davis, Betty Davis and Ida E. Davis, as owner ("Owner") and
Douglas P. Simpson and Janice C. Simpson, d/b/a Bayshore Development Company, as
tenant recorded on February 3, 1977 in Docket 12063 at Page 1032, as amended and
assigned (the "Ground Lease")); now owned, or hereafter acquired by Borrower
(collectively, the "Property"):
(a) Land. The real property described in Exhibit A
attached hereto and made a part hereof (the "Land");
(b) Additional Land. All additional lands, estates
and development rights hereafter acquired by Borrower for use
in connection with the Land and the development of the Land
and all additional lands and estates therein which may, from
time to time, by supplemental mortgage or otherwise be
expressly made subject to the lien of this Security
Instrument;
<PAGE>
(c) Improvements. The buildings, structures,
fixtures, additions, enlargements, extensions, modifications,
repairs, replacements and improvements now or hereafter
erected or located on the Land (the "Improvements");
(d) Easements. All easements, rights-of-way or use,
rights, strips and gores of land, streets, ways, alleys,
passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, and all estates,
rights, titles, interests, privileges, liberties, servitudes,
tenements, hereditaments and appurtenances of any nature
whatsoever, in any way now or hereafter belonging, relating or
pertaining to the Land and the Improvements under and by
virtue of the Ground Lease and the reversion and reversions,
remainder and remainders, and all land lying in the bed of any
street, road or avenue, opened or proposed, in front of or
adjoining the Land, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower,
curtesy and rights of curtesy, property, possession, claim and
demand whatsoever, both at law and in equity, of Borrower of,
in and to the Land and the Improvements under and by virtue of
the Ground Lease and every part and parcel thereof, with the
appurtenances thereto;
(e) Fixtures and Personal Property. All machinery,
equipment, fixtures (including, but not limited to, all
heating, air conditioning, plumbing, lighting, communications
and elevator fixtures) and other property of every kind and
nature whatsoever owned by Borrower, or in which Borrower has
or shall have an interest, now or hereafter located upon the
Land and the Improvements, or appurtenant thereto, and usable
in connection with the present or future operation and
occupancy of the Land and the Improvements and all building
equipment, materials and supplies of any nature whatsoever
owned by Borrower, or in which Borrower has or shall have an
interest, now or hereafter located upon the Land and the
Improvements, or appurtenant thereto, or usable in connection
with the present or future operation and occupancy of the Land
and the Improvements (collectively, the "Personal Property"),
and the right, title and interest of Borrower in and to any of
the Personal Property which may be subject to any security
interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the
Property is located (the "Uniform Commercial Code"), superior
in lien to the lien of this Security Instrument and all
proceeds and products of the above;
(f) Leases and Rents. All leases and other agreements
affecting the use, enjoyment or occupancy of the Land and the
Improvements heretofore or hereafter entered into (the
"Leases") and all right, title and interest of Borrower, its
successors and assigns therein and thereunder, including,
without limitation, cash or securities deposited thereunder to
secure the performance by the lessees of their obligations
thereunder and all rents, additional rents, revenues, issues
and profits (including all oil and gas or other mineral
royalties and bonuses) from the Land and the Improvements (the
"Rents") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to
the payment of the Debt;
- 2 -
<PAGE>
(g) Condemnation Awards. All awards or payments,
including interest thereon, which may heretofore and hereafter
be made with respect to the Property, whether from the
exercise of the right of eminent domain (including but not
limited to any transfer made in lieu of or in anticipation of
the exercise of the right), or for a change of grade, or for
any other injury to or decrease in the value of the Property;
(h) Insurance Proceeds. All proceeds of and any
unearned premiums on any insurance policies covering the
Property, including, without limitation, the right to receive
and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Property;
(i) Tax Certiorari. All refunds, rebates or credits
in connection with a reduction in real estate taxes and
assessments charged against the Property as a result of tax
certiorari or any applications or proceedings for reduction;
(j) Conversion. All proceeds of the conversion,
voluntary or involuntary, of any of the foregoing including,
without limitation, proceeds of insurance and condemnation
awards, into cash or liquidation claims;
(k) Rights. The right, in the name and on behalf of
Borrower, to appear in and defend any action or proceeding
brought with respect to the Property and to commence any
action or proceeding to protect the interest of Lender in the
Property;
(l) Agreements. All agreements, contracts,
certificates, instruments, franchises, permits, licenses,
plans, specifications and other documents, now or hereafter
entered into, and all rights therein and thereto, respecting
or pertaining to the use, occupation, construction, management
or operation of the Land and any part thereof and any
Improvements or respecting any business or activity conducted
on the Land and any part thereof and all right, title and
interest of Borrower therein and thereunder, including,
without limitation, the right, upon the happening of any
default hereunder, to receive and collect any sums payable to
Borrower thereunder;
(m) Trademarks. All tradenames, trademarks,
servicemarks, logos, copyrights, goodwill, books and records
and all other general intangibles relating to or used in
connection with the operation of the Property;
(n) The Ground Lease and the leasehold estate created
thereby;
(o) all modifications, extensions and renewals of the
Ground Lease and all credits, deposits, options, privileges
and rights of Borrower as tenant under the Ground Lease,
including, but not limited to, the right, if any, to renew or
extend the Ground Lease for a succeeding term or terms;
- 3 -
<PAGE>
(p) all the estate, right, title, claim or demand
whatsoever of Borrower either in law or in equity, in
possession or expectancy, of, in and to the Land or the
Improvements or any part thereof, and Borrower's right, as
tenant under the Ground Lease, to elect under Section
365(h)(1) of Title 11 U.S.C.A. Section 101 et seq. (the
"Bankruptcy Code") to terminate or treat the Ground Lease as
terminated in the event of a bankruptcy, reorganization or
insolvency of the Owner or the rejection of the Ground Lease
by the Owner, as debtor in possession or by a trustee in
bankruptcy, pursuant to Section 365 of the Bankruptcy Code;
and
(q) Other Rights. Any and all other rights of
Borrower in and to the items set forth in Subsections (a)
through (p) above.
Section 1.2 ASSIGNMENT OF RENTS. Borrower hereby absolutely
and unconditionally assigns to Lender and Trustee Borrower's right, title and
interest in and to all current and future Leases and Rents; it being intended by
Borrower that this assignment constitutes a present, absolute assignment and not
an assignment for additional security only. Nevertheless, subject to the terms
of this Section and Section , Lender and Trustee grants to Borrower a revocable
license to collect and receive the Rents. Borrower shall hold the Rents, or a
portion thereof sufficient to discharge all current sums due on the Debt, for
use in the payment of such sums.
Section 1.3 SECURITY AGREEMENT. This Security Instrument is
both a real property mortgage and a "security agreement" within the meaning of
the Uniform Commercial Code. The Property includes both real and personal
property and all other rights and interests, whether tangible or intangible in
nature, of Borrower in the Property. By executing and delivering this Security
Instrument, Borrower hereby grants to Lender and Trustee, as security for the
Obligations (defined in Section ), a security interest in the Personal Property
to the full extent that the Personal Property may be subject to the Uniform
Commercial Code.
Section 1.4 PLEDGE OF MONIES HELD. Borrower hereby pledges to
Lender any and all monies now or hereafter held by Lender, including, without
limitation, any sums deposited in the Escrow Fund (as defined in Section ), Net
Proceeds (as defined in Section 4.4) and condemnation awards or payments
described in Section 3.6, as additional security for the Obligations until
expended or applied as provided in this Security Instrument.
CONDITIONS TO GRANT
TO HAVE AND TO HOLD the Ground Lease and the renewals therein
provided for, and the above granted and described Property unto and to the use
and benefit of Lender and Trustee, and the successors and assigns of Lender and
Trustee, forever;
IN TRUST, WITH POWER OF SALE, to secure payment to Lender of
the Debt at the time and in the manner provided for its payment in the Note and
in this Security Agreement, and with respect to that portion of the Land subject
to the Ground Lease, for and during the rest, residue and remainder of the term
of years yet to come and unexpired in the
- 4 -
<PAGE>
Ground Lease and the renewals therein provided for; subject nevertheless to the
rents, covenants, conditions and provisions in the Ground Lease.
PROVIDED, HOWEVER, these presents are upon the express
condition that, if Borrower shall well and truly pay to Lender the Debt at the
time and in the manner provided in the Note and this Security Instrument, shall
well and truly perform the Other Obligations as set forth in this Security
Instrument and shall well and truly abide by and comply with each and every
covenant and condition set forth herein and in the Note, these presents and the
estate hereby granted shall cease, terminate and be void.
Article 2 - DEBT AND OBLIGATIONS SECURED
Section 2.1 DEBT. This Security Instrument and the grants,
assignments and transfers made in Article are given for the purpose of securing
the following, in such order of priority as Lender may determine in its sole
discretion (the "Debt"):
(a) the payment of the indebtedness evidenced by the Note in
lawful money of the United States of America;
(b) the payment of interest, default interest, late charges
and other sums, as provided in the Note, this Security Instrument or
the Other Security Documents (defined below);
(c) the payment of all other moneys agreed or provided to be
paid by Borrower in the Note, this Security Instrument or the Other
Security Documents;
(d) the payment of all sums advanced pursuant to this Security
Instrument to protect and preserve the Property and the lien and the
security interest created hereby; and
(e) the payment of all sums advanced and costs and expenses
incurred by Lender in connection with the Debt or any part thereof, any
renewal, extension, or change of or substitution for the Debt or any
part thereof, or the acquisition or perfection of the security
therefor, whether made or incurred at the request of Borrower or
Lender.
Section 2.2 OTHER OBLIGATIONS. This Security Instrument and
the grants, assignments and transfers made in Article are also given for the
purpose of securing the following (the "Other Obligations"):
(a) the performance of all other obligations of Borrower
contained herein;
(b) the performance of each obligation of Borrower contained
in any other agreement given by Borrower to Lender which is for the
purpose of further securing the obligations secured hereby, and any
amendments, modifications and changes thereto; and
- 5 -
<PAGE>
(c) the performance of each obligation of Borrower contained
in any renewal, extension, amendment, modification, consolidation,
change of, or substitution or replacement for, all or any part of the
Note, this Security Instrument or the Other Security Documents.
Section 2.3 DEBT AND OTHER OBLIGATIONS. Borrower's obligations
for the payment of the Debt and the performance of the Other Obligations shall
be referred to collectively below as the "Obligations."
Section 2.4 PAYMENTS. Unless payments are made in the required
amount in immediately available funds at the place where the Note is payable,
remittances in payment of all or any part of the Debt shall not, regardless of
any receipt or credit issued therefor, constitute payment until the required
amount is actually received by Lender in funds immediately available at the
place where the Note is payable (or any other place as Lender, in Lender's sole
discretion, may have established by delivery of written notice thereof to
Borrower) and shall be made and accepted subject to the condition that any check
or draft may be handled for collection in accordance with the practice of the
collecting bank or banks. Acceptance by Lender of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall be and continue to be an Event
of Default (defined below).
Article 3 - BORROWER COVENANTS
Borrower covenants and agrees that:
Section 3.1 PAYMENT OF DEBT. Borrower will pay the Debt at the
time and in the manner provided in the Note and in this Security Instrument.
Section 3.2 INCORPORATION BY REFERENCE. All the covenants,
conditions and agreements contained in (a) the Note and (b) all and any of the
documents other than the Note or this Security Instrument now or hereafter
executed by Borrower and/or others and by or in favor of Lender, which wholly or
partially secure or guaranty payment of the Note (the "Other Security
Documents"), are hereby made a part of this Security Instrument to the same
extent and with the same force as if fully set forth herein.
Section 3.3 INSURANCE.
(a) Borrower shall obtain and maintain, or cause to be
maintained, insurance for Borrower and the Property providing at least
the following coverages:
(i) comprehensive all risk insurance on the
Improvements and the Personal Property, including contingent
liability from Operation of Building Laws, Demolition Costs
and Increased Cost of Construction Endorsements, in each case
(A) in an amount equal to 100% of the "Full Replacement Cost,"
which for purposes of this Security Instrument shall mean
actual replacement value (exclusive of costs of excavations,
foundations, underground utilities and footings)
- 6 -
<PAGE>
with a waiver of depreciation, but the amount shall in no
event be less than the outstanding principal balance of the
Note; (B) containing an agreed amount endorsement with respect
to the Improvements and Personal Property waiving all
co-insurance provisions; (C) providing for no deductible in
excess of $100,000; and (D) containing an "Ordinance or Law
Coverage" or "Enforcement" endorsement if any of the
Improvements or the use of the Property shall at any time
constitute legal non-conforming structures or uses. The Full
Replacement Cost shall be redetermined from time to time (but
not more frequently than once in any twelve (12) calendar
months) at the request of Lender by an appraiser or contractor
designated and paid by Borrower and approved by Lender, or by
an engineer or appraiser in the regular employ of the insurer.
After the first appraisal, additional appraisals may be based
on construction cost indices customarily employed in the
trade. No omission on the part of Lender to request any such
ascertainment shall relieve Borrower of any of its obligations
under this Subsection;
(ii) commercial general liability insurance against
claims for personal injury, bodily injury, death or property
damage occurring upon, in or about the Property, such
insurance (A) to be on the so-called "occurrence" form with a
combined single limit of not less than $2,000,000; (B) to
continue at not less than the aforesaid limit until required
to be changed by Lender in writing by reason of changed
economic conditions making such protection inadequate; and (C)
to cover at least the following hazards: (1) premises and
operations; (2) products and completed operations on an "if
any" basis; (3) independent contractors; (4) blanket
contractual liability for all written and oral contracts; and
(5) contractual liability covering the indemnities contained
in Article hereof to the extent the same is available;
(iii) business income insurance (A) with loss payable
to Lender; (B) covering all risks required to be covered by
the insurance provided for in Subsection (a)(i); (C)
containing an extended period of indemnity endorsement which
provides that after the physical loss to the Improvements and
Personal Property has been repaired, the continued loss of
income will be insured until such income either returns to the
same level it was at prior to the loss, or the expiration of
twelve (12) months from the date of the loss, whichever first
occurs, and notwithstanding that the policy may expire prior
to the end of such period; and (D) in an amount equal to 100%
of the projected gross income from the Property for a period
of twelve (12) months. The amount of such business income
insurance shall be determined prior to the date hereof and at
least once each year thereafter based on Borrower's reasonable
estimate of the gross income from the Property for the
succeeding twelve-month period. All insurance proceeds payable
to Lender pursuant to this Subsection shall be held by Lender
and shall be applied to the obligations secured hereunder from
time to time due and payable hereunder and under the Note;
provided, however, that nothing herein contained shall be
deemed to relieve Borrower of its obligations to pay the
obligations secured hereunder on the respective dates of
payment provided for in
- 7 -
<PAGE>
the Note except to the extent such amounts are actually paid
out of the proceeds of such business income insurance;
(iv) at all times during which structural
construction, repairs or alterations are being made with
respect to the Improvements (A) owner's contingent or
protective liability insurance covering claims not covered by
or under the terms or provisions of the above mentioned
commercial general liability insurance policy; and (B) the
insurance provided for in Subsection (a)(i) written in a
so-called builder's risk completed value form (1) on a
non-reporting basis, (2) against all risks insured against
pursuant to Subsection (a)(i), (3) including permission to
occupy the Property, and (4) with an agreed amount endorsement
waiving co-insurance provisions;
(v) workers' compensation, subject to the statutory
limits of the state in which the Property is located, and
employer's liability insurance with a limit of at least
$1,000,000 per accident and per disease per employee, and
$1,000,000 for disease aggregate in respect of any work or
operations on or about the Property, or in connection with the
Property or its operation (if applicable);
(vi) comprehensive boiler and machinery insurance, if
applicable, in amounts as shall be reasonably required by
Lender;
(vii) flood hazard insurance if any portion of the
Improvements is currently or at any time in the future located
in a federally designated "special flood hazard area"; and
(viii) such other insurance and in such amounts as
Lender from time to time may reasonably request against such
other insurable hazards which at the time are commonly insured
against for property similar to the Property located in or
around the region in which the Property is located.
(b) All insurance provided for in Subsection (a)
hereof shall be obtained under valid and enforceable policies (the
"Policies" or in the singular, the "Policy"), in such forms and, from
time to time after the date hereof, in such amounts as may from time to
time be satisfactory to Lender, issued by financially sound and
responsible insurance companies authorized to do business in the state
in which the Property is located and approved by Lender. The insurance
companies must have a general policy rating of A or better and a
financial class of VI or better by A.M. Best Company, Inc., and if
there are any Securities (defined in Section 19.1 below) issued which
have been assigned a rating by a credit rating agency approved by
Lender (a "Rating Agency"), the insurance company shall have a claims
paying ability rating by such Rating Agency equal to or greater than
the rating of the highest class of the Securities (each such insurer
shall be referred to below as a "Qualified Insurer"). Not less than
thirty (30) days prior to the expiration dates of the Policies
theretofore furnished to Lender pursuant to Subsection (a), certified
copies of the Policies marked "premium paid" or accompanied by evidence
satisfactory to Lender of payment of the premiums due thereunder (the
"Insurance Premiums"), shall be delivered by Borrower
- 8 -
<PAGE>
to Lender; provided, however, that in the case of renewal Policies,
Borrower may furnish Lender with binders therefor to be followed by the
original Policies when issued.
(c) Borrower shall not obtain (i) any umbrella or
blanket liability or casualty Policy unless, in each case, such Policy
is approved in advance in writing by Lender and Lender's interest is
included therein as provided in this Security Instrument and such
Policy is issued by a Qualified Insurer, or (ii) separate insurance
concurrent in form or contributing in the event of loss with that
required in Subsection (a) to be furnished by, or which may be
reasonably required to be furnished by, Borrower. In the event Borrower
obtains separate insurance or an umbrella or a blanket Policy, Borrower
shall notify Lender of the same and shall cause certified copies of
each Policy to be delivered as required in Subsection (a). Any blanket
insurance Policy shall specifically allocate to the Property the amount
of coverage from time to time required hereunder and shall otherwise
provide the same protection as would a separate Policy insuring only
the Property in compliance with the provisions of Subsection (a).
(d) All Policies of insurance provided for or contemplated by
Subsection (a), except for the Policy referenced in Subsection (a)(v),
shall name Lender and Borrower as the insured or additional insured, as
their respective interests may appear, and in the case of property
damage, boiler and machinery, and flood insurance, shall contain a
so-called New York standard non-contributing mortgagee clause in favor
of Lender providing that the loss thereunder shall be payable to
Lender.
(e) All Policies of insurance provided for in Subsection (a)
shall contain clauses or endorsements to the effect that:
(i) no act or negligence of Borrower, or anyone
acting for Borrower, or of any tenant under any Lease or other
occupant, or failure to comply with the provisions of any
Policy which might otherwise result in a forfeiture of the
insurance or any part thereof, shall in any way affect the
validity or enforceability of the insurance insofar as Lender
is concerned;
(ii) the Policy shall not be materially changed
(other than to increase the coverage provided thereby) or
cancelled without at least 30 days' written notice to Lender
and any other party named therein as an insured; and
(iii) each Policy shall provide that the issuers
thereof shall give written notice to Lender if the Policy has
not been renewed thirty (30) days prior to its expiration; and
(iv) Lender shall not be liable for any Insurance
Premiums thereon or subject to any assessments thereunder.
(f) Borrower shall furnish to Lender, on or before
thirty (30) days after the close of each of Borrower's fiscal years, a
statement certified by Borrower or a duly authorized officer of
Borrower of the amounts of insurance maintained in compliance herewith,
of the risks covered by such insurance and of the insurance
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company or companies which carry such insurance and, if requested by
Lender, verification of the adequacy of such insurance by an
independent insurance broker or appraiser acceptable to Lender.
(g) If at any time Lender is not in receipt of
written evidence that all insurance required hereunder is in full force
and effect, Lender shall have the right, without notice to Borrower to
take such action as Lender deems necessary to protect its interest in
the Property, including, without limitation, the obtaining of such
insurance coverage as Lender in its sole discretion deems appropriate,
and all expenses incurred by Lender in connection with such action or
in obtaining such insurance and keeping it in effect shall be paid by
Borrower to Lender upon demand and until paid shall be secured by this
Security Instrument and shall bear interest in accordance with Section
10.3 hereof.
(h) If the Property shall be damaged or destroyed, in
whole or in part, by fire or other casualty, Borrower shall give prompt
notice of such damage to Lender and shall promptly commence and
diligently prosecute the completion of the repair and restoration of
the Property as nearly as possible to the condition the Property was in
immediately prior to such fire or other casualty, with such alterations
as may be approved by Lender (the "Restoration") and otherwise in
accordance with Section of this Security Instrument. Borrower shall pay
all costs of such Restoration whether or not such costs are covered by
insurance.
Section 3.4 PAYMENT OF TAXES, ETC.
(a) Borrower shall promptly pay all taxes, assessments, water
rates, sewer rents, governmental impositions, and other charges,
including without limitation vault charges and license fees for the use
of vaults, chutes and similar areas adjoining the Land, now or
hereafter levied or assessed or imposed against the Property or any
part thereof (the "Taxes"), all ground rents, maintenance charges and
similar charges, now or hereafter levied or assessed or imposed against
the Property or any part thereof (the "Other Charges"), and all charges
for utility services provided to the Property as same become due and
payable. Borrower will deliver to Lender, promptly upon Lender's
request, evidence satisfactory to Lender that the Taxes, Other Charges
and utility service charges have been so paid or are not then
delinquent. Borrower shall not suffer and shall promptly cause to be
paid and discharged any lien or charge whatsoever which may be or
become a lien or charge against the Property. Except to the extent sums
sufficient to pay all Taxes and Other Charges have been deposited with
Lender in accordance with the terms of this Security Instrument,
Borrower shall furnish to Lender paid receipts for the payment of the
Taxes and Other Charges prior to the date the same shall become
delinquent.
(b) After prior written notice to Lender, Borrower, at its own
expense, may contest by appropriate legal proceeding, promptly
initiated and conducted in good faith and with due diligence, the
amount or validity or application in whole or in part of any of the
Taxes, provided that (i) no Event of Default has occurred and is
continuing under the Note, this Security Instrument or any of the Other
Security Documents, (ii) Borrower
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is permitted to do so under the provisions of any other mortgage, deed
of trust or deed to secure debt affecting the Property, (iii) such
proceeding shall suspend the collection of the Taxes from Borrower and
from the Property or Borrower shall have paid all of the Taxes under
protest, (iv) such proceeding shall be permitted under and be conducted
in accordance with the provisions of any other instrument to which
Borrower is subject and shall not constitute a default thereunder, (v)
neither the Property nor any part thereof or interest therein will be
in danger of being sold, forfeited, terminated, cancelled or lost, (vi)
Borrower shall have deposited with Lender adequate reserves for the
payment of the Taxes, together with all interest and penalties thereon,
unless Borrower has paid all of the Taxes under protest, and (vii)
Borrower shall have furnished the security as may be required in the
proceeding, or as may be requested by Lender to insure the payment of
any contested Taxes, together with all interest and penalties thereon.
Section 3.5 ESCROW FUND. In addition to the initial deposits
with respect to Taxes and Insurance Premiums made by Borrower to Lender on the
date hereof to be held by Lender in escrow, Borrower shall pay to Lender on the
first day of each calendar month (a) one-twelfth of an amount which would be
sufficient to pay the Taxes payable, or estimated by Lender to be payable,
during the next ensuing twelve (12) months and (b) one-twelfth of an amount
which would be sufficient to pay the Insurance Premiums due for the renewal of
the coverage afforded by the Policies upon the expiration thereof (the amounts
in (a) and (b) above shall be called the "Escrow Fund"). Borrower agrees to
notify Lender immediately of any changes to the amounts, schedules and
instructions for payment of any Taxes and Insurance Premiums of which it has or
obtains knowledge and authorizes Lender or its agent to obtain the bills for
Taxes and Other Charges directly from the appropriate taxing authority. The
Escrow Fund and the payments of interest or principal or both, payable pursuant
to the Note shall be added together and shall be paid as an aggregate sum by
Borrower to Lender. Lender will apply the Escrow Fund to payments of Taxes and
Insurance Premiums required to be made by Borrower pursuant to Sections and
hereof. If the amount of the Escrow Fund shall exceed the amounts due for Taxes
and Insurance Premiums pursuant to Sections and hereof, Lender shall, in its
discretion, return any excess to Borrower or credit such excess against future
payments to be made to the Escrow Fund. In allocating such excess, Lender may
deal with the person shown on the records of Lender to be the owner of the
Property. If the Escrow Fund is not sufficient to pay the items set forth in (a)
and (b) above, Borrower shall promptly pay to Lender, upon demand, an amount
which Lender shall estimate as sufficient to make up the deficiency. The Escrow
Fund shall not constitute a trust fund and may be commingled with other monies
held by Lender. No earnings or interest on the Escrow Fund shall be payable to
Borrower. With respect to that portion of the Land subject to the Ground Lease,
compliance by Borrower with any provisions of the Ground Lease relating to the
deposit of funds by Borrower for the payment of all taxes, assessments, water
and sewer rents and/or insurance premiums shall constitute compliance with this
Section 3.5 to the extent such Ground Lease provisions cover each of said items;
provided that Borrower shall in any event be required to deliver to Lender
evidence of such payments and receipted bills for all such items.
Section 3.6 CONDEMNATION. Borrower shall promptly give Lender
notice of the actual or threatened commencement of any condemnation or eminent
domain proceeding and shall deliver to Lender copies of any and all papers
served in connection with such proceedings. Notwithstanding any taking by any
public or quasi-public authority through eminent domain or
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otherwise (including but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Borrower shall continue to pay the
Debt at the time and in the manner provided for its payment in the Note and in
this Security Instrument and the Debt shall not be reduced until any award or
payment therefor shall have been actually received and applied by Lender, after
the deduction of expenses of collection, to the reduction or discharge of the
Debt. Lender shall not be limited to the interest paid on the award by the
condemning authority but shall be entitled to receive out of the award interest
at the rate or rates provided herein or in the Note. Lender may apply any award
or payment to the reduction or discharge of the Debt whether or not then due and
payable. If the Property is sold, through foreclosure or otherwise, prior to the
receipt by Lender of the award or payment, Lender shall have the right, whether
or not a deficiency judgment on the Note shall have been sought, recovered or
denied, to receive the award or payment, or a portion thereof sufficient to pay
the Debt.
Section 3.7 LEASES AND RENTS.
(a) Except as otherwise consented to by Lender, all Leases
shall be written on the standard form of lease which shall have been
approved by Lender. Upon request, Borrower shall furnish Lender with
executed copies of all Leases. No material changes may be made to the
Lender-approved standard lease without the prior written consent of
Lender. In addition, all renewals of Leases and all proposed Leases
shall provide for rental rates and terms comparable to existing local
market rates and terms and shall be arms-length transactions with bona
fide, independent third party tenants. All proposed Leases and renewals
of existing Leases (other than residential Leases relating to a
residential multifamily property) shall be subject to the prior
approval of Lender and its counsel, at Borrower's expense. All Leases
shall provide that they are subordinate to this Security Instrument and
that the lessee agrees to attorn to Lender. Borrower (i) shall observe
and perform all the obligations imposed upon the lessor under the
Leases and shall not do or permit to be done anything to impair the
value of any of the Leases as security for the Debt; (ii) shall
promptly send copies to Lender of all notices of default which Borrower
shall send or receive thereunder; (iii) shall enforce all of the terms,
covenants and conditions contained in the Leases upon the part of the
lessee thereunder to be observed or performed, short of termination
thereof; provided however, with respect to multifamily residential
property, a residential Lease may be terminated in the event of a
default by the tenant thereunder; (iv) shall not collect any of the
Rents more than one (1) month in advance; (v) shall not execute any
other assignment of the lessor's interest in any of the Leases or the
Rents; (vi) shall not alter, modify or change the terms of any Leases
without the prior written consent of Lender, or cancel or terminate any
Leases or accept a surrender thereof or convey or transfer or suffer or
permit a conveyance or transfer of the Land or of any interest therein
so as to effect a merger of the estates and rights of or a termination
or diminution of the obligations of, lessees thereunder; (vii) shall
not alter, modify or change the terms of any guaranty, letter of credit
or other credit support with respect to any of the Leases (the "Lease
Guaranty") or cancel or terminate such Lease Guaranty without the prior
written consent of Lender; and (viii) shall not consent to any
assignment of or subletting under any Leases not in accordance with
their terms, without the prior written consent of Lender.
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(b) Notwithstanding the provisions of Subsection (a) above,
renewals of existing Leases and Leases for commercial space for in-line
stores (as determined by Lender) shall not be subject to the prior
approval of Lender provided all of the following conditions are
satisfied: (i) the rental income pursuant to the renewal or proposed
Lease is not more than ten percent (10%) of the total rental income for
the in-line stores, (ii) the renewal or proposed Lease covers less than
ten percent (10%) of the in-line store space, in the aggregate, (iii)
the renewal or proposed Lease shall have a lease term not to exceed
eight (8) years including options to renew, (iv) no rent credits, free
rents or concessions have been granted under the renewal or proposed
Lease, (v) the renewal or proposed Lease shall provide for rental rates
and terms comparable to existing local market rates and terms, (vi) the
renewal or proposed Lease shall be an arms-length transaction with a
bona fide, independent third party tenant and (vii) the renewal or
proposed Lease shall satisfy other criteria as shall be required by
Lender in its sole discretion. Borrower shall deliver to Lender copies
of all Leases which are entered into pursuant to this Subsection (b)
together with Borrower's certification that it has satisfied all of the
conditions of the preceding sentence within thirty (30) days after the
execution of the Lease.
(c) To the extent permitted by law, Borrower shall promptly
deposit with Lender any and all monies representing security deposits
under the Leases, whether or not Borrower actually received such monies
(the "Security Deposits"). Lender shall hold the Security Deposits in
accordance with the terms of the respective Lease, and shall only
release the Security Deposits in order to return a tenant's Security
Deposit to such tenant if such tenant is entitled to the return of the
Security Deposit under the terms of the Lease and is not otherwise in
default under the Lease. To the extent required by Applicable Laws
(defined below), Lender shall hold the Security Deposits in an interest
bearing account selected by Lender in its sole discretion. In the event
Lender is not permitted by law to hold the Security Deposits, Borrower
shall deposit the Security Deposits into an account with a federally
insured institution as approved by Lender.
Section 3.8 MAINTENANCE OF PROPERTY. Borrower shall cause the
Property to be maintained in a good and safe condition and repair. The
Improvements and the Personal Property shall not be removed, demolished or
materially altered (except for normal replacement of the Personal Property)
without the consent of Lender. Notwithstanding the provisions of the Ground
Lease, Borrower shall promptly repair, replace or rebuild any part of the
Property which may be destroyed by any casualty, or become damaged, worn or
dilapidated or which may be affected by any proceeding of the character referred
to in Section hereof and shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Borrower shall not initiate,
join in, acquiesce in, or consent to any change in any private restrictive
covenant, zoning law or other public or private restriction, limiting or
defining the uses which may be made of the Property or any part thereof. If
under applicable zoning provisions the use of all or any portion of the Property
is or shall become a nonconforming use, Borrower will not cause or permit the
nonconforming use to be discontinued or abandoned without the express written
consent of Lender.
Section 3.9 WASTE. Borrower shall not commit or suffer any
waste of the Property or make any change in the use of the Property which will
in any way materially
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increase the risk of fire or other hazard arising out of the operation of the
Property, or take any action that might invalidate or give cause for
cancellation of any Policy, or do or permit to be done thereon anything that may
in any way impair the value of the Property or the security of this Security
Instrument. Borrower will not, without the prior written consent of Lender,
permit any drilling or exploration for or extraction, removal, or production of
any minerals from the surface or the subsurface of the Land, regardless of the
depth thereof or the method of mining or extraction thereof.
Section 3.10 COMPLIANCE WITH LAWS.
(a) Borrower shall promptly comply with all existing and
future federal, state and local laws, orders, ordinances, governmental
rules and regulations or court orders affecting or which may be
interpreted to affect the Property, or the use thereof ("Applicable
Laws").
(b) Borrower shall from time to time, upon Lender's request,
provide Lender with evidence satisfactory to Lender that the Property
complies with all Applicable Laws or is exempt from compliance with
Applicable Laws.
(c) Notwithstanding any provisions set forth herein or in any
document regarding Lender's approval of alterations of the Property,
Borrower shall not alter the Property in any manner which would
increase Borrower's responsibilities for compliance with Applicable
Laws without the prior written approval of Lender. Lender's approval of
the plans, specifications, or working drawings for alterations of the
Property shall create no responsibility or liability on behalf of
Lender for their completeness, design, sufficiency or their compliance
with Applicable Laws. The foregoing shall apply to tenant improvements
constructed by Borrower or by any of its tenants. Lender may condition
any such approval upon receipt of a certificate of compliance with
Applicable Laws from an independent architect, engineer, or other
person acceptable to Lender.
(d) Borrower shall give prompt notice to Lender of the receipt
by Borrower of any notice related to a violation of any Applicable Laws
and of the commencement of any proceedings or investigations which
relate to compliance with Applicable Laws.
Section 3.11 BOOKS AND RECORDS.
(a) Borrower and any Guarantors (defined in Subsection (f))
and Indemnitor(s) (defined in Subsection (q)), if any, shall keep
adequate books and records of account in accordance with generally
accepted accounting principles ("GAAP"), or in accordance with other
methods acceptable to Lender in its sole discretion, consistently
applied and furnish to Lender:
(i) quarterly certified rent rolls signed and dated
by Borrower, detailing the names of all tenants of the
Improvements, the portion of Improvements occupied by each
tenant, the base rent and any other charges payable under each
Lease and the term of each Lease, including the expiration
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date, and any other information as is reasonably required by
Lender, within twenty (20) days after the end of each calendar
quarter;
(ii) quarterly operating statements of the Property,
prepared and certified by Borrower in the form required by
Lender, detailing the revenues received, the expenses incurred
and the net operating income before and after debt service
(principal and interest) and major capital improvements for
that quarter and containing appropriate year to date
information, within thirty (30) days after the end of each
fiscal quarter;
(iii) an annual operating statement of the Property
detailing the total revenues received, total expenses
incurred, total cost of all capital improvements, total debt
service and total cash flow, to be prepared and certified by
Borrower in the form required by Lender, or if required by
Lender, an audited annual operating statement prepared and
certified by an independent certified public accountant
acceptable to Lender, within ninety (90) days after the close
of each fiscal year of Borrower;
(iv) an annual balance sheet and profit and loss
statement of Borrower in the form required by Lender, prepared
and certified by the respective Borrower, Guarantors and/or
Indemnitor(s), or if required by Lender, audited financial
statements prepared by an independent certified public
accountant acceptable to Lender, within sixty (60) days after
the close of each fiscal year of Borrower, Guarantors and
Indemnitor(s), as the case may be;
(v) an annual operating budget presented on a monthly
basis consistent with the annual operating statement described
above for the Property, including cash flow projections for
the upcoming year, and all proposed capital replacements and
improvements at least fifteen (15) days prior to the start of
each fiscal year; and
(vi) annual year-end certified rent rolls signed and
dated by Borrower, detailing the names of all tenants of the
Improvements, the portion of Improvements occupied by each
tenant, the base rent and any other charges payable under each
Lease and the term of each Lease, including the expiration
date, and any other information as is reasonably required by
Lender, within thirty (30) days after the end of each calendar
year.
To the extent any of the foregoing documents are required to
be certified, such certification may come from the Property manager.
(b) Upon request from Lender, Borrower, its affiliates, any
Guarantor and any Indemnitor shall furnish in a timely manner to
Lender:
(i) a property management report for the Property,
showing the number of inquiries made and/or rental
applications received from tenants or prospective tenants and
deposits received from tenants and any other information
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<PAGE>
requested by Lender, in reasonable detail and certified by
Borrower (or an officer, general partner, member or principal
of Borrower if Borrower is not an individual) under penalty of
perjury to be true and complete, but no more frequently than
quarterly; and
(ii) an accounting of all security deposits held in
connection with any Lease of any part of the Property,
including the name and identification number of the accounts
in which such security deposits are held, the name and address
of the financial institutions in which such security deposits
are held and the name of the person to contact at such
financial institution, along with any authority or release
necessary for Lender to obtain information regarding such
accounts directly from such financial institutions.
(c) Borrower, its affiliates, any Guarantor and any Indemnitor
shall furnish Lender with such other additional financial or management
information (including State and Federal tax returns) as may, from time
to time, be reasonably required by Lender in form and substance
satisfactory to Lender.
