SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from __________ to __________
Commission file number l-9224
HELMSTAR GROUP, INC.
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(Name of Small Business Issuer in Its Charter)
DELAWARE 13-2689850
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 World Trade Center, Suite 2112, New York, N.Y. 10048
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(Address of Principal Executive Offices) (Zip Code)
212-775-0400
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(Issuer's Telephone Number, including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common stock - par value $.10 American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
Check whether the issuer; (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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[ ]
(Cover page 1 of 2 pages)
<PAGE>
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for 1996, its most recent fiscal year, were
$3,489,615.
As of February 28, 1997, the aggregate market value of voting stock
held by non-affiliates of the Issuer was approximately $2,536,615.
The number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at February 28, 1997
Common stock - par value $.10 5,536,373 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form l0-KSB incorporates by reference from the
issuer's definitive proxy statement for the annual meeting of stockholders to be
held on June 4, l997.
(Cover page 2 of 2 pages)
<PAGE>
PART I
Item l. Description of Business.
Background and History
Helmstar Group, Inc., ("Group"), through its
subsidiaries (collectively referred to as the "Company" unless
the context requires otherwise), is engaged in merchant
banking and mortgage banking.
Merchant Banking - General
Joint Venture Criteria
Since 1988, the Company has engaged in merchant
banking activities primarily concentrating on real estate
projects and real estate-related services companies. The
Company seeks projects that offer strong upside potential
because of high short-term risk, albeit manageable risk, and
financial leverage. Although real estate development,
rehabilitation or "value-added" transactions are of primary
interest, the Company will consider most industries with the
exception of those requiring a highly specialized scientific
analysis.
The Company's exacting standards of selecting
ventures and co-venturers are directed toward middle-market
oriented activities. Co-venturers must be thoroughly
experienced and financially stable, as well as having a
demonstrated track record in the particular business activity.
Talented co-venturers are expected to execute each venture's
day-to-day management plan developed through the combined
efforts of the Company and the co-venturers.
The Company does not intend to take excessive risk in
its joint venture activities either through a single venture
or a series of interdependent ventures which result in
excessive risk when taken in the aggregate. The Company
intends to consider the risks of any potential undertaking
independently as well as how the risks of the proposed venture
impact on the Company in light of its other ventures. This
risk evaluation is based on a facts and circumstances analysis
at the time the feasibility of a potential joint venture is
being evaluated. Facts and circumstances are subject to change
over time. Accordingly, the Company has established flexible
criteria in selecting its venture activities to meet changing
market conditions.
The Company plans to limit its equity infusion in any
single transaction to a maximum of $3 million. Also, a
predetermined exit strategy is paramount. The holding period
for a particular venture will be based on facts and
circumstances, including maximizing the Company's potential
return and other opportunities available at the time of a
possible disposition.
<PAGE>
Beginning in 1990, drawing on its experience in real
estate project finance, the Company began to offer financial
consulting services to clients on a fee basis. This permits
the Company to increase its revenue by utilizing its merchant
banking expertise without deploying a significant amount of
capital. The Company's primary focus in this area has been
assisting clients in realizing lower cost of capital through
creative financial structuring. This business is transaction
oriented, and potential revenue therefrom is subject to wide
variation. During 1996, 1995, 1994, and 1993 approximately 3%,
12%, 20%, and 8% of the Company's total revenues in each year
were realized in connection with providing financial
consulting services to a single financial institution in
several transactions.
The joint ventures in which the Company participates
are described below:
1. Shopping Center - Blowing Rock, N.C.
In August 1988, the Company, through its wholly-owned
subsidiary, Burrows, Hayes Company, Inc. ("Burrows"), funded
$1,450,000 for a 50% voting interest and a majority financial
interest in a general partnership which in turn acquired a 50%
voting interest and a majority financial interest in a second
general partnership that developed and now operates a
manufacturers outlet center consisting of approximately 98,000
net rentable square feet in Blowing Rock, North Carolina.
In March 1992, Burrows purchased the entire interest
of the other partner in the first general partnership for
$245,000. Accordingly, the first partnership was dissolved,
and Burrows now is a partner in the project partnership.
This project opened in May 1989 and is currently 94%
leased. Discussions are underway with prospective tenants to
lease the vacant space in the near future. A small amount of
surplus land remains for potential development in the future.
An affiliate of Burrows' co-venturer is responsible for the
day-to-day property management function. This entity also acts
as leasing broker for the partnership. The partnership does
not have any employees.
2. Shopping Center - Nags Head, N.C.
In December 1989, the Company through its
wholly-owned subsidiary, Parker, Reld & Co., Inc. ("Parker"),
acquired a 50% voting interest and a majority financial
interest in a general partnership formed to develop and
operate a manufacturers outlet shopping center in Nags Head,
North Carolina. Parker funded $1,500,000 toward the
development of this project consisting of approximately 82,500
net rentable square feet. An affiliate of Parker's co-venturer
is responsible for the day-to-day property management
function. This entity also acts as leasing broker for the
partnership. It also provides the same services for the
shopping center in Blowing Rock, North Carolina.
<PAGE>
Located in an oceanside resort, the center opened
during the 1990 summer season. Currently, it is 97% leased.
Discussions are underway with prospective tenants to lease the
vacant space in the near future. The partnership does not have
any employees.
Real Estate Trends
Occupancy averaged 94.43% at the manufacturers outlet
center in Blowing Rock and 96.72% at the one in Nags Head
during 1996. Retail sales were higher than 1995 levels at both
centers. At Blowing Rock, retail sales per square foot for
tenants who had been open for all of 1996 and 1995 increased
to $264 from $260. Aggregate retail sales per square foot for
the entire project decreased to $247 from $250. At Nags Head,
retail sales per square foot for tenants who had been open for
all of 1996 and 1995 increased to $235 from $221. Aggregate
retail sales per square foot for the entire project increased
to $226 from $214. Average annual base rent (recomputed on a
monthly basis) also increased from $11.97 (January 1996) to
$12.93 (December 1996) per square foot at Blowing Rock and
$12.00 (January 1996) to $12.35 (December 1996) per square
foot at Nags Head, as tenants renewed expiring leases and/or
new tenants paid higher rates. Percentage rent based on sales
above specified targets totalled $88,282 for 1996 versus
$76,406 for 1995 at Blowing Rock and $31,823 for 1996 versus
$36,688 for 1995 at Nags Head. Specified targets for
determining percentage rent typically rise when a tenant's
base rent increases after exercising a renewal option.
Mortgage Banking
On June 30, 1991, McAdam, Taylor & Co., Inc.
("McAdam"), a wholly-owned subsidiary of the Company, acquired
all of the stock of Citizens Mortgage Service Company
("Citizens") for approximately $1,585,000 in cash. At such
time, Citizens was primarily engaged in servicing residential
mortgage loans. During 1992, Citizens expanded its activities
to include mortgage loan origination and marketing certain
financial products to mortgagors, the loans of whom are
serviced by Citizens.
Citizens focuses its loan origination activities on
first mortgage loans on residences containing four or fewer
dwelling units. It is approved to originate and service loans
for the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). It also can
originate and service loans insured by the Federal Housing
Administration ("FHA") and loans partially guaranteed by the
Veterans Administration ("VA"). Citizens is authorized to
issue and service mortgage-backed securities insured by the
Government National Mortgage Association ("GNMA"). It has
mortgage banking licenses for Pennsylvania, Delaware, Maryland
and New Jersey. Citizens may seek to procure additional
licenses in the future. Citizens sold most of its servicing
portfolio in late-1995 and the balance in mid-1996. Currently,
Citizens originates loans and only services those loans during
the period between settlement with the borrower and sale to
the investor.
<PAGE>
Mortgage Loan Origination
The Company's primary objective, subsequent to the
sale of its mortgage servicing portfolio, has been to expand
loan origination activities by increasing the number of loan
originators and by expanding the product offerings to include
a broader array of conforming product and by offering
"non-conforming" product. "Non-conforming" product is being
marketed through an "Alternative Funding" group which
specializes in hard to place loans.
Citizens closed mortgage loans having principal
balances of $59,079,953; $38,916,362; $31,581,135; $49,530,475
and $17,128,250 during 1996, 1995, 1994, 1993 and 1992. Retail
originations were $55,859,353; $28,433,496; $17,977,540;
$30,466,985; and $17,128,250 in 1996, 1995, 1994, 1993 and
1992. In 1992, all originations were done on a retail basis
from a single office in suburban Philadelphia. Since it was
successful in attracting business from nearby parts of New
Jersey and Delaware, during 1993, Citizens opened retail
origination offices in both New Jersey and Delaware. Due to
increased competition in the New Jersey and Delaware markets
in 1996, Citizens consolidated its retail offices in
operations in both states into the Ft. Washington,
Pennsylvania office. The Company maintains a small origination
office in New Jersey. By consolidating these offices into the
main office in Ft. Washington, the Company reduced operating
costs by over $800,000 per year.
In 1996, 1995, 1994, and 1993, loan originations
totalling $3,220,600; $10,482,865; $13,603,595; and
$19,063,490 were originated through correspondents on a
"wholesale" basis.
Citizens' marketing strategy has been newspaper
advertising, telemarketing, and referrals by real estate
agents, attorneys and accountants. Commission based account
executives typically visit a prospective applicant at the real
estate agent's office or in the applicant's home. Accordingly,
the presence and size of Citizens offices are not an
impediment to increasing the volume of originations within
certain limits. If market conditions justify, Citizens may
open additional origination offices in the future.
Mortgage loan origination is a highly cyclical
business. Many mortgage bankers incur high fixed charges by
maintaining a network of origination offices in geographic
markets. In good times, such companies are poised to capture a
solid share of the market. In poor times, however, the high
fixed charges can cause severe cash flow squeezes.
<PAGE>
The Company recognizes the need for a local presence,
and has a network of independent mortgage brokers and smaller
mortgage bankers to generate mortgage loan originations on a
"wholesale" basis. Through correspondents, Citizens receives
the benefits of a local office without incurring the fixed
overhead of developing and maintaining a branch office. In
1996, the emphasis of the Company's wholesale operations
shifted from the conforming loan business to the
non-conforming loan business. Due to increased competition,
the Company reevaluated its wholesale correspondent
relationships and pricing and terminated those correspondents
who were not generating quality production. In 1993, the first
year in which Citizens began a wholesale business, it had 17
correspondents; in 1994 and 1995 it had 25; and in 1996, it
had 16.
"Wholesaling" in effect means that Citizens will
commit in advance of settlement with a homeowner to purchase
loans from a correspondent that meet Citizens' underwriting
standards. Citizens in turn commits to sell those loans in the
same manner as it sells loans originated on a "retail" basis.
Each correspondent must be "approved" by management
and enter into a formal agreement providing indemnity to
Citizens in the event of fraud or misrepresentation in the
application and underwriting process. Citizens will review
each loan prior to acceptance to ensure that it meets the same
quality standards and underwriting criteria used in Citizens'
retail origination activities.
Citizens' loan origination production consisted of
the following:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Conventional Loans
Number of Loans ... 360 256 332 499 190
Dollar Volume ..... $34,467,135 $27,128,418 $31,487,045 $48,330,475 $17,000,250
Percent of Total
Dollar Volume ... 58.34% 69.71% 99.70% 97.58% 99.25%
FHA Insured Loans
Number of Loans ... 358 136 1 20 2
Dollar Volume ..... $24,612,818 $11,787,944 $ 94,090 $ 1,200,000 $ 128,000
Percent of Total
Dollar Volume ... 41.66% 30.29% .30% 2.42% .75%
Total Loans
Number of Loans ... 718 392 333 519 192
Dollar Volume ..... $59,079,953 $38,916,362 $31,581,135 $49,530,475 $17,128,250
Average Loan Amount $ 82,284 $ 99,276 $ 94,838 $ 95,434 $ 89,210
</TABLE>
<PAGE>
Adjustable rate mortgages represented approximately
21%, 18%, 19%, 3% and 6% of the conventional loan production
for 1996, 1995, 1994, 1993 and 1992, respectively.
Loan sales generally are made on a nonrecourse basis,
except for losses arising from certain deficiencies in the
underwriting of the loan. Citizens would remain liable for
such losses to an investor. Citizens' obligations with respect
to foreclosure losses on FHA or VA loans included in
mortgage-backed securities pools would be the same as an
originator which sells such loans or as a servicer of such
loans, unless modified by the sales or servicing contract with
a party financially capable of performing any indemnity or
contribution requirements.
Citizens funds loan production with its own cash or
with proceeds from various credit and warehouse facilities.
After a loan closes, it generally takes 7 days until all
documents are assembled, packaged and delivered to an investor
and 7 days until the investor pays for the loan. In some
instances, Citizens retains any interest earned on the
mortgage loan until the investor buys such loan. Citizens'
interest cost, in some cases, is more than the rate realized
while Citizens earns interest on the mortgage loan.
Oftentimes, interest rates vary between the time that Citizens
issues a commitment to make a loan to an applicant (or
purchases a loan at a set price from a correspondent) and the
time at which payment is due from an investor.
Citizens offers mortgage loan applicants, directly
through its retail operation and indirectly through its
correspondents, the option of fixing an interest rate at any
time prior to 5 days before settlement. Obviously, all
applications and commitments do not generate a closed loan,
and Citizens is exposed to an interest rate risk, if it
commits to fund a mortgage at a certain rate and an investor
is only willing to buy the loan at a higher rate. Application
fees, paid at the time of application, and origination fees,
paid at the time of an applicant's acceptance of a commitment
or "financed" through a higher loan balance, however, offset
some of the potential loss. In the case of certain
refinancings of loans on owner-occupied residences, Federal
law requires that a total refund of all fees be made, if the
mortgagor rescinds the transaction within 3 business days of
closing. Obviously, no disbursement of loan proceeds is made
until the expiration of such period.
Citizens registers all production on a "best efforts"
delivery basis with an investor. Accordingly, if a loan fails
to close, Citizens does not have any obligation to the
investor, and thus minimizes any interest rate risk.
<PAGE>
Mortgage Servicing
During 1996, management completed its exit of
mortgage servicing as a separate activity, with the sale of
the remaining servicing portfolio for $172,500. The sale
resulted in a gain of approximately $130,000. Citizens
continues to service mortgage loans for a brief period
following the closing of a loan. Servicing rights may be sold
to the investor who purchases the loan or to other mortgage
servicers.
At December 31, 1996, the mortgage servicing
portfolio amounted to $1,359,000 as compared with $22,625,000
at December 31, 1995.
The following table sets forth an analysis of the
carrying amount of the Company's purchased mortgage servicing
rights:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Purchased Mortgage
Servicing Rights
Beginning Balance .... $ 46,886 $ 2,077,108 $ 2,632,657 $ 2,018,464 $ 1,284,806
Add: Purchases ...... -- 96,357 151,513 1,016,284 1,086,905
Less: Sales ......... (42,365) (1,765,218) (227,121) -- --
Less: Post Closing
Adjustments
Relating to
Original
Acquisition and
Bulk Purchases -- -- (12,848) -- --
Amortization
Expense ....... (4,521) (361,361) (467,093) (402,091) (353,247)
----------- ----------- ----------- ----------- -----------
Ending Balance ....... $ 0 $ 46,886 $ 2,077,108 $ 2,632,657 $ 2,018,464
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
The table set forth below is an analysis of the Company's
mortgage servicing portfolio based on the unamortized
principal balance of all loans being serviced. "Runoff"
includes regular principal payments as well as prepayments for
any reason.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
Dollars in Thousands 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Mortgage
Servicing Portfolio:
<S> <C> <C> <C> <C> <C>
Beginning Balance ... $ 22,625 $ 217,327 $ 263,089 $ 236,552 $ 205,447
Add: Loan Production 59,080 38,916 31,581 49,530 17,128
Bulk Servicing
Acquired ...... 0 9,274 845 69,616 84,450
Less: Servicing Sales (79,169) (215,690) (32,809) (4,127) (1,324)
Runoff ........ (1,177) (27,202) (45,379) (88,482) (69,149)
--------- --------- --------- --------- ---------
Ending Balance ...... $ 1,359 $ 22,625 $ 217,327 $ 263,089 $ 236,552
========= ========= ========= ========= =========
</TABLE>
The remaining mortgage servicing portfolio consists
of servicing rights for loans to be sold in the normal course
of business, usually thirty to sixty days, and loans in
foreclosure. As of December 31, 1996, the principal balance of
loans in foreclosure is $291,000. Citizens will continue to
service these loans until the foreclosures are completed. The
Company does not bear any significant risk of loss in
connection with the foreclosures pending. In some cases,
Citizens has made advances and incurred certain expenses in
connection with those foreclosures. In most instances, such
advances and any uncollected servicing fees should be received
from the sale proceeds of the underlying collateral or have
been fully reserved against.
<PAGE>
Viatical Settlements
In May 1995, the Company began a new business of
arranging "viatical settlements." Helmstar Funding, Inc.
("Funding") arranges for the sale of a life insurance policy
for a critically ill individual. The insured receives a
discounted payment representing all of, or a predetermined
portion of, the death benefit while that person is alive. The
purchaser maintains the policy and collects the death benefit
when the insured dies. Funding does not purchase the policy;
rather, it will receive a commission from the purchaser when a
transaction is completed.
Funding works with hospital social workers, discharge
planners, hospice professionals, and employee benefits
managers to assist critically ill persons and their families
meet their financial challenges. The insured can use the
proceeds in any manner such person deems fit. The discounted
amount depends on a number of factors including life
expectancy.
Funding did not derive any revenue in 1995 compared
with an insignificant amount in 1996 and incurred an
immaterial amount of operating expenses. Considering the
breakthroughs in life extending medication now available, the
Company has decided to curtail this line of business and is
currently seeking a marketing arrangement with an outside
party.
General
The Company was incorporated under the laws of the
State of Delaware in 1968. It maintains offices at 2 World
Trade Center, Suite 2112, New York, New York 10048 and its
telephone number is (2l2) 775-0400. Unless the context
requires otherwise, the term "Company" refers to Helmstar
Group, Inc. ("Group") and its wholly-owned subsidiaries:
Matthews & Wright, Inc. ("Matthews & Wright"); Snider,
Williams & Co., Inc. ("Snider"); Randolph, Hudson & Co., Inc.
("Randolph"); Eden Consulting, Inc. ("Eden"); Shaw Realty
Company, Inc. ("Shaw"); Helmstar Funding, Inc. ("Funding,"
formerly CMS Insurance Agency, Inc.); Burrows, Hayes Company,
Inc. ("Burrows"); Dover, Sussex Company, Inc. ("Dover");
Housing Capital Corporation ("Housing"); Randel, Palmer & Co.,
Inc. ("Randel"); Parker, Reld & Co., Inc. ("Parker") and
McAdam, Taylor & Co., Inc. ("McAdam"). Additionally, unless
the context requires otherwise, "Company" includes all
wholly-owned subsidiaries of Group including Citizens Mortgage
Service Company ("Citizens"), a wholly-owned subsidiary of
McAdam.
As of March l, 1997, the Company had 39 employees of
whom 36 were full time employees.
<PAGE>
Financial Information Relating to Industry Segments
The Company's operations are classified into two
principal industry segments: merchant banking and mortgage
banking. The Company first engaged in mortgage banking in 1991
with its acquisition of Citizens on June 30, 1991. Since the
Company's new business of viatical settlements did not
generate any revenue and its expenses and identified assets
are immaterial, the Company included such expenses and
identified assets as part of the amounts for "general
corporate."
<TABLE>
<CAPTION>
Year Ended December 31,
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
Revenue from unaffiliated customers:
Merchant banking ................... $ 676,037 $ 2,711,078
Mortgage banking ................... 2,136,580 2,094,400
Other corporate income ............. 676,998 1,396,981
----------- -----------
Total revenues ..................... $ 3,489,615 $ 6,202,459
=========== ===========
Income (loss) from
operations:
Merchant banking ................... $ (491,579) $ 1,437,920
Mortgage banking ................... (1,570,464) (349,200)
----------- -----------
Income (loss) from
operations ...................... (2,062,043) 1,088,720
General corporate
income (expense) ................ (309,922) 133,560
Income (loss) before
income tax ...................... $(2,371,965) $ 1,222,280
=========== ===========
Identifiable assets:
Merchant banking ................... $ 1,418,383 $ 1,324,023
Mortgage banking ................... 4,611,869 3,840,700
General corporate .................. 2,258,646 4,821,943
Total Assets .................. $ 8,288,898 $ 9,986,666
=========== ===========
</TABLE>
<PAGE>
Competition
Competition in the Company's business of merchant
banking focusing on middle market oriented, real estate and
other businesses is widespread and highly fragmented. In its
activities as a co-venturer with a focus on smaller, more
specialized ventures having defined markets, institutional
joint venturers including large public real estate or venture
capital partnerships and real estate investment trusts should
not be significant competitors. Likely competition will be
encountered from small syndicators; individual investors,
typically from the local market; smaller insurance companies;
and participating mortgage lenders. Many of the Company's
likely competitors have greater access to capital than the
Company. Similarly, the Company encounters stiff competition
from a broad range of financial services firms when seeking
financial consulting assignments.
The Company encounters fierce competition in its
mortgage banking business from numerous sources including
banks, thrifts and independent mortgage companies. The Company
tries to differentiate itself through prompt and efficient
service to the borrower. Companies with greater access to
capital at lower cost, however, may be able to offer more
varied mortgage loan products, possibly even at lower rates,
than the Company. This is especially true of banks and
thrifts. Furthermore, many larger mortgage bankers may offer
correspondents lower cost mortgages, higher profit margins and
more diversified products than the Company.
Regulation
In the course of conducting its business of merchant
banking, the Company may acquire interests in regulated
activities. Such regulation may be either directly or
indirectly related to the Company's interest.
With respect to its real estate joint ventures, the
Company may encounter Federal, state and local regulation in
connection with land use, building code requirements,
environmental, and similar restrictions on development and/or
operations.
Mortgage banking is a highly regulated businesses.
Citizens has mortgage banking licenses in Pennsylvania,
Delaware, Maryland and New Jersey. Citizens has all necessary
approvals as are required to originate and service loans
purchased or guaranteed by FNMA, FHLMC, FHA, GNMA and the VA.
Citizens may have to procure additional licenses in order to
expand its mortgage banking business.
<PAGE>
Item 2. Description of Property.
The Company leases approximately 7,000 square feet of
office space at 2 World Trade Center, New York, New York 10048
under the terms of a lease that expires February 28, 2006.
This office is utilized as the Company's executive office in
addition to housing its merchant banking activities.
Citizens leases approximately 6,500 square feet of
office space at 500 Office Center Drive, Fort Washington,
Pennsylvania 19034. This lease expires on March 31, 1998. This
office is utilized in the Company's mortgage banking
activities. Citizens transferred its New Jersey branch office
to another company in late 1996 and did not renew its Delaware
lease.
The future minimum annual base rental commitments
under these leases are reflected in the amounts provided in
Note F[1] in Notes to Financial Statements included in Part
II, Item 7 of this Form 10-KSB.
<PAGE>
Item 3. Legal Proceedings.
In addition to the litigations described below, there
are various claims against the Company with respect to matters
arising out of the ordinary conduct of its business. Outside
counsel for the Company has advised that at this time they
cannot offer an opinion as to the probable outcome of any of
these matters. In the opinion of management, the resolution of
these matters will not have a material adverse effect on the
Company's financial position or the results of operations.
Cross Creek Village v. Housing Authority of the
County of Riverside, et al., Case No. 236813
This action was filed in the Superior Court of the
State of California, County of Riverside, in July 1993, and a
summons was served on Matthews & Wright in September 1993. It
was indexed as Case No. 93-7732. The complaint asserts
numerous claims against multiple defendants arising out of the
issuance of $13,000,000 Housing Authority of the County of
Riverside, Multi-Family Housing Revenue Bonds, Series 1985A
(Ironwood Apartments Project), issued by the Housing Authority
of the County of Riverside, California ("Housing Authority")
and underwritten by Matthews & Wright for the construction of
the Ironwood Apartments project. The complaint alleges that
the bonds were issued pursuant to a "sham closing" in 1985
when in fact the bonds were not actually issued until 1986,
resulting in an assertion by the Internal Revenue Service (the
"IRS") that the interest on the bonds is not tax-exempt. The
plaintiff in this action is Cross Creek Village, a partnership
which allegedly acquired the project from the original
developer. The plaintiff maintains that the Housing Authority
claimed to have incurred more than $500,000 in legal costs in
contesting the IRS' assertion for which the Housing Authority
seeks indemnity from the plaintiff.
The original complaint in this action asserted claims
against Matthews & Wright for equitable indemnity, fraud, and
negligent misrepresentation. In September 1993, the plaintiff
dismissed the complaint without prejudice against Matthews &
Wright and others. In October 1993, the plaintiff filed a
First Amended Complaint arising out of the same facts as the
initial complaint, and named Group as the
successor-in-interest to Matthews & Wright among the
defendants. The First Amended Complaint alleged the same
claims against Group as had formerly been alleged against
Matthews & Wright. In November 1993, Group filed an answer
denying all liability.
In addition, cross-claims have been filed by certain
co-defendants in this action against Group and Matthews &
Wright. One co-defendant, legal counsel to the Housing
Authority, filed a cross-complaint for indemnification and
apportionment of fault against multiple parties including
Group. In addition, the County of Riverside, California and
the Housing Authority, two other co-defendants filed a
cross-complaint that, in addition to alleging claims arising
<PAGE>
out of the Ironwood Apartments bonds, adds claims arising out
of the issuance of $17,500,000 Housing Authority of the County
of Riverside, Multi-Family Housing Revenue Bonds, Series 1985A
(Whitewater Garden Apartments Project), issued by the Housing
Authority and underwritten by Matthews & Wright. The claims in
the second cross-complaint arise out of allegations concerning
the manner in which the closings on both bond issues were
conducted. The second cross-complaint alleges claims against
"Matthews & Wright, Inc., dba Helmstar" for equitable
indemnity, intentional misrepresentation, negligent
misrepresentation, fraudulent concealment of material facts,
negligence, breach of fiduciary duty, RICO, and conspiracy to
make intentional or negligent misrepresentations. Both
cross-complaints assert claims against defendants already in
the case as well as against new defendants. By a standstill
agreement dated January 21, 1994, cross-claimants and certain
other parties, including Group and Matthews & Wright, have
agreed not to pursue cross-claims against one another at this
time. The parties also agreed to extend the time to respond to
the pending cross-claims until 30 days after termination of
the agreement.
In December 1993, this action was removed by another
defendant, the Federal Deposit Insurance Corporation ("FDIC"),
to the U.S. District Court for the Central District of
California. On January 7, 1994, the FDIC moved to transfer the
venue of this action to the U.S. District Court for the
Southern District of Texas. The Court severed and transferred
claims involving the FDIC to the U.S. District Court for the
Southern District of Texas. All other claims were remanded to
the Superior Court of California, County of Riverside, as Case
No. 236813.
The plaintiff seeks compensatory and punitive damages
as well as indemnification and equitable relief. In four
counts, two of which involve the Company as well as other
defendants, the plaintiff seeks compensatory damages plus
interest estimated to be not less than $5 million. It is too
early to assess the potential for, and the amount of, any
damages in connection with this action. At a status conference
held on December 17, 1996, Plaintiffs' counsel failed to
appear and then at a hearing held on February 26, 1997, the
judge dismissed the complaint by the plaintiff. The
cross-complaint of the Housing Authority is still pending and
the status conference on that complaint was continued to March
25, 1997.
In October 1995, the United States Tax Court held in
Harbor Bancorp v. Commissioner, 105 T.C. No. 19, that the
interest on the bonds forming the basis of the Cross Creek
Village case was not excludable from the bondholders' taxable
income. In January 1996, the petitioners appealed the Tax
Court's decision to the U.S. Court of Appeals for the Ninth
Circuit.
<PAGE>
Fred W. Wasserman, et al. v. Jeffrey P. Christopher,
et al., Case No. 278699
In May 1996, the Company was served with a summons
and complaint in connection with a class action commenced in
March 1996 against multiple parties. This action was filed in
the Superior Court of California, County of Riverside. The
plaintiffs brought this action on behalf of themselves and all
other purchasers of bonds issued by the Housing Authority of
the County of Riverside for the Whitewater Garden Apartments
project and the Ironwood Apartments project (the "Bonds"). The
plaintiffs maintain the defendants misrepresented that the
interest on the Bonds would be exempt from federal income tax.
The plaintiffs allege negligent misrepresentation, fraudulent
misrepresentation, and concealment against multiple
defendants, including the Company, relating to actions with
respect to the issuance and underwriting of the Bonds in 1985
and 1986. The plaintiffs also filed claims involving breach of
written contract, breach of oral contract, breach of fiduciary
duty, and negligent representation against multiple defendants
other than the Company. The plaintiffs are seeking damages for
taxes, penalties, and interest they have paid or are obligated
to pay, attorneys fees, costs, punitive damages, and other
relief the court deems just. The plaintiffs maintain that
taxes, interest, and penalties are in excess of $3 million or
an amount to be proved at the time of trial.
In October 1995, the United States Tax Court held in
Harbor Bancorp & Subsidiaries, et al. v. Commissioner of
Internal Revenue, 105 T.C. No. 19, that the interest on the
Bonds at issue in the Wasserman case was not excludable from
the taxpayers' taxable income. In January 1996, the taxpayers
appealed the Tax Court's decision to the U.S. Court of Appeals
for the Ninth Circuit.
The Company has agreed to enter into a stipulation
with plaintiffs which will stay all proceedings without
prejudice pending the outcome of an appeal now before the
United States Court of Appeals for the Ninth Circuit in Harbor
Bancorp. A proposed stipulation staying the proceedings, and
consolidating a related action not involving the Company was
filed by the plaintiff in July 1996. The court has not yet
approved the proposed stipulation.
On November 15, 1996, this case was continued for 90
days by the court; the court did not hold such hearing and
currently there are no further proceedings.
The Company plans to defend vigorously against all of
the plaintiffs' allegations involving it. It is too early to
assess the potential for, and the amount of, any damages in
connection with this action.
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
Exchange Listing:
The common stock of Helmstar Group, Inc. is listed
on the American Stock Exchange (trading symbol HLM).
The approximate number of recordholders of Common
Stock as of February 28, 1997 was 293.
<TABLE>
<CAPTION>
Equity Sale Prices:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1 5/16 7/8 1 1/8 3/4 1 1/2 3/4 1 3/8 3/4
1995 9/16 7/16 3/4 3/8 1 1/4 1/2 1 3/16 11/16
</TABLE>
Dividends:
The Company has not previously paid cash dividends on
its common stock. The Board of Directors does not presently
intend to pay cash dividends on the outstanding shares of
common stock in the foreseeable future. The payments of future
dividends and the amount thereof will depend upon the
Company's earnings, financial condition, capital requirements
and such other factors as the Board of Directors may consider
relevant.
<PAGE>
Item 6. Management's Discussion and Analysis.
A. Results of Operations
1. 1996 Compared to 1995
Total revenue decreased to $3,489,615 for 1996 from
$6,202,459 for 1995.
Profit from joint ventures decreased to $557,037 for
1996 from $1,939,087 for 1995. This classification represents
the Company's share of income and losses, computed in
accordance with the equity method of accounting, from various
joint ventures in which the Company is participating. The
types of ventures being pursued typically require several
years of careful management before they provide the projected
returns envisioned.
During 1996, this category included $200,000 received
from certain individuals who had guaranteed the obligations of
the co-venturer in Stoneledge with respect to a project which
had been sold at a foreclosure sale in 1992. The guarantors
made such payment in satisfaction of the co-venturer's
existing obligations to the Company. In 1991, the Company had
created a loss provision equal to the full carrying amount of
the partnership interest. In contrast, during 1995, this
category included a gain of approximately $1,276,000 from the
sale of First Highpoint's apartment project and $250,000 as a
result of the Company's receipt of cash distributions in
excess of the book value of its interest in Blowing Rock in
connection with the April 1995 refinancing of its mortgage
debt to $6,550,000 from $3,757,828.
Excluding the effects of Stoneledge, First Highpoint,
and the Blowing Rock refinancing, the Company's share of
profit from joint ventures increased to $357,037 for 1996
compared to $334,551 for 1996.
Notwithstanding improved operating results at the
venture, the Company's share of income from Blowing Rock
should be lower in future periods, due in part to the
substantial increase in interest expense, as a result of
refinancing the venture's mortgage debt from $3,757,828 to
$6,550,000 in April 1995. Furthermore, the partnership
agreement provides that the Company's share of income and cash
flow would decline, once the Company recovered its entire
capital contribution from certain events including the
refinancing of the venture's debt. The Company received a
distribution in excess of its capital contribution from the
refinancing proceeds. The venture's cash flow, at current
interest rates, was not negatively impacted because debt
service on the new loan is lower than on the old loan. In
addition to interest, the old loan required principal
amortization payments of $40,000 per month.
<PAGE>
Although operating results continue to improve as the
ventures mature, some variation in profit or loss for a
specific interim period may result due to such factors as
receiving annual payments of percentage rent; incurring
periodic operating expenses which will occur only every few
years, such as painting the entire project; accounting
adjustments between interim periods; lost rent due to the
turnover of a tenant notwithstanding that a new tenant has
been secured at a higher rent; etc.
Financial consulting fees decreased to $116,000 for
1996 from $766,500 for 1995. The Company provides financial
structuring advice on a fee basis. Typically, an engagement is
based on a specific assignment to assist a client to lower its
cost of capital. Due to the transactional nature of this
business, significant variations in revenue are likely.
Loan origination fees increased to $1,770,464 for
1996 from $596,941 in 1995. This category includes fees earned
in connection with making mortgage loans and net profit or
loss from sales of such loans to investors. This increase is
the result of the expanded retail loan origination efforts in
1996 during which loan origination volume increased to 718
loans, representing a dollar volume of $59,079,953, from 392
loans, representing a dollar volume of $38,916,362, in 1995.
Loan servicing fees decreased to $36,131 for 1996
from $800,197 in 1995. The decrease is the result of the sale
of substantially all of the Company's mortgage servicing
portfolio in December 1995 and the sale of the balance of the
portfolio in July and August 1996. This category includes fees
earned in processing residential mortgage payments and
servicing loans on behalf of various investors. In 1996, the
Company has repositioned its mortgage banking operation to
originate residential mortgage loans and sell them with their
servicing rights to permanent investors.
In 1996, the sale of the remaining servicing
portfolio generated revenues of approximately $170,000 and
realized a gain of $142,100. In 1995, the sale of mortgage
servicing rights generated revenues of approximately
$2,300,000 and a realized gain of $379,705.
Interest income increased to $463,868 for 1996 from
$362,906 for 1995, due in large part to interest earned in the
securities held in the trading and investing activities, which
offset lower interest earned in the mortgage servicing
activity. In late 1995, the Company sold most of its servicing
portfolio and the balance in mid-1996 causing a loss of
interest earnings on escrow balances for those mortgages being
serviced.
In the mortgage origination activity, the Company
uses its own cash or borrows from "warehouse facilities" to
fund mortgage loans originated for resale to investors. The
Company earns interest income on the mortgage loans until the
time of completing the sale thereof to investors and incurs
interest expense only when using the "warehouse facility."
<PAGE>
Investment income decreased to $428,954 for 1996 from
$1,083,884 for 1995. This category primarily consists of net
profit or loss from investing in futures, puts, calls,
municipal bonds, equities and other securities for cash
management, trading and risk management purposes relating to
the Company's interest fluctuation exposure in its mortgage
banking operation. During 1995, the Company reported a gain on
the sale of stock in a public company which was received in
connection with the sale of the Company's interest in a joint
venture in a prior period.
Other income resulted in a loss of $24,922 in 1996
compared to a profit of $273,239 in 1995. The 1996 loss is
attributable to a write-off of $40,000 on the sale of
furniture and fixtures related to the sale of the New Jersey
mortgage origination office offset by sundry fees received in
connection with the Company's mortgage banking operations.
During 1995, the Company received payment of an item which was
previously considered uncollectible.
Gain on the sale of mortgage servicing rights
decreased to $142,083 for 1996 compared to $379,705 for 1995.
The Company sold substantially all of its mortgage servicing
for approximately $2.3 million in 1995. The balance was sold
in 1996 for approximately $172,000.
Total expenses increased to $5,861,580 for 1996 from
$4,980,179 for 1995.
Compensation and related costs increased to
$3,593,614 for 1996 from $2,678,293 for 1995. The increase is
due principally to higher commission payments to account
executives as a result of higher production at Citizens and
the hiring of additional administrative and processing staff
to support the increase in mortgage loan originations. In
1995, an incentive bonus was accrued in connection with
profits derived from joint venture activities, however, no
bonus was accrued in 1996.
Occupancy costs decreased to $369,018 for 1996 from
$423,321 for 1995. This decrease is due principally to the new
lease entered into by the Company for its existing executive
offices at a significantly lower rent.
Amortization of mortgage servicing rights decreased
to $4,521 for 1996 from $361,422 for 1995. The Company sold
the majority of the mortgage servicing portfolio during 1995
and the remainder in mid-1996. With its withdrawal from
mortgage servicing as a separate activity, the Company will no
longer have a mortgage servicing portfolio to amortize. The
Company intends to sell the mortgage servicing rights on loans
it originates in the future either to the purchaser of such
loans or to third parties in independent transactions.
<PAGE>
General and administrative expenses increased to
$1,506,562 for 1996 from $905,145 for 1995. This increase was
due principally to greater activity in the Company's loan
origination business including such direct expenses as
appraisal fees, tax service fees, funding fees and warehouse
expenses. The Company increased the bad debt reserve in
connection with its mortgage activities and incurred higher
advertising and public relations expenses than in 1995.
Professional fees and litigation settlements
decreased to $149,963 for 1996 from $605,371 for 1995. This
decrease was due principally to the settlement of certain
litigation during 1995 and the moderate level of activity on
pending litigation in 1996.
Interest expense increased to $237,902 for 1996 from
$6,627 for 1995, principally as a result of the significant
increase in mortgage origination activity requiring greater
use of the Company's credit facilities to fund mortgage loans
held for sale. Additionally, the Company incurred interest
expense in connection with its trading and investing
activities.