(d) Borrower, its affiliates, any Guarantor and any Indemnitor
shall furnish to Lender and its agents convenient facilities for the
examination and audit of any such books and records.
Section 3.12 PAYMENT FOR LABOR AND MATERIALS. Borrower will
promptly pay when due all bills and costs for labor, materials, and specifically
fabricated materials incurred in connection with the Property and never permit
to exist beyond the due date thereof in respect of the Property or any part
thereof any lien or security interest, even though inferior to the liens and the
security interests hereof, and in any event never permit to be created or exist
in respect of the Property or any part thereof any other or additional lien or
security interest other than the liens or security interests hereof, except for
the Permitted Exceptions (defined below).
Section 3.13 PERFORMANCE OF OTHER AGREEMENTS. Borrower shall
observe and perform each and every term to be observed or performed by Borrower
pursuant to the terms of any agreement or recorded instrument affecting or
pertaining to the Property, or given by Borrower to Lender for the purpose of
further securing an obligation secured hereby and any amendments, modifications
or changes thereto.
Section 3.14 OWNER'S BANKRUPTCY. Borrower shall not, in any
event, including the bankruptcy, reorganization or insolvency of Borrower or
Owner, (i) surrender its leasehold estate created under the Ground Lease, or any
portion thereof, nor terminate, cancel or acquiesce in the rejection of the
Ground Lease; or (ii) modify, change, supplement, alter or amend the Ground
Lease in any respect, either orally or in writing. Borrower does hereby
expressly release, assign, relinquish and surrender unto the Lender all its
right, power and authority to terminate, cancel, acquiesce in the rejection of,
modify, change, supplement, alter or amend the Ground Lease in any respect,
either orally or in writing, at any time, including in the event of the
bankruptcy, reorganization or insolvency of Borrower or Owner under the
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Ground Lease, and any attempt on the part of Borrower to exercise any such right
without the consent of the Lender shall be null and void. Notwithstanding the
foregoing, in the event of a threatened termination of the Ground Lease due to
the bankruptcy, reorganization or insolvency of Borrower, Borrower shall, at
Lender's election, absolutely assign to Lender, in lieu of such termination, all
of Borrower's right, title and interest in and to the Ground Lease.
In the event the Ground Lease is rejected by Owner, as debtor
in possession, or by a trustee for Owner, pursuant to Section 365 of the
Bankruptcy Code, Borrower shall not exercise its right to elect under Section
365(h)(1) of the Bankruptcy Code to terminate or treat the Ground Lease as
terminated. Any such election made shall be null and void. In any event,
Borrower hereby waives, for the benefit of the Lender, its successors and
assigns only, and not enforceable by anyone else, the provisions of section 365
of the Bankruptcy Code, or of any statute or rule of law now or hereafter in
effect which gives or purports to give Borrower any right of election to
terminate the Ground Lease, to acquiesce in the termination of the Ground Lease
or to surrender possession of the Property in the event of the bankruptcy,
reorganization or insolvency of Borrower or any other party including, without
limitation, Owner.
Article 4 - SPECIAL COVENANTS
Borrower covenants and agrees that:
Section 4.1 PROPERTY USE. The Property shall be used only for
a retail complex and uses incidental thereto, and for no other use without the
prior written consent of Lender, which consent may be withheld in Lender's sole
and absolute discretion.
Section 4.2 ERISA.
(a) It shall not engage in any transaction which would cause
any obligation, or action taken or to be taken, hereunder (or the
exercise by Lender of any of its rights under the Note, this Security
Instrument and the Other Security Documents) to be a non-exempt (under
a statutory or administrative class exemption) prohibited transaction
under the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
(b) Borrower further covenants and agrees to deliver to Lender
such certifications or other evidence from time to time throughout the
term of the Security Instrument, as requested by Lender in its sole
discretion, that (i) Borrower is not an "employee benefit plan" as
defined in Section 3(3) of ERISA, which is subject to Title I of ERISA,
or a "governmental plan" within the meaning of Section 3(3) of ERISA;
(ii) Borrower is not subject to state statutes regulating investments
and fiduciary obligations with respect to governmental plans; and (iii)
one or more of the following circumstances is true:
(A) Equity interests in Borrower are publicly offered
securities, within the meaning of 29 C.F.R. ss.
2510.3-101(b)(2);
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<PAGE>
(B) Less than 25 percent of each outstanding class of
equity interests in Borrower are held by "benefit plan
investors" within the meaning of 29 C.F.R. ss.
2510.3-101(f)(2); or
(C) Borrower qualifies as an "operating company" or a
"real estate operating company" within the meaning of 29
C.F.R. ss. 2510.3-101(c) or (e) or an investment company
registered under The Investment Company Act of 1940.
Section 4.3 SINGLE PURPOSE ENTITY. It has not and shall not:
(a) engage in any business or activity other than the
ownership, operation and maintenance of the Property, and activities
incidental thereto;
(b) acquire or own any material assets other than (i) the
Property, and (ii) such incidental Personal Property as may be
necessary for the operation of the Property;
(c) merge into or consolidate with any person or entity or
dissolve, terminate or liquidate in whole or in part, transfer or
otherwise dispose of all or substantially all of its assets or change
its legal structure, without in each case Lender's consent;
(d) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under
the laws of the jurisdiction of its organization or formation, or
without the prior written consent of Lender, amend, modify, terminate
or fail to comply with the provisions of Borrower's Partnership
Agreement, Articles or Certificate of Incorporation, Articles of
Organization or similar organizational documents, as the case may be,
as same may be further amended or supplemented, if such amendment,
modification, termination or failure to comply would adversely affect
the ability of Borrower to perform its obligations hereunder, under the
Note or under the Other Security Documents;
(e) own any subsidiary or make any investment in, any person
or entity without the consent of Lender;
(f) commingle its assets with the assets of any of its
members, general partners, affiliates, principals or of any other
person or entity;
(g) incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Debt, except
for trade payables in the ordinary course of its business of owning and
operating the Property, provided that such debt is paid when due;
(h) become insolvent and fail to pay its debts and liabilities
from its assets as the same shall become due;
(i) fail to maintain its records, books of account and bank
accounts separate and apart from those of the members, general
partners, principals and affiliates of
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Borrower, the affiliates of a member, general partner or principal of
Borrower, and any other person or entity;
(j) enter into any contract or agreement with any member,
general partner, principal or affiliate of Borrower, Guarantor or
Indemnitor, or any member, general partner, principal or affiliate
thereof, except upon terms and conditions that are intrinsically fair
and substantially similar to those that would be available on an
arms-length basis with third parties other than any member, general
partner, principal or affiliate of Borrower, Guarantor or Indemnitor,
or any member, general partner, principal or affiliate thereof;
(k) seek the dissolution or winding up in whole, or in part,
of Borrower;
(l) maintain its assets in such a manner that it will be
costly or difficult to segregate, ascertain or identify its individual
assets from those of any member, general partner, principal or
affiliate of Borrower, or any member, general partner, principal or
affiliate thereof or any other person;
(m) hold itself out to be responsible for the debts of another
person;
(n) make any loans or advances to any third party, including
any member, general partner, principal or affiliate of Borrower, or any
member, general partner, principal or affiliate thereof;
(o) fail to file its own tax returns;
(p) agree to, enter into or consummate any transaction which
would render Borrower unable to furnish the certification or other
evidence referred to in Section (b) hereof;
(q) fail either to hold itself out to the public as a legal
entity separate and distinct from any other entity or person or to
conduct its business solely in its own name in order not (i) to mislead
others as to the identity with which such other party is transacting
business, or (ii) to suggest that Borrower is responsible for the debts
of any third party (including any member, general partner, principal or
affiliate of Borrower, or any member, general partner, principal or
affiliate thereof);
(r) fail to maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations; or
(s) file or consent to the filing of any petition, either
voluntary or involuntary, to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization statute, or make
an assignment for the benefit of creditors.
Section 4.4 RESTORATION. The following provisions shall apply
in connection with the Restoration of the Property:
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(a) If the Net Proceeds (defined below) shall be less than
$25,000 and the costs of completing the Restoration shall be less than
$25,000, the Net Proceeds will be disbursed by Lender to Borrower upon
receipt, provided that all of the conditions set forth in Subsection
(b)(i) are met and Borrower delivers to Lender a written undertaking to
expeditiously commence and to satisfactorily complete with due
diligence the Restoration in accordance with the terms of this Security
Instrument.
(b) If the Net Proceeds are equal to or greater than $25,000
or the costs of completing the Restoration is equal to or greater than
$25,000, Lender shall make the net amount of all insurance proceeds
received by Lender pursuant to Subsections (a)(i), (iv), (vi) and (vii)
of this Security Instrument as a result of such damage or destruction,
after deduction of its reasonable costs and expenses (including, but
not limited to, reasonable counsel fees), if any, in collecting the
same (the "Net Proceeds") available for the Restoration in accordance
with the provisions of this Subsection (b).
(i) The Net Proceeds shall be made available to
Borrower for the Restoration provided that each of the
following conditions are met:
(A) no Event of Default shall have occurred
and be continuing under the Note, this Security
Instrument or any of the Other Security Documents;
(B) less than fifty percent (50%) of the
total floor area of the Improvements has been
damaged, destroyed or rendered unusable as a result
of such fire or other casualty;
(C) Leases demising in the aggregate at
least 50% of the total rentable space in the Property
which has been demised under executed and delivered
Leases in effect as of the date of the occurrence of
such fire or other casualty shall remain in full
force and effect during and after the completion of
the Restoration;
(D) Borrower shall commence the Restoration
as soon as reasonably practicable (but in no event
later than thirty (30) days after such damage or
destruction occurs) and shall diligently pursue the
same to satisfactory completion;
(E) Lender shall be satisfied that any
operating deficits which will be incurred with
respect to the Property as a result of the occurrence
of any such fire or other casualty will be covered
out of (1) the Net Proceeds, (2) the insurance
coverage referred to in Subsection (a)(iii), or (3)
by other funds of Borrower;
(F) Lender shall be satisfied that, upon the
completion of the Restoration, the gross cash flow
and the net cash flow of the Property will be
restored to a level sufficient to cover all carrying
costs and operating expenses of the Property,
including, without limitation, debt service on the
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Note at a coverage ratio (after deducting all
required reserves as required by Lender from net
operating income) of at least 1.3 to 1.0, which
coverage ratio shall be determined by Lender in its
sole and absolute discretion on the basis of the
Applicable Interest Rate (as defined in the Note);
(G) Lender shall be satisfied that the
Restoration will be completed on or before the
earliest to occur of (1) six (6) months prior to the
Maturity Date (as defined in the Note), (2) six (6)
months after the occurrence of such fire or other
casualty, (3) the earliest date required for such
completion under the terms of any Leases which are
required in accordance with the provisions of this
Subsection (b) to remain in effect subsequent to the
occurrence of such fire or other casualty and the
completion of the Restoration or under the terms of
[specify key Leases] or (4) such time as may be
required under applicable zoning law, ordinance, rule
or regulation in order to repair and restore the
Property to the condition it was in immediately prior
to such fire or other casualty;
(H) the Property and the use thereof after
the Restoration will be in compliance with and
permitted under all applicable zoning laws,
ordinances, rules and regulations; and
(I) the Restoration shall be done and
completed by Borrower in an expeditious and diligent
fashion and in compliance with all applicable
governmental laws, rules and regulations (including,
without limitation, all applicable Environmental Laws
(defined below).
(ii) The Net Proceeds shall be held by Lender and,
until disbursed in accordance with the provisions of this
Subsection (b), shall constitute additional security for the
Obligations. The Net Proceeds shall be disbursed by Lender to,
or as directed by, Borrower from time to time during the
course of the Restoration, upon receipt of evidence
satisfactory to Lender that (A) all materials installed and
work and labor performed (except to the extent that they are
to be paid for out of the requested disbursement) in
connection with the Restoration have been paid for in full,
and (B) there exist no notices of pendency, stop orders,
mechanic's or materialman's liens or notices of intention to
file same, or any other liens or encumbrances of any nature
whatsoever on the Property arising out of the Restoration
which have not either been fully bonded to the satisfaction of
Lender and discharged of record or in the alternative fully
insured to the satisfaction of Lender by the title company
insuring the lien of this Security Instrument.
(iii) All plans and specifications required in
connection with the Restoration shall be subject to prior
review and acceptance in all respects by Lender and by an
independent consulting engineer selected by Lender (the
"Casualty Consultant"). Lender shall have the use of the plans
and specifications and all permits, licenses and approvals
required or obtained in connection with
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the Restoration. The identity of the contractors,
subcontractors and materialmen engaged in the Restoration, as
well as the contracts under which they have been engaged,
shall be subject to prior review and acceptance by Lender and
the Casualty Consultant. All costs and expenses incurred by
Lender in connection with making the Net Proceeds available
for the Restoration including, without limitation, reasonable
counsel fees and disbursements and the Casualty Consultant's
fees, shall be paid by Borrower.
(iv) In no event shall Lender be obligated to make
disbursements of the Net Proceeds in excess of an amount equal
to the costs actually incurred from time to time for work in
place as part of the Restoration, as certified by the Casualty
Consultant, minus the Casualty Retainage. The term "Casualty
Retainage" as used in this Subsection (b) shall mean an amount
equal to 10% of the costs actually incurred for work in place
as part of the Restoration, as certified by the Casualty
Consultant, until such time as the Casualty Consultant
certifies to Lender that Net Proceeds representing 50% of the
required Restoration have been disbursed. There shall be no
Casualty Retainage with respect to costs actually incurred by
Borrower for work in place in completing the last 50% of the
required Restoration. The Casualty Retainage shall in no
event, and notwithstanding anything to the contrary set forth
above in this Subsection (b), be less than the amount actually
held back by Borrower from contractors, subcontractors and
materialmen engaged in the Restoration. The Casualty Retainage
shall not be released until the Casualty Consultant certifies
to Lender that the Restoration has been completed in
accordance with the provisions of this Subsection (b) and that
all approvals necessary for the re-occupancy and use of the
Property have been obtained from all appropriate governmental
and quasi-governmental authorities, and Lender receives
evidence satisfactory to Lender that the costs of the
Restoration have been paid in full or will be paid in full out
of the Casualty Retainage, provided, however, that Lender will
release the portion of the Casualty Retainage being held with
respect to any contractor, subcontractor or materialman
engaged in the Restoration as of the date upon which the
Casualty Consultant certifies to Lender that the contractor,
subcontractor or materialman has satisfactorily completed all
work and has supplied all materials in accordance with the
provisions of the contractor's, subcontractor's or
materialman's contract, and the contractor, subcontractor or
materialman delivers the lien waivers and evidence of payment
in full of all sums due to the contractor, subcontractor or
materialman as may be reasonably requested by Lender or by the
title company insuring the lien of this Security Instrument.
If required by Lender, the release of any such portion of the
Casualty Retainage shall be approved by the surety company, if
any, which has issued a payment or performance bond with
respect to the contractor, subcontractor or materialman.
(v) Lender shall not be obligated to make
disbursements of the Net Proceeds more frequently than once
every calendar month.
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(vi) If at any time the Net Proceeds or the
undisbursed balance thereof shall not, in the opinion of
Lender, be sufficient to pay in full the balance of the costs
which are estimated by the Casualty Consultant to be incurred
in connection with the completion of the Restoration, Borrower
shall deposit the deficiency (the "Net Proceeds Deficiency")
with Lender before any further disbursement of the Net
Proceeds shall be made. The Net Proceeds Deficiency deposited
with Lender shall be held by Lender and shall be disbursed for
costs actually incurred in connection with the Restoration on
the same conditions applicable to the disbursement of the Net
Proceeds, and until so disbursed pursuant to this Subsection
(b) shall constitute additional security for the Obligations.
(vii) The excess, if any, of the Net Proceeds and the
remaining balance, if any, of the Net Proceeds Deficiency
deposited with Lender after the Casualty Consultant certifies
to Lender that the Restoration has been completed in
accordance with the provisions of this Subsection (b), and the
receipt by Lender of evidence satisfactory to Lender that all
costs incurred in connection with the Restoration have been
paid in full, shall be remitted by Lender to Borrower,
provided no Event of Default shall have occurred and shall be
continuing under the Note, this Security Instrument or any of
the Other Security Documents.
(c) All Net Proceeds not required (i) to be made available for
the Restoration or (ii) to be returned to Borrower as excess Net
Proceeds pursuant to Subsection (b)(vii) may be retained and applied by
Lender toward the payment of the Debt whether or not then due and
payable in such order, priority and proportions as Lender in its
discretion shall deem proper or, at the discretion of Lender, the same
may be paid, either in whole or in part, to Borrower for such purposes
as Lender shall designate, in its discretion. If Lender shall receive
and retain Net Proceeds, the lien of this Security Instrument shall be
reduced only by the amount thereof received and retained by Lender and
actually applied by Lender in reduction of the Debt.
Article 5 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
Section 5.1 WARRANTY OF TITLE. Borrower has good title to the
Property and has the right to mortgage, grant, bargain, sell, pledge, assign,
warrant, transfer and convey the same and that Borrower possesses an
unencumbered leasehold estate in the Land and the Improvements created by and
pursuant to the provisions of the Ground Lease and that it owns the Property
free and clear of all liens, encumbrances and charges whatsoever except for
those exceptions shown in the title insurance policy insuring the lien of this
Security Instrument (the "Permitted Exceptions"). In addition, Borrower
represents and warrants that (a) the Ground Lease is in full force and effect
and has not been modified or amended in any manner whatsoever, (b) there are no
defaults under the Ground Lease and no event has occurred, which but for the
passage of time, or notice, or both, would constitute a default under the Ground
Lease, (c) all rents, additional rents and other sums due and payable under the
Ground Lease
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have been paid in full, and (d) neither Borrower nor the landlord under the
Ground Lease has commenced any action or given or received any notice for the
purpose of terminating the Ground Lease. Borrower shall forever warrant, defend
and preserve the title and the validity and priority of the lien of this
Security Instrument and shall forever warrant and defend the same to Lender
and/or Trustee against the claims of all persons whomsoever.
Section 5.2 AUTHORITY. Borrower (and the undersigned
representative of Borrower, if any) has full power, authority and legal right to
execute this Security Instrument, and to mortgage, grant, bargain, sell, pledge,
assign, warrant, transfer and convey the Property pursuant to the terms hereof
and to keep and observe all of the terms of this Security Instrument on
Borrower's part to be performed.
Section 5.3 LEGAL STATUS AND AUTHORITY. Borrower (a) is duly
organized, validly existing and in good standing under the laws of its state of
organization or incorporation; (b) is duly qualified to transact business and is
in good standing in the State where the Property is located; and (c) has all
necessary approvals, governmental and otherwise, and full power and authority to
own the Property and carry on its business as now conducted and proposed to be
conducted. Borrower now has and shall continue to have the full right, power and
authority to operate and lease the Property, to encumber the Property as
provided herein and to perform all of the other obligations to be performed by
Borrower under the Note, this Security Instrument and the Other Security
Documents.
Section 5.4 VALIDITY OF DOCUMENTS. (a) The execution, delivery
and performance of the Note, this Security Instrument and the Other Security
Documents and the borrowing evidenced by the Note (i) are within the
corporate/partnership/company power of Borrower; (ii) have been authorized by
all requisite corporate/partnership/company action; (iii) have received all
necessary approvals and consents, corporate, governmental or otherwise; (iv)
will not violate, conflict with, result in a breach of or constitute (with
notice or lapse of time, or both) a default under any provision of law, any
order or judgment of any court or governmental authority, the articles of
incorporation, by-laws, partnership or trust agreement, articles of
organization, operating agreement, or other governing instrument of Borrower, or
any indenture, agreement or other instrument to which Borrower is a party or by
which it or any of its assets or the Property is or may be bound or affected;
(v) will not result in the creation or imposition of any lien, charge or
encumbrance whatsoever upon any of its assets, except the lien and security
interest created hereby; and (vi) will not require any authorization or license
from, or any filing with, any governmental or other body (except for the
recordation of this instrument in appropriate land records in the State where
the Property is located and except for Uniform Commercial Code filings relating
to the security interest created hereby); and (b) the Note, this Security
Instrument and the Other Security Documents constitute the legal, valid and
binding obligations of Borrower.
Section 5.5 LITIGATION. There is no action, suit or
proceeding, judicial, administrative or otherwise (including any condemnation or
similar proceeding), pending or, to the best of Borrower's knowledge, threatened
or contemplated against, or affecting, Borrower, a Guarantor, if any, an
Indemnitor, if any, or the Property.
Section 5.6 STATUS OF PROPERTY.
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(a) No portion of the Improvements is located in an area
identified by the Secretary of Housing and Urban Development or any
successor thereto as an area having special flood hazards pursuant to
the National Flood Insurance Act of 1968 or the Flood Disaster
Protection Act of 1973, as amended, or any successor law, or, if
located within any such area, Borrower has obtained and will maintain
the insurance prescribed in Section hereof.
(b) Borrower has obtained all necessary certificates, licenses
and other approvals, governmental and otherwise, necessary for the
operation of the Property and the conduct of its business and all
required zoning, building code, land use, environmental and other
similar permits or approvals, all of which are in full force and effect
as of the date hereof and not subject to revocation, suspension,
forfeiture or modification.
(c) The Property and the present and contemplated use and
occupancy thereof are in full compliance with all applicable zoning
ordinances, building codes, land use and environmental laws and other
similar laws.
(d) The Property is served by all utilities required for the
current or contemplated use thereof. All utility service is provided by
public utilities and the Property has accepted or is equipped to accept
such utility service.
(e) All public roads and streets necessary for service of and
access to the Property for the current or contemplated use thereof have
been completed, are serviceable and all-weather and are physically and
legally open for use by the public.
(f) The Property is served by public water and sewer systems.
(g) The Property is free from damage caused by fire or other
casualty.
(h) All costs and expenses of any and all labor, materials,
supplies and equipment used in the construction of the Improvements
have been paid in full.
(i) Borrower has paid in full for, and is the owner of, all
furnishings, fixtures and equipment (other than tenants' property) used
in connection with the operation of the Property, free and clear of any
and all security interests, liens or encumbrances, except the lien and
security interest created hereby.
(j) All liquid and solid waste disposal, septic and sewer
systems located on the Property are in a good and safe condition and
repair and in compliance with all Applicable Laws.
Section 5.7 NO FOREIGN PERSON. Borrower is not a "foreign
person" within the meaning of Sections 1445(f)(3) of the Internal Revenue Code
of 1986, as amended and the related Treasury Department regulations, including
temporary regulations.
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Section 5.8 SEPARATE TAX LOT. The Property is assessed for
real estate tax purposes as one or more wholly independent tax lot or lots,
separate from any adjoining land or improvements not constituting a part of such
lot or lots, and no other land or improvements is assessed and taxed together
with the Property or any portion thereof.
Section 5.9 ERISA COMPLIANCE.
(a) As of the date hereof and throughout the term of this
Security Instrument, (i) Borrower is not and will not be an "employee
benefit plan" as defined in Section 3(3) of ERISA, which is subject to
Title I of ERISA, and (ii) the assets of Borrower do not and will not
constitute "plan assets" of one or more such plans for purposes of
Title I of ERISA; and
(b) As of the date hereof and throughout the term of this
Security Instrument (i) Borrower is not and will not be a "governmental
plan" within the meaning of Section 3(3) of ERISA and (ii) transactions
by or with Borrower are not and will not be subject to state statutes
applicable to Borrower regulating investments of and fiduciary
obligations with respect to governmental plans.
Section 5.10 LEASES. (a) Borrower is the sole owner of the
entire lessor's interest in the Leases; (b) the Leases are valid and
enforceable; (c) the terms of all alterations, modifications and amendments to
the Leases are reflected in the certified occupancy statement delivered to and
approved by Lender; (d) none of the Rents reserved in the Leases have been
assigned or otherwise pledged or hypothecated; (e) none of the Rents have been
collected for more than one (1) month in advance; (f) the premises demised under
the Leases have been completed and the tenants under the Leases have accepted
the same and have taken possession of the same on a rent-paying basis; and (g)
there exist no offsets or defenses to the payment of any portion of the Rents.
Section 5.11 FINANCIAL CONDITION. (a) Borrower is solvent, and
no bankruptcy, reorganization, insolvency or similar proceeding under any state
or federal law with respect to Borrower has been initiated, and (b) it has
received reasonably equivalent value for the granting of this Security
Instrument.
Section 5.12 BUSINESS PURPOSES. The loan evidenced by the Note
secured by the Security Instrument and the Other Security Documents (the "Loan")
is solely for the business purpose of Borrower, and is not for personal, family,
household, or agricultural purposes.
Section 5.13 TAXES. Borrower, any Guarantor and any Indemnitor
have filed all federal, state, county, municipal, and city income and other tax
returns required to have been filed by them and have paid all taxes and related
liabilities which have become due pursuant to such returns or pursuant to any
assessments received by them. Neither Borrower, any Guarantor nor any Indemnitor
knows of any basis for any additional assessment in respect of any such taxes
and related liabilities for prior years.
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Section 5.14 MAILING ADDRESS. Borrower's mailing address, as
set forth in the opening paragraph hereof or as changed in accordance with the
provisions hereof, is true and correct.
Section 5.15 NO CHANGE IN FACTS OR CIRCUMSTANCES. All
information in the application for the Loan submitted to Lender (the "Loan
Application") and in all financing statements, rent rolls, reports, certificates
and other documents submitted in connection with the Loan Application or in
satisfaction of the terms thereof, are accurate, complete and correct in all
respects. There has been no adverse change in any condition, fact, circumstance
or event that would make any such information inaccurate, incomplete or
otherwise misleading.
Section 5.16 DISCLOSURE. Borrower has disclosed to Lender all
material facts and has not failed to disclose any material fact that could cause
any representation or warranty made herein to be materially misleading.
Section 5.17 THIRD PARTY REPRESENTATIONS. Each of the
representations and the warranties made by each Guarantor and Indemnitor herein
or in any Other Security Document(s) is true and correct in all material
respects.
Article 6 - OBLIGATIONS AND RELIANCES
Section 6.1 RELATIONSHIP OF BORROWER AND LENDER. The
relationship between Borrower and Lender is solely that of debtor and creditor,
and Lender has no fiduciary or other special relationship with Borrower, and no
term or condition of any of the Note, this Security Instrument and the Other
Security Documents shall be construed so as to deem the relationship between
Borrower and Lender to be other than that of debtor and creditor.
Section 6.2 NO RELIANCE ON LENDER. The members, general
partners, principals and (if Borrower is a trust) beneficial owners of Borrower
are experienced in the ownership and operation of properties similar to the
Property, and Borrower and Lender are relying solely upon such expertise and
business plan in connection with the ownership and operation of the Property.
Borrower is not relying on Lender's expertise, business acumen or advice in
connection with the Property.
Section 6.3 NO LENDER OBLIGATIONS. (a) Notwithstanding the
provisions of Subsections (f) and (l) or Section , Lender is not undertaking the
performance of (i) any obligations under the Leases; or (ii) any obligations
with respect to such agreements, contracts, certificates, instruments,
franchises, permits, trademarks, licenses and other documents.
(b) By accepting or approving anything required to be
observed, performed or fulfilled or to be given to Lender pursuant to this
Security Instrument, the Note or the Other Security Documents, including without
limitation, any officer's certificate, balance sheet, statement of profit and
loss or other financial statement, survey, appraisal, or insurance policy,
Lender shall not be deemed to have warranted, consented to, or affirmed the
sufficiency, the legality or effectiveness of same, and such acceptance or
approval thereof shall not constitute any warranty or affirmation with respect
thereto by Lender.
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Section 6.4 RELIANCE. Borrower recognizes and acknowledges
that in accepting the Note, this Security Instrument and the Other Security
Documents, Lender is expressly and primarily relying on the truth and accuracy
of the warranties and representations set forth in Article without any
obligation to investigate the Property and notwithstanding any investigation of
the Property by Lender; that such reliance existed on the part of Lender prior
to the date hereof; that the warranties and representations are a material
inducement to Lender in accepting the Note, this Security Instrument and the
Other Security Documents; and that Lender would not be willing to make the Loan
and accept this Security Instrument in the absence of the warranties and
representations as set forth in Article 5.
Article 7 - FURTHER ASSURANCES
Section 7.1 RECORDING OF SECURITY INSTRUMENT, ETC. Borrower
forthwith upon the execution and delivery of this Security Instrument and
thereafter, from time to time, will cause this Security Instrument and any of
the Other Security Documents creating a lien or security interest or evidencing
the lien hereof upon the Property and each instrument of further assurance to be
filed, registered or recorded in such manner and in such places as may be
required by any present or future law in order to publish notice of and fully to
protect and perfect the lien or security interest hereof upon, and the interest
of Lender in, the Property. Borrower will pay all taxes, filing, registration or
recording fees, and all expenses incident to the preparation, execution,
acknowledgment and/or recording of the Note, this Security Instrument, the Other
Security Documents, any note, deed of trust or mortgage supplemental hereto, any
security instrument with respect to the Property and any instrument of further
assurance, and any modification or amendment of the foregoing documents, and all
federal, state, county and municipal taxes, duties, imposts, assessments and
charges arising out of or in connection with the execution and delivery of this
Security Instrument, any deed of trust or mortgage supplemental hereto, any
security instrument with respect to the Property or any instrument of further
assurance, and any modification or amendment of the foregoing documents, except
where prohibited by law so to do.
Section 7.2 FURTHER ACTS, ETC. Borrower will, at the cost of
Borrower, and without expense to Lender, do, execute, acknowledge and deliver
all and every such further acts, deeds, conveyances, deeds of trust, mortgages,
assignments, notices of assignments, transfers and assurances as Lender shall,
from time to time, require, for the better assuring, conveying, assigning,
transferring, and confirming unto Lender and Trustee the property and rights
hereby mortgaged, deeded, granted, bargained, sold, conveyed, confirmed,
pledged, assigned, warranted and transferred or intended now or hereafter so to
be, or which Borrower may be or may hereafter become bound to convey or assign
to Lender, or for carrying out the intention or facilitating the performance of
the terms of this Security Instrument or for filing, registering or recording
this Security Instrument, or for complying with all Applicable Laws. Borrower,
on demand, will execute and deliver and hereby authorizes Lender to execute in
the name of Borrower or without the signature of Borrower to the extent Lender
may lawfully do so, one or more financing statements, chattel mortgages or other
instruments, to evidence more effectively the security interest of Lender in the
Property. Borrower grants to Lender an irrevocable power of attorney coupled
with an interest for the purpose of exercising and perfecting any and all
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rights and remedies available to Lender at law and in equity, including without
limitation such rights and remedies available to Lender pursuant to this Section
.
Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP
LAWS.
(a) If any law is enacted or adopted or amended after the date
of this Security Instrument which deducts the Debt from the value of
the Property for the purpose of taxation or which imposes a tax, either
directly or indirectly, on the Debt or Lender's interest in the
Property, Borrower will pay the tax, with interest and penalties
thereon, if any. If Lender is advised by counsel chosen by it that the
payment of tax by Borrower would be unlawful or taxable to Lender or
unenforceable or provide the basis for a defense of usury, then Lender
shall have the option by written notice of not less than ninety (90)
days to declare the Debt immediately due and payable.
(b) Borrower will not claim or demand or be entitled to any
credit or credits on account of the Debt for any part of the Taxes or
Other Charges assessed against the Property, or any part thereof, and
no deduction shall otherwise be made or claimed from the assessed value
of the Property, or any part thereof, for real estate tax purposes by
reason of this Security Instrument or the Debt. If such claim, credit
or deduction shall be required by law, Lender shall have the option, by
written notice of not less than ninety (90) days, to declare the Debt
immediately due and payable.
(c) If at any time the United States of America, any State
thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Note, this Security Instrument, or
any of the Other Security Documents or impose any other tax or charge
on the same, Borrower will pay for the same, with interest and
penalties thereon, if any.
Section 7.4 ESTOPPEL CERTIFICATES.
(a) After request by Lender, Borrower, within ten (10) days,
shall furnish Lender or any proposed assignee with a statement, duly
acknowledged and certified, setting forth (i) the amount of the
original principal amount of the Note, (ii) the unpaid principal amount
of the Note, (iii) the rate of interest of the Note, (iv) the terms of
payment and maturity date of the Note, (v) the date installments of
interest and/or principal were last paid, (v) that, except as provided
in such statement, there are no defaults or events which with the
passage of time or the giving of notice or both, would constitute an
event of default under the Note or the Security Instrument, (vi) that
the Note and this Security Instrument are valid, legal and binding
obligations and have not been modified or if modified, giving
particulars of such modification, (vii) whether any offsets or defenses
exist against the obligations secured hereby and, if any are alleged to
exist, a detailed description thereof, (viii) that all Leases are in
full force and effect and (provided the Property is not a residential
multifamily property) have not been modified (or if modified, setting
forth all modifications), (ix) the date to which the Rents thereunder
have been paid pursuant to the Leases, (x) whether or not, to the best
knowledge of Borrower, any of the lessees under the Leases are in
default under the
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Leases, and, if any of the lessees are in default, setting forth the
specific nature of all such defaults, (xi) the amount of security
deposits held by Borrower under each Lease and that such amounts are
consistent with the amounts required under each Lease, and (xii) as to
any other matters reasonably requested by Lender and reasonably related
to the Leases, the obligations secured hereby, the Property or this
Security Instrument.
(b) Borrower shall deliver to Lender, promptly upon request,
duly executed estoppel certificates from any one or more lessees as
required by Lender attesting to such facts regarding the Lease as
Lender may require, including but not limited to attestations that each
Lease covered thereby is in full force and effect with no defaults
thereunder on the part of any party, that none of the Rents have been
paid more than one month in advance, and that the lessee claims no
defense or offset against the full and timely performance of its
obligations under the Lease.
(c) Upon any transfer or proposed transfer contemplated by
Section hereof, at Lender's request, Borrower, any Guarantors and any
Indemnitor(s) shall provide an estoppel certificate to the Investor
(defined in Section ) or any prospective Investor in such form,
substance and detail as Lender, such Investor or prospective Investor
may require.
Section 7.5 FLOOD INSURANCE. After Lender's request, Borrower
shall deliver evidence satisfactory to Lender that no portion of the
Improvements is situated in a federally designated "special flood hazard area."
Section 7.6 SPLITTING OF SECURITY INSTRUMENT. This Security
Instrument and the Note shall, at any time until the same shall be fully paid
and satisfied, at the sole election of Lender, be split or divided into two or
more notes and two or more security instruments, each of which shall cover all
or a portion of the Property to be more particularly described therein. To that
end, Borrower, upon written request of Lender, shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered by the then owner
of the Property, to Lender and/or its designee or designees substitute notes and
security instruments in such principal amounts, aggregating not more than the
then unpaid principal amount of this Security Instrument, and containing terms,
provisions and clauses similar to those contained herein and in the Note, and
such other documents and instruments as may be required by Lender.
Section 7.7 REPLACEMENT DOCUMENTS. Upon receipt of an
affidavit of an officer of Lender as to the loss, theft, destruction or
mutilation of the Note or any Other Security Document which is not of public
record, and, in the case of any such mutilation, upon surrender and cancellation
of such Note or Other Security Document, Borrower will issue, in lieu thereof, a
replacement Note or Other Security Document, dated the date of such lost,
stolen, destroyed or mutilated Note or Other Security Document in the same
principal amount thereof and otherwise of like tenor.
Article 8 - DUE ON SALE/ENCUMBRANCE
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Section 8.1 LENDER RELIANCE. Borrower acknowledges that Lender
has examined and relied on the experience of Borrower and its members, general
partners, principals and (if Borrower is a trust) beneficial owners in owning
and operating properties such as the Property in agreeing to make the loan
secured hereby, and will continue to rely on Borrower's ownership of the
Property as a means of maintaining the value of the Property as security for
repayment of the Debt and the performance of the Other Obligations. Borrower
acknowledges that Lender has a valid interest in maintaining the value of the
Property so as to ensure that, should Borrower default in the repayment of the
Debt or the performance of the Other Obligations, Lender can recover the Debt by
a sale of the Property.
Section 8.2 NO SALE/ENCUMBRANCE. Borrower agrees that Borrower
shall not, without the prior written consent of Lender, sell, convey, mortgage,
grant, bargain, encumber, pledge, assign, or otherwise transfer the Property or
any part thereof or permit the Property or any part thereof to be sold,
conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or
otherwise transferred.
Section 8.3 SALE/ENCUMBRANCE DEFINED. A sale, conveyance,
mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within
the meaning of this Article 8 shall be deemed to include, but not limited to,
(a) an installment sales agreement wherein Borrower agrees to sell the Property
or any part thereof for a price to be paid in installments; (b) an agreement by
Borrower leasing all or a substantial part of the Property for other than actual
occupancy by a space tenant thereunder or a sale, assignment or other transfer
of, or the grant of a security interest in, Borrower's right, title and interest
in and to any Leases or any Rents; (c) if Borrower, any Guarantor, any
Indemnitor, or any general partner or member of Borrower, any Guarantor or any
Indemnitor is a corporation, the voluntary or involuntary sale, conveyance,
transfer or pledge of such corporation's stock (or the stock of any corporation
directly or indirectly controlling such corporation by operation of law or
otherwise) or the creation or issuance of new stock by which an aggregate of
more than 10% of such corporation's stock shall be vested in a party or parties
who are not now stockholders; (d) if Borrower, any Guarantor or any Indemnitor
or any general partner or member of Borrower, any Guarantor or any Indemnitor is
a limited or general partnership or joint venture, the change, removal or
resignation of a general partner or managing partner or the transfer or pledge
of the partnership interest of any general partner or managing partner or any
profits or proceeds relating to such partnership interest; and (e) if Borrower,
any Guarantor, any Indemnitor or any general or member of Borrower, any
Guarantor or any Indemnitor is a limited liability company, the change, removal
or resignation of a managing member or the transfer of the membership interest
of any managing member or any profits or proceeds relating to such membership
interest. Notwithstanding the foregoing, the following transfer shall not be
deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge,
assignment, or transfer within the meaning of this Article 8: transfer by devise
or descent or by operation of law upon the death of a member, partner or
stockholder of Borrower, any Guarantor or any Indemnitor or any general partner
or member thereof.
Section 8.4 LENDER'S RIGHTS. Lender reserves the right to
condition the consent required hereunder upon a modification of the terms hereof
and on assumption of the Note, this Security Instrument and the Other Security
Documents as so modified by the proposed transferee, payment of a transfer fee
of not less than one percent (1%) of the principal balance
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of the Note and all of Lender's expenses incurred in connection with such
transfer, the approval by a Rating Agency of the proposed transferee, the
proposed transferee's continued compliance with the covenants set forth in
Section hereof, or such other conditions as Lender shall determine in its sole
discretion to be in the interest of Lender. Lender shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Debt immediately due and payable upon
Borrower's sale, conveyance, mortgage, grant, bargain, encumbrance, pledge,
assignment, or transfer of the Property without Lender's consent. This provision
shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance,
pledge, assignment, or transfer of the Property regardless of whether voluntary
or not, or whether or not Lender has consented to any previous sale, conveyance,
mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the
Property.
Article 9 - PREPAYMENT
Section 9.1 PREPAYMENT BEFORE EVENT OF DEFAULT. The Debt may
be prepaid only in strict accordance with the express terms and conditions of
the Note including the payment of any prepayment consideration.
Section 9.2 PREPAYMENT ON CASUALTY AND CONDEMNATION. Provided
no Event of Default exists under the Note, this Security Instrument or the Other
Security Documents, in the event of any prepayment of the Debt pursuant to the
terms of Sections or hereof, no Prepayment Consideration (defined in the Note)
shall be due in connection therewith, but Borrower shall be responsible for the
Interest Shortfall Payment (defined in the Note), if any, and all other amounts
due under the Note, this Security Instrument and the Other Security Documents.
Section 9.3 PREPAYMENT AFTER EVENT OF DEFAULT. If a Default
Prepayment (defined below) occurs, Borrower shall pay to Lender the entire Debt,
including without limitation, the following amounts:
(a) if the Default Prepayment occurs prior to the time when
prepayment of the principal balance of the Note is permitted, an amount
equal to the sum of (i) the present value of the interest payments
which would have accrued on the principal balance of the Note
(outstanding as of the date of such Default Prepayment) at the
Applicable Interest Rate (as defined in the Note) from the date of such
Default Prepayment to the first day prepayment is permitted pursuant to
the Note discounted at a rate equal to the Treasury Rate (as defined in
the Note) except that such Treasury Rate shall be based on the U.S.
Treasury constant maturity most nearly approximating the date upon
which prepayment is first permitted pursuant to the Note, and (ii) the
Prepayment Consideration (defined in the Note) which would have been
payable to Lender as of the first day of the [third (3rd)] Loan Year
(as defined in the Note) based on the Treasury Rate in effect at the
time of such Default Prepayment; and
(b) if the Default Prepayment occurs at a time when prepayment
of the principal balance of the Note is permitted, the Prepayment
Consideration and the Interest Shortfall Payment (defined in the Note),
if applicable.
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For purposes of this Section 9.3, the term "Default Prepayment" shall mean a
prepayment of the principal amount of the Note made after the occurrence of any
Event of Default or an acceleration of the Maturity Date (as defined in the
Note) under any circumstances, including, without limitation, a prepayment
occurring in connection with reinstatement of this Security Instrument provided
by statute under foreclosure proceedings or exercise of a power of sale, any
statutory right of redemption exercised by Borrower or any other party having a
statutory right to redeem or prevent foreclosure, any sale in foreclosure or
under exercise of a power of sale or otherwise.
Article 10 - DEFAULT
Section 10.1 EVENTS OF DEFAULT. The occurrence of any one or
more of the following events shall constitute an "Event of Default":
(a) if any portion of the Debt is not paid prior to the tenth
(10th) day after the same is due or if the entire Debt is not paid on
or before the Maturity Date;
(b) if any of the Taxes or Other Charges is not paid when the
same is due and payable except to the extent sums sufficient to pay
such Taxes and Other Charges have been deposited with Lender in
accordance with the terms of this Security Instrument;
(c) if the Policies are not kept in full force and effect, or
if the Policies are not delivered to Lender upon request;
(d) if the Property is subject to actual waste or hazardous
nuisance;
(e) if Borrower violates or does not comply with any of the
provisions of Sections and and Articles 8, and ;
(f) if any representation or warranty of Borrower, any
Indemnitor or any person guaranteeing payment of the Debt or any
portion thereof or performance by Borrower of any of the terms of this
Security Instrument (a "Guarantor"), or any member, general partner,
principal or beneficial owner of any of the foregoing, made herein or
in the Environmental Indemnity (defined below) or any guaranty, or in
any certificate, report, financial statement or other instrument or
document furnished to Lender shall have been false or misleading in any
material respect when made;
(g) if (i) Borrower or any managing member or general partner
of Borrower, or any Guarantor or Indemnitor shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors, seeking to have
an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of its
assets, or the Borrower or any managing
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member or general partner of Borrower, or any Guarantor or Indemnitor
shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against Borrower or any managing member
or general partner of Borrower, or any Guarantor or Indemnitor any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) there shall be
commenced against the Borrower or any managing member or general
partner of Borrower, or any Guarantor or Indemnitor any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its assets which results in the entry of any order for any such
relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof; or
(iv) the Borrower or any managing member or general partner of
Borrower, or any Guarantor or Indemnitor shall take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) the Borrower or any managing member or general
partner of Borrower, or any Guarantor or Indemnitor shall generally
not, or shall be unable to, or shall admit in writing its inability to,
pay its debts as they become due;
(h) if Borrower shall be in default under any other mortgage,
deed of trust, deed to secure debt or other security agreement covering
any part of the Property whether it be superior or junior in lien to
this Security Instrument;
(i) if the Property becomes subject to any mechanic's,
materialman's or other lien other than a lien for local real estate
taxes and assessments not then due and payable and the lien shall
remain undischarged of record (by payment, bonding or otherwise) for a
period of thirty (30) days;
(j) if any federal tax lien is filed against Borrower, any
member or general partner of Borrower, any Guarantor, any Indemnitor or
the Property and same is not discharged of record within thirty (30)
days after same is filed;
(k) if Borrower fails to cure promptly any violations of
Applicable Laws;
(l) if any condemnation proceeding is instituted which would,
in Lender's reasonable judgment, materially impair the use and
enjoyment of the Property for its intended purposes;
(m) if (i) Borrower fails to timely provide Lender with the
written certification and evidence referred to in Section hereof, or
(ii) Borrower consummates a transaction which would cause the Security
Instrument or Lender's exercise of its rights under this Security
Instrument, the Note or the Other Security Documents to constitute a
nonexempt prohibited transaction under ERISA or result in a violation
of a state statute regulating governmental plans, subjecting Lender to
liability for a violation of ERISA or a state statute;
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(n) if Borrower shall fail to reimburse Lender on demand, with
interest calculated at the Default Rate, for all Insurance Premiums or
Taxes, together with interest and penalties imposed thereon, paid by
Lender pursuant to this Security Instrument;
(o) if Borrower shall fail to deliver to Lender, after request
by Lender, the estoppel certificates required pursuant to the terms of
Subsections (a) and (c);
(p) if Borrower shall fail to deliver to Lender, after request
by Lender, the statements referred to in Section in accordance with the
terms thereof;
(q) if any default occurs under that certain environmental
indemnity agreement dated the date hereof given by Borrower and Joe
Hrudka ("Indemnitor(s)") to Lender (the "Environmental Indemnity") and
such default continues after the expiration of applicable notice and
grace periods, if any;
(r) if any default occurs under any guaranty or indemnity
executed in connection herewith and such default continues after the
expiration of applicable grace periods, if any; or
(s) if for more than ten (10) days after notice from Lender,
Borrower shall continue to be in default under any other term, covenant
or condition of the Note, this Security Instrument or the Other
Security Documents in the case of any default which can be cured by the
payment of a sum of money or for thirty (30) days after notice from
Lender in the case of any other default, provided that if such default
cannot reasonably be cured within such thirty (30) day period and
Borrower shall have commenced to cure such default within such thirty
(30) day period and thereafter diligently and expeditiously proceeds to
cure the same, such thirty (30) day period shall be extended for so
long as it shall require Borrower in the exercise of due diligence to
cure such default, it being agreed that no such extension shall be for
a period in excess of sixty (60) days.
(t) if Borrower shall fail in the payment of any rent,
additional rent or other charge mentioned in or made payable by the
Ground Lease when said rent or other charge is due and payable; or
(u) if there shall occur any default by Borrower, as lessee
under the Ground Lease, in the observance or performance of any term,
covenant or condition of the Ground Lease on the part of Borrower; to
be observed or performed, and said default is not cured within ten (10)
days prior to the expiration of any applicable grace period therein
provided, or if any one or more of the events referred to in the Ground
Lease shall occur which would cause the Ground Lease to terminate
without notice or action by the landlord under the Ground Lease or
which would entitle the landlord under the Ground Lease to terminate
the Ground Lease and the term thereof by giving notice to Borrower, as
tenant thereunder, or if the leasehold estate created by the Ground
Lease shall be surrendered or the Ground Lease shall be terminated or
cancelled for any reason or under any circumstances whatsoever, or if
any of the terms, covenants or conditions of the Ground Lease shall in
any manner be modified, changed, supplemented, altered,
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or amended without the consent of Lender, or if Borrower shall fail to
exercise any option to renew the Ground Lease contained therein or
shall fail or neglect to pursue diligently all actions necessary to
exercise such renewal rights pursuant to the terms of the Ground Lease.
Section 10.2 LATE PAYMENT CHARGE. If any monthly installment
of principal and interest is not paid prior to the tenth (10th) day after the
date on which it is due, Borrower shall pay to Lender upon demand an amount
equal to the lesser of five percent (5%) of such unpaid portion of the
outstanding monthly installment of principal and interest then due or the
maximum amount permitted by applicable law, to defray the expense incurred by
Lender in handling and processing such delinquent payment and to compensate
Lender for the loss of the use of such delinquent payment, and such amount shall
be secured by this Security Instrument and the Other Security Documents.
Section 10.3 DEFAULT INTEREST. Borrower will pay, from the
date of an Event of Default through the earlier of the date upon which the Event
of Default is cured or the date upon which the Debt is paid in full, interest on
the unpaid principal balance of the Note at a per annum rate equal to the lesser
of (a) five percent (5%) plus the Applicable Interest Rate (as defined in the
Note), and (b) the maximum interest rate which Borrower may by law pay or Lender
may charge and collect (the "Default Rate").
Article 11 - RIGHTS AND REMEDIES
Section 11.1 REMEDIES. Upon the occurrence of any Event of
Default, Borrower agrees that Lender may or acting by or through Trustee may,
take such action, without notice or demand, as it deems advisable to protect and
enforce its rights against Borrower and in and to the Property, including, but
not limited to, the following actions, each of which may be pursued concurrently
or otherwise, at such time and in such order as Lender may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Lender:
(a) declare the entire unpaid Debt to be immediately due and
payable;
(b) institute proceedings, judicial or otherwise, for the
complete foreclosure of this Security Instrument under any applicable
provision of law in which case the Property or any interest therein may
be sold for cash or upon credit in one or more parcels or in several
interests or portions and in any order or manner;
(c) with or without entry, to the extent permitted and
pursuant to the procedures provided by applicable law, institute
proceedings for the partial foreclosure of this Security Instrument for
the portion of the Debt then due and payable, subject to the continuing
lien and security interest of this Security Instrument for the balance
of the Debt not then due, unimpaired and without loss of priority;
(d) sell for cash or upon credit the Property or any part
thereof and all estate, claim, demand, right, title and interest of
Borrower therein and rights of redemption
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thereof, pursuant to power of sale or otherwise, at one or more sales,
as an entity or in parcels, at such time and place, upon such terms and
after such notice thereof as may be required or permitted by law;
(e) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained
herein, in the Note or in the Other Security Documents;
(f) recover judgment on the Note either before, during or
after any proceedings for the enforcement of this Security Instrument
or the Other Security Documents;
(g) apply for the appointment of a receiver, trustee,
liquidator or conservator of the Property, without notice and without
regard for the adequacy of the security for the Debt and without regard
for the solvency of Borrower, any Guarantor, Indemnitor or of any
person, firm or other entity liable for the payment of the Debt;
(h) subject to any applicable law, the license granted to
Borrower under Section shall automatically be revoked and Lender may
enter into or upon the Property, either personally or by its agents,
nominees or attorneys and dispossess Borrower and its agents and
servants therefrom, without liability for trespass, damages or
otherwise and exclude Borrower and its agents or servants wholly
therefrom, and take possession of all books, records and accounts
relating thereto and Borrower agrees to surrender possession of the
Property and of such books, records and accounts to Lender upon demand,
and thereupon Lender may (i) use, operate, manage, control, insure,
maintain, repair, restore and otherwise deal with all and every part of
the Property and conduct the business thereat; (ii) complete any
construction on the Property in such manner and form as Lender deems
advisable; (iii) make alterations, additions, renewals, replacements
and improvements to or on the Property; (iv) exercise all rights and
powers of Borrower with respect to the Property, whether in the name of
Borrower or otherwise, including, without limitation, the right to
make, cancel, enforce or modify Leases, obtain and evict tenants, and
demand, sue for, collect and receive all Rents of the Property and
every part thereof; (v) require Borrower to pay monthly in advance to
Lender, or any receiver appointed to collect the Rents, the fair and
reasonable rental value for the use and occupation of such part of the
Property as may be occupied by Borrower; (vi) require Borrower to
vacate and surrender possession of the Property to Lender or to such
receiver and, in default thereof, Borrower may be evicted by summary
proceedings or otherwise; and (vii) apply the receipts from the
Property to the payment of the Debt, in such order, priority and
proportions as Lender shall deem appropriate in its sole discretion
after deducting therefrom all expenses (including reasonable attorneys'
fees) incurred in connection with the aforesaid operations and all
amounts necessary to pay the Taxes, Other Charges, insurance and other
expenses in connection with the Property, as well as just and
reasonable compensation for the services of Lender, its counsel, agents
and employees;
(i) exercise any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code,
including, without limiting the generality
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of the foregoing: (i) the right to take possession of the Personal
Property or any part thereof, and to take such other measures as Lender
or Trustee may deem necessary for the care, protection and preservation
of the Personal Property, and (ii) request Borrower at its expense to
assemble the Personal Property and make it available to Lender at a
convenient place acceptable to Lender. Any notice of sale, disposition
or other intended action by Lender or Trustee with respect to the
Personal Property sent to Borrower in accordance with the provisions
hereof at least five (5) days prior to such action, shall constitute
commercially reasonable notice to Borrower;
(j) apply any sums then deposited in the Escrow Fund and any
other sums held in escrow or otherwise by Lender in accordance with the
terms of this Security Instrument or any Other Security Document to the
payment of the following items in any order in its uncontrolled
discretion:
(i) Taxes and Other Charges;
(ii) Insurance Premiums;
(iii) Interest on the unpaid principal balance of the
Note;
(iv) Amortization of the unpaid principal balance of
the Note;
(v) All other sums payable pursuant to the Note, this
Security Instrument and the Other Security Documents,
including without limitation advances made by Lender pursuant
to the terms of this Security Instrument;
(k) surrender the Policies maintained pursuant to Article
hereof, collect the unearned Insurance Premiums and apply such sums as
a credit on the Debt in such priority and proportion as Lender in its
discretion shall deem proper, and in connection therewith, Borrower
hereby appoints Lender as agent and attorney-in-fact (which is coupled
with an interest and is therefore irrevocable) for Borrower to collect
such Insurance Premiums;
(l) pursue such other remedies as Lender may have under
applicable law; or
(m) apply the undisbursed balance of any Net Proceeds
Deficiency deposit, together with interest thereon, to the payment of
the Debt in such order, priority and proportions as Lender shall deem
to be appropriate in its discretion.
In the event of a sale, by foreclosure, power of sale, or otherwise, of less
than all of the Property, this Security Instrument shall continue as a lien and
security interest on the remaining portion of the Property unimpaired and
without loss of priority. Notwithstanding the provisions of this Section to the
contrary, if any Event of Default as described in clause (i) or (ii) of
Subsection (g) shall occur, the entire unpaid Debt shall be automatically due
and payable, without any further notice, demand or other action by Lender.
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Section 11.2 APPLICATION OF PROCEEDS. The purchase money,
proceeds and avails of any disposition of the Property, or any part thereof, or
any other sums collected by Lender pursuant to the Note, this Security
Instrument or the Other Security Documents, may be applied by Lender to the
payment of the Debt in such priority and proportions as Lender in its discretion
shall deem proper.
Section 11.3 RIGHT TO CURE DEFAULTS. Upon the occurrence of
any Event of Default or if Borrower fails to make any payment or to do any act
as herein provided, Lender may, but without any obligation to do so and without
notice to or demand on Borrower and without releasing Borrower from any
obligation hereunder, make or do the same in such manner and to such extent as
Lender may deem necessary to protect the security hereof. Lender or Trustee is
authorized to enter upon the Property for such purposes, or appear in, defend,
or bring any action or proceeding to protect its interest in the Property or to
foreclose this Security Instrument or collect the Debt, and the cost and expense
thereof (including reasonable attorneys' fees to the extent permitted by law),
with interest as provided in this Section , shall constitute a portion of the
Debt and shall be due and payable to Lender upon demand. All such costs and
expenses incurred by Lender or Trustee in remedying such Event of Default or
such failed payment or act or in appearing in, defending, or bringing any such
action or proceeding shall bear interest at the Default Rate, for the period
after notice from Lender that such cost or expense was incurred to the date of
payment to Lender. All such costs and expenses incurred by Lender together with
interest thereon calculated at the Default Rate shall be deemed to constitute a
portion of the Debt and be secured by this Security Instrument and the Other
Security Documents and shall be immediately due and payable upon demand by
Lender therefor.
Section 11.4 ACTIONS AND PROCEEDINGS. Lender or Trustee has
the right to appear in and defend any action or proceeding brought with respect
to the Property and to bring any action or proceeding, in the name and on behalf
of Borrower, which Lender, in its discretion, decides should be brought to
protect its interest in the Property.
Section 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID. Lender
shall have the right from time to time to take action to recover any sum or sums
which constitute a part of the Debt as the same become due, without regard to
whether or not the balance of the Debt shall be due, and without prejudice to
the right of Lender or Trustee thereafter to bring an action of foreclosure, or
any other action, for a default or defaults by Borrower existing at the time
such earlier action was commenced.
Section 11.6 EXAMINATION OF BOOKS AND RECORDS. Lender, its
agents, accountants and attorneys shall have the right to examine the records,
books, management and other papers of Borrower and its affiliates or of any
Guarantor or Indemnitor which reflect upon their financial condition, at the
Property or at any office regularly maintained by Borrower, its affiliates or
any Guarantor or Indemnitor where the books and records are located. Lender and
its agents shall have the right to make copies and extracts from the foregoing
records and other papers. In addition, Lender, its agents, accountants and
attorneys shall have the right to examine and audit the books and records of
Borrower and its affiliates or of any Guarantor or Indemnitor pertaining to the
income, expenses and operation of the Property during reasonable business hours
at any office of Borrower, its affiliates or any Guarantor or Indemnitor where
the books and records are located.
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Section 11.7 OTHER RIGHTS, ETC. (a) The failure of Lender or
Trustee to insist upon strict performance of any term hereof shall not be deemed
to be a waiver of any term of this Security Instrument. Borrower shall not be
relieved of Borrower's obligations hereunder by reason of (i) the failure of
Lender or Trustee to comply with any request of Borrower, any Guarantor or any
Indemnitor to take any action to foreclose this Security Instrument or otherwise
enforce any of the provisions hereof or of the Note or the Other Security
Documents, (ii) the release, regardless of consideration, of the whole or any
part of the Property, or of any person liable for the Debt or any portion
thereof, or (iii) any agreement or stipulation by Lender extending the time of
payment or otherwise modifying or supplementing the terms of the Note, this
Security Instrument or the Other Security Documents.
(b) It is agreed that the risk of loss or damage to the
Property is on Borrower, and Lender shall have no liability whatsoever for
decline in value of the Property, for failure to maintain the Policies, or for
failure to determine whether insurance in force is adequate as to the amount of
risks insured. Possession by Lender shall not be deemed an election of judicial
relief, if any such possession is requested or obtained, with respect to any
Property or collateral not in Lender's possession.
(c) Lender may resort for the payment of the Debt to any other
security held by Lender in such order and manner as Lender, in its discretion,
may elect. Lender or Trustee may take action to recover the Debt, or any portion
thereof, or to enforce any covenant hereof without prejudice to the right of
Lender or Trustee thereafter to foreclose this Security Instrument. The rights
of Lender or Trustee under this Security Instrument shall be separate, distinct
and cumulative and none shall be given effect to the exclusion of the others. No
act of Lender shall be construed as an election to proceed under any one
provision herein to the exclusion of any other provision. Neither Lender nor
Trustee shall be limited exclusively to the rights and remedies herein stated
but shall be entitled to every right and remedy now or hereafter afforded at law
or in equity.
Section 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY.
Lender may release any portion of the Property for such consideration as Lender
may require without, as to the remainder of the Property, in any way impairing
or affecting the lien or priority of this Security Instrument, or improving the
position of any subordinate lienholder with respect thereto, except to the
extent that the obligations hereunder shall have been reduced by the actual
monetary consideration, if any, received by Lender for such release, and may
accept by assignment, pledge or otherwise any other property in place thereof as
Lender may require without being accountable for so doing to any other
lienholder. This Security Instrument shall continue as a lien and security
interest in the remaining portion of the Property.
Section 11.9 VIOLATION OF LAWS. If the Property is not in
compliance with Applicable Laws, Lender may impose additional requirements upon
Borrower in connection herewith including, without limitation, monetary reserves
or financial equivalents.
Section 11.10 RECOURSE AND CHOICE OF REMEDIES. Notwithstanding
any other provision of this Security Instrument, including but not limited to
Article 15 hereof, Lender and other Indemnified Parties (defined in Section
below) are entitled to enforce the obligations of Borrower, Guarantor and
Indemnitor contained in Sections , and without first
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resorting to or exhausting any security or collateral and without first having
recourse to the Note or any of the Property, through foreclosure, sale pursuant
to a power of sale, or acceptance of a deed in lieu of foreclosure or otherwise,
and in the event Lender commences a foreclosure action against the Property, or
otherwise causes Trustee to exercise the power of sale pursuant hereto, Lender
is entitled to pursue a deficiency judgment with respect to such obligations
against Borrower, any Guarantor and/or Indemnitor. The provisions of Sections ,
and
are exceptions to any non-recourse or exculpation provisions in the Note, this
Security Instrument or the Other Security Documents, and Borrower, Guarantor and
Indemnitor are fully and personally liable for the obligations pursuant to
Subsections , and . The liability of Borrower, Guarantor and Indemnitor is not
limited to the original principal amount of the Note. Notwithstanding the
foregoing, nothing herein shall inhibit or prevent Lender or Trustee from
foreclosing or exercising a power of sale pursuant to this Security Instrument
or exercising any other rights and remedies pursuant to the Note, this Security
Instrument and the Other Security Documents, whether simultaneously with
foreclosure proceedings or in any other sequence. A separate action or actions
may be brought and prosecuted against Borrower, whether or not action is brought
against any other person or entity or whether or not any other person or entity
is joined in the action or actions. In addition, Lender and Trustee shall have
the right but not the obligation to join and participate in, as a party if it so
elects, any administrative or judicial proceedings or actions initiated in
connection with any matter addressed in Article or Section .
Section 11.11 RIGHT OF ENTRY. Lender and its agents shall have
the right to enter and inspect the Property at all reasonable times.
Article 12 - ENVIRONMENTAL HAZARDS
Section 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants, based upon an environmental assessment of the
Property and information that Borrower knows or should reasonably have known,
that: (a) there are no Hazardous Substances (defined below) or underground
storage tanks in, on, or under the Property, except those that are both (i) in
compliance with Environmental Laws (defined below) and with permits issued
pursuant thereto and (ii) fully disclosed to Lender in writing pursuant to the
written reports resulting from the environmental assessments of the Property
delivered to Lender (the "Environmental Report"); (b) there are no past, present
or threatened Releases (defined below) of Hazardous Substances in, on, under or
from the Property except as described in the Environmental Report; (c) there is
no threat of any Release of Hazardous Substances migrating to the Property
except as described in the Environmental Report; (d) there is no past or present
non-compliance with Environmental Laws, or with permits issued pursuant thereto,
in connection with the Property except as described in the Environmental Report;
(e) Borrower does not know of, and has not received, any written or oral notice
or other communication from any person or entity (including but not limited to a
governmental entity) relating to Hazardous Substances or Remediation (defined
below) thereof, of possible liability of any person or entity pursuant to any
Environmental Law, other environmental conditions in connection with the
Property, or any actual or potential administrative or judicial proceedings in
connection with any of the foregoing; and (f) Borrower has truthfully and fully
provided to Lender, in writing, any and all information relating to conditions
in, on, under or from the Property that is known to
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Borrower and that is contained in Borrower's files and records, including but
not limited to any reports relating to Hazardous Substances in, on, under or
from the Property and/or to the environmental condition of the Property.
"Environmental Law" means any present and future federal, state and local laws,
statutes, ordinances, rules, regulations and the like, as well as common law,
relating to protection of human health or the environment, relating to Hazardous
Substances, relating to liability for or costs of Remediation or prevention of
Releases of Hazardous Substances or relating to liability for or costs of other
actual or threatened danger to human health or the environment. "Environmental
Law" includes, but is not limited to, the following statutes, as amended, any
successor thereto, and any regulations promulgated pursuant thereto, and any
state or local statutes, ordinances, rules, regulations and the like addressing
similar issues: the Comprehensive Environmental Response, Compensation and
Liability Act; the Emergency Planning and Community Right-to-Know Act; the
Hazardous Substances Transportation Act; the Resource Conservation and Recovery
Act (including but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational
Safety and Health Act; the Federal Water Pollution Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the
National Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Law" also includes, but is not limited to, any present and future
federal, state and local laws, statutes, ordinances, rules, regulations and the
like, as well as common law: conditioning transfer of property upon a negative
declaration or other approval of a governmental authority of the environmental
condition of the property; requiring notification or disclosure of Releases of
Hazardous Substances or other environmental condition of the Property to any
governmental authority or other person or entity, whether or not in connection
with transfer of title to or interest in property; imposing conditions or
requirements in connection with permits or other authorization for lawful
activity; relating to nuisance, trespass or other causes of action related to
the Property; and relating to wrongful death, personal injury, or property or
other damage in connection with any physical condition or use of the Property.
"Hazardous Substances" include but are not limited to any and all substances
(whether solid, liquid or gas) defined, listed, or otherwise classified as
pollutants, hazardous wastes, hazardous substances, hazardous materials,
extremely hazardous wastes, or words of similar meaning or regulatory effect
under any present or future Environmental Laws or that may have a negative
impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives. "Release" of any Hazardous Substance includes but is not limited to
any release, deposit, discharge, emission, leaking, spilling, seeping,
migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing
or other movement of Hazardous Substances. "Remediation" includes but is not
limited to any response, remedial, removal, or corrective action, any activity
to cleanup, detoxify, decontaminate, contain or otherwise remediate any
Hazardous Substance, any actions to prevent, cure or mitigate any Release of any
Hazardous Substance, any action to comply with any Environmental Laws or with
any permits issued pursuant thereto, any inspection, investigation, study,
monitoring, assessment, audit, sampling and testing, laboratory or other
analysis, or evaluation relating to any Hazardous Substances or to anything
referred to in Article .
Section 12.2 ENVIRONMENTAL COVENANTS. Borrower covenants and
agrees that: (a) all uses and operations on or of the Property, whether by
Borrower or any other person
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or entity, shall be in compliance with all Environmental Laws and permits issued
pursuant thereto; (b) there shall be no Releases of Hazardous Substances in, on,
under or from the Property; (c) there shall be no Hazardous Substances in, on,
or under the Property, except those that are both (i) in compliance with all
Environmental Laws and with permits issued pursuant thereto and (ii) fully
disclosed to Lender in writing; (d) Borrower shall keep the Property free and
clear of all liens and other encumbrances imposed pursuant to any Environmental
Law, whether due to any act or omission of Borrower or any other person or
entity (the "Environmental Liens"); (e) Borrower shall, at its sole cost and
expense, fully and expeditiously cooperate in all activities pursuant to Section
below, including but not limited to providing all relevant information and
making knowledgeable persons available for interviews; (f) Borrower shall, at
its sole cost and expense, perform any environmental site assessment or other
investigation of environmental conditions in connection with the Property,
pursuant to any reasonable written request of Lender (including but not limited
to sampling, testing and analysis of soil, water, air, building materials and
other materials and substances whether solid, liquid or gas), and share with
Lender the reports and other results thereof, and Lender and other Indemnified
Parties shall be entitled to rely on such reports and other results thereof; (g)
Borrower shall, at its sole cost and expense, comply with all reasonable written
requests of Lender to (i) reasonably effectuate Remediation of any condition
(including but not limited to a Release of a Hazardous Substance) in, on, under
or from the Property; (ii) comply with any Environmental Law; (iii) comply with
any directive from any governmental authority; and (iv) take any other
reasonable action necessary or appropriate for protection of human health or the
environment; (h) Borrower shall not do or allow any tenant or other user of the
Property to do any act that materially increases the dangers to human health or
the environment, poses an unreasonable risk of harm to any person or entity
(whether on or off the Property), impairs or may impair the value of the
Property, is contrary to any requirement of any insurer, constitutes a public or
private nuisance, constitutes waste, or violates any covenant, condition,
agreement or easement applicable to the Property; and (i) Borrower shall
immediately notify Lender in writing of (A) any presence or Releases or
threatened Releases of Hazardous Substances in, on, under, from or migrating
towards the Property; (B) any non-compliance with any Environmental Laws related
in any way to the Property; (C) any actual or potential Environmental Lien; (D)
any required or proposed Remediation of environmental conditions relating to the
Property; and (E) any written or oral notice or other communication which
Borrower becomes aware from any source whatsoever (including but not limited to
a governmental entity) relating in any way to Hazardous Substances or
Remediation thereof, possible liability of any person or entity pursuant to any
Environmental Law, other environmental conditions in connection with the
Property, or any actual or potential administrative or judicial proceedings in
connection with anything referred to in this Article . Any failure of Borrower
to perform its obligations pursuant to this Section
shall constitute bad faith waste with respect to the Property.
Section 12.3 LENDER'S RIGHTS. Lender and any other person or
entity designated by Lender, including but not limited to any receiver, any
representative of a governmental entity, and any environmental consultant, shall
have the right, but not the obligation, to enter upon the Property at all
reasonable times to assess any and all aspects of the environmental condition of
the Property and its use, including but not limited to conducting any
environmental assessment or audit (the scope of which shall be determined in
Lender's sole and absolute discretion) and taking samples of soil, groundwater
or other water, air, or building
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materials, and conducting other invasive testing. Borrower shall cooperate with
and provide access to Lender and any such person or entity designated by Lender.
Article 13 - INDEMNIFICATION
Section 13.1 GENERAL INDEMNIFICATION. Borrower shall, at its
sole cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all claims, suits, liabilities
(including, without limitation, strict liabilities), actions, proceedings,
obligations, debts, damages, losses, costs, expenses, diminutions in value,
fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in
settlement, punitive damages, foreseeable and unforeseeable consequential
damages, of whatever kind or nature (including but not limited to attorneys'
fees and other costs of defense) (the "Losses") imposed upon or incurred by or
asserted against any Indemnified Parties and directly or indirectly arising out
of or in any way relating to any one or more of the following: (a) ownership of
this Security Instrument, the Property or any interest therein or receipt of any
Rents; (b) any amendment to, or restructuring of, the Debt, and the Note, this
Security Instrument, or any Other Security Documents; (c) any and all lawful
action that may be taken by Lender in connection with the enforcement of the
provisions of this Security Instrument or the Note or any of the Other Security
Documents, whether or not suit is filed in connection with same, or in
connection with Borrower, any Guarantor or Indemnitor and/or any member,
partner, joint venturer or shareholder thereof becoming a party to a voluntary
or involuntary federal or state bankruptcy, insolvency or similar proceeding;
(d) any accident, injury to or death of persons or loss of or damage to property
occurring in, on or about the Property or any part thereof or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;
(e) any use, nonuse or condition in, on or about the Property or any part
thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (f) any failure on the part of Borrower to
perform or be in compliance with any of the terms of this Security Instrument;
(g) performance of any labor or services or the furnishing of any materials or
other property in respect of the Property or any part thereof; (h) the failure
of any person to file timely with the Internal Revenue Service an accurate Form
1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter
Exchange Transactions, which may be required in connection with the Security
Instrument, or to supply a copy thereof in a timely fashion to the recipient of
the proceeds of the transaction in connection with which this Security
Instrument is made; (i) any failure of the Property to be in compliance with any
Applicable Laws; (j) the enforcement by any Indemnified Party of the provisions
of this Article ; (k) any and all claims and demands whatsoever which may be
asserted against Lender by reason of any alleged obligations or undertakings on
its part to perform or discharge any of the terms, covenants, or agreements
contained in any Lease; (l) the payment of any commission, charge or brokerage
fee to anyone which may be payable in connection with the funding of the Loan
evidenced by the Note and secured by this Security Instrument; or (m) any
misrepresentation made by Borrower in this Security Instrument or any Other
Security Document. Any amounts payable to Lender by reason of the application of
this Section shall become immediately due and payable and shall bear interest at
the Default Rate from the date loss or damage is sustained by Lender until paid.
For purposes of this Article , the term "Indemnified Parties" means Lender and
any person or entity who is or will have been involved in the origination of the
Loan, any person or entity who is or will have been involved in the servicing of
the Loan, any person or entity
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in whose name the encumbrance created by this Security Instrument is or will
have been recorded, persons and entities who may hold or acquire or will have
held a full or partial interest in the Loan (including, but not limited to,
Investors or prospective Investors in the Securities, as well as custodians,
trustees and other fiduciaries who hold or have held a full or partial interest
in the Loan for the benefit of third parties) as well as the respective
directors, officers, shareholders, partners, members, employees, agents,
servants, representatives, contractors, subcontractors, affiliates,
subsidiaries, participants, successors and assigns of any and all of the
foregoing (including but not limited to any other person or entity who holds or
acquires or will have held a participation or other full or partial interest in
the Loan or the Property, whether during the term of the Loan or as a part of or
following a foreclosure of the Loan and including, but not limited to, any
successors by merger, consolidation or acquisition of all or a substantial
portion of Lender's assets and business).