On a pre-tax basis, the Company had a loss of
$2,371,965 for 1996 compared with a profit of $1,222,280 for
1995. In 1996, the Company had a tax benefit of $7,885
compared to a tax expense of $37,611 for 1995. These items
consist solely of state and local taxes and various
adjustments. For Federal income tax purposes, as of December
31, 1996, the Company has net operating loss carryforwards of
approximately $13,750,000 available to reduce future taxable
income. These carryforwards expire in the years 2005 through
2011.
The Company's net loss for 1996 was $2,364,080
compared with a net profit of $1,184,669 for 1995. On a per
share basis, the net loss was $.43 for 1996 compared with a
net profit of $.20 for 1995. Income per share for 1995 is
computed based on the weighted average number of shares
actually outstanding plus the shares that would be outstanding
assuming the exercise of stock options relating to the
Company's incentive compensation plan which are considered to
be common stock equivalents. The assumed exercise of stock
options relating to the Company's incentive compensation plan
were not included in the computation for 1996, because the
effect of their inclusion would be antidilutive. The number of
shares used in the computations were 5,544,480 in 1996 and
5,820,800 in 1995.
Inflation
Inflation may affect the Company in certain areas of
both its merchant banking and mortgage banking activities.
Changes in interest rates typically follow actual or expected
changes in the inflation rate. Accordingly, interest rates
usually increase during periods of high inflation and decrease
during periods of low inflation. The volume of loan
originations usually increases during periods of low interest
rates and decreases during periods of high interest rates.
<PAGE>
The Company has interests in two joint ventures which
developed and now operate manufacturers outlet shopping
centers. One joint venture has a mortgage loan with a variable
interest rate equal to Citibank's six-month LIBOR rate plus
3.10%. The interest rate resets on March 1 and September 1
each year until maturity on May 1, 2002. The maximum interest
rate is 13.5375% under the terms of the loan. The current rate
through August 31, 1997 is 8.788%.
Virtually all of the leases at the two shopping
centers require tenants to pay a proportionate share of normal
operating expenses including taxes and insurance with respect
to their premises as well as for common areas. Similarly, most
leases provide for percentage rents in excess of specified
targets. Percentage rent based on increasing retail sales
attributable to inflation alone would generate additional cash
flow. Furthermore, most leases have an initial term of five or
fewer years, so increases in base rents are possible. Many
tenants have renewal options providing for higher rent based
on changes in the Consumer Price Index. Each venture would be
responsible for any applicable increased costs associated with
structural repairs or vacancies.
As with all real estate projects, however, there is
no assurance that rents can be increased quickly enough, while
maintaining a high occupancy level, to mitigate escalating
operating costs as well as necessary capital repairs and
improvements.
B. Liquidity and Capital Resources
Management of the Company believes that funds
generated from operations, its warehouse facilities, and cash
distributions from joint ventures, supplemented by its
available assets, will provide it with sufficient resources to
meet all present and reasonably foreseeable future capital
needs. A significant portion of the Company's assets are
readily convertible into cash.
The Company invests excess funds in liquid,
short-term financial instruments in order to maximize its
current cash return with minimum interest rate risk, while
preserving the ability to move quickly in funding attractive
merchant banking ventures. Such investments include U.S.
Government and municipal obligations, futures contracts and
money market funds. Additionally, since commencing the
mortgage loan origination business, the Company may use its
own cash to carry a portion of its inventory of mortgage loans
originated for resale. Prior to funding any loans, the Company
procures firm commitments from investors to purchase such
loans. Fourteen days is the typical time between funding a
mortgage loan and receiving payment from an investor.
<PAGE>
The Company's primary financing needs are in its
mortgage banking activities. In addition to its own cash
resources, the Company meets its mortgage funding requirements
by borrowing the necessary amounts from three separate
warehouse bank lines aggregating $12,250,000. At December 31,
1996, approximately $2,200,000 had been borrowed against these
lines. The Company can draw down up to 98% of the face amount
of an individual mortgage loan from the warehouse bank which
is replenished from the purchase price paid by the investor
who had committed to purchase such loan.
In connection with its interests in real estate, the
Company uses separate subsidiaries for each venture. The
Company utilizes the equity method of accounting for its
interests in real estate joint ventures. Accordingly, the
assets and liabilities of such ventures are not included in
the Company's consolidated balance sheets.
The two operating real estate projects in which the
Company is a co-venturer, currently have strong occupancies
and positive cash flow. Cash maintained by each partnership,
supplemented with cash flow from operations, should be
sufficient to cover all operating costs and debt service
requirements of each venture, so that additional cash
contributions from the Company or its co-venturers would not
be necessary. Facts and circumstances, however, are subject to
change for reasons beyond the Company's control. Based on
current estimates, the Company expects to continue to receive
cash distributions from its real estate joint venture
activities during 1997.
In April 1993, one of the Company's real estate joint
ventures entered into a modification agreement with the lender
holding the venture's mortgage loan. The lender converted the
loan from a short-term, variable rate loan into a four-year,
fixed rate loan. Interest is payable at 8.5% per annum. The
lender charged an extension fee which was paid as follows: (1)
$15,000 at the time the extension was consummated; (2) $15,000
on April 1, 1994; and $33,818 (an amount equal to the product
of the outstanding principal balance $4,609,079 multiplied by
.0075) on April 1, 1995. Regular amortization is determined on
a 20-year schedule for the first year and then on a 15-year
self-liquidating basis. Additional amortization payments equal
to 25% of "excess cash flow" were paid during the second
12-month period. Thereafter, 50% of "excess cash flow" is due
as additional amortization. The loan matures on April 1, 1997.
The Company is currently in the process of refinancing this
loan and expects to complete such refinancing prior to April
1, 1997.
<PAGE>
In April 1995, the Company's other real estate joint
venture refinanced the mortgage loan on its project. The
principal amount of the new, nonrecourse loan is $6,550,000;
the interest rate equals Citibank's six-month LIBOR rate plus
3.10% and the interest rate resets each September and March;
the maximum interest rate is 13.5375%; principal amortization
is based on a 25-year schedule; and the loan matures on May 1,
2002. The current interest rate through August 31, 1997 is
8.788%. The interest rate had been 8.3% through August 31,
1996 and 8.85% from September 1, 1996 through February 28,
1997. The principal balance of the refinanced loan was
$3,757,828. The proceeds from refinancing, net of expenses
including points, fees, title insurance, escrows, etc., was
approximately $2.5 million. The Company received a
distribution from the joint venture of approximately $2.2
million.
Although the venture's outstanding debt was increased
substantially, at current interest rates, monthly debt service
decreased slightly because the old loan required monthly
principal payments of $40,000 through its maturity in July
1995. In addition to principal and interest payments, debt
service for the new loan includes contributions to various
reserve accounts. The funds from such reserve accounts may be
used, in accordance with the loan agreement, to offset future
expenses, if any, for structural repairs, tenant improvements,
leasing commissions, and interest expense.
The carrying amounts reflected on the Company's
consolidated balance sheet for its various joint venture
interests is determined in accordance with the equity method
of accounting. Such carrying amounts may not be representative
of the realizable value on a sale of those interests.
Management reviews the carrying amount of each venture to
determine if an adjustment for any impairment other than a
temporary decline is required. If management believes in good
faith that any impairment is other than temporary, a loss
provision equal to such amount will be charged against the
Company's consolidated results of operations.
Cash distributions from joint ventures are reflected
in investing activities in the Company's consolidated
statements of cash flows. Equity contributions to joint
ventures as well as any advances to joint ventures also are
reflected in investing activities in the Company's
consolidated statements of cash flows.
While the Company believes that currently available
funds will provide it with sufficient resources to meet all
present and reasonably foreseeable future capital needs, the
Company may seek various forms of credit in order to finance
its merchant banking, mortgage banking or other activities in
the future. The Company does not have any material commitments
for capital expenditures as of December 31, 1996.
<PAGE>
The Company is a defendant in various lawsuits.
Although the Company has reached settlements in some
instances, an unfavorable result in those remaining could have
a significant adverse effect upon the Company's liquidity and
capital resources.
Item 7. Financial Statements.
The Company's financial statements to be filed
hereunder follow, beginning with page F. Following such
financial statements, are the financial statements for each of
the operating real estate joint ventures in which the Company
is a joint venturer.
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND DECEMBER 31, 1995
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Helmstar Group, Inc.
New York, New York
We have audited the consolidated balance sheet of Helmstar Group, Inc.
and subsidiaries as at December 31, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two-year 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 did not audit the 1996 and 1995 financial statements of the real
estate joint ventures described in Note B. The Company's equity in these joint
ventures aggregated $1,417,883 at December 31, 1996 and they account for
$357,037 and $1,939,087 of income included in income (loss) before taxes for the
years ended December 31, 1996 and December 31, 1995, respectively. The financial
statements of these entities were audited by other auditors whose reports have
been furnished to us, and our opinion insofar as it relates to these entities is
based solely on the reports of the other auditors.
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 and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the financial statements enumerated above present fairly, in all material
respects, the consolidated financial position of Helmstar Group, Inc. and
subsidiaries at December 31, 1996, and the consolidated results of their
operations and their consolidated cash flows for each of the years in the
two-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As described more fully in Note G to the consolidated financial
statements, the Company was a defendant in various lawsuits.
/s/Richard A. Eisner & Company, LLP
- -----------------------------------
Richard A. Eisner & Company, LLP
New York, New York
February 26, 1997
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1996
A S S E T S
<S> <C>
Cash and cash equivalents (Note A) ................................. $ 1,679,454
Marketable securities (Note A) ..................................... 1,350,441
Joint ventures including advances (Notes A and B) ................... 1,418,383
Mortgage loans held for sale (Notes A and C) ....................... 2,647,692
Due from mortgage investors (Note C) ............................... 4,123
Furniture, equipment and leasehold improvements - at
cost, less accumulated depreciation and amortization
of $415,504 (Note A) ............................................. 237,673
Other assets ........................................................ 951,132
------------
T O T A L ................................................. $ 8,288,898
============
L I A B I L I T I E S
Notes payable (Note C) ............................................. $ 2,246,672
Accrued expenses and other liabilities (Note A) ..................... 979,298
------------
Total liabilities ......................................... 3,225,970
------------
Commitments, contingencies and other matters (Notes B, F, G, H and I)
STOCKHOLDERS' EQUITY
(Note E)
Common stock - authorized 10,000,000 shares,
par value $.10; issued 6,749,600 shares .......................... 674,960
Paid-in surplus ..................................................... 14,984,510
(Deficit) ........................................................... (7,683,718)
------------
T o t a l ................................................. 7,975,752
Less treasury stock, at cost - 1,213,227 shares ..................... (2,912,824)
------------
Total stockholders' equity ................................ 5,062,928
------------
T O T A L ................................................. $ 8,288,898
============
</TABLE>
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Profit from joint ventures (Note B) ........ $ 557,037 $ 1,939,087
Financial consulting fees (Note F[3]) ...... 116,000 766,500
Loan servicing fees (Notes A and J) ........ 36,131 800,197
Loan origination fees (Note A) ............ 1,770,464 596,941
Interest income ............................ 463,868 362,906
Investment income .......................... 428,954 1,083,884
Gain on sale of mortgage servicing rights
(Note J) ................................ 142,083 379,705
Other income (loss) ........................ (24,922) 273,239
----------- -----------
Total revenues ...................... 3,489,615 6,202,459
----------- -----------
Expenses:
Compensation and related costs ............. 3,593,614 2,678,293
Occupancy cost ............................. 369,018 423,321
Amortization of mortgage servicing rights .. 4,521 361,422
General and administrative ................. 1,506,562 905,145
Professional fees and provision for
contingencies and settlements ............ 149,963 605,371
Interest ................................... 237,902 6,627
----------- -----------
Total expenses ...................... 5,861,580 4,980,179
----------- -----------
Profit (loss) before taxes .................... (2,371,965) 1,222,280
Income tax provision (benefit) (Note D) ...... (7,885) 37,611
----------- -----------
NET INCOME (LOSS) ............................ $(2,364,080) $ 1,184,669
=========== ===========
Net income (loss) per common share (Note A) .. $ (.43) $ .20
=========== ===========
Weighted average number of
common shares outstanding .................. 5,544,480 5,820,800
=========== ===========
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Paid-in (Accumulated Treasury Stock
Shares Amount Surplus Deficit) Shares Amount Total
------ ------ ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1,
1995.................. 6,749,600 $ 674,960 $ 14,984,510 $ (6,504,307) 783,905 $ 2,518,923 $ 6,636,240
Treasury stock
acquired at cost .. -- -- -- -- 419,322 386,179 (386,179)
Net income ........... -- -- -- 1,184,669 -- -- 1,184,669
--------- ------------ ------------ ------------ --------- ----------- ------------
Balance - December 31,
1995.................. 6,749,600 674,960 14,984,510 (5,319,638) 1,203,227 2,905,102 7,434,730
Treasury stock
acquired at cost .. -- -- -- -- 10,000 7,722 (7,722)
Net (loss) ........... -- -- -- (2,364,080) -- -- (2,364,080)
--------- ------------ ------------ ------------ --------- ----------- ------------
BALANCE - DECEMBER 31,
1996.................. 6,749,600 $ 674,960 $ 14,984,510 $ (7,683,718) 1,213,227 $ 2,912,824 $ 5,062,928
============ ============ ============ ============ ============ ============ ============
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------
1996 1995 *
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................................... $ (2,364,080) $ 1,184,669
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Depreciation and amortization ........................................... 95,787 456,722
Share of (profit) from joint ventures ................................... (357,037) (662,820)
Realized (gain) on sale of joint venture ................................ (200,000) (1,276,267)
Realized (gain) on sale or disposal of investments ...................... (440,906) (325,999)
Unrealized loss (gain) from marketable securities ....................... 12,012 (27,523)
(Gain) on sale of mortgage loans held for sale .......................... (130,134) (379,505)
Loss on sale of fixed assets ............................................ 41,477 1,912
Changes in operating assets and liabilities:
(Increase) in mortgage loans held for sale ............................ (1,106,052) (1,511,640)
Decrease in due from mortgage investors ............................... 48,056 2,375
Purchase of marketable securities ..................................... (63,221,393) (3,541,756)
Sales of marketable securities ........................................ 62,816,478 1,456,610
(Increase) decrease in other assets ................................... 169,166 (907,900)
(Decrease) increase in accrued expenses ............................... (628,895) 97,247
------------ ------------
Net cash (used in) operating activities ............................. (5,265,521) (5,433,875)
------------ ------------
Cash flows from investing activities:
Purchase of investment securities ........................................... (1,686,692)
Sale of investment securities ............................................... 3,805,767 508,907
Distributions from joint ventures - refinancing ............................. 2,227,892
Distributions from joint ventures ........................................... 262,677 381,521
Proceeds from sale of interest in joint ventures ............................ 200,000 1,681,622
Proceeds from sale of other investments ..................................... 723,125
Acquisition of mortgage servicing rights .................................... (96,357)
Proceeds from sale of mortgage service rights ............................... 172,499 2,144,763
Purchase of fixed assets .................................................... (153,005) (18,637)
Proceeds from sale of fixed assets .......................................... 3,100 8,752
------------ ------------
Net cash provided by investing activities ........................... 4,291,038 5,874,896
------------ ------------
Cash flows from financing activities:
Proceeds of short term borrowings ........................................... 2,246,672 564,264
Repayment of short term borrowings .......................................... (943,743)
Purchase of treasury stock .................................................. (7,722) (386,179)
------------ ------------
Net cash provided by financing activities ........................... 1,295,207 178,085
------------ ------------
<PAGE>
<CAPTION>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------
1996 1995 *
------------ ------------
<S> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................................... 320,724 619,106
Cash and cash equivalents at beginning of year ................................. 1,358,730 739,624
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................................... $ 1,679,454 $ 1,358,730
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .................................................................. $ 237,902 $ 6,627
Taxes ..................................................................... 16,415 35,828
* Reclassified to conform to the current year's presentation.
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
</TABLE>
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
The Company is in the merchant banking business and it has an interest
in two operating real estate joint ventures. In 1991, it entered the mortgage
servicing business through the acquisition of Citizens Mortgage Service Company
("Citizens").
During 1992, Citizens began originating mortgage loans and became a
full service mortgage banker. During 1995, Citizens sold substantially all of
its mortgage servicing portfolio and will concentrate on mortgage loan
originations.
[1] Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of Helmstar Group, Inc. and its wholly-owned subsidiaries (the
"Company").
All significant intercompany balances and transactions have
been eliminated.
[2] Joint ventures and other investments:
Joint ventures, with a 20% to 50% voting interest and limited
partnership investments in investment partnerships are accounted for under the
equity method. If management believes in good faith that the fair value of an
interest in a joint venture or limited partnership interest is less than the
carrying amount thereof, determined in accordance with the equity method of
accounting, and such decline in value is other than temporary, the Company will
establish a loss reserve equal to the amount of such decline. The carrying
amount of this asset in the Company's consolidated balance sheet is presented
net of any reserve. Each interest is reviewed separately, notwithstanding that
all interests are combined for financial statement presentation purposes.
[3] Mortgage banking:
(a) Recognition of income:
The Company originates and processes mortgage loans for sale
to permanent investors. Servicing rights may or may not be retained upon sale.
Loan origination fees net of certain loan origination costs are deferred until
the loans are sold. Profit recognition on the sale of mortgage loans, which is
included in loan origination income, occurs when all incidence of ownership
passes to the permanent investor. Interest income is recognized on mortgage
loans held for sale as earned.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[3] Mortgage banking: (continued)
(b) Mortgage loans held for sale:
Mortgage loans held for sale are reported at the lower of cost
or fair value (as determined in good faith by management).
(c) Loan servicing:
Fees earned for servicing mortgage loans owned by investors
are based on a stipulated percentage of the outstanding monthly principal
balance of such loans. Loan servicing fees are credited to income when
collected, loan servicing costs are charged to expense as incurred.
(d) Mortgage servicing rights:
Servicing rights may or may not be sold concurrently with the
related mortgage loans. Servicing rights sold in conjunction with mortgage loan
sales are included in loan origination income.
When mortgage loans are sold with servicing rights retained
the gain or loss on such sales is adjusted to provide for recognition of normal
servicing fees over the estimated servicing lives of the related mortgage loans.
The adjustment equals the present value of the difference between the actual
servicing fee and the normal servicing fee. To the extent that the actual
servicing fee exceeds the normal servicing fee, these fees are capitalized and
amortized to servicing fee income monthly, using a level yield method. If the
actual servicing fees are estimated to be less than the normal servicing fees, a
loss is recognized as of the date of the sale.
Purchased servicing rights are capitalized in an amount equal
to the lesser of cost or the excess of the present value of the estimated
servicing fee revenue over the present value of the estimated costs associated
with each portfolio acquired. The capitalized amount is amortized in proportion
to and over the estimated servicing life.
The Company reviews the carrying amount of each portfolio of
mortgage servicing rights for possible impairment. If the estimated future
servicing costs exceed the estimated future servicing revenue, the Company will
recognize a loss equal to such excess, and reduce future amortization expense
accordingly.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[4] Depreciation and amortization:
Furniture, fixtures and equipment are being depreciated using
both straight-line and accelerated methods over estimated lives of five to seven
years. Leasehold improvements are amortized on a straight-line basis over the
shorter of term of the lease or its useful life.
[5] Statements of cash flows:
For the purpose of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
[6] Income (loss) per share:
Income (loss) per share is computed based upon the weighted
average number of common shares outstanding during each year. Common share
equivalents relating to the Company's incentive compensation plan have been
excluded from the computation in 1996 as they are antidilutive.
[7] Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. The resulting asset was fully reserved since the
likelihood of realization of the benefit cannot be established.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[8] Marketable Securities:
The Company accounts for its investments in marketable
securities pursuant to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
SFAS 115 requires, among other things, the classification of investments in one
of three categories based on the Company's intent: trading, available-for-sale
and held-to-maturity, with trading and available-for-sale securities carried at
fair value and held-to-maturity securities carried at amortized cost.
The Company invests in marketable debt securities consisting
of United States Treasury Bills and municipal debt securities. The United States
Treasury Bills mature in less than one year. The municipal debt securities are
bought and held principally for the purpose of selling them in the near future
and are carried at market value. These marketable debt securities are classified
as trading securities.
[9] Recently issued accounting pronouncements:
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), and Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 121 requires, among
other things, that entities identify events or changes in circumstances which
indicate that the carrying amount of an asset may not be recoverable. SFAS 123,
among other things, encourages companies to establish a fair value based method
of accounting for stock-based compensation plans and requires certain pro forma
disclosures if the fair value method is not adopted.
SFAS 121 and SFAS 123 had no material effect on the financial
statements.
[10] Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Joint Ventures:
[1] Joint ventures as at December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
Real estate joint ventures - 50% voting interest with majority
financial interest in partnerships:
<S> <C> <C>
Blowing Rock
Outlet Partners Shopping Center $ 1,579
Nags Head Outlet
Partners Shopping Center 1,416,304
Other 500
Total real estate joint ventures $1,418,383
</TABLE>
[2] Summary combined financial information of the real estate joint
ventures as at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Operating properties . . . . . . . . . . . . . $11,366,429
Other assets . . . . . . . . . . . . . . . . . 576,540
-----------
Total assets . . . . . . . . . . . . 11,942,969
Notes payable. . . . . . . . . . . . . . . . . 10,439,565
Other liabilities. . . . . . . . . . . . . . . 204,888
-----------
Total liabilities. . . . . . . . . . 10,644,453
Net assets . . . . . . . . . . . . . $ 1,298,516
===========
Company's investment . . . . . . . . . . . . . $ 1,418,383
===========
</TABLE>
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Joint Ventures: (continued)
[2] (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Rental income ................... $ 2,334,006 $ 2,176,689
Operating expenses .............. (838,317) (830,730)
Other expense ................... (902,863) (876,476)
----------- -----------
Net income ............ $ 592,826 $ 469,483
=========== ===========
Company's share .............................. $ 357,037 $ 334,551
Adjustment for distribution in
excess of basis ....................... 328,269
----------- -----------
357,037 662,820
Receipt of an item previously
reserved (a) .......................... 200,000
Company's share of gain on sale of
assets of a joint venture (b) ........ 1,276,267
----------- -----------
Profit from joint ventures ............... $ 557,037 $ 1,939,087
=========== ===========
</TABLE>
(a) During 1996 the Company received payment in satisfaction of
the co-venturers existing obligations for a venture that was
fully reserved for in a prior year.
(b) First Highpoint Limited Partnership, a partnership in which
the Company had a majority financial interest, sold a 140 unit
apartment project, located in Plano, Texas.
[3] A reconciliation of the Company's investment in real estate joint
ventures as at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year. . . . . $1,324,023
Net income. . . . . . . . . . . . . 357,037
Distributions . . . . . . . . . . . (262,677)
----------
Balance, end of year. . . . . . . . $1,418,383
==========
</TABLE>
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Notes Payable:
The Company has entered into warehouse loan agreements with three
financial institutions, permitting the Company to borrow a total of $12,250,000
at December 31, 1996. Borrowings under the warehouse loan agreements are due on
demand and are collateralized by mortgage loans held for sale which aggregated
$2,647,692 at December 31, 1996. The notes bear interest at rates varying from
the prime rate plus 1% to the prime rate plus 2%.
The Company maintains a margin account with a broker. At times during
the year, the Company was advanced funds with the related securities as
collateral.
(NOTE D) - Income Taxes:
The Company and its subsidiaries file consolidated federal income tax
returns.
The (benefits) provisions for income taxes consist of state and local
taxes of $(7,885) and $37,611 for the years ended December 31, 1996 and December
31, 1995, respectively.
At December 31, 1996 the Company has net operating loss carryforwards
for federal income tax purposes of approximately $13,750,000, which expire from
2005 through 2011. The difference between the accumulated loss for financial
reporting purposes and that for federal income tax purposes is primarily due to
losses which the Company had not been able to carry back to prior years for tax
purposes.
The Company has not recorded the $6,550,000 benefit from either its net
operating loss carryforward of $6,325,000 or litigation provision of $225,000,
because realization of the benefit is uncertain and therefore a valuation
allowance (increased by approximately $1,550,000 for 1996) has been provided.
The Internal Revenue Service ("IRS") is examining the Company's federal
income tax returns for the years 1985 through 1989. The IRS has proposed certain
adjustments to the returns for possible additional income tax due in the amount
of approximately $958,000 (exclusive of interest and penalties). The Company
does not agree with the proposed adjustments and has engaged tax counsel to
protest them. (See Note F[4].)
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE D) - Income Taxes: (continued)
The effective tax rate varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
For the
Year Ended
December 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Statutory rate (benefit) . . . . . . . (34.0)% 34.0 %
State and local taxes (benefit), net
of federal income tax effect. . . . (12.2) 14.0
Nondeductible expenses . . . . . . . . 4.8
Valuation allowance. . . . . . . . . . 45.9 (49.7)
------ ------
Effective rate . . . . . . . . . . . . (.3)% 3.1 %
====== ======
</TABLE>
(NOTE E) - Incentive Compensation Plan:
Under the Company's 1990 Incentive Compensation Plan (the "Plan"), the
Company has increased its reserved shares by 250,000 in 1996 to an aggregate of
750,000 shares of its common stock for issuance to officers and other key
employees in the form of incentive or nonqualified stock options, stock
appreciation rights, or restricted stock awards. Incentive stock options granted
under the Plan must be exercisable at a price per share not less than 100% (110%
in the case of a 10% stockholder) of the fair market value of the Company's
common stock on the date of grant. Options cannot be exercised after ten years
(five years in the case of a 10% stockholder) from the date of grant.
Nonqualified stock options cannot be exercised prior to one year or after ten
years from the date of grant. During 1992, options to purchase 150,000 shares
were granted at an exercise price of $.5625 per share. In 1996, 50,000 options
were cancelled. There was 100,000 outstanding options to purchase common stock
at December 31, 1996 of which 75,000 are exercisable.
(NOTE F) - Commitments, Contingencies and Other Matters:
[1] In 1995, the Company, per the terms of its lease on its corporate
headquarters, paid a penalty of $70,000 to cancel the lease effective February
29, 1996. The Company renegotiated a new lease on the same space thru February
28, 2006 at a lower rate. Rental expense was $351,200 and $319,500 for the years
ended December 31, 1996 and December 31, 1995, respectively.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Commitments, Contingencies and Other Matters: (continued)
<TABLE>
<CAPTION>
Minimum future annual rental payments are as follows:
<S> <C>
1997 . . . . . . . . . . . . . $ 205,100
1998 . . . . . . . . . . . . . 147,200
1999 . . . . . . . . . . . . . 127,900
2000 . . . . . . . . . . . . . 127,900
2001 . . . . . . . . . . . . . 127,900
Thereafter . . . . . . . . . . 532,900
----------
$1,268,900
==========
</TABLE>
[2] The Company has a Retirement Savings Plan for its employees,
pursuant to Section 401(k) of the Internal Revenue Code. The Company, at its
discretion, may match 25% of employee contributions. Employee contributions to
the Plan and the Company's matching contributions vest immediately. The
Company's contribution to the Plan in 1996 and 1995 was approximately $47,600
and $9,300, respectively.
[3] During 1996 and 1995 consulting fees from one financial institution
accounted for approximately 3% and 12%, respectively, of total revenue.
[4] In certain instances the Company provided reserves for unsettled
lawsuits and other matters when the potential contingent liability could be
reasonably quantified and a negative outcome is probable. Provision for such
contingent liabilities are included in the Company's financial statements. When
the potential contingent liability could not be reasonably quantified and the
ultimate outcome presently cannot be determined, no provision for any liability
that may result has been made in the Company's financial statements.
(NOTE G) - Litigation:
[1] In July 1993, an action was commenced against multiple defendants,
including the Company, in the California Superior Court. The plaintiff asserts
numerous claims in connection with the issuance of Housing Authority of the
County of Riverside, Multi-Family Housing Revenue Bonds, Series 1985A ("Ironwood
Bonds"). The Company was the underwriter of the Ironwood Bonds.
This lawsuit had been transferred to the United States
District Court for the Central District of California. Certain claims against
one defendant were severed and transferred to the United States District Court
for the Southern District of Texas. The other claims, including those against
the Company, were remanded to the Superior Court of California, County of
Riverside.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Litigation: (continued)
[1] (continued)
The plaintiff allegedly acquired an apartment project financed
with the proceeds of such bond issue from the original developer. The Housing
Authority sought indemnity from the plaintiff for expenses it allegedly incurred
in contesting the IRS's assertion that the Ironwood Bonds were not tax-exempt.
A cross-claim was filed against multiple defendants, including
the Company, by one co-defendant for indemnification and apportionment of fault.
Two other co-defendants filed a cross-complaint alleging claims in connection
with the Ironwood Bonds and another bond issue, Housing Authority of the County
of Riverside, Multi-Family Housing Revenue Bonds, Series 1985A ("Whitewater
Bonds") against multiple defendants, including the Company. By a standstill
agreement dated January 21, 1994, cross-claimants and certain parties, including
the Company, have agreed not to pursue cross-claims against one another at this
time.
The plaintiff seeks compensation and punitive damages as well
as indemnification and equitable relief. In four counts, two of which involve
the Company as well as other defendants, the plaintiff seeks compensatory
damages plus interest estimated to be no less than $5 million per count.
At a status conference held on December 17, 1996, the
plaintiff's counsel failed to appear and then at a hearing held on February 26,
1997, the judge dismissed the complaint by the plaintiff. The cross-claim is
still pending and the status conference on that claim was continued to March 26,
1997. The Company believes that the action is without merit and is vigorously
defending its position. It is too early to assess the potential for, and the
amount of, any damage in connection with this lawsuit.
In October 1995, the United States Tax Court determined that
interest earned on the Ironwood Bonds and the Whitewater Bonds was not
tax-exempt. The petitioners, who are not related to the plaintiff in this
litigation, have appealed the Tax Court's decision to the United States Court of
Appeals for the Ninth Judicial Circuit.
[2] In May 1996, the Company was served with a summons and complaint in
connection with a class action commenced in March 1996 against multiple parties.
This action was filed in the Superior Court of California, County of Riverside.
The plaintiffs brought this action on behalf of themselves and all other
purchasers of bonds issued by the Housing Authority of the County of Riverside
for the Whitewater Garden Apartments project and the Ironwood Apartments
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Litigation: (continued)
[2] (continued)
project (the "Bonds"). The plaintiffs maintain the defendants misrepresented
that the interest on the Bonds would be exempt from federal income tax. The
plaintiffs allege negligent misrepresentation, fraudulent misrepresentation, and
concealment against multiple defendants, including the Company, relating to
actions with respect to the issuance and underwriting of the Bonds in 1985 and
1986. The plaintiffs also filed claims involving breach of written contract,
breach of oral contract, breach of fiduciary duty, and negligent representation
against multiple defendants other than the Company. The plaintiffs are seeking
damages for taxes, penalties, and interest they have paid or are obligated to
pay, attorneys fees, costs, punitive damages, and other relief the court deems
just. The plaintiffs maintain that taxes, interest, and penalties are in excess
of $3 million or an amount to be proved at the time of trial.
The Company has agreed to enter into a stipulation with the
plaintiffs which will stay all proceedings without prejudice pending the outcome
of an appeal now before the United States Court of Appeals for the Ninth Circuit
in Harbor Bancorp, a separate action in which the United States Tax Court
determined that interest earned on the Bonds was not tax exempt. A proposed
stipulation staying the proceedings, and consolidating a related action not
involving the Company was filed by the plaintiff in July 1996.
On November 15, 1996, this case was continued for 90 days by
the court; the court did not hold such hearing and currently there are no
further proceedings.
The Company plans to defend vigorously against all of the
plaintiffs' allegations involving it. It is too early to assess the potential
for, and the amount of, any damages in connection with this action.
[3] There are various claims against the Company with respect to
matters arising out of the ordinary conduct of its business. Outside counsel for
the Company has advised that at this time they cannot offer an opinion as to the
probable outcome of any of these matters. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
Company's financial position or the results of operations.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Financial Information Relating to Industry Segments:
The Company's operations are classified into two principal industry
segments: merchant banking and mortgage banking.
<TABLE>
<CAPTION>
Year Ended December 31,
------------ ----------
1996 1995
------------ ----------
<S> <C> <C>
Revenues from unaffiliated customers:
Merchant banking . . . . . . . . . . $ 676,037 $2,711,078
Mortgage banking . . . . . . . . . . 2,136,580 2,094,400
Other corporate income . . . . . . . 676,998 1,396,981
------------ ----------
Total revenues. . . . . . . . $ 3,489,615 $6,202,459
============ ==========
Income (loss) from operations:
Merchant banking . . . . . . . . . . $ (491,579) $1,437,920
Mortgage banking . . . . . . . . . . (1,570,464) (349,200)
------------ -----------
Income (loss) from operations (2,062,043) 1,088,720
General corporate income (expenses) -
net. . . . . . . . . . . . . . . . . (309,922) 133,560
------------ ----------
Income (loss) before taxes. . . . . . . $(2,371,965) $1,222,280
============ ==========
Identifiable assets:
Merchant banking . . . . . . . . . . $ 1,418,383 $1,324,023
Mortgage banking . . . . . . . . . . 4,611,869 3,840,700
General corporate. . . . . . . . . . 2,258,646 4,821,943
------------ ----------
T o t a l. . . . . . . . $ 8,288,898 $9,986,666
============ ==========
</TABLE>
(NOTE I) - Financial Instruments With Off-Balance-Sheet Risk and
Concentration of Risk:
[1] In the normal course of business, the Company is a party to
financial instruments which have off-balance-sheet risk. The Company's risk of
accounting loss due to the credit risks and market risks associated with these
off-balance-sheet instruments varies with the type of financial instrument and
principal amounts and are not necessarily indicative of the degree of exposure
involved. Credit risk represents the possibility of a loss occurring from the
failure of another party to perform in accordance with the terms of a contract.
Market risk represents the possibility that future changes in market prices may
make a financial instrument more or less valuable.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Financial Instruments With Off-Balance-Sheet Risk and
Concentration of Risk: (continued)
[1] (continued)
The following table summarizes the Company's significant
financial instruments attributable to its mortgage banking operations at
December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Commitments to extend credit for mortgage loans. . $4,766,600
Commitments to sell mortgage loans . . . . . . . . 4,766,600
</TABLE>
In the normal course of business the Company enters into both
optional and mandatory commitments to sell mortgage loans that it originates.
The Company commits to sell the loans at specified prices in a future period
ranging from 30 to 120 days from the date of commitment directly to mortgage
investors. Market risk is associated with these financial instruments which
results from movements in interest rates and is reflected by gains or losses on
the sale of the mortgage loans determined by the difference between the price of
the loan and the price guaranteed in the commitment. In certain instances, the
Company is liable to certain investors for losses incurred. Losses have been
historically minimal.
As part of its investment and risk management strategies to
profit from anticipated market movements, the Company maintains trading
positions in a variety of derivative financial instruments (e.g., futures
contracts, market indexes, and option contracts). Trading in derivatives is used
to leverage the price volatility in the underlying financial instrument or index
and for speculative and risk management purposes. Futures contracts are
exchange-traded commitments to purchase or sell other financial instruments at
specified terms at specified future dates. Option contracts provide the holder
with the right, but not the obligation, to purchase or sell a financial
instrument at a specified price before or on an established date.
All positions are reported at fair value, and changes in fair
value are reflected in operations as they occur.
(continued)
<PAGE>
HELMSTAR GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Financial Instruments With Off-Balance-Sheet Risk and
Concentration of Risk: (continued)
[2] The following table presents derivative contracts at December 31,
1996 and average fair value for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Trading Account
Position at End of Year
---------------------------------------------------------------
Number of Average Notional
Contracts Fair Value Value Position
--------- ---------- ----- --------
<S> <C> <C> <C> <C>
United States Treasury Bonds . . . 50 $5,631,000 $5,000,000 Long
<CAPTION>
Average Fair Value During the Year
-----------------------------------------------------------
Average Average
Fair Fair
Value Position Value Position
----- -------- ----- --------
<S> <C> <C> <C> <C>
United States Treasury Bonds . . . $2,117,000 Long $2,613,000 Short
Muni index . . . . . . . . . . . . 1,330,000 Long 4,369,000 Short
Japanese Yen . . . . . . . . . . . 56,000 Long 2,000 Short
Option contracts . . . . . . . . . 4,000 Long Short
</TABLE>
Net gains aggregated on these financial instrument
transactions for the year ended December 31, 1996 and December 31, 1995 were
$478,496 and $711,180, respectively.
Substantially all the Company's cash and securities positions are
deposited with clearing brokers for safekeeping purposes. The brokers are highly
capitalized and are members of major securities exchanges.
<PAGE>
BLOWING ROCK OUTLET PARTNERS
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1996
<PAGE>
BLOWING ROCK OUTLET PARTNERS
CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS
BALANCE SHEET
STATEMENTS OF INCOME AND VENTURERS' DEFICIT
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
<PAGE>
Joseph Decosimo
and Company
Certified Public Accountants
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
Private Companies Practice Section Member AICPA Division for CPA Firms
SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
To the Co-Venturers
Blowing Rock Outlet Partners
Nashville, Tennessee
We have audited the accompanying balance sheets of Blowing Rock Outlet Partners
(a joint venture) as of December 31, 1996, and the related statements of income
and venturers' deficit and cash flows for the years ended December 31, 1996 and
1995. These financial statements are the responsibility of the joint venture'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 financial statements referred to above present fairly, in
all material respects, the financial position of Blowing Rock Outlet Partners as
of December 31, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
/s/Joseph Decosimo and Company, LLP
Chattanooga, Tennessee
January 14, 1997
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
BALANCE SHEET
December 31, 1996
ASSETS
<S> <C>
Land .................................................... $ 1,658,000
Building and Improvements ............................... 5,132,517
Construction-In-Progress ................................ 13,738
Fixtures ................................................ 7,551
-----------
6,811,806
Accumulated Depreciation ................................ (1,369,899)
-----------
5,441,907
Cash and Cash Equivalents ............................... 45,825
Receivables ............................................. 14,697
Prepaid Expenses ........................................ 104,668
Intangible Assets, net .................................. 180,740
-----------
TOTAL ASSETS ............................................ $ 5,787,837
===========
LIABILITIES AND VENTURERS' DEFICIT
LIABILITIES
Note Payable .......................................... $ 6,421,555
Accounts Payable and Deferred Revenue ................. 9,302
Tenant Deposits ....................................... 37,950
Due to Related Parties ................................ 43,930
State Income Taxes Payable ............................ 33,877
-----------
Total Liabilities ............................. 6,546,614
VENTURERS' DEFICIT ...................................... (758,777)
-----------
TOTAL LIABILITIES AND VENTURERS' DEFICIT ................ $ 5,787,837
===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
STATEMENTS OF INCOME AND VENTURERS' DEFICIT
Years Ended December 31, 1996 and 1995
1996 1995
----------- -----------
<S> <C> <C>
REVENUES
Rental Revenue .............................. $ 1,365,476 $ 1,243,504
----------- -----------
EXPENSES
Management Fees ............................. 68,274 62,175
Leasing Commissions ......................... 21,869 22,469
Professional Services ....................... 11,298 8,250
Common Area Maintenance, net of
recoveries from tenants ................... 18,215 9,077
Landlord Repairs ............................ 5,815 15,425
Bad Debt Expense (Recoveries) ............... 7,165 (315)
Other ....................................... -- 47
----------- -----------
132,636 117,128
----------- -----------
INCOME FROM OPERATIONS ........................ 1,232,840 1,126,376
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income ............................. 7,488 7,262
Interest Expense ............................ (556,815) (506,455)
Depreciation ................................ (199,695) (201,759)
Amortization ................................ (36,797) (49,851)
State Income Tax ............................ (33,877) (31,051)
Real Estate Taxes, net of recoveries
from tenants .............................. (2,712) (2,198)
----------- -----------
(822,408) (784,052)
----------- -----------
NET INCOME .................................... 410,432 342,324
VENTURERS' EQUITY (DEFICIT) - beginning of year (764,209) 1,834,880
Distributions ............................... (405,000) (2,941,413)
----------- -----------
VENTURERS' DEFICIT - end of year .............. $ (758,777) $ (764,209)
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income .................................... $ 410,432 $ 342,324
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities -
Depreciation and Amortization ............... 236,492 251,610
Bad Debt Expense (Recoveries) ............... 7,165 (315)
Changes in Operating Assets and Liabilities -
Decrease (Increase) in -
Receivables ............................. (20,207) 2,534
Prepaid Expenses ........................ (33,566) 39,311
Deferred Leasing Fees ................... (15,722) (3,511)
Increase (Decrease) in -
Accounts Payable and Deferred Revenue ... (21,647) 15,313
Accrued Interest ........................ -- 51,171
Tenant Deposits ......................... 8,012 (3,409)
Due to Related Parties .................. 4,188 173
State Income Taxes Payable .............. 2,812 (7,287)
----------- -----------
Net Cash Provided by Operating Activities 577,959 687,914
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures .......................... (71,975) (34,825)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Issuance of
Long-Term Debt .............................. -- 2,551,413
Repayment of Notes Payable .................... (79,486) (168,959)
Distributions to Venturers .................... (405,000) (2,941,413)
Loan Fees Paid ................................ -- (90,894)
----------- -----------
Net Cash Used by Financing Activities .... (484,486) (649,853)
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS .......................... 21,498 3,236
CASH AND CASH EQUIVALENTS -
beginning of year ........................... 24,327 21,091
----------- -----------
CASH AND CASH EQUIVALENTS -
end of year ................................. $ 45,825 $ 24,327
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BLOWING ROCK OUTLET PARTNERS
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During the Year for -
Interest .............................. $ 556,815 $ 455,284
Income Taxes .......................... $ 31,064 $ 38,338
SUPPLEMENTAL DISCLOSURE OF
NONCASH FINANCING ACTIVITIES
Issuance of Note Payable ................ $ -- $ 6,550,000
Intangible Assets Paid at Closing ....... -- (106,103)
Prepaid Assets Paid at Closing .......... -- (56,656)
Interest Paid at Closing ................ -- (78,000)
Repayment of Note Payable
at Closing ............................ -- (3,757,828)
----------- -----------
NET PROCEEDS FROM ISSUANCE OF
LONG-TERM DEBT .......................... $ -- $ 2,551,413
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
BLOWING ROCK OUTLET PARTNERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the joint venture
are as follows:
DESCRIPTION OF BUSINESS - Blowing Rock Outlet Partners is a joint venture
engaged in the business of renting retail space to manufacturers' outlet stores
in Watauga County, North Carolina.
RENTAL INCOME - Rent is reported as income over the lease term as it is earned.
Rent received from tenants in advance is accounted for as deferred revenue.
CASH EQUIVALENTS - The venture considers all money market accounts and highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Expenditures
for repairs and maintenance are charged to expense as incurred and additions and
improvements that significantly extend the lives of assets are capitalized. Upon
sale or other retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss is
reflected in operations.
Depreciation is provided on the straight-line method over the estimated useful
lives of the depreciable assets.
INTANGIBLE ASSETS - Developmental and other costs incurred before operations
commenced are capitalized as start-up costs. Initial and renewal leasing
commissions are amortized over the remaining lease periods. The cost of
intangible assets is amortized using the straight-line method over the following
estimated useful lives:
Years
-----
Deferred Leasing Fees 5
Loan Fees 7
INCOME TAXES - No provision for federal income taxes is reflected in the
financial statements since the tax effects of the venture's income or loss are
passed through to the individual venturer. State income taxes in the State of
North Carolina are paid by the venture on behalf of the venturers.
ESTIMATES AND UNCERTAINTIES - 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.
<PAGE>
BLOWING ROCK OUTLET PARTNERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
ORGANIZATION
Blowing Rock Outlet Partners was organized under the laws of the State of North
Carolina on June 10, 1988, for the purpose of acquiring, developing and
operating a shopping center in Watauga County, North Carolina. The two venturers
are Burrows, Hayes Company, Inc. (BHC) and Company Stores Management Corp.
(CSMC).
The joint venture agreement provides that net cash flow, as defined therein, is
allocated and distributed first to BHC up to the amount of the current year
preferred return and any unpaid preferred return from prior years. Any remaining
balance is allocated 55% to BHC and 45% to CSMC. The preferred return is equal
to 10% per annum of BHC's capital contribution of $1,449,000 less any
distributions in excess of the preferred return paid from sale or refinancing
proceeds. In April 1995, the joint venture refinanced the rental property and
BHC received a distribution from loan proceeds in excess of $1,449,000.
Accordingly, the joint venture no longer has to make a preferred return
allocation. All net cash flow is distributable 55% to BHC and 45% to CSMC.
Taxable income is allocated first to BHC to the extent of all distributions of
the preferred return for the current year and for all prior years, less all
prior allocations of taxable income relating to the preferred return
distributions made in previous years. Thereafter, taxable income is allocated
55% to BHC and 45% to CSMC.
INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred Leasing Fees ................................. $ 52,187
Loan Fees ............................................. 196,997
---------
249,184
Accumulated Amortization .............................. (68,444)
---------
$ 180,740
=========
</TABLE>
<PAGE>
BLOWING ROCK OUTLET PARTNERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE PAYABLE
The note payable is a LIBOR plus 3.10% note collateralized by real estate and
the assignment of leases and rents. The interest rate is determined semiannually
at the lesser of LIBOR plus 3.10%, 13.5375% or the maximum legal rate. Monthly
payments were $54,297 including interest as of December 31, 1996, and are reset
semiannually to reflect changes in the interest rate. The remaining principal
balance and accrued interest are due May 1, 2002. The venture is also required
under the note agreement to make monthly payments totaling $3,500 to establish
reserves which may be drawn against under certain circumstances for interest
payments, leasing commissions and certain improvements and maintenance
expenditures.
The note is dated April 11, 1995, and the proceeds from this borrowing were used
to satisfy by direct payment at closing all remaining indebtedness under the
note payable to NationsBank of North Carolina.
Aggregate maturities of long-term debt for the five years subsequent to December
31, 1996, are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
December 31, 1997 $ 94,585
December 31, 1998 $ 103,464
December 31, 1999 $ 113,177
December 31, 2000 $ 123,802
December 31, 2001 $ 135,422
</TABLE>
RELATED PARTY TRANSACTIONS
Effective April 1, 1995, CS Partners (CSP) began managing the rental property
for 5% of total rents collected. CSP is an affiliate of CSMC, one of the
venturers. Prior to such time, CSMC managed the rental property for 5% of total
rents collected. Management fees paid totaled $68,274 for 1996 and $62,175 for
1995.
CSP also assumed leasing agent responsibilities on April 1, 1995. The joint
venture pays CSP an initial fee of 12.5% of the total base rental dollars
accruing for the first year of new leases and 3% of the base and percentage
rents each year thereafter for the term of said lease. In addition, the venture
pays a 2% commission on any leases which are renewed. Prior to April 1, 1995, a
different affiliate of CSMC acted as leasing agent for the same commission
arrangement as outlined above. Leasing commissions paid totaled $37,590 for 1996
and $25,980 for 1995.
<PAGE>
BLOWING ROCK OUTLET PARTNERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
LEASES
Minimum future rentals to be received by the joint venture under noncancelable
operating leases as of December 31, 1996, consist of the following:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
December 31, 1997 $ 1,156,716
December 31, 1998 1,090,935
December 31, 1999 726,739
December 31, 2000 370,746
December 31, 2001 231,129
Later Years 279,622
---------
$ 3,855,887
===========
</TABLE>
The joint venture receives rents from tenants under noncancelable operating
leases typically with five year lease terms. Virtually all tenants pay a minimum
guaranteed rental based on square footage and a percentage rental based on a
percentage of gross sales over a certain sales level per year. Percentage rents
totaled $88,282 for 1996 and $76,406 for 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value due to
the short maturity of those instruments.
The carrying amount of the note payable approximates fair value based on the
borrowing rates currently estimated to be available to the joint venture for
bank loans with similar terms.
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1996
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS
BALANCE SHEET
STATEMENTS OF INCOME AND VENTURERS' EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
<PAGE>
Joseph Decosimo
and Company
Certified Public Accountants
A TENNESSEE REGISTERED LIMITED LIABILITY PARTNERSHIP
Private Companies Practice Section Member AICPA Division for CPA Firms
SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
To the Co-Venturers
Nags Head Outlet Partners,
a North Carolina Joint Venture
Nags Head, North Carolina
We have audited the accompanying balance sheets of Nags Head Outlet Partners, a
North Carolina Joint Venture as of December 31, 1996, and the related statements
of income and venturers' equity and cash flows for the years ended December 31,
1996 and 1995. These financial statements are the responsibility of the
venture'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 financial statements referred to above present fairly, in
all material respects, the financial position of Nags Head Outlet Partners, a
North Carolina Joint Venture as of December 31, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/Joseph Decosimo and Company, LLP
Chattanooga, Tennessee
January 14, 1997
<PAGE>
<TABLE>
<CAPTION>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
BALANCE SHEET
December 31, 1996
ASSETS
<S> <C>
Land ..................................................... $ 1,273,072
Building and Improvements ................................ 6,207,189
-----------
7,480,261
Accumulated Depreciation ................................. (1,555,739)
-----------
5,924,522
Cash and Cash Equivalents ................................ 155,135
Receivables, net ......................................... 159
Prepaid Expenses ......................................... 52,897
Intangible Assets, net ................................... 22,419
-----------
TOTAL ASSETS ............................................. $ 6,155,132
===========
LIABILITIES AND VENTURERS' EQUITY
LIABILITIES
Note Payable ........................................... $ 4,018,010
Accounts Payable and Deferred Revenue .................. 8,875
Accrued Interest ....................................... 16,128
Tenant Deposits ........................................ 28,751
Due to Related Parties ................................. 3,996
State Income Taxes Payable ............................. 22,079
-----------
Total Liabilities .............................. 4,097,839
VENTURERS' EQUITY ........................................ 2,057,293
-----------
TOTAL LIABILITIES AND VENTURERS' EQUITY .................. $ 6,155,132
===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
STATEMENTS OF INCOME AND VENTURERS' EQUITY
Years Ended December 31, 1996 and 1995
1996 1995
----------- -----------
<S> <C> <C>
REVENUES
Rental Revenue ......................... $ 968,530 $ 933,185
----------- -----------
EXPENSES
Management Fees ........................ 48,427 46,659
Leasing Commissions .................... 14,392 8,260
Professional Services .................. 18,652 5,750
Common Area Maintenance, net of
recoveries from tenant ............... 949 (8,600)
Landlord Repairs ....................... 12,427 9,596
Tenant Improvements .................... 2,248 859
Bad Debt Expense ....................... -- 4,852
Other .................................. 4,673 4,259
----------- -----------
101,768 71,635
----------- -----------
INCOME FROM OPERATIONS ................... 866,762 861,550
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income ........................ 6,258 5,913
Interest Expense ....................... (359,794) (383,196)
Depreciation ........................... (277,934) (285,256)
Amortization ........................... (30,500) (54,301)
State Income Tax ....................... (22,398) (17,551)
----------- -----------
(684,368) (734,391)
----------- -----------
NET INCOME ............................... 182,394 127,159
VENTURERS' EQUITY - beginning of year .... 1,904,899 1,937,740
Distributions ........................ (30,000) (160,000)
----------- -----------
VENTURERS' EQUITY - end of year .......... $ 2,057,293 $ 1,904,899
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
1996 1995
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income ..................................... $ 182,394 $ 127,159
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities -
Depreciation and Amortization ................ 308,434 339,557
Bad Debt Expense ............................. -- 4,852
Changes in Operating Assets and Liabilities -
Decrease (Increase) in -
Receivables .............................. 8,654 (10,220)
Prepaid Expenses ......................... (38,036) 12,911
Deferred Leasing Fees .................... (4,702) (6,435)
Increase (Decrease) in -
Accounts Payable and Deferred Revenue .... (2,621) (1,813)
Accrued Interest ......................... (1,155) (1,045)
Tenant Deposits .......................... (8,695) 14,540
Due to Related Parties ................... 82 415
State Income Taxes Payable ............... 5,321 8,880
--------- ---------
Net Cash Provided by Operating Activities . 449,676 488,801
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures ........................... (6,595) (35,770)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Note Payable ...................... (287,739) (260,325)
Distributions to Venturers ..................... (30,000) (160,000)
Loan Fees Paid ................................. -- (33,817)
--------- ---------
Net Cash Used by Financing Activities ..... (317,739) (454,142)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................... 125,342 (1,111)
CASH AND CASH EQUIVALENTS - beginning of year .... 29,793 30,904
--------- ---------
CASH AND CASH EQUIVALENTS - end of year .......... $ 155,135 $ 29,793
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for -
Interest ..................................... $ 360,949 $ 384,241
Income Taxes ................................. $ 17,077 $ 8,671
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the venture are as
follows:
DESCRIPTION OF BUSINESS - Nags Head Outlet Partners, a North Carolina Joint
Venture, is engaged in the business of renting retail space to manufacturers'
outlet stores in Nags Head, North Carolina.
RENTAL INCOME - Rent is reported as income over the lease term as it is earned.
Rent received from tenants in advance is accounted for as deferred revenue.
CASH EQUIVALENTS - The venture considers all money market accounts and highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
LAND, BUILDINGS AND IMPROVEMENTS - Land, buildings and improvements are stated
at cost. Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the lives of
assets are capitalized. Upon sale or other retirement of depreciable property,
the cost and accumulated depreciation are removed from the related accounts and
any gain or loss is reflected in operations.
Depreciation is provided on the straight-line method over the estimated useful
lives of the depreciable assets.
INTANGIBLE ASSETS - Developmental and other costs incurred before operations
commenced are capitalized as start-up costs. Initial and renewal leasing
commissions are amortized over the remaining lease periods. The cost of
intangible assets is amortized using the straight-line method over the following
estimated useful lives:
Years
-----
Deferred Leasing Fees 5
Loan Fees 4
INCOME TAXES - No provision for federal income taxes is reflected in the
financial statements since the tax effects of the venture's income or loss are
passed through to the individual venturers. State income taxes in the State of
North Carolina are paid by the venture on behalf of the venturers.
ESTIMATES AND UNCERTAINTIES - 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.
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
ORGANIZATION
Nags Head Outlet Partners, a North Carolina Joint Venture, was organized under
the laws of the State of North Carolina on December 6, 1989, for the purpose of
acquiring, developing and operating a shopping center in Nags Head, North
Carolina. The two venturers are Parker, Reld & Co., Inc. (JV) and Company Stores
Capital Corp. (CSCC).
Net cash flow, as defined in the joint venture agreement, is allocated and
distributed first to JV up to the amount of the current year preferred return
and any unpaid preferred return from prior years. Any remaining balance is
allocated 63% to JV and 37% to CSCC.
Taxable income is allocated first to JV to the extent of all distributions of
the preferred return for the current year and for all prior years, less all
prior allocations of taxable income relating to the preferred return
distributions made in previous years. Thereafter, taxable income is allocated
63% to JV and 37% to CSCC.
Taxable losses, should they occur, are allocated to JV up to its capital
contribution of $1,500,000. Any remaining taxable loss is allocated 63% to JV
and 37% to CSCC.
INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred Leasing Fees ................................ $ 28,664
Loan Fees ............................................ 63,818
--------
92,482
Accumulated Amortization ............................. (70,063)
--------
$ 22,419
========
</TABLE>
NOTE PAYABLE
The note payable is an 8.5% note payable to First American National Bank
collateralized by real estate. The note requires monthly payments of $46,365
including principal and interest beginning April 1, 1994. Additionally, the note
requires monthly principal payments of 25% of the prior month's excess cash flow
plus interest payments through March 15, 1995, and 50% of the prior month's
excess cash flow plus interest payments through April 1, 1997, at which time the
principal balance plus accrued interest is due and payable in full. Management
of the venture expects to obtain replacement long-term financing prior to April
1, 1997.
<PAGE>
NAGS HEAD OUTLET PARTNERS,
A NORTH CAROLINA JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
RELATED PARTY TRANSACTIONS
Effective April 1, 1995, CS Partners (CSP) began managing the rental property
for 5% of total rents collected. CSP is an affiliate of CSCC, one of the
venturers. Prior to such time, a different affiliate of CSCC managed the rental
property for 5% of total rents collected. Management fees paid totaled $48,427
for 1996 and $46,659 for 1995.
CSP also assumed leasing agent responsibilities on April 1, 1995. The joint
venture pays CSP an initial fee of 12.5% of the total base rental dollars
accruing for the first year of new leases and 3% of the base and percentage
rents each year thereafter for the term of said lease. In addition, the venture
pays a 2% commission on any leases which are renewed. Prior to April 1, 1995, a
different affiliate of CSCC acted as leasing agent for the same commission
arrangement as outlined above. Leasing commissions paid totaled $19,094 for 1996
and $14,695 for 1995.
LEASES
Minimum future rentals to be received by the venture under noncancelable
operating leases as of December 31, 1996, consist of the following:
<TABLE>
Year Ending
-----------
<S> <C>
December 31, 1997 $ 933,869
December 31, 1998 872,819
December 31, 1999 732,271
December 31, 2000 460,754
December 31, 2001 111,070
Later Years 85,403
---------
$ 3,196,186
===========
</TABLE>
The joint venture receives rents from tenants under noncancelable operating
leases typically with five year lease terms. Virtually all tenants pay a minimum
guaranteed rental based on square footage and a percentage rental based on a
percentage of gross sales over a certain sales level per year. Percentage rents
totaled $31,823 for 1996 and $36,688 for 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value due to
the short maturity of those instruments.
The carrying amount of the note payable approximates fair value based on the
borrowing rates currently estimated to be available to the joint venture for
bank loans with similar terms.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information required to be furnished pursuant to this item
is set forth under the caption "Management" in the
registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days of the end
of the fiscal year ended December 31, 1996, the period covered
by this Form 10-KSB, and is incorporated herein by reference.
Item 10. Executive Compensation.
The information required to be furnished pursuant to this item
is set forth under the caption "Executive Compensation" in the
registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days of the end
of the fiscal year ended December 31, 1996, the period covered
by this Form 10-KSB, and is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners
and Management.
The information required to be furnished pursuant to this item
is set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the registrant's
definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal
year ended December 31, 1996, the period covered by this Form
10-KSB, and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
The information required to be furnished pursuant to this item
is set forth under the caption "Certain Relationships and
Related Transactions" in the registrant's definitive proxy
statement to be filed with the Securities and Exchange
Commission within 120 days of the end of the fiscal year ended
December 31, 1996, the period covered by this Form 10-KSB, and
is incorporated herein by reference.
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
Certain of the following exhibits, as indicated
parenthetically, were previously filed as exhibits to other
reports or registration statements filed by the Registrant
under the Securities Act of 1933 or under the Securities
Exchange Act of 1934 and are hereby incorporated by reference.
3.1 Restated Certificate of Incorporation of the
Registrant filed on July 31, 1987 and amendments
thereto filed on June 8, 1989, September 14, 1991
and December 2, 1991. (Incorporated by reference to
the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1992.)
3.2 Amended and Restated By-Laws of the Registrant.
(Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1995.)
10.0 40l(k) Savings Plan of the Company as amended and
restated as of January 1, 1993. (Incorporated by
reference to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1993.)
10.1 Lease of Citizens Mortgage Service Company's office,
dated November 30, 1992. (Incorporated by reference
to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1992.)
10.2 Joint Venture Agreement of Blowing Rock Outlet
Partners dated June 10, 1988; First Amendment to
Joint Venture Agreement of Blowing Rock Outlet
Partners dated August 19, 1988; and certain
ancillary agreements and acknowledgments.
(Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1992.)
10.3 Second Amendment to Joint Venture Agreement of
Blowing Rock Outlet Partners dated as of March 4,
1992. (Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1995.)
10.4 Third Amendment to Joint Venture Agreement of
Blowing Rock Outlet Partners dated as of January 1,
1996. (Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1995.)
10.5 Lease of the Company's executive offices, dated
February 29, 1996.
<PAGE>
10.6 Joint Venture Agreement dated December 6, 1989
between Parker, Reld & Co., Inc. and Company Stores
Capital Corp. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.)
10.7 First Amendment to Joint Venture Agreement of Nags
Head Outlet Partners dated as of January 1, 1996.
(Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1995.)
10.8 Helmstar Group, Inc. 1990 Incentive Compensation
Plan. (Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1995.)
10.9 Amendment to the Helmstar Group, Inc. 1990 Incentive
Compensation Plan.
10.10 Mortgage Selling and Servicing Contract between
Citizens Mortgage Service Company and the Federal
National Mortgage Association dated November 12,
1986.
10.11 Letter dated January 10, 1980 from the Federal Home
Loan Mortgage Corporation ("FHLMC") to First
Mortgage Service Company (now known as Citizens
Mortgage Service Company) approving Citizens
Mortgage Service Company's application for FHLMC
Seller/Servicer Status for conventional one to four
family and FHA/VA loans.
10.12 Loan Servicing Purchase and Sale Agreement dated
November 6, 1995 by and between Atlantic Mortgage &
Investment Corporation and Citizens Mortgage Service
Company. (Incorporated by reference to the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1995.)
10.13 Employment Contract of Eric Fishman with Citizens
Mortgage Service Company dated January 17, 1996.
(Incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1995.)
10.14 Settlement Agreement and Release by and between
Housing Capital Corporation, The Anastasi Stephens
Group, Inc., Joseph G. Anastasi and R. Glen
Stephens, dated June 10, 1996 and a related
agreement.
22.0 Subsidiaries of the Registrant.
(b)No reports on Form 8-K have been filed during the last
quarter covered by this report.
<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 on the 31st day of March,
1997.
Helmstar Group, Inc.
/s/ George W. Benoit
- ----------------------
George W. Benoit, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated on the 31st day of March, 1997.
Signature Title
--------- -----
/s/George W. Benoit Chairman of the Board, President,
- ------------------- Chief Executive Officer
(George W. Benoit)
/s/Roger J. Burns Director, First Vice President,
- ----------------- Chief Financial Officer, Secretary
(Roger J. Burns)
/s/Joseph G. Anastasi Director
- ---------------------
(Joseph G. Anastasi)
/s/Charles W. Currie Director
- --------------------
(Charles W. Currie)
/s/James J. Murtha Director
- -------------------
(James J. Murtha)
/s/David W. Dube Director
- ----------------
(David W. Dube)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
-----------
3.1 Restated Certificate of Incorporation of the Registrant filed
on July 31, 1987 and amendments thereto filed on June 8, 1989,
September 14, 1991 and December 2, 1991. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1992.)
3.2 Amended and Restated By-Laws of the Registrant. (Incorporated
by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1995.)
10.0 40l(k) Savings Plan of the Company as amended and restated as
of January 1, 1993. (Incorporated by reference to the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1993.)
10.1 Lease of Citizens Mortgage Service Company's office, dated
November 30, 1992. (Incorporated by reference to the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1992.)
10.2 Joint Venture Agreement of Blowing Rock Outlet Partners dated
June 10, 1988; First Amendment to Joint Venture Agreement of
Blowing Rock Outlet Partners dated August 19, 1988; and
certain ancillary agreements and acknowledgments.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-KSB for the year ended December 31, 1992.)
10.3 Second Amendment to Joint Venture Agreement of Blowing Rock
Outlet Partners dated as of March 4, 1992. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995.)
10.4 Third Amendment to Joint Venture Agreement of Blowing Rock
Outlet Partners dated as of January 1, 1996. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995.)
10.5 Lease of the Company's executive offices, dated February 29,
1996.
10.6 Joint Venture Agreement dated December 6, 1989 between Parker,
Reld & Co., Inc. and Company Stores Capital Corp.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.)
10.7 First Amendment to Joint Venture Agreement of Nags Head Outlet
Partners dated as of January 1, 1996. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995.)
10.8 Helmstar Group, Inc. 1990 Incentive Compensation Plan.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-KSB for the year ended December 31, 1995.)
<PAGE>
10.9 Amendment to the Helmstar Group, Inc. 1990 Incentive
Compensation Plan.
10.10 Mortgage Selling and Servicing Contract between Citizens
Mortgage Service Company and the Federal National Mortgage
Association dated November 12, 1986.
10.11 Letter dated January 10, 1980 from the Federal Home Loan
Mortgage Corporation ("FHLMC") to First Mortgage Service
Company (now known as Citizens Mortgage Service Company)
approving Citizens Mortgage Service Company's application for
FHLMC Seller/Servicer Status for conventional one to four
family and FHA/VA loans.
10.12 Loan Servicing Purchase and Sale Agreement dated November 6,
1995 by and between Atlantic Mortgage & Investment Corporation
and Citizens Mortgage Service Company. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995.)
10.13 Employment Contract of Eric Fishman with Citizens Mortgage
Service Company dated January 17, 1996. (Incorporated by
reference to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995.)
10.14 Settlement Agreement and Release by and between Housing
Capital Corporation, The Anastasi Stephens Group, Inc., Joseph
G. Anastasi and R. Glen Stephens, dated June 10, 1996 and a
related agreement.
22.0 Subsidiaries of the Registrant.
(b) No reports on Form 8-K have been filed during the last quarter
covered by this report.
Lease No. WT-3250-B-21 (2516)
THE PORT AUTHORITY
OF
NEW YORK AND NEW JERSEY
WORLD TRADE CENTER
AGREEMENT OF LEASE
between
THE PORT AUTHORITY
OF
NEW YORK AND NEW JERSEY
and
MATTHEWS & WRIGHT, INC.
<PAGE>
THIS AGREEMENT, made as of the 29th day of February, 1996, by and
between THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter called the
"Port Authority"), a body corporate and politic, created by Compact between the
States of New Jersey and New York, with the consent of the Congress of the
United States of America, and having an office at One World Trade Center, in the
borough of Manhattan, City, County, and State of New York, and MATTHEWS &
WRIGHT, INC., a corporation organized and existing under and by virtue of the
laws of the State of Delaware (hereinafter called the "Lessee"), having an
office and place of business at Two World Trade Center, New York, New York 10048
whose representative is George W. Benoit,
WITNESSETH That:
The Port Authority and the Lessee, for and in consideration of the
rents, covenants and agreements hereinafter contained, mutually covenant and
agree as follows:
SECTION 1. Letting
The Port Authority hereby lets to the Lessee and the Lessee hereby
hires and takes from the Port Authority, at the World Trade Center (sometimes
hereinafter referred to as the "Facility"), in the Borough of Manhattan, City,
County and State of New York, the space as shown in diagonal hatching on the
sketch annexed hereto, made a part hereof and marked "Exhibit A" (such space
being located on the 21st floor of the South Tower Building sometimes known as
Suite 2112) together with the fixtures, improvements and other property of the
Port Authority located or to be located therein or thereon, the said space,
fixtures, improvements and other property of the Port Authority being
hereinafter collectively referred to as the "premises". The Port Authority and
the Lessee hereby acknowledge that the aforesaid premises constitute
non-residential real property.
SECTION 2. Term
The term of the letting under this Agreement shall commence at 12:01
o'clock A.M. on March 1, 1996 and shall, unless sooner terminated, or unless
extended, expire at 11:59 o'clock P.M. on February 28, 2006.
SECTION 3. Rights of User by the Lessee
The Lessee shall use the premises for the following purposes only and
for no other purpose whatsoever: (i) providing real estate, financial and
insurance consulting services to firms engaged in world trade and commerce and
to others; (ii) providing video and satellite syndication services domestically
and abroad; (iii) foreign and domestic, merchant and investment banking
operations; and (iv) acquisition, ownership, management, promotion, financing
and sale of foreign and domestic investments; and for such other type or types
of business or operations engaged in by other office tenants at the World Trade
Center whose eligibility and qualification are determined by the Port Authority
strictly on the basis of their functions, activities and services in world trade
and commerce.
SECTION 4. Basic Rental
(a) The Lessee agrees to pay to the Port Authority a basic rental for
the premises at an annual rate of One Hundred Twenty Seven Thousand Eight
Hundred Sixty Dollars and No Cents ($127,860.00), payable as stated in Section
44.
<PAGE>
(b) If the commencement date of the letting under this Agreement is
other than the first day of a month, the basic rental for the portion of the
month during which the letting is effective shall be paid in advance and shall
be the amount of the monthly installment prorated on a daily basis using the
actual number of days in the month, and if the expiration or termination date of
the letting is other than the last day of a month, the basic rental for the
portion of the month during which the letting is effective shall be the amount
of the monthly installment similarly prorated.
(c) The basic rental shall be subject to adjustment during the letting
in accordance with the provisions of Schedule A attached to this Agreement and
hereby made a part hereof.
SECTION 5. Governmental Requirements
(a) The Lessee shall procure all licenses, certificates, permits or
other authorization from all governmental authorities having jurisdiction over
the operations of the Lessee at the premises or at the Facility which may be
necessary for the conduct of its operations.
(b) The Lessee shall pay all taxes, import duties, license,
certification, permit and examination fees, excises and other charges which may
be assessed, levied, exacted or imposed on its property, operations or occupancy
hereunder or any property whatsoever which may be received at the premises or on
the gross receipts or income herefrom and shall make all applications, reports
and return required in connection therewith. If any bond or other undertaking
shall be required by any governmental authority in connection with any of the
operations of the Lessee or any property received or exhibited by the Lessee at
the premises, the Lessee shall furnish the same and pay all other expenses in
connection therewith.
(c) The Lessee shall promptly observe, comply with and execute the
provisions of any and all present and future governmental laws, rules and
regulations, requirements, orders and directions which may pertain or apply to
the operations of the Lessee on the premises or at the Facility or its occupancy
of the premises, and the Lessee shall, in accordance with and subject to the
provisions of the Section of this Agreement entitled "Construction by the
Lessee," make any and all improvements, alterations or repairs of the premises
that may be required at any time hereafter by any such present or future law,
rule, regulation, requirement, order or direction.
(d) The Provisions of this Section are not to be construed as a
submission by the Port Authority to the application to itself of such
requirements, or any of them.
SECTION 6. Rules and Regulations
(a) The Lessee covenants and agrees to observe and obey (and to compel
its officers, members, employees, agents, representatives, contractors,
customers, guests, invitees and those doing business with it to observe and
obey) the Rules and Regulations of the Port Authority (a copy of which is
attached hereto, hereby made a part hereof and marked "Exhibit R") for the
government of the conduct and operations of the Lessee, and such further
reasonable rules and regulations (including amendments and supplements thereto)
as may from time to time and throughout the letting be promulgated by the Port
Authority for reasons of safety, health or preservation of property, or for the
<PAGE>
maintenance of the good and orderly appearance of the premises and the Facility
or for the safe or efficient operation of the Facility. The Port Authority
agrees that, except in cases of emergency, it will give notice to the Lessee of
every such further rule or regulation adopted by it at least five (5) days
before the Lessee shall be required to comply therewith.
(b) No statement or provision in the said Rules and Regulations shall
be deemed a representation or promise by the Port Authority that any services or
privileges described therein shall be or remain available or that such charges,
prices, rates or fees, if any, as are stated therein shall be or remain in
effect all of the same being subject to change by the Port Authority from time
to time whenever it deems a change advisable.
SECTION 7. Responsibilities of the Lessee
(a) The Lessee shall conduct its operations in an orderly and proper
manner and so as not to annoy, disturb or be offensive to others at the
Facility, and the Lessee shall control the conduct, demeanor and appearance of
its officers, members, employees, agents, representatives, contractors,
customers, guests, invitees and those doing business with it. Upon reasonable
objection from the Port Authority concerning the conduct, demeanor or appearance
of any such the Lessee shall immediately take all steps necessary to remove the
cause of the objection.
(b) The Lessee shall not commit any nuisance on the premises, or do or
permit to be done anything which may result in the creation or commission of a
nuisance on the premises, and the Lessee shall not cause or permit to be caused
or produced upon the premises, to permeate the same or to emanate therefrom, any
unusual, noxious or objectionable smokes, gases, vapors, odors or objectionable
noises.
(c) The Lessee shall not keep, maintain, place or install in the
premises any fixtures or equipment the use of which is not consistent with and
required for the purposes of the letting as set forth in the Section of this
Agreement entitled "Rights of User by the Lessee" and the Lessee shall not use
or connect any equipment or engage in any activity or operation in the premises
which will cause an overloading of the capacity of any existing or future
utility, mechanical, electrical, communication or other systems, or portion
thereof, serving the premises, nor shall the Lessee do or permit to be done
anything which may interfere with the effectiveness or accessibility of existing
and future utility, mechanical, electrical, communication or other systems or
portions thereof on the premises or elsewhere at the Facility.
(d) The Lessee shall not overload any floor, roadway, passageway,
pavement or other surface or any wall, partition, column or other supporting
member, or any elevator or other conveyance, in the premises or at the Facility
and without limiting any other provision of this Agreement, the Lessee shall
repair, replace or rebuild any such damaged by overloading.
(e) The Lessee shall not install, maintain or operate or permit the
installation, maintenance or operation on the premises of any vending machine or
service designed to disperse or sell food, beverages, tobacco products or
merchandise of any kind, whether or not included in the above categories, or any
restaurant, cafeteria, kitchen, stand or other establishment for the
preparation, dispensing or sale of food, beverages, tobacco or tobacco products,
or merchandise of any kind or any equipment or device for the furnishing to the
public of a service of any kind, including without limitation thereto any
telephone pay-stations.
<PAGE>
(f) The Lessee shall not use or make any reference, by advertising or
otherwise, to the names "World Trade Center" (except to designate the Lessee's
business address and then only in a conventional manner and without emphasis or
display), "Port of New York Authority," "Port Authority" or any simulation or
abbreviation of any such names, or any emblem, picture or reproduction of the
World Trade Center, for any purpose whatsoever. Furthermore, the Lessee shall
not make use of or originate any material intended for publication or visual or
oral presentation which may tend to impair the reputation of the World Trade
Center or its desirability. Upon notice from the Port Authority the Lessee shall
immediately discontinue any such use or reference.
(g) The Lessee shall not do or permit to be done any act or thing upon
the premises or at the Facility which will invalidate or conflict with any
insurance policies covering the premises or any part thereof, or the Facility,
or any part thereof, or which, in the opinion of the Port Authority, may
constitute an extra-hazardous condition, so as to increase the risks normally
attendant upon the operations contemplated by the Section of this Agreement
entitled "Rights of User by the Lessee," and the Lessee shall promptly observe,
comply with and execute the provisions of any and all present and future rules
and regulations, requirements, orders and directions of the National Fire
Protection Association and the New York Fire Insurance Rating Organization, and
of any other board or organization exercising or which may exercise similar
functions, which may pertain or apply to the operations of the Lessee on the
premises, and the Lessee shall, subject to and in accordance with the provisions
of the Section of this Agreement entitled "Construction by the Lessee," make any
and all improvements, alterations or repairs of the premises that may be
required at any time hereafter by any such present or future rule, regulation,
requirement, order or direction, and if by reason of any failure on the part of
the Lessee to comply with the provisions of this Agreement any insurance rate on
the premises or any part thereof, or on the Facility or any part thereof, shall
at any time be higher than it otherwise would be, then the Lessee shall pay to
the Port Authority, as an item of additional rental, that part of all insurance
premiums paid by the Port Authority which shall have been charged because of
such violation or failure by the Lessee, but no such payment shall relieve the
Lessee of its other obligations under this paragraph.