Section 13.2 MORTGAGE AND/OR INTANGIBLE TAX. Borrower shall,
at its sole cost and expense, protect, defend, indemnify, release and hold
harmless the Indemnified Parties from and against any and all Losses imposed
upon or incurred by or asserted against any Indemnified Parties and directly or
indirectly arising out of or in any way relating to any tax on the making and/or
recording of this Security Instrument, the Note or any of the Other Security
Documents.
Section 13.3 ERISA INDEMNIFICATION. Borrower shall, at its
sole cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses (including, without
limitation, attorneys' fees and costs incurred in the investigation, defense,
and settlement of Losses incurred in correcting any prohibited transaction or in
the sale of a prohibited loan, and in obtaining any individual prohibited
transaction exemption under ERISA that may be required, in Lender's sole
discretion) that Lender may incur, directly or indirectly, as a result of a
default under Sections or or Subsection (p).
Section 13.4 ENVIRONMENTAL INDEMNIFICATION. Borrower shall, at
its sole cost and expense, protect, defend, indemnify, release and hold harmless
the Indemnified Parties from and against any and all Losses and costs of
Remediation (whether or not performed voluntarily), engineers' fees,
environmental consultants' fees, and costs of investigation (including but not
limited to sampling, testing, and analysis of soil, water, air, building
materials and other materials and substances whether solid, liquid or gas)
imposed upon or incurred by or asserted against any Indemnified Parties, and
directly or indirectly arising out of or in any way relating to any one or more
of the following: (a) any presence of any Hazardous Substances in, on, above, or
under the Property; (b) any past, present or threatened Release of Hazardous
Substances in, on, above, under or from the Property; (c) any activity by
Borrower, any person or entity affiliated with Borrower or any tenant or other
user of the Property in connection with any actual, proposed or threatened use,
treatment, storage, holding, existence, disposition or other Release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or from
the Property of any Hazardous Substances at any time located in, under, on or
above the Property; (d) any activity by Borrower, any person or entity
affiliated with Borrower or any tenant or other user of the Property in
connection with any actual or proposed Remediation of any Hazardous Substances
at any time located in, under, on or above the Property, whether or not such
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Remediation is voluntary or pursuant to court or administrative order, including
but not limited to any removal, remedial or corrective action; (e) any past,
present or threatened non-compliance or violations of any Environmental Laws (or
permits issued pursuant to any Environmental Law) in connection with the
Property or operations thereon, including but not limited to any failure by
Borrower, any person or entity affiliated with Borrower or any tenant or other
user of the Property to comply with any order of any governmental authority in
connection with any Environmental Laws; (f) the imposition, recording or filing
or the threatened imposition, recording or filing of any Environmental Lien
encumbering the Property; (g) any administrative processes or proceedings or
judicial proceedings in any way connected with any matter addressed in Article
and this Section ; (h) any past, present or threatened injury to, destruction of
or loss of natural resources in any way connected with the Property, including
but not limited to costs to investigate and assess such injury, destruction or
loss; (i) any acts of Borrower or other users of the Property in arranging for
disposal or treatment, or arranging with a transporter for transport for
disposal or treatment, of Hazardous Substances owned or possessed by such
Borrower or other users, at any facility or incineration vessel owned or
operated by another person or entity and containing such or similar Hazardous
Materials; (j) any acts of Borrower or other users of the Property, in accepting
any Hazardous Substances for transport to disposal or treatment facilities,
incineration vessels or sites selected by Borrower or such other users, from
which there is a Release, or a threatened Release of any Hazardous Substance
which causes the incurrence of costs for Remediation; (k) any personal injury,
wrongful death, or property damage arising under any statutory or common law or
tort law theory, including but not limited to damages assessed for the
maintenance of a private or public nuisance or for the conducting of an
abnormally dangerous activity on or near the Property; and (l) any
misrepresentation or inaccuracy in any representation or warranty or material
breach or failure to perform any covenants or other obligations pursuant to
Article .
Section 13.5 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES
AND EXPENSES. Upon written request by any Indemnified Party, Borrower shall
defend such Indemnified Party (if requested by any Indemnified Party, in the
name of the Indemnified Party) by attorneys and other professionals approved by
the Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties
may, in their sole and absolute discretion, engage their own attorneys and other
professionals to defend or assist them, and, at the option of Indemnified
Parties, their attorneys shall control the resolution of claim or proceeding.
Upon demand, Borrower shall pay or, in the sole and absolute discretion of the
Indemnified Parties, reimburse, the Indemnified Parties for the payment of
reasonable fees and disbursements of attorneys, engineers, environmental
consultants, laboratories and other professionals in connection therewith.
Article 14 - WAIVERS
Section 14.1 WAIVER OF COUNTERCLAIM. Borrower hereby waives
the right to assert a counterclaim, other than a mandatory or compulsory
counterclaim, in any action or proceeding brought against it by Lender arising
out of or in any way connected with this Security Instrument, the Note, any of
the Other Security Documents, or the Obligations.
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Section 14.2 MARSHALLING AND OTHER MATTERS. Borrower hereby
waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement and redemption laws now or hereafter
in force and all rights of marshalling in the event of any sale hereunder of the
Property or any part thereof or any interest therein. Further, Borrower hereby
expressly waives any and all rights of redemption from sale under any order or
decree of foreclosure of this Security Instrument on behalf of Borrower, and on
behalf of each and every person acquiring any interest in or title to the
Property subsequent to the date of this Security Instrument and on behalf of all
persons to the extent permitted by applicable law.
Section 14.3 WAIVER OF NOTICE. Borrower shall not be entitled
to any notices of any nature whatsoever from Lender or Trustee except with
respect to matters for which this Security Instrument specifically and expressly
provides for the giving of notice by Lender or Trustee to Borrower and except
with respect to matters for which Lender or Trustee is required by applicable
law to give notice, and Borrower hereby expressly waives the right to receive
any notice from Lender or Trustee with respect to any matter for which this
Security Instrument does not specifically and expressly provide for the giving
of notice by Lender or Trustee to Borrower.
Section 14.4 WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby
expressly waives and releases to the fullest extent permitted by law, the
pleading of any statute of limitations as a defense to payment of the Debt or
performance of its Other Obligations.
Section 14.5 SOLE DISCRETION OF LENDER. Wherever pursuant to
this Security Instrument (a) Lender exercises any right given to it to approve
or disapprove, (b) any arrangement or term is to be satisfactory to Lender, or
(c) any other decision or determination is to be made by Lender, the decision of
Lender to approve or disapprove, all decisions that arrangements or terms are
satisfactory or not satisfactory and all other decisions and determinations made
by Lender, shall be in the sole and absolute discretion of Lender and shall be
final and conclusive, except as may be otherwise expressly and specifically
provided herein.
Section 14.6 SURVIVAL. The indemnifications made pursuant to
Subsections and and the representations and warranties, covenants, and other
obligations arising under Article , shall continue indefinitely in full force
and effect and shall survive and shall in no way be impaired by: any
satisfaction or other termination of this Security Instrument, any assignment or
other transfer of all or any portion of this Security Instrument or Lender's
interest in the Property (but, in such case, shall benefit both Indemnified
Parties and any assignee or transferee), any exercise of Lender's rights and
remedies pursuant hereto including but not limited to foreclosure or acceptance
of a deed in lieu of foreclosure, any exercise of any rights and remedies
pursuant to the Note or any of the Other Security Documents, any transfer of all
or any portion of the Property (whether by Borrower or by Lender following
foreclosure or acceptance of a deed in lieu of foreclosure or at any other
time), any amendment to this Security Instrument, the Note or the Other Security
Documents, and any act or omission that might otherwise be construed as a
release or discharge of Borrower from the obligations pursuant hereto.
SECTION 14.7 WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN
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CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN
EVIDENCED BY THE NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THE NOTE, THE
NOTE, THIS SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR
OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION
THEREWITH.
Article 15 - EXCULPATION
Section 15.1 EXCULPATION. Except as otherwise provided, Lender
shall not enforce the liability and obligation of Borrower to perform and
observe the obligations contained in the Note or this Security Instrument by any
action or proceeding wherein a money judgment shall be sought against Borrower,
except that Lender may bring a foreclosure action, action for specific
performance or other appropriate action or proceeding to enable Lender to
enforce and realize upon this Security Instrument, the Other Security Documents,
and the interest in the Property, the Rents and any other collateral given to
Lender created by this Security Instrument and the Other Security Documents;
provided, however, that any judgment in any action or proceeding shall be
enforceable against Borrower only to the extent of Borrower's interest in the
Property, in the Rents and in any other collateral given to Lender. Lender, by
accepting the Note and this Security Instrument, agrees that it shall not,
except as otherwise provided in Section , sue for, seek or demand any deficiency
judgment against Borrower in any action or proceeding, under or by reason of or
under or in connection with the Note, the Other Security Documents or this
Security Instrument.
Section 15.2 RESERVATION OF CERTAIN RIGHTS. The provisions of
Section 15.1 shall not (a) constitute a waiver, release or impairment of any
obligation evidenced or secured by the Note, the Other Security Documents or
this Security Instrument; (b) impair the right of Lender to name Borrower as a
party defendant in any action or suit for judicial foreclosure and sale under
this Security Instrument; (c) affect the validity or enforceability of any
indemnity, guaranty, master lease or similar instrument made in connection with
the Note, this Security Instrument, or the Other Security Documents; (d) impair
the right of Lender to obtain the appointment of a receiver; (e) impair the
enforcement of the Assignment of Leases and Rents executed in connection
herewith; or (f) impair the right of Lender to enforce the provisions of
Sections , , and of this Security Instrument.
Section 15.3 EXCEPTIONS TO EXCULPATION. Notwithstanding the
provisions of this Article to the contrary, Borrower and Joseph Hrudka shall be
personally liable to Lender for the Losses it incurs due to: (i) fraud or
intentional misrepresentation by Borrower or any other person or entity in
connection with the execution and the delivery of the Note, this Security
Instrument or the Other Security Documents; (ii) Borrower's misapplication or
misappropriation of Rents received by Borrower after the occurrence of an Event
of Default; (iii) Borrower's misappropriation of tenant security deposits or
Rents collected in advance; (iv) the misapplication or the misappropriation of
insurance proceeds or condemnation awards; (v) Borrower's failure to pay Taxes,
Insurance Premiums, Other Charges (except to the extent that sums sufficient to
pay such amounts have been deposited in escrow with Lender pursuant to the terms
of this Security Instrument), charges for labor or materials or other charges
that can create liens on the Property; (vi) Borrower's failure to maintain,
repair or restore the Property in
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accordance with the Security Instrument and the Other Security Documents; (vii)
Borrower's failure to return or to reimburse Lender for all Personal Property
taken from the Property by or on behalf of Borrower and not replaced with
Personal Property of the same utility and of the same or greater value; (viii)
any act of actual waste or arson by Borrower, any principal, affiliate, member
or general partner thereof or by any Indemnitor or Guarantor; (ix) any fees or
commissions paid by Borrower to any principal, affiliate, member or general
partner of Borrower, Indemnitor or Guarantor in violation of the terms of the
Note, this Security Instrument or the Other Security Documents; or (x)
Borrower's failure to comply with the provisions of Sections , , and of this
Security Instrument.
Section 15.4 RECOURSE. Notwithstanding the foregoing, the
agreement of Lender not to pursue recourse liability as set forth in Section
15.1 above SHALL BECOME NULL AND VOID and shall be of no further force and
effect in the event of Borrower's default under Sections , , or , 8.2, 8.3 or ,
or if the Property or any part thereof shall become an asset in (i) a voluntary
bankruptcy or insolvency proceeding, or (ii) an involuntary bankruptcy or
insolvency proceeding which is not dismissed within ninety (90) days of filing.
Section 15.5 BANKRUPTCY CLAIMS. Nothing herein shall be deemed
to be a waiver of any right which Lender may have under Sections 506(a), 506(b),
1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for
the full amount of the Debt secured by this Security Instrument or to require
that all collateral shall continue to secure all of the Debt owing to Lender in
accordance with the Note, this Security Instrument and the Other Security
Documents.
Article 16 - NOTICES
Section 16.1 NOTICES. All notices or other written
communications hereunder shall be deemed to have been properly given (i) upon
delivery, if delivered in person or by facsimile transmission with receipt
acknowledged by the recipient thereof and confirmed by telephone by sender, (ii)
one (1) Business Day (defined below) after having been deposited for overnight
delivery with any reputable overnight courier service, or (iii) three (3)
Business Days after having been deposited in any post office or mail depository
regularly maintained by the U.S. Postal Service and sent by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
If to Borrower: Camelback Plaza Development L.C.
2401 West 1st Street
Tempe, Arizona 85281
Attention: James W. Brown
Facsimile No. (602) 912-0480
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With a copy to: Ridenour, Swenson, Cleere & Evans, P.C.
302 North First Avenue, Suite 900
Phoenix, Arizona 85003
Attention: Gerard R. Cleere, Esq.
Facsimile No. (602) 254-8670
If to Lender: Boston Capital Mortgage Company Limited Partnership
One Boston Place, Suite 2100
Boston, Massachusetts 02108
Attention: Ms. Kathie Valyeau
Facsimile No. (617) 624-8999
With a copy to: Thacher Proffitt & Wood
2 World Trade Center, 40th Floor
New York, New York 10048
Attention: Donald F. Simone, Esq.
Facsimile No. (212) 912-7751
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional
or different addresses for subsequent notices or communications.
For purposes of this Subsection, "Business Day" shall mean a
day on which commercial banks are not authorized or required by law to close in
New York, New York.
Article 17 - SERVICE OF PROCESS
Section 17.1 CONSENT TO SERVICE.
(a) Borrower will maintain a place of business or an agent for
service of process in New York, New York and give prompt notice to
Lender of the address of such place of business and of the name and
address of any new agent appointed by it, as appropriate. Borrower
further agrees that the failure of its agent for service of process to
give it notice of any service of process will not impair or affect the
validity of such service or of any judgment based thereon. If, despite
the foregoing, there is for any reason no agent for service of process
of Borrower available to be served, and if it at that time has no place
of business in New York, New York, then Borrower irrevocably consents
to service of process by registered or certified mail, postage prepaid,
to it at its address given in or pursuant to the first paragraph
hereof.
(b) Borrower initially and irrevocably designates C.T.
Corporation, with offices on the date hereof at 1633 Broadway, New
York, New York 10019, to receive
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for and on behalf of Borrower service of process in New York, New York
with respect to this Security Instrument.
Section 17.2 SUBMISSION TO JURISDICTION. With respect to any
claim or action arising hereunder or under the Note or the Other Security
Documents, Borrower (a) irrevocably submits to the nonexclusive jurisdiction of
the courts of the State of New York and the United States District Court located
in the Borough of Manhattan in New York, New York, and appellate courts from any
thereof, and (b) irrevocably waives any objection which it may have at any time
to the laying on venue of any suit, action or proceeding arising out of or
relating to this Security Instrument brought in any such court, irrevocably
waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 17.3 JURISDICTION NOT EXCLUSIVE. Nothing in this
Security Instrument will be deemed to preclude Lender from bringing an action or
proceeding with respect hereto in any other jurisdiction.
Article 18 - APPLICABLE LAW
Section 18.1 CHOICE OF LAW. THIS SECURITY INSTRUMENT SHALL BE
DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW
YORK AND SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, PROVIDED HOWEVER, THAT WITH
RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OF
THIS SECURITY INSTRUMENT, AND THE DETERMINATION OF DEFICIENCY JUDGMENTS, THE
LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED SHALL APPLY.
Section 18.2 USURY LAWS. This Security Instrument and the Note
are subject to the express condition that at no time shall Borrower be obligated
or required to pay interest on the Debt at a rate which could subject the holder
of the Note to either civil or criminal liability as a result of being in excess
of the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of this Security Instrument or the
Note, Borrower is at any time required or obligated to pay interest on the Debt
at a rate in excess of such maximum rate, the rate of interest under the
Security Instrument and the Note shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate and all prior interest payments in excess of such maximum rate shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of the Note. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
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Section 18.3 PROVISIONS SUBJECT TO APPLICABLE LAW. All rights,
powers and remedies provided in this Security Instrument may be exercised only
to the extent that the exercise thereof does not violate any applicable
provisions of law and are intended to be limited to the extent necessary so that
they will not render this Security Instrument invalid, unenforceable or not
entitled to be recorded, registered or filed under the provisions of any
applicable law. If any term of this Security Instrument or any application
thereof shall be invalid or unenforceable, the remainder of this Security
Instrument and any other application of the term shall not be affected thereby.
Article 19 - SECONDARY MARKET
Section 19.1 TRANSFER OF LOAN. Lender may, at any time, sell,
transfer or assign the Note, this Security Instrument and the Other Security
Documents, and any or all servicing rights with respect thereto, or grant
participations therein or issue mortgage pass-through certificates or other
securities evidencing a beneficial interest in a rated or unrated public
offering or private placement (the "Securities"). Lender may forward to each
purchaser, transferee, assignee, servicer, participant, or investor in such
Securities (collectively, the "Investor") or any Rating Agency rating such
Securities and each prospective Investor, all documents and information which
Lender now has or may hereafter acquire relating to the Debt and to Borrower,
any Guarantor, any Indemnitor(s) and the Property, whether furnished by
Borrower, any Guarantor, any Indemnitor(s) or otherwise, as Lender determines
necessary or desirable. Borrower, any Guarantor and any Indemnitor agree to
cooperate with Lender in connection with any transfer made or any Securities
created pursuant to this Section, including, without limitation, the delivery of
an estoppel certificate required in accordance with Subsection 7.4(c) hereof and
such other documents as may be reasonably requested by Lender. Borrower shall
also furnish and Borrower, any Guarantor and any Indemnitor consent to Lender
furnishing to such Investors or such prospective Investors or such Rating Agency
any and all information concerning the Property, the Leases, the financial
condition of Borrower, any Guarantor and any Indemnitor as may be requested by
Lender, any Investor, any prospective Investor or any Rating Agency in
connection with any sale, transfer or participation interest.
Article 20 - COSTS
Section 20.1 PERFORMANCE AT BORROWER'S EXPENSE. Borrower
acknowledges and confirms that Lender shall impose certain administrative
processing and/or commitment fees in connection with (a) the extension, renewal,
modification, amendment and termination of the Loan, (b) the release or
substitution of collateral therefor, (c) obtaining certain consents, waivers and
approvals with respect to the Property, or (d) the review of any Lease or
proposed Lease or the preparation or review of any subordination,
non-disturbance agreement (the occurrence of any of the above shall be called an
"Event"). Borrower further acknowledges and confirms that it shall be
responsible for the payment of all costs of reappraisal of the Property or any
part thereof, whether required by law, regulation, Lender or any governmental or
quasi-governmental authority. Borrower hereby acknowledges and agrees to pay,
immediately, with or without demand, all such fees (as the same may be increased
or decreased from time to time), and any additional fees of a similar type or
nature which may be imposed by Lender from time to time,
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upon the occurrence of any Event or otherwise. Wherever it is provided for
herein that Borrower pay any costs and expenses, such costs and expenses shall
include, but not be limited to, all legal fees and disbursements of Lender,
whether with respect to retained firms, the reimbursement for the expenses of
in-house staff or otherwise.
Section 20.2 ATTORNEY'S FEES FOR ENFORCEMENT. (a) Borrower
shall pay all legal fees incurred by Lender in connection with (i) the
preparation of the Note, this Security Instrument and the Other Security
Documents and (ii) the items set forth in Section above, and (b) Borrower shall
pay to Lender on demand any and all expenses, including legal expenses and
attorneys' fees, incurred or paid by Lender in protecting its interest in the
Property or Personal Property or in collecting any amount payable hereunder or
in enforcing its rights hereunder with respect to the Property or Personal
Property, whether or not any legal proceeding is commenced hereunder or
thereunder and whether or not any default or Event of Default shall have
occurred and is continuing, together with interest thereon at the Default Rate
from the date paid or incurred by Lender until such expenses are paid by
Borrower.
Article 21 - DEFINITIONS
Section 21.1 GENERAL DEFINITIONS. Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Security Instrument may be used interchangeably in singular
or plural form and the word "Borrower" shall mean "each Borrower and any
subsequent owner or owners of the Property or any part thereof or any interest
therein, including, but not limited to the leasehold estate created by the
Ground Lease," the word "Lender" shall mean "Lender and any subsequent holder of
the Note," the word "Trustee" shall mean "Trustee and any substitute trustee of
the estates, properties, powers, trusts and rights conferred upon Trustee
pursuant to this Security Instrument," the word "Note" shall mean "the Note and
any other evidence of indebtedness secured by this Security Instrument," the
word "person" shall include an individual, corporation, partnership, limited
liability company, trust, unincorporated association, government, governmental
authority, and any other entity, the word "Property" shall include any portion
of the Property and any interest therein, and the phrases "attorneys' fees" and
"counsel fees" shall include any and all attorneys', paralegal and law clerk
fees and disbursements, including, but not limited to, fees and disbursements at
the pre-trial, trial and appellate levels incurred or paid by Lender in
protecting its interest in the Property, the Leases and the Rents and enforcing
its rights hereunder.
Article 22 - MISCELLANEOUS PROVISIONS
Section 22.1 NO ORAL CHANGE. This Security Instrument, and any
provisions hereof, may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
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Section 22.2 LIABILITY. If Borrower consists of more than one
person, the obligations and liabilities of each such person hereunder shall be
joint and several. This Security Instrument shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors and assigns
forever.
Section 22.3 INAPPLICABLE PROVISIONS. If any term, covenant or
condition of the Note or this Security Instrument is held to be invalid, illegal
or unenforceable in any respect, the Note and this Security Instrument shall be
construed without such provision.
Section 22.4 HEADINGS, ETC. The headings and captions of
various Sections of this Security Instrument are for convenience of reference
only and are not to be construed as defining or limiting, in any way, the scope
or intent of the provisions hereof.
Section 22.5 DUPLICATE ORIGINALS; COUNTERPARTS. This Security
Instrument may be executed in any number of duplicate originals and each
duplicate original shall be deemed to be an original. This Security Instrument
may be executed in several counterparts, each of which counterparts shall be
deemed an original instrument and all of which together shall constitute a
single Security Instrument. The failure of any party hereto to execute this
Security Instrument, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.
Section 22.6 NUMBER AND GENDER. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa.
Section 22.7 SUBROGATION. If any or all of the proceeds of the
Note have been used to extinguish, extend or renew any indebtedness heretofore
existing against the Property, then, to the extent of the funds so used, Lender
shall be subrogated to all of the rights, claims, liens, titles, and interests
existing against the Property heretofore held by, or in favor of, the holder of
such indebtedness and such former rights, claims, liens, titles, and interests,
if any, are not waived but rather are continued in full force and effect in
favor of Lender and are merged with the lien and security interest created
herein as cumulative security for the repayment of the Debt, the performance and
discharge of Borrower's obligations hereunder, under the Note and the Other
Security Documents and the performance and discharge of the Other Obligations.
Article 23 - SPECIAL ARIZONA PROVISIONS
Section 23.1 INCONSISTENCIES. In the event of any
inconsistencies between this Article 23 and the other Articles contained in this
Security Instrument, the terms and conditions of this Article 23 shall control
and be binding.
Section 23.2 MAILING ADDRESS. The principal place of business
and/or address of Borrower, Trustee and Lender set forth in the first paragraph
of this Deed of Trust shall be deemed to be the mailing address of the
respective party.
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Section 23.3 PROPERTY MORTGAGED. (a) The words "mortgage,
grant, bargain, sell, pledge, assign, warrant, transfer and convey" appearing in
Section 1.1, entitled "Property Mortgaged" are hereby deleted and the words
"grant, transfer, convey and assign" are substituted therefor.
(b) The words "in trust, with power of sale," are hereby
inserted immediately after the words "for the benefit of Lender" and immediately
before the words "and grant a security interest" appearing in Section 1.1,
entitled "Property Mortgaged".
Section 23.4 SECURITY AGREEMENT. The following is hereby added
immediately following the last sentence of Section 1.3, entitled "Security
Agreement":
Upon recording this Security Instrument in the real
property records, this Security Instrument shall be effective
as a financing statement filed as a fixture filing. In
addition, a carbon, photographic or other reproduction of this
Security Instrument and/or any financing statement relating
hereto shall be sufficient for filing and/or recording as a
financing statement. The filing of any other financing
statement relating to any personal property rights or
interests described herein shall not be construed to diminish
any right or priority hereunder.
Section 23.5 REMEDIES. The text of Section 11.1 entitled
"Remedies" is hereby deleted and the following is hereby substituted therefor:
Upon the occurrence of any Event of Default, Borrower
agrees that Lender acting by or through Trustee may, at its
option, and without further notice or demand, declare the Debt
immediately due and payable, and irrespective of whether
Lender acting through Trustee exercises such option, it may,
at its option and in its sole discretion, without any prior
notice or demand to or upon Borrower, do one or more of the
following:
(a) Subject to any applicable law, the
license granted to Borrower under Section 1.2 shall
automatically be revoked and Lender may enter upon,
take possession of, manage and operate the Property
or any part thereof; make repairs and alterations,
and do any acts which Lender deems proper to protect
the security hereof; and either with or without
taking possession, in its own name, sue for or
otherwise collect and receive the Rents, including
those past due and unpaid, and apply the same less
costs and expenses of operation and collection,
including reasonable attorneys' fees, upon the Debt,
and in such order as Lender may determine. Upon
request of Lender, Borrower shall assemble and make
available to Lender at the Property any of the
Property which has been removed therefrom. The
entering upon and taking possession of the Property,
the collection of any Rents and the application
thereof as aforesaid, shall not cure or waive any
default theretofore or thereafter occurring, or
affect any notice of default hereunder or invalidate
any act done pursuant to any such notice.
Notwithstanding Lender's continuance in possession or
receipt and application of Rents, Lender shall be
entitled
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to exercise every right provided for in this Security
Instrument or by law upon or after the occurrence of
an Event of Default, including the right to exercise
the power of sale hereinafter described. Any of the
actions referred to in this Subsection may be taken
by Lender at such time as Lender is so entitled,
without regard to the adequacy of any security for
the Debt;
(b) Lender shall, without limitation on the
rights provided for in A.R.S. ss.33-702(B) and
without regard to the adequacy of any security for
the Debt, be entitled to the appointment of a
receiver by any court having jurisdiction, without
notice, to take possession of and protect the
Property, and operate the same and collect the Rents
therefrom;
(c) Lender may bring an action in any court
of competent jurisdiction to foreclose this Security
Instrument as a mortgage or to enforce any of the
covenants hereof;
(d) Lender may elect to cause the Property
or any part thereof to be sold as follows:
(i) Lender may proceed as if all of
the Property were real property, in
accordance with Subsection (iv) below, or
Lender may elect to treat any of the
Property which consists of a right in action
or which is property that can be severed
from the Property without causing structural
damage thereto as if the same were personal
property, and dispose of the same in
accordance with Subsection (iii) below,
separate and apart from the sale of real
property, the remainder of the Property
being treated as real property;
(ii) Lender may cause any such sale
or other disposition to be conducted
immediately upon the expiration of any
notice period required by law, if any, or
Lender may delay any such sale or other
disposition for such period of time as
Lender deems to be in its best interest.
Should Lender desire that more than one such
sale or other disposition be conducted,
Lender may at its option cause the same to
be conducted simultaneously, or successively
on the same day, or at such different days
or times and in such order as Lender may
deem to be in its best interest;
(iii) Should Lender elect to cause
any of the Property to be disposed of as
personal property as permitted by Subsection
(i) above, it may dispose of any part
thereof in any manner now or hereafter
permitted by Article 9 of the Uniform
Commercial Code or in accordance with any
other remedy provided by law. Both Borrower
and Lender shall be eligible to purchase any
part or all of such property at any such
disposition. Any such disposition
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may be either public or private as Lender
may so elect, subject to the provisions of
the Uniform Commercial Code;
(iv) Should Lender elect to sell the
Property which is real property or which
Lender has elected to treat as real
property, upon such election Lender or
Trustee shall give such notice of default
and election to sell as may then be required
by law. Thereafter, upon the expiration of
such time and the giving of such notice of
sale as may then be required by law,
Trustee, at the time and place specified by
the notice of sale, shall sell such
Property, or any portion thereof specified
by Lender, at public auction to the highest
bidder for cash in lawful money of the
United States of America, subject, however,
to the provisions of subparagraph (f) of
this Section 23.5. Trustee may, and upon
request of Lender shall, from time to time,
postpone the sale by public announcement
thereof at the time and place noticed
therefor. If the Property consists of
several lots or parcels, Lender may
designate the order in which such lots or
parcels shall be offered for sale or sold.
Any person, including Borrower, Trustee or
Lender, may purchase at the sale. Upon any
sale, Trustee shall execute and deliver to
the purchaser or purchasers a deed or deeds
conveying the property so sold, but without
any covenant or warranty whatsoever, express
or implied, whereupon such purchaser or
purchasers shall be let into immediate
possession;
(v) In the event of a sale or other
disposition of any such property, or any
part thereof, and the execution of a deed or
other conveyance, pursuant thereto, the
recitals therein of facts, such as a
default, the giving of notice of default and
notice of sale, terms of sale, sale,
purchaser, payment of purchase money, and
any other fact affecting the regularity or
validity of such sale or disposition, shall
be conclusive proof of the truth of such
facts; and any such deed or conveyance shall
be conclusive against all persons as to such
facts recited therein; and
(vi) Lender and/or Trustee (with the
prior consent of Lender) shall apply the
proceeds of any sale or disposition
hereunder to payment of the following: (A)
the costs and expenses of exercising the
power of sale and of such sale or
disposition, including trustee's fees and
attorneys' fees, and including, without
limitation, the actual cost of publishing,
recording, mailing and posting notice, the
cost of any search and/or other evidence of
title procured in connection therewith and
revenue stamps on any deed or reconveyance;
(B) to the payment of the Debt; and (C) the
remainder, if any, to the person or persons
legally entitled thereto in the order of
their priority;
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(e) Subject to the provisions of Article 15
and to the extent permitted by law, Borrower shall be
and remain liable for any deficiency remaining after
sale either pursuant to the power of sale or judicial
proceedings. After default or breach, Borrower shall
pay Lender's and Trustee's reasonable attorneys'
fees, Trustee's fees and its costs and expenses
incurred as a result of said default or breach, and
if suit is brought, all costs of suit, all of which
sums shall be secured by this Security Instrument.
Borrower's statutory rights of reinstatement, if any,
are expressly conditioned upon Borrower's payment of
all sums required under the applicable statute and
performance of all required acts;
(f) Borrower hereby expressly waives any
right which it may have to direct the order in which
any of the Property shall be sold in the event of any
sale or sales pursuant hereto. Also, Lender shall
have the right to foreclose, sell or otherwise
proceed against the Property encumbered by this
Security Instrument and the Property encumbered by
any other Security Instrument securing the bonds, if
any, in such order as Lender shall elect. Any party
that has signed this Instrument as a surety or
accommodation party or that has subjected his or its
property to this Instrument to secure the debt of
another expressly waives the benefit of A.R.S.
ss.ss.12-1641 through and including 12-1644 and
44-142 and Ariz. R. Civ. P. 17 (f) or such similar
provisions as may be enacted or adopted hereafter;
(g) Subject to the provisions of Article 15,
upon any sale of the Property, whether made under a
power of sale herein granted or pursuant to judicial
proceedings, if the holder of the Note is a purchaser
at such sale, it shall be entitled to use and apply
all or any portion of the indebtedness then secured
hereby for or in settlement or payment of all or any
portion of the purchase price of the property
purchased;
(h) Lender may, with or without entry, to
the extent permitted and pursuant to the procedures
provided by applicable law, institute proceedings for
the partial foreclosure of this Security Instrument
for the portion of the Debt then due and payable,
subject to the continuing lien and security interest
of this Security Instrument for the balance of the
Debt not then due, unimpaired and without loss of
priority;
(i) Lender may institute an action, suit or
proceeding in equity for the specific performance of
any covenant, condition or agreement contained
herein, in the Note or in the Other Security
Documents;
(j) Lender may recover judgment on the Note
either before, during or after any proceedings for
the enforcement of this Security Instrument or the
Other Security Documents;
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(k) Lender may exercise any and all rights
and remedies granted to a secured party upon default
under the Uniform Commercial Code, including, without
limiting the generality of the foregoing: (i) the
right to take possession of the Personal Property or
any part thereof, and to take such other measures as
Lender or Trustee may deem necessary for the care,
protection and preservation of the Personal Property,
and (ii) request Borrower at its expense to assemble
the Personal Property and make it available to Lender
at a convenient place acceptable to Lender. Any
notice of sale, disposition or other intended action
by Lender or Trustee with respect to the Personal
Property sent to Borrower in accordance with the
provisions hereof at least five (5) days prior to
such action, shall constitute commercially reasonable
notice to Borrower;
(l) Lender may apply any sums then deposited
in the Escrow Fund and any other sums held in escrow
or otherwise by Lender in accordance with the terms
of this Security Instrument or any Other Security
Document to the payment of the following items in any
order in its uncontrolled discretion:
(i) Taxes and Other Charges;
(ii) Insurance Premiums;
(iii) Interest on the unpaid
principal balance of the
Note;
(iv) Amortization of the unpaid
principal balance of the
Note;
(v) All other sums payable
pursuant to the Note, this
Security Instrument and the
Other Security Documents,
including without
limitation advances made by
Lender pursuant to the
terms of this Security
Instrument;
(m) Lender may surrender the Policies
maintained pursuant to Article hereof, collect the
unearned Insurance Premiums and apply such sums as a
credit on the Debt in such priority and proportion as
Lender in its discretion shall deem proper, and in
connection therewith, Borrower hereby appoints Lender
as agent and attorney-in-fact (which is coupled with
an interest and is therefore irrevocable) for
Borrower to collect such Insurance Premiums;
(n) Lender may apply the undisbursed balance
of any Net Proceeds Deficiency deposit, together with
interest thereon, to the payment of the Debt in such
order, priority and proportions as Lender shall deem
to be appropriate in its discretion; and
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(o) Lender may exercise any and all other
rights and remedies available at law or in equity or
as otherwise provided in this Security Instrument or
the Other Security Documents as may legally be
available to Lender to protect its interest in the
Property and to collect the Debt.
In the event of a sale, by foreclosure, power of sale, or
otherwise, of less than all of the Property, this Security Instrument shall
continue as a lien and security interest on the remaining portion of the
Property unimpaired and without loss of priority. Notwithstanding the provisions
of this Section 23.5 to the contrary, if any Event of Default as described in
clause (i) of Subsection (g) shall occur, the entire unpaid Debt shall be
automatically due and payable, without any further notice, demand or other
action by Lender.
Section 23.6 NOTICES. The first word, "All", of the first
sentence of Section 16.1, entitled "Notices" is hereby deleted and the following
is hereby substituted therefor:
"Except as otherwise provided by applicable law, all"
Section 23.7 USURY. The following sentence is hereby inserted
immediately prior to the first sentence of Section 18.2, entitled "Usury Laws":
Borrower agrees to pay an effective rate of interest
that is equal to the rate provided for in the Note together
with all other payments of, or in the nature of, interest to
be made by Borrower to Lender under the Note and this Security
Instrument. Notwithstanding any provision herein or any
instrument now or hereafter securing the Note, the total
liability of Borrower for the payment of interest under the
Note and the Assignment of Rents and this Security Instrument
shall not exceed the applicable limit imposed by the usury
laws of the State of Arizona. If Lender receives interest in
an amount which exceeds such limit, such excess amount shall
be applied instead to the reduction of the unpaid principal
balance and not to the payment of interest and if a surplus
remains after full payment of principal and lawful interest,
the surplus shall be remitted to Borrower by Lender, and
Borrower hereby agrees to accept such remittance.
Section 23.8 TIME OF ESSENCE. Time is of the essence with
respect to each of Borrower's covenants under this Security Instrument.