(h) The Lessee recognizes that the Port Authority has undertaken the
planning, construction and operation of the Facility as a facility of commerce
pursuant to concurrent legislation of the State of New York, Chapter 209, Laws
of New York, 1962 and the State of New Jersey, Chapter 8, Laws of New Jersey,
1962. The purpose, character and scope of the Lessee's occupancy, operation and
usage of the premises as described in Section 3 of this Agreement are of primary
importance and inducement to the Port Authority in entering into this Agreement
of lease with the Lessee. The Lessee has represented to the Port Authority that
all its occupancy, operation and usage, throughout the term of the letting
hereunder will be in strict accordance with and subject to the provisions and
requirements of Section 3 of this Agreement and the Port Authority has relied on
such representations in entering into this Agreement. Without affecting the
Lessee's liability for any breach of this representation and it obligations
hereunder, in the event that the Lessee is not in compliance with all the
requirements of Section 3 and of this paragraph (h) within thirty (30) days
after notice of non compliance by the Port Authority (except where compliance
cannot reasonably be made with thirty (30) days and the Lessee shall have
commenced to perform whatever may be required for compliance within thirty (30)
days after the receipt of such notice and continues such performance without
<PAGE>
interruption), the Port Authority may by five (5) days' notice terminate this
Agreement and the letting hereunder and the same shall be and operate as a
conditional limitation and have the same effect as if it were specifically
included as a ground for termination under subdivision (a) of Section 20 of this
Agreement.
SECTION 8. Maintenance and Repair
(a) Except to the extent of such items of cleaning service as may be
supplied by the Port Authority as stated in Section 42, the Lessee shall at all
times keep the premises in a clean and orderly condition and appearance,
together with all fixtures, equipment and personal property of the Lessee
located in or on the premises, including without limitation thereto the interior
surface of windows and both sides of all entrance doors.
(b) The Lessee shall repair, replace, rebuild and paint all or any part
of the premises or of the Facility which may be damaged or destroyed by the acts
or omissions of the Lessee, its officers, members, employees, agents,
representatives, contractors, customers, guests, invitees or other persons who
are doing business with the Lessee or who are on or at the premises or the
Facility with the consent of the Lessee.
(c) The Lessee shall take good care of the premises, including therein,
without limitation thereto, walls, partitions, floors, ceilings, doors and
columns, and all parts thereof, and all equipment and fixtures, and shall make
all necessary non-structural repairs, replacements, rebuilding necessary to keep
the premises in the condition existing at the commencement date of the letting
and to keep any improvements, additions and fixtures made or installed during
the term of the letting in the condition they were in when made or installed
except for reasonable wear which does not adversely affect the watertight
condition or structural integrity of the building or adversely affect the
efficient or proper utilization or the appearance of any part of the premises.
(d) In the event the Lessee fails to commence so to make or do any
repair, replacements, rebuilding or painting required by this Agreement within a
period of thirty (30) days after notice from the Port Authority so to do except
in cases of emergency, or fails diligently to continue to completion the repair,
replacement, rebuilding or painting of all of the premises required to be
repaired, replaced, rebuilt or painted by the Lessee under the terms of this
Agreement, the Port Authority may, at its option, and in addition to any other
remedies which may be available to it, repair, replace, rebuild or paint all or
any part of the premises included in the said notice, the Port Authority's cost
thereof to be paid by the Lessee on demand. This option or the exercise thereof
shall not be deemed to create or imply any obligation or duty to the Lessee or
others.
(e) The obligation of the Lessee as set forth in paragraphs (b) and (c)
of this Section, in the event of damage or destruction covered by any contract
of insurance under which the Port Authority is the insured, is hereby released
to the extent that the loss is recouped by actual payment to the Port Authority
of the proceeds of such insurance; provided, however, that if at any time
because of this release the insurance carrier of any policy covering the
premises or any part thereof shall increase the premiums otherwise payable for
fire, extended coverage or rental coverage applicable to the premises, the
Lessee shall pay to the Port Authority an amount equivalent to such increase or
increases on demand; and provided further, that if at any time this release
shall invalidate any such policy of insurance or reduce, limit or void the
<PAGE>
rights of the Port Authority thereunder, or if because of this release, any such
insurance carrier shall cancel any such policy or shall refuse to issue or renew
the same or shall refuse to issue a policy with an endorsement thereon under
which this release is permitted without prejudice to the interest of the insured
or shall cancel such endorsement or refuse to renew the same or shall take any
other action to alter, decrease or diminish the benefits of the Port Authority
under the policy, then the release shall be void and of no effect. Nothing
herein shall be construed to imply an obligation on the Port Authority to carry
any such insurance policy or to obtain or keep in force any such endorsement.
SECTION 9. Casualty
(a) In the event that, as a result of a casualty insured against by the
Port Authority under the New York standard form of fire insurance policy carried
by it on the premises, the premises are damaged without the fault of the Lessee,
its officers, members, employees, customers, guests, invitees or other persons
who are doing business with the Lessee or who are on the premises with the
Lessee's consent, so as to render the premises untenantable in whole or part,
then
(1) if the Port Authority finds that the necessary repairs or
rebuilding can be completed within one hundred eighty (180) days after
the occurrence of the damage, the Port Authority shall repair or
rebuilt with due diligence, and the rental hereunder shall be abated,
as hereinafter provided in the Section of this Agreement entitled
"Abatement of Rental," only for the period from the occurrence of the
damage to the completion of the repairs or rebuilding, whether or not
the work of repair or rebuilding is actually completed within the said
ninety (90) days; or
(2) if the Port Authority finds that such repairs or
rebuilding cannot be completed within one hundred eighty (180) days
after the occurrence of the damage, or if the Port Authority concludes
that other than the premises also require rebuilding, then the Port
Authority shall have options: (i) to proceed with due diligence to
repair or to rebuild the premises as necessary; or (ii) to terminate
the letting as to the damaged portion of the premises only, and the
rental hereunder shall be abated as provided in the Section of this
Agreement entitled "Abatement of Rental," from and after the occurrence
of the damage, or (iii) to terminate the letting as to the entire
premises; and in the case of (i) and (iii), the rental hereunder shall
be abated, as provided in the Section of this Agreement entitled
"Abatement of Rental," either, as the case may require, for the period
from the occurrence of the damage to the completion of repairs and
rebuilding of the premises or for the period from the occurrence of the
damage to the effective date of termination.
(b) The parties do hereby stipulate that neither the provisions of
Section 227 of the Real Property Law of the State of New York nor those of any
other similar statute shall extend or apply to this Agreement.
(c) The Lessee shall give the Port Authority immediate notice in case
of any fire, accident or casualty in the premises or elsewhere in the Facility
if the occurrence elsewhere in the Facility is known to and involves the Lessee,
its officers, members, employees, agents, representatives, contractors, or is
known to any of them and involves customers, guests or invitees of the Lessee.
<PAGE>
(d) In the event of a partial or total destruction of the premises, the
Lessee shall immediately remove any and all of its property and all debris from
the premises or the portion thereof destroyed and if the Lessee does not
promptly so remove, the Port Authority may remove the Lessee's property to a
public warehouse for deposit or retain the same in its own possession and sell
the same at public auction, the proceeds of which shall be applied first to the
expenses of removal, storage and sale, second to any sums owed by the Lessee to
the Port Authority, with any balance remaining to be paid to the Lessee; if the
expenses of such removal, storage and sale shall exceed the proceeds of sale,
the Lessee shall pay such excess to the Port Authority upon demand.
SECTION 10. Indemnity
(a) The Lessee shall indemnify and hold harmless the Port Authority,
its Commissioners, officers, agents and employees from (and shall reimburse the
Port Authority for the Port Authority's costs or expenses including legal
expenses incurred in connection with the defense of) all claims and demands of
third persons including but not limited to those for death, for personal
injuries, or for property damages, arising out of any default of the Lessee in
performing or observing any term or provision of this Agreement, or out of the
use of occupancy of the premises by the Lessee or by others with its consent, or
out of any of the acts or omissions of the Lessee, its officers, members,
employees, agents, representatives, contractors, customers, guests, invitees and
other persons who are doing business with the Lessee or who are at the premises
with the Lessee's consent where such acts or omissions are on the premises, or
arising out of any acts or omissions of the Lessee, its officers, members,
employees, agents and representatives where such acts or omissions are
elsewhere.
(b) If so directed, the Lessee shall at its own expense defend any suit
based upon any such claim or demand (even if such suit, claim or demand is
groundless, false or fraudulent), and in handling such it shall not, without
obtaining express advance permission from the General Counsel of the Port
Authority, raise any defense involving in any way the jurisdiction of the
tribunal over the person of the Port Authority, the immunity of the Port
Authority, its Commissioners, officers, agents or employees, the governmental
nature of the Port Authority or the provision of any statutes respecting suits
against the Port Authority.
SECTION 11. Ingress and Egress
The Lessee solely for itself, its officers, employees and such business
invitees as are at the premises in connection with the transaction of the
regular business of the Lessee, shall have the right of ingress and egress
between the premises and the City streets outside the Facility. Such right shall
be exercised by means of such corridors, lobbies, public area and pedestrian or
vehicular ways, and by means of such elevators, escalators or other facilities
for movement of persons or property, to be used subject to all the provisions of
this Agreement and in common with others having rights of passage and movement
within the Facility, as may from time to time be designated by the Port
Authority for the use of the public. The use of any such facility, way or other
area shall be subject to the rules and regulations of the Port Authority which
are now in effect or which may hereafter be promulgated for the safe and
efficient operation of the Facility. The Port Authority may, at any time,
<PAGE>
temporarily or permanently close, move, change or limit the use of, or consent
to or request the closing, moving, changing or limitation of the use of, any
such facility, way or any other area at or near the Facility presently or
hereafter used as such, so long as a reasonably comparable means of ingress and
egress as provided above remains available to the Lessee. The Lessee hereby
releases and discharges the Port Authority, and all municipalities and other
governmental authorities, and their respective successors and assigns, of and
from any and all claims, demands, or causes of action which the Lessee may now
or at any time hereafter have against any of the foregoing, arising or alleged
to arise out of the closing, changing or limitation of the use of any facility,
way or other area, whether within or outside the Facility. The Lessee shall not
do or permit anything to be done which will interfere with the free access and
passage of others to space adjacent to the premises or in any areas, streets,
ways, facilities and walks near the premises.
SECTION 12. Construction by the Lessee
The Lessee shall not erect any structures, make any modifications,
alterations, additions, improvements, repairs or replacements or do any
construction work on or to the premises, or install any fixtures in or on the
premises (other than trade fixtures, removable without injury to the premises)
without the prior consent of the Port Authority which consent will not be
exercised arbitrarily, and in the event any construction, improvement,
alteration, modification, addition, repair or replacement is made or done with
or without such consent and unless the consent of the Port Authority shall
expressly provide otherwise, the same shall immediately become the property of
the Port Authority and the Lessee shall have no right to change or remove the
same either during the term or at the expiration thereof. Notwithstanding the
foregoing, immediately upon notice from the Port Authority given at any time
during the letting, the Lessee shall remove or change any of the same made or
done by it without the Port Authority's consent, and in the case of any of the
same made or done with the Port Authority's consent, the Lessee if so required
by notice from the Port Authority, shall remove or change the same immediately
upon the expiration or termination of the letting, or immediately upon receipt
of such notice as may be given within sixty (60) days after such expiration or
termination provided, however, that if the Lessee so requests by written notice
given to the Port Authority not earlier than one hundred twenty (120) days prior
to, nor later than sixty (60) days after the expiration of the term of the
letting, the Port Authority within thirty (30) days after receipt of such notice
will notify the Lessee as to which construction, improvement, alteration,
modification, repair or replacement made by the Lessee has to be removed or
changed. With respect to any modifications, additions, alterations,
improvements, installations or construction made or done by the Port Authority
at the request of the Lessee either prior to or during the term of the letting,
the Lessee shall have the same obligations as provided above with respect to
that made or done by the Lessee with the Port Authority's consent.
SECTION 13. Signs
Except with the prior consent of the Port Authority, the Lessee shall
not erect, maintain or display any signs, advertising posters or similar devices
at or on the exterior parts of the premises or in the premises so as to be
visible through the windows, glass walls or exterior doors thereof. Upon the
expiration or termination of the letting, the Lessee shall remove, obliterate or
paint out, as the Port Authority may direct, any and all signs and advertising,
posters or similar devices, and in connection therewith shall restore the area
affected to the same condition as at the commencement of the letting.
<PAGE>
SECTION 14. Injury and Damage to Person or Property
The Port Authority shall not be liable to the Lessee or others for any
personal injury, death or property damage from falling material, water, rain,
hail, snow, gas, steam, dampness, explosion, smoke, radiation, and/or
electricity, whether the same may leak into or fall, issue, or flow from any
part of the premises or of the Facility, including without limitation thereto
any utility, mechanical, electrical, communication or other systems therein, or
from any other place or quarter unless said damage, injury or death shall be due
to the negligent acts or omissions of the Port Authority, its employees or
agents.
SECTION 15. Additional Rent and Charges
(a) If the Lessee shall fail or refuse to perform any of its
obligations under this Agreement and the applicable cure period has lapsed with
respect thereto, the Port Authority, in addition to all other remedies available
to it, shall have the right to perform any of the same and the Lessee shall pay
the Port Authority's cost thereof on demand. If the Port Authority has paid any
sum or sums or has incurred any obligations, expense or cost which the Lessee
has agreed to pay or reimburse the Port Authority for, or if the Port Authority
is required or elects to pay any sum or sums or incurs any obligations, expense
or cost by reason of the failure, neglect or refusal of the Lessee to perform or
fulfill any one or more of the conditions, covenants or agreements contained in
this Agreement, or as a result of an act or omission of the Lessee contrary to
the said conditions, covenants and agreements, including any legal expense or
cost in connection with any actions or proceeding brought by the Port Authority
against the Lessee or by third parties against the Port Authority, the Lessee
agrees to pay the sum or sums so paid or the expense and the Port Authority's
cost so incurred, including all interest costs, damages and penalties, and the
same may be added to any installment of rent thereafter due hereunder and each
and every part of the same shall be and become additional rent, recoverable by
the Port Authority in the same manner and with like remedies as if it were
originally a part of the basic rental as set forth in the Section of this
Agreement entitled "Basic Rental".
(b) "Cost" or "costs" of the Port Authority in this Agreement shall
mean and include (1) payroll costs including but not limited to contributions to
the retirement system, or the cost of participation in other pension plans or
systems, insurance costs, sick leave pay, holiday, vacation, authorized absence
pay or other fringe benefits; (2) cost of materials (hereinafter called the
"Lessee"), supplies and equipment used (including rental thereof); (3) payments
to contractors; (4) any other direct costs; and (5) 30% of the foregoing.
SECTION 16. Rights of Entry Reserved
(a) The Port Authority, by its officers, employees, agents,
representatives and contractors shall have the right at all reasonable times on
two (2) business days' oral notice, except in cases of emergency to enter upon
the premises for the purpose of inspecting the same, for observing the
performance by the Lessee of its obligations under this Agreement, and for the
doing of any act or thing which the Port Authority may be obligated or have the
right to do under this Agreement or otherwise.
<PAGE>
(b) Without limiting the generality of the foregoing, the Port
Authority, by its officers, employees, representatives and contractors, shall
have the right, for the benefit of the Lessee or for the benefit of others at
the Facility, to maintain initially existing and future utility, mechanical,
electrical, communication and other systems or portions thereof on the premises,
and to enter upon the premises at all reasonable times to make such repairs,
alterations and replacements as may, in the opinion of the Port Authority, be
deemed necessary or advisable and, from time to time, to construct or install
over, in, under or through the premises new lines, pipes, mains, wires,
conduits, equipment and other such; and to use the premises for access to other
portions of the Facility not otherwise conveniently accessible; provided,
however, that such repair, alteration, replacement, construction or access shall
not unreasonably interfere with the use of the premises by the Lessee. The Port
Authority shall use reasonable efforts to minimize the adverse aesthetic impact
of the repairs, alterations, constructions or installations made to the premises
pursuant to this paragraph and shall repair any damage to the premises caused
thereby.
(c) In the event that any property of the Lessee shall obstruct the
access of the Port Authority, its employees, agents or contractors to any of the
existing or future utility, mechanical, electrical, communication and other
systems and thus shall interfere with the inspection, maintenance, repair or
modification of any such system, the Lessee shall move such property as
requested by the Port Authority, in order that the access may be had to the
system or part thereof for its inspection, maintenance, repair or modification.
(d) Nothing in this Section shall or shall be construed to impose upon
the Port Authority any obligations so to construct or maintain or to make
repairs, replacements, alterations or additions, or shall create any liability
for any failure so to do. The Lessee is and shall be in exclusive control and
possession of the premises and the Port Authority shall not in any event be
liable for any injury or damage to any property or to any person happening on or
about the premises nor for any injury or damage to any property or to any person
happening on or about the premises nor for any injury or damage to the premises
nor to any property of the Lessee or of any other person located therein or
thereon (other than those occasioned by the negligent acts or omissions of the
Port Authority).
(e) At any time and from time to time during normal business hours upon
reasonable notice within the six (6) months next preceding the expiration of the
letting, the Port Authority, by its agents and employees, whether or not
accompanied by prospective lessees, occupiers or users of the premises, shall
have the right to enter thereon for the purpose of exhibiting and viewing all
parts of the same.
(f) If, during the last month of the letting, the Lessee shall have
removed all or substantially all of the Lessee's property from the premises, the
Port Authority may immediately enter and alter, renovate and redecorate the
premises and change locks on doors in the premises.
(g) The exercise of any or all of the foregoing rights by the Port
Authority or others shall not be or be construed to be an eviction of the Lessee
nor be made the grounds for any abatement of rental or any claim or demand for
damages, consequential or otherwise.
<PAGE>
SECTION 17. Condemnation
(a) In any action or proceeding instituted by any governmental or other
authorized agency or agencies for the taking for a public use of any interest in
all or any part of the premises, or in case of any deed, lease or other
conveyance in lieu thereof (all of which are in this Section referred to as
"taking or conveyance") the Lessee shall not be entitled to assert any claim to
any compensation, award or part thereof made or to be made therein or therefor
or any claim to any consideration or rental or any part thereof paid therefor,
or to institute any action or proceeding or to assert any claim against such
agency or agencies or against the Port Authority for or on account of any such
taking or conveyance, except for the possible claim to an award for trade
fixtures owned and installed by the Lessee, it being understood and agreed
between the Port Authority and the Lessee that the Port Authority shall be
entitled to all the compensation or awards made or to be made or paid and all
such consideration or rentals, free of any claim or right of the Lessee. No
taking by or delivery to any governmental authority under this paragraph (a)
shall be or be construed to be an eviction of the Lessee or be the basis for any
claim by the Lessee for damages, consequential or otherwise.
(b) In the event of a taking or conveyance of the entire premises by
any governmental or other authorized agency or agencies, then the letting under
this Agreement shall, as of the date possession is taken from the Port Authority
by such agency or agencies, cease and determine in the same manner and with the
same effect as if the term of the letting had on that date expired.
(c) In the event of a taking or conveyance by any governmental or other
authorized agency or agencies of a part of the premises then the letting as to
such part only shall, as of the date possession thereof be taken from the Port
Authority by such agency or agencies, cease and determine, and the rental
thereafter to be paid by the Lessee to the Port Authority shall be abated as
provided in the Section of this Agreement entitled "Abatement of Rental" from
and after the date of such taking or conveyance.
(d) In the event that the taking or conveyance or the delivery by the
Lessee or taking by the Port Authority pursuant to Section 41 covers twenty-five
per cent (25%) or more of the total usable area of the premises, then the Lessee
and the Port Authority shall each have an option exercisable by notice given
within ten (10) days after such taking or conveyance, to terminate the letting
hereunder, as of the date of such taking, and such termination shall be
effective as if the date of such taking were the original date of expiration
hereof.
SECTION 18. Abatement of Rental
(a) In the event that the Lessee shall at any time become entitled to
an abatement of rent, the basic rental set forth in the Section of the Agreement
entitled "Basic Rental" shall be abated for the period the abatement is in
effect by the same percentage that the area of the part of the premises the use
of which is denied to the Lessee is of the total area of the premises.
(b) For the purposes of this Section, the number of square feet
contained in the premises or parts thereof shall be computed as follows: By
measuring from the inside surface of outer building walls to the surface of the
public area side, or of the non-exclusive area side, as the case may require, of
<PAGE>
all partitions separating the space measured from adjoining areas designated for
the use of the public or for use by the Lessee in common with others, and to the
center of partitions separating the space measured from adjoining space
exclusively used by others; no deduction will be made for columns, partitions,
pilasters or projections necessary to the building and contained within the
space measured. Permanent partitions enclosing elevator shafts, stairs,
fire-towers, vents, pipe-shafts, meter-closets, flues, stacks and any vertical
shafts have the same relation to the space measured as do outer building walls.
(c) In the event that during the term of the letting under this
Agreement the Lessee shall be partially evicted and shall remain in possession
of the premises or the balance thereof, the Lessee agrees that notwithstanding
it might have the right to suspend payment of the rent in the absence of this
provision, it agrees to pay and will pay at the times and in the manner herein
provided, the full rent reserved less only an abatement thereof computed in
accordance with the above.
SECTION 19. Assignment and Sublease
(a) The Lessee shall not assign, sell, convey, transfer, mortgage, or
pledge this Agreement or any part thereof, or any rights created thereby or the
letting, or any part thereof, without the prior written consent of the Port
Authority.
(b) The Lessee shall not sublet the premises, or any part thereof,
without the prior written consent of the Port Authority.
(c) If the Lessee assigns, sells, conveys, transfers, mortgages,
pledges or sublets in violation of paragraphs (a) or (b) of this Section or if
the premises are occupied by anybody other than the Lessee, the Port Authority
may collect rent from any assignee, sublessee or anyone who claims a right to
this Agreement or letting or who occupies the premises, and shall apply the net
amount collected to the base rental herein reserved; and no such collection
shall be deemed a waiver by the Port Authority of the covenants contained in
paragraphs (a) and (b) of this Section nor any acceptance by the Port Authority
of any such assignee, sublessee, claimant or occupant as Lessee, nor a release
of the Lessee by the Port Authority from the further performance by the Lessee
of the covenants contained herein. The granting of consent by the Port Authority
to any assignment or subletting shall not be deemed to operate as a waiver of
the requirement for obtaining the express prior written consent of the Port
Authority to any other or subsequent assignment or subletting.
(d) The Lessee shall not use, or permit any person to use, the premises
or any portion thereof, except for the purposes set forth in the Section of this
Agreement entitled "Rights of User by the Lessee."
SECTION 20. Termination
(a) If any one or more of the following events shall occur, that is to
say:
(1) The Lessee shall take the benefit of any present or future
insolvency statute, or shall make a general assignment for the benefit
of creditors, or file a voluntary petition in bankruptcy or a petition
or answer seeking an arrangement or its reorganization of the
readjustment of its indebtedness under the federal bankruptcy laws or
under any other law or statute of the United States or of any State
thereof, or consent to the appointment of a receiver, trustee, or
liquidator of all or substantially all its property; or
<PAGE>
(2) By order or decree of a court the Lessee shall be adjudged
bankrupt or an order shall be made approving a petition filed by any of
the creditors or, if the Lessee is a corporation, by any of the
stockholders of the Lessee, seeking its reorganization or the
readjustment of its indebtedness under the federal bankruptcy laws or
under any law or statute of the United States or of any State thereof;
or
(3) A petition under any part of the federal bankruptcy laws
or an action under any present or future insolvency law or statute
shall be filed against the Lessee and shall not be dismissed within
thirty (30) days after the filing thereof; or
(4) The letting hereunder or the interest or estate of the
Lessee under this Agreement shall be transferred to, pass to or devolve
upon, by operation of law or otherwise, any other person, firm or
corporation; or
(5) The Lessee, if a corporation, shall, without the prior
consent of the Port Authority, become a possessor or merged corporation
in a merger, a constituent corporation in a consolidation, or a
corporation in dissolution; or
(6) The Lessee is a partnership, and the said partnership
shall be dissolved as the result of any act or omission of its partners
or any of them, or by operation of law or the order or decree of any
court having jurisdiction, or for any other reason whatsoever; or
(7) By or pursuant to, or under authority of any legislative
act, resolution or rule, or any order or decree of any court or
governmental board, agency or officer, a receiver, trustee, or
liquidator shall take possession or control of all or substantially all
the property of the Lessee, or any execution or attachment shall be
issued against the Lessee or any of its property, whereupon possession
of the premises shall be taken by someone other than the Lessee, and
any such possession or control shall continue in effect for a period of
thirty (30) days; or
(8) Any lien against the premises because of any act or
omission of the Lessee and is not removed or bonded within thirty (30)
days; or
(9) The Lessee shall voluntarily abandon, desert, vacate or
discontinue its operations in the premises, or, after exhausting or
abandoning any right of further appeal, the Lessee shall be prevented
for a period of ninety (90) days by action of any governmental agency
from conducting its operations on the premises, regardless of the fault
of the Lessee; or the Lessee shall fail to take occupancy and commence
operations within forty-five (45) days after the commencement date; or
(10) The Lessee shall fail duly and punctually to pay the
rentals or to make any other payment required hereunder when due to the
Port Authority after notice; or
<PAGE>
(11) The Lessee shall fail to keep, perform and observe each
and every other promise, covenant and agreement set forth in this
Agreement on its part to be kept, performed, or observed, within twenty
(20) days after receipt of notice of default thereunder from the Port
Authority (except where fulfillment of its obligation requires activity
over a period of time, and the Lessee shall have commenced to perform
whatever may be required for fulfillment, within ten (10) days after
receipt of notice and continues such performance without interruption
except for causes beyond its reasonable control); or
(12) If this Agreement shall require a guarantor of one or
more of the Lessee's obligations under this Agreement and any of the
events described in subparagraphs (1), (2), (3) or (7) above shall
occur to or with respect to the guarantor (whether or not they shall
also occur to or with respect to the Lessee);
then upon the occurrence of any such event or at any time thereafter during the
continuance thereof, the Port Authority may by five (5) days' notice terminate
the letting, such termination to be effective upon the date specified in such
notice. Such right of termination and the exercise thereof shall be and operate
as a conditional limitation.
(b) If any of the events enumerated in paragraph (a) of this Section
shall occur prior to the commencement of the letting, the Lessee shall not be
entitled to enter into possession of the premises and the Port Authority upon
the occurrence of any such event or at any time thereafter during the
continuance thereof by two (2) business days notice may cancel the interest of
the Lessee under this Agreement, such cancellation to be effective upon the date
specified in such notice.
(c) No acceptance by the Port Authority of rentals, fees, charges or
other payments in whole or in part for any period or periods after a default in
any of the terms, covenants and conditions to be performed, kept or observed by
the Lessee shall be deemed a waiver of any right on the part of the Port
Authority to terminate the letting.
(d) No waiver by the Port Authority of any default on the part of the
Lessee in performance of any of the terms, covenants or conditions hereof to be
performed, kept or observed by the Lessee shall be or be construed to be a
waiver by the Port Authority of any other subsequent default in performance of
any of the said terms, covenants and conditions.
(e) The rights of termination described above shall be in addition to
any other rights of termination provided in this Agreement and in addition to
any rights and remedies that the Port Authority would have at law or in equity
consequent upon any breach of this Agreement by the Lessee, and the exercise by
the Port Authority of any right of termination shall be without prejudice to any
other such rights and remedies.
(f) The Lessee shall not interpose any counterclaims in any summary
proceeding or action for non-payment of rental which may be brought by the Port
Authority unless such counterclaim, if not interposed, would be unavailable to
the Lessee in a separate proceeding.
<PAGE>
SECTION 21. Right of Re-entry
The Port Authority shall, as an additional remedy upon the giving of a
notice of termination as provided in the Section of this Agreement entitled
"Termination," have the right to re-enter the premises and every part thereof
upon the effective date of termination without further notice of any kind, and
may regain and resume possession either with or without the institution of
summary or any other legal proceedings or otherwise. Such re-entry, or regaining
or resumption of possession, however, shall not in any manner affect, alter or
diminish any of the obligations of the Lessee under this Agreement, and shall in
no event constitute an acceptance of surrender.
SECTION 22. Survival of the Obligations of the Lessee
(a) In the event that the letting shall have been terminated in
accordance with a notice of termination as provided in the Section of this
Agreement entitled "Termination," or the interest of the Lessee canceled
pursuant thereto, or in the event that the Port Authority has re-entered,
regained or resumed possession of the premises in accordance with the provisions
of the Section of this Agreement entitled "Right of Re-entry," all the
obligations of the Lessee under this Agreement shall survive such termination or
cancellation, re-entry, regaining or resumption of possession and shall remain
in full force and effect for the full term of this Agreement, and the amount or
amounts of damages or deficiency shall become due and payable, as more
specifically stated in paragraph (b) below, to the Port Authority to the same
extent, at the same time or times and in the same manner as if no termination,
cancellation, re-entry, regaining or resumption of possession has taken place.
(b) Immediately upon any termination or cancellation pursuant to the
Section of this Agreement entitled "Termination," or upon any re-entry,
regaining or resumption of possession in accordance with the Section of this
Agreement entitled "Right of Re-entry," there shall become due and payable by
the Lessee to the Port Authority, in addition to rental accrued prior to the
effective date of termination, without notice or demand and as damages, the sum
of the following:
(1) subject to the provisions of paragraph (c) below, an
amount equal to the then present value of all basic rental provided for
in this Agreement for the entire term, following the effective date of
termination as originally fixed in the Section of this Agreement
entitled "Term" less the amount thereof which may have been actually
paid by the Lessee;
(2) the amount of all other unfulfilled monetary obligations
of the Lessee under this Agreement, including without limitation
thereto, all sums constituting additional rental hereunder and the cost
to and expenses of the Port Authority for fulfilling all other
obligations of the Lessee which would have accrued or matured during
the balance of the term or on the expiration date originally fixed or
within a stated time after expiration or termination; and
(3) an amount equal to the cost to and the expenses of the
Port Authority in connection with the termination, cancellation,
regaining possession and restoring and reletting the premises, the Port
Authority's legal expenses and cost, and the Port Authority's cost and
expenses for the care and maintenance of the premises during any period
of vacancy, and any brokerage fees and commissions in connection with
any reletting.
<PAGE>
(c) The Port Authority may at any time bring an action to recover all
the damages as set forth above not previously recovered in separate actions, or
it may bring separate actions to recover the items of damages forth in
subparagraphs (2) and (3) of paragraph (b) above and separate actions
periodically to recover from time to time only such portion of the damages set
forth in subparagraph (1) of paragraph (b) above as would have accrued as rental
up to the time of the action if there had been no termination or cancellation.
In any such action the Lessee shall be allowed a credit against its survived
damages obligations equal to the amounts which the Port Authority shall have
actually received from any tenant, licensee, permittee or other occupier of the
premises or a part thereof during the period for which damages are sought, and
if recovery is sought for a period subsequent to the date of such a credit equal
to the market rental value of the premises during such period (discounted to
reflect the then present value thereof). If at the time of such action the Port
Authority has relet the premises, the rental for the premises obtained through
such reletting shall be deemed to be the market rental value of the premises or
be deemed to be the basis for computing such market rental value if less than
the entire premises were relet. In no event shall any credit allowed to the
Lessee against its damages for any period exceed the then present value of the
basic rental which would have been payable under this Agreement during such
period if a termination or cancellation had not taken place. In determining
present value of rental an interest rate of 4% per annum shall be used.
SECTION 23. Reletting by the Port Authority
The Port Authority, upon termination or cancellation pursuant to the
Section of this Agreement entitled "Termination," or upon any re-entry,
regaining or resumption of possession pursuant to the Section of this Agreement
entitled "Right of Re-entry," may occupy the premises or may relet the premises
and shall have the right to permit any person, firm or corporation to enter upon
the premises and use the same. The Port Authority may grant free rental or other
concessions and such reletting may be of part only of the premises or of the
premises or a part thereof together with other space, and for a period of time
the same as or different from the balance of the term hereunder remaining, and
on terms and conditions and for purposes the same as or different from those set
forth in this Agreement. The Port Authority shall also, upon termination or
cancellation pursuant to the Section of this Agreement entitled "Termination,"
or upon its re-entry, regaining or resumption of possession pursuant to the
Section of this Agreement entitled "Right of Re-entry," have the right to repair
or to make structural or other changes in the premises, including changes which
alter the character of the premises and the suitability thereof for the purposes
of the Lessee under this Agreement, without affecting, altering or diminishing
the obligations of the Lessee hereunder. In the event either of any reletting or
of any actual use and occupancy by the Port Authority (the mere right to use and
occupy not being sufficient however) there shall be credited to the account of
the Lessee against its survived obligations hereunder any net amount remaining
after deducting from the amount actually received from any lessee, licensee,
permittee or other occupier as the rental or fee for the use of the said
premises or portion thereof during the balance of the letting as the same is
originally stated in this Agreement, or from the market value of the occupancy
of such portion of the premises as the Port Authority may during such period
actually use and occupy, all expenses, costs and disbursements incurred or paid
by the Port Authority in connection therewith. No such reletting or such use and
occupancy shall be or be construed to be an acceptance of a surrender.
<PAGE>
SECTION 24. Waiver of Redemption
The Lessee hereby waives any and all rights of redemption, granted by
or under any present or future law, arising in the event it is evicted or
dispossessed for any cause, or in the event the Port Authority obtains or
retains possession of the premises in any lawful manner.
SECTION 25. Remedies and Suits Against the Lessee
All remedies provided in this Agreement shall be deemed cumulative and
additional and not in lieu of or exclusive of each other or of any other remedy
available to the Port Authority at law or in equity. In the event of a breach or
threatened breach by the Lessee of any term, covenant, condition or provision of
this Agreement, the Port Authority shall have the right of injunction and the
right to invoke any other remedy allowed by law or in equity as if termination,
re-entry, summary proceedings and any other specific remedies including without
limitation thereto, indemnity and reimbursement, were not mentioned herein, and
neither the mention thereof nor the pursuance or exercise or failure to pursue
or exercise any right or remedy shall preclude the pursuance or exercise of any
other right or remedy.
SECTION 26. Surrender
(a) The Lessee covenants and agrees to yield and deliver peaceably to
the Port Authority possession of the premises on the date of the cessation of
the letting, whether such cessation be by termination, expiration or otherwise,
promptly and in the same condition as at the time the Lessee entered into
possession, such reasonable wear excepted as would not materially adversely
affect or interfere with the efficient and proper utilization of the premises or
any part thereof.
(b) Unless the same are required for the performance by the Lessee of
its obligations hereunder, the Lessee shall have the right at any time during
the letting to remove from the premises, and, on or before the expiration or
earlier termination of the letting, shall so remove its equipment, removable
fixtures and other personal property, and all property of third persons for
which it is responsible, repairing all damages caused by such removal. If the
Lessee shall fail to remove such property on or before the termination or
expiration of the letting, the Port Authority shall have the same rights with
respect to such property as it has in the event of casualty under Section 9(d).
SECTION 27. Acceptance of Surrender of Lease
No agreement of surrender or to accept a surrender shall be valid
unless and until the same shall have been reduced to writing and signed by the
duly authorized representatives of the Port Authority and of the Lessee. Except
as expressly provided in this Section, neither the doing of, nor any omission to
do, any act or thing, by any of the officers, agents or employees of the Port
Authority, shall be deemed an acceptance of a surrender of the letting or of
this Agreement. Without limiting the foregoing, no employee or officer of the
Port Authority shall be authorized to accept the keys of the premises prior to
the expiration date of the letting as fixed in the Section of this Agreement
entitled "Term" and no delivery of the keys by the Lessee shall constitute a
termination of this Agreement or acceptance of surrender.
<PAGE>
SECTION 28. Brokerage
The Lessee represents and warrants that it has not dealt or had contact
with any broker in connection with the negotiation and execution of this
Agreement or the letting hereunder except CB Commercial Real Estate Group, Inc.,
a Delaware corporation having an office and place of business at 560 Lexington
Avenue, New York, New York 10022 and that the Lessee has no knowledge of any
broker who is or may be entitled to be paid a commission in connection with
negotiation and execution of this Agreement or the letting hereunder except CB
Commercial Real Estate Group, Inc. The Lessee shall indemnify the Port Authority
and save it harmless of and from any and all claims for commission or brokerage
made by any and all firms or corporations whatsoever with which the Lessee has
dealt or had contact with for services in connection with the negotiation and
execution of this Agreement or in connection with any letting of the space
referred to herein to the Lessee, including without limitation thereto any claim
of Richard L. Ellis Associates, Ltd., whether made pursuant to the provisions of
that certain agreement between the Port Authority and Richard L. Ellis
Associates, Ltd., dated as of September 3, 1990, or otherwise, excluding only
the claim of CB Commercial Real Estate Group, Inc., if the latter said claim is
made in accordance with the terms of an agreement between CB Commercial Real
Estate Group, Inc., and the Port Authority made as of February 29, 1996. The
Port Authority represents that the aforesaid agreement is the sole agreement
between the Port Authority and CB Commercial Real Estate Group, Inc., with
respect to this Agreement and the letting hereunder.
SECTION 29. Notices
(a) Notices, requests, permissions, consents and approvals given or
required to be given to or by either party under this Agreement, shall not be
effective unless they are given in writing, and all such notices and requests
shall be (i) personally delivered to the party or a duly designated officer or
representative of such party; or (ii) delivered to the office of such party,
officer or representative during regular business hours, or (iii) delivered to
the residence of such party, officer or representative; or (iv) if directed to
the Lessee, delivered at the premises at any time; or (v) forwarded to such
party, officer or representative at the office or residence address by
registered or certified mail. The Lessee shall designate an office within the
Port of New York District and an officer or representative whose regular place
of business is at such office. Until further notice, the Port Authority hereby
designates its Executive Director, and the Lessee designates the person named as
representative on the first page hereof as their respective officers or
representatives upon whom notices and requests may be served, and the Port
Authority designates its office at One World Trade Center, New York, New York
10048, and the Lessee designates its office at its address stated on the first
page hereof, as their respective offices where notices and requests may be
served.
(b) If any notice is mailed or delivered, the giving of such notice
shall be complete upon receipt, or, in the event of a refusal by the addressee,
upon the first tender of the notice to the addressee or at the permitted
address. If any notice is sent by telegraph, the giving of such notice shall be
complete upon receipt or, in the event of a refusal by the addressee, upon the
first tender of the notice by the telegraph company to the addressee or at the
address thereof.
<PAGE>
SECTION 30. Payments
(a) All payments required by the Lessee by this Agreement shall be
mailed to the Port Authority of New York and New Jersey, PO Box 17309, Newark,
New Jersey 07194, or to such other officer or address as may be substituted
therefor.
(b) No payment by the Lessee or receipt by the Port Authority of a
lesser rental amount than that which is due and payable under the provisions of
this Agreement at the time of such payment shall be deemed to be other than a
payment on account of the earliest rental then due, nor shall any endorsement or
statement on any check or in any letter accompanying any check or payment be
deemed an accord and satisfaction, and the Port Authority may accept such check
or payment without prejudicing in any way its right to recover the balance of
such rental or to pursue any other remedy provided in this Agreement or by law.
SECTION 31. Subordination
This Agreement and the letting hereunder are and shall be subject and
subordinate to all mortgages which may now or hereafter affect the premises or
the Facility, and to all renewals, modifications, consolidations, replacements
and extensions thereof, and although the provisions of this Section shall be
deemed to be self-operating and effective for all purposes without any further
instrument on the part of the Lessee, the Lessee shall execute on demand and
without expense to the Port Authority such further instruments confirmatory of
the provisions of this Section as the Port Authority may request.
SECTION 32. Quiet Enjoyment
The Lessee, upon paying all rentals hereunder and performing all
covenants, conditions and provisions of this Agreement on its part to be
performed, shall and may peaceable and quietly have, hold and enjoy the premises
free of any act or acts of the Port Authority or any successor landlord or
anyone claiming superior title through the Port Authority or such successor
landlord, except as expressly provided in this Agreement, it being understood
and agreed that the Port Authority's liability hereunder shall obtain only so
long as it remains the owner of the building of which the premises are a part.
Nothing herein shall be deemed to limit or affect in any way the provisions of
Section 31 hereof.
SECTION 33. Non-Liability of Individuals
Neither the Commissioners of the Port Authority nor the directors of
the Lessee, nor any of them, nor any officer, agent or employee of the Port
Authority or of the Lessee, shall be charged personally by any party hereto with
any liability, or be held liable to any such party under any term or provision
of this Agreement, or because of its execution or attempted execution or because
of any breach thereof.
SECTION 34. Headings
The section headings and the paragraph headings, if any, are inserted
only as a matter of convenience and for reference and in no way define, limit or
describe the scope or intent of any provision hereof.
<PAGE>
SECTION 35. Construction and Application of Terms
(a) Wherever in this Agreement a third person singular neuter pronoun
or adjective is used referring to the Lessee, the same shall be taken and
understood to refer to the Lessee, regardless of the actual gender or number
thereof.
(b) Whenever in this Agreement the Lessee is placed under an obligation
or covenants to do or to refrain from or is prohibited form doing, or is
entitled or privileged to do, any act or thing, the following shall apply:
(1) If the Lessee is a corporation, its obligations shall be
performed or its rights or privileges shall be exercised only by its
officer and employees; or
(2) If the Lessee is an unincorporated association or a
business or "Massachusetts" trust, the obligation shall be that of its
members or trustees, as well as of itself, and shall be performed only
by its members or trustees, and officers and employees, and the right
or privilege shall be exercised only by its members or trustees, and
its officers and employees; or
(3) If the Lessee is a partnership, the obligation shall be
that of its partners and shall be performed only by its partners and
employees and the rights or privileges shall be exercised only by its
partners and employees; or
(4) If the Lessee is an individual, the obligations shall be
that of himself (or herself) and shall be performed only by himself (or
herself) and his (or her) employees and the right or privilege shall be
exercised only by himself (or herself) and his (or her) employees.
(5) None of the provisions of this paragraph (b) shall be
taken to alter, amend or diminish any obligation of the Lessee assumed
in relation to its invitees, customers, agents, representatives,
contractors or other persons, firms or corporations doing business with
it.
(c) If more than one individual or other legal entity is the Lessee
under this Agreement, each and every obligation hereof shall be the joint and
several obligation of each such individual or other legal entity.
(d) Unless otherwise stated in the Section of this Agreement entitled
"Rights of User by the Lessee," the rights of user thereby granted to the Lessee
with respect to the premises shall be exercised by the Lessee only for its own
account and, without limiting the generality of the foregoing, shall not be
exercised as agent, representative, factor, broker, forwarder, bailee, or
consignee without legal title to the subject matter of the consignment.
(e) The Lessee's representative, hereinbefore specified in this
Agreement (or such substitute as the Lessee may hereafter designate in writing),
shall have full authority to act for the Lessee in connection with this
Agreement and any things done or to be done hereunder, and to execute on the
Lessee's behalf any amendments or supplements to this Agreement or any extension
thereof.
<PAGE>
(f) This Agreement does not constitute the Lessee, the agent or
representative of the Port Authority for any purpose whatsoever.
(g) All designations of time herein contained shall refer to the
time-system then officially in effect in the municipality wherein the premises
are located.
(h) No greater rights or privileges with respect to the use of the
premises or any part thereof or with respect to the Facility are granted or
intended to be granted to the Lessee by this Agreement, or by any provision
thereof, than the rights and privileges expressly granted hereby.
SECTION 36. Definitions
The following terms, when used in this Agreement, shall have the
respective meanings given below.
(a) "Letting" shall mean the letting under this Agreement for the
original term stated herein, and shall include any extensions thereof which may
be made pursuant to the provisions of this Agreement, or otherwise.
(b) "World Trade Center" or "Facility" shall mean the building complex
to be constructed by the Port Authority within the area in the Borough of
Manhattan, City, County and State of New York, bounded generally by the east
side of Church Street on the east, the south side of Liberty Street and the
south side of Liberty Street extended on the south, the Hudson River on the
west, and on the north by a line beginning at the point of intersection of the
Hudson River and the north side of Vesey Street extended, running along the
north side of Vesey Street extended and the north side of Vesey Street to the
west side of Washington Street, then along the west side of Washington Street to
the north side of Barclay Street, then along the north side of Barclay Street to
the east side of West Broadway, then along the east side of West Broadway to the
north side of Vesey Street, then along the north side of Vesey Street to the
east side of Church Street, together with such additional contiguous area as may
be agreed upon from time to time between the Port Authority and the said City of
New York;
(c) The phrase "utility, mechanical, electrical, communication and
other systems" shall mean and include (without limitation thereto) the
following: machinery, engines, dynamos, boilers, elevators, escalators,
incinerators and incinerator flues, systems for the supply of fuel, electricity,
water, gas and steam, plumbing, heating, sewerage, drainage, ventilating, air
conditioning, communications, fire-alarm, fire-protection, sprinkler, telephone,
telegraph and other systems, fire hydrants, fire hoses, and their respective
wires, mains, conduits, lines, tubes, pipes, equipment, motors, cables, fixtures
and other equipment.
(d) "Causes or conditions beyond the control of the Port Authority,"
shall mean and include acts of God, the elements, weather conditions, tides,
earthquakes, settlements, fire, acts of governmental authority other than the
Port Authority, its affiliates or subsidiaries, war, shortage of labor or
materials, acts of third parties for which the Port Authority is not
responsible, injunctions, strikes, boycotts, picketing, slowdowns, work
stoppages, labor troubles or disputes of every kind (including all those
<PAGE>
affecting the Port Authority, its contractors, suppliers or subcontractors) or
any other condition or circumstances, whether similar to or different from the
foregoing (it being agreed that the foregoing enumeration shall not limit or be
characteristic of such conditions or circumstances) which is beyond the control
of the Port Authority or which could not be prevented or remedied by reasonable
effort and at reasonable expense.
(e) "Holidays" or "legal holidays" shall mean and include the following
days of each year: the first day of January, known as New Year's day; the
twelfth day of February, known as Lincoln's birthday; the third Monday in
February, known as Washington's birthday; the last Monday in May, known as
Memorial day; the fourth day of July, known as Independence day; the first
Monday in September, known as Labor day; the second Monday in October, known as
Columbus day; the fourth Monday in October, known as Veterans' day; the fourth
Thursday in November, known as Thanksgiving day; and the twenty-fifth day of
December, known as Christmas day; and if any of such days is Sunday, the next
day thereafter; and each general Election day in the State of New York; and such
other or different days or dates as are declared "holidays" or "legal holidays"
under the laws of the State of New York or as may hereafter be so declared.
(f) "Normal business hours," shall mean 8:00 o'clock A. M. to 6:00
o'clock P. M. Mondays to Fridays inclusive, legal holidays excepted.
[SECTION 37 intentionally deleted]
[SECTION 38 intentionally deleted]
SECTION 39. Force Majeure
(a) The Port Authority shall not be liable for any failure, delay or
interruption in performing its obligations hereunder due to causes or conditions
beyond the control of the Port Authority. Further, the Port Authority shall not
be liable unless the failure, delay or interruption shall result from failure on
the part of the Port Authority to use reasonable care to prevent or reasonable
efforts to cure such failure, delay or interruption.
(b) No abatement, diminution or reduction of the rent or other charges
payable by the Lessee, shall be claimed by or allowed to the Lessee for any
inconvenience, interruption, cessation or loss of business or other loss caused,
directly or indirectly, by any present or future laws, rules, requirement,
orders, directions, ordinances or regulations of the United States of America,
or of the state, county or city governments, or of any other municipal,
governmental or lawful authority whatsoever, or by priorities, rationing or
curtailment of labor or materials, or by war or any matter or thing resulting
therefrom, or by any other cause or condition beyond the control of the Port
Authority, nor shall this Agreement be affected by any such causes or
conditions.
SECTION 40. Premises
(a) The Lessee acknowledges that it has not relied upon any
representation or statement of the Port Authority or its Commissioners,
officers, employees or agents as to the suitability of the premises for the
operations permitted on the premises by this Agreement. Without limiting any
obligation of the Lessee to commence operations hereunder at the time and in the
manner stated elsewhere in this Agreement, the Lessee agrees that no portion of
the premises will be used initially or at any time during the letting which is
<PAGE>
in a condition unsafe or improper for the conduct of the Lessee's operations
hereunder so that there is possibility of injury or damage to life or property.
For all purposes of this Agreement the premises hereunder (notwithstanding any
statement elsewhere in this Agreement of any rule for the measurement of the
area thereof) shall be deemed to include all of the enclosing partitions, and
the adjacent exterior building walls and glass to and including the exterior
surface thereof.
(b) The Port Authority may by written authorization allow the Lessee to
enter into the possession of the premises prior to the date specified in the
Section of this Agreement entitled "Term" as the commencement of the term of the
letting, solely for the purpose of moving personal property of the Lessee into
the premises and of installing fixtures. If the Lessee receives such written
authorization, the Lessee shall use and occupy the premises in accordance with
and subject to all the terms, covenants, conditions and provisions of this
Agreement other than those relating to payment of rent and rights of user and
except as may be expressly provided otherwise by the written authorization.
SECTION 41. Governmental Compliance
In the event that all or any portion of the premises is required by the
Port Authority to comply with any present or future governmental law, rule,
regulation, requirement, order or direction, the Port Authority shall give the
Lessee notice that all or any such portion of the premises is so required and
the Lessee shall deliver all or any such portion of the premises so required on
the date specified in such notice and, if the Lessee does not so deliver the
Port Authority may take the same. No such taking or delivery shall be or be
construed to be an eviction of the Lessee or a breach of this Agreement. In the
event that the Lessee has received a notice hereunder it shall deliver all or
any such portion of the premises so required in the same condition as that
required hereunder for the delivery of the premises on the cessation of the
letting. In the event of the taking or delivery of all the premises, this
Agreement and the letting hereunder shall on the day of such talking or delivery
cease and expire as if that day were the date, originally stated herein for the
expiration of this Agreement; and, in the event of the taking or delivery of any
portion of the premises, then, from and after such taking or delivery, such
portion of the premises shall cease to be a part of the premises hereunder.
There shall be an abatement of the rental in the event of any such taking or
delivery of a portion of the premises as provided in the Section of this
Agreement entitled "Abatement of Rental".
SECTION 42. Services and Utilities
(a) Subject to all the terms and provisions of this Agreement, the Port
Authority will furnish without additional charge to the Lessee the following:
(1) Heat, ventilation and air cooling to maintain in the
premises an even and comfortable working temperature during normal
business hours;
(2) To the extent that the Lessee's consumption does not
exceed the capacity of feeders, risers or wiring in the premises or
Facility, electricity, during normal business hours, in reasonable
quantities solely for illumination, by which is meant the energizing of
fluorescent and incandescent bulbs (to be supplied, paid for and
installed by the Lessee), and for the operation of such machines and
equipment as are customarily used in businesses of types set forth in
Section 3; and
<PAGE>
(b) Unless the premises contain toilet and washroom facilities, the
Port Authority shall, without additional charge, furnish non-exclusive toilet
and washroom facilities for the employees of the Lessee.
(c) The Port Authority will supply cleaning services in the premises as
described in Schedule B attached hereto and hereby made a part hereof.
(d) If the Lessee, in accordance with the Section of this Agreement
entitled "Construction by the Lessee" or otherwise, erects any partitions or
makes any improvements which stop, hinder, obstruct or interfere with the
cooling of the air or the heating of the premises, or if the Lessee shall fail
to close and keep closed the window coverings when the sun is shining on the
windows of the premises, then no such action by the Lessee shall impose any
obligations on the Port Authority to install facilities, fixtures or equipment
for air-cooling or for heating additional to those existing or presently
contemplated or to increase the capacity or output of initially existing
facilities, equipment or fixtures and the Lessee shall not in any such event be
relieved of any of its obligations hereunder because a comfortable temperature
is not maintained. No consent given by the Port Authority to the erection of
partitions or the making of any improvements shall be or be deemed to be a
representation that the work consented to will not stop, hinder, obstruct or
interfere with either the cooling of the air or heating of the premises or any
portion thereof. It is hereby understood further that the installation by the
Lessee of any equipment which itself requires air cooling or which requires
additional quantities of air cooling at the portion of the premises where such
equipment is installed, or the concentration in any portion of the premises of
such a number of people so as to require additional quantities of air cooling,
shall not impose any obligation on the Port Authority to install facilities,
fixtures and equipment for air cooling additional to those initially existing,
or to increase the capacity or output of initially existing facilities,
equipment or fixtures and the Lessee shall not in any such event be relieved of
any of its obligations hereunder.
(e) The Lessee shall keep closed all entrance doors and all windows in
the premises except that doors may be opened when required for ingress or
egress. The Lessee shall not otherwise waste or dissipate the air cooling or
heating services. Without otherwise affecting the Port Authority's rights or
remedies in the event of any breach by the Lessee of its obligations under this
Agreement, the Port Authority shall have the right to discontinue or reduce the
said heating or air-cooling service during any period of such waste or
dissipation and any failure of the Port Authority to supply any such service
under such conditions shall not affect any of the Lessee's obligations under
this Agreement.
(f) If any federal, state, municipal or other governmental body,
authority or agency or any public utility assesses, levies, imposes, makes or
increases any charge, fee or rent on the Port Authority for any service, system
or utility now or in the future supplied to or available to the premises or to
any occupants or users thereof or to the structure or building of which the
premises form a part (including but not limited to any sewer rent or charge for
the use of sewer systems), the Lessee shall, at the option of the Port Authority
exercised at any time and from time to time by notice to the Lessee, pay, in
accordance with said notice, such charge, fee or rent or increase thereof (or
the portion thereof allocated by the Port Authority to the premises or the
Lessee's operations hereunder) either directly to the governmental body,
authority or agency or to the public utility or directly to the Port Authority.
<PAGE>
(g) The Port Authority shall have the right to discontinue temporarily
the supply of any of the above services when necessary or desirable in the
reasonable opinion of the Port Authority in order to make any repairs,
alterations, changes or improvements in the premises or elsewhere in the
Facility including but not limited to all systems for the supply of services.
(h) No failure, delay, interruption or reduction in any service or
services shall be or shall be construed to be an eviction of the Lessee, shall
be grounds for any diminution or abatement of the rentals payable hereunder, or
shall constitute grounds for any claim by the Lessee for damages, consequential
or otherwise, unless due to the negligent acts of the Port Authority, its
employees or agents. The Lessee shall not be entitled to receive any service or
services during any period during which the Lessee shall be in default under any
of the provisions of this Agreement and all applicable cure periods with respect
thereto have lapsed.
(i) The Port Authority shall be under no obligation to supply any
service or services if and to the extent and during any period that the
supplying of any such service or services or the use of any component necessary
therefor shall be prohibited or rationed by any federal, state or municipal law,
rule, regulation, requirement, order or direction and if the Port Authority
acting in a non arbitrary manner deems it in the public interest to comply
therewith, even though such law, rule, regulation, requirement, order or
direction may not be mandatory on the Port Authority as a public agency.
(j) The Port Authority shall have no obligations or responsibility with
respect to the performance of any services or providing, supplying or furnishing
to the Lessee of any utilities or services whatsoever except as expressly
provided in this Section or in this Agreement.
[SECTION 43 intentionally deleted]
SECTION 44. Rental Amendment
The Lessee shall pay the basic rental provided for Section 4 of this
Agreement in advance in equal monthly installments of Ten Thousand Six Hundred
Fifty-five Dollars and No Cents ($10,655.00) on March 1, 1996, and on the first
day of each calendar month thereafter throughout the balance of the term of the
letting under this Agreement.
SECTION 45. Liability Insurance
(a) The Lessee in its own name as assured shall secure and pay the
premium on a policy of comprehensive general liability insurance, including a
contractual liability endorsement, for such coverage as may be stipulated by the
Port Authority (the Port Authority hereby agrees that such stipulated coverage
shall not be in excess of that customarily required by the Port Authority of
other office lessees of comparable space and use at the Facility), covering the
Lessee's operations hereunder which shall be effective throughout the letting
under this Agreement and shall be in a combined single limit of not less than
$2,000,000 for bodily injury, for wrongful death and for property damage arising
from any one occurrence.
(b) The Port Authority shall be included as an additional insured in
any policy of liability insurance required by this Section.
<PAGE>
(c) As to any insurance required by this Section, a certified copy of
each of the policies or a certificate or certificates evidencing the existence
thereof, or binders, shall be delivered to the Port Authority within twenty (20)
days prior to the commencement date of the letting hereunder. In the event any
binder is delivered, it shall be replaced within thirty (30) days by a certified
copy of the policy or a certificate. Each such copy or certificate shall contain
a valid provision or endorsement that the policy may not be canceled,
terminated, changed or modified, without giving ten (10) days written advance
notice thereof to the Port Authority. A renewal policy shall be delivered to the
Port Authority at least fifteen (15) days prior to the expiration date of each
expiring policy, except for any policy expiring after the date of expiration of
the letting. If at any time any of the policies shall be or become
unsatisfactory to the port Authority as to form or substance, or if any of the
carriers issuing such policies shall be or become unsatisfactory to the Port
Authority the Lessee shall promptly obtain a new and satisfactory policy in
replacement.
(d) Each policy of insurance required by this Section shall contain a
provision that the insurer shall not, without obtaining express advance
permission from the General Counsel of the Port Authority, raise any defense
involving in any way the jurisdiction of the tribunal over the person of the
Port Authority, the immunity of the Port Authority, its Commissioners, officers,
agents or employees, the governmental nature of the Port Authority or the
provisions of any statutes respecting suits against the Port Authority.
SECTION 46. Electricity
(a) Notwithstanding the provisions of Section 42(a)(2) of this
Agreement and subject to all the terms, conditions and provisions of Section
42(f), (g), (h) and (i) of this Agreement, the Port Authority may periodically
throughout the term of the letting at such times as the Port Authority may
elect, arrange for a survey of the premises by the Port Authority's Engineering
Department or by an independent reputable utility consultant to be selected by
the Port Authority (it being understood however that the Port Authority will
utilize such independent reputable utility consultant to conduct such survey
until such time as it customarily utilizes the Port Authority's Engineering
Department to conduct such surveys at the Facility) for the purpose of
establishing the Lessee's annual consumption of and demand for electricity (such
consumption of and demand for electricity being hereinafter referred to as
"consumption and demand"). Such consumption and demand shall be based on the
wattage of lamps and any other electrical machinery and the frequency and
duration of the use thereof in the premises. The Lessee's annual consumption and
demand shall be divided by the number of "billing periods" per year established
by the public utility company supplying electricity in the vicinity of the
premises so as to determine the Lessee's consumption and demand per billing
period. In lieu of such determination of consumption and demand, the same may be
measured by meter which the Port Authority may at its option, exercised at any
time during the term of the letting, install on or off the premises and in the
event any such meter fails to record such, the Lessee's consumption of and
demand for electricity for any period that a meter is out of service will be
considered to be the same as the consumption and demand for a like period either
immediately before or immediately after such interruption as selected by the
Port Authority. The Port Authority shall compute the cost of such consumption
and demand either as determined by the survey or measured by meter based on the
greater of (1) the rates (including the fuel or other adjustment factor if any)
<PAGE>
which the Lessee under the service classification applicable to the Lessee as of
the date of each billing period would be required to pay if the Lessee had
purchased such electricity directly from the public utility company supplying
the same in the vicinity or (2) the Port Authority's cost of obtaining and
supplying the same quantity of electricity. The Lessee shall pay the cost of
such consumption and demand for each such billing period to the Port Authority
upon demand therefor and the same shall be deemed additional rental collectible
in the same manner and with like remedies as if it were a part of the basic
rental reserved hereunder. The determination of consumption and demand by survey
shall be effective until the next succeeding survey and shall be binding and
conclusive on both the Lessee and the Port Authority as to all matters,
including but not limited to the frequency and duration of use of the lamps and
other electrical machinery and equipment in the premises. The cost of each such
survey shall be borne by the Port Authority, provided that if the Lessee makes
any alterations or improvements to the premises in accordance with the
provisions of Section 12 of this Agreement or otherwise which may result in
greater consumption or demand, the Port Authority may direct a new survey to
establish the consumption and demand for electricity in the premises and the
cost thereof shall be borne by the Lessee. Any method of measurement used herein
shall not preclude the Port Authority from reverting to the use of any prior
method.
(b) Notwithstanding that the Port Authority has agreed to supply
electricity to the Lessee, the Port Authority shall be under no obligation to
provide or continue such service if the Port Authority is prevented by law,
agreement or otherwise from metering or measuring consumption and demand as
hereinabove set forth or elects not to so meter or measure the same, and in any
such event the Lessee shall make all arrangements and conversions necessary to
obtain electricity directly from the public utility. Also, in such event, the
Lessee shall perform the construction necessary for conversion and if any lines
or equipment of the Port Authority are with the consent of the Port Authority
used therefor the Port Authority may make an appropriate charge therefor to the
Lessee based on its costs and expenses for the said lines and equipment.
SECTION 47. Late Charges
If the Lessee should fail to pay any amount required under this
Agreement when due to the Port Authority, including without limitation any
payment of basic or other rental or any payment of utility or other charges or
if any such amount is found to be due as the result of an audit, then, in such
event, the Port Authority may impose (by statement, bill or otherwise) a late
charge with respect to each such unpaid amount for each late charge period
(hereinbelow described) during the entirety of which such amount remains unpaid,
each such late charge not to exceed an amount equal to eight-tenths of one
percent of such unpaid amount for each late charge period. There shall be
twenty-four late charge periods on a calendar year basis; each late charge
period shall be for a period of at least fifteen (15) calendar days except one
late charge period each calendar year may be for a period of less than fifteen
(but not less than thirteen) calendar days. Without limiting the generality of
the foregoing, late charge periods in the case of amounts found to have been
owing to the Port Authority as the result of Port Authority audit findings shall
consist of each late charge period following the date the unpaid amount should
have been paid under this Agreement. Each late charge shall be payable
immediately upon demand made at any time therefor by the Port Authority. No
acceptance by the Port Authority of payment of any unpaid amount or of any
unpaid late charge amount shall be deemed a waiver of the right of the Port
<PAGE>
Authority to payment of any late charge or late charges payable under the
provisions of this Section with respect to such unpaid amount. Each late charge
shall be recoverable by the Port Authority in the same manner and with like
remedies as if it were originally a part of the basic rental as set forth in the
Section of this Agreement entitled "Basic Rental". Nothing in this Section is
intended to, or shall be deemed to, affect, alter, modify or diminish in any way
(i) any rights of the Port Authority under this Agreement, including without
limitation the Port Authority's rights set forth in the Section of this
Agreement entitled "Termination" or (ii) any obligations of the Lessee under
this Agreement. In the event that any late charge imposed pursuant to this
Section shall exceed a legal maximum applicable to such late charge, then, in
such event, each such late charge payable under the provisions of this Section
shall be payable instead at such legal maximum. For the purposes of this Section
only, no payment required under this Agreement, the precise amount of which
cannot be known by the Lessee until the Port Authority notifies the Lessee
thereof, shall be deemed due to the Port Authority until such notice has been
given.
SECTION 48. Additional Provisions Relating to Assignment, Use and Subletting
(a) Notwithstanding the provisions of Section 19(a) of this Agreement,
the Lessee shall have the right to assign the Lease and the letting hereunder in
its entirety to a corporation which is and continues to be directly controlled
by the Lessee or which directly controls the Lessee or to a corporation into or
with which the Lessee is merged or consolidated and such assignment is required
in connection with such merger or consolidation and further that the resulting
corporation has a financial standing immediately preceding the date of the
merger or consolidation at least as good as that of the Lessee by which is meant
that its ratio of current assets to current liabilities, its ratio of fixed
assets to fixed liabilities and its net worth shall each be as favorable as that
of the Lessee and notwithstanding the provisions of subparagraph (a) (5) of
Section 20, a merger or consolidation shall not be a ground for termination,
provided, however, that nothing contained herein shall limit or affect the
provisions of Section 7(h) of the Lease in any way and any such assignee shall
use the premises solely for the purposes set forth in Section 3 of this
Agreement and for no other purpose whatsoever and provided, further, however,
that such assignment shall not be effective until an agreement in the form
annexed hereto as "Exhibit Y" has been executed by the Port Authority, the
Lessee, and the proposed assignee, and the Port Authority's consent as herein
stated shall be effective only as long as the proposed assignee maintains the
above described relationship to the Lessee. If such relationship is no longer in
effect, the Port Authority shall have the right, in addition to all other rights
and remedies under the Lease to revoke its said consent and the Lessee and
assignee will immediately cause the Lease and the letting hereunder to be
reassigned to the Lessee.
(b) Notwithstanding the provisions of Section 19(b) of this Agreement,
the Lessee shall have the right, with respect to the entire premises or a
portion thereof, to sublet to or to permit the use of desk space by a
corporation which is and continues to be directly controlled by the Lessee or
which directly controls the Lessee, provided that nothing herein shall limit or
affect in any way the provisions of Section 7(h) of this Agreement and such
subtenant or desk space user shall use the premises for the purposes set forth
in Section 3 of the Lease and for no other purpose whatsoever and, provided,
further, that any such subletting shall not be effective until an agreement
entitled "Consent to Sublease Agreement" in the form annexed hereto and marked
"Exhibit X" has been executed by the Port Authority, the Lessee and the proposed
<PAGE>
subtenant. Permission to such corporation for the use of desk space shall not
create a tenancy or any other interest in the premises except a license
revocable at will which shall cease and expire in any event automatically
without notice upon the expiration or termination of the letting under this
Agreement and all acts, omissions and operations of such corporation and its
officers and employees shall be deemed acts, omissions and operations of the
Lessee. If after any such subletting pursuant to this paragraph (b) becomes
effective, the relationship required herein between the Lessee and the subtenant
is no longer in effect or any other conditions as to such subtenancy shall be
violated, the Port Authority shall have the right in addition to all other
rights and remedies available under this Agreement or the Consent to Sublease
Agreement to revoke its consent to such subletting by notice to the Lessee and
to the subtenant in which event the Sublease between the Lessee and the
subtenant shall immediately terminate and expire and the Lessee shall
immediately cause the said subtenant to vacate the portion of the premises or
the entire premises, as the case may be, sublet to the subtenant.
(c) Notwithstanding the provisions of Section 19(b) of this Agreement,
the Lessee may sublet the entire premises or portions thereof to entities other
than those described in paragraph (b) above (but there shall not be more than
three (3) subtenants in the premises at any one time), provided that all of the
following conditions precedent and requirements have been met or satisfied: (1)
The proposed subtenant shall in the opinion of the Port Authority by eligible,
suitable and qualified as a World Trade Center tenant, which opinion will not be
exercised arbitrarily; (2) the rental payable by the subtenant to the Lessee for
or in connection with its use or occupancy of the subleased space shall be not
less than the rental charged by the Port Authority for comparable space on the
effective date of such subletting for a term expiring on or about the expiration
date of the term of the letting under this Agreement; (3) If the rental and any
other consideration payable by the subtenant to the Lessee for or in connection
with its use or occupancy of the subleased space (the phrase "rental and any
other consideration" as used in this paragraph (c) shall not include amounts
paid to the Lessee constituting the subtenant's proportionate share of amounts
payable by the Lessee to the Port Authority under this Agreement for additional
basic rental, fees and charges for services and utilities) shall be in excess of
the basic rental rate provided for in this Agreement, the Lessee shall so notify
the Port Authority and the Lessee will pay the excess to the Port Authority as
received, subject to the deductions referred to in paragraph (e) hereof; (4) the
proposed subtenant is not a current occupant in the World Trade Center and has
not been in discussion with the Port Authority toward its current or future
occupancy of space in the World Trade Center, provided, however, that if the
proposed subtenant has not been in discussion with the Port Authority and is a
current occupant of space immediately adjacent to the premises and the said
proposed subtenant will continue as a direct lessee of the said space pursuant
to its existing lease with the Port Authority for the balance of its lease term,
then the said proposed subtenant shall not be deemed to be a current occupant of
the World Trade Center for purposes of this subdivision (4); and (5) The Lessee,
the subtenant and the Port Authority have executed the form of agreement
entitled "Consent to Sublease Agreement," annexed to this Agreement and marked
"Exhibit X". Execution of the aforesaid Consent to Sublease Agreement by the
Port Authority and return thereof to the Lessee shall constitute the
determination referred to in subdivision (1) of this paragraph (c) and if the
Port Authority's determination pursuant to said subdivision (1) above is in the
affirmative the Port Authority shall execute such Consent to Sublease within
<PAGE>
thirty (30) days after the same executed by the Lessee and Sublessee has been
delivered to the Port Authority. The Lessee and subtenant shall present in
advance all documents, information and other data which the Port Authority may
require relating to the matters covered in subdivisions (1), (2), (3) and (4) of
this paragraph (c) and the subtenant shall supply during the continuance of any
approved subletting such additional or current documents, information or other
data as the Port Authority may from time to time reasonably require.
(d) Notwithstanding the provisions of paragraphs (a), (b), (c) and (g)
of this Section, the Lessee shall be solely responsible for complying with any
legal requirements regarding the permissible number of persons who may use or
occupy the premises. Use or occupancy of the premises by a subtenant or a desk
space user hereunder shall not be deemed to entitle such subtenant or desk space
user to any rights or privileges which the Port Authority may accord to lessees
of space in the World Trade Center, including but not limited to listings on
directories, boards, publications or similar privileges, nor shall such use or
occupancy entitle the Lessee to any increase in such rights or privileges, but
nothing herein shall be deemed to prohibit the Lessee from sharing with its
permitted subtenants or desk space users any such rights or privileges which the
Port Authority has accorded to the Lessee.
(e) If, in connection with any subletting pursuant to the provisions of
paragraph (c) hereof consented to by the Port Authority as provided herein, the
Lessee (1) has paid a brokerage commission at the current rates prevailing in
the City of New York to a real estate broker licensed to do business in the
State of New York which brokerage commission is not reimbursed to the Lessee by
the subtenant, provided such brokerage commission is actually paid and is
incurred solely in connection with such subletting and would not have been
required to have been paid except for such subletting; or (2) has incurred any
cost for finishing, alterations and decorating such sublet space solely to
prepare the same for such subtenant which is not reimbursed to the Lessee by the
subtenant (the total of items (1) and (2) being hereinafter referred to as
"subleasing expenses"), then the Lessee shall divide the subleasing expenses by
the number of calendar months and the proportionate part of any partial calendar
month comprising the term of such sublease, and the amount resulting from such
division shall be deducted from the amount of the rental and any other
consideration payable by the subtenant to the Lessee each month which is in
excess of the basic rental rate payable by the Lessee to the Port Authority
applicable to the subleased space for that month and the balance of such excess
of the rental and any other consideration shall be payable by the Lessee to the
Port Authority for that month.
(f) "Control" or "Controlled" as used in paragraphs (a) and (b) of this
Section shall mean the ownership by one corporate entity of fifty-one percent
(51%) or more of the issued and outstanding shares of the capital stock and
voting rights (with the power to exercise such rights) of another corporate
entity. The Lessee and a proposed assignee purporting to meet the conditions of
paragraph (a) of this Section shall present in advance all documents,
information and other data which the Port Authority may require relating to the
relationship between them and during the continuance of any approved assignment
they shall supply such additional or current documentation or other data as the
Port Authority may from time to time require.
<PAGE>
(g) Without otherwise limiting the provisions of Section 19 of this
Agreement or of paragraph (h) of Section 7 thereof, and in addition to the
rights of use set forth in paragraph (b) of this Section 48, the Lessee may
permit use of desk space in the premises for purposes stated in Section 3 of
this Agreement and for no other purpose whatsoever by a person or corporation
which the Lessee represents or performs services for on a continuing contractual
basis, which is a partner of, or investor with, the Lessee in another
partnership, corporation or joint venture or which has another continuing
business relationship with the Lessee in connection with the Lessee's use of the
premises; such use to continue only as long as the said person or corporation
continues in one of the above described relationships to the Lessee, provided,
that there shall be at any one time no more than a total of five (5) desk space
users in the premises pursuant to this paragraph (g) and to paragraph (b) of
this Section 48. Permission to any such person or corporation to use the
premises shall not create a tenancy or any other interest in the premises except
a license revocable at will which shall cease and expire in any event
automatically without notice upon any expiration or termination of the letting
hereunder and all acts, omissions and operations of such person or corporation
and his or its officers and employees shall be deemed acts, omissions and
operations of the Lessee. The Lessee shall furnish to the Port Authority on
demand information which may from time to time be requested regarding any such
person or corporation and his or its relationship to the Lessee.
SECTION 49. Termination by the Lessee
(a) The Lessee shall have the right to terminate this Agreement and the
letting hereunder solely as to the premises in its entirety, such termination to
be effective on February 28, 2001 (such date being hereinafter referred to as
the "Effective Date of Termination"), provided, that (1) the Lessee shall have
given to the Port Authority unconditional written notice of its election so to
terminate, received by the Port Authority not later than May 31, 2000 and (2)
such notice shall be accompanied by a certified or cashier's check in the amount
of Twenty Three-Thousand Four Hundred Seven Dollars and No Cents ($23,407.00)
payable to the Port Authority and drawn on a banking institution having its main
office within the Port of New York District.
(b) No notice of termination served by the Lessee in accordance with
paragraph (a) of this Section shall be effective (and any such given shall be
deemed null and void) if the Lessee fails to pay the amount required under
subparagraph (2) or said paragraph (a) under the circumstances described in said
subparagraph (2). The Lessee shall have no right to terminate the letting,
pursuant to this Section, as to a portion of the premises nor on other than the
specified Effective Date of Termination set forth above and shall only have a
right to terminate the letting if the necessary prior notice has been served in
a timely manner.
(c) In the event of an effective notice of termination by the Lessee
under this Section, the letting under this Agreement with respect to the
premises shall cease and expire on the Effective Date of Termination as fully
and completely as if such date were the original expiration date of the letting
set forth in this Agreement.
<PAGE>
SECTION 50. Security Deposit
(a) The Lessee has heretofore deposited with the Port Authority the sum
of Sixteen Thousand Dollars and No Cents ($16,000.00) in cash, or bonds of the
United States of America, or of the State of New Jersey, or of the State of New
York, or of The Port Authority of New York and New Jersey, having a market value
of that amount, as security for the full, faithful and prompt performance of and
compliance with on the part of the Lessee of the covenants, terms and conditions
of an agreement of lease entered into with the Port Authority as of September 3,
1990 (hereinafter referred to as the "Other Agreement"), covering the premises
and identified as World Trade Center Lease Number WT-2839-B-21 (2113), on the
part of the Lessee to be fulfilled, kept, performed and observed all as provided
in Section 50 of the Other Agreement. The Other Agreement has been terminated by
the Lessee pursuant to the terms thereof. The Lessee and the Port Authority
hereby agree that the said sum, in cash or bonds, shall be retained by the Port
Authority (and the Lessee shall keep said sum deposited with the Port Authority
throughout the letting under this Agreement) as security for the full, faithful
and prompt performance of and compliance with, on the part of the Lessee, all of
the terms, provisions, covenants and conditions of this Agreement on its part to
be fulfilled, kept, performed or observed. Bonds qualifying for deposit
hereunder shall be in bearer form but if bonds of that issue were offered only
in registered form, then the Lessee may deposit such bonds or bonds in
registered form, provided, however, that the Port Authority shall be under no
obligation to accept such deposit of a bond in registered form unless such bond
has been re-registered in the name of the Port Authority (the expense of such
re-registration to be borne by the Lessee) in a manner satisfactory to the Port
Authority. The Lessee may request the Port Authority to accept a registered bond
in the Lessee's name and if acceptable to the Port Authority the Lessee shall
deposit such bond together with a bond power (and such other instruments or
other documents as the Port Authority may require) in form and substance
satisfactory to the Port Authority. In the event the deposit is returned to the
Lessee any expenses incurred by the Port Authority in re-registering a bond to
the name of the Lessee shall be borne by the Lessee. In addition to any and all
other remedies available to it, the Port Authority shall have the right, at its
option, at any time and from time to time, with or without notice, to use the
deposit or any part thereof in whole or partial satisfaction of any of its
claims or demands against the Lessee. There shall be no obligation on the Port
Authority to exercise such right and neither the existence of such right nor the
holding of the deposit itself shall cure any default or breach of this Agreement
on the part of the Lessee. With respect to any bonds deposited by the Lessee,
the Port Authority shall have the right, in order to satisfy any of its claims
or demands against the Lessee, to sell the same in whole or in part, at any
time, and from time to time, with or without prior notice at public or private
sale, all as determined by the Port Authority, together with the right to
purchase the same at such sale free of all claims, equities or rights of
redemption of the Lessee. The Lessee hereby waives all right to participate
therein and all right to prior notice or demand of the amount or amounts of the
claims or demands of the Port Authority against the Lessee. The proceeds of
every such sale shall be applied by the Port Authority first to the costs and
expenses of the sale (including but not limited to advertising or commission
expenses) and then to the amounts due the Port Authority from the Lessee. Any
balance remaining shall be retained in cash toward bringing the deposit to the
sum specified above. In the event that the Port Authority shall at any time or
times so sue the deposit, or any part thereof, or if bonds shall have been
deposited and the market value thereof shall have declined below the
<PAGE>
above-mentioned amount, the Lessee shall, on demand of the Port Authority and
within two (2) days thereafter, deposit with the Port Authority additional cash
or bonds so as to maintain the deposit at all times to the full amount above
stated, and such additional deposits shall be subject to all the conditions of
this Section. After the expiration or earlier termination of the letting under
this Agreement, as the said letting may have been extended, and upon condition
that the Lessee shall then be in no wise in default under any part of this
Agreement, as this Agreement may have been amended or extended (or both), and
upon written request therefor by the Lessee, the Port Authority will return the
deposit to the Lessee less the amount of any and all unpaid claims and demands
(including estimated damages) of the Port Authority by reason of any default or
breach by the Lessee of this Agreement or any part thereof. The Lessee agrees
that it will not assign or encumber the deposit. The Lessee may collect or
receive any interest or income earned on bonds and interest paid on cash
deposited in interest-bearing bank accounts, less any part thereof or amount
which the Port Authority is or may hereafter be entitled or authorized by law to
retain or to charge in connection therewith, whether as or in lieu of an
administrative expense, or custodial charge, or otherwise; provided, however,
that the Port Authority shall not be obligated by this provision to place or to
keep cash deposited hereunder in interest bearing bank accounts.