Article 24 - DEED OF TRUST PROVISIONS
Section 24.1 CONCERNING THE TRUSTEE. Trustee shall be under no
duty to take any action hereunder except as expressly required hereunder or by
law, or to perform any act which would involve Trustee in any expense or
liability or to institute or defend any suit in respect hereof, unless properly
indemnified to Trustee's reasonable satisfaction. Trustee, by acceptance of this
Security Instrument, covenants to perform and fulfill the trusts herein created,
being liable, however, only for gross negligence or willful misconduct, and
hereby waives any statutory fee and agrees to accept reasonable compensation, in
lieu thereof, for any services rendered by Trustee in accordance with the terms
hereof. Trustee may resign at any time upon giving notice to Borrower and to
Lender. Lender may remove Trustee at any time or from time
- 60 -
<PAGE>
to time and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever Lender may, without notice and without
specifying any reason therefor and without applying to any court, select and
appoint a successor trustee, by an instrument recorded wherever this Security
Instrument is recorded and all powers, rights, duties and authority of Trustee,
as aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Lender. The procedure provided
for in this paragraph for substitution of Trustee shall be in addition to and
not in exclusion of any other provisions for substitution, by law or otherwise.
Section 24.2 TRUSTEE'S FEES. Borrower shall pay all reasonable
costs, fees and expenses incurred by Trustee and Trustee's agents and counsel in
connection with the performance by Trustee of Trustee's duties hereunder and all
such costs, fees and expenses shall be secured by this Security Instrument.
Section 24.3 CERTAIN RIGHTS. With the approval of Lender,
Trustee shall have the right to take any and all of the following actions: (i)
to select, employ, and advise with counsel (who may be, but need not be, counsel
for Lender) upon any matters arising hereunder, including the preparation,
execution, and interpretation of the Note, this Security Instrument or the Other
Security Documents, and shall be fully protected in relying as to legal matters
on the advice of counsel, (ii) to execute any of the trusts and powers hereof
and to perform any duty hereunder either directly or through his/her agents or
attorneys, (iii) to select and employ, in and about the execution of his/her
duties hereunder, suitable accountants, engineers and other experts, agents and
attorneys-in-fact, either corporate or individual, not regularly in the employ
of Trustee, and Trustee shall not be answerable for any act, default,
negligence, or misconduct of any such accountant, engineer or other expert,
agent or attorney-in-fact, if selected with reasonable area, or for any error of
judgment or act done by Trustee in good faith, or be otherwise responsible or
accountable under any circumstances whatsoever, except for Trustee's gross
negligence or bad faith, and (iv) any and all other lawful action as Lender may
instruct Trustee to take to protect or enforce Lender's rights hereunder.
Trustee shall not be personally liable in case of entry by Trustee, or anyone
entering by virtue of the powers herein granted to Trustee, upon the Property
for debts contracted for or liability or damages incurred in the management or
operation of the Property. Trustee shall have the right to rely on any
instrument, document, or signature authorizing or supporting an action taken or
proposed to be taken by Trustee hereunder, believed by Trustee in good faith to
be genuine. Trustee shall be entitled to reimbursement for actual expenses
incurred by Trustee in the performance of Trustee's duties hereunder and to
reasonable compensation for such of Trustee's services hereunder as shall be
rendered.
Section 24.4 RETENTION OF MONEY. All moneys received by
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated in any
manner from any other moneys (except to the extent required by applicable law)
and Trustee shall be under no liability for interest on any moneys received by
Trustee hereunder.
Section 24.5 PERFECTION OF APPOINTMENT. Should any deed,
conveyance, or instrument of any nature be required from Borrower by any Trustee
or substitute trustee to more
- 61 -
<PAGE>
fully and certainly vest in and confirm to the Trustee or substitute trustee
such estates rights, powers, and duties, then, upon request by the Trustee or
substitute trustee, any and all such deeds, conveyances and instruments shall be
made, executed, acknowledged, and delivered and shall be caused to be recorded
and/or filed by Borrower.
Section 24.6 SUCCESSION INSTRUMENTS. Any substitute trustee
appointed pursuant to any of the provisions hereof shall, without any further
act, deed, or conveyance, become vested with all the estates, properties,
rights, powers, and trusts of its or his predecessor in the rights hereunder
with like effect as if originally named as Trustee herein; but nevertheless,
upon the written request of Lender or of the substitute trustee, the Trustee
ceasing to act shall execute and deliver any instrument transferring to such
substitute trustee, upon the trusts herein expressed, all the estates,
properties, rights, powers, and trusts of the Trustee so ceasing to act, and
shall duly assign, transfer and deliver any of the property and moneys held by
such Trustee to the substitute trustee so appointed in the Trustee's place.
Article 25 - MISCELLANEOUS LEASEHOLD PROVISIONS
Section 25.1 THE GROUND LEASE. Borrower shall (i) pay all
rents, additional rents and other sums required to be paid by Borrower, as
tenant under and pursuant to the provisions of the Ground Lease when such rent
or other charge is due and payable, (ii) diligently perform and observe all of
the terms, covenants and conditions of the Ground Lease on the part of Borrower,
as tenant thereunder, to be performed and observed at least ten (10) days prior
to the expiration of any applicable grace period therein provided, and (iii)
promptly notify Lender of the giving of any notice by the landlord under the
Ground Lease to Borrower of any default by Borrower, as tenant thereunder, to be
performed or observed and deliver to Lender a true copy of each such notice.
Borrower shall not, without the prior consent of Lender, surrender the leasehold
estate created by the Ground Lease or terminate or cancel the Ground Lease or
modify, change, supplement, alter or amend the Ground Lease, in any respect,
either orally or in writing, and Borrower hereby assigns to Lender, as further
security for the payment of the Debt and for the performance and observance of
the terms, covenants and conditions of this Security Instrument, all of the
rights, privileges and prerogatives of Borrower, as tenant under the Ground
Lease, to surrender the leasehold estate created by the Ground Lease or to
terminate, cancel, modify, change, supplement, alter or amend the Ground Lease,
and any such surrender of the leasehold estate created by the Ground Lease or
termination, cancellation, modification, change, supplement, alteration or
amendment of the Ground Lease without the prior consent of Lender shall be void
and of no force and effect. If Borrower shall default in the performance or
observance of any term, covenant or condition of the Ground Lease on the part of
Borrower, as tenant thereunder, to be performed or observed, then, without
limiting the generality of the other provisions of this Security Instrument, and
without waiving or releasing Borrower from any of its obligations hereunder,
Lender shall have the right, but shall be under no obligation, to pay any sums
and to perform any act or take any action as may be appropriate to cause all of
the terms, covenants and conditions of the Ground Lease on the part of Borrower,
as tenant thereunder, to be performed or observed or to be promptly performed or
observed on behalf of Borrower, to the end that the rights of Borrower in, to
and under the Ground Lease shall be kept unimpaired and free from default. If
Lender shall make any payment or perform any act or take action in accordance
with the preceding sentence, Lender will notify Borrower of the making of any
such payment, the performance of any such act, or the taking of any such action.
In any
- 62 -
<PAGE>
such event, subject to the rights of lessees, sublessees and other occupants
under the Leases, Lender and any person designated by Lender shall have, and are
hereby granted, the right to enter upon the Property at any time and from time
to time for the purpose of taking any such action. If the landlord under the
Ground Lease shall deliver to Lender a copy of any notice of default sent by
said landlord to Borrower, as tenant under the Ground Lease, such notice shall
constitute full protection to Lender for any action taken or omitted to be taken
by Lender, in good faith, in reliance thereon. Borrower shall exercise each
individual option, if any, to extend or renew the term of the Ground Lease upon
demand by Lender made at any time within one (1) year of the last day upon which
any such option may be exercised, and Borrower hereby expressly authorizes and
appoints Lender its attorney-in-fact to exercise any such option in the name of
and upon behalf of Borrower, which power of attorney shall be irrevocable and
shall be deemed to be coupled with an interest.
Section 25.2 SUBLEASES. Each Lease hereafter made and each
renewal of any existing Lease shall provide that, (a) in the event of the
termination of the Ground Lease, the lease shall not terminate or be terminable
by the lessee; (b) in the event of any action for the foreclosure of this
Security Instrument, the lease shall not terminate or be terminable by the
subtenant by reason of the termination of the Ground Lease unless the lessee is
specifically named and joined in any such action and unless a judgment is
obtained therein against the lessee; and (c) in the event that the Ground Lease
is terminated as aforesaid, the lessee shall attorn to the lessor under the
Ground Lease or to the purchaser at the sale of the Property on such
foreclosure, as the case may be.
Section 25.3 NO MERGER OF FEE AND LEASEHOLD ESTATES; RELEASES.
So long as any portion of the Debt shall remain unpaid, unless Lender shall
otherwise consent, the fee title to the Land and the leasehold estate therein
created pursuant to the provisions of the Ground Lease shall not merge but shall
always be kept separate and distinct, notwithstanding the union of such estates
in Borrower, Owner, or in any other person by purchase, operation of law or
otherwise. Lender reserves the right, at any time, to release portions of the
Property, including, but not limited to, the leasehold estate created by the
Ground Lease, with or without consideration, at Lender's election, without
waiving or affecting any of its rights hereunder or under the Note or the Other
Security Documents and any such release shall not affect Lender's rights in
connection with the portion of the Property not so released.
Section 25.4 BORROWER'S ACQUISITION OF FEE ESTATE. In the
event that Borrower, so long as any portion of the Debt remains unpaid, shall be
the owner and holder of the fee title to the Land the lien of this Security
Instrument shall be spread to cover Borrower's fee title to the Land and said
fee title shall be deemed to be included in the Property. Borrower agrees, at
its sole cost and expense, including without limitation, Lender's reasonable
attorney's fees, to (i) execute any and all documents or instruments necessary
to subject its fee title to the Land to the lien of this Security Instrument;
and (ii) provide a title insurance policy which shall insure that the lien of
this Security Instrument is a first lien on Borrower's fee title to the Land.
[NO FURTHER TEXT ON THIS PAGE]
- 63 -
<PAGE>
IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed
by Borrower the day and year first above written.
CAMELBACK PLAZA DEVELOPMENT L.C., an
Arizona limited liability company
By: PERFORMANCE CAMELBACK
DEVELOPMENT CORP., an Arizona
corporation, its managing member
By: __________________________
Name:
Title:
- 64 -
<PAGE>
STATE OF______ )
SS.
COUNTY OF_______ )
This instrument was acknowledged before me the undersigned
notary public this _____day of_____________, 1996, by______________________as
President of PERFORMANCE CAMELBACK DEVELOPMENT CORP., an Arizona corporation, as
Managing Member of CAMELBACK PLAZA DEVELOPMENT, L.C., an Arizona limited
liability company with full powers to so do.
-------------
Notary Public
My commission expires:______________________
<PAGE>
EXHIBIT A
(Description of Land)
ALL of that certain lot, piece or parcel of land, with the
buildings and improvements thereon, situate, lying and being
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article 1 - GRANTS OF SECURITY......................................- 1 -
Section 1.1 PROPERTY MORTGAGED.............................................................- 1 -
------------------
Section 1.2 ASSIGNMENT OF RENTS............................................................- 4 -
-------------------
Section 1.3 SECURITY AGREEMENT.............................................................- 4 -
------------------
Section 1.4 PLEDGE OF MONIES HELD..........................................................- 4 -
---------------------
Article 2 - DEBT AND OBLIGATIONS SECURED.................................- 5 -
Section 2.1 DEBT...........................................................................- 5 -
----
Section 2.2 OTHER OBLIGATIONS..............................................................- 5 -
-----------------
Section 2.3 DEBT AND OTHER OBLIGATIONS.....................................................- 6 -
--------------------------
Section 2.4 PAYMENTS.......................................................................- 6 -
--------
Article 3 - BORROWER COVENANTS......................................- 6 -
Section 3.1 PAYMENT OF DEBT................................................................- 6 -
---------------
Section 3.2 INCORPORATION BY REFERENCE.....................................................- 6 -
--------------------------
Section 3.3 INSURANCE......................................................................- 6 -
---------
Section 3.4 PAYMENT OF TAXES, ETC.........................................................- 10 -
---------------------
Section 3.5 ESCROW FUND...................................................................- 11 -
-----------
Section 3.6 CONDEMNATION..................................................................- 12 -
------------
Section 3.7 LEASES AND RENTS..............................................................- 12 -
----------------
Section 3.8 MAINTENANCE OF PROPERTY.......................................................- 14 -
-----------------------
Section 3.9 WASTE.........................................................................- 14 -
-----
Section 3.10 COMPLIANCE WITH LAWS..........................................................- 14 -
--------------------
Section 3.11 BOOKS AND RECORDS.............................................................- 15 -
-----------------
Section 3.12 PAYMENT FOR LABOR AND MATERIALS...............................................- 16 -
-------------------------------
Section 3.13 PERFORMANCE OF OTHER AGREEMENTS...............................................- 16 -
-------------------------------
Article 4 - SPECIAL COVENANTS.....................................- 17 -
Section 4.1 PROPERTY USE..................................................................- 17 -
------------
Section 4.2 ERISA.........................................................................- 17 -
-----
Section 4.3 SINGLE PURPOSE ENTITY.........................................................- 18 -
---------------------
Section 4.4 RESTORATION...................................................................- 20 -
-----------
Article 5 - REPRESENTATIONS AND WARRANTIES...............................- 24 -
Section 5.1 WARRANTY OF TITLE.............................................................- 24 -
-----------------
Section 5.2 AUTHORITY.....................................................................- 24 -
---------
Section 5.3 LEGAL STATUS AND AUTHORITY....................................................- 24 -
--------------------------
Section 5.4 VALIDITY OF DOCUMENTS.........................................................- 24 -
---------------------
Section 5.5 LITIGATION....................................................................- 25 -
----------
Section 5.6 STATUS OF PROPERTY............................................................- 25 -
------------------
Section 5.7 NO FOREIGN PERSON.............................................................- 26 -
-----------------
Section 5.8 SEPARATE TAX LOT..............................................................- 26 -
----------------
Section 5.9 ERISA COMPLIANCE..............................................................- 26 -
----------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
Section 5.10 LEASES........................................................................- 26 -
------
Section 5.11 FINANCIAL CONDITION...........................................................- 27 -
-------------------
Section 5.12 BUSINESS PURPOSES.............................................................- 27 -
-----------------
Section 5.13 TAXES.........................................................................- 27 -
-----
Section 5.14 MAILING ADDRESS...............................................................- 27 -
---------------
Section 5.15 NO CHANGE IN FACTS OR CIRCUMSTANCES...........................................- 27 -
-----------------------------------
Section 5.16 DISCLOSURE....................................................................- 27 -
----------
Section 5.17 THIRD PARTY REPRESENTATIONS...................................................- 27 -
---------------------------
Article 6 - OBLIGATIONS AND RELIANCES.................................- 27 -
Section 6.1 RELATIONSHIP OF BORROWER AND LENDER...........................................- 27 -
-----------------------------------
Section 6.2 NO RELIANCE ON LENDER.........................................................- 27 -
---------------------
Section 6.3 NO LENDER OBLIGATIONS.........................................................- 28 -
---------------------
Section 6.4 RELIANCE......................................................................- 28 -
--------
Article 7 - FURTHER ASSURANCES.....................................- 28 -
Section 7.1 RECORDING OF SECURITY INSTRUMENT, ETC.........................................- 28 -
-------------------------------------
Section 7.2 FURTHER ACTS, ETC.............................................................- 29 -
-----------------
Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP
-------------------------------------------------
LAWS.......................................................................................- 29 -
----
Section 7.4 ESTOPPEL CERTIFICATES.........................................................- 29 -
---------------------
Section 7.5 FLOOD INSURANCE...............................................................- 30 -
---------------
Section 7.6 SPLITTING OF SECURITY INSTRUMENT..............................................- 30 -
--------------------------------
Section 7.7 REPLACEMENT DOCUMENTS.........................................................- 31 -
---------------------
Article 8 - DUE ON SALE/ENCUMBRANCE..................................- 31 -
Section 8.1 LENDER RELIANCE...............................................................- 31 -
---------------
Section 8.2 NO SALE/ENCUMBRANCE...........................................................- 31 -
-------------------
Section 8.3 SALE/ENCUMBRANCE DEFINED......................................................- 31 -
------------------------
Section 8.4 LENDER'S RIGHTS...............................................................- 32 -
---------------
Article 9 - PREPAYMENT.........................................- 32 -
Section 9.1 PREPAYMENT BEFORE EVENT OF DEFAULT............................................- 32 -
----------------------------------
Section 9.2 PREPAYMENT ON CASUALTY AND CONDEMNATION.......................................- 32 -
---------------------------------------
Section 9.3 PREPAYMENT AFTER EVENT OF DEFAULT.............................................- 32 -
---------------------------------
Article 10 - DEFAULT..........................................- 33 -
Section 10.1 EVENTS OF DEFAULT.............................................................- 33 -
-----------------
Section 10.2 LATE PAYMENT CHARGE...........................................................- 36 -
-------------------
Section 10.3 DEFAULT INTEREST..............................................................- 36 -
----------------
Article 11 - RIGHTS AND REMEDIES....................................- 37 -
Section 11.1 REMEDIES......................................................................- 37 -
--------
Section 11.2 APPLICATION OF PROCEEDS.......................................................- 39 -
-----------------------
Section 11.3 RIGHT TO CURE DEFAULTS........................................................- 39 -
----------------------
Section 11.4 ACTIONS AND PROCEEDINGS.......................................................- 40 -
-----------------------
Section 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID..........................................- 40 -
------------------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
Section 11.6 EXAMINATION OF BOOKS AND RECORDS..............................................- 40 -
--------------------------------
Section 11.7 OTHER RIGHTS, ETC.............................................................- 40 -
-----------------
Section 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY..................................- 41 -
--------------------------------------------
Section 11.9 VIOLATION OF LAWS.............................................................- 41 -
-----------------
Section 11.10 RECOURSE AND CHOICE OF REMEDIES...............................................- 41 -
-------------------------------
Section 11.11 RIGHT OF ENTRY................................................................- 41 -
--------------
Article 12 - ENVIRONMENTAL HAZARDS...................................- 42 -
Section 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES..................................- 42 -
--------------------------------------------
Section 12.2 ENVIRONMENTAL COVENANTS.......................................................- 43 -
-----------------------
Section 12.3 LENDER'S RIGHTS...............................................................- 44 -
---------------
Article 13 - INDEMNIFICATION......................................- 44 -
Section 13.1 GENERAL INDEMNIFICATION.......................................................- 44 -
-----------------------
Section 13.2 MORTGAGE AND/OR INTANGIBLE TAX................................................- 45 -
------------------------------
Section 13.3 ERISA INDEMNIFICATION.........................................................- 45 -
---------------------
Section 13.4 ENVIRONMENTAL INDEMNIFICATION.................................................- 46 -
-----------------------------
Section 13.5 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES AND
--------------------------------------------------
EXPENSES...................................................................................- 47 -
--------
Article 14 - WAIVERS..........................................- 47 -
Section 14.1 WAIVER OF COUNTERCLAIM........................................................- 47 -
----------------------
Section 14.2 MARSHALLING AND OTHER MATTERS.................................................- 47 -
-----------------------------
Section 14.3 WAIVER OF NOTICE..............................................................- 47 -
----------------
Section 14.4 WAIVER OF STATUTE OF LIMITATIONS..............................................- 47 -
--------------------------------
Section 14.5 SOLE DISCRETION OF LENDER.....................................................- 47 -
-------------------------
Section 14.6 SURVIVAL......................................................................- 48 -
--------
SECTION 14.7 WAIVER OF TRIAL BY JURY.......................................................- 48 -
-----------------------
Article 15 - EXCULPATION........................................- 48 -
Section 15.1 EXCULPATION...................................................................- 48 -
-----------
Section 15.2 RESERVATION OF CERTAIN RIGHTS.................................................- 49 -
-----------------------------
Section 15.3 EXCEPTIONS TO EXCULPATION.....................................................- 49 -
-------------------------
Section 15.4 RECOURSE......................................................................- 49 -
--------
Section 15.5 BANKRUPTCY CLAIMS.............................................................- 49 -
-----------------
Article 16 - NOTICES..........................................- 50 -
Section 16.1 NOTICES.......................................................................- 50 -
-------
Article 17 - SERVICE OF PROCESS....................................- 51 -
Section 17.1 CONSENT TO SERVICE............................................................- 51 -
------------------
Section 17.2 SUBMISSION TO JURISDICTION....................................................- 51 -
--------------------------
Section 17.3 JURISDICTION NOT EXCLUSIVE....................................................- 51 -
--------------------------
Article 18 - APPLICABLE LAW......................................- 51 -
Section 18.1 CHOICE OF LAW.................................................................- 51 -
-------------
Section 18.2 USURY LAWS....................................................................- 52 -
----------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
Section 18.3 PROVISIONS SUBJECT TO APPLICABLE LAW..........................................- 52 -
------------------------------------
Article 19 - SECONDARY MARKET.....................................- 52 -
Section 19.1 TRANSFER OF LOAN..............................................................- 52 -
----------------
Article 20 - COSTS...........................................- 53 -
Section 20.1 PERFORMANCE AT BORROWER'S EXPENSE.............................................- 53 -
---------------------------------
Section 20.2 ATTORNEY'S FEES FOR ENFORCEMENT...............................................- 53 -
-------------------------------
Article 21 - DEFINITIONS........................................- 53 -
Section 21.1 GENERAL DEFINITIONS...........................................................- 53 -
-------------------
Article 22 - MISCELLANEOUS PROVISIONS.................................- 54 -
Section 22.1 NO ORAL CHANGE................................................................- 54 -
--------------
Section 22.2 LIABILITY.....................................................................- 54 -
---------
Section 22.3 INAPPLICABLE PROVISIONS.......................................................- 54 -
-----------------------
Section 22.4 HEADINGS, ETC.................................................................- 54 -
-------------
Section 22.5 DUPLICATE ORIGINALS; COUNTERPARTS.............................................- 54 -
---------------------------------
Section 22.6 NUMBER AND GENDER.............................................................- 54 -
-----------------
Section 22.7 SUBROGATION...................................................................- 54 -
-----------
Article 23 - SPECIAL ARIZONA PROVISIONS................................- 55 -
Section 23.1 INCONSISTENCIES...............................................................- 55 -
---------------
Section 23.2 MAILING ADDRESS...............................................................- 55 -
---------------
Section 23.3 PROPERTY MORTGAGED............................................................- 55 -
------------------
Section 23.4 SECURITY AGREEMENT............................................................- 55 -
------------------
Section 23.5 REMEDIES......................................................................- 55 -
--------
Section 23.6 NOTICES.......................................................................- 60 -
-------
Section 23.7 USURY. ......................................................................- 60 -
-----
Section 23.8 TIME OF ESSENCE. ............................................................- 61 -
---------------
Article 24 - DEED OF TRUST PROVISIONS.................................- 61 -
Section 24.1 CONCERNING THE TRUSTEE........................................................- 61 -
----------------------
Section 24.2 TRUSTEE'S FEES................................................................- 61 -
--------------
Section 24.3 CERTAIN RIGHTS................................................................- 61 -
--------------
Section 24.4 RETENTION OF MONEY............................................................- 62 -
------------------
Section 24.5 PERFECTION OF APPOINTMENT.....................................................- 62 -
-------------------------
Section 24.6 SUCCESSION INSTRUMENTS........................................................- 62 -
----------------------
Article 25 - MISCELLANEOUS LEASEHOLD PROVISIONS............................- 62 -
Section 25.1 THE GROUND LEASE..............................................................- 62 -
----------------
Section 25.2 SUBLEASES.....................................................................- 63 -
---------
Section 25.3 NO MERGER OF FEE AND LEASEHOLD ESTATES; RELEASES..............................- 63 -
------------------------------------------------
Section 25.4 BORROWER'S ACQUISITION OF FEE ESTATE..........................................- 64 -
------------------------------------
DEFINITIONS............................................................................................-v-
-----------
</TABLE>
-iv-
<PAGE>
DEFINITIONS
-----------
The terms set forth below are defined in the following Sections of this
Security Instrument:
(a) Applicable Laws: Article 3, Subsection 3.10(a);
---------------
(b) Attorneys' Fees/Counsel Fees: Article 21, Section 21.1;
----------------------------
(c) Borrower: Preamble and Article 21, Section 21.1;
--------
(d) Business Day: Article 16, Section 16.1;
------------
(e) Casualty Consultant: Article 4, Subsection 4.4(b)(iii);
-------------------
(f) Casualty Retainage: Article 4, Subsection 4.4(b)(iv);
------------------
(g) Debt: Article 2, Section 2.1;
----
(h) Default Prepayment: Article 9, Section 9.3;
------------------
(i) Default Rate: Article 10, Section 10.3;
------------
(j) Environmental Indemnity: Article 10, Subsection 10.1(q);
-----------------------
(k) Environmental Law: Article 12, Section 12.1;
-----------------
(l) Environmental Liens: Article 12, Subsection 12.2(d);
-------------------
(m) Environmental Report: Article 12, Subsection 12.1(a)
--------------------
(n) ERISA: Article 4, Subsection 4.2(a);
-----
(o) Escrow Fund: Article 3, Section 3.5;
-----------
(p) Event: Article 20, Section 20.1;
-----
(q) Event of Default: Article 10, Section 10.1;
----------------
(r) Full Replacement Cost: Article 3, Subsection 3.3(a)(i)(A);
---------------------
(s) GAAP: Article 3, Subsection 3.11(a);
----
(t) Gains Tax: Article 23, Subsection 23.5(c);
---------
-v-
<PAGE>
(u) Guarantor: Article 10, Subsection 10.1(f);
---------
(v) Hazardous Substances: Article 12, Section 12.1;
--------------------
(w) Improvements: Article 1, Subsection 1.1(c);
------------
(x) Indemnified Parties: Article 13, Section 13.1;
-------------------
(y) Indemnitor(s): Article 10, Subsection 10.1(q);
-------------
(z) Insurance Premiums: Article 3, Subsection 3.3(b);
------------------
(aa) Investor: Article 19, Section 19.1;
--------
(bb) Land: Article 1, Subsection 1.1(a);
----
(cc) Lease Guaranty: Article 3, Subsection 3.7(a);
--------------
(dd) Leases: Article 1, Subsection 1.1(f);
------
(ee) Lender: Preamble and Article 21, Section 21.1;
------
(ff) Loan: Article 5, Subsection 5.12;
----
(gg) Loan Application: Article 5, Section 5.15;
----------------
(hh) Losses: Article 13, Section 13.1;
------
(ii) Net Proceeds: Article 4, Subsection 4.4(b);
------------
(jj) Net Proceeds Deficiency: Article 4, Subsection 4.4(b)(vi);
-----------------------
(kk) Note: Recitals and Article 21, Section 21.1;
----
(ll) Obligations: Article 2, Section 2.3;
-----------
(mm) Other Charges: Article 3, Subsection 3.4(a);
-------------
(nn) Other Obligations: Article 2, Section 2.2;
-----------------
(oo) Other Security Documents: Article 3, Section 3.2;
------------------------
(pp) Permitted Exceptions: Article 5, Section 5.1;
--------------------
(qq) Person: Article 21, Section 21.1;
------
(rr) Personal Property: Article 1, Subsection 1.1(e);
-----------------
-vi-
<PAGE>
(ss) Policies/Policy: Article 3, Subsection 3.3(b);
---------------
(tt) Property: Article 1, Section 1.1 and Article 21, Section 21.1;
--------
(uu) Qualified Insurer: Article 3, Subsection 3.3(b);
-----------------
(vv) Rating Agency: Article 3, Subsection 3.3(b);
-------------
(ww) Release: Article 12, Section 12.1;
-------
(xx) Remediation: Article 12, Section 12.1;
-----------
(yy) Rents: Article 1, Subsection 1.1(f);
-----
(zz) Restoration: Article 3, Subsection 3.3(h);
-----------
(aaa) Securities: Article 19, Section 19.1;
----------
(bbb) Security Deposits: Article 3, Subsection 3.7(c);
-----------------
(ccc) Security Instrument: Preamble;
-------------------
(ddd) Taxes: Article 3, Subsection 3.4(a);
-----
(eee) Transfer Tax: Article 23, Subsection 23.5(b); and
------------
(fff) Uniform Commercial Code: Article 1, Subsection 1.1(e)
-----------------------
-vii-
<PAGE>
================================================================================
CAMELBACK PLAZA DEVELOPMENT L.C., as assignor
(Borrower)
to
BOSTON CAPITAL MORTGAGE COMPANY LIMITED PARTNERSHIP, as assignee
(Lender)
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ASSIGNMENT
OF LEASES AND RENTS
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Dated: As of November 1, 1996
Location: Camelback Plaza
2621 East Camelback Road
Phoenix, Arizona
County: Maricopa
PREPARED BY AND UPON
RECORDATION RETURN TO:
Messrs. Thacher, Proffitt & Wood
2 World Trade Center
New York, New York 10048
Attention: Donald F. Simone, Esq.
File No.: 18001-00003
Title No.: 601228
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THIS ASSIGNMENT OF LEASES AND RENTS ("Assignment") made as of
the first day of November, 1996, by CAMELBACK PLAZA DEVELOPMENT L.C., an Arizona
limited liability company, as assignor, having its principal place of business
c/o Performance Industries, Inc., 2425 Camelback Road, Suite 620, Phoenix,
Arizona 85016 ("Borrower") to BOSTON CAPITAL MORTGAGE COMPANY LIMITED
PARTNERSHIP, a Massachusetts limited partnership, as assignee, having an address
at One Boston Place, Suite 2100, Boston, Massachusetts 02108 ("Lender").
RECITALS:
Borrower by its promissory note of even date herewith given to
Lender is indebted to Lender in the principal sum of SEVEN MILLION TWO HUNDRED
FIFTY THOUSAND AND 00/100 DOLLARS ($7,250,000.00) in lawful money of the United
States of America (together with all extensions, renewals, modifications,
substitutions and amendments thereof, the "Note"), with interest from the date
thereof at the rates set forth in the Note, principal and interest to be payable
in accordance with the terms and conditions provided in the Note.
Borrower desires to secure the payment of the Debt (defined
below) and the performance of all of its obligations under the Note and the
Other Obligations as defined in Article 2 of the Security Instrument (defined
below).
ARTICLE 1-ASSIGNMENT
Section 1.1 PROPERTY ASSIGNED. Borrower hereby absolutely and
unconditionally assigns and grants to Lender the following property, rights,
interests and estates, now owned, or hereafter acquired by Borrower:
(a) Leases. All existing and future leases affecting the use,
enjoyment, or occupancy of all or any part of that certain lot or piece of land,
more particularly described in Exhibit A annexed hereto and made a part hereof,
together with the buildings, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements now or
hereafter located thereon (collectively, the "Property") and the right, title
and interest of Borrower, its successors and assigns, therein and thereunder.
(b) Other Leases and Agreements. All other leases and other
agreements, whether or not in writing, affecting the use, enjoyment or occupancy
of the Property or any portion thereof now or hereafter made, together with any
extension, renewal or replacement of the same, this Assignment of other present
and future leases and present and future agreements being effective without
further or supplemental assignment. The leases described in Subsection 1.1(a)
and the leases and other agreements described in this Subsection 1.1(b),
together with all other present and future leases and present and future
agreements and any extension or renewal of the same are collectively referred to
as the "Leases".
(c) Rents. All rents, additional rents, revenues, income,
issues and profits arising from the Leases and renewals and replacements thereof
and any cash or security deposited in connection therewith and together with all
rents, revenues, income, issues and
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profits (including all oil and gas or other mineral royalties and bonuses) from
the use, enjoyment and occupancy of the Property (collectively, the "Rents").
(d) Bankruptcy Claims. All of Borrower's claims and rights
(the "Bankruptcy Claims") to the payment of damages arising from any rejection
by a lessee of any Lease under the Bankruptcy Code, 11 U.S.C. ss.101 et seq., as
the same may be amended (the "Bankruptcy Code").
(e) Lease Guaranties. All of Borrower's right, title and
interest in and claims under any and all lease guaranties, letters of credit and
any other credit support given by any guarantor in connection with any of the
Leases (individually, a "Lease Guarantor", collectively, the "Lease Guarantors")
to Borrower (individually, a "Lease Guaranty", collectively, the "Lease
Guaranties").
(f) Proceeds. All proceeds from the sale or other disposition
of the Leases, the Rents, the Lease Guaranties and the Bankruptcy Claims.
(g) Other. All rights, powers, privileges, options and other
benefits of Borrower as lessor under the Leases and beneficiary under the Lease
Guaranties, including without limitation the immediate and continuing right to
make claim for, receive, collect and receipt for all Rents payable or receivable
under the Leases and all sums payable under the Lease Guaranties or pursuant
thereto (and to apply the same to the payment of the Debt or the Other
Obligations), and to do all other things which Borrower or any lessor is or may
become entitled to do under the Leases or the Lease Guaranties.
(h) Entry. The right, at Lender's option, upon revocation of
the license granted herein, to enter upon the Property in person, by agent or by
court-appointed receiver, to collect the Rents.
(i) Power of Attorney. Borrower's irrevocable power of
attorney, coupled with an interest, to take any and all of the actions set forth
in Section 3.1 of this Assignment and any or all other actions designated by
Lender for the proper management and preservation of the Property.
(j) Other Rights and Agreements. Any and all other rights of
Borrower in and to the items set forth in subsections (a) through (i) above, and
all amendments, modifications, replacements, renewals and substitutions thereof.
Section 1.2 CONSIDERATION. This Assignment is made in
consideration of that certain loan made by Lender to Borrower evidenced by the
Note and secured by that certain mortgage and security agreement, deed of trust
and security agreement, deed to secure debt and security agreement or similar
real estate security instrument given by Borrower to or for the benefit of
Lender, dated the date hereof, in the principal sum of SEVEN MILLION TWO HUNDRED
FIFTY and 00/100 DOLLARS ($7,250,000.00), covering the Property and intended to
be duly recorded (the "Security Instrument"). The principal sum, interest and
all other sums due and payable under the Note, the Security Instrument, this
Assignment and the Other Security Documents (defined below) are collectively
referred to as the "Debt". The documents other than
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this Assignment, the Note or the Security Instrument now or hereafter executed
by Borrower and/or others and by or in favor of Lender which wholly or partially
secure or guarantee payment of the Debt are referred to herein as the "Other
Security Documents".
ARTICLE 2 - TERMS OF ASSIGNMENT
Section 2.1 PRESENT ASSIGNMENT AND LICENSE BACK. It is
intended by Borrower that this Assignment constitute a present, absolute
assignment of the Leases, Rents, Lease Guaranties and Bankruptcy Claims, and not
an assignment for additional security only. Nevertheless, subject to the terms
of this Section , Lender grants to Borrower a revocable license to collect and
receive the Rents and other sums due under the Lease Guaranties. Borrower shall
hold the Rents and all sums received pursuant to any Lease Guaranty, or a
portion thereof sufficient to discharge all current sums due on the Debt, in
trust for the benefit of Lender for use in the payment of such sums.
Section 2.2 NOTICE TO LESSEES. Borrower hereby agrees to
authorize and direct the lessees named in the Leases or any other or future
lessees or occupants of the Property and all Lease Guarantors to pay over to
Lender or to such other party as Lender directs all Rents and all sums due under
any Lease Guaranties upon receipt from Lender of written notice to the effect
that Lender is then the holder of the Security Instrument and that a Default
(defined below) exists, and to continue so to do until otherwise notified by
Lender.
Section 2.3 INCORPORATION BY REFERENCE. All representations,
warranties, covenants, conditions and agreements contained in the Security
Instrument as same may be modified, renewed, substituted or extended are hereby
made a part of this Assignment to the same extent and with the same force as if
fully set forth herein.
ARTICLE 3 - REMEDIES
Section 3.1 REMEDIES OF LENDER. Upon or at any time after the
occurrence of a default under this Assignment or an Event of Default (as defined
in the Security Instrument) (a "Default"), the license granted to Borrower in
Section 2.1 of this Assignment shall automatically be revoked, and Lender shall,
without limitation on its rights under A.R.S. ss. 33- 702(B), immediately be
entitled to possession of all Rents and sums due under any Lease Guaranties,
whether or not Lender enters upon or takes control of the Property. In addition,
Lender may, at its option, without waiving such Default, without notice and
without regard to the adequacy of the security for the Debt, either in person or
by agent, nominee or attorney, with or without bringing any action or
proceeding, or by a receiver appointed by a court, dispossess Borrower and its
agents and servants from the Property, without liability for trespass, damages
or otherwise and exclude Borrower and its agents or servants wholly therefrom,
and take possession of the Property and all books, records and accounts relating
thereto and have, hold, manage, lease and operate the Property on such terms and
for such period of time as Lender may deem proper and either with or without
taking possession of the Property in its own name, demand, sue for or otherwise
collect and receive all Rents and sums due under all Lease Guaranties, including
those past due and unpaid with full power to make from time to time all
alterations, renovations, repairs or replacements thereto or thereof as may seem
proper to Lender and may apply the Rents and sums received pursuant to any Lease
Guaranties to the payment
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of the following in such order and proportion as Lender in its sole discretion
may determine, any law, custom or use to the contrary notwithstanding: (a) all
expenses of managing and securing the Property, including, without being limited
thereto, the salaries, fees and wages of a managing agent and such other
employees or agents as Lender may deem necessary or desirable and all expenses
of operating and maintaining the Property, including, without being limited
thereto, all taxes, charges, claims, assessments, water charges, sewer rents and
any other liens, and premiums for all insurance which Lender may deem necessary
or desirable, and the cost of all alterations, renovations, repairs or
replacements, and all expenses incident to taking and retaining possession of
the Property; and (b) the Debt, together with all costs and reasonable
attorneys' fees. In addition, upon the occurrence of a Default, Lender, at its
option, may (1) complete any construction on the Property in such manner and
form as Lender deems advisable, (2) exercise all rights and powers of Borrower,
including, without limitation, the right to negotiate, execute, cancel, enforce
or modify Leases, obtain and evict tenants, and demand, sue for, collect and
receive all Rents from the Property and all sums due under any Lease Guaranties,
(3) either require Borrower to pay monthly in advance to Lender, or any receiver
appointed to collect the Rents, the fair and reasonable rental value for the use
and occupancy of such part of the Property as may be in possession of Borrower
or (4) require Borrower to vacate and surrender possession of the Property to
Lender or to such receiver and, in default thereof, Borrower may be evicted by
summary proceedings or otherwise.
Section 3.2 OTHER REMEDIES. Nothing contained in this
Assignment and no act done or omitted by Lender pursuant to the power and rights
granted to Lender hereunder shall be deemed to be a waiver by Lender of its
rights and remedies under the Note, the Security Instrument, or the Other
Security Documents and this Assignment is made and accepted without prejudice to
any of the rights and remedies possessed by Lender under the terms thereof. The
right of Lender to collect the Debt and to enforce any other security therefor
held by it may be exercised by Lender either prior to, simultaneously with, or
subsequent to any action taken by it hereunder. Borrower hereby absolutely,
unconditionally and irrevocably waives any and all rights to assert any setoff,
counterclaim or crossclaim of any nature whatsoever with respect to the
obligations of Borrower under this Assignment, the Note, the Security
Instrument, the Other Security Documents or otherwise with respect to the loan
secured hereby in any action or proceeding brought by Lender to collect same, or
any portion thereof, or to enforce and realize upon the lien and security
interest created by this Assignment, the Note, the Security Instrument, or any
of the Other Security Documents (provided, however, that the foregoing shall not
be deemed a waiver of Borrower's right to assert any compulsory counterclaim if
such counterclaim is compelled under local law or rule of procedure, nor shall
the foregoing be deemed a waiver of Borrower's right to assert any claim which
would constitute a defense, setoff, counterclaim or crossclaim of any nature
whatsoever against Lender in any separate action or proceeding). For the purpose
of A.R.S. ss. 33-702 (B), this Assignment shall be deemed to be a "mortgage" or
"trust deed," and Lender's rights shall include, but shall not be limited to,
those rights and methods of enforcement enumerated therein.
Section 3.3 OTHER SECURITY. Lender may take or release other
security for the payment of the Debt, may release any party primarily or
secondarily liable therefor and may apply any other security held by it to the
reduction or satisfaction of the Debt without prejudice to any of its rights
under this Assignment.
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Section 3.4 NON-WAIVER. The exercise by Lender of the option
granted it in Section of this Assignment and the collection of the Rents and
sums due under the Lease Guaranties and the application thereof as herein
provided shall not be considered a waiver of any default by Borrower under the
Note, the Security Instrument, the Leases, this Assignment or the Other Security
Documents. The failure of Lender to insist upon strict performance of any term
hereof shall not be deemed to be a waiver of any term of this Assignment.
Borrower shall not be relieved of Borrower's obligations hereunder by reason of
(a) the failure of Lender to comply with any request of Borrower or any other
party to take any action to enforce any of the provisions hereof or of the
Security Instrument, the Note or the Other Security Documents, (b) the release
regardless of consideration, of the whole or any part of the Property, or (c)
any agreement or stipulation by Lender extending the time of payment or
otherwise modifying or supplementing the terms of this Assignment, the Note, the
Security Instrument or the Other Security Documents. Lender may resort for the
payment of the Debt to any other security held by Lender in such order and
manner as Lender, in its discretion, may elect. Lender may take any action to
recover the Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of Lender thereafter to enforce its rights under
this Assignment. The rights of Lender under this Assignment shall be separate,
distinct and cumulative and none shall be given effect to the exclusion of the
others. No act of Lender shall be construed as an election to proceed under any
one provision herein to the exclusion of any other provision.
Section 3.5 BANKRUPTCY. (a) Upon or at any time after the
occurrence of a Default, Lender shall have the right to proceed in its own name
or in the name of Borrower in respect of any claim, suit, action or proceeding
relating to the rejection of any Lease, including, without limitation, the right
to file and prosecute, to the exclusion of Borrower, any proofs of claim,
complaints, motions, applications, notices and other documents, in any case in
respect of the lessee under such Lease under the Bankruptcy Code.
(b) If there shall be filed by or against Borrower a petition
under the Bankruptcy Code, and Borrower, as lessor under any Lease, shall
determine to reject such Lease pursuant to Section 365(a) of the Bankruptcy
Code, then Borrower shall give Lender not less than ten (10) days' prior notice
of the date on which Borrower shall apply to the bankruptcy court for authority
to reject the Lease. Lender shall have the right, but not the obligation, to
serve upon Borrower within such ten-day period a notice stating that (i) Lender
demands that Borrower assume and assign the Lease to Lender pursuant to Section
365 of the Bankruptcy Code and (ii) Lender covenants to cure or provide adequate
assurance of future performance under the Lease. If Lender serves upon Borrower
the notice described in the preceding sentence, Borrower shall not seek to
reject the Lease and shall comply with the demand provided for in clause (i) of
the preceding sentence within thirty (30) days after the notice shall have been
given, subject to the performance by Lender of the covenant provided for in
clause (ii) of the preceding sentence.
ARTICLE 4 - NO LIABILITY, FURTHER ASSURANCES
Section 4.1 NO LIABILITY OF LENDER. This Assignment shall not
be construed to bind Lender to the performance of any of the covenants,
conditions or provisions contained in any Lease or Lease Guaranty or otherwise
impose any obligation upon Lender. Lender shall not be liable for any loss
sustained by Borrower resulting from Lender's failure to let the
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Property after a Default or from any other act or omission of Lender in managing
the Property after a Default unless such loss is caused by the willful
misconduct and bad faith of Lender. Lender shall not be obligated to perform or
discharge any obligation, duty or liability under the Leases or any Lease
Guaranties or under or by reason of this Assignment and Borrower shall, and
hereby agrees, to indemnify Lender for, and to hold Lender harmless from, and to
be responsible for, any and all liability, loss or damage which may or might be
incurred under the Leases, any Lease Guaranties or under or by reason of this
Assignment and from any and all claims and demands whatsoever, including the
defense of any such claims or demands which may be asserted against Lender by
reason of any alleged obligations and undertakings on its part to perform or
discharge any of the terms, covenants or agreements contained in the Leases or
any Lease Guaranties. Should Lender incur any such liability, the amount
thereof, including costs, expenses and reasonable attorneys' fees, shall be
secured by this Assignment and by the Security Instrument and the Other Security
Documents and Borrower shall reimburse Lender therefor immediately upon demand
and upon the failure of Borrower so to do Lender may, at its option, declare all
sums secured by this Assignment and by the Security Instrument and the Other
Security Documents immediately due and payable. This Assignment shall not
operate to place any obligation or liability for the control, care, management
or repair of the Property upon Lender, nor for the carrying out of any of the
terms and conditions of the Leases or any Lease Guaranties; nor shall it operate
to make Lender responsible or liable for any waste committed on the Property by
the tenants or any other parties, or for any dangerous or defective condition of
the Property, including without limitation the presence of any Hazardous
Substances (as defined in the Security Instrument), or for any negligence in the
management, upkeep, repair or control of the Property resulting in loss or
injury or death to any tenant, licensee, employee or stranger.
Section 4.2 NO MORTGAGEE IN POSSESSION. Nothing herein
contained shall be construed as constituting Lender a "mortgagee in possession"
in the absence of the taking of actual possession of the Property by Lender. In
the exercise of the powers herein granted Lender, no liability shall be asserted
or enforced against Lender, all such liability being expressly waived and
released by Borrower.
Section 4.3 FURTHER ASSURANCES. Borrower will, at the cost of
Borrower, and without expense to Lender, do, execute, acknowledge and deliver
all and every such further acts, conveyances, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
require for the better assuring, conveying, assigning, transferring and
confirming unto Lender the property and rights hereby assigned or intended now
or hereafter so to be, or which Borrower may be or may hereafter become bound to
convey or assign to Lender, or for carrying out the intention or facilitating
the performance of the terms of this Assignment or for filing, registering or
recording this Assignment and, on demand, will execute and deliver and hereby
authorizes Lender to execute in the name of Borrower to the extent Lender may
lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments, to evidence more effectively the lien and
security interest hereof in and upon the Leases.
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ARTICLE 5 - SECONDARY MARKET
Section 5.1 TRANSFER OF LOAN. Lender may, at any time, sell,
transfer or assign the Note, this Assignment and the Other Security Documents,
and any or all servicing rights with respect thereto, or grant participations
therein or issue mortgage pass-through certificates or other securities
evidencing a beneficial interest in a rated or unrated public offering or
private placement (the "Securities"). Lender may forward to each purchaser,
transferee, assignee, servicer, participant, investor in such Securities or any
credit rating agency rating such Securities (collectively, the "Investor") and
each prospective Investor, all documents and information which Lender now has or
may hereafter acquire relating to the Debt and to Borrower, any guarantor, any
indemnitor, and the Property, whether furnished by Borrower, any guarantor or
otherwise, as Lender determines necessary or desirable. Borrower, any guarantor
and any indemnitor agree to cooperate with Lender in connection with any
transfer made or any Securities created pursuant to this Section, including,
without limitation, the delivery of an estoppel certificate required in
accordance with Subsection 7.4(c) of the Security Instrument and such other
documents as may be reasonably requested by Lender. Borrower shall also furnish
and Borrower, any guarantor and any indemnitor consent to Lender furnishing to
such Investors or such prospective Investors any and all information concerning
the Property, the Leases, the financial condition of Borrower, any guarantor and
any indemnitor as may be requested by Lender, any Investor or any prospective
Investor in connection with any sale, transfer or participation interest.
ARTICLE 6 - MISCELLANEOUS PROVISIONS
Section 6.1 CONFLICT OF TERMS. In case of any conflict between
the terms of this Assignment and the terms of the Security Instrument, the terms
of the Security Instrument shall prevail.
Section 6.2 NO ORAL CHANGE. This Assignment and any provisions
hereof may not be modified, amended, waived, extended, changed, discharged or
terminated orally, or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by the party against whom the
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
Section 6.3 CERTAIN DEFINITIONS. Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Assignment may be used interchangeably in singular or plural
form and the word "Borrower " shall mean "each Borrower and any subsequent owner
or owners of the Property or any part thereof or interest therein," the word
"Lender" shall mean "Lender and any subsequent holder of the Note," the word
"Note" shall mean "the Note and any other evidence of indebtedness secured by
the Security Instrument," the word "person" shall include an individual,
corporation, partnership, limited liability company, trust, unincorporated
association, government, governmental authority, and any other entity, the word
"Property" shall include any portion of the Property and any interest therein,
the phrases "attorneys' fees" and "counsel fees" shall include any and all
attorneys', paralegal and law clerk fees and disbursements, including, but not
limited to, fees and disbursements at the pre-trial, trial and appellate levels
incurred or paid by Lender in protecting its interest in the Property, the
Leases and the Rents and enforcing its
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rights hereunder, and the word "Debt" shall mean the principal balance of the
Note with interest thereon as provided in the Note and the Security Instrument
and all other sums due pursuant to the Note, the Security Instrument, this
Assignment and the Other Security Documents; whenever the context may require,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
Section 6.4 AUTHORITY. Borrower represents and warrants that
it has full power and authority to execute and deliver this Assignment and the
execution and delivery of this Assignment has been duly authorized and does not
conflict with or constitute a default under any law, judicial order or other
agreement affecting Borrower or the Property.
Section 6.5 INAPPLICABLE PROVISIONS. If any term, covenant or
condition of this Assignment is held to be invalid, illegal or unenforceable in
any respect, this Assignment shall be construed without such provision.
Section 6.6 DUPLICATE ORIGINALS; COUNTERPARTS. This Assignment
may be executed in any number of duplicate originals and each such duplicate
original shall be deemed to be an original. This Assignment may be executed in
several counterparts, each of which counterparts shall be deemed an original
instrument and all of which together shall constitute a single Assignment. The
failure of any party hereto to execute this Assignment, or any counterpart
hereof, shall not relieve the other signatories from their obligations
hereunder.
SECTION 6.7 CHOICE OF LAW. THIS ASSIGNMENT SHALL BE DEEMED TO
BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND
SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, PROVIDED HOWEVER, THAT WITH RESPECT TO
THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OF THIS
ASSIGNMENT, THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED SHALL APPLY.
Section 6.8 TERMINATION OF ASSIGNMENT. Upon payment in full of
the Debt and the delivery and recording of a satisfaction or discharge of
Security Instrument duly executed by Lender, this Assignment shall become and be
void and of no effect.
Section 6.9 NOTICES. All notices or other written
communications hereunder shall be deemed to have been properly given (i) upon
delivery, if delivered in person or by facsimile transmission with receipt
acknowledged by the recipient thereof and confirmed by telephone by sender, (ii)
one (1) Business Day (hereinafter defined) after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
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If to Borrower: Camelback Plaza Development L.C.
2401 West 1st Street
Tempe, Arizona 85281
Attention: James W. Brown
Facsimile No. (602) 912-0480
With a copy to: Ridenour, Swenson, Cleere & Evans, P.C.
302 North First Avenue, Suite 900
Phoenix, Arizona 85003
Attention: Gerard R. Cleere, Esq.
Facsimile No. (602) 254-8670
If to Lender: Boston Capital Mortgage Company Limited Partnership
One Boston Place, Suite 2100
Boston, Massachusetts 02108
Attention: Ms. Kathie Valyeau
Facsimile No. (617) 624-8999
With a copy to: Thacher Proffitt & Wood
2 World Trade Center, 40th Floor
New York, New York 10048
Attention: Donald F. Simone, Esq.
Facsimile No. (212) 912-7751
or addressed as such party may from time to time designate by written notice to
the other parties. For purposes of this Section 6.9, the term "Business Day"
shall mean a day on which commercial banks are not authorized or required by law
to close in New York, New York.
Either party by notice to the other may designate additional
or different addresses for subsequent notices or communications.
SECTION 6.10 WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE,
RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE
APPLICATION FOR THE LOAN EVIDENCED BY THE NOTE, THIS ASSIGNMENT, THE NOTE, THE
SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF
LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
Section 6.11 SUBMISSION TO JURISDICTION. With respect to any
claim or action arising hereunder, Borrower (a) irrevocably submits to the
nonexclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in New York, New York,
and appellate courts from any thereof, and (b) irrevocably waives any objection
which it may have at any time to the laying on venue of any suit, action or
proceeding arising out of or relating to this Assignment brought in any such
court, irrevocably
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waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 6.12 LIABILITY. If Borrower consists of more than one
person, the obligations and liabilities of each such person hereunder shall be
joint and several. This Assignment shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns
forever.
Section 6.13 HEADINGS, ETC. The headings and captions of
various paragraphs of this Assignment are for convenience of reference only and
are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.
Section 6.14 NUMBER AND GENDER. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa.
Section 6.15 SOLE DISCRETION OF LENDER. Wherever pursuant to
this Assignment (a) Lender exercises any right given to it to approve or
disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c)
any other decision or determination is to be made by Lender, the decision of
Lender to approve or disapprove, all decisions that arrangements or terms are
satisfactory or not satisfactory and all other decisions and determinations made
by Lender, shall be in the sole and absolute discretion of Lender and shall be
final and conclusive, except as may be otherwise expressly and specifically
provided herein.
Section 6.16 COSTS AND EXPENSES OF BORROWER. Wherever pursuant
to this Assignment it is provided that Borrower pay any costs and expenses, such
costs and expenses shall include, but not be limited to, legal fees and
disbursements of Lender, whether with respect to retained firms, the
reimbursement of the expenses for in-house staff or otherwise.
ARTICLE 7-DEFINITIONS
The terms set forth below are defined in the following Sections of this
Assignment:
(a) Assignment: Preamble;
-----------
(b) Attorneys' Fees: Article 6, Section 6.3;
----------------
(c) Bankruptcy Claims: Article 1, Subsection 1.1(d);
------------------
(d) Bankruptcy Code: Article 1, Subsection 1.1(d);
----------------
(e) Borrower: Preamble and Article 6, Section 6.3;
---------
(f) Business Day: Article 6, Section 6.9;
-------------
(g) Counsel Fees: Article 6, Section 6.3;
-------------
- 10 -
<PAGE>
(h) Debt: Article 6, Section 6.3;
-----
(i) Default: Article 3, Section 3.1;
--------
(j) Investor: Article 5, Section 5.1;
---------
(k) Lease Guaranties: Article 1, Subsection 1.1(e);
-----------------
(l) Lease Guarantor: Article 1, Subsection 1.1(e);
----------------
(m) Lease Guaranty: Article 1, Subsection 1.1(e);
---------------
(n) Leases: Article 1, Subsection 1.1(b);
-------
(o) Lender: Preamble and Article 6, Section 6.3;
-------
(p) Note: Recitals and Article 6, Section 6.3;
-----
(q) Other Security Documents: Article 1, Section 1.2;
-------------------------
(r) Person: Article 6, Section 6.3;
-------
(s) Property: Article 1, Subsection 1.1(a) and Article 6, Section 6.3;
---------
(t) Rents: Article 1, Subsection 1.1(c); and
------
(u) Security Instrument: Article 1, Section 1.2.
--------------------
THIS ASSIGNMENT, together with the covenants and warranties
therein contained, shall inure to the benefit of Lender and any subsequent
holder of the Security Instrument and shall be binding upon Borrower, its heirs,
executors, administrators, successors and assigns and any subsequent owner of
the Property.
- 11 -
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this instrument the
day and year first above written.
CAMELBACK PLAZA DEVELOPMENT L.C., an
Arizona limited liability company
By: PERFORMANCE CAMELBACK
DEVELOPMENT CORP., an Arizona
corporation, its managing member
By:
----------------------------
Name:
Title:
- 12 -
<PAGE>
ACKNOWLEDGEMENTS
STATE OF_______ )
SS.
COUNTY OF________ )
This instrument was acknowledged before me the undersigned
notary public this ______day of____________, 1996, by________________________as
President of PERFORMANCE CAMELBACK DEVELOPMENT CORP., an Arizona corporation, as
Managing Member of CAMELBACK PLAZA DEVELOPMENT, L.C., an Arizona limited
liability company with full powers to so do.
-------------
Notary Public
My commission expires:___________________
<PAGE>
EXHIBIT A
Legal Description of Property
(to be attached)
STOCK PURCHASE AGREEMENT
------------------------
Agreement made as of the _______day of February, 1996 by and between Performance
Industries, Inc., an Ohio corporation having an address at 2425 East Camelback
Road, Suite 620, Phoenix, Arizona 85016 (hereinafter referred to as "Seller"),
and Markwood LLC, a New York limited liability company, with an address at 35
Engel Street, Hicksville, New York 11801 or its assignee (hereinafter referred
to as "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
Whereas, Seller is the owner of six hundred twenty four (624) shares of common
stock, one peso par value, of Fabricaciones Metalicas Mexicanas, S.A., a
corporation formed under the laws of Mexico (the "Corporation"), represented by
stock certificate number 1, constituting ninety-nine and 84/100 (99.84%) percent
of all of the issued and outstanding capital stock of the Corporation;
Whereas, Joe Hrudka ("Hrudka") is the owner of one (1) share of common stock, 1
peso par value, of the Corporation (the "Hrudka Stock"), represented by stock
certificate number 6, constituting sixteen one hundredths (.16%) percent of all
of the issued and outstanding capital stock of the Corporation, which stock is
owned beneficially by Seller (the shares of common stock of the Corporation
owned by Performance and Hrudka are hereinafter collectively referred to as the
"Shares");
Whereas, the Corporation is the owner of certain tangible, intangible, real and
personal property, including, without limitation, that certain improved
industrial real property situated in the City of Mexicali, Baja, California, at
Calle Villa Hermosa, #1300 y Avenida Navolato, Colonia, Guajardo, and the
fixtures, equipment and machinery used in connection with the operation thereof;
and
Whereas, Seller desires to sell to Purchaser and Purchaser desires to purchase
from Seller the Shares, subject to and in accordance with the terms and
conditions hereinafter set forth.
Now, therefore, in consideration of the premises and the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
<PAGE>
1. PURCHASE AND SALE OF SHARES
---------------------------
(a) Purchase and Sale of Shares. Subject to the terms and conditions contained
in this Agreement and effective at the Closing (as hereinafter defined), Seller
hereby agrees to sell, assign, transfer, convey and deliver to Purchaser all of
Seller's right, title and interest in and to the Shares and, on the basis of the
representations, warranties and covenants of Seller herein contained, Purchaser
hereby agrees to purchase, acquire and accept the Shares from Seller.
(b) Purchase Price. The total purchase price for the Shares shall be an amount
equal to the difference between (a) Three Million (US$3,000,000.00) Dollars and
(b) the outstanding principal balance of that certain indebtedness owed by the
Corporation to Seller, together with interest accrued thereon (the
"Indebtedness"), determined and confirmed as of the day of Closing. The
Indebtedness is evidenced by that certain promissory note, dated
____________________, given by the Corporation, as maker and obligor, to Seller,
as payee and obligee, in the outstanding principal amount of US$2.1 million (the
"Note") (hereinafter referred to as the "Purchase Price"), as same may be
adjusted as set forth below. The Purchase Price shall be payable as follows: (i)
the sum of One Hundred Thousand (US$100,000.00) Dollars (the "Deposit") on the
signing of this Agreement by check subject to collection or by wire transfer of
funds, the receipt of which is hereby acknowledged; and (ii) at the consummation
of the Closing in accordance with all of the terms and conditions herein, the
balance of the Purchase Price by good certified check, bank check or by wire
transfer of funds. The Deposit shall be delivered to Mandel and Resnik, P.C., as
escrow agent (the "Escrow Agent"), to be held in escrow in a federally insured
interest bearing account in accordance with an escrow agreement in the form of
Exhibit "A" annexed hereto and made a part hereof.
(c) Closing. Subject to the provisions hereinafter set forth, the closing
("Closing") of the transaction contemplated by this Agreement shall take place
at the offices of Seller or such other location agreed upon by the parties
hereto, commencing at 10:00 a.m. on May 15, 1996 (the "Closing Date"), subject
to the satisfaction or waiver of all conditions precedent to the obligations of
the parties to consummate the Closing. At the Closing, Seller and Purchaser
shall each deliver to the other all of the documentation required to be
delivered by such party as set forth in Article 6 below. Notwithstanding
anything to the contrary herein contained, if (a) Seller shall have satisfied
all of the conditions precedent to Closing required to be satisfied by Seller on
or before the Closing Date and is ready, willing and able to consummate the
transaction contemplated hereby in accordance with all of the terms and
conditions herein set forth and (b) Purchaser shall elect for any reason not to
close on such
2
<PAGE>
date, then Purchaser shall be entitled to adjourn the Closing up to June 15,
1996. In such event, Purchaser shall pay to Seller the sum of Two Hundred
(US$200.00) Dollars per day (the "Extension Fee") for each day beyond the
Closing Date that Purchaser postpones the Closing. At any time after the Closing
Date up to and including June 15, 1996, Purchaser shall have the right to either
consummate the transaction subject to and in accordance with the terms and
conditions hereof or to terminate this Agreement, in which event Seller shall
forthwith return to Purchaser the Deposit, plus accrued interest thereon, less
the Extension Fee due from Purchaser to Seller pursuant to the provisions of
this subparagraph, and upon such refund being made, this Agreement shall
terminate, be null and void and of no further force or effect and neither party
shall have any further obligations or liabilities hereunder. Notwithstanding
anything to the contrary herein contained, if (a) Seller shall have satisfied
all of the conditions precedent to Closing required to be satisfied by Seller on
or before June 15, 1996 and is ready, willing and able to consummate the
transaction contemplated hereby in accordance with all of the terms and
conditions herein set forth, (b) Purchaser has elected to adjourn the Closing up
to June 15, 1996 as provided above and (c) Purchaser shall elect for any reason
not to close on or before June 15, 1996, then Purchaser shall be entitled to
adjourn the Closing up to August 31, 1996 (the "Extended Closing Date"). At any
time after June 15, 1996 up to and including the Extended Closing Date,
Purchaser shall have the right to either consummate the transaction subject to
and in accordance with the terms and conditions hereof or to terminate this
Agreement, in which event Seller may retain the Deposit and the Deposit shall be
deemed liquidated damages and this Agreement shall terminate, be null and void
and of no further force or effect and neither party shall have any further
obligations or liabilities hereunder.
(d) Closing Adjustments. Purchaser shall be charged at the Closing with the
following items, adjusted as of midnight of the day immediately preceding the
Closing: prepaid real estate taxes apportioned on the basis of the real estate
tax year; prepaid water and sewer rents apportioned on the basis of the
applicable payment period; the reasonable value of fuel on hand; and the
pro-rated value of all existing policies of insurance. Purchaser shall likewise
be credited at the Closing with the following items: (i) accrued real estate
taxes apportioned on the basis of the real estate tax year; (ii) accrued real
estate assessments; (iii) charges accrued for electricity, sewer, water, steam
and gas; (iv) prepaid rents covering any period from and after the Closing (it
being understood and agreed that for purposes hereof, "prepaid rents" shall not
be deemed to include the amount of free rent to which American Tissue
Corporation is entitled under its lease with the Corporation of a portion of the
real property owned by the Corporation); (v) an amount equal to the deposits
made by tenants under leases; (vi) an amount equal to all items
3
<PAGE>
carried by the Corporation, or which should be carried, for rent refunds; (vii)
accounts payable; (viii) an amount equal to the sum of all unpaid Taxes (as
hereinafter defined) (other than real estate taxes) of the Corporation for any
fiscal year up to and including its fiscal year ended December 31, 1995,
together with the amount of Taxes, if any, accrued for the elapsed part of the
fiscal year of the Corporation commencing January 1, 1996, and ending at
Closing. Such apportionment, however, shall not be deemed conclusive upon
Purchaser or prejudice any of Purchaser's rights or claims in respect of the
Corporation's unpaid Taxes or liabilities, if any; (ix) an amount equal to the
sum of operating expenses and insurance, unpaid and accrued as of the Closing,
exclusive of water charges, if any, payable by tenants. The term "operating
expenses" shall be deemed to include (but not be limited to) employee's salaries
and wages and apportioned vacation pay; and (x) an amount equal to the total of
all transfer taxes payable in connection with the transfer of the Shares by
Seller to Purchaser and such amount shall be applied to the payment of the
transfer taxes.
(e) Purchase and Sale of Note. Subject to the terms and conditions contained in
this Agreement and effective at the Closing, Seller hereby agrees to sell,
assign, transfer, convey and deliver to Purchaser all of Seller's right, title
and interest, as payee and obligee, in and to the Note, and, on the basis of the
representations, warranties and covenants of Seller herein contained, Purchaser
hereby agrees to purchase, acquire and accept the Note from Seller. The total
purchase price for the Note shall be the outstanding amount of the Indebtedness
as of the day of Closing (the "Note Price"). The Note Price shall be payable at
the consummation of the Closing in accordance with all of the terms and
conditions herein by good certified check, bank check or wire transfer of funds.
At the Closing, Seller shall deliver to Purchaser all of the documentation
relating to the Note required to be delivered as set forth in Article 6 below.
2. REPRESENTATIONS AND WARRANTIES OF SELLER AND HRUDKA
---------------------------------------------------
As a material inducement to Purchaser to execute and deliver this Agreement, and
to purchase and pay for the Shares and the Note, Seller and Hrudka each hereby
represent, warrant and, where applicable, covenant as set forth below. Each of
the representations and warranties contained herein are true, accurate and
complete as of the date of this Agreement and shall be true, accurate and
complete as of the Closing as though made as of such date and as though the date
of the Closing were substituted for the date of this Agreement:
(i) Organization and Authorization of Seller. Seller is duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has
4
<PAGE>
full corporate power and authority to execute this Agreement and to
perform its obligations hereunder. This Agreement has been duly
executed and delivered by Seller and constitutes the valid and legally
binding agreement of Seller enforceable in accordance with its terms
except as such enforceability may be limited by bankruptcy, insolvency
or other laws affecting generally the enforceability of creditors'
rights and by application of equitable principles. Seller need not give
any notice to, make any filing with or obtain any authorization,
consent or approval of any government or governmental agency in order
to consummate the transaction contemplated hereby.
(ii) Shares. With the exception only of the Hrudka Stock, Seller holds
of record and owns beneficially all of the Shares. The Shares are owned
by Seller and Hrudka free and clear of any and all restrictions on
transfer, taxes, mortgages, deeds of trust, pledges, liens, security
interests, purchase rights, contracts, commitments, equities,
violations, adverse claims, beneficial interests, assessments and/or
other charges or encumbrances of any nature whatsoever (collectively
"Charges"). The Shares are not subject to any voting trusts, options,
warrants, other agreements or restrictions with respect to
transferability, except those restrictions as may be imposed by law
upon unregistered shares of stock of privately held corporations. There
are no agreements or understandings, written or oral, to which Seller
or Hrudka is a party relating to the acquisition, disposition or voting
of the Shares or otherwise affecting the Shares. Seller has the full
right and power to sell and transfer the Shares to Purchaser under and
pursuant to the terms and conditions of this Agreement. The transfer of
the Shares to Purchaser hereunder will convey and transfer to Purchaser
good, marketable, indefeasible and valid title to the Shares, free and
clear of any and all Charges. The Shares constitute all of the issued
and outstanding shares of capital stock, securities or other property
interests of any kind or nature owned beneficially or of record by
Seller and Hrudka, or any person or entity related to Seller or Hrudka,
including, without limitation, any member of Hrudka's family, in or
relating to the Corporation. From and after the Closing, the Seller,
Hrudka and any related party shall have no further interest of any
nature whatsoever in the Corporation or its businesses, assets or
operations.
(iii) Note. Seller is the sole owner and holder of Seller's interest,
as payee and obligee, in and to the Note. The Note is owned by Seller
free and clear of any and all Charges, including, without limitation,
collateral or other assignments or security arrangements in respect of
Seller's interest therein. The Note is fully negotiable and Seller
5
<PAGE>
has the full right and power to sell, assign and transfer Seller's
interest in and to the Note to Purchaser under and pursuant to the
terms and conditions of this Agreement. The Indebtedness is currently
in the outstanding principal amount of US$2.1 million, together with
interest thereon at the annual rate of ___________ ( %) percent; the
Indebtedness is payable in equal monthly installments of interest only
and matures on _________________, 19___. The Note constitutes the
legal, valid and binding indebtedness of the Corporation owed to
Seller, enforceable and due and payable in accordance with its terms.
There exists no offsets, defenses or counterclaims of any nature
whatsoever to the liability of the Corporation for the Indebtedness.
The interest rate payable under the Note is not in excess of the
maximum interest rate which the Corporation is permitted by law to
contract or agree to pay, nor could such rate subject the holder of the
Note to either civil or criminal liability as a result of such rate
being in excess of the maximum legal interest rate under applicable
usury laws or otherwise. The Corporation is not in breach or default
under the Note, all sums due and owing thereunder have been fully paid
and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default.
(iv) Noncontravention by Seller. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (a) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge
or other restriction of any government, governmental agency or court to
which Seller is subject, or (b) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or
require notice under, any agreement, contract, lease, license,
instrument or other arrangement to which Seller is a party or by which
Seller is bound or to which any of Seller's assets is subject, or (c)
violate any provision of the charter, certificate of incorporation or
by-laws of Seller.
(v) Organization, Qualification and Corporate Power of the Corporation.
The Corporation (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation, (b) is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such
qualification is required, and there are no actions or proceedings
pending or threatened to dissolve the Corporation or to declare any or
all of its corporate rights, powers, franchises or privileges null and
void, (c) has full corporate power and authority and all licenses,
permits and authorizations
6
<PAGE>
necessary to carry on the businesses in which it is engaged, as now
being conducted, and to own and use the properties owned and used by
it, (d) is solvent and not in the hands of a receiver, nor is any
application for receivership pending, and (e) does not contemplate
insolvency and no proceedings are pending by or against it in
bankruptcy or reorganization in any court, nor has it filed any
petition in bankruptcy. Seller has delivered to Purchaser correct and
complete copies of the charter, notarial deed and other organizational
documents of the Corporation (as amended to date). The organizational
documents have never been amended and, to the best of Seller's
knowledge, no proceeding has been instituted or authorized for the
purpose of any such amendment. The minute books (containing the records
of meetings of the stockholders, the board of directors and any
committees of the board of directors), the stock certificate books and
the stock record books of the Corporation are correct and complete. To
the best of Seller's knowledge, there are no minutes other than those
contained in the minute book and such books fully, correctly and fairly
reflect the Corporation's affairs. To the best of Seller's knowledge,
there have been no meetings of directors or shareholders except as
reflected in the minute book of the Corporation. The Corporation is not
in default under or in violation of any provision of its charter,
certificate of incorporation, by-laws or other organizational
documents.
(vi) Capitalization. The entire authorized capital stock of the
Corporation consists of 625 common shares, one peso par value all of
are issued and outstanding. The Shares have been duly authorized, are
validly issued, fully paid and nonassessable. There are no outstanding
or authorized options, equity securities of any class or kind,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights or other contracts or commitments that could require
the Corporation to issue, sell or otherwise cause to become outstanding
any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights
with respect to the Corporation.
(vii) Noncontravention by the Corporation. Neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (a) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge or other restriction of any government, governmental agency or
court to which the Corporation is subject or any provision of the
charter, certificate of incorporation, by-laws or other organizational
documents of the Corporation, (b) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right
7
<PAGE>
to accelerate, terminate, modify, or cancel, or require any notice
under, any agreement, contract, lease, license, instrument or other
arrangement to which the Corporation is a party or by which it is bound
or to which any of its assets is subject, or (c) result in the
imposition of any security interest, Charge or encumbrance upon any of
its assets. The Corporation is not required to give any notice to, make
any filing with, or obtain any authorization, consent or approval of
any governmental agency in order for Seller and Purchaser to consummate
the transactions contemplated by this Agreement.
(viii) Broker's Fees. The Corporation has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect
to the transactions contemplated by this Agreement. Seller has no
liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement for which Purchaser could become liable or obligated.
(ix) Title to Assets. The Corporation has good, marketable and
indefeasible title to all properties and assets owned or used by it,
located on its premises and shown on the balance sheet of the Most
Recent Financial Statements (as hereinafter defined) or acquired after
the date thereof, free and clear of all Charges except as may be set
forth on the disclosure schedule annexed hereto and made a part hereof
as Schedule "A" (the "Disclosure Schedule"). Seller acknowledges that
for purposes of this Agreement and the representations and warranties
set forth herein, nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made
herein unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without
limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the
existence of the document or other item itself).
(x) Subsidiaries. The Corporation does not own a majority of the common
stock or have the power to vote or direct the voting of sufficient
securities to elect a majority of the directors of any entity and
otherwise has no subsidiaries.
(xi) Financial Statements. Annexed hereto and made a part hereof as
Exhibit "B" are the following financial statements (collectively, the
"Financial Statements") (i) audited and unaudited balance sheets and
statements of income, changes in stockholders' equity and cash flow as
of and for the
8
<PAGE>
fiscal years ended December 31, 1992, December 31, 1993, December 31,
1994, and December 31, 1995 (the "Most Recent Fiscal Year End") for the
Corporation; and (ii) unaudited balance sheets and statements of
income, changes in stockholders' equity and cash flow (the "Most Recent
Financial Statements") as of and for the month ended January 31, 1996
(the "Most Recent Fiscal Month End") for the Corporation. The Financial
Statements (including the notes thereto) (a) have been prepared in
accordance with the applicable standard of GAAP applied on a consistent
basis throughout the periods covered thereby, (b) present completely,
fairly and accurately the financial condition of the Corporation as of
such dates and the results of operations of the Corporation for such
periods, including all of the Corporation's assets and liabilities of
every kind and nature, whether accrued, absolute, contingent or
otherwise, (c) are correct and complete, and (d) are consistent with
the books and records of the Corporation (which books and records are
correct and complete).