(b) For purposes of the provisions set forth in paragraph (a) above,
the Lessee hereby certifies that its I.R.S. Employer Identification No. is
38-1875507.
SECTION 51. Changes, Additions and Deletions to this Agreement
Prior to the execution of this Agreement by either of the parties
hereto the following changes, additions and deletions were made:
(a) The Lessee shall not be required by reason of the provisions of
Section 5(c) to make structural improvements, alterations or repairs to the
premises which are also required to be made with respect to office space
generally throughout the World Trade Center unless the requirement generally
throughout the World Trade Center results from particular operations of the
Lessee in the premises which are not common to other tenants at the World Trade
Center.
(b) The Port Authority hereby agrees to apply the Rules and Regulations
set forth in Exhibit R and any further rule or regulation hereafter promulgated
by the Port Authority suitably and without discrimination against the Lessee and
all other tenants in the Facility except to the extent that any such Rule or
Regulation may be inapplicable by agreement to the Lessee or any such tenant or
inapplicable to the Lessee or any such tenant by nature of the Lessee's or such
tenant's operations.
(c) With respect to the Lessee's obligations under Section 7(a) the
Lessee shall not be deemed in default thereunder for failure to control the
conduct, demeanor and appearance of its customers, guests, invitees and those
doing business with it if it has used its best efforts to control such conduct,
demeanor and appearance.
(d) Change reflected in Section 7.
(e) Change reflected in Section 7.
<PAGE>
(f) With respect to the provisions of Section 7(d), Schedule D attached
hereto and hereby made a part hereof sets forth the average designed floor load
for the premises but such specification of floor load shall not be deemed a
representation by the Port Authority that any particular location on such floors
will necessarily bear the load stated.
(g) (i) Subject to all the terms and provisions of this Agreement, and
notwithstanding the provisions of paragraph (e) of Section 7 and Rules 15 and
20, the Lessee may install kitchen facilities or other eating facilities in the
premises pursuant to an approved construction application therefor. In the event
the installation of such equipment shall require modifications or alterations to
building systems or equipment (including heating, ventilating or air-cooling
systems) and whether such modifications or installations thereof are performed
by the Lessee or by the Port Authority the Lessee shall be responsible for the
cost of such equipment, the installation thereof and such modifications or
alterations, and no such alteration or modification shall be commenced until the
Lessee has received an approved construction application therefor. The Port
Authority reserves the right from time to time to make additional charges to the
Lessee for any and all utilities or other building services used in connection
with any of the aforesaid equipment (other than cold water which the Lessee will
pay for pursuant to subdivision (ii) below) such charges to be those customarily
charged to other lessees in the Facility for similar utilities and services. The
Lessee has represented to the Port Authority that outside of its premises no
recognizable or measurable odors will result from its intended use of any such
equipment, and the Lessee covenants and agrees that upon notification from the
Port Authority that objectionable odors are emanating or resulting from the
Lessee's use of such equipment (whether through the building heating,
ventilating or air-cooling system or otherwise), the Lessee will immediately
discontinue the use of such equipment and shall not resume the use or operation
thereof until written consent therefor has been obtained from the Port
Authority. Nothing herein is intended to permit the furnishing on the premises
to the public of any food or other merchandise or any other service of any kind.
The Lessee's officers, employees and business invitees shall be permitted to
consume alcoholic beverages on the premises but nothing herein shall permit the
Lessee to sell or offer for sale alcoholic beverages at the premises.
(ii) The Port Authority will furnish cold water, of the
character furnished by the municipality or utility company supplying the same in
the vicinity, in reasonable quantities for use by the Lessee solely for purposes
described in subdivision (i) above through such fixtures and outlets as may be
installed by the Port Authority in accordance with the work letter and plans and
specifications referred to in paragraph (p) of this Section, the Lessee to pay
for the said cold water at the rate of Eight Hundred Sixty-one Dollars and
Ninety-six Cents ($861.96) per annum payable in advance in equal monthly
installments, provided, however, that the Port Authority at any time in Lieu of
charging for the said cold water at the foregoing annual rate may elect to
measure the quantities of such cold water supplied to the Lessee by a meter or
meters to be installed by the Port Authority for such purpose in which event the
Lessee shall pay to the Port Authority for the cold water as billed by the Port
Authority from time to time at the following rate: Thirty-three Dollars and
Thirty-two Cents ($33.32) per thousand cubic feet; the charges (whether on a
flat rate or metered basis) to be subject to increase form time to time by
reason of increase in rates charged to the Port Authority as provided in Section
42(f) of the Lease.
(iii) The furnishing of cold water by the Port Authority as
provided for herein shall be subject to all the terms, provisions and conditions
of the Lease, including but not limited to the provisions of Section 42 thereof.
<PAGE>
(h) The Lessee shall not be required by reason of the provisions of
paragraph (g) of Section 7 to make structural improvements, alterations or
repairs to the premises which are required generally throughout the World Trade
Center unless the requirement generally throughout the World Trade Center
results from particular operations of the Lessee in the premises which are not
common to other tenants at the World Trade Center.
(i) Change reflected in Section 7.
(j) Change reflected in Section 8.
(k) Change reflected in Section 8.
(l) Change reflected in Section 8.
(m) Change reflected in Section 9.
(n) In the event of damage to the premises under circumstances
described in paragraph (a)(2) of Section 9, the Port Authority shall advise the
Lessee within thirty (30) days after the occurrence of the damage which of the
options thereunder it elects to pursue, and if the Port Authority elects under
subdivision (i) of said paragraph (a)(2) to repair or rebuild the premises and
estimates that the repairs or rebuilding cannot be completed within two hundred
ten (210) days after the occurrence of the damage, the Port Authority shall so
notify the Lessee, which notification shall include the Port Authority's
estimate of the time required for such repairs or rebuilding, and thereafter the
Lessee shall have the right on thirty (30) days' notice to the Port Authority,
exercised with ten (10) days after the Lessee's receipt of notice from the Port
Authority respecting the duration of the repairs or rebuilding, to terminate the
letting under this Agreement, provided that a responsible officer of the Lessee
shall certify to the Port Authority that on an economic or operational basis the
premises are unusable by the Lessee for the operations described in Section 3 of
this Agreement prior to the substantial completion of the repairs or rebuilding
and provided further that the Lessee is not under notice of termination from the
Port Authority either on the date of the giving of its notice to the Port
Authority or on the effective date thereof. If, in the event of such damage, the
Port Authority shall have estimated that the necessary repair or rebuilding can
be completed within two hundred ten (210) days after the occurrence of the
damage and shall have elected under subdivision (i) of paragraph (a)(2) of
Section 9 to repair or rebuild the premises, and provided that the necessary
repairs or rebuilding are not completed by the Port Authority within the said
two hundred ten (210) day period, the Lessee shall have the right, on thirty
(30) days' notice to the Port Authority, exercised within ten (10) days after
the expiration of the said two hundred ten (210) day period, to terminate the
letting under this Agreement, provided that a responsible officer of the Lessee
shall certify to the Port Authority that on an economic and operational basis
the premises are not usable by the Lessee for the operations described in
Section 3 of this Agreement prior to substantial completion of the repairs or
rebuilding and provided further that the Lessee is not under notice of
termination from the Port Authority either on the date of the giving of its
notice to the Port Authority or on the effective date thereof. In the event of
termination pursuant to this provision, this Agreement and the letting hereunder
shall cease and expire on the effective date of termination stated in the notice
as if such date were the date originally stated herein for the expiration of
this Agreement. Termination by the Lessee pursuant to the provisions of this
paragraph shall not relieve either party hereto of any obligations or
liabilities which shall have accrued on or before the effective date of
termination stated in the notice, or which shall mature on such date.
<PAGE>
(o) (1) The Port Authority may employ any remedy or right of the Port
Authority set forth in this Agreement to recover amounts payable by the Lessee,
or to obtain the performance of obligations of the Lessee, arising or accruing
during the letting under the Other Agreement (as defined in Section 50 of this
Agreement), on the termination thereof or during the interim period, if any,
subsequent to the effective date of such termination and prior to the
commencement of the letting under this Agreement, and not paid, discharged or
performed prior to such commencement. Without limiting the generality of the
foregoing, the indemnity and agreement to hold harmless set forth in Section 11
of this Agreement shall also apply to claims and demands of third persons
against the Port Authority, its Commissioners, officers, agents and employees
arising out of the defaults, use or occupancy or acts or omissions set forth in
said Section 11 during the term of the letting under the Other Agreement as well
as during such interim period, if any.
(2) Change reflected in Section 11.
(p) The Lessee agrees to accept the premises in their "as is" condition
on the termination of the Other Agreement and the Port Authority shall have no
obligation under this Agreement for finishing work or preparation of the
premises for the Lessee's use except as may elsewhere be specifically provided
herein.
(q) Change reflected in Section 12.
(r) Change reflected in Section 12.
(s) Change reflected in Section 14.
(t) Change reflected in Section 15.
(u) Change reflected in Section 16.
(v) Change reflected in Section 16.
(w) Change reflected in Section 16.
(x) Change reflected in Section 16.
(y) Change reflected in Section 17.
(z) Change reflected in Section 20.
(aa) In the event the Port Authority installs in the premises a future
utility, mechanical, electrical, communication or other system and the Lessee as
a result of such future installation has to relocate operations from such
portion of the premises where such installation occurred to another portion of
the premises so as to give the Port Authority accessibility to such future
installation pursuant to the provisions of paragraph (c) of Section 7, then, in
such event, the Port Authority will pay to the Lessee its reasonable costs of
such relocation, including the cost of performing refinishing work.
(bb) Change reflected in Section 20.
(cc) Change reflected in Section 20.
(dd) Change reflected in Section 20.
(ee) Change reflected in Section 20.
<PAGE>
(ff) Change reflected in Section 20.
(gg) Change reflected in Section 20.
(hh) Change reflected in Section 20.
(ii) Change reflected in Section 26.
(jj) Change reflected in Section 28.
(kk) Change reflected in Section 30.
(ll) Change reflected in Section 32.
(mm) Change reflected in Section 33.
(nn) Change reflected in Section 36.
(oo) Section 37 was deleted in its entirety.
(pp) (Deleted)
(qq) Section 38 was deleted in its entirety.
(rr) The Lessee acknowledges that facilities for heat, ventilation and
air-cooling have heretofore been installed in the premises pursuant to a certain
design configuration for the premises and notwithstanding the provisions of
Section 42 of this Agreement, the Port Authority makes no representations that
such heat, ventilation and air-cooling shall maintain in the premises an even
and comfortable working temperature and in the event any alteration to such
facilities shall be required in order to maintain an even and comfortable
working temperature, the cost of the same shall be borne by the Lessee. Subject
to the provisions of the foregoing sentence, the Port Authority represents that
the design criteria and capacity of the heat, ventilation and air-cooling system
available to the Lessee in the premises are as set forth in Schedule D attached
hereto.
(ss) The words, "during the normal business hours" set forth in
paragraph (a)(2) of Section 42 were deleted but notwithstanding such deletion
the Port Authority will provide electricity for overhead lighting solely during
normal business hours and if the Lessee desires overhead lighting other than
during normal business hours the Lessee may request same from the Port Authority
and the Lessee will be required to pay the Port Authority an additional and
separate charge therefore pursuant to a rate schedule established by the Port
Authority as such rate schedule may be changed from time to time.
(tt) Change reflected in Section 42.
(uu) Change reflected in Section 42.
(vv) Change reflected in Section 42.
(ww) Change reflected in Section 42.
(xx) Change reflected in Section 42.
(yy) Change reflected in Section 42.
(zz) Section 43 was deleted in its entirety.
<PAGE>
(aaa) Change reflected in Section 45.
(bbb) Change reflected in Section 45.
(ccc) Change reflected in Section 46.
(ddd) Change reflected in Section 46.
(eee) Nothing in Rule 7 of the Rules and Regulations shall be construed
to prohibit the Lessee from conducting in the premises any of the operations or
activities set forth in Section 3 of the Lease.
(fff) Notwithstanding Rule 31, the Lessee shall only be obligated to
pay for the services it requests.
(ggg) Notwithstanding the provisions of Rule 23 of the Rules and
Regulations, the Lessee shall have no obligation to replace the existing World
Trade Center standard drapes on the exterior windows in the premises but may do
so at its own expense, using such draperies as the Port Authority may in its
discretion approve.
(hhh) Rule 35 shall be applicable to the Lessee's trash removal
obligations only to the extent that Schedule B is not applicable.
It shall not be necessary to physically make the aforesaid changes in the
aforesaid Sections of this Agreement.
SECTION 52. Entire Agreement
This Agreement consists of the following: pages 1 through 43,
inclusive, plus Exhibits A, R, X and Y and Schedules A, B and D.
It constitutes the entire agreement of the parties on the subject
matter hereof and may not be changed, modified, discharged or extended except by
written instrument duly executed by the Port Authority and the Lessee. The
Lessee agrees that no representation or warranties shall be binding upon the
Port Authority unless expressed in writing in this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed these presents as
of the day and year first above written.
THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY
ATTEST:
/s/Lysa Meduri By: /s/Robert E. Catlin
- -------------- --------------------
Lysa Meduri Robert E. Catlin
Secretary (Title) Acting Director
(Seal)
MATTHEWS & WRIGHT, INC.
ATTEST:
/s/Susan Forsyth By: /s/Roger J. Burns
- ---------------- -----------------
Susan Forsyth Roger J. Burns
Asst. Secretary (Title) 1st Vice President and Treasurer
(Corporate Seal)
<PAGE>
{GRAPHIC- DRAWING}
<PAGE>
WTC-OL-1082
SCHEDULE A
1. For the purposes of this Schedule A, the following provisions shall
apply:
(a) "Taxes" shall mean real estate taxes and assessments which
may be imposed from time to time by the United States of America, the
State of New York or any municipality or other governmental authority,
upon the Port Authority with respect to the buildings, structures,
facilities or land at the World Trade Center or with respect to the
rentals or income therefrom in lieu of or in addition to any tax or
assessment which would otherwise be a real estate tax or assessment and
taxes shall include any payments in lieu of real estate taxes or
assessments which may be agreed upon between the Port Authority and any
of the foregoing governmental authorities, other than payments in lieu
of taxes described in paragraph (b) below.
(b) "Payments in lieu of taxes" shall mean such payments as
the Port Authority has agreed to pay the City of New York under an
agreement dated 1967 as it may have been or may be hereafter
supplemented or amended (hereinafter called "the City Agreement").
(c) The "annual per renewable square foot factor" referred to
in this Schedule was initially fixed at $1.25 in the City agreement and
provision was made in paragraph 7(3) of the City Agreement for changes
therein from time to time to reflect changes in the tax rate and
changes in assessed valuations.
(d) "Tax base" shall mean the annual per rentable square foot
factor finally established to be the annual per rentable square foot
factor to be used in computing payments in lieu of taxes for the tax
year beginning July 1, 1996.
(e) "Tax year" shall mean the twelve-month period established
by The City of New York as a tax year for real estate tax purposes.
(f) "Wage rate" shall mean the cost for an hour's work by a
porter engaged to work a 40 hour work week in a Class A office building
in the City of New York which hourly cost shall be limited solely to
the hourly wage rate for porters as that rate is established from time
to time by collective bargaining agreement between the Realty Advisory
Board on Labor Relations, Incorporated, acting on behalf of various
building owners and Local 32B-32J, Service Employees International
Union, AFL-CIO, (which collective bargaining agreement is hereinafter
referred to as "the Contract"), plus a proper proportion of fringe
benefits and other payroll costs. As used herein:
(1) "Porter" or "porters" shall mean those employees
engaged in the general maintenance and operation of office
buildings and classified as "Others" by the Contract.
<PAGE>
(2) "Fringe benefits" shall mean the items of cost
which an employer would be obligated to pay or would incur
pursuant to the Contract on the basis of wages paid to a
porter engaged to work a 40 hour work week in Class A office
building in New York City who is entitled to receive on an
annual basis the maximum entitlement under the Contract,
including, without limitation, vacation allowances, sick
leave, holiday pay, birthdays, jury duty, medical checkup,
lunch time, relief time, other paid time off, bonuses, union
assessments allocable to pension plans and welfare and
training funds, and health, life, accident, or other such
types of insurance.
(3) "Other payroll costs" shall mean taxes payable
pursuant to law by an employer upon the basis of wages paid to
a porter engaged to work a 40 hour work week in a Class A
office building in New York City, including, without
limitation, F.I.C.A., New York State Unemployment Insurance
and Federal Unemployment Insurance.
If at any time during the term of the letting under the Lease
the Contract shall require regular employment of porters on days or
during hours when overtime or other premium pay rates are in effect
pursuant to the Contract the hourly wage rate for porters under the
Contract for the applicable period shall be determined by dividing the
weekly wage an employer would be obligated to pay a porter engaged to
work a 40 hour work week in a Class A office building in New York City
under the Contract by 40.
If either the Realty Advisory Board on Labor Relations,
Incorporated or Local 32B-32J, Service Employees International Union,
AFL-CIO shall cease to exist or a collective bargaining agreement shall
cease to be negotiated between the Realty Advisory Board on Labor
Relations, Incorporated and Local 32B-32J, Service Employees
International Union, AFL-CIO, or if the job classification "Others"
shall be renamed or abolished in any subsequent collective bargaining
agreement entered into between the Realty Advisory Board on Labor
Relations, Incorporated and Local 32B-32J, Service Employees
International Union, AFL-CIO, then the wage rate to be used in applying
the provisions of this Schedule shall be the wage rate for those
employees engaged in the general maintenance and operation of Class A
office buildings either pursuant to any subsequent collective
bargaining agreement between the Realty Advisory Board on Labor
Relations, Incorporated and Local 32B-32J, Service Employees
International Union, AFL-CIO, or if there is no such agreement, then
pursuant to such agreement as the Port Authority shall select.
(g) "Basic wage rate" shall mean the wage rate in effect on
January 1, 1996.
(h) "Rentable square feet in the premises" shall mean 7,183
square feet.
(i) "Lease" shall mean the agreement of lease to which this
schedule is attached.
<PAGE>
2. From and after each July 1, following the commencement date of the
letting under the Lease, the Lessee shall pay an additional basic rental under
the Lease at the annual rate computed by multiplying the rentable square feet in
the premises by the excess over the tax base of the total of: (i) the annual per
rentable square foot amount of taxes for the tax year beginning on that July 1;
and (ii) the annual per rentable square foot factor used in computing payments
in lieu of taxes for the tax year beginning on that July 1. If taxes become
payable on a basis other than an annual amount per rentable square foot, the
Port Authority will allocate those taxes to the rentable square feet of space in
the World trade Center and will notify the Lessee of the amount of such
allocation.
3. In addition to additional basic rental payable under paragraph 2
above, from and after the commencement date of the letting under the Lease, the
Lessee shall pay additional basic rental under the Lease at an annual rate equal
to $0.0075 for each $0.01, or major fraction thereof, that the wage rate in
effect on the commencement date of the letting and each wage rate thereafter
established form time to time during the term of the letting exceeds the basic
wage rate, multiplied by the rentable square feet in the premises.
4. If the imposition or allocation of taxes or the establishment of an
annual per rentable square foot factor to be used in computing payments in lieu
of taxes for any tax year or the establishment of a wage rate to be effective
for any period of time is delayed for any reason whatsoever, the Lessee shall
nevertheless continue to pay the additional basic rental at the annual rate then
in effect subject to retroactive adjustments at such times as the taxes are
imposed or allocated or the said per rentable square foot factor or wage rate
shall have been established.
5. After imposition and allocation of taxes for any tax year and the
establishment for each tax year of the annual per rentable square foot factor
used in computing payments in lieu of taxes and after the effective date of each
wage rate in excess of the basic wage rate, the Port Authority will compute the
annual rate or rates of additional basic rental payable by the Lessee under
paragraph 2 or 3 above and will notify the Lessee of the amounts thereof.
Additional basic rental accruing under paragraph 2 or 3 above shall be computed
separately and each amount thereof shall be payable by the Lessee to the Port
Authority in advance in monthly installments, each installment being equal to
1/12 of the annual rate except that if at the time the Port Authority gives
notice to the Lessee under this paragraph, additional basic rental shall have
accrued for a period prior to the notice, the Lessee shall pay such additional
basic rental in full for such period, within ten days after such notice.
<PAGE>
6. If after an amount of additional basic rental shall have been fixed
under paragraphs 2 or 3 above for any period, taxes are imposed or the amount of
taxes or the annual per rentable square foot factor in regard to payments in
lieu of taxes or the wage rate used for computing such additional basic rental
shall be changed or adjusted, then the additional basic rental payable for that
period shall be recomputed and from and after notification of the imposition,
change or adjustment, the Lessee shall make payments based upon the recomputed
additional basic rental and upon demand the Lessee shall pay any excess in
additional basic rental as recomputed over amounts of additional basic rental
heretofore actually paid. If such change or adjustment results in a reduction in
the amount of additional basic rental for any period prior to notification, the
Port Authority will credit the Lessee with the difference between the additional
basic rental as recomputed for that period and amounts of additional basic
rental actually paid.
/s/Robert E. Catlin
-------------------
For the Port Authority
/s/Roger J. Burns
-----------------
For the Lessee
<PAGE>
WTC-OL-RIS1589
SCHEDULE B
Routine Office Cleaning
Daily (Five days each week except Saturdays, Sundays, and Holidays
1. Empty and damp wipe ash trays, empty waste baskets. Transport
collected waste from normal daily office operations only to trash
handling areas and removal from the building. Collection and removal of
waste different from or in excess of that from normal daily office
operations is not included and shall be deemed additional cleaning
services and requested in accordance with the provisions of this
Schedule.
2. Dust horizontal surfaces of office furniture, equipment, ledges, and
sills.
3. Dust sweep vinyl asbestos floor and/or spot vacuum carpeted
surfaces, if any.
4. Clean and sanitize water fountains.
5. Damp wipe fingerprints, smears, smudges, etc., on door, wall and
partition surfaces.
Weekly (Once each week)
6. Dust vertical surfaces of office furniture and equipment.
7. Vacuum entire carpeted floor surfaces.
Quarterly (Once each three months)
8. Wash interior surfaces of exterior window glass.
9. Dust all pictures, frames, charts, graphs, and similar wall
hangings, plus partitions, doors, and door frame surfaces.
/s/Robert E. Catlin
-------------------
For the Port Authority
/s/Roger J. Burns
-----------------
For the Lessee
<PAGE>
SCHEDULE D
MATTHEWS & WRIGHT INC.
21st Floor - Two WTC
HEATING, VENTILATING AND AIR CONDITIONING SYSTEM
The HVAC system is of a dual system design incorporating a peripheral induction
unit system which supplies air within fifteen (15) feet distance measured
inboard from the exterior glass, and interior system which conditions the
balance of the floor area. The design basis are 4 watts/sq. ft., 100 sq.
ft./person. Each of the systems will deliver the following quantities subject to
a + 10% variance.
HVAC AIR SUPPLY QUANTITIES - PERIPHERAL SYSTEM
<TABLE>
<CAPTION>
NORTH WEST SOUTH EAST
UNIT TYPE, UNIT TYPE, UNIT TYPE, UNIT TYPE,
NO. OF UNITS/EXP., NO. OF UNITS/EXP., NO. OF UNITS/EXP., NO. OF UNITS/EXP.,
FLOOR CFM CFM CFM CFM
- ----- --- --- --- ---
<S> <C> <C> <C> <C>
21 9 (#4) 60 11 (#3) 50
21 1 (#5) 40 1 (#2) 35
</TABLE>
Induction units are spaced at the rate one (1) unit per two (2) windows average,
subject to verification of actual field conditions. Each unit delivers air of
approximately 60(degree)F utilizing water which in winter ranges between
80(degree)F to 130(degree)F as needed, and in summer at 60(degree)F average.
Supply air to induction units is constant with variable water temperature and
rate of flow.
HVAC AIR SUPPLY QUANTITIES - INTERIOR SYSTEM
<TABLE>
<CAPTION>
AVERAGE SUP.
QUADRANT NE NW SE SW AIR TEMP
FLOOR CFM CFM CFM CFM SUMMER - WINTER
----- --- --- --- --- ---------------
<S> <C> <C> <C> <C> <C>
21 2467 60(degree)F
</TABLE>
Interior supply air rate is .84 CFM per square foot. Air temperature is
controlled by zone thermostat at central air handling unit. Design is based on
one (1) person per 100 square feet and four (4) watts per square foot.
<PAGE>
WTC-CSL-101068 X
CONSENT TO SUBLEASE
Port Authority Lease No.
(said Lease being dated as of )
THIS AGREEMENT, made as of by and among THE PORT AUTHORITY
OF NEW YORK AND NEW JERSEY (hereinafter called "The Port Authority"), a body
corporate and politic, created by Compact between the States of New Jersey and
New York, with the consent of the Congress of the United States of America and
having an office at One World Trade Center, in the Borough of Manhattan, City,
County and State of New York, and (hereinafter called "the Lessee"), and
(hereinafter called "the sublessee"), whose representative is
WITNESSETH, That:
WHEREAS, the Port Authority and the Lessee have entered into a Lease
identified above by Port Authority Lease Number and by date and covering
premises at the World Trade Center in the Borough of Manhattan, City, County and
State of New York (which lease, as the same may have been or may hereafter by
supplemented and amended is hereinafter called "the Lease"); and
WHEREAS, the Lessee has requested the consent of the Port Authority to
a proposed sublease, a copy of which is attached hereto and made a part hereof
and is hereinafter called "the Sublease";
NOW, THEREFORE, for and in consideration of the covenants and mutual
agreements herein contained, the Port Authority, the Lessee and the Sublessee
hereby agree as follows:
1. On the terms and conditions hereinafter set forth the Port Authority
consents to the Sublease.
2. The Sublease shall terminate and expire, without notice to the
Sublessee, on the day preceding the date of expiration or earlier termination of
the Lease, or on such earlier date as the Lessee and Sublessee may agree upon or
on the effective date of any revocation of this Consent by the Port Authority.
The Sublessee shall quit the subleased premises and remove its property and
property for which it is responsible therefrom on or before the termination or
expiration of the Sublease.
3. If the Lessee shall at any time be in default under the Lease, the
Sublessee shall on demand of the Port Authority pay directly to the Port
Authority any rental, fee or other amount due to the Lessee. No such payment
shall relieve the Lessee from any obligations under the Lease or under this
Consent or affect the Port Authority's rights or remedies thereunder but all
such payments shall be credited against the obligations of the Lessee or of the
Sublessee, as the Port Authority may determine, for each payment or part
thereof.
<PAGE>
4. In any case of difference between the provisions of the Lease or of
this Consent and the provisions of the Sublease, the provisions of the Lease or
of this Consent, as the case may be, shall be controlling, it being the
intention of the Port Authority merely to permit the exercise of the Lessee's
rights (to the extent permitted by the Sublease) by the Sublessee, and not to
enlarge or otherwise change the rights granted by the Lease. All of the terms,
provisions and conditions of the Lease shall be and remain in full force and
effect.
5. The Sublessee, in its operations under or in connection with the
Sublease and its occupancy of the premises, agrees to assume, observe, be bound
by and comply with all the terms, provisions, covenants and conditions of the
Lease. Without limiting the generality of the foregoing, the Sublessee shall use
the premises for the purposes set forth in Section 3 of the Lease and for no
other purpose whatsoever.
6. Without in any wise affecting the obligations of the Lessee under
the Lease and under this Consent, the Sublessee agrees with respect to its acts
and omissions to indemnify the Port Authority and to make repairs and
replacements as if it were the Lessee under the Lease. However, all acts and
omissions of the Sublessee shall be deemed to be acts and omissions of the
Lessee under the Lease and the Lessee shall also be severally responsible
therefor, including but not limited to the obligations of indemnification and
repair.
7. In addition to all other remedies available to the Port Authority
under the Lease or otherwise, this Consent may be revoked by the Port Authority
by notice to the Lessee and the Sublessee in the event of any breach by the
Sublessee of any term or provision of the Lease or of this Consent and no such
revocation shall be deemed to affect the Lease or the continuance thereof. Any
notice given to the Sublessee shall be sufficient if given in accordance with
the Section of the Lease entitled "Notices," for the purpose of which the
Sublessee hereby designates the person named as representative on the first page
hereof as its officer or representative upon whom notices may be served and the
Sublessee designates its office at the address stated on the first page hereof
as the office where such notices may be served.
8. The Lessee and Sublessee represent and warrant that the attached
Sublease sets forth the full and entire rental or other consideration payable to
the Lessee by the Sublessee for or in connection with the subletting hereunder
or use or occupancy of the subleased space and they further represent and
warrant that there is no rental or consideration other than as stipulated in the
attached Sublease.
9. The granting of this Consent by the Port Authority shall not be or
be deemed to operate as a waiver of the requirement for consent to any
subsequent subletting (by the Lessee or by the Sublessee) or to any assignment
of the Lease or the Sublease or of any rights under either of them, whether in
whole or in part.
10. References herein to the Sublessee shall mean and include the
Sublessee, its officers, agents, employees and also others on the premises or
the Facility with the consent of the Sublessee.
11. Neither the Commissioners of the Port Authority nor any of them,
nor any officer, agent or employee thereof shall be held personally liable to
the Lessee or to the Sublessee under any term or provision of this Consent or
because of its execution or because of any breach or alleged breach thereof.
<PAGE>
IN WITNESS WHEREOF, the Port Authority, the Lessee and the Sublessee
have executed these presents.
ATTEST: THE PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
___________________________ By__________________________________
(Title) ____________________________
(Seal)
ATTEST: ____________________________________
Lessee
___________________________ By__________________________________
(Title) ____________________________
(Corporate Seal)
ATTEST: ____________________________________
Sublessee
___________________________ By__________________________________
(Title) ____________________________
(Corporate Seal)
<PAGE>
FORM CSL; ACK. N.Y., Corp. & Ind.
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the day of , 19 . before me
personally came to me known,
who, being by me duly sworn, did depose and say that he resides in
; that he is
of The Port
Authority of New York and New Jersey, one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of the said
corporation; that the seal affixed to the said instrument is such corporate
seal; that it was so affixed by order of the Board of Commissioners of the said
corporation; and that he signed his name thereto by like order.
-----------------------------------
(notarial seal and stamp)
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the day of , 19 . before me
personally came to me known,
who, being by me duly sworn, did depose and say that he resides at
; that he is
of
the corporation described in, and which executed the foregoing
instrument; that he knows the seal of the said corporation; that the seal
affixed to the said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of the said corporation; and that he signed his
name thereto by like order.
------------------------------------
(notarial seal and stamp)
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the day of , 19 . before me
personally came to me known,
and known to me to be the individual described in and who executed the foregoing
instrument, and
acknowledged to me that (s)he executed the same.
------------------------------------
(notarial seal and stamp)
<PAGE>
FORM EWT-OL - Assignment, all Facilities
82773
ASSIGNMENT OF LEASE
WITH ASSUMPTION AND CONSENT (Lease No. )
THIS AGREEMENT, made as of by THE PORT AUTHORITY OF NEW
YORK AND NEW JERSEY (hereinafter called "the Port Authority"), a body corporate
and politic created by Compact between the States of New York and New Jersey,
with the consent of the Congress of the United States of America, having an
office for the transaction of business at One World Trade Center, in the Borough
of Manhattan, in the City, County and State of New York, and
(hereinafter called "the Assignor"),
a corporation organized and existing under the laws of the State of
with an office for the transaction of business at
an individual, residing at
a partnership, consisting of
and
(hereinafter called "the Assignee"),
a corporation organized and existing under the laws of the State of
with an office for the transaction of business at
an individual, residing at
a partnership, consisting of
the representative of which is
WITNESSETH, THAT:
WHEREAS, the Assignor desires to assign to the Assignee that certain
Agreement of Lease dated as of , 19 , made by and between The
Port Authority and the Assignor, and hereinafter, as the same has been
heretofore amended and extended, called "the Lease";
<PAGE>
FORM EWT - Assignment
10/13/70
covering premises at
WHEREAS, the Port Authority is willing to consent to such assignment on
certain terms, provisions, covenants and conditions:
NOW, THEREFORE, in consideration of the covenants and mutual promises
herein contained, the Port Authority, the Assignor and the Assignee hereby agree
as follows:
1. The Assignor does hereby assign, transfer and set over to the
Assignee, heirs, executor, administrators and successors to and their
own proper use, benefit and behoof forever, the Lease, to have and to
hold the same unto the Assignee heirs, executors, administrators and
successors from the day of , 19 , for and during all the
rest, residue, and remainder of the term of the letting under the
Lease, subject nevertheless to all the terms, provisions, covenants and
conditions therein contained; and the Assignor does hereby assign,
transfer and set over unto the Assignee heirs, executors,
administrators and successors, all right, title and interest of the
Assignor in and to a certain deposit (whether of cash or bonds) in the
amount of made by the Assignor with the Port Authority, as security for
the performance of the terms, provisions, covenants and conditions of
the Lease, but subject to the provisions of the Lease and to any claim
or right to the said deposit or any part thereof heretofore or
hereafter made or to be made on the part of the Port Authority.
2. The Port Authority hereby consents to the foregoing assignment.
Notwithstanding anything herein to the contrary, the granting of such
consent by the Port Authority shall not be, or be deemed to operate as,
a waiver of the requirement for consent or consents to each and every
subsequent assignment by the Assignee or by any subsequent assignee,
nor shall the Assignor be relieved of liability under the terms,
provisions, covenants and conditions of the Lease by reason of this
consent of the Port Authority or of one or more other consents to one
or more other assignments thereof.
3. The Assignor agrees that this assignment of the Lease and this
consent of the Port Authority thereto shall not in any way whatsoever
affect or impair the liability of the Assignor to perform all the
terms, provisions, covenants and conditions, including without
limitation thereto the obligation to pay rent, of the Lease on the part
of the Lessee or tenant thereunder to be performed, and that the
Assignor shall continue fully liable for the performance of all the
terms, provisions, covenants and conditions, including without
limitation thereto the obligation to pay rent, on the part of the
Lessee or tenant thereunder to be performed.
<PAGE>
FORM EWT-OL-Assignment,
32679
4. The Assignee does hereby assume the performance of and does hereby
agree to perform, observe and be subject to, all the terms, provisions,
covenants and conditions, including without limitation thereto the
obligation to pay rent, contained in the Lease, which were or are to be
performed or observed by or are applicable to the Lessee thereunder, as
though the Assignee were the original signatory to the Lease. Without
limiting the foregoing, as an inducement to the Port Authority to
consent to this assignment, the Assignee has agreed to all the
provisions of Section 7(h) and has made the same representations
required of the Lessee under Section 7(h) and the Assignee hereby
covenants and agrees that the Assignee will use the premises solely for
the purpose set forth in Section 3 of the Lease and that such use shall
be subject to the provisions of Section 7(h) of the Lease. The
execution of this instrument by the Port Authority does not constitute
a representation by it that the Assignor has performed or fulfilled
every obligation required by the Lease; and as to such matters the
Assignee agrees to rely solely upon the representations of the
Assignor.
5. Neither the Commissioners of the Port Authority nor any of them, nor
any officer, agent or employee thereof, shall be charged personally by
the Assignor or by the Assignee with any liability or held liable to
either of them under any term or provision of this Agreement, or
because of its execution or attempted execution, or because of any
breach or attempted or alleged breach thereof.
IN WITNESS WHEREOF, the Port Authority, the Assignor and the Assignee
have executed these presents as of the date first hereinabove set forth.