(xii) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any adverse change in the
business, financial condition, operations, results of operations or
future prospects of the Corporation. Without limiting the generality of
the foregoing, since that date: (a) the Corporation has not sold,
leased, transferred or assigned any of its assets, tangible or
intangible, other than for a fair consideration in the ordinary course
of business; (b) the Corporation has not entered into any agreement,
contract, lease or license (or series of related agreements, contracts,
leases or licenses) either involving more than Ten Thousand
(US$10,000.00) Dollars or outside the ordinary course of business; (c)
no party (including the Corporation) has accelerated, terminated,
modified or cancelled any agreement, contract, lease or license (or
series of related agreements, contracts, leases or licenses) involving
more than Five Thousand (US$5,000.00) Dollars, to which the Corporation
is a party or by which it is bound; (d) the Corporation has not imposed
any security interest, charge, restriction or encumbrance or other
Charge upon any of its assets, tangible or intangible; (e) the
Corporation has not made any capital expenditure (or series of related
capital expenditures) involving more than Five Thousand (US$5,000.00)
Dollars; (f) the Corporation has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other person (or series of related capital investments, loans or
acquisitions) involving more than Five Thousand (US$5,000.00) Dollars;
(g) the Corporation has not issued any note, bond or other debt
security or created, incurred, assumed or guaranteed any indebtedness
for borrowed money or capitalized lease
9
<PAGE>
obligation either involving more than Five Thousand ($5,000.00) Dollars
singly or Ten Thousand (US$10,000.00) Dollars in the aggregate; (h) the
Corporation has not delayed or postponed the payment of accounts
payable or other liabilities outside the ordinary course of business;
(i) the Corporation has not cancelled, compromised, waived or released
any right or claim (or series of related rights to claims) either
involving more than Five Thousand (US$5,000.00) Dollars or outside the
ordinary course of business; (j) there has been no change made or
authorized in the charter, certificate of incorporation, by-laws or
other organizational documents of the Corporation; (k) the Corporation
has not issued, sold or otherwise disposed of, any of its capital
stock, or granted any options, warrants or other rights to purchase or
obtain (including upon conversion, exchange or exercise) any of its
capital stock; (l) the Corporation has not redeemed, purchased or
otherwise acquired any of its capital stock; (m) the Corporation has
not experienced any damage, destruction or loss (whether or not covered
by insurance) to its properties; (n) the Corporation has not made any
loan to, or entered into any other transaction with, any of its
directors, officers or employees; (o) the Corporation has not entered
into any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any such existing contract or
agreement; (p) the Corporation has not granted any increase in the base
compensation of any of its directors, officers or employees; (q) the
Corporation has not adopted, amended, modified or terminated any bonus,
profit-sharing, incentive, severance or other plan, contract or
commitment for the benefit of any of its directors, officers or
employees (or taken any such action with respect to any other employee
benefit plan); (r) the Corporation has not made any other change in
employment terms for any of its directors, officers or employees; (s)
the Corporation has not made or pledged to make any charitable or other
capital contribution outside the ordinary course of business; (t) there
has not been any other occurrence, event, incident, action, failure to
act or transaction outside the ordinary course of business involving
the Corporation; (u) the Corporation has not committed to any of the
foregoing; and (v) there has not been an occurrence, event, incident,
action, failure to act or other transaction which has or may have an
adverse effect on the Corporation not heretofore disclosed to
Purchaser.
(xiii) Undisclosed Liabilities. The Corporation has no liability
(whether known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, due or to
become due), and there is no basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against
10
<PAGE>
the Corporation giving rise to any material liability except for (a)
liabilities set forth on the balance sheet contained within the Most
Recent Financial Statements, and (b) liabilities which have arisen
after the Most Recent Fiscal Month End in the ordinary course of
business (none of which adversely affect the financial condition or
operation of the Corporation or results from, arises out of, relates
to, is in the nature of or was caused by any breach of contract, breach
of warranty, tort, infringement or violation of law). As used herein,
"material liability" means liability or liabilities in an amount equal
to or exceeding US$10,000.00 in the aggregate. All liabilities of the
Corporation, whether disclosed or undisclosed, "material" or
non-material, shall be paid and discharged by Seller at or prior to the
Closing, except the indebtedness evidenced by the Note.
(xiv) Legal Compliance. Each of the Corporation and, to the best of
Seller's knowledge, its predecessors has complied with all applicable
laws, rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings and charges of all Mexican and other governments (and
all agencies and political subdivisions thereof including the Town and
City of Mexicali) relating to it, its assets and properties and no
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand or notice has been filed or commenced against any of them
alleging any failure so to comply.
(xv) Tax Matters. (a) The Corporation has filed all returns,
declarations, reports, information returns or statements ("Tax
Returns") relating to any Mexican or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated and/or other tax of every kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not
(collectively, "Taxes") that it was required to file. All such Tax
Returns were correct and complete in all respects. All Taxes owed by
the Corporation (whether or not shown on any Tax Return) have been
paid. The Corporation is not currently the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction where the Corporation does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no liens, charges or encumbrances on any of the
assets of the Corporation that arose in connection with any failure (or
alleged failure) to pay any
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Taxes; (b) the Corporation has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder or other
third party; (c) neither Seller nor Hrudka or a director or officer (or
employee responsible for Tax matters) of the Corporation expects any
authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any
liability for Taxes of the Corporation either claimed or raised by any
authority in writing or as to which any of Seller and Hrudka, the
directors and officers (and employees responsible for Tax matters) of
the Corporation has knowledge based upon personal contact with any
agent of such authority. None of the Corporation's Tax Returns has been
audited and none are currently the subject of audit. Seller has
delivered to Purchaser correct and complete copies of all Tax Returns;
(d) the Corporation has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency; (e) the unpaid Taxes of the Corporation
(A) did not, as of the Most Recent Fiscal Month End, exceed the reserve
for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth on the face of the balance sheet in the Most Recent Financial
Statements (rather than in any notes thereto), and (B) do not exceed
that reserve as adjusted for the passage of time through the Closing in
accordance with the past custom and practice of the Corporation in
filing its Tax Returns; and (f) if the amount referred to in
subparagraph (e) above as having been set aside for the Corporation's
Taxes for the fiscal year or period ended before the Closing is found
to be insufficient, Seller shall pay Purchaser the amount of such
deficiency. If at any time hereafter, by reason of any examination or
audit made by the Mexican or other governments, any additional Taxes or
assessments, with interest or penalties (other than those now set forth
in the reserve account), are levied or assessed against the Corporation
for the fiscal year or period ended before the Closing, Seller shall
forthwith pay such amounts to Purchaser. If the Mexican or any other
government makes or asserts any claim for additional Taxes or
assessments against the Corporation for any fiscal year or period ended
before the Closing, Seller may employ Seller's own counsel to contest
such claims, and to litigate such claims at Seller's expense. In such
case, however, Seller shall indemnify the Corporation and Purchaser
against any damage resulting from the failure to pay such claims while
such litigation is pending, and shall pay or discharge such assessment
or assessments, with interest and penalties, as finally fixed and
determined.
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(xvi) Contracts. The Disclosure Schedule lists the following contracts
and other agreements to which the Corporation is a party: (a) any
agreement (or group of related agreements) for the lease of personal
property to or from any person or entity; (b) any agreement concerning
a partnership or joint venture; (c) any agreement for the purchase or
sale of supplies, products, goods, materials, commodities or other
personal property or for the receipt of labor or services, including
the management of the Corporation's real property, the performance of
which will or may extend over a period of more than one year or involve
consideration in excess of Five Thousand (US$5,000.00) Dollars; (d) any
agreement (or group of related agreements) under which the Corporation
has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, or under which it
has imposed a Charge on any of its assets, tangible or intangible; (e)
any agreement concerning confidentiality or non-competition; (f) any
agreement with either Seller or Hrudka; (g) any profit sharing, stock
option, stock purchase, stock appreciation, deferred compensation,
severance or other plan or arrangement for the benefit of its current
or former directors, officers, and employees; (h) any collective
bargaining agreement; (i) any agreement for the employment of any
individual on a full-time, part-time, consulting or other basis; (j)
any agreement under which it has advanced or loaned any amount to any
of its directors, officers or employees; (k) any agreement under which
the consequences of a default or termination could have an adverse
effect on the business, financial condition, operations, results of
operations or future prospects of the Corporation; and (l) any other
agreement (or group of related agreements) the performance of which
involves consideration in excess of Five Thousand (US$5,000.00)
Dollars. Seller has delivered to Purchaser a correct and complete copy
of each written agreement listed in the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions
of each oral agreement referred to in the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the consummation of the
transaction contemplated hereby; (C) no party is in breach or default,
and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement, and the Corporation has fully
performed and observed all terms and provisions of each agreement, and
(D) no party has repudiated any provision of the agreement. There will
be no commitments, agreements or contracts
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outstanding as of the Closing except as set forth in the Disclosure
Schedule.
(xvii) Notes and Accounts Receivable. All notes and accounts receivable
of the Corporation, including the Note, are reflected properly on its
books and records, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and will be collected in
accordance with their terms at their recorded amounts, subject only to
the reserve for bad debts set forth on the balance sheet of the Most
Recent Financial Statement as adjusted for the passage of time through
the Closing in accordance with the past custom and practice of the
Corporation.
(xviii) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Corporation.
(xix) Insurance. The Disclosure Schedule sets forth the following
information with respect to each insurance policy (including policies
providing property, casualty, liability and worker's compensation
coverage and bond and surety arrangements) to which the Corporation has
been a party, a named insured or otherwise the beneficiary of coverage
at any time within the past ten (10) years: (a) the name, address, and
telephone number of the agent; (b) the name of the insurer, the name of
the policyholder, and the name of each covered insured; (c) the policy
number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence or
other basis) and amount (including a description of how deductibles and
ceilings are calculated and operate) of coverage; and (e) a description
of any retroactive premium adjustments or other loss-sharing
arrangements. With respect to each such insurance policy: (A) the
policy is, or during the life of such policy was, legal, valid,
binding, enforceable and in full force and effect; (B) the policy, to
the extent currently in effect, will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the consummation of the transaction contemplated hereby; (C)
neither the Corporation nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit
termination, modification or acceleration under the policy; and (D) no
party to the policy has repudiated any provision thereof. The
Corporation has been covered during the past ten (10) years by
insurance in scope and amount customary and reasonable for the business
in which it has engaged during the aforementioned period. The
Disclosure Schedule describes any self-insurance arrangements affecting
the Corporation.
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In the event of damage to or destruction of the properties,
appurtenances or personal property of the Corporation prior to the
Closing, Seller shall make good such damage at Seller's expense and if
such damage is insured against, Seller shall be entitled to
reimbursement for such expense out of the net amount of insurance
proceeds. Seller shall not take or permit any action, or omit to take
any action, which would or might cause any existing policies to lapse
or be invalidated or the rights of the Corporation thereunder to be
impaired.
(xx) Litigation. No suit, proceeding or litigation is pending or
threatened against or relating to the Corporation or its properties,
assets or business. The Corporation is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge, and is not a
party or threatened to be made a party to any action, suit, proceeding,
hearing or investigation of, in or before any court or quasi-judicial
or administrative agency of any Mexican or other jurisdiction or before
any arbitrator. None of the Seller, Hrudka, the directors or officers
(or employees with responsibility for litigation matters) of the
Corporation knows, or has reasonable grounds to know, of any basis for
any such action, suit, proceeding, hearing or investigation or has any
reason to believe that any such action, suit, proceeding, hearing or
investigation may be brought or threatened against the Corporation.
(xxi) Employees. The Disclosure Schedule lists all persons employed by
the Corporation, their respective title, job description and annual
salary. There is no contract of employment with any officer, director
or employee of the Corporation which is not terminable at will. The
Corporation is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of
unfair labor practices or other collective bargaining disputes. The
Corporation has not committed any unfair labor practice. None of the
Seller, Hrudka, the directors or officers (or employees with
responsibility for employment matters) of the Corporation has any
knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees
of the Corporation.
(xxii) Employee Benefits. The Disclosure Schedule lists each employee
benefit plan that the Corporation maintains or to which the Corporation
contributes. Each such plan (and each related trust, insurance contract
or fund) complies in form and in operation in all respects with the
requirements of applicable laws and regulations and orders.
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(xxiii) Guaranties. The Corporation is not a guarantor or otherwise
liable for any liability or obligation (including indebtedness) of any
other individual, partnership, corporation, association, trust,
unincorporated organization or other entity.
(xxiv) Environment, Health and Safety. To the extent applicable to the
Corporation and its assets and to the best of Seller's knowledge, its
predecessors, have complied with all Environmental, Health and Safety
Laws as hereinafter defined, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been
filed or commenced against any of them alleging any failure so to
comply. Without limiting the generality of the preceding sentence, each
of the Corporation and, to the best of Seller's knowledge, its
predecessors, has obtained and been in compliance with all of the terms
and conditions of all permits, licenses and other authorizations which
are required under applicable Mexican federal, state and municipal
environmental and occupational safety and health laws, and has complied
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables which
are contained in, all Environmental, Health and Safety Laws. For
purposes hereof, "Environmental, Health and Safety Laws" include all
laws, statutes, rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges of the country of
Mexico, its political subdivisions, departments, agencies, commissions,
regulatory and quasi-governmental bodies, including the Town and City
of Mexicali, and to the extent applicable to the Corporation and its
assets, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act of
1976, the Occupational Safety and Health Act of 1970, the Toxic
Substances Control Act, the General Law of Ecological Balance and
Environmental Protection of 1988, its Regulations in the area of (i)
Environmental Impact, (ii) Prevention and Control of Air Pollution,
(iii) Prevention and Control of Water Pollution and (iv) Hazardous
Wastes, the National Waters Law of 1992 and its Regulations, the
Regulations on Land Transportation of Hazardous Wastes of 1993, the Law
of Ecological Balance and Environmental Protection of the State of Baja
California of 1992, and its Regulations in the area of (i)
Environmental Impact and (ii) Prevention and Control of Air, Water and
Soil Pollution, the General Regulations of Safety and Hygiene in the
Workplace of 1978, each as amended, and all other laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings and charges of federal, state, local and foreign governments
(and all agencies thereof including, without limitation, the United
States Environmental Protection Agency, the Department of
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Environment, Natural Resources and Fisheries, the National Institute of
Ecology, the Federal Bureau of Environmental Protection, the General
direction of Ecology of the State of Baja California, and the
Department of Labor and Social Welfare) to the extent applicable to the
Corporation and its assets, concerning pollution or protection of the
environment, public health and safety, or employee health and safety
including laws relating to (a) emissions, discharges, releases or
threatened releases of pollutants, contaminants or chemical,
industrial, hazardous or toxic materials or wastes into ambient air,
surface water, ground water or lands or (b) the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants or chemical, industrial,
hazardous or toxic materials or wastes. The Corporation has no
liability, (whether known or unknown, asserted or unasserted, absolute
or contingent, accrued or unaccrued, liquidated or unliquidated, due or
to become due ("Liability") and has not handled or disposed of any
substance, arranged for the disposal of any substance, exposed any
employee or other individual to any substance or condition or owned or
operated any property or facility in any manner that could form the
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the
Corporation giving rise to any Liability for damage to any site,
location or body of water (surface or subsurface), for any illness of
or personal injury to any employee or other individual or for any
reason under any Environmental, Health and Safety Law. All properties
and equipment owned or used in the business of the Corporation and its
predecessors are and have been free of all hazardous substances,
including, without limitation, asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2-transdichloroethylene, dioxins, dibenzofurans
and hazardous substances.
(xxv) Disclosure. The representations and warranties contained in this
Article 2 do not contain any untrue statement of a fact or omit to
state any fact necessary in order to make the statements and
information contained in this Article 2 not misleading.
(xxvi) Books and Records. If Purchaser or the Corporation, or the
representatives of either, at any time within one year after the
Closing, require the aid or assistance of, or consultation with, the
Corporation's present accountants in connection with its books,
records, tax return and reports or financial transactions before the
Closing, Seller shall make available the services of its accountants
for such purposes at no cost to Purchaser or the Corporation.
3. REAL PROPERTY
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(a) Ownership. The Corporation is, and will be at the Closing, (i) the owner in
fee simple of the real property and all buildings and improvements thereon
situated in the City of Mexicali, Baja, California, at Calle Villa Hermosa,
#1300 y Avenida Navolato Guajardo and more particularly described on Exhibit "C"
annexed hereto and made a part hereof (the "Property"), together with all
hereditaments and appurtenances thereto, and (ii) the owner of all fixtures,
machinery, equipment and articles of personal property attached to or used in
connection with the Property ("Personal Property").
(b) Representations and Warranties of Seller. As a material inducement to
Purchaser to execute and deliver this Agreement, and to purchase and pay for the
Shares and the Note, Seller represents and warrants and, where applicable,
covenants, as set forth below. Each of the statements set forth herein are true,
accurate and complete as of the date of this Agreement and shall be true,
accurate and complete as of the Closing as though made then and as though the
date of Closing were substituted for the date of this Agreement:
(i) The Corporation has good, marketable, indefeasible and valid title
to the Personal Property free and clear of all Charges of any nature
whatsoever.
(ii) The Corporation has good, indefeasible, insurable and marketable
title to the Property, which title as of Closing will be insured by a
duly licensed reputable title company in the amount of Three Million
(US$3,000,000.00) Dollars, free and clear of all Charges, including,
without limitation, all mortgages, liens, covenants, restrictions,
conditions, encumbrances, security interests, underlying or ground
leases, easements, encroachments and any other matters affecting title,
other than the matters of public record set forth in the Disclosure
Schedule (the "Permitted Encumbrances"). The Permitted Encumbrances:
are not violated by existing structures or the maintenance and
operation thereof or the use of the Property for industrial,
manufacturing, warehousing and office purposes, and customary accessory
uses; do not interfere with the maintenance, use, occupancy or value of
the Property; do not render title unmarketable or uninsurable; and do
not require the expenditure of monies or other affirmative acts by the
Corporation. In addition, the Property is not burdened by any
covenants, restrictions, liens, rights-of-way or easements not of
record or utility easements not limited to within fifteen (15) feet of
the street line or with any greater privilege than keep lines clear a
distance of not more than fifteen (15) feet.
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(iii) There is no mortgage, deed of trust or other lien or security
agreement, instrument or interest encumbering the Property.
(iv) The legal description for the Property contained in the deed
thereof describes the Property fully and adequately. All buildings and
improvements are located within the boundary lines of the Property and
are not in violation of applicable municipal or subdivision
regulations, including, without limitation, setback requirements,
zoning laws or ordinances. Neither the Property nor the buildings or
improvements thereon are subject to "permitted non-conforming use" or
"permitted non-conforming structure" classifications or encroach on any
easement which may burden the Property. The Property does not serve any
adjoining property for any purpose inconsistent with the use of the
Property. To the best of Seller's knowledge, in the construction of all
buildings and improvements on the Property, all applicable laws,
ordinances, rules and regulations (including all applicable zoning
laws, ordinances and regulations) of all federal, local and foreign
governmental and quasi-governmental authorities having jurisdiction of
the Property, including, without limitation, the country of Mexico and
its political subdivisions, including the Town and City of Mexicali,
were fully and faithfully complied with. To the best of Seller's
knowledge, prior to construction of such buildings, plans therefor and
all other requisite data were duly filed with all governmental and
quasi-governmental authorities having jurisdiction of the Property
including, without limitation, the country of Mexico and its political
subdivisions, including the Town and City of Mexicali. Prior to and in
the course of the construction of such buildings, all permits needed
from any governmental or quasi-governmental authorities including,
without limitation, from the country of Mexico and/or its political
subdivisions, including the Town and City of Mexicali, were duly issued
and procured. Certificates of occupancy were duly issued for each such
building, and all of such certificates of occupancy are in full force
and effect. The use of the Property for industrial, office,
manufacturing and warehouse purposes and all customary accessory uses
is currently permitted under the certificate of occupancy for, and all
other laws, rules and regulations affecting, the Property. The Property
is currently in full compliance with all federal, state, local and
foreign laws, rules, ordinances, orders, regulations and requirements
applicable to the Property including the laws, rules, ordinances,
orders, regulations and requirements of the country of Mexico and its
political subdivisions, including the Town and City of Mexicali, all
applicable Environmental, Health and Safety Laws (collectively, "Laws")
and is free of all hazardous substances. No alterations
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have been made to the Property which would require an amended
certificate of occupancy. No zoning or other ordinance is currently
violated by the current use and maintenance of all structures and
improvements erected on the Property.
(v) Seller has not received any notice of any violation of Laws and
knows of no facts, circumstances, conditions, bases or grounds for any
such violations. There are no actions, suits, claims or proceedings
seeking money damages, injunctive relief, remedial action or any other
remedy pending or threatened relating to a violation of Laws. Seller,
for the benefit of the Corporation, shall comply with all violations of
Laws against or affecting the Property, including those issued by the
state or municipal departments having authority as to lands, housing,
buildings, fire, health and labor conditions, whether noted before or
after the Closing, provided the condition existed before the Closing
and violated the then existing Laws.
(vi) No portion of the Property is subject to or affected by any
assessment for public improvements, whether or not presently a lien
thereon. No notice of pending assessable public improvements issued by
any governmental authority has been served upon the Corporation. No
notice or order by any governmental or other public authority has been
served upon the Corporation or otherwise issued for assessments for
public improvements which remain unpaid or which (a) requires the
performance of any work or the making of any repairs or alterations on
the Property or in the streets bounding thereon or (b) orders the
construction, repair or alteration of any public improvements on or
about the Property or on the streets bounding thereon which may become
a lien on the Property. The real estate taxes for the Property are
currently US$____________ per annum.
(vii) All buildings, improvements, facilities and appurtenances are in
good condition. All fixtures, plumbing, air conditioning, sprinkler,
heating, electrical and other systems are in good working order and
condition. The roof of each building at the Property is free of leaks
and in good condition. The basement (if any) of each building at the
Property is, and at the time of Closing will be, free of seepage,
leakage and/or standing water.
(viii) No person, firm, corporation or other entity has any legal or
equitable rights or interests in or rights to acquire the Property or
any part thereof. There are no outstanding options or rights of first
refusal to purchase the Property or any part thereof or interest
therein.
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(ix) Seller has received no written notice and has no knowledge of (i)
any pending or contemplated annexation or condemnation proceedings or
private purchase in lieu thereof, affecting or which may affect the
Property, or any part thereof, (ii) any proposed or pending proceeding
to change or redefine the zoning classification of all or any part of
the Property, (iii) any proposed or pending special assessments
affecting the Property or any portion thereof, or (iv) any proposed
change(s) in any road or grades with respect to the roads providing a
means of ingress and egress to the Property.
(x) No work has been performed or is in progress at, and no materials
have been furnished to the Property on behalf of the Corporation which
might give rise to mechanic's, materialmen's or other liens against the
Property or any portion thereof. If any lien for such work is filed
before or after the Closing hereunder, Seller on behalf of the
Corporation shall promptly discharge the same at Seller's sole cost and
expense.
(xi) No default, breach or violation exists under any covenants,
conditions, restrictions, rights-of-way, easements, obligations,
agreements or contracts, if any, affecting or all or any portion of the
Property.
(xii) There is no litigation, at law or in equity, or proceedings
before any commission, agency or other administrative authority pending
or, to the knowledge of Seller, threatened against or affecting the
Property or arising out of or by virtue of the Corporation's ownership
of the Property. There is no pending, and Seller has no notice of any
threatened, judicial, municipal or administrative proceedings affecting
the Property or in which the Corporation is or may be a party by reason
of the ownership of the Property or any portion thereof. There are no
outstanding decrees, orders, awards or specific administrative
determinations relating to the Corporation or any part of the Property
or any other matters adversely affecting the current use, occupancy or
value thereof.
(xiii) All facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in accordance with applicable Laws.
(xiv) There are no parties in possession of the Property, other than
tenants under leases disclosed in the Disclosure Schedule, all of whom
are in possession of space to which they are entitled.
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(xv) The Property is connected to and supplied as of right by a public
water system. The sanitary sewage disposal system and/or septic system
is located entirely within the bounds of the Property and such system
and all equipment appurtenant thereto are in good working order. All
facilities located on the Property are supplied with utilities and
other services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer and storm
sewer, all of which services are installed and operating and adequate
in accordance with all applicable Laws, and are provided via public
roads or via permanent, irrevocable, appurtenant easements benefitting
the Property. All installation and connection charges have been fully
paid.
(xvi) The Property abuts on and has direct vehicular access to a public
road, or has access to a public road via a permanent, irrevocable,
appurtenant easement benefitting the Property, and access to the
Property is provided by paved public right-of-way with adequate curb
cuts available.
(xvii) The Property is not located within a "flood plain", "flood way"
or "flood hazard area".
(xviii) Except as set forth in the Disclosure Schedule, no material has
been manufactured, stored or disposed of on the Property which material
is a hazardous substance, toxic waste or other prohibited or regulated
substance under any Environmental Health and Safety Laws. With respect
to any such material manufactured, stored or disposed of on the
Property as set forth on the Disclosure Schedule, (a) all such material
has been removed from the Property and disposed of strictly in
accordance with all applicable Environmental Health and Safety Laws,
(b) any and all remediation work required with respect thereto has been
fully and properly completed in accordance therewith, and (c)
certification thereof has been duly issued by all applicable regulatory
or governmental agencies having jurisdiction of the Property. To the
best of Seller's knowledge at no time prior to or during the
Corporation's ownership of the Property were hazardous materials or
waste disposed of on or about the Property or adjacent thereto; no
material or equipment which contain PCBs exists or is installed on the
Property; no storage tanks for gasoline, petroleum products or other
substance are located either on the Property or underground at the
Property; and the Property is not affected by any subsurface
encroachment of toxic chemicals or waste.
(xix) The Corporation has received no notice from any insurer,
insurance underwriter, agency or mortgagee requiring performance of any
maintenance work with respect
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to the Property in accordance with the terms of applicable policies or
agreements, which work has not been completed and paid for.
(xx) The Property consists of 272,409 rentable square feet, of which
272,409 is rented pursuant to written leases. The leases annexed hereto
and made a part hereof as Exhibit "D" are true, accurate and complete
copies of all leases, tenancies and rights of possession and/or
occupancy affecting the Property. There are no leases, occupancy
agreements or other agreements for the use or occupancy of the
Property, except those set forth in the Disclosure Schedule and Exhibit
"D". The rents, expiration dates and securities listed therein are
true, accurate and complete in all respects. The rents listed are the
amounts actually and currently being collected and there are no rents
past due. There are no applications, orders, protests or complaints
with reference to rents, services or equipment pending with any rental
authority or court and there has been no diminution of services and/or
equipment. If any of the rentable space becomes vacant between the date
of this Agreement and the Closing, the same shall not be relet. The
Corporation shall not modify, terminate or amend any lease after the
date hereof, without Purchaser's prior written consent. With respect to
each lease listed in the Disclosure Schedule: (A) the lease is legal,
valid, binding, enforceable and in full force and effect and has not
been modified or amended in any respect; (B) the lease will continue to
be legal, valid, binding, enforceable and in full force and effect on
identical terms following the consummation of the transaction
contemplated hereby; (C) no party to the lease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification or
acceleration thereunder; (D) no party to the lease has repudiated any
provision thereof; (E) no tenant has been granted any allowance or
concession in connection with rents; (F) only those tenants indicated
as lease tenants have leases; no written agreements, except such
leases, have been entered into with any tenant related to or in
connection with their occupancy of the Property; (G) all work provided
to be done or equipment to be furnished by the landlord under such
leases has been done or furnished; (H) there are no deposits by a
tenant as prepayment of rent; (I) there are no disputes, oral
agreements or forbearance programs in effect as to the lease; (J) the
Corporation has not assigned, transferred, conveyed, mortgaged, deeded
in trust or encumbered any interest in the leasehold; (K) all
facilities leased are legally occupied and have received all approvals
of governmental authorities (including (i) to the best of Seller's
knowledge, licenses and permits and (ii) certificates of occupancy)
required in connection with the
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operation thereof and have been operated and maintained in accordance
with all applicable Laws; (L) all facilities leased are supplied with
utilities and other services necessary for the operation of said
facilities; and (M) there are no claims, counterclaims or offsets by
any tenant. Seller shall deliver to Purchaser prior to Closing tenant
estoppel letters executed by each of the tenants and subtenants of any
portion of the Property in the form annexed hereto and made a part
hereof as Exhibit "E" and otherwise acceptable to Purchaser.
(c) Assessments. If at the Closing all or any part of the Property is or has
been affected by any one or more assessments which are or may become payable in
annual installments of which the first installment is then a charge or lien, or
has been paid, for the purpose of this Agreement, all of the unpaid installments
of any such assessment, including those that are due and payable after the
Closing, shall be deemed to be due and payable and shall be paid and discharged
by Seller at the Closing.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser hereby represents and warrants that this Agreement has been duly
executed and delivered by Purchaser and this Agreement constitutes the valid and
legally binding agreement of Purchaser enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency or other
laws affecting generally the enforceability of creditors' rights and by
application of equitable principles.
5. PRE-CLOSING COVENANTS OF SELLER
-------------------------------
(a) Undertakings of Seller. Seller covenants and agrees that from and after the
date of this Agreement and until the Closing, the Corporation shall not: change,
modify or amend its corporate structure or its certificate of incorporation,
by-laws or other organizational documents; make any change in the amount of its
authorized or issued shares or redeem, purchase or otherwise acquire any of its
capital stock; extend the time for payment, modify or otherwise amend the terms
of the Note; in any manner sell or encumber the properties or appurtenances
owned by it; make any commitment for compensation for services to any of its
officers or directors; enter into any transaction, contractual arrangement or
obligation, or incur any expenses other than in the ordinary course of business;
make or enter into any lease of the Property or terminate, modify or amend any
lease thereof; make any agreement of employment or increase compensation payable
or paid by the Corporation to any of its employees or agents; default under the
Note or any agreement to which the Corporation is a party or in the maintenance
of all policies of insurance in effect; default in the filing of any reports or
returns due to any Mexican or foreign authority; or engage in any practice or
24
<PAGE>
take any action outside of the ordinary course of business consistent with past
custom and practice (including with respect to quantity and frequency). In
addition, Seller shall (i) operate the business of the Corporation only in the
normal and ordinary manner consistent with past practice; (ii) operate and
manage the Property in the ordinary course of business and in the same manner
operated and managed to date and perform such necessary repairs and replacements
so that the Property is in the condition required hereunder; (iii) maintain all
services in connection with the Property as presently maintained; (iv) not cause
or permit any waste or nuisance to or against the Property; (v) pay in full when
due and payable all bills and invoices for labor, goods, materials and services
of any kind relating to the Property; and (vi) pay when due and payable all
installments due under the Note. Seller will cause the Corporation to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions and relationships with lessors, lessees,
suppliers, vendors and employees.
(b) Access. Seller shall permit, and cause the Corporation to permit,
representatives of Purchaser to have full access to all premises, properties,
personnel, books, records, contracts and documents of or pertaining to the
Corporation.
(c) Notice. Seller shall give Purchaser prompt written notice of any material
adverse development causing a breach of any of the representations, warranties
or covenants of Seller herein contained, provided, however, no such disclosure
shall be deemed to cure any misrepresentation, breach of warranty or breach of
covenant.
(d) Removal of Property. The Corporation covenants and agrees that on or before
Closing, it will remove its office files and other personalty from the locked
office which adjoins Purchaser's leased premises at the Property.
6. DELIVERY OF CLOSING DOCUMENTS
-----------------------------
(a) Delivery by Seller. At the Closing, Seller shall deliver to Purchaser the
following:
(i) certificates representing the Shares, each such certificate to be
duly endorsed to Purchaser or accompanied by a separate stock power
duly endorsed for transfer, with the signature of Seller guaranteed by
an officer of a national bank or duly notarized, and with all revenue
stamps necessary to transfer such Shares and the certificates
representing such Shares affixed and cancelled;
(ii) the original Note, duly endorsed to Purchaser with the signature
of Seller guaranteed by an officer of a national
25
<PAGE>
bank or duly notarized, together with (x) a duly executed and
acknowledged Assignment of Note, with covenant, warranty,
representation and full recourse against Seller; and (y) an estoppel
letter and certification of the Corporation, signed by an authorized
officer thereof, certifying that, or confirming, as the case may be (a)
the Note is in full force and effect; (b) the outstanding principal
balance of the Indebtedness, accrued interest thereon and the terms of
payment thereof; (c) the maturity date of the Note; (d) the Note
constitutes the legal, valid and binding indebtedness of the
Corporation and is enforceable and due and payable in accordance with
its terms; (e) there exists no off-sets, defenses or counterclaims of
any nature whatsoever to the liability of the Corporation for the
Indebtedness; (f) the interest rate payable under the Note is not in
excess of the maximum interest rate which the Corporation is permitted
by law to contract or agree to pay; and (g) the Corporation is not in
breach or default under the Note, all sums due and owing thereunder
have been fully paid and no event has occurred which, with notice or
lapse of time, would constitute such a breach or default.
(iii) the minute books of the Corporation with a complete and accurate
record of all meetings and transactions of its shareholders and
directors from its inception to the time of Closing;
(iv) the Corporation's share certificate and share transfer books and
seal;
(v) deed or deeds to the Property, title policy issued by a title
insurer acceptable to Purchaser and all other papers relating to title
to the Property and all certificates of occupancy for each building
owned by the Corporation and any other plans of the Property or the
improvements erected thereon in Seller's possessions;
(vi) all original executed leases, together with an estoppel
certificate of each tenant in the form required pursuant to Article 3
above;
(vii) all certificates and policies of insurance;
(viii) copies of all tax returns and reports filed by the Corporation
in the seven (7) years preceding the Closing;
(ix) all of the Corporation's books, records, papers, documents,
agreements, instruments, invoices, bills, vouchers, bankbooks,
checkbooks and books of original account and entry;
26
<PAGE>
(x) the certificate of Seller to the effect that no default exists as
to any items warranted by Seller hereunder;
(xi) an opinion from counsel to Seller in form and substance as set
forth in Exhibit "F" annexed hereto and made a part hereof, addressed
to Purchaser and dated as of the Closing;
(xii) written resignations of each officer and director of the
Corporation, effective as of the Closing, together with a certificate
of the Corporation's resigning secretary, duly certified by the
resigning president and each resigning director, certifying that at a
meeting of the Corporation's directors, duly called and held and at
which a quorum was present, the resignation of each officer and
director was accepted and that there were duly elected, in their place
as officers and directors, persons designated in writing by Purchaser;
and
(xiii) a general release running in favor of the Corporation from
Seller, Hrudka and each director and officer, duly executed and
acknowledged in the form annexed hereto and made a part hereof as
Exhibit "G" (collectively, "Seller Documents").
(b) Acts of Seller at Closing. On the Closing date, concurrent with the
deliveries provided for in subparagraph (a) above, Seller shall do and cause to
be done all things necessary and proper to cause the Corporation to elect as new
officers and directors the persons designated by Purchaser, and to cause the
Corporation to register in the name of and issue to Purchaser, or any persons
Purchaser designates, new certificates for the Shares of the Corporation.
(c) Delivery by Purchaser. At the Closing, upon delivery of the Shares and
Seller Documents to Purchaser, Purchaser shall deliver to Seller the cash
consideration to be paid to Seller in accordance with the provisions of Article
1 above.
(d) Breach and/or Failure to Close. Seller acknowledges that (a) neither the
Shares nor the Note are readily marketable, (b) the Shares and the Note are
unique, and (c) Seller's failure to close in accordance with the provisions
hereof or the breach or inaccuracy of any of the representations, warranties or
covenants of Seller made herein, will cause irreparable damage to Purchaser for
which remedies at law will not be adequate. Seller hereby consents to a decree
of specific performance entitling Purchaser, without limiting Purchaser's other
rights or remedies at law, in equity and hereunder, to specifically enforce all
of the provisions of this Agreement and all costs and expenses, including
attorneys' fees, court costs and disbursements which Purchaser shall incur in
connection therewith, shall be paid by Seller to Purchaser forthwith upon demand
therefor.