ASSIGNOR:
___________________________________
ATTEST: By___________________________________
________________________________ (Title)______________________________
(Seal)
ASSIGNEE:
___________________________________
ATTEST: By___________________________________
________________________________ (Title)______________________________
(Seal)
WITNESS:
________________________________ _______________________________(L.S.)
WITNESS:
________________________________ _______________________________(L.S.)
<PAGE>
THE PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
__________________________________
ATTEST: By___________________________________
________________________________ (Title)______________________________
(Seal)
<PAGE>
FORM EWT - Assignment
10/13/70
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the day of , 19 , before me came to me known, who,
being by me duly sworn, did depose and say that he resides at that he is the of
the PORT OF NEW YORK AUTHORITY, the corporation described in, and which executed
the foregoing instrument; that he knows the seal of the said corporation; that
the seal affixed to the said instrument is such corporate seal; that it was so
affixed by order of the Commissioners of the said corporation; and that he
signed his name thereto by like order.
------------------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the day of , 19 , before me personally came to me
known, who, being by me duly sworn, did depose and say that he resides at that
he is the of the corporation described in, and which executed the foregoing
instrument; that he knows the seal of the said corporation; that the seal
affixed to the said instrument is such corporate seal; that it was so affixed by
order of the Board or Directors of the said corporation; and that he signed his
name thereto by like order.
------------------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the day of , 19 , before me personally came to me
known, who, being by me duly sworn, did depose and say that he resides at that
he is the of the corporation described in, and which executed the foregoing
instrument; that he knows the seal of the said corporation; that the seal
affixed to the said instrument is such corporate seal; that it was so affixed by
order of the Board or Directors of the said corporation; and that he signed his
name thereto by like order.
------------------------------
<PAGE>
EXHIBIT R
RULES AND REGULATIONS
FOR THE WORLD TRADE CENTER
1. Permission granted to use World Trade Center conditional. Permission
granted by the Port Authority directly or indirectly, expressly or by
implication, to any person or persons, to enter upon or use any part of the
World Trade Center (including lessees and other persons occupying or using space
at the World Trade Center, persons doing business with the Port Authority or
with its lessees or permittees, and all other persons whatsoever whether or not
of the type indicated), is conditioned upon compliance with the Port Authority
Rules and Regulations as from time to time may be changed; and entry upon or
into the World Trade Center by any person shall be deemed to constitute an
agreement by such person to comply with said Rules and Regulations.
2. The Manager of the World Trade Center shall have authority to deny
the use of the World Trade Center to any person violating the said Rules and
Regulations or laws, ordinances or regulations of the United States, the State
of New York or the City of New York.
3. Entry restrictions. Persons shall use the common areas and
facilities in the World Trade Center solely for purposes of ingress and egress,
and no person shall cause any obstruction of or loiter in any such common area
or facility. No person shall interfere with the safe, orderly flow of vehicular
or passenger traffic. No person shall be permitted to sleep, lie down or sit on
the floor, ledges, platforms, steps or escalators nor erect any unauthorized
permanent or temporary structure at the World Trade Center without the express
written permission of the Manager. In addition, no person shall spit, urinate or
defecate on any part of the World Trade Center other than in a urinal or toilet
intended for that purpose. No person shall enter upon any court or roof area or
parking area unless specifically so authorized by lease, permit, license or
other agreement with the Port Authority. The Port Authority may exclude from
buildings at the World Trade Center, between the hours of 6 p.m. and 8 a.m. and
at all hours on Saturday, Sundays and legal holidays, all persons who do not
present a pass to the World Trade Center. All such passes shall be in such form
as the Manager of the World Trade Center may prescribe from time to time and no
person shall issue passes unless authorized in writing by the Manager to do so.
Any area barricaded, roped off or otherwise restricted, shall be presumed to be
closed to the public, and members of the public are prohibited from entering
said areas without the express permission of the Manager or his designee.
Furthermore, if the Port Authority deems it advisable for security reasons,
occupants of space at the World Trade Center and persons frequently doing
business there shall provide, and their employees shall wear or carry, badges or
other suitable means of identification which shall be subject to the prior
approval of the Port Authority. Each person responsible for issuance of a pass
or other means of identification to another person shall be liable to the Port
Authority for all acts or omissions of such other persons.
4. No person shall gamble or conduct or engage in any game of chance at
the World Trade Center unless such game of chance is permitted by local, state
and federal law and has been approved by the Manager.
5. No person may for commercial use make drawings or take still
photographs or motion pictures within the World Trade Center without permission
of the Manager.
<PAGE>
6. No persons other than authorized persons or employees of the Port
Authority in designated areas shall bathe, shower, shave, launder or change
clothes or remain undressed in any public restroom, sink, washroom on or within
the World Trade Center.
7. Authorization required for commercial activity, entertainment or
solicitation of funds. No person at the World Trade Center, unless duly
authorized in writing by the Port Authority, shall: (a) sell, or offer for sale
any articles of merchandise or carry on any other commercial activity; or (b)
solicit any business or trade, or perform or offer to perform any service,
including without limitation thereto the carrying of baggage for hire, the
shining of shoes or bootblacking; or (c) entertain or offer to entertain any
persons by any method including, without limitation thereto, by singing, dancing
or playing any musical instrument; or (d) canvass, peddle, or solicit funds for
any purpose.
8. Alcoholic Beverage Restrictions. No person shall drink or carry any
open alcoholic beverage on any part of the World Trade Center, provided,
however, that this section shall not apply to those premises or areas wherein
the consumption of alcoholic beverages is permitted pursuant to the provisions
of a lease or other written agreement with the Port Authority.
9. Permission required for posting or distribution of printed matter,
etc. No person shall post, distribute, exhibit, inscribe, paint or affix (nor
shall any person cause, direct or order the posting, distributing, exhibiting,
inscribing, painting or affixing of) signs, advertisements, circulars, notices,
posters, or printed or written or pictorial matter or articles or objects of any
kind at, in, on or to any part of the common areas and facilities of the World
Trade Center without the prior written consent of the Manager of the World Trade
Center. In the event of the violation of the foregoing, the Port Authority may
remove the same without any liability, and may charge the expense and cost
incurred for such removal to the person or persons violating this rule.
10. Property Damage. No person shall deface, mark, break or otherwise
damage any part of the World Trade Center or any property thereat. No person
shall remove, alter or deface any barricade, fence or sign at the World Trade
Center.
11. All persons at the World Trade Center shall exercise the utmost
care to avoid and prevent injury to persons and damage to property. Neither any
inclusion in nor any omission from these Rules and Regulations shall be
construed to relieve any person from exercising the utmost care to avoid and
prevent injury to persons and damage to property.
12. Lost articles to be turned over to Port Authority. Persons finding
lost articles at the World Trade Center shall turn them over to a Port Authority
policeman or to the office of the Manager. Articles which are not claimed by the
owner within 90 days may be turned over to the finders thereof, unless found by
Port Authority employees.
13. Animals and pets, barred, exception. No person except a police
officer or other person authorized by the Manager of the World Trade Center
shall enter in or upon the World Trade Center with any animal or pet of any kind
except a "seeing eye" dog or an animal properly confined for shipment.
<PAGE>
14. Requests for Port Authority employees to perform work or services
to be directed to Manager. No person shall request any Port Authority employee
to do any work or perform any service, but shall make all such requests to the
Manager of the World Trade Center who may not comply with the request unless the
person making the request is entitled to receive the service at the time the
request is made under written agreement with the Port Authority, and each person
claiming to be so entitled shall make known such fact to the Manager when the
request is made.
15. Smoking, operation of cutting torches and like devices restricted.
No person shall smoke or carry lighted cigars, cigarettes, pipes, matches or any
naked flame in any place where smoking is specifically prohibited by signs, and
no person shall operate at the World Trade Center an oxyacetylene torch,
electric arc or similar flame or spark-producing device, cook or light a fire or
otherwise create a fire or life/safety hazard on any part of the World Trade
Center. No person shall tamper with or permit to be done anything which may
interfere with the effectiveness or accessibility of any fire prevention,
warning or extinguisher equipment at the World Trade Center nor use the same for
any purpose other than fire fighting or fire prevention. Tags showing date of
last inspection attached to units of fire extinguishing and fire fighting
equipment shall not be removed therefrom.
16. Transportation, storage, etc. of certain materials and substances
prohibited. No person shall store, keep, carry, handle, use, dispense or
transport at, in or upon the World Trade Center, or bring into the World Trade
Center for any purpose:
(a) any flammable, combustible, explosive, corrosive, oxidizing,
poisonous, compressed or otherwise offensive fluid, gas, chemical substance or
material, at such time or place or in such manner or condition as to endanger
unreasonably or as to be likely to endanger unreasonably persons or property; or
(b) any firearms or any other weapons, except persons carrying firearms
pursuant to and in compliance with law and all licenses, permits, etc. in
connection therewith including such of the following as may be on official duty:
authorized peace officers, post office, customs or express carrier employees or
members of the armed forces of the United States: or
(c) the following radioactive materials:
(1) source material (as defined in Standards for Protection
Against Radiation, promulgated by the Nuclear Regulatory Commission,
Title 10, Code of Federal Regulations, Part 20) including but not
limited to uranium, thorium, or any combination thereof (but not
including the "unimportant quantities of source material" set forth in
10CFR 40.13);
(2) special nuclear material (as defined in Standards for
Protection Against Radiation, promulgated by the Nuclear Regulatory
Commission, Title 10. Code of Federal Regulations, Part 20) including,
but not limited to, plutonium, uranium 233, uranium enriched in the
isotope 233 or in the isotope 235, or any material artificially
enriched by any of the foregoing:
(3) nuclear reactor fuel elements that are partially expended
or irradiated;
(4) new nuclear reactor fuel elements;
<PAGE>
(5) radioactive waste material; or
(6) any radioactive material moving under an Interstate
Commerce Commission special permit or Nuclear Regulatory Commission
permit and escort.
17. Tampering with controls, equipment, etc. prohibited. No person
shall tamper with or permit it to be done anything which may interfere with the
effectiveness or accessibility of any World Trade Center controls, machinery or
equipment including without limitation thereto thermostats, heater valves,
sprinkler valves and devices, or blower motors, and no person shall turn on or
off heating or air cooling controls in the World Trade Center or operate, adjust
or otherwise handle or manipulate any of the aforesaid systems or portions
thereof or operate any other equipment, machinery or other devices installed or
located therein unless expressly authorized in writing by the Port Authority to
do so.
18. Overloading of utility, mechanical, etc., systems prohibited. No
person shall keep, maintain, place or install, use or connect at the World Trade
Center any equipment or engage in any activity or operation at the World Trade
Center which will cause or tend to cause an overloading of the capacity of any
electrical circuit or system or portion of any other utility, mechanical,
electrical, electronic, computerized communication or other systems serving the
World Trade Center, nor do or permit to be done anything which may interfere
with the effectiveness or accessibility of existing and future utility,
mechanical, electrical, electronic, computerized communication or other systems
or portions thereof at the World Trade Center. No person shall in any common
area plug a TV, radio or electrical device into any electrical outlet or connect
any device to any utility at or in the World Trade Center without the express
written approval of the Manager.
19. Obstruction of expansion or contraction joints prohibited. No
person shall place any furniture, machine or equipment over any expansion or
contraction joint unless one end of such furniture, machine or equipment is free
to permit expansion or contraction.
20. Permission required for installations or operation of certain
equipment. No person shall install or use at the World Trade Center, except with
the prior written consent of the Manager of the World Trade Center, any air
conditioning unit or equipment, refrigerator, heating or cooking apparatus or
other power-activated equipment or any signal or call system or other
communication systems or equipment or any device which connects to the power or
other lines for signal or communications or other transmissions in any way
whatsoever. No person shall install or operate at the World Trade Center any
device which may in the Port Authority's opinion interfere with or impair any
radio, television or telephone transmission or reception or any other
communication service.
21. Permission required to lay floor covering. No person shall lay any
linoleum, floor tile, carpeting or any other affixed floor covering at the World
Trade Center without the prior written consent of the Manager of the World Trade
Center, and if such consent is given, such directions as the Port Authority may
give as to methods and procedures to be used in the laying and installing of any
such floor covering shall be followed.
<PAGE>
22. Locks and keys. No person shall place any additional lock of any
kind upon any window or interior or exterior door without the prior written
consent of the Manager and unless a key thereof is delivered to the Port
Authority, nor make any change in any door or window lock or the mechanism
thereof, except with the prior written consent of the Manager. Upon the
expiration or sooner termination of any agreement covering occupancy of space,
the occupant shall surrender to the Port Authority any and all keys to interior
and exterior doors or windows, whether said keys were furnished to or were
otherwise procured by occupants and in the event of the loss of any keys
furnished by the Port Authority the occupant shall pay to the Port Authority the
Port Authority's cost of replacement thereof.
23. Obstruction of light, air, heat, passage, etc. prohibited. No
person shall obstruct or permit the obstruction of light, air or passage in the
World Trade Center, or cover or obstruct any elements of the heating,
ventilating or air cooling systems therein. In addition, no person shall place
any window coverings including without limitation thereto, curtains, blinds,
shades, draperies or screens on any exterior window, without the prior written
consent of the Manager of the World Trade Center, but all occupants of space
shall provide and install, at their expense, such draperies as the Port
Authority may in its discretion require or approve, and all occupants of space
shall keep the draperies closed whenever the sun is shining on the windows.
24. Approval required for certain service contracts. No person shall
purchase or contract for spring water, ice, waxing, rug shampooing, draperies,
towels, cleaning, glass washing, furniture polishing, lamp servicing, cleaning
of electric fixtures, removal of waste paper, rubbish and garbage, or other like
services at the World Trade Center except from contractors, companies or persons
approved by the Port Authority.
25. Measures required to eliminate damaging vibrations. All persons in
their operations and use of space at the World Trade Center shall take all
reasonable measures to eliminate vibrations tending to damage any part of the
World Trade Center.
26. Objectionable noise prohibited. No person shall make, continue,
cause or permit to be made or continued, any objectionable or disturbing noises
or disturb or interfere with occupants of the World Trade Center or neighboring
buildings or premises, whether by the use of any loudspeaker or other amplifying
device, musical instrument, radio, talking machine, television, unmusical noise,
whistling, singing, or in any other way. Nothing in this section shall affect
the right of the Port Authority in its sole discretion to authorize commercial
activity, entertainment or solicitation of funds.
27. Acts or omissions resulting in filing of liens prohibited. No
person shall do or omit it to do anything which may be grounds for the filing of
any mechanic's or other lien against the World Trade Center or any part thereof.
Nothing herein shall be deemed to be a consent by the Port Authority to any such
lien or the filing thereof or any implication that such lien would be valid or
enforceable against the Port Authority or its property, but if such lien is
filed, notwithstanding that it may be groundless or unenforceable, the Port
Authority may take such steps as may be required to remove it including payment
of any debts alleged to be owed by any person and such person shall pay the Port
Authority the Port Authority's cost thereof upon demand.
<PAGE>
28. Names of persons to be notified in event of emergency to be filed.
Each occupant of space at the World Trade Center shall file with the Port
Authority the name, address, and telephone number of at least two authorized
representatives to be notified in the event of an emergency.
29. Doors, windows to be locked and utility services turned off upon
leaving. All occupants of space at the World Trade Center shall before leaving
the same at any time, close and lock all entrance doors therein and turn off all
utility services controllable by the occupant.
30. Use of premises for lodging, sleeping or immoral purposes
prohibited. No occupant of space at the World Trade Center shall use the same
for lodging or sleeping purposes or for any immoral purposes.
31. Use of premises during other than normal business hours. When an
occupant of space at the World Trade Center intends to occupy the space during
hours other than normal business hours, the occupants shall make a request, in
writing, for such of those services which the occupant is entitled to receive
during normal business hours as the occupant may desire during hours other than
normal business hours, each such request to be made by 4 p.m. of the last
business day before each day during which the services are desired. Such
services will be provided and paid for by the occupant in accordance with the
schedule of rates established by the Port Authority from time to time and the
occupant agrees that the Port Authority has made no representations or
warranties that the premises will be habitable or usable by the occupant during
other than normal business hours unless the aforesaid services are requested in
advance by the occupant. An occupant of any space at the World Trade Center
shall advise the Manager of the World Trade Center one day in advance of any
occasion when the space he occupies will not be occupied during normal business
hours because of vacations or special holidays.
32. Sidewalks, open areas, etc. to be kept free from snow, ice, dirt
and rubbish. All persons occupying at the World Trade Center any space which has
an entrance or exit opening out on a sidewalk or other open area, shall keep all
sidewalks, open areas, curbs, lobbies, vestibules and steps adjacent to such
space free from snow, ice, dirt and rubbish.
33. Abandonment of property prohibited. No person shall abandon any
property at the World Trade Center. Nor shall any person for himself, herself or
another store either temporarily or permanently any personal property at any
part of the World Trade Center without the approval of the Manager of the World
Trade Center. No person shall store bundles, paper, cloth, cardboard or any
other material in solid, liquid or gas form that could in any way pose a fire or
life/safety hazard or obstruct or hinder passage without the express, written
approval of the Manager.
34. Accumulation and disposal of garbage, debris, waste, etc.
restricted. No person shall allow any garbage, debris, or other waste materials
(whether solid or liquid) to collect or accumulate at the World Trade Center and
each person shall be responsible for the removal from the World Trade Center of
all garbage, debris and other waste materials (whether solid or liquid) arising
out of that person's operations or occupancy or use of space at the World Trade
Center. All persons shall use extreme care when effecting removal of all such
waste and in no event shall any person use for such purpose any facilities of
the Port Authority without the prior consent in writing of the Manager of the
World Trade Center. All persons shall effect such removal only during such hours
<PAGE>
and by such means as are prescribed by the Manager of the World Trade Center. No
person shall use the water closets, wash bowls or other plumbing fixtures for
any purposes other than those for which they were designed, and no person shall
throw therein any improper articles or substances (whether liquid or solid)
including without limitation thereto garbage, refuse, sweepings, rubbish, rags,
ashes or litter. No person shall drop or throw anything out of the doors,
windows or down the passageways or into any ventilating or elevator shaftway,
stairwell or other openings. The cost of correcting any condition or repairing
any damage resulting from misuse of fixtures or facilities or from other actions
prohibited herein shall be borne by the persons who, or whose officers,
employees, representatives, agents, contractors or invitees, have caused the
same.
35. Trash Removal. All persons at the World Trade Center are
responsible for providing for their own trash removal to a compactor provided by
the Manager for this purpose. No other method of trash disposal is permitted
without the express written consent of the Manager.
36. Movement of inventory, supplies, equipment, furnishings, etc.
restricted. No person shall move inventory, merchandise, supplies or materials,
fixtures, equipment, furnishings or bulky articles of any kind, including
without limiting the generality thereof, desks, chairs, tables, safes, cabinets,
shelves, business machines, fans or floor coverings, to or from any space at the
World Trade Center except with the prior written consent of the Manger of the
World Trade Center and during such hours on such days as may be prescribed by
the Manager of the World Trade Center. In no event will consent be given unless
the person employed or under contract to perform such moving is competent and
responsible and at least 24 hours' notice of the person's desire to have such
moving performed has been given in writing to the Manger of the World Trade
Center. No person shall use hand trucks in the passenger elevators or shall use
the passenger elevators to transport freight or bulky packages of any type
without the written consent of the Manager of the World Trade Center.
37. Right reserved to inspect freight, articles, packages, etc. brought
in or out. The Port Authority reserves the right to inspect all freight and
other articles including hand-carried packages brought into or out of the World
Trade Center and to exclude therefrom all articles which violate any of these
Rules and Regulations, and to require the occupants of space and others
regularly doing business at the World Trade Center to issue package passes (in
such form as may be approved by the Port Authority) for packages being carried
to or from, or from one location to another within the World Trade Center.
38. Elevator service.
(a) Non-exclusive automatic passenger elevator service will be operated
during normal business hours.
(b) Minimal passenger elevator service will be available at times other
than normal business hours for persons who may have business in the World Trade
Center during such times and whose presence in the World Trade Center is duly
authorized in the manner the Port Authority prescribes.
(c) Freight elevators and truck docks will be available for routine
movements during normal business hours. Notice must be given within normal
business hours to the Manager of the World Trade Center at least 24 hours in
advance in the event freight elevator service is desired which cannot be
accommodated as a routine movement or during normal business hours. The person
<PAGE>
requesting the same will pay the cost for this extra freight elevator service in
accordance with the schedule of rates established by the Port Authority from
time to time. Persons for whose account property is being delivered or picked up
at the truck docks shall arrange for such delivery or pick-up to be made only at
such place or places as may be designated by the Port Authority for such
purposes and shall arrange for the handling and movement of the property in such
a way that it will be removed from the truck docks immediately upon its arrival
there, and such persons shall not allow any property to be placed or transported
at any time in any common area or facility at the World Trade Center unless the
area or facility is one which the Manager has designated as a proper area or
facility for that type of property or transportation or to remain therein for a
longer time than is necessary to transport it to its destination. The Port
Authority will not be responsible for the custody, security, handling or
movement of property while at the truck docks or on the freight elevators or
while en route to or from either of the same and the person for whose account
property is being delivered or picked up at the truck docks or is being
transported on, to or from freight elevators shall make all arrangements for
loading, unloading, handling and movement of the property and its security,
including keeping the property attended at all times. Property may be moved
within the World Trade Center solely by suitable vehicles of the indoor
industrial wheeler type with rubber tire and side guards and by way of such
routes as the Manager may designate from time to time.
39. Operation of elevators by persons other than Port Authority
employees prohibited. No person other than employees of the Port Authority, or
their designees, shall operate any freight elevator or passenger elevator
(except for the operation in automatic passenger elevators of such controls as
are designed for use by passengers) at the World Trade Center.
40. Use of elevator, escalators and loading docks restricted.
(a) Passenger elevators and escalators may not be used to carry
freight.
(b) The use of any escalator, elevator, private right-of-way or truck
loading dock at the World Trade Center will be subject to the direct control of
the Manager.
(c) No unauthorized person shall cause an elevator or escalator to stop
by means of any emergency stopping device unless continued operation would
appear to result in probably injury to a person or persons. Any such stopping
should be reported immediately to the Manager.
41. Vehicular traffic restricted. No person shall (nor shall any
occupant of space at the World Trade Center permit its officers, employees,
agents, representatives of other persons who are connected with or are doing
business with such occupant or who are at the World Trade Center for the purpose
of visiting such space, to) operate any automotive or other vehicle (including
skateboard, rollerskates or bicycle, scooter or any self-propelled vehicle or
device) in any area of the World Trade Center not designated for such use, or
operate the same in any vehicular roadway, parking area, public area or street,
in or adjacent to the World Trade Center, or park or allow any vehicle to stand
in any such roadway, area or street except in accordance with such signs, speed
limits, lights, signals, pavement marking, directions, laws, ordinances, rules
and regulations (of the Port Authority or of such other agency, municipality or
<PAGE>
other governmental authority having jurisdiction) as may be in force from time
to time. No person shall park vehicles except in those portions of the parking
area designated for that purpose by the Port Authority and except upon payment
of such parking fees and charges as may from time to time be prescribed and if
specific space is assigned to that person then that person shall pay to the Port
Authority upon demand $25 per day per car parked in any area other than those
designated.
42. Disabled, abandoned, or illegally parked vehicles subject to
removal. The Manager may remove from any area at the World Trade Center, any
vehicle which is disabled, abandoned, parked in violation of these Rules and
Regulations, or which presents an operational problem to any area at the World
Trade Center at the operator's or owner's expense and without liability for
damage which may result in the course of such moving.
43. Operation of motor vehicles. No person shall operate a vehicle at
the World Trade Center in a careless or negligent manner or in disregard of the
rights and safety of others, or without due caution or circumspection, or at a
speed in excess of speed limits posted in the area where the vehicle is being
operated, or in any event at a speed in excess of fifteen (15) miles per hour,
or at any speed or in a manner which endangers unreasonably or is likely to
endanger unreasonably persons or property, or while the driver thereof is under
the influence of intoxicating liquor, or any narcotic or habit-forming drug or
if such vehicle is so constructed, equipped or loaded as to endanger
unreasonably or be likely to endanger unreasonably persons or property, or
unless (a) the driver thereof is duly authorized to operate such vehicle on
State or municipal highways: and (b) such vehicle is registered in accordance
with the provisions of law.
44. Duty of driver of vehicle involved in accidents. The driver of any
vehicle involved in an accident at the World Trade Center which results in
injury or death to any person or damage to any property shall immediately stop
such vehicle at the scene of the accident, render such assistance as may be
needed, and give his name, address, and operator's license and registration
number to the person injured or to any officer or witnesses of the accident. The
operator of such vehicle shall make a report of such accident in accordance with
the law of the State of New York.
45. Definitions. As used in these Rules and Regulations:
(a) "Holidays" or "legal holidays" shall mean and include the following
days in each year: the first day of January, known as New Year's day: the third
Monday in January, known as Martin Luther King, Jr. day; the twelfth day of
February, known s Lincoln's birthday; the third Monday in February, known as
Washington's birthday; the last Monday in May, known as Memorial day; the fourth
day of July known as Independence day; the first Monday in September, known as
Labor day; the second Monday in October, known as Columbus day; the eleventh day
of November, known as Veteran's day; the fourth Thursday in November, known as
Thanksgiving day; and the twenty-fifth day of December, known as Christmas day;
and if any of such days is Sunday, the next day thereafter; and each general
election day in the State of New York; and such other or different days or dates
as are declared "holidays" or "legal holidays" under the laws of the State of
New York or as may hereafter be so declared.
(b) "Normal business hours" shall mean 8 a.m. to 6 p.m. Mondays to
Fridays inclusive, legal holidays excepted.
<PAGE>
(c) "Person" or "persons" shall mean and include natural persons,
corporations and other legal entities, whether foreign or domestic, sovereign
states and governments, governmental and quasi-governmental authorities,
bureaus, agencies, boards and other units of governments, and partnerships,
firms, companies, joint ventures and unincorporated associations. All persons
shall be responsible for the acts or omissions of their officers, members,
employees, agents, representatives, contractors, customers, guests, invitees,
and those doing business with them.
(d) "Manager" or "Manager of the World Trade Center" shall mean the
person or persons from time to time designated by the Port Authority to exercise
the powers and functions vested in the said Manager by these Rules and
Regulations and shall include a temporary or acting Manager of the World Trade
Center and his duly designated representative or representatives.
(e) "Common areas and facilities" shall mean and include, without
limiting the generality thereof, entrances, exits, lobbies, toilets, passages,
halls, corridors, courts, plazas, vestibules, stairways and elevators,
escalators and other areas and facilities for the movement of persons and/or
property.
<PAGE>
WTC-OL 92567
(Port Authority Acknowledgment)
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the 23rd day of July, 1996, before me personally came Robert E.
Catlin to me known, who, being by me duly sworn, did depose and say that he
resides in 158 Central Avenue, Madison, NJ 07940, that he is the Acting Director
World Trade Dept. of The Port Authority of New York and New Jersey, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of the said corporation; that the seal affixed to the said
instrument is such corporate seal; that it was so affixed by order of the
Commissioners of said corporation; and that he signed his name thereto by like
order.
/s/Cecilia Jones
----------------
CECILIA JONES
Notary Public, State of New York
No. 24-50064383
Qualified in Queens County
Commission Expires Jan 4, 1997
(Corporate Acknowledgment)
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the 26th day of June, 1996, before me personally came Roger Burns to
me known, who, being by me duly sworn, did depose and say that he resides in 300
East 59th Street, New York, New York 10022; that he is the 1st V.P. & Treasurer
of Matthews & Wright, Inc., one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to the said instrument is such corporate seal; that it was
so affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
/s/Alan Aschner
---------------
ALAN ASCHNER
Notary Public, State of New York
No. 41-0102960
Qualified in Queens County
Commission Expires March 30, 1997
AMENDMENT TO HELMSTAR GROUP, INC.
1990 INCENTIVE COMPENSATION PLAN
The Helmstar Group, Inc. 1990 Incentive Compensation Plan is hereby
amended, effective June 5, 1996, as follows:
Section 3 is amended in its entirety to read as follows:
3. SHARES SUBJECT TO THE PLAN
The maximum aggregate number of shares as to which awards or options
may at any time be granted under this Plan shall be 750,000 shares of
the Company's Common Stock, par value $.10 per share (the "Common
Shares"), subject to adjustment as provided in Section 2 of Article V
hereof. Such Common Shares may be either authorized but unissued
shares, or shares previously issued and reacquired by the Company. If
and to the extent options granted under the Plan terminate, expire or
are cancelled without having been exercised, or shares awarded under
the Restricted Stock Plan shall be forfeited, new options may be
granted with respect to the shares covered by the terminated, expired
or cancelled options and forfeited shares may be reissued under the
Restricted Stock Plan.
Mortgage
Selling And
Servicing
Contract
FannieMae
<PAGE>
Fannie Mae Mortgage Selling and Servicing Contract
This contract for selling and servicing mortgages (the "Contract") is between
the Mortgage Lender (the "Lender") that signs this document and the Federal
National Mortgage Association ("Fannie Mae", "we", "our", "us"), a corporation
organized and existing under the laws of the United States.
I General Information
This section contains important basic information about the Contract, which we
are permitted to enter into under authority of Title III of the National Housing
Act (12 U.S.C. 1716, et. seq.), which is also known as the Federal National
Mortgage Association Charter Act.
A. Purpose of Contract
The purpose of this Contract is:
- to establish the Lender as an approved seller of mortgages and
participation interests to us;
- to provide the terms and conditions of the sales;
- to establish the Lender as an approved servicer of mortgages we have
purchased or in which we have purchased a participation interest; and
- to provide the terms and conditions of servicing.
B. Consideration
In consideration of the purpose of this Contract and of all the provisions and
mutual promises contained in it, the Lender and Fannie Mae agree to all that
this Contract contains.
C. Our Guides
We issue Fannie Mae's Guides to Lenders (our "Guides") and furnish them to the
Lender. These Guides are:
- Selling;
- Servicing; and
- Multifamily.
Whenever there is a reference to the Guides in this Contract, it means the
Guides as they exist now and as they may be amended or supplemented in writing.
We may amend or supplement them, at our sole discretion, by furnishing
amendments or supplementary matter to the Lender.
The term "Guides" also includes anything that, in whole or in part, supersedes
or is substituted for the Guides.
D. Important Definitions
Anywhere the words that appear below are used in this Contract, the following
definitions apply:
<PAGE>
1. "Mortgage"--A loan, evidenced by a note, bond or other instrument of
indebtedness. The loan is secured by a mortgage, deed of trust, deed to secure
debt or other instrument of security that applies to property. "Mortgage"
includes such instruments of indebtedness and security, together with
- the evidence of title;
- the chattel mortgage or security agreement and financing statement; and
- all other documents, instruments and papers pertaining to the loan.
2. "FHA/VA Mortgage"--A mortgage insured or guaranteed in whole or in part by
the Federal Housing Administration or Veterans Administration.
3. "Conventional Mortgage"--A mortgage other than an FHA/VA mortgage, which
Fannie Mae is authorized to purchase under the Federal National Mortgage
Association Charter Act.
4. "Property" or "Mortgaged Property"--The property that is now subject to a
mortgage, or was subject to such mortgage, where the mortgage has been
foreclosed or possession or title to the property has been taken by Fannie Mae
or on our behalf.
5. "Participation Interest" or "Participation Interest in Mortgages"--An
undivided interest in mortgages, specified in the applicable participation
certificate that is evidence of such interest. A "participation interest" or
"participation interest in mortgages" consists of a specified percentage of the
principal (and a like percentage of all rights and benefits of the mortgagee or
equivalent party under such mortgage) together with a specified yield on it.
II Eligibility Requirements For Lenders
For us to purchase mortgages or participation interests from a Lender, the
Lender must meet the eligibility requirements specified in this section.
A. General Requirements
These are the general requirements the Lender must meet to be eligible to sell
mortgages or participation interests or service mortgages for us:
1. Meet Fannie Mae Standards. The Lender must have as two of its principal
business purposes:
- making mortgages of the type that we will purchase entirely or purchase a
participation interest in under this Contract; and
- servicing such mortgages.
In addition, the Lender, in our judgment, must have at all times the capacity to
originate and sell to us mortgages and participation interests that meet our
purchase standards and the standards generally imposed by private institutional
mortgage investors, and must at all times have the capacity to service such
mortgages for us under those standards.
2. Have Qualified Staff and Adequate Facilities. The Lender must, at all times,
have employees who are well trained and qualified to perform the functions
required of the Lender under this Contract.
<PAGE>
In addition, the Lender must maintain facilities that are adequate to perform
its functions under this Contract.
3. Maintain Fidelity Bonds and Errors and Omissions Coverage. The Lender must
maintain, at its own expense, a fidelity bond and errors and omissions
insurance, as required by our Guides.
4. Report Basic Changes. The Lender must notify us promptly in writing of any
changes that occur in its principal purpose, activities, staffing or facilities.
B. Ownership and Status of Lender
When we approve a Lender, one of the major considerations is the information the
Lender has provided about the eligibility, qualifications and financial status
of the Lender and its owners.
Consequently, the Lender must give us immediate notice of a change in its status
or ownership, including any:
- sale or transfer of a majority interest in it;
- merger;
- consolidation; or
- change in legal structure.
C. Finances
In order to remain an approved Lender under this Contract, the Lender must meet
our current net worth requirements. These requirements are contained in our
Guides.
The required net worth must be maintained in the form of assets acceptable to
us.
The Lender must give us a copy of its annual financial statements and any other
related information that we may require.
D. Access to Lender's Records
The Lender agrees to permit our employees or designated representatives to
examine or audit records or accounts relating to mortgages or participation
interests sold or serviced under this Contract. All records relative to the
Lender's continued eligibility to sell or service mortgages under this Contract
may also be examined or audited. Any examination or audit made on our behalf
will be conducted during regular business hours unless the Lender agrees
otherwise.
III Sale of Mortgages and Participation Interests
This section contains the basic rules governing our purchase of mortgages and
participation interests.
<PAGE>
A. What Governs Purchases
Purchases of mortgages and participation interests will be governed by:
- our written commitment to purchase;
- our Guides, including all amendments in effect on the day we make our
written commitment; and
- this Contract.
B. What We Purchase
The mortgages or participation interests that we purchase must meet the
requirements found in our Guides on the day we make our written commitment.
C. Lender's Obligation To Purchase Fannie Mae Stock
If our Guides require, the Lender will promptly purchase our common stock each
time it delivers a mortgage or participation interest to us. The amount of stock
to be purchased and the procedures for buying it are also found in our Guides.
D. Fannie Mae Haws No Obligation to Purchase
The fact that we have signed this Contract does not mean that we must make a
commitment to purchase any mortgage or participation interest from the Lender.
IV Sale of Mortgages and Participation Interests
-- Lender's Warranties
The Lender makes certain warranties to us.
These warranties:
- apply to each mortgage sold to us in its entirety;
- apply to each mortgage in which a participation interest is sold to us;
- are made as of the date transfer is made to us;
- continue after the purchase of the mortgage or participation interest;
- continue after payment by us of the purchase price to the Lender; and
- are for our benefit as well as the benefit of our successors and assigns.
Warranties may be waived, but only by us in writing.
A. Specific Warranties
Following are the specific warranties made by the Lender.
1. Mortgage Meets Requirements. The mortgage conforms to all the applicable
requirements in our Guides and this Contract.
2. Lender Authorized To Do Business. The Lender and any other party that held
the mortgage were, at all times during which the holder held the mortgage,
authorized to transact business in the jurisdiction where the property is
located.
<PAGE>
However, if the Lender or any other party that held the mortgage was not
authorized to do business in the jurisdiction where the property is located,
then the warranty is made that none of the following activities of the Lender or
other parties constituted doing business in that jurisdiction:
- lending the mortgage funds;
- acquiring the mortgage;
- holding the mortgage; or
- transferring the mortgage in whole or to the extent of a participation
interest.
3. Lender Has Full Right To Sell And Assign. The Lender is the sole owner and
holder of the mortgage and has full right and authority to sell and assign it,
or a participation interest in it, to us. In addition, the Lender's right to
sell or assign is not subject to any other party's interest or to an agreement
with any other party.
4. Lender's Lien on Property. The mortgage, whether represented by the Lender as
the first lien or as the second lien, is a valid and subsisting lien on the
property described in it.
If the mortgage is represented by the Lender as the first lien, the property is
free and clear of all encumbrances and liens having priority over it except for
liens for real estate taxes, and liens for special assessments, that are not yet
due and payable.
If the mortgage is represented by the Lender as the second lien, the property is
free and clear of all encumbrances and liens having priority over it except for
one property recorded first mortgage lien, real estate taxes and liens of
special assessments not yet due and payable.
Any security agreement, chattel mortgage or equivalent document that is related
to the mortgage and that is held by the Lender or delivered to us, is a valid
and subsisting lien on the property described in such document, of the same
priority as the mortgage.
The Lender has full right and authority to sell or assign each lien to us or to
an extent that is proportionate to our participation interest.
5. Documents Are Valid And Enforceable. The mortgage and any security
agreements, chattel mortgages, or equivalent documents relating to it have been
properly signed, are valid, and their terms may be enforced by us, our
successors and assigns, subject only to bankruptcy laws, Soldiers' and Sailors'
Relief Acts, laws relating to administering decedents' estate, and general
principles of equity.
6. Property Not Subject To Liens. The Property is free and clear of all
mechanics' liens, materialmen's liens or similar types of liens. There are no
rights outstanding that could result in any of such liens being imposed on the
property.
This warranty is not made if the Lender furnishes us with title insurance that
gives us substantially the same protection as this warranty.
<PAGE>
7. Title Insurance. There is a mortgage title insurance policy, or other title
evidence acceptable to us, on the property. The title insurance policy is on a
current ALTA form (or other generally acceptable form) issued by a generally
acceptable insurance company.
The title insurance insures (or the other title evidence protects) us or the
Lender and its successors and assigns, as holding a lien of the priority
warranted in "4. Lender's Lien on Property."
8. Modification or Subordination of Mortgage. The Lender has not done any of the
following:
- materially modified the mortgage;
- satisfied or cancelled the mortgage in whole or in part;
- subordinated the mortgage in whole or in part, unless it is represented
to us as a second mortgage;
- released the property in whole or in part from the mortgage lien; or
- signed any release, cancellation, modification or satisfaction of the
mortgage.
This warranty is not made if any of the things just mentioned have been done but
have been expressly brought to our attention in a letter before we make payment
to the Lender. The letter must be acknowledged by us in writing.
9. Mortgage In Good Standing. There are no defaults under the mortgage, and all
of the following that have become due and payable have been paid or an escrow of
funds sufficient to pay them has been established:
- taxes;
- government assessments;
- insurance premiums;
- water, sewer and municipal charges;
- leasehold payments; or
- ground rents.
1O. Advances. The Lender has not made or knowingly received from others, any
direct or indirect advance of funds in connection with the loan transaction on
behalf of the borrower except as provided in our Guides. This warranty does not
cover payment of interest from the earlier of:
- the date of the mortgage note; or
- the date on which the mortgage proceeds were disbursed to
- the date one month before the first installment of principal and interest
on the mortgage is due.
<PAGE>
11. Property Conforms To Zoning Laws. The Lender has no knowledge that any
improvement to the property is in violation of any applicable zoning law or
regulation.
12. Property Intact. The property is not damaged by fire, wind or other cause of
loss. There are no proceedings pending for the partial or total condemnation of
the property.
13. Improvements. Any improvements that are included in the appraised value of
the property are totally within the property's boundaries and building
restriction lines. No improvements on adjoining property encroach on the
mortgaged property unless FHA or VA regulations or our Guides permit such an
encroachment.
14. Mortgage Not Usurious. The mortgage is not usurious and either meets or is
exempt from any usury laws or regulations.
15. Compliance With Consumer Protection Laws. The Lender has complied with any
applicable federal or state laws, regulations or other requirements on consumer
credit, equal credit opportunity and truth-in-lending.
16. Property Is Insured. A casualty insurance policy on the property is in
effect. It is written by a generally acceptable insurance company and provides
fire and extended coverages for an amount at least equal to the amount required
by our Guides.
A flood insurance policy is in effect on the property if any part of it is in an
area listed in the Federal Register by the Federal Emergency Management Agency
as an area with special flood hazards, and if insurance is available. The flood
insurance is written by a generally acceptable insurance company, meets current
guidelines of the Federal Insurance Administration, and is for an amount at
least equal to the amount required by our Guides.
The Lender will make sure the required insurance is maintained as long as it
services the mortgage. Any policy mentioned in this warranty contains a standard
mortgage clause that names us or the Lender and its successors and assigns as
mortgagee.
17. Mortgage Is Acceptable Investment. The Lender knows of nothing involving the
mortgage, the property, the mortgagor or the mortgagor's credit standing that
can reasonably be expected to:
- cause private institutional investors to regard the mortgage as an
unacceptable investment;
- cause the mortgage to become delinquent; or
- adversely affect the mortgage's value or marketability.
18. Mortgage Insurance or Guaranty In Force. If the Lender represents that the
mortgage is insured or guaranteed under the National Housing Act as amended, or
under the Servicemen's Readjustment Act of 1944 as amended, or by a contract
with a mortgage insurance company, the insurance or guaranty is in full force.
In addition, the Lender has complied with all applicable provisions and related
regulations of the Act, or the insurance contract, that covers the mortgage.
19. Adjustable Mortgages. If the mortgage provides that the interest rate or the
principal balance of the mortgage may be adjusted, all of the terms of the
mortgage may be enforced by us, our successors and assigns.
<PAGE>
These adjustments will not affect the priority of the lien warranted in "4.
Lender's Lien on Property."
2O. Participation Information Is Correct. All the information and statements in
any participation certificate that the Lender delivers to us are complete,
correct and true.
B. Consequences of Untrue Warranties -- Repurchase
We may require the Lender to repurchase a mortgage or participation interest
sold to us if any warranty made by the Lender about the mortgage or
participation interest is untrue (whether the warranty is in this Contract or
was made at our specific request).
We may require repurchase whether or not the Lender had actual knowledge of the
untruth. We may also enforce any other available remedy.
The Lender must pay us the repurchase price within 3O days of our demand. The
repurchase price, as provided in our Guides, will not be adjusted because the
Lender paid us fees or charges or subscribed to our capital stock.
C. Consequences of Untrue Warranties -- Termination of Contract
While untrue warranties about a particular mortgage or participation interest
may be the basis for requiring repurchase of the particular mortgage or
participation interest, there can be additional consequences. They may also give
rise to responsibilities of the Lender under "D. Indemnification For Breach of
Warranty; Holding Us Harmless." In addition, untrue warranties can, under
certain circumstances, be treated as a breach of contract that could result in
the withdrawal of our approval of a Lender and the termination of this Contract
(details are contained in Sections VIII and IX).
D. Indemnification for Breach of Warranty; Holding Us Harmless
If there is a breach of warranty under this Contract, the Lender, at our
request, will indemnify us and hold us harmless against any related losses,
damages, judgments or legal expenses.
V Servicing Mortgages
This section contains the basic rules governing the servicing of mortgages that
we purchase, or in which we purchase a participation interest.
A. Servicing Duties of the Lender
The servicing duties of the Lender are:
1. Scope of Duties. The Lender will diligently perform all duties that are
necessary or incident to the servicing of:
- all mortgages it is servicing for us on the date this Contract takes
effect; and
- all other mortgages that the Lender is required to service by the terms
of this Contract or any other existing or future agreement between us and
the Lender:
<PAGE>
2. Mortgages To Be Serviced. Any mortgage we have purchased from the Lender, or
in which we have purchased a participation interest from the Lender, will be
serviced by the Lender for us according to the terms of this Contract, unless:
- the mortgage is not within any category of those that are required by our
Guide to be serviced; or
- we give the Lender written notification or consent that a mortgage to be
purchased by us will not be serviced by the Lender.
3. Service According To Guides. Any mortgage serviced under this Contract, which
we own or in which we have purchased a participation interest, must be serviced
by the Lender according to the provisions in our Guides that are in effect on
the date of this Contract or as amended in the future. This is true regardless
of when:
- the mortgage was originated;
- the mortgage or a participation interest in it was transferred to us; or
- the Lender began servicing the mortgage.
The Lender will also follow other reasonable instructions we give it and must
strictly follow accepted industry standards when servicing a mortgage for us.
4. Service At Lender's Own Expense. The cost of servicing will be the Lender's
unless our Guides expressly provide otherwise.
5. Special Responsibilities In Foreclosures. Among the other duties that may be
assigned to the Lender through our special instructions or under the terms of
our Guides is the responsibility to manage and appropriately dispose of property
when a mortgage it is servicing for us has been foreclosed, or possession or
title has been taken by us or on our behalf.
The Lender must manage and dispose of the property according to the terms of the
mortgage and our Guides.
6. Service Until Need Ends. The Lender must service each mortgage continuously
from the date its servicing duties begin until:
- the mortgage's principal and interest have been paid in full;
- the mortgage has been liquidated and the mortgaged property properly
disposed of (if the Lender is required to do these things); or
- the Lender's servicing duties are terminated according to Section IX of
this Contract.
B. Compensation
The Lender's compensation for servicing mortgages, including the management and
disposal of properties, under this Contract is specified in our Guides.
We may change the Lender's compensation by modifying our Guides at any time.
However, such a change will not affect mortgages that we have purchased or
committed to purchase before the date of the change.
<PAGE>
C. Ownership of Records
All mortgage records reasonably required to document or properly service any
mortgage we own in its entirety are our property at all times. This is true
whether or not the Lender developed or originated them.
The following are considered mortgage records:
- all mortgage documents;
- tax receipts;
- insurance policies;
- insurance premium receipts;
- ledger sheets;
- payment records;
- insurance claim files and correspondence;
- foreclosure files and correspondence;
- current and historical data files; and
- all other papers and records.
1. Lender As Custodian. The mortgage records belong to us. The Lender can have
possession of the mortgage records only with our approval, and the Lender is
acting as our custodian. This is true whether the Lender receives the mortgage
records from an outside source or prepares them itself.
2. Delivery. When we ask for any mortgage records in writing, the Lender will
deliver them to us or someone we choose. The Lender must also send us a list
that identifies each mortgage, and must give us other information we request to
identify the mortgages delivered.
We will not be required to sign or deliver any trust receipts before the Lender
delivers the mortgage records we have requested.
If we ask the Lender in writing for reproductions of any mortgage records the
Lender microfilmed or condensed, the Lender will reproduce them promptly at no
cost to us or the party to whom we want them delivered.
3. Joint ownership. If we own a participation interest in a mortgage, the other
owners and we own the mortgage records jointly. For these mortgages, the Lender
possesses the mortgage records as a custodian for the joint owners.
If we ask for copies of the mortgage records and servicing information about any
such mortgages, the Lender will furnish them. Or, if we need any mortgage
records for legal evidence or other purposes, the Lender will release them to us
for a reasonable time.
<PAGE>
D. Agreement to Indemnify and Hold Harmless
The Lender will indemnify us and hold us harmless against all losses, damages,
or legal expenses that result from its failure in any way to perform its
services and duties in connection with servicing mortgages or managing or
disposing of property according to this Contract or our Guides.
If any private entity or governmental agency sues us, makes a claim against us
or starts a proceeding against us based on the Lender's acts or omissions in
servicing mortgages or managing or disposing of property, the Lender's
obligation to indemnify and hold us harmless must be met regardless of whether
the suit, claim or proceeding has merit or not.
The Lender's obligation does not apply, however, if during a suit, claim or
proceeding, we give the Lender express written instructions and as a result of
the Lender following them we suffer losses, damages, judgments or legal
expenses.
E. Ownership of Our Stock
If our Guides require, the Lender will continuously own our common stock in
connection with all mortgages it services under this Contract. The amount of
stock to be owned will be established by our Guides as they were in existence on
the date the Lender started servicing the applicable mortgages.
Vl Assignment, Consideration And Continuance
This section describes our requirements covering assignment of, consideration
for and continuance of this Contract.
A. Assignment
Because the relationships created by this Contract are personal, the Lender may
not, without our prior written approval, assign:
- this Contract under any circumstances, either voluntarily or
involuntarily, by operation of law, or otherwise; or
- its responsibility for servicing individual mortgages we own or in which
we have a participation interest. (See Section VII of this Contract for
required procedures governing assignments of servicing).
B. Limited Value of Contract to Lender
The Lender acknowledges that it has paid us no monetary consideration for making
it an approved mortgage seller or servicer, except an application fee to
reimburse us for the expenses of reviewing its application.
The Lender also agrees that, except for the purchase of mortgages, the servicing
of mortgages, or any fee for the termination of this Contract, this Contract has
no value to the Lender.
C. Requirements for Continuance
The Lender's right to continue selling and servicing mortgages under this
Contract depends on, among other things, its continuing to meet the eligibility
requirements in Section II of this Contract.
<PAGE>
Vll Assigning Mortgage Servicing
The Lender may not assign its responsibility for servicing all or any part of
the mortgages that it is servicing for us without first obtaining our written
consent.
Any Lender to which servicing is assigned must:
- be acceptable to us; and
- sign a Mortgage Selling and Servicing Contract with us.
We may require that the Lender and transferee lender sign documents and take
other reasonable steps to perfect the assignment.
VlIl Breaches of Contract
The Lender's taking certain actions, or failing to take certain actions, can be
treated by us as a breach of contract. A breach of contract can lead to a
termination of the Contract. Termination is provided for in detail in Section
IX.
A. Specific Breaches of Contract
Breaches of this Contract include the following:
1. Harm, Damage, Loss or Untrue Warranties. It is a breach if any act or
omission of the Lender in connection with the origination and sale to us of any
mortgage or participation interest causes us harm, damage or loss. It is also a
breach if the Lender sells us any mortgage or participation interest knowing
that any of the mortgage warranties are untrue (these warranties are listed in
Section IV A).
2. Failure To Comply With This Contract or our Guides. It is a breach if the
Lender does not comply with this Contract or our Guides through any act or
omission, including, without limitation, the following:
- failure to establish and maintain accounts for our funds or mortgagors'
funds as required by our Guides;
- use of our or mortgagors' funds in any manner other than that permitted
by our Guides, including the Lender's failure to deposit all mortgage funds
if, when, and to the extent required by our Guides;
- failure to remit all funds due to us within the time periods required by
our Guides;
- failure to make or ensure, according to the provisions of each mortgage
or of applicable laws or regulations, proper and timely payment of all:
-- taxes;
-- assessments;
-- leasehold payments;
-- ground rents;
<PAGE>
-- insurance premiums (including premiums of casualty, liability and
mortgage insurance and other forms of required insurance);
-- required interest on escrow funds; and
-- other required payments with respect to any mortgage (including
mortgaged property) serviced;
unless the Lender is relieved of these responsibilities by the express
provisions of our Guides, or by our written instructions that relate to a
particular mortgage or property;
- failure to renew or ensure renewal of any required insurance policy on
any mortgage (including mortgaged property) serviced under this Contract;
- failure to maintain adequate and accurate accounting records and mortgage
servicing records for the mortgages, or to maintain proper identification
of the applicable loan files and mortgage records that prove our
outstanding participation interests;
- failure to submit adequate and accurate accounting and mortgage servicing
reports within the time required by our Guides; or
- failure to take prompt and diligent action under applicable law or
regulation to collect past due sums on mortgages, or to take any other
diligent action described in our Guides that we reasonably require for
mortgages in default.
3. Failure To Properly Foreclose or Liquidate. Where a mortgage is in default
and the Lender is required or has decided to foreclose or liquidate it, it is a
breach if the Lender fails to take prompt and diligent action consistent with
applicable law or regulations to foreclose on or otherwise appropriately
liquidate such mortgage and to perform all incident actions. It is a breach
whether or not the failure results from the acts or omissions of an attorney,
trustee or other person or entity the Lender chooses to effect foreclosure or
liquidation.
4. Failure To Properly Manage, Dispose of, or Effect Proper Conveyance of Title.
It is a breach if any mortgage serviced under this Contract has been foreclosed
or the possession or title to the property has been taken by us or on our
behalf, or on behalf of other owners of a participation interest in the
mortgage, and the Lender:
- fails to properly manage, dispose of or effect proper conveyance of title
to the mortgaged property; or
- fails to do the above in accordance with this Contract, our Guides, and
any pertinent laws, regulations, or mortgage insurance policies or
contracts.
5. Lender's Financial Ability Impaired. It is a breach if there is a change in
the Lender's financial status that, in our opinion, materially and adversely
affects the Lender's ability to satisfactorily service mortgages.
Changes of this type include:
- the Lender's insolvency;
- adjudication of the Lender as a bankrupt;
<PAGE>
- appointment of a receiver for the Lender; or
- the Lender's execution of a general assignment for the benefit of its
creditors.
If any such change does take place:
- no interest in this Contract will be considered an asset or liability of
the Lender or of its successors or assigns; and
- no interest in this Contract will pass by operation of law without our
consent.
6. Failure To obtain our Prior Written Consent. It is a breach if the Lender
fails to obtain our prior written consent for:
- a sale of the majority interest in the Lender; or
- a change in its corporate status or structure.
7. Failure To Comply With This Contract or our Guides. It is a breach if the
Lender fails at any time to meet our standards for eligible mortgage sellers or
servicers so that, in our opinion, the Lender's ability to comply with this
Contract or our Guides is adversely affected.
8. Court Findings Against Lender or Principal Officers. It is a breach if:
- a court of competent jurisdiction finds that the Lender or any of its
principal officers has committed an act of civil fraud; or
- the Lender or any of its principal officers is convicted of any criminal
act related to the Lender's lending or mortgage selling or servicing
activities or that, in our opinion, adversely affects the Lender's
reputation or our reputation or interests.
B. Actions to Correct a Breach
If there is a breach of contract by the Lender, we will have the right to take
any reasonable action to have any breach corrected by the Lender before we
exercise any right we have to terminate this Contract in whole or in part;
however, we are not required to try to have a breach corrected before
termination.
Any forbearance by us in exercising our right to terminate this Contract in
whole or in part will not be a waiver of any present or future right we have
under this Contract to so terminate it.
IX Termination of Contract
The reason why this Contract may be terminated and the ways in which this may be
done are outlined in this section. When the Contract is terminated, the entire
relationship between the Lender and us ends (with certain exceptions that are
explained in this section).
<PAGE>
A. Termination By Either Party of Mortgage Selling Arrangements
The provisions of this Contract covering the sale of mortgages or participation
interests under this Contract may be terminated by the Lender or by us, with or
without cause, by giving notice to the other party. Notice of termination may be
given at any time but must conform to Section XII of this Contract.
Termination is effective immediately upon notice of termination, unless the
notice specifies later termination.
Termination will not affect any outstanding commitments we have made to purchase
mortgages or participation interests from the Lender. However, if the Lender has
breached this Contract, we may declare any or all outstanding commitments void.
B. Termination by Lender of Mortgage Servicing Arrangements for
Wholly-Owned Mortgages
The Lender may terminate the provisions of this Contract covering the servicing
of mortgages we entirely own by giving us notice at any time. Notice must
conform to Section XII of this Contract.
Termination is effective the last day of the third calendar month after the
calendar month in which notice is given.
If the Lender terminates this Contract in whole or in part, we will not pay the
Lender a termination fee.
C. Termination by Us of Servicing Arrangements for Wholly-Owned
Mortgages
We may terminate the provisions of this Contract covering the servicing under
this Contract of any or all mortgages that we entirely own. This may be done by
following the procedures outlined below.
1. Termination Without Cause. We may terminate servicing for any reason, by
giving the Lender notice of the termination. If we do so, the provisions of this
Contract covering the servicing of the affected mortgages will automatically
terminate on the thirtieth day following the day our notice is given. Whenever
we do this (and the termination is not because of any breach by the Lender as
described in Section IX C2) we will pay the Lender, for each mortgage on which
servicing is terminated, a lump-sum termination fee as provided in a. below.
However, whenever we terminate solely in order to transfer the servicing to
another Lender, and there has been no sale of our interest in the affected
mortgages, the provisions of b. below will apply.
a. Termination Fee. The termination fee will be an amount equal to twice the
Lender's annualized servicing compensation, at the rate of compensation that is
in effect for the mortgage as of the date of the termination, applied against
the unpaid principal balance of the mortgage as of such date.
For purposes of determining the termination fee:
- The Lender's servicing compensation consists of the servicing fee at the
Applicable Servicing Rate plus any previously agreed upon excess yield that
the Lender is permitted to retain on the applicable mortgage.
- "Applicable Servicing Rate" means the rate of the servicing fee for the
servicing of the mortgage, expressed as an annualized fractional
percentage.
<PAGE>
[Refer to appropriate sections of our Guides for more detailed information
regarding the computation of termination fees.]
b. Termination To Effect Transfer. Whenever we terminate servicing solely in
order to transfer servicing of the mortgages to another Lender, and there has
been no sale of our interest in the mortgages, we will give the Lender notice of
the required transfer. Within the 90-day period immediately following the date
our notice is given, the Lender may arrange for the sale of the servicing to
another Fannie Mae-approved Lender in good standing that, in our judgment, will
properly service the mortgages to be transferred. Within that 90-day period, the
Lender will give notice of any proposed sale to us, together with all related
information. The sale of servicing is conditioned upon our approval, which will
not be unreasonably withheld. Any resulting transfer of servicing will be
completed not later than 60 days after our approval of the transfer; and
- the Lender will be entitled to the proceeds of the sale of servicing, and
will bear all costs and expenses related to the sale and transfer of
servicing;
- the Lender will not pay us a transfer fee;
- we will not pay the Lender a termination fee;
- we may require the purchaser of the servicing to assume any or all
warranties that were made to us in connection with the sale to us of the
affected mortgages; and
- the purchaser of the servicing will succeed to the Lender's obligations,
rights and servicing compensation, under the provisions of this Contract
covering the servicing of the affected mortgages. For all of the affected
mortgages that we purchased under a net-yield contract, the servicing
compensation will include the specified minimum servicing fee, plus the
Lender's share of that portion of the yield which exceeds the stated net
yield, as provided under the commitment contract.
[Refer to appropriate sections of our Guides for more detailed information
regarding the computation of the Lender's servicing compensation.]
If at the end of the 90-day period following our notice, the Lender has not
arranged to sell and transfer the servicing of the affected mortgages to another
Lender acceptable to us and given us the required notice, the provisions of this
Contract covering the servicing of the mortgages will automatically terminate on
the fifteenth day following the end of the 90-day period, and we will transfer
the servicing to a Lender of our choice. In such a case, we will pay the Lender,
for each mortgage on which servicing is terminated, a termination fee computed
as provided under a. above. We will deduct from the termination fee paid to the
Lender a transfer fee that is the greater of $500.00 or 1/100 of 1% of the
aggregate unpaid principal balance of all of the affected mortgages on which
servicing is transferred.
c General Criteria For Termination Fees. Notwithstanding anything to the
contrary in this Contract, we may change the amount of termination fee that we
pay, or other provisions of this Section IX C1, from time to time, by changing
the appropriate provisions of our Guides. However, such a change will not affect
mortgages that we have purchased or that we have committed to purchase before
the date of the change.
<PAGE>
Our written tender of the termination fee to the Lender, or its successors or
assigns, is complete compensation for each mortgage serviced by the Lender on
which servicing is terminated. Any sums we owe the Lender for servicing prior to
the termination date are not included in the termination fee. When we pay a
termination fee, the Lender will not be entitled to the proceeds for any sale of
the servicing involved.
2. Termination With Cause. We may terminate if the Lender breaches any agreement
in this Contract, including, without limitation, any of those breaches listed in
Section VIII A. This may be done by giving the Lender notice of termination.
Notwithstanding anything in this Contract to the contrary, if we terminate for
breach, we may make it effective immediately, and we will not pay the Lender a
termination fee or proceeds from any sale of the servicing involved.
Furthermore, we will not pay a servicing termination fee if a mortgage is
repurchased by the Lender because a warranty is untrue.
D. Termination by Us of Servicing Arrangements for Mortgages in Which
We have a Participation Interest
If the Lender breaches any agreement in this Contract, including, without
limitation, any breach listed in Section VIII A, we may terminate the provisions
of this Contract covering the servicing of any or all mortgages in which we own
a participation interest. This may be done by giving notice of termination. Such
termination may be effective immediately, and we will not pay the Lender a
termination fee.
1. Transfer of Lender's Powers. Upon termination, we will automatically succeed
to all the Lender's rights in and responsibilities for servicing of the affected
mortgages. We will also have the option to exercise all the Lender's powers
relating to these mortgages, and to designate any person or firm to exercise
those powers. However, exercise of the Lender's powers must be consistent with
the Lender's and our respective participation interests.
The mortgage instruments for these mortgages and all related mortgage records
will be delivered to us or a party we designate. The Lender will also deliver
necessary assignments, transfers and documents of authority.
2. Transfer of Servicing. If we terminate the Lender's servicing of any such
mortgages, we are authorized to transfer the servicing of the mortgages to new
servicers and pay the new servicers a fee. The fee will apply to the total
outstanding principal balance on each mortgage, including our participation
interest in each mortgage as well as the participation interest of the Lender
and of any other owner.
3. Liability For Fees. The Lender and all additional owners of a participation
interest will be liable for their respective shares of the servicing fee we pay.
They will also be liable for their respective shares of advances that, in our
sole discretion, are required. Advances may be required for insurance, taxes,
maintenance, improvements or other necessary outlays.
If the Lender or other owners fail to promptly provide their share of funds for
advances, or for any other necessary expenses, during any period, we may supply
the funds. The fact that we do this does not release the Lender or other owners
from their liability. We may deduct any amount we advance the next time we owe
money to the Lender or other owners.
<PAGE>
E. Rights of Termination Not Impaired
The exercise of a right of termination under any provision of this Contract will
not impair any further right of termination under another provision.
X Continuance of Responsibilities or Liabilities
Responsibilities or liabilities of the Lender that exist before the termination
of this Contract will continue to exist after termination unless we expressly
release the Lender from any of them in writing. This is true whether the
Contract was terminated by the Lender or by us.
Xl Participation Interests-Special Provisions
This section contains special provisions that govern participation interests.
A. After the Sale of a Participation Interest
Listed below are the consequences of the sale of a participation interest.
1. Transfer of Undivided Interest. When the Lender sells and conveys to us a
participation interest in one or more mortgages, this is a transfer of an
undivided interest in each mortgage.
The sale and conveyance of the participation interest will have the same force
and effect as:
- a separate assignment of each mortgage executed and delivered to us by
the Lender; and
- a promissory note separately endorsed or transferred to us.
2. Assurance of our Legal Rights. If federal or state laws or regulations now,
or later, provide that the purchase of a participation interest is an extension
of credit, the Lender will take whatever additional steps we may require to
assure our legal rights as a purchaser of participation interests.
Such steps may include:
- placing legends on promissory notes;
- endorsing promissory notes in blank and delivering them to us; and
- executing mortgage assignments in a form acceptable to us and delivering
them to us.
3. No Partnership or Joint Venture. Neither the simultaneous ownership of
interests in one or more mortgages nor any provision of this Contract will mean
that a partnership or joint venture exists between the Lender and us.
B. Payments to Us
The Lender will make the following payments to us, according to our Guides, for
mortgages in which both the Lender and we own an interest:
1. Ratable Sharing of Principal. The Lender will ratably share with us all
mortgage principal payments.
<PAGE>
2. Participation Share of Interest. The Lender will pay us our participation
share of interest payments up to:
- an amount sufficient for us to earn our yield on each mortgage; plus
- any amounts due us pursuant to this section.
C. Enforcement of Due-On-Sale and Call Options
As required by our Guides, the Lender will enforce the due-on-sale provisions
and call options in the mortgages it services for us.
D. Repurchase Option
The Lender will have the option to repurchase our interest in a mortgage if:
- the Lender is required by our Guides to enforce a due-on-sale clause of a
mortgage in which the Lender and we own an interest; or
- we elect to exercise a call option provision of such a mortgage.
If the Lender wishes to repurchase our interest in such a mortgage, it may do so
by:
- giving us notice of its intention to repurchase; and
- paying us an amount calculated according to the provisions of our Guides.
E. Note Rate Increase, Foreclosure Expenses and Prepayment Charges.
The note rate of a mortgage is stated in the participation certificate or
attached loan schedule.
1. Note Rate Increase. If, for any reason, there is an increase of the note rate
of a mortgage in which we hold a participation interest, the Lender will pay us,
according to our Guides, a percentage of the increase equal to the percentage
represented by our participation interest in the mortgage. This amount will be
in addition to our yield on the mortgage.
2. Foreclosure Expenses. The Lender will ratably share with us any reasonable
foreclosure and related expenses in connection with a mortgage in which we own a
participation interest.
3. Prepayment Charges. The Lender will ratably share with us any prepayment
charges collected for mortgages in which we own a participation interest.
F. Advances
The Lender will not make any optional or voluntary advances to the borrower
under an open-end mortgage in which we own a participation interest.
G. Assignment or Sale of Participation Interests
Participation interests may be assigned either by the Lender or us, as follows:
<PAGE>
1. By Us. Without the Lender's consent we may assign:
- our participation interest in any mortgage; and
- all rights in the mortgage we own under this Contract or under any other
instruments.
2. By Lender To Transferee. The Lender may sell or transfer all or part of any
participation interest that it owns in any mortgage under this Contract unless
expressly prohibited from doing so by our Guides.
This sale or transfer of participation interests is subject to the conditions
below, as well as to our Guides as they are in effect on the date of our
commitment to purchase.
For every sale or transfer, the Lender must obtain and furnish us with a
properly executed instrument by which the transferee:
- agrees to be bound by the terms of this Contract; and
- acknowledges our rights and interests under this Contract with respect to
the mortgage.
Our rights and interests that must be acknowledged include, without limitation,
the right to assess a servicing fee against the owner of each participation
interest if we:
- assume the servicing of the mortgage; or
- transfer the servicing to a new servicer under Section IX D of this
Contract.
The sale or transfer of a participation interest does not relieve the Lender of
any responsibility or liability under this Contract. For example, the Lender
continues to be liable for any fees and other amounts charged under Section IX
D3 of this Contract against the participation interest that is transferred. We
may collect these amounts from the Lender or from the transferee.
3. By Lender To Bank. The Lender may be a member of, or be required to maintain
reserves with a Federal Home Loan Bank or Federal Reserve Bank. If so, and the
Lender transfers its participation interests in any mortgage under this Contract
to such a bank to secure one or more advances, then the bank will not be deemed
to have assumed the mortgage warranties found in Section IV A.
Also, such a transfer to the bank will not relieve the Lender of any
responsibility or liability under this Contract.
Xll Notice
Whenever notice is required under this Contract, it must be given as described
in this section.
A. Notice of Termination
Any notice of termination given under this Contract must be:
- in writing;
<PAGE>
- delivered in person or sent by registered or certified mail, with a
return receipt requested; and
- addressed to the party to which notice is being given.
Delivery and notice is given when we or the Lender mail or register the notice
with any post office.
B. Our Guides and Other Documents
Our Guides, including any amendments or supplements, and any other notices,
demands or requests under this Contract or applicable law will be:
- in writing;
- delivered in person or mailed from any post office, substation, or letter
box;
- enclosed in a postage prepaid envelope; and
- addressed to the Lender to which the matter is directed.
C. Address
For purposes of notice, the following rules apply:
1. Our address is the address of our regional office given in this Contract.
2. The Lender's address is that of its principal place of business given in this
Contract. Any change of address must be given in writing.
XlIl Prior Agreements
This Contract supersedes any prior agreements between the Lender and us that
govern selling or servicing of mortgages and participation interests to which
this Contract relates.
However, this section will not release the Lender from any responsibility or
liability under any prior agreements and understandings.
XIV Severability And Enforcement
If any provision of this Contract conflicts with applicable law, the other
provisions of this Contract that can be carried out without the conflicting
provision will not be affected.
All rights and remedies under this Contract are distinct and cumulative not only
as to each other but as to any rights or remedies afforded by law or equity.
They may be exercised together, separately or successively. These rights and
remedies are for our benefit and that of our successors and assigns.
XV Captions
This Contract's captions and headings are for convenience only and are not part
of the Contract.
<PAGE>
XVI Scope of Contract
The following provisions apply, whether or not they are contrary to other
provisions in this Contract.
A. Restriction of Lender
We reserve the right to restrict the Lender's sale or servicing of mortgages or
of participation interests to the type that the Lender and its employees have
the experience and ability to originate, sell or service.
B. Types of Mortgages Covered
This Contract covers only the sale of mortgages and participation interests and
the servicing of mortgages, within the following categories:
<PAGE>
XVII Signatures And Date
By executing this Contract, the Lender and we agree to all of this Contract's
terms and provisions. Both the Lender and we have signed and dated this Contract
below.
This Contract takes effect on the date we sign it.
Lender: Citizens Mortgage Service Company
Address: Benjamin Fox Pavilion, Suite 825
Jenkintown, Pennsylvania 19046
By: /s/ Robert Fishman, President
-----------------------------
Robert Fishman
(Authorized Signature)
Robert Fishman, President
(Type Name and Title)
Date: October 27, 1986
Federal National Mortgage Association
Address: 51O Walnut Street
16th Floor
Philadelphia, PA 19106
By: /s/ Philip R. Nichols
---------------------
Philip R. Nichols
(Authorized Signature)
Philip R. Nichols, Vice President
(Type Name and Title)
Date: November 12, 1986
The Mortgage Corporation
Northeast Regional Office
Federal Home Loan Mortgage Corporation
2001 Jefferson Drive Hwy., Suite 901, Arlington, VA 22202
Phone (703) 685-2400
January 10, 1980
Mr. Richard D. Bank
President
First Mortgage Service Company
222 Keswick Avenue
Glenside, PA 19038
Dear Mr. Bank:
It is with pleasure that I advise you that your application to become a Federal
Home Loan Mortgage Corporation Seller/Servicer has been approved for
conventional one-four family and FHA/VA loans. According to the information
contained in your application, your organization has had very limited
multi-family experience; therefore, we have not approved you for this program at
this time. If you feel that there is information available which should change
our decision that was not set forth in your application, you may reapply for
approval of this program at any time. We would ask that you document your
request.
The FHLMC Seller/Servicer number assigned to your Institution is 1915-01. Please
use this number on all contracts and official documentation when transacting
business with FHLMC.
Information concerning the sale and servicing of loans for Federal Home Loan
Mortgage Corporation is contained in our Sellers' Guide, Servicers' Guide and
Servicers' Accounting and Reporting Guide (all of which are issued in one
loose-leaf binder) and in the Invitations for Offers which are periodically
issued by The Mortgage Corporation. I urge you to carefully review the contents
of our Guides and Invitations prior to the time you enter into a contract to
sell loans to us.
In connection with our approval of your organization as a Seller/Servicer, the
following requirements should be noted:
<PAGE>
1. All loans submitted to FHLMC must be originated utilizing the FHLMC
Application and Appraisal forms, and Uniform Mortgage Instruments,
without modification.
2. The loan servicing for FHLMC must be performed by personnel of your
organization or a wholly-owned subsidiary.
3. In order to retain status as an approved Seller/Servicer, you must
submit annually your year-end audited financial statement together with
a report from the independent accountant relative to the examination of
mortgage loan operations substantially in the form and content as shown
on FHLMC Form 16 (as reproduced in the FHLMC Accounting Guide). We also
must be notified should any change occur in the ownership of your
institution.
4. Prior to the time you enter into your first contract with us, the
personnel responsible for your loan submissions, servicing and
accounting must visit our office to review our requirements and
reports.
I believe you will find everyone here extremely willing to make the relationship
between your staff and ours a pleasant one, and that they will be able to answer
any questions you may have. In order for this meeting to be more beneficial, we
recommend that your staff review the appropriate sections of the FHLMC Guide
which covers their area of responsibility. Please contact Mr. Louis Paretti,
Vice President-Operations at (703) 685-2444 whenever you would like to come to
our office so that we can arrange for the appropriate personnel to be available
to you.
It is a pleasure to welcome you as a Seller/Servicer. Please do not hesitate to
call us whenever you have any questions.
Sincerely,
/s/ David G. Herold
-------------------
David G. Herold
Senior Vice President
SETTLEMENT AGREEMENT AND RELEASE by and between HOUSING CAPITAL
CORPORATION, a New York corporation ("HCC"), THE ANASTASI STEPHENS GROUP, INC.,
a Maryland corporation ("AS Group"), JOSEPH G. ANASTASI ("Anastasi") and R. GLEN
STEPHENS ("Stephens") dated the 10th day of June, 1996.
WHEREAS, HHC and AS Group are parties to a partnership agreement of
STONELEDGE ASSOCIATES ("Stoneledge") made as of April 10, 1989 (the
"Agreement"); and
WHEREAS, HHC and AS Group (collectively the "Partners") are the only
partners in Stoneledge; and
WHEREAS, pursuant to Section 7.3.2 of the Agreement, the Partners agreed
that losses shall be borne 50% by each Partner; and
WHEREAS, the Partners have acknowledged that the losses (as contemplated
by the provisions of Section 7.3.2 of the Agreement) as recorded on the books of
Stoneledge are, as of the date hereof, approximately $1,500,000 (such $1,500,000
being hereinafter called the "Known to Date Losses"), all of which has been
borne by HCC; resulting in AS Group owing approximately $750,000 to HCC; and
WHEREAS, Anastasi and Stephens, the holders of 100% of the capital stock of AS
Group, have pursuant to a guaranty agreement made as of April 10, 1989 (the
"Guaranty") agreed to guaranty the obligations of AS Group under the Agreement.
NOW, THEREFORE, the parties agree as follows:
In consideration of the sum of Ten Dollars and other good and valuable
consideration received from Anastasi and Stephens, receipt and sufficiency of
which is hereby acknowledged as complete accord and satisfaction, HCC releases
and discharges AS Group, Anastasi and Stephens and their heirs, executors,
officers, directors, stockholders, successors and assigns (collectively
"RELEASEES") from any and all losses, expenses, claims, sums of money and
damages of any kind or nature ("Claims"), which HCC ever had, now have or
hereafter can have against RELEASEES pursuant to both the Agreement and the
Guaranty solely with respect to the Known to Date Losses and not with respect to
any other Claims which HCC may have under the Agreement and/or the Guaranty.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date above written.
HOUSING CAPITAL CORPORATION
By: /s/ George W. Benoit
--------------------
George W. Benoit, President
THE ANASTASI STEPHENS GROUP, INC.
By: /s/ Joseph G. Anastasi
----------------------
Joseph G. Anastasi, President
By: /s/ R. Glen Stephens
--------------------
R. Glen Stephens
<PAGE>
AGREEMENT
The undersigned agree that in consideration of the execution by Housing
Capital Corporation of the Settlement Agreement and Release, a copy of which is
annexed hereto, Housing Capital Corporation and Stoneledge Associates shall have
no obligations whatsoever to the undersigned pursuant to an indemnification
agreement, a copy of which is annexed hereto, with respect to any payments made
to Maryland National Bank, including a $75,000 payment made pursuant to the
terms of a Forebearance Agreement dated June 30, 1992.
/s/ Joseph G. Anastasi
----------------------
Joseph G. Anastasi
/s/ R. Glen Stephens
--------------------
R. Glen Stephens
EXHIBIT 22.0
List of Subsidiaries
First Tier
Matthews & Wright, Inc. (Delaware)
Snider, Williams & Co., Inc. (Delaware)
Randolph, Hudson & Co., Inc. (Delaware)
Eden Consulting, Inc. (New York)
Shaw Realty Company, Inc. (New York)
Burrows, Hayes Company, Inc. (New York)
Dover, Sussex Company, Inc. (New York)
Housing Capital Corporation (New York)
Randel, Palmer & Co., Inc. (New York)
Parker, Reld & Co., Inc. (New York)
McAdam, Taylor & Co., Inc. (New York)
Helmstar Funding, Inc. (formerly CMS Insurance Agency, Inc.) (Pennsylvania)
Second Tier - Subsidiary of McAdam, Taylor & Co., Inc.
Citizens Mortgage Service Company (Pennsylvania)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HELMSTAR
GROUP, INC. AND SUBSIDIARIES' CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE INTERMIM
PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,679,454
<SECURITIES> 1,350,441
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0
0
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</TABLE>