27
<PAGE>
7. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
--------------------------------------------
Without limiting Seller's remedies under this Agreement, the obligation of
Seller to sell the Shares and the Note at the Closing is subject to the
following conditions precedent, one or both of which may be waived by Seller, at
Seller's sole discretion:
(i) Each of the representations and warranties of Purchaser contained
in Article 4 hereof shall be true and correct in all respects at and as
of the time of the Closing with the same effect as though all such
representations and warranties were made at and as of the time of the
Closing; and
(ii) Purchaser shall have observed and performed all of the covenants
on Purchaser's part to be observed and performed through the Closing.
8. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
-----------------------------------------------
Without limiting Purchaser's remedies under this Agreement, the obligation of
Purchaser to purchase the Shares and the Note at the Closing is subject to the
following conditions precedent, one or more of which may be waived by Purchaser,
at Purchaser's sole discretion:
(i) Each of the representations and warranties of Seller contained in
Articles 2 and 3 hereof shall be true and correct in all respects at
and as of the time of the Closing with the same effect as though all
such representations and warranties were made at and as of the time of
the Closing;
(ii) Seller shall have observed and performed all of the covenants on
Seller's part to be observed and performed through the Closing;
(iii) No action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling or
charge would or might (A) prevent consummation of the transactions
contemplated by this Agreement, (B) cause the transactions contemplated
by this Agreement to be rescinded following consummation, (C) affect
adversely the right of Purchaser to own the Shares or the Note or to
collect all payments due thereunder and to control the Corporation, or
(D) affect adversely the right of the Corporation to own its assets and
to operate its businesses and no such injunction, judgment, order,
decree, ruling or charge shall be in effect;
28
<PAGE>
(iv) Purchaser shall have obtained on terms and conditions satisfactory
to Purchaser all of the financing Purchaser needs in order to
consummate the transactions contemplated hereby and fund the working
capital requirements of the Corporation;
(v) All actions to be taken by Seller in connection with the
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to
effect the transactions contemplated hereby shall be in form and
substance reasonably satisfactory to Purchaser;
(vi) The physical condition of the Property and the buildings and
improvements erected thereon, including, without limitation, all
structural components, roofs, systems, equipment, facilities, utilities
and appurtenances thereof, shall be satisfactory to Purchaser and no
unrestored loss or damage by fire or other casualty or by eminent
domain or condemnation proceedings shall have occurred to all or any
portion of the Property. Purchaser shall be satisfied with the terms,
covenants and conditions of all leases;
(vii) A current title report of the Property issued by a title insurer
acceptable to Purchaser shall indicate that title to the Property is as
represented by Seller hereunder and title to the Property shall be
reinsured in such amount as Purchaser reasonably determines to be the
fair market value of the Property under a policy of title insurance
which shall (a) insure title to the Property and all recorded easements
benefitting the Property to be in the Corporation, subject only to the
Permitted Encumbrances, (b) contain an extended coverage endorsement
and ALTA zoning endorsement (or equivalent); (c) contain an endorsement
insuring that the Property is the same real estate as shown on the
survey delivered with respect to the Property; (d) contain an
endorsement insuring that each street adjacent to the Property is a
public street and that there is direct and unencumbered pedestrian and
vehicular access to such street from the Property; (e) at Purchaser's
expense, contain an inflation endorsement providing for annual
adjustments in the amount of coverage corresponding to the annual
percentage increase, if any, in the United States Department of
Commerce Composite Construction Cost Index (Base Year = 95); (f) if the
Property consists of more than one record parcel, contain a
"contiguity" endorsement insuring that all of the record parcels are
contiguous to one another; and (g) contain a "non-imputation"
endorsement to the effect that title defects known to the officers,
directors and stockholders of the owner prior to the Closing shall not
be deemed "facts known to the insured" for
29
<PAGE>
purposes of the policy. Any survey of the Property shall not disclose
any survey defect or encroachment from or onto the Property which has
not been cured or insured over prior to Closing; and
(ix) All of the Corporation's debts, contractual arrangements and
liabilities, other than the indebtedness evidenced by the Note, shall
have been paid, extinguished and satisfied, as the case may be, prior
to or concurrently with the Closing.
9. POST-CLOSING COVENANTS
----------------------
(a) Further Action. If, at any time after the Closing, any further action is
necessary or desirable to carry out the purposes of this Agreement, Seller and
Purchaser shall each take such further action, and Seller shall cause Hrudka to
take such further action (including the execution and delivery of such further
instruments and documents), as the other reasonably may request, all at the sole
cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor hereunder).
(b) Non-Intervention. Seller shall not take any action that is designed or
intended to have the effect of discouraging any lessor, lessee, licensor,
vendor, customer, supplier or other business associates of the Corporation from
maintaining the same business relationships with the Corporation after the
Closing as it maintained with the Corporation prior to the Closing. Seller will
refer all inquiries relating to the businesses or properties of the Corporation
to Purchaser from and after the Closing.
(c) Confidential Information. Seller shall treat and hold as such all
Confidential Information as hereinafter defined, refrain from using any
Confidential Information except in connection with this Agreement, and deliver
promptly to Purchaser or destroy, at the request and option of Purchaser, all
tangible embodiments (and all copies) of Confidential Information which are in
his or its possession. In the event that either Seller or Hrudka is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, Seller will notify Purchaser
promptly of the request or requirement so that Purchaser may seek an appropriate
protective order or waive compliance with the provisions of this Section. As
used herein, "Confidential Information" includes any information concerning the
business, properties or affairs of the Corporation that is not already generally
available to the public.
30
<PAGE>
10. REMEDIES FOR BREACH OF THIS AGREEMENT
-------------------------------------
As a material inducement to Purchaser to execute and deliver this Agreement and
to purchase the Shares and the Note, Seller hereby agrees that:
(i) All of the warranties, representations, covenants and agreements
made by Seller herein shall be deemed continuing warranties,
representations, covenants and agreements which shall forever survive
the Closing and the execution and delivery of all instruments and
documents, notwithstanding any investigation at any time made by or on
behalf of Purchaser or that Purchaser had reason to know of any
misrepresentation or breach of warranty at the time of Closing.
(ii) Without limiting any of Purchaser's other rights or remedies
including, without limitation, the right of specific performance,
Seller hereby agrees to and shall indemnify and hold Purchaser and the
Corporation, or both, as the case may be, harmless from and against any
and all losses, liabilities, obligations, demands, damages, actions,
causes of action, fines, deficiencies, penalties, taxes, suits,
proceedings, liens, hearings, investigations, charges, claims,
injunctions, judgments, orders, decrees, rulings, costs and expenses
(including, without limitation, attorneys' fees, court costs and
disbursements) (collectively, "Claims") resulting from, arising out of,
relating to or in connection with (A) any misrepresentation, omission,
breach of warranty or nonfulfillment of any covenant or agreement by
Seller under or relating to this Agreement; (B) the unenforceability or
invalidity of the Note or the rate of interest payable thereunder; (C)
any Taxes or assessments imposed upon the Corporation other than as
reflected on its Tax Returns previously filed; (D) each Liability of
the Corporation (other than the Note) of any nature existing on or
before Closing, (E) all liabilities of or claims against the
Corporation arising out of the conduct of its business between the date
of this Agreement and the Closing date; and (F) all liabilities of or
claims against the Corporation arising out of any suits, claims,
demands, obligations, debts, liabilities, contract commitments or other
matters. The provisions hereof shall survive the Closing and the
delivery and acceptance of the Note and the Shares.
(iii) If any third party shall notify Purchaser with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification against Seller, then Purchaser shall promptly notify
Seller thereof in writing; provided, however, that no delay on the part
of Purchaser in notifying Seller shall relieve Seller from any
obligation
31
<PAGE>
hereunder unless (and then solely to the extent) Seller is prejudiced
thereby. Seller shall have the right to defend Purchaser against the
Third Party Claim with counsel of its choice satisfactory to Purchaser
so long as (A) Seller notifies Purchaser in writing within fifteen (15)
days after Purchaser has given notice of the Third Party Claim that
Seller will indemnify Purchaser from and against any liability
Purchaser may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the Third Party Claim, (B) Seller provides
Purchaser with evidence acceptable to Purchaser that Seller will have
the financial resources to defend against the Third Party Claim and
fulfill it indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or
other equitable relief, (D) settlement of, or an adverse judgment with
respect to, the Third Party Claim is not adverse to the continuing
business interests of Purchaser, and (E) Seller conducts the defense of
the Third Party Claim actively and diligently. So long as Seller is
conducting the defense of the Third Party Claim in accordance with the
provisions hereof, (i) Purchaser may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party
Claim, (ii) Purchaser will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without
the prior written consent of Seller, and (iii) Seller will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of
Purchaser. However, unless Seller fully complies with the provisions
hereof, Purchaser may defend against and consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim in any manner Purchaser may deem appropriate (and Purchaser need
not consult with, or obtain any consent from Seller in connection
therewith); Seller shall reimburse Purchaser promptly and periodically
for the costs of defending against the Third Party Claim (including
attorneys' fees, court costs and disbursements); and Seller shall
remain responsible for any liability Purchaser may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided herein. The foregoing
indemnification provisions are in addition to, and not in derogation
of, any statutory, equitable, contractual or common law remedy
Purchaser may have for Seller's breach of representation, warranty or
covenant.
11. MISCELLANEOUS PROVISIONS
------------------------
(a)
Notices. Any notice required or permitted to be given under this Agreement shall
be in writing and shall be sent by United States
32
<PAGE>
registered or certified mail, postage prepaid, return receipt requested, by
personal delivery, receipt requested, or facsimile transmission with a
confirmation copy delivered on the next business day by recognized overnight
courier service addressed as set forth below or to such other person or persons
at such address or addresses as may be designated by written notice hereunder.
Notices shall be deemed to be given three (3) business days after mailing in any
post office or branch post office regularly maintained by the United States
government, on the date personal delivery or facsimile transmission is effected,
as the case may be:
(1) If to Seller: Performance Industries, Inc.
2425 East Camelback Road
Suite 620
Phoenix, Arizona 85016
Attention: Mr. Ed Fochtman, Jr.
Facsimile No.: (602) 912-0480
with a copy to: Industrial Brokerage, Inc.
2425 East Camelback Road
Suite 960
Phoenix, Az 85016
Attention: Mr. Jonathan Tratt
Facsimile No.: (602) 468-1808
(2) If to Purchaser: Markwood, LLC
35 Engel Street
Hicksville, New York 11801
Facsimile No.: (516) 435-8980
with a copy to: Barry H. Mandel, Esq.
Mandel and Resnik, P.C.
220 East 42nd Street
New York, New York 10017
Facsimile Number: (212) 573-0067
(b) Entire Agreement. This Agreement and any documents referred to herein
contain the entire agreement between the parties hereto with respect to the
transactions contemplated herein, and no modification hereof shall be effective
unless in writing and signed by the party against which it is sought to be
enforced.
(c) Further Action. At any time and from time to time, whether prior or
subsequent to the Closing, each of the parties hereto, at its or his own
expense, shall take such actions and execute and deliver such documents as may
be necessary or reasonably requested by the other party hereto to carry out,
consummate and effectuate the transactions contemplated in this Agreement.
(d) Expenses. Each of the parties hereto shall bear such party's own expenses in
connection with this Agreement and the
33
<PAGE>
transactions contemplated herein, including, without limitation, the fees and
expenses of such party's respective legal counsel.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Country of Mexico applicable in the case of
agreements made and to be entirely performed within such Country.
(f) Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument.
(g) Captions. The Article and Section captions used herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(h) Binding Effect. This Agreement shall bind and inure to the benefit of the
parties and their respective heirs, legal representatives, successors and
permitted assigns.
(i) Waiver. No waiver of any of the provisions hereof shall be effective unless
in writing and signed by the party to be charged with such waiver. No waiver
shall be deemed a continuing waiver or waiver in respect of any subsequent
breach or default, whether of similar or different nature, unless expressly so
stated in writing.
(j) Assignment. Seller shall not assign this Agreement without the prior written
consent of Purchaser, which consent may be withheld for any reason.
(k) Severability. If any provision of this Agreement is found to be void or
unenforceable by a court of competent jurisdiction, the remaining provisions of
this Agreement shall nevertheless be binding upon the parties with the same
effect as though the void or unenforceable part had been severed and deleted.
In witness whereof, this Agreement has been duly executed by the parties hereto
as of the date first above written.
Seller:
Performance Industries, Inc.
By:____________________
Its:___________________
-----------------------
Joe Hrudka
34
<PAGE>
Purchaser:
Markwood LLC
By:_______________________
Its: Member
35
<PAGE>
SCHEDULE OF EXHIBITS AND SCHEDULES
----------------------------------
Exhibit A Form of Escrow Agreement
Exhibit B Financial Statements
Exhibit C Property Description
Exhibit D Leases
Exhibit E Form of Estoppel Letter
Exhibit F Form of Opinion Letter
Exhibit G Form of General Release
Schedule A Disclosure Schedule
36
<PAGE>
Mandel and Resnik, P.C.
Counselors at Law
220 East 42nd Street
New York, New York 10017
richard m. resnik (212) 573-0000 marvin sussman
barry h. mandel david f. yahner
robert w. freiman counsel
elizabeth d. schrero+
nicholas j. kaiser
---- ----
andrew e. hazen
jerry a. montag*
lorrie b. franco facsimile
valerie pulver (212)573-0067
edward m. shapiro* (212)573-0012
scott a. mautner~
david a. nadel+ writer's direct number:
frederick c. horwood
*also admitted in new jersey
+also admitted in massachusetts (212)573-0093
~also admitted in connecticut
March 20, 1997
VIA FACSIMILE (602) 468-1808
AND VIA FEDERAL EXPRESS
- -----------------------
Mr. Jonathan Tratt
Industrial Brokerage, Inc.
2425 East Camelback Road
Suite 950
Phoenix, Arizona 85016
Re: Markwood LLC with PerformanceiIndustries, Inc.
----------------------------------------------
Dear Jonathan:
Thank you for your voice mail message of April 16, 1996. As you
requested,iincorderbto:properly document the contract amendment which
Performance Industries, Inc. ("PI") has proposed and which is acceptable to
Markwood LLC ("Markwood"), it is necessary to amend Section 1(c) of the Stock
Purchase Agreement dated as of February 15, 1996 between PI and Markwood.
Therefore, Section 1(c) of the Stock Purchase Agreement is hereby deemed deleted
and replaced in its entirety by the following:
"(c) Closing. Subject to the provisions hereinafter set forth, the closing
("Closing") of the transaction contemplated by this Agreement shall take place
at the offices of Seller or such other location agreed upon by the parties
hereto, commencing at 10:00 a.m. on May 15, 1996 (the "Closing Date"), subject
to the satisfaction or waiver of all conditions precedent to the obligations of
the parties to consummate the Closing. At the Closing, Seller and Purchaser
shall each deliver to the other all of the documentation required to be
delivered by such party as set forth in Article 6 below. Notwithstanding
anything to the contrary herein contained, if (a) Seller shall have satisfied
all of the conditions precedent to Closing required to be satisfied by Seller on
or before the Closing Date and is ready, willing and able to consummate the
transaction contemplated hereby in accordance with all of the terms and
conditions herein set forth and (b) Purchaser shall elect for any reason not to
close on such
<PAGE>
Mandel and Resnik, P.C.
Industrial Brokerage, Inc.
March 20, 1997
Page -2-
date, then Purchaser shall be entitled to adjourn the Closing up to July 15,
1996. In such event, Purchaser shall pay to Seller the sum of Two Hundred
(US$200.00) Dollars per day (the "Extension Fee") for each day beyond June 15,
1996 that Purchaser postpones the Closing. At any time after the Closing Date up
to and including July 15, 1996, Purchaser shall have the right to either
consummate the transaction subject to and in accordance with the terms and
conditions hereof or to terminate this Agreement, in which event Seller shall
forthwith return to Purchaser the Deposit, plus accrued interest thereon, less
the Extension Fee, if any, due from Purchaser to Seller pursuant to the
provisions of this subparagraph, and upon such refund being made, this Agreement
shall terminate, be null and void and of no further force or effect and neither
party shall have any further obligations or liabilities hereunder.
Notwithstanding anything to the contrary herein contained, if (a) Seller shall
have satisfied all of the conditions precedent to Closing required to be
satisfied by Seller on or before July 15, 1996 and is ready, willing and able to
consummate the transaction contemplated hereby in accordance with all of the
terms and conditions herein set forth, (b) Purchaser has elected to adjourn the
Closing up to July 15, 1996 as provided above and (c) Purchaser shall elect for
any reason not to close on or before July 15, 1996, then Purchaser shall be
entitled to adjourn the Closing up to August 31, 1996 (the "Extended Closing
Date"). At any time after July 15, 1996 up to and including the Extended Closing
Date, Purchaser shall have the right to either consummate the transaction
subject to and in accordance with the terms and conditions hereof or to
terminate this Agreement, in which event Seller may retain the Deposit and the
Deposit shall be deemed liquidated damages and this Agreement shall terminate,
be null and void and of no further force or effect and neither party shall have
any further obligations or liabilities hereunder."
Please confirm PI's acceptance of the foregoing amendment to the Stock Purchase
Agreement by having an authorized representative of PI execute a copy of this
letter under the caption "Accepted and Agreed to:" and return a copy of the
executed letter to me by facsimile and the original by overnight delivery.
Following countersignature of this letter by Markwood, we will prepare revised
pages for insertion into the Stock Purchase Agreement.
<PAGE>
Mandel and Resnik, P.C.
Industrial Brokerage, Inc.
March 20, 1997
Page -2-
We are looking forward to a prompt closing of this matter.
Sincerely,
Nicholas J. Kaiser
NJK/sdw
cc: Mr. Robert Cassalia
Mr. Nourollah Elghanayan
Mr. Mehdi Gabayzadeh
Barry H. Mandel, Esq.
ACCEPTED and AGREED TO:
PERFORMANCE INDUSTRIES, INC.:
By:___________________________
MARKWOOD LLC
By:__________________________
<PAGE>
Markwood LLC
135 Engineers Road
Hauppauge, New York 11788
July 15, 1996
Mr. Jonathan Tratt
Industrial Brokerage, Inc.
2425 East Camelback Road
Suite 950
Phoenix, Arizona 85016
Re: Markwood LLC
-with-
Performance Industries, Inc.
----------------------------
Dear Jonathan:
Reference is made to that certain Stock Purchase Agreement dated February 15,
1996, between Performance Industries, Inc. ("PI") and Markwood LLC ("Markwood"),
as amended by that certain letter agreement dated April 18, 1996 (the Stock
Purchase Agreement and letter agreement are hereinafter collectively referred to
as the
"Agreement").
The parties desire to further amend the Agreement, effective as of the date
hereof, by making certain modifications to the Agreement, all on the terms and
conditions hereinafter set forth.
1. Capitalized terms not otherwise defined herein shall have the same meanings
as set forth in the Agreement.
2. Section 1(b) of the Agreement is hereby amended by the deletion of the
language after "The Purchase Price shall be payable as follows:" and the
following shall be inserted in its place:
(i) the sum of One Million (US$1,000,000.00) Dollars by wire
transfer pursuant to the directions provided by Seller at
Closing, adjusted as of the Closing Date (as hereinafter
defined) pursuant to Section 1(d) below, said One Million
(US$1,000,000.00) Dollars consisting of (x) the sum of One
Hundred Thousand (US$100,000.00) Dollars (the "Deposit") on
the signing of this letter amendment by wire transfer from the
attorney escrow account of Mandel and Resnik, P.C., which sum
is being held pursuant to that certain escrow agreement dated
February 15, 1996 among Purchaser, Seller and Mandel and
Resnik, P.C., receipt of which is hereby acknowledged; and (y)
the sum of
<PAGE>
page 2
Nine Hundred Thousand (US$900,000.00) Dollars, receipt of
which is hereby acknowledged; and (ii) at the consummation of
the Closing in accordance with all of the terms and conditions
herein, the balance of the Purchase Price evidenced by a duly
executed promissory note in the principal amount of Two
Million (US$2,000,000.00) Dollars, made by Purchaser payable
to the order of Seller in the form annexed hereto and made a
part hereof as Exhibit "A", together with interest thereon at
the rate of Ten (10%) percent per annum, payable in eighteen
(18) equal consecutive monthly installments of principal and
interest, commencing August 15, 1996, and on the fifteenth day
of each month thereafter.
3. Section 1(c) of the Agreement is hereby deleted in its entirety and the
following is inserted as Section 1(c):
The closing ("Closing") of the transaction contemplated by
this Agreement shall take place at the offices of Seller or
such other location agreed upon by the parties hereto,
commencing at 10:00 a.m. on July 15, 1996 (the "Closing
Date"). At the Closing, Seller and Purchaser shall each
deliver to the other all of the documentation required to be
delivered by such party as set forth in Article 6 below. If
Seller shall have satisfied all of the conditions precedent to
Closing required to be satisfied by Seller on or before the
Closing Date and is ready, willing and able to consummate the
transaction contemplated hereby in accordance with the terms
and provisions hereof, and in the event the Closing should not
occur as a result of a failure of Purchaser to perform its
obligations hereunder, then the Deposit shall be paid over to
the Seller and the Deposit shall be deemed liquidated damages
and this Agreement shall terminate, be null and void and of no
further force or effect and neither party shall have any
further obligations or liabilities hereunder. Otherwise,
should the Closing not occur, the Deposit shall be paid over
to Purchaser.
4. Simultaneously with the execution hereof, Seller shall cause Fabricaciones
Metalicas Mexicanas S.A. (the "Corporation") to execute and deliver to Purchaser
the Lease Modification Agreement annexed hereto and made a part hereof as
Exhibit "B", and Seller shall cause the Corporation to give proper legal notice
to Tecnologias Internacionales de Manufactura, S.A. de C.V. ("NASSCO")
<PAGE>
page 3
to vacate, quit and surrender that certain approximately 100,000 square feet of
outside space that NASSCO is presently leasing from the Corporation pursuant to
that certain lease dated July 1, 1995, between NASSCO and the Corporation.
5. Seller acknowledges that it has not satisfied all of the conditions precedent
to Closing that are required to be satisfied by it on or before the Closing Date
in accordance with the terms and provisions of the Agreement. Seller agrees that
Purchaser's willingness to consummate the Closing as of the Closing Date shall
not be deemed a waiver by Purchaser of Seller's obligation to satisfy said
conditions precedent. Seller hereby undertakes to prepare, execute and deliver
to Purchaser such documents, take such actions and expend such monies which are
necessary in order to satisfy the conditions precedent pursuant to the Agreement
and all of Seller's closing delivery obligations pursuant to Section 6(a) of the
Agreement within thirty (30) days from the date hereof, including without
limitation satisfaction of all of the items set forth in the letters of Baker &
McKenzie dated February 23, 1996, March 29, 1996 and April 11, 1996 which are
annexed hereto and made a part hereof as Exhibit "C". Seller further agrees to
execute and deliver within three (3) business days of Seller's receipt thereof
any documents requested by Purchaser from time to time in order to satisfy
Seller's obligations pursuant to this paragraph. All adjustments shall be made
as of the Closing Date. If the amount of any adjustment item is not able to be
ascertained on the Closing Date, it shall be apportioned on a basis which is
agreed to by Buyer and Seller, subject to apportionment following the Closing.
6. It is agreed and understood that neither Purchaser nor the Corporation shall
sell, transfer, hypothecate nor otherwise dispose of any material assets of the
Corporation while monies are owed to Seller from Purchaser under the Agreement.
7. Except as otherwise set forth in this letter amendment, all of the terms and
provisions of the Agreement and related documents shall remain unmodified and in
full force and effect.
8. No waiver of any of the provisions hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or waiver in respect of any subsequent breach or
default, whether of similar or different nature, unless so expressly stated in
writing.
9. This letter amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which together shall constitute but one and the same instrument.
Please confirm PI's acceptance of the foregoing amendments to the
<PAGE>
page 4
Agreement by having an authorized representative of PI execute a copy of this
letter under the caption "Accepted and Agreed to:" and return a copy of the
executed letter to me by facsimile and the original by overnight delivery.
We are looking forward to a prompt closing of this matter.
Sincerely,
Markwood LLC
By:____________________________
Mehdi Gabayzadeh
NJK/sm
ACCEPTED and AGREED TO:
PERFORMANCE INDUSTRIES, INC.
By:___________________________
<PAGE>
DEPOSIT ESCROW AGREEMENT
------------------------
Agreement dated as of February __, 1996, by and among Performance Industries,
Inc. ("Performance"), with an address at 2425 East Camelback Road, Suite 620,
Phoenix, Arizona 85016 (Performance may hereinafter be referred to as "Seller")
and Markwood LLC with an address at 35 Engle Street, Hicksville, New York 11801
("Purchaser") (Seller and Purchaser may hereinafter be jointly referred to as
"Principal Parties") and Mandel and Resnik, P.C. ("Escrow Agent"), with offices
at 220 East 42nd Street, New York, New York 10017.
W I T N E S S E T H:
- - - - - - - - - -
Whereas, the Principal Parties have entered into an agreement dated even date
herewith ("Stock Purchase Agreement") for the sale by Seller to Purchaser of (i)
all of the issued and outstanding capital stock of Fabricaciones Metalicas
Mexicanas, S.A., a corporation formed under the laws of Mexico and (ii) all of
Seller's right, title and interest, as payee and obligee, in and to that certain
promissory note, dated ______________, evidencing the indebtedness of the
Corporation to Seller in the principal amount of US$2.1 million, together with
interest thereon, subject to and in accordance with the terms and provisions of
the Stock Purchase Agreement;
Whereas, Purchaser has paid the sum of One Hundred Thousand (US$100,000.00)
Dollars as a contract deposit pursuant to the Stock Purchase Agreement; and
Whereas, the Principal Parties desire that Escrow Agent hold such contract
deposit ("Escrow Fund") in trust pursuant to the terms of this agreement and
Escrow Agent is willing to so hold the Escrow Fund subject to the terms and
conditions hereinafter set forth.
Now, therefore, the parties hereto agree as follows:
1. The Principal Parties hereby jointly and severally designate Escrow Agent to
receive, hold and deliver the Escrow Fund and Escrow Agent hereby accepts such
designation, on the terms and conditions set forth in this agreement.
2. Upon the execution of this agreement, Purchaser has delivered to Escrow Agent
a check, subject to collection, payable to the order of Escrow Agent, as
attorneys, in the amount of $100,000.00, representing the Escrow Fund. Escrow
Agent shall deposit the Escrow Fund in a federally insured interest bearing
account. All interest or income earned in respect of the Escrow Fund shall
accrue and be paid to such party entitled to payment
<PAGE>
or refund of the Escrow Fund pursuant to the terms of this agreement. Such
interest or income shall be paid by Escrow Agent when the aforementioned payment
or refund is made.
3. If the transactions close pursuant to and in accordance with the provisions
of the Stock Purchase Agreement, Escrow Agent is authorized, empowered and
directed to deliver the Escrow Fund to Seller. If the transactions fail to close
pursuant to and in accordance with the provisions of the Stock Purchase
Agreement for any reason whatsoever, Escrow Agent is authorized, empowered and
directed to deliver the Escrow Fund to Purchaser, less an amount equal to the
Extension Fee which may be due from Purchaser to Seller pursuant to the
provisions of the Stock Purchase Agreement. In that event, Escrow Agent is
hereby authorized, empowered and directed to deduct from the Escrow Fund and
deliver to Seller an amount equal to the Extension Fee due from Purchaser to
Seller.
4. Escrow Agent is hereby expressly authorized and directed by the Principal
Parties to comply with any and all orders, judgments or decrees relating to this
transaction, and if Escrow Agent obeys or complies with any such order, judgment
or decree it shall not be liable to the Principal Parties or to any other person
by reason of such compliance, notwithstanding that any such order, judgment or
decree may be subsequently reversed, modified, annulled, set aside or vacated,
or found to have been entered without jurisdiction.
5. In consideration of the acceptance of this agreement by Escrow Agent, the
Principal Parties hereby agree, jointly and severally, to indemnify and hold
Escrow Agent harmless as to any liability it may incur to any other person by
reason of its having entered into this agreement, or in connection herewith, and
to reimburse Escrow Agent for all of its expenses, including, among other
things, attorneys' fees (either paid to retained attorneys or in an amount
representing the fair value of legal services rendered to itself), incurred in
connection herewith otherwise than in connection with the performance of its
ministerial duties hereunder.
6. If any disagreement or dispute shall arise between or among any or all of the
Principal Parties and/or any other persons resulting in adverse claims or
demands being made for all or any portion of the Escrow Fund, whether or not
litigation has been instituted, then and in any such event, Escrow Agent may
refuse to comply with any claims or demands made on or against it for the Escrow
Fund, in which event Escrow Agent shall continue to hold the Escrow Fund until
Escrow Agent receives either (i) a written notice or notices signed and
acknowledged by both of the Principal Parties directing the actions to be taken
with respect to the Escrow Fund or (ii) as set forth in paragraph 4 above, an
order, judgment or decree entered in an action, suit or proceeding in which both
of the Principal Parties are parties, directing the actions to be taken with
respect to the Escrow
<PAGE>
Fund, in either of which events Escrow Agent shall then take such actions in
accordance with such direction. Escrow Agent shall not be or become liable in
any way or to any person for its refusal to comply with any such claims and
demands unless and until it has received such direction. Upon compliance with
such direction, Escrow Agent shall be released of and from all liability
hereunder.
7. Without limiting the foregoing, Escrow Agent shall have the following
additional rights in the circumstances described in the immediately preceding
paragraph 6: (a) if Escrow Agent shall have received a notice signed by either
of the Principal Parties advising that a litigation between the Principal
Parties over the actions to be taken with respect to the Escrow Fund has been
commenced, Escrow Agent may, on notice to the Principal Parties, deposit the
Escrow Fund with the clerk of the Court in which such litigation is pending; or
(b) Escrow Agent may, on notice to the Principal Parties, take such affirmative
steps as it may, at its option, elect in order to terminate its duties as Escrow
Agent, including, but not limited to, the deposit of the Escrow Fund in its
possession with a Court of competent jurisdiction and the commencement of an
action for interpleader, the costs of which action shall be borne, jointly and
severally, by whichever of the Principal Parties is the losing party. Upon
taking the action described in either clause (a) or (b) of the previous
sentence, Escrow Agent shall be released of and from all liability hereunder.
8. Escrow Agent shall not be responsible or liable in any manner whatsoever for
(a) the sufficiency, correctness, genuineness or validity of any document
deposited with it, or any notice or demand given to it, or (b) the form of
execution of such document, notice or demand, or (c) the identification,
authority or rights of any person executing, depositing or giving the same, or
(d) the terms and conditions of any instrument pursuant to which the parties may
act.
9. Escrow Agent shall not have any duties or responsibilities except those set
forth in this agreement, which the parties agree are ministerial in nature, and
Escrow Agent shall not incur any liability: (a) in acting upon any signature,
notice, demand, request, waiver, consent, receipt or other paper or document
believed by Escrow Agent to be genuine, and Escrow Agent may assume that any
person purporting to give it any notice on behalf of one or both of the
Principal Parties in accordance with the provisions hereof has been duly
authorized to do so; or (b) in otherwise acting or failing to act under this
agreement except in the case of Escrow Agent's gross negligence or willful
default.
10. Escrow Agent shall not be bound by any modification, cancellation or
rescission of this agreement unless and until the same is in writing and signed
by all of the parties hereto and a duly executed original or counterpart thereof
has been received by Escrow Agent. In no event, however, shall any modification
of
<PAGE>
this agreement which shall affect the rights or duties of Escrow Agent be
binding on the Escrow Agent unless Escrow Agent shall have given its prior
written consent thereto.
11. Notwithstanding the substance of this agreement, Seller agrees that Escrow
Agent may represent Purchaser as Purchaser's counsel in connection with any
dispute or any action, suit or other proceeding between the Principal Parties.
12. Any notice to or demand upon Escrow Agent shall be sufficient only if in
writing and received by Escrow Agent within the applicable time periods set
forth herein, if any. Notices to or demands upon Escrow Agent shall be sent to
Mandel and Resnik, P.C., 220 East 42nd Street, New York, New York, Attention:
Barry H. Mandel, Esq., by certified mail, return receipt requested or served
personally upon the foregoing with receipt acknowledged. Notices and deliveries
from Escrow Agent to any party hereto shall be given in accordance with the
provisions of paragraph 13 of this agreement.
13. Any notices and other communications required or permitted to be given under
this agreement shall be in writing and shall be sent by United States registered
or certified mail, postage prepaid, return receipt requested or by personal
delivery, receipt requested, or by facsimile with a confirmation copy delivered
on the second business day by recognized overnight courier service, to the
Principal Parties at their respective addresses set forth above and, in the case
of Purchaser, with a copy of each notice sent in like manner to Mandel and
Resnik, P.C., 220 East 42nd Street, New York, New York 10017, Attention: Barry
H. Mandel, or at such other address as either party may from time to time
designate to the other party by notice given in accordance with the terms of
this paragraph. Notices shall be deemed given three (3) business days after
mailing in any post office or branch post office regularly maintained by the
United States government, or on the date personal delivery or facsimile
transmission is effected, as the case may be.
14. No waiver of any of the provisions hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or waiver in respect of any subsequent breach or
default, whether of similar or different nature, unless expressly so stated in
writing.
15. The provisions of this agreement shall extend to, bind and inure to the
benefit of each of the parties hereto and its respective heirs, personal
representatives, successors and permitted assigns, if any.
16. This agreement and any documents executed in connection herewith may be
executed in any number of counterparts and by different parties hereto or
thereto in separate counterparts, each of which counterparts when so executed
shall be deemed to be
<PAGE>
an original and all of which when taken together shall constitute one and the
same agreement or document.
17. This agreement shall be construed without regard to any presumption or other
rule requiring construction or interpretation against the party causing this
agreement to be drafted.
18. This agreement, including all other documents referred to herein which form
a part hereof, contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and therein. This agreement
supersedes all prior agreements and understandings between or among the parties
with respect to such subject matter.
19. This agreement may not be orally cancelled, changed, modified or amended,
and no cancellation, change, modification or amendment shall be effective or
binding, unless in writing and signed by all the parties to this agreement.
20. If any provision hereof is found to be void and unenforceable by a court of
competent jurisdiction, the remaining provisions of this agreement shall
nevertheless be binding upon the parties with the same effect as though the void
or unenforceable part had been severed and deleted.
21. If any words or phrases in this agreement shall have been stricken out or
otherwise eliminated, whether or not any other words or phrases have been added,
this agreement shall be construed as if the words or phrases so stricken out or
otherwise eliminated had never appeared in this agreement.
22. Regardless of the place of execution or performance hereof, this agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to conflict of laws, applicable to agreements
made and to be performed entirely within such State. The parties hereby
irrevocably consent to (i) the jurisdiction of the courts of the State of New
York, subject to venue requirements, and (ii) service of process upon each of
the parties hereto by the method prescribed for the giving of notice pursuant to
Section 13 above.
23. Each party hereto shall cooperate and shall take such further action and
shall execute and deliver such further documents as may be reasonably requested
by any other party in order to carry out the provisions and purposes of this
agreement.
24. Capitalized terms not otherwise defined herein shall have the same meanings
as set forth in the Stock Purchase Agreement.
In witness whereof, the parties hereto have executed this agreement as of the
day and year first above written.
<PAGE>
Performance Industries, Inc., Seller
By:________________________________
Markwood LLC
By:_________________________________
Escrow Agent:
Mandel and Resnik, P.C.
By:_____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,136
<SECURITIES> 727
<RECEIVABLES> 3,682
<ALLOWANCES> 565
<INVENTORY> 328
<CURRENT-ASSETS> 5,996
<PP&E> 14,306
<DEPRECIATION> 1,741
<TOTAL-ASSETS> 21,971
<CURRENT-LIABILITIES> 4,667
<BONDS> 0
0
0
<COMMON> 31,202
<OTHER-SE> (23,115)
<TOTAL-LIABILITY-AND-EQUITY> 21,971
<SALES> 22,407
<TOTAL-REVENUES> 22,407
<CGS> 20,715
<TOTAL-COSTS> 24,619
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (754)
<INCOME-PRETAX> (2,966)
<INCOME-TAX> (800)
<INCOME-CONTINUING> (3,723)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,723)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
